RNS Number : 4056D
UIL Limited
27 October 2020
 

Date:                      27 October 2020

 

Contact:                 Charles Jillings

                                ICM Investment Management Limited

                                01372 271 486

 

 

 

UIL LIMITED

ANNUAL FINANCIAL REPORT

for the year to 30 June 2020

 

 

 

UIL Limited ("UIL" or the "Company") today announced its audited financial results for the year to 30 June 2020.

 

 

 

 

 

 

FINANCIAL HIGHLIGHTS

 

 

 

·    Net asset value ("NAV") total return per ordinary share* of (18.7%) (2019: +29.7%)

·    Share price total return per ordinary share* of (7.1%) (2019: +18.8%)

·    NAV discount as at 30 June 2020* of 39.4% (2019: 46.2%)

·    Dividend yield* of 4.4% (2019: 3.8%)

·    Revenue earnings per ordinary share of 9.77p up 28.0% (2019: 7.63p)

·    Dividend per ordinary share of 7.875p up 5.0% (2019: 7.500p)

 

 

 

*See Alternate Performance Measures on pages 109 and 110 of the Report and Accounts

 

 

 

GROUP PERFORMANCE SUMMARY

 

 

30 June

2020

30 June

2019

% change

2020/19

NAV total return per ordinary share(1) (for the year) (%)

(18.7)

29.7

n/a

Share price total return per ordinary share(1) (for the year) (%)

(7.1)

18.8

n/a

Annual compound NAV total return(1) (since inception(2)) (%)

11.2

13.4

n/a

NAV per ordinary share(1) (pence)

292.79

369.57

(20.8)

Ordinary share price (pence)

177.50

199.00

(10.8)

Discount(1) (%)

39.4

46.2

n/a

Returns and dividends (pence)

 

 

 

Revenue return per ordinary share

9.77

7.63

28.0

Capital return per ordinary share

(81.30)

75.34

(207.9)

Total return per ordinary share

(71.53)

82.97

(186.2)

Dividends per ordinary share

7.875(3)

7.500

5.0

FTSE All-Share total return Index

6,465

7,431

(13.0)

Equity holders' funds (£m)

 

 

 

Gross assets(4)

483.3

537.2

(10.0)

Bank and other debt

51.2

51.0

(0.4)

ZDP shares

180.5

159.9

12.9

Equity holders' funds

251.6

326.3

(22.9)

Revenue account (£m)

 

 

 

Income

12.7

11.2

13.4

Costs (management and other expenses)

2.6

2.8

(7.1)

Finance costs

1.6

1.6

0.0

Financial ratios of the Group (%)

 

 

 

Ongoing charges figure excluding performance fees(1)

2.1

2.1

n/a

Ongoing charges figure including performance fees(1)

2.1

5.1

n/a

Gearing (1)

93.4

63.7

n/a

 

(1) See Alternate Performance Measures on pages 109 and 110 of the Report and Accounts

(2) All performance data relating to periods prior to 20 June 2007 are in respect of Utilico Investment Trust plc, UIL's predecessor.

(3) The fourth quarterly dividend of 2.00p has not been included as a liability in the accounts

(4) Gross assets less current liabilities excluding loans and ZDP shares

 

 

CHAIRMAN'S STATEMENT

The coronavirus ("Covid-19") pandemic has seen both a demand and supply shock and impacted most stakeholders. The last quarter of the UIL financial year 2020 has been challenging for investors. UIL's investment valuations were impacted by the market downturn declining in the year to 30 June 2020 by 10.1% to £489.0m, ahead of the FTSE All-Share total return Index which was down by 13.0% over the year. UIL's leveraged balance sheet meant that UIL's NAV total return declined 18.7%.

Since inception in August 2003, UIL has distributed £74.4m in dividends, invested £32.0m in ordinary share buybacks and made net returns of £253.5mfor a total return of 498.9% (adjusted for the exercise of warrants and convertibles). This represents an annual compound NAV total return since inception of 11.2%. The annual compound total return for the FTSE All-Share Index over the same period was 6.7%.

On top of Covid-19, we continue to experience two broad opposing forces at work in global markets at the moment; social and political tensions, and central bank intervention. Central banks are focused on reflationary policies, providing liquidity, lowering interest rates and now decreasing average inflation targets. The prolonging 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 long-term risk to global security.

The world has become more divided and polarised in its views. This has manifested itself in protests from Hong Kong, Minsk, Moscow, Beirut, London, Portland, Paris through to Santiago, although each has had different drivers, for example, independence for Hong Kong, the wealth gap in Santiago, climate change in London and Black Lives Matter in Portland. The focus is on a rebalance of social and political priorities and resources. Questions are being asked and headwinds rising. Some of this anger has developed into riots and caused significant disruption and is generating sharp policy changes. Most countries are seeing a rise in nationalism. The US election is itself a strong expression of these social and political divides.

There is also an accelerating expectation that businesses address questions around their approach to Environmental, Social and Governance ("ESG") outcomes.

In the UK, Brexit, which crowded out discussions on most topics in the first half of the financial year remains uncertain in its detailed outcome. Over the year to 30 June 2020, Sterling weakened 2.9% against the US Dollar, reflecting this uncertainty.

Covid-19 has become a global pandemic that severely challenges us, and the impact globally cannot be emphasised enough. It has inflicted huge damage to the underlying economy and has disrupted health services, education, business and social activities. Governments have struggled to keep up with a rapidly changing situation. Covid-19 has impacted every continent and every community. More than this, it has exposed the stresses and weaknesses in our economies, politics and social fabric. The vulnerable have borne and continue to bear the greatest burden directly and indirectly from Covid-19.

Nearly everyone experienced first-hand a shift overnight from working in offices to working at home. This disrupted and challenged everybody's professional, social and personal lives. Our Investment Managers rightly focused on three issues. First, people; their employees, our investee boards, their staff, and the stakeholders. Ensuring the right processes and decisions were adopted and made. Second, ensuring that UIL and its investee companies focused on short term cashflow needs and that they had adequate funding. Third, ensuring that UIL and its investees could thrive where opportunities arise. While Covid-19 has challenged every weakness in businesses it has also accelerated change. The shift to working from home has no doubt augmented the adoption of digital platforms. We believe that UIL has risen to the challenges and emerged stronger. No doubt there are further challenges to come and UIL will address those in a similar manner.

The pandemic has exposed all the above social and political fault lines and we have seen unprecedented responses from governments and central banks to support their economies. Interest rates have been lowered to near nil or even negative. Borrowings have soared beyond what was considered already an over leveraged position. We have seen social tensions rise as communities hit hardest by Covid-19 are often among the poorest, and where these issues have combined with unresolved racial tensions dating back decades to result in significant demonstrations in the USA and Europe.

A sense of urgency to address Covid-19 has been a big positive and the health service has responded at lightning speed. PPE, drug testing and virus testing have accelerated at a remarkable pace and large parts of the health service have gone online for initial consultations.

The growth of digital consumption has accelerated under Covid-19 as more people are working from home and more businesses are operating online. As a result, technology businesses have jumped in value significantly, a trend we noticed before and one that we continue to see accelerating.

The above social issues, from nationalism to the pandemic, remain to be resolved. However, communities have pulled together, and the human spirit has risen above this upheaval. Let us hope our leaders can deliver on these challenges.

The market turmoil that ensued following the global response to the pandemic has magnified the already rising market volatility. While the S&P Index was up 5.4% over the twelve months to 30 June 2020, its trading range was some 40.0%, having been up 15.1% at its peak in February 2020 and down 23.9% at its trough in March 2020. This volatility is reflected in most other indices. The FTSE All-Share total return Index was up 7.1% in January 2020, down 30.7% at its trough in March 2020 and has ended the year down 13.0%. Australia's ASX followed the US markets profile with a trading range of 20.0% and ending the year 5.3% up. Currencies showed unprecedented volatility with Sterling rising by 5.0% versus the US Dollar in December 2019 and falling by 9.5% in March 2020, ending the year down 2.9%. Commodities have moved significantly with nickel being up 43.9% in September 2019 and ending the year up 1.1%. Oil was caught up in the pandemic demand shock and a power struggle between oil suppliers. Oil traded famously on the Houston exchange at negative values as oversupply and limited demand resulted in surplus oil. Oil ended the year down 38.2%.

The Investment Managers have set out in their report a more detailed overview on actions taken in 2020. But I would note UIL closely monitored cash while supporting investee companies where necessary. In particular, they committed to UIL's proportion of the Resolute Mining Limited ("Resolute") placing of AUD 95.0m and assisted Zeta Resources Limited ("Zeta") in stabilising Panoramic Resources Limited ("Panoramic") by supporting Panoramic's funding requirements and consequent restructuring. Panoramic was Zeta's largest investment. These have proved good decisions and both companies are stronger for UIL's support.

The impact of Covid-19 on UIL's balance sheet has been a sharp rise in indebtedness to 106.3% at the bottom of the market downturn in March. This has since reduced to 93.4% as at 30 June 2020. We set a gearing target of 100.0% back in 2014 and it is good to see UIL inside that target.

During the market turmoil, the UIL ordinary share discount widened out to over 45.0%. This is disappointing given the progress made towards a 20.0% discount target. Last year, in committing to a 20.0% discount, we noted UIL would step up its marketing, as well as continuing to buy back ordinary shares. During the market turmoil UIL stepped back from buying back and husbanded cash to better respond to the funding needs in its portfolio and the redemption of the 2020 ZDP shares. Once appropriate to do so, UIL intends to return to buying back shares and seeking to lower the discount to NAV.

UIL announced on 26 July 2019 that, partly as a result of ongoing buy backs, UIL shares held in public hands reduced to 25.0%, the minimum level required to stay listed on the Premium Segment of the Main Market. To enable further buybacks the Board put forward proposals to shareholders to transfer the listing of UIL's ordinary shares from the Premium Segment to the Specialist Fund Segment of the Main Market of the London Stock Exchange ("LSE"). These proposals were overwhelmingly approved by shareholders. On 5 November 2019, UIL's ordinary shares were admitted, by way of introduction, to a secondary listing on the Bermuda Stock Exchange ("BSX").

A key focus has been the corporate transactions by UIL and its wider group. Zeta was able to use the proceeds from the successful exit of Bligh Resources Limited ("Bligh"), to repay some of the loans to UIL. But the market turmoil impacted three other transactions underway: the offer for Ascendant Group Limited ("Ascendant") and the agreements to sell Optal Limited ("Optal") as well as Bermuda Commercial Bank Limited ("BCB"), which is held by Somers Limited ("Somers"). ICM remains focused on delivering all three corporate transactions. It is pleasing to see the Ascendant transaction set to complete in early November 2020.

UIL Finance issued 25.0m 2026 ZDP shares in March 2018, with a view to extending the ZDP redemption profile and lowering its cost of debt. As at 30 June 2020, the aggregate ZDP liability was £180.5m. Since this liability is across four ZDP issues it reduces the significance of each redemption payment. UIL held 11.9m 2026 ZDP shares as at 30 June 2019 and placed 9.5m of these in the year, leaving UIL holding 2.4m 2026 ZDP shares as at 30 June 2020. The Company's average funding costs as at 30 June 2020 reduced further to 5.2% from 5.5% as at 30 June 2019.

It is disappointing to see our four issues of ZDP shares trading at much higher gross redemption yields than last year and that the ZDP share market remains relatively depressed. The cover for the ZDP shares remains good, with the cover at the year-end for the 2026 ZDP shares over 1.81 times. Given all the market uncertainty there has not been the stability to offer 2028 ZDP shares to 2020 ZDP shareholders as a roll over option. Perhaps once stability returns this can be looked at in 2021. The 2020 ZDP shares are due to be repaid in full at the end of October 2020. Following this, the gearing of UIL will be reduced. The funding of the ZDP shares has come from a full exit from Ascendant, funded through Bermuda First Investment Company Limited ("BFIC"), a partial exit from One Communications Limited ("One Communications") and a number of other portfolio realisations. Both Ascendant and One Communications have been long-term strategic investments for UIL, and we wish them and their stakeholders good fortune for the future.

Pleasingly, revenue return for the year to 30 June 2020 was £8.5m, well ahead of the prior year of £6.8m, an increase of 24.4%. This resulted in revenue return earnings per share ("EPS") of 9.77p compared to the prior year's 7.63p, an increase of 28.0%. This is a very good outcome given all the challenges during the year to 30 June 2020.

In February 2020 the Board increased the quarterly dividend to 2.00p resulting in total dividends for the year to 30 June 2020 of 7.875p per share, an uplift of 5.0% which represents a yield on the closing share price as at 30 June 2020 of 177.50p of 4.4%. Looking forward, the Board expects to maintain the current dividend profile, and based on 2.00p per quarter this gives 8.00p for next year and a running yield of 5.0% based on the recent share price of 160.00p. Undistributed revenue reserves carried forward increased from £9.1m to £10.9m, equal to some 12.63p per share. The capital return for the year ended 30 June 2020 was negative £70.5m, mainly from the loss on investments.

COVID-19

The Covid-19 impact on UIL's portfolio is set out in the Investment Managers' Report on page 16 of the Report and Accounts. In response to the pandemic, the Board has suspended all travel and physical meetings, but has moved to holding regular video conference meetings to receive updates on the portfolio and performance from the Investment Managers. All interactions with UIL's service providers have been by video conference, where needed, including the audit process.

At the forthcoming AGM the Board is proposing to make a number of minor amendments to the Company's Bye-Laws, including changes to provide additional flexibility to hold meetings by telephone, electronic or other communication facilities. Further details are set out in the Directors' Report on page 47 of the Report and Accounts.

OUTLOOK

By any "normal metric" the global economies face unprecedented challenges today. The war on Covid-19 has taken its toll and continues to take its toll. Not many countries have re-opened their borders to travel and most have ongoing local shutdown responses to Covid-19 flareups, thereby limiting full recovery. Most nations have seen borrowings balloon over 100% of gross domestic product ("GDP"), interest rates trend to zero or negative and unemployment jump by 5% to 10%. Given this outlook the Board remains cautious.

It is pleasing to see most portfolio companies doing well in the circumstances. The Investment Managers' proactive approach has helped many of them.

 

 

Peter Burrows AO
Chairman
27 October 2020

 

 

 

INVESTMENT MANAGERS' REPORT

The Covid-19 pandemic impact on UIL's NAV has been significant. UIL's NAV total return was negative 18.7% during the twelve months to 30 June 2020. This eroded all gains from the 2019 financial year and UIL's NAV per share ended the year at 292.79p. However, it was pleasing to see UIL's earnings and dividends rise over both 2019 and 2020, and over these two years, NAV total return increased by 5.3%.

It is worth noting several of UIL's investments trade at a discount. If Somers, Utilico Emerging Markets Trust plc ("UEM") and Zeta were valued at NAV, the UIL NAV would increase by 7.0% to 313.27p and many of UIL's metrics would rise as a result.

Covid-19 has caused unprecedented challenges for investors. Add the pandemic to a growing list of significant concerns around central bank intervention, populism, US/China frictions, Brexit, Black Lives Matter, climate change and investors have been besieged by a dynamic and difficult environment. Sorting out the facts from the noise has proved difficult. When the world's largest corporates struggle to project their next quarter's revenues, it is hard to be certain about the global economy. ICM has continued to be focused on its investments and the delivery of their individual opportunities, making sure they have both the right approach to risk while seeking opportunities that will thrive in this Covid-19 environment.

For many investee companies in UIL's direct and indirect portfolio these challenges have led to accelerated engagement with the executives by ICM. This has enabled ICM to further understand the position of the investee companies, and dynamically respond to their challenges and new opportunities. At times it meant going on a new journey together to achieve the best outcomes for the investee company. This could be encouraging a new strategy, furloughing of staff, or perhaps raising equity funding. Past stress tests were often inadequate as businesses were not prepared for either the scale or speed of change. It is pleasing to report that most investee companies have come through stronger.

For ICM it meant working hard to understand the changing environment and support investee teams seeking solutions to a myriad of issues. For UIL it meant taking hard decisions to back businesses needing funding and selling other investments. In particular, UIL continued to reduce its holding in Afterpay Limited ("Afterpay") into a rising share price and to fund Resolute and Zeta. Resolute had undertaken a corporate transaction to buy the Mako mine late in 2019. This resulted in Resolute taking over a lending facility to Mako with repayment penalties. This should have been refinanced from the combined cashflows of the Syama and Mako mines. Disappointingly the roaster at Syama failed and needed urgent repair, reducing production considerably. Resolute was forced to refinance the Mako lender and did this through an urgent placing. UIL stood its corner and invested over AUD 17.0m directly and indirectly. Resolute is now on a sounder financial footing.

In addition, Panoramic, Zeta's largest investment, was in the middle of a mine expansion which was halted due to Covid-19. This resulted in Panoramic's bankers seeking a repayment of their secured facility. UIL lent AUD 22.0m to Zeta so it could support the restructuring of Panoramic and take control of Horizon Gold Limited ("Horizon"), a gold mining opportunity originally controlled by Panoramic. Today Panoramic has a strong balance sheet, a new industry investor with strong operating capabilities and Zeta now holds 69.0% of Horizon which is expected to be an exciting long-term opportunity.

In order to respond to the above funding needs, UIL managed cashflows tightly. Backing its investee companies, meeting UIL day to day expenses and paying dividends were paramount. It is pleasing to see that this was achieved.

ICM is strongly of the view that the shift of workers and businesses online under the pandemic lockdowns globally has accelerated the digitalisation of governments, businesses and individuals. This shift ranges from doctors' surgeries going online, restaurants setting up internet delivery options and farmers offering produce online. This should offer many exciting investment opportunities. Businesses without internet reach or capability will face a challenging outlook, while many businesses have been agile and online and therefore have both an opportunity and a positive outlook.

UIL continues to look for disruptive technology businesses that are capital light in nature but offer scalable growth.
We emphasise to our investee companies that disruption is coming to everybody and they need to be taking advantage of it by adapting their business models.

INVESTMENT APPROACH

UIL continues to develop its core platform investments, which offer the following benefits:

·      Focused strategy. Each platform has a dedicated mandate and as such is driven by the objective of finding and making attractive investments within its mandate.

·      Dedicated research analysts. The research analysts for each platform are focused on both understanding existing portfolio businesses and identifying compelling new investments.

·      Financial support. Ability to draw on UIL's support and financial backing.

·      Deep knowledge. Utilising the Investment Managers' knowledge across many jurisdictions to optimise investment opportunities and undertake corporate finance led transactions.

The platforms have been set up to provide a sharper focus, leading to better investment opportunities and decision making by analysts and managers within their defined sectors.

A key driver in shaping the current portfolio is the Investment Managers' three medium-term core views. First, that the world's financial markets are over indebted; second, that technological change offers strong investment upside and third, that emerging markets offer better GDP growth opportunities than developed markets.

UIL's Investment Managers' emphasis is on individual stock selection, remaining fully invested and focusing on finding investments at valuations that do not reflect their true long-term value, while at the same time being a supportive shareholder of investee companies. The Investment Managers are relentless bottom-up investors, drawing on in-depth knowledge and capability.

PORTFOLIO

The technology investments in UIL have been strong contributors over recent years. Afterpay was up by 143.2% during the year to 30 June 2020 and UIL realised much of the position contributing £47.2m to investments sold. Optal's valuation was marked down reflecting uncertainties over the corporate sale transaction, while Vix Tech Pte Limited's ("VixTech") valuation was marked up 50.0% reflecting its continued progress and return to EBITDA profitability.

Somers' share price was essentially flat during the year to 30 June 2020, but a highlight was the considerable strength at Resimac Group Limited which saw profits after tax, rise strongly. Share prices in most of the other Somers' investments weakened in the face of Covid-19 uncertainties, while the impact of a strong US Dollar saw FX losses at the Somers level.

Zeta's share price declined 52.1% during the period reflecting weakness in the wider resources sector. Resolute's share price fell by 15.7% reflecting concerns over operating performance despite rising gold prices. UEM declined 26.4% reflecting Covid-19's impact on the emerging markets together with very significant declines in the Brazilian Real (down 37.7%). UEM has some 26.0% of its portfolio invested in Brazil. UEM was also impacted by relative underperformance of utilities versus the market. Ascendant was unchanged reflecting the takeover offer from Algonquin Power & Utilities Corp. ("Algonquin"). Allectus Capital Limited ("Allectus") was largely unchanged reflecting its predominantly early stage investments. One Communications' valuation was reduced by 12.6% reflecting market uncertainties over the Covid-19 impact on their customer receivables. Orbital Corporation Limited ("Orbital") entered the top ten as a result of strong business performance and a share price rise of 140.0%. These are all reviewed in the ten largest holdings section starting on page 23 of the Report and Accounts. Overall, the investment portfolio lost £60.0m in value.

As at 30 June 2020, the top ten investments accounted for 93.8% of the portfolio compared to 91.9% in the prior year. Concentration risk, however, is significantly reduced owing to each platform holding a number of underlying investments. It should be noted that for both sector and geographic analysis, we continue to present and discuss the portfolio on a look-through basis.

PLATFORM INVESTMENTS

UIL currently has four platform investments - Somers, UEM, Zeta and Allectus in the top ten holdings. These investments account for 59.8% of the total portfolio as at 30 June 2020 (prior year 54.4%). During the year to 30 June 2020, UIL made net investments of £28.8m, (prior year net withdrawals of £7.7m) to the platform investments. 

These are reviewed under the ten largest holdings section starting on page 23 of the Report and Accounts.

PORTFOLIO ACTIVITY

During the year to 30 June 2020, UIL invested £108.4m and realised £103.2m, including net loans of £16.7m to Zeta, £7.5m to Somers, £4.8m to Allectus and £2.7m to VixTech, as well as investing a net of £5.0m in Resolute ordinary shares. UIL's realisations included sales of £47.2m from Afterpay.

In September 2019 BFIC distributed shares in Ascendant to its shareholders by way of a special dividend. UIL as a result received a £20.8m investment in Ascendant with its investment in BFIC reduced accordingly.

DIRECT INVESTMENTS

UIL has six direct investments in its top ten holdings, namely: Resolute, Ascendant, Optal, VixTech, One Communications and Orbital.

These are also reviewed under the ten largest holdings section starting on page 23 of the Report and Accounts.

GEOGRAPHIC REVIEW

The geographical split of the portfolio, on a look-through basis, shows Australia increasing to 25.6% of UIL's total investments (30 June 2019: 21.8%) while most others reflect more modest movements.

SECTOR REVIEWS

Financial Services - 26.9% (30 June 2019: 21.8%)Somers is UIL's largest investment, both in the financial services sector and in UIL's portfolio and accounted for 26.8% of UIL's total portfolio as at 30 June 2020 (30 June 2019: 21.8%).

Infrastructure Investments - 23.0% (30 June 2019: 26.5%)
Last year UIL amalgamated the infrastructure and utility sectors into one and this consists of Telecommunications, Infrastructure, Electricity, Road & Rail & Ports, Oil & Gas, Renewables, Water & waste and Airports.

Technology - 18.0% (30 June 2019: 22.7%)
UIL holds a number of investments in the technology sector, both directly and through Allectus (its sixth largest investment). Optal is UIL's seventh largest holding in the portfolio, VixTech is the eighth largest holding, and Orbital tenth. However, UIL's technology exposure reduced during the year following shares sold in Afterpay.

Gold Mining - 15.3% (30 June 2019: 15.0%)
UIL's largest investment in gold mining is in Resolute, which is held both directly by UIL (13.0% of the total portfolio) and indirectly through Zeta.

Resources (excl. gold mining) - 11.9% (30 June 2019: 9.4%)
UIL's largest investment in resources is Zeta, which accounted for 14.5% of the total portfolio as at 30 June 2020 (30 June 2019: 12.7%).

LEVEL 3 INVESTMENTS

UIL's investments in level 3 companies increased by 2.4% in the year to 30 June 2020 from 33.9% as at 30 June 2019 to 36.3%, mainly as a result of loans to Zeta.

COVID-19

As noted in the Chairman's Statement, the Board has suspended all travel and physical meetings, and moved to holding Board meetings by video conference.

ICM has benefited from having offices in the key time zones of Asia, Europe and the Americas and from its existing cloud-based infrastructure platform. ICM has developed a process and approach to ensure information is gathered and acted upon in an efficient and timely manner. The shift to working from home was almost seamless. Today ICM has a work from home policy in place across its offices and a "ban" on corporate travel. While it is hoped this will change in the future, ICM is prepared for ongoing restrictions if needed.

BREXIT

Brexit risks for UIL are considered by both ICM and the Board of UIL. There are two identified risks, Sterling exchange rates and UK business disruption. UIL has a potential significant mismatch in its liabilities and assets in terms of UIL ZDP liabilities denominated in Sterling and its underlying investments in other currencies. To mitigate this, UIL has hedged £134.0m of the ZDP liability against various currencies in which UIL is invested, predominantly Australian Dollar, US Dollar and Euro into Sterling. This has resulted in a more balanced position for UIL's net assets. The FX contracts are spread over six months to reduce any long margin cash call if Sterling weakened significantly.

Within UIL's portfolio there are UK businesses which could see an impact from Brexit both in operations and assets. These businesses have taken steps to mitigate the day to day operating impact. We have judged the impact on UIL as not material at this stage. However, this is under constant review and consideration. Details of UIL's FX position are set out below and in note 12 to the accounts.

DERIVATIVES

UIL was for the most part inactive in stock market derivatives during the year, although it generated a gain in the capital account of £3.2m (30 June 2019: S&P options were traded within Global Equity Risk Protection Limited). The impact of Covid-19 was both quick and dramatic and the S&P index jumped higher in response, increasing the cost of buying S&P Put Options. No position is held at the year end.

During the year to 30 June 2020 there continued to be significant currency hedges in place in the portfolio. These hedges included AUD 67.1m, EUR 60.4m, CAD 52.5m and USD 29.0m as at 30 June 2020, and in the year resulted in a small gain of £0.1m (30 June 2019: loss of £6.9m).

GEARING

As a result of the sharp deterioration in markets in March 2020 UIL's gearing increased to 106.3%. Over recent months it has reduced to 93.4% as at 30 June 2020. UIL's target remains for gearing to be under 100.0%. UIL will redeem the 2020 ZDP shares in full which will result in a reduction in the ZDP shares in issue by some £60.4m to £126.5m. Together with bank debt of £50.0m the absolute level of debt would reduce substantially to £176.5m, from the debt as at 30 June 2020 of £231.7m.

The continuing reduction of financing costs, with the blended rate of debt reducing from 6.3% in June 2013 to 5.5% as at 30 June 2019 and 5.2% at 30 June 2020, is pleasing, although not surprising in the lower interest rate environment. This should continue as the 2020 ZDP shares, (currently compounding at 7.25%), are redeemed in full. In the twelve months to 30 June 2020 the finance costs were £11.9m, down 6.1% on the prior year's £12.7m. This should continue this year owing to lower average interest costs and lower debt levels.

ZDP SHARES

On a consolidated basis the ZDP shares increased from £159.9m to £180.5m, mainly as a result of compounding interest and as a result of placing out 2026 ZDP shares held by UIL for issue. UIL held 11.9m 2026 ZDP shares at market value as at 30 June 2019 and placed 9.5m of these in the twelve months. The balance of 2.4m 2026 ZDP shares is held by UIL as at 30 June 2020. 

DEBT

Bank debt of £50.6m as at 30 June 2020 was drawn in Australian Dollars, Euros and Sterling. During the market sell off in March UIL requested a relaxation of certain loan covenants, which Scotiabank Europe PLC ("Scotiabank") granted for the period to 3 August 2020. These reduced covenants have now fallen away given asset recoveries and as at 30 June 2020 UIL was within the original covenant levels. We thank Scotiabank for their support.

Scotiabank's £50.0m committed senior secured multicurrency revolving facility was renewed in the year and matures on 30 September 2022.

REVENUE RETURNS

Revenue total income was up by 13.4% to £12.7m reflecting increased dividends and loan interest. Management and administration fees and other expenses were down by 5.6% at £2.6m (30 June 2019: £2.8m). Financing costs were largely unchanged at £1.6m (30 June 2019: £1.6m). Taxes were again nil.

Revenue profit was up 24.4% to £8.5m (30 June 2019: £6.8m) and EPS increased 28.0% to 9.77p (30 June 2019: 7.63p) driven by revenue return increases and a lower number of ordinary shares in issue following the buybacks during the year.

CAPITAL RETURNS

Capital total income was negative £60.2m (30 June 2019: positive £86.8m), eroding 69.3% of last year's gains. This represented losses on investments and foreign exchange losses.

There were no performance fees in the year to 30 June 2020 (30 June 2019: £8.5m).

Finance costs reduced by 7.0% to £10.3m (30 June 2019: £11.1m) reflecting the lower number of ZDP shares in issue and lower borrowing costs.

The resultant loss for the year to 30 June 2020 on the capital return was £70.5m (30 June 2019: profit £67.2m) and EPS loss was 81.30p (30 June 2019: profit 75.34p).

EXPENSE RATIO

The ongoing charges figure, excluding performance fees, was unchanged at 2.1% as at 30 June 2020. As there was no performance fee (accrued by UIL and by underlying investee funds) the ongoing charges figure including performance fee decreased from 5.1% to 2.1%.

All expenses are borne by the ordinary shareholders.

POST BALANCE SHEET EVENTS

On 6 August 2020, Somers announced it had terminated its agreement to sell BCB, originally announced in February 2019, following the receipt of multiple unsolicited offers which the Somers' board determined were superior to the first offer. It also stated that discussions continue with those parties as it works towards delivering a transaction which will benefit all of Somers and BCB's stakeholders. 

On 27 January 2020, UIL announced that it had agreed to sell its holding in Optal to Wex Inc. On 7 May 2020, Wex Inc indicated that it believed that it was not legally required to complete the transaction, citing the material adverse effect of the pandemic on Optal's business. The sellers have challenged this in the UK Commercial Court. Preliminary hearings took place in September 2020, with the initial ruling on certain descriptive terms favouring Wex Inc's position. The case will now proceed to a full trial to determine whether Wex Inc must legally complete the agreed acquisition of Optal.

On 19 October 2020, UIL announced that all the remaining conditions for the sale of Ascendant to Algonquin had been satisfied and that the transaction will complete in mid-November 2020. UIL also announced that it had sold its direct holding of Ascendant shares to BFIC at the sale price of USD 33.3m.

In October 2020, UIL sold the majority of its holding in One Communications to One Communications' majority holder. The balance of One Communications' holding was sold to BFIC in October and BFIC paid USD 39.0m to UIL. This, together with the proceeds from the One Communications sale, other portfolio realisations and repayment of debt by Somers and Zeta will enable UIL to meet the 2020 ZDP shares redemption on time and in full.

 

Charles Jillings
ICM Investment Management Limited
and ICM Limited

27 October 2020

 

 

PRINCIPAL RISKS AND RISK MITIGATION

During the year ended 30 June 2020, 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.

The Board considers carefully the Company's principal and emerging risks and uncertainties. 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. Emerging risks are considered at each Audit & Risk Committee meeting. As required by the AIC Code of Corporate Governance, the Board has undertaken a robust assessment of the principal risks facing the Company. Following the emergence of Covid-19, the Audit Committee reviewed the emerging risks arising and associated mitigating actions to address increased market risks, operational risks and gearing risks.

The principal risks and uncertainties currently faced by the Company and the controls and actions to mitigate those risks, are described below.

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. The Board regularly reviews strategy in relation to a range of issues including the balance between quoted and unquoted stocks, the allocation of assets between geographic regions and sectors and gearing.

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. The political risks associated with investing in these countries are also assessed. 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: Adverse market movements in the prices of equity and fixed interest securities, interest rates and foreign currency exchange rates and adverse liquidity could lead to a fall in NAV - (Risk level increased in response to Covid-19).

The Company's portfolio is exposed to equity market risk, interest rate risk, foreign currency risk and liquidity risk. Adverse market conditions may result from factors such as economic conditions, political change, natural disasters and health epidemics. At each Board meeting the Board reviews the composition 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 can be difficult and expensive to hedge some currencies.

KEY STAFF: 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 programs 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 discount at which they trade. The Board may buy back shares if there is a significant overhang of stock in the market; it is focused on reducing the discount of the ordinary shares, targeting a discount to NAV of approximately 20% over the medium term.

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 - (Risk level increased in response to Covid-19).

The Company's main service providers are listed on page 108 of the Report and Accounts. The Audit & Risk Committee monitors the performance and controls (including business continuity procedures) of the service providers at regular intervals.

Most of UIL's investments are held in custody for the Company by JPMorgan Chase Bank N.A., Jersey with title documents for a small number of investments also being held securely by Waverton Investment Management Limited ("Waverton"). 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 gearing 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 - (Risk level increased in response to Covid-19).

The ordinary shares rank behind bank debt and ZDP shares, making them a geared instrument.

The gearing level is high due to the capital structure of the balance sheet. As at 30 June 2020, gearing on net assets, including bank loans, any overdrafts and ZDP shares, was 93.4% (30 June 2019: 63.7%). The Board reviews the level of gearing at each Board meeting.

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 could lead to suspension of the Company's Stock Exchange listings, 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.

CORONAVIRUS

The Board has identified the emergence and spread of Covid-19 as a risk facing the Company and its investee companies. The Board has reviewed the business continuity plans of each of the Company's principal service providers in relation to the steps being taken to combat the spread of the virus and will continue to monitor developments as they occur. The Chairman's Statement and the Investment Managers' Report provide further discussion in relation to Covid-19 and its effects on markets and the Company's portfolio.

BREXIT

The Board has considered whether Brexit poses a discrete risk to the Company. As the Company reports in Sterling and a substantial proportion of the Company's portfolio companies are priced in foreign currencies, sharp movements in exchange rates can affect the NAV (see "market risk" above). The strategy pursued over recent years of hedging the ZDP liability in full, should provide resilience and foreign exchange contracts are spread over a number of months to reduce any one month cash call if Sterling weakened significantly. Within UIL's portfolio there are UK businesses which could see an impact from Brexit both in operations and assets. These businesses have taken steps to mitigate the day to day operating impact and therefore the impact of Brexit on UIL is not considered to be material. However, the Board will continue to keep Brexit under regular review and consideration.
 

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

in respect of the Report and Accounts

The Directors are responsible for preparing the Report and Group and parent Company Accounts in accordance with applicable law and regulations.

The Directors are required to prepare Group and parent Company financial statements for each financial year.  They have elected to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU) and applicable law and have elected to prepare the parent Company financial statements on the same basis. 

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 Group and parent Company and of their profit or loss for that period.  In preparing each of the Group and parent Company 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 IFRSs as adopted by the EU; 

·      assess the Group and parent 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 Group or the parent 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 parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the parent Company and enable them to ensure that its financial statements comply with the Companies Act 1981 of Bermuda.  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 Group and to prevent and detect fraud and other irregularities. 

The  Directors have decided to prepare voluntarily a Directors' Remuneration Report in accordance with Schedule 8 to The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 made under the UK Companies Act 2006, as if those requirements applied to the Company.  The Directors have also decided to prepare voluntarily a Corporate Governance Statement under the UK Corporate Governance Code as if the Company were required to comply with the Listing Rules of the Financial Conduct Authority applicable to UK premium listed companies.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website.  Legislation in the UK and Bermuda 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 undertakings included in the consolidation taken as a whole; and 

·      the Strategic report and Directors' report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. 

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 Group's position and performance, business model and strategy.

Approved by the Board on 27 October 2020 and signed on its behalf by:

Peter Burrows

Chairman
 

 

GROUP INCOME STATEMENT

 

 

for the year to 30 June

 

 

2020

 

 

2019

 

Revenue

Capital

Total

Revenue

Capital

Total

 

return

return

return

return

return

return

 

£'000s

£'000s

£'000s

£'000s

£'000s

£'000s

(Losses)/gains on investments

-

(60,006)

(60,006)

-

90,402

90,402

Gains/(losses) on derivative financial instruments

-

3,286

3,286

-

(6,871)

(6,871)

Foreign exchange (losses)/gains

-

(3,469)

(3,469)

-

3,306

3,306

Investment and other income

12,684

-

12,684

11,184

-

11,184

Total income/(loss)

12,684

(60,189)

(47,505)

11,184

86,837

98,021

Management and administration fees

(1,426)

-

(1,426)

(1,587)

(8,538)

(10,125)

Other expenses

(1,184)

(10)

(1,194)

(1,178)

(8)

(1,186)

Profit/(loss) before finance costs and taxation

10,074

(60,199)

50,125

8,419

78,291

86,710

Finance costs

(1,602)

(10,312)

(11,914)

(1,600)

(11,093)

(12,693)

Profit/(loss) before taxation

8,472

(70,511)

(62,039)

6,819

67,198

74,017

Taxation

(1)

-

(1)

(9)

-

(9)

Profit/(loss) for the year

8,471

(70,511)

(62,040)

6,810

67,198

74,008

 

 

 

 

 

 

 

Earnings per ordinary share - pence

9.77

(81.30)

(71.53)

7.63

75.34

82.97

               

 

The Group does not have any income or expense that is not included in the profit/(loss) for the year and therefore the profit/(loss) for the year is also the total comprehensive income for the year, as defined in International Accounting Standard 1 (revised).

All items in the above statement derive from continuing operations.

All income is attributable to the equity holders of the Company. There are no minority interests.

 

 

 

 

COMPANY INCOME STATEMENT

 

for the year to 30 June

 

 

2020

 

 

2019

 

Revenue

Capital

Total

Revenue

Capital

Total

 

return

return

return

return

return

return

 

£'000s

£'000s

£'000s

£'000s

£'000s

£'000s

 

 

 

 

 

 

 

(Losses)/gains on investments

-

(60,078)

(60,078)

-

90,800

90,800

Gains/(losses) on derivative financial instruments

-

3,286

3,286

-

(6,871)

(6,871)

Foreign exchange (losses)/gains

-

(3,469)

(3,469)

-

3,306

3,306

Investment and other income

12,684

-

12,684

11,184

-

11,184

Total income/(loss)

12,684

(60,261)

(47,577)

11,184

87,235

98,419

Management and administration fees

(1,426)

-

(1,426)

(1,587)

(8,538)

(10,125)

Other expenses

(1,184)

(10)

(1,194)

(1,178)

(8)

(1,186)

Profit/(loss) before finance costs and taxation

10,074

(60,271)

(50,197)

8,419

78,689

87,108

Finance costs

(1,602)

(10,643)

(12,245)

(1,600)

(12,082)

(13,682)

Profit/(loss) before taxation

8,472

(70,914)

(62,442)

6,819

66,607

73,426

Taxation

(1)

-

(1)

(9)

-

(9)

Profit/(loss) for the year

8,471

(70,914)

(62,443)

6,810

66,607

73,417

 

 

 

 

 

 

 

Earnings per ordinary share - pence

9.77

(81.76)

(71.99)

7.63

74.68

82.31

 

The Company does not have any income or expense that is not included in the profit/(loss) for the year and therefore the profit/(loss) for the year is also the total comprehensive income for the year, as defined in International Accounting Standard 1 (revised).

All items in the above statement derive from continuing operations.

All income is attributable to the equity holders of the Company.

 

 

 

 

GROUP STATEMENT OF CHANGES IN EQUITY

 

 

 

for the year to 30 June 2020

 

 

 

 

 

 

Ordinary

Share

 

Non-

 

 

 

 

share

premium

Special

distributable

Capital

Revenue

 

 

capital

account

reserve

reserve

reserves

reserve

Total

 

£'000s

£'000s

£'000s

£'000s

£'000s

£'000s

£'000s

Balance as at 30 June 2019

8,828

16,103

233,866

32,069

26,312

9,090

326,268

(Loss)/profit for the year

-

-

-

-

(70,511)

8,471

(62,040)

Ordinary dividends paid

-

-

-

-

-

(6,711)

(6,711)

Shares purchased by the

Company

 

(234)

 

(5,658)

 

-

 

-

 

-

 

-

 

(5,892)

Balance as at

30 June 2020

8,594

10,445

233,866

32,069

(44,199)

10,850

251,625

 

 

 

for the year to 30 June 2019

 

 

 

 

 

 

Ordinary

Share

 

Non-

 

 

 

 

share

premium

Special

distributable

Capital

Revenue

 

 

capital

account

reserve

reserve

reserves

reserve

Total

 

£'000s

£'000s

£'000s

£'000s

£'000s

£'000s

£'000s

Balance as at 30 June 2018

8,949

18,167

233,866

32,069

(40,886)

8,969

261,134

Profit for the year

-

-

-

-

67,198

6,810

74,008

Ordinary dividends paid

-

-

-

-

-

(6,689)

(6,689)

Shares purchased by the

Company

 

(121)

 

(2,064)

 

-

 

-

 

-

 

-

 

(2,185)

Balance as at

30 June 2019

8,828

16,103

233,866

32,069

26,312

9,090

326,268

 

 

 

 

COMPANY STATEMENT OF CHANGES IN EQUITY

 

 

 

for the year to 30 June 2020

 

 

 

 

 

 

Ordinary

Share

 

Non-

 

 

 

 

share

premium

Special

distributable

Capital

Revenue

 

 

capital

account

reserve

reserve

reserves

reserve

Total

 

£'000s

£'000s

£'000s

£'000s

£'000s

£'000s

£'000s

Balance as at 30 June 2019

8,828

16,103

233,866

32,069

26,325

9,090

326,281

(Loss)/profit for the year

-

-

-

-

(70,914)

8,471

(62,443)

Ordinary dividends paid

-

-

-

-

-

(6,711)

(6,711)

Shares purchased by the

Company

 

(234)

 

(5,658)

 

-

 

-

 

-

 

-

 

(5,892)

Balance as at

30 June 2020

8,594

10,445

233,866

32,069

(44,589)

10,850

251,235

 

 

 

for the year to 30 June 2019

 

 

 

 

 

 

Ordinary

Share

 

Non-

 

 

 

 

share

premium

Special

distributable

Capital

Revenue

 

 

capital

account

reserve

reserve

reserves

reserve

Total

 

£'000s

£'000s

£'000s

£'000s

£'000s

£'000s

£'000s

Balance as at 30 June 2018

8,949

18,167

233,866

32,069

(40,282)

8,969

261,738

Profit for the year

-

-

-

-

66,607

6,810

73,417

Ordinary dividends paid

-

-

-

-

-

(6,689)

(6,689)

Shares purchased by the

Company

 

(121)

 

(2,064)

 

-

 

-

 

-

 

-

 

(2,185)

Balance as at

30 June 2019

8,828

16,103

233,866

32,069

26,325

9,090

326,281

 

 

 

 

STATEMENTS OF FINANCIAL POSITION

 

 

                                               

Group

     

Company

as at 30 June

2020

2019

2020

2019

 

£'000s

£'000s

£'000s

£'000s

Non-current assets

 

 

 

 

Investments

488,997

543,794

491,280

556,430

Current assets

 

 

 

 

Other receivables

3,579

748

3,579

748

Derivative financial instruments

111

436

111

436

Cash and cash equivalents

258

3,177

258

3,177

 

3,948

4,361

3,948

4,361

Current liabilities

 

 

 

 

Loans

(51,146)

(50,971)

(51,146)

(50,971)

Other payables

(4,248)

(9,491)

(63,335)

(9,491)

Derivative financial instruments

(5,391)

(1,483)

(5,391)

(1,483)

Zero dividend preference shares

(59,087)

-

-

-

 

(119,872)

(61,945)

(119,872)

(61,945)

Net current liabilities

(115,924)

(57,584)

(115,924)

(57,584)

Total assets less current liabilities

373,073

486,210

375,356

498,846

Non-current liabilities

 

 

 

 

Other payables

-

-

(124,121)

(172,565)

Zero dividend preference shares

(121,448)

(159,942)

-

-

Net assets

251,625

326,268

251,235

326,281

 

 

 

 

 

Equity attributable to equity holders

 

 

 

 

Ordinary share capital

8,594

8,828

8,594

8,828

Share premium account

10,445

16,103

10,445

16,103

Special reserve

233,866

233,866

233,866

233,866

Non-distributable reserve

32,069

32,069

32,069

32,069

Capital reserves

(44,199)

26,312

(44,589)

26,325

Revenue reserve

10,850

9,090

10,850

9,090

Total attributable to equity holders

251,625

326,268

251,235

326,281

 

 

 

 

 

Net asset value per ordinary share - pence

292.79

369.57

292.34

369.58

             

 

 

 

STATEMENTS OF CASH FLOWS

 

 

 

Group

 

Company

for the year to 30 June

2020

2019

2020

2019

 

£'000s

£'000s

£'000s

£'000s

(Loss)/profit before taxation

(62,039)

74,017

(62,442)

73,426

Adjust for non-cash flow items:

 

 

 

 

Losses/(gains) on investments

60,006

(90,402)

60,078

(90,800)

(Gains)/losses on derivative financial instruments

 

(3,286)

 

6,871

 

(3,286)

 

6,871

Foreign exchange losses/(gains)

3,469

(3,306)

3,469

(3,306)

Non-cash flows on income

(6,323)

(3,390)

(6,323)

(3,390)

(Increase)/decrease in accrued income

(709)

941

(709)

941

(Increase)/decrease in other debtors

(2,122)

10

(2,122)

10

(Decrease)/increase in creditors

(8,757)

3,344

(8,757)

3,344

ZDP shares finance costs

10,312

11,093

-

-

Intra-group loan account finance costs

-

-

10,643

12,082

Tax on overseas income

(1)

(9)

(1)

(9)

Cash flows from operating activities

(9,450)

(831)

(9,450)

(831)

 

 

 

 

 

Investing activities:

 

 

 

 

Purchases of investments

(81,698)

(58,875)

(81,698)

(59,776)

Sales of investments

82,812

102,243

93,093

103,833

Purchases of derivatives

-

(6,410)

-

(6,410)

Sales of derivatives

7,519

-

7,519

-

Cash flows from investing activities

8,633

36,958

18,914

37,647

 

 

 

 

 

Cash flows before financing activities

(817)

36,127

9,464

36,816

 

 

 

 

 

Financing activities:

 

 

 

 

Equity dividends paid

(6,711)

(6,689)

(6,711)

(6,689)

Movements on loans

(2,137)

22,862

(2,137)

22,862

Cash flows from issue of ZDP shares

10,281

1,590

-

-

Cash flows from redemption of ZDP shares

-

(52,095)

-

(51,194)

Cash paid for ordinary shares purchased for

cancellation

 

(5,892)

 

(2,185)

 

(5,892)

 

(2,185)

Cash flows from financing activities

(4,459)

(36,517)

(14,740)

(37,206)

 

 

 

 

 

Net decrease in cash and cash equivalents

(5,276)

(390)

(5,276)

(390)

Cash and cash equivalents at the beginning of

the year

 

3,177

 

(53)

 

3,177

 

(53)

Effect of movement in foreign exchange

(1,157)

3,620

(1,157)

3,620

Cash and cash equivalents at the end of the year

(3,256)

3,177

(3,256)

3,177

 

 

Comprised of:

 

 

 

 

Cash

258

3,177

258

3,177

Bank overdraft

(3,514)

-

(3,514)

-

Total

(3,256)

3,177

(3,256)

3,177

 

 

 

 

NOTES

 

1. DIVIDENDS

The Directors declared a fourth quarterly dividend in respect of the year ended 30 June 2020 of 2.00p per share which was paid on 25 September 2020 to all ordinary shareholders on the register at close of business on 4 September 2020. The total cost of the dividend, which has not been accrued in the results for the year to 30 June 2020, is £1,719,000 based on 85,939,314 ordinary shares in issue.

 

2. RELATED PARTY TRANSACTIONS

The following are considered related parties of UIL:

Ultimate parent undertaking:

UIL's majority shareholder General Provincial Life Pension Fund Limited ("GPLPF") holds 63.83% of UIL's shares. Union Mutual Pension Fund Limited ("UMPF") holds 4.92% of UIL's shares and General Provincial Company Limited ("GPC") holds 3.67% of UIL's shares. The ultimate parent undertaking of GPLPF, UMPF and GPC is Somers Isles Private Trust Company Limited ("SIPTCL") as trustee of various trusts of which Mr Duncan Saville is a beneficiary.

Subsidiaries of UIL:

Allectus, BFIC, Coldharbour, Energy Holdings Ltd, Newtel, UIL Holdings Pte Ltd and Zeta. (On consolidation, transactions between the Company and UIL Finance Limited have been eliminated).

Associated undertakings:

3DMedi, DTI, Elevate, Orbital, Serkel, SmileStyler, Somers and VixTech.

Subsidiaries of the above subsidiaries and associated undertakings:

Allectus: CHIPS AG, Global Equity Risk Protection Limited ("GERP-ACL"), Metricus Pty Ltd, Own Solutions AC Ltd, Perfect Channel Limited, Snapper Services Ltd, Trustlink (Pty) Ltd, Unity Holdings Ltd, Vix Resources Pty Ltd, and VixNet Africa (Pty) Ltd.

Zeta: Horizon Gold Limited, Kumarina Resources Limited, Zeta Energy Pte. Ltd, and Zeta Investments Limited.

Somers: BCB, PCF Group plc, Resimac Group Limited, Waverton Investment Management Group Limited, and West Hamilton Holdings Limited.

Key management entities and persons:

ICM and ICMIM and the board of directors of ICM, Alasdair Younie, Charles Jillings, Duncan Saville and of ICMIM, Charles Jillings and Sandra Pope. ICM Investment Research Limited and ICM Corporate Services (Pty) Ltd are wholly owned subsidiaries of ICM.

Persons exercising control of UIL:

The Board of UIL.

Eric Stobart and Warren McLeland resigned as Directors on 30 September 2019 and Stuart Bridges was appointed as a Director on 2 October 2019.

Companies controlled by key management persons:

Azure Limited, Mitre Investments Limited, Permanent Investment Limited ("PIL") and Permanent Mutual Limited ("PML").

The following transactions were carried out during the year to 30 June 2020 between the Company and its related parties above:

UIL Finance

Loans from UIL Finance to UIL of £172.6m as at 30 June 2019 increased by £10.6m, to £183.2m as at 30 June 2020. The loans are repayable on the ZDP share repayment date to which the relevant loan relates.

Allectus: On 1 July 2019, as part of a share capital reorganisation, UIL's debt of USD 23.2m was converted into equity of Allectus and UIL also purchased an additional 52 ordinary shares for USD 5k which increased UIL's holding from 39.8% to 50.0% of the ordinary shares. In addition to the above, pursuant to a loan agreement dated 1 September 2016 under which UIL has agreed to loan monies to Allectus, UIL advanced to Allectus a loan of USD 6.2m. On 23 June 2020 the full loan was converted to equity in the form of contributed surplus. The loan is interest free and is converted into equity on an annual basis at 30 June each year.

BFIC: BFIC paid a dividend of USD 25.5m to UIL (UIL received in specie 746,524 Ascendant shares at USD 34.20 per share in settlement of the dividend). Pursuant to a loan agreement dated 3 July 2017 under which UIL has agreed to loan monies to BFIC, UIL advanced to BFIC USD 0.8m and received interest of USD 15k. As at 30 June 2020, the balance of the loan was USD 0.8m. The loan bears interest at an annual rate of 6.0% and is repayable on not less than 12 months' notice.

Coldharbour: UIL exercised 6,000,000 Coldharbour warrants at a cost of £3.0m. UIL received a loan of £0.5m from Coldharbour on 27 May 2020. The loan remains outstanding as at 30 June 2020.

Energy Holdings Ltd: There were no transactions during the year.

GERP: The GERP-Utilico Segregated Account owned by UIL was terminated and the 3,920 Class A shares were cancelled on 6th May 2020.

Newtel: Newtel repaid £0.1m of its working capital loan to UIL and paid interest of £16k. As at 30 June 2020 the loan balance was £5.2m and is repayable on demand.

UIL Holdings Pte Ltd: There were no transactions during the year.

Zeta: Pursuant to loan agreements dated 1 September 2016 (AUD loan) and 1 May 2018 (CAD loan), under which UIL has agreed to loan monies to Zeta, UIL advanced to Zeta loans of AUD 62.6m and CAD 5.9m and received from Zeta a repayment of AUD 40.3m, and capitalised interest of AUD 2.3m and CAD 1.5m. As at 30 June 2020, the balance of the loans and interest outstanding was AUD 64.7m and CAD 30.5m. The AUD loan bears interest at an annual rate of 7.5% and the CAD loan bears interest at an annual rate of 7.25%. The loans are repayable on not less than 12 months' notice.

3DMedi: UIL capitalised interest of AUD 0.1m and exchanged its resulting loan balance of AUD 0.6m with 3DMedi for 158,704 SmileStyler shares and 10,510 Serkel shares held by 3DMedi in June 2020 as full settlement for the loan.

DTI: UIL increased its holding in DTI by subscribing for 30.3m shares through a rights issue and a further 16.0m shares as a result of UIL underwriting the rights issue. A further 2.4m shares were purchased on the market.

Elevate: Pursuant to a loan agreement dated 1 January 2019 under which UIL has agreed to loan monies to Elevate, UIL advanced to Elevate £1.0m. As at 30 June 2020, the balance of the loan and interest outstanding was £1.6m. The loan bears interest at an annual rate of 6.0% and is repayable on 31 December 2023.

Orbital: Pursuant to a loan agreement dated 1 March 2019 under which UIL has agreed to loan monies to Orbital, UIL advanced to Orbital USD 1.5m and capitalised interest of USD 95k. The loan was fully repaid on 22 June 2020. The USD 3.0m loan facility remains in place until 1 September 2020 and bears interest at an annual rate of USD 3 months Libor plus 6.0%.

Serkel: UIL received 10,510 Serkel shares from 3DMedi in June 2020 as part settlement for a loan that 3DMedi had with UIL.

SmileStyler UIL received 158,704 SmileStyler shares from 3DMedi in June 2020 as part settlement for a loan that 3DMedi had with UIL.

Somers: Somers paid a dividend of USD 4.6m to UIL and UIL received 309,535 ordinary shares as part of a dividend reinvestment program. Pursuant to loan agreements dated 1 September 2016 (USD loan), 22 June 2018 (GBP loan), 5 September 2019 (AUD loan) and 4 December 2019 (CAD loan), under which UIL has agreed to loan monies to Somers, UIL advanced to Somers loans of USD 1.0m, £1.3m, AUD 7.5m and CAD 4.2m, Somers repaid CAD 1.9m and UIL received interest of USD 65k, £126k, AUD 113k and CAD 88k. As at 30 June 2020, the balance of the loans and interest outstanding was USD 4.4m, £8.4m, AUD 7.5m and CAD 2.3m. With the exception of the CAD loan, which bears interest at an annual rate of 10.0%, the loans bear interest at an annual rate of 6.0% and are repayable on not less than 12 months' notice.

VixTech: Pursuant to a loan agreement dated 1 December 2016 under which UIL has agreed to loan monies to VixTech, UIL advanced to VixTech USD 3.4m. In June 2020, UIL had its full loan of USD 26.9m with VixTech converted into equity, receiving 26,931,974 VixTech shares in the transaction

Subsidiaries of the above subsidiaries and associated undertakings

There were no transactions in the year to 30 June 2020 with any of the subsidiaries of the above subsidiaries and associated undertakings.

Key management entities and persons

ICM and ICMIM are joint portfolio managers of UIL. Other than investment management fees, secretarial costs and performance fees as set out in note 3 of the Report and Accounts, and reimbursed expenses included within note 4 of the Report and Accounts of £55,000 (2019: £108,000), there were no other transactions with ICM or ICMIM or ICM Investment Research Limited and ICM Corporate Services (Pty) Ltd, both wholly owned subsidiaries of ICM. At the year-end £243,000 (2019: £310,000) remained outstanding to ICM and ICMIM in respect of management and company secretarial fees and £ nil (2019: £8,538,000) in respect of performance fees.

Mr Younie is a director of Bermuda Commercial Bank Limited, BFIC, GERP,  PIL, PML, Somers and West Hamilton Holdings Limited. Mr Jillings is a director of Allectus, GERP, PIL, PML, Somers and Waverton. Mr Jillings received dividends from UIL of £27,125. Mr Saville is a director of Allectus, BFIC, GPLPF, GERP, Newtel Holdings Limited, PIL, PML, Resimac Group Limited, VixTech, West Hamilton Holdings Limited and Zeta Energy Pte Ltd. There were no other transactions in the year between UIL and Alasdair Younie, Charles Jillings, Duncan Saville and Sandra Pope.

The Board

As detailed in the Directors' Remuneration Report of the Report and accounts on page 57 of the Report and Accounts, the Board received aggregate remuneration of £177,500 (2019: £221,000) included within "Other expenses" in note 4 of the Report and Accounts for services as Directors. As at 30 June 2020, £36,500 (2019: £25,000) remained outstanding to the Directors. In addition to their fees, the Directors received dividends totalling £91,137 (2019: £76,131) during the year. There were no other transactions during the year between the Board and UIL.

Companies controlled by key management persons:

PIL and PML

PML received dividends of £387,467 from UIL. There were no other transactions between the Company and PIL or between the Company and PML in the year.

Somers Isles Private Trust Company Limited "SIPTCL"

There were no transactions between Somers Isles Private Trust Company Limited and the Company in the year.

Other

Azure Limited received dividends of £45,885 from UIL, GPLPF received dividends of £4,250,994 from UIL, UMPF received £156,340 from UIL, GPC received £63,000 from UIL and Mitre Investments Limited received dividends of £202,863 from UIL. There were no other transactions between companies controlled by key management and UIL in the year.

UIL entered into a CFD contract to purchase the rights attaching to shares of S&C Engine Group with PML. UIL paid USD 2.2m, being the full and fair value of those shares. UIL bears the risk of the movement in fair value of the shares and is entitled to receive any dividends paid by S&C Engine Group. The CFD contract has a maturity date of 12 months after the first trade date being 3 December 2020 unless agreed by both parties to terminate the contract earlier. There were no other transactions in the year with the companies controlled by key management persons and UIL.

 

3. RESULTS

This statement was approved by the Board on 27 October 2020. The financial information set out above does not constitute the Group's or Company's statutory accounts for the years ended 30 June 2020 or 2019 but is derived from those accounts. The auditor has reported on those accounts; their reports were (i) unqualified and (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report.

 

The Report & Accounts for the year ended 30 June 2020 will be posted to shareholders in early November 2020. A copy is available to view and download from the Company's website at www.uil.limited 

 

 

 

 

 

Annual General Meeting Arrangements

The Annual General Meeting ("AGM") of the Company will be held its registered office, Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda on Tuesday, 8 December 2020 at 5.00pm (local time) and notice is set out at the end of the Report & Accounts.  In light of the ongoing Covid-19 situation and measures in place to prevent the spread of the virus, shareholders are asked not to attend the AGM in person. Voting on all resolutions will be conducted on a poll and shareholders are therefore strongly encouraged to register their votes in advance of the AGM by submitting proxy forms to the Company's registrar, appointing the chairman of the meeting as their proxy to ensure their votes are counted.

 

Legal Entity Identifier: 213800CTZ7TEIE7YM468

 

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