TIDMECWO
RNS Number : 8645C
Ecofin Water & Power Opps PLC
30 June 2016
ECOFIN WATER & POWER OPPORTUNITIES PLC
Half-year Financial Results for the six months ended 31 March,
2016
Announcement of Unaudited Results
This announcement contains regulated information.
Summary of the Half-year to 31 March, 2016
-- The Financial Statements of the Company as at 31 March, 2016
have been prepared on a break-up or realisable value basis while
the Financial Statements of the Company as at 30 September, 2015
were prepared on a going-concern, fair value basis, as explained in
the Chairman's Statement
-- The Net Asset Value ("NAV") per Ordinary Share increased by
0.5% and by 3.1% on a total return basis
-- The price of an Ordinary Share declined by 0.7%. The total
return per Ordinary Share (the change in the share price plus the
dividends received and reinvested) was 2.5%
As at or As at or
six months
to year to
31 March, 30 September,
2016 2015 %
Ordinary Shares Unaudited Audited change
----------------------------- ------------ --------------- --------
NAV per Ordinary Share 140.26p 139.55p +0.5%
Ordinary Share price 113.25p 114.00p -0.7%
Discount to NAV (19.3%) (18.3%)
Revenue return per Ordinary
Share 2.45p 6.20p
Dividends paid per Ordinary
Share 3.625p 7.25p
Dividend yield (trailing
12 months)(2) 6.4% 6.4%
----------------------------- ------------ --------------- --------
ZDP Shares
-------------------------------------------------------
NAV per ZDP Share 160.70p 151.67p +6.0%
ZDP Share price 156.38p 154.50p
(Discount)/Premium to
NAV (2.7%) 1.9%
Total return (change
in ZDP Share price) 1.2% 2.6%
Cover ratio(3) 4.0 times 4.1 times
----------------------- ---------- ---------- ------
Summary of Balance Sheet
--------------------------------------------------------------------
Total Shareholders'
funds: GBP390,788,000 GBP383,889,000 +1.8%
Ordinary Shareholders GBP294,368,000 GBP292,885,000 +0.5%
ZDP Shareholders GBP96,420,000 GBP91,004,000 +6.0%
Convertible Unsecured
Subordinated Loan Stock
("CULS") GBP79,827,000 GBP78,880,000
Bank borrowings GBP28,888,000 GBP43,660,000
Gearing on Ordinary
Shares(4) 61.2% 57.8%
Revenue reserves GBP17,008,000 GBP19,483,000
-------------------------- --------------- --------------- ------
1 Total return includes dividends paid and
reinvested.
2 Dividends paid (annualised) as a percentage
of Ordinary Share price.
3 Source: Morningstar. The cover ratio is the
number of times the final redemption value
of the ZDP Shares is covered by net assets
attributable to Shareholders (rounded to one
decimal point).
4 Gearing is the sum of the Company's prime
brokerage borrowings, CULS and ZDP Shares,
less cash (including the net amounts due from
brokers), divided by the net assets attributable
to its Ordinary Shareholders.
Performance for periods to 31 March, 2016
Ecofin Water & Power Opportunities plc (the "Company") was
launched on 26 February, 2002 as a split capital investment trust
with Income and Capital Shares in issue. Its Ordinary Shares were
first issued on 29 June, 2005. The performance of the Company and
the indices shown below are presented on a total return basis,
i.e., assuming a reinvestment of dividends. The indices are net
return indices assuming the reinvestment of dividends net of
withholding taxes using the tax rates applicable to non-resident
institutional investors.
Since Since
launch
of
the
inception Company
in
of Ordinary 2002
1 Shares %
6 months year 3 years 5 years in 2005
Total returns % % % % %
--------------------------------- --------- -------- -------- -------- ------------- ----------
Net assets attributable
to the Company's Shareholders* 3.9 -15.5 0.2 4.0 107.6 312.3
Ordinary Share NAV* 3.1 -21.2 -6.0 -2.3 95.3
Ordinary Share price 2.5 -19.9 4.0 20.7 81.3
--------------------------------- --------- -------- -------- -------- ------------- ----------
Indices:
----------------------------------------------------------------------------------------- ----------
FTSE All-Share 3.5 -3.9 11.4 31.9 93.6 123.9
MSCI World (GBP) 11.0 0.2 31.0 57.1 135.7 140.4
MSCI World Utilities
(GBP) 16.4 11.3 34.8 50.1 129.0 193.7
MSCI World Energy
(GBP) 10.4 -12.0 -12.9 -12.2 70.2 135.9
--------------------------------- --------- -------- -------- -------- ------------- ----------
* Adjusted for changes in share capital.
Chairman's Statement
Continuation vote
On 24 June, 2016, a General Meeting of the Company was held for
Shareholders to vote on an ordinary resolution that the Company
continue in business as a closed-end investment company. The
resolution passed with 60.3% of those Shareholders who voted voting
in favour of the resolution, 39.7% voting against the resolution
and 0.02% abstaining. 78.1% of the Company's shares were voted at
the General Meeting.
As a result, the Company will propose a scheme of reconstruction
(the "Scheme of Reconstruction") described in the Circular sent to
Shareholders on 31 May, 2016. Should it be approved, the Company
will be liquidated and Shareholders will be:
(i) issued with shares in Ecofin Global Utilities and
Infrastructure Trust plc ("Ecofin Global"), a newly incorporated UK
investment trust which will invest globally in the equity and
equity-related securities of listed utility and infrastructure
companies and, to a limited extent, in the fixed-income securities
of such companies;
(ii) issued with shares in EF Realisation Company Limited ("EF
Realisation"), a newly incorporated investment company domiciled in
Guernsey, Channel Islands, which will hold a portfolio of illiquid
assets currently held by the Company; and
(iii) offered a cash exit for up to 35% of the issued share capital of the Company.
Ecofin Global will have an unlimited life, but will hold a
continuation vote at its Annual General Meeting in 2019 and every
five years thereafter. Its shares will be listed on the premium
segment of the London Stock Exchange. EF Realisation is expected to
have a life of two years and will be a liquidating vehicle; that
is, it will seek to achieve an orderly realisation of its portfolio
and to distribute the net proceeds to its shareholders and it will
make no new investments. Its shares will be listed on the
specialist fund segment of the London Stock Exchange.
Assuming approval, your Company will be restructured under
section 110 of the Insolvency Act 1986 (as amended) in order that
the split of the Company into Ecofin Global and EF Realisation and
the issue of shares in these new companies to Shareholders can be
effected in a tax efficient manner.
Shareholders will be sent copies of the Prospectuses for Ecofin
Global and EF Realisation and a Circular describing the
reconstruction and the cash exit in July. The Scheme of
Reconstruction is expected to be completed by mid- September.
Under the Scheme of Reconstruction, the Company would be
liquidated prior to the end of its current financial year. As a
consequence of this, the financial statements of the Company in
this interim report have been prepared on a break-up or realisable
value basis instead of a going concern, fair value basis as in
previous annual and interim reports of the Company. In particular,
the accounts reflect the redemption value of the Zero Dividend
Preference ("ZDP") Shares as at their redemption date of 31 July,
2016 instead of their carrying value as at 31 March, 2016, the
additional liabilities related to the CULS in the period between 31
March and their maturity on 31 July, 2016, and a provision for the
costs associated with the liquidation of the existing Company, as
explained in Note 1 to the Financial Statements. These adjustments
have increased the expenses and finance costs and decreased the
returns per Ordinary Share and the NAV attributable to Ordinary
Shareholders. The NAV per Ordinary Share as at 31 March, 2016 as
shown in the Financial Statements. in this interim report was
140.26p. Had the Financial Statements been prepared on a
going-concern, fair value basis the NAV per Ordinary
Share would have been 143.21p, approximately 2.1% higher than
that shown on page 1 of the Half-year Report and in the Financial
Statements.
Performance
In the half-year to 31 March, 2016, the net assets of your
Company as per the Financial Statements in this interim report rose
by 1.8% and the NAV per Ordinary Share rose by 0.5%. At the same
time, the price of an Ordinary Share fell by 0.7% and the discount
to NAV at which Ordinary Shares traded widened from 18.3% to 19.3%
over the period. On a total return basis, assuming that the
quarterly dividends received by an Ordinary Shareholder over the
six month period were reinvested in the Company's Ordinary Shares,
the NAV per Ordinary Share rose by 3.1% and the price of an
Ordinary Share rose by 2.5%.
Had the financial statements been prepared on a going concern,
fair value basis the net asset value per Ordinary Share at 31
March, 2016 would have been 143.21p. On this basis, the NAV per
Ordinary Share would have risen by 5.3% on a total return basis
over the six months to 31 March, 2016.
By comparison, the FTSE All-Share index rose by 3.5%, the MSCI
World index of developed country equity markets rose by 11.0% and
the MSCI World Utility index rose by 16.4% over the half-year, all
on a total return basis and in sterling terms. Sterling was weak
over the period, however, with the pound falling 5.1% against the
U.S. dollar and 6.7% against the Euro, which had the effect of
boosting the returns of the global MSCI indices, which are
calculated in U.S. dollars, when they are expressed in Sterling.
The MSCI World index and the MSCI World Utility index, for example,
rose by a lesser 5.4% and 10.4%, respectively, on a total return
basis when expressed in U.S. dollars. Approximately 40% of your
Company's investments were denominated in US dollars over the
period.
This performance took place against a background of volatile
equity markets arising out of continuing concerns about the slow
pace of world economic growth, the outlook for policy interest
rates, particularly in the United States, and the continuing fall
in the price of oil which investors appeared to view as an
indicator of the overall state of the world economy. The West Texas
Intermediate (WTI) oil price declined from US$45.09 per barrel on
30 September, 2015 to a low of US$26.21 on 11 February, 2016 before
recovering to US$38.34 on 31 March, 2016, the end of the half-year
period under review. The MSCI World index also hit its low for the
six month period on 11 February - 7.1% down on its level at 30
September, 2015 and 10.6% down since 31 December, 2015 - after
which it recovered closing up 5.4% in U.S. dollar terms over the
six months.
Outlook
As Shareholders voted in favour of the Company continuing as an
investment trust, the Company will propose the Scheme of
Reconstruction, which, if approved, will involve the liquidation of
the Company and its replacement by Ecofin Global and EF
Realisation. As a consequence, the weekly NAVs per Ordinary Share
will, with effect from the NAV calculation date of 30 June, 2016,
reflect the accrual of the liquidation costs and the other
adjustments described in Note 1 to the financial statements.
The Directors believe that a reorganisation of the Company
through the implementation of the Scheme of Reconstruction is in
the best interests of the Company and Shareholders as a whole. The
Investment Manager believes that structural changes taking place in
the global utilities sector, the need to replace ageing generation
plant and equipment and the rapid rise of renewable energy - as
well as the world's huge infrastructure needs - will provide Ecofin
Global with the opportunity to earn good equity returns for its
shareholders following the completion of the Scheme of
Reconstruction. It also believes that EF Realisation will provide
Shareholders with the best alternative for realising the Company's
investments in Lonestar Resources Limited and its other illiquid
investments in an orderly manner.
On 23 June, 2016, voters in the U.K. voted in a referendum to
leave the European Union. The pound feel by 11.1% over the two
business days following the vote and world equity markets feel
sharply although the UK equity markets, as measured by the FTSE
All-Share index, fell by less than Euro-zone markets. Market
commentators are forecasting an extended period of uncertainty and,
as a result, heightened volatility in world equity markets. Your
Company's portfolio, the majority of which consists of non-Sterling
assets, has held up well in the market sell-off as utilities have
outperformed the broader equity markets.
Ian Barby
Chairman
30 June, 2016
Investment Manager's Report
Economy and markets
Over the six months to 31 March, 2016 covered by this Report,
the outlook for world economic growth deteriorated and the risks of
a further slowdown increased. The deterioration in the outlook was
due to lower than expected growth rates in most of the major
developed economies, but particularly in Japan and the Eurozone,
and to concerns about weak growth in many emerging markets but
notably in Brazil and Russia. The reasons for the slowdown in the
developed economies were varied, but included weaker than expected
investment and poor export performance in the U.S., low rates of
investment and a lack of confidence partly attributable to
political developments in the Eurozone, uncertainty associated with
the referendum on EU membership in the U.K. and weak consumer
spending in Japan. In emerging markets, Brazil's political crisis
has produced a crisis of confidence and policy paralysis while
Russia and other commodity exporters continue to suffer from low
oil and commodity prices. In China, the transition away from
investment led growth to a more balanced growth model has seen
growth slow.
Commodity prices remained very low over the period by recent
historical standards, but oil and gas prices deserve a special
mention. In the six months to 31 March, 2016 - and since then -
movements in the world oil price have had a strong influence on
market sentiment; falls or increases in the oil price have been
seen by investors as a sign of a deteriorating or improving
outlook, respectively, for economic growth. Both the oil price and
world equity markets - as measured by the MSCI World index - hit
their lows for the six months to 31 March, 2016 on 11 February,
2016, since when equity markets appear to have followed the
recovery in the oil price.
In the sectors in which the Company invests, however, low gas
prices - in the U.S. the result of the successful exploitation of
shale gas reserves - have put downward pressure on power prices
which have depressed earnings of unregulated merchant power
companies in the U.S. and vertically integrated power companies in
Europe. Low oil and gas prices have also called into question
future production levels and, therefore, the economics of some
energy infrastructure investment.
In the financial markets, equity markets were volatile,
particularly during the first six weeks of 2016, but gained ground
over the six months. Very low levels of inflation led to an easing
of monetary policy by the European Central Bank and the Bank of
Japan and concerns about the outlook for economic growth saw yields
on government bonds fall in virtually every developed country over
the period. Yields on ten year U.S. Treasuries, for example, fell
from 2.04% to 1.77% over the six months while yields on ten year
German government Bunds fell from 0.50% to 0.15%. In the currency
markets, Sterling was particularly weak depreciating 6.7% against
the Euro and 5.1% against the US dollar.
Performance
As explained in the Chairman's Statement, the financial
statements in this interim report have been prepared on a break-up
or realisable value basis instead of on the going concern, fair
value basis on which the Company's previous annual and interim
reports have been prepared. This is due to the fact that although
Shareholders voted in favour of the Company continuing as an
investment trust in the General Meeting of the Company held on 24
June, 2016, the Scheme of Reconstruction which will now be put to
Shareholders will, if approved, involve the liquidation of the
Company.
This makes performance comparisons difficult because the
Financial Statements in this interim report reflect the changes in
accounting policies described in Note 1 to the Financial Statements
and prepared on this basis the net asset value per Ordinary Share
at 31 March, 2016 was 140.26p. Had the Financial Statements been
prepared on a going-concern, fair value basis the NAV per Ordinary
Share would have been 143.21p, approximately 2.1% higher than that
shown on page 1 of the Half-year Report and in the Financial
Statements. Comparisons are further complicated by the fact that
the weekly NAVs published by the Company since 31 March, 2016 have
been calculated on a going-concern, fair value basis. The
commentary that follows assumes the Financial Statements as at 31
March, 2016 contained in this interim report had been prepared on a
going-concern, fair value basis.
The Company's net assets attributable to both its Ordinary and
Zero Dividend Preference Shareholders rose by 2.8% over the six
months to 31 March, 2016 on a reported basis while the NAV per
Ordinary Share rose by 2.6%. The price of an Ordinary Share,
however, fell by 0.7% and the discount to NAV at which Ordinary
Shares traded widened from 18.3% to 20.9%. On a total return basis,
however, assuming that the dividends paid to Ordinary Shareholders
over the period were reinvested in the Company's Ordinary Shares,
the NAV per Ordinary Share rose by 5.3% and the price of an
Ordinary Share rose by 2.5%.
While the growth in NAV per Ordinary Share compared favourably
to the FTSE All-Share index, which rose 3.5% on a total return
basis, it trailed most of the global US dollar-denominated indices
calculated on a total return basis and in sterling terms due
partially to the depreciation of Sterling over the period. The MSCI
World index of developed equity markets, for example, rose by 11.0%
in sterling terms but by 5.4% in US dollar terms. Similarly, the
MSCI World Utility index rose by 16.4% in Sterling terms, but by
10.4% in US dollar terms while the MSCI Energy index rose by 10.4%
in sterling terms, but by 4.9% in US dollar terms. Another factor
which contributed to the performance of these indices was their
large weightings in U.S. equities which performed strongly over the
period. Approximately 57% of the MSCI World index's weighting, for
example, is attributable to US companies while at 31 March, 2016
only 36% of the Company's portfolio was invested in the U.S.
The principal cause of the Company's underperformance relative
to most indices over the period was the poor performance of those
portfolio companies exposed to the volatility in energy commodity
prices, whether directly or indirectly, principally in the United
States but also in Europe. The share price of Lonestar Resources
Limited (Lonestar), the Company's second largest investment at the
beginning of the period, fell by 51.5% as a result of uncertainty
about the outlook for oil prices and the long run prospects for the
U.S. shale oil and gas industry; this was the largest portfolio
loss incurred by the Company over the period. The second largest
loss was attributable to a 51.5% fall in the share price of
Williams Companies, a leading U.S. operator of gas pipelines and
the Company's fourth largest investment at the beginning of the
period. Although Williams' gas pipelines are regulated assets and
it is not directly exposed to falls in gas prices, investors
questioned the company's exposure to production levels in the U.S.
gas industry and to troubled shale gas companies. Williams' share
price was also adversely affected by uncertainty surrounding its
proposed acquisition by Energy Transfer Equity L.P., another
pipeline operator, which was announced in September 2015 but which
experienced regulatory delays and has looked increasingly less
attractive given the turmoil in the industry.
SolarCity, a fast-growing U.S. installer of roof-top solar
panels, particularly to households, performed poorly on concerns
about its business model, as did Quanta Services which provides
engineering services to the U.S. power and oil and gas industries.
Largely unregulated power producers, such as NRG Energy, Inc. in
the U.S. and Engie S.A. in Europe (formerly GDF Suez) which are
fully exposed to the commodity risks associated with low gas and
power prices were also very weak. The Company also wrote down the
value of its investment in Woodfuels, an unquoted provider of wood
fuels to biomass power generators.
In contrast, the Company's holdings in regulated or
quasi-regulated power companies and many of its investments in the
renewable energy sector contributed positively toward performance.
NextEra Energy, the owner of the regulated utility Florida Power
& Light and the largest operator of renewable energy generation
in the U.S., which was the Company's largest holding at the
beginning of the period, was also the biggest single contributor to
the Company's performance as its share price rose by 20.7%. First
Solar, also a U.S. company, was the second largest contributor to
performance as its share price rose 45.7%. Other holdings which
performed well were NiSource, a holding company for a number of
U.S. fully regulated power and gas distribution companies and, in
Europe, the UK company Renewable Energy Generation, Flughafen
Zuerich, the operator of the Zurich airport, and Snam Rete Gas, the
Italian regulated gas distributor.
The Company's second best performer, however, was Direct
Energie, a small French electricity and gas distributor which, at
the beginning of the period, was the Company's third largest
holding. It is one of the few independent distributors in the
French market - which is dominated by Électricité de France, 84.9%
owned by the French state - and its share price rose by 17.4% over
the period. The Company owned 4.4% of Direct Energie at 31 March,
2016 and a representative of the Investment Manager is a
non-executive director of the company. On 20 June, 2016, the
Investment Manager announced the placing of its 4.4% holding in
Direct Energie.
Portfolio developments
An analysis of the Company's investment portfolio by geography,
sector or type of investment and the market capitalisation of the
companies in which the Company is invested is shown on page 9 of
the Half-year Report. The changes over the six month period reflect
market and foreign currency movements as well as asset allocation
decisions by the Investment Manager. Over the period, there was
little change in the geographical allocations in the portfolio
other than a small reduction to UK companies in favour of
Continental European ones and a continuing reduction of the
Company's exposure to China. At the sector level, the exposure to
regulated and unregulated utilities continued to grow as did the
exposure to infrastructure names while the exposure to the energy
sector was reduced.
Major purchases over the period were of Groupe Eurotunnel,
Veolia Environnement, SSE, E.ON and Suez Environnement in the U.K.
and Europe and American Electric Power, Edison International and
Exelon in the U.S. Major sales were of Gamesa, Endesa, Iberdrola,
Enagas, National Grid and Pennon in the U.K. and Europe and of
Quanta Services and NextEra Energy - on profit taking - in the
U.S.
Lonestar
Throughout the period under review, the Company owned 55.5% of
the share capital of Lonestar and representatives of the Investment
Manager served on the board of the company. The share price of
Lonestar fell by 51.5% over the six months on very thin volume,
hitting an historic low on 18 February, 2016 before recovering
somewhat by the end of the period. As a result, Lonestar fell from
being the Company's second largest holding at the beginning of the
period to its fourth largest holding at 31 March, 2016.
Despite operational improvements in the business, Lonestar has
continued to be valued by the market at a large discount to its
U.S. peers which are also active predominately in the Eagle Ford
basin. Depending on the metric used, we estimate the valuation
discount as at the date of this Report at between 28% and 54%. In
our opinion, there are a number of reasons why Lonestar trades at
such a valuation discount but the principal one is that it is an
Australian, and not a U.S., company and the natural buyers of
shares in companies such as Lonestar are U.S. investors.
In December 2015, Lonestar announced that it intended to
re-domicile the company in the United States, to list its shares on
the NASDAQ exchange and to de-list its shares from the Australian
Stock Exchange. Shareholders overwhelmingly approved the change in
March 2016 and the company began the process of re-domiciling the
company, registering its shares with the U.S. Securities and
Exchange Commission and obtaining a NASDAQ listing. This was
completed on 28 June, 2016 and trading on NASDAQ will commence on 5
July, 2016.
Outlook
As the Continuation Vote was passed on 24 June, 2016, we will
continue to make changes in the portfolio pursuant to a new
investment strategy which we began to implement in April. This
strategy is within the Company's current investment policy and
restrictions but is also essentially the strategy which will be
followed by Ecofin Global Utilities and Infrastructure Trust plc
("Ecofin Global") - the continuing vehicle if the Scheme of
Reconstruction to be put to Shareholders is approved. We have also
been raising cash to provide for the repayment of the Convertible
Unsecured Subordinated Loan Stock and the Zero Dividend Preference
Shares on 31 July, 2016.
The new strategy emphasises investments in regulated utility and
infrastructure companies in OECD countries with progressive
dividend policies. The investment thesis is that spending on
infrastructure will accelerate in coming years and that much of
this spending will be undertaken by regulated companies. A
significant proportion of this spending is expected to take place
in the utility sector as ageing power plants are replaced and new
transmission and distribution networks are built. Investments in
renewable energy generation will be an important, and growing, part
of spending by power companies. The returns to the Company's
Shareholders and - if the Scheme of Reconstruction is approved - to
shareholders of Ecofin Global are expected to come from a growth in
the regulated asset values of investee companies and dividend
growth.
Ecofin Limited
Investment Manager
30 June, 2016
Consolidated Statement of Comprehensive Income
for the half-year ended 31 March, 2016
Six months ended Six months Year to 30 September,
31 March, 2016 to 31 March, 2015
Unaudited 2015 Unaudited Audited
Revenue Capital Revenue Capital Revenue Capital
Return Return Total Return Return Total Return Return Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- ------ -------- --------- --------- -------- --------- --------- -------- ---------- ----------
Income
Investment
income 2 10,265 - 10,265 7,421 - 7,421 19,454 - 19,454
Other income 2 31 - 31 40 - 40 73 - 73
Gains/(losses)
on investments
held at fair
value - 26,931 26,931 - (55,203) (55,203) - (147,127) (147,127)
(Losses)/gains
on forward
currency
contracts
held at fair
value - (15,691) (15,691) - 7,360 7,360 - 5,793 5,793
Exchange
differences - 4,254 4,254 - 5,767 5,767 - 6,635 6,635
---------------- ------ -------- --------- --------- -------- --------- --------- -------- ---------- ----------
10,296 15,494 25,790 7,461 (42,076) (34,615) 19,527 (134,699) (115,172)
Expenses
Investment
management
fees (750) (2,250) (3,000) (876) (2,629) (3,505) (1,650) (4,951) (6,601)
Provisions
for
continuation
vote and
reconstruction
of the Company 11 (1,958) - (1,958) - - - - - -
Other expenses (516) (44) (560) (574) (492) (1,066) (1,364) (560) (1,924)
---------------- ------ -------- --------- --------- -------- --------- --------- -------- ---------- ----------
Profit/(loss)
before finance
costs and
taxation 7,072 13,200 20,272 6,011 (45,197) (39,186) 16,513 (140,210) (123,697)
Finance costs 11 (1,277) (9,246) (10,523) (821) (5,378) (6,199) (1,640) (11,015) (12,655)
---------------- ------ -------- --------- --------- -------- --------- --------- -------- ---------- ----------
Profit/(loss)
before
taxation 5,795 3,954 9,749 5,190 (50,575) (45,385) 14,873 (151,225) (136,352)
Taxation 8 (662) - (662) (663) - (663) (1,859) - (1,859)
---------------- ------ -------- --------- --------- -------- --------- --------- -------- ---------- ----------
Total
comprehensive
income for
the period 5,133 3,954 9,087 4,527 (50,575) (46,048) 13,014 (151,225) (138,211)
---------------- ------ -------- --------- --------- -------- --------- --------- -------- ---------- ----------
Return per
share
Ordinary
Share 4 2.45p 1.88p 4.33p 2.16p (24.10)p (21.94)p 6.20p (72.06)p (65.86)p
Ordinary
Share
(diluted) n/a n/a n/a 2.05p (18.89)p (16.84)p n/a n/a n/a
ZDP Share n/a 9.03p 9.03p n/a 4.86p 4.86p n/a 10.15p 10.15p
---------------- ------ -------- --------- --------- -------- --------- --------- -------- ---------- ----------
The total column of this statement represents the Group's profit
or loss, prepared in accordance with International Financial
Reporting Standards ("IFRS"). The supplementary revenue and capital
return columns are prepared under guidance published by the
Association of Investment Companies ("AIC"). All items derive from
continuing operations; the Group does not have any other recognised
gains or losses.
Consolidated and Company Balance Sheets
As at 31 March, 2016
31 March, 31 March, 30 September,
2016 2015 2015
Unaudited Unaudited Audited
Group Company Group Company Group Company
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------- ------ ---------- ----------- ---------- ---------- ---------- -----------
Non-current
assets
Investments
held at
fair value
through
profit
or loss - - 609,990 610,040 479,781 479,831
------------------- ------ ---------- ----------- ---------- ---------- ---------- -----------
- - 609,990 610,040 479,781 479,831
Current
assets
Investments
held at
recoverable
value through
profit
or loss 497,047 497,097 - - - -
Receivables
and other
financial
assets 2,441 2,441 2,212 2,212 20,066 20,066
Cash and
cash equivalents 24,932 24,882 16,899 16,849 29,913 29,863
------------------- ------ ---------- ----------- ---------- ---------- ---------- -----------
524,420 524,420 19,111 19,061 49,979 49,929
------------------- ------ ---------- ----------- ---------- ---------- ---------- -----------
Total assets 524,420 524,420 629,101 629,101 529,760 529,760
------------------- ------ ---------- ----------- ---------- ---------- ---------- -----------
Current
liabilities
Securities
sold short
at fair
value through
profit
or loss (14,504) (14,504) (15,778) (15,778) (15,678) (15,678)
Forward
currency
contracts
held at
fair value
through
profit
or loss (1,719) (1,719) (1,100) (1,100) (300) (300)
Prime brokerage
borrowings (28,888) (28,888) (48,206) (48,206) (43,660) (43,660)
Payables
and other
financial
liabilities (6,736) (6,736) (5,207) (5,207) (7,353) (7,353)
CULS 7 (79,827) (79,827) - - (78,880) (78,880)
Subsidiary
Subordinated
Unsecured
Loan
Note 2016 7 - (96,420) - - - (91,004)
ZDP Shares 7 (96,420) - - - (91,004) -
Provisions
for continuation
vote and
reconstruction
of the
Company 11 (1,958) (1,958) - - - -
------------------- ------ ---------- ----------- ---------- ---------- ---------- -----------
(230,052) (230,052) (70,291) (70,291) (236,875) (236,875)
------------------- ------ ---------- ----------- ---------- ---------- ---------- -----------
Total assets
less current
liabilities 294,368 294,368 558,810 558,810 292,885 292,885
------------------- ------ ---------- ----------- ---------- ---------- ---------- -----------
Non-current
liabilities
CULS 7 - - (78,327) (78,327) - -
Subsidiary
Subordinated
Unsecured
Loan Note
2016 7 - - - (87,826) - -
ZDP Shares 7 - - (87,826) - - -
------------------- ------ ---------- ----------- ---------- ---------- ---------- -----------
- - (166,153) (166,153) - -
------------------- ------ ---------- ----------- ---------- ---------- ---------- -----------
Net assets 294,368 294,368 392,657 392,657 292,885 292,885
------------------- ------ ---------- ----------- ---------- ---------- ---------- -----------
Equity
attributable
to Ordinary
Shareholders
Ordinary
Share capital 6 210 210 210 210 210 210
Share premium 223 223 219 219 219 219
Capital
redemption
reserve 990 990 990 990 990 990
Special
reserve 215,090 215,090 215,090 215,090 215,090 215,090
Equity
component
of CULS 5,409 5,409 5,410 5,410 5,409 5,409
Capital
reserve 55,438 55,438 152,134 152,134 51,484 51,484
Revenue
reserve 11 17,008 17,008 18,604 18,604 19,483 19,483
------------------- ------ ---------- ----------- ---------- ---------- ---------- -----------
Total equity
attributable
to Ordinary
Shareholders 294,368 294,368 392,657 392,657 292,885 292,885
------------------- ------ ---------- ----------- ---------- ---------- ---------- -----------
Net assets
attributable
to Shareholders
Ordinary
Shareholders 3 294,368 294,368 392,657 392,657 292,885 292,885
ZDP Shareholders 3 96,420 n/a 87,826 n/a 91,004 n/a
------------------- ------ ---------- ----------- ---------- ---------- ---------- -----------
390,788 294,368 480,483 392,657 383,889 292,885
------------------- ------ ---------- ----------- ---------- ---------- ---------- -----------
NAV per
share
Ordinary
Share 3 140.26p 140.26p 187.09p 187.09p 139.55p 139.55p
Ordinary
Share (diluted) 3 n/a n/a 183.89p 183.89p n/a n/a
ZDP Share 3 160.70p n/a 146.38p n/a 151.67p n/a
------------------- ------ ---------- ----------- ---------- ---------- ---------- -----------
Consolidated and Company Cash Flow Statements
for the half-year ended 31 March, 2016
31 March, 31 March, 30 September,
2016 2015 2015
Unaudited Unaudited Audited
Group Company Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------- --------- --------- ---------- ---------- ---------- ----------
Cash flows
from operating
activities
Profit before
taxation 9,749 9,749 (45,385) (45,385) (136,352) (136,352)
Finance costs 10,523 10,523 6,199 6,199 12,655 12,655
----------------------- --------- --------- ---------- ---------- ---------- ----------
20,272 20,272 (39,186) (39,186) (123,697) (123,697)
----------------------- --------- --------- ---------- ---------- ---------- ----------
Adjustments
for
Movements
in foreign
exchange;
cash and cash
equivalents 358 358 (5,767) (5,767) (1,428) (1,428)
Movement in
investments
held at recoverable
value through
profit or
loss (26,931) (26,931) 55,203 55,203 147,127 147,127
Movement in
forward currency
contracts 1,420 1,420 3,956 3,956 3,155 3,155
Purchases
of investments (78,724) (78,724) (166,182) (166,182) (317,139) (317,139)
Proceeds from
sales of investments 102,674 102,674 150,079 150,079 324,429 324,429
Interest paid (2,585) (2,585) (2,785) (2,785) (5,480) (5,480)
Decrease in
trade and
other receivables 11 11 630 630 261 261
Increase/(decrease)
in trade and
other payables 1,782 1,782 (150) (150) (235) (235)
----------------------- --------- --------- ---------- ---------- ---------- ----------
Net cash flows
from operating
activities 18,277 18,277 (4,202) (4,202) 26,993 26,993
----------------------- --------- --------- ---------- ---------- ---------- ----------
Taxation paid (520) (520) (662) (662) (2,350) (2,350)
Cash flows
from financing
activities
Movement in
prime brokerage
borrowings (14,772) (14,772) 9,673 9,673 5,127 5,127
Dividends
paid (7,608) (7,608) (7,607) (7,607) (15,215) (15,215)
----------------------- --------- --------- ---------- ---------- ---------- ----------
Net cash from
financing
activities (22,380) (22,380) 2,066 2,066 (10,088) (10,088)
----------------------- --------- --------- ---------- ---------- ---------- ----------
(Decrease)/increase
in cash and
cash equivalents (4,623) (4,623) (2,798) (2,798) 14,555 14,555
Movement in
foreign exchange (358) (358) 5,767 5,767 1,428 1,428
Cash and cash
equivalents,
beginning
of period 29,913 29,863 13,930 13,880 13,930 13,880
----------------------- --------- --------- ---------- ---------- ---------- ----------
Cash and cash
equivalents 24,932 24,882 16,899 16,849 29,913 29,863
----------------------- --------- --------- ---------- ---------- ---------- ----------
Consolidated Statement of Changes in Equity
Equity
Ordinary Capital component
Share Share redemption Special CULS Capital Revenue Total
capital premium reserve reserve 2016 reserve reserve equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- --------- --------- ----------- -------- ---------- ---------- --------- --------------
For the half-year to
31 March, 2016
(Unaudited)
Balance
at 30
September,
2015 210 219 990 215,090 5,409 51,484 19,483 292,885
Total
comprehensive
income
for the
period - - - - - 3,954 5,133 9,087
Conversion
of CULS - 4 - - - - - 4
Ordinary
dividends
paid (see
note 5) - - - - - - (7,608) (7,608)
--------------- --------- --------- ----------- -------- ---------- ---------- --------- --------------
Balance
at 31
March,
2016 210 223 990 215,090 5,409 55,438 17,008 294,368
--------------- --------- --------- ----------- -------- ---------- ---------- --------- --------------
Equity
Ordinary Capital component
Share Share redemption Special CULS Capital Revenue Total
capital premium reserve reserve 2016 reserve reserve equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- --------- --------- ----------- -------- ---------- ---------- --------- --------------
For the half-year to
31 March, 2015
(Unaudited)
Balance
at 30
September,
2014 210 141 990 215,090 5,415 202,709 21,684 446,239
Total
comprehensive
income
for the
period - - - - - (50,575) 4,527 (46,048)
Conversion
of CULS - 78 - - (5) - - 73
Ordinary
dividends
paid (see
note 5) - - - - - - (7,607) (7,607)
--------------- --------- --------- ----------- -------- ---------- ---------- --------- ----------
Balance
at 31
March,
2015 210 219 990 215,090 5,410 152,134 18,604 392,657
--------------- --------- --------- ----------- -------- ---------- ---------- --------- ----------
Equity
Ordinary Capital component
Share Share redemption Special CULS Capital Revenue Total
capital premium reserve reserve 2016 reserve reserve equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- --------- --------- ----------- -------- ---------- ---------- --------- ----------
For the year to
30 September, 2015
(Audited)
Balance
at 30
September,
2014 210 141 990 215,090 5,415 202,709 21,684 446,239
Total
comprehensive
income
for the
period - - - - - (151,225) 13,014 (138,211)
Conversion
of CULS - 78 - - (6) - - 72
Ordinary
dividends
paid (see
note 5) - - - - - - (15,215) (15,215)
--------------- --------- --------- ----------- -------- ---------- ---------- --------- ----------
Balance
at 30
September,
2015 210 219 990 215,090 5,409 51,484 19,483 292,885
--------------- --------- --------- ----------- -------- ---------- ---------- --------- ----------
Notes to the Financial Statements
For the six months ended 31 March, 2016
1 Accounting policies
1.1 Basis of preparation for Half-year
The Financial Statements of the Group and Company have been
prepared in accordance with International Financial Reporting
Standards ("IFRS") as adopted by the European Union ("EU") and as
applied in accordance with the provisions of the Companies Act 2006
(the "Act"). These comprise standards and interpretations of the
International Accounting Standards ("IAS") and Standing
Interpretations Committee as approved by the International
Accounting Standards Committee ("IASC") that remain in effect, to
the extent that IFRS have been adopted by the EU.
The Financial Statements have also been prepared in accordance
with the Statement of Recommended Practice ("SORP") for investment
trusts issued by the Association of Investment Companies ("AIC") in
November 2014, where the SORP is not inconsistent with IFRS.
The financial information contained in the Half-year Report does
not constitute statutory accounts as defined in Section 434 of the
Companies Act 2006. The financial information for the periods ended
31 March, 2016 and 31 March, 2015 have not been audited. The
financial information for the year ended 30 September, 2015 has
been extracted from the latest published audited accounts. Those
accounts have been filed with the Registrar of Companies and
included the Independent Auditor's Report which was unqualified and
did not contain a statement under Section 498(2) or (3) of the
Companies Act 2006. However the Independent Auditor's Report did
include an emphasis of matter relating to the uncertainty around
the Company's status as a going concern in light of the
Continuation Vote. Those statutory accounts were prepared in
accordance with IFRS, as adopted by the European Union.
On 24 June, 2016, a General Meeting of the Company was held for
Shareholders to vote on a resolution that the Company continue as a
closed-end investment company. The Continuation Vote was passed and
therefore the Company will seek to implement the reconstruction
proposals described in the Circular sent to Shareholders on 31 May,
2016. Assuming the Scheme of Reconstruction is approved by
Shareholders, the Company will be restructured under Section 110 of
the Insolvency Act 1986 (as amended) and, therefore these Financial
Statements have been prepared under the "break-up" or realisable
value basis. Non-current assets and liabilities have been
reclassified as current assets and liabilities. The market value
for investments is deemed to be a proxy for recoverable value. The
liability of the CULS and ZDP Shares has been accounted for as the
amount expected to settle the liabilities. All costs associated
with the winding up of the business have been recognised.
The functional currency of the Group is Sterling as this is the
currency of the primary economic environment in which the Group
operates and of its capital raising currency, i.e. the denomination
of the Ordinary Shares, CULS and ZDP Shares. Accordingly, the
Financial Statements are presented in Sterling rounded to the
nearest thousand pounds.
The consolidated Financial Statements incorporate the Financial
Statements of the Company and its wholly-owned subsidiary,
EW&PO Finance plc. As permitted by Section 408 of the Act, no
Company statement of comprehensive income has been prepared.
Subsidiaries are consolidated from the date of their acquisition,
being the date on which the Company obtains control, and continue
to be consolidated until the date that such control ceases. The
Financial Statements of subsidiaries used in the preparation of the
consolidated Financial Statements are based on consistent
accounting policies. All intra-group balances and transactions,
including unrealised profits arising therefrom, are eliminated.
IFRS 10 Consolidated Financial Statements
The Financial Statements in these accounts reflect the adoption
of IFRS 10 (including the Investment Entities amendment) which
requires investment companies to value subsidiaries (except for
those providing investment related services) at fair value through
profit and loss rather than consolidate them. The Directors, having
assessed the criteria, believe that the Group meets the criteria to
be an investment entity under IFRS 10 and that this accounting
treatment better reflects the Company's activities as an investment
trust. Therefore all investments in subsidiaries (with the
exception of EW&PO Finance plc) are carried at fair value
through the profit and loss in accordance with IAS 39.
EW&PO Finance plc, which is controlled by the Company, holds
the ZDP Shares and has lent the proceeds to the Company. It is
considered to provide investment related services to the Group and
is therefore required to be consolidated under the IFRS 10
Investment Entities amendment. EW&PO Finance plc has been
consolidated in these Financial Statements using consistent
accounting policies to those applied by the Company.
1.2 Presentation of statement of comprehensive income
In order to better reflect the activities of the Company as an
investment trust company, and in accordance with guidance issued by
the AIC, supplementary information which analyses the Consolidated
Statement of Comprehensive Income between items of a revenue and
capital nature has been presented alongside the Consolidated
Statement of Comprehensive Income. 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. Special dividends are assessed as revenue
or capital depending on the economic substance of the payments to
shareholders.
1.3 Use of estimates
The preparation of financial statements requires the Group to
make estimates and assumptions that affect items reported in the
Balance Sheet and Statement of Comprehensive Income and the
disclosure of contingent assets and liabilities at the date of the
financial statements. Although these estimates are based on
management's best knowledge of current facts, circumstances and, to
some extent, future events and actions, the Group's actual results
may ultimately differ from those estimates, possibly significantly.
The investments in the equity and fixed interest stocks of unquoted
companies that the Group holds are not traded and as such the
prices are more uncertain than those of more widely traded
securities. The unquoted investments are valued by reference to
valuation techniques approved by the Directors and in accordance
with the International Private Equity and Venture Capital Valuation
("IPEV") guidelines and IFRS 13.
1.4 Segmental reporting
The chief operating decision maker has been identified as the
Board of the Company. The Board reviews the Group's internal
management accounts in order to analyse performance. The Directors
are of the opinion that the Company is engaged in one segment of
business, being the investment business. Geographical segmental
analysis pertaining to income has not been disclosed because the
Directors are of the opinion that, as an investment company, the
geographical sources of revenues received by the Group are
incidental to its investment activity. The geographical allocation
of the investments from which income is received and to which
non-current assets relate is given on page 9 of the Half-year
Report.
2 Income
31 March, 31 March, 30 September,
2016 2015 2015
GBP'000 GBP'000 GBP'000
------------------------- ---------- ---------- --------------
Income from investments
Overseas dividends 5,311 5,468 15,042
UK dividends 4,814 1,768 4,056
Overseas fixed-interest 140 185 356
------------------------- ---------- ---------- --------------
10,265 7,421 19,454
------------------------- ---------- ---------- --------------
Other income
Deposit interest 31 40 69
Sundry income - - 4
------------------------- ---------- ---------- --------------
31 40 73
------------------------- ---------- ---------- --------------
Total income 10,296 7,461 19,527
------------------------- ---------- ---------- --------------
Total income comprises:
Dividends 10,125 7,236 19,098
Interest 171 225 425
Other - - 4
------------------------- ---------- ---------- --------------
10,296 7,461 19,527
------------------------- ---------- ---------- --------------
3 Net asset value
31 March, 31 March, 30 September,
2016 2015 2015
Ordinary ZDP Ordinary ZDP Ordinary ZDP
Share Share Share Share Share Share
--------------- ------------ ----------- ------------ ----------- ------------ -----------
Net assets
attributable
(GBP'000) 294,368 96,420 392,657 87,826 292,885 91,004
Shares
in issue
at period
end 209,880,513 60,000,000 209,878,197 60,000,000 209,878,197 60,000,000
--------------- ------------ ----------- ------------ ----------- ------------ -----------
NAV 140.26p 160.70p 187.09p 146.38p 139.55p 151.67p
--------------- ------------ ----------- ------------ ----------- ------------ -----------
Diluted NAV
For the half-year ended 31 March, 2016 and the financial year
ended 30 September, 2015 there was no assumed conversion of CULS
into Ordinary Shares, because the Ordinary Share NAV was less than
the conversion price of the CULS, and therefore no dilution.
For the period ended 31 March, 2015 the diluted NAV per Ordinary
Share was 183.89p calculated on the assumption that the
GBP79,830,923 nominal amount of CULS was fully converted on a
57.92:100 basis into 46,240,067 additional Ordinary Shares. Where
dilution occurs, the net returns are adjusted for items relating to
the CULS; accrued CULS finance costs for the period and unamortised
issues expenses are reversed, and total earnings for the period are
tested for dilution. Once dilution has been determined, individual
revenue and capital earnings are adjusted.
31 March, 31 March, 30 September,
2016 2015 2015
Ordinary Ordinary Ordinary
Share Share Share
---------------------------- ------------ ------------ --------------
Net assets attributable
(GBP'000) 294,368 392,657 292,885
Assumed conversion of
CULS into Ordinary Shares
(GBP'000) n/a 78,327 n/a
---------------------------- ------------ ------------ --------------
Adjusted net assets
(GBP'000) 294,368 470,984 292,885
---------------------------- ------------ ------------ --------------
Ordinary Shares in issue 209,880,513 209,878,197 209,878,197
Assumed conversion of
CULS into Ordinary Shares n/a 46,240,067 n/a
---------------------------- ------------ ------------ --------------
209,880,513 256,118,264 209,878,197
---------------------------- ------------ ------------ --------------
Diluted NAV n/a 183.89p n/a
---------------------------- ------------ ------------ --------------
4 Return per class of share
31 March, 31 March, 30 September,
Total return per Ordinary
Share 2016 2015 2015
---------------------------- ------------- ---------------- -----------------
Total return GBP9,087,000 GBP(46,048,000) GBP(138,211,000)
Weighted average number
of shares in issue during
the period 209,879,728 209,862,681 209,870,460
---------------------------- ------------- ---------------- -----------------
Total return per Ordinary
Share 4.33p (21.94)p (65.86)p
---------------------------- ------------- ---------------- -----------------
The total return per Ordinary Share shown above can be further
analysed between revenue and capital, as below:
31 March, 31 March, 30 September,
Revenue return per Ordinary
Share 2016 2015 2015
----------------------------- ------------- ------------- --------------
Total return GBP5,133,000 GBP4,527,000 GBP13,014,000
Weighted average number
of shares in issue during
the period 209,879,728 209,862,681 209,870,460
----------------------------- ------------- ------------- --------------
Revenue return per Ordinary
Share 2.45p 2.16p 6.20p
----------------------------- ------------- ------------- --------------
31 March, 31 March, 30 September,
Capital return per Ordinary
Share 2016 2015 2015
----------------------------- ------------- ---------------- -----------------
Total return GBP3,954,000 GBP(50,575,000) GBP(151,225,000)
Weighted average number
of shares in issue during
the period 209,879,728 209,862,681 209,870,460
----------------------------- ------------- ---------------- -----------------
Capital return per Ordinary
Share 1.88p (24.10)p (72.06)p
----------------------------- ------------- ---------------- -----------------
A diluted return per Ordinary Share is calculated on the
assumption that the CULS is converted at the beginning of the
financial period into additional Ordinary Shares and that earnings
reflect the savings in finance costs on the CULS after taxation.
This results in an adjusted revenue return of GBP6,371,000 (31
March, 2015: GBP5,254,000 and 30 September, 2015: GBP14,481,000),
an adjusted capital return of GBP7,662,000 (31 March, 2015: loss
GBP48,393,000 and 30 September, 2015: loss GBP146,822,000) and
adjusted weighted average shares in issue of 256,117,473 (31 March,
2015: 256,118,264 and 30 September, 2015: 256,110,522).
As per note 3 above, there was no assumed conversion and no
dilution for the half-year ended 31 March, 2016 and for the year
ended 30 September, 2015. The assumed conversion was dilutive for
the half-year ended 31 March, 2015.
31 March, 31 March, 30 September,
Capital return on ZDP
Shares 2016 2015 2015
---------------------------- ------------- ------------- --------------
Total return GBP5,416,000 GBP2,917,000 GBP6,095,000
Weighted average number
of shares in issue during
the period 60,000,000 60,000,000 60,000,000
---------------------------- ------------- ------------- --------------
Capital return per share 9.03p 4.86p 10.15p
---------------------------- ------------- ------------- --------------
5 Dividends on Ordinary Shares
The current dividend policy is to pay four quarterly dividends
of 1.8125p per share to Ordinary Shareholders totalling 7.25p per
share per year, markets permitting.
IAS 10 "Events after the Balance Sheet Date" requires dividends
to be recognised in the period in which they are paid. Amounts
recognised as distributed to Ordinary Shareholders in the half-year
to 31 March, 2016 are as follows:
31
31 March, March, 30 September,
2016 2015 2015
GBP'000 GBP'000 GBP'000
----------------------------------- ---------- --------- --------------
Fourth interim dividend
for the year ended 30 September,
2014 - 1.8125p per share
paid on 28 November, 2014 - 3,803 3,803
First interim dividend for
the year ended 30 September,
2015 - 1.8125p per share
paid on 27 February, 2015 - 3,804 3,804
Second interim dividend
for the year ended 30 September,
2015 - 1.8125p per share
paid on 29 May, 2015 - - 3,804
Third interim dividend for
the year ended 30 September,
2015 - 1.8125p per share
paid on 28 August, 2015 - - 3,804
Fourth interim dividend
for the year ended 30 September,
2015 - 1.8125p per share
paid on 27 November, 2015 3,804 - -
First interim dividend for
the year ended 30 September,
2016 - 1.8125p per share
paid on 29 February, 2016 3,804 - -
----------------------------------- ---------- --------- --------------
7,608 7,607 15,215
----------------------------------- ---------- --------- --------------
6 Share capital
Ordinary Shares
At 31 March, 2016 there were 209,880,513 Ordinary Shares in
issue (31 March, 2015: 209,878,197 and 30 September, 2015:
209,878,197) and 568,409 Ordinary Shares held in Treasury (31
March, 2015: 568,409 and 30 September, 2015: 568,409).
During the six months to 31 March, 2016 the Company issued 2,316
Ordinary Shares following receipt of elections to convert by
holders of the Company's CULS.
7 Current and non-current liabilities
6% Convertible Unsecured Subordinated Loan Stock 2016
On 29 July, 2009, the Company issued GBP80,000,000 nominal
amount of CULS. The loan stock could be converted at the election
of holders into Ordinary Shares during the months of May and
November each year until May 2016 at a rate of 1 Ordinary Share for
every 172.6445p nominal of CULS. The CULS paid interest of 6% per
annum on 31 May and 30 November each year until 31 July, 2016 when
they will be redeemed by the Company at 100% of their nominal value
unless they have previously been converted into Ordinary Shares of
the Company. There will also be a final interest payment for the
period from 31 May, 2016 to (but excluding) the date of final
payment of the CULS on 31 July, 2016. The interest is charged 25%
to revenue and 75% to capital within the Consolidated Statement of
Comprehensive Income, in line with the Board's expected long-term
split of returns from the investment portfolio of the Company.
As at 31 March, 2016 the nominal amount of CULS in issue was
GBP79,826,923 (31 March, 2015: GBP79,830,923 and 30 September,
2015: GBP79,830,923).
Zero Dividend Preference Shares
On 29 July, 2009, the Company's subsidiary, EW&PO Finance
plc, issued 60 million ZDP Shares at a price of 100p per share. The
ZDP Shares will mature on 31 July, 2016 and had a gross redemption
yield of 7% per annum at issue; that is, investors will receive
160.70p on 31 July, 2016 for every 100p invested. As at 31 March,
2016, there were 60 million ZDP Shares in issue (31 March, 2015 and
30 September, 2015: 60 million).
The Company issued to its subsidiary, EW&PO Finance plc, a
non-interest bearing Subordinated Unsecured Loan Note 2016 ("Loan
Note") equal to the net proceeds of the ZDP 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 ZDP 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 half-year
ended 31 March, 2016 is 8% (half-year to 31 March, 2015: 13% and
year to 30 September, 2015: 12.5%) based on a revenue return before
tax of GBP5,795,000 (half-year to 31 March, 2015: GBP5,190,000 and
year to 30 September, 2015: GBP14,873,000). This differs from the
standard rate of tax of 20% (31 March, 2015: 20.5% and 30
September, 2015: 20.5%) as a result of dividend income not taxable
for corporation tax purposes.
9 Principal risks
The principal risks facing the Company along with, where
appropriate, the steps taken by the Company's Board to mitigate
such risks are summarised on pages 19 to 21 and note 19 to the
Financial Statements in the Annual Report and Accounts for the year
ended 30 September, 2015 (available on the Investment Manager's web
pages (www.ecofin.co.uk) and from the Company Secretary). These
include investment performance and market risk, income risk,
liquidity risk, the Company's investment in majority owned
Lonestar, operational risks, and a loss of key investment personnel
or clients by the Investment Manager which may impair its ability
to manage the Company's assets. Additional risks relate to the
Company's capital structure and use of gearing, investment in
unquoted securities and securities of companies incorporated in
non-OECD or emerging markets, and foreign exchange risk. A further
risk relates to the interaction of supply and demand and general
market or sector sentiment, as reflected in the discount to NAV at
which the Ordinary Shares trade in the secondary market.
Interest rate risk
The Company is only exposed to significant interest rate risk
through its prime brokerage borrowings with Citigroup Global
Markets Limited and through the fair value of investments in
fixed-interest rate securities. The CULS was issued by the Group at
a fixed cost until its conversion and it is carried in the
Company's Balance Sheet at amortised cost rather than at fair
value. The ZDP Shares issued by the Group had a gross redemption
yield of 7% at their issue price; the Shares were placed with
investors at a price of 100.00p per share on 29 July, 2009 and will
be redeemed by the Group on 31 July, 2016 for 160.70p per
share.
Prime brokerage borrowings varied throughout the period as part
of a Board endorsed policy and at 31 March, 2016 amounted to the
equivalent of GBP28,888,000 (30 September, 2015: GBP43,660,000) in
a variety of currencies. All of these borrowings were at floating
rates of interest.
The Company's fixed-income portfolio at 31 March, 2016 was
valued at GBP4,442,000 (30 September, 2015: GBP7,417,000).
Foreign currency risk
The value of the Group's assets and the total return earned by
the Company's Shareholders can be significantly affected by foreign
exchange movements as most of the Group's assets are denominated in
currencies other than Sterling, the currency in which the Group's
accounts are prepared. The risk is partially offset by the Group's
foreign currency borrowings.
Market price risk
The Company's investment portfolio is subject to fluctuations,
volatility and the vagaries of market prices. The Directors seek to
mitigate this risk by ensuring proper controls exist through the
Investment Management Agreement for maintaining a diversified
portfolio of the securities of utility and utility-related
companies and ensuring that there are balances within the portfolio
by geography, sub-sector and types of instrument.
The ZDP Shares and the CULS provide gearing which is used to
enhance returns, although this also increases the Ordinary
Shareholders' exposure to market risk, resulting in greater
volatility in the net assets attributable to Ordinary
Shareholders.
Liquidity risk
The Group's assets mainly comprise readily realisable securities
which can be easily sold to meet funding commitments if necessary.
Unquoted investments in the portfolio are subject to liquidity
risk, as are thinly traded securities such as Lonestar. A liquidity
analysis is prepared on at least a quarterly basis as part of the
Investment Manager's report to the Board and the liquidity profile
of all securities, including unquoted and thinly traded securities,
is reviewed. The Investment Manager reviews the liquidity profile
of the investments continuously.
Credit risk
Credit risk is mitigated by diversifying the counterparties with
which the Investment Manager conducts investment transactions. The
credit-standing of all counterparties is reviewed periodically with
limits set on amounts due from any one broker.
10 Fair values of financial assets and financial liabilities
Except for the Group's CULS and ZDP Shares which are measured at
amortised cost, as shown below, financial assets and financial
liabilities of the Group are carried in the Balance Sheet at 31
March, 2016 at their recoverable value and at 30 September, 2015 at
their fair value (investments and derivatives) or the amount is a
reasonable approximation of realisable and fair value (due from
brokers, dividends receivable, accrued income, cash at bank, due to
brokers and prime brokerage borrowings).
31 March, 30 September
2016 , 2015
Carrying Recoverable Carrying Fair
amount value amount value
Financial assets GBP'000 GBP'000 GBP'000 GBP'000
------------------------ --------- ------------ --------- ---------
Equity investments
- quoted 476,765 476,765 451,700 451,700
Equity investments
- unquoted 15,890 15,890 20,714 20,714
Securities sold short (14,504) (14,504) (15,678) (15,678)
Fixed interest bearing
securities - quoted 4,442 4,442 4,743 4,743
Fixed interest bearing
securities - unquoted - - 2,674 2,674
Forward currency
contracts (1,719) (1,719) (300) (300)
------------------------ --------- ------------ --------- ---------
480,874 480,874 463,853 463,853
------------------------ --------- ------------ --------- ---------
Amortised Fair Amortised Fair
cost value** cost value**
Financial liabilities GBP'000 GBP'000 GBP'000 GBP'000
----------------------- ---------- ---------- ---------- ----------
CULS (85,236)* (80,426)* (84,289) (81,827)
ZDP Shares (96,420) (93,825) (91,004) (92,700)
----------------------- ---------- ---------- ---------- ----------
(181,656) (174,251) (175,293) (174,527)
----------------------- ---------- ---------- ---------- ----------
* This includes the equity component of the CULS of GBP5,409,000
(30 September, 2015: GBP5,409,000).
** Market values have been used to determine the fair values of
the Company's CULS and its ZDP Shares shown in the table above.
For these Half-year Financial Statements, the Company's
financial assets have been measured at realisable value which is
deemed to be materially equivalent to the market value of the
listed positons and the fair value of the unquoted positions at 31
March, 2016.
The Company measures fair values using a three-level fair value
hierarchy that reflects the level of judgement involved in
estimating fair value. The hierarchy categorises the inputs used in
valuation techniques into three levels:
Level 1: Investments valued using quoted market prices,
unadjusted, in active markets for identical assets are included in
Level 1.
Level 2: Financial instruments that are valued using observable
inputs, i.e. quoted market prices, dealer quotations or alternative
pricing sources supported by observable inputs, are classified as
Level 2. Level 2 investments include the Company's forward currency
contracts; these are valued using quotations provided by the Prime
Broker which uses spot foreign exchange rates and interest rates in
the respective currencies to provide the quotations.
Level 3: Investments classified as Level 3 have unobservable
inputs and these include the Company's unquoted investments
(equity, equity-related and debt instruments of unquoted
companies). These types of securities are generally subject to
higher valuation uncertainties and liquidity risks than securities
listed or traded on a regulated market. Level 3 fair values are
determined by the Directors using valuation methodologies in
accordance with the IPEV Guidelines. Significant inputs include
investment cost, the value of the most recent capital raising, the
adjusted net asset value of funds and the Ecofin Pricing
Committee's valuations. In accordance with IPEV Guidelines, new
investments are carried at cost, the price of the most recent
investment being a good indication of fair value. Thereafter, fair
value is the amount deemed to be the price that would be received
upon sale of an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
Carrying values are reviewed and assessed every month by Ecofin's
Pricing Committee and approved in the Audit Committee meetings.
At 31 March, 2016, the Company's Level 3 investments accounted
for 3.2% of its gross assets (gross assets are equal to total
assets, including securities sold short, less forward currency
contracts). Investments accounting for 2.7% of gross assets were in
two funds managed by third-party managers which value their funds
at fair value. The Directors value these investments at net asset
value, adjusted if necessary. The Directors have elected to apply a
discount of approximately 15% and 25%, respectively, to the
valuations supplied by the third-party managers in recognition of
the illiquidity of the investments. Direct investments in the
equity, equity-related or fixed-income securities of unquoted
companies accounted for 0.5% of the Company's gross assets at 31
March, 2016. The Directors valued these investments at the price of
the most recent investment or a percentage of this price.
The Directors may consider adjustments to these valuations. The
range of possible adjustments could be material, depending on the
circumstances. In the past, the Directors have accepted the
recommendation of the Investment Manager and have made adjustments
to the valuation of unquoted investments which have ranged up to
100% of their valuation as proposed by a third-party. For the
purposes of sensitivity analysis, a 25% adjustment could be
considered reasonable. A 25% adjustment to the valuation of all
Level 3 investments would result in a movement in the Company's net
assets of less than 1%.
If the inputs used to measure fair value are categorised into
different levels of the hierarchy, the investment is categorised
entirely according to the lowest priority level that is significant
to the fair value measurement of the relevant asset or
liability.
The tables below set out fair value measurements of the
Company's financial assets and liabilities as at 31 March, 2016
according to this fair value hierarchy. There have been no
transfers during the period between Level 1 and 2.
Financial assets at fair Level Level Level
value through profit or 1 2 3 Total
loss at 31 March, 2016 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- --------- --------- --------- ---------
Equity investments 476,765 - 15,890 492,655
Securities sold short (14,504) - - (14,504)
Fixed-interest bearing
securities 4,442 - - 4,442
Forward currency contracts - (1,719) - (1,719)
---------------------------- --------- --------- --------- ---------
466,703 (1,719) 15,890 480,874
---------------------------- --------- --------- --------- ---------
Financial assets at fair
value through profit or Level Level Level
loss at 30 September, 1 2 3 Total
2015 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- --------- --------- --------- ---------
Equity investments 451,700 - 20,714 472,414
Securities sold short (15,678) - - (15,678)
Fixed-interest bearing
securities 4,743 - 2,674 7,417
Forward currency contracts - (300) - (300)
---------------------------- --------- --------- --------- ---------
440,765 (300) 23,388 463,853
---------------------------- --------- --------- --------- ---------
As a quoted investment, Lonestar is included in Level 1
investments.
The Company's CULS and ZDP Shares are actively traded on a
recognised stock exchange. The fair value of the CULS 31 March,
2016: GBP80,426,000 (30 September, 2015: GBP81,827,000) and ZDP
Shares 31 March, 2016: GBP93,825,000 (30 September, 2015:
GBP92,700,000) are therefore deemed Level 1.
A reconciliation of fair value measurements in Level 3 is set
out below.
31 March, 30 September,
2016 2015
Level 3 financial assets at GBP'000
fair value through profit
or loss GBP'000
----------------------------------- ---------- --------------
Opening fair value 23,388 31,634
Transfer to Level 3 - -
Transfer from Level 3 - -
Purchases at cost - -
Sales proceeds (4,393) (25)
Total gains or losses included
in gains/(losses) on investments
in the Consolidated Statement
of Comprehensive Income
- on sold assets (864) 1
- on assets held at the end
of the period (2,241) (8,222)
----------------------------------- ---------- --------------
Closing fair value 15,890 23,388
----------------------------------- ---------- --------------
11 Post Balance Sheet event
On 31 May, 2016 the Company published a Circular to consider the
continuation and reconstruction of the Company. On 24 June, 2016
Shareholders approved the continuation of the Company and, as such,
these Financial Statements have been prepared under the break-up or
realisable basis and further details are provided in note 1.
Estimated expenses relating to the continuation vote and the
reconstruction of the Company amounting to GBP1,958,000 have been
accrued for in these Financial Statements. The finance costs for
the period reflect the additional finance costs arising from
preparing the Financial Statements on a realisable basis.
Interim Management Report
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 and Accounts of the Company for the
year ended 30 September, 2015.
The Directors consider that the Chairman's Statement and the
Investment Manager's Report on pages 2 to 6 of the Half-year
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 to 31
March, 2016 and satisfy the requirements of Disclosure and
Transparency Rules 4.2.3 to 4.2.11 of the Financial Conduct
Authority. Ernst & Young LLP, the Company's Auditor, has
reviewed this Half-year Report for the six months to 31 March,
2016.
Directors' Responsibility Statement
The Directors listed on page 26 of the Half-year Report confirm
that to the best of their knowledge:
(i) the condensed set of Financial Statements within the
Half-year Report, which have been prepared in accordance with IAS
34, "Interim Financial Reporting", as adopted by the EU, give a
true and fair review of the assets, liabilities, financial position
and profit and loss of the Group;
(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 six months to 31 March, 2016
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
(iii) the Interim Management Report includes a fair review of
the information concerning related party transactions as required
by Disclosure and Transparency Rule 4.2.8 R.
This Half-year Report was approved by the Board on 30 June, 2016
and the above Directors' Responsibility Statement was signed on its
behalf by:
Ian Barby
Chairman
30 June, 2016
Half-yearly Report 2016
The Company's Half-year Report for the six months ended 31
March, 2016 will be posted to Shareholders in July 2016. Copies of
the Half-year Report and Financial Statements will be available
from the Registered Office of the Company at 10 Harewood Avenue,
London NW1 6AA and on the website, www.ecofin.co.uk, which is a
website maintained by the Company's Investment Manager, Ecofin
Limited. A copy of the Half-year Report for the six months ended 31
March, 2016 has been submitted to the National Storage Mechanism of
the UK Listing Authority and will shortly be available for
inspection at: www.Hemscott.com/nsm.do.
For further information, please contact:
Nariman Ghandhi
Company Secretary
For and on behalf of
BNP Paribas Secretarial Services Limited
Tel: 020 7410 5971
30 June, 2016
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR BSGDLCSXBGLG
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