Utilico Emerging Markets Regulatory News (UEM)

Date: 22 November 2019

Contact: Charles Jillings

Utilico Emerging Markets Trust plc

01372 271 486

Gay Collins/Mike Foster

Montfort Communications

0203 770 7905

Utilico@montfort.london

UTILICO EMERGING MARKETS TRUST PLC

UNAUDITED HALF-YEARLY FINANCIAL REPORT

FOR THE SIX MONTHS TO 30 SEPTEMBER 2019

Highlights of results in the six months to 30 September 2019:

·; Utilico Emerging Markets Trust plc's ("UEM" or "the Company") net asset value ("NAV") total return per ordinary share was 9.0% (MSCI EM Total Return Index GBP adjusted: 1.8%)

·; NAV of 268.75p per share, an increase of 7.6% (226.81p)

·; Share price total return per share of 10.4%

·; NAV compound total return of 11.3% including the performance of Utilico Emerging Markets Limited ("UEM Bermuda") since inception in 2005

·; Revenue earnings per share ("EPS") was 6.39p, an increase of 5.8% (2018: on an investment basis 6.04p) and dividends per share of 3.73p (2018: 3.60p)

·; Second quarter dividend of 1.925p per share recently declared, an increase of 6.9% on the first quarter dividend of 1.80p per share

·; Total revenue income for the period was £18.1m (2018: on an investment basis £16.9m)

·; UEM's share price discount narrowed to 11.8%, down from 13.6% as at 30 September 2018

John Rennocks, Chairman of UEM said: "I am pleased to report that, in volatile markets, UEM has continued to deliver a positive performance, achieving a NAV total return for the six months of 9.0%, ahead of the MSCI EM Total Return Index, GBP adjusted, which was up 1.8%. This continues to benefit from our strong conviction in Brazil. The profile of UEM's existing investments remains largely the same. These businesses are predominantly profitable, cash generative and dividend paying, and offer attractive long-term total returns. It is pleasing to see the EPS increase by 5.8% on an investment basis. Since inception over 14 years ago, UEM's track record of performance has been reassuring and the Board has every confidence that the Investment Managers will continue to identify investments offering attractive, long term returns."

Charles Jillings, Investment Manager of UEM added: "UEM was more active than usual during the six months to 30 September 2019, with five new entries into the top twenty holdings of the portfolio over the period. Changes to the portfolio's geographic allocation were not materially different, with the exception of Argentina and India. Brazil remains UEM's largest country exposure at 28.7%, followed by China at 7.8% then India at 10.5%."

"UEM's portfolio remains well positioned with a diverse portfolio. The management team continues to travel extensively in order to seek out compelling investments that offer excellent returns. As such, it is notable that UEM's portfolio consists of a diverse range of companies that are often under-represented in the MSCI."

PERFORMANCE SUMMARY

(1) See Alternative Performance Measures on pages 38 to 41 of the Half-Yearly Financial Report for the six months to 30 September 2019.

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

(3) Gross assets less liabilities excluding loans

(4) Percentage change based on comparable six month period to 30 September 2018

(5) For comparative purposes the figures have been annualised

\* The figures for the period to 30 September 2018 relate to the Company on an investment basis

CHAIRMAN'S STATEMENT

I am pleased to report that, in volatile markets, UEM has continued to deliver a positive performance, achieving a NAV total return of 9.0% for the six months to 30 September 2019.The past six months has seen rising economic and stock market volatility and presented a challenge for UK domestic EM investors, especially in the face of continued Brexit uncertainties. As we have noted on numerous occasions, volatility was magnified by geopolitical concerns, trade skirmishes initiated by the Trump administration, concerns over numerous Central Banks' policies and the rising tide of populism. The prior year was marked by rising gross domestic product ("GDP") and rising interest rate expectations while this last six months has seen the opposite: slowing GDP and lower interest rates, all of which heightened market risk. In this context, the positive performance of UEM is a pleasing achievement.UEM's NAV total return for the six months was up 9.0%, which continues to benefit from our strong conviction in Brazil. This result was ahead of the MSCI Emerging Markets Total Return Index (GBP adjusted) ("MSCI") which was up 1.8% over the period. UEM also continues to receive strong industry recognition, which included being selected again as one of Money Observer's 'rated funds' for 2019. The fund was also selected on Interactive Investor's Super 60 list.As noted last year, there are two opposing forces at work in global markets at the moment: populist political leadership and Central Bank activity. This continues to be the case this year. The pursuit of populist policies, especially the trade dispute between the US and China, has seen global GDP slow. As a result, the Central Banks are now focused on reflationary policies, providing liquidity and lowering interest rates. The populists are continuing to look to deliver policy changes with little regard for more traditional economics while the Central Banks are looking to protect their economies from deflation and further economic slowdowns.As EM investors, we are reassured with the lower interest rates in Brazil, India, Mexico and China. This will see improved earnings as the cost of finance falls. However, the rise of negative interest rates in the developed markets is a concern. We see negative interest rates as eroding value for savers and pension funds while increasing the risks to global financial stability.I would note that, in the EM world, Jair Bolsonaro is leading Brazil in the right direction on government costs; his pension reforms have been passed and his government continues to pursue policies to open up the economy, including privatisations. Narendra Modi has been re-elected with a stronger mandate and President Xi is committed to growth. It is noteworthy that at a time when the US is turning away from an open economy, China is opening up its economy. These economies, which account for 57.0% of UEM's portfolio, should respond positively to these policies.Conflicting with the above is the growing anger at the wealthy ruling political structures. This is highlighted in protests in Hong Kong, Moscow, Lebanon, London, Paris and Santiago, although each has had different drivers; for example, independence for Hong Kong, the wealth gap in Santiago and climate change in London. The focus is on a rebalance of political priorities and resources. Questions are being asked and challenges are rising. Some of these have devolved into riots and caused significant disruption. We will no doubt see policy changes or risk further challenges.As an investment fund, Environmental, Social and Governance ("ESG") continues to be a focus. UEM's Investment Managers have a good record on governance, given their active approach to investee companies and they have taken steps to strengthen the ESG approach to investing. For example, decarbonisation offers UEM more opportunities than challenges. Our investments in Omega Geracao, the biggest wind farm operator in Latin America ("LATAM"), China Everbright Greentech Limited, China's leading biomass and hazardous waste treatment business, and other investments offer significant opportunities for UEM over the long-term. China remains a key driver of the EM economies and there is no doubt that Trump's relentless focus on China trade is having a negative impact on China. China's desire to pivot away from a capital investment-driven economy towards a more consumer-led economy is proving to be a challenge. It will be some time before we understand the full impact of the economic confrontation between the US and China. However, we remain hopeful that an agreement is reached between the world's top two economies and that investment markets will respond favourably. For its part, China has softened a number of factors domestically which should stimulate both consumer demand (lower taxes) and SME activity (easier access to capital). Six months ago we were expecting China's GDP to remain firm but this has now changed as we are seeing GDP weaken and this is a concern.

DIVIDENDThe profile of UEM's existing investments remains largely the same. These businesses are predominantly profitable, cash generative and dividend paying, and offer attractive long-term total returns. It is pleasing to see the revenue account earnings per share ("EPS") increase by 5.8% on an investment basis. In August, the Board declared the first quarterly dividend of 1.80p per share in respect of the year ending 31 March 2020 and has recently announced an increased second quarterly dividend of 1.925p per share. With the third and fourth quarter dividends at this increased level, this year's dividends would amount to 7.575p, an uplift of 5.2% over the previous year. Dividends remain fully covered by income. In the six months to 30 September 2019, ongoing charges were marginally higher at 1.1%. As at 30 September 2019 a performance fee of £1.0m was accrued, (prior year nil). Including performance fees, the ongoing charges were 1.3%.As at 30 September 2019 UEM has revenue reserves of £11.3m, while as at 31 March 2019 they amounted to £4.9m. With dividends covered we expect this to continue to rise.

SHARE BUYBACKSUEM's share price discount narrowed from 14.2% as at 31 March 2018 to 12.8% as at 31 March 2019. As at 30 September 2019 it has narrowed further to 11.8%, although it remains above levels the Board would wish to see. The Investment Managers have continued buying back UEM's shares for cancellation with 1.8m shares bought back in the six months to 30 September 2019, at an average price of 245.16p. While the Board would prefer to see the discount narrow even more, any share buyback remains an investment decision. Traditionally the Investment Managers have bought back shares if the discount widens to over 10.0%. Since inception, the Company has bought back 49.2m ordinary shares totalling £85.2m.

BOARDAs announced in the 2019 annual report, Garry Madeiros retired from the Board following the conclusion of UEM's Annual General Meeting in September 2019. I welcome Eric Stobart to the Board who joined on 1 October 2019 and will chair the Audit Committee.

OUTLOOKWe continue to expect populism to rise and influence global agendas. This is likely to result in ongoing volatility in investment markets as political positions harden or in some cases, change sharply. The outcome of the US/China trade talks is now enmeshed in a deeper conflict around technology and security. This heightens the risk of sharp divisions and outcomes are likely to be more volatile. Against this, the world's Central Banks are, for the most part, looking to soften their stance, which should help to moderate the political impact of the populist governments.It is worth re-emphasising that UEM's performance continues to be driven by bottom-up stock selection. The portfolio is predominantly invested in relatively liquid, cash-generative companies with long-duration assets that the Investment Managers believe are structurally undervalued and offer excellent total returns. Since inception over 14 years ago, UEM's track record of performance has been reassuring and the Board has every confidence that the Investment Managers will continue to identify investments offering attractive, long-term returns for UEM.

John Rennocks

Chairman

22 November 2019

INVESTMENT MANAGERS' REPORT

UEM's portfolio is well positioned with a diverse portfolio and a relatively ungeared balance sheet. EM performance in the six months to 30 September 2019 was positive with most EM indices rising. Three indices from the top four countries of UEM's exposure, Brazil, Philippines and India, in Sterling terms, were up by 8.7%, 5.6% and 3.7% respectively in the six months to 30 September 2019. The top four countries, including China, account for 65.7% of the portfolio. This was offset by a firmer UK Sterling rate to most currencies. The net result was the MSCI rising by 1.8%. Against this backdrop UEM's NAV total return of 9.0% is pleasing.

UEM was more active than usual during the six months to 30 September 2019, investing £157.5m, while realisations were £124.5m. To fund this, UEM increased its bank loans by £32.8m. In part, this was driven by reluctantly accepting an offer for Companhia de Gas de Sao Paulo ("Comgas"), UEM's second largest investment as at 31 March 2019, receiving £25.9m, the decisions to exit Enel Americas, which was UEM's nineteenth largest investment and to exit investment holdings in Argentina which accounted for 3.4% of UEM's total portfolio as at 31 March 2019. UEM's LATAM exposure has decreased from 41.4% to 38.1%, mainly as a result of exiting nearly all of our investments in Argentina and, in part, the exit from Comgas. UEM ended the period with bank debt of £40.6m although this was partially offset by cash of £5.9m.

The management team continues to travel extensively in order to seek out compelling investments that offer excellent returns. As such, it is notable that UEM's portfolio consists of a diverse range of companies that are often under-represented in the MSCI. Our focus remains on delivering positive long-term absolute returns. During the period 80.0% of our holdings declared or paid a dividend.

We know many fund managers disclose the Beta statistics as well as the Active Share (the degree of divergence from the index). For the record UEM's Beta was 0.6 and the Active Share was consistently above 99.0%. We would stress these are outcomes and we have provided this for information purposes only.

MIGRATION AND ACCOUNTING TREATMENT

Following completion of the redomicile of Utilico Emerging Markets Limited ("UEM Bermuda") to the UK in April 2018, UEM acquired the underlying portfolio from UEM Bermuda in exchange for an intercompany loan which was then cancelled during the liquidation of UEM Bermuda in January 2019.

In line with International Financial Reporting Standards ("IFRS"), the report and accounts are presented on an unconsolidated basis due to the migration of the portfolio to UEM in 2018, although prior year comparatives suffered from a number of distortions in the presentation of those results. For example, investment purchases were inflated as they included both the market purchases made by UEM as well as UEM's purchase of the underlying investments held by UEM Bermuda. For comparison purposes we have therefore disclosed a restated Comprehensive Income Statement based on an investment basis, looking through UEM and UEM Bermuda to report the underlying performance for the Company for the period to 30 September 2018. All comparisons referred to in this half-yearly report in relation to the Comprehensive Income Statement are comparing to the investment basis presentation.

PORTFOLIO

UEM's gross assets (less liabilities excluding loans) increased from £581.9m to £653.5m in the six months to 30 September 2019, reflecting gains on both the revenue and capital accounts as well as increased gearing.

There have been five new entries into the top twenty holdings of the portfolio over the period: Omega Geracao, a Brazilian wind farm operator; Ecorodovias Infraestrutura e Logistica, a Brazilian toll road operator; India Grid Trust, an Indian transmission line operator; Gujarat State Petronet Limited, an Indian gas distributor; and Huaneng Renewables Corporation Limited, a Chinese renewables company.

The following investments were scaled back and are no longer top twenty holdings: Comgas, a Brazilian gas distributor which was sold when Comgas was taken private; Shanghai International Airport, a Chinese airport operator which we have exited; Conpet, a Romanian energy operator which fell out due to relative performance; CITIC Telecom International Holdings Limited, a Hong Kong based telecoms company which fell outside the top twenty holdings on price weakness; and Enel Americas , a LATAM power utility which we have exited.

Investments in the portfolio increased from £108.7m in the period to 31 March 2019 (excluding portfolio transfers due to the redomicile of UEM Bermuda) to £157.5m in the six months to 30 September 2019 and realisations marginally increased from £123.6m to £124.5m. As noted earlier, this reflects above average activity levels.

One outcome from this has been a reduction in the number of holdings. This statistic is reflected in the portfolio progression and number of holdings bar chart above. Changes to the portfolio's geographic allocation, with the exception of Argentina and India, were not materially different.

Argentina grew from an investment of 7.1% two years ago to 10.2% of the total portfolio as at 31 March 2018. By 31 March 2019, this had reduced to 3.4%, mainly as a result of selling. In the six months to 30 September 2019, the position was reduced to 0.1%, ahead of the primary elections in August this year, following which the decision was taken to exit the position. Disappointingly, Argentina has moved from uninvestable to investable and now back to being uninvestable as capital controls have been reintroduced.

BANK DEBT

UEM's bank loans increased from £7.8m to £40.6m in the six months to 30 September 2019, mainly as a result of the higher investment activity. UEM ended the six months with cash of £5.9m compared to the 31 March 2019 year end cash position of £11.7m. UEM has therefore moved from a net cash position of £3.9m to a net debt position of £34.7m. The bank loans are drawn in US Dollars. The Scotiabank facility is a three-year unsecured £50.0m multicurrency revolving facility maturing in April 2021.

REVENUE RETURN

Revenue income increased to £18.1m in the six months to 30 September 2019, from £16.9m in the period to 30 September 2018, a rise of 7.1%. This reflects a combination of increased dividends offset by stronger Sterling exchange rates.

Management fees and other expenses were largely unchanged from the prior period at £1.7m in the six months to 30 September 2019. Finance costs doubled to £0.1m as a result of higher borrowings. Taxation was higher at £1.6m from £1.0m as a result of withholding tax on dividends.

Arising from the above, the profit for the six months to 30 September 2019 increased to £14.6m from £14.2m in the prior period, and EPS was higher at 6.39p from 6.04p, an increase of 5.8%. Dividends per share of 3.725p were fully covered by earnings.

The carried forward reserves as at 30 September 2019 were £11.3m against £4.9m as at 31 March 2019.

CAPITAL RETURN

The portfolio gained £42.6m on the capital account during the six months to 30 September 2019 while losses on derivative instruments were £2.3m. The Total Income on the capital account was £40.2m (30 September 2018: a loss of £58.0m).

Management and administration fees were higher at £2.5m (30 September 2018: £1.3m), an increase of £1.2m, almost entirely due to the accrued performance fee of £1.0m (30 September 2018: nil). Finance costs doubled to £0.2m year-on-year, as a result of higher average borrowings. Taxation rose to £0.9m mainly as a result of the Indian capital gains tax accruals. The net effect of the above was a gain on the capital account of £36.7m (30 September 2018: a loss of £57.4m).

Charles Jillings

ICM Investment Management Limited and ICM Limited

22 November 2019

SUMMARY STATEMENT OF COMPREHENSIVE INCOME

* To maintain transparency in this report and aid understanding a separate non-IFRS "investment basis" Statement of Comprehensive Income has been included in this half-yearly financial report for the period ended 30 September 2018. The above Statement of Comprehensive Income for the six months to 30 September 2019 is prepared under IFRS. The Chairman's Statement and Investment Managers' Report refers to performance in the period to 30 September 2018 using the investment basis to provide a more understandable view of the performance when compared to the six months to 30 September 2019. Total return is equal under the investment basis and IFRS; the investment basis is simply a "look through" of IFRS 3 and IFRS 10 to present the underlying performance of the Company. A reconciliation between the investment basis and IFRS is set out in Alternative Performance Measures on page 38 of the Half-Yearly Financial Report for the Six months to 30 September 2019.

HALF-YEARLY FINANCIAL REPORT AND RESPONSIBILITY STATEMENT

The Chairman's Statement and the Investment Managers' Report give details of the important events which have occurred during the period and their impact on the financial statements.

PRINCIPAL RISKS AND UNCERTAINTIES

Most of UEM's principal risks and uncertainties are market related and are similar to those of other investment companies investing mainly in listed equities in emerging markets.

The principal risks and uncertainties were described in more detail under the heading "Principal Risks and Risk Mitigation" within the Strategic Report and Business Review section of the Annual Report and Accounts for the period ended 31 March 2019 and have not changed materially since the date of that document.

The principal risks faced by UEM include not achieving long-term total returns for its shareholders, the adverse impact gearing could have, the sudden withdrawal of the bank facility, loss of key management and losses due to inadequate controls of third party service providers.

The Annual Report and Accounts is available on the Company's website, www.uemtrust.co.uk 

RELATED PARTY TRANSACTIONS

Details of related party transactions in the six months to 30 September 2019 are set out in Note 8 to the accounts and details of the fees paid to the Investment Managers are set out in Note 2 to the accounts. Directors' fees were increased by approximately 2.3% with effect from 1 April 2019 to: Chairman £46,000 per annum; Chair of Audit Committee £43,000 per annum; and other Directors £34,000 per annum.

The net fee entitlement of each Director is satisfied in ordinary shares of the Company, purchased in the market on behalf of, or issued to, each Director as soon as possible after each quarter end.

DIRECTORS' RESPONSIBILITY STATEMENT

In accordance with Chapter 4 of the Disclosure Guidance and Transparency Rules, the Directors confirm that to the best of their knowledge:

• The condensed set of financial statements contained within the report for the six months to 30 September 2019 has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" on a going concern basis and gives a true and fair view of the assets, liabilities, financial position and return of the Company;

• The half-yearly report, together with the Chairman's Statement and Investment Managers' Report, includes a fair review of the important events that have occurred during the first six months of the financial year and their impact on the financial statements as required by DTR 4.2.7R;

• The Directors' statement of principal risks and uncertainties above is a fair review of the principal risks and uncertainties for the remainder of the year as required by DTR 4.2.7R; and

• The half-yearly report includes a fair review of the related party transactions that have taken place in the first six months of the financial year as required by DTR 4.2.8R.

On behalf of the Board

John Rennocks

Chairman

22 November 2019

UNAUDITED CONDENSED 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 net return on ordinary activities after taxation represents the profit for the period and also the total comprehensive Income.

UNAUDITED CONDENSED STATEMENT OF CHANGES IN EQUITY

UNAUDITED CONDENSED STATEMENT OF FINANCIAL POSITION

 UNAUDITED CONDENSED STATEMENT OF CASH FLOWS

NOTES

The Directors have declared a second quarterly dividend in respect of the year ending 31 March 2020 of 1.925p per share payable on 20 December 2019 to shareholders on the register at close of business on 29 November 2019. The total cost of the dividend, which has not been accrued in the results for the six months to 30 September 2019, is £4,390,000 based on 228,057,408 shares in issue at the date of this report.

The half-yearly report for the six months to 30 September2019 will be posted to shareholders in early December 2019. A copy will shortly be available to view and download from the Company's website at www.uemtrust.co.uk.

Legal Entity Identifier: 2138005TJMCWR2394O39