GSS: Genesis Emerging Markets Fund Ld: Annual Financial Report

  GSS: Genesis Emerging Markets Fund Ld: Annual Financial Report

UK Regulatory Announcement



                         (the “Company”; the “Fund”)

                         (Registration Number: 20790)

                         STOCK EXCHANGE ANNOUNCEMENT


The Directors of Genesis Emerging Markets Fund Limited announce the Fund’s
results for the year ended 30^th June 2012. The Annual Financial Report will
shortly be available from the Manager's website “” and also for
inspection on the National Storage Mechanism, which is located at where users can access the regulated information
provided by listed entities.


The investment approach is to identify companies which are able to take
advantage of growth opportunities in emerging markets for the benefit of
shareholders, and invest in them when they are trading at an attractive
discount to the Manager’s assessment of their intrinsic value.


MSCI Emerging Markets (Total Return) Index.


                                         30^th June 2012  30^th June 2011
Published net asset value*                 £693.1m           £773.1m
Published net assets per Participating     £5.14             £5.73
Preference Share*
Published net assets per Participating     $8.06             $9.20
Preference Share*^†
Earnings per Participating Preference      $(1.15)           $1.95

*The figures are based on mid-market prices.

†A reconciliation to the net asset value under International Financial
Reporting Standards is shown in note 2.



While markets rebounded somewhat during the early months of 2012, the legacy
of the challenging investment environment towards the end of 2011 (when
emerging stock markets provided no haven from the problems of the developed
world) meant that the Fund’s net asset value (“NAV”) per share closed the
financial year at £5.14, having fallen 10.3% (from £5.73) over the twelve

We have noted in the past how the Manager’s approach (which attempts to
identify high quality companies that are being underpriced by the market) has
historically been effective in protecting the Fund’s value to a degree when
markets are declining. This has continued to be the case during this financial
year as the Fund’s performance compares favourably with the 13.7% decline in
the MSCI EM (TR) Index.

I refer shareholders to the Manager’s Review on the following pages, which
comments on the factors driving these returns, as well as describing the
economic environment and some of the changes to the Fund’s holdings over the

While shareholders would of course prefer to see positive returns from the
Fund’s investments in any given year, in the context of the impressive returns
produced by emerging markets in 2009 and 2010, some retracement over the last
eighteen months or so should not be particularly surprising.

Clearly, however, it is important to look at performance over the longer term
in order to assess whether the Fund is successfully meeting shareholder
expectations, and with this in mind, the Directors believe the Manager is
performing well for the Fund’s holders. Average returns per annum of 7.9% over
the last five years, and 17.1% over the last ten, are both significantly ahead
of the MSCI EM (TR) Index. The Board’s view remains, therefore, that – noting
the consistency of the Manager’s approach to investment in emerging markets,
and the stability of its investment personnel – shareholders’ interests will
continue to be well served by the ongoing appointment of the Manager.

The average discount over the period was 7.6%, which was slightly higher than
the previous twelve months, reflecting market declines and hence a reduced
appetite for emerging markets in general. Trading volumes appeared to have
been relatively steady relative to last year, and the shareholder base
continues to widen.

The Board

The notice convening the Annual General Meeting (AGM) to be held on 2^nd
November 2012 will be found at the end of the Annual Financial Report. I would
like to draw shareholders’ attention to various items with respect to the
Board of Directors, for which we request approval by vote as detailed on the

Firstly, I would like to remind shareholders of the recent announcement of
Hélène Ploix’s nomination as a Director, effective from the date of the AGM.

Hélène Ploix is currently Chairman of Paris-based private equity investment
firm Pechel Industries. She has had an extensive career in finance and
investment in the public and private sectors, both in France (primarily at the
French state-owned Caisse des Dépôts et Consignations) and internationally
(notably as an Executive Director at the IMF and of the World Bank and as a
Member of the Investments Committee of the UN Joint Staff Pension Fund). She
currently is a Non-Executive Director of BNP Paribas, Lafarge and Sofina
(Brussels), serves on the Advisory Board of Publicis and previously at a
number of other companies, including The Boots Company PLC. Mrs Ploix was
educated at the Institut d’Etudes Politiques, the University of California at
Berkeley, and INSEAD.

As with other recent appointments to the Board, Mrs Ploix’s appointment is in
line with our desire to have a group of Directors who represent a variety of
different backgrounds, and my fellow Directors and I feel that her wide
experience will make her an extremely valuable member of the Fund’s Board, who
will add considerable knowledge and insight to our discussions. Additionally,
Mrs Ploix has published a number of articles on corporate governance-related
matters, and her expertise in this field will also assist us to maintain
proper corporate governance.

Mrs Ploix’s appointment is, naturally, subject to shareholder approval at the
AGM; I wholeheartedly endorse her election to the Board.

One impact of Mrs. Ploix’s appointment will be to bring the Board’s total
remuneration close to the limit provided for by the Fund’s Articles of
Association. We have therefore taken the view that it would be prudent to
increase the provision for Directors’ total remuneration to $400,000 from the
current $200,000. Such an increase will allow us the flexibility to ensure
smooth succession planning by adding new Directors to the Board as necessary,
and will give us the ability to set remuneration levels closer to the market
rate when and as appropriate.

In accordance with regulatory requirements, the other five Directors of the
Fund also offer themselves for re-election at the Annual General Meeting. All
have been highly valuable members of the Board during their time as Directors,
and I have no hesitation in recommending to shareholders that they continue to
serve on the Board.

I hope that shareholders will also feel able to vote in favour of my
re-election and allow me to continue to serve them as Chairman of the Board of

We will be holding an Information Meeting in London on 26^th October 2012 and
we hope to see as many shareholders as possible at this event.


The 2012-13 financial year has seen modest market gains thus far, but
continued investor nervousness about the global economy (reflected in the
underperformance of more cyclical sectors) and uninspiring economic data seem
likely to continue to weigh on market returns in the short-term.

That said, we feel the outlook for emerging markets remains positive, and
these stockmarkets’ potential to generate continued steady returns remains
very much in place. Naturally, companies in different parts of the world face
a variety of headwinds, ranging from slowing growth, to increasing regulation
and higher levels of competition (in particular, in many cases, from developed
market companies). Despite these, however, the long-term attractions of
investing in the right emerging markets companies continue to be compelling.
The Manager remains confident that the companies in the Fund’s portfolio of
holdings generally remain attractively-priced, given their growth

Accordingly, as a Board, we firmly believe that the Fund is well-placed to
continue generating attractive returns for shareholders over the medium to
long term.

                                                                 Coen Teulings
                                                                September 2012



The total loss for the year for the Fund amounted to $155,642,000 compared to
a total profit of $262,844,000 in the previous year. The Directors do not
recommend the payment of a dividend in respect of the year ended 30^th June
2012 (2011: nil).


At 30^th June 2012, the value of Equity Shareholders’ Funds was $1,081,560,000
(2011: $1,237,202,000), the Equity per Participating Preference Share was
$8.02 (2011: $9.17).


The investment objective of the Fund is to achieve capital growth over the
medium to long term, primarily through investment in equity securities quoted
on emerging markets. The main risks to the value of its assets arising from
the Fund’s investment in financial instruments are unanticipated adverse
changes in market prices and foreign currency exchange rates and an absence of
liquidity. The Board reviews and agrees with the Manager policies for managing
each of these risks and they are summarised below. These policies have
remained unchanged since the beginning of the period to which these financial
statements relate.

The economies, the currencies and the financial markets of a number of
developing countries in which the Fund invests may be extremely volatile. To
manage the risks posed by adverse price fluctuations the Fund’s investments
are geographically diversified, and will continue to be so. The Fund will not
normally invest more than 25% of its assets (at the time the investment is
made) in any one country. Further, the exposure to any one company or group
(other than an investment company, unit trust or mutual fund) is unlikely to
exceed 5% of the Fund’s net assets at the time the investment is made. The
Articles of Incorporation place a limit of 10% for securities issued by one
company but the Directors use 5% for monitoring purposes.

The Fund’s assets will be invested in securities of companies in various
countries and income will be received by the Fund in a variety of currencies.
However, the Fund will compute its net asset value and make any distributions
in US dollars. The value of the assets of the Fund as measured in US dollars
may be affected favourably or unfavourably by fluctuations in currency rates
and exchange control regulations. Further, the Fund may incur costs in
connection with conversions between various currencies.

Trading volumes on the stock exchanges of developing countries can be
substantially less than in the leading stock markets of the developed world.
This lower level of liquidity exaggerates the fluctuations in the value of
investments described previously. The restrictions on concentration and the
diversification requirements detailed above also serve normally to protect the
overall value of the Fund from the risks created by the lower level of
liquidity in the markets in which the Fund operates.

The Fund’s key operational risk is custody risk. Custody risk is the risk of
loss of securities held in custody occasioned by the insolvency or negligence
of the custodian. Although an appropriate legal framework is in place that
eliminates the risk of loss of value of the securities held by the custodian,
in the event of its failure, the ability of the Fund to transfer the
securities might be temporarily impaired. The day to day management of these
risks is carried out by the Manager under policies approved by the Board.


In the opinion of the Directors, in order to achieve the investment objective
of the Fund, and having taken into consideration the performance of the Fund,
the continuing appointment of the Manager is in the interests of the
shareholders as a whole. A more detailed commentary of important events that
have occurred during the year and their impact on these accounts are contained
in the Manager’s Review.


The Directors are responsible for preparing the financial statements for each
financial year so that they give a true and fair view, in accordance with
applicable Guernsey Law and International Financial Reporting Standards as
adopted by the European Union (“IFRS”), of the state of affairs of the Fund
and of the profit or loss of the Fund for that year.

In the preparation of these financial statements, the Directors are required

  *select suitable accounting policies and then apply them consistently;
  *make judgments and estimates that are reasonable and prudent;
  *ensure the financial statements are prepared on a going concern basis
    unless it is inappropriate to presume that the Fund will continue in
    business; and
  *state whether applicable accounting standards have been followed subject
    to any material departures disclosed and explained in the financial

The Directors confirm that they have complied with the above requirements in
preparing the financial statements. The Directors are responsible for ensuring
that the Fund keeps proper accounting records which disclose with reasonable
accuracy at any time the financial position of the Fund and enable them to
ensure that the financial statements comply with The Guernsey Companies Law,
2008. They are also responsible for ensuring the safeguarding of the assets of
the Fund and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.

The financial statements are published on the website, which is
maintained by the Fund’s Investment Adviser. The maintenance and integrity of
the website is, so far as relates to the Fund, the responsibility of the
Investment Adviser. The work carried out by the auditors does not involve
consideration of these matters and, accordingly, the auditors accept no
responsibility for any changes that may have occurred to the financial
statements since they were initially presented on the website.

Legislation in Guernsey governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.


In the case of each of the persons who are Directors at the time when the
report is approved, the following applies:

  *so far as the Director is aware, there is no relevant audit information of
    which the Fund’s auditors are unaware; and
  *they have taken all steps that ought to have been taken as a Director in
    order to make themselves aware of any relevant audit information and to
    establish that the Fund’s auditors are aware of that information.


The following Directors who served throughout the period under review (except
Saffet Karpat who was appointed on 1^st October 2011 and The Hon. John Train
who resigned on 28^th October 2011) had a beneficial interest in the share
capital of the Fund at 30^th June 2012:

Directors                                                    Preference Shares
Coen Teulings                                                40,000
Michael Hamson (including family interests)                  8,700
Saffet Karpat                                                -
Dr. John Llewellyn                                           -
Dr. Geng Xiao                                                -
The Hon. John Train (including family interests, resigned    20,510
on 28^th October 2011)


Following the second half of 2011 when the developed world’s debt problems
dominated investor sentiment and pushed the MSCI Emerging Markets (Total
Return) Index down by some 16%, the start of 2012 provided some brief respite
before euro concerns triggered a further retreat of risk appetite. The MSCI
Emerging Markets (Total Return) Index closed the twelve-month period down
13.7% in sterling terms, with the Fund falling 10.3%.

Amongst the major emerging markets, Russia and Brazil performed particularly
badly over the year in sterling terms as sentiment focused on Brazil’s
currency weakness and current account deficit, and political unrest and a lack
of reform in Russia (as well as its proximity to Europe). The Indian market
also struggled, reflecting its poor economic numbers, whereas markets
perceived as more ‘defensive’ – Mexico, Malaysia, South Africa – performed
relatively well. From a sector perspective, energy stocks struggled as the
price of Brent crude oil fell to below US$100 per barrel, and the
International Energy Agency revised down its demand forecasts in the face of
increasing supply, particularly from Saudi Arabia. In contrast, as well as the
defensive consumer staples and telecoms sectors, IT stocks also did reasonably
well, as investors became more aware of the scale of penetration of mobile
devices in many developing countries.

Portfolio changes over the twelve months featured significant buying in Brazil
as the market fell, particularly in Itau Unibanco and in one new holding: rail
concession All America Latina Logistica. India was another country where
macro-driven market weakness produced some attractive stock opportunities: a
further new introduction to the portfolio was Kotak Mahindra Bank, and we also
increased the portfolio’s weights in IT businesses Infosys and Tata Consulting
Services. The relative underperformance of many materials stocks in recent
weeks also enabled us to add to a number of holdings, including Anglo
American, First Quantum Minerals, and Chinese cement companies Anhui Conch and
China Resources Cement. In contrast, given their strong performance this year,
we lightened up the Fund’s holdings in TSMC and Samsung Electronics, and
reduced a number of positions in banking and cement companies in Indonesia for
the same reason.

There is plenty in the emerging markets outlook for investors to be negative
about, quite apart from the potential impact of financial stresses in Europe.
Recent economic data from China have disappointed investors, and it remains
uncertain how much genuine reform aimed at higher-quality domestic growth can
be achieved by the new leadership in the face of still-considerable vested
interests. Many people in India are adamant that the country faces a major
crisis, as a combination of fiscal imbalances, slowing growth and political
paralysis has led to two rating agencies putting India on negative watch for a
potential downgrade to below investment grade status. Economic data from
elsewhere are mostly similarly uninspiring.

Against this, there are some brighter spots. Lower inflation in many
developing countries (India being a notable exception) gives scope for
monetary stimulus to boost growth: for example, the People’s Bank of China cut
its benchmark deposit and lending rates by 50 basis points at the beginning of
June. And despite the gloom in the financial markets in Russia, for example,
the companies we have been meeting there in recent months (for example, in
property, construction, food retail, pharmaceuticals and telecoms) suggested
robust domestic demand. Banks are also indicating strong demand for loans in
most segments (Sberbank’s April retail loan book was up 49% year-on-year)
although to some extent the stresses incurred in 2008 are apparently still
present, and corporate loan growth remains somewhat subdued.

Fundamentally, the Fund is trading at an attractive discount to our assessment
of its intrinsic value, and continues to hold a large variety of
attractively-priced, high-quality businesses whose management teams have
demonstrated an ability to add value for shareholders over the long term.
Looking past the short-term outlook, we remain confident that the Fund will
continue to generate the returns that the Fund’s holders have come to expect.

                                                   Genesis Asset Managers, LLP
                                                                September 2012


                            as at 30^th June 2012

                                                2012         2011
                                            Note   $’000           $’000
  Current Assets
  Financial assets at fair value through           1,068,101       1,219,925
  profit or loss
  Amounts due from brokers                         3,952           5,340
  Dividends receivable                             2,810           5,003
  Other receivables and prepayments                160             162
  Cash and cash equivalents                        10,407          13,495
  TOTAL ASSETS                                     1,085,430       1,243,925
  Current Liabilities
  Amounts due to brokers                           160             2,636
  Capital gains tax payable                        1,664           2,053
  Payables and accrued expenses                    2,046           2,034
  TOTAL LIABILITIES                                3,870           6,723
  TOTAL NET ASSETS                                 1,081,560       1,237,202
  Share premium                                    134,349         134,349
  Capital reserve                                  916,195         1,068,728
  Revenue account                                  31,016          34,125
  TOTAL EQUITY                                     1,081,560       1,237,202
  PREFERENCE SHARE*                         2      $8.02           $9.17

* Calculated on an average number of 134,963,060 Participating Preference
Shares outstanding (2011: 134,963,060)


                      for the year ended 30^th June 2012

                                              2012         2011
                                                 $’000           $’000
  Net change in financial assets at fair         (152,351)       265,037
  value through profit or loss
  Net exchange losses                            (182)           (554)
  Dividend income                                19,504          25,396
  Deposit interest                               7               21
  Miscellaneous income                           98              -
                                                 (132,924)       289,900
  Management fees                                (16,598)        (17,629)
  Custodian fees                                 (1,406)         (1,476)
  Transaction costs                              (1,275)         (990)
  Directors' fees and expenses                   (289)           (414)
  Administration fees                            (198)           (172)
  Audit fees                                     (88)            (53)
  Other expenses                                 (140)           (182)
  TOTAL OPERATING EXPENSES                       (19,994)        (20,916)
  OPERATING (LOSS)/PROFIT                        (152,918)       268,984
  Bank charges                                   (1)             (1)
  TOTAL FINANCE COSTS                            (1)             (1)
  Capital gains tax                              (923)           (3,340)
  Withholding taxes                              (1,800)         (2,799)
  TOTAL TAXATION                                 (2,723)         (6,139)
  ATTRIBUTABLE TO PARTICIPATING                  (155,642)       262,844
  Other Comprehensive Income                     -               -
  TOTAL COMPREHENSIVE (LOSS)/INCOME              (155,642)       262,844

* Calculated on an average number of 134,963,060 Participating Preference
Shares outstanding (2011: 134,963,060).


                      for the year ended 30^th June 2012

                     Share         Capital         Revenue         Total
                     Premium       Reserve         Account
                     $’000         $’000           $’000           $’000
Balance at the
beginning of the     134,349       1,068,728       34,125          1,237,202
Comprehensive        -             -               (155,642)       (155,642)
Transfer from        -             (152,533)       152,533         -
Capital Reserve
Balance at the end   134,349       916,195         31,016          1,081,560
of the year
                            Share          Capital     Revenue     Total
                            Premium        Reserve     Account
                            $’000          $’000       $’000       $’000
Balance at the
beginning of the            134,349        804,245     35,764      974,358
Comprehensive               -              -           262,844     262,844
Transfer to                 -              264,483     (264,483)   -
Capital Reserve
Balance at the end          134,349        1,068,728   34,125      1,237,202
of the year


                      for the year ended 30^th June 2012

                                                  2012         2011
                                                   $’000           $’000
Dividends received                                 21,795          22,288
Taxation paid                                      (3,112)         (4,119)
Purchase of financial assets                       (208,526)       (202,054)
Proceeds from sale of financial assets             206,911         204,663
Interest received                                  7               21
Operating expenses paid                            (19,981)        (20,438)
Foreign exchange loss                              -               (1)
                                                   (2,906)         360
Effect of exchange losses on cash and cash         (182)           (554)
                                                   (3,088)         (194)
Net cash and cash equivalents at the
                                                   13,495          13,689
beginning of the year
NET CASH AND CASH EQUIVALENTS AT THE END           10,407          13,495
Cash and cash equivalents                          10,407          13,495


The principal accounting policies applied in the preparation of these
consolidated financial statements are set out below. These policies have been
consistently applied to all years presented, unless otherwise stated.

The consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards as adopted by the European Union
(“IFRS”) and interpretations by the International Financial Reporting
Interpretations Committee of the International Accounting Standards Board.

The consolidated financial statements have been prepared under the historical
cost convention, as modified by the revaluation of financial assets and
financial liabilities at fair value through profit or loss.

The preparation of consolidated financial statements in conformity with IFRS
may require management to make critical accounting judgements, estimates and
assumptions that affect the application of policies and the reported amounts
of assets and liabilities, income and expense. The estimates and associated
assumptions about the future which are made by management relating to unlisted
securities, are made using models generally recognised as standard within the
industry and inputs are based on the historical experience and various other
factors that are believed to be reasonable under the circumstances, the
results of which form the basis of making the judgements about the carrying
value of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates.


                                              2012       Per Participating
                                               Total       Preference Share
                                               $’000       $
Published net asset value                      1,087,287   8.06
Change from mid-market pricing to bid          (5,727)     (0.04)
pricing for investments
Net asset value under IFRS                     1,081,560   8.02
                                               2011        Per Participating
                                               Total       Preference Share
                                               $’000       $
Published net asset value                      1,241,698   9.20
Change from mid-market pricing to bid          (4,496)     (0.03)
pricing for investments
Net asset value under IFRS                     1,237,202   9.17



The Manager’s appointment is under a rolling contract which may be terminated
by three months written notice given by the Fund and twelve months by the

Under the Management Agreement, the Manager is entitled to receive a
management fee from the Fund, payable monthly in arrears and is equal to 1.5%
per annum, calculated and accrued on the net asset value of the Fund as at
each weekly Valuation Day, except for investments in other funds, where the
Manager will absorb the expenses of the management of other such funds to a
maximum of 1% per annum of the value of the Fund’s holding in the relevant
fund at the relevant time. The effective management fee on the average net
assets of the Fund was 1.49% (2011: 1.49%). Where, in order to gain access to
a particular market, investment is made in a vehicle directly managed by
Genesis, no fee will be payable by the Fund on that proportion of its assets
so invested, unless no management fee is charged to that vehicle.


The Administrator, HSBC Securities Services (Guernsey) Limited, is entitled to
receive a fee, payable monthly, based on time incurred. Administration fees
were $198,000 (2011: $172,000) for the year.


Under the Custodian Agreement, HSBC Custody Services (Guernsey) Limited, as
Custodian to the Fund, is entitled to receive a fee payable monthly, based on
the net asset value of the Fund. Under the agreement between the Custodian and
the Sub-Custodian, JP Morgan Chase Bank, the latter is also entitled to
receive a fee calculated on the same basis as the Custodian’s fee. The Fund
also reimburses the charges and expenses of other organisations with whom
securities are held. The total of all Custodian fees for the year represented
approximately 0.13% (2011: 0.12%) per annum of the average net assets of the


Included in Directors’ fees and expenses are Directors’ fees for the year of
$173,000 in total (2011: $170,000). Also included are travelling, hotel and
other expenses which the Directors are entitled to when properly incurred by
them in travelling to, attending and returning from meetings and while on
other business of the Fund.


The Genesis Indian Investment Company Limited and Genesis Smaller Companies
SICAV were related parties of the Fund by virtue of having a common Manager in
Genesis Asset Managers, LLP. The Fund’s holdings in these Funds are summarised
in the portfolio statement of the Annual Financial Report, subscriptions and
redemptions during the year under review are detailed below. There were no
other transactions between the Fund and such related parties during the year
except as noted above and there are no outstanding balances between these
entities at 30^th June 2012.

                                            Subscriptions  Redemptions
                                            $’000           $’000
Genesis Indian Investment Company Limited   -               24,085
Genesis Smaller Companies SICAV             1,639           7,218
                                            Subscriptions   Redemptions
                                            $’000           $’000
Genesis Indian Investment Company Limited   11,003          8,458
Genesis Smaller Companies SICAV             1,000           25,149

These are not the statutory accounts. The Annual Financial Report for the year
ending 30^th June 2012 will be sent to shareholders and will be available for
inspection at the registered office: Arnold House, St. Julian’s Avenue, St.
Peter Port, Guernsey, GY1 3NF.

For Genesis Emerging Markets Fund Limited
HSBC Securities Services (Guernsey) Limited, Secretary
September 2012



Genesis Emerging Markets Fund Ld
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