17 Feb 2011 16:53
This announcement replaces announcement 3742B released at 0700 on 17 February 2011, which omitted a paragraph in the N America section of the January Review. The IMS has not changed.
Ecofin Water & Power Opportunities Plc
Interim Management Statement for the four months to 31 January 2011, and January 2011 Review
To the Shareholders of Ecofin Water & Power Opportunities plc (the "Company"),
This Interim Management Statement has been produced solely to provide additional information to shareholders in order to meet the requirements of the UK Listing Authority's Disclosure Rules and Transparency Rules. It should not be relied on by any other party for any other reason.
This Interim Management Statement relates to the period from 1 October, 2010 to 31 January, 2011, and contains information that covers this period, and up to the date of publication of this Interim Management Statement. More detailed information about the Company and its performance is available on the Investment Manager's website, www.ecofin.co.uk.
The Company invests on a global basis primarily in the equity and equity-related securities of utility and utility-related companies although the Company may invest, to a limited extent, in the debt securities of such companies and may hold significant cash or cash equivalent positions from time to time. Utility companies are those engaged in the generation, transmission, distribution and supply of electric power; the abstraction, treatment and distribution of water; the treatment of waste water and waste; the distribution of natural gas; and the transmission of energy. Utility-related companies are those that supply equipment, technology, fuel or services to utility companies or which enjoy natural monopolies in the provision of essential infrastructure services.
At 31 January, approximately 18.5% of the Company's investment portfolio was invested in the United Kingdom, 19.4% in Continental Europe, 44.9% in the United States, 3.6% in other developed countries and 13.6% in emerging markets.
Over the four month period to 31 January, 2011, the Company's Ordinary Shares traded at an average discount to their net asset value per share of 22.8%. The discount as at the date of this announcement, based on the mid-price of the Company's Ordinary Shares and their most recent net asset value per share, was 22.9% on a diluted basis.
Material Events and Transactions
There were no material events or transactions in the four months to 31 January, 2011-or since then to the date of this announcement-which affected the Company or its financial position other than the purchase and sale of securities undertaken in the normal course of the Company's business and the issue of 202 new Ordinary Shares as the result of the exercise of a corresponding number of Subscription Shares.
The Company now has 210,348,429 Ordinary Shares and 42,035,926 Subscription Shares outstanding. In addition the Company has 60 million Zero Dividend Preference Shares outstanding which will mature on 31 July, 2016 and £79,997,846 nominal amount of Convertible Unsecured Loan Stock outstanding, before the amortisation of expenses associated with the issue, which is convertible into Ordinary Shares of the Company. Any Convertible Unsecured Loan Stock which has not been converted into Ordinary Shares of the Company will be redeemed by the Company at its nominal amount on 31 July, 2016.
The Company announced its half year financial results for the six months to 30 September, 2010 on 30 November, 2010.
The Board is not aware of any other material events or transactions which occurred between 1 October, 2010 and the date of this announcement which had a material impact on the financial position of the Company.
Contact details:
Duncan Hayes, Phoenix Administration Services Limited, Corporate Secretary
Telephone: 01245 398950
Ecofin Water & Power Opportunities Plc
January 2011 Review
Performance (1) | |||||
As at31 January, 2011 | 1 month | 3 months | 12 months | SinceLaunch (2) | |
Total Net Assets | £426,801,763 | 0.2% | 0.3% | -0.6% | 171.8% |
of ZDP Shares | £64,223,805 | ||||
of Ordinary Shares | £340,951,139 | ||||
Ordinary Shares (3) | |||||
Ordinary Share Price | 140.00p | 4.3% | 6.7% | 4.4% | 40.0% |
Ordinary Share NAV(4) | 171.70p | 0.1% | 0.0% | -1.7% | 64.5% |
Premium / (Discount) | (18.46%) | ||||
Dividend Yield (5) | 4.46% | ||||
The net assets, NAVs per share and shareholders' funds shown above have been prepared valuing the Company's investment portfolio on the basis of bid-prices. The share prices shown for the Company's Ordinary Shares are mid-prices. | |
1 | Adjusted for a £50 million capital increase in June 2005, a £108.2 million capital increase in January 2007, tender offers in July 2007 and April 2009 and the launch of £60 million nominal value of Zero Dividend Preference shares (ZDP shares) in July 2009 |
2 | Company launched on 28 February, 2002. Ordinary Shares since 29 June, 2005. |
3 | First issued on 29 June, 2005 at 100p per share and an initial NAV per share of 104.91p. |
4 | Not fully diluted |
5 | Total dividends paid over last 12 months ÷ share price. |
Capital Structure as at 31 January, 2011 | As reported (£) | As adjusted (£) |
Total Assets (less cash at bank) | 576,930,000 | 556,935,000 |
Cash at bank | 8,187,000 | 28,182,000 |
Total Assets | 585,117,000 | 585,117,000 |
Bank Debt | 79,433,000 | 79,433,000 |
Convertible Unsecured Loan Stock | 78,882,000 | 78,882,000 |
Zero Dividend Preference Shares | 65,641,000 | 65,641,000 |
Net Assets attributable to Ordinary Shares | 361,161,000 | 361,161,000 |
£585,117,000 | £585,117,000 | |
Gearing (net debt/ordinary shareholders funds) | 59.7% | 54.2% |
The total assets of the Company include an equity investment of £20.6million in EIH Cyprus Group which is a joint venture between the Company and other funds managed by the Investment Manager, Ecofin Limited. 96.9% of the assets of EIH Cyprus are in cash which represents the proceeds of the sale of one of the Company's investments, Solel Limited. The figures in the 'as adjusted' column of the table above have been adjusted to include this cash in the cash at bank figure. Net Debt is Bank Debt, the Convertible Unsecured Loan Stock and the Zero Dividend Preference Shares, less cash at bank. The assets of the company include approximately £71.3m in bonds, and put options representing approximately £3.2m on a delta adjusted basis. Adjusting the total assets less cash at bank ('as adjusted') for these two components, the total equity exposure of the Company was 133.6% of Ordinary Shareholders' net assets. |
Analysis by Sector | % of portfolio | Analysis by Country | % ofportfolio | |||
Power | 33.2% | United Kingdom | 18.5% | |||
Utility-Related | 18.8% | Other Europe | 19.4% | |||
Alternative Energy | 9.5% | France | 7.1% | |||
Oil & Gas | 19.4% | Italy | 4.1% | |||
Water | 8.4% | Germany | 3.8% | |||
Bonds | 10.7% | Finland | 1.6% | |||
Belgium | 1.1% | |||||
100.0% | Spain | 0.9% | ||||
Other | 0.8% | |||||
North America | 44.9% | |||||
Other Developed | 3.6% | |||||
Emerging Markets | 13.6% | |||||
China | 9.0% | |||||
Other Emerging Markets | 4.6% | |||||
100.0% | ||||||
Analysis by Market Capitalisation of Companies in Portfolio | % of Portfolio | |
Less than £ 200 million | 5.2% | |
£200 to £1,000 million | 10.4% | |
£1,000 million to £5,000 million | 22.9% | |
£5,000 million to £10,000 million | 13.5% | |
Above £10,000 million | 20.9% | |
Bonds | 10.7% | |
Unquoted | 16.5% | * |
100.0% |
* Includes the unquoted investments of EIH Cyprus (0.1%) and the Ecofin China Power & Infrastructure Fund (5.7%) which, though unlisted, is an open-ended fund which is invested in listed securities
Top Ten Investments | % ofportfolio | Sector | Country |
Ecofin China Power & Infrastructure Fund | 5.9% | Utility-Related | China |
Hansen Transmissions | 5.2% | Renewables | United Kingdom |
ITC Holdings Corp | 4.1% | Power | United States |
Northumbrian Water Group | 3.3% | Water | United Kingdom |
International Power | 2.8% | Power | United Kingdom |
Ecofin Energy Resources | 2.7% | Gas | United States |
Ecofin Energy Resources 6% Convertible | 2.7% | Gas | United States |
Williams Companies | 2.0% | Gas | United States |
Origo Partners | 2.0% | Utility-Related | China |
NextEra Energy | 1.9% | Power | United States |
32.6% | |||
REVIEW OF JANUARY
In January, the net assets attributable to the Company's Ordinary Shares rose by 0.1% and the total net assets of the Company, including those attributable to its Zero Dividend Preference Shares, rose by 0.2%. In comparison, the FTSE All Share index declined by 0.6%, the Euro Stoxx index rose by 4.1% and the US S&P 500 index declined by 0.3%, all in sterling terms. In the utilities sector, the FTSE Utilities index declined by 3.4%, the Euro Stoxx Utilities index rose by 6.2% and the US S&P 500 Utilities index declined by 1.5%, all in sterling terms. Over the course of the month, sterling rose by 2.6% against the US dollar and by 0.3% against the Euro.
EUROPE
During January, most names which had lagged in 2010 recovered suddenly at the expense of segments which had been the drivers of both the market and the utility sector last year. Spanish utilities notably bounced strongly. More than only a short-term technical rebound, we believe that this illustrates structural improvement in fundamentals with Spanish sovereign risks now more limited and the securitisation of utilities' tariff deficit on its way. Conversely, several UK regulated utilities dropped by c.10% in January, retracing part of their outperformance of last year versus Continental European utilities.
We expect European stock markets to perform well in 2011 and therefore have been adapting our portfolio to such a context. We have been adding more cyclical names to the portfolio, notably in the Infrastructure segment. We have also started to reduce our exposure to regulated segments as a whole, as we fear growing pressure from regulators across Europe. In the UK specifically, water operators are currently beneficiaries of rising inflation, as this fuels through to revenues while operating and financial charges are largely fixed. But we are increasingly concerned about Ofwat's plans to introduce more competition in the sector. Premiums to regulatory asset values may still be justified by the positive effects of RPI on the returns, but only a new phase of M&A in the sector could justify going back to the double-digit premiums to RAV achieved last year. Similar concerns apply to electricity, where the UK regulator OFGEM is considering more restrictive allowed returns from 2013.
NORTH AMERICA
Most macroeconomic data continues to be encouraging, including increased industrial output, an improvement in consumer/business confidence, a fall in jobless claims and relatively strong GDP growth, all of which have been announced against a backdrop of stimulative fiscal and monetary policies. This has increased confidence in forecast earnings upgrades. Market volatility may, however, increase as US federal debt outstanding approaches the $14.3 trillion ceiling. The weak fiscal condition of state and local governments is also an ongoing concern.
Looking ahead we expect integrated utilities to outperform regulated utilities and for growth to outperform pure yield. Inflation edging higher is not good for bonds or regulated utilities. Treasury yields at 3.64% continue to make growth more attractive than pure defensives. We are underweight regulated names and are focusing on growth and income growth opportunities rather than pure yield plays. We also continue to be negative on integrated names with credit rating risk driven by earnings concerns and regulatory issues. We are overweight integrated gas pipelines with restructuring opportunities and coal for cyclical exposure.
We continue to monitor the Environmental Protection Agency's (EPA) emission standards across a wide array of pollutants as well as its proposed limitations on power plant water usage. The forced retirement of coal fired power plants, however, is expected to take longer than originally anticipated due to proposed cuts in the EPA's budget and restrictions on its activities and Congressional bills designed to limit the EPA's climate change authority.
EWPO has continued to invest in its US shale gas activities, through Ecofin Energy Resources. Its investment has risen from $22m at the end of last financial year to $50m currently, in a combination of equity and convertible loan notes. Six development wells have been drilled on the property acquired last July in the Barnett shale basin in north Texas, and sales from these wells are expected to be material from the start of the next financial year. A second property was acquired, in the Eagle Ford basin in south Texas, which is also being drilled. Two wells of a three well programme have been drilled, and operations are being prepared for selling gas and oil from these wells in the coming summer. In anticipation of gas sales building at the start of next financial year, the company has entered into a fixed price contract for a part of expected sales volumes in order to mitigate the near-term exposure to volatility in US gas prices. Since the end of the last financial year, the senior management team has been supplemented by the appointment of a finance executive with 21 years experience of the sector including 5 years as Chief Financial Officer of quoted energy companies
CHINA
Chinese markets remained weak in January as tightening fears continued to affect investment sentiment and domestic investors stayed on the sidelines ahead of the Chinese New Year holidays. For the whole month the Shanghai Composite and HSCEI fell 0.6% and 1.0%, respectively.
The Purchasing Manager's Index (PMI) weakened further in January to 52.9, the second consecutive monthly decline. The PMI report also showed that while production and orders are weakening, input prices continue to face strong upward pressure. These trends suggest that China will suffer from a combination of slower growth and rising inflation, at least in the near term, which is likely to be negative for equity markets. We expect the government to implement a series of monetary tightening measures to withdraw excess liquidity from the system. While such tightening is actually positive for the overall health of the economy in the medium term, it could create short-term pressure on equity markets, which we believe will present a good entry opportunity for many quality stocks in our sectors.
Presentation to investors
On 17 January, Ecofin Limited made a presentation on the Company to institutional investors. A copy of that presentation can be found on Ecofin Limited's website at www.ecofin.co.uk/eco/en/products/ewpo/investor/presentations.
Ecofin Water & Power Opportunities plc. Registered in England, Number 4134479. Registered Office: Springfield Lodge, Colchester Road, Chelmsford, Essex CM2 5PW, United Kingdom.