Utilico Emerging Markets Regulatory News (UEM)

Date: 16 June 2023

UTILICO EMERGING MARKETS TRUST PLC

ANNUAL FINANCIAL REPORT

FOR THE YEAR TO 31 MARCH 2023

Utilico Emerging Markets Trust plc ("UEM" or the "Company") today announces its audited financial results for the year to 31 March 2023.

Highlights of results

· Net asset value ("NAV") total return per share of 2.1%* (2022: 14.9%*)

· NAV per share of 250.91p* per share, down 1.3%

· Gross assets of £542.5m, a decrease of 4.8%

· Annual compound NAV total return since inception of 9.3%*

· Dividends per share totalled 8.45p for the year, an increase of 5.6%. Dividends were fully covered by earnings

· Revenue earnings per share ("EPS") increased 15.1% to 9.40p

· Total revenue income of £24.3m, an 7.5% decrease

*See Alternate Performance Measures on pages 96 and 97 of the Report and Accounts

The Report & Accounts for the year ended 31 March 2023 will be posted to shareholders in early July 2023. 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/0694D_1-2023-6-16.pdf

John Rennocks, Chairman of UEM said: "The year to 31 March 2023 has continued to be truly challenging for all, including investors. However, UEM turned in a strong performance in the second half of the year and importantly delivered a positive NAV Total return of 2.1%. This was once again significantly ahead of the MSCI EM total return Index which was down 5.0% over the same period. UEM's long term annual compound NAV total return since inception to 31 March 2023 of 9.3% also exceeds the MSCI EM total return Index of 7.6%.

"It is excellent to see UEM's revenue earnings per share increase by 15.1% to 9.40p given the wider market challenges as inflation and interest rates have risen sharply. UEM has declared one quarterly dividend of 2.00p and three quarterly dividends of 2.15p each, totalling 8.45p per share, a 5.6% increase over the previous year, and fully covered by income. Disappointingly UEM's share price discount widened over the year from 11.9% as at 31 March 2022 to 13.5% as at 31 March 2023 and this remains above the level that the Board would wish to see over the medium term.

"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, infrastructure and utility assets that the Company's Investment Managers believe are structurally undervalued and offer the potential for excellent total returns."

Charles Jillings, Investment Manager of UEM added: "UEM's one year, three years, five years and since inception performance is ahead of the MSCI Index. UEM has delivered this together with a rising dividend; a low Beta (as at 31 March 2023, UEM's five year Beta was 0.76x); and with a portfolio which is very different from the MSCI Index (UEM's active share is over 95.0%).

"This should be compelling to investors who want exposure to emerging markets, top performance and comparatively low levels of volatility."

Contacts: Joint Portfolio Manager and Company Secretary

ICM Investment Management Limited +44(0)1372 271486

Charles Jillings / Alastair Moreton

Public Relations

Montfort Communications +44(0)20 3770 7913

Gay Collins / Pippa Bailey

utilico@montfort.london

Joint Brokers

Shore Capital +44(0)20 7408 4090

Rose Ramsden / Angus Murphy

Barclays Bank +44(0)20 7623 2323

Dion Di Miceli / Stuart Muress / Louis Reed

BarclaysInvestmentCompanies@barclays.com

PERFORMANCE SUMMARY

(1) See Alternative Performance Measures on pages 96 and 97 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

CHAIRMAN'S STATEMENT

The year to 31 March 2023 has continued to be truly challenging for all, including investors. From the war in Ukraine through to inflation and sharply higher central bank interest rates; to rising geopolitical friction; and to the challenges on climate change and significant natural disasters. Understandably, volatility in most markets has been elevated as uncertainty has dominated.

UEM turned in a strong performance in the second half of the year and importantly delivered a positive NAV total return of 2.1% for the year to 31 March 2023. This was once again significantly ahead of the MSCI EM total return Index which was down 5.0% over the same period.

UEM measures its performance on a total return basis over the long term and the Investment Managers are seeking long term performance to be above 10.0% per annum including a rising dividend. Over one, three and five years and since inception, UEM has outperformed the MSCI EM Index. It is pleasing to highlight the long term annual compound NAV total return since inception to 31 March 2023 of 9.3% exceeding the MSCI EM total return Index of 7.6%.

GLOBAL ECONOMY

As referred to earlier, there are numerous headwinds currently faced by the markets, each of which is challenging in its own right. We have historically discussed a number of these and they largely remain unresolved. We continue to witness a significant rise in nationalism, wealth inequality and global immigration. All of these issues and challenges no doubt tear at the fabric of our societies and institutions.

One positive is that Covid looks to be behind us. The World Health Organisation finally declared the Covid emergency over in May 2023. At the time of publishing UEM's half yearly report in November 2022, we were deeply concerned about the challenges faced by China given their zero Covid policy. The about-turn by China on Covid was a surprise in both its timing and approach. We had expected China to vaccinate its population and slowly lift restrictions in the summer this year. Faced with the highly infectious Omicron variant already penetrating the wider Chinese population and the heavy burden of ineffective lockdowns, the decision to go from zero Covid tolerance to total tolerance was bold. Certainly, at an investee level, it has had very limited impact on the ability of corporates to run their businesses today.

Unfortunately the same cannot be said of the war in Ukraine. It remains devastating on a number of levels. The harshness of the Russian army will be a wound on liberal societies for decades to come. The need to have resilient and diversified supply chains, energy security, green energy and increased defence capabilities will see resources diverted and reinvested with an urgency and scale not witnessed in our lifetime. This shift will give rise to new opportunities for investors, including UEM.

The legacy of Covid and the West's response to it has undoubtedly led to higher debt and higher inflation, and the Russian war in Ukraine has seen sharply higher commodity prices and accelerating inflation. The response by the Central Banks to higher inflation has been to rapidly raise interest rates to bring inflation under control. The surprising part has been the resilience in the labour market where in most Western countries, unemployment levels are at record lows. This is good for workers but ultimately negative for the inflation outlook if it persists, as wage demands will keep inflation high.

EMERGING MARKETS

Most EM markets were down over the year reflecting local headwinds, higher interest rates and lower valuations. Brazil's Bovespa Index was down 15.1%, the Philippine PSEI Index was down 9.8% and the Hong Kong Hang Seng Index was down 7.3%. Some markets have held up, most notably India's Sensex which was up by 0.7%. A common theme has been rising inflation in Latam and Eastern Europe and weakening property markets in Asia. Of note is the volatility - at its low the Hang Seng Index was down over 30.0% and the Philippine PSEI was down over 20.0%.

In comparison most currencies were up against UK Sterling although for UEM notably the Brazilian Real, Chinese Renminbi and Indian Rupee were all down 0.2%, 1.7% and 1.8% respectively. Again, volatility was high. The Hong Kong Dollar was at one point during the year up over 20.0% and the Indian Rupee was up by 15.0% against Sterling.

Most commodities have moved lower during the period under review as supply chains have adjusted, with oil down by 26.1%, wheat down by 31.2% and soybean down by 12.6%. Although copper moved higher, up by 16.0%. But most remain elevated compared to historic levels which is feeding through into inflation.

UNLISTED INVESTMENTS (LEVEL 3 INVESTMENTS)

UEM has over the years invested in unlisted businesses at a modest level. This remains true today. As at 31 March 2023 the value of the unlisted portfolio has risen to 10.8% which has been driven primarily by the revaluation of Petalite Limited ("Petalite"). UEM is unable to invest further in unlisted investments while the valuation of its unlisted portfolio is over 10.0% of gross assets. Petalite is a disruptive technology start up business and gives 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%. Following external fund raising, in which UEM invested a further £1.25m, and significant progress, our holding in Petalite was valued upwards in the year to £28.6m.

REVENUE EARNINGS AND DIVIDEND

It is excellent to see UEM's revenue earnings per share ("EPS") increase by 15.1% to 9.40p given the wider market challenges as inflation and interest rates have risen sharply during the year to 31 March 2023.

UEM has declared one quarterly dividend of 2.00p and three quarterly dividends of 2.15p each, totalling 8.45p per share, a 5.6% increase over the previous year. Dividends remain fully covered by income. The retained earnings revenue reserves increased by £2.3m in the year to £9.6m as at 31 March 2023, equal to 4.74p per share. 

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, infrastructure and utility assets that the Company's Investment Managers believe are structurally undervalued and offer the potential for excellent total returns.

SHARE BUYBACKS

Disappointingly UEM's share price discount widened over the year from 11.9% as at 31 March 2022 to 13.5% as at 31 March 2023. This remains above the level that the Board would wish to see over the medium term. The Company has continued buying back shares for cancellation, with 12.5m shares bought back in the year to 31 March 2023, at an average price of 215.45p and total cost of £27.2m.

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 75.1m ordinary shares totalling £138.8m. The buybacks now represent significantly more than the initial IPO capitalisation of UEM Limited when it came to market in July 2005. The share buybacks have contributed 0.8% to UEM's total returns.

ONGOING CHARGES

Ongoing charges were unchanged at 1.4% for the year to 31 March 2023, a good result especially given the wider inflationary environment.

BOARD

We announced plans for board refreshment in 2021, which included the appointments of Mark Bridgeman and Isabel Liu later that year and after the 2022 Annual General Meeting ("AGM") Anthony Muh stepped down from the Board. Continuing with these initiatives, Susan Hansen has confirmed her intention to retire from the Board following the conclusion of UEM's next AGM in September 2023. Susan has brought significant insight, experience and challenge to the Board since she joined in 2013.

As noted in the half yearly report, the Directors have reviewed the composition of the Board and the current intention is to continue as a Board of four Directors. This will be kept under review as part of the annual Board evaluation process.

ADVISER AND INVESTOR COMMUNICATION

We referred to proposals for increased investor communication in the half yearly report and the continued focus on marketing UEM to the wider investment community. As part of these initiatives we were pleased to announce, after a competitive pitch process, the appointments of Barclays as joint corporate broker alongside Shore Capital, and RMS Partners to help lead investor engagement with regional institutions and private client fund managers. We also draw investors' attention to UEM's website which has extended its content significantly, providing comprehensive insights from the Investment Managers on areas such as individual EM countries and portfolio stocks.

UEM is working with its advisers to rejuvenate the marketing presentation and draw attention to a number of megatrend tailwinds benefitting UEM, see page 19. Our drive is to improve investor knowledge and broaden its investor base, especially retail.

OUTLOOK

The megatrends driving much of the global growth in emerging markets are strengthening. We see UEM's portfolio as well placed to benefit from these megatrends.

The investee company's management teams have demonstrated an enviable ability to seize the opportunity even in these challenging markets. We remain optimistic for UEM.

John RennocksChairman16 June 2023

INVESTMENT MANAGERS' REPORT

It is pleasing to see UEM deliver another positive NAV gain, with a NAV total return for the year of 2.1%, building on last year's 14.9% uplift and the prior year's 30.2% return. This performance was again significantly ahead of the MSCI EM total return Index which was down by 5.0% during the year to 31 March 2023 and down by 6.9% in the year to 31 March 2022. As previously noted, UEM's asset sector class was largely overlooked by the markets early in the pandemic, which focused on the shift to working from home. 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.

UEM's one year, three years, five years and since inception performance is ahead of the MSCI Index. UEM has delivered this together with a rising dividend; a low Beta (as at 31 March 2023, UEM's five year Beta was 0.76x); and with a portfolio which is very different from the MSCI Index (UEM's active share is over 95.0%). This should be compelling to investors who want exposure to emerging markets, top performance and comparatively low levels of volatility.

We were surprised by China's decision to go from zero Covid tolerance to total tolerance. We assumed China would vaccinate then exit their zero Covid policy in the summer of 2023. It has been very pleasing to see that globally the focus on Covid has evaporated and in our travels to India, Poland, Mexico, Chile and Brazil this year, Covid was hardly mentioned.

However, the world is still 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 an investment team. Finding consensus on these issues has been and continues to be challenging.

INFLATION AND INTEREST RATES

Inflation has risen sharply and remained elevated in the developed economies. An undoubted driver of this has been tight labour markets which has led to wage inflation as buying power shifts to the wider workforce. If left unaddressed this will cause further inflationary pressures and may become embedded in economies.

We have been surprised by the tightness of labour markets. Unemployment levels are at record lows in many countries. Our view is that the combination of workers suffering from long Covid and increased social care falling on families, together with early retirement has all contributed to the reduction in the available labour force. 

Inflation has also been exacerbated by changes in supply chains. The drive for food security, energy independence and the shift to nearshoring however will all have likely added to the cost of supply chains. The lowest cost of production is no longer the sole driver of decisions.

Commodities have also played a part in inflation reflecting an imbalance as demand exceeds supply in certain products. This is likely to continue as decades of under-investment cannot be redressed overnight.

Further, the response to the Ukraine war will see an increased drive for energy security, supply chain security and military security. These three challenges are likely to be pursued at a significant pace and will result in heightened demand for commodities. Structurally we therefore see commodity demand rising and pricing to remain on the upside.

To address the rising inflationary outlook in the developed world, Central Banks have raised interest rates at a rapid pace. We expect we are at the point where interest rates plateau before declining. The "lower for longer" mantra has been replaced by "higher for longer".

A point to note is that Latam has seen inflationary pressures well ahead of the developed world and its Central Banks have responded firmly and early. Most Latam countries have Central Bank interest rates of over 10.0%. Correspondingly we are seeing inflation in Latam firmly roll over. Our expectation is that a number of Central Banks are now in a position to lower interest rates.

Inflation has not been as much of a challenge in Asia. We suspect this results from higher unemployment levels at the start of Covid. As a consequence, wage pressures are lower, as is inflation. It is worth noting China's inflation is running at under 2.0%.

UKRAINE

The war in Ukraine has gone on longer than we expected but has had less of a long-term impact on energy and wheat markets than we thought. Both these commodities have seen their prices fall significantly over the year. As such, inflationary pressures are much reduced for these two commodities.

However, the wider global inflationary legacy is expected to persist. The threat from energy supply and supply chain security will require significant investment to address these two concerns and inflationary pressures will remain.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE ("ESG")

Climate change remains at the forefront of global debate, heightened by the increased impact of climate disasters worldwide. ICM has committed to measuring and reducing its own carbon emissions through a range of initiatives. As an investor who expects our investees to consider their impact on the environment, it is therefore important to lead by example.

Energy transition is a megatrend which is the catalyst that will enable nations to reach their net zero commitments. As the transition intensifies attention will turn to new technologies within supply chains. Production will face increased scrutiny from downstream industries, investors and the public over ESG issues. The transition will need to be carefully managed to ensure that the impact generated from clean technologies is maximised. ICM's approach therefore encompasses the need to understand the upstream supply chains of investees' products.

CLIMATE CHANGE

The war in Ukraine has been a true setback for the globally supported aim 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.

The past year has provided a stark reminder of the devastation that can arise from climate change-related disasters. Climate-driven events are becoming more frequent and severe. China featured twice in the ten most costly climate change-related disasters in 2022. Climate change risk is monitored across the portfolio, however predicting the likelihood and impact of events remains a difficult task. Currently, we see geographical diversification as the best way to mitigate the risk posed by climate-related disasters. 

PORTFOLIO

UEM's gross assets (less liabilities excluding loans) decreased to £542.5m as at 31 March 2023 from £569.6m as at 31 March 2022. This reflects valuation uplifts offset by net realisations to fund, in part, the share buybacks of £27.2m in the year.

At the year end the top thirty holdings accounted for 67.7% of the total portfolio (31 March 2022: 65.6%). There have been nine new entrants into the top thirty holdings over the year. UEM increased its investment in China Gas Holdings Limited ("China Gas") by 42.9%, Aguas Andinas S.A. ("Aguas Andinas") by 203.1%, Centrais Eletricas Brasileiras S.A. ("Eletrobras") by 73.6%, InPost S.A. ("InPost") by 53.2% and Vamos Locacao de Caminhoes Macquinas e Equipamentos S.A. ("Vamos") by 93.6%. Shanghai International Airport Co., Ltd ("SHIA") is a new investment in the year. This together with some strong share price performances from China Gas up by 10.4%, Aguas Andinas up 38.6%, InPost up 46.0% and SHIA up 13.3% moved them all into the top thirty holdings. Umeme Limited saw its share price recover by 74.2% and is now in nineteenth position in our portfolio. Grupo Traxion S.A.B. de C.V. rose into the top thirty as we reduced other holdings.

UEM exited from PT Link Net Tbk following an offer for the business at a premium. UEM reduced its investment in Simpar S.A., My E.G. Services Berhad, Ocean Wilsons Holdings Limited, Corporacion Financiera Colombiana S.A., China Everbright Greentech Limited, Societe Nationale des Telecommunications du Senegal, Naver Corporation Limited and KT Corporation, all of which fell outside the top thirty holdings.

Purchases in the portfolio decreased again to £108.9m in the year ended 31 March 2023 (31 March 2022: £124.5m) and realisations decreased to £126.6m (31 March 2022: £176.9m). This reflects investment activity more in line with long term averages. An active decision was taken to slowly increase UEM's debt as confidence in investee companies grew. UEM ended the year with its bank loans drawn to £35.1m, 70.2% of the available £50.0m facility.

There have been some small sector shifts during the year to 31 March 2023 and more detail is set out on page 17. On a geographical basis there were some small changes again and more detail is set out on page 10.

LEVEL 3 INVESTMENTS

UEM ended the year with level 3 investments totalling £58.7m (31 March 2022: £48.1m), representing 10.8% of total investments (31 March 2022: 8.4%). UEM's level 3 investments increased mainly as a result of the revaluation of Petalite. UEM first invested in Petalite in March 2020, since which time the electric vehicle charging technology company has won several UK government innovation grants, and further developed, patented and certified its core SDC technology. SDC, or Sinusoidal Direct Current, is a revolutionary method of converting AC to DC more efficiently and with a higher degree of reliability than existing "full bridge" technology used in electric vehicle chargers. In June 2022 Petalite received investment from AM Impact Partners, a strategic investor, in a funding round in which UEM also participated. The funding round was completed at a premium to the carrying valuation as reported in the March 2022 annual accounts, which resulted in an uplift of £9.9m to NAV during the period ended 31 March 2023. Attention is drawn to note 26(d) of the accounts which provides more information on Petalite's valuation methodology and the 50% level of sensitivity to its fair value which has been applied. UEM is a 28.6% shareholder in Petalite.

BANK DEBT

UEM's net debt, being bank loans and net overdrafts, increased from £23.2m as at 31 March 2022 to £36.1m as at 31 March 2023, as UEM actively increased its investment positions. UEM's £50.0m committed multicurrency loan facility is with The Bank of Nova Scotia, London Branch, and matures in March 2024.

REVENUE RETURN

Revenue income increased by 7.7% to £24.3m in the year to 31 March 2023, from £22.6m in the prior year. This is a good outcome given the uncertain markets. 

Management fees and other expenses were flat at £3.0m in the year to 31 March 2023, unchanged from the year to 31 March 2022. This is a positive given the inflationary pressures in the wider market. Finance costs remained modest at £0.2m (31 March 2022: £0.1m). Taxation remained largely unchanged at £1.6m during the year ended 31 March 2023 (31 March 2022: £1.5m).

Profit for the year increased by 8.6% to £19.5m from £17.9m for the prior year. EPS was higher, increasing by 15.1% to 9.40p compared to the prior year of 8.17p due to the higher earnings and reduced average number of shares in issue following the buybacks. Dividends per share ("DPS") of 8.45p were fully covered by earnings.

Retained revenue reserves rose to £9.6m as at 31 March 2023, equal to 4.74p per share.

CAPITAL RETURN

The portfolio losses were £8.4m on the capital account during the year to 31 March 2023. Losses on foreign exchange were £0.5m and therefore the resultant total income loss on the capital account was £8.9m against prior year gains of £59.6m.

Management and administration fees were almost flat at £4.3m (31 March 2022: £4.2m).

Finance costs increased to £0.7m from £0.5m as a result of higher interest costs. There was a taxation gain of £0.2m (31 March 2022: loss of £1.2m) which arose mainly from Indian capital gains tax reductions. The net effect of the above was a loss on capital return of £13.7m (31 March 2022: a gain of £53.7m).

Charles JillingsICM Investment Management Limited and ICM Limited

16 June 2023

PRINCIPAL RISKS AND RISK MITIGATION

During the year ended 31 March 2023, 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, geopolitical confrontations, 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 programmes 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 95. The Audit & Risk Committee monitors the performance and controls (including business continuity procedures) of the service providers at regular intervals..

All listed and a number of unlisted investments are held in custody for the Company by JPMorgan Chase Bank N.A. - London Branch. 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 2023, UEM had net gearing on net assets of 7.1%. 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 16 June 2023 and signed on its behalf by:

John Rennocks

Chairman

STATEMENT OF COMPREHENSIVE INCOME

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

STATEMENT OF FINANCIAL POSITION

STATEMENT OF CASH FLOWS

NOTES

The Directors have declared a fourth quarterly dividend in respect of the year ended 31 March 2023 of 2.15p per share payable on 23 June 2023 to shareholders on the register at close of business on 2 June 2023. The total cost of the dividend, which has not been accrued in the results for the year to 31 March 2023, is £4,334,000 based on 201,579,356 shares in issue at the record date.

This statement was approved by the Board on 16 June 2023. The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 March 2023 or 2022 but is derived from those accounts. Statutory accounts for 2022 have been delivered to the Registrar of Companies and those for 2023 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.

Annual General Meeting Arrangements

The Annual General Meeting of the Company will be held at The Royal Society of Chemistry, Burlington House, Piccadilly, London W1J 0BA on Tuesday, 19 September 2023 at 10.00 a.m. and notice is set out at the end of the Report & Accounts.

Legal Entity Identifier: 2138005TJMCWR2394O39