Annual Financial Report

RNS Number : 3265P

Utilico Emerging Markets Trust PLC

17 June 2022

 

Date:   17 June 2022

Contact:   Charles Jillings 

  Utilico Emerging Markets Trust plc 

  01372 271 486 

Gay Collins/Pippa Bailey

Montfort Communications

07738 912267

[e-mail]

UTILICO EMERGING MARKETS TRUST PLC

ANNUAL FINANCIAL REPORT

FOR THE YEAR TO 31 MARCH 2022

Utilico Emerging Markets Trust plc ("UEM" or the "Company") today announced its audited financial results for the year to 31 March 2022.

Highlights of results

· Net asset value ("NAV") total return per share of 14.9%* (2021: 30.2%*)

· NAV per share of 254.22p* per share, up 11.2%

· Gross assets of £569.6m, an increase of 2.4%

· Annual compound NAV total return since inception of 9.7%*

· Dividends per share totalled 8.00p for the year, an increase of 2.9%. Dividends were fully covered by earnings

· Revenue earnings per share ("EPS") increased 0.5% to 8.17p

· Total revenue income of £22.6m, an 0.8% decrease

*See Alternate Performance Measures on pages 99 and 100 of the Report and Accounts

The Report & Accounts for the year ended 31 March 2022 will be posted to shareholders in early July 2022. A copy will shortly be available to view and download from the Company's website at www.uemtrust.co.uk and the National Storage Mechanism at https://data.fca.org.uk/#/nsm/nationalstoragemechanism . 

Please click on the following link to view the document: http://www.rns-pdf.londonstockexchange.com/rns/3265P_1-2022-6-17.pdf

John Rennocks, Chairman of UEM said:

"We are pleased to announce UEM turned in strong performance and importantly delivered a NAV total return of 14.9% for the year to 31 March 2022, to end the year at an all-time high of 254.22p. This was ahead of the MSCI EM total return index which was down 6.9% over the same period. UEM measures its performance on a total return basis and long-term annual compound NAV total return since inception to 31 March 2022 was 9.7%. It is also pleasing to see UEM's revenue earnings per share increase by 0.5% given the challenges faced by the investee businesses and higher growth investment mix.

"The Russian war in Ukraine is devastating on a number of levels and the brutality of the Russian army will be a scar on liberal societies for decades to come. UEM has generally avoided investing in Russia due to weak governance and endemic corruption. Covid-19's impact on the world's GDP is reducing, although China's zero-tolerance policy puts their economy at risk as lockdowns destroy economic activity. It is positive to note that no UEM investee company has needed or is expected to require significant restructuring or refinancing; and although market valuations of some companies initially deteriorated sharply, most of the businesses have proved resilient to their respective headwinds. The strategic nature and business model strength of UEM's portfolio has been excellent and with additional strong government and central bank support, the Board does not today see a significant risk from Covid-19 outside of volatility in market valuations.

"Lastly, we were pleased with the strong support of shareholders in favour of continuation for a further five-year period at the AGM held in September 2021. In line with the Articles of Association of the Company, a further continuation vote will be put to shareholders in 2026 and thereafter at five yearly intervals."

Charles Jillings, Investment Manager of UEM added:

"Since the approval of the COVID-19 vaccines, the market has shifted and now the embedded value in UEM's portfolio is being increasingly recognised. We expect rising nationalism as governments look to address their country-specific demands, greater focus on food and energy security, and shift to a greener society . For UEM, there will be plenty of opportunities for our investee companies to benefit from these policy changes.

"To increase visibility for shareholders, UEM expanded the list of disclosed investments to thirty holdings in its annual report last year, accounting for 65.6% of the total portfolio by value. There have been seven new entries into the top thirty holdings : Petalite; China Datang Corporation Renewable Power Co. Limited; Grupo Aeroportuario del Pacifico, S.A.B. de C.V.; Orizon PT; Link Net Tbk; Grupo Aeroportuario del Centro Norte, S.A.B. de C.V.; and Powergrid Infrastructure Investment Trust. Falling out of the top thirty are China Gas Holdings Limited; Bolsa de Valores de Colombia; Centrais Eletricas Brasileiras S.A.; Conpet SA; Starpharma Holdings Limited; Ecorodovias Infraestrutura e Logistica S.A.; and Torrent Power Limited. All were due to realisations except for China Gas and Starpharma which reduced due to lower market valuations.

"The biggest challenge facing all of us is climate change and the war in Ukraine has been a true setback for the global energy ambitions of reducing carbon emissions. However, the best way to address the energy shortfall may be to invest in green technologies and electric vehicles, thereby achieving two ambitions at once, energy security and green energy supply. As investors, we are turning our attention to the steps businesses can and should be taking to be part of the solution to carbon reduction. Given the wide range of assets, geographies, and governments involved in UEM's portfolio, these discussions are varied. A number of our investee companies do have a key role to play in reducing carbon emissions, from wind farms to rail and from hydro to enabling businesses to work remotely. ICM's approach is therefore driven by the need to see improvements over time by each investee company. At ICM, we are committed to taking steps to become net carbon neutral as a business and have engaged our employees in discussions around the need to reduce our net carbon footprint individually and collectively."

PERFORMANCE SUMMARY

	31 March 2022	31 March 2021	% change 2022/21
NAV total return per share (1)  (annual) (%)	14.9	30.2	n/a
Share price total return per share (1)  (annual) (%)	17.6	27.3	n/a
Annual compound NAV total return (1) (since inception - 20 July 2005) (%)	9.7	9.4	n/a
NAV per share (1)  (pence)	254.22	228.54	11.2
Share price (pence)	224.00	197.50	13.4
Discount (1)  (%)	(11.9)	(13.6)	n/a
Earnings per share (basic)
- Capital (pence)	24.49	45.73	(46.4)
- Revenue (pence)	8.17	8.13	0.5
Total (pence)	32.66	53.86	(39.4)
Dividends per share
- 1st quarter (pence)	2.000	1.925	3.9
- 2nd quarter (pence)	2.000	1.925	3.9
- 3rd quarter (pence)	2.000	1.925	3.9
- 4th quarter (pence)	2.000 (2)	2.000	0.0
Total (pence)	8.000	7.775	2.9
Gross assets (3) (£m)	569.6	556.1	2.4
Equity holders' funds (£m)	545.9	505.7	7.9
Shares bought back (£m)	13.9	12.1	14.9
Net cash/(overdraft) (£m)	0.5	(3.2)	115.6
Bank loans (£m)	(23.7)	(50.4)	(53.0)
Net debt (£m)	(23.2)	(53.6)	(56.7)
Gearing (1)  (%)	(4.3)	(10.6)	n/a
Management and administration fees and other expenses
- excluding performance fee (£m)	7.3	5.0	46.0
- including performance fee (£m)	7.3	10.1	(27.7)
Ongoing charges figure (1)
- excluding performance fee (%)	1.4	1.1 (4)	n/a
- including performance fee (%)	1.4	2.1 (4)	n/a

(1)  See Alternative Performance Measures on pages 99 and 100 of the Report and Accounts

(2)  The fourth quarterly dividend has not been included as a liability in the accounts

(3)  Gross assets less liabilities excluding loans

(4)  1.4% with effect from 1 April 2021 following changes to the Investment Management Agreement and the performance fee was discontinued (see page 77  of the Report and Accounts)

CHAIRMAN'S STATEMENT

The year to 31 March 2022 has again been truly challenging. The war in Ukraine has taken us by surprise. While we understood the geopolitical tensions in the region, we considered it unlikely that Russia would invade Ukraine to the extent that they did. It has been devastating to watch a brutal war erupt in Europe. The response from the West has been firm and quick. But given Ukraine's role in the world's soft commodities and Russia's central role in energy supplies, to Europe in particular, the global economic challenges have escalated dramatically.

Pleasingly, UEM turned in a strong performance and importantly delivered a NAV total return of 14.9% for the year to 31 March 2022, to end the year at an all-time high of 254.22p. This was ahead of the MSCI EM total return Index which was down 6.9% over the same period. UEM measures its performance on a total return basis and long-term annual compound NAV total return since inception to 31 March 2022 was 9.7%. The Investment Managers are seeking long-term performance to be above 10.0% including a rising dividend, and during the initial period of Covid-19 UEM did lag behind the MSCI EM Index as investors focused on high growth technology companies. Since the approval of the vaccine, the world has moved steadily towards "living with Covid" and UEM's portfolio has regained value as a result. As at 31 March 2022, UEM's NAV and share price total return are both ahead of the MSCI EM total return index since inception in 2005.

RUSSIAN INVESTMENTS

UEM has found investing in Russia challenging over the years due to the weak governance and endemic corruption, and has generally avoided investing there. At the start of the war UEM had exposure to one London listed company operating extensively in Russia, the rail freight operator Globaltrans Investment plc ("Globaltrans"). UEM's holding in Globaltrans was worth £4.3m (0.8% of the portfolio) as at 31 January 2022. Immediately following the invasion, UEM sold around two-thirds of its holding realising £1.5m in proceeds. Globaltrans was not sanctioned. ICM has a strong compliance and risk framework and will continue to ensure UEM complies with any new sanctions as they emerge. Globaltrans' shares were suspended and the residual holding is carried at nil value. UEM has no other direct investments in Russia, Belarus or Ukraine.

GLOBAL ECONOMY

There are numerous headwinds currently faced by the markets, each of which is challenging in its own right. These include sharply rising inflation; increasing interest rates; cyber security; shortage of commodities, especially wheat from Ukraine; Covid-19 disruption to supply chains; the Ukraine war; shift to green energy; US and China trade friction; zero-Covid policy in China; and leveraged economies. We have discussed a number of these before and they largely remain unresolved. We are witnessing a significant rise in nationalism and wealth inequality. This combination of issues and challenges will no doubt tear at the fabric of our societies and institutions.

The Russian war in Ukraine is devastating on a number of levels. The brutality of the Russian army will be a scar on liberal societies for decades to come. The need to have resilient supply chains, energy security, green energy and increased defence capabilities will see resources diverted and reinvested with an urgency and scale not experienced in our lifetime. This will give rise to new opportunities for investors, including UEM. The war has resulted in sharply rising commodity prices and accelerating inflation. The scarcity of some soft commodities might well be the biggest social challenge, as food shortages emerge in a number of countries that rely on food imports from Ukraine.

Our Investment Managers deserve a note of thanks. Their approach to seeking out compelling opportunities in difficult markets has stood them in good stead over the years. A key aspect of their investment approach is to seek out strong management teams who can deliver resilient business performance. They have navigated the challenges to date very well.

EMERGING MARKETS

During the year, the progress in EM has been correlated to the development of Covid-19 in the individual markets. Brazil and India have both emerged from Covid restrictions and performed strongly, while China has been unable to safely open up its economy. In the year to 31 March 2022, EM markets have seen the India Nifty 50 up by 18.9%, the Philippine PSEi up 11.8% and Brazil's Bovespa up 2.9%, while the Hang Seng Index was down 22.5%. Currencies have been mixed too, with the Brazilian Real up 24.4% against Sterling, the Hong Kong Dollar up 4.0% and the Indian Rupee up 1.1%.

Commodities have moved higher during the period under review, with oil up by 69.8%, wheat up by 62.8%, copper up by 18.9% and soybean up by 12.6%. Much of this is due to two factors: first, excess demand over supply following years of under investment in resources and the bounce in demand for goods as economies opened up; and second, the elimination of supply arising from the Ukraine war. We expect these conditions to endure in the short term.

UNLISTED INVESTMENTS (level 3 investments)

UEM has over the years invested in unlisted businesses at a modest level. This remains true today. The largest investment was in CGN Capital Partners Infra Fund 3, a Chinese wind and solar farm developer and operator in mainland China. At year end this investment was carried at £13.0m representing 1.9% of UEM's portfolio. The underlying fund investments were agreed to be sold prior to UEM's year end at a pleasing profit and the majority of the proceeds should be returned to UEM over the coming quarters.

In March 2020, an opportunity arose to invest into a disruptive technology start up business, Petalite Limited ("Petalite"), giving UEM exposure to the electric vehicles revolution (through charging infrastructure). UEM invested a modest amount, some £1.5m for an interest of approximately 30.0%. This business has delivered on its expectations and in light of the accelerated move to electric vehicles, its valuation has risen significantly. At year end the position was valued at £17.6m and shareholders can find more information in note 26(d) to the accounts. We are excited about the prospects for this business.

Given the increased level of unlisted investments, some 8.4% of the total portfolio, we will report on this separately going forward.

REVENUE EARNINGS AND DIVIDEND

It is pleasing to see UEM's revenue earnings per share ("EPS") increase by 0.5% given the challenges faced by investee businesses and the higher growth investment mix. As at 31 March 2022, 15.6% of UEM's portfolio was invested in the Data Services and Digital Infrastructure sector which is projected to see higher growth but typically pays lower dividends, and as a consequence the rest of the portfolio worked harder to deliver this earnings uplift.

UEM has now declared four quarterly dividends of 2.00p each, totalling 8.00p per share, a 2.9% increase over the previous year. Dividends remain fully covered by income. The retained earnings revenue reserves increased by £0.4m to £7.3m. The Board remains confident that the quarterly rate will be maintained for the next financial year.

The Board would like to re-emphasise that UEM's portfolio is predominantly invested in relatively liquid, cash-generative companies which have long-duration operational assets that the Company's Investment Managers believe are structurally undervalued and offer the potential for excellent total returns.

SHARE BUYBACKS

UEM's share price discount narrowed over the year from 13.6% as at 31 March 2021 to 11.9% as at 31 March 2022. This remains above levels that the Board would wish to see over the medium term. The Company has continued buying back shares for cancellation and has stepped up its buybacks with 6.5m shares bought back in the year to 31 March 2022, at an average price of 211.90p and total cost of £13.9m.

While the Board is keen to see the discount narrow, any share buyback remains an independent investment decision. Historically the Company has bought back shares if the discount widens in normal market conditions to over 10.0%. Since inception, UEM has bought back 62.5m ordinary shares totalling £111.6m. The buybacks now represent significantly more than the initial IPO capitalisation of UEM Bermuda when it came to market in July 2005.

MANAGEMENT AND PERFORMANCE FEES

From 1 April 2021 the management fee was revised, moving to 1.0% on NAV up to £500.0m but with the fee reducing at higher levels; and the performance fee was removed. More details are set out on page 77 of the Report and Accounts.

As a result of the above, ongoing charges were 1.4%, compared to 2.1% (including the performance fee) for the year to 31 March 2021.

BOARD

Garth Milne retired from the Board at the 2021 annual general meeting ("AGM") and we announced last year that board refreshment was being considered in the current year. We were pleased to announce on 21 September 2021 the appointment of Mark Bridgeman as a Director who brings a wealth of experience to our Board. We were also delighted to announce on 22 November 2021 that Isabel Liu joined our Board as a Director. Along with Mark, Isabel is an outstanding director who brings with her a robust skill set in infrastructure with experience and knowledge across EM including Asia. We look forward to working with them both over the coming years.

Anthony Muh has indicated his intention to retire from the Board following the conclusion of UEM's forthcoming AGM in September 2022. Anthony has been a tremendous asset to the Board with his insights and understanding of the Asian markets, and in particular China. Anthony has contributed significantly to UEM's board and we will miss his wise counsel.

COVID-19 IMPACT ON UEM

Covid-19's impact on the world's GDP is reducing as Covid itself mutates into less effective strains. Omicron is certainly more transmissible but has been less harmful. Together with rising vaccinations, this has seen Covid-19's impact reduce sharply as more and more countries move to "living with Covid" policies and achieve "herd immunity". The major EM economy which is out of step with this progress is China. China's zero-tolerance policy puts their economy at risk as lockdowns destroy economic activity.

UEM's investments have emerged stronger from Covid-19. The investee companies' management teams have adapted their business models and driven higher volumes and margins. It is worth noting that no UEM investee company has needed or is expected to require significant restructuring or refinancing. The strategic nature and business model strength of UEM's portfolio has been excellent. Although market valuations of some companies initially deteriorated sharply, most of the businesses have proved resilient to their respective headwinds. With additional strong government and central bank support, the Board does not today see a significant risk from Covid-19 outside of volatility in market valuations.

UEM CONTINUATION VOTE

We were pleased with the strong support of shareholders in favour of continuation for a further five-year period at the AGM held in September 2021. In line with the Articles of Association of the Company, a further continuation vote will be put to shareholders in 2026 and thereafter at five yearly intervals.

OUTLOOK

The short-term challenges, especially the war in Ukraine and the zero-Covid policy in China are likely to persist for much of this calendar year. Consequently, the global economies will see heightened volatility as markets absorb the unfolding implications of both these events.

As long-term investors we remain optimistic that, once these events are behind us and inflationary pressures subside, most economies will rebound due to delayed demand and government policy becoming more supportive.

Our investee companies are well positioned and well managed, and we expect they will continue to perform well in these challenging times.

John Rennocks

Chairman

17 June 2022

INVESTMENT MANAGERS' REPORT

It is pleasing to see UEM deliver another positive NAV gain, with a NAV total return for the year of 14.9%, building on last year's 30.2% return. This was significantly ahead of the MSCI EM total return Index which was down by 6.9% during the year to 31 March 2022. As previously noted, UEM's asset class was largely overlooked by the markets early in the pandemic, which focused on the shift to working from home and the accelerated digital explosion. This led to markets rewarding the technology sector shares, but since the approval of the Covid-19 vaccines, the market has shifted and now the embedded value in UEM's portfolio is being increasingly recognised.

The world is faced with a number of unresolved deep-seated challenges. As noted in the Chairman's Statement these range from inflation to climate change. Given we have highlighted a number of these issues before we will focus on four topics in particular that we discuss at length as investors.

INFLATION AND INTEREST RATES

Inflation has two key drivers, excess demand and shortage of supply or a combination of the two. As nations emerged from Covid restrictions, demand for consumables rose well above traditional trend lines. At the same time supply was slow to respond and the net effect has been a strengthening of inflationary pressures as nations return to normal.

A surprise to us has been the tight labour market conditions across the world which has led to wage inflation as buying power shifts to the wider labour markets. If left unaddressed this will cause further inflationary pressures and may become embedded in economies. 

We see commodities as potentially being at an imbalance as demand exceeds supply in certain commodities. This is likely to continue as decades of under-investment cannot be redressed overnight. Further, the response to the Ukraine war will see increased drive for energy security, supply chain security and military security. These three challenges are likely to be pursued at significant pace. The result will be heightened demand for commodities. Structurally we therefore see commodity demand rising and pricing to remain to the upside.

To address the rising inflationary outlook, Central Banks have begun and will continue to raise interest rates. As such we expect to see interest rates rise further over the coming months.

UKRAINE

The war in Ukraine has disrupted a number of commodity supplies, especially wheat. This is likely to see commodity hoarding by some countries and fundamental shortages in others. Food inflation and food shortages are the potential drivers of social unrest. Historically, most social change has been accelerated by shortages of food, from the French Revolution to the Arab Spring. We remain concerned that the ability of governments to navigate a way forward for many poorer nations and societies will lead to sharp social change.

The disruption in commodity supply due to the war has accelerated inflationary pressures to levels not seen in decades. We expect this to persist for months. However, the imbalance will in time be addressed and supply led inflationary pressures will reduce.

The wider inflationary legacy will persist. The threat from energy supply and supply chain security will drive significant investment to address these two concerns and the inflationary pressures will be to the upside.

CHINA'S COVID POLICY

China's zero-Covid policy is a concern. Omicron is particularly virulent and is likely to see the need for their heightened Covid restrictions to continue. As the world's major exporter, this has implications for supply chains and economic activity. China has two fundamental choices; either drive the economy or contain Covid. It is difficult to see how it can maintain both.

What does this all mean? We expect rising nationalism as governments look to address their country specific demands, greater focus on food and energy security, and a shift to a greener society. We see commodity producers benefiting. For UEM, there will be plenty of opportunities for our investee companies to benefit from these policy changes. 

ENVIRONMENTAL, SOCIAL AND GOVERNANCE ("ESG")

The biggest challenge facing all of us is climate change which needs a coordinated global response. At ICM, we are committed to taking steps to become net carbon neutral as a business and we have engaged our employees in discussions around the need to reduce our net carbon footprint individually and collectively.

As investors, we are turning our attention to the steps businesses can and should be taking to be part of the solution to carbon reduction. Given the wide range of assets, geographies and governments involved in UEM's portfolio, these discussions are varied. A number of our investee companies do have a key role to play in reducing carbon emissions, from wind farms to rail and from hydro to enabling businesses to work remotely. ICM's approach is therefore driven by the need to see improvements over time by each investee company.

CLIMATE CHANGE

The war in Ukraine has been a true setback for the global energy ambitions of reducing carbon emissions. However, the best way to address the energy shortfall may be to invest in green technologies and electric vehicles, thereby achieving two ambitions at once, energy security and green energy supply.

PORTFOLIO

UEM's gross assets (less liabilities excluding loans) increased to £569.6m as at 31 March 2022 from £556.1m as at 31 March 2021. This reflects valuation uplifts offset by net realisations to fund the net debt reduction of £30.4m.

UEM expanded the list of disclosed investments to thirty holdings in its annual report and the monthly factsheet last year. This increases the visibility for shareholders to around two thirds of the portfolio by value. At the year end the top thirty holdings accounted for 65.6% of the total portfolio (31 March 2021: 65.9%). There have been seven new entries into the top thirty holdings over the year: Petalite; China Datang Corporation Renewable Power Co. Limited ("China Datang"); Grupo Aeroportuario del Pacifico, S.A.B. de C.V.; Orizon; PT Link Net Tbk.; Grupo Aeroportuario del Centro Norte, S.A.B. de C.V.; and Powergrid Infrastructure Investment Trust.

Falling out of the top thirty are China Gas Holdings Limited ("China Gas"); Bolsa de Valores de Colombia; Centrais Eletricas Brasileiras S.A.; Conpet SA; Starpharma Holdings Limited ("Starpharma"); Ecorodovias Infraestrutura e Logistica S.A.; and Torrent Power Limited. All were due to realisations except for China Gas and Starpharma which reduced due to lower market valuations.

Purchases in the portfolio decreased to £124.5m in the year ended 31 March 2022 (31 March 2021: £174.7m) and realisations increased to £176.9m (31 March 2021: £142.1m). This reflects investment activity more in line with long-term averages. An active decision was taken to reduce UEM's debt as uncertainties rose. UEM ended the year fully invested but with its bank loans drawn at £23.7m, 47.4% of the facility.

There have been some small sector shifts during the year to 31 March 2022 and more detail is set out on page 18 of the Report and Accounts. On a geographical basis there were some small changes again and more detail is set out on page 11 of the Report and Accounts. 

LEVEL 3 INVESTMENTS

UEM ended the year with level 3 investments totalling £48.1m (31 March 2021: £20.9m), representing 8.4% of total investments (31 March 2021: 3.7%). UEM's level 3 investments increased mainly as a result of the revaluation of Petalite and given this increase, we will report on unlisted investments separately going forward.

As noted in the Chairman's Statement, an opportunity arose to invest into Petalite in March 2020, giving UEM exposure to the electric vehicles revolution.

BANK DEBT

UEM's net debt, being bank loans and overdrafts, decreased from £53.6m as at 31 March 2021 to £23.2m as at 31 March 2022, as UEM actively decreased its investment positions and therefore exposure to the stock market. UEM's £50.0m committed multicurrency loan facility with The Bank of Nova Scotia, London Branch, was renewed in March 2021 and matures in March 2024.

REVENUE RETURN

Revenue income was almost unchanged at £22.6m as at 31 March 2022, from £22.8m as at 31 March 2021. This reflects both the impact of currencies and the increased shift of the portfolio into the Data Services and Digital Infrastructure sector which are lower yielding investments. 

Management fees and other expenses increased by 12.3% to £3.0m in the year to 31 March 2022, from £2.7m in the year to 31 March 2021. While the investment management fee is higher at 1.0% of NAV for assets up to £500.0m and reducing at higher levels, the impact is reduced on the revenue return as, following the removal of the performance fee (which was previously all allocated to capital), the fund moved to allocating 80.0% of management fees to capital return and 20.0% to revenue return, versus 70.0% and 30.0% historically. Finance costs remained modest at £0.1m (prior year £0.3m) given the low interest rate environment. Taxation remained largely unchanged at £1.5m during the year ended 31 March 2022 (31 March 2021: £1.6m).

Profit for the year decreased by 1.6% to £17.9m from £18.2m for the prior year. EPS was higher, a rise of 0.5% to 8.17p compared to the prior year of 8.13p due to the reduced average number of shares in issue following buybacks. Dividends per share ("DPS") of 8.00p were fully covered by earnings.

Retained revenue reserves rose to £7.3m as at 31 March 2022, some 3.39p per share.

CAPITAL RETURN

The portfolio gained £58.3m on the capital account during the year to 31 March 2022. Gains on foreign exchange were £1.3m. The resultant total income gain on the capital account was £59.6m against prior year gains of £112.1m.

Management and administration fees were lower at £4.2m (31 March 2021: £7.4m), mainly as a result of the changes to the management fee structure, with no performance fee accruing in the current year and the change in allocating 80.0% of management fees to capital versus 70.0% historically.

Finance costs decreased to £0.5m from £0.6m as a result of lower interest costs and loans. There was a reduced charge for taxation of £1.2m (31 March 2021: £1.6m) which arose mainly from Indian capital gains tax. The net effect of the above was a gain on capital return of £53.7m (31 March 2021: a gain of £102.4m).

Charles Jillings
ICM Investment Management Limited
and ICM Limited

17 June 2022

PRINCIPAL RISKS AND RISK MITIGATION

During the year ended 31 March 2022, ICMIM was the Company's AIFM and had sole responsibility for risk management, subject to the overall policies, supervision, review and control of the Board.

As required by the Association of Investment Companies ("AIC") Code of Corporate Governance, the Board has undertaken a robust assessment of the principal risks facing the Company. It seeks to mitigate these risks through regular review by the Audit & Risk Committee of the Company's risk register which identifies the risks facing the Company and the likelihood and potential impact of each risk, together with the controls established for mitigation.

During the year the Audit & Risk Committee also discussed and monitored a number of emerging risks that could potentially impact the Company, the principal ones being geopolitical risk and climate change risk. The Audit & Risk Committee has determined that they are not currently sufficiently material to be categorised as separate key risks and are considered within investment risk and market risk below. The Covid-19 pandemic, which emerged in 2020, gave rise to significant challenges for businesses worldwide and this was also taken into account as part of the assessment of risks to the Company.

The principal risks and uncertainties currently faced by the Company and the controls and actions to mitigate those risks, are described below. There have been no significant changes to the principal risks during the year.

INVESTMENT RISK: The risk that the investment strategy does not achieve long-term positive total returns for the Company's shareholders.

The Board monitors the performance of the Company and has established guidelines to ensure that the approved investment policy is pursued by the Investment Managers. These guidelines include sector and market exposure limits.

The investment process employed by the Investment Managers combines assessment of economic and market conditions in the relevant countries with stock selection. Fundamental analysis forms the basis of the Company's stock selection process, with an emphasis on sound balance sheets, good cash flows, the ability to pay and sustain dividends, good asset bases and market conditions. In addition, ESG factors are also considered when selecting and retaining investments and political risks associated with investing in EM are also assessed. The Investment Managers try to reduce risk by ensuring that the Company's portfolio is always appropriately diversified. Overall, the investment process aims to achieve absolute returns through an active fund management approach and the Board monitors the implementation and results of the investment process with the Investment Managers.

MARKET RISK: The Company's assets consist mainly of listed securities and its principal risks are therefore market related and adverse market conditions could lead to a fall in NAV.

The Company's portfolio is exposed to equity market risk and foreign currency risk. Adverse market conditions may result from factors such as economic conditions, political change, climate change, natural disasters and health epidemics. At each Board meeting the Board reviews the diversification of the portfolio, asset allocation, stock selection, unquoted investments and levels of gearing and has set investment restrictions and guidelines which are monitored and reported on by the Investment Managers.

The Company's results are reported in Sterling, although the majority of its assets are priced in foreign currencies and therefore any rise or fall in Sterling will lead, respectively, to a fall or rise in the Company's reported NAV. Such factors are out of the control of the Board and the Investment Managers and may give rise to distortions in the reported returns to shareholders. It is difficult and expensive to hedge EM currencies.

KEY STAFF RISK: Loss by the Investment Managers of key staff could affect investment returns.

The quality of the investment management team is a crucial factor in delivering good performance. There are training and development programs in place for employees and the remuneration packages have been developed in order to retain key staff. Any material changes to the management team are considered by the Board at its next meeting; the Board discusses succession planning with the Investment Managers at regular intervals.

DISCOUNT RISK: The Company's shares may trade at a discount to their NAV and a widening discount may undermine investor confidence in the Company.

The Board monitors the price of the Company's shares in relation to their NAV and the premium/discount at which they trade. The Board generally buys back shares for cancellation in normal market conditions if they are trading at a discount in excess of 10% and the Investment Managers agree that it is a good investment decision.

OPERATIONAL RISK: Failure by any service provider to carry out its obligations to the Company in accordance with the terms of its appointment could have a materially detrimental impact on the operation of the Company and could affect the ability of the Company to successfully pursue its investment policy

The Company's main service providers are listed on page 98 of the Report and Accounts. The Audit & Risk Committee monitors the performance and controls (including business continuity procedures) of the service providers at regular intervals.

All listed and most unlisted investments are held in custody for the Company by JPMorgan Chase Bank N.A. - London Branch with a small number of unlisted investments held in custody by Waverton Investment Management Limited ("Waverton"). JPMEL, the Company's depositary services provider, also monitors the movement of cash and assets across the Company's accounts. The Audit & Risk Committee reviews the JP Morgan SOC1 reports, which are reported on by Independent Service Auditors, in relation to its administration, custodial and information technology services.

The Board reviews the overall performance of the Investment Managers and all the other service providers on a regular basis. The risk of cybercrime is high, as it is with most organisations, but the Board regularly seeks assurances from the Investment Managers and other service providers on the preventative steps that they are taking to reduce this risk.

GEARING: Whilst the use of borrowings should enhance total return where the return on the Company's underlying securities is rising and exceeds the cost of borrowing, it will have the opposite effect where the underlying return is falling.

Gearing levels may change from time to time in accordance with the Board and Investment Managers' assessment of risk and reward. As at 31 March 2022, UEM had net gearing on net assets of 4.3%. ICMIM monitors compliance with the banking covenants when each drawdown is made and at the end of each month. The Board reviews compliance with the banking covenants at each Board meeting.

REGULATORY RISK: Failure to comply with applicable legal and regulatory requirements such as the tax rules for investment companies, the FCA's Listing Rules and the Companies Act 2006 could lead to suspension of the Company's Stock Exchange listing, financial penalties, a qualified audit report or the Company being subject to tax on capital gains.

The Investment Managers and the Company's professional advisers monitor developments in relevant laws and regulations and provide regular reports to the Board in respect of the Company's compliance.

DIRECTORS' STATEMENT OF RESPONSIBILITIES

in respect of the Annual Report and the Financial Statements

The Directors are responsible for preparing the Annual Report and financial statements in accordance with applicable United Kingdom law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law, they are required to prepare the financial statements in accordance with UK adopted International Accounting Standards and the Companies Act 2006.

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of its profit or loss for that period. In preparing these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and estimates that are reasonable, relevant and reliable;

• state whether they have been prepared in accordance with UK adopted International Accounting Standards and the Companies Act 2006;

• assess the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

• use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.

In accordance with Disclosure Guidance and Transparency Rule 4.1.14R, the financial statements will form part of the annual financial report prepared using the single electronic reporting format under the TD ESEF Regulation. The auditor's report on these financial statements provides no assurance over the ESEF format.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website, which is maintained by the Company's Investment Managers. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE ANNUAL FINANCIAL REPORT

We confirm that to the best of our knowledge:

· the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

· the Strategic Report and Directors' Report include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

Approved by the Board on 17 June 2022 and signed on its behalf by:

John Rennocks

Chairman

STATEMENT OF COMPREHENSIVE INCOME

		for the year to			for the year to
		31 March 2022			31 March 2021
		Revenue	Capital	Total	Revenue	Capital	Total
		return	return	return	return	return	return
		£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Gains on investments		-	58,293	58,293	-	114,303	114,303
Losses on derivative instruments		-	-	-	-	(4,489)	(4,489)
Foreign exchange gains		-	1,333	1,333	-	2,247	2,247
Investment and other income		22,593	-	22,593	22,773	-	22,773
Total income		22,593	59,626	82,219	22,773	112,061	134,834
Management and administration fees		(1,451)	(4,240)	(5,691)	(1,284)	(7,424)	(8,708)
Other expenses		(1,590)	-	(1,590)	(1,425)	-	(1,425)
Profit before finance costs and taxation		19,552	55,386	74,938	20,064	104,637	124,701
Finance costs		(119)	(469)	(588)	(261)	(609)	(870)
Profit before taxation		19,433	54,917	74,350	19,803	104,028	123,831
Taxation		(1,500)	(1,188)	(2,688)	(1,578)	(1,585)	(3,163)
Profit for the year		17,933	53,729	71,662	18,225	102,443	120,668
Earnings per share (basic) - pence		8.17	24.49	32.66	8.13	45.73	53.86

All items in the above statement derive from continuing operations.

The 'Total' column of this statement is the profit and loss account of the Company and the 'Revenue' and 'Capital' columns represent supplementary information prepared under guidance issued by the Association of Investment Companies.

The Company does not have any income or expense that is not included in the profit for the year and therefore the profit for the year is also the total comprehensive income for the year, as defined in International Accounting Standard 1 (revised).

All income is attributable to the equity holders of the Company.

STATEMENT OF CHANGES IN EQUITY

for the year to 31 March 2022
	Ordinary		Capital		Retained earnings
	share	Merger	redemption	Special	Capital	Revenue
	capital	reserve	reserve	reserve	reserves	reserve	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance as at 31 March 2021	2,213	76,706	132	473,634	(53,868)	6,879	505,696
Shares purchased by the Company and cancelled	(65)	-	65	(13,898)	-	-	(13,898)
Profit for the year	-	-	-	-	53,729	17,933	71,662
Dividends paid in the year	-	-	-	-	-	(17,544)	(17,544)
Balance as at 31 March 2022	2,148	76,706	197	459,736	(139)	7,268	545,916

for the year to 31 March 2021
	Ordinary		Capital		Retained earnings
	share	Merger	redemption	Special	Capital	Revenue
	capital	reserve	reserve	reserve	reserves	reserve	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance as at 31 March 2020	2,278	76,706	67	485,746	(156,311)	5,857	414,343
Shares purchased by the Company and cancelled	(65)	-	65	(12,112)	-	-	(12,112)
Profit for the year	-	-	-	-	102,443	18,225	120,668
Dividends paid in the year	-	-	-	-	-	(17,203)	(17,203)
Balance as at 31 March 2021	2,213	76,706	132	473,634	(53,868)	6,879	505,696

STATEMENT OF FINANCIAL POSITION

			2022	2021
as at 31 March			£'000s	£'000s
Non-current assets
Investments			571,686	565,751
Current assets
Other receivables			1,477	1,610
Cash and cash equivalents			1,104	1,027
			2,581	2,637
Current liabilities
Other payables			(2,799)	(10,795)
Net current liabilities			(218)	(8,158)
Total assets less current liabilities			571,468	557,593
Non-current liabilities
Bank loans			(23,662)	(50,373)
Provision for capital gains tax			(1,890)	(1,524)
Net assets			545,916	505,696
Equity attributable to equity holders
Ordinary share capital			2,148	2,213
Merger reserve			76,706	76,706
Capital redemption reserve			197	132
Special reserve			459,736	473,634
Capital reserves			(139)	(53,868)
Revenue reserve			7,268	6,879
Total attributable to equity holders			545,916	505,696
Net asset value per share
Basic - pence			254.22	228.54

STATEMENT OF CASH FLOWS

		2022	2021
Year to 31 March		£'000s	£'000s
Operating activities
Profit before taxation		74,350	123,831
Deduct investment income - dividends		(21,604)	(21,670)
Deduct investment income - interest		(988)	(1,096)
Deduct bank Interest received		(1)	(7)
Add back interest charged		588	870
Add back gains on investments		(58,293)	(114,303)
Deduct losses on derivative instruments		-	4,489
Add back foreign exchange gains		(1,333)	(2,247)
(Increase)/decrease in other receivables		(16)	5
(Decrease)/increase in other payables		(4,701)	5,087
Net cash outflow from operating activities before dividends and interest		(11,998)	(5,041)
Interest paid		(600)	(852)
Dividends received		21,556	20,919
Bank interest received		1	7
Investment income - interest		190	-
Taxation paid		(2,465)	(1,700)
Net cash inflow from operating activities		6,684	13,333
Investing activities
Purchases of investments		(122,600)	(172,491)
Sales of investments		176,372	143,671
Purchase of derivatives		-	(4,152)
Sales of derivatives		-	733
Net cash inflow/(outflow) from investing activities		53,772	(32,239)
Financing activities
Repurchase of shares for cancellation		(13,898)	(12,112)
Dividends paid		(17,544)	(17,203)
Drawdown of bank loans		52,101	49,463
Repayment of bank loans		(77,576)	(42,536)
Net cash outflow from financing activities		(56,917)	(22,388)
Increase/(decrease) in cash and cash equivalents		3,539	(41,294)
Cash and cash equivalents at the start of the year		(3,184)	39,500
Effect of movement in foreign exchange		97	(1,390)
Cash and cash equivalents as at the end of the year		452	(3,184)

Comprised of:
Cash		1,104	1,027
Bank overdraft		(652)	(4,211)
Total		452	(3,184)

NOTES

The Directors have declared a fourth quarterly dividend in respect of the year ended 31 March 2022 of 2.00p per share payable on 24 June 2022 to shareholders on the register at close of business on 6 June 2022. The total cost of the dividend, which has not been accrued in the results for the year to 31 March 2022, is £4,250,000 based on 212,488,390 shares in issue at the record date.

This statement was approved by the Board on 17 June 2022. The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 March 2022 or 2021 but is derived from those accounts. Statutory accounts for 2021 have been delivered to the Registrar of Companies and those for 2022 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

Legal Entity Identifier: 2138005TJMCWR2394O39

 

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