Interim Management Statement

RNS Number : 4940J

Utilico Emerging Markets Limited

07 August 2012

 



Utilico Emerging Markets Limited

Interim Management Statement

30 June 2012

Quarterly Management Review

Utilico Emerging Markets Limited ("UEM") published its annual report and accounts for the period to 31 March 2012 on 11 June 2012. UEM has published monthly fact sheets on its website: www.uem.bm.

Set out below is the interim management statement ("IMS") for the period from 1 April to 30 June 2012 containing information that covers this period, and up to the date of publication of this IMS.

Background

The Eurozone crisis continued to weigh on markets. In June the Greek parliamentary elections were finally won by a majority by the pro bailout parties, who agreed to continue austerity measures and stay in the Euro. Investor sentiment was lifted slightly after the European Union summit at the end of June. The Euro fell to a two year low on the back of the European Central Bank's decision to cut its interest rate to 0.75%.

In the emerging markets, Chinese growth rates slowed for a sixth successive quarter despite two cuts to interest rates in the space of a month, resulting in a weakening of commodity prices. The oil price fell significantly, with Brent Crude futures down 14.5% during May to little over $100/barrel and down further during June to reach a low of $77.69/barrel at 28 June 2012.

In April, the Central Bank of Brazil cut the overnight SELIC interest rate by 75bps to 9.0%. This followed a similar cut in March and two further cuts of 0.5% each brought the rate down to 8.0% at the beginning of July. The rate was at 12.5% in August last year.

The reducing interest rate environment in Brazil should, in time, be a positive for our stocks, not only in terms of their financial performance, but also due to their relative attractiveness as high yield investments, given that most of our holdings pay attractive dividends.

Performance

UEM's net asset value cum income total return was 0.0% over the three months. This was a good performance when compared to the MSCI Emerging Markets Total Return Index (Sterling adjusted) which was down 7.1%.

UEM's share price fell by 1.8% during the period and the discount to NAV widened to 7.4%.

UEM became a constituent of the FTSE 250, FTSE 350 and FTSE 350 Low Yield Indices on 18 June 2012.

Dividends

UEM's final dividend for the year to 31 March 2012 of 1.75p was paid on 6 July 2012. UEM announced in its annual report that it would start to pay quarterly dividends in the current financial year.  Today the Board has declared a first quarter dividend of 1.375p per ordinary share which will be paid on 7 September 2012 to shareholders registered on 24 August 2012.

Portfolio

UEM's gross assets less current liabilities (excluding debt) at the beginning of the period under review were £382.9m and increased by £5.3m to £388.2m at the end of June 2012. Ordinary shareholders funds decreased by £3.8m to £374.7m.

Nine of the ten largest holdings have remained the same over the three months although there have been changes in the weighting.  A new entry to the top ten is China Gas Holdings which replaces Infrastructure India plc. China Gas Holdings is a natural gas services operator, which engages principally in the investment, operation and management of city gas pipeline infrastructure, distribution of natural gas and LPG to residential, commercial and industrial users, construction and operation of oil stations and gas stations, and development and application of natural gas and LPG related technologies in China.

Eastern Water Resources share price was up an impressive 42.3% during the three month period, making it UEM's largest holding at 30 June 2012. International Container Terminal Services Inc. and Cia de Concessoes do Rodoviarias (CCR) were also up, 11.1% and 10.5% respectively.

Malaysia Airports Holdings share price continued to decline, down 4.3% over the three months. Ocean Wilsons Holdings, Companhia de Saneamento de Minas Gerais (Copasa) and Santos Brasil also fell whilst the remainder of the top ten were marginally up.

The Brazilian Real has weakened considerably over the period, down by 8.6% over the three months, having a significant knock on effect in the value of UEM's Brazilian assets in Sterling terms.

Bank debt

During the period under review UEM increased its bank debt from £4.4m to £12.2m. The bank debt was drawn £9.0m in US Dollars and £3.2m in Euro's.

Derivatives

UEM continues to hold S&P500 Index put and call options positions. As at 30 June 2012 these had a market value of £8.4m.

Share price and NAV

UEM's share price reduced from 164.00p at 31 March 2012 to 161.00p at 30 June 2012, a decrease of 1.8%. UEM's discount to NAV widened from 6.6% at 31 March 2012 to 7.4% at 30 June 2012.

Outlook

The investment environment is challenging and is likely to remain so. A great deal of uncertainty surrounds Greece, Italy, Spain and Portugal and the Eurozone. However, UEM and emerging markets generally continue to outpace the major developed markets in terms of growth and we are positive on the portfolio's long term prospects.

Capital Structure			30 June 2012		31 March 2012
Gross assets less current liabilities			£388.2m		£382.9m
Bank debt Other debt			£12.2m £1.3m		£4.4m -
Shareholders' funds (ordinary shares)			£374.7m		£378.5m
Effective gearing on ordinary shares			3.5%		1.6%
Ordinary Shares			30 June 2012		31 March 2012
NAV (cum income)			173.83p		175.60p
Share price			161.00p		164.00p
Discount to undiluted NAV			7.4%		6.6%
Shares in issue			215,528,793		215,528,793

Sectoral Split of Investments			30 June 2012		31 March 2012
Ports Water & Waste Toll Roads Electricity Airports Other Gas Satellites Infrastructure  Investment Funds Other Infrastructure Telecoms Renewables Post Office Infrastructure IT			24.5% 23.9% 10.5% 10.1% 7.4% 6.5% 6.0% 3.8% 2.8% 1.7% 1.3% 1.0% 0.3% 0.2%		23.8% 22.2% 10.7% 10.4% 8.2% 5.9% 5.7% 3.7% 3.5% 1.9% 2.5% 1.0% 0.2% 0.3%
			100%		100%
Geographical Split of Investments
Brazil China Philippines Malaysia Thailand Other Asia Eastern Europe India Other Latin America Middle East/Africa North America/Other			29.4% 21.6% 11.3% 10.6% 9.5% 4.2% 4.0% 3.8% 2.7% 2.1% 0.8%		32.0% 19.9% 11.7% 12.0% 6.8% 4.6% 4.2% 4.9% 1.8% 1.7% 0.4%
			100%		100%

Top 10 Holdings as % of Gross Assets			30 June 2012		31 March 2012
1 2 3 4 5 6 7 8 9 10	Eastern Water Resources PCL Intl Container Terminal Services Inc. Malaysia Airport Holdings Bhd Ocean Wilsons Holdings Limited Cia de Saneamento de Minas Gerais (COPASA) Santos Brasil Participacoes S.A. Tractebel Energia S.A. Asia Satellite Telecommunications Holdings Ltd Companhia de Concessoes do Rodoviarias S.A. (CCR) China Gas  Holdings Ltd		9.1% 9.0% 6.7% 6.2% 5.2% 3.3% 3.1% 3.0% 2.9%         2.5%		6.8% 9.5% 7.8% 7.4% 5.9% 3.9% 3.0% 3.1% 3.0%                   -

7 August 2012

Enquiries

Charles Jillings

ICM Investment Research Limited

[phone]

 

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