2022
REPORT AND ACCOUNTS
EMERGING CITIES | EMERGING WEALTH | EMERGING OPPORTUNITIES | WHY UTILICO EMERGING MARKETS TRUST PLC? |
Santos Brasil Participacoes S.A. (Brazil)
Utilico Emerging Markets Trust plc's ("UEM" or the "Company") investment objective is to provide long-term total return through a flexible investment policy that permits UEM to make
UEM is an emerging markets specialist fund focused on long-term total return predominantly in infrastructure and utility investments.
investments predominantly in infrastructure, utility and related sectors, mainly in emerging markets.
TRUSTED | DIVERSIFIED | PROVEN |
A closed end fund | A diverse portfolio of | Strong management team |
focused on long-term | operational cash | with a long-term record |
total return | generative investments | of outperformance |
OPPORTUNITY
UEM offers a diverse portfolio of high conviction, bottom- up investments spread across jurisdictions and sectors. The Company seeks to invest in companies most of which pay dividends, thereby contributing to UEM's performance.
EMERGING MARKETS
Emerging markets ("EM") offer higher gross domestic product ("GDP") growth, and coupled with the urbanisation and expansion of the middle class, and the shift to digital economy, deliver attractive investment opportunities for UEM. The EM middle class is expected to double in ten years, driving the need for investment in infrastructure and utilities.
HIGH OPERATING LEVERAGE
UEM's portfolio is predominantly operational. Infrastructure and utility assets are enablers of growth in EM and usually offer high operating leverage.
UTILITIES AND INFRASTRUCTURE ASSETS
At a time of heightened uncertainty, these are often resilient long-term assets with established regulatory frameworks which should continue to deliver predictable and sustainable income streams, thereby helping to underpin UEM's quarterly dividend payments.
Report and Accounts for the year to 31 March 2022 | 1 |
CONTENTS
PERFORMANCE
- Current Year Performance
- Performance Summary
- Chairman's Statement
- Geographical Investment Exposure
- Top Thirty Companies
- Performance Since Inception (20 July 2005)
-
Ten Year Performance
STRATEGIC REPORT AND INVESTMENTS - Investment Managers' Report
- Macro Trends Affecting Our Portfolio
- Our Investment Approach
- ESG Spotlight
- Largest Holdings Overview
- Strategic Report
- Investment Managers and Team
GOVERNANCE | |
44 | Directors |
46 | Directors' Report |
- Corporate Governance Statement
- Directors' Remuneration Report
- Audit & Risk Committee Report
- Directors' Statement of Responsibilities
FINANCIAL STATEMENTS
- Independent Auditor's Report
- Accounts
- Notes to the Accounts
ADDITIONAL INFORMATION
- Notice of Annual General Meeting
- Company Information
- Alternative Performance Measures
- Historical Performance
Rumo S.A. (Brazil)
FINANCIAL CALENDAR
Year End
31 March
Annual General Meeting
20 September 2022
Half Year
30 September
Dividends Payable
March, June, September and December
The business of the Company consists of investing the pooled funds of its shareholders in accordance with its investment objective and policy, with the aim of spreading investment risk and generating a return for shareholders. The joint portfolio managers of the Company are ICM Investment Management Limited ("ICMIM") and ICM Limited ("ICM"), together referred to as the "Investment Managers".
Front cover image - Alupar Investimento S.A. (Brazil)
FINANCIAL HIGHLIGHTS
International Container Terminal Services, Inc. (The Philippines)
NET ASSET VALUE | NAV OF 254.22P | REVENUE EARNINGS | DIVIDENDS OF 8.00P |
("NAV") TOTAL RETURN | PER SHARE* | PER SHARE OF | PER SHARE |
PER SHARE* |
14.9% | 11.2% | 8.17p | 2.9% |
(2021: 30.2%) | (2021: 25.7%) | (2021: 8.13p) | (2021: 2.6%) |
* See Alternative Performance Measures on pages 99 and 100
UEM turned in a strong performance, delivering a NAV total return of 14.9% for the year to
31 March 2022.
2 | Utilico Emerging Markets Trust plc | Report and Accounts for the year to 31 March 2022 | 3 |
CURRENT YEAR PERFORMANCE
NAV TOTAL RETURN | SHARE PRICE | NAV OF 254.22P | SHARE PRICE |
PER SHARE* | TOTAL RETURN | PER SHARE* | OF 224.00P |
PER SHARE* |
14.9% | 17.6% | 11.2% | 13.4% |
(2021: 30.2%) | (2021: 27.3%) | (2021: 25.7%) | (2021: 22.3%) |
DIVIDENDS OF 8.00P | INVESTED | REALISED | DIVIDENDS PAID |
PER SHARE |
- 2.9% £124.5m £176.9m £17.5m
(2021: 2.6%) | (2021: £174.7m) | (2021: £142.1m) | (2021: £17.2m) |
6.5M SHARES | TOTAL REVENUE | ONGOING CHARGES* | NET DEBT REDUCED TO |
BOUGHT BACK | RETURN INCOME |
£13.9m | £22.6m | 1.4% | £23.2m |
(2021: £12.1m) | (2021: £22.8m) | (2021: 1.1%) | (2021: £53.6m) |
* See Alternative Performance Measures on pages 99 and 100
TOTAL RETURN COMPARATIVE PERFORMANCE (1)
from 31 March 2021 to 31 March 2022
120
115
110
105
100
95
90
Mar 21 | Apr 21 | May 21 | Jun 21 | Jul 21 | Aug 21 | Sep 21 | Oct 21 | Nov 21 | Dec 21 | Jan 22 | Feb 22 | Mar 22 | |
NAV total return per share | MSCI EM total return Index (GBP adjusted) | ||||||||||||
(1) Rebased to 100 as at 31 March 2021 | Source: ICM and Bloomberg |
4 Utilico Emerging Markets Trust plc
PERFORMANCE SUMMARY
31 March | 31 March | % change | |
2022 | 2021 | 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 |
- See Alternative Performance Measures on pages 99 and 100
- The fourth quarterly dividend has not been included as a liability in the accounts
- Gross assets less liabilities excluding loans
- 1.4% with effect from 1 April 2021 following changes to the Investment Management Agreement and the performance fee was discontinued (see page 77)
On 3 April 2018, as a result of the proposals to redomicile Utilico Emerging Markets Limited ("UEM Bermuda") to the United Kingdom, the shareholders of UEM Bermuda exchanged all their shares in UEM Bermuda for shares in UEM on a one for one basis and UEM Bermuda became a wholly owned subsidiary of UEM. All performance data relating to periods prior to 3 April 2018 are in respect of UEM Bermuda.
Report and Accounts for the year to 31 March 2022 | 5 |
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
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
INDICES MOVEMENTS
from 31 March 2021 to 31 March 2022
130 | ||||
120 | ||||
110 | ||||
100 | ||||
90 | ||||
80 | ||||
70 | ||||
60 | ||||
Mar | Jun | Sep | Dec | Mar |
2021 | 2021 | 2021 | 2021 | 2022 |
NIFTY 50 Index | Hang Seng Index | Shanghai SE Composite Index | ||
PSEi - Philippine SE Index | Brazil Ibovespa Index | |||
Rebased to 100 as at 31 March 2021 | Source: Bloomberg |
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
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
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
MSCI EM SECTOR INDEX TOTAL RETURNS (GBP ADJUSTED)
from 31 March 2021 to 31 March 2022
commodities might well be the biggest social challenge, as food shortages emerge in a number of countries that rely on food imports from Ukraine.
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
16.3% | 15.7% | 14.9% | |
8.6% | 7.9% |
(2.1)%
Financials | Utilities | UEM NAV | Materials | Industrials Information |
total return | technology | |||
per share |
(2.1)% | (5.4)% | |||
(19.8)% | ||||
(23.9)% | (24.1)% | |||
Energy | Consumer Communication | Real | Healthcare | |
staples | services | estate |
Source: Bloomberg
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
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
6 | Utilico Emerging Markets Trust plc | Report and Accounts for the year to 31 March 2022 | 7 |
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Utilico Emerging Markets Trust plc published this content on 17 June 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 17 June 2022 12:42:02 UTC.