TIDMEGL
RNS Number : 1990X
Ecofin Global Utilities Inf Tst PLC
18 December 2023
ECOFIN GLOBAL UTILITIES AND INFRASTRUCTURE TRUST PLC (the
"Company")
Annual Results Announcement for the year ended 30 September
2023
LEI: 2138005JQTYKU92QOF30
This announcement contains regulated information.
Ecofin Global Utilities and Infrastructure Trust plc (the
"Company" or "EGL") is an authorised UK investment trust whose
objectives are to achieve a high, secure dividend yield on a
portfolio invested primarily in the equities of utility and
infrastructure companies in developed countries and long-term
growth in the capital value of the portfolio while preserving
shareholders' capital in adverse market conditions.
-- During the year ended 30 September 2023, the Company's net
asset value ("NAV") per share total return was -8.6%. The Company's
share price total return was -21.9%;
-- Four quarterly dividends were paid during the year totalling 7.70p per share;
-- The Company's revenue return per share increased by 9.2%
year-over-year as a result of continuing strong growth in
investment income. Due to this, and to reflect your board's
confidence in the growth prospects of EGL, we have decided to
increase the quarterly dividend to 2.05p per share (8.20p per
annum) with effect from the dividend to be paid in February 2024.
At the current share price and increased dividend rate, the
Company's shares yield 4.7%;
-- The portfolio is exposed to the broader return opportunities
in the infrastructure and utilities sectors which are at least in
line with EGL's target total return of 6-12% p.a. over the longer
term.
As at or year to As at or year to
Summary 30 September 2023 30 September 2022
----------------------------- ------------------- -------------------
Net assets attributable
to shareholders (GBP'000) 211,977 233,052
Net asset value ("NAV")
per share(1) 183.54p 208.14p
----------------------------- ------------------- -------------------
Share price (mid-market) 164.00p 218.00p
(Discount)Premium to NAV(1) (10.6)% 4.7%
----------------------------- ------------------- -------------------
Revenue return per share 7.01p 6.42p
Dividends paid per share 7.70p 7.20p
Dividend yield (1,2) 4.7% 3.3%
Gearing on net assets (1,3) 11.2% 11.0%
Ongoing charges ratio (1,4) 1.27% 1.35%
----------------------------- ------------------- -------------------
1. Please refer to Alternative Performance Measures in the
annual report.
2. Dividends paid (annualised) as a percentage of share
price.
3. Gearing is the Company's borrowings (including the net
amounts due from brokers) less cash divided by net assets
attributable to shareholders.
4. The ongoing charges ratio is calculated in accordance with
guidance issued by the Association of Investment Companies ("AIC")
as the operating costs (annualised) divided by the average NAV
(with income) throughout the period.
1 year 3 years 5 years Since admission(5) Since admission
Performance for periods %
to 30 September 2023 (total
returns in GBP) % % % per annum
------------------------------ -------- -------- -------- ------------------- ----------------
NAV per share (6) -8.6 24.1 53.9 72.9 8.1
Share price (6) -21.9 14.7 60.2 95.9 10.1
------------------------------ -------- -------- -------- ------------------- ----------------
Indices (6,7)
S&P Global Infrastructure
Index -3.1 27.8 24.9 33.2 4.2
MSCI World Utilities Index -8.2 9.8 30.9 42.4 5.2
MSCI World Index 11.8 35.4 55.5 105.1 10.8
FTSE All-Share Index 13.6 39.3 19.4 41.2 5.0
FTSE ASX Utilities Index 14.8 40.8 60.3 31.5 4.0
------------------------------ -------- -------- -------- ------------------- ----------------
Source: Bloomberg, Ecofin
5. The Company was incorporated on 27 June 2016 and its
investment activities began on 13 September 2016 when the liquid
assets of Ecofin Water & Power Opportunities plc ("EWPO") were
transferred to it. The formal inception date for the measurement of
the Company's performance is 26 September 2016, the date its shares
were listed on the London Stock Exchange.
6. Total return includes dividends paid and reinvested
immediately. Please also refer to the Alternative Performance
Measures in the Annual Report.
7. The Company does not have a formal benchmark index. For
comparison purposes the S&P Global Infrastructure Index and
MSCI World Utilities Index are the global sector indices deemed the
most appropriate. The other indices are provided for general
interest.
Chairman's Statement
Performance
The last few months of your Company's financial year proved
challenging and resulted in a poor year for shareholder returns.
The net asset value (NAV) total return was -8.6% over the year to
30 September, including the reinvestment of dividends. The share
price total return was -21.9%, reflecting a share price discount
which emerged during the summer. The MSCI World Utilities Index and
the S&P Global Infrastructure Index produced total returns of
-8.2% and -3.1% respectively in sterling terms. In comparison,
global equities, measured by the MSCI World Index, returned
11.8%.
As our investment manager explains on the following pages, share
prices of renewables-focussed developers in particular, whose long
life assets vital to the energy transition require large upfront
investment commitments, came under substantial pressure, especially
in the second part of the year in the US. This was because
increased long term interest rates created a drop in the present
value of these businesses' long term cash flows, exacerbated by
shareholders becoming more risk-averse and uncertainty about the
course of energy prices. Companies in the portfolio with more
diversified and inflation protected business models, such as
European integrated utilities, environmental services and
transportation infrastructure, performed better but listed
infrastructure overall underperformed rising global equity markets
by a significant margin. Sterling's strength, particularly against
the US dollar (+9%), also contributed to the NAV's decline, as did
our use of debt which contributed -0.1%.
From inception in September 2016 to the financial year-end, the
NAV total return has averaged 8.1% per annum and the share price
total return 10.1% per annum, in line with our expectations for
companies in the portfolio whose core assets respond to essential
needs, operate within solid regulatory frameworks and have
predictable and sustainable cash flows.
Dividends
The Company's revenue return per share increased by 9.2%
year-over-year as a result of continuing strong growth in
investment income even though higher rates increased borrowing
costs. Due to this, and to reflect your board's confidence in the
growth prospects of EGL, we have decided to increase the quarterly
dividend to 2.05p per share (8.20p per annum) with effect from the
dividend to be paid in February 2024. At the current share price
and increased dividend rate, the Company's shares yield 4.7%.
Share price, issuances and buybacks
During the first eight months of the financial year, the Company
was issuing new shares in response to daily demand when the share
price traded at a small premium to NAV (4.6 million shares were
issued). During the summer, as the NAV fell, the share price
declined faster, resulting in a discount of 10.6% at the financial
year end.
The infrastructure investment trust sector has seen discounts
widen to unprecedented levels. The wider investment trust universe
has also shown significant share price weakness. We know that we
cannot expect our actions to be wholly successful to bring our own
discount down until investor confidence returns. That said, we
firmly believe in the continuing ability of your Company to prosper
and we began to repurchase shares on 31 July. By year-end, 1.1
million shares had been repurchased with an additional 380,000
shares repurchased thereafter.
Your board
On 12 September 2023 the board was pleased to appoint Joanna
Santinon as a non-executive director of the Company. Joanna, an
experienced accountant and financial professional, will become the
chair of the audit committee when Iain McLaren retires from the
board at the AGM in March 2024.
Continuation vote
Pursuant to the Company's Articles of Association, the board is
required to put a continuation vote to shareholders every five
years. As the last time such a vote occurred was in 2019, a
continuation vote will be put to shareholders at the Annual General
Meeting to be held on 6 March 2024. Given the performance of the
Company since inception and the strong growth outlook for its
investment universe, your board has no hesitation recommending to
shareholders that they vote in favour of the Company continuing as
an investment company for a further five year period.
Outlook
Since 30 September (to 14 December), the Company's NAV has
increased by 7.3% and the share price by 7.8% (both on a total
return basis).
Although geopolitical tensions are unnerving investors and
interest rates are likely to remain much higher than in recent
years, there are reasons to feel optimistic that the performance of
the Company's investment sectors and portfolio will improve. Your
investment manager is confident that the energy transition will
continue, aided by further policy support and improvements in
technology. Global investment in renewable energy and power
transmission is driven by the need for energy security, by the
continuing cost and reliability improvement of renewables, and by
growing customer demand.
Share prices have mostly decoupled from the underlying prospects
for growth in demand for electricity, from the outlook for pricing
and from the drivers for infrastructure renewal. Utilities should
deliver predictable non-cyclical earnings growth amidst the
uncertainty of the global economic outlook. The portfolio's
exposure to companies operating and investing to upgrade water,
waste and transportation infrastructure reflects the broader return
opportunities in the infrastructure sector which are at least in
line with EGL's target total return of 6-12%p.a. over the longer
term. Although the cost of our borrowings has escalated, we retain
a modest level of gearing because our investment manager believes
that it will continue to enhance returns over the medium term given
current share prices.
We believe that your Company is well placed to resume the
achievement of its performance objectives.
David Simpson
Chairman
18 December 2023
Investment Manager's Report
Markets and our sectors
During EGL's fiscal year to 30 September 2023, equity markets
were driven higher by cyclical and technology stocks, while the
portfolio's more defensive ones were out of favour and
underperformed. Global economic growth exceeded most expectations
(except in China), inflation moderated but remained well above
target, and interest rates were rising. The MSCI World Utilities
Index total return was -8.2% and the total return on the S&P
Global Infrastructure Index, which has a significant energy
infrastructure component, was -3.1%.
EGL's investment universe was already underperforming when, from
mid-summer 2023, longer term bond yields accelerated their move
higher, were sold off aggressively and between August and September
EGL's NAV declined by 10%. For the year, EGL's NAV total return was
-8.6%, of which approximately one-half was attributable to the
significant strength of sterling while leverage contributed around
-0.1%.
Over the 12 months, pan-European diversified utilities performed
well. For these large integrated utilities, power prices were
declining from 2022's crisis levels but power retail and trading
businesses were thriving. European transportation and environmental
services, which offer sound pricing models with contractual
inflation hedges, performed relatively well too.
North American utilities, on the other hand, especially
renewables developers, saw their valuations grind lower. Issues
around cost inflation, supply chains and permit delays for
renewables were rarely out of the headlines. Wildfires were a
constant reminder of climate risks but the main adverse factor for
renewables, utilities and infrastructure was rising interest rates.
These sectors are big users of capital and the higher cost of
capital weighs on the present value of future cash flows while also
raising concerns about future returns. This is especially so in the
US where there can be insufficient cost hedging or inflation
indexation in contracts. The impact on share prices was more
dramatic than its financial impact, leaving valuations for many
fast-growing renewables developers at very depressed levels.
Compounding these issues were summertime profit warnings from
Siemens Energy and Orsted (not held in the portfolio) who cited
cost pressures and technological difficulties for US offshore wind,
and also by NextEra Energy Partners. It halved its aggressive
renewables growth targets in September due to funding costs - the
benchmark 10-year US government bond yield had increased from 3.8%
to 4.8% since 30 June. These profit warnings came at a time when
confidence that policy and operating environments were supportive
of ambitious global renewables targets was already shaky. By 30
September, the underperformance of US utilities versus the S&P
500 index year-to-date was close to 30%, a divergence unprecedented
over the prior 3 decades.
This underperformance of utilities contrasted with the earnings
progress of most portfolio companies, their outlook, dividend
paying abilities and capital investment plans in what are often
highly regulated businesses. Earnings per share expectations have
generally been increasing, particularly for European integrated
utilities but also, though to a lesser extent, for US peers.
Companies are benefitting from power prices which, although lower
than 2022, remain well above pre-Ukraine crisis levels. Meanwhile,
Power Purchase Agreement (PPA) data shows that renewables operators
overall are able to pass through the effects of cost inflation to
customers while contracted power prices for new projects are
adjusting upward to reflect the higher cost of capital and overall
equipment costs to maintain project returns.
Performance summary
Disappointingly, the share price performance of some of the
portfolio's large holdings was poor. The second half of EGL's
financial year was especially challenging (NAV -11.9% total return)
because increases in bond yield created a severe headwind to the
perceived value of long term cash flows and growth.
NextEra Energy and its high-yield subsidiary NextEra Energy
Partners (NEP) together pulled the NAV lower by c. 5% over the
year, mostly in the last days of September. Other North American
holdings, including regulated utilities Dominion Energy and
American Electric Power and the higher growth renewables
specialists AES and Brookfield Renewables, were also very weak.
Chinese shares in the portfolio spanning wind, solar and water
supply underperformed all year.
NextEra and NEP deserve further explanation. NextEra has been
one of the most successful transformation stories in EGL's global
investment universe over the past several years, from a traditional
low-growth Florida-based utility into a growth engine, thanks to
successful investments in renewable energy. It has gained exposure
to what we consider to be some of the highest quality and return
wind development projects in the US. Given its size (market
capitalisation of over $130bn) and stature in the energy
transition, it has been widely held by specialist and generalist
investors. NextEra remains one of the most significant contributors
to EGL's NAV since inception.
Amongst other things, NextEra develops greenfield renewable
energy projects and, once operating, some of these are 'dropped
down' to NEP, its $5bn market cap, part-owned and listed
subsidiary. These operating assets produce cashflows through
long-term contracts which are paid to investors. Late September, in
view of the latest jump higher in funding costs, NEP halved its
expected dividend growth rate from 12% to 6% p.a. for the next few
years, generating significant distress in the share prices of
renewables companies worldwide. NextEra's shares fell 30% on the
news, removing its premium valuation. The market questioned
NextEra's ability to finance its usual pace of development and the
new management's communication skill. Over 50% of NextEra's
earnings still comes from its regulated utility and guidance has
been reconfirmed for 6-8% p.a. earnings growth and 10% p.a.
dividend per share growth until 2026. NextEra must now prove its
ability to generate and finance growth but, in our view, Q3 results
were a good start.
AES reported additions to its already strong renewables
development pipeline but a slightly reduced EPS growth rate of 6-8%
p.a. for 2023-2027 due to the dilutive effect of its coal
phase-out. Its shares were under constant pressure as rates
rose.
Xinyi Energy's shares (pure solar operator in China) were
punished because the company cut its dividend citing keenness to
take advantage of higher returns on solar projects (solar panel
costs have declined sharply) to accelerate growth. Drax, Europe's
largest biomass power generator, which supplies 5% of the UK's
electricity, suffered from a lack of clarity on subsidies and the
timing of approval of its BECCS project.
The ten best contributors to NAV included several pan-European
utilities (Enel, Engie, Endesa, E.ON, SSE). These companies are
amongst the largest renewables developers globally too, and they
have exposure to retail power markets which recovered well since
last year and/or significant transmission and distribution
businesses where returns are sustained by regulators. The list also
included environmental (Veolia) and transportation services (Vinci
and Ferrovial) businesses, plus the US's largest nuclear fleet
owner, Constellation Energy, which has a strong free cash flow
profile and continued to raise guidance. Over the 6 months since 31
March, this list was almost identical except Williams Companies (US
energy infrastructure) replaced SSE amongst the better
performers.
Purchases and sales
Since the half-year report, we have reallocated some funds from
Europe to the US due to the striking dispersion of returns in the
year-to-date and to relative valuations. In the process, we further
diversified the North American exposure. We added to the portfolio
Southern Company, a diversified energy producer set for above
average earnings and dividend growth driven by its long-term
contracts, and Edison International, a 'wires-focused' utility with
expected growth of 7-9% p.a., in step with California's demanding
clean energy goals. We increased holdings in Exelon, American
Electric Power, AES and Xcel Energy, as well as in NextEra Energy
Partners, whose shares we expect to rebound strongly as the
interest rate cycle turns.
We also added Hong Kong-listed Chinese solar operator Xinyi
Energy to the portfolio and increased holdings significantly in
Iren (Italian networks, power and water infrastructure and
environmental services) and Vinci (transportation infrastructure
and construction worldwide), funded by profit taking in several of
the European portfolio's stronger performers (Veolia, Engie,
Endesa) and in Constellation Energy. At the same time, we reduced
gearing.
Income and gearing
Portfolio companies continued to deliver solid growth in income
from investments, despite the poor share price performance of many
utilities. Dividend receipts increased by 20% reflecting the larger
size of the portfolio (weighted average number of shares +10.7%)
and underlying growth. This rate of increase, along with cost
controls, meant that net revenue return per share increased by 9.2%
despite the increased cost of borrowings.
Gearing averaged 12% during the first half of the fiscal year
and was 13.4% at 31 March 2023 but we significantly reduced
borrowings thereafter because the positive spread between dividend
yields and the cost of borrowings was being eroded. Due to NAV
weakness, the gearing ratio declined less notably.
Despite the cost of borrowings, we expect to continue to take
advantage of gearing offers when individual shares or sub-sectors
are excessively undervalued. We have, however, adjusted higher the
expected total return hurdle to determine whether to use
borrowings.
Strategy
At present, long term interest rates are driving equity markets
and there is plenty of uncertainty on the medium-term global growth
and geopolitical outlook. Many pure renewables and some utility
share valuations have de-rated so significantly that they ascribe
little value to growth; scepticism regarding both growth and yield
at the same time is overly pessimistic. These sectors need a peak
in interest rates and bond yields to stabilise the net present
value of operating cash flows, the value of growth and to rekindle
investor optimism. Nonetheless, with the earnings outlook we're
observing, there are compelling investment opportunities at current
levels.
Decarbonisation and electrification trends have strong momentum
with key drivers such as increasing renewables, manufacturing
re-shoring and energy efficiency driving investment. Corporates and
consumers will continue to replace carbon-emitting energy sources
with renewables, ensuring renewables growth at a reasonable rate of
return. Power purchase agreement (PPA) prices have been increasing
in Europe and the US to reflect, and more than offset, higher
capital expenditure and financing costs, according to LevelTen
Energy. This implies better pricing power and higher internal rates
of return today than in 2020. Utilities are forward selling power
for the next few years at prices which are significantly higher
than those embedded in brokers' forecasts which mostly assume that
power prices will revert to historical levels.
We continue to take advantage of the diversity in EGL's
investment universe. The portfolio now has more exposure to
electric transmission and distribution with, for example, SSE,
National Grid, Terna-Rete Ellectrica Naziona, a Rome-based pure
play high-voltage transmission owner/operator, and Edison
International, one of the largest pure electric transmission and
distribution companies in the world. These businesses are highly
regulated, have some upside protection to inflation and interest
rates via their regulated return on capital models and are key
enablers of the decarbonising of the grid. They are spending
capital on interconnections to newly built renewables assets and to
manage the consequent loads on grids. Environmental services and
transportation infrastructure services add some economic
sensitivity but debt costs are generally well hedged, revenues
(tolls, for example) are mostly inflation-linked, changes to
allowed returns on capital effectively offset rising bond yields,
and valuations are low.
Ecofin Advisors Limited
Investment Manager
18 December 2023
Principal and emerging risks associated with the Company
Principal and emerging risks associated with the Company The
directors have carried out a robust assessment of the principal and
emerging risks facing the Company, including those which could
threaten its business model, future performance, solvency and
liquidity. The specific financial risks associated with foreign
currencies, interest rates, market prices, liquidity, credit,
valuations and the use of derivatives - which may or may not be
material to the Company - are described in note 16 to the Financial
Statements. The board conducts this assessment by reviewing a
detailed risk matrix on a regular basis. A full analysis of the
directors' review of internal controls is set out in the Corporate
Governance Statement on page 28.
The principal risks facing the Company are summarised below
along with, where appropriate, the steps taken by the board to
monitor and mitigate such risks.
Performance and market risk
The performance of the Company depends primarily on the
investment strategy, asset allocation and stock selection decisions
taken by the Investment Manager within the parameters and
constraints imposed by the Company's investment policy. The
investment policy guidelines can only be materially changed by
proposing an ordinary resolution at a General Meeting for
shareholders' approval. The Company invests in securities which are
listed on recognised stock exchanges so it is regularly exposed to
market risk and the value of the Company's portfolio can fluctuate,
particularly over the short term, in response to developments in
financial markets.
The board has put in place limits on the Company's gearing,
portfolio concentration, and the use of derivatives which it
believes to be appropriate to ensure that the Company's investment
portfolio is adequately diversified and to manage risk. The board
meets formally at least four times a year with the Investment
Manager to review the Company's strategy and performance, the
composition of the investment portfolio and the management of risk.
The board examines the sources of investment performance, which are
described in attribution analyses prepared by the Investment
Manager's head of risk for each meeting, volatility measures,
liquidity and currency exposure, and the Company's gearing. The
Investment Manager's head of risk monitors and helps to manage
portfolio risk. Investment performance could be adversely affected
by changes within the investment management team at Ecofin. The
board monitors these through regular dialogue with the Investment
Manager. The Investment Manager takes steps to reduce the
likelihood of such an event by ensuring appropriate succession
planning and the adoption of a team-based approach.
Protracted separation of NAV and share price
While some investors may view the opportunity to purchase a
share of the Company at a discount to its NAV as attractive, the
volatility of the price of a share and the premium/discount adds to
the risks associated with an investment in the Company's shares.
The directors review the level of the premium/discount on a regular
basis and will use their ability as granted by shareholders to
address any sustained or significant discount or premium to NAV, as
and when it is appropriate, through the repurchase or issuance of
stock. The repurchase of stock will be subject to, but not limited
to, market conditions and availability of cash resources.
Income risk
The Company is committed to paying its shareholders regular
quarterly dividends and to increasing the level of dividends paid
over time. The dividends that the Company can pay depend on the
income it receives on its investment portfolio, the extent of its
distributable reserves and, to a lesser extent, its level of
gearing and accounting policies. Cuts in dividend rates by
portfolio companies, a change in the tax treatment of the dividends
received by the Company, a significant reduction in the Company's
level of gearing or a change to its accounting policies could
adversely affect the net income available to pay dividends.
The board monitors the net revenue forecast, including each
component revenue and expense line item, prepared by the
Administrator for quarterly board meetings. These are discussed in
some detail to assess the Investment Manager's level of confidence
in the income growth profile of the portfolio and to mitigate any
risk of revenue shortfall relative to expectations.
The board applied successfully to cancel the Company's share
premium account in November 2016 and the resulting special reserve
is available, when the board considers it appropriate, to augment
the net revenue available to pay dividends to shareholders.
Environmental, social and governance ("ESG") considerations
ESG considerations and policies have become some of the most
critical issues confronting companies and their shareholders and
can have a significant impact on the business models,
sustainability and even viability of individual companies. These
sustainability issues are a key area of focus for the board, and
the board maintains a regular oversight of the Investment Manager
in this area.
ESG factor analysis is undertaken on all portfolio holdings and
prospective investments by the Investment Manager, a specialist
investor in sustainable infrastructure and the energy transition.
In a rapidly changing environment surrounding sustainability and
ESG, Ecofin works to determine the best practices to incorporate
into investment criteria and to make reporting available to the
market. As a long-standing specialist in the Company's sectors,
Ecofin actively engages with portfolio companies and investments in
an effort to drive continuous improvement in their sustainability
practices and metrics. The board regularly reviews the way ESG
considerations are integrated into the decision making process by
the Investment Manager to mitigate risk at the stock selection and
portfolio levels.
Liquidity risk
While the Company invests principally in highly liquid
securities listed on recognised stock exchanges in developed
economies, it also invests to a limited extent in securities traded
in emerging markets and in securities which are more thinly traded.
As the Company is a closed-end investment company it does not run
the risk of having to liquidate investments on unattractive terms
to meet redemptions by investors although it is exposed to price
risk; that is, that it will be unable to liquidate a position in a
thinly traded security at the valuation at which it is carried in
the Company's accounts. It is also exposed to a risk that its prime
broker, Citigroup Global Markets Limited ("Citigroup"), which
provides a flexible borrowing facility, could request that
borrowings be repaid with three days' notice. The board reviews the
liquidity profile of the Company's portfolio on a regular basis.
The Investment Manager's head of risk also keeps the liquidity risk
profile of the Company's portfolio under close review. The
liquidity analysis regularly shows that, if required, 98% of the
portfolio could be liquidated within five business days assuming
trades to accomplish this accounted for up to 30% of average daily
trading volumes.
Cyber security risk
The threat of cyber-attack, in all guises, is regarded as at
least as important as more traditional physical threats to business
continuity and security. The Company's third-party service
providers (including Ecofin, BNP Paribas, Apex (formerly Maitland),
Citibank and Computershare) have confirmed the policies and
procedures they have in place and their commitment to alert the
board to any breaches. The Investment Manager has procedures in
place to maintain the best practices in the fight against
cybercrime. TortoiseEcofin has a cyber security insurance policy in
place.
Operational risks
Disruption to, or failure of, the Investment Manager's dealing
system, the Depositary's or Custodian's records or BNP Paribas'
accounting systems may prevent accurate reporting and monitoring of
the Company's financial position. The risk of fraud or other
control failures or weakness within these service providers could
result in losses to the Company.
In common with most other investment trusts, the Company has no
executive directors, executive management or employees. The Company
delegates key operational tasks to third-party service providers
which are specialists in their fields: the management of the
investment portfolio to the Investment Manager, Ecofin Advisors
Limited; the preparation and maintenance of the financial
statements and maintenance of its records to the Administrator and
Company Secretary, BNP Paribas S.A. and Apex Fund Administration
Services (UK) Limited (formerly Maitland Administration Services
Limited), respectively; the worldwide custody of the assets to
Citigroup; and the safekeeping and oversight services to Citibank
UK Limited ("Citibank") as Depositary. The board reviews the
performance of these third-party service providers and their risk
control procedures on a regular basis as well as the terms on which
they provide services to the Company.
Legal, regulatory and compliance risks
To qualify as an investment trust, the Company must comply with
Section 1158 of the Corporation Tax Act 2010 ('Section 1158').
Details of the Company's approval are given under Status on page
20. Were the Company to breach Section 1158, it may lose investment
trust status and, consequently, gains within the Company's
portfolio would be subject to capital gains tax. The Section 1158
qualification criteria are continually monitored by the
Administrator and the results reported to the board regularly. The
Company must also comply with the provisions of the Companies Act
2006 and, since its shares are listed on the London Stock Exchange,
the FCA Listing Rules, Market Abuse Regulation ('MAR'), Disclosure
Guidance and Transparency ('DTRs'), and, as an investment trust,
the Alternative Investment Fund Managers Directive ('AIFMD'). A
breach of the Companies Act could result in the Company and/or
directors being fined or the subject of criminal proceedings.
Breach of the FCA Listing Rules or DTRs could result in the
Company's shares being suspended from listing, which in turn would
breach Section 1158. The board relies on the services of its
Company Secretary, the Investment Manager and its professional
advisers to ensure compliance with the Companies Act 2006, the FCA
Listing Rules, DTRs, MAR and AIFMD.
The following risks, although not viewed as critical, have also
been identified as important in our risk assessment.
Other risks
In the opinion of the directors, an investment in the shares of
the Company entails a greater than average degree of risk, in the
context of the investment trust industry, because the Company
employs gearing, as explained on page 14 of the annual report. In
addition to the risks borne by the Company described above,
investors in the shares of the Company are exposed to risks due to
the investment policy (described on page 13 of the annual report)
of the Company. These are risks that cannot be mitigated without
changing the investment policy.
Gearing and capital structure
The board has authorised the Investment Manager to utilise
gearing, in the form of borrowings under the Company's prime
brokerage facility, although the gearing is not structural in
nature and can be reduced at any time. Whilst the use of gearing
will enhance the NAV per share when the value of the Company's
assets is rising, it has the opposite effect when the underlying
asset value is falling. In the event that the prime brokerage
facility were to be renegotiated or terminated, the Company might
not be able to finance its borrowings on as favourable terms.
Non-OECD or emerging markets
The Company's policy on diversification, noted on page 13 of the
annual report, permits the Investment Manager to invest up to 10%
of its investments, measured at the time of acquisition, in the
securities of companies incorporated in countries which are not
members of the OECD - such as emerging markets - and quoted on
stock exchanges in such countries. Investment in emerging markets
may involve a higher degree of risk and expose the Company to,
among other things, less well developed legal and corporate
governance systems, a greater threat of unilateral government
action with respect to regulation and taxation, and a higher risk
of political, social and economic instability than an investment in
developed, OECD markets. These risks are mitigated through
diversification and fundamental analysis.
Foreign exchange risk
As noted in the investment policy on page 13 of the annual
report, the Company's Financial Statements are prepared in sterling
and its shares are denominated in sterling. Many of the Company's
investments, however, are denominated in currencies other than
sterling and, as a result, the value of the Company's investment
portfolio is exposed to fluctuations in exchange rates. Although
the Company may hedge non-sterling exposure from time to time, it
is not the Company's policy to try to minimise or eliminate foreign
exchange risk as over the long term this could restrict the
investment returns potentially available to sterling-based
investors in international securities. There is a risk that the NAV
will be depressed, therefore, if sterling appreciates significantly
against foreign currencies.
Political risk
The board has considered the political uncertainties prevailing
in the UK and the rest of the world and the risks associated with
potential changes to regulations, laws and/or taxes. The board
continues to believe that the Company's strategy of investing in an
internationally diversified portfolio of companies is the correct
model to achieve its investment objectives.
On behalf of the Board
Apex Fund Administration Services (UK) Limited
Company Secretary
18 December 2023
Management Report and Directors' Responsibilities Statement
Management report
Listed companies are required by the FCA's Disclosure Guidance
and Transparency Rules (the "Rules") to include a Management Report
in their Financial Statements. This information is included in the
Strategic Report on pages 13 to 19 of the annual report inclusive
(together with the sections of the annual report and accounts
incorporated by reference) and the Directors' Report on pages 20 to
24 of the annual report. Therefore, a separate Management Report
has not been included.
Directors' responsibilities statement
The directors are responsible for preparing the Strategic
Report, the Directors' Report and the Financial Statements in
accordance with applicable law and regulations.
Company law requires the directors to prepare Financial
Statements for each financial year. Under that law the directors
have elected to prepare the Financial Statements in accordance with
United Kingdom Accounting Standards, comprising FRS 102 "The
Financial Reporting Standard applicable in the UK and Republic of
Ireland", and applicable law (United Kingdom Generally Accepted
Accounting Practice ("UK GAAP")). Under company law the directors
must not approve the Financial Statements unless they are satisfied
that they give a true and fair view of the state of affairs of the
Company and of the profit or loss of the Company for that
period.
In preparing those Financial Statements, the directors are
required to:
-- select suitable accounting policies and then apply them
consistently;
-- make judgements and estimates that are reasonable and
prudent;
-- state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and
explained in the Financial Statements; and
-- prepare the Financial Statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the Financial Statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The annual report and accounts is published on the Investment
Manager's website https://ecofininvest.com/egl and the directors
are responsible for the maintenance and integrity of the corporate
and financial information about the Company included on this
website. The work carried out by the Auditor does not involve
consideration of the maintenance and integrity of this website and,
accordingly, the Auditor accepts no responsibility for any changes
that may have occurred to the annual report and accounts since it
was initially presented on the website.
Directors' confirmation statement
The directors listed on page 12 of the annual report as the
persons responsible within the Company hereby confirm that, to the
best of their knowledge:
a) the Financial Statements within the annual report and
accounts of which this statement forms a part have been prepared in
accordance with applicable accounting standards and give a true and
fair view of the assets, liabilities, financial position and profit
or loss of the Company; and
b) the Management Report, which comprises the Chairman's
Statement, Investment Manager's Report, Strategic Report (including
risk factors) and note 16 to the Financial Statements, includes a
fair review of the development and performance of the business and
position of the Company, together with the principal risks and
uncertainties that it faces.
Having taken advice from the audit committee, the directors
consider that the annual report and accounts taken as a whole is
fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company's position and
performance, business model and strategy.
The directors have reached these conclusions through a process
which is described in the Report of the Audit Committee on page 32
of the annual report.
On behalf of the Board
David Simpson
Chairman
18 December 2023
Statement of Comprehensive Income
Year ended 30 September Year ended 30 September
2023 2022
------------------------------- -------------------------------
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- ------ --------- --------- --------- --------- --------- ---------
(Losses)gains on investments
held at fair value through
profit or loss - (28,012) (28,012) - 16,129 16,129
Foreign exchange gains/(losses) - 1,774 1,774 - (3,076) (3,076)
Investment income 2 11,822 - 11,822 9,835 - 9,835
Investment management fees (904) (1,355) (2,259) (1,089) (1,089) (2,178)
Administrative expenses (835) - (835) (885) - (885)
Net return before finance
costs and taxation 10,083 (27,593) (17,510) 7,861 11,964 19,825
Finance costs (458) (686) (1,144) (118) (118) (236)
--------------------------------- ------ --------- --------- --------- --------- --------- ---------
Net return before taxation 9,625 (28,279) (18,654) 7,743 11,846 19,589
Taxation (1,606) - (1,606) (1,104) - (1,104)
--------------------------------- ------ --------- --------- --------- --------- --------- ---------
Net return after taxation 8,019 (28,279) (20,260) 6,639 11,846 18,485
--------------------------------- ------ --------- --------- --------- --------- --------- ---------
Return per ordinary share
(pence) 7.01 (24.72) (17.71) 6.42 11.46 17.88
--------------------------------- ------ --------- --------- --------- --------- --------- ---------
The total column of the Statement of Comprehensive Income is the
profit and loss account of the Company.
The revenue and capital columns are supplementary to this and
are published under guidance from the AIC.
All revenue and capital returns in the above statement derive
from continuing operations. No operations were acquired or
discontinued during the year ended 30 September 2023.
The Company has no other comprehensive income and therefore the
net return on ordinary activities after taxation is also the total
comprehensive income for the year.
Statement of Financial Position
As at As at
30 September 30 September
2023 2022
Notes GBP'000 GBP'000
------------------------------------------------ ------- -------------- --------------
Non-current assets
Equity securities valued at fair value through
profit or loss 227,513 258,334
Current assets
Debtors and prepayments 8,432 1,409
Creditors: amounts falling due within one
year
Prime brokerage borrowings (20,002) (25,613)
Other creditors (3,966) (1,078)
--------------------------------------------------------- -------------- --------------
(23,968) (26,691)
-------------------------------------------------------- -------------- --------------
Net current liabilities (15,536) (25,282)
--------------------------------------------------------- -------------- --------------
Net assets 211,977 233,052
--------------------------------------------------------- -------------- --------------
Share capital and reserves
Called-up share capital 1,154 1,119
Share premium account 50,548 40,801
Special reserve 114,398 116,976
Capital reserve 45,877 74,156
Revenue reserve - -
------------------------------------------------ ------- -------------- --------------
Total shareholders' funds 211,977 233,052
--------------------------------------------------------- -------------- --------------
Net asset value per ordinary share (pence) 183.54 208.14
--------------------------------------------------------- -------------- --------------
The Financial Statements were approved by the Board of Directors
and authorised for issue on 18 December 2023 and were signed on its
behalf by:
David Simpson
Chairman
Statement of Changes in Equity
For the year ended 30 September 2023
------------------------------------------------------------------
Share Special
Share premium reserve Capital Revenue
capital account * reserve* reserve* Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- --------- --------- --------- --------- ---------- ---------- ---------
Balance at 1 October 2022 1,119 40,801 116,976 74,156 - 233,052
Return after taxation - - - (28,279) 8,019 (20,260)
Issue of ordinary shares 46 9,747 - - - 9,793
Buyback of ordinary shares (11) - (1,808) - - (1,819)
Dividends paid 3 - - (770) - (8,019) (8,789)
---------------------------- --------- --------- --------- --------- ---------- ---------- ---------
Balance at 30 September
2023 1,154 50,548 114,398 45,877 - 211,977
---------------------------- --------- --------- --------- --------- ---------- ---------- ---------
For the year ended 30 September 2022
-----------------------------------------------------------------------
Special
Share Share premium reserve Capital Revenue
capital account * reserve* reserve* Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- ------- --------- -------------- --------- ---------- ---------- ---------
Balance at 1 October 2021 1,007 15,500 117,730 62,310 - 196,547
Return after taxation - - - 11,846 6,639 18,485
Issue of ordinary shares 112 25,301 - - - 25,413
Dividends paid - - (754) - (6,639) (7,393)
------------------------------------ --------- -------------- --------- ---------- ---------- ---------
Balance at 30 September
2022 1,119 40,801 116,976 74,156 - 233,052
------------------------------------ --------- -------------- --------- ---------- ---------- ---------
*These reserves are available for distribution.
Statement of Cash Flows
Year ended Year ended
30 September 30 September
2023 2022
Notes GBP'000 GBP'000
---------------------------------------------- ------- -------------- --------------
Net return before finance costs and taxation (17,510) 19,825
(Decrease)/inrease in accrued expenses (134) 228
Overseas withholding tax (1,417) (786)
Deposit interest income (4) (37)
Dividend income (11,818) (9,798)
Realised (gains)/losses on foreign exchange
transactions (1,774) 3,076
Dividends received 11,307 9,462
Deposit interest received 4 37
Interest paid (1,055) (236)
Losses/(gains) on investments 28,012 (16,129)
(Decrease)/increase in other debtors (8) 1
------------------------------------------------------- -------------- --------------
Net cash flow from operating activities 5,603 5,643
Investing activities
Purchases of investments (88,966) (76,989)
Sales of investments 88,153 56,277
------------------------------------------------------- -------------- --------------
Net cash used in investing activities (813) (20,712)
Financing activities
Movement in prime brokerage borrowings (5,611) (10,260)
Dividends paid (8,789) (7,393)
Share issue proceeds 9,793 25,413
Share buyback costs (1,659) -
---------------------------------------------- ------- -------------- --------------
Net cash (outflow)/inflow from financing
activities (6,266) 7,760
------------------------------------------------------- -------------- --------------
Decrease in cash (1,476) (7,309)
------------------------------------------------------- -------------- --------------
Analysis of changes in cash during the
year
Opening balance - 11,251
Foreign exchange movement 1,476 (3,942)
Decrease in cash (1,476) (7,309)
------------------------------------------------------- -------------- --------------
Closing balance - -
------------------------------------------------------- -------------- --------------
Notes to the Financial Statements
For the year ended 30 September 2023
1. Accounting policies
(a) Basis of preparation
The Financial Statements have been prepared in accordance with
the Companies Act 2006, United Kingdom Generally Accepted
Accounting Practice ("UK GAAP"), including the Financial Reporting
Standard applicable in the U.K. and Republic of Ireland ("FRS 102")
and with the Statement of Recommended Practice 'Financial
Statements of Investment Trust Companies and Venture Capital
Trusts' issued in April 2021. The Financial Statements are prepared
in Sterling which is the functional currency of the Company and
rounded to the nearest GBP'000. They have also been prepared on a
going concern basis and approval as an investment trust has been
granted by HMRC.
The Company's assets consist substantially of equity shares in
companies listed on recognised stock exchanges and in most
circumstances are realisable within a short timescale. The board
has set limits for borrowing and regularly reviews actual exposures
and cash flow projections. The Company has prime broker borrowings
to draw upon, and these borrowings are repayable on demand.
Having taken these factors into account as well as the impact of
Covid-19 and having assessed the principal risks and other matters
set out in the Viability Statement in the annual report the
directors believe that, after making enquiries, the Company has
adequate resources to continue in operational existence for the
foreseeable future and has the ability to meet its financial
obligations as they fall due for a period of at least twelve months
from the date of approval of this Report. Accordingly, they
continue to adopt the going concern basis of accounting in
preparing the financial statements.
Further detail is included in the Directors' Report (unaudited)
in the annual report.
2. Income
Year ended Year ended
30 September 30 September
2023 2022
GBP'000 GBP'000
------------------------------------------- -------------- --------------
Income from investments (revenue account)
UK dividends 1,715 1,254
Overseas dividends 9,991 7,966
Stock dividends 112 578
------------------------------------------- -------------- --------------
11,818 9,798
------------------------------------------- -------------- --------------
Other income (revenue account)
Deposit interest 4 37
------------------------------------------- -------------- --------------
Total income 11,822 9,835
------------------------------------------- -------------- --------------
During the year to 30 September 2023 the Company received
special dividends totalling GBP83,000 (30 September 2022:
GBP416,000), all of which was recognised as capital and is included
in the capital column of the Statement of Comprehensive Income.
3. Dividends on ordinary shares
Year ended Year ended
30 September 30 September
2023 2022
GBP'000 GBP'000
----------------------------------------------------- -------------- --------------
Fourth interim for 2021 of 1.65p (paid 30 November
2021) - 1,666
First interim for 2022 of 1.85p (paid 28 February
2022) - 1,874
Second interim for 2022 of 1.85p (paid 31 May 202) - 1,893
Third interim for 2022 of 1.85p (paid 31 August
2022) - 1,960
Fourth interim for 2022 of 1.85p (paid 30 November 2,082 -
2022)
First interim for 2023 of 1.95p (paid 28 February 2,200 -
2023)
Second interim for 2023 of 1.95p (paid 31 May 2023) 2,234 -
Third interim for 2023 of 1.95p (paid 31 August 2,273 -
2023)
----------------------------------------------------- -------------- --------------
8,789 7,393
----------------------------------------------------- -------------- --------------
The proposed fourth interim dividend for 2023 has not been
included as a liability in these Financial Statements as it was not
payable until after the reporting date.
Set out below are the total dividends paid and proposed in
respect of the financial period, which is the basis on which the
requirements of Section 1158-1159 of the Corporation Tax Act 2010
are considered. The revenue available for distribution by way of
dividend for the year was GBP8,019,000 (30 September 2022:
GBP6,639,000).
Year ended Year ended
30 September 30 September
2023 2022
GBP'000 GBP'000
---------------------------------------------------- -------------- --------------
Three interim dividends of 1.95p each (2022: three
interim dividends of 1.85p each) 6,707 5,727
Fourth interim dividend 1.95p (2022: 1.85p) 2,247 2,082
---------------------------------------------------- -------------- --------------
8,954 7,809
---------------------------------------------------- -------------- --------------
The amount reflected above for the cost of the fourth interim
dividend for 2023 is based on 115,245,663 ordinary shares, being
the number of ordinary shares in issue on the ex-dividend date 26
October 2023.
4. Return per ordinary share
Year ended 30 September Year ended 30 September
2023 2022
-------------------------- --------------------------
GBP'000 p GBP'000 p
------------------------------------- ----------- ------------- ---------- --------------
Returns are based on the following
figures:
Revenue return 8,019 7.01 6,638 6.42
Capital return (28,279) (24.72) 11,846 11.46
------------------------------------- ----------- ------------- ---------- --------------
Total return (20,260) (17.71) 18,485 17.88
------------------------------------- ----------- ------------- ---------- --------------
Weighted average number of ordinary
shares in issue 114,418,153 103,375,349
------------------------------------- ----------- ------------- ---------- --------------
5. NAV per ordinary share
The NAV attributable to the ordinary shares and the NAV per
ordinary share at the year-end were as follows:
As at As at
30 September 2023 30 September 2022
---------------------------------------- ------------------- -------------------
Net asset value attributable (GBP'000) 211,977 233,052
Number of ordinary shares in issue 115,495,663 111,968,423
Net asset value per share (p) 183.54 208.14
---------------------------------------- ------------------- -------------------
6. Related party transactions and transactions with the
Investment Manager
Fees payable during the year to the directors and their
interests in shares of the Company are considered to be related
party transactions and are disclosed within the Directors'
Remuneration Report in the annual report. The balance of fees due
to directors at the year-end was GBPnil (30 September 2022:
GBPnil).
The Company has an agreement with Ecofin Advisors Limited for
the provision of investment management services. Details of fees
earned during the year and balances outstanding at the year-end are
disclosed in note 3 to the Financial Statements in the annual
report.
The information contained in this Annual Financial Report
Announcement has been prepared in accordance with International
Financial Reporting Standards ("IFRS") as adopted by the European
Union ("EU") and as applied in accordance with the provisions of
the Companies Act 2006 (the "Act"). These comprise standards and
interpretations of the International Accounting Standards ("IAS")
and Standing Interpretations Committee as approved by the
International Accounting Standards Committee ("IASC") that remain
in effect, to the extent that IFRS have been adopted by the EU. The
results for the year ended 30 September 2023 are audited but do not
constitute statutory accounts as defined in Section 434 of the Act.
The statutory accounts have not yet been delivered to the Registrar
of Companies. Full statutory accounts for the year ended 30
September 2022 included an unqualified audit report and have been
filed with the Registrar of Companies.
The Annual Report and Financial Statements will be posted to shareholders
and will shortly be available on the Investment Manager's website ( www.ecofininvest.com/egl
) or in hard copy format from the Company's Registered Office. A copy of
the Annual Report will be submitted to the FCA's National Storage Mechanism
and will be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
. The Annual Report will also be available on the Investment Manager's website
at www.ecofininvest.com/egl.
For further information, please contact:
Elspeth Dick, CFA
Ecofin Advisors Limited
Telephone: 020 7451 2929
Faith Pengelly
Apex Fund Administration Services (UK) Limited
Company Secretary
01245 398 950
18 DECEMBER 2023
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