31 May 2013 18:27
ECOFIN WATER & POWER OPPORTUNITIS PLC
Announcement of results for the period ended 31 March, 2013
Summary of the period
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• This report covers the period from 28 September, 2012 to 31 March, 2013
• Total Shareholder's funds and net asset value per Ordinary Share rose 4.3% and 4.4% respectively
• Quarterly dividends paid to Ordinary Shareholders totalled 3.25p per share
• The total return per Ordinary Share over the period (the change in the share price plus dividends received) was 10.3%
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| Period to | Period to | ||
| 31 March | 27 September | ||
| 2013 | 2012 (restated)1 | % | |
Unaudited | Audited | change | |
Ordinary Shares | |||
Net asset value | 169.72p | 162.55p | +4.4 |
Net asset value (diluted) | 168.86p | 162.55p | +3.9 |
Dividends paid | 3.25p | 3.25p | |
Share price (last traded price) | 127.50p | 118.00p | +7.6 |
Discount to net asset value | -24.9% | -27.1% | |
Shareholder total return2 | 10.3% | 0.4% | |
Zero Dividend Preference (ZDP) Shares issued by EW&PO Finance plc, a wholly owned subsidiary of the Company | |||
Calculated value | 127.45p | 123.01p | +3.6 |
Share price (last traded price) | 140.00p | 137.63p | +1.7 |
Premium to calculated value | 9.8% | 11.9% | |
Shareholder total return (share price change) | 1.7% | 4.5% | |
Shareholders' funds | |||
Zero Dividend Preference Shareholders (£'000) | 76,471 | 73,807 | +3.6 |
Ordinary Shareholders (£'000) | 356,087 | 341,054 | +4.4 |
Total Shareholders' funds (£'000) | 432,558 | 414,861 | +4.3 |
Gearing3 | |||
Net borrowings (£'000) | 190,512 | 176,552 | -0.4 |
Gearing level | 53.5% | 51.8% | |
1 Net asset values refer to the Company's balance sheet, rather than that of the Group. The Group figures as restated for the implementation of IFRS 10 (including the Investment Entity amendment) are the same as the Company's with the exception of £50,000 additional cash relating to the consolidation of EW&PO Finance plc 2 Change in share price over the period plus dividends received 3 Gearing is calculated as net borrowings divided by Ordinary Shareholders' funds. Net borrowings as at 30 September, 2011 and 31 March, 2011 consist of Prime Brokerage borrowings, the nominal value of the Convertible Unsecured Loan Stock and the liability associated with the Zero Dividend Preference Shares, less cash attributable to the Ordinary Shareholders of the Company
| |||
| Period to | Period to | |
| 31 March | 27 September | |
| 2013 | 2012 (restated)^ | |
Unaudited | Audited | |
Market indices | ||
MSCI World Developed Markets (£) | 16.0% | -0.8% |
MSCI World Utilities (£) | 10.6% | -2.4% |
MSCI World Energy (£) | 8.0% | -1.5% |
CHAIRMAN'S STATEMENT
Dear Shareholder,
Net asset and share price performance
Following a change in the Company's financial year in 2012, this report and accounts covers the period from 28 September, 2012 to 31 March, 2013, the first half of the Company's current financial year which will end on 30 September, 2013.
In the half-year to 31 March, 2013, the net assets of your Company attributable to both its Ordinary and Zero Dividend Preference Shareholders, that is, total Shareholders' funds, rose by 4.3%. Net assets attributable solely to the Company's Ordinary Shareholders (and the net asset value per Ordinary Share) rose by 4.4%, while on a diluted basis the increase was 3.9%.
Over the same period, the last traded price of an Ordinary Share rose by 7.6% and the discount to net asset value at which the Ordinary Shares traded in the secondary market narrowed slightly from 27.1% at 27 September, 2012 to 24.9% at 31 March, 2013. The total return for Ordinary Shareholders over the period - the change in the share price plus dividends received - was 10.3%.
The performance of your Company in the half-year to 31 March, 2013 reflects the disappointing share price performance of its largest investment, Lonestar Resources Limited (Lonestar), following the reverse acquisition of an Australian listed company by Ecofin Energy Resources plc (EER) in January of this year. In the half-year to 31 March, 2013, the value of the Company's investment-first in EER and then in Lonestar-fell by an amount equal to 4.3% of total Shareholders' funds as at 27 September, 2012.
This performance took place over a period which saw equity markets move higher during the first quarter of 2013, following a period of volatility in the last quarter of 2012. The MSCI World index of developed country equity markets rose by 16.0% in sterling terms, and by 8.7% in US dollar terms. The utility and energy sectors, however, under-performed the broader equity markets over the six month period, with the MSCI World Utilities index and the MSCI World Energy index rising by 10.6% and 8.0%, respectively, in sterling terms though only by 3.6% and 1.2%, respectively, in US dollar terms. The disparity in the performance of these indices in sterling and US dollar terms is attributable to the fall of sterling - which declined by 6.0% against the US dollar and 5.7% against the Euro in the six months to 31 March, 2013. Over the period your Company left its US dollar denominated investments unhedged, while hedging all other exposures back into sterling, its base currency.
As shown in the Consolidated statement of changes in equity, the Total comprehensive income (or revenue return) for the half-year ended 31 March, 2013 of £4,254,000 was less than the dividends of £6,818,000 paid to Ordinary Shareholders during the period. This reflects the timing of dividends paid by companies in the Company's investment portfolio, with many Continental European companies paying only one dividend a year. The Investment Manager is confident that the dividends paid to Ordinary Shareholders in the current financial year ending on 30 September, 2013 will be more than covered by your Company's income.
Presentation of accounts
In the audited accounts for the twelve month period ended 31 March, 2012 and the shortened financial reference period from 1 April, 2012 to 27 September, 2012, the Company was required to consolidate its largest holding, Ecofin Energy Resources plc (EER), on a line-by-line basis, given the Company's 87.5% interest. As a result, EER's ownership of mineral rights, property, plant and equipment - as well as its liabilities - were reflected on the Group balance sheet and the notes to the accounts were expanded to provide information on the trading activities of EER. The Company was also required to consolidate its investment in the Ecofin China Power & Infrastructure Fund and the Ecofin Global Oil & Gas Fund. As the Company continued to actively manage its investment portfolio, the Directors stated at the time that they believed the accounts of the Company, in which all its investments were valued at fair value, were a better indication of performance than the consolidated accounts of the Group.
In October 2012, the International Accounting Standards Board (IASB) introduced amendments to International Financial Reporting Standard (IFRS) 10, the standard which requires companies to consolidate all entities they control. The amendments provide an exception to the consolidation requirements of IFRS 10 for investment entities, such as your Company, and allow an investment entity to measure its subsidiaries at fair value through profit or loss rather than consolidating them (except for subsidiaries providing investment related services which are consolidated). Although the amendments are effective from January 2014, early adoption is permitted. European Union endorsement of the amendments is expected in time for the publication of the Company's annual report and accounts for the financial year ending 30 September, 2013. The Directors have, therefore, decided to adopt the amendments to IFRS 10 in these financial statements as they believe this accounting treatment better reflects the Company's activities as an investment trust. As a consequence Lonestar, the Company's largest investment and the successor to EER, the Ecofin China Power & Infrastructure Fund and the Ecofin Global Oil & Gas Fund are not consolidated in these accounts. The comparatives for the twelve months to 31 March, 2012 and the shortened financial reference period to 27 September, 2012 included in these financial statements have been restated to de-consolidate EER, the Ecofin China Power & Infrastructure Fund and the Ecofin Global Oil & Gas Fund. The Company's wholly-owned subsidiary, EW&PO Finance plc, continues to be consolidated in these financial statements and in the comparatives.
Investment policy and fee changes
The Board has agreed with the Investment Manager that a number of changes, set out below, will be made to the current investment policy and fee arrangements to reflect Shareholder views as well as perceived current market trends, and to make the Company's shares more attractive to current and prospective Shareholders:
- unquoted investments
The existing limit for unquoted investments will be reduced to 20% of gross assets as at the date of investment, a reduction from the current 25% level, and no new investments in unquoted companies will be made without prior Board approval. The Company's investment in Lonestar, though now a listed stock, will continue to be treated as an unquoted investment for these purposes.
As of the date of this report, unquoted investments comprised 7.5% of the Company's gross assets and 14.8% if Lonestar is treated as an unquoted investment.
- country limits
The single country limit for investment in the United States, which is currently 40% (50% with Board approval), will be increased to 60% (70% with Board approval), reflecting the importance of this market to your asset class.
All other country limits will remain in place, with no single country exposure to exceed 40% - although it is highly unlikely that any individual country exposure outside of the United States will approach this limit.
- derivatives
Any derivatives used for cash management purposes or to hedge the currency profile of the portfolio will no longer be subject to the current overall "20% limit on derivatives" exposure, given the limited counterparty credit risk inherent in such transactions and the fact that they do not affect the risk profile of the Company.
- in-house funds
Existing holdings held by your Company in Ecofin-managed funds will be unwound and no new such investments will be made.
All other current investment guidelines and restrictions will remain in force.
- fees
Following a review of recent developments in the investment trust sector, particularly with respect to investment management fees, the Board and the Investment Manager have agreed to a change in the investment management and performance fees payable by your Company. With effect from 1 October, 2013, the beginning of the Company's next financial year, the annual investment management fee will be reduced from 1.5% per annum of chargeable assets to 1.25% per annum. The current performance fee arrangements will continue in effect until the end of your Company's next financial year, that is, until 30 September, 2014. Subsequent to that date, no performance fee will be payable by your Company.
- consultancy fees
The existing consultancy arrangements between the Company and Martin Nègre, a non-independent non-executive Director, will terminate at the end of the Company's financial year. I would like to pay tribute to the advice given by Mr. Nègre over the period of his consultancy, which has consistently added value to your Company's investments. Mr Nègre, an ex-Chairman of your Company, will remain as a non-executive Director.
July 2016
The Board recognises the significance to the Company of the maturity of both the Zero Dividend Preference Shares and its Convertible Unsecured Subordinated Loan Stock (CULS) in July 2016. Conversion of the CULS into Ordinary Shares of the Company, thereby increasing its permanent capital, will depend on investment performance. The Board intends to consult Shareholders in the run-up to July 2016 in order to gauge their views and preferences.
The Board
In recognition of trends in corporate governance, John Murray will not stand for re-election at the next Annual General Meeting of your Company. Bernard Lambilliotte, his alternate, will also no longer be an alternate Director as from that date.
Outlook
The International Monetary Fund is forecasting a pick up in world growth in the second half of this year, spurred by stronger US growth although challenges remain, particularly in Europe. The low interest rate environment, however, looks set to continue for some time which should be supportive of equity markets.
After a long period of relative underperformance, value and opportunities are emerging in the global utilities and infrastructure sectors. In the UK, power prices are rising, reserve margins are tightening and corporate activity is on the increase. In Continental Europe, the difficulties the utilities sector has faced are now well discounted in valuations and management is becoming a key differentiator in company performance. In the United States, power demand is recovering with the economy and the shale gas revolution is creating a range of opportunities in the natural gas pipeline and related infrastructure industries.
As explained more fully in the Investment Manager's Report, Lonestar has made significant operational gains in recent months and the Investment Manager is confident that the market will come to value it in line with its peers and that the Company's investment in Lonestar will create value for shareholders. Given the improvement in the outlook for the utilities and infrastructure sectors the Investment Manager intends to focus the portfolio on these core sectors of the Company's investment universe. Over the longer-term such a strategy should play to the strengths of the Investment Manager and produce satisfactory returns for Shareholders.
Ian Barby
Chairman
31 May, 2013
INVESTMENT MANAGER'S REPORT
The economy and markets
In the period from 28 September, 2012 to 31 March, 2013 covered by this report and accounts, the global economy continued its recovery from recession but at a very slow pace while prospects for global growth improved somewhat. Growth and the economic outlook, however, differed markedly from region to region. In the United States, the recovery gathered strength on the back of improving housing and bank credit markets. In Europe, in contrast, demand growth continued to be held back by austerity programmes, the weaknesses of the banking systems in many countries and low levels of business confidence coupled with competitiveness and sovereign debt issues in the Euro area. The emerging market economies continued to grow at a faster rate than the advanced economies during the period.
In the half-year to 31 March, 2013, policymakers in the advanced economies went some way toward defusing two of the biggest short-term threats to the global recovery, the possibility of a break-up of the Euro area and a fiscal contraction in the United States caused by the "fiscal cliff," a simultaneous increase in tax rates and a cut in government spending which was due to take place in January 2013 as a consequence of previously enacted legislation. A new programme allowing the European Central Bank to purchase bonds of Euro area governments, additional debt relief for Greece and a number of other measures announced over the period brought yields on the sovereign debt of Euro area peripheral countries down and increased liquidity in the bond markets. In early January, the Obama administration and Congress reached a compromise which included a continuation of many of the tax cuts which were due to expire, tax increases on higher earners and a postponement of some spending cuts which had the effect of alleviating market concerns that the US would slip back into recession.
In response to these measures, better than expected growth in the US and relative calm in the Euro area, financial markets rallied on a broad front during the first quarter of 2013 following a volatile fourth quarter in 2012. Risk assets found favour with investors and the MSCI World index of developed markets rose by 7.2% in the first quarter of 2013 in US dollar terms and 14.6% in sterling terms - thanks to a fall in sterling of 6.5% over the quarter. The utilities and energy sectors also rallied in the first quarter, but by less than the broader equity markets. Government bond yields rose somewhat in early 2013 but finished the six months to 31 March, 2013 largely unchanged, remaining at historically low levels. Currency markets were volatile and generally characterised by US dollar strength. Sterling fell by 6.0% against the dollar and by 5.7% against the Euro in the six months to 31 March, 2013. The Japanese Yen fell by 20.9% against the dollar over the period on new Prime Minister Abe's plans to expand the Japanese economy through aggressive monetary and fiscal expansion.
Performance
The net assets of the Company attributable to its Ordinary Shareholders and the net asset value per Ordinary Share rose by 4.4% in the half year to 31 March, 2013. The net asset value per Ordinary Share rose by 3.9% on a diluted basis; that is, assuming the outstanding Convertible Unsecured Subordinated Loan Stock had been fully converted into new Ordinary Shares. Over the same period, the share price of an Ordinary Share rose by 7.6% and two dividends of 1.625p each were paid with respect to each Ordinary Share. The total return for Ordinary Shareholders over the period - the change in the share price plus dividends received - was 10.3%.
Despite a strong share price performance by utilities in some markets - where investors were searching for yield - the global utilities and energy sectors underperformed the broader global equity markets over the period. The MSCI World index of developed country equity markets rose by 8.7% in US dollar terms over the half year to 31 March, 2013 and by 16.0% in sterling terms. The MSCI World Utilities index and the MSCI World Energy index rose by only 3.6% and 1.2%, respectively, in US dollar terms but were up 10.6% and 8.0%, respectively, in sterling terms. The difference in the performance of these indices in US dollars and sterling is attributable to the fall of sterling referred to above. Over the period, the Company hedged all assets denominated in foreign currencies back into sterling with the exception of those denominated in US dollars which had the effect of limiting the extent to which the value of the Company's portfolio benefited from the fall in sterling.
The Company's portfolio performed reasonably well over the period given its exposure to the utility and, to a lesser extent, energy sectors but the Company's largest holding, Lonestar Resources Limited (Lonestar), was a significant drag on its performance. To a lesser extent, the Company's exposure to Continental European companies also held back its growth. The North American, renewable energy and bond portfolios all made good contributions to the Company's performance as did its exposure to China which was principally through its investment in the Ecofin China Power & Infrastructure Fund whose net asset value per share rose by 12.2% over the period.
In January, Ecofin Energy Resources plc (EER), majority-owned by the Company and its largest holding, completed a reverse acquisition of Amadeus Energy Limited (Amadeus), an Australian company listed on the Australian Stock Exchange whose assets were in the United States, and principally in Texas. Under the terms of the transaction, Amadeus purchased EER for new shares and subsequently changed its name to Lonestar Resources Limited. The chief executive of EER's operating subsidiary also became the new chief executive of Lonestar.
Approximately 10.7% of the shares received by the Company for the sale of EER to Amadeus were in the form of deferred consideration shares to be issued to the Company if Lonestar proves reserves on one of its properties by July 2014. Lonestar fully intends to drill the property and has the resources to do so well before July 2014. Lonestar has also modelled the likely results of the drilling using a range of oil and gas prices. As a result, Lonestar's management is virtually certain that the deferred consideration shares will be issued to the Company. As any discount that might be applied to the deferred consideration shares would, therefore, not be material to the Company's results, the Directors have valued them at the price of Lonestar's listed shares.
Following the transaction, and including the deferred consideration shares, the Company now owns approximately 55.5% of Lonestar. The transaction was undertaken to provide EER with a listing and access to the public equity market in Australia, a market with a large number of listed natural resource companies. It was also an opportunity to combine EER's assets with those of Amadeus on terms the Investment Manager believed were favourable to EER's shareholders.
From 28 September, 2012 to 31 March, 2013, however, the valuation of the Company's investment - first in EER and then in Lonestar - fell by an amount equal to 4.3% of total Shareholders' funds as at 27 September, 2012. The decline is largely attributable to a fall in Lonestar's share price in the first quarter of this year on thin trading volumes.
While the fall in Lonestar's share price has been disappointing, the company has continued to make very good progress in developing its business and Lonestar is currently trading at a steep discount to the valuations of its peers. Since the completion of the transaction in January, Lonestar has announced an increase of its proven reserves of 46% and an increase in its guidance for earnings before interest, tax, depreciation and amortisation (EBITDA) for calendar 2013 of between 36% and 47%. Lonestar has grown its proven reserves through drilling on its properties and acquisitions and its business model of acquiring the mineral rights on smaller properties and aggregating them is proving to be very successful in the areas, principally in Texas, in which it operates.
Lonestar is currently trading on a valuation equal to approximately 60% of its proven reserves - compared to valuations ranging from 190% to 250% for its peers - and on a multiple of 2.7 times its mean EBITDA guidance for 2013 compared to multiples ranging from 5.5 to 7.5 times for its peers. The company is also meeting or exceeding expectations with respect to other metrics such as production volumes and operating costs. Having negotiated a credit facility of up to $400 million - with a borrowing limit of $105 million based on its current level of proven reserves - the company should be self-financing for the foreseeable future.
We attribute Lonestar's disappointing share price performance to a number of factors, including a retreat in the valuations of smaller energy companies. More importantly, however, we believe the share price has been affected by selling by shareholders who had expected a cash take-over offer for Amadeus and by the fact that Lonestar is, effectively, a new company not well known to Australian, and other, investors. We believe the selling is coming to an end and are pleased that brokerage research coverage of the company has commenced in recent weeks with share price targets 80% higher than Lonestar's current share price. Lonestar's management has also begun an intensive investor relations programme with the objective of introducing institutional, long-term investors into the company's share capital. We believe that Lonestar will meet or exceed our expectations with respect to the growth of its business and that the market will come to value Lonestar in line with its peers. We are confident that in time the Company's investment in Lonestar will prove to be a rewarding one for the Company's Shareholders.
Portfolio developments
Seven of the ten largest holdings of the Company at 27 September, 2012 feature among the ten largest holdings at 31 March, 2013; namely, Lonestar, the Ecofin China Power & Infrastructure Fund, GDF Suez, General Electric, SSE, Williams Companies and NextEra Energy. The three companies which were no longer among the ten largest holdings were the pipeline operator TransCanada - as we took profits on half of a position initiated in 2011 - the German multi-utility E.ON and TRF Water Property Investments, both of which fell out of the list due to movements in relative valuations.
We substantially increased the Company's holdings in Kinder Morgan, a leading US pipeline operator which is well placed to benefit from changes in the gas, energy and utility industries being brought about by the development of unconventional energy resources, such as shale gas, in the United States. We also increased the Company's holding in Calpine Corporation, a US independent power producer which operates a fleet of natural gas power plants and which should be a beneficiary of rising power prices as economic recovery proceeds, and in NRG Energy, a large US power generation company and electricity supplier with customers in 16 states including Texas where conditions are tightening in power markets. All of these companies are now among the Company's ten largest holdings.
In the half-year to 31 March, 2013, the Company commenced shorting securities to a limited extent. As shown on the Consolidated and Company balance sheets, the fair value of these short positions was £12,558,000 on 31 March, 2013. At that date, the Company had four short positions which represented both views on individual companies and a partial hedge on its fixed-income portfolio.
Outlook and strategy
While challenges remain in the core utility and infrastructure sectors in which the Company invests, the outlook is improving - more rapidly in some markets than others; and in those markets where improvement is lagging, such as Continental Europe, this is well reflected in company valuations. Following years in which the utility sector's fundamentals deteriorated - largely as a consequence of the recession of 2008/2009 and its legacy - and the sector fell out of favour with investors and dramatically underperformed the broader equity markets, investor interest is returning and new investment themes are emerging in the sector in the United Kingdom, Continental Europe and North America. Corporate strategies and managements are also, once again, becoming important differentiators of performance.
The United Kingdom faces a challenge of how to reconcile and achieve three policy objectives: security of energy supply, a decarbonisation of its generating fleet and affordable power prices. This is particularly difficult due to the country's reliance on imported gas and to the fact that approximately 16% of its generating capacity will close by the end of 2014 for environmental reasons after which its nuclear power plants will also start to come to the end of their lives. Reserve margins are expected to fall from approximately 20% today to less than 5% over the next few years which will be supportive of power prices and returns for generators. Elsewhere in the sector a search for yield and corporate activity should support utility valuations in a listed sector that has shrunk dramatically over the last decade as a result of acquisitions.
Although electricity demand remains weak in Continental Europe and power prices are very low due to overcapacity, these appear to be well discounted by the market. Political risk remains but is easing somewhat and utility dividend yields are at historically high spreads over government bond yields in most countries. Corporate strategies and a focus on free cash flows and sustainable dividends will be the key to the performance of companies in the sector. In the longer term, the European Union's plans to integrate national energy markets into a pan-European grid will require huge new investments in electricity and energy transmission.
The electric power and energy infrastructure sectors in the United States are experiencing changes that promise to reshape these businesses. The most important of these is the dramatic increase in the production of natural gas and, to a lesser extent, crude oil from shale deposits and the prospects that, as a result, natural gas prices in the US will remain low far into the future. Over the course of coming years much of the new electricity generating capacity built in the US to replace ageing plants will be gas-fired. Low gas prices will also stimulate demand for gas to be used in unconventional ways, such as in transport. As the sources of shale gas tend to be located far from demand centres, a huge investment in pipelines is underway. Other changes affecting the utility sector are new environmental rules that are forcing the closure of coal-fired generation and federal and state government support for renewable energies.
We intend to focus the Company's portfolio on companies with strong cash flows and sustainable dividends which we believe will be the beneficiaries of the investment themes that are emerging in the global utilities and infrastructure sectors, the core of the Company's investment universe. The Company's exposure to smaller companies and to unquoted companies will be reduced and realising the value which has been built in Lonestar will be a high priority. While the Company's portfolio will remain geographically diversified, the exposure to emerging markets will be limited. The priorities will be income and growth and the preservation of shareholders' capital.
Ecofin Limited
31 May, 2013
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Period to | ||||
31 March, 2013 | ||||
Unaudited | ||||
Revenue | Capital | |||
Return | Return | Total | ||
£'000 | £'000 | £'000 | ||
Income | ||||
Investment income | 7,139 | - | 7,139 | |
Other income | 166 | - | 166 | |
Gains on investments held at fair value | - | 32,825 | 32,825 | |
(Losses) on forward currency contracts held at fair value | - | (6,386) | (6,386) | |
Exchange differences | - | (1,285) | (1,285) | |
7,305 | 25,154 | 32,459 | ||
Expenses | ||||
Investment management fees | (934) | (2,801) | (3,735) | |
Other expenses | (707) | (17) | (724) | |
Profit/(loss) before finance costs and taxation | 5,664 | 22,336 | 28,000 | |
Finance costs | (796) | (5,052) | (5,848) | |
Profit/(loss) before taxation | 4,868 | 17,284 | 22,152 | |
Taxation | (614) | 313 | (301) | |
Profit/(loss) after taxation attributable to Ordinary Shareholders | 4,254 | 17,597 | 21,851 | |
Return per Share | ||||
Ordinary Share | 2.03p | 8.38p | 10.41p | |
Ordinary Share (Diluted) | 1.88p | 7.77p | 9.65p | |
Zero Dividend Preference Share | n/a | 4.44p | 4.44p | |
The total column of this statement represents the Group's profit or loss, prepared in accordance with IFRS. The supplementary revenue and capital columns are prepared under guidance published by the Association of Investment Companies. All items derive from continuing operations, and the Group does not have any other recognised gains or losses. The net profit disclosed above represents the Group's total comprehensive income.
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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (continued)
Six months to | Period to | |||||
31 March, 2012 (restated) | 27 September, 2012 (restated) | |||||
Unaudited | Audited | |||||
Revenue | Capital | Revenue | Capital | |||
Return | Return | Total | Return | Return | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Income | ||||||
Investment income | 11,602 | - | 11,602 | 10,815 | - | 10,815 |
Other income | 475 | - | 475 | 613 | - | 613 |
Gains/(losses) on investments held at fair value | - | 35,940 | 35,940 | - | (24,593) | (24,593) |
Gains on forward currency contracts held at fair value | - | 5,924 | 5,924 | - | 3,988 | 3,988 |
Exchange differences | - | - | - | - | 265 | 265 |
12,077 | 41,864 | 53,941 | 11,428 | (20,340) | (8,912) | |
Expenses | ||||||
Investment management fees | (928) | (2,782) | (3,710) | (912) | (2,737) | (3,649) |
Other expenses | (497) | (37) | (534) | (851) | (186) | (1,037) |
Profit/(loss) before finance costs and taxation | 10,652 | 39,045 | 49,697 | 9,665 | (23,263) | (13,598) |
Finance costs | (811) | (4,898) | (5,709) | (815) | (4,956) | (5,771) |
Profit/(loss) before taxation | 9,841 | 34,147 | 43,988 | 8,850 | (28,219) | (19,369) |
Taxation | (2,087) | 482 | (1,605) | (1,022) | 301 | (721) |
Profit/(loss) after taxation attributable to Ordinary Shareholders | 7,754 | 34,629 | 42,383 | 7,828 | (27,918) | (20,090) |
Return per Share | ||||||
Return per Ordinary Share (Basic) | 3.69p | 16.49p | 20.18p | 3.73p | (13.31)p | (9.58)p |
Return per Ordinary Share (Diluted) | 3.11p | 14.53p | 17.64p | 3.73p | (13.31)p | (9.58)p |
Return per Zero Dividend Preference Share | n/a | 4.11p | 4.11p | n/a | 4.18p | 4.18p |
Consolidated and Company balance sheetsfor the period ended 31 March, 2013
31 March, 2013 | 31 March, 2012 | 27 September, 2012 | ||||
Unaudited | Unaudited | Audited | ||||
Group | Company | Group (restated) | Company | Group (restated) | Company | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Non-current assets | ||||||
Investments held at fair value through profit or loss | 554,146 | 554,196 | 563,741 | 563,791 | 505,823 | 505,873 |
554,146 | 554,196 | 563,741 | 563,791 | 505,823 | 505,873 | |
Current assets | ||||||
Derivatives held at fair value through profit or loss | - | - | 137 | 137 | 14 | 14 |
Forward currency contracts held at fair value through profit or loss | 131,860 | 131,860 | 176,255 | 176,255 | 127,018 | 127,018 |
Receivables and other financial assets | 11,548 | 11,548 | 8,793 | 8,793 | 18,285 | 18,285 |
Cash and cash equivalents | 76 | 26 | 2,372 | 2,322 | 21,294 | 21,244 |
143,484 | 143,434 | 187,557 | 187,507 | 166,611 | 166,561 | |
Total assets | 697,630 | 697,630 | 751,298 | 751,298 | 672,434 | 672,434 |
Current liabilities | ||||||
Investments held at fair value through profit or loss | (12,558) | (12,558) | - | - | - | - |
Forward currency contracts held at fair value through profit or loss | (130,746) | (130,746) | (175,187) | (175,187) | (126,889) | (126,889) |
Prime Brokerage borrowings | (34,117) | (34,117) | (50,610) | (50,610) | (44,039) | (44,039) |
Other financial liabilities | (11,249) | (11,249) | (10,780) | (10,780) | (10,720) | (10,720) |
(188,670) | (188,670) | (236,577) | (236,577) | (181,648) | (181,648) | |
Total assets less current liabilities | 508,960 | 508,960 | 514,721 | 514,721 | 490,786 | 490,786 |
Non-current liabilities | ||||||
6% Convertible Unsecured Subordinated Loan Stock 31 July, 2016 | (76,402) | (76,402) | (75,058) | (75,508) | (75,925) | (75,925) |
Subsidiary Subordinated Unsecured Loan Note 31 July, 2016 | - | (76,471) | - | (71,298) | - | (73,807) |
Zero Dividend Preference Shares | (76,471) | - | (71,298) | - | (73,807) | - |
(152,873) | (152,873) | (146,806) | (146,806) | (149,732) | (149,732) | |
Net assets | 356,087 | 356,807 | 367,915 | 367,915 | 341,054 | 341,054 |
Equity attributable to Ordinary Shareholders | ||||||
Ordinary share capital | 210 | 210 | 210 | 210 | 210 | 210 |
Subscription share capital | - | - | 42 | 42 | - | - |
Share premium | 101 | 101 | 100 | 100 | 101 | 101 |
Capital redemption reserve | 990 | 990 | 948 | 948 | 990 | 990 |
Special reserve | 215,090 | 215,090 | 215,089 | 215,089 | 215,090 | 215,090 |
Equity component of 6% Convertible Unsecured Subordinated Loan Stock 2016 | 5,417 | 5,417 | 5,421 | 5,421 | 5,417 | 5,417 |
Capital reserve | 118,379 | 118,379 | 128,651 | 128,651 | 100,782 | 100,782 |
Revenue reserve | 15,900 | 15,900 | 17,454 | 17,454 | 18,464 | 18,464 |
Total equity attributable to Ordinary Shareholders | 356,087 | 356,087 | 367,915 | 367,915 | 341,054 | 341,054 |
Net asset value attributable to Shareholders | ||||||
Ordinary Shareholders | 356,087 | 356,087 | 367,915 | 367,915 | 341,054 | 341,054 |
Zero Dividend Preference Shareholders | 76,471 | n/a | 71,298 | n/a | 73,807 | n/a |
432,558 | 356,087 | 439,213 | 367,915 | 414,861 | 341,054 | |
Net asset value per share | ||||||
Ordinary Share | 169.72p | 169.72p | 175.36p | 175.36p | 162.55p | 162.55p |
Ordinary Share (Diluted) | 168.86p | 168.86p | 173.13p | 173.13p | 162.55p | 162.55p |
Zero Dividend Preference Share | 127.45p | n/a | 118.83p | n/a | 123.01p | n/a |
CONSOLIDATED AND COMPANY CASH FLOW STATEMENTS for the period ended 31 March, 2013
31 March, 2013 | 31 March, 2012 | 27 September, 2012 | ||||
Unaudited | Unaudited | Audited | ||||
Group | Company | Group (restated) | Company | Group (restated) | Company | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Cash flows from operating activities | ||||||
Profit/(loss) before taxation | 22,152 | 22,152 | 43,988 | 43,988 | (19,369) | (19,369) |
Finance costs | 5,848 | 5,848 | 5,709 | 5,709 | 5,771 | 5,771 |
28,000 | 28,000 | 49,697 | 49,697 | (13,598) | (13,598) | |
Adjustments for | ||||||
Movement in investments held at fair value through profit or loss | (32,839) | (32,839) | (37,661) | (37,661) | 23,251 | 23,251 |
Movement in derivatives | 14 | 14 | - | - | 123 | 123 |
Movement in forward currency contracts | (985) | (985) | - | - | 938 | 938 |
Purchases of investments | (207,930) | (207,930) | (253,731) | (253,731) | (195,326) | (195,326) |
Proceeds from sales of investments | 211,530 | 211,530 | 265,396 | 265,396 | 221,720 | 221,720 |
Interest paid | (2,720) | (2,720) | (2,786) | (2,786) | (2,809) | (2,809) |
Decrease/(increase) in trade and other receivables | 473 | 473 | 24,734 | 24,734 | (1,304) | (1,304) |
(Increase)/decrease in trade and other payables | 343 | 343 | (23,749) | (23,749) | 50 | 50 |
Net cash flows from operating activities | (4,114) | (4,114) | 21,900 | 21,900 | 33,045 | 33,045 |
Taxation paid | (363) | (363) | (175) | (175) | (734) | (734) |
Cash flows from financing activities | ||||||
Movement in Prime Brokerage borrowings | (9,923) | (9,923) | (13,487) | (13,487) | (6,573) | (6,573) |
Proceeds from issue of shares | - | - | 2 | 2 | 2 | 2 |
Payments for Ordinary Shares bought back and held in treasury | - | - | (633) | (633) | - | - |
Dividends paid | (6,818) | (6,818) | (6,828) | (6,828) | (6,818) | (6,818) |
Net cash from financing activities | (16,741) | (16,741) | (20,946) | (20,946) | (13,389) | (13,389) |
(Decrease)/increase in cash and cash equivalents | (21,218) | (21,218) | 779 | 779 | 18,922 | 18,922 |
Cash and cash equivalents at beginning of period | 21,294 | 21,244 | 1,593 | 1,543 | 2,372 | 2,322 |
Cash and cash equivalents at 31 March, 2013 | 76 | 26 | 2,372 | 2,322 | 21,294 | 21,244 |
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Ordinary | Subscription | Capital | Equity | ||||||
share | share | Share | redemption | Special | component | Capital | Revenue | ||
capital | capital | premium | reserve | reserve | CULS 2016 | reserve | reserve | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
For the period ended 31 March, 2013 (Unaudited) | |||||||||
Balance at 28 September, 2012 | 210 | - | 101 | 990 | 215,090 | 5,417 | 100,782 | 18,464 | 341,054 |
Total comprehensive income for the period | - | - | - | - | - | - | 17,597 | 4,254 | 21,851 |
Ordinary dividends paid | - | - | - | - | - | - | - | (6,818) | (6,818) |
Balance at 31 March, 2013 | 210 | - | 101 | 990 | 215,090 | 5,417 | 118,379 | 15,900 | 356,087 |
Ordinary | Subscription | Capital | Equity | Non- | ||||||
share | share | Share | redemption | Special | component | Capital | Revenue | controlling | ||
capital | capital | premium | reserve | reserve | CULS 2016 | reserve | reserve | interest | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
For the period ended 31 March, 2011 (Unaudited)(restated) | ||||||||||
Balance at 1 October, 2011 as previously reported | 210 | 42 | 50 | 948 | 215,722 | 5,421 | 94,071 | 16,044 | 2,412 | 334,920 |
Adjustments | - | - | - | - | - | - | (49) | 484 | (2,412) | (1,977) |
Balance at 1 October, 2011 | 210 | 42 | 50 | 948 | 215,722 | 5,421 | 94,022 | 16,528 | - | 332,943 |
Total comprehensive income for the period | - | - | - | - | - | - | 34,629 | 7,754 | -- | 42,383 |
Issue of new Ordinary Shares from exercise of Subscription Shares | - | - | 2 |
- | - | - | - | - | - | 2 |
Shares bought back and held in treasury | - | - | - | - | (633) | - | - | - | - | (633) |
Ordinary dividends paid | - | - | - | - | - | - | - | (6,828) | - | (6,828) |
Balance at 31 March, 2012 | 210 | 42 | 100 | 948 | 215,089 | 5,421 | 128,651 | 17,454 | - | 367,915 |
Ordinary | Subscription | Capital | Equity | ||||||
share | share | Share | redemption | Special | component | Capital | Revenue | ||
capital | capital | premium | reserve | reserve | CULS 2016 | reserve | reserve | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
For the period ended 27 September, 2012 (Audited)(restated) | |||||||||
Balance at 31 March, 2012 | 210 | 42 | 100 | 948 | 215,089 | 5,421 | 128,651 | 17,454 | 367,915 |
Total comprehensive income for the period | - | - | - | - | - | - | (27,918) | 7,828 | (20,090) |
Expiration of Subscription Shares | - | (42) | - | 42 | - | - | - | - | - |
Conversion of Subscription Shares | - | - | 1 | - | 1 | - | - | - | 2 |
Movement in provision | - | - | - | - | - | (4) | 49 | - | 45 |
Ordinary dividends paid | - | - | - | - | - | - | - | (6,818) | (6,818) |
Balance at 27 September, 2012 | 210 | - | 101 | 990 | 215,090 | 5,417 | 100,782 | 18,464 | 341,054 |
COMPANY STATEMENT OF CHANGES IN EQUITY
Ordinary | Subscription | Capital | Equity | ||||||
share | share | Share | redemption | Special | component | Capital | Revenue | ||
capital | capital | premium | reserve | reserve | CULS 2016 | reserve | reserve | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
For the period ended 31 March, 2013 (Unaudited) | |||||||||
Balance at 28 September, 2012 | 210 | - | 101 | 990 | 215,090 | 5,417 | 100,782 | 18,464 | 341,054 |
Total comprehensive income for the period | - | - | - | - | - | - | 17,597 | 4,254 | 21,851 |
Ordinary dividends paid | - | - | - | - | - | - | - | (6,818) | (6,818) |
Balance at 31 March, 2013 | 210 | - | 101 | 990 | 215,090 | 5,417 | 118,379 | 15,900 | 356,087 |
Ordinary | Subscription | Capital | Equity | ||||||
share | share | Share | redemption | Special | component | Capital | Revenue | ||
capital | capital | premium | reserve | reserve | CULS 2016 | reserve | reserve | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
For the period ended 31 March, 2012 (Unaudited)(restated) | |||||||||
Balance at 1 October, 2011 | 210 | 42 | 50 | 948 | 215,722 | 5,421 | 94,022 | 16,528 | 332,943 |
Total comprehensive income for the period | - | - | - | - | - | - | 34,629 | 7,754 | 42,383 |
Issue of new Ordinary Shares from exercise of Subscription Shares | - | - | 2 |
- | - | - | - | - | 2 |
Conversion of 6% Convertible Unsecured Subordinated Loan Stock 2016 | - | - | 48 | - | - | - | - | - | 48 |
Shares bought back and held in treasury | - | - | - | - | (633) | - | - | - | (633) |
Ordinary dividends paid | - | - | - | - | - | - | - | (6,828) | (6,828) |
Balance at 31 March, 2012 | 210 | 42 | 100 | 948 | 215,089 | 5,421 | 128,651 | 17,454 | 367,915 |
Ordinary | Subscription | Capital | Equity | ||||||
share | share | Share | redemption | Special | component | Capital | Revenue | ||
capital | capital | premium | reserve | reserve | CULS 2016 | reserve | reserve | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
For the period ended 27 September, 2012 (Audited)(restated) | |||||||||
Balance at 1 April, 2012 | 210 | 42 | 100 | 948 | 215,089 | 5,421 | 128,651 | 17,454 | 367,915 |
Total comprehensive income for the period | - | - | - | - | - | - | (27,918) | 7,828 | (20,090) |
Expiration of Subscription Shares | - | (42) | - | 42 | - | - | - | - | - |
Conversion of Subscription Shares | - | - | 1 | - | 1 | - | - | - | 2 |
Movement in provision | - | - | - | - | - | (4) | 49 | - | 45 |
Ordinary dividends paid | - | - | - | - | - | - | - | (6,818) | (6,818) |
Balance at 27 September, 2012 | 210 | - | 101 | 990 | 215,090 | 5,417 | 100,782 | 18,464 | 341,054 |
NOTES TO THE FINANCIAL STATEMENTS
1 Accounting policies
1.1 Basis of preparation
The half-year financial statements have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" and the Statement of Recommended Practice (SORP) for investment trusts issued by the Association of Investment Companies (AIC) in January 2009, where the SORP is not consistent with IFRS.
The same accounting policies, presentation and methods of computation have been followed in these financial statements as were applied in the preparation of the Group's financial statements for the previous accounting periods, except for the impact of the early adoption of the standard noted below.
IFRS 10 Consolidated Financial Statements (effective for periods beginning on or after 1 January 2013) The Company has early adopted IFRS 10 (including the Investment Entities amendment which has not yet been adopted by the EU). The Directors intend to apply the amendment, if adopted, in the financial statements for the full year ended 30 September, 2013. Therefore, in accordance with IAS 34, this change of accounting policy has been reflected in these half-yearly financial statements and IFRS 10 has been applied retrospectively to all periods reported in these financial statements. The impact of the implementation of IFRS 10 is explained in note 9.
The Directors note that while final EU endorsement has not been received at the date of this report, the amendment is anticipated to be endorsed in the third quarter of 2013 and is therefore expected to be available for use in the full annual financial statements for the year ended 30 September, 2013.
IFRS 10 requires management to exercise significant judgement to determine which entities are controlled, and therefore are required to be consolidated, by a parent. The Directors, having assessed the criteria, believe that the Group meets the criteria to be an investment entity under IFRS 10 and believe that this accounting treatment better reflects the Company's activities as an investment trust. Therefore all investments in subsidiaries (with the exception of EW&PO Finance plc) are carried at fair value through the profit and loss in accordance with IAS 39.
EW&PO Finance plc, which is controlled by the Company, holds the ZDP Shares and has lent the proceeds to the Company. It is considered to provide investment-related services to the Group and is therefore required to be consolidated under the IFRS 10 Investment Entities amendment. EW&PO Finance plc has been consolidated in these financial statements using consistent accounting policies to those applied by the Company. All intra-group balances and transactions, including unrealised profits arising therefrom, are eliminated.
In prior periods, the consolidated financial statements incorporated the financial statements of the Company, its wholly-owned subsidiary EW&PO Finance plc, a 95.6% (31 March, 2012: 91.0%) interest in the Ecofin China Power & Infrastructure Fund, an 82% interest in the Ecofin Global Oil & Gas Fund and a 47.2% (31 March, 2012: 47.2%) interest in the ordinary shares and a 100% (31 March, 2012: 100%) interest in the non-redeemable preference shares of Ecofin Energy Resources plc ('EER') (which is now owned by Lonestar Resources Ltd, a listed Australian company, following a reverse acquisition transaction on 2 January, 2013). Since EER is no longer consolidated, the accounting policies specific to EER included on pages 42 to 47 of the report for the period ended 27 September, 2012 do not apply to these interim financial statements.
Previously, the statement of comprehensive income included separate columns for investing activities and EER, but since EER is no longer consolidated, this is no longer applicable. Please refer to note 9 for details of the impact of the implementation of IFRS 10 on the financial statements.
The functional currency of the Group and Company is UK pounds sterling as this is the currency of the primary economic environment in which they operate. Accordingly, the financial statements are presented in UK pounds sterling rounded to the nearest thousand pounds.
The financial information contained in this half-year report does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006. The financial information for the periods ended 31 March, 2013 and 31 March, 2012 has not been audited. Certain financial information relating to the period ended 31 March, 2012 has been extracted from the audited financial statements for that year, and it is restated for the effects of implementing IFRS 10 (including the Investment Entities amendment). The financial information for the period ended 27 September, 2012 included in this half-year report has been extracted from the latest published audited accounts. Those accounts have been filed with the Registrar of Companies and included the report of the auditors which, in respect of both sets of accounts, was unqualified, did not contain an emphasis of matter reference, and did not contain a statement under Section 498(2) or (3) of the Companies Act 2006. Those statutory accounts were prepared in accordance with International Financial Reporting Standards, as adopted by the European Union.
1.2 Presentation of statement of comprehensive income In order to better reflect the activities of the Company as an investment trust company, and in accordance with guidance issued by the AIC, supplementary information which analyses the Consolidated statement of comprehensive income between items of a revenue and capital nature has been presented alongside the Consolidated statement of comprehensive income. In accordance with the Company's status as a UK investment company under Section 833 of the Companies Act 2006, net capital returns may not be distributed by way of dividend. Additionally, net revenue is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in Section 1159 of the Corporation Tax Act 2010.
1.3 Going concern The Directors have carefully reviewed the Company's current financial resources, the majority of net assets being securities which are traded on recognised stock exchanges, and the projected expenses of the Group for the next 12 months. They have also taken into consideration the Group's investment policy, its risk management policies, and its borrowing facilities. On the basis of that review, the Directors are satisfied that the Company's resources are adequate for the Company to continue in business for the foreseeable future, and that, accordingly, it is appropriate to prepare the Group's financial statements on a going concern basis. 1.4 Use of estimates The preparation of financial statements requires the Group to make estimates and assumptions that affect the items reported in the balance sheet and statement of comprehensive income and the disclosure of contingent assets and liabilities at the date of the financial statements. Although these estimates are based on management's best knowledge of current facts, circumstances and, to some extent, future events and actions, the Group's actual results may ultimately differ from those estimates, possibly significantly. The Group's investment in Lonestar includes 44,579,478 deferred consideration shares, and the fair value of these shares is estimated to be £5.8m based on the listed price of the ordinary shares. Further detail on the basis of valuation is given on page 5 of the Investment Manager's report. 1.5 Segmental reporting The chief operating decision maker has been identified as the Board of Ecofin Water & Power Opportunities plc. The Board reviews the Group's internal management accounts in order to analyse performance. The Directors are of the opinion that the Group is engaged in one segment of business, being the investment business. The Group previously presented information for investing activities and oil and gas activities separately. As an investment entity, the Group no longer consolidates Lonestar and therefore the Directors are of the opinion that a breakdown of activities between the main investing activities and the oil and gas operations of Lonestar is no longer necessary.
Geographical segmental analysis pertaining to the Group has not been disclosed because the Directors are of the opinion that as an investment company the geographical sources of revenues received by the Group are incidental to its investment activity. The geographical allocation of the investments from which income is received and to which non-current assets relate is given on page 7.
2 Income
3 Net Asset Value
Group
Company
Diluted net asset value
The diluted net asset value per Ordinary Share has been calculated on the assumption that, where dilutive, the £79,949,563 (31 March, 2012 and 27 September, 2012: £79,949,563) nominal amount of 6% Convertible Unsecured Subordinated Loan Stock 2016 was fully converted on a 57.92:100 basis into 46,308,781 (31 March, 2012 and 27 September, 2012: 46,308,781) additional Ordinary Shares. This results in adjusted net assets as noted above. The loan stock was dilutive at 27 September, 2012.
The diluted net asset value has been calculated as above. This results in adjusted net assets reflecting the conversion of the Convertible Unsecured Subordinated Loan Stock into Ordinary Shares on a 57.92:100 basis for the periods noted above.
4 Return per class of Share
Diluted return per Ordinary Share Diluted returns per Ordinary Share are calculated on the assumption that the 6% Convertible Unsecured Subordinated Loan Stock 2016 is converted on 28 September, 2012 into additional Ordinary Shares and that earnings reflect the savings in finance costs on the Convertible Unsecured Subordinated Loan Stock after taxation. This results in adjusted revenue return of £4,823,000 (31 March, 2012: £7,984,000) and capital return of £19,903,000 (31 March, 2012: £37,246,000) and weighted average shares in issue of 256,118,264 (31 March, 2012: 256,331,261). The assumed conversion was non-dilutive for the period ended 27 September, 2012.
As the average price of the Ordinary Shares was below the subscription price, the Subscription Shares were non-dilutive for the period ended 31 March, 2012.
5 Interim dividends
International Accounting Standard (IAS) 10 'Events after the Balance Sheet Date' requires dividends to be recognised in the period in which they are paid.
In February 2011, in order to make the Company's shares more attractive to Shareholders seeking regular income, the Board authorised the payment of dividends to Ordinary Shareholders on a quarterly basis instead of a semi-annual basis. The Company's current dividend policy is therefore to pay four quarterly dividends of 1.625p to Ordinary Shareholders totalling 6.5p per year, markets permitting.
6 Share capital Ordinary Shares At 31 March, 2013 there were 209,809,483 Ordinary Shares in issue (31 March, 2012: 209,808,631 and 27 September, 2012: 209,809,483) and 568,409 Ordinary Shares held in Treasury (31 March, 2012: 569,261 and 27 September, 2012: 568,409).
Subscription Shares On 15 May, 2009, the Group issued and allotted 42,063,749 Subscription Shares as a bonus issue to qualifying holders of Ordinary Shares at a ratio of 1 Subscription Share (fractions being disregarded) for every 5 Ordinary Shares. Each Subscription share conferred the right (but not the obligation) to subscribe for 1 Ordinary Share on 30 November or 31 May ending 31 May, 2012 at the following predetermined prices per Ordinary Share:
Period of exercise Subscription price On or before 31 May, 2010 168p After 31 May, 2010 and up to 31 May, 2011 172p After 31 May, 2011 and up to 31 May, 2012 183p
At 31 March, 2012 42,034,428 Shares were outstanding and with the exception of the 852 Shares exercised at £1.83, the remaining 42,033,576 Shares expired on 31 May, 2012.
The Subscription Shares were non-dilutive for the period ended 31 March, 2012. They expired on 31 May, 2012 and therefore were not relevant for the periods ended 27 September, 2012 and 31 March, 2013.
7 Non-current liabilities 6% Convertible Unsecured Loan Stock 2016 On 29 July, 2009, the Group issued £80,000,000 nominal amount of 6% Convertible Unsecured Subordinated Loan Stock 2016. The loan stock can be converted at the election of holders into Ordinary Shares during the months of May and November each year until May 2016 at a rate of 1 Ordinary Share for every 172.6445p nominal of 6% Convertible Unsecured Subordinated Loan Stock 2016. Interest is paid on the 6% Convertible Unsecured Subordinated Loan Stock 2016 on 31 May and 30 November each year. The interest is charged 25% to revenue and 75% to capital within the Consolidated statement of comprehensive income in line with the Board's expected long-term split of returns from the investment portfolio of the Group.
As at 31 March, 2013 the nominal amount of 6% Convertible Unsecured Subordinated Loan Stock 2016 in issue was £79,949,563 (31 March, 2012 and 27 September, 2012: £79,949,563).
Zero Dividend Preference Shares On 29 July, 2009, the Company's subsidiary, EW&PO Finance plc, issued 60 million Zero Dividend Preference Shares at a price of 100p per share. The Zero Dividend Preference Shares will mature on 31 July, 2016 and had a gross redemption yield of 7% per annum at issue; that is, investors will receive 160.70p on 31 July, 2016 for every 100p invested.
As at 31 March, 2013, there were 60 million Zero Dividend Preference Shares in issue (31 March, 2012 and 27 September, 2012: 60 million).
The Company issued to its subsidiary, EW&PO Finance plc, a non-interest bearing subordinated unsecured loan note 2016 ('loan note') equal to the net proceeds of the Zero Dividend Preference Share issue which were lent by the subsidiary to the Company under an agreement dated 29 September, 2009. This will be repaid or redeemed at par on 31 July, 2016 or earlier, on demand by the subsidiary. The Company also entered into a subsidiary capital contribution agreement whereby the Company will undertake to contribute such funds to the subsidiary as will ensure that the subsidiary will have, after the repayment of the loan note by the Company, sufficient assets to satisfy the final capital entitlement of the Zero Dividend Preference Shares.
8 Effective rate of tax The effective rate of tax reported in the revenue column of the Consolidated statement of comprehensive income for the period ended 31 March, 2013 is 13% (period ended 31 March, 2012: 21% and period ended 27 September, 2012: 12%) based on a revenue return before tax of £4,868,000 (period ended 31 March, 2012: £9,841,000 and period ended 27 September, 2012: £9,129,000). This differs from the standard rate of tax of 24% (31 March, 2012: 26% and 27 September, 2012: 24%) as a result of income not taxable for Corporation Tax purposes.
9 Impact of restatement In the audited financial statements for the twelve month period ended 31 March, 2012 and the period ended 27 September, 2012, the Company was required to consolidate its investments in Ecofin Energy Resources plc (EER), Ecofin China Power & Infrastructure Fund (the China Fund) and the Ecofin Global Oil and Gas Fund (the Oil & Gas Fund). Subsequent to this, an amendment was made to IFRS 10 to allow an investment entity to measure its subsidiaries at fair value through profit and loss rather than to consolidate them (except for subsidiaries providing investment-related services which are consolidated).
As the Directors have decided to early adopt this amendment, which is effective from January 2014, the comparatives for the periods ended 31 March, 2012 and 27 September, 2012 included in these financial statements have been restated to de-consolidate EER, the China Fund and the Oil & Gas Fund. The Company's wholly-owned subsidiary EW&PO Finance plc continues to be consolidated in these financial statements and in the comparatives as it is considered to provide investment related services.
The early adoption of IFRS 10 (as amended) has had the following impact on the financial statements of the Group as previously reported:
Consolidated balance sheet
The greatest impact on the financial statements is due to the de-consolidation of EER which was included in non-current assets as restated at fair value for the period ended 27 September, 2012 at £69,167,000 and for the period ended 31 March, 2012 at £66,964,000. Investments in the China Fund and the Oil & Gas Fund for the period ended 27 September, 2012 included within non-current assets as restated were £25,985,000 and £6,125,000 respectively, and for the period ended 31 March, 2012 investments in the China Fund were included at £27,722,000. The Oil & Gas fund was not consolidated for the period ended 31 March, 2012 as the Company's holding uses less than 50%.
Non-current assets as previously reported included EER's ownership of mineral rights, property, plant and equipment of £63,407,000 for the period ended 27 September, 2012 and £55,100,000 for the period ended 31 March, 2012.
Current assets as previously reported included receivables and cash relating to EER of £10,826,000 for the period ended 27 September, 2012 and £12,783,000 for the period ended 31, March 2012. Cash and cash equivalents also included balances held by the China Fund amounting to £13,538,000 for the period ended 27 September, 2012 and £13,146,000 for the period ended 31 March, 2012 and balances held by the Oil & Gas Fund amounted to £6,392,000 for the period ended 27 September, 2012. Investments held at fair value by the China Fund and the Oil & Gas Fund were also included within current assets in the previously reported financial statements; amounts included for the periods ended 27 September, 2012 and the period ended 31 March, 2012 were £18,583,000 and £16,650,000, respectively.
Current liabilities as previously reported included trade and other payables relating to EER of £6,324,000 for the period ended 27 September, 2012 and £12,815,000 for the period ended 31 March, 2012. Non-controlling interests of £3,687,000 for the period ended 27 September, 2012 and £2,405,000 for the period ended 31 March, 2012 relating to the China Fund and the Oil & Gas Fund were also included within current liabilities.
Non-current liabilities as previously reported included loans and other provisions relating to EER of £12,896,000 for the period ended 27 September, 2012 and £3,312,000 for the period ended 31 March, 2012.
The non-controlling interest as previously reported relates to EER, as EER is no longer consolidated, there is no such figure in the restated balance sheet.
Consolidated statement of comprehensive income
* Information for the period ended 31 March, 2012 has not been provided for the income statement as the previously reported figures were for a 12 month period and therefore would not provide a meaningful comparison. The variances noted above are largely driven by the de-consolidation of EER. Specifically, income as previously reported included revenue earned on the trading activities of EER amounting to £9,156,000 for the period ended 27 September, 2012 and expenses as previously reported included costs incurred in relation to the trading activities of EER amounting to £10,260,000 for the period ended 27 September, 2012. Additionally, income as previously reported relating to the trading activities of the China Fund of £(1,316,000) reflecting losses on investments held at fair value for the period ended 27 September, 2012. Income as previously reported for the period ended 27 September, 2012 also included an adjustment to remove all unrealised gains on investments held at fair value in subsidiaries during the period; this amounted to £2,742,000. Other comprehensive income relates to the foreign exchange difference on re-translation of EER which is reported in US Dollars. As EER is no longer consolidated, this is not applicable in the restated financial statements. Non-controlling interest relates to total comprehensive income attributable to the non-controlling interests of EER, the China Fund and the Oil & Gas Fund for the period ended 27 September, 2012. As these subsidiaries are no longer being consolidated, this is not applicable in the restated financial statements.
Earnings per share
* Information for the period ended 31 March, 2012 has not been provided for the income statement as the previously reported figures were for a 12 month period and therefore would not provide a meaningful comparison.
10 Principal risks
The Company's management of these risks and exposure to them is set out in the Report and Accounts of the Company for the period ended 27 September, 2012 which is available on the web pages referred to below and from the registered office of the Company.
The principal financial risks which the Company faces can be divided into two areas: non-financial and financial.
The principal non-financial risks faced by the Company are the loss of key personnel employed by the Investment Manager, loss of Section 1158 status, breach of UKLA Listing Rules or other regulations, failure of systems and controls, interaction of supply and demand, the perception of investors and general market or sector sentiment. The Company's management of these risks and exposure to them is set out in the Report and Accounts of the Company for the period ended 27 September, 2012 which is available on the Investment Manager's web page and from the registered office of the Company.
The principal financial risks which the Company faces include:
Foreign currency risk - The value of the Group's assets and the total return earned by the Group's Shareholders can be significantly affected by foreign exchange movements as most of the Group's assets are denominated in currencies other than sterling, the currency in which the Group's accounts are prepared. The risk is partially offset by the Group's foreign currency borrowings.
Interest rate risk - The Group is only exposed to significant interest rate risk through its Prime Brokerage borrowings with Citigroup Global Markets Limited and through the fair value of investments in fixed-interest rate securities. The 6% Convertible Unsecured Subordinated Loan Stock 2016 and the Zero Dividend Preference Shares carry a fixed rate of interest.
Market price risk - The Group's investment portfolio is subject to fluctuations, volatility and the vagaries of market prices. The Directors seek to mitigate this risk by ensuring proper controls exist through the Investment Management Agreement for maintaining a diversified portfolio of the securities of utility and utility-related companies and ensuring that the portfolio is diversified by geography, sub-sector and type of instrument.
Liquidity risk - The Group's assets mainly comprise readily realisable securities which can be easily sold to meet funding commitments if necessary. Unlisted investments in the portfolio are subject to liquidity risk. The risk is taken into account by the Directors when arriving at their valuation of these items.
Credit risk - Credit risk is mitigated by diversifying the counterparties with which the Group conducts investment transactions. The credit-standing of all counterparties is reviewed periodically with limits set on amounts due from any one broker.
Fair values of financial assets and financial liabilities - Except for the Group's 6% Convertible Unsecured Loan Stock 2016 and Zero Dividend Preference Shares measured at amortised cost, financial assets and financial liabilities of the Group are carried in the balance sheet at their fair value (investments and derivatives) or the balance sheet amount is a reasonable approximation of fair value (due from brokers, dividends receivable, accrued income, cash at bank, due to brokers and Prime Brokerage borrowings).
Derivative exposure - Derivative instruments such as contracts for difference, options, warrants and forward currency contracts may be used for purposes of efficient portfolio management.
External factors - The Company is subject to externally imposed capital requirements. As a public company, it has to have a minimum share capital of £50,000 and, in order to be able to pay dividends out of profits available for distribution, the Company has to be able to meet one of the two capital restriction tests imposed on investment companies by company law.
11 Related party disclosure The Company has related party transactions with Ecofin Limited, the Investment Manager to the Company. Management fees for the period amounted to £3,735,000 (period to 31 March, 2012: £3,710,000 and period to 27 September, 2012: £3,649,000). Amounts still outstanding included within other financial liabilities on the balance sheet were £1,908,000 (period to 31 March, 2012: £1,867,368 and period to 27 September, 2012: £1,840,000). Following the reverse acquisition of Amadeus Energy Limited (now Lonestar Resources Ltd, or 'Lonestar') on 2 January, 2013, Lonestar agreed to issue an additional 44,579,478 ordinary shares to the Company in the event that either the PV-10 value of proved and probable reserves on Lonestar's Gonzo property is above $40 million US dollars, or the share price is above $0.40 Australian dollars at any time before 2 July, 2014. As it is considered virtually certain that the PV-10 value will exceed $40 million US dollars, the deferred compensation shares are carried at £5.801,000 based on the listed price of Lonestar's shares. Please refer to the Investment Manager's report for full details of the reverse acquisition. Bernard Lambilliotte is a director of Lonestar Resources Limited, the Company's largest investment, and John Murray and Martin Nègre are directors of the Ecofin China Power & Infrastructure Fund, the Company's second largest investment. Bernard Lambilliotte is also a director of Oro Negro S.A.P.I. in which the Company has investments. As at the period ended 27 September, 2012, the Company owned non-redeemable convertible preference shares issued by Ecofin Energy Resources plc (EER) amounting to £57,605,000 (31 March, 2012: £58,377,000), which were included within investments held at fair value through profit and loss on the balance sheet. The preference shares were subsequently converted into ordinary shares at fair value during the period ended 31 March, 2013. The Company also held 6% convertible loan notes amounting to £3,088,000 with EER as at the period ended 27 September, 2012 (31 March, 2012: £nil) and these were also converted into ordinary shares at fair value during the period ended 31 March, 2012. Interest due on the 6% convertible loan notes was accountable on a receipts basis; no amounts were received during the periods ended 27 September, 2012 and 31 March, 2013. Fees paid to Directors of the Company during the period amounted to £116,000 (period to 31 March, 2012: £106,000 and period to 27 September, 2012: £124,000).
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INTERIM MANAGEMENT REPORT Except as set out above, there have been no related party transactions undertaken by the Company in the first six months of the current financial year and there have been no changes to the related party disclosures described in the Annual Report of the Company for the period ended 27 September, 2012.
The Directors consider that the Investment Manager's report, the above disclosure on related party transactions and the Directors' responsibility statement below, together constitute the interim management report of the Company for the period ended 31 March, 2013 and satisfy the requirements of Disclosure and Transparency Rules 4.2.3 to 4.2.11 of the UK Listing Authority.
Ernst & Young LLP, the Company's auditor has reviewed this half-year report for the period ended 31 March, 2013. The full text of the auditor's review report is contained in the printed Half-Year Report 2013.
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DIRECTORS' RESPONSIBILITY STATEMENT The non-executive Directors of the Company (Ian Barby (Chairman), Iain McLaren, John Murray, Lord Myners and Martin Nègre) confirm to the best of their knowledge that:
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(i) | the condensed set of financial statements within the half year financial report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting' and gives a true and fair view of the assets, liabilities, financial position and profit of the Group;
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(ii) | the interim management report includes a fair review, as required by Disclosure and Transparency Rule 4.2.7 R, of important events that have occurred during the period ended 31 March, 2013, and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
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(iii) | the interim management report includes a fair review of the information concerning related parties transactions as required by Disclosure and Transparency Rule 4.2.8 R. |
The information in this announcement has been taken from the Half-Year Report of the Company which was approved by the Board on 31 May, 2013 and the Responsibility Statement above signed on the Board's behalf by Ian Barby, Chairman.
Printed copies of the Half-Year Report will be sent to shareholders shortly. Further copies can be obtained on request from the Registered Office at: Phoenix Administration Services Limited, Springfield Lodge, Colchester Road, Chelmsford, Essex CM2 5PW (www.pfsinfo@phoenixfundservices.com).
The Half-Year Report 2013 will shortly be available to view and download by following the links on the Company's Investment Manager's website* at: www.ecofin.co.uk
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By order of the Board
Phoenix Administration Services Limited
Secretary
31 May, 2013
* Except for the above announcement, the content of the Company's web-pages and the content of any website giving access to the Company's web-pages or which may be accessed through hyperlinks on the Company's web-pages are not incorporated into or form part of the above announcement.