GSS: Genesis Emerging Markets Fund Ld: Half-yearly Report UK Regulatory Announcement LONDON GENESIS EMERGING MARKETS FUND LIMITED (the “Company”; the “Fund”) (Registration Number: 20790) STOCK EXCHANGE ANNOUNCEMENT HALF YEAR REPORT The Directors of Genesis Emerging Markets Fund Limited announce the Fund’s Half Year Report for the six months ended 31^st December 2012. The Report will shortly be available from the Manager's website “www.giml.co.uk” and also for inspection on the National Storage Mechanism, which is located at http://hemscott.com/nsm.do where users can access the regulated information provided by listed entities. INVESTMENT OBJECTIVE 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. BENCHMARK MSCI Emerging Markets (Total Return) Index. RESULTS 31^st December 2012 31^st December 2011 Published net asset value* £759.8m £662.2m Published net assets per Participating £5.65 £4.91 Preference Share* Published net assets per Participating $9.15 $7.64 Preference Share*† Earnings per Participating Preference $1.09 ($1.56) Share * 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. CHAIRMAN’S STATEMENT Performance The investment environment has been rather uncertain over the last six months, following the negative sentiment which dominated in the spring of last year. Despite this, however, equity markets have performed reasonably well. The Fund’s net asset value per share (“NAV”) rose by 9.6% in sterling terms over the half-year period, marginally underperforming the MSCI Emerging Markets Index which increased by 10.0%. The share price, however, rose by 14.8% over the same period, partly driven by some significant additional purchases by one of the Fund’s major shareholders, and supported by a trend of considerable interest from investors in emerging markets more generally. This activity meant that the shares in fact traded briefly at a small premium to its NAV in mid-October, before the discount moved back towards more typical levels, finishing the period at 3.3%. The Board The Fund held its Annual General Meeting on 2^nd November 2012, at which Hélène Ploix was elected to the Board. As I noted to shareholders in the Annual Report six months ago, Mrs Ploix’s extensive international experience in finance and investment will bring a valuable contribution to the Board’s deliberations, and its discussions with the Manager. Mrs Ploix’s appointment brings the number of Board Members to six, representing a range of financial and business backgrounds and skills, and we will, as a group, continue to strive to meet shareholders’ expectations and protect their interests. I am also pleased to report that shareholders voted in favour of all proposals at the Annual General Meeting, and I thank them for their continuing support. A number of shareholders attended the Fund’s Annual Information Meeting in London in October. All holders are welcome to this event, which allows them to hear presentations from representatives of the Manager. The discussion provided a detailed view of the Manager’s outlook for emerging markets as well as the current positioning and recent performance of the Fund, and on this occasion also incorporated a presentation on south-east Asia, a region the Manager currently feels is a source of particularly attractive companies, and a number of interesting developments. The Manager’s Review that follows this Statement explains some of the activity in the portfolio over the last few months, and comments on the investment environment. Outlook Looking forward we believe that the environment will remain challenging for investors during 2013. One feature of recent months has been that those companies (often in the consumer sector) which appear to have some level of predictability of income or cashflow have performed well, as investors have trended towards “safe” investments in both developed and emerging markets. It is worth remembering, however, a point often emphasised by the IMF (whose view of the outlook the Manager also quotes from on the following page) while better policy choices in emerging economies over the last decade have led to improved stock market performance, they have generally helped economic growth by lengthening the duration of the upturns rather than muting the magnitude of the downturns. As a result investors looking for short-term “safe” investments in emerging markets may be disappointed. Conversely, those with a longer-term perspective should continue to do well in emerging markets, where the best companies have the ability to use volatility or downturns to their great advantage. Coen Teulings Chairman February 2013 RESULTS The total profit for the period for the Fund amounted to $146,613,000 compared to a total loss of $210,408,000 for the same period in the previous year. The Directors do not recommend the payment of a dividend in respect of the period ended 31^st December 2012 (2011: nil). CAPITAL VALUES At 31^st December 2012, the value of Equity Shareholders’ Funds was $1,228,173,000 (30^th June 2012: $1,081,560,000) and the Equity per Participating Preference Share was $9.10 (30^th June 2012: $8.02). PRINCIPAL RISKS AND UNCERTAINTIES 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. MANAGER 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 period and their impact on these accounts are contained in the Manager’s Review. DIRECTORS The following Directors had a beneficial interest in the share capital of the Fund at 31^st December 2012: Participating Preference Shares Directors at 31^st December 2012 Coen Teulings 40,000 Michael Hamson (including family interests) 8,700 RELATED PARTY TRANSACTIONS During the reporting period, there is no transaction with related parties which has materially affected the financial position or performance of the Fund. However, details of related party transactions are contained in the Annual Financial Statement for the year ended 30^th June 2012 which should be read in conjunction with this Interim Financial Statement. GOING CONCERN The Directors believe that the Fund has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements. RESPONSIBILITY STATEMENT The Directors confirm that to the best of their knowledge: *the condensed set of financial statements has been prepared in accordance with IAS 34 ‘Interim Financial Reporting’; *as required by DTR 4.2.7R of the FSA’s Disclosure and Transparency Rules, the interim management report includes a fair review of important events that have occurred during the first six months of the financial year 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 *the interim management report includes a fair review of the information concerning related party transactions required by DTR 4.2.8R. Signed on behalf of the Board Coen Teulings Dr. John Llewellyn February 2013 MANAGER’S REVIEW Equities have rallied over the last six months, recovering somewhat from the severe retreat in risk appetite that closed the Fund’s last financial year. Caution remains appropriate, however, and it would be difficult to improve on the IMF’s October summary of the current global economic outlook: “The recovery continues, but it has weakened. In advanced economies, growth is now too low to make a substantial dent in unemployment. And in major emerging market economies, growth that had been strong earlier has also decreased.” Developing economies continue to provide the bulk of the IMF’s 1.5% global growth estimate for 2013, but are affected by the tortuous unwinding of the developed world’s debt overhang, mainly through the slowdown in global trade. The Fund’s return was roughly in line with that of the MSCI Emerging Markets Index over the half-year. In terms of significant drivers of relative performance, the Fund’s two major materials sector holdings have had contrasting experiences. Anglo American was a major detractor from portfolio performance and has had a torrid year, not only with generally weaker product prices but also continued doubts over its capital allocation process centered on its large, costly and much-delayed Minas Rio iron ore project in Brazil. On the positive side, First Quantum Minerals continued on its growth path, successfully commissioning a new project in Finland and announcing a substantial expansion to its flagship mine in Zambia as well as two new projects in that country. The company ended the year by bidding for a fellow mid-tier copper miner with a large undeveloped project in Panama. The absence of any holding in the underperforming Vale (Brazil) also had a positive effect on performance. In other sectors, energy companies Tullow Oil and OGX (Brazil) underperformed their peers, while retail mall developer Central Pattana (Thailand) continued its very strong 2012 performance to December. Looking at portfolio changes, India has been the market seeing most purchase activity for the Fund in recent months, with auto manufacturer Maruti Suzuki and Cognizant, an IT services firm that complements the holdings in Infosys and TCS, added to the portfolio during the second half of 2012. Elsewhere the Fund instigated positions in a number of new holdings in several markets, including Novolipetsk Steel (Russia), milk company China Mengniu Dairy, Robinson Department Stores in Thailand, and First Bank, the largest bank in Nigeria by assets, deposits and loans. The holdings of Bank of Ayudhya (Thailand) and Santander Brasil were also increased, along with Anglo American (in response to its price weakness), while a number of Indonesian banks and cement holdings were reduced after a prolonged period of strong performance. The expected return of the portfolio remains in double digits. We forecast that earnings growth in 2013 will accelerate to the mid-teens following approximately 10% growth in 2012. While pockets of the portfolio appear expensive, particularly some consumer holdings, others remain attractive, most notably in the financials and materials sectors. Our estimates suggest that, in aggregate, the companies we follow in Russia and South Korea are on single-digit earnings multiples for 2013, with companies in the major markets of China and Brazil trading only a touch higher. This is enticing, we believe, given that we are talking about the best quality companies in these countries. Genesis Asset Managers, LLP February 2013 UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Audited) 31^st December 2012 30^th June 2012 $’000 $’000 ASSETS Current Assets Financial assets at fair value through 1,213,431 1,068,101 profit or loss Amounts due from brokers 44 3,952 Dividends receivable 890 2,810 Other receivables and prepayments 154 160 Cash and cash equivalents 18,863 10,407 TOTAL ASSETS 1,233,382 1,085,430 LIABILITIES Current Liabilities Amounts due to brokers 1,250 160 Capital gains tax accrued 2,048 1,664 Payables and accrued expenses 1,911 2,046 TOTAL LIABILITIES 5,209 3,870 TOTAL NET ASSETS 1,228,173 1,081,560 EQUITY Share premium 134,349 134,349 Capital reserve 1,066,689 916,195 Revenue account 27,135 31,016 TOTAL EQUITY 1,228,173 1,081,560 EQUITY PER PARTICIPATING PREFERENCE SHARE* $9.10 $8.02 * Calculated on an average number of 134,963,060 Participating Preference Shares outstanding as at 31^st December 2012 (30^th June 2012: 134,963,060). UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the six months ended 31^st December 2012 2012 2011 $’000 $’000 INCOME Net change in financial assets at fair value through 150,621 (207,091) profit or loss Net exchange losses (127) (134) Dividend income 8,472 7,137 Deposit interest - 7 Miscellaneous income 17 94 158,983 (199,987) EXPENSES Management fees (8,715) (8,133) Custodian fees (677) (706) Transaction costs (593) (644) Directors' fees and expenses (163) (150) Administration fees (106) (115) Audit fees (36) (24) Other expenses (107) (74) TOTAL OPERATING EXPENSES (10,397) (9,846) OPERATING PROFIT/(LOSS) 148,586 (209,833) FINANCE COSTS - - Capital gains tax (1,008) (1) Withholding taxes (965) (574) PROFIT/(LOSS) AFTER TAX 146,613 (210,408) Other Comprehensive Income - - TOTAL COMPREHENSIVE INCOME/(LOSS) ATTRIBUTABLE TO 146,613 (210,408) PARTICIPATING PREFERENCE SHARES EARNINGS PER PARTICIPATING PREFERENCE SHARE* $1.09 $(1.56) * Calculated on an average number of 134,963,060 Participating Preference Shares outstanding as at 31^st December 2012 (30^th June 2012: 134,963,060). UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the six months ended 31^st December 2012 For the six months ended 31^st December 2012 Share Capital Revenue Total Premium Reserve Account $’000 $’000 $’000 $’000 Balance at the beginning of the 134,349 916,195 31,016 1,081,560 year Total Comprehensive Income - - 146,613 146,613 Transfer to Capital Reserve - 150,494 (150,494) - Balance at the end of the 134,349 1,066,689 27,135 1,228,173 period For the six months ended 31^st December 2011 Share Capital Revenue Total Premium Reserve Account $’000 $’000 $’000 $’000 Balance at the beginning of the 134,349 1,068,728 34,125 1,237,203 year Total Comprehensive Loss - - (210,408) (210,408) Transfer from Capital (207,224) 207,224 - Reserve Balance at the end of the 134,349 861,504 30,941 1,026,795 period UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS for the period ended 31^st December 2012 2012 2011 $’000 $’000 OPERATING ACTIVITIES Dividends received 10,409 11,409 Taxation paid (1,589) (1,345) Purchase of investments (99,514) (112,080) Proceeds from sale of investments 109,803 109,166 Interest received - 7 Operating expenses paid (10,526) (10,229) NET CASH INFLOW/(OUTFLOW) FROM 8,583 (3,072) OPERATING ACTIVITIES Effect of exchange losses on cash and cash equivalents (127) (133) NET INCREASE /(DECREASE) IN 8,456 (3,205) CASH AND CASH EQUIVALENTS Net cash and cash equivalents at the 10,407 13,496 beginning of the period NET CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 18,863 10,291 Comprising: Cash and cash equivalents 18,863 10,291 1. BASIS OF PREPARATION 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 Interim Financial Information for the six months ended 31^st December 2012 has been prepared in accordance with International Accounting Standards 34, ‘Interim Financial Reporting’. The Interim Financial Information should be read in conjunction with the Annual Financial Statements for the year ended 30^th June 2012, which have been prepared in accordance with International Financial Reporting Standards (‘IFRS’). The unaudited 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. 2. RECONCILIATION OF PUBLISHED NET ASSET VALUE ATTRIBUTABLE TO EQUITY SHAREHOLDERS TO THE IFRS EQUIVALENT 31^st December 2012 Total Per Participating Preference Share $’000 $ Published net asset value 1,234,771 9.15 Change from mid-market pricing to (6,598) (0.05) bid pricing for investments Net asset value under IFRS 1,228,173 9.10 30^th June 2012 Per Participating Total Preference Share $’000 $ Published net asset value 1,087,287 8.06 Change from mid-market pricing to (5,727) (0.04) bid pricing for investments Net asset value under IFRS 1,081,560 8.02 3. COST OF INVESTMENT TRANSACTIONS During the period, expenses were incurred in acquiring or disposing of investments. For the six months ended For the six months ended 31^st December 2012 31^st December 2011 $’000 $’000 Acquiring 281 300 Disposing 312 344 593 644 4. SEGMENT INFORMATION The Fund treats all of its operations, for management purposes, as a single operating segment as it does not aim at controlling or having any significant influence over the entities in which it holds its investments. The Fund is invested in equity securities. All of the Fund’s activities are interrelated, and each activity is dependent on the others. Accordingly, all significant operating decisions are based upon analysis of the Fund as one segment. The financial positions and results from this segment are equivalent to those per the consolidated financial statements of the Fund as whole, as internal reports are prepared on a consistent basis in accordance with the measurement and recognition principles of IFRS. The table below analyses the Fund’s operating income by investment: For the six months ended For the six month ended 31^st December 2012 31^st December 2011 $’000 $’000 Equity Securities 158,983 (199,987) For Genesis Emerging Markets Fund Limited HSBC Securities Services (Guernsey) Limited, Secretary February 2013 Contact: Genesis Emerging Markets Fund Ld
GSS: Genesis Emerging Markets Fund Ld: Half-yearly Report
Press spacebar to pause and continue. Press esc to stop.