Utilico Emerging Markets Limited (the "Company") (Ticker: UTILEMU BH) has released interim unaudited results to 30 September, 2009, and the Chairman's statement to shareholders.
CHAIRMAN'S STATEMENT The six months to 30 September 2009 have seen one of the strongest recoveries in world equity markets since the Second World War. Whilst a recovery was expected, its strength and breadth has been surprising. Utilico Emerging Market Limited's ("UEM") portfolio has benefited from this and the undiluted net asset value ("NAV") per ordinary share has risen from 107.76p to 140.35p, a gain of 30.2%.
Throughout the six months, the Investment Manager has remained market neutral and as a result fully invested. While the drivers of the improvement in asset values are well understood and expected, concern remains over the downside risk. In order to better control risk, the Investment Manager has continued to maintain only a modest exposure to the higher risk economies of Eastern Europe. In addition debt has been reduced over the six months to nil from £41.8m at the start of the half year.
This has been a challenging environment for investors. All markets have moved substantially. The Bovespa (Brazilian Stock Exchange main index) improved by 50.3%, the Hang Seng Index by 54.4% and the Kuala Lumpur Composite Index by 37.8%.
Currencies have remained volatile. The Brazilian Real to Sterling exchange rate improved by 17.6% but the Sterling to US Dollar exchange rate fell by 10.4%.
Commodities have moved as well with oil rising by 42.2% to $70.61 over the six months.
These markets have been driven by a swing away from the US Dollar and its perceived safe haven nature and into higher risk and reward assets. In particular, investors have driven up values in commodities, mining companies and financials. UEM's asset focus on utilities and infrastructure assets have lagged behind the markets as investors have focused on higher risk and reward investments.
As anticipated, UEM's earnings have fallen primarily as a result of the decreased leverage. The cost of gearing (interest) is 70% capitalised to the capital account allowing the increased income on a geared basis to fall through to the earnings per ordinary share ("EPS"). The interim EPS of 3.26p represents 78.0% of the comparable period's EPS. The Board recognises that a number of shareholders attach significant value to Page 2 Media Release the dividends paid by UEM and has therefore utilised the revenue reserves brought forward and declared an interim dividend of 3.75p (prior year 4.00p).
The Investment Manager has continued to monitor the share price discount and bought back 1,150,000 ordinary shares during the six months at an average price of 112.28p, with discounts ranging from 10.4% to 10.5% at the time of purchase. UEM's ordinary share price ended the half year at 124.50p a discount of 7.0% to the diluted NAV per share.
OUTLOOK The sense that the worst is over still remains. Recovery has returned to a number of markets and we continue to be cautiously optimistic over the long term, whilst over the short term we believe set backs are likely to occur. The end of supportive measures will in itself re-introduce stresses and the markets' reaction to this is difficult to determine.
Overall we remain confident about the outlook for emerging markets.
Alexander Zagoreos Chairman December 2009
