28 Nov 2011 07:00
ECOFIN WATER & POWER OPPORTUNITIES PLC |
Announcement of Results for the Half-Year to 30 September, 2011 |
OBJECTIVE OF THE COMPANY
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The Company's investment objectives are to achieve a high, secure dividend yield on its investment portfolio and to realise long-term growth in the capital value of the portfolio for the benefit of Shareholders, while taking care to preserve Shareholders' capital. |
HIGHLIGHTS FOR THE PERIOD
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• Total net assets attributable to both Ordinary and Zero Dividend Preference Shareholders - Total Shareholders' funds - declined by 9.3% in the six months to 30 September, 2011 compared to a decline of 14.9%, in sterling terms, in the MSCI World index of developed markets
• Net assets attributable to Ordinary Shareholders fell by 11.6%; net asset value per Ordinary Share fell by 11.6% and by 9.7% on a diluted basis
• The total return per Ordinary Share over the period - the decline in the share price less the dividend received - was -3.1%
• Revenue earnings per Ordinary Share in the six months to 30 September, 2011, were 3.72p; quarterly dividends of 1.625p per Ordinary Share were paid on 31 May and on 31 August, 2011 for a total of 3.25p per Ordinary Share
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| Six months ended | Year ended | ||
| 30 September, 2011 | 31 March, 2011 | % | |
Unaudited | Audited | change | |
Ordinary Shares | |||
Net asset value | 158.08p | 178.88p | -11.6 |
Net asset value (diluted) | 158.08p | 175.14p | -9.7 |
Share price | 115.00p | 122.00p | -5.7 |
Discount to net asset value | -27.2% | -31.8% | |
Shareholder total return (share price change plus dividends received) | -3.1% | -9.2% | |
Zero Dividend Preference Shares | |||
Calculated value | 114.72p | 110.74p | 3.6 |
Share price | 126.75p | 121.63p | 4.2 |
Premium to calculated value | 10.5% | 9.8% | |
Shareholder total return (share price change) | 4.2% | 9.1% | |
Shareholders' funds | |||
Zero Dividend Preference Shareholders (£'000) | 68,830 | 66,442 | 3.6 |
Ordinary Shareholders (£'000) | 332,508 | 376,270 | -11.6 |
Total Shareholders' funds (£'000) | 401,338 | 442,712 | -9.3 |
Total assets less current liabilities (excluding net prime brokerage borrowings) (£'000) | 529,558 | 572,193 | -7.5 |
Net borrowings (£'000)† | 211,332 | 212,119 | -0.4 |
Gearing level of the Company† | 63.6% | 56.4% | |
† 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 company.
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CHAIRMAN'S STATEMENT
Dear Shareholder,
Net asset and share price performance
In the six months to 30 September, 2011, the total net assets of your Company attributable to both its Ordinary and Zero Dividend Preference Shareholders, that is, the Company's Total Shareholders' funds, fell by 9.3%. Net assets attributable solely to the Company's Ordinary Shareholders and the net asset value per share of an Ordinary Share fell by 11.6% with net asset value per Ordinary Share falling by 9.7% on a diluted basis. Over the six month period, however, the price of an Ordinary Share fell by a lesser 5.7%, as the discount to the net asset value at which the Ordinary Shares traded in the secondary market narrowed from 31.8% at 31 March, 2011 to 27.2% at 30 September. The total return for Ordinary Shareholders over the six months to 30 September - the change in the share price plus dividends received - was -3.1%.
While this is a disappointing result, it took place over a six month period during which world equity markets declined steadily and volatility rose dramatically. The equity markets of developed economies - as measured by the MSCI World index - fell by 14.9% over the six month period in sterling terms (and by 17.3% in US dollar terms), declining in every month except April, the longest period of consecutive monthly declines in the index since 2008. Markets suffered large falls in August and September - the worst two consecutive months for equity markets since January and February of 2009 - on sovereign debt concerns and evidence of slowing world economic growth. The MSCI World Utilities index and the MSCI World Energy index declined by 5.3% and 23.3%, respectively, in sterling terms over the six month period ̶ while the Wilderhill New Energy Global Innovation index of companies active in the renewable energy sector fell by a remarkable 41.8%.
Earnings and dividends
In the six months to 30 September, the Company earned £7,834,000 after tax on its revenue account, or 3.72p per Ordinary Share. Over the course of the six months, the Company paid a total of 3.25p per share in quarterly dividends to Ordinary Shareholders, 1.625p on 31 May and on 31 August. At 30 September, the Company had revenue reserves of £16,044,000, equivalent to 7.63p per Ordinary Share. At the share price of an Ordinary Share on 30 September of 115p, the dividend yield on an Ordinary Share, assuming dividends totalling 6.5p per annum, was 5.7%.
Gearing
The Company has been a geared investment vehicle since its launch in 2002, although the level of gearing has varied over time. As a consequence, the net asset value of an Ordinary Share is more volatile than would be the case if the Company were not geared. The maximum level is set by the Board and its current policy is that gearing should not exceed 60% for any sustained period.
As at 30 September, 2011, the level had risen to 63.6%, although the Board specifically agreed to it remaining above 60% for a short period as two of the Company's largest holdings accounting for approximately 8.3% of the Company's portfolio at 30 September - Hansen Transmissions and Northumbrian Water Group - were the subject of cash takeover offers which were due to close in October. The Board took the view that these holdings were not affected by market movements and would soon convert to cash. In addition, another holding, EIH Cyprus, which accounted for 3.9% of the portfolio and holds the cash proceeds from the sale of Solel Solar Systems, is in the process of liquidation. The cash proceeds of the Hansen Transmissions and Northumbrian Water Group takeovers have now been received and the Company's gearing at 16 November, the most recent weekly net asset value calculation date, had fallen to 44.9%.
Presentation of accounts
The Company's largest investment at 30 September was in Ecofin Energy Resources (EER), a holding company for its wholly-owned subsidiary, Texas International Energy Partners. At 30 September, the Company had invested approximately £51.5 million in EER and had a 78.9% equity interest in the company on a fully diluted basis. Your Company is actively seeking to reduce its equity interest in EER to less than 50% by selling it to a trade buyer, merging it with a larger company or taking it public through an initial public offering. As a result, the Company's investment in EER is shown separately on the balance sheet in these financial statements as an investment held for sale at fair value.
The Company's third largest investment at 30 September was in the Ecofin China Power & Infrastructure Fund (the China Fund), an open-ended long/short equity fund managed by the Investment Manager, Ecofin Limited. The investment in the China Fund provides the Company with an exposure to a diversified long/short equity portfolio at little extra cost to the Company as it owns shares in the China Fund on which no separate investment management fees are payable. Due to redemptions by investors in the China Fund, however, the Company owned a majority of the China Fund's shares at 30 September, 2011 as it did at the Company's year-end at 31 March, 2011. As a consequence, accounting standards require the Company to consolidate the China Fund in these financial statements. The Directors, however, believe it to be more appropriate to disclose the China Fund as an investment, not a subsidiary, in the Ten largest holdings and Portfolio analysis in the printed Half-Year Report 2011.
Outlook
Since I wrote to you in July in the Report and Accounts for the Company's fiscal year ended 31 March, 2011, the International Monetary Fund (IMF) has downgraded the outlook for world economic growth and stated that the risks are to the downside; that is, that growth could well turn out to be lower than the IMF is forecasting. The IMF is now forecasting growth of only 1.5% in the advanced economies in 2011 and 1.9% in 2012. The principal risks to its forecast, the IMF believes, are that the crisis in the Euro-zone runs beyond the ability of policymakers to control it and that economic growth in the US weakens further.
In this environment, financial markets are volatile and react strongly to news flow. As I write this, markets are once again trading lower on concerns about the Euro-zone and sovereign risk after rallying in October on proposals to deal with the Euro-zone crisis were announced and on news that the US economy grew by 2.5% per annum in the six months to 30 September, 2011. The MSCI World index of developed equity markets rose by 6.0% in sterling terms from 30 September to 16 November with much of the increase accounted for by shares of banks and financial services firms. The MSCI World Utilities index fell by 1.29% in sterling terms over the same period while the net assets of your Company rose by 1.87%.
In your Company's investment universe, while political risk in the utility sector remains high in Continental Europe, much of that risk is already reflected in valuations, particularly in Northern Europe, and there is evidence that investors are beginning to buy the dividend yields on offer in the sector. In the US, the outlook for power markets is improving and new environmental rules and coal plant retirements are positive for gas demand and the infrastructure to bring gas to market. The Investment Manager continues to take advantage of the Company's broad mandate to invest in fuel suppliers and infrastructure companies as well as its mainstream utility universe and is confident that the Company should be able to provide its Shareholders with satisfactory returns over the longer-term.
Ian Barby
Chairman
25 November, 2011
INVESTMENT MANAGER'S REPORT
The economy
Since the end of the Company's financial year on 31 March, 2011, economic recovery has become more uncertain due to much slower growth in the advanced economies than expected and to growing fiscal and financial uncertainty. Over the period, forecasts for world economic growth have been steadily downgraded. The International Monetary Fund (IMF) is now forecasting that world economic growth will slow to 4% in both 2011 and 2012, down from 5.1% in 2010. The advanced economies are forecast to grow by only 1.5% in 2011 and by 1.9% in 2012, down from the 3.1% growth experienced in 2010, while the emerging and developing economies are forecast to grow by 6.4% and 6.1% in 2011 and 2012, respectively, after growing by 7.3% in 2010.
The slowdown in growth in the advanced economies is largely due to the failure of private sector demand to replace the public sector fiscal stimulus enacted over the course of the 2008/2009 recession as governments now seek to control spending; a failure attributable to country specific factors including the legacy of the housing boom in the U.S., highly leveraged households cutting spending, tightness in bank lending and a deterioration in business and household confidence. It is also attributable to a failure by emerging economies to rebalance their economies toward domestic consumption which would have stimulated the exports of the advanced economies.
Fiscal and financial uncertainty has risen as markets have become more sceptical about the ability of countries - particularly in the Euro-zone - to stabilise their public finances and levels of debt. While these concerns were once limited to a few small countries on the periphery of the Euro-zone, since the end of the Company's financial year in March they have spread to larger countries in the Euro-zone such as Spain and Italy and beyond the Euro-zone to the United States. Concerns about European sovereign debt have, in turn, given rise to worries about the strength of financial institutions which hold such debt, principally European banks. As a consequence, banks have increased their levels of liquidity and tightened lending and as a result financial flows have fallen.
The emerging and developing economies, in contrast, have been largely unaffected by these developments since the Company's year-end and have generally been able to sustain high growth rates while experiencing volatile capital flows. Some have faced problems of unsustainably high or unbalanced growth and rising inflation. Although the outlook for growth in the emerging and developing economies remains favourable, slower than expected growth in the advanced economies - and perhaps lower commodity prices - would have an impact on many of their export-led growth models.
Markets
The steady downgrading of expectations for economic growth and the rising fiscal and financial uncertainty had a dramatic, negative effect on equity markets in the six months to 30 September, 2011. Bond, credit and foreign exchange markets also reacted strongly to economic developments and policy initiatives over the period and played an increasingly important role in passing judgement on policy makers' efforts to address sovereign debt problems, particularly in Europe. The volatility seen in markets over the period - and since 30 September, 2011 - reflects a phenomenon that has been described as "risk on/risk off" as investors alternated between buying risk assets such as equities and fleeing to perceived safe havens, such as US Treasuries.
The six months to 30 September, 2011, saw world equity markets - as measured by the MSCI World index of developed markets - decline in every month except April, the longest period of consecutive monthly declines since the six months from June to November 2008. The worst declines were in August and September, when the MSCI World index fell by 6.4% and 5.2%, respectively, in sterling terms, the two worst consecutive months of losses since January and February of 2009.
The sell-off in equity markets - which began in earnest in mid-July - was precipitated by a downgrade of growth expectations in the US and by a mix of sovereign debt concerns on both sides of the Atlantic. In Europe, markets were unconvinced by the measures announced in July to deal with Greece's debt and, at the same time, protracted negotiations between the Obama administration and the Republican dominated US Congress about raising the US federal debt ceiling came to a head. Although agreement was reached on raising the debt ceiling on 31 July, late on Friday, 5 August, the US rating agency Standard & Poor's downgraded US federal debt to AA+ from AAA. On Monday, 8 August, the US S&P 500 index fell 6.6%, its worst daily fall since 15 October, 2008. Over the course of the remaining weeks of August and throughout September, global equity markets trended lower on historically high volatility as markets reacted to worsening economic news and the intensifying crisis in the Euro-zone.
Performance of the Company
In the six months to 30 September, 2011, the total net assets attributable to both the Company's Ordinary and Zero Dividend Preference shareholders - total shareholders' funds - fell by 9.3% which reflected the gearing associated with the Company's prime brokerage borrowings and Convertible Unsecured Loan Stock and after the Company's expenses. The net asset value per Ordinary Share fell by 11.6% over the period and by 9.7% on a diluted basis which reflects the further gearing on the Ordinary Shares associated with the Zero Dividend Preference shares and the daily provision made for their repayment in 2016. The performance of the Company in net asset value terms - after the payment of dividends to Ordinary Shareholders - compared to a number of equity indices is shown in the table below.
Performance vs selected indices
Six months to 30 September, 2011 | Year to 31 March, 2011 | Since 29 June, 2005* | Since launch on 26 February, 2002 | |
% | % | % | % | |
Ecofin Water & Power Opportunities plc† | ||||
Shareholders' Funds | -9.3 | -1.4 | 54.4 | 155.6† |
Net asset value per share | ||||
Ordinary Shares | -11.6 | -2.8 | 50.7 | n/a |
Ordinary Shares (diluted) | -9.7 | -1.6 | 50.7 | n/a |
Indices | ||||
MSCI World Developed Markets | -14.9 | 5.2 | 10.5 | 4.7 |
MSCI World Utilities | -5.3 | -5.1 | 14.8 | 27.8 |
MSCI World Energy | -23.3 | 19.3 | 37.5 | 60.7 |
Wilderhill New Energy | -41.8 | 0.2 | -17.9 | 1.7 |
FTSE All Share | -13.5 | 5.4 | 3.7 | 7.0 |
FTSE Utilities | 2.8 | 11.3 | 46.0 | 88.4 |
Euro Stoxx | -26.5 | 1.9 | -6.2 | 1.9 |
Euro Stoxx Utilities | -26.2 | -9.4 | -1.3 | 28.9 |
S&P 500 | -12.2 | 7.4 | 9.2 | -7.3 |
S&P 500 Utilities | 8.5 | 1.8 | 22.5 | 16.1 |
* The date the Ordinary Shares were created following a reorganisation of the Company
† Adjusted for changes in share capital
All performance data are in sterling terms
The decline in the net assets of the Company in the six months to 30 September, 2011 is, of course, attributable to the fall in world equity markets and to the gearing employed by the Company. It is also attributable to the Company's exposure to Continental European markets and China. The market value of the French electricity supplier Poweo, a special situation investment and the Company's eighteenth largest investment at the beginning of the period, also contributed to the decline as it fell by more than 30% in sterling terms. The Company's performance was supported by its North American portfolio, its bond portfolio and a number of cash take-overs which were announced during the period.
Portfolio developments
The geographical and sub-sector weightings of the Company's investment portfolio and an analysis of the portfolio by company size and the nature of the investment are shown in the printed Half-Year Report 2011. Over the six months to 30 September, 2011, no major changes were made to the geographical allocation of the portfolio although the analysis of the portfolio by sector or type of investment reflects both asset allocation decisions and market movements. The increase in private equity investments reflects additional investments in Ecofin Energy Resources, an unquoted company and the Company's largest investment, while the increase in alternative energy primarily reflects the increase in the share price of Hansen Transmissions, the subject of a cash take-over offer. The fall in the percentage of the portfolio allocated to bonds is attributable to profit-taking. Changes in the weightings of non-regulated and regulated utilities and infrastructure companies reflect allocation decisions and market movements.
The Company's ten largest investments at 30 September were largely unchanged since the Company's year-end on 31 March, 2011; the two new additions being two US integrated power utilities, Exelon Corp. and FirstEnery Corp. Two of the holdings, however, were the subject of cash take over offers as at 30 September which have now closed: Hansen Transmissions, the Company's second largest holding at 30 September, was acquired by the German company ZF Friedrichshafen, a manufacturer of automotive transmissions, on 20 October, 2011, and Northumbrian Water Group, the Company's eighth largest holding, was acquired by the Hong Kong-based Cheung Kong Infrastructure Group on 17 October. Together, these two holdings accounted for 8.3% of the Company's portfolio at 30 September, 2011. Another of the Company's ten largest holdings, EIH Cyprus Limited, which accounted for 3.9% of the portfolio and whose assets are primarily in cash, is in the process of being wound up.
Ecofin Energy Resources (EER), an unquoted company and the Company's largest investment, and its wholly-owned subsidiary, Texas International Energy Partners (Texas Energy), were established by the Company in July 2010 to acquire the mineral rights of smaller US shale gas properties with proven reserves, to develop the properties, and to sell the gas produced to local utilities and distributors. EER has continued to make good progress and, in July, Texas Energy arranged a $100 million bank credit facility to fund drilling and further acquisitions which was an important milestone for the company.
In August, EER raised a total of $12 million through a placement of shares at a price of $10.50 per share compared to the price of $10.00 per share at which previous equity financings by EER were completed. The Company invested $3 million and other investors invested $4.4 million. In addition, Ecofin Holdings Limited, Mr. Bernard Lambilliotte and Mr. John Murray-each of whom is a related party to the Company-invested $4.6 million. As a result of the fund raising, EER is now carried in the accounts of the Company at a valuation of $10.50 per share. The Company has now invested a total of £51.5 million in EER.
The Ecofin China Power & Infrastructure Fund (the China Fund), a long/short fund and the Company's third largest investment at 30 September, had a disappointing performance over the period although it has out performed the Chinese market significantly since the Company invested in it in July 2009. Since then, the net asset value per share of the non-fee paying shares the Company owns has declined by 0.1% compared to a decline of 18.7% in the HSCEI index of companies listed in Hong Kong and included in the Hang Seng Mainland Composite index.
In the six months to 30 September, however, the net asset value per share of the shares owned by the Company in the China Fund declined by 16.9%, in sterling terms, compared to a decline of 30.5% in the HSCEI index. Most of the decline took place in August and September as investment sentiment on China deteriorated sharply on prospects for lower growth in China's export markets and concerns about a weakening of domestic demand and financial stress in the small and medium enterprise and property sectors.
Elsewhere among the Company's ten largest holdings, Williams Companies, a US natural gas producer and pipeline operator and the Company's fifth largest investment, saw its share price fall by 23% in the six months, which reflected the decline in the energy sector in response to a weakening economic outlook. Williams has, however, rebounded strongly since September on news of a corporate restructuring which would split the company into two companies, a gas production company and a pipe line operator. The share price of ITC Holdings, a regulated US electricity transmission company and the Company's seventh largest investment, rose by nearly 11% over the period on a strong earnings outlook.
The valuation of the Prescott Valley/TRF Feeder Fund holding, the Company's tenth largest investment, was unchanged over the period. The Company has an investment in a 'side pocket' created to hold illiquid investments of the TRF Feeder Fund which it bought at a substantial discount to its net asset value in August 2010. The side pocket's only asset is a collection of water rights in Prescott Valley, Arizona, a fast growing community north of Phoenix. The side pocket is managed by a specialist in the water sector which is negotiating to sell the rights to property developers.
Outlook
In the mainstream utility sector, with important regional differences, the outlook is mixed. Electricity demand is growing in the U.S. although it has begun to weaken somewhat in Europe following a recovery from the low levels reached in the recession. Power prices in Europe have also been coming under some pressure due to overcapacity and, especially, very low CO2 prices. European companies and utilities have been selling CO2 certificates they bought prior to the recession of 2008/2009 in expectation of stronger economic growth than actually occurred. With a few exceptions, however, company balance sheets are in reasonable shape and earnings are proving to be resilient. Dividends also appear to be generally secure. Few expect any weakening of economic growth to have a serious impact on electricity demand as it did in 2008 and 2009.
Political risk, however, remains very high in Continental Europe. In early November the new Belgian government announced its intention to phase out nuclear power from 2015 onwards and to increase the government's tax on nuclear generators. In France, gas tariffs in the regulated market have been frozen until after the presidential elections in 2012. The opposition Socialist Party in France has also entered into a pact with France's Green party to close 24 out of 58 nuclear power plants in France by 2025 if elected next year. In Spain, elections scheduled for November which are likely to lead to a change of government have increased the uncertainty about the outlook for the Spanish utility sector. Germany is continuing with its plans to tax and phase out nuclear power. Elsewhere in Continental Europe, new taxes on the sector are being proposed as governments look for new revenues.
In the United States, the industry is benefitting from prerecession levels of electricity demand and a positive regulatory environment. U.S. Environmental Protection Agency (EPA) rulings are set to force many coal plants to close and the power industry is in the early stages of increasing the role of gas-fired generation. Gas prices, however, remain low by historical standards which are holding power prices down.
The global renewable energy sector, however, has been hard hit by a number of factors, including a critical reappraisal of the sector's economics. Many governments in Europe have moved to cut subsidies to renewable generators that they now deem to be too generous and costly. In the United States, expectations for the renewable energy sector have also been significantly downgraded due to low gas prices - which have favoured gas generation - and a lack of policy support at the federal level. While demand for renewable generation is slackening, renewable energy equipment manufacturers are coming under intense price competition from Asian, and especially, Chinese producers and solar panel and wind turbine costs are falling.
In the energy sector, oil, coal and gas prices are rising, except in the US where gas prices have remained low. In recent years, the world has been consuming its oil and gas inventories and - even with prospects for weak economic growth - the world energy supply and demand balance is tightening, which augers well for energy prices over the longer term. Higher energy prices are also generally supportive of power prices.
The global liquefied natural gas (LNG) market has tightened on post Fukushima demand, especially by Japan, but also by other Asian buyers. In the United States, the shale gas revolution continues to add to gas supplies and to keep gas prices relatively low. A shift is underway in the US to more extensive use of gas - not only in power generation, but also in transport and industry - which should lead to higher gas prices. It is also stimulating a considerable amount of merger and acquisition activity as companies seek to establish themselves for the longer-term in this fast growing area of the energy sector. In August, the world's largest mining company, BHP Billiton, acquired Petrohawk, an independent developer and owner of shale gas reserves, for $15 billion.
In a difficult economic environment and a challenging environment for the mainstream utility industry in many European countries, the strategy of the Company is to take full advantage of its global geographical and relatively broad sector investment mandate and to focus on both income and growth over the longer-term. The Company remains very cautious on Continental European utilities although value plays will emerge and there is some evidence that investors are beginning to find some of the dividend yields attractive. It remains overweight in the United States due to opportunities in the gas and energy sectors and because the fundamentals of the mainstream utility industry are improving and the regulatory environment is supportive. The Company is also pursuing investment opportunities in Asia - including in the fast growing clean technology area - and other emerging markets where energy use and power demand are growing rapidly.
With respect to sectors and sub-sectors, the Company is continuing to invest along the entire energy value chain - a chain that begins with energy commodities and ends with electricity and gas supply to consumers - and is investing in upstream fuels, such as gas, and in manufacturers and suppliers as well as in electricity generators, network operators and suppliers. The Company is also investing in infrastructure companies, such as Eurotunnel, which enjoy natural monopolies. Finally, the Company's strategy is to exploit the advantages of an investment trust to continue to develop special situation investments - such as Ecofin Energy Resources/Texas International Energy Partners - and other unquoted investment opportunities.
Ecofin Limited
25 November, 2011
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six months to | ||||
30 September, 2011 | ||||
Unaudited | ||||
Revenue | Capital | |||
Return | Return | Total | ||
£'000 | £'000 | £'000 | ||
Income | ||||
Investment income | 11,310 | - | 11,310 | |
Other income | 13 | - | 13 | |
(Losses)/gains on investments held at fair value | - | (43,648) | (43,648) | |
Gains/(losses) on assets held for sale at fair value | - | 5,221 | 5,221 | |
Gains on derivatives held at fair value | - | 526 | 526 | |
(Losses)/gains on forward currency contracts held at fair value | - | (6) | (6) | |
Exchange differences | - | 120 | 120 | |
11,323 | (37,787) | (26,464) | ||
Expenses | ||||
Investment management fees | (926) | (2,777) | (3,703) | |
Other expenses | (437) | (210) | (647) | |
Profit/(loss) before finance costs and taxation | 9,960 | (40,774) | (30,814) | |
Finance costs | (901) | (4,950) | (5,851) | |
Profit/(loss) before taxation | 9,059 | (45,724) | (36,665) | |
Taxation | (1,225) | 390 | (835) | |
Profit/(loss) after taxation | 7,834 | (45,334) | (37,500) | |
Non-controlling interest | - | 574 | 574 | |
Profit/(loss) attributable to Ordinary Shareholders | 7,834 | (44,760) | (36,926) | |
Return per Share | ||||
Return per Ordinary Share (Basic) | 3.72p | (21.27)p | (17.55)p | |
Return per Ordinary Share (Diluted) | 3.72p | (21.27)p | (17.55)p | |
Return per Zero Dividend Preference Share | n/a | 3.98p | 3.98p | |
The Company did not have any income or expense that was not included in profit for the year. Accordingly, the "Profit for the year" is also the "Total comprehensive income for the year", as defined in IAS 1 (revised), and no separate Statement of other comprehensive income has been presented.
The Total column of this statement is the profit and loss account of the Group. The supplementary Revenue Return and Capital Return columns are both prepared under guidance published by the Association of Investment Companies. All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year.
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Six months to | Year ended | |||||
30 September, 2010 | 31 March, 2011 | |||||
Unaudited | Audited | |||||
Revenue | Capital | Revenue | Capital | |||
Return | Return | Total | Return | Return | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Income | ||||||
Investment income | 10,690 | - | 10,690 | 22,168 | - | 22,168 |
Other income | 68 | - | 68 | 727 | - | 727 |
(Losses)/gains on investments held at fair value | - | (26,636) | (26,636) | - | 3,780 | 3,780 |
Gains/(losses) on assets held for sale at fair value | - | - | - | - | (687) | (687) |
Gains on derivatives held at fair value | - | 1,781 | 1,781 | - | 745 | 745 |
(Losses)/gains on forward currency contracts held at fair value | - | (264) | (264) | - | 81 | 81 |
Exchange differences | - | 950 | 950 | - | 60 | 60 |
10,758 | (24,169) | (13,411) | 22,895 | 3,979 | 26,874 | |
Expenses | ||||||
Investment management fees | (911) | (2,733) | (3,644) | (1,869) | (5,608) | (7,477) |
Other expenses | (404) | (23) | (427) | (857) | (84) | (941) |
Profit/(loss) before finance costs and taxation | 9,443 | (26,925) | (17,482) | 20,169 | (1,713) | 18,456 |
Finance costs | (808) | (4,658) | (5,466) | (1,692) | (9,611) | (11,303) |
Profit/(loss) before taxation | 8,635 | (31,583) | (22,948) | 18,477 | (11,324) | 7,153 |
Taxation | (986) | 134 | (852) | (1,914) | 569 | (1,345) |
Profit/(loss) after taxation | 7,649 | (31,449) | (23,800) | 16,563 | (10,755) | 5,808 |
Non-controlling interest | n/a | n/a | n/a | - | (121) | (121) |
Profit/(loss) attributable to Ordinary Shareholders | 7,649 | (31,449) | (23,800) | 16,563 | (10,876) | 5,687 |
Return per Share | ||||||
Return per Ordinary Share (Basic) | 3.64p | (14.95)p | (11.31)p | 7.87p | (5.17)p | 2.70p |
Return per Ordinary Share (Diluted) | 3.64p | (14.95)p | (11.31)p | 6.87p | (5.17)p | 1.70p |
Return per Zero Dividend Preference Share | n/a | 3.73p | 3.73p | n/a | 7.56p | 7.56p |
CONSOLIDATED BALANCE SHEET as at 30 September, 2011
30 September, | 30 September, | 31 March, | ||
2011 | 2010 | 2011 | ||
Unaudited | Unaudited | Audited | ||
£'000 | £'000 | £'000 | ||
Non-current assets | ||||
Investments held at fair value through profit or loss | 461,349 | 543,485 | 506,991 | |
Investments held for sale at fair value | 51,512 | - | 37,027 | |
512,861 | 543,485 | 544,018 | ||
Current assets | ||||
Derivatives held at fair value through profit or loss | 1,001 | 768 | 1,075 | |
Investments held at fair value through profit or loss | 17,285 | - | 24,357 | |
Forward currency contracts held at fair value through profit or loss | 200,292 | 80,009 | 153,771 | |
Receivables and other financial assets | 5,619 | 6,852 | 13,482 | |
Cash and cash equivalents | 13,341 | 1,417 | 18,060 | |
237,538 | 89,046 | 210,745 | ||
Total assets | 750,399 | 632,531 | 754,763 | |
Current liabilities | ||||
Investments held at fair value through profit or loss | (680) | - | (1,884) | |
Derivatives held at fair value through profit or loss | (415) | - | - | |
Forward currency contracts held at fair value through profit or loss | (199,205) | (80,034) | (155,227) | |
Prime brokerage borrowings | (64,097) | (48,502) | (69,674) | |
Payables and other financial liabilities | (7,200) | (8,622) | (7,399) | |
(271,597) | (137,158) | (234,184) | ||
Total assets less current liabilities | 478,802 | 495,373 | 520,579 | |
Non-current liabilities | ||||
6% Convertible Unsecured Loan Stock 31 July, 2016 | (75,052) | (74,193) | (74,614) | |
Zero Dividend Preference Shares | (68,830) | (64,143) | (66,442) | |
Net assets | 334,920 | 357,037 | 379,523 | |
Equity attributable to Ordinary Shareholders | ||||
Ordinary share capital | 210 | 210 | 210 | |
Subscription share capital | 42 | 42 | 42 | |
Share premium | 50 | 49 | 49 | |
Capital redemption reserve | 948 | 948 | 948 | |
Special reserve | 215,722 | 215,722 | 215,722 | |
Equity component 6% Convertible Unsecured Loan Stock 2016 | 5,421 | 5,421 | 5,421 | |
Capital reserve | 94,071 | 118,258 | 138,831 | |
Revenue reserve | 16,044 | 16,387 | 15,047 | |
Total equity attributable to Ordinary Shareholders | 332,508 | 357,037 | 376,270 | |
Non-controlling interests | 2,412 | n/a | 3,253 | |
Total equity | 334,920 | 357,037 | 379,523 | |
Net asset value attributable to Shareholders | ||||
Ordinary Shareholders | 332,508 | 357,037 | 376,270 | |
Zero Dividend Preference Shareholders | 68,830 | 64,143 | 66,442 | |
Total Shareholders' funds | 401,338 | 421,180 | 442,712 | |
Net asset value per share | ||||
Ordinary Share | 158.08p | 169.74p | 178.88p | |
Ordinary Share (diluted) | 158.08p | 168.00p | 175.14p | |
Zero Dividend Preference Share | 114.72p | 106.91p | 110.74p | |
CONSOLIDATED CASH FLOW STATEMENT for the period ended 30 September, 2011
Six months to | Six months to | Year ended | ||
30 September, | 30 September, | 31 March, | ||
2011 | 2010 | 2011 | ||
Unaudited | Unaudited | Audited | ||
£'000 | £'000 | £'000 | ||
Net cash inflow/(outflow) from operating activities | 7,574 | (10,250) | (3,635) | |
Financing activities | ||||
Redemption of Subscription Shares and issue of Ordinary Shares | 1 | 28 | 28 | |
Dividends paid on Ordinary Shares | (6,837) | (6,310) | (16,564) | |
Net cash (outflow)/inflow from financing activities | (6,836) | (6,282) | (16,536) | |
Increase/(decrease) in cash and cash equivalents | 738 | (16,532) | (20,171) | |
Exchange movements on currency balances | 120 | 950 | 60 | |
Change in cash and cash equivalents | 858 | (15,582) | (20,111) | |
Cash and cash equivalents at beginning of period | (51,614) | (31,503) | (31,503) | |
Cash and cash equivalents at end of period | (50,756) | (47,085) | (51,614) | |
Represented by: | ||||
Cash at bank | 13,341 | 1,417 | 18,060 | |
Prime brokerage borrowings | (64,097) | (48,502) | (69,674) | |
Total | (50,756) | (47,085) | (51,614) | |
Reconciliation of (loss)/profit before taxation to net cash inflow from operating activities | ||||
(Loss)/profit before taxation | (36,665) | (22,948) | 7,153 | |
Losses/(gains) on investments held at fair value | 38,427 | 26,636 | (3,093) | |
(Losses)/gains in subsidiary | (5,434) | - | 590 | |
Exchange differences | (120) | (950) | (60) | |
Purchase of investments | (196,019) | (264,901) | (560,372) | |
Sales of investments | 211,738 | 249,514 | 529,558 | |
Adjustment to non-current asset investments on consolidation | - | - | 33,782 | |
(Increase)/decrease in receivables and other financial assets | (45,863) | 22,177 | (75,766) | |
Decrease/(increase) in accrued income | 172 | (68) | (699) | |
Decrease/(increase) in payables and other financial liabilities | 43,865 | (21,513) | 58,118 | |
Decrease/(increase) in non-controlling interest | (841) | - | 7,387 | |
Redemption of shares in subsidiary | (3,842) | - | (4,255) | |
Taxation paid | (670) | (844) | (1,345) | |
Notional interest charge on Convertible Unsecured Loan Stock 2016 - income | 86 | 79 | 160 | |
Notional interest charge on Convertible Unsecured Loan Stock 2016 - capital | 256 | 236 | 480 | |
Amortised expenses charged re Convertible Unsecured Loan Stock 2016 - income | 24 | 24 | 48 | |
Amortised expenses charged re Convertible Unsecured Loan Stock 2016 - capital | 72 | 72 | 144 | |
Capital growth on Zero Dividend Preference Shares | 2,318 | 2,166 | 4,395 | |
Amortised expenses charged re Zero Dividend Preference Shares - capital | 70 | 70 | 140 | |
Net cash inflow/(outflow) from operating activities | 7,574 | (10,250) | (3,635) | |
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Total | |||||||||||
Ordinary | Subscription | Capital | Equity | Ordinary | Non- | ||||||
share | share | Share | redemption | Special | component | Capital | Revenue | Shareholders' | controlling | ||
capital | capital | premium | reserve | reserve | CULS 2016 | reserve | reserve | equity | Interest | Total | |
Ordinary Shares (Unaudited) | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
For the six months ended 30 September, 2011 | |||||||||||
Balance at 31 March, 2011 | 210 | 42 | 49 | 948 | 215,722 | 5,421 | 138,831 | 15,047 | 376,270 | 3,253 | 379,523 |
Issue of new Ordinary Shares from redemption of Subscription Shares | - | - | 1 | - | - | - | - | - | 1 | - | 1 |
Total comprehensive income for the period | - | - | - | - | - | - | (44,760) | 7,834 | (36,926) | - | (36,926) |
Ordinary dividends paid | - | - | - | - | - | - | - | - | - | (841) | (841) |
Loss attributable to non-controlling interest | - | - | - | - | - | - | - | (6,837) | (6,837) | - | (6,837) |
Balance at 30 September, 2011 | 210 | 42 | 50 | 948 | 215,722 | 5,421 | 94,071 | 16,044 | 332,508 | 2,412 | 334,920 |
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Ordinary | Subscription | Capital | Equity | ||||||||
share | share | Share | redemption | Special | component | Capital | Revenue | ||||
capital | capital | premium | reserve | reserve | CULS 2016 | reserve | reserve | Total | |||
Ordinary Shares (Unaudited) | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
For the six months ended 30 September, 2010 | |||||||||||
Balance at 31 March, 2010 | 210 | 42 | 21 | 948 | 215,722 | 5,421 | 149,707 | 15,048 | 387,119 | ||
Issue of new Ordinary Shares from redemption of Subscription Shares | - | - | 28 |
- | - | - | - | - | 28 | ||
Total comprehensive income for the period | - | - | - | - | - | - | (31,449) | 7,649 | (23,800) | ||
Ordinary dividends paid | - | - | - | - | - | - | - | (6,310) | (6,310) | ||
Balance at 30 September, 2010 | 210 | 42 | 49 | 948 | 215,722 | 5,421 | 118,258 | 16,387 | 357,037 | ||
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Ordinary | Subscription | Capital | Equity | Ordinary | Non- | ||||||
share | share | Share | redemption | Special | component | Capital | Revenue | Shareholders' | controlling | ||
capital | capital | premium | reserve | reserve | CULS 2016 | reserve | reserve | equity | Interest | Total | |
Ordinary Shares (Audited) | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
For the year ended 31 March, 2011 | |||||||||||
Balance at 31 March, 2010 | 210 | 42 | 21 | 948 | 215,722 | 5,421 | 149,707 | 15,048 | 387,119 | - | 387,119 |
Issue of new Ordinary Shares from redemption of Subscription Shares | - | - | 28 | - | - | - | - | - | 28 |
- | 28 |
Total comprehensive income for the period | - | - | - | - | - | - | (10,876) | 16,563 | 5,687 | - | 5,687 |
Ordinary dividends paid | - | - | - | - | - | - | - | (16,564) | (16,564) | - | (16,564) |
Consolidation of subsidiary | - | - | - | - | - | - | - | - | - | 3,253 | 3,253 |
Balance at 31 March, 2011 | 210 | 42 | 49 | 948 | 215,722 | 5,421 | 138,831 | 15,047 | 376,270 | 3,253 | 379,523 |
The revenue reserve represents the amount distributable by way of dividend on the Ordinary Shares.
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NOTES TO THE FINANCIAL STATEMENTS
1 Significant accounting policies The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. The accounting policies and methods of computation followed in these half-year financial statements are consistent with the most recent annual audited financial statements.
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 trust companies and venture capital trusts issued by the Association of Investment Companies ("AIC") in January 2009.
The functional currency of the Group is UK pounds sterling as this is the currency of the primary economic environment in which the Company operates. Accordingly, the financial statements are presented in UK pounds sterling.
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 six months ended 30 September, 2011 and 30 September, 2010 has not been audited. The information for the six months ended 30 September, 2010 has been extracted from published unaudited financial statements.
The financial information for the year ended 31 March, 2011 included in this half-year report has been taken from the Company's full accounts, which for the year to 31 March, 2011 carried an unqualified audit report, did not include statements under Sections 498(2) or 498(3) of the Companies Act 2006 and have been filed with the Registrar of Companies. Those statutory accounts were prepared under IFRS and in accordance with the SORP.
(a) Presentation of statement of comprehensive income In order to reflect better 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.
(b) Segmental reporting The Directors are of the opinion that the Group is engaged in a single segment of business being the investment business. Consequently, no business segmental analysis is provided. A geographical split of the portfolio is given in the printed Half-Year Report 2011.
2 Income
3 Net Asset Value
Diluted net asset value
Six months to 30 September, 2011 As the net asset value was below the conversion price of the Convertible Unsecured Loan Stock 2016 during the period, the £79,997,846 nominal amount of 6% Convertible Unsecured Loan Stock 2016 was non-dilutive at the period end. On the same basis the Subscription Shares were also non-dilutive.
Six months ended 30 September, 2010 and year ended 31 March, 2011 In the table above the diluted net asset values per Ordinary Share have been calculated on an assumption that the nominal amount of 6% Convertible Unsecured Loan Stock 2016 (30 September, 2010, and 31 March, 2011: £79,997,846) were fully converted into 46,336,747 Ordinary Shares, and on the basis that the Subscription Shares on 31 March, 2011: 42,035,926 (30 September, 2010: nil) were converted on a 1:1 basis into 42,035,926 Ordinary Shares (30 September, 2010: nil) at a subscription price of 172p per Subscription Share giving adjusted net assets at 31 March, 2011 of £523,186,000 (30 September, 2010: £431,230,000).
4 Return per class of Share
Diluted earnings per Ordinary Share for the six months ended 30 September, 2011 The revenue returns (but not the capital or total returns) per Ordinary Share for the year ended 30 September, 2011 were diluted. The diluted earnings per Ordinary Share have been calculated on the assumption that the 6% Convertible Unsecured Loan Stock 2016 was fully converted on 1 April, 2011 into 46,336,747 Ordinary Shares giving a weighted average of 256,685,410 Ordinary Shares for the period. As only the revenue return is diluted, the revenue return per ordinary share has been shown as non-dilutive on the Consolidated statement of comprehensive income. The diluted revenue earnings on ordinary activities after taxation amounted to £8,381,000 or 3.27p per Ordinary Share. The diluted revenue earnings per Ordinary Share include the savings in finance costs on the conversion of the Convertible Unsecured Loan Stock after taxation. The total earnings and capital earnings per Ordinary share were non-dilutive and are therefore equal to the basic earnings per Ordinary Share. As the average price of the Ordinary Shares for the period was below the Subscription Share exercise price of 183p, the Subscription Shares were non-dilutive.
Diluted earnings per Ordinary Share for the six months ended 30 September, 2010 The revenue returns (but not the capital or total returns) per Ordinary Share for the year ended 30 September, 2010 were diluted. The diluted earnings per Ordinary Share have been calculated on the assumption that the 6% Convertible Unsecured Loan Stock 2016 was fully converted on 1 April, 2010 into 46,336,747 Ordinary Shares giving a weighted average of 256,679,326 Ordinary Shares for the period. As only the revenue return is diluted, the revenue return per ordinary share has been shown as non-dilutive on the Consolidated statement of comprehensive income. The diluted revenue earnings on ordinary activities after taxation amounted to £8,177,000 or 3.19p per Ordinary Share. The diluted revenue earnings per Ordinary Share include the savings in finance costs on the conversion of the Convertible Unsecured Loan Stock after taxation. The capital earnings per Ordinary share were non-dilutive and are therefore equal to the basic earnings per Ordinary Share. As the average price of the Ordinary Shares for the period was below the Subscription Share exercise price of 183p, the Subscription Shares were non-dilutive.
Diluted earnings per Ordinary Share for the year ended 31 March, 2011 The revenue and total returns (but not the capital return) per ordinary share for the year ended 31 March, 2011 were diluted. The diluted returns per Ordinary Share have been calculated on the assumption that the 6% Convertible Unsecured Loan Stock 2016 was fully converted on I April, 2010 into 46,336,747 Ordinary Shares giving a weighted average of 256,682,209 Ordinary Shares for the period. This would have resulted in revenue return on ordinary activities after taxation of £17,621,000 and total return on ordinary activities after taxation of £6,746,000. The diluted revenue earnings per ordinary share of 6.87p and the diluted total earnings of 1.70p reflect the savings in finance costs on the Convertible Unsecured Loan Stock after taxation. As the average price of the Ordinary Shares for the period was below the Subscription Share exercise price of 172p, the Subscription Shares were non-dilutive. The assumed conversion was non-dilutive for the capital earnings per share.
5 Interim dividends The Directors declared a third interim dividend of 1.625p (2010: nil) in respect of the year ended 31 March, 2011. The shares were quoted ex-dividend on 11 May, 2011 and the dividend was paid on 31 May, 2011 to shareholders on the register on 13 May, 2011.
The Directors, having stated it is their intention to consider paying quarterly dividends (2010: half yearly), and declared a first interim dividend of 1.625p (2011: 3.25p) per Ordinary Share in respect of the first quarter of the year ending 31 March, 2012. The shares were quoted ex-dividend on 3 August, 2011 and the dividend was paid on 31 August, 2011 to Ordinary Shareholders on the register on 5 August, 2011.
Since the balance sheet date the Directors have declared a second interim dividend of 1.625p (2011: 1.625p) in respect of the year ending 31 March, 2012. The shares were quoted ex-dividend on 2 November, 2011 and the dividend will be paid on 30 November, 2011 to shareholders on the register on 4 November, 2011.
International Accounting Standard (IAS) 10 'Events after the Balance Sheet Date' requires dividends to be recognised in the period in which they are paid. The second interim dividend for the year ending 31 March, 2012, of 1.625p (2011: 1.625p) per Ordinary Share payable on 30 November, 2011 has not been included as a liability in these financial statements.
6 Share capital Ordinary Shares At 30 September, 2011 there were 210,348,786 Ordinary Shares in issue (30 September, 2010: 210,348,227; 31 March, 2011: 210,348,429).
Subscription Shares On 15 May, 2009, the Company 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 confers the right (but not the obligation) to subscribe for 1 Ordinary Share on 30 November and 31 May to 31 May, 2012 at the following predetermined prices per Ordinary Share:
On 3 June, 2011, the Company redeemed 357 Subscription shares and issued 357 Ordinary shares for a net consideration of £614. As at 30 September, 2011 there were 42,035,569 Subscription shares in issue.
7 Non-current liabilities 6% Convertible Unsecured Loan Stock 2016 On 29 July, 2009, the Company issued £80,000,000 nominal amount of 6% Convertible Unsecured Loan Stock 2016. The loan stock can be converted to Ordinary shares at the election of holders during the months of May and November each year throughout its life to May 2016 at a rate of 1 Ordinary Share for every 172.6445p nominal of 6% Convertible Unsecured Loan Stock 2016. Interest is paid on the 6% Convertible Unsecured Loan Stock 2016 on 31 May and 30 November each year. 25% of the interest is charged to income and 75% is charged 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 Company.
As at 30 September, 2011 there were £79,997,846, nominal amount of 6% Convertible Unsecured Loan Stock 2016 in issue (30 September, 2010 and 31 March, 2011: £79,997,846)
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 30 September, 2011 there were 60 million Zero Dividend Preference Shares in issue (30 September, 2010 and 31 March, 2011: 60 million).
The Company issued to its subsidiary 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 six months ended 30 September, 2011 is 14% (year ended 31 March, 2011: 10% and six months ended 30 September, 2010: 11%) based on a revenue return before tax of £9,059,000 (year ended 31 March, 2011: £18,477,000 and six months ended 30 September, 2010: £8,635,000). This differs from the standard rate of tax of 26% (September 2010 and March 2011:28%) as a result of income not taxable for Corporation Tax purposes.
9 Principal risks The principal financial risks which the Company faces include:
Foreign currency risk - The value of the Company's assets and the total return earned by the Company's Shareholders can be significantly affected by foreign exchange movements as some assets are denominated in currencies other than sterling, the currency in which the Company's accounts are prepared. This risk is partially offset by selective hedging and foreign currency borrowings.
Interest rate risk - The Company is exposed to 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.
Market price risk - The Company is an investment company and its portfolio is subject to the fluctuations, volatility and vagaries of market prices. The Directors seek to mitigate this by maintaining a diversified portfolio of securities of utility and utility-related companies, and ensuring that the portfolio is further diversified by geography and sub-sector.
Liquidity risk - The Company's assets mainly comprise readily realisable securities which can be easily sold to meet funding commitments if necessary, although unlisted investments may be subject to liquidity risk which is taken into account by the Directors when arriving at the valuation of these items.
Credit risk - Credit risk is mitigated by diversifying the counterparties with whom the Investment Manager conducts investment transactions. The credit standing of all counterparties is reviewed periodically and limits set on amounts due from any one broker.
Fair values - The fair value of financial assets and financial liabilities of the Company are either carried in the balance sheet at their fair value (investments and derivatives), or 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 and warrants, and forward currency contracts are used for the 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.
Non-financial risks - The principal non-financial risks faced by the Company are the loss of key personnel (particularly within the investment management team), loss of Section 1158 status, breach of UKLA Listing Rules or other regulation, 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 year to 31 March, 2011 which is available on the web pages referred to below and from the Registered Office of the Company.
10 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 £3,703,000 (six months to 30 September, 2010: £3,644,000; year ended 31 March, 2011: £7,477,000).
Martin Nègre, a Director of the Company, is a director of Hansen Transmissions International NV and Northumbrian Water Group plc, in which the Company was invested at 30 September, 2011. Bernard Lambilliotte is Chairman of Texas International Energy Partners Inc, the operating subsidiary of Ecofin Energy Resources in which the Company invests.
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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 year ended 31 March, 2011.
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 half-year ended 30 September, 2011 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 six months ended 30 September, 2011. The full text of the Auditor's review report is contained in the printed Half-Year Report 2011.
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DIRECTORS' RESPONSIBILITY STATEMENT The non-executive Directors of the Company (Ian Barby (Chairman), Christopher Jones, Iain McLaren, Federico Marescotti, John Murray 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 first six months of the financial year, 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 25 November, 2011 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 2011 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
25 November, 2011
* 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.