Utilico Emerging’s portfolio beats benchmark by big margin

Utilico Emerging Markets recovered nearly all the losses it suffered in the first six months of the financial year and ended the year to 31 March 2016 almost unchanged at 202.52p. Based on a total return to an ordinary shareholder who received one subscription share for every five shares held, the total return on basic NAV over the twelve months was positive at 1.4%. The diluted NAV per ordinary share total return was negative 0.5% over the year. By contrast, the MSCI Emerging Markets Total Return Index, GBP adjusted, lost 8.8% over the year.  The Board declared a maintained first quarterly dividend of 1.525p followed by three increased quarterly dividends of 1.625p, amounting to 6.40p for the year to 31 March 2016, an increase of 4.9%.

The manager’s report goes into the drivers of performance and changes to weightings in the portfolio in some detail.

Some of the constituents of the top ten investments have changed over the year, with UEM partially exiting from China Everbright International Limited (“China Everbright”) and Asia Satellite Telecommunications Holdings Limited (“Asiasat”) moving from ninth to nineteenth. UEM partially exited China Everbright on valuation considerations at the time the Hang Seng Index gained substantially in April 2015. Asiasat moved lower in the portfolio as its share price fell following a substantial dividend to shareholders; UEM received some GBP7.4m, accounting for most of the value change in Asiasat. The investment in MyEG Services Berhad (“MYEG”) was substantially reduced following its strong run, moving it from second to fifth position in the portfolio. As a result the top ten investments, as a percentage of the portfolio, reduced from 53.7% to 47.2%. Unlisted investments remain modest at 3.2%, prior year 2.3%, of the gross assets.

China (including Hong Kong) continues to be UEM’s biggest country investment, decreasing from 30.9% to 26.3% of the portfolio. This decline reflects mainly market realisations last April as the Hang Seng Index strengthened, following the A-share market, which jumped upwards. UEM exited a number of positions into this strength. In addition Asiasat’s significant dividend resulted in Asiasat being marked lower after its distribution. The Shanghai Composite Index was a weak performer, down by 19.9% and the Hang Seng Index was little better, down by 16.6%. This combined with a weaker Hong Kong Dollar, down by 3.1%, resulted in the total investment in China being reduced. It should be noted UEM continues to be predominantly invested in China through the Hong Kong Stock Exchange.

China Gas Holdings Limited’s (“China Gas”) share price fell by 9.8% in the year to 31 March 2016. Chinese gas distribution companies continued to be impacted by the rapid drop in oil prices, which meant that natural gas was not competitive against fuel oil as an energy source for industrial customers. While the National Development and Reform Commission implemented gas price cuts for non-residential customers from 1 April 2015, this only temporarily improved the competitiveness of natural gas, a position which was swiftly eroded by falls in the oil price in the second half of calendar 2015. This was exacerbated by the slowdown in the Chinese manufacturing and industrial economy, to which China Gas is heavily exposed with approximately 75% of volumes sold to commercial and industrial customers. Driven by environmental concerns, the Chinese government has reiterated its commitment to increasing the proportion of natural gas in the energy matrix, with proposals to move towards liberalised gas markets. This would help restore the competitiveness of the gas distribution sector.

Against this tough backdrop, China Gas continued to deliver excellent operational and financial results. As at 30 September 2015 China Gas had expanded its total number of city gas concessions to 299, covering an urban population of 93m. It had 11.7m customer connections, up 20.9% on the previous year, and just 47% of households within its concession areas are connected to the gas network. In the six months to 30 September 2015 China Gas reported total piped gas and LPG volume growth of 7.0% and 18.6% respectively. Reflecting the aforementioned tariff cuts and lower LPG prices, revenues fell by 9.2%, but with corresponding drops in input prices EBITDA increased by 8.7% and normalised earnings per share were up by 22.0%. The dividend per share was more than doubled. In the year ended 31 March 2016, UEM decreased its position in China Gas by 4.5%.

APT Satellite Holdings Limited (“APT”) saw its share price increase by 4.7% in the period. For the year to December 2015, revenues disappointingly declined by 4.3%. However, in October the company successfully launched a new satellite, ApStar 9 and this came into service in December 2015. At the end of December, the satellite had a 48% utilisation rate and as a result of the new capacity, the company expects to report a return to revenue growth in 2016.

The satellite market in Asia has turned increasingly competitive over the past couple of years, as new capacity has been launched and some large customers, principally government users, have scaled back their use of satellite communications. The core television broadcast market remains a growth driver. During the year, UEM increased its holding in APT by 0.6%, adjusted for a bonus issue of one share for every two held.

China Resources Gas Group Ltd’s (“CR Gas”) share price fell by 8.3% in the year under review. CR Gas’ operational assets are comparable to those of China Gas although it is purely focused on natural gas and does not participate in the LPG sector. CR Gas is a subsidiary of China Resources, one of the largest State-Owned Enterprises in the country. As at 31 December 2015, CR Gas had 220 city gas concessions and 23.8m customer connections, up by 13.9% on the previous year. In comparison to China Gas, residential piped gas penetration in its concession areas was slightly lower at 44.4%. In the year ended 31 December 2015 CR Gas reported natural gas volume growth of 11.9% and group revenue growth of 8.3%. Adjusted EBITDA grew by 13.7% and normalised earnings per share were up by 20.6%. The dividend per share was increased by 32.0%. UEM has been invested in CR Gas since 2011 and during the year ended 31 March 2016 it increased its position in CR Gas by 8.0%.

Shanghai International Airport Co Ltd’s (“Shanghai Airport”) share price increased by 19.6% over the year to 31 March 2016, driven by the strong passenger growth that is being witnessed at the airport. Over the year to 31 December 2015, total passenger growth was up by 16.2% on the back of strong aviation demand, which is being driven by the increasing level of the average Chinese income, as well as the introduction of more low cost carrier airlines to the market. With the upcoming opening of Disneyland in China in June 2016, the outlook for passenger growth remains strong. For the year to 31 December 2015, revenues were up by 9.3%, with EBIT up by 19.1%, helped by strong operational leverage and stringent cost control. Net income for the year was up by 20.8%. In the year to 31 March 2016, UEM more than doubled its holding in Shanghai Airport.

Yuexiu Transport Infrastructure Limited (“Yuexiu”) saw a 6.1% increase in its share price for the year to 31 March 2016. During the year, Yuexiu acquired Suiyuenan Expressway, which helped boost its revenue growth for the year ended 31 December 2015 by 19.8%. Excluding acquisitions, revenues increased by 8.4%, primarily due to the 6.0% increase in traffic volumes (excluding the new road). Adjusted EBITDA increased by 22.2% in line with revenue growth whilst adjusted net income increased by 36.8%. During the financial year 2015, Yuexiu also announced the disposal of its 51% equity interest in Wuzhou Chishui Port in Guangxi, which will be completed and realized in 2016, making Yuexiu a pure toll road operator.

Asiasat had a difficult year operationally in 2015. The company launched two new satellites in 2014 but faced problems in getting regulatory approval for services to commence. A permit to distribute video into China was granted on 1 January 2016, much later than originally anticipated. Another contract, which would have seen substantially all the capacity on Asiasat 8 taken up, failed to materialise due to the customer being unable to overcome regulatory issues.

The market for satellite services in Asia remains highly competitive and, as with APT, the company does not expect competition to lessen in the near term. The company reported a 1.9% decline in revenues in the year to December 2015 and EBITDA declined by 3.0%.

During the year, following the sale of GE’s stake to a fund managed by Carlyle Group, Asiasat paid a special dividend of HK$11.89 per share, which was worth GBP7.4m to UEM. The company now has what we consider to be an appropriately geared balance sheet, having been in a net cash position for many years. The debt has increased interest charges, impacting net profit. Net profit (excluding exceptional items) declined by 11.2% in the year to December.

Asiasat’s share price declined by 42.1%, mainly as a result of the distribution of the special dividend in the year to 31 March 2016. During the year, UEM increased its shareholding in Asiasat by 2.8%.

Malaysia continues to be UEM’s second largest country investment, decreasing from 17.8% to 13.7% of the portfolio. This was due mainly to realisations and in particular the reduced investment in MYEG. Malaysia, as a producer of oil, has seen its economy negatively impacted by weakness of the oil price. This has affected the market, with the FTSE Bursa Malaysia KLCI Index down by 6.2%. The Malaysian Ringgit strengthened by 2.0% partly offsetting the prior year currency market weakness.

Malaysia Airports Holdings Berhad’s (“Malaysia Airports”) share price declined by 3.4% in the year to 31 March 2016. Passenger traffic at the Malaysia-based airports only grew by 0.6%, as volumes continued to be impacted by the difficult series of events that occurred in 2014, which has affected traveller sentiment. Traffic has also been affected by the restructuring of Malaysia Airlines, which has resulted in the reduction of some routes and flight frequencies, as well as the difficult macro environment. Malaysia Airports’ investment in Sabiha Gokcen International Airport (“ISG”) Istanbul, Turkey, however fared better, seeing strong passenger growth of 19.7%. With the release of Malaysia Airports’ new business plan “Runway to Success 2020”, management are working hard to ensure that the Group is poised for future growth. For 2016, management are expecting to see passenger growth of 2.5% for its Malaysian operations owing to visa free entry into Malaysia for Chinese tourists. ISG is also expected to see passenger growth in the high teens. Malaysia Airports’ financials for the year to December 2015 saw revenues (excluding construction) and adjusted EBITDA increase by 10.1% and 9.9% respectively whilst normalised net income declined by 44.9% as a result of higher financing costs following the acquisition of the remaining 40% stake of ISG in 2014. In the period under review UEM increased its holding in Malaysia Airports by 0.6%.

MYEG’s share price continued to be very strong, gaining 53.2% in the year to 31 March 2016. The company once again split its shares on a two-for-one basis during the period.

Growth in the nine months to 31 March 2016 has been especially strong following the closure of government counters for processing immigrant workers’ permit renewals in May 2015, making MYEG’s online system mandatory for permit renewals. Revenues in the nine months to 31 March 2016 were up by 101.5%. EBITDA advanced by 86.9% and net profit increased by 103.4% compared to the nine months to 31 March 2015.

During the year to 31 March 2016, UEM took profits on its MYEG position, selling 64.3% of the position held at 31 March 2015 for proceeds of GBP30.8m. Despite these sales, MYEG remained a top 5 stock in the portfolio at the end of March 2016.

Brazil remains the third largest country investment but reduced to 9.8% from 11.2%, mainly due to portfolio investments underperforming the market. The Brazilian Real recovered 7.4% over the year to 31 March 2016 whilst the Brazil Ibovespa Index was down by 2.1%. Short term concerns are overshadowing the longer term outlook, with the investment environment remaining challenging.

Ocean Wilsons Holdings Limited (“Ocean Wilsons”) had another year of poor share price performance, down by 12.4% despite a relatively sound operational performance at its 58.3% owned subsidiary, Wilson Sons. Wilson Sons, the Brazilian port and shipping service provider, saw volumes at its container terminals Tecon Rio Grande and Tecon Salvador increase by 6.2% in 2015 as export volumes were boosted by the weakness of the Brazilian Real, which depreciated 47.0% against the US Dollar. The towage business also remained resilient during the period with volumes essentially flat for the year. That said, trading at the shipyard, logistics and in offshore oil and gas was poor as a result of the weaker Brazilian oil and gas sector. Performance of the investment portfolio (Ocean Wilsons Investment Limited) saw its valuation fall by 2.9% to US$244.4m for the period to 31 December 2015 which, given the assets are weighted towards global equities including material exposure to weaker emerging markets, was respectable. Over the period to 31 December 2015, revenues were down by 19.7% as a result of the depreciation of the Brazilian Real, whilst adjusted EBITDA was up by 4.8% and normalised net income down by 23.6%. There was no change in UEM’s holding in Ocean Wilsons during the year to 31 March 2016.

UEM has been invested in Alupar Investimento S.A. (“Alupar”) for the past three years. Alupar is a holding company for electricity transmission and generation assets located in Brazil, Peru, and Colombia. The majority of income is derived from 23 transmission concessions in Brazil, with the remainder coming from five operational hydro plants with capacity of 351MW. In Colombia and Peru it has five additional hydro and wind generation projects totalling 211MW, including two hydro plants under construction. Alupar’s transmission assets are particularly attractive as they enjoy long-life concessions with fully inflation-protected returns due to annual IPCA or IGP-M inflation adjustments to regulated revenue. The majority of Alupar’s transmission concessions are due to expire between 2030 and 2042, while its generation assets have concession lives extending to 2045. As well as new generation plants, Alupar has two new transmission projects under development in Brazil.

In its financial year ended 31 December 2015, Alupar fully commissioned its Ferreira Gomes hydro plant, its largest facility, resulting in an increase in installed capacity of 31.5%. Combined with the full-year effect on operations, this resulted in energy sales volumes at its generation business more than doubling, which was partly offset by lower effective tariffs. Combined with a 6.0% inflation adjustment to transmission tariffs, underlying revenues increased by 8.3%, though factoring in a decline in construction revenue reported figures showed a more modest 1.3% increase. EBITDA grew by 5.6%, but normalised earnings declined by 42.3% due to higher effective tax rates and fixed costs reflecting the inclusion of the new assets in financials. Dividends per share correspondingly fell by 44.4%, and in March 2016 Alupar announced a further reduction in cash dividends for its financial year to 31 December 2016, partly offset by the issuance of bonus shares at a ratio of 6.5 new shares for every 100 existing shares. In the year to 31 March 2016, Alupar’s share price fell by 23.4% and UEM increased its position in the company by 22.2%.

Romania rose from seventh to be the fourth largest country investment in the portfolio, increasing from 5.3% to 8.8%, due to both increased investment and investee company performance. The Romanian BET Index was down by 4.8% and the currency was down by 7.6%.

Transelectrica S.A. (“Transelectrica”) is a relatively recent holding accumulated over the past two years. Transelectrica manages and operates the Romanian electricity transmission system and provides the electricity exchanges between central and eastern European countries, including Hungary, Serbia and Bulgaria. It is a regulated entity which was created in 2000 when the National Regulatory Authority for Energy (“ANRE”) split government-held assets into four independent entities. Transelectrica operates in a well-established regulatory regime and is currently in its third regulatory period which runs through to 30 June 2019, with a regulated rate of return set at 7.7%. With a net cash balance sheet and strong recurring cash flows, the company sustains a highly attractive dividend stream, with a yield typically approaching double digits.

In the year to 31 December 2015, billed energy volumes transmitted by the network increased by 2.2%, with domestic consumption up by 2.7%, partly offset by exports down by 5.6%. Effective tariffs fell by 4.2% following a regulatory adjustment in July 2015 due to over-recovery of profits in the previous regulatory year. This meant that group revenues fell by 2.5%, excluding balancing market services which are profit-neutral to Transelectrica. Good cost control including continued reductions in transmission losses, sustained absolute EBITDA, down by 0.2%, and normalised earnings grew by 4.7%. Dividends per share were slightly reduced by 5.5%. In the year to 31 March 2016, Transelectrica’s share price increased by 2.1% and UEM increased its position in the company by 42.2%.

UEM has been a shareholder in Transgaz S.A. (“Transgaz”) since 2013. Transgaz is the national gas transmission company in Romania whose domestic transmission activities are fully regulated by ANRE. Similar to Transelectrica, the company is in its third regulatory cycle with a regulated rate of return of 7.7%, which ends in September 2017. Transgaz separately has international transit activities which operates dedicated pipelines transmitting Russian natural gas from Ukraine to Bulgaria. These activities are not regulated and transit tariffs are set on a commercial basis. Transgaz currently has several major projects under development, including a new 480km pipeline connecting Bulgaria and Hungary which is expected to be commissioned in 2019, as well as a pipeline connection to the Black Sea if recent gas field discoveries are developed.

In its financial year to 31 December 2015, domestic gas volumes transmitted increased by 3.5%, which was offset by effective tariff cuts of 9.4% reflecting recent regulatory adjustments. This saw domestic transport revenues fall by 6.3%, but transit revenues were up by 16.4%, boosted by foreign currency movements under which capacity is contracted. This resulted in stable financials at a group level, with revenues and EBITDA softening by 0.3% and 0.4% respectively. Normalised earnings fell by 1.5%, but dividends per share were increased by 26.7% given Transgaz’s strong net cash position and continued strong cash flow. This represents a dividend yield of just over 10%. In the year to 31 March 2016 Transgaz’s share price was down by 1.6% and UEM increased its position in the company by 22.2%.

Towards the end of 2014 UEM participated in a placing of Conpet S.A. (“Conpet”), the monopoly operator of the national crude oil and condensate pipeline network in Romania. Since this time, UEM has steadily increased its position in Conpet which continues to offer exceptional value. Conpet has a 30-year concession agreement which expires in 2032 and manages a network of 3,800km of pipeline as well as railway systems for both domestic and imported crude oil transport. Tariffs are regulated on a cost-plus basis. Conpet transports crude from domestic oil fields and the Black Sea terminal at Constanta to oil refineries for its two main customers: Petrom and Petrotel Lukoil. Conpet’s growth opportunities are limited but Conpet has a significant surplus cash balance, which it is starting to return to investors.

In its financial year to 31 December 2015, Conpet reported oil transport volume growth of 5.5%, with a 1.3% decline in domestic transport more than offset by a 15.6% increase in imports. Effective tariffs fell by 3.7%, resulting in group revenue growth of 2.2%. However strong cost control saw EBITDA up by 12.2% and normalised earnings up by 5.6%. With no debt and excess cash amounting to approximately half of the market capitalisation accruing on the balance sheet, Conpet announced a 22.9% increase in its ordinary dividends. In the year to 31 March 2016 Conpet’s share price increased by 39.5% and UEM increased its position in the company by 41.9%.

Thailand has remained largely unchanged at 6.8%, up from 6.4% and is now the fifth largest country investment. The Thailand Set Index was down by 6.5% and the Thai Bhat was up by 4.7%.

Eastern Water Resources Development and Management PCL (“Eastwater”) shares were up by 18.3% in the year to 31 March 2016. Eastwater’s strategic direction has been impacted by a lack of stability within the board of directors and senior management team, including the arrival (and subsequent resignation in May 2015) of the CEO who cut the Provincial Waterworks Authority’s (“PWA”) tariffs and embarked on a hefty investment program in backup pipeline infrastructure. This was notable given that the PWA is one of Eastwater’s main customers, is its largest shareholder with a 40.2% stake and has board representation. Since the most recent change in management, Eastwater has announced plans to publicly list its tap water subsidiary, Universal Utilities Public Company Limited, on the Thailand Stock Exchange.

In its financial year to 31 December 2015 Eastwater’s  raw water volumes grew by 5.3%, wholly driven by a 27.8% rebound in demand by the PWA following the tariff cuts implemented in the previous year. By comparison, raw water volumes sold to more profitable private customers and industrial estates fell by 2.2%, primarily reflecting slower economic growth particularly in the manufacturing and petrochemical industries. Tap water demand has remained strong, with volumes up by 10.9%. With effective tariffs for raw water falling by 0.6% and tap water tariffs up by 5.7%, group revenues grew by 3.0%, with EBITDA up by 5.8% and normalised earnings per share up by 1.8%. Dividends per share were increased by 4.4%. In the period under review UEM decreased its position in Eastwater by 16.3%.

The Middle East/Africa increased from 5.5% to 6.6% and is now the sixth largest country investment; included in this in the top twenty is The Egyptian Satellite Company (“Nilesat”).

Nilesat is a holding that UEM has held for many years, during which time there has been a significant growth in its revenues, profits and cash balances, as well as a significant appreciation in Nilesat’s share price.#Nilesat’s owned satellite, plus capacity leased from Eutelsat, broadcasts over 1,000 TV channels, principally in Arabic, directly to over 50 million homes across the Middle East and North Africa. Nilesat broadcasts a mixture of pay TV and free-to-air content on behalf of broadcasters based across its broadcast footprint. Unlike the other satellite operators that UEM holds, which service a number of different broadcasting and telecoms applications, Nilesat is solely focused on broadcasting direct-to-home television services and is able to charge a premium for the services it provides.

Revenues for the year to December 2015, which are reported in US Dollars, increased by 6.5% and EBITDA rose by 6.8%. Lower depreciation and interest costs helped reported net profit increase by 23.9% for the year to December 2015. Cashflow remains strong and Nilesat had net cash balances of US$226m at the year end. This is equivalent to 43.0% of its US$526m market capitalisation on 31 March 2016.

Shares in Nilesat, which are listed in Cairo but priced in US Dollars, increased by 26.0% during the year to 31 March 2016. UEM increased its shareholding in Nilesat by 4.3% during the period.

The Philippines reduced from 7.9% to 6.3% and fell from fourth to seventh largest country investment, as there are a number of countries around 6% to 7%. The Philippine PSEi Index and the Philippine Peso were both down, by 8.5% and 0.3% respectively, in the year to 31 March 2016.

International Container Terminal Services, Inc. (“ICT”) share price declined by 38.1% in the year to 31 March 2016. For its financial year to 31 December 2015, ICT saw consolidated container volumes increase by 5% due to the volume expansion at its new terminals in Mexico and Honduras, the favourable impact of consolidating its terminal in Yantai, China, as well as benefiting from the contribution from its newly acquired terminal in Qsar, Iraq. Total revenue decreased by 0.9% as it was impacted by foreign exchange weakness and less favourable volume mix, which reduced yield per container box from US$143 to US$135. EBITDA only increased by 1.6%, whilst normalised net income for the period was up by 2.6%. ICT continues to target portfolio expansion, with new greenfield projects in Colombia and Buenos Aires expected to come on line in 2016 and the Port of Melbourne in 2017. UEM increased its position in ICT by 1.0% during the period under review

Metro Pacific Investments Corporation (“Metro Pacific”) is an investment holding company of infrastructure assets in The Philippines and has been held by UEM for over five years. Metro Pacific is focused on five separate business lines. It owns a 52.8% stake in Maynilad Water, the concessionaire for water and sewerage services in the west zone of Metro Manila. It has a 35.0% effective stake in Meralco, the largest electricity distribution utility in The Philippines, which is itself publicly listed. Through Metro Pacific Tollways Corporation (“MPTC”) it has the concession rights to several toll roads in The Philippines, as well as minority stakes in toll roads in Thailand and Vietnam. It also has a shareholding in a group of hospitals, as well as a stake in the Light Rail Manila project due to come online in 2021. During the period under review, Metro Pacific has faced challenging political conditions whereby tariff increases for its toll road and water assets have been substantially delayed and referred for arbitration. Notwithstanding this, the assets have continued to deliver excellent growth and Metro Pacific has the potential to crystallise value from the partial sale or IPO of some of its subsidiaries.

In its financial year to 31 December 2015 Metro Pacific reported revenue growth of 10.1%, with adjusted EBITDA up by 11.9% and normalised earnings up by 20.2%. Billed volumes at Maynilad Water increased by 4.0%, which given the lack of tariff increase, was directly reflected in revenue growth. Meralco saw energy demand grow by 5.6%, which was only slightly diluted by effective tariffs down by 0.5%. At MPTC the daily traffic growth continued to be robust, up by 8.6%, further boosted by a 3.2% increase in effective tariffs. The number of beds at its hospital division also increased by 17.6%. Dividends per share fell by 11.6% as a special dividend paid in 2014 was not repeated. In the year to 31 March 2016 Metro Pacific’s share price was up by 21.1% and UEM increased its position in the company by 6.1%.

Chile increased from 5.1% to 6.2% and is now the eighth largest country investment. The Chile IPSA index was up by 0.5% and the Chilean Peso was up by 3.9%.

Gasco S.A.’s (“Gasco”) share price increased by 7.0% in the year to 31 March 2016. During this period there has been little progress with the draft of the new law which seeks to clarify both the asset base and allowable returns at Gasco’s primary asset, Metrogas, Santiago’s gas distribution monopoly. The main outstanding issue remains whether customer equipment installed by Metrogas could be included in the regulatory asset base. This is a significant factor in the cost of customer connections and the lack of certainty on this issue is an impediment to growth at the subsidiary. At present there seems to be little appetite from the government to resolve this issue, as it has been overtaken by other events including a government scandal which have resulted in other proposed reforms being shelved or watered down.

The most notable news for Gasco in the period under review was the announcement by its ultimate parent company, Gas Natural Fenosa and its major shareholder, the Perez Cruz family, of plans to demerge Gasco into two entities along the natural gas and LPG business lines. Following the split, Gas Natural Fenosa intends to launch a tender offer to increase its stake in Gasco Gas Natural to 100% at CLP3,200 per share and the Perez Cruz family also intends to increase its stake in Gasco LPG to 100% at CLP2,100 per share. The Investment Managers believe that the proposed offers do not fully reflect the value of the assets, however any decision to accept the tender offers will need to be assessed against the limited recourse given the existing controlling positions of the major shareholders and the potential impact on liquidity of shares post-tender.

In the year to 31 December 2015 natural gas volumes sold in Chile increased by 11.1%, primarily driven by a 38.6% increase in demand from lower-margin gas-fired thermal plants. LPG volumes sold fell by 2.6% due to continued competitive pressures in the Chilean and Colombian markets. Effective tariffs fell in both the natural gas and LPG operations, reflecting lower commodity pricing as well as lower allowable returns. As such group revenues fell by 22.1% and EBITDA decreased by 8.3%. Gasco did not repeat the special dividend paid out last year, with a resultant drop in dividends per share of 52.5%. In the period under review UEM increased its position in Gasco by 0.1%.

E.CL S.A. (“E.CL”) is a relatively new investment for UEM, first entering the portfolio in early 2014. E.CL is the largest electricity generation company operating in the northern grid in Chile, primarily serving mining companies. It has installed generation capacity of 2,108MW, and also owns and operates 2,199km of transmission lines, a gas pipeline to Argentina and a port. The business is almost entirely dollarized, with long-term energy contracts signed in USD with limited exposure to commodity prices, which are passed-through to customers. Recently E.CL secured a major 15-year contract to supply electricity to distribution companies in the central grid starting in 2019. To support this contract it has commenced construction of a $1.1bn 375MW facility (“IEM”), as well as a $780m transmission line project (“TEN”), to connect the northern and central grids. E.CL is a 50% shareholder in the 600km transmission line, which attracts fully inflation-protected regulated returns. E.CL sold the other half of TEN to Red Electrica for $218m, with a gain on disposal of $187m.

In its financial year to 31 December 2015 E.CL reported electricity generation volumes up by 1.0% and energy sales up by 2.8%. This growth was more than offset by declines in tariffs which are heavily indexed to commodity prices, with group revenues down by 7.9%. However the impact on profitability was minimal given the lower input costs, which combined with an improved efficiency of generation mix, resulted in EBITDA growth of 1.1% and normalised earnings up by 16.5%. Dividends per share fell by 19.4% to the legal minimum payout given the company’s forthcoming investment requirements in IEM and TEN. In the year to 31 March 2016 E.CL’s share price increased by 12.1% and there was no change in UEM’s position in its shares.

India increased from 2.9% to 4.6% mainly as a result of investments and is now the ninth largest country investment. The Indian S&P BSE Sensex Index was down by 9.4% and the Indian Rupee rose by 3.2% during the year to 31 March 2016.

SJVN Limited (“SJVN”) is UEM’s largest investment in India, a position initiated at the end of 2013. SJVN owns and operates 1,960MW of hydro and wind farm capacity in India. SJVN is 90% co-owned by the Government of India and the Government of Himachal Pradesh, the State where its flagship 1,500MW Nathpa Jhakri hydro plant, being the country’s largest, is located. SJVN recently commissioned a second hydro 412MW facility on the same water system at Rampur and also operates a 48MW wind farm in Maharashtra. SJVN has several projects at various stages of development. These include two major hydro plants in Bhutan via a joint venture with the Government of Bhutan totalling 1,170MW, which has started forest clearance for access roads, a 1,320MW thermal plant in Bihar, a 16% stake in a 4,000MW solar park in Rajasthan, as well as other additional hydro projects in both India and Nepal. SJVN hydro facilities are fully regulated to allow a 16.5% return on equity.

In the six months to 30 September 2015 SJVN reported energy generation up by 17.7% due to a combination of good hydrology and all six turbines being in operation at Rampur. It is notable that Nathpa Jhakri reported record output equating to a load factor of 86.5%, well above seasonal operating levels. While this was partly offset by a regulatory tariff reduction at Nathpa Jhakri, the tariff for the Rampur project was re-based higher, resulting in an overall effective tariff increase of 5.2%. This resulted in underlying revenue and EBITDA growth of 23.8% and 24.7% respectively, with normalised earnings per share up by 43.7%. These figures exclude the impact of the collection of arrears for the 2009-14 period in its financial year ended 31 March 2015. Notwithstanding a net cash balance sheet and continued strong cash generation, interim dividends were unchanged on the previous year. In the year to 31 March 2016 SJVN’s share price strengthened by 16.2% and UEM increased its position in SJVN by 47.8%.

UEM : Utilico Emerging’s portfolio beats benchmark by big margin

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