Company Announcements

Date:            18 June 2021

Contact:       Charles Jillings       

                       Utilico Emerging Markets Trust plc      

                       01372 271 486     

Gay Collins/Pippa Bailey

Montfort Communications

0203 770 7913

Utilico@montfort.london

UTILICO EMERGING MARKETS TRUST PLC

ANNUAL FINANCIAL REPORT

FOR THE YEAR TO 31 MARCH 2021

Utilico Emerging Markets Trust plc ("UEM" or the "Company") today announced its audited financial results for the year to 31 March 2021.

Highlights of results

·      Dividends per share totalled 7.775p for the year, an increase of 2.6%. Dividends were fully covered by earnings

·      Revenue earnings per share ("EPS") of 8.13p, an increase of 3.2% from the prior year

·      Total revenue income of £22.8m, a decrease of 5.1% from the prior year

·      Net asset value ("NAV") total return per share of 30.2%* (2020: -24.9%*)

·      NAV per share of 228.54p* per share, up 25.7%

·      Gross assets of £556.1m, an increase of 20.5%

*See Alternate Performance Measures on pages 96 and 97 of the Report and Accounts

John Rennocks, Chairman of UEM said: "We are pleased to announce UEM turned in a strong performance and importantly delivered a NAV total return of 30.2% for the year to 31 March 2021, outperforming the MSCI Emerging Markets Utilities Index which was only up by 17.2% during the twelve months. It is also pleasing to report UEM's revenue earnings per share increased by 3.2%, given the challenges faced by investee businesses and their need to preserve cash flow, especially in the first six months to 30 September 2020. UEM has now declared four quarterly dividends totalling 7.775p per share, a 2.6% increase over the previous year and the fourth quarterly dividend of 2.00p represents an uplift of 3.9% on the prior quarterly dividend. Dividend income recovered strongly in the second half of the year and dividends remain fully covered by income. The Board remains confident this quarterly rate will be maintained for the next financial year.

"Responsible investing has long been a core component to UEM's investment process and continues to be a focus for UEM. UEM's Investment Managers continue to strengthen their ESG approach to investing and ICM has recently become a signatory to the United Nations Principles for Responsible Investment.

"Despite the impact of COVID-19 on UEM's portfolio, it is worth noting that no UEM investee company has needed or is expected to require significant restructuring or refinancing. The strategic nature and business model strength of UEM's portfolio has been excellent, with most of the businesses having proved resilient. Coupled with strong government and central bank support the Board does not today see a significant risk from COVID-19 outside of market volatility in valuations."

Charles Jillings, Investment Manager of UEM added: "COVID-19 has caused unprecedented challenges for investors. ICM is strongly of the view that due to COVID-19, the shift to working from home and eCommerce has accelerated the digitalisation of governments, businesses and individuals, and this shift will offer new investment opportunities.

"UEM's gross assets (less liabilities excluding loans) increased sharply to £556.1m as at 31 March 2021 from £461.4m as at 31 March 2020. There have been eight new entries into the top twenty holdings of the portfolio over the year, as well as small sector shifts. On a geographic basis, South Korea has increased through investment and performance rising from 1.7% to 6.5% and Brazil saw the biggest reduction from 29.1% to 18.0%.

"UEM's portfolio consists of a diverse range of companies that are often under-represented in the MSCI. The strength of our sector and country knowledge built up over decades has given us an ability to continue to identify these investments, in spite of COVID-19 and global lockdowns. Despite unprecedented challenges due to COVID-19, UEM's investment objective to provide positive long-term absolute returns has not changed, and we remain optimistic to uncover compelling investments that offer excellent returns."

CHAIRMAN'S STATEMENT

The year to 31 March 2021 has continued to be truly challenging. Everybody has been impacted, with governments having to deal with unknown outcomes, business owners and investors seeking confidence and growth, and employees looking for job security, certainty and balance to their lives. We now have a better understanding on how to mitigate Covid-19 surges and that vaccines work. On the back of this rising confidence, equity share markets have recovered strongly.

Pleasingly, UEM turned in a strong performance and importantly delivered a NAV total return of 30.2% for the year to 31 March 2021, albeit from a low NAV of 178.14p on 1 April 2020. UEM measures its performance on a total absolute return objective and long-term annual compound NAV total return since inception is now 9.4%, although the Investment Managers are seeking long-term performance to be above 10.0% and this includes a rising dividend.

UEM has lagged behind the MSCI EM Index as investors globally have focused on technology companies, driving digital growth investments higher. The MSCI EM Information Technology sector Index has outperformed the rest of the markets, rising by 83.2% during the year to 31 March 2021. By its nature, UEM's portfolio is predominantly invested in utilities and infrastructure assets which have been out of favour with investors throughout most of the year. The MSCI EM Utilities sector Index was only up by 17.2% during the twelve months to 31 March 2021 compared with UEM's outperformance of 30.2% which is a significant positive.

Covid-19 continues to be a global pandemic that has impacted every continent and every community, and this cannot be over emphasised. It has exposed the stresses and weaknesses in our economies, politics and social fabric; from disrupted health services, education, business and social activities. Governments have struggled to keep up with a rapidly changing situation and deciding on the optimal medical, economic and social solutions to tackle the pandemic. The vulnerable have borne and continue to bear the greatest burden directly and indirectly from Covid-19.

The pandemic has seen both an immediate demand and supply shock which has impacted most stakeholders in all economies. As we move through the policy responses, we are seeing ongoing "aftershocks", especially in supply chains. We expect this to continue. Economic and stock market volatility is expected to remain high.

The policy response has been to seek to break community transmission of Covid-19, ranging from lockdowns, to testing, through to vaccination programmes. Economically there have been two parts to the Covid-19 response: central banks have dramatically increased the supply of capital while reducing the cost of capital; and governments have introduced significant support schemes for businesses especially around continued employment and social welfare support. These are truly unprecedented steps which have come at a very high economic cost. 

At the same time there is also an accelerating expectation that businesses address questions around their approach to Environmental, Social and Governance ("ESG") outcomes. The concept of responsible investing has always been a core component to UEM's investment process. UEM's Investment Managers have a good record on governance, given their active approach to investee companies and they have taken steps to continue to strengthen their ESG approach to investing. ICM has recently become a signatory to the United Nations - supported Principles for Responsible Investment ("PRI"), a code of best practice for incorporating ESG issues. UEM is therefore able to meet the expectations and requirements of that framework. ESG continues to be a focus for UEM, and we believe this offers significant opportunities for the Company over the long-term.

Today the world is largely over leveraged and under employed. The next significant policy steps we expect are under the broad policy banners of "build your way out of the pandemic" and the "green agenda". These will add to demand and we believe will see strong inflationary pressures continue to rise, especially where supply is disrupted. While the policy initiatives may well reduce unemployment, they will add significantly to the already unpreceded debt levels.

Over the year, the individual markets have seen strong divergences in market indices and currencies as country-by-country responses have varied, and the impact of Covid-19 has differed in its timing and its severity. A common theme within markets has been the acceleration of disruptive or enabling digital businesses, which have thrived with the shift to working from home. We expect this trend to continue and even accelerate further. There are significant technology disruption opportunities from finance to health and from businesses through to government.

Numerous and substantial social issues are still evident, including nationalism, climate change and wealth inequality. However, communities have pulled together, and the human spirit has risen above this upheaval. We hope the global leaders are up to these challenges.

The EM markets have broadly been stronger with the India Nifty 50 up 70.9%, Brazil Bovespa up 59.7%, Shanghai Composite up 25.1%, the Philippine PSEi up 21.1% and Hang Seng up 20.2%. The dampener has been currency headwinds with the Brazilian Real down 17.4% against Sterling, while the Hong Kong Dollar was down 10.4% and the Philippine Peso was down 5.4%. Much of the currency weakness has been accelerated by the impact of Covid-19, and the respective country impacts and responses. Nearly all central banks reduced interest rates in order to soften the economic impact and increase resilience in their individual economies. Brazil reduced the benchmark interest rate (Selic) from 3.75% as at 31 March 2020 to 2.75% as at 31 March 2021, while the Indian interest rate reduced by 2.0% in the year to 31 March 2021. Over the year to 31 March 2021, EM currency weakness reduced UEM's GBP NAV by an estimated 8.3%.

Commodities have moved significantly higher. Oil was caught up in the pandemic demand shock and the power struggle between oil suppliers. Oil famously traded on the Houston Exchange at negative values as oversupply combined with the shortage of storage resulted in surplus oil for immediate delivery. However, oil ended the year to 31 March 2021 up 179.4%. Expectations of a new super cycle in copper, driven by both the green agenda and a construction boom are driving copper prices to new highs. We expect this growth to continue although price volatility may continue.

The emerging risk from cyber attacks on businesses and governments is a deep concern to all. So far we have not seen evidence of it within UEM's investee companies but the apparent escalation is a concern for all.

It is also worth noting that, as economies reopen, demand for goods and services is likely to accelerate above normal trend lines. Coupled with the cost savings implemented by many businesses in the face of huge economic uncertainties from the pandemic fallout, reported margins are actually widening. We expect this to continue for much of this year.

China remains key to the EM, given its size and growth. In the short-term we expect China's GDP to remain well above its recent long-term trend line, but its GDP may fall back sharply later this year as policy responses are curtailed. Brazil is benefiting from strong commodity demand and the ongoing privatisation process should continue to attract capital into the country. India is currently being ravaged by Covid-19. Until the impact is significantly lower, its economy will remain stalled.

REVENUE EARNINGS AND DIVIDEND

It is pleasing to report UEM's revenue earnings per share increased by 3.2%, given the challenges faced by investee businesses and their need to preserve cashflow, especially in the first six months to 30 September 2020. At the half-year, revenue income was at 81.3% of the prior year. This closed up to 94.9% in the full year as dividend income recovered strongly in the second half of the year.

As at 31 March 2021 13.6% of UEM's portfolio was invested in the Data Services and Digital Infrastructure sector which is projected to be higher growth but typically pays lower dividends and as such the rest of the portfolio worked harder to deliver this earnings uplift.

UEM has now declared four quarterly dividends totalling 7.775p per share, a 2.6% improvement over the previous year. Dividends remain fully covered by income. The retained earnings revenue reserves increased by £1.0m to £6.9m (prior to the payment of the last quarter dividend). The fourth quarterly dividend of 2.00p per share represents an uplift of 3.9% on the prior quarterly dividend. The Board remains confident this quarterly rate will be maintained for the next financial year.

The Board would like to re-emphasise that UEM's portfolio is predominantly invested in relatively liquid, cash-generative companies which have long-duration assets that the Company's Investment Managers believe are structurally undervalued and offer excellent total returns.

SHARE BUYBACKS

UEM's share price discount widened over the year from 11.2% as at 31 March 2020 to 13.6% as at 31 March 2021. This continues to be above levels that the Board would wish to see over the medium term. The Company has continued buying back shares for cancellation and has stepped up its buybacks with 6.6m shares bought back in the year to 31 March 2021, at an average price of 182.81p, and total cost of £12.1m.

While the Board is keen to see the discount narrow, any share buyback remains an investment decision. Traditionally the Company has bought back shares if the discount widens in normal market conditions to over 10.0%. Since inception, UEM has bought back 56.0m ordinary shares totalling £97.8m. The buybacks now represent significantly more than the initial IPO capitalisation of UEM Bermuda when it came to market in July 2005.

MANAGEMENT AND PERFORMANCE FEES

Following a proposal from the Investment Managers to discontinue the performance fee and move to a flat fee, the Board asked UEM's brokers to determine if this was supported by our larger shareholders. There was strong consensus for the removal of the performance fee, especially from our wealth manager investors. The Board, in consultation with the Company's brokers, determined a fee of 1.0% of NAV (and reducing at higher levels of NAV) was fair to the Investment Managers and shareholders. This revised fee arrangement was implemented from 1 April 2021. As a result of the above, ongoing charges will be 1.4%, compared to 1.1% for the year to 31 March 2021. More details are set on page 97 of the Report and Accounts.

A performance fee in respect of the year to 31 March 2021 of £5.1m was earned and this was paid in cash and shares. To satisfy the share element the Investment Managers bought shares in the market which resulted in the fee being reduced by £0.3m to £4.8m as the shares were bought on market at a discount after the year-end.

BOARD

Garth Milne has indicated his intention to retire from the Board following the conclusion of UEM's forthcoming annual general meeting ("AGM"). Garth was a founding Director of UEM in 2005 and the Board and Investment Managers wish to thank him for his immense contribution over the years. His experience and level-headed approach will be missed. The Board has started the process of appointing a new independent director. The Board will continue to consider board refreshment in the coming year.

COVID-19 IMPACT ON UEM

The Covid-19 impact on UEM's portfolio is detailed in the Investment Managers' Report on page 15 of the Report and Accounts. However, it is worth noting that no UEM investee company has needed or is expected to require significant restructuring or refinancing. The strategic nature and business model strength of UEM's portfolio has been excellent. Although market valuations of some companies initially deteriorated sharply, most of the businesses have proved resilient. Coupled with strong government and central bank support the Board does not today see a significant risk from Covid-19 outside of market volatility in valuations.

Today the outlook is improving. Vaccinations are proving to be effective and the vaccination approval processes were quick. Most of the developed market economies are well on their way to "vaccine herd immunity". We expect there to be an acceleration in vaccination programmes over the coming six months in EM markets.

UEM, as a company, has adjusted to the global lockdowns and cancelled all travel by the Board. UEM moved to using video conferencing to meet the requirements by governments on social distancing and travel restrictions, whilst ensuring the Board receives regular updates on the Company's portfolio and operating performance from the Investment Managers. Nearly all interactions with UEM's service providers have been by video conference, including the audit process.

UEM CONTINUATION VOTE

UEM's forthcoming AGM in September contains a resolution proposing the continuation of the Company, as required by UEM's Articles of Association. The Board remains firmly of the view that it is in the shareholders' interest for UEM to continue as currently constituted. The Investment Managers, together with UEM's brokers, have met many of UEM's major shareholders over the last month and ascertained their views on a number of topics. These have been reflected in UEM's forward thinking and processes and UEM thanks these shareholders for their input.

outlook

While the West is successfully vaccinating its way out of Covid lockdowns it remains a fact that newer variants are proving more difficult to contain as they emerge. With the majority of the world's population unvaccinated it is almost certain new variants will continue to appear. Hopefully, all new variants are contained by the current vaccine array. With the world reopening we are seeing accelerated demand as supply chains are refilled and delayed demand is acted upon. As we are seeing in much of UEM's portfolio, this demand should result in much stronger global GDP over the coming months.  The accelerated demand and the level of supply chain disruption is leading to price inflation across most countries as costs rise to deliver goods and services.

We remain cautious about unemployment which remains high, and the unsustainable debts taken on to bridge Covid lockdowns. That said, governments remain acutely aware of the need to invest to both redress the Covid impact on their economies but also to step change the environmental challenge we all face. These two, we believe, will deliver a robust world economy and UEM's asset base should be well placed to benefit.

John Rennocks

Chairman

18 June 2021

PERFORMANCE SUMMARY

(1)  See Alternative Performance Measures on pages 96 and 97 of the Report and Accounts

(2)  Gross assets less liabilities excluding loans

(3)  The fourth quarterly dividend has not been included as a liability in the accounts

(4)  1.4% with effect from 1 April 2021 following changes to the management fee as set out on page 75 of the Report and Accounts

INVESTMENT MANAGERS' REPORT

It has been pleasing to see UEM deliver a NAV total return in the full year of 30.2%. UEM's asset class has been largely overlooked by the markets which have rightly focused on the shift to working from home and the accelerated digital explosion. This has led to markets rewarding the technology sector shares. The MSCI EM Information Technology sector Index rose by 83.2% during the year to 31 March 2021. 

The Covid-19 pandemic has impacted everyone and continues to dominate every aspect of life. There are few places, if any, that are unaffected by restrictions dictated by Covid-19. We now know how to address surges and new variants, and we know the pharmaceutical companies can produce extremely effective vaccines. However, significant challenges remain. If this pandemic is left unhindered it will escalate quickly and mutations are a major concern. India, Latin America and Africa remain mostly unvaccinated and serve as a petri dish from which variants can emerge. Significant concerns remain around a new variant being outside the vaccine capability.

Covid-19 has caused unprecedented challenges for investors. Add this pandemic to a growing list of significant and current concerns, which include central bank intervention, extreme debt levels, historic low and even negative interest rates, populism, US/China frictions, Brexit, Black Lives Matter, climate change and it is obvious that investors have been besieged by a dynamic and challenging environment. When the world's largest corporates struggle to project their next quarter's revenues, it is difficult to be confident about the direction and resilience of the global economy. ICM has continued to be focused on the economic value of their preferred investments and the delivery of their long-term financial performance. It has made sure that these investments have the right approach to risk, while still seeking opportunities that will thrive in this current and then post Covid-19 environment.

ICM is strongly of the view that due to Covid-19, the shift to working from home and eCommerce has accelerated the digitalisation of governments, businesses and individuals. This shift ranges from doctors' surgeries going online, restaurants setting up internet delivery options and farmers offering produce direct to consumers online, and this dramatic shift will offer new investment opportunities. Businesses without internet reach or capability will face a challenging outlook. Many businesses have been agile and shifted to eCommerce, which has created opportunities and generated a positive outlook for investors. We emphasise to our investee companies that disruption is coming to everybody and they need to be taking advantage of it by adapting their business models and embracing these challenges.

There are two strong trends worth emphasising. First, as individual markets recover, pent-up demands have driven above trend activity in the last two quarters. Second, most investee companies responded to the pandemic by holding or reducing costs. As recovery has commenced, this cautious approach has seen margins expand, delivering some impressive results.

We have remained confident in the portfolio's ability to deliver growth and earnings. As a result, we have shifted to fully drawing down our bank loan and our buybacks have increased in quantum, given the attractive share price discount. Today, our view is that the portfolio remains of compelling value.

PORTFOLIO

UEM's gross assets (less liabilities excluding loans) increased sharply to £556.1m as at 31 March 2021 from £461.4m as at 31 March 2020.

UEM has now expanded the list of disclosed investments to thirty holdings in its annual report and the monthly factsheet. This increases the visibility for shareholders to some two thirds of the portfolio. There have been eight new entries into the top twenty holdings of the portfolio over the year: My E.G. Services Berhad ("MYEG"); Corporacion Financiera Colombiana S.A. ("Corficolombiana"); China Gas Holdings Limited ("China Gas"); KunLun Energy Company Limited ("KunLun"); Korean Internet Neutral Exchange Inc. ("KINX"); Simpar S.A. ("Simpar"); Bolsa de Valores de Colombia ("BVC"); and Naver Corporation Limited ("Naver"). The top thirty has seen the following investments added: Starpharma Holdings Limited ("Starpharma"); Telelink Business Services Group (TBS"); VinaCapital Vietnam Opportunity Fund Ltd ("VinaCapital"); CGN Capital Partners Infra Fund 3 ("CGN F3"); Ecorodovias Infraestrutura e Logistica S.A. ("Ecorodovias"); FPT Corporation ("FPT"); and KT Corporation ("KT").

During the year to 31 March 2021, Transgaz S.A. moved out of the top twenty holdings, and through realisations: Companhia de Saneamento do Parana ("Sanepar") and Omega Geracao S.A. ("Omega") exited the portfolio; and Torrent Power Limited moved from fifteenth to twenty-eighth. The following fell outside the top thirty holdings mainly on realisations: Cosan Logisitca S.A. from ninth position as at 31 March 2020; Energisa S.A. from tenth position; APT Satellite Holdings Limited from eighteenth position; and Societe Nationale des Telecommunications du Senegal ("Sonatel") saw its share price fall with its position moving from sixteenth to twenty-second.

Three insights are worth noting: 4.0% of the portfolio falls outside the strict definition of utilities and infrastructure investments, the largest being Starpharma, a global biotech company with compelling value added nanotechnology for the pharmaceutical sector, which has increased to 1.7% of the portfolio, through outperformance; the second is VinaCapital, a closed-end fund providing access to the Vietnamese market which is twenty-fifth in the portfolio. Investing in Vietnam has always been challenging but we recognise the strong drivers for growth in this country. VinaCapital allows us to tap into this, with the added attraction being the opportunity to buy into this investment company at a significant discount. Interestingly, their top ten holdings include FPT which is twenty-ninth in the portfolio; and thirdly, CGN F3, a developer and owner operator of windfarms and solar plants in mainland China. UEM has some 3.7% invested in unlisted investments, the largest unlisted holding is CGN F3.

Purchases in the portfolio decreased to £174.7m in the year ended 31 March 2021 (31 March 2020: £270.1m) and realisations decreased to £142.1m (31 March 2020: £270.8m). This reflects investment activity more in line with long-term averages. UEM ended the year fully invested with its bank loans fully drawn.

During the year there have been some small sector shifts. The exception has been Data Services and Digital Infrastructure, which has increased from 4.4% last  year-end to 13.6% as at 31 March 2021. The drivers for this are both new investments and excellent performance. More detail is set out on page 29 of the Report and Accounts.

On a geographic basis Brazil saw the biggest reduction with the exit from Omega and Energisa contributing to this. Furthermore, the Brazilian Real decline of 17.4% has driven Sterling portfolio values down. As such Brazil reduced from 29.1% to 18.0%. South Korea has increased through investment and performance, and has risen from 1.7% to 6.5%.

UEM ended the year with level 3 investments of £20.9m (2020: £13.9m), representing 3.7% of total investments. UEM's level 3 investments increased mainly as a result of £8.4m of additional investments in the year to 31 March 2021.

BANK DEBT

UEM's net debt, being bank loans and overdrafts, net of cash, increased from £7.6m as at 31 March 2020 to £53.6m as at 31 March 2021, as UEM actively increased its investment positions and therefore exposure to the stock market. UEM's loan facility was renewed in March 2021. The £50.0m committed multicurrency revolving facility now matures in March 2024 and has been novated to The Bank of Nova Scotia, London Branch.

REVENUE RETURN 

Revenue income decreased to £22.8m as at 31 March 2021, from £24.0m as at 31 March 2020, a decrease of 5.1%. This reflects both the impact of currencies and the shift of 13.6% of the portfolio into Data Services and Digital Infrastructure which are lower yielding investments. It is worth noting that as at the half-year, revenue income was some 81.3% of the prior year and at the full year this had recovered to 94.9%.

Management fees and other expenses decreased by 21.3% to £2.7m in the year to 31 March 2021. This reflected that for most of the year, the NAV was lower. Finance costs remained modest at £0.3m given the low interest rate environment. Taxation reduced by 27.6% to £1.6m during the year ended 31 March 2021 (2020: £2.2m).

Arising from the above, profit for the year increased by 1.2% to £18.2m from £18.0m for the prior year. Earnings per share was higher, a rise of 3.2% to 8.13p compared to the prior year of 7.88p due to the increase in profit and reduced average number of shares in issue following buybacks in both years. Dividends per share of 7.775p were fully covered by earnings.

Retained revenue reserves rose to £6.9m as at 31 March 2021, some 3.11p per share.

CAPITAL RETURN

The portfolio gained £114.3m on the capital account during the year to 31 March 2021. There were net losses on derivatives of £4.5m and gains on foreign exchange of £2.2m. The resultant total income gain on the capital account was £112.1m against prior year losses of £150.1m.

Management and administration fees were higher at £7.4m (31 March 2020: £3.0m), as a result of a performance fee for the year to 31 March 2021. Finance costs decreased to £0.6m from £0.8m as a result of lower interest costs. There was a charge for taxation of £1.6m (31 March 2020: £2.1m) which arose mainly from Indian capital gains tax. The net effect of the above was a gain on capital return of £102.4m (31 March 2020: a loss of £156.0m).

Charles Jillings
ICM Investment Management Limited
and ICM Limited

18 June 2021

PRINCIPAL RISKS AND RISK MITIGATION

During the year ended 31 March 2021, ICMIM was the Company's AIFM and had sole responsibility for risk management, subject to the overall policies, supervision, review and control of the Board.

The Board considers carefully the Company's principal and emerging risks and uncertainties. It seeks to mitigate these risks through regular review by the Audit & Risk Committee of the Company's risk register which identifies the risks facing the Company and the likelihood and potential impact of each risk, together with the controls established for mitigation. Emerging risks are considered at each Audit & Risk Committee meeting. As required by the Association of Investment Companies ("AIC") Code of Corporate Governance, the Board has undertaken a robust assessment of the principal risks facing the Company. The Covid-19 pandemic, which emerged towards the end of the Company's previous financial year, gave rise to significant challenges for businesses worldwide and the Board took these into account as part of its assessment of risks to the Company.

The principal risks and uncertainties currently faced by the Company and the controls and actions to mitigate those risks, are described below. There have been no significant changes to the principal risks during the year.

INVESTMENT RISK: The risk that the investment strategy does not achieve long-term positive total returns for the Company's shareholders.

The Board monitors the performance of the Company and has established guidelines to ensure that the approved investment policy is pursued by the Investment Managers. These guidelines include sector and market exposure limits.

The investment process employed by the Investment Managers combines assessment of economic and market conditions in the relevant countries with stock selection. Fundamental analysis forms the basis of the Company's stock selection process, with an emphasis on sound balance sheets, good cash flows, the ability to pay and sustain dividends, good asset bases and market conditions. ESG factors are also considered when selecting and retaining investments and political risks associated with investing in EM are assessed. The Investment Managers try to reduce risk by ensuring that the Company's portfolio is always appropriately diversified. Overall, the investment process aims to achieve absolute returns through an active fund management approach and the Board monitors the implementation and results of the investment process with the Investment Managers.

MARKET RISK: The Company's assets consist mainly of listed securities and its principal risks are therefore market related and adverse market conditions could lead to a fall in NAV.

The Company's portfolio is exposed to equity market risk and foreign currency risk. Adverse market conditions may result from factors such as economic conditions, political change, climate, natural disasters and health epidemics. At each Board meeting the Board reviews the diversification of the portfolio, asset allocation, stock selection, unquoted investments and levels of gearing and has set investment restrictions and guidelines which are monitored and reported on by the Investment Managers.

The Company's results are reported in Sterling, although the majority of its assets are priced in foreign currencies and therefore any rise or fall in Sterling will lead, respectively, to a fall or rise in the Company's reported NAV. Such factors are out of the control of the Board and the Investment Managers and may give rise to distortions in the reported returns to shareholders. It is difficult and expensive to hedge EM currencies.

KEY STAFF RISK: Loss by the Investment Managers of key staff could affect investment returns.

The quality of the investment management team is a crucial factor in delivering good performance. There are training and development programs in place for employees and the remuneration packages have been developed in order to retain key staff. Any material changes to the management team are considered by the Board at its next meeting; the Board discusses succession planning with the Investment Managers at regular intervals.

DISCOUNT RISK: The Company's shares may trade at a discount to their NAV and a widening discount may undermine investor confidence in the Company.

The Board monitors the price of the Company's shares in relation to their NAV and the premium/discount at which they trade. The Board generally buys back shares for cancellation in normal market conditions if they are trading at a discount in excess of 10% and the Investment Managers agree that it is a good investment decision.

OPERATIONAL RISK: Failure by any service provider to carry out its obligations to the Company in accordance with the terms of its appointment could have a materially detrimental impact on the operation of the Company and could affect the ability of the Company to successfully pursue its investment policy

The Company's main service providers are listed on page 95 of the Report and Accounts. The Audit & Risk Committee monitors the performance and controls (including business continuity procedures) of the service providers at regular intervals.

All listed and most unlisted investments are held in custody for the Company by JPMorgan Chase Bank N.A. - London Branch with a small number of unlisted investments held in custody by Waverton Investment Management Limited ("Waverton"). JPMEL, the Company's depositary services provider, also monitors the movement of cash and assets across the Company's accounts. The Audit & Risk Committee reviews the JP Morgan SOC1 reports, which are reported on by Independent Service Auditors, in relation to its administration, custodial and information technology services.

The Board reviews the overall performance of the Investment Managers and all the other service providers on a regular basis. The risk of cybercrime is high, as it is with most organisations, but the Board regularly seeks assurances from the Investment Managers and other service providers on the preventative steps that they are taking to reduce this risk.

GEARING: Whilst the use of borrowings should enhance total return where the return on the Company's underlying securities is rising and exceeds the cost of borrowing, it will have the opposite effect where the underlying return is falling.

Gearing levels may change from time to time in accordance with the Board and Investment Managers' assessment of risk and reward. As at 31 March 2021, UEM had net gearing on net assets of 10.6%. ICMIM monitors compliance with the banking covenants when each drawdown is made and at the end of each month. The Board reviews compliance with the banking covenants at each Board meeting.

REGULATORY RISK:

Failure to comply with applicable legal and regulatory requirements such as the tax rules for investment companies, the FCA's Listing Rules and the Companies Act 2006 could lead to suspension of the Company's Stock Exchange listing, financial penalties, a qualified audit report or the Company being subject to tax on capital gains.

The Investment Managers and the Company's professional advisers monitor developments in relevant laws and regulations and provide regular reports to the Board in respect of the Company's compliance.

DIRECTORS' STATEMENT OF RESPONSIBILITIES

in respect of the Annual Report and the Financial Statements

The Directors are responsible for preparing the Annual Report and financial statements in accordance with applicable United Kingdom law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law, they are required to prepare the financial statements in accordance with International Financial Reporting Standards in conformity with the requirement of the Companies Act 2006.

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of its profit or loss for that period. In preparing these financial statements, the Directors are required to:

•      select suitable accounting policies and then apply them consistently;

•      make judgements and estimates that are reasonable and prudent;

•      state whether they have been prepared in accordance with IFRS in conformity with the requirement of the Companies Act 2006;

•      assess the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

•      use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website, which is maintained by the Company's Investment Managers. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE ANNUAL FINANCIAL REPORT

We confirm that to the best of our knowledge:

·      the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

·      the Strategic Report and Directors' Report include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

Approved by the Board on 18 June 2021 and signed on its behalf by:

John Rennocks

Chairman

STATEMENT OF COMPREHENSIVE INCOME

All items in the above statement derive from continuing operations.

The 'Total' column of this statement is the profit and loss account of the Company and the 'Revenue' and 'Capital' columns represent supplementary information prepared under guidance issued by the Association of Investment Companies.

The Company does not have any income or expense that is not included in the profit/(loss) for the period and therefore the profit/(loss) for the period is also the total comprehensive income for the period, as defined in International Accounting Standard 1 (revised).

All income is attributable to the equity holders of the Company.

STATEMENT OF CHANGES IN EQUITY

STATEMENT OF FINANCIAL POSITION

STATEMENT OF CASH FLOWS

NOTES

The Directors have declared a fourth quarterly dividend in respect of the year ended 31 March 2021 of 2.000p per share payable on 23 June 2021 to shareholders on the register at close of business on 4 June 2021. The total cost of the dividend, which has not been accrued in the results for the year to 31 March 2021, is £4,415,000 based on 220,773,519 shares in issue at the record date.

This statement was approved by the Board on 18 June 2021. The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 March 2021 or 2020 but is derived from those accounts. Statutory accounts for 2020 have been delivered to the Registrar of Companies and those for 2021 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

The Report & Accounts for the year ended 31 March 2021 will be posted to shareholders in early July 2021.  A copy will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism and on the Company's website www.uemtrust.co.uk.

Legal Entity Identifier: 2138005TJMCWR2394O39