2023
REPORT AND ACCOUNTS
TRENDS DRIVING UIL'S INVESTMENT OPPORTUNITIES | WHY UIL LIMITED? |
Changes in | Technology | Infrastructure and | Disruptive | ||||||||||||||
markets and | changes impacting | utilities megatrends | technologies and | ||||||||||||||
regulation opening | commodity | in global emerging | business models | ||||||||||||||
up business | demands | markets | |||||||||||||||
opportunities | |||||||||||||||||
UIL's objective is to maximise shareholder returns by identifying and investing in compelling long- term investments worldwide, where the underlying value is not fully recognised.
Stock selection remains our focus and ICM's proven bottom-uplong-term approach aims to benefit UIL in changing times.
IN THE YEAR TO 30 JUNE 2023 | |||
REVENUE EARNINGS | DIVIDENDS PER | NET ASSET VALUE | SHARE PRICE |
PER ORDINARY SHARE | ORDINARY SHARE | TOTAL RETURN PER | TOTAL RETURN PER |
ORDINARY SHARE* | ORDINARY SHARE* |
6.68p | 8.00p | -20.6% | -18.5% |
(2022: 8.35p) | (2022: 8.00p) | (2022: -38.1%) | (2022: -27.6%) |
- See Alternative Performance Measures on pages 109 to 111
UIL OFFERS ORDINARY SHAREHOLDERS:
- A high conviction portfolio
- Diversified mix of investments
- Opportunity to currently buy UIL shares on the market at a significant discount to NAV
- Attractive quarterly dividends
UIL OFFERS ZDP SHAREHOLDERS:
- Attractive capital growth
- Appealing asset, sector and geographical cover
- Structured as three ZDP classes - mitigating redemption risk
UIL'S INVESTMENT MANAGER
- ICM has been UIL's investment manager since inception (14 August 2003) and prides itself in identifying compelling investment opportunities and working pro-actively with investee companies to improve the economic value for shareholders
- Aligned interest with over 75.0% of UIL held by investors associated with ICM
- ICM offers significant sector expertise
PORTFOLIO STRENGTHS
- Financial Services
- Utilities and Infrastructure
- Technology
- Resources
Report and Accounts for the year to 30 June 2023 | 1 |
CONTENTS
PERFORMANCE
- Current Year Performance
-
Group Performance Summary
5 Chairman's Statement
8 Performance Since Inception (14 August 2003)
STRATEGIC REPORT AND INVESTMENTS
10 Investment Managers' Report
- Top Ten Companies as at 30 June 2023
- Macro Trends Affecting Our Portfolio
- Our Investment Approach
- ESG Spotlight
- Geographical Investment Exposure
- Ten Largest Holdings
- Capital Structure
- ZDP Shares
- Strategic Report
- Investment Managers and Team
GOVERNANCE
- Directors
- Directors' Report
- Corporate Governance Statement
- Directors' Remuneration Report
- Audit & Risk Committee Report
- Statement of Directors' Responsibilities
AUDIT
64 Independent Auditor's Report
FINANCIAL STATEMENTS
70 Accounts
76 Notes to the Accounts
ADDITIONAL INFORMATION
- Notice of Annual General Meeting
- Company Information
- Alternative Performance Measures
- Historical Performance
The business of UIL Limited ("UIL" or the Company") consists of investing the pooled funds of its shareholders in accordance with its investment objective and policy, generating
a return for shareholders and spreading the investment risk. UIL has borrowings and gearing is also provided by zero dividend preference ("ZDP") shares, issued by its wholly owned subsidiary UIL Finance Limited ("UIL Finance"). The joint portfolio managers of UIL are ICM Investment Management Limited ("ICMIM") and ICM Limited ("ICM"), together referred to as the "Investment Managers".
FINANCIAL CALENDAR
Year End
30 June
Annual General Meeting ("AGM")
9 November 2023
Half Year
31 December
Dividends Payable
September, December, March
and June
CURRENT YEAR PERFORMANCE
NAV TOTAL RETURN | SHARE PRICE TOTAL | NAV DISCOUNT AS AT | GEARING* |
PER ORDINARY SHARE* | RETURN PER ORDINARY | 30 JUNE 2023* | |
SHARE* | |||
-20.6% | -18.5% | 27.5% | 83.5% |
(2022: -38.1%) | (2022: -27.6%) | (2022: 28.1%) | (2022: 89.5%) |
REVENUE EARNINGS | DIVIDENDS PER | REVENUE YIELD* | DIVIDEND YIELD* |
PER ORDINARY SHARE | ORDINARY SHARE | ||
6.68p | 8.00p | 2.9% | 5.5% |
(2022: 8.35p) | (2022: 8.00p) | (2022: 2.0%) | (2022: 4.3%) |
ONGOING CHARGES
including and excluding performance fees*
2.8%
(2022: 2.2%)
- See Alternative Performance Measures on pages 109 to 111
TOTAL RETURN COMPARATIVE PERFORMANCE † (pence)
from 30 June 2022 to 30 June 2023
115 | ||||||||||||
110 | ||||||||||||
105 | ||||||||||||
100 | ||||||||||||
95 | ||||||||||||
90 | ||||||||||||
85 | ||||||||||||
80 | ||||||||||||
75 | ||||||||||||
70 | ||||||||||||
Jun 22 | Jul 22 | Aug 22 | Sep 22 | Oct 22 | Nov 22 | Dec 22 | Jan 23 | Feb 23 | Mar 23 | Apr 23 | May 23 | Jun 23 |
NAV total return | Ordinary share price | FTSE All-Share | MSCI All Countries World total | |||||||||
per ordinary share | total return | total return Index | return Index (GBP adjusted) | |||||||||
† Rebased to 100 as at 30 June 2022 | Source: ICM and Bloomberg |
2 | UIL Limited | Report and Accounts for the year to 30 June 2023 | 3 |
GROUP PERFORMANCE SUMMARY
CHAIRMAN'S STATEMENT
30 June | 30 June | % change | |
2023 | 2022 | 2023/22 | |
NAV total return per ordinary share1 (for the year) (%) | (20.6) | (38.1) | n/a |
Share price total return per ordinary share1 (for the year) (%) | (18.5) | (27.6) | n/a |
Annual compound NAV total return1 (since inception2) (%) | 7.8 | 9.5 | n/a |
NAV per ordinary share1 (pence) | 199.87 | 260.89 | (23.4) |
Ordinary share price (pence) | 145.00 | 187.50 | (22.7) |
Discount1 (%) | 27.5 | 28.1 | n/a |
Returns and dividends (pence) | |||
Revenue return per ordinary share | 6.68 | 8.35 | (20.0) |
Capital return per ordinary share | (59.70) | (171.68) | (65.2) |
Total return per ordinary share | (53.02) | (163.33) | (67.5) |
Dividends per ordinary share | 8.003 | 8.00 | 0.0 |
FTSE All-Share total return Index | 8,611 | 7,981 | 7.9 |
Equity holders' funds (£m) | |||
Gross assets4 | 304.9 | 410.6 | (25.7) |
Loans | 42.7 | 51.1 | (16.4) |
ZDP shares | 94.6 | 140.8 | (32.8) |
Equity holders' funds | 167.6 | 218.7 | (23.4) |
Revenue account (£m) | |||
Income | 10.2 | 9.9 | 3.0 |
Costs (management and other expenses) | 1.7 | 1.7 | 0.0 |
Finance costs | 2.9 | 1.1 | 163.6 |
Net income | 5.6 | 7.0 | (20.0) |
Financial ratios of the Group (%) | |||
Ongoing charges figure excluding performance fees1 | 2.8 | 2.2 | n/a |
Ongoing charges figure including performance fees1 | 2.8 | 2.2 | n/a |
Gearing1 | 83.5 | 89.5 | n/a |
The year to 30 June 2023 has been challenging on the economic and geopolitical front. At UIL this has been compounded given the need to reduce UIL's bank debt significantly at this time. UIL's investment performance has been disappointing with its NAV total return down by 20.6% for the year and which, in light of UIL's ZDP shares and
bank debt, is estimated to comprise approximately
-12.0% from the investment portfolio and the balance primarily due to the effects of gearing. This has pulled UIL's annual compound NAV total return since inception in 2003 down to 7.8%.
Market volatility has been driven by significant uncertainties in the face of rising inflation (especially energy and food prices), increasing interest rates by central banks, rising climate change concerns and all exacerbated by the war in Ukraine and China's transition to no Covid restrictions earlier this year. There also continues to be a wider reset of economic and political relationships between the West and the East.
A small positive is that the reduction in UIL's net debt to £139.9m from £195.7m as at 30 June 2022, has seen UIL's gearing decline. As at 30 June 2023 UIL's gearing stood at 83.5% (30 June 2022: 89.5%).
Since inception in August 2003, UIL has distributed £94.6m in dividends, invested £36.9m in ordinary share buybacks and made net gains of £209.0m for a total return of 344.2% (adjusted for the exercise of warrants and convertibles). Shareholders should note that the Board and the Investment Managers focus on longer term market indices, whilst including short term comparisons for reference.
There have been a number of changes in the portfolio during the year to 30 June 2023. UIL sold its largest unlisted company, ICM Mobility Group Limited ("ICM Mobility"), to Somers Limited ("Somers") and bought a number of listed holdings as UIL sought to reduce its unlisted investments and increase its listed positions. Furthermore, as a result of share price weakness,
a number of positions fell out of the top ten. This is covered in more detail in the Investment Managers' report.
The Board is pleased to see the ordinary shares discount to NAV end the year under 30.0%, standing at 27.5% as at 30 June 2023 (30 June 2022: 28.1%). Given the focus of applying cash resources to the redemption of the 2022 ZDP shares and the reduction in the bank facility, no buybacks were undertaken in the year ended 30 June 2023.
Consistent with the wider debt markets, UIL's longer dated 2024, 2026 and 2028 ZDP shares are trading at significantly higher gross redemption yields compared to those as at 30 June 2022, being 8.9%, 8.8% and 8.9% respectively. The market prices of the ZDP shares were impacted by interest rate rises by most central banks
- See Alternative Performance Measures on pages 109 to 111
- All performance data relating to periods prior to 20 June 2007 are in respect of Utilico Investment Trust plc, UIL's predecessor
- The fourth quarterly dividend of 2.00p has not been included as a liability in the accounts
- Gross assets less current liabilities excluding loans and ZDP shares
COMMODITIES MOVEMENTS
from 30 June 2022 to 30 June 2023
140
130
120
110
100
90 | |||||||
80 | |||||||
70 | |||||||
60 | Jun 22 | Aug 22 | Oct 22 | Dec 22 | Feb 23 | Apr 23 | Jun 23 |
Oil | Copper | Nickel | Gold | Aluminium | |||
Rebased to 100 as at 30 June 2022 | Source: Bloomberg |
4 | UIL Limited | Report and Accounts for the year to 30 June 2023 | 5 |
CHAIRMAN'S STATEMENT (continued)
CURRENCY MOVEMENTS vs STERLING
from 30 June 2022 to 30 June 2023
110
105
100
95 | |||||||
90 | |||||||
85 | Jun 22 | Aug 22 | Oct 22 | Dec 22 | Feb 23 | Apr 23 | Jun 23 |
US Dollar | Euro | Australian Dollar | |||||
Rebased to 100 as at 30 June 2022 | Source: Bloomberg |
differences between three key regions: the Western economies where we expect inflation to reduce gradually; Asia, where we see China heading for deflation; and Latin America ("LatAm"), where inflation has already halved. Against this backdrop we expect Western economies to hold interest rates higher for longer, China to reduce rates further while LatAm is expected to reduce interest rates sharply lower.
The one unknown in our view continues to be the response of the labour force especially in the West. Labour markets remain tight and the number of unemployed are at record lows in many economies. If this continues, then the shortage of the work force will drive up wages and in turn feed inflation.
OUTLOOK
The outlook for worldwide economies increasingly rests with global leadership, both political and central bankers. The central banks perhaps have the easier task as inflation looks to be receding in most major markets. We assume interest rates will stay higher than expected and we expect this will be a headwind to economies and commodities are likely to remain soft. The same cannot be said of geopolitical leadership which remains challenging. The rising pressure to meet social expectations and the impact of climate change, natural disasters and conflict will be difficult to navigate. We remain focused on reducing risk and helping investee companies navigate through these challenges and emerge stronger.
as inflation increased sharply. As at 30 June 2023, UIL's average blended rate of funding costs, including bank debt, increased from 4.7% to 5.7%, mainly as a result of higher bank borrowing costs.
Total revenue income for the year to 30 June 2023 was £10.2m, an increase of 3.0% from £9.9m in the prior year, a good outcome given the reduced level of investments. However, the finance costs increased significantly for the year to 30 June 2023 to £2.9m, up 163.6% from the prior year at £1.1m. This resulted in the revenue return earnings per share ("EPS") of 6.68p, representing a decrease of 20.0% from 30 June 2022 of 8.35p.
The facility has been reduced from £37.5m to £25.0m and will step down in stages over the next six months prior to a final repayment by 19 March 2024.
GLOBAL EVENTS
Several themes continue to dominate global events: heightened geopolitical tensions, the outlook for inflation and interest rates, climate change, technology and Artificial Intelligence ("AI").
As anticipated at the time of announcing UIL's half-year report, Covid-19 has receded and we do not expect
it to be an issue going forward. China's reversal of its zero tolerance policy earlier this year was a positive.
An ever increasing factor for investors is climate change. It has clearly had devastating impacts on a number of communities from wildfires in Hawaii to floods in Germany. We are seeing whole ecosystems being impacted from prolonged droughts to record temperatures. As investors we need to prepare for these outcomes to continue across our portfolios.
There is a very perceptible shift to embrace AI by most businesses and as with most technological developments, those without legacy businesses benefit the most, but eventually all businesses will need to adapt or risk failure. This has been our experience in the Fintech sector. UIL has a number of investments with significant exposure to AI, Blockchain and Quantum Computing.
Peter Burrows AO
Chairman
22 September 2023
The Board declared an unchanged fourth quarterly dividend of 2.00p per ordinary share which maintains the total for the year at 8.00p, and a yield on the closing share price of 5.5%. Although the dividend is not fully covered by earnings in the year, given the significant revenue reserves brought forward of 15.32p per share, the Board is comfortable with maintaining the payout at 8.00p. The revenue reserves carried forward reduced to £11.7m as at 30 June 2023 from £12.8m as at 30 June 2022.
The capital return loss for the year ended 30 June 2023 of £50.0m is disappointing to report to shareholders.
BANK FACILITY
UIL has agreed with the Bank of Nova Scotia, London Branch ("Bank of Nova Scotia") to extend its committed senior secured multi-currency facility to 19 March 2024.
However, weak Chinese consumer confidence is a headwind to a full recovery by China.
The war in Ukraine has gone on longer than expected and today there continues to be no clear way forward. Both sides have been drawn in further, but once they reach a neutral position, a negotiated outcome would be expected.
The ongoing friction between the USA and China continues to deepen and it is now difficult to see how this reverses direction. Given the USA and China are the two largest economies globally this must pose significant risks at some point in the future, especially for technology businesses on each side of the Pacific Ocean.
Inflation moved markedly for most economies over the year. Nearly all central banks responded with significantly higher interest rates. We now see major
INDICES MOVEMENTS
from 30 June 2022 to 30 June 2023
120
110
100
90
80 | |||||||
70 | Jun 22 | Aug 22 | Oct 22 | Dec 22 | Feb 23 | Apr 23 | Jun 23 |
FTSE All-Share | Australian Securities Exchange ("ASX") | S&P 500 | MSCI All Countries World Index | ||||
Rebased to 100 as at 30 June 2022 | Source: Bloomberg |
6 | UIL Limited | Report and Accounts for the year to 30 June 2023 | 7 |
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UIL Limited published this content on 22 September 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 25 September 2023 06:26:03 UTC.