Final Results

RNS Number : 7350O

Aberdeen Emerging Markets Inv Co Ld

31 January 2019

 

Aberdeen Emerging Markets Investment Company Limited

LEI: 213800RIA1NX8DP4P938

A UK-listed investment company, seeking consistent returns from a diversified portfolio of emerging market funds

Annual Report and Accounts

For the year ended 31 October 2018

Financial Highlights

Aberdeen Emerging Markets Investment Company Limited ("AEMC" or the "Company") is a closed-end investment company with its Ordinary shares listed on the premium segment of the London Stock Exchange. It offers investors exposure to some of the best investment talent within the global emerging markets of Asia, Eastern Europe, Africa and Latin America.

 

The Company is governed by a board of independent directors, and has no employees. Like most other investment companies, it outsources its investment management and administration to an investment management group, the Standard Life Aberdeen Group, and other third party providers.

 

Net asset value ("NAV") per Ordinary share total return1, 5			NAV per Ordinary share2
-12.4%			600.6p
2017	+14.9%		2017	706.0p
Share price total return1, 5			Ordinary share price - mid market
-15.7%			515.0p
2017	+17.0%		2017	632.5p
MSCI Emerging Markets Net Total Return Index in sterling terms			Net Assets
-9.0%			£276.6 million
2017	+16.6%		2017	£361.5 million
Gearing3, 5			Ongoing charges ratio ("OCR")5
+7.0%			1.02%
2017	+6.0%		2017	1.07%
Dividends per share4			Revenue return per share
21.0p			2.03p
2017	10.0p		2017	-0.68p

1 Performance figures stated above include reinvestment of dividends on the ex-date

2 See note 14 in the Notes to these Financial Statements for basis of calculation

3 Based on the net of the drawn down loan value and cash, as a percentage of NAV

4 Dividends declared for the year in which they were earned

5 Definitions of these Alternative Performance Measures ('APMs') together with how these have been calculated can be found at the end of this announcement.

Investment Objective

The Company's investment objective is to achieve consistent returns for shareholders in excess of the MSCI Emerging Markets Net Total Return Index in sterling terms (the "Benchmark").

Investment Policy

The Company's investment policy is included in the annual report and Accounts.

Benchmark

MSCI Emerging Markets Net Total Return Index in sterling terms.

 

Management

The Company's Manager is Aberdeen Standard Fund Managers Limited ("ASFML", the "AIFM" or the "Manager") which has delegated the investment management of the Company to Aberdeen Asset Managers Limited ("AAML" or the "Investment Manager"). Both companies are wholly owned subsidiaries of Standard Life Aberdeen plc, which was formed by the merger of Aberdeen Asset Management PLC and Standard Life plc on 14 August 2017. Aberdeen Standard Investments is a brand of the investment business of the merged entity.

The Company's portfolio is managed by Aberdeen Standard Investments' highly experienced Closed End Fund Strategies ("CEFS") team, which is amongst the most experienced of any operating globally with a similar strategy.

 

Financial Calendar

29 March 2019	First interim dividend payable for year ending 31 October 2019
16 April 2019	Annual General Meeting (Guernsey)
June 2019	Second interim dividend payable for year ending 31 October 2019
June 2019	Announcement of Half-Yearly Financial Report for the six months ending 30 April 2019
September 2019	Third interim dividend payable for year ending 31 October 2019
December 2019	Fourth interim dividend payable for year ending 31 October 2019
January/February 2020	Announcement of Annual Report and Accounts for the year ending 31 October 2019

Chairman's Statement

 

Overview

Over the year to 31 October 2018, the Company's net asset value ("NAV") fell by 12.4% in total return terms. This compares to a fall of 9.0% in the Company's benchmark, the MSCI Emerging Markets Net Total Return Index (in sterling terms).

The fall in markets can be attributed mostly to the final quarter of the financial year when the benchmark index declined by more than 9%, with October delivering the worst monthly decline in two years. Markets were impacted by the effect of a rising US Dollar as the US economy continued to strengthen, but also by concerns over trading relationships between the US and China as well as a slowdown in economic activity in China. The two largest markets to which the Company is exposed, China and South Korea, fell by 13.4% and 16.7% respectively in total return terms.

Relative to the benchmark, the Company benefited from its overweight exposure to Russia and its non-index exposure to Romania. It also benefited from discount narrowing of its closed ended investment funds holdings. However, there was an adverse impact from stock selection within the portfolio as a number of underlying managers struggled to match their respective benchmarks. Many of the underlying funds are exposed to smaller and medium sized companies which underperformed the market as a whole.

A more detailed explanation of the year's performance is provided in the Investment Manager's Report.

Continuation Vote and Tender Offer

Under the terms of its Articles of Incorporation, the Company was required to propose a continuation resolution at the Annual General Meeting ("AGM") on 12 April 2018 at which the Board was pleased that a significant majority of investors voted in favour of the continuation of the Company.

In the run up to the continuation vote, the Board undertook a consultation exercise covering a large proportion of the shareholder base and received feedback that, while a large majority of shareholders by total number of shares held were supportive both of the measures taken to make an investment in the Company more appealing and of the continuation of the Company, there was potentially some appetite for the liquidity that could be provided by a tender offer. Accordingly, at a General Meeting held on the same day as the AGM, shareholders were asked to approve a tender offer for up to 10% of the shares in issue at a price reflecting a discount of 3.5% to the prevailing  NAV per share. Following the approval of the tender offer by shareholders, a total of 5,119,633 shares (representing 10% of the shares in issue) were repurchased by the Company to hold in treasury.

There will be a further continuation vote at the Company's AGM in 2023 and, if that is passed, at every fifth AGM thereafter.

Dividends

During the previous year the Board announced its intention to commence making distributions by way of dividends to be funded from a combination of income and capital. This measure was adopted in the belief that the level of dividends paid by emerging market companies over the long term is an increasingly important attraction for investors seeking to invest in the emerging market asset class.

Three interim dividends, each of 5.25p per share, were paid on 29 March, 29 June and 28 September 2018 and, since the year end, a fourth and final interim dividend in respect of the year of 5.25p per share was paid on 21 December 2018. This brings the total dividends for the year to 21p per share.

For future years, the Board intends to continue to pay interim dividends on a quarterly basis, in March, June, September and December and it is anticipated that the total dividend for the year ended 31 October 2019 will be no less than 21p per share. Accordingly, the Board declares a first interim dividend for the current financial year, of 5.25p per share, which will be paid on 29 March 2019 to shareholders on the register on 1 March 2019.

The Board will put a resolution to shareholders at the AGM in respect of its policy to declare four interim dividends each year, and will include this as a resolution at future AGMs.

The payment of any dividends will be subject to compliance with all necessary regulatory obligations of the Company, including the Guernsey Law solvency test, compliance with its loan covenants, and will also be subject to the Company retaining sufficient cash for its working capital requirements.

Loan Facility and Gearing

During the year the Board announced the renewal of the Company's £25 million unsecured multicurrency revolving loan facility for a further year to March 2019. The Board believes that the use of gearing, which is one of the advantages of a closed ended structure, within pre-determined ranges and at times when the Investment Manager sees attractive investment opportunities, will be beneficial to the longer term performance of the Company. At the end of the year an amount of £20 million was drawn down under the facility, representing gearing, net of cash, of 7.0%.

The Company has commenced discussions with its bankers and the Board expects to renew the facility on similar terms when it matures in March this year.

Discount and Share Buy Backs

The discount of the share price to NAV at the end of the period was 14.3%. The Board monitors the discount on an ongoing basis and, during the year, prior to the tender offer and in accordance with its stated discount management policy, the Company bought back 30,000 Ordinary shares (2017: 551,450 Ordinary shares) to hold in treasury. Shares held in treasury may only be resold at a price that represents a premium to the prevailing NAV per share.

The Board's policy in relation to discount control is that it considers it desirable that the Company's shares do not trade  at a price which, on average, represents a discount that is out of line with the Company's direct peer group. To assist the Board in taking action to deal with a material and sustained deviation in the Company's discount from its peer group it seeks authority from shareholders annually to buy back shares. Shares may be repurchased when, in the opinion of the Board and taking into account factors such as market conditions and the discounts of comparable companies, the Company's discount is higher than desired and shares are available to purchase in the market. The Board is of the view that the principal purpose of share repurchases is to enhance net asset value for remaining shareholders, although it may also assist in addressing the imbalance between the supply of and demand for the Company's shares and thereby reduce the scale and volatility of the discount at which the shares trade in relation to the underlying net asset value.

Board Composition

On 4 October 2018, the Board announced that, due to an increase in other commitments, Mr Mark Barker had resigned as a non-executive Director of the Company. The Board is currently seeking a replacement. The Board would like to extend its thanks to Mr Barker for his valued contribution to the Company over the period of his tenure. Mr John Hawkins has been a Director of the Company since 2009 and has given notice to the Board of his intention to step down at the Annual General Meeting to be held in 2020.

Annual General Meeting ("AGM")

The AGM will be held at 12 noon on 16 April 2019 at 11 New Street, St Peter Port, Guernsey, GY1 2PF. The Notice of the Meeting is contained in the Annual Report and Accounts.

Outlook

There were a number of issues that had an impact on emerging markets during 2018 but, as these abate, the backdrop for the sector has started to improve. In particular, there has been a meaningful shift in the likely policy trend of the Federal Reserve which, in light of the recent market volatility and increasing economic uncertainty, has indicated that its stance on further interest rates increases is flexible and dependent on economic conditions. This would be a positive development for emerging markets and, in particular, their currencies.

Most emerging economies are now significantly better equipped than they were in the past to withstand the challenges of external events. Debt levels are relatively low, central banks hold substantial hard currency reserves, as well as operating flexible exchange rate regimes, and most countries now benefit from either smaller current account deficits, or surpluses.

The Board believes that these factors bode well for the outlook for the sector and continues to believe that shareholders benefit from the diversification provided by the Company's approach of investing through a portfolio of specialist funds run by talented managers with strong investment propositions, providing an attractive means for investors to benefit from the longer term attractions of emerging markets.

Mark Hadsley-Chaplin

Chairman

31 January 2019

Investment Manager's Report

During the financial year the Company's NAV total return per Ordinary share was -12.4% while the MSCI Emerging Markets Net Total Return Index (the "Benchmark") declined by 9.0%. The share price total return was -15.7%, as the discount to NAV at which the Company's shares trade widened to 14.3%, compared with 10.4% at the start of the financial year.

Relative NAV performance over the period was disappointing, particularly given the historic tendency for the Company's investment strategy to outperform in risk-off periods due to the high level of diversification in the portfolio. Performance attribution for the period reveals positive contributions from asset allocation and discount narrowing, offset by a negative contribution from fund selection and the impact of gearing (7.0% at the end of the period, based on the net of the drawn down loan value and cash, as a percentage of NAV). The contribution from asset allocation was driven to a significant extent by positioning in the Europe, Middle East and Africa region where the overweighting of Russia and off-benchmark investment in Romania had a material positive impact. Asian positioning also added value with the underweight allocation to China the most notable contributor. In Latin America, an underweight position in Brazil and off-index exposure to Argentina detracted from relative returns. The benefit from discount narrowing in the Company's closed end fund investments was primarily driven by a number of the Company's larger investments in Asia, notably Edinburgh Dragon Trust, Fidelity China Special Situations ("Fidelity") and Weiss Korea Opportunity Fund Limited.

The Company's financial year proved to be a challenging one for many of the underlying managers with which the Company is invested. Managers in all regions struggled to beat benchmark returns. A common theme amongst the Company's underlying active managers is a tendency to overweight less well researched small and medium sized companies. Such companies underperformed the larger stocks that dominate the index in the risk-averse environment of the past twelve months. Over that period, the MSCI Emerging Markets Small Cap Net Total Return Index declined by 13.9%, close to 5% adrift of the Company's Benchmark.

Material underperformance by an underlying manager necessarily prompts a review of the case for remaining invested. In the vast majority of cases our conversations with such managers have revealed sound explanations for benchmark relative underperformance. A couple of examples may serve to demonstrate the kind of issues that have been faced.

The Brown Advisory Latin American Fund is the Company's largest standalone exposure to Latin America, accounting for 6.5% of net assets. The management team comprises two of the most experienced stock pickers in the region, and is one of very few teams to survive intact what has been a brutal 7-8 years for markets in the region. Their approach is differentiated from rivals in that they allocate solely to high quality growth companies with a focus on the domestic economy. The strategy of selecting companies with high returns on invested capital is one that has delivered handsomely in most equity markets over the long term. We are comfortable with this approach, believing it delivers a high quality portfolio that ought to perform strongly over time. Over the last few years however, this has not been the case, and in the period under review, it underperformed sharply (fund -15.7% vs MSCI Latin America +1.5%). We should stress that the managers do not build their portfolio relative to a benchmark, but invest with the goal of generating absolute returns over the long term. To illustrate how different the portfolio is we note that the "active share"¹ against the index is almost 95%. The major source of relative underperformance during the period was that the managers actively avoid state owned and influenced companies as well as commodity or energy producers. Vale (iron ore and nickel producer) and Petrobras (state influenced energy producer), which together represented 16% of the MSCI Latin America Index at the end of the period, rallied by 61.7% and 53.2% respectively. Not owning these two companies alone explains half the relative underperformance. While this performance is disappointing, we do not consider the long term proposition to have been impaired; the team is stable (and well aligned with investors), the process has been consistently employed and the portfolio is attractive on quality, growth and valuation metrics. If anything, we believe the fund has become more compelling, as it also provides exposure to materially undervalued currencies and an attractive asset allocation that differs significantly from the Latin American index (10% Argentina, 33% in the Andean markets of Chile, Colombia and Peru, 50% in Brazil and only 6% in Mexico). For these reasons, we continue to hold the fund despite the recent headwinds to performance.

In Asia, Fidelity China Special Situations is another core holding, accounting for 5.6% of the Company's net assets at the end of the period. It too had a difficult year, delivering a NAV total return of -19.2%, which lagged the MSCI China Net Total Return Index by 5.8% as a combination of gearing, losses on index shorts and several stock-specific issues proved costly. Despite last year's underperformance the fund's long term performance remains impressive with a NAV total return of 101.6% over the last five years compared with an index return of 58.3%. The fund is managed by the twenty year Fidelity veteran Dale Nicholls, whose entire career has been focused on Asian equities. Dale draws on a deep pool of research analysts based in the region. Like Brown Advisory Latin American Fund the approach is highly active and index agnostic. The process focuses on identifying competitive, cash generative companies with good long term growth prospects. Strong governance is vital in China and Fidelity looks for highly competent management teams that are aligned with minority investors. This leads the manager to typically favour private companies (as opposed to State Owned Enterprises) which often operate in "new economy" areas such as e-commerce and social media or are beneficiaries of emerging middle class consumption trends in areas such as healthcare and financial services. The approach also leads the manager to have a significant bias towards small and mid-sized companies where the opportunities to add value are greater given the lack of sell-side research. By way of illustration, some 30% of net assets is invested in stocks with a market cap of less than £1 billion although such stocks account for just 0.5% of the China index. The trust fully exploits the benefits of the closed end structure by investing to a modest extent in unlisted stocks (an area in which the manager has historically added significant value) and makes active use of leverage and the ability to take short positions. While the last year has been uncomfortable we retain confidence in the differentiated approach and the manager's abilities to add value over the long term.

1 A measure of how different a portfolio is from an index that can range from 0% to 100%.

NAV performance attribution for the year ended 31 October 2018

Fund Selection	(3.7%)
Asia	(1.9%)
EMEA	(0.8%)
Latin America	(1.0%)
Asset Allocation	0.9%
Asia	0.4%
EMEA	2.0%
Latin America	(0.3%)
Cash/Gearing (direct and underlying)	(1.2%)
Discount Narrowing	0.4%
Fees and Expenses	(1.0%)
Net asset value underperformance*	(3.4%)

* The above analysis has been prepared on a total return basis.

Market Environment

Emerging markets were largely range-bound in the first half of the period, but experienced a sharp decline in the final months of the year as the US dollar resumed its upwards trajectory and sentiment towards emerging markets deteriorated. A disappointing result in a period in which UK and US equities rose.

For much of the year, investors' major concern was the rhetoric around trade arrangements between the world's two largest economies - the US and China. This, and a deceleration in economic activity, contributed to the Chinese market's 13.4% decline. Elsewhere in the region, the South Korean market fell by 16.7%, as trade concerns and a weakening domestic economy hampered sentiment despite an easing of political tensions in the Korean peninsula. India was one of the few markets to demonstrate any resilience through this uncertainty, but it too succumbed in the final months of the year amidst a financial sector panic, ending the period down 8.9%. In Malaysia, Barisan Nasional's defeat in the parliamentary elections allowed Mahathir Mohamad to assume the role of Prime Minister at 92 years of age, ending the ruling coalition's 61 years in power. The stock market reacted positively, gaining 5.1%.

Within the Europe, Middle East and Africa region there was a clear divergence between those markets that benefit from rising energy prices and those that do not. Energy exporters Qatar and Russia gained 42.9% and 15.2% respectively. The gains in Russia were made despite the announcement of additional US sanctions amidst deteriorating diplomatic ties with the West. The South African and Turkish markets declined by 14.1% and 40.8% respectively. Being net importers of oil was not helpful for either country but other factors were at play too. The deterioration in the economic and political situation in South Africa contributed to a change in leadership with Cyril Ramaphosa sworn in as president in February. Local equities and the currency reacted positively to this change but the euphoria rapidly dissipated. Performance was also hampered by the technology stock sell-off that saw Naspers (close to 30% of the South African index) lose 24.9% of its market value in the period. The sharp decline in Turkey was triggered by a collapse in confidence in the face of a widening current account deficit and persistent inflationary pressures. The increasingly autocratic leadership of President Erdogan called into question the independence of the central bank and its ability to respond appropriately to the economic conditions facing the country.

Latin American equities saw a stark divergence in performance between the region's two major markets. The Mexican market declined 11.1% amidst uncertainty surrounding the North American Free Trade Agreement ("NAFTA") renegotiation process and the July general election that saw the historically leftist Andrés Manuel López Obrador elected president. Politics also play a significant role in Brazil where the populist Jair Bolsonaro emerged victorious in the October presidential elections. His policy pledges include a clamp down on political corruption and crime more generally. The stock market and currency reacted favourably, resulting in a 9.0% gain for the period.

Portfolio

During the year we continued to concentrate the portfolio into high conviction investment ideas, whilst also taking advantage of market volatility. We added to Turkey around the time of its currency collapse, a contrarian move that we felt was justified based on distressed valuations and the rampant negativity surrounding that market. At the time the Turkish market was trading below its global financial crisis lows and at the lowest valuations of the past decade. Since our purchase, the Turkish market and currency have remained volatile as a consequence of the uncertainty regarding the economic outlook, domestic politics and relations with the US, Europe and its Middle Eastern neighbours.

Later in the year we initiated a holding in Saudi Arabia. While recent headlines have been dominated by the Khashoggi affair, we believe the country stands well placed to benefit from a number of catalysts, including elevated energy prices, a domestic reform programme, low currency risk (given the peg to the US dollar), a financial sector that benefits from higher US interest rates and the planned inclusion of Saudi Arabian equities in the MSCI Emerging Markets Index in 2019.

Purchases were funded from a combination of cash returned through corporate actions, as well as opportunistic sales of closed end funds trading at narrower than average discounts to net asset value.

The year saw good progress on a number of corporate actions in the portfolio's closed end fund investments. In May, Aberdeen Emerging Markets Equity Income Fund, the rollover vehicle from AEMC's investment in Aberdeen Latin American Equity Fund, announced that it would undertake a cash tender offer for up to 32% of the fund's outstanding shares at a 1% discount. The fund also made a special distribution, comprised of net realised capital gains representing 9.1% of the fund's net assets. The tender offer was completed in June.

Also in June, the board of Genesis Emerging Markets Fund announced a tender offer for 10% of its shares in issue at a discount of 3.5% to the prevailing NAV per share. The tender was completed in early September and was not fully taken up by all shareholders which allowed AEMC to scale up and exit 12.4% of its holding. In addition to this tender offer, the board announced that if the NAV total return over the 5 years ending 30 June 2021 does not exceed the MSCI Emerging Markets Index, the company will undertake a further tender offer for 25% of shares in issue.

China Fund Inc announced proposals in late August for a tender offer for up to 30% of its outstanding shares at 99% of net asset value to be undertaken following the completion of the search for a new investment manager. Since the end of AEMC's financial year, Matthews Asia was named as the new manager and we expect the tender offer will be completed in February 2019.

BlackRock Emerging Europe was required to offer shareholders a full exit at NAV less applicable costs. Details of the exit opportunity were released in late May. It subsequently became evident that a significant percentage of the company's shareholders wished to exit and that would have left the on-going fund at an unviable size. Alternative proposals were therefore brought forward that would see the existing vehicle liquidated and allow shareholders to elect between a cash exit or rolling their investment into BlackRock Frontiers Investment Trust. This proposal was approved by BlackRock Emerging Europe's shareholders since  AEMC's financial year end. We elected to exit in full which resulted in the investment being fully realised in December 2018.

The weighted average discount to net asset value of the Company's closed end holdings was 10.4% at the end of the period, largely unchanged from 10.7% at the beginning of the period despite the weak sentiment towards emerging markets.  The overall composition of the portfolio by type of vehicle did however change in a meaningful way over the period with the allocation to open ended funds increasing relative to that of closed ended funds. This change reflected steady returns of capital from certain closed end fund liquidity events as well as allocations to best of breed managers of open ended funds in markets we view positively from an asset allocation standpoint. We will readily allocate a greater portion of the portfolio back into closed end funds when we see attractive opportunities to do so.

October 2018		October 2017
Closed ended investment funds	48.6%	54.3%
Open ended investment funds	53.1%	47.2%
Market access products	5.3%	4.5%
Cash and other net assets	-7.0%	-6.0%

The Company's geographic allocation is shown included in the Annual Report and Accounts. Our top down process continues to favour Eastern Europe, the Middle East and Africa and we increased exposure to the region by over 6.0% during the year through purchases of BlackRock Emerging Europe, Avaron Emerging Europe and exchange traded funds in Saudi Arabia and Turkey. This increase was funded by a reduction of around 3% each in Asia and Latin America, with full exits made from positions in India and Mexico on asset allocation grounds.

In total, the Company's exposure to frontier markets increased by 2.6% over the period to 10.7% with Romania (3.3%), Saudi Arabia (2.2%), Nigeria (1.0%), Argentina (0.9%), Vietnam (0.8%) and Kenya (0.7%) the largest frontier exposures. We believe many frontier markets offer compelling valuations as they remain overlooked by mainstream emerging market investors.

Market Outlook

The catalysts that prompted the decline in emerging markets in 2018 were numerous (higher US interest rates, US dollar strength, the US/China trade dispute, domestic crises in Turkey and Argentina), but as we enter 2019, the backdrop for emerging markets has started to improve as those issues abate.

Early in 2019, markets witnessed a meaningful shift in the likely policy trend of the Federal Reserve, as the central bank took note of recent volatility and rising economic uncertainty and acted to temper investor expectations for further tightening. Such a pause would be very positive for emerging markets, and particularly emerging currencies. This, we believe, is a major driver of the improved relative performance of the asset class in recent months and has the potential to continue.

While we cannot predict how the US-China trade discussions will evolve, the economic impact of tariffs has thus far been limited and current discussions point to a compromise becoming more probable than further escalation, as was initially feared by investors. In addition, officials in Beijing have demonstrated their willingness to support the economy through monetary and fiscal measures. We would expect this support from policymakers to continue, as and when required. Despite the short term uncertainty therefore, we view China as an improving story after a challenging 2018, and a market that still has long term potential.

Whilst losses in Argentina and Turkey were significant, they amount to less than 1% of the emerging index, and both markets have now stabilised. Contagion to other emerging markets now seems unlikely. Indeed, even at the time, we viewed this as unlikely given most emerging economies are now materially better equipped to withstand such episodes than they were in crises of the past. Debt levels are relatively low as a proportion of GDP, and maturities are longer. Central banks hold substantial hard currency reserves, as well as operating flexible exchange rate regimes, which prevent the buildup of imbalances. A much greater proportion of debt (both corporate and sovereign) is issued in local currency, reducing the potential for mismatches and debt markets in general have matured and deepened. Finally, whilst many emerging countries ran large current-account deficits in the past, most countries now benefit from either smaller deficits, or run surpluses.

Short term volatility and noise often creates attractive long-term entry points for investors. Over its 30 years as a distinct asset class, the performance of emerging markets has been driven by earnings growth and dividends, and this will remain the case in the future. Consensus expectations are for corporate earnings in emerging markets to grow by 9.3% in 2019, with a dividend yield of 2.9% (at the time of writing the Company's own shares yield 3.9%). Investors are able to access these potential returns at an attractive valuation, with emerging markets trading on a forward price to earnings multiple of 10.5 times and a price to book of 1.5 times. Following the declines of 2018, these metrics are now below their ten year averages and offer compelling value when compared with developed markets which trade on 13.5 times earnings and 2.2 times book value.

We continue to have conviction in our investment process, despite it failing to deliver relative outperformance in the period. This process seeks to add value through manager selection, asset allocation and discount opportunities, two of which contributed positively during the financial year. As discussed above, the reasons for the underperformance of a number of underlying managers during the period have been explored and explained and, in almost all instances, do not change our opinion of those managers' ability to perform well over the longer term. We select highly active managers that can materially outperform or underperform benchmarks in any given period. The outperformance from asset allocation in markets like Russia and Romania highlights that being contrarian worked during the year, and we believe it will continue to do so. This belief is reflected in additions to markets including Turkey, frontier Africa and Saudi Arabia during the period. While the proportion of the Company's portfolio allocated to closed end funds has declined, what remains is a focused list of holdings often benefitting from defined catalysts for value creation.

The Company's portfolio is more actively positioned now than it has been in the past, offering investors exposure to well-managed funds in attractive emerging and frontier markets that cannot be easily replicated. We believe this, combined with the improving outlook for the asset class, bodes well for the coming years.

Aberdeen Asset Managers Limited

31 January 2019

Principal Risks and Uncertainties

Together with the issues discussed in the Chairman's Statement and the Investment Manager's Report, the Board considers that the main risks and uncertainties faced by the Company fall into the following categories:

(i) General Market Risks Associated with the Company's Investments

Changes in economic conditions, interest rates, foreign exchange rates and inflationary pressures, industry conditions, competition, political and diplomatic events, tax, environmental and other  laws and other factors can substantially and either adversely or favourably affect the value of the securities in which the Company invests and, therefore, the Company's performance and prospects.

The Company's investments are subject to normal market fluctuations and the risks inherent in the purchase, holding or selling of securities, and there can be no assurance that appreciation in the value of those investments will occur. There can be no guarantee that any realisation of an investment will be on a basis which necessarily reflects the Company's valuation of that investment for the purposes of calculating the net asset value.

The Company's investments, although not made into developed economies, are not entirely sheltered from the negative impact of economic slowdowns, decreasing consumer demands and credit shortages in such developed economies which, amongst other things, affects the demand for the products and services offered by the companies in which the Company directly or indirectly invests.

A proportion of the Company's portfolio may be held in cash or cash equivalent investments from time to time. Such proportion of the Company's assets will be out of the market and will not benefit from positive stock market movements, but may give some protection against negative stock market movements.

(ii) Emerging Markets

The funds selected by the Investment Manager invest in emerging markets. Investing in emerging markets involves certain risks and special considerations not typically associated with investing in other more established economies or securities markets. In particular there may be: (a) the risk of nationalisation or expropriation of assets or confiscatory taxation; (b) social, economic and political uncertainty including war and revolution; (c) dependence on exports and the corresponding importance of international trade and commodities prices; (d) less liquidity of securities markets; (e) currency exchange rate fluctuations; (f) potentially higher rates of inflation (including hyper- inflation); (g) controls on foreign investment and limitations on repatriation of invested capital and a fund manager's ability to exchange local currencies for pounds sterling; (h) a higher degree of governmental involvement and control over the economies; (i) government decisions to discontinue support for economic reform programmes and imposition of centrally planned economies; (j) differences in auditing and financial reporting standards which may result in the unavailability of material information about economies and issuers; (k) less extensive regulatory oversight of securities markets; (l) longer settlement periods for securities transactions; (m) less stringent laws regarding the fiduciary duties of officers and directors and protection of investors; and (n) certain consequences regarding the maintenance of portfolio securities and cash with sub-custodians and securities depositories in developing markets.

(iii) Other Portfolio Specific Risks

(a) Small cap stocks

The underlying investee funds selected by the Investment Manager may have significant investments in smaller to medium sized companies of a less seasoned nature whose securities are traded in an "over-the-counter" market. These "secondary" securities often involve significantly greater risks than the securities of larger, better-known companies, due to shorter operating histories, potentially lower credit ratings and, if they are not listed companies, a potential lack of liquidity in their securities. As a result of lower liquidity and greater share price volatility of these "secondary" securities, there may be a disproportionate effect on the value of the investee funds and, indirectly, on the value of the Company's portfolio.

(b) Liquidity of the portfolio

The fact that a share is traded does not guarantee its liquidity and the Company's investments may be less liquid than other listed and publicly traded securities. The Company may invest in securities that are not readily tradable or may accumulate investment positions that represent a significant multiple of the normal trading volumes of an investment, which may make it difficult for the Company to sell its investments. Investors should not expect that the Company will necessarily be able to realise its investments within a period which they would otherwise regard as reasonable, and any such realisations that may be achieved may be at a considerably lower price than prevailing indicative market prices. The Company has a borrowing facility in place which may be utilised to assist in the management of liquidity. The borrowing facility is described later in this Directors' Report.

Liquidity of the portfolio is further discussed in note 17 of the Annual Report.

(c) Foreign exchange risks

It is not the Company's present policy to engage in currency hedging. Accordingly, the movement of exchange rates between sterling and the other currencies in which the Company's investments are denominated or its borrowings are drawn down may have a material effect, unfavourable or favourable, on the returns otherwise experienced on the investments made by the Company.

Movements in the foreign exchange rate between sterling and the currency applicable to a particular shareholder may have an impact upon that shareholder's returns in their own currency of account.

Management or mitigation of the above risks

Risk	Management or mitigation of risk
General market risks associated with the Company's investments	These risks are largely a consequence of the Company's investment strategy but the Investment Manager attempts to mitigate such risks by maintaining an appropriately diversified portfolio by number of holdings, fund structure, geographic focus, investment style and market capitalisation focus. Liquidity, risk and exposure measures are produced on a monthly basis by the Investment Manager and monitored against internal limits.
Emerging markets
Other portfolio specific risks (a) Small cap stock (b) Liquidity of the portfolio (c) Foreign exchange

The investment management of the Company has been delegated to the Company's Investment Manager. The Investment Manager's investment process takes into account the material risks associated with the Company's portfolio and the markets and holdings in which the Company is invested. The Board monitors the portfolio and the performance of the Investment Manager at regular Board meetings.

(iv) Internal Risks

Poor allocation of the Company's assets to both markets and investee funds by the Investment Manager, poor governance, compliance or administration, could result in shareholders not making acceptable returns on their investment in the Company.

Management or mitigation of internal risks

The Board monitors the performance of the Manager and the other key service providers at regular Board meetings. The Manager provides reports to the Board on compliance matters and the Administrator provides reports to the Board on compliance and other administrative matters. The Board has established various committees to ensure that relevant governance matters are addressed by the Board.

Statement of Directors' Responsibilities in Respect of the Annual Report and Accounts

The Directors are responsible for preparing the Annual Report and Accounts in accordance with applicable law and regulations.

Guernsey company law requires the Directors to prepare financial statements for each financial year. The Directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards as issued by the IASB and applicable law.

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, relevant and reliable;

• state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements;

• 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 proper 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 its financial statements comply with the Companies (Guernsey) Law, 2008. 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.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website, but not for the content of any information included on the website that has been prepared or issued by third parties. Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Disclosure of Information to the Auditor

The Directors who held office at the date of approval of this Directors' Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's auditor is unaware; and each Director has taken all the steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.

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 Management Report (comprising the Chairman's Statement, the Investment Manager's Report and the Directors' Report) includes 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.

The Board considers that 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.

Helen Green

Director

William Collins

Director

31 January 2019

Statement of Comprehensive Income

		Year ended 31 October 2018			Year ended 31 October 2017
		Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
(Losses)/gains on investments at fair value		-	(41,807)	(41,807)	-	46,978	46,978
through profit or loss
(Losses)/gains on currency movements		-	(157)	(157)	-	96	96
Net investment (losses)/gains		-	(41,964)	(41,964)	-	47,074	47,074
Investment income		5,019	-	5,019	3,500	-	3,500
		5,019	(41,964)	(36,945)	3,500	47,074	50,574
Management fee		(2,515)	-	(2,515)	(2,695)	-	(2,695)
Other expenses		(886)	-	(886)	(857)	-	(857)
Operating (losses)/profit before finance costs and taxation		1,618	(41,964)	(40,346)	(52)	47,074	47,022
Finance costs		(312)	-	(312)	(155)	-	(155)
Operating (losses)/profit before taxation		1,306	(41,964)	(40,658)	(207)	47,074	46,867
Withholding tax expense		(326)	-	(326)	(141)	-	(141)
(Loss)/profit and total comprehensive income for the year		980	(41,964)	(40,984)	(348)	47,074	46,726
Earnings per Ordinary share		2.03p	(86.83p)	(84.80p)	(0.68p)	91.68p	91.00p

The total column of this statement represents the Company's Statement of Comprehensive Income, prepared under IFRS. The revenue and capital columns, including the revenue and capital earnings per share data, are supplementary information prepared under guidance published by the Association of Investment Companies.

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year.

The notes form part of these financial statements.

Statement of Financial Position

		As at 31 October 2018 £'000	As at 31 October 2017 £'000
Non-current assets Investments at fair value through profit or loss		295,601	383,263
Current assets Cash and cash equivalents Other receivables		1,037 297	3,414 186
		1,334	3,600
Total assets		296,935	386,863
Current liabilities		(28)	(35)
Interest payable
Other payables		(351)	(357)
Loans payable		(20,000)	(25,000)
Total liabilities		(20,379)	(25,392)
Net assets		276,556	361,471
Equity		150,082	183,930
Share capital
Capital reserve		132,546	184,593
Revenue reserve		(6,072)	(7,052)
Total equity		276,556	361,471
Net assets per Ordinary share		600.59p	706.04p

Approved by the Board of Directors and authorised for issue on 31 January 2019.

The notes form part of these financial statements.

Statement of Changes in Equity

For the year ended 31 October 2018		Share capital £'000	Capital reserve £'000	Revenue reserve £'000	Total £'000
Balance at 1 November 2017		183,930	184,593	(7,052)	361,471
(Loss)/profit for the year		-	(41,964)	980	(40,984)
Dividends paid		-	(10,083)	-	(10,083)
Tender offer		(33,413)	-	-	(33,413)
Tender offer costs		(254)	-	-	(254)
Share buybacks		(181)	-	-	(181)
Balance at 31 October 2018		150,082	132,546	(6,072)	276,556

For the year ended 31 October 2017			Share capital £'000	Capital reserve £'000	Revenue reserve £'000	Total £'000
Balance at 1 November 2016			186,840	140,079	(6,704)	320,215
Profit for the year			-	47,074	(348)	46,726
Dividends paid			-	(2,560)	-	(2,560)
Share buybacks			(2,910)	-	-	(2,910)
Balance at 31 October 2017			183,930	184,593	(7,052)	361,471

The Company's distributable reserves comprise; the capital reserve attributable to realised profits and the revenue reserve.

The notes form part of these financial statements.

Statement of Cash Flow

		Year ended 31 October 2018 £'000	Year ended 31 October 2017 £'000
Cash flow from operating activities		4,908	3,544
Cash inflow from investment income and bank interest
Cash outflow from management expenses		(3,407)	(3,522)
Cash inflow from disposal of investments*		73,523	75,404
Cash outflow from purchase of investments*		(27,668)	(93,478)
Cash outflow from taxation		(326)	(141)
Net cash flow from/(used in) operating activities		47,030	(18,193)
Cash flow from financing activities		(5,000)	25,000
(Repayment)/proceeds from bank borrowings
Borrowing commitment fee and interest charges		(319)	(155)
Dividend paid		(10,083)	(2,560)
Tender offer and associated costs		(33,667)	-
Share buy backs		(181)	(2,910)
Net cash flow (used in)/from financing activities		(49,250)	19,375
Net (decrease)/increase in cash and cash equivalents		(2,220)	1,182
Effect of foreign exchange		(157)	122
Cash and cash equivalents at 1 November		3,414	2,110
Cash and cash equivalents at 31 October		1,037	3,414

The notes form part of these financial statements.

* Receipts from the disposal and purchase of investments have been classified as components of cash flow from/(used in) operating activities because they form part of the Company's operating activities.

Notes to the Financial Statements  For  the Year  Ended  31 October 2018

1.   Reporting entity

Aberdeen Emerging Markets Investment Company Limited (the "Company") is a closed-ended investment company, registered in Guernsey on 16 September 2009. The Company's registered office is 11 New Street, St Peter Port, Guernsey, GY1 2PF. The Company's shares have a premium listing on the London Stock Exchange and commenced trading on 10 November 2009. The Company changed its name to Aberdeen Emerging Markets Investment Company Limited on 14 April 2016. The financial statements of the Company are presented for the year ended 31 October 2018.

The Company invests in a portfolio of funds and products which give diversified exposure to developing and emerging markets economies with the objective of achieving consistent returns for shareholders in excess of the MSCI Emerging Markets Net Total Return Index in sterling terms.

Manager

The investment activities of the Company were managed by Aberdeen Standard Fund Managers Limited ("ASFML") during the year ended 31 October 2018.

Non-mainstream pooled investments ("NMPIs")

The Company currently conducts its affairs so that the shares issued by the Company can be recommended by Independent Financial Advisers to ordinary retail investors in accordance with the Financial Conduct Authority's rules in relation to NMPIs and intends to continue to do so for the foreseeable future.

2.   Basis of preparation

(a) Statement of compliance

The financial statements, which give a true and fair view, have been prepared in accordance with International Financial Reporting Standards ("IFRS") and are in compliance with the Companies (Guernsey) Law, 2008. There were no changes in the accounting policies of the Company in the year to 31 October 2018.

Where presentational guidance set out in the Statement of Recommended Practice ("SORP") for Investment Companies issued by the Association of Investment Companies ("AIC") in November 2014 and updated in February 2018 is consistent with the requirements of IFRS, the directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.

The total column of the Statement of Comprehensive Income is the profits or loss account of the Company. The "Capital" and "Revenue" columns provide supplementary information.

The financial statements were approved and authorised for issue by the Board on 31 January 2019.

This report will be sent to shareholders and copies will be made available to the public at the Company's registered office It will also be made available on the Company's website: aberdeenemergingmarkets.co.uk.

(b) Going concern

The Directors have adopted the going concern basis in preparing these financial statements.

At the AGM held in April 2018, a resolution was approved by shareholders that the Company will continue in existence in its current form until the AGM to be held in 2023. The Directors believe that the Company has adequate resources to continue in operational existence for at least twelve months from the date of approval of this document. In reaching this conclusion, the Directors have considered the liquidity of the Company's portfolio of investments as well as its cash position, income and expense flows.

As at 31 October 2018, the Company held £1.0 million in cash and £295.6 million in investments. It is estimated that approximately 63% of the investments held at the year end could be realised in one month. The total operating expenses for the year ended 31 October 2018 were £3.4 million, which represented approximately 1.02% of average net assets during the year. The Company also incurred £0.3 million of finance costs. At the date of approval of this report, based on the aggregate of investments and cash held, the Company has substantial operating expenses cover.

The Company has a £25 million revolving loan facility with RBS, maturing on 29 March 2019. The Company has commenced discussions with RBS and the Board expects to renew the facility on similar terms when it matures. As at 31 October 2018, £20 million was drawn down from the RBS facility. The liquidity of the Company's portfolio, as mentioned above, sufficiently supports the Company's ability to repay its borrowings at short notice.

The Directors are satisfied that it is appropriate to adopt the going concern basis in preparing the financial statements and, after due consideration, that the Company is able to continue in operation for a period of at least twelve months from the date of approval of these financial statements.

(c) Basis of measurement

The financial statements have been prepared on the historical cost basis except for investments held at fair value through profit or loss which are measured at fair value.

(d) Functional and presentation currency

The Company's investments are denominated in multiple currencies. However, the Company's shares are issued in GBP sterling and the majority of its investors are UK based. Therefore, the financial statements are presented in sterling, which is the Company's functional currency. All financial information presented in sterling has been rounded to the nearest thousand pounds.

(e) Capital reserve

Profits achieved by selling investments and changes in fair value arising upon the revaluation of investments that remain in the portfolio are all charged to profits or loss in the capital column of the Statement of Comprehensive Income and allocated to the capital reserve. The Capital reserve is also used to fund dividend distributions.

(f)  Revenue reserve

The balance of all items allocated to the revenue column of the Statement of Comprehensive Income in each year is transferred to the Company's revenue reserve.

(g) Use of estimates, assumptions and judgements

The preparation of the financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Use of estimates and assumptions

Estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in future periods affected.

Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are described below.

Classification and valuation of investments

Investments are designated as fair value through profits or loss on initial recognition and are subsequently measured at fair value. The valuation of such investments requires estimates and assumptions made by the management of the Company depending on the nature of the investments as described in notes 3 (a) and fair value may not represent actual realisable value for those investments.

Allocation of investments to fair value hierarchy

IFRS requires the Company to measure fair value using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements. IFRS establishes a fair value hierarchy that prioritises the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of fair value hierarchy under IFRS are as follows:

Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 - inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices); and

Level 3 - inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.

Use of judgements

The determination of what constitutes 'observable' requires significant judgement by the Company. The Company considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable not proprietary and provided by independent sources that are actively involved in the relevant market.

3.   Significant accounting policies

(a) Investments

As the Company's business is investing in financial assets with a view to profit from their total return in the form of increases in fair value, financial assets are designated as fair value through profit or loss on initial recognition. These investments are recognised on the trade date of their acquisition at which the Company becomes a party to the contractual provisions of the instrument. At this time, the best evidence of the fair value of the fi      assets is the transaction price. Transaction costs that are directly attributable to the acquisition or issue of the financial assets are charged to profit or loss in the Statement of Comprehensive Income as a capital item.

Subsequent to initial recognition, investments designated as fair value through profit or loss are measured at fair value with changes in their fair value recognised in profit or loss in the Statement of Comprehensive Income and determined by reference to:

i)   investments quoted or dealt on recognised stock exchanges in an active market are valued by reference to their market bid prices;

ii)   investments other than those in i) above which are dealt on a trading facility in an active market are valued by reference to broker bid price quotations, if available, for those investments;

iii)  investments in underlying funds, which are not quoted or dealt on a recognised stock exchange or other trading facility or in an active market, are valued at the net asset values provided by such entities or their administrators. These values may be unaudited or may themselves be estimates and may not be produced in a timely manner. If such information is not provided, or is insufficiently timely, the Investment Manager uses appropriate valuation techniques to estimate the value of investments. In determining fair value of such investments, the Investment Manager takes into consideration the relevant issues, which may include the impact of suspension, redemptions, liquidation proceedings and other significant factors. Any such valuations are assessed and approved by the Directors. The estimates may differ from actual realisable values;

iv)  investments which are in liquidation are valued at the estimate of their remaining realisable value; and

v)   any other investments are valued at the directors' best estimate of fair value.

Transfers between levels of the fair value hierarchy are recognised as at the end of the reporting period during which the change has occurred.

Investments are derecognised on the trade date of their disposal, which is the point where the Company transfers substantially all the risks and rewards of the ownership of the financial asset. Gains or losses are recognised in profit or loss in the capital column of the Statement of Comprehensive Income. The Company uses the weighted average cost method to determine realised gains and losses on disposal of investments.

(b) Foreign currency

Transactions in foreign currencies are translated into sterling at the exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated into sterling at the spot exchange rate at that date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value through profit or loss are retranslated into sterling at the exchange rate at the date that the fair value was determined. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated into sterling using the exchange rate at the date of the transaction.

Foreign currency differences arising on retranslation are recognised in profit or loss and, depending on the nature of the gain or loss, are allocated to the revenue or capital column of the Statement of Comprehensive Income. Foreign currency differences on retranslation of fi            instruments designated as fair value through profit or loss are shown in the "Gains on currency movements" line.

(c) Income from investments

Dividend income is recognised when the right to receive it is established and is reflected in the Statement of Comprehensive Income as Investment Income in the revenue column. For quoted equity securities this is usually on the basis of ex-dividend dates. For unquoted investments this is usually on the entitlement date confirmed by the relevant holding. Income from bonds is accounted for using the effective interest rate method.

Special dividends and distributions described as capital distributions are assessed on their individual merits and may be credited to the capital reserve if considered to be closely linked to reconstructions of the investee company or other capital transactions. Bank interest receivable is accounted for on a time apportionment basis and is based on the prevailing variable interest rates for the Company's bank accounts.

(d) Treasury shares

Where the Company purchases its own share capital, the consideration paid, which includes any directly attributable costs, is recognised as a deduction from equity shareholders' funds through the Company's reserves. When such shares are subsequently sold or re-issued to the market any consideration received, net of any directly attributable incremental transaction costs, is recognised as an increase in equity shareholders' funds through the share capital account. Shares held in treasury are excluded from calculations when determining NAV per share as detailed in note 14.

(e) Cash and cash equivalents

Cash comprises cash and demand deposits. Cash equivalents, which include bank overdrafts, are short term, highly liquid investments that are readily convertible to known amounts of cash, are subject to insignificant risks of changes in value, and are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes.

(f)  Investment management fees and finance costs

Investment management fees and finance costs are charged to the Statement of Comprehensive Income as a revenue item and are accrued monthly in arrears. Finance costs include interest payable and direct loan costs. Performance-related fees, if any, are payable directly by reference to the capital performance of the Company and are therefore charged to profit or loss in the Statement of Comprehensive Income as a capital item.

(g) Financial liabilities

Financial liabilities (including bank loans) are classified according to the substance of the contractual arrangements entered into. Financial liabilities held at fair value through profit or loss are measured initially at fair value, with transaction costs recognised in profit or loss in the Statement of Comprehensive Income.

(h) Taxation

The Company has exempt status under the Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 and is charged an annual exemption fee of £1,200 (2017: £1,200).

Dividend and interest income received by the Company may be subject to withholding tax imposed in the country of origin. The tax charges shown in profit or loss in the Statement of Comprehensive Income relate to overseas withholding tax on dividend income.

(i) Operating segments

IFRS 8, 'Operating segments' requires a 'management approach', under which segment information is presented on the same basis as that used for internal reporting purposes. The Board, as a whole, has been determined as constituting the chief operating decision maker of the Company. The Board has considered the requirements of the standard and is of the view that the Company is engaged in a single segment of business, which is investing in a portfolio of funds and products which give exposure to developing and emerging market economies. The key measure of performance used by the Board is the Net Asset Value of the Company (which is calculated under IFRS). Therefore no reconciliation is required between the measure of profit or loss used by the Board and that contained in the financial statements.

Further information on the Company's operating segment is provided in note 19 of the Annual Report.

(j) Offsetting

Financial assets and liabilities are offset and the net amount presented in the Statement of Financial Position when, and only when, the Company has a legal right to set off the recognised amounts and it intends to either settle on a net basis or to realise the asset and settle the liability simultaneously.

Income and expenses are only presented on a net basis when permitted under IFRS.

(k) Structured entities

A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. A structured entity often has some or all of the following features or attributes; (a) restricted activities, (b) a narrow and well-defined objective, such as to provide investment opportunities for investors by passing on risks and rewards associated with the assets of the structured entity to investors, (c) insufficient equity to permit the structured entity to finance its activities without subordinated financial support and (d) financing in the form of multiple contractually linked instruments to investors that create concentrations of credit or other risks.

The Company holds shares, units or partnership interests in the funds or investment products presented on the Company's portfolio. The Company does not consider its investments in listed funds to be structured entities but does consider its investments in unlisted funds to be investments in structured entities because the voting rights in such entities are limited to administrative tasks and are not the dominant factor in deciding who controls those entities.

Changes in fair value of investments, including structured entities, are included in profit or loss in the Statement of Comprehensive Income.

(l) Dividend payable

Final dividends payable to equity shareholders are recognised in the financial statements when they have been approved by shareholders and become a liability of the Company. Interim dividends payable are recognised in the period in which they are paid. The capital and revenue reserve may be used to fund dividend distributions.

(m)  New standards and interpretations effective in the current financial year

There are no new standards, interpretations or amendments, which became effective during the year that have had a material impact on the Company.

At the date of approval of these financial statements, the following standards became effective during the year:

• IFRS 9, 'Financial instruments', effective 1 January 2018. IFRS 9 replaces IAS 39, 'Financial Instruments: Recognition and measurement'. It includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment of financial assets and new general hedge accounting requirements. It also carries forward the guidance from IAS 39 regarding recognition and derecognition of financial instruments. Based on the Board's assessment, this standard is not expected to have a material impact on the classification of financial assets and liabilities of the Company because financial instruments currently measured at fair value through profit or loss ("FVTPL") under IAS 39 are designated into this category because they are managed on a fair value basis in accordance with a documented investment strategy. Accordingly these financial instruments will be mandatorily measured at FVTPL under IFRS 9.

• IAS 7 'Statement of Cash Flows', was amended by The International Accounting Standards Board ('IASB') with the intention to clarify IAS 7 to improve information provided to users of financial statements about an entity's financing activities. They are effective for annual periods beginning on or after 1 January 2017, with earlier application being permitted.

The Board has considered the impact of the above standards and does not believe, the adoption of the standards do have material impact on the Company's financial statements apart from additional disclosure requirements.

4.   Investments at fair value through profit or loss and classification of financial instruments

	2018 £'000	2017 £'000
Quoted & listed closed end fund investments Open ended fund and limited liability partnership investments	172,449 123,152	212,562 170,701
Total investments at fair value at 31 October	295,601	383,263
Movement during the year:	278,903	244,833
Opening balance of investments, at cost
Additions, at cost	27,668	91,451
Disposals, at cost	(59,853)	(57,381)
Cost of investments at 31 October	246,718	278,903
Revaluation of investments to fair value	104,360	73,880
Opening balance
Movement in revaluation of investments held	(55,477)	30,480
Balance at 31 October	48,883	104,360
Fair value of investments at 31 October	295,601	383,263
(Losses)/gains on investments	13,670	16,498
Gains on disposal of investments
Movement in revaluation of investments held	(55,477)	30,480
Balance at 31 October	(41,807)	46,978

5.   Investment income

	2018 £'000	2017 £'000
Dividends from UK Investments	2,388	2,747
Dividends from Overseas Investments	2,626	753
Other income	5	-
Total income	5,019	3,500

6.   Management fee and other expenses

	2018			2017
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Management fee	2,515	-	2,515	2,695	-	2,695
Administration fees	184	-	184	178	-	178
Depositary and custody service fees	130	-	130	134	-	134
Registration fees	31	-	31	37	-	37
Directors' fees	140	-	140	135	-	135
Auditor's fees:
Audit services	39	-	39	39	-	39
Non-audit services	15	-	15	14	-	14
Marketing fees	187	-	201	179	-	179
Broker fees	36	-	36	40	-	40
Miscellaneous expenses	124	-	110	101	-	101
Total other expenses	886	-	886	857	-	857
Total expenses	3,401	-	3,401	3,552	-	3,552

Management fee

The Management Agreement is terminable by either party there to on not less than six months' written notice at any time, subject to earlier termination in certain circumstances including certain breaches or the insolvency of either party.

The Manager is entitled to receive a basic fee from the Company for its services as Manager.

Basic fee

The Company's basic management fee for the year ended 31 October 2018 was charged at an annualised rate of 0.8% of net assets (2017: 1.0% of market capitalisation), reduced by the proportion of the Company's net assets invested in funds which are managed by Aberdeen Standard Investments ("Aberdeen Standard Funds").

The basic fee is payable monthly in arrears (and pro rata for part of any month during which the management agreement is in force).

Performance fee

The performance fee arrangement was removed with effect from 1 November 2017, therefore there was no performance fee accrued in the year (2017: nil).

Promotional fee

The Company has agreed to pay a fee to ASFML for the provision of promotional activities at an annual rate of £160,000 with effect from 1 July 2018 (prior to that, the fee was at an annual rate of £200,000). The balance outstanding at the year end was £53,000 (2017: £17,000).

Company Secretary and Administrator fees

Vistra Fund Services (Guernsey) Limited ("Vistra") is appointed as Administrator and Secretary to the Company. Vistra is appointed under a contract subject to ninety days' written notice and receives a fee at a rate of £40,000 per annum plus certain additional fees, as well as the fees payable to the UK Administration Agent.

UK Administration agent fees

PraxisIFM Fund Services (UK) Limited ("PraxisIFM") is appointed by Vistra to act as administration agent in the United Kingdom. PraxisIFM is appointed under a contract subject to not less than ninety days' notice. The UK Administration Agent receives from the Administrator a monthly fee equal to one twelfth of 0.1% of Net Asset Value subject to a maximum fee for the year ended 31 October 2018 of £143,846 (2017: £138,360) per annum. The maximum fee is increased annually, in November, by the change in the UK Retail Price Index (all items) over the preceding 12 months.

Depositary services and custodian fees

Northern Trust (Guernsey) Limited, receives fees for Depositary services calculated at the rate of 2.95 basis points per annum subject to a minimum annual fee of £20,000, effective 1 August 2018 (2017: £60,000). Northern Trust (Guernsey) Limited also receives a fee for custody services. It receives an asset based fee equal to between 1.00 basis points and 60.00 basis points of the value of the assets of the Company. Transaction based fees are also payable of between £10 and £140 per transaction. The variable fees are dependent on the countries in which the individual holdings are registered.

7.   Directors' fees

The fees payable for the year were £140,300 (2017: £135,100). There were no other emoluments.

8.   Transaction charges

	2018 £'000	2017 £'000
Transaction costs on purchases of investments Transaction costs on sales of investments	5 6	258 63
Total transaction costs included in (losses)/gains on investments held at fair value through profit or loss	11	321

9.   Bank loan and finance costs

On 31 March 2017, the Company entered into an unsecured 12 month revolving loan facility with The Royal Bank of Scotland plc ("RBS"), under which loans with a maximum aggregate value of £25 million may be drawn. The loan facility was renewed on 29 March 2018 for a further 12 month period. As at 31 October 2018, £20 million (2017: £25 million) was drawn down at an all-in rate of 1.275% (2017: 0.82838%) per annum. The draw down matured on 29 November 2018 and was subsequently rolled over at an all-in rate of 1.32225% per annum maturing on 29 March 2019. The Company has commenced discussions with RBS and the Board expects to renew the facility on similar terms when it matures.

	2018 £'000	2017 £'000
Interest payable Facility and arrangement fees and other charges	273 39	110 45
Total finance costs	312	155

At 31 October 2018, interest payable of £28,000 (2017: £35,000) was accrued in the Statement of Financial Position.

10. Earnings per share

Earnings per share is based on the total comprehensive income for the year ended 31 October 2018, being a loss of £40,984,000 (2017: gain of £46,726,000) attributable to the weighted average of 48,331,919 (2017: 51,346,725) Ordinary shares in issue (excluding shares held in treasury) in the year ended 31 October 2018.

Supplementary information is provided as follows: revenue per share is based on the net revenue profit of £980,000 (2017: loss of

£348,000) and capital earnings per share is based on the net capital loss of £41,964,000 (2017: gain of £47,074,000) attributable to the above Ordinary shares.

11. Dividends paid

Dividends paid during the year ended 31 October 2018

	Pence per Ordinary share	Capital Reserve £'000	Revenue Reserve £'000
Second interim (2017) - paid 29 December 2017	5.00	2,560	-
First interim (2018) - paid 29 March 2018	5.25	2,689	-
Second interim (2018) - paid 29 June 2018	5.25	2,417	-
Third interim (2018) - paid 28 September 2018	5.25	2,417	-
Total dividend	20.75	10,083	-

On 29 October 2018, the Board declared a fourth interim dividend in respect of the year of 5.25p per share, payable on 21 December 2018 to those shareholders on the register on 30 November 2018.

Dividends paid during the year ended 31 October 2017

	Pence per Ordinary share	Capital Reserve £'000	Revenue Reserve £'000
First interim (2017) - paid 29 September 2017	5.00	2,560	-
Total dividend	5.00	2,560	-

12. Share capital

 

For the year ended 31 October 2018	Authorised	Ordinary shares of 1 p nominal value £'000	Allotted, issued and fully paid	Ordinary shares with voting rights (excluding treasury shares)	Treasury shares
Opening number of shares	Unlimited	546	54,618,507	51,196,729	3,421,778
Tender offer		-	-	(5,119,633)	5,119,633
Purchase of own shares	-	-	-	(30,000)	30,000
Closing number of shares	Unlimited	546	54,618,507	46,047,096	8,571,411
For the year ended 31 October 2017	Authorised	Ordinary shares of 1 p nominal value £'000	Allotted, issued and fully paid	Ordinary shares with voting rights (excluding treasury shares)	Treasury shares
Opening number of shares	Unlimited	546	54,618,507	51,748,179	2,870,328
Purchase of own shares	-	-	-	(551,450)	551,450
Closing number of shares	Unlimited	546	54,618,507	51,196,729	3,421,778

 

Purchases of own shares

There were 30,000 (2017: 551,450) Ordinary shares purchased during the year at an aggregate cost to the Company of £181,000 (2017: £2,910,000), all of which are held in treasury.

Tender offer

As described in the circular to shareholders dated 13 March 2018, the Company put forward proposals for a tender offer under which shareholders had the ability to tender up to 10% of their Ordinary shares held.

A total of 5,119,633 shares were repurchased by the Company on 17 April 2018 under the terms of the Tender Offer and placed in treasury. The Tender Price of 652.6487p per share reflected a discount of 3.5% to the prevailing NAV per share. Payments with an aggregate value of £33,413,000 were made to shareholders in respect of validly tendered shares during the week commencing   23 April 2018.

Tender offer costs amounted to £254,000.

Share capital account

The aggregate balance (including share premium) standing to the credit of the share capital account at 31 October 2018 was

£150,082,000 (2017: £183,930,000).

Ordinary shares

Voting rights

Holders of Ordinary shares are entitled to attend, speak and vote at general meetings of the Company. Each Ordinary share (excluding shares in treasury) carries one vote. Treasury shares do not carry voting rights.

Dividends

The holders of Ordinary shares are entitled to such dividend as may be declared by the Company from time to time. Shares held in treasury do not receive dividends.

Capital entitlement

On a winding up, the Ordinary shares (excluding treasury shares) shall rank pari passu for the nominal capital paid up thereon and in respect of any surplus. Shares held in treasury have no capital entitlement on a winding up of the Company.

13. Capital reserve

	2018 £'000	2017 £'000
Realised gains/(losses) on investments and other capital reserve movements	80,233	66,199
Opening balance
Dividends paid from capital reserves	(10,083)	(2,560)
Gains from disposal of investments*	15,748	16,805
Losses from disposal of investments*	(2,078)	(307)
Foreign exchange (losses)/gains	(157)	96
Balance at 31 October	83,663	80,233
Investments held	104,360	73,880
Opening balance
Movement in unrealised gain on revaluation of investments held*	3,657	42,990
Movement in unrealised loss on revaluation of investments held*	(59,134)	(12,510)
Balance at 31 October	48,883	104,360
Capital reserve balance at 31 October	132,546	184,593

* Net losses on investments held at fair value through profit or loss figure for the year ended 31 October 2018 totalled £41,807,000 (2017: net gains of £46,978,000).

14. Net asset value ("NAV") per share

The NAV per share is based on net assets of £276,556,000 (2017: £361,471,000) divided by 46,047,096 (2017: 51,196,729) shares in issue (excluding shares held in treasury) at the year end.

The below table is a reconciliation between the NAV per share announced on the London Stock Exchange and the NAV per share disclosed in these financial statements.

	£'000	2018 pence	£'000	2017 pence
NAV per share as at the financial year end as published on	276,494	600.46	361,540	706.18
1 November 2018 (2017: as published on 1 November 2017)
Revaluation adjustments - delayed prices	62	0.13	(69)	(0.14)
NAV per share as disclosed in these financial statements	276,556	600.59	361,471	706.04

15. Reconciliation of operating (losses)/gain to net cash flow from operating activities

	2018 £'000	2017 £'000
Operating (loss)/profit before finance costs and taxation	(40,346)	47,022
Less: Tax deducted at source on income from investments	(326)	(141)
Add: Realisation of investments at book cost	59,853	57,381
Less: Purchase of investments	(27,668)	(91,451)
Less: Adjustment for unrealised losses/(gains)	55,477	(30,480)
Effect of foreign exchange	157	(122)
(Increase)/decrease in debtors	(111)	1,612
Decrease in creditors	(6)	(2,014)
Net cash flow from/(used in) operating activities	47,030	(18,193)

16. Related party disclosures

Manager

Management fees payable are shown in profit or loss in the Statement of Comprehensive Income and note 6. As the performance fee arrangement was removed with effect from 1 November 2017, no performance fee accrual has been made in the year under review (2017: £nil).

At 31 October 2018, management fees of £199,000 (2017: £255,000) were accrued in the Statement of Financial Position. Total management fees for the year were £2,515,000 (2017: £2,695,000).

Investments held by the Company which are managed by the Standard Life Aberdeen plc group

As at 31 October 2018, the Company held investments in Aberdeen Asian Smaller Companies Investment Trust PLC and Edinburgh Dragon Trust PLC. The valuation of these holdings at 31 October 2018 totalled £8,027,000 (As at 31 October 2017: the Company held investments in Aberdeen Asian Smaller Companies Investment Trust PLC, Aberdeen Latin American Equity Fund Inc and Edinburgh Dragon Trust PLC. The valuation of these holdings at 31 October 2017 totalled £25,722,000).

Directors

Total fees for the Directors in the year ended 31 October 2018 were £140,300 (2017: £135,100). There were no outstanding fees due to the Directors at the year end (2017: nil). Details of Directors share holdings in the Company can be found in the Annual Report and Accounts.

17. ANNUAL GENERAL MEETING

The Company's Annual General Meeting will be held at the Company's registered office on 16 April 2019.

18. FINANCIAL INFORMATION

The Annual Report was approved by the Board of directors on 31 January 2019.  The information in this announcement has been extracted from the Annual Report on which the Company's auditors have given an unqualified report.  The Annual Report will be posted to shareholders and will be made available on the Manager's website at aberdeenemergingmarkets.co.uk. It will also be available from the registered office of Company and the UK Administration Agent.

This announcement contains regulated information under the Disclosure Guidance and Transparency Rules of the FCA.

A copy of the Annual Report will be submitted to the National Storage Mechanism and will shortly be available at: http://www.morningstar.co.uk/uk/NSM

Alternative Performance Measures ("APMs")
Discount
The amount, expressed as a percentage, by which the share price is less that the NAV per Ordinary Share.
				As at 31 October 2018
NAV per Ordinary Share (in pence)		a		600.59
Share price (in pence)		b		515.00
Discount		(b÷a)-1		14.3%
Gearing
A way to magnify income and capital returns, but which can also magnify losses. The revolving loan facility with RBS is a common method of gearing.
				As at 31 October 2018
Total assets less cash/cash equivalents (£'000)		a		295,898
Net assets (£'000)		b		276,556
Gearing (net)		(a÷b)-1		6.99%
Leverage
Under the Alternative Investment Fund Managers Directive ("AIFMD"), leverage is any method by which the exposure of an Alternative Investment Fund ("AIF") is increased through borrowing of cash or securities or leverage embedded in derivative positions. Under AIFMD, leverage is broadly similar to gearing, but is expressed as a ratio between the assets (excluding borrowings) and the net assets (after taking account of borrowing). Under the gross method, exposure represents the sum of the Company's positions after deduction of cash balances, without taking account of any hedging or netting arrangements. Under the commitment method, exposure is calculated without the deduction of cash balances and after certain hedging and netting positions are offset against each other. Further details on the Company's leverage is provided in the Annual Report and Accounts.
Ongoing charges
A measure, expressed as a percentage of average NAV, of the regular, recurring annual costs of running an investment company.
Year end 31 October 2018
Average NAV		a		331,773,300
Operating expenses		b		3,400,600
Ongoing charges figure  (calculated using the AIC methodology)		b÷a		1.02%
Total return
A measure of performance that includes both income and capital returns. This takes into account capital gains and reinvestment of dividends paid out by the Company into its Ordinary Shares on the ex-dividend date.
Year end 31 October 2018			Share price	NAV
Opening at 1 November 2017 (in pence)	a		632.50	706.00
Closing at 31 October 2018 (in pence)	b		515.00	600.59
Dividend adjustment factor	c		1.0353	1.0297
Adjusted closing (d = b x c)	d		533.18	618.43
Total return	(d÷a)-1		-15.7%	-12.4%
n/a = not applicable

Registered office

11 New Street

St Peter Port

Guernsey GY1 2PF

Enquiries:

Aberdeen Standard Fund Managers Limited (Investment Manager to Aberdeen Emerging Markets Investment Company Limited)

Colin Edge / William Hemmings  Tel: [phone]

Stockdale Securities Limited (Financial adviser and stockbroker)

Robert Finlay     Tel: [phone]

Vistra Fund Services (Guernsey) Limited (Company Secretary)

Patrick Farncombe         Tel: [phone]

PraxisIFM Fund Services (UK) Limited (UK Administration Agent)

Anthony Lee      Tel: [phone]

Ordinary Shares - Listing Category: Premium - Equity Closed-ended Investment Funds

31 January 2019

END

 

END

 

 

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