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Baring Emerging Eur (BEE)

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Friday 06 December, 2019

Baring Emerging Eur

Annual Financial Report

Baring Emerging Europe PLC


Annual Report & Audited Financial Statements for the year ended 30 September 2019

The Directors present the Annual Financial Report of Baring Emerging Europe plc (the “Company”) for the year ended 30 September 2019. The full Annual Report and Accounts can be accessed via the Company’s website,, or by contacting the Company Secretary on 01392 477571.


Baring Emerging Europe PLC (the “Company” or the “Fund”) was incorporated on 11 October 2002. The Company is an investment trust quoted on the London Stock Exchange under the ticker code BEE. As an investment trust, the Company appoints an Alternative Investment Fund Manager, Baring Fund Managers Limited (“the AIFM”) to manage its investments.

The AIFM is authorised and regulated by the Financial Conduct Authority (the “FCA”).

The AIFM has delegated responsibility of the investment management of the portfolio to Baring Asset Management Limited (the “Investment Manager”).


The AIFM receives an investment management fee of 0.8% of the Net Asset Value of the Company.


The investment objective is to achieve long-term capital growth, principally through investment in securities listed on or traded on an Emerging European securities market. The Company may also invest in securities listed or traded elsewhere, whose revenues and/or profits are, or are expected to be, derived from activities in Emerging Europe.


The Company’s full investment policy is set out below. It contains information on the policies which the Company follows relating to asset allocation, risk diversification and gearing, and includes maximum exposures, where relevant.


The Company’s comparator performance benchmark is the MSCI Emerging Europe 10/40 Index (the “Benchmark”).

Key Performance Indicators

as at 30 September 2019

Annualised Net Asset Value Total Return# Dividend Average Discount %#
17.8% (2018:-2.6%) 35p (2018:34p) 11.5% (2018:11.9%)

% based on dividend declared for the full year


for the year ended 30 September 2019

Net asset value per ordinary share (“NAV”) 930.81p  824.76p 
Share price* 846.00p  714.00p 
Ongoing charges (based on average NAV)* 1.49% 1.50%
Gearing Ratio – Gross basis* 105% 106%
Gearing Ratio – Commitment basis* 109% 109%


Annualised share price movement 24.3% -3.61%
Annualised Benchmark movement* 15.9% 1.62%


Discount to NAV per share at year end 9.11% 13.40%


RETURN (per ordinary share) 30 September 2019 30 September 2018
Revenue   Capital   Total Revenue   Capital    Total   
Return per ordinary share* 35.09p 99.87p 134.96p 24.77p (51.98)p (27.21)p

Revenue return (earnings) per ordinary share is based on the return for the year of £4,482,000 (2018: £3,388,000). Capital return per ordinary share is based on net capital profit for the financial year of £12,754,000 (2018: net capital loss of £7,109,000). These calculations are based on the weighted average of 12,770,923 (2018: 13,677,229) ordinary shares in issue during the year.

At 30 September 2019, there were 12,439,297 ordinary shares of 10 pence each in issue (2018: 13,135,044) which excludes 3,318,207 ordinary shares held in treasury (2018: 3,318,207 shares held in treasury). The shares held in treasury are treated as not being in issue when calculating the weighted average of ordinary shares in issue during the year. All shares repurchased during the year were cancelled.

* For definitions, please see Glossary below .

# Alternative Performance Measures.

Chairman’s Statement

I am delighted to present the results for the year ended 30 September 2019, which was a record year in terms of performance.

In contrast to 2017/18, which was characterised by political turmoil in two of our most important markets, Russia and Turkey, 2018/19 saw oil poured over troubled waters, both literally and metaphorically. Russian energy sector companies ranked amongst the best performing stocks globally, despite falling oil prices, because of increased focus on efficiency, cash generation and dividends. Some easing of tensions between Russia and Ukraine and the lifting of sanctions on Russian companies EN+ Group (“EN+”) and United Company RUSAL (“RUSAL”), led to greater focus by investors on economic rather than political factors. Thanks to the excellent stock picking from the Investment Manager in Turkey, Turkish assets performed well as the economy adjusted to tight liquidity conditions, early signs of recovering domestic demand and an appreciation of the Turkish Lira. Unusually, it was Poland, normally our dependable ballast, which had a difficult year because of political intervention and regulatory pressures.


The annualised NAV total return over the year was 17.8% compared to the Benchmark of 15.9%, an all time high for the Company. By contrast the total return from Developed Europe was 5.1% and from Global Emerging Markets 3.9%1. The Company’s annualised NAV total return over three and five years was 13.4% and 10.3%, compared with the Benchmark of 12.7% and 7.0% respectively. This supports our Investment Managers’ continued belief in Emerging Europe’s investment potential, and Russia in particular, given increasing earnings and dividend flow from undervalued stocks.

Against competitor funds, defined by the Morningstar Emerging Europe Universe, your Company sits within the 1st quartile over one year, and within the top decile over three and five years2.

During the turbulent market conditions of 2017/18, the Board appreciated the cool headedness and logic applied to the investment process by the investment team. In 2018/19, this approach has borne fruit, shown in both absolute and relative performance. On behalf of the Board and Shareholders, I would like to thank Matthias Siller and his colleagues, Maria Szczesna and Adnan El-Araby, for their contributions to the success of the Company.

Environmental, Social and Governance

The Investment Manager incorporates Environmental, Social and Governance (“ESG”) parameters in their company analysis in order to account for the improving or deteriorating corporate standards affecting a company’s value. This enhancement to their investment process is fully supported by the Board and our shared belief that ESG can have a profound impact on an investment’s risks and returns over time.

As we continue to consider the changing needs of our Shareholders we now are able to show the estimated carbon footprint of the portfolio. In what remains a carbon intensive region of the world, we are pleased to demonstrate that our portfolio has a lower carbon profile than that of the Benchmark. This is a reflection of opportunities found in Financials, Consumer and Technology orientated businesses compared with the traditionally carbon intensive sectors such as Energy, Materials and Utilities.

Carbon emissions data (Scope 1 and 2) is sourced using Barings’ methodology.

Over time, we will look to enhance our approach so as to continue to capture the benefits that consideration of these factors brings to the Company.

Discount Management

The discount at the year end was 9.1% compared with 13.4% for the prior year and the average discount during the year was 11.5%. During the year, 695,747 shares were bought back and cancelled at an average price of £7.7 equivalent to a discount on average of 11.7%. The share buybacks added approximately 5.5 pence per share to NAV, accounting for just under 1% of the total return to Shareholders.

We continue to work to manage the discount by means of:

• greater emphasis on dividends. This has been aided by improving corporate governance standards within Emerging Europe, exhibited in the rising dividend pay-out ratios of the companies in which we invest;

•improving communications both by meetings with Shareholders and potential investors and by expanding the Company’s media presence via an improved website and engaging with the press to boost the Company’s profile; and

•share buybacks.

Taken together, these measures are having the desired effect of constraining discount volatility and gradually reducing the level of the discount. Over time, the Board hope these measures will result in improving the liquidity and attractiveness of the Company’s shares to a broader range of investors.

Shareholders may recall that, at the end of 2016, the Board announced that a tender for up to 25% of the equity would be triggered at the end of the 2020 fiscal year, four years after the last point at which a tender was triggered, either if the average discount was higher than 12% during the entire period or the performance of the Company’s portfolio on a total return basis does not exceed 1% of the Benchmark annually over that period. With a year to go, the cumulative average discount was 12.3% with the average discount for the year falling to 11.5% (2018:11.9%).


In respect of the period ended 31 March 2019, the Company paid a dividend of 15 pence per share (2018: 14 pence per share). For the year under review, the Board recommends a final dividend of 20 pence per share (2018: 20 pence per share). This amounts to a total for the year of 35 pence per share (2018: 34 pence per share), equivalent to a yield of around 4.1% on the year end share price of 846p This payment is fully covered in total by the income account, which produced a net revenue per share of 35.09 pence per share (2017/18: 24.77 pence).


The Company has a borrowing facility of up to US$12 million with State Street Bank and Trust Company. The facility has been partly used throughout the period and at the year-end was fully deployed. Given low borrowing costs, this contributed positively to overall returns.


Following the retirements of Ivo Coulson in November 2018 and of Jonathan Woollett in January 2019, we were pleased to welcome two new Directors to the Board, Christopher Granville and Vivien Gould, after a recruitment process led by Cornforth Consulting. Both bring a wealth of experience to the Board, in Christopher’s case, of investment research, and in Vivien’s case, of investment management. The Board is benefitting from their insightful contribution to discussions.

Annual General Meeting

The Board would be delighted to meet Shareholders at the Company’s Annual General Meeting (“AGM”), to be held at the offices of the Investment Manager, 20 Old Bailey, London EC4M 7BF, on Thursday, 23 January 2020 at 2.30pm, at which the Investment Manager will give their customary presentation on the markets and the outlook for the year ahead. Details can be found in the full Annual Report.

We have decided to remove paper proxies from our voting process for this AGM and future meetings in favour of a quicker and more secure method of online voting via our registrars’ website. You can however request a paper proxy if you wish from our registrars at the appropriate time.


The Board and Investment Manager continue to believe that Emerging European markets offer a wealth of investment opportunities at attractive valuations. These investment opportunities, combined with growing streams of dividend income plus improving ESG standards which enhance a stock’s long-term value proposition, should continue to provide Shareholders with attractive risk adjusted returns.

The heightened volatility of sterling caused by the Brexit process and the associated uncertainty in the UK increases the Company’s exposure to exchange rate risks, but we do not expect Brexit to have a material impact on the business fundamentals of companies in the Emerging Europe region.

At 30 September 2019, Russia, Poland and Turkey comprised nearly 95% of the portfolio. These will continue to be important markets for the Company. The professionalisation of company management and greater commitment to ESG have contributed to Russia’s strong performance in 2018/19 and, whilst in some cases (notably in Energy) share prices are more richly valued, there are interesting opportunities in telecoms, software and fintech. Poland should continue to benefit from robust domestic demand, rising real household incomes and productivity gains. Turkey is on the road to economic recovery with rising domestic demand, a more stable external financing framework and falling inflationary pressures.

To date, we have made little use of our authority to invest up to 15% in other markets because there were more attractive opportunities in Russia, Poland and Turkey. However, our Investment Manager now believes the time has come to take advantage of the mandate’s scope for geographical diversification within Emerging Europe, Middle East and Africa (“EEMEA”), including Frontier Markets, in order to enhance risk adjusted returns.

Frances Daley


5 December 2019

Investment Strategy

Investment Objective

The investment objective is to achieve long-term capital growth, principally through investment in securities listed on or traded on an Emerging European securities market. The  Company may also invest in securities of companies listed or traded elsewhere, whose revenues and/or profits are, or are expected to be, derived from activities in Emerging Europe.

Investment Policy

The Board has agreed the following investment parameters with the AIFM in order to meet the investment objective. In normal market conditions, the portfolio of the Company should consist primarily of diversified securities listed or traded on Emerging European securities markets (including over the counter markets). Equity securities for this purpose include equity-related instruments such as preference shares, convertible securities, options, warrants and other rights to subscribe for or acquire, or relating to, equity securities. The Company may also invest in debt instruments such as bonds, bills, notes, certificates of deposit and other debt instruments issued by private and public sector entities in Emerging Europe.

The Company may from time to time invest in unquoted securities, but the amount of such investment is not expected to be material. The maximum exposure to unquoted securities should be restricted to 5% of the Company’s gross assets.

For the purposes of this investment policy the Board has defined Emerging Europe as the successor countries of the former Soviet Union, Poland, Hungary, Czechia Republic, Slovakia, Turkey, the States of former Yugoslavia, Romania, Bulgaria, Albania and Greece. There is no restriction on the proportion that may be invested in each of these countries.

In addition, up to 15% of the gross assets may be invested in other countries* provided that any investments made are in companies listed on a regulated stock exchange.

The Company may also invest in other funds in order to gain exposure to Emerging Europe where, for example, such funds afford one of the few practicable means of access to a particular market, or where such a fund represents an attractive investment in its own right. The Company will not invest more than 15% of its gross assets in other UK listed investment companies (including investment trusts).

The maximum value of any one investment should not exceed 12% of the Company’s gross assets, save with the prior written consent of the Board. Where excess occurs due to market movement, the Investment Manager will notify the Board of this and will reduce the holding to below 12% within six months.

In addition to the above restriction on investment in a single company, the Board seeks to achieve a spread of risk in the portfolio through monitoring the country and sector weightings of the portfolio. There will be a minimum of 30 stocks in the portfolio.

*The Board currently intends that the “other countries” for the purposes of the Investment Policy will comprise Bahrain, Egypt, Jordan, Kenya, Kuwait, Lebanon, Mauritius, Morocco, Nigeria, Oman, Qatar, Saudi Arabia, South Africa, Tunisia and UAE.

Borrowings and Gearing

The Company uses gearing to enhance returns to Shareholders. In order to provide a mechanism to gear the portfolio the Board has authorised the Investment Manager to invest in long only derivatives in Polish, Russian and Turkish index futures where feasible. The Investment Manager has discretion to operate with an overall exposure of the portfolio to the market of between 90% and 110%, to include the effect of any derivative positions.

Discount control mechanism

In 2016, the Board decided that it was in the Company’s best interests to take steps to address the long-term viability of the Company’s approach to discount management. With effect from 1 June 2017, the Board approved the introduction of a policy to offer Shareholders a tender of up to 25% of the Company’s shares over the four-year period from 1 October 2016 to 30 September 2020 in the event that certain events are triggered. These events being:

i. the average daily Discount to NAV (‘cum-income’) exceeds 12% as calculated with reference to the trading of the share over the four year period immediately preceding each relevant publication date of the Company’s financial results (the “New Calculation Period”), provided that the first New Calculation Period will be the period between 1 October 2016 and 30 September 2020. (Discount to NAV, for discount management purposes, was previously calculated with reference to the 365 day period prior to the publication of the Company’s results for the financial year);

ii. the performance of the Company’s portfolio on a total return basis does not exceed its Benchmark (being the MSCI Emerging Europe 10/40 Index) by an average of 100 basis points per annum over the New Calculation Period.

Please refer to the Shareholder circular dated 15 December 2016 for further details and definitions.

In addition, and in order to reduce the discount, the Board, authorises shares to be brought on the market from time-to-time where the share price is quoted at a discount to NAV.

Principal Risks and Uncertainties

The Company is exposed to a variety of risks and uncertainties. The Board, through delegation to the Audit Committee, has undertaken an  assessment and review of the principal risks facing the Company, together with a review of any new risks which may have arisen during the year, including those risks which would threaten the Company’s business model, future performance, solvency or liquidity.

The Audit Committee regularly (on a six-monthly basis) reviews the risks facing the Company by maintaining a detailed record of the identified risks against an assessment of the likelihood of such risks occurring and the severity of the potential impact of such risks. This enables the Board to take action and develop strategies in order to mitigate the effect of such risks to the extent possible. An analysis of financial risks can be found in note 18 to the Financial Statements below.

Information about the Company’s internal control and risk management procedures can be found in the Audit Committee Report below. The principal financial risks and the Company’s policies for managing these risks and the policy and practice with regard to financial instruments are summarised in note 18 to the Financial Statements.

The Board has identified the following as being the principal risks and uncertainties facing the Company:

Risk Mitigation
Investment and strategy

There can be no guarantee that the investment objective will be achieved.
The Investment Manager has in place a dedicated investment process which is designed to maximise the changes of the investment objective being achieved. The Board reviews regular investment reports from the Investment Manager to monitor performance against its stated objective and regularly reviews that strategy. All of the Company’s investments are listed on recognised stock exchanges and the liquidity of individual investments is monitored by the Investment Manager and the Board.
Adverse market conditions

Emerging markets subject to volatile geo-political and socio economic movements as well as possible imposition of selective sanctions. This may have an impact on the liquidity of individual investments.
It can be argued that the most effective method of protecting the Company from the effects of country specific or individual stock risks is to hold a geographically diversified portfolio spread across a diversified portfolio of stocks. The Company holds 46 stocks in 9 countries and the AIFM has the ability, where necessary, to diversify the portfolio into other regions. The AIFM has a clear investment strategy as set out below. Whilst recognising there will be periods when this strategy underperforms the Benchmark and peer group, the Board monitors performance at each Board meeting and reviews the investment process throughout the year. The Investment Manager’s own internal compliance functions provide robust checks that the Investment Manager complies with the investment mandate.
Size of the Company

The size of the Company could become sub optimal as share buy-backs reduce the Company’s market capital.
The Investment Manager discusses and agrees with the Board prior to making any buybacks. The Manager and Corporate Broker are in regular contact with major institutional investors and report their views to the Board on a regular basis.
Share price volatility and liquidity/marketability risk

The shares of the Company are traded freely and are therefore subject to the influences of supply and demand and investors’ perception to the markets the Company invests in. The share price is therefore subject to fluctuations and like all Investment Trusts may trade at a discount to the NAV.
The Board seeks to narrow the discount by undertaking measured buybacks of the Company’s shares. The Company and Investment Manager works with the broker to seek to increase demand for the Company’s shares.

The Board has committed to an increased focus on dividend yield to further enhance the appeal of investing in the Company to increase demand for shares.

In addition, as set out on below, the Company has offered investors the ability to realise their investment in the Company at NAV less costs should the Company not meet targets relating to average discount or performance over a four year period.
Loss of assets

The portfolio includes investments held in a number of jurisdictions and there is a risk of a loss of assets.
The Investment Manager and Administrator have systems in place for executing and settling transactions and for ensuring assets are safe. In addition, the Company uses an internationally recognised Custodian and sub Custodians and receives regular reports of assets held, which are reconciled by the Administrator. The operation of the Custodian is overseen and reviewed by the Depositary which reports regularly to the Board.
Engagement of third party service providers

The Company out sources all of its operations to third parties and is therefore reliant on those third parties maintaining robust controls to prevent the Company suffering financial loss or reputation as damage.
The Company operates through a series of contractual relationships with its service providers.

The Board reviews the performance of all service providers both in Board meetings and in the Management Engagement Committee meeting, where the terms on which the service providers are engaged are also reviewed.

The Audit Committee also receives internal controls reports from key service providers.

The Board assesses whether relevant controls have been operating effectively throughout the period.

Investment Manager

Management Arrangements and Fees

Baring Fund Managers Limited acts as the AIFM of the Company under an agreement terminable by either party giving not less than six months written notice. Under this agreement the AIFM receives a fee which is calculated monthly and payable at an annual rate of 0.8% of the NAV of the Company, together with any applicable value added tax thereon and any out of pocket expenses incurred by the AIFM.

There is no performance fee for the AIFM.

The AIFM has delegated the investment management of the portfolio to Baring Asset Management Limited (the “Investment Manager”).

Details of the Investment Manager

The Investment Manager has a team of fund managers who are responsible for the management of the investment portfolio. Matthias Siller, Head of Europe, Middle East and Africa (“EMEA”) at the Investment Manager, is the lead manager and Adnan El-Araby and Maria Szczesna as co-backup managers. Matthias is supported by the wider EMEA Equity Team, which comprises seven experienced investment professionals all of whom have research responsibilities as well as the broader emerging equity professionals based in London, Hong Kong and Taiwan, utilising their diverse local knowledge and experience. The team also draws further support from the rest of the broader equity platform at the Investment Manager, especially the knowledge, expertise and coverage of our three global sector teams: Healthcare, Resources and Technology.

Matthias joined the Investment Manager in 2006 and was appointed Head of EMEA Equities Team in 2016. Matthias is also lead manager for the Company. He began his career in fund management at Raiffeisen Zentralbank Austria in 1997 as a Market Maker/Proprietary Trader in Central & Eastern European Equities and Derivatives. He joined Bawag – PSK Invest as an EMEA equity portfolio manager in 2001 and moved to Raiffeisen Capital Management in 2003, where he was a portfolio manager for Central & Eastern European Equities. Matthias has a Masters degree from Vienna University in Economics & Business Administration. Matthias was awarded the CFA designation in 2006 and speaks fluent German.

Maria is an investment manager in the EMEA & Global Frontier Markets Equity Team. She is responsible for Financials and Consumer Staples in the region. Maria joined the Investment Manager in 2006 from the Polish Embassy in London, where she worked for three years as an economist. Prior to this, Maria worked in corporate finance at Ernst & Young and BRE Corporate Finance (part of Commerzbank Group) in Warsaw. She holds an MA in Economics from the Warsaw School of Economics and was awarded the CFA designation in 2008. Maria is fluent in Polish.

Adnan is an investment manager in the EMEA & Global Frontier Markets Equity Team. His primary responsibilities are focused on the Technology and Resources (O&G, M&M, Agriculture) sectors within the EMEA region. Adnan joined Barings in 2010 from Legg Mason Capital Management, where he was an investment analyst. He holds a B.Comm degree from St. Mary’s University, Canada and was awarded the CFA designation in 2006. Adnan is fluent in Arabic.

Report of the Investment Manager


Our investment philosophy is based on the belief that equity markets are inefficient. We believe these inefficiencies are greatest at the stock level and that over the long-term stock selection can add value in all equity asset classes. Our disciplined bottom-up stock selection process incorporating ESG analysis, macro considerations and a risk-aware portfolio construction process, enables us to manage stock-specific risks and mitigate volatility inherent in equity markets.

Key Differentiators
Depth of resource We have a large and experienced team of emerging markets investment professionals producing proprietary and differentiated company research which drives our stock selection.
Five year research horizon Our research horizon is five years, where we believe market inefficiency is more pronounced, allowing us to readily identify companies with unrecognised growth potential.
Incorporation of top-down macro considerations into a bottom-up process We capture macro risks within our investment process via our unique cost of equity*, incorporating these risks into our valuation of equities and setting of price targets.
Integration of ESG ESG is fully embedded into our investment process, influencing both the qualitative assessment and final cost of equity used to set price targets.
Proprietary portfolio construction tools We believe the key to delivering high risk-adjusted returns is through company stock selection and robust risk management. We achieve this through the use of our proprietary in-house portfolio construction tools.


We are pleased to report that the performance of your Company lifted the Company share price to new all-time highs (dividend reinvested basis) led by a wealth of investment opportunity within the region.

During 2019 Emerging European markets enjoyed both strong absolute and relative performance compared to the recent past.

This was against a challenging backdrop where volatility increased substantially in response to political and macroeconomic factors. In addition, Emerging European currencies, stock markets and sectors behaved in a diverse manner, providing a highly uncorrelated investment universe which exhibited examples of both stellar performance and pronounced weakness. This provided a fertile hunting ground from which to unearth mispriced companies in which to invest. Against this background, your portfolio benefitted from being broadly diversified, delivering an increase in the Company’s NAV of 17.8% (including dividends), against a benchmark performance of 15.9%.


Building on a strong 2018, last year saw a continuation of the Russian equity market’s positive performance. Remarkably, this development took place against a backdrop of sharply falling oil prices, challenging the notion that the Russian equity market’s performance hinges on oil and oil alone. Importantly, we recognise recent developments have been driven by marked improvements in management performance toward ESG policy within the Russian private sector, and, to an increasing degree, state owned enterprises.

Economic and Political Background

In the context of Russia’s often headline-grabbing foreign policy of recent years, a comparably uneventful year brought a visible reduction in the country’s risk premium, (the additional return premium investors require to take elevated risk), as investors’ attention rested on economic developments. We deem the appreciation of the Russian Rouble a prominent indicator of the increasing appeal of Russian assets, especially in a global environment that mostly saw depreciating Emerging Markets’ currencies when faced against a stubbornly elevated USD. While cynics might remark on the short memory of financial markets, we draw a more constructive picture. The release of 35 Ukrainian prisoners under the terms of a prisoner swap in September 2019, amongst them the renowned film maker Oleg Sentsov, one of the most famous political prisoners in Russia, and the revival of the so-called Steinmeier formula (calling for OSCE-supervised elections to be held in the separatist-held territories of Eastern Ukraine), could well signal an improvement in the relations between Russia and Ukraine, and henceforth the European Union. In addition, overall investor sentiment has been helped by the US Treasury’s Office of Foreign Asset Control (OFAC) decision to lift the sanctions regime on Russian companies EN+ and Rusal. This resulted from an agreement, made in January 2019, with Oleg Deripaska, the former majority shareholder of these companies, to reduce his direct and indirect shareholding stake and sever his control.

Russia also saw a continuing trend of high profile, strategic energy deals. Examples include the USD 21bn Arctic Liquefied Natural Gas (LNG) 2 project conducted by Russia’s Novatek and its partners CNOOC of China and Mitsui of Japan. Arctic LNG2 is key to Russia’s ambition of growing to be the dominant global player in LNG, a cleaner energy source. This is especially prevalent in the context of the current energy transition sought by the European Commission, representing a readily accessible alternative to reduce greenhouse gas emissions and help combat global warming.

A major boost to growth will likely come from government-led investment. Public capital expenditure shrank by some 5-10% year-on-year in the first half of 2019 due to slippage in the realisation of large-scale infrastructure works known as the National Projects.

We expect the pace of National Project spending to pick up in 2020, with the positive growth effect likely to be enhanced by the announced spending of USD 15bn from the National Welfare Fund in 2020-22 on public investments and export credits. In addition to higher government investment, faster growth should also result from lower inflation and a broader easing of monetary and fiscal policy. This points in particular to an improvement of the lacklustre domestic household demand growth seen in 2019.

Company Weighting Versus Comparator Benchmark by Country

at 30 September 2019

Country of operation Company Benchmark*
Czechia 1.4% 2.6%
Greece 3.4% 5.5%
Hungary 2.3% 5.1%
Poland 17.4% 17.5%
Russia 64.3% 58.9%
Turkey 12.5% 10.4%
Romania 2.7% 0.0%
Ukraine 0.7% 0.0%
Kuwait 0.8% 0.0%
Net Current Liabilities -5.5% 0.0%
Total 100.0% 100.0%

*Includes rounding differences. Source: Barings, MSCI

Investment Strategy

Companies within Russia’s energy sector, a consistent core portfolio component, rank amongst the best-performing stocks, not just within Emerging Europe, but also globally. These companies have been able to deliver almost 100% returns in USD over the past 10 years, standing in stark contrast to global peers and the oil price which provided negative returns over the same period (as measured by the Bloomberg World Oil & Gas Index). Notably, the sector saw a major step change in composition as Gazprom saw a substantial rise in its index weighting as the company continues to consolidate its place as the world’s largest gas producer. Gazprom had previously long lagged behind its peers in Russia’s private sector but, following what we recognise to be substantial improvements in the company’s corporate governance, the company has made significant strides to increase its dividend distribution to minority shareholders, made possible by a renewed focus on efficiency and cash generation. This culminated in one of the strongest performances of any large cap stock globally and saw Gazprom’s share price climb by more than 50% in USD terms. We took profits in LNG gas producer Novatek, as the company responded to developments within their highly successful Yamal project which saw the company move closer to our target price

Outside the Energy sector we invested in Russian telecommunication company Mobile Telesystems (MTS), a key beneficiary of Rouble strength where we recognise the ongoing margin repair on the Russian telco market. In the materials sector we introduced a position in Polyus, one of the largest producers of gold globally, boasting a vast, easily accessible resource base. While this increased our exposure to precious metals, this was partially offset by a reduction in our holding in Alrosa, a diamond producer widely recognised in carat production terms as a peer to De Beers, following strong share price appreciation.


In what was a challenging economic backdrop, Turkish assets were volatile, but performed well over the course of the year. The potential of Turkish companies remains substantial, supported by the country’s young population and solid education system, underpinning the economy to generate growth and attract foreign investment. With valuations remaining attractive and well below long-term averages, assets prices stand to benefit considerably from falling inflation expectations.

Near term political challenges remain prevalent and there continues to be little reason to believe that the substantial political risk premium incorporated into Turkish asset prices is likely to wane any time soon. Our view, however, remains positive as we take note of the recent macroeconomic improvements.

Economic and Political Backgrounds

After the turbulent events of summer 2018 which saw the Turkish market transition through a period of stress as inflationary pressures and political interference undermined the Turkish Lira, the Turkish Central Bank, committed to reigning in inflationary pressures, maintained elevated interest rates of 24.5%. This orthodox approach led to a substantial fall in inflation expectations, returning initiative to Turkish policy makers. While the resulting tight domestic conditions brought a rapid contraction in economic activity, we note that the highly flexible Turkish economy was able to effectively adjust and, by mid-2019, tentative signs of recovering domestic demand became visible. Importantly, the current account deficit, (a measurement of a country’s trade where the value of the goods and services it imports exceeds the value of the products it exports), reversed sharply as a significantly weakened Lira caused imports to fall while exports remained solid. Furthermore, the Central Election Commission’s decision to declare the opposition’s close win in the May 2019 municipality election in Istanbul void on dubious grounds felt like yet another setback – only to become a galvanising moment in Turkey’s history of civil society as a revote confirmed the victory of the charismatic Ekrem Imamoglu in dramatic fashion, and placed him in office as mayor of Turkey’s largest metropolis and economic centre.

Investment Strategy

Following rapid developments on the ground in Turkey, representatives of the team visited Ankara and Istanbul where we met with government institutions, management teams and visited operational facilities to gain insight into the state of the Turkish economy. The outcome of the trip resulted in a change to our strategy, substantially increasing our exposure to Turkish stocks. While political noise remained elevated, underlying economic trends soon started to reflect tentative signs of recovery as external financing stabilised and falling inflationary pressures resulted in the substantial appreciation of the Turkish Lira. This led to the significant appreciation in a number of companies within the portfolio which were able to effectively adapt to the dynamic landscape. Within the banking sector our attention was focused on Yapi Kredi Bank, where we saw substantially better valuation levels compared to its private sector peers Garanti and Akbank. Mobile telephony and internet service provider Turkcell, at times during the year ranking amongst the largest portfolio holdings, was sold eventually on the back of significant stock price appreciation. Turkcell operates with an impressive 50% market share, and was able to effectively utilize its position to maintain strong pricing power amidst the elevated inflationary environment to deliver robust top line growth. New additions to the portfolio included Arcelik, the leading European white goods producer, car manufacturer TOFAS and the country’s largest refiner, Tupras, all of which were notable contributors to performance.


Historically Poland has been a much needed safe haven within Emerging Europe. However, the stock market endured a difficult year, owing mainly to increasing political intervention and regulatory pressures. Furthermore, concerns over dwindling export growth in Europe, driven largely by the German auto industry, had a detrimental effect on the currency. In sharp contrast, the domestic economy remains resilient, being less dependent on exports than other Central European states. We expect that the ongoing tribulations within the financial system will eventually allow for consolidation and higher profitability levels.

Economic and Political Background

The Polish economy continues to benefit from robust domestic demand, supported by rapidly rising real household incomes while ongoing productivity gains and falling transport fuel prices have kept inflationary pressures at bay. This has attracted an influx of labour from the Ukraine and Belarus who have taken jobs in labour intensive sectors such as construction and agriculture. Additionally, the conservative government’s introduction of its flagship social transfer programme – the 500 Polish Zloty child allowance – was followed by a host of further fiscally expansive measures aimed primarily at pensioners and families in the run-up to the October 2019 parliamentary elections. While these measures were designed to keep the PiS in power, strong economic growth and improved tax collection has boosted tax revenues while prudently managed public finances have enabled the government to give back, albeit at the expense of spending in other areas of the economy. Elsewhere, Swiss Franc mortgages, actively sold in Poland predominantly during the years 2006-2009, have proven to be a source of constant headache for Polish banks’ management. While of decent credit quality, the mortgages have attracted the attention of regulators and, have become subject of litigation risk, supported by an EU court ruling. While a forced conversion of CHF mortgage books to Polish Zloty denomination would cost the banking sector up to PLN 20bn, we believe the Polish banking sectors’ high capitalisation levels would be able to absorb the losses, and with the help of the regulator, allow them to mitigate its impact. Overall, the events of the last year have brought us closer to a resolution in this ongoing saga.

Investment Strategy

While in Central Europe the portfolio suffered from substantial stock price declines in various Polish stocks, we remain vigilant as valuations are approaching multi year lows and the overall damage inflicted by regulatory developments in the banking sector has been limited. Amid this environment, one key inclusion to our portfolio in Poland was CD Projekt, one of the world’s most successful computer game producers. We believe the company has the ability to expand and diversify its current franchises to become a multi-title producer.


An early parliamentary election in Greece led to a resounding victory of the conservative New Democracy (a centre-right political party in Greece) under Kyriakos Mitsotakis, ending the leftist Syriza party’s four-year tenure in power.

After a prolonged period of underwhelming news flow and a generally volatile market backdrop, the outlook for the Greek banking sector has started to improve, aided by a new found confidence in the country’s economic development. At the centre of investors’ attention stand the large portfolios of non-performing loans on Greek banks’ balance sheets. A number of these loans were collateralised against real estate and therefore carry an intrinsic value that could be realised via foreclosure. Not surprisingly, much of this collateral is made up of the businesses and primary residences of ordinary Greeks, thus creating a politically charged stumbling block for the banking sector in their pursuit to release the necessary liquidity to re-start lending to the Greek economy. As plans for a potential carve-out and subsequent sale of non-performing loans emerged, investor attitudes improved, evidenced in the pronounced performance of the sector on the Athens stock exchange. Making use of the pronounced volatility over the course of the year we increased our investment in the Greek banking sector and added Alpha Bank to our existing holding of National Bank of Greece.


Romanian economic growth has historically benefitted from substantial inflows of foreign direct investment over previous years as the country’s private sector’s ability to channel funding from the EU has steadily increased. However, rapidly growing household consumption and short-sighted fiscal policies pursued by the Social-Democrat government, led to overheating in the economy by late 2018. This was evident in worrying signs of inflationary pressures, a rapidly expanding twin deficit (current account and budget) and even a thinly-veiled attempt to influence the Central Bank’s independence. This situation was exacerbated by an attempt by the government to plug the financing gap by introducing draconian banking taxes, resulting in a sharp drop in asset prices as banks signalled their inability to conduct profitable business under the proposed levies. Ultimately, the Finance Ministry recognised the lobbying of the banking industry and adopted a lighter approach, finding a compromise between sustaining profitable growth potential for the sector and fiscal contributions. Looking ahead we are of the opinion that the upcoming presidential elections (autumn 2019) and parliament elections (2020) will pave the way for the reform orientated, liberal-led government. Following the positive developments, we added to our holding in BRD, Société Générale’s Romanian subsidiary and one of the Balkan country’s largest banks.

Eastern Europe

Elsewhere, Global IT services giant DCX Technology’s take-over offer for the Central and Eastern European IT outsourcing services specialist, and long-term conviction holding, Luxoft allowed us to exit our position after a substantial stock price increase. This development provides an insight into the competitive advantage of the region’s service sector. Eastern Europe boasts a talent pool of a well-educated, reliable and flexible software engineers successfully competing on a global level in increasingly complex and fast growing applications such as autonomous driving or fintech. While the Emerging European export success story is often reduced to industrial manufacturing or commodities sectors, Luxoft’s buyout serves as a reminder of the high value added capabilities of Emerging European IT & software companies.

Middle East, North & Sub-Saharan Africa

Middle Eastern and North African markets remained largely muted over the course of the year. Of note, was the inclusion of Saudi Arabia into the MSCI Emerging Markets Index completing a two-stage inclusion process that began in May 2019 and ended in August 2019. This reclassification attracted both passive and active inflows as investors took note of the opportunity the market offers, supported by structural reform, social change and ambitious infrastructure plans. Furthermore, the much anticipated IPO of Saudi Aramco, Saudi Arabia’s national petroleum and natural gas company and one of the largest companies in the world by revenue, is expected to be listed in the near term. The sheer size of this initial offering, poised to be the largest IPO in history by size, and the potential for related liquidity effects (namely outflows from other stocks) have already made a significant impact on investor attitudes.

The Company’s engagement in the extended geographical mandate of the Middle East, North and Sub-Saharan Africa remains limited, as we have continued to find an abundance of significant investment opportunities within our core markets. In our view it is important to underscore that Turkey, Greece and especially Russia (on a combined level representing in excess of 80% of our portfolio) rank amongst the best performing equity markets globally over the last 12 months, justifying the allocation of the largest part of our funds to those markets. Over the medium term we remain positive on the potential for the Middle East, North Africa and Sub-Saharan stock markets.


The Company has made use of a gearing facility of up to 10% of NAV for the entire year, as part of its strategy to increase returns. While elevated US interest rates have increased the overall interest payment costs of the facility, we consider the attractive valuation, earnings growth outlook and underlying dividend yield of Emerging European Equity markets an adequate opportunity set to successfully support the continued employment of our gearing strategy.


The positive performance of various Emerging European stock markets over the last year is reflected in the increasing attention investors pay to local company specific factors rather than global developments. This continuing trend may well mark an important moment in investors’ perception of Emerging European markets, where political risk considerations have overshadowed an improving corporate climate. These developments in our view have also been supported by changing investor attitudes towards sustainability and investing effectively for the long term. By incorporating ESG key parameter in our company analysis, we are able to engage management and clearly define expectations and enhance accountability. Additionally, by engaging directly, investors are able to gain valuable insight towards a company’s attitudes toward governance, thus unearthing risks not apparent from traditional analysis. This serves to further contextualise investment decisions and support the long term stability and profitability goals of the Company.

The overall growth profile of Emerging Europe remains very attractive in our view, especially considering the region’s low valuations and idiosyncratic opportunities such as cheap currencies, falling real interest rates and strong corporate and sovereign balance sheets. We also note the substantial opportunities we see in the consumer space, export industries and technology as rising household income levels and infrastructure investment lay the foundation for sustainable growth and the attraction of foreign investment.

Politically, we do observe some constructive changes in the state of civil societies and inherent institutional strength, challenging the uninspiring traditional notion of the region. These changes can often be seen in the most testing of environments. The election of former comedian Volodymyr Zelensky as Ukrainian President, the return of former economy minister and AK Party founding member Ali Babacan to the political fray in Turkey, and various local and national election results across the region are indicative of the development of these ongoing political processes.

We believe that Emerging Europe has now realised the largest portion of the increase in dividend pay-out ratios, a key driver of revenue generation in recent years: leading to what we believe is a normalisation in dividend growth within the region. Looking ahead, we believe a supporting factor to the portfolio’s revenue generation capability will be the performance of Emerging European currencies as they respond to growing foreign investment and the relative strengths of their economies globally.

We acknowledge the strong performance delivered by Russian energy companies in particular and recognise that, in some cases, share prices have edged closer to full valuation. This, we believe, presents an opportunity to explore a larger degree of stock picking opportunities in other sectors and markets, also including the extended geographical mandate of the Middle East, North Africa and Sub-Saharan Africa. This should also benefit the portfolio’s resilience to volatility as this expansion into different markets offers further diversification benefits, and supports our objective to generate higher risk-adjusted returns.

Review of Top Ten Holdings

at 30 September 2019

Holding Sector

Market value £’000

% of investment portfolio
End weighting relative to Benchmark Company comment
Sberbank Financials 12,058 10.4 Overweight Russia’s largest bank, successful implementation
of modernisation strategy offers scope for further
improvement of profitability.
Gazprom Energy 11,627 10.0 Overweight Russia's largest oil and gas producer, offering substantial dividend distribution.
Lukoil Energy 9,404 8.1 Underweight High yielding Russian oil stock with potential for further dividend growth.
Novatek Energy 6,657 5.7 Underweight Largest independent gas producer in Russia. Liquified Natural Gas strategy provides significant growth potential.
X5 Retails Group Consumer Staples 6,106 5.3 Overweight One of the leading Russian supermarket chains, benefitting from expansion and consumption growth.
PZU Financials 4,828 4.2 Overweight Largest Polish insurer. Its capital base allows for substantial dividend payout ratios. Enlarging client base via strategic stakes in Polish banking sector.
Polyus Materials 3,447 3.0 Overweight One of the largest producers of gold globally, boasting a vast, easily accessible resource base.
Mobile Telesystems Communication Services 3,420 3.0 Overweight Russian telecommunication company and key beneficiary of the ongoing margin repair of the sector.
KGHM Polska Miedz Materials 3,367 2.9 Overweight Largest European copper miner. Core Polish operations' efficiency improving.
VakifBank Financial 3,363 2.9 Overweight One of Turkey’s largest banks which has seen a strong turnaround following management efforts to upgrade operations and deliver on strategic goals.

Investment Portfolio

at 30 September 2019

Primary country of listing or investment
Market value £’000 
% of investment 
1 Sberbank Russia 12,058  10.41 
2 Gazprom Russia 11,627  10.04 
3 Lukoil Holdings Russia 9,404  8.12 
4 Novatek Russia 6,657  5.75 
5 X5 Retails Group Russia 6,106  5.27 
6 PZU Poland 4,828  4.17 
7 Polyus Russia 3,447  2.98 
8 Mobile Telesystems Russia 3,420  2.95 
9 KGHM Polska Miedz Poland 3,367  2.91 
10 VakifBank Turkey 3,363  2.90 
11 AO Tatneft Russia 3,215  2.78 
12 PKO Bank Polska Poland 3/097  2.67 
13 Mail.Ru Russia 3,058  2.64 
14 Yapi Kredi Turkey 2,685  2.32 
15 Yandex Russia 2,627  2.27 
16 Santander Bank Polska Poland 2,527  2.18 
17 CD Projekt Poland 2,417  2.09 
18 National Bank of Greece Greece 2,417  2.09 
19 Bank Pekao Poland 2,192  1.89 
20 Norilsk Nickel Russia 2,013  1.74 
21 Tupras Turkey 1,899  1.64 
22 OTP Bank Hungary 1,842  1.59 
23 TCS Russia 1,763  1.52 
24 Globaltrans Russia 1,731  1.50 
25 BCA Transilvania Romania 1,711  1.48 
26 CCC Poland 1,672  1.44 
27 Komercni Banka Czechia 1,631  1.41 
28 Detsky Mir Russia 1,504  1.30 
29 Turk Telekomunikasyon Turkey 1,484  1.28 
30 Alpha Bank Greece 1,466  1.27 
31 Mosco Exchange Russia 1,454  1.26 
32 Alrosa Russia 1,449  1.25 
33 Ulker Biskuvi Sanayi Turkey 1,366  1.18 
34 LSR Russia 1,362  1.17 
35 Tofas Turk Otomobil Fabri Turkey 1,167  1.01 
36 Arcelik Turkey 1,123  0.97 
37 Human Soft Kuwait 958  0.83 
38 MD Medical Russia 890  0.77 
39 MHP Ukraine 820  0.71 
40 MOL Hungarian & Gas Hungary 795  0.69 
41 Turkcell Iletisim Hizmetleri Turkey 785  0.68 
42 Sphera Franchise Romania 725  0.63 
43 EN+ Group International Russia 720  0.62 
44 BRD-Groupe Societe General Romania 691  0.60 
45 Migros Ticaret Turkey 335  0.29 
46 DP Eurasia Turkey and Russia 223  0.19 
Total investments(gross assets) 122,091  105.44 
Net current liabilities (6,305) (5.45)
Net assets 115,786  100.0 

Investment Process

We believe that equity markets are inefficient and that consistently applied fundamental bottom-up company analysis can identify mispriced opportunities. Fundamental research is the cornerstone of our approach in which we identify mispriced investment opportunities which possess Growth at a Reasonable Price (“GARP”) characteristics. GARP investing incorporates elements of growth and value investing, focusing on companies which have sustainable growth potential but do not demand a high valuation premium.

To each company we research, we apply a consistent, analytical and qualitative framework applied through our Company Scorecard (see below) which focuses on three factors: Growth, Valuation and Quality. By applying a consistent research approach we can evaluate companies and determine relative attractiveness across countries and sectors within the region.

Consistent Company Scorecard

The company scorecard creates a consistent research approach and helps managers to evaluate companies and determine relative attractiveness across geographies and sectors

Unrecognised growth, typically identified on a five year horizon where market inefficiency is more pronounced Price targets achieved by discounting long term earnings forecasts using an appropriate cost of equity and a target PE Qualitative assessment provides a level of certainty as our research horizon is five years
Historical – last three-years’ net earnings growth Our Valuation Method – five years discounted by COE to set price target and determine upside Franchise – competitive advantage, efficiency, stability
Near-term – next 12-months’ net earnings growth Earnings based – next 12 month forward P/E multiple Management – competence, commitment and alignment with shareholder Interest
Long-term – next five-years’ net earnings growth Return based valuation – P/B relative to ROE and P/B relative to cost of capital Balance sheet – cash flow, working capital, capital structure analysis


Each of the above nine factors are scored 1-5 and equally weighted


Company fundamentals including proprietary financial forecasts
Sector / industry / macro trends and outlook
ESG considerations

Each company is rated on a scale of 1-5, with a 1 score being the most favourable and a 5 score, the least attractive.

While focused on company analysis, our investment process does also factor in the effects of macro influences such as the economic outlook and political change as well as ESG issues. We integrate these considerations through our unique cost of equity when we value companies.

Integrating Macro - Cost of Equity Used in Equity Valuation

A company’s equity value is discounted by a company-specific cost of equity to determine a price target and upside from current market prices

Risk inherent to the entire market Risk that is particular to a company
Cost of Equity (Discount Rate) = Risk Free Rate + Equity Risk Premium + Stock Specific Risk + ESG
Reflecting: Reflecting: Reflecting: Reflecting:
• Country economic factors • Economic classification • Sector risk • Our assessment of ESG
• Political risk • Regulatory risk Can add ( -1% to 2% to COE)*
• Social risk • Business model cyclicality
• Credit risk • Earnings volatility and visibility
• Balance sheet structure
Can add (0 to 2% to COE)*

Allows price target comparisons across sectors and geographies

We consider ESG factors among some of the most important variables that can impact an investment’s risks and returns over time. As part of our overall commitment to delivering attractive returns, we endeavour to construct portfolios that meet our clients’ risk-return requirements and this includes incorporating ESG criteria into our investment process. At the Investment Manager, ESG considerations influence both the company score we allocate to the companies we research and the cost of equity in order to capture the specific risks and inherent attractions highlighted by the company’s own ESG approach. As part of our initial and ongoing analysis, our investment professionals meet with management teams, visit operational facilities and analyse industry competitors to better understand potential risks, including ESG-related issues. This analysis assists in the formation of our assessments where we look for signs of improvement or deterioration, relying on our own research, rather than taking static recommendations from “ESG Specialists”. Our assessment is based on the evaluation of nine key topics in order to arrive at a view on the company with the rating based on how the company is refining their focus on these areas.

We take the ideas generated through our research processes to construct a portfolio which targets superior risk-adjusted returns. Risk management is central to our investment process and as part of our portfolio construction and risk management process we employ a range of proprietary tools and models to fully identify all risks within our portfolio.

*For definitions, please see Glossary below

Incorporating ESG as part of our fundamental research due diligence

A dynamic assessment of ESG is integrated in all aspects of our fundamental research process

Our ESG Approach ESG considerations influence both the equity valuation and company scorecard Factors Considered Nine Key Topics
In-House Evaluation We make our own assessments informed by in-house knowledge and research, aided by external data Franchise
Sustainability of the Business Model
• Employee Satisfaction
Dynamic Assessment Signs of improving or deteriorating ESG factors – rather than “static assessments” – drive our analysis • Resource Intensity
• Traceability/ Security in Supply Chain
Management – Corporate Governance Credibility • Effectiveness of Supervisory/ Management Boards
• Credibility of Auditing Arrangements
• Transparency & Accountability of Management
Hidden Risks – On Balance Sheet • Environmental Footprint
• Societal Impact of Products/Services
• Business Ethics


ESG factors are rated based on how the company is refining their focus on the above factors, and given a score which impacts Cost of Equity

We take a multi-layered approach to fully understand how each position contributes to the stock specific and factor risk within the portfolio. This begins with our fundamental bottom-up research to identify all potential risks associated with each individual company. In addition our proprietary cost of equity aims to capture not only stock specific risk, including ESG, but also systematic risk to ensure that the expected return fully compensates for any potential risks.

In considering ideas for potential inclusion into our portfolios, the investment manager considers two key questions:

1. How does the investment decision impact the portfolio’s expected return?

2. How does the investment decision impact the portfolio’s risk characteristics?

The assessment of the risk and return profile of the fund is aided by the use of our proprietary portfolio construction tools. This approach assists in pre-trade analysis to identify which companies have the greatest scope to improve the risk and return characteristics of the portfolio while additionally aiding position sizing. Furthermore, these tools also empower our portfolio managers to minimise unintended factor risk while maximizing the stock specific risk contribution to ensure that our bottom up ideas drive investment performance. Once invested, our investment professionals continue to monitor each company to ensure that our conviction remains intact and that an investment’s risk and return profile remains attractive relative to other opportunities available in the market.

Baring Asset Management Limited

5 December 2019

Corporate Review

The Strategic Report above and the Audited Financial Statements has been prepared in accordance with the requirements of Section 414 of the Companies Act 2006 and best practice. Its purpose is to provide information to the shareholders of the Company and help them to assess how the Directors have performed their duty to promote the success of the Company, in accordance with Section 172 of the Companies Act 2006.

Dividend Policy

The Company will aim to at least maintain a dividend year-on-year and will pay income from capital when considered appropriate by the Board. The Board anticipates paying out up to one per cent. per annum of NAV from capital. The Board believes that this is a sustainable policy that should improve the Company’s appeal amongst investors.


The Board recommends a final dividend of 20 pence per share. Subject to Shareholder approval at the AGM, the recommended annual dividend will be paid on 14 February 2020 to Shareholders on the register at the close of business on 10 January 2020. The shares will be marked ex-dividend on 9 January 2020.

Buyback Programme

During the period from 1 October 2018 to the year ended 30 September 2019, the average discount was 11.54% (2018: 11.90%).

During the year ended 30 September 2019, 695,747 shares were repurchased at a cost of £5,293,000 (893,935 shares were repurchased during the year ended 30 September 2018 at a cost of £6,578,000). All shares repurchased during the year were cancelled.

Continuing Appointment of the Alternative Investment Fund Manager

The Board keeps the performance of the AIFM under continual review. The Management Engagement Committee conducts an annual appraisal of the AIFM’s performance and makes a recommendation to the Board about the continuing appointment of the AIFM. As the AIFM has delegated the portfolio management function to the Investment Manager, the performance of the Investment Manager is also regularly reviewed. The annual review of the performance of the Investment Manager includes consideration of:

• Overall performance and performance compared with Benchmark and peer group;

• investment resources dedicated to the Company;

• investment management fee arrangements compared with the peer group; and

• marketing effort and resources provided to the Company.

It is the opinion of the Board that the continuing appointment of the AIFM, on the terms agreed, is in the best interests of Shareholders as a whole. The Board is of the view that the AIFM has managed the portfolio well in accordance with the Board’s expectations and has delivered good returns.

Viability Statement

In accordance with provision C.2.2 of the UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a longer period than the 12 months required by the “Going Concern” provision. The Board conducted this review for a period of five years, which was selected because it was considered to be a reasonable time horizon in the context of the Company’s investment portfolio and cost base. The Board also regularly considers the strategic position of the Company including investor demand for the Company’s shares and a five year period is considered to be a reasonable time horizon for this.

The Directors have carried out an assessment of the Company’s principal risks and its current position. The principal risks faced by the Company and the procedures in place to monitor and mitigate them are detailed above. As the Company’s portfolio consists of shares which are listed on regulated markets, many of which are highly liquid, funds can be raised to meet the Company’s liabilities as they fall due. It has been reported by the Investment Manager that the portfolio has sufficient liquidity to meet all requirements with approximately 95% of the portfolio able to be liquidated within five days. The Company has no long term debt. At 30 September 2019, the Company had fully drawn down its US$12 million loan facility with State Street Bank and Trust Company. As a result of which the Company’s portfolio was 5.99% geared. This exposure does increase risk but is carefully monitored by the Board and in any event is limited to 10% of gross assets. The interest cost of the loan is covered 19 times by the revenue surplus. On the basis of the current portfolio yield, the Directors expect the Company to continue to generate a revenue surplus.

As explained in the full Annual Report and Accounts, the Directors have announced to Shareholders that a tender offer of 25% of the shares in issue at 30 September 2020 will be made if certain targets are not met. If a tender is made, the Company will continue to  remain viable with the resultant reduction in shares in issue.

Based on the above assessment, the Directors confirm that they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities over the five year period to December 2024.

Environmental, Human Rights, Employee, Social and Community Issues

Since the Company does not have any employees, the day-to-day management of these areas is delegated to the AIFM. As an investment trust, the Company has no direct impact on the community or the environment, and as such has no environmental, human rights, social or community policies.

Environmental, Social and Governance factors are considered by the Investment Manager as part of its investment process. Further information can be found in the Chairman’s Statement and the Investment Manager’s Report above.

This Strategic Report has been approved by the Board and signed on its behalf by:

Frances Daley


5 December 2019

Board of Directors


NADYA WELLS – Non-Executive Director and Senior Independent Director (“SID”)

CALUM THOMSON FCA – Non-Executive Director and Audit Committee Chairman

CHRISTOPHER GRANVILLE – Non-Executive Director

VIVIENE GOULD – Non-Executive Director

Report of the Directors

The Directors of the Company are pleased to present their Report and the Audited Financial Statements of the Company for the year ended 30 September 2019.

In accordance with the Listing Rules and the Disclosure, Guidance and Transparency Rules, the reports within the Corporate Governance section of the Annual Report and Financial Statements should be read in conjunction with one another, and the Strategic Report. As permitted, some of the matters normally included in the Directors’ Report have instead been included in the Strategic Report (above) as the Board considers them to be of strategic importance.


The Company is registered as a public limited company under the Companies Act and as an investment trust company under Section 833 Of the Companies Act 2006. It is a member of the Association of Investment Companies (“AIC”).

In the opinion of the Directors, the Company has conducted its affairs during the period under review, and subsequently, so as to maintain its status as an investment trust for the purposes of Chapter 4 of Part 24 of the Corporation Tax Act 2010. The Company has obtained written approval as an investment trust from HM Revenue & Customs for all accounting periods up to the year ended 30 September 2013 and has made a successful application under Regulation 5 of the Investment Trust (Approved Company) (Tax) Regulations 2011 for investment trust status to apply to all accounting periods starting on or after 1 October 2013 subject to the Company continuing to meet the eligibility conditions contained in Section 1158 of the Corporation Tax Act 2010 and the ongoing requirements outlined in Chapter 3 of Part 2 of the Regulations.

The Company is managed by external parties in respect of investment management, custodial services and the day-to-day accounting and company secretarial requirements.


The Directors in office at the date of this Report and the dates of their appointment are shown above and in the full Annual Report, together with their full biographies.

Ivo Coulson and Jonathan Wollett tendered their resignation as Directors of the Company on 30 November 2018 and 10 January 2019 respectively. Following these resignations, the Nomination Committee initiated a search for replacement Board members, with the assistance of an independent external executive search agency, Cornforth Consultancy. Consequently, the Nomination Committee recommended, and the Board approved the appointment of Christopher Granville to the Board with effect from 30 November 2018 and the appointment of Vivien Gould to the Board with effect from 11 March 2019.

In accordance with the policy adopted by the Board, all the Directors will retire and seek re-election at the Company’s forthcoming AGM. Vivian Gould will seek election at the AGM.

There were no contracts or arrangements subsisting during or at the end of the financial year in which any Director is or was materially interested, including with the AIFM.

The Board considers that, following recent performance evaluations, all of the current Directors contribute effectively and have the skills and experience relevant to the future of the Company. The Board therefore believes that it is in the best interests of the Shareholders that each Director is elected/re-elected.

The Board will consider the appropriateness of a policy on the tenure of the Chairman in view of the requirements of the new Association of Investment (“AIC”) Code of Corporate Governance.

Indemnity of Directors

Pursuant to the Articles and pursuant to the Companies Act, the Directors are indemnified against any liability. There are no other qualifying third-party indemnity provisions in place. In addition, the Company has procured Directors’ and Officers’ liability insurance.


The Board of Directors of the Company comprises of three females and two males.

The Company’s diversity policy acknowledges the benefits of greater diversity, including gender diversity. The Board is committed to ensuring that the Company’s Directors bring a wide range of skills, knowledge, experience, backgrounds and perspectives.

Whilst the Board has adopted a diversity policy, which recognises the importance and benefits of greater diversity including that of gender, it does not consider that it would be appropriate to set diversity targets as all Board appointments are made on merit, in the context of skills, knowledge and experience required for the effectiveness of the Board, and against objective criteria.

Share Capital

As at 30 September 2019, the Company’s total issued share capital was 15,757,504 ordinary shares (30 September 2018: 13,135,044), of which the Company held 3,318,207 ordinary shares in treasury. The shares held in treasury are treated as not being in issue when calculating the weighted average of ordinary shares in issue during the year. All shares repurchased during the year were cancelled. All of the Company’s ordinary shares in circulation are listed on the premium listing segment of the London Stock Exchange and each ordinary share carries one vote.

The rights attached to the Company’s shares are set out in the Company’s Articles of Association. The Company’s ordinary shares are freely transferable. However, the Director may refuse to register a transfer of shares which are not fully paid nor where the instrument of transfer is not duly stamped or shown to be exempt from stamp duty. The Directors may also decline to register a transfer of an uncertificated share in the circumstances set out in the uncertificated securities rules, and where the number of joint holders to whom the uncertificated share is to be transferred exceeds four. There are no restrictions on the voting rights of the Company’s shares.

Amendments to the Company’s Articles of Association and the giving of authority to issue or buy back the Company’s shares requires an appropriate resolution to be passed by Shareholders.

There are no restrictions on voting for the holders of ordinary shares, who are entitled to attend and vote at a shareholder meeting.

Share Issues

At last year’s Annual General Meeting (“AGM”), the Directors were granted authority to allot ordinary shares up to an aggregate nominal amount of £65,137.88 (being 5% of the issued ordinary share capital).

This authority is due to expire at the Company’s AGM on 23 January 2020. The Company has not issued any shares under this authority. Proposals for the renewal of this authority are set out in the full Annual Report and Accounts

Treasury Shares

Shares brought back by the Company may be held in treasury, from where they could be re-issued at a premium to NAV quickly and cost effectively. This provides the Company with additional flexibility in the management of its capital bases. No shares were purchased for treasury during the year or since the year end. The Company holds 3,318,207 ordinary shares in treasury.

Purchase of Own Shares

At last year’s AGM, the Directors were authorised to make market purchase of up to 14.99% of each of the Company’s ordinary shares, amounting to 1,952,833 shares. Since the AGM held on 10 January 2019 and the year end, the Company brought back 519,002 ordinary shares with a nominal value of 0.10 pence per share, and at a total cost of £4,035,098under this authority. As at 30 September 2019, the remaining authority for the purchase of own shares is 1,433,831 shares. A total of 3,318,207 ordinary shares are held in treasury, representing 21.08% of the issued share capital at 5 December 2019.

The authority will expire at the next AGM when a resolution for its renewal will be proposed.

Substantial Shareholdings

Information on major interests in shares provided to the Company under the Disclosure, Guidance and Transparency Rules are published via a Regulatory Information Service.

The Company has received notification of the following disclosable interests in the voting rights of the Company:

At 30 September 2019
Shareholder Number of Ordinary shares notified % Interest in share capital
City of London Investment Management Company Limited 2,926,546 23.4%
Lazard Asset Management LLC, New York, United States of America 1,096,747 6.7%
City of Bradford Metropolitan District Council 925,158 5.6%

The Company has been informed that, since the year end, City of London Investment Management Company Limited has increased its holding in the Company to 25.3% (3,143,213 shares).

Corporate Governance

The statement of Corporate Governance, forms part of this report by reference. The Directors have prepared a statement on how the principles and recommendations of the AIC Corporate Governance Code have been applied. This forms part of this report by reference. This can be found in full in the Annual Report and Accounts.

Going Concern

The Directors believe that, having considered the Company’s investment objectives, risk management policies, capital management policies and procedures, nature of the portfolio and expenditure projections, the Company has adequate resources and an appropriate financial structure in place to continue in operational existence for the foreseeable future. The assets of the Company consist mainly of securities which are readily realisable. For these reasons, they consider that there is reasonable evidence to continue to adopt the going concern basis in preparing the accounts.

Requirements of the Listing Rules

Listing Rule 9.8.4 requires the Company to disclose specific information in a single identifiable section of the Annual Report. The Directors confirm that there are no disclosures to be made under the Listing Rule 9.8.4.

Global Greenhouse Gas Emissions

The Company has no greenhouse gas emissions to report from the operations of the Company, nor does it have responsibility for any other emission producing sources under the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013.

Conflict of Interest

The Articles of Association permit the Board to consider and if it sees fit, to authorise situations where a Director has an interest that conflicts, or may conflict, with the interests of the Company. There is a formal process for the Board to consider authorising such conflicts, whereby the Directors who have no interest in the matter decide whether to authorise the conflict and conditions to be attached to such authorisations.

Companies Act 2006 Disclosures

In accordance with Section 992 of the Companies Act 2006 the Directors disclose the following information:

• the Company’s capital structure is summarised below, voting rights are summarised in the full Annual Report and Accounts, and there are no restrictions on voting rights nor any agreement between holders of securities that result in restrictions on the transfer of securities or on voting rights;

• there exist no securities carrying special rights with regard to the control of the Company;

• details of the substantial shareholders in the Company are listed above;

• the Company does not have an employees’ share scheme;

• the rules concerning the appointment and replacement of Directors, amendment of the Articles of Association and    powers to issue or buy back the Company’s shares are contained in the Articles of Association of the Company and the Act;

• there are no agreements to which the Company is party to that may affect its control following a takeover bid; and

• there are no agreements between the Company and its Directors providing for compensation for loss of office that may occur because of a takeover bid.

The Board recognises the requirement under Section 417(5) of the Act to detail information about environmental matters (including the impact of the Company’s business on the environment), any Company employees and social and community issues; including information about any policies it has in relation to these matters and effectiveness of these policies. As the Company has no employees or policies in these matters this requirement does not apply. Notwithstanding, the AIFM takes into account these considerations when making investment decisions and determines its voting instructions at investee company meetings accordingly. Full details are set out in the full Annual Report and Accounts.

Financial risk management

The principal financial risks and the Company’s policies for managing these risks are set out in note 18 to the Financial Statements.


Whilst the majority of Shareholders voted for the re-appointment of KPMG LLP as the auditors at the Company’s Annual General Meeting held on 10 January 2019 there were some votes against. In the light of Shareholder votes against, and given that KPMG LLP had been auditors to the Company since its inception in 2002, the Board tasked the Audit Committee to undertake an audit tender to replace them a year earlier than had been the original intention.

Following a competitive audit process, the Board appointed BDO LLP, to fill the casual vacancy in place of KPMG LLP with effect from 14 June 2019. A resolution to appoint BDO LLP as auditor will be proposed at the forthcoming AGM.

The Board takes this opportunity to express its appreciation to KPMG LLP for their long service to the Company.

Further information on the audit tender can be found in the Audit Committee report in the full Annual Report and Accounts.

Audit Information

The Directors who held office at the date of approval of this report confirm that, so far as they are aware, there is no relevant information which the Company’s auditor is unaware. Each Director has taken all reasonable steps that she or he ought to have taken as a Directors to make himself or herself aware of any relevant audit information and to establish that the Company’ auditor is aware of that information.

Annual General Meeting

The AGM will be held on Thursday, 23 January 2020 at 2.30pm at the offices of the Investment Manager (20 Old Bailey, London EC4M 7BF). The formal notice of the AGM is set out in the full Annual Report and Accounts. Separate resolutions are proposed for each substantive issue.

A full explanation of the resolutions being proposed at the AGM may be found in the full Annual Report and Accounts.

The Board considers that all the resolutions to be put to the meeting are in the best interests of the Company and its shareholders as a whole. The Board unanimously recommends that you vote in favour of them, as those Directors (Frances Daley and Calum Thomson) who hold shares in the Company, intend to do so.

Post Balance Sheet Events

There are no post balance sheet events to report.

Link Company Matters Limited


5 December 2019

Statement of Directors’ Responsibilities in Respect of the Annual Report and the Financial Statements

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

Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with UK Accounting Standards and applicable law, including FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”.

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 the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgments and estimates that are reasonable and prudent;

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

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

The financial statements are published on the Company’s website:, which is maintained by the Investment Manager. The maintenance and integrity of the website maintained by the Investment Manager is, so far as it relates to the Company, the responsibility of the Investment Manager. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility Statement of the Directors In Respect of the Annual Report

Each of the Directors, whose names are listed above, confirm to the best of each person’s knowledge:

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

• the Strategic Report includes a fair review of the development and performance of the business and the position of the issuer, together with a description of the principal risks and uncertainties that they face.

We consider the Annual Report and Audited Financial Statements, 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.

For and on behalf of the Board

Frances Daley


5 December 2019


The financial information set out below does not constitute the Company’s statutory accounts for the year ended 30 September 2019 but is derived from those accounts. Statutory accounts for the year ended 30 September 2019 will be delivered to the Registrar of Companies in due course. The Auditors have reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditors’ report can be found in the Company’s full Annual Report and Accounts on the Company’s website at

Income Statement

(incorporating the Revenue Account*) for the year ended 30 September 2019

Year ended 30 September 2019   Year ended 30 September 2018   
Revenue   Capital   Total   Revenue   Capital    Total   
Notes £’000   £’000   £’000   £’000   £’000    £’000   
Gains on investments held at fair value through profit or loss 9 -   14,126   14,126   -   (6,081)   (6,081)   
Foreign exchange losses -   (371)  (371)                     - (31)   (31)   
Income 2 6,315   -   6,315   5,036   -    5,036   
Investment management fee 3 (173)  (693)  (866)  (185)  (750)   (935)  
Other expenses 4 (765)  -   (765)  (836)  -    (836)  
Return on ordinary activities 5,377   13,062   18,439   4,015   (6,862)   (2,847)  
Finance costs 5 (77)  (308)  (385)  (62)  (247)   (309)  
Return on ordinary activities before taxation 5,300     12,754    18,054   3,953   (7,109)   (3,156)  
Taxation 6 (818)  -   (818)  (565)  -    (565)  
Return for the year 4,482   12,754  17,236   3,388   (7,109)   (3,721)  
Return per ordinary share 8 35.09p 99.87p 134.96p 24.77p (51.98)p (27.21)p

*The total column of this statement is the profit and loss account of the Company.

All revenue and capital items in the above statement derive from continuing operations.

The supplementary revenue and capital columns are both prepared under the guidance published by the Association of Investment Companies.

There is no other comprehensive income and therefore the return for the year is also the total comprehensive income for the year.

The annexed notes form part of these accounts.

Statement of Financial Position

as at 30 September 2019

2019   2018  
Notes £’000   £’000  
Fixed assets
Investments at fair value through profit or loss 9 122,091   114,825  
Current assets
Debtors 10 217   1,460  
Cash and cash equivalents 3,532   1,706  
3,749   3,166  
Current liabilities
Creditors: amounts falling due within one year 11 (10,054)  (9,658) 
Net current liabilities (6,305)  (6,492) 
Net assets 115,786   108,333  
Capital and reserves
Called-up share capital 12 1,576   1,646  
Share premium account 1,411   1,411  
Redemption reserve 3,212   3,142  
Capital reserve 105,158   97,697  
Revenue reserve 4,429   4,437  
Total Shareholders’ funds 115,786   108,333  
Net asset value per share 13 930.81p 824.76p

The financial statements above were approved by the Board on 5 December 2019 and signed on its behalf by:

Frances Daley


Company registration number 04560726

The annexed notes below form part of these accounts.

Statement of Changes in Equity

for the year ended 30 September 2019

Called-up  Share
share  premium Redemption Capital  Revenue 
capital  account reserve reserve  reserve  Total 
£’000  £’000 £’000 £’000  £’000  £’000 
For the year ended 30 September 2019
Beginning of year 1,646  1,411 3,142 97,697  4,437  108,333 
Return for the year - - 12,754  4,482  17,236 
Buyback of own shares for cancellation - - (5,293) (5,293)
Transfer to capital redemption reserve (70) - 70
Dividends paid - - (4,490) (4,490)
Balance at 30 September 2019 1,576  1,411 3,212 105,158  4,429  115,786 


Called-up  Share
share  premium Redemption Capital  Revenue 
capital  account reserve reserve  reserve  Total 
£’000  £’000 £’000 £’000  £’000  £’000 
For the year ended 30 September 2018
Beginning of year 1,735  1,411 3,053 111,384  5,590  123,173 
Return for the year –  (7,109) 3,388  (3,721)
Buyback of own shares for cancellation –  (6,578) –  (6,578)
Transfer to capital redemption reserve (89) 89 –  –  – 
Dividends paid –  –  (4,541) (4,541)
Balance at 30 September 2018 1,646  1,411 3,142 97,697  4,437  108,333 

Distributable reserves comprise the revenue reserve and capital reserve attributable to realised profits.

The split between realised and unrealised capital reserves is provided in note 14.

All investments are held at fair value through profit or loss. When the Company revalues the investments still held during the period, any gains or losses arising are credited/charged to the capital reserve.

The annexed notes below form part of these accounts.

Notes to the Accounts

for the year ended 30 September 2019

1. Accounting policies

A summary of the principal policies, all of which have been applied consistently throughout the year, is set out below:

(a) Basis of accounting

The financial statements have been prepared in accordance with the applicable UK Accounting Standards, being FRS 102 – The Financial Reporting Standard – and with the Statement of Recommended Practice “Financial Statements of Investment Trust Companies and Venture Capital Trusts” (issued in November 2014 and updated in February 2018).

As an investment fund the Company has the option, which it has taken, not to present a cash flow statement. A cash flow statement is not required when an investment fund meets all the following conditions: substantially all investments are highly liquid and are carried at market value, and where a statement of changes in assets as defined in section 7, FRS 102 is presented.

The Financial Statements have also been prepared on the assumption that approval as an investment trust will continue to be granted. The Directors consider that the Company has adequate resources to enable it to continue in operational existence for the foreseeable future. Accordingly, the Directors believe that it is appropriate to adopt the going concern basis in preparing the Company’s financial statements.

(b) Valuation of investments

Upon initial recognition the investments are designated by the Company as “at fair value through profit or loss”. They are included initially at fair value which is taken to be their cost. Subsequently the investments are valued at fair value which is bid market price for listed investments. Unquoted investments are included at a valuation determined by the Directors after discussion with the AIFM on the basis of the latest accounting and other relevant information.

Changes in the fair value of investments held at fair value through profit or loss and gains or losses on disposal are included in the capital column of the income statement within “Gains/(losses) from investments held at fair value through profit or loss”. All purchases and sales are accounted for on a trade date basis.

Year-end exchange rates are used to translate the value of investments which are denominated in foreign currencies.

(c) Foreign currency

The Company is required to identify its functional currency, being the currency of the primary economic environment in which the Company operates. The Board, having regard to the currency of the Company’s share capital and the predominant currency in which its shareholders operate, has determined that sterling is the functional currency. Sterling is also the currency in which the financial statements are presented.

Transactions denominated in foreign currencies are recorded in the functional currency at actual exchange rates as at the date of the transaction. Monetary assets, liabilities and equity investments held at fair value and denominated in foreign currencies at the year end are reported at the rates of exchange prevailing at the year end. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss in either the capital or revenue column of the Income Statement depending on whether the gain or loss is of a capital or revenue nature respectively.

(d) Segmental reporting

The Directors are of the opinion that the Company is engaged in a single segment of business, being the investment business.

(e) cash equivalents

Cash and cash equivalents comprise cash on hand and short term deposits in banks

(f) Income

Dividends receivable from equity shares are taken to revenue return on an ex-dividend basis except where, in the opinion of the Directors, the dividend is capital in nature in which case it is taken to the capital return. Foreign dividends are gross of withholding tax. Bank deposit interest is taken to revenue reserve on an accruals basis.

(g) Expenses

All expenses are accounted for on an accruals basis and are charged as follows:

• the basic investment management fee is charged 20% (2018: 20%) to revenue and 80% (2018: 80%) to capital;

• any investment performance bonus payable to AIFM is charged wholly to capital;

• dealing costs are charged wholly to capital; and

• other expenses are charged wholly to revenue.

(h) Interest payable

Interest payable is accounted for on an accruals basis, and is charged 20% (2018: 20%) to revenue and 80% (2018: 80%) to capital. See notes 5 and 11.

(i) Capital reserve

Gains or losses on disposal of investments and changes in fair values of investments are transferred to the capital reserve. Any investment performance fee payable to the AIFM is accounted for in the capital reserve.

(j) Revenue reserve

The net profit/(loss) arising in the revenue column of the Income Statement is added to or deducted from this reserve. This is available for paying dividends on the Income shares.

(k) Taxation

The charge for taxation is based upon the net revenue for the year. The tax charge is allocated to the revenue and capital accounts according to the marginal basis whereby revenue expenses are first matched against taxable income arising in the revenue account; the effect of this for the year ended 30 September 2019 was that all the deductions for tax purposes went to the revenue account.

Deferred taxation will be recognised as an asset or a liability if transactions have occurred at the balance sheet date that give rise to an obligation to pay more taxation in the future, or a right to pay less taxation in the future. An asset will not be recognised to the extent that the transfer of economic benefit is uncertain.

(i) Dividends

Dividends are not recognised in the accounts unless there is an obligation to pay or have been paid. Dividends are included in the Statement of Changes in Equity.

(m) Bank Borrowings

Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for through the income statement on an accrual basis and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.

2. Income

2019 2018
£’000 £’000
Income from investments - -
Overseas dividends – Quoted 6,302 5,028
Other income:
Bank interest 13 8
Total income 6,315 5,036

All income stated above is revenue in nature

3. Investment management fee

Baring Fund Managers Limited have been appointed the AIFM of the Company under an agreement terminable by either party giving not less than six months’ written notice. Under this agreement the AIFM receives a basic fee (charged 20% to revenue (2018: 20%) and 80% to capital (2018: 80%)) which is calculated monthly and payable at an annual rate of 0.8% of the NAV of the Company.

The investment management fee comprises:

2019 2018
£’000 £’000
Basic fee (20% (2018: 20%) charged to revenue) 173 185
Basic fee (80% (2018: 80%) charged to capital) 693 750
866 935

At 30 September 2019, £76,000 (30 September 2018: £75,000) of this fee remained outstanding.

4. Other expenses

2019 2018
£’000 £’000
Custody and administration expenses* 608 660
Auditor’s remuneration for:
– audit 25 32
Directors’ remuneration 132 144
765 836

* Included within administration expenses is £11,600 (2018: £13,600) of employee’s National Insurance paid on Directors’ remuneration.

5. Finance costs

2019 2018
£’000 £’000
On short-term loan and gearing facility with State Street Bank & Trust Company:
Bank loan interest (20% (2018: 20%) charged to revenue) 77 62
Bank loan interest (80% (2018: 80%) charged to capital) 308 247
385 309

6. Taxation

(a) Current tax charge for the year:

2019 2018
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Overseas taxation (note 6(b)) 818 - 818 565 565

(b) Factors affecting the current tax charge for the year

The taxation rate assessed for the year is different from the standard rate of corporation taxation in the UK. The differences are explained below:

2019 2018
Revenue  Capital  Total  Revenue  Capital  Total 
£’000  £’000  £’000  £’000  £’000  £’000 
Return on ordinary activities before taxation 5,300  12,754  18,054  3,953  (7,109) (3,156)
Return on ordinary activities multiplied by the standard rate of corporation tax of 19% (2018: 19%) 1,007  2,423  3,430  751  (1,351) (600)
Effects of:
Non taxable overseas dividends (1,197) –  (1,197) (955) –  (955)
Overseas withholding tax 814  –  814  565  –  565 
Prior year adjustments – 
Capital gains not subject to tax –  (2,613) (2,613) –  1,161  1,161 
Non-trade loan relationship debts not utilised 12  59  71  10  47  57 
Management expenses not utilised 178  131  309  194  143  337 
Current tax charge for the year 818  –  818  565  –  565 

The Company is not liable to tax on capital gains due to its status as an investment trust.

The Company has an unrecognised deferred tax asset of £2,605,000 (2018: £2,266,000) based on the long term prospective corporation tax rate of 17.0% (2018: 17.0%). This asset has accumulated because deductible expenses have exceeded taxable income in past years. No asset has been recognised in the accounts because, all profits are non taxable in the UK due to the entity being an investment trust. It is not likely that this asset will be utilised in the foreseeable future.

7. Dividend

2019   2018 
£’000   £’000 
Final dividend (19p) paid for the year ended 30 Sep 2017 -   2,620 
Interim dividend (14p) paid for the year ended 30 Sep 2018 -   1,921 
Final dividend (20p) paid for the year ended 30 Sep 2018 2,591
Interim dividend (14p) paid for the year ended 30 Sep 2019 1,899
 4,490  4,541 

The proposed final dividend of 20p for 2019 will be paid, subject to Shareholder approval at the AGM, on 14 February 2020 to Shareholders on the register when the shares are marked ex-dividend on 9 January 2020.

8. Return per ordinary share

Total   Total   
Revenue   Capital   2019   Revenue   Capital    2018   
Return per ordinary share 35.09p 99.87p 134.96p 24.77p (51.98)p (27.21)p

Revenue return (earnings) per ordinary share is based on the net revenue on ordinary activities after taxation of £4,482,000 (2018: £3,388,000).

Capital return per ordinary share is based on net capital gain for the financial year of £12,754,000 (2018: net capital loss of £(7,109,000)).

These calculations are based on the weighted average of 12,770,923 (2018: 13,677,229) ordinary shares in issue during the year.

At 30 September 2019 there were 12,439,297 ordinary shares of 10 pence each in issue (2018: 13,135,044) which excludes 3,318,207 ordinary shares held in treasury (2018: 3,318,207 shares held in treasury). The shares held in treasury are treated as not being in issue when calculating the weighted average of ordinary shares in issue during the year.

9. (i) Fixed asset investments

Quoted Overseas Total  Quoted Overseas Total 
2019  2018 
Primary country of investment £’000  £’000 
Hungary 2,637  3,596 
Czechia Republic 1,631  1,227 
Poland 20,100  20,491 
Russia 74,505  69,948 
Turkey 14,207  11,296 
Greece 3,883  1,993 
Romania 3,127  3,375 
Other 2,001  2,899 
Total 122,091  114,825 

9. (ii) Movements in the year

Book cost at beginning of year 103,995  109,045 
Gains on investments held at beginning of year 10,830  22,175 
Valuation at beginning of year 114,825  131,220 
Movements in year:
Purchases at cost 54,954  47,136 
Sales proceeds (61,814) (57,450)
Gains on investments sold in year 6,952  5,264 
Gains/(losses) on investments held at year end 7,174  (11,345)
Valuation at end of year 122,091  114,825 


Book cost at the end of the year 104,087  103,995 
Gains on investments held at the end of year 18,004  10,830 
Valuation at end of year 122,091  114,825 

Transaction costs on purchases for the year ended 30 September 2019 amounted to £44,000 (2018: £44,000) and on sales for the year they amounted to £48,000 (2018: £50,000).

A list of the Company’s investments by market value is shown above, and a geographical classification and industrial classification of the investment portfolio are shown above.

10. Debtors

2019 2018
£’000 £’000
Amounts due within one year
Amounts due from brokers - 1,065
Prepayments and accrued income 187 377
Other debtors 30 18
217 1,460

11. Creditors

2019 2018
£’000 £’000
Amounts falling due within one year
Bank loans 9,738 9,202
Amounts outstanding to brokers due to the buyback of own shares - 113
Other creditors 316 343
10,054 9,658

The Company has a US$12 million loan facility with State Street Bank and Trust Company. The amount outstanding in relation to this facility at 30 September 2019 was US$12 million (at 30 September 2018: US$12 million) which is repayable on 8 April 2020, interest is charged at the rate of LIBOR plus 3.527%.

12. Called-up share capital

2019 2018
£’000 £’000
Allotted, issued and fully paid up
15,757,504 (2018: 16,453,251) ordinary shares of 10 pence (fully paid) 1,576 1,646

During the year 695,747 ordinary shares were repurchased for cancellation for £5,293,000 (2018: 893,935 ordinary shares were repurchased for cancellation for £6,578,000). During the year no ordinary shares were repurchased to be held in treasury and no ordinary shares which were held in treasury were cancelled. The Company holds 3,318,207 ordinary shares in treasury which are treated as not being in issue when calculating the number of ordinary shares in issue during the year (2018: 3,318,207 ordinary shares were held in treasury). Shares held in treasury are non-voting and not eligible for receipt of dividends. Subsequent to the year end a further 17,753 shares have been repurchased for cancellation.

13. Net asset value per share

Total Shareholders’ funds and the NAV per share attributable to the ordinary shareholders at the year end calculated in accordance with the Articles of Association were as follows:

2019   2018  
Total shareholders’ funds (£’000) 115,786   108,333  
Net asset value (pence per share) 930.81p 824.76p

The NAV per share is based on total Shareholders’ funds above, and on 12,439,297 ordinary shares in issue at the year end (2018: 13,135,044 ordinary shares in issue) which excludes 3,318,207 ordinary shares held in treasury (2018: 3,318,207 ordinary shares held in treasury). The ordinary shares held in treasury are treated as not being in issue when calculating the NAV per share.

14. Capital reserve

Capital reserve
Realised*  Unrealised 
gains/(losses)  Investment holdings 
on sale of investments  gains/(losses)  Total 
£’000  £’000  £’000 
At 1 October 2018 88,422  9,275  97,697 
Net gains on disposal of investments 6,952  6,952 
Repurchase of share costs (5,293) (5,293)
Net movement in unrealised appreciation of investments 7,174  7,174 
Losses on foreign exchange 173  (544) (371)
Management fees charged to capital (693) (693)
Finance charges charged to capital (308) (308)
At 30 September 2019 89,253  15,905  105,158 


Capital reserve
Realised*  Unrealised 
gains/(losses)  Investment holdings 
on sale of investments  gains/(losses)  Total 
£’000  £’000  £’000 
At 1 October 2017 90,512  20,872  111,384 
Net gains on disposal of investments 5,264  5,264 
Repurchase of share costs (6,578) (6,578)
Net movement in unrealised appreciation of investments (11,345) (11,345)
Losses on foreign exchange 221  (252) (31)
Management fees charged to capital (750) (750)
Finance charges charged to capital (247) (247)
At 30 September 2018 88,422  9,275  97,697 

* Considered distributable.

15. Financial commitments

At 30 September 2019, there were no outstanding capital commitments (2018: £nil).

16. Custodian’s lien

Under the terms of the Custody Agreement with State Street Bank & Trust Company (“State Street”), the Company has granted a lien over its securities and other assets that are deposited with State Street to cover all sums due in connection with the loan facility and the Custody Agreement.

17. Related party disclosures and transactions with the Alternative Investment Fund Manager

The Company is required to provide additional information concerning its relationship with the AIFM. Details of the investment management fee charged by Baring Fund Managers Limited (“AIFM”) are set out in note 3. The ultimate holding company of the AIFM is Massachusetts Mutual Life Insurance Company, 1295 State Street, Springfield, MA 01111-0001. Fees paid to the Directors and full details of Directors’ interests are disclosed in the Directors’ Remuneration Report in the full Annual Report and Accounts .

18. Risk management policies and procedures

As an investment trust the Company invests in equities and other investments for the long-term so as to secure its investment objective stated above. In pursuing its investment objective, the Company is exposed to a variety of risks that could result in either a reduction in the Company’s net assets or a reduction of the profits available for dividends.

These risks, include market risk (comprising currency risk, interest rate risk, and other price risk), liquidity risk, and credit risk, and the Directors’ approach to the management of them are set out below.

The objectives, policies and processes for managing the risks, and the methods used to measure the risks, that are set out below, have not changed from the previous accounting period.

(a) Market risk

Special considerations and risk factors associated with the Company’s investments are discussed above. The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements – currency risk (see (b) below), interest rate risk (see (c) below) and other price risk (see (d) below). The Board of Directors reviews and agrees policies for managing these risks, which have remained substantially unchanged from those applying in the year ended 30 September 2018. The Company’s AIFM assesses the exposure to market risk when making each investment decision, and monitors the overall level of market risk on the whole of the investment portfolio on an ongoing basis.

(b) Currency risk

Most of the Company’s assets, liabilities, and income, are denominated in currencies other than sterling (the Company’s functional currency, and in which it reports its results). As a result, movements in the rate of exchange between sterling and the currencies of the countries in which the Company invests, which are identified in the table shown in note 9, may affect the sterling value of those items. In addition the Company’s uninvested cash balances are usually held in US Dollars.

Management of the risk

The AIFM monitors the Company’s exposure and reports to the Board on a regular basis.

Income denominated in foreign currencies is converted to sterling on receipt. The Company does not use financial instruments to mitigate the currency exposure in the period between the time that income is included in the Financial Statements and its receipt.

Foreign currency exposures

At 30 September 2019 monetary assets included cash balances totalling £3,532,000 (2018: £1,706,000) that were held predominantly in US Dollars.

At 30 September 2019 monetary liabilities included a bank loan totalling £9,738,000 (2018: £9,202,000) that was due in US Dollars. If sterling had weakened/strengthened by an average of 10%, this would have had an effect of +/- £973,800.

At 30 September 2019 and at 30 September 2018 all of the equity investments were priced in a foreign currency.

Foreign currency sensitivity

The following table illustrates the sensitivity of the revenue return for the year in regard to the Company’s monetary financial assets to changes in the exchange rates for the various currencies to which the Company is exposed.

If sterling had weakened by an average of 10%, this would have had the following effect:

2019  2018 
£’000  £’000 
Income statement – profit after taxation:
Revenue return – increase 449  336 
Capital return – increase 12,209  11,483 
Total 12,658  11,819 

If sterling had strengthened by an average of 10%, this would have had the following effect:

2019  2018 
£’000  £’000 
Income statement – profit after taxation:
Revenue return – decrease (449) (336)
Capital return – decrease (12,209) (11,483)
Total (12,658) (11,819)

Impact on capital return is disclosed in note 18 (d).

(c) Interest rate risk

Interest rate movements may affect the level of income receivable on cash deposits.

Cash at bank at 30 September 2019 (and 30 September 2018) was held at floating interesting rates, linked to current short-term market rates.

Interest rate movements may affect the interest payable on the Company’s variable rate borrowings.

Management of the risk

The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when borrowing under the bank loan facility.

Interest rate exposure

The exposure at 30 September 2019 of financial assets and financial liabilities to floating interest rates is shown below:

2019  2018 
Total  Total 
(within one year)  (within one year) 
£’000  £’000 
Exposure to floating interest rates:
Cash at bank 3,532  1,706 
Borrowings under bank loan facility (9,738) (9,202)
(6,206) (7,496)

Interest rate sensitivity

The Company is primarily exposed to interest rate risk through its bank loan facility.

Due to the insignificant impact of fluctuations in interest rates no sensitivity analysis is shown.

(d) Other price risk

Other price risk (i.e. changes in market prices other than those arising from interest rate risk or currency risk) may affect the value of the quoted and unquoted equity investments.

Management of the risk

The Board of Directors believe that as the Company’s investment objective is to provide exposure to Emerging European Securities its neutral position in respect of this risk is full exposure to the market as represented by its Benchmark Index. The AIFM has been given discretion around the Benchmark Index to enable it to add value. The amount by which the portfolio diverges from the Benchmark Index is closely monitored by the Board with the goal of ensuring that the risk taken is proportionate to the value added.

Concentration of exposure to other price risk

An analysis of the Company weighting versus Benchmark Index and a sector breakdown and geographical allocation of the portfolio is contained in the Investment Manager’s Report above.

Other price risk sensitivity

The following table illustrates the sensitivity of the profit after taxation for the year and the equity to an increase or decrease of 10% in the fair values of the Company’s equities. This level of change is considered to be reasonably possible based on observation of current market conditions. The sensitivity analysis is based on the Company’s equities at each balance sheet date, with all other variables held constant.

Increase in Decrease in  Increase in Decrease in 
fair value fair value  fair value fair value 
2019 2019  2018 2018 
£’000 £’000  £’000 £’000 
Income statement - profit after taxation:
Capital return - increase/(decrease) 12,209 (12,209) 11,483 (11,483)
Total profit after taxation other than arising from interest rate or currency risk - increase/(decrease) 12,209 (12,209) 11,483 (11,483)
Equity 12,209 (12,209) 11,483 (11,483)

(e) Liquidity risk

This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.

Management of the risk

Liquidity risk is not significant as the majority of the Company’s assets are investments in quoted equities that are readily realisable.

The Company has a bank loan facility of US$12 million which was fully drawn down and the value was £9,738,000 (2018: £9,202,000) was drawn down at 30 September 2019.

Liquidity risk exposure

The contractual maturities of the financial liabilities at 30 September 2019, based on the earliest date on which payment can be required were as follows:

2019  2018 
Total  Total 
(within one year)  (within one year) 
£’000  £’000 
Bank loan 9,738  9,202 
Other creditors and accruals 316 456
10,054 9,658

The Board gives guidance to the AIFM as to the maximum amount of the Company’s resources that should be invested in any one holding.

(f) Credit risk

The failure of the counterparty to a transaction to discharge its obligations under that transaction could result in the Company suffering a loss.

Management of the risk

This risk is not significant, and is managed as follows:

• the majority of transactions take place through clearing houses on a delivery versus payment basis;

• investment transactions are carried out with an approved list of brokers, whose credit-standing is reviewed periodically by the AIFM, and limits are set on the amount that may be due from any one broker; and

• cash at bank is held only with reputable banks with high quality external credit ratings.

None of the Company’s financial assets are secured by collateral or other credit enhancements.

(g) Fair values of financial assets and liabilities

Financial assets and liabilities are either carried in the balance sheet at their fair value (investments), or the balance sheet amount if it is a reasonable approximation of fair value (amounts due from brokers, dividends receivable, accrued income, amounts due to brokers, accruals and cash balances).

The table below sets out fair value measurements using the fair value hierarchy.

Level 1 2019
Financial assets at fair value through profit or loss at 30 September 2019: £’000 £’000
Equity investments 122,091 122,091
Total 122,091 122,091
Level 1 2019
Financial assets at fair value through profit or loss at 30 September 2018: £’000 £’000
Equity investments 114,825 114,825
Total 114,825 114,825

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset as follows:

Level 1 - valued using quoted prices in active markets for identical assets.

Level 2 - valued by reference to valuation techniques using observable inputs other than quoted prices included within Level 1 (there are no Level 2 investments at 30 September 2019).

Level 3 - valued by reference to valuation techniques using inputs that are not based on observable market data (there are no Level 3 investments at 30 September 2019).

The valuation techniques used by the Company are explained in the accounting policies note above.

19. Subsequent events

There are no significant events after the year end of reporting period requiring disclosure.

AIFMD disclosures (unaudited)

The Alternative Investment Fund Manager

Baring Fund Managers Limited (the “AIFM”), authorised by the Financial Conduct Authority as an Alternative Investment Fund Manager, under the Alternative Investment Fund Managers Directive (“AIFMD”), is the appointed AIFM to the Company.

AIFMD Disclosures

Pre-investment Disclosures

The AIFM and the Company are required to make certain disclosures available to investors in accordance with the AIFD. Those disclosures that are required to be made pre-investment can be found on the Company’s website under the prospectus and literature heading, the document is titled “Pre-investment disclosures”, dated September 2016. There have been no material changes to the disclosures contained within the document since publication in July 2015.

Leverage Disclosure

For the purposes of this disclosure, leverage is any method by which the Company’s exposure is increased, whether through borrowing cash or securities, or leverage embedded in contracts for difference or by any other means. The AIFMD requires that each leverage ratio be expressed as the ratio between a Company’s exposure and its NAV, and prescribes two required methodologies, the Gross Methodology and the Commitment Methodology (as set out in AIFMD Level 2 Implementation Guidance), for calculating such exposure.

Using the methodologies prescribed under the AIFMD, the leverage ratios of the Company calculated on a Gross Basis was 106% and on a Commitment Basis was 109% as at 30 September 2019.

Remuneration Policy

The Investment Manager’s Remuneration Policy ensures that the remuneration arrangements as defined in “ESMA’s Guidelines on Sound Remuneration Policy under AIFMD, ESMA 2013/201” (the ‘ESMA Guidelines’), (as amended) are:

(i) consistent with and promote sound and effective risk management and do not encourage risk-taking which is inconsistent with the risk profile, rules or instruments of incorporation of the Investment Manager or the Fund; and

(ii) consistent with the Investment Manager’s business strategy, objectives, values and interests and includes measures to avoid conflicts of interest.

The Investment Manager is also subject to the FCA’s AIFMD Remuneration Code (SYSC 19B). and complies with the AIFMD remuneration principles in a way and to the extent that is appropriate to its size and business.

Remuneration Committee

Due to the size and nature of the Investment Manager, the Board of Directors considers it appropriate to dis-apply the requirement to appoint a remuneration committee.

The Investment Manager forms part of the Barings Europe Limited (UK) group of companies (“Barings”). Barings has two remuneration committees to take remuneration decisions, namely the Remunerations Committee and the Senior Compensation Committee. The remuneration committees ensure the fair and proportionate application of the remuneration rules and ensures that potential conflicts arising from remuneration are managed and mitigated appropriately.

Remuneration Code Staff

The Investment Manager has determined its Remuneration Code Staff as the following:

1. Senior Management

Senior Management comprises the Board of Directors and all members of the European Management Team (“EMT”).

All control functions detailed in section 2 below are also senior managers.

2. Control Functions

The Investment Manager’s control functions include the Heads of Risk, Compliance, Legal, Operations, Internal Audit, HR and Finance along with other heads of department in the Executive Committee and the Money Laundering Reporting Officer.

3. Risk Takers

Risk Takers are defined as the investment managers of the Fund. Investment managers do not work for the Investment Manager directly as the Investment Manager delegates portfolio management to Barings Asset Management Limited (“BAML”). Accordingly, the Investment Manager currently has no risk takers outside of senior management.

BAML is as a BIPRU firm and subject to the Capital Requirements Directive (“CRD”) which has equivalent remuneration rules.

4. Employees in the same remuneration bracket as risk takers

The Investment Manager will not treat a person as Remuneration Code Staff if a person’s professional activities do not have a material impact on the risk profiles of the firm or the Funds. Accordingly, the Investment Manager currently has no staff in this category.

5. Staff responsible for heading the investment management, administration, marketing and human resources

To the extent that the Investment Manager’s staff fall within this category, they are also control function staff falling within (2) above.

Remuneration Disclosure

The disclosure below details fixed and variable remuneration paid to BFM staff and BFM Remuneration Code Staff.

Total Fixed Total Variable
Number of Remuneration for Remuneration for Total
Beneficiaries The period The period Remuneration
Total remuneration paid by BFM in relation to the Fund* 16 £9,934 £36,010 £45,944
Total Senior Management Remuneration paid by BFM** 16 £255,749 £818,297 £1,044,045

The Investment Manager’s Remuneration Policy is reviewed annually both in respect of the general principles it contains and its own implementation. For 2018 the policy was updated to align it to the Barings group policy. The 2018 review resulted in some changes to the remuneration approach and disclosure; no irregularities were identified.

The above disclosures are made in line with Barings’ interpretation of currently available regulatory guidance on quantitative remuneration disclosures. As market or regulatory practice develops, Barings may consider it appropriate to make changes to the way in which quantitative remuneration disclosures are calculated. Where such changes are made, this may result in disclosures in relation to a fund not being comparable to the disclosures made in the prior year, or in relation to other Barings fund disclosures in that same year.


*The Investment Manager does not make any direct payments to staff, who are paid by other Barings Group entities. Figures shown are apportioned on a fund AUM basis as a proportion of Barings total AUM as at the end of the accounting year.  Accordingly, the figures are not representative of any individual’s actual remuneration.

**Senior management remuneration is apportioned on the basis of the Investment Manager’s total AUM as a proportion of Barings’ total AUM.

Variable remuneration consists of Short Term Incentive awards, Long Term Incentive awards and any other variable payments including benefits in kind and discretionary pension awards.

The Fund does not pay performance fees.

There has been no award of carry interest in the period.

Glossary of Terms

Alternative performance measures (APM) are denoted by an (#) below:

An alternative performance measure is a financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined within the Trust’s financial reporting framework.

Annual Management Charge (AMC)

A management fee is a charge levied by an investment manager for managing an investment fund intending to compensate the manager for their time and expertise in selecting stocks and managing the portfolio.

Annualised Net Asset Value (NAV) Total Return#

A measure showing how the net asset value (NAV) per share has performed over the year, including  both capital returns and dividends paid to shareholders.

Average Discount#

The average that the Ordinary share price is lower than the net asset value per Ordinary share over a predefined period. The discount is normally expressed as a percentage of the net asset value per share. NAV minus share price divided by NAV.

Average Discount (Annual)#

This is the average discount over one year.

Carbon Emissions (Scope 1 & 2)

Scope 1 greenhouse gas emissions arise from direct fuel combustion from sources owned or controlled by the company (i.e. as in a furnace or vehicle).

Scope 2 greenhouse gas emissions are caused by the generation of electricity purchased by the company.

Comparator Benchmark

A comparative benchmark is used to measure the performance of an investment fund for the purpose of tracking relative return and defining the asset allocation or a portfolio. The annualised Benchmark movement represents the percentage movement in the Benchmark over the year.

Cost of Equity (COE)

The cost of equity (COE or Discount Rate) is the minimum rate of return which an equity investor will expect to be compensated for investment risk.


Discount is the amount by which the Ordinary share price is lower than the net asset value per Ordinary share. The discount is normally expressed as a percentage of the net asset value per share. NAV minus share price divided by NAV.

Dividend Pay-out Ratio#

The ratio of the total amount of dividends paid out to shareholders relative to the net income of the company. Calculated by the dividing the Dividends Paid by Net Income.

Dividend Reinvested Basis

Applicable to the calculation of return, this calculates the return by taking any dividends generated over the relevant period and reinvesting the proceeds to purchase new shares and compound returns.

Dividend Yield#

The annual dividend expressed as a percentage of the current market price. (see Chairman’s Statement above).


Europe, Middle East and Africa (“EMEA”) is a geographic region.

Emerging Markets

An emerging market economy is a developing nation that is becoming more engaged with global markets as it grows. Countries classified as emerging market economies are those with some, but not all, of the characteristics of a developed market.

Environmental, Social and Governance or ESG

ESG (environmental, social and governance) is a term used in capital markets and used by investors to evaluate corporate behaviour and to determine the future financial performance of companies.

ESG factors are a subset of non-financial performance indicators which include sustainable, ethical and corporate governance issues such as managing the company’s carbon footprint and ensuring there are systems in place to ensure accountability.

Frontier Markets

A Frontier market is a country that is more established than the least developed countries globally but still less established than the emerging markets because it economy is too small, carries too much inherent risk, or it markets are too illiquid to be considered an emerging market.


Two methods of calculating such exposure are set out in the AIFMD, gross and commitment.

Under the gross method, exposure represents the aggregate of all the Company’s exposures other than cash balances held in base currency and without any offsetting. Investments (A) divided by Total Shareholders funds. (B). This can be found above: Gross method = 105% (A=£122,091,000/B=£115,786,000) x 100

The commitment method takes into account hedging and other netting arrangements designed to limit risk, offsetting them against the underlying exposure. Investments (A) plus current assets (C) divided by Total Shareholders’ funds. (B) This can be found above: Commitment method = 109% (A=£122,091,000) + (C = Cash £3,532,000 + Debtor £217,000)/B = £115,786,000) x 100 .

Gross Assets

Aggregate of all the Company’s exposures including Gearing.

Growth at a Reasonable Price (GARP) Investing

GARP investing incorporates elements of growth and value investing, focusing on companies which have sustainable growth potential but do not demand a high valuation premium.

Idiosyncratic Risk

Idiosyncratic or “Specific risk” is a risk that is particular to a company.

Net Asset Value or NAV

The value of total assets less current liabilities. The net asset value divided by the number of shares in issue produces the net asset value per share. NAV divided by number of ordinary shares in issue at the period end.

Ongoing Charges Figure (OCF) #

The Ongoing Charge Figure is an accurate measure of what it costs to invest in a fund. It is made up of the Annual Management Charge (AMC) and a variety of other operating costs. These charges cover the cost of running the fund.

Ongoing charges for the year = management fees of £866,000 + other operating expenses of £765,000 = £1,631,000 (see notes 3 and 4, above).

Average daily Shareholders’ fund for the year = £109,623,000 £1,631,000/£109,623,000 = 1.49%.

Return (per ordinary share) #

The return per ordinary share is based on revenue/capital earned during the year divided by the weighted average number of shares in issue during the year.

Relative Returns

Relative return is the difference between investment return and the return of a benchmark.

Risk-adjusted Returns

Risk-adjusted return refines an investment’s return by measuring how much risk is involved in producing that return.

Return on Equity (ROE)

Return on equity (ROE) is a measure of financial performance calculated by dividing net income by shareholders’ equity. Because shareholders’ equity is equal to a company’s assets minus its debt, ROE could be thought of as the return on net assets. This measure is used to understand how effectively management is using a company’s assets to create profits.

Share Price

The price of a single share of a company. The share price is the highest amount someone is willing to pay for the stock, or the lowest amount that it can be bought for. The annualised share price movement equivalent to the percentage movement of the share price over the year.

Systematic Risk

Systematic risk or “Market risk” is the risk inherent to the entire market or market segment, not just a particular stock or industry.

Total Return

Total return is the increase/(decrease) in NAV per share plus the dividends paid, which are assumed to be reinvested at the time the share price is quoted ex-dividend.

Directors and Officers


Frances Daley, Chairman

Nadya Wells

Calum Thomson

Christopher Granville (appointed on 30 November 2018)

Vivien Gould (appointed on 11 March 2019)

Ivo Coulson (retired on 30 November 2018)

Jonathan Woollett (retired on 10 January 2019)

Registered Office

Beaufort House
51 New North Road
Exeter EX4 4EP

Company Secretary

Link Company Matters Limited
Beaufort House
51 New North Road
Exeter EX4 4EP

Company number


Alternative Investment Fund Manager

Baring Fund Managers Limited
20 Old Bailey
London EC4M 7BF

Telephone: 020 7628 6000
Facsimile: 020 7638 7928


150 Aldersgate Street
London EC1A 4AB


State Street Trustees Limited
20 Churchill Place
Canary Wharf
London E14 5HJ


State Street Bank & Trust Company Limited
20 Churchill Place
Canary Wharf
London E14 5HJ


Northern Trust Global Services SE
50 Bank Street
Canary Wharf
London E14 5NT

Telephone: 0207 982 2000

Registrars and transfer office

Link Asset Services
The Registry
34 Beckenham Road
Kent BR3 4TU

Telephone: 0871 664 0300
Overseas: +44 371 664 0300
(Calls cost 12p per minute plus your phone company’s access charge. Calls outside the United Kingdom are charged at the applicable international rate.)
Lines are open 9:00 am - 5:30 pm, Monday to Friday
Email: [email protected]


JP Morgan Cazenove
25 Bank Street
Floor 29
Canary Wharf
London E14 5JP


Please note this should be accessed via the Barings website ( Please select Investment Trust.


The Annual General Meeting of the Company will be held on Thursday, 23 January 2020 at 2.30pm at 20 Old Bailey, London, EC4M 7BF

A copy of the Annual Report and Accounts will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated 



Neither the contents of the Company’s website nor the contents of any website accessible from hyperlinks on the website (or any website) is incorporated into, or forms part of, this announcement.

a d v e r t i s e m e n t