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Genesis Emerging (GSS)

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Tuesday 06 October, 2020

Genesis Emerging

Annual Financial Report

RNS Number : 2789B
Genesis Emerging Markets Fund Ld
06 October 2020
 

Genesis Emerging Markets Fund Limited (the 'Fund' or 'GEMF')

(Registered in Guernsey, Registration Number: 20790)

 

 

Annual Financial Report for the year ended 30 June 2020

 

The Directors of Genesis Emerging Markets Fund Limited announce the Fund's results for the year ended 30 June 2020.  The Annual Financial Report will shortly be available from the Fund's website www.genesisemf.com and also for inspection on the National Storage Mechanism, which is located at https://data.fca.org.uk/#/nsm/nationalstoragemechanism where users can access the regulated information provided by listed entities.

 

 

Financial Highlights and Performance

 

GEMF Total Return in GBP for the year to 30 June 2020

 

(3.3)%

(0.8)%

 

(0.1)%

Share Price Total Return(1)

Net asset value per Participating Preference Share Total Return(1)

MSCI EM (TR) Index(2)

 

 

 

 

30 June

2020

30 June

2019

 % change

USD

 

 

 

Net Assets(3)

$1,235.8m

$1,305.3m

(5.3)

Net Asset Value per Participating Preference Share(3)

$10.17

$10.75

(5.4)

Dividend per Participating Preference Share(3)(4)

$0.17

$0.19

(10.5)

GBP

 

 

 

Net Assets(5)

£1,000.1m

£1,025.6m

(2.5)

Net Asset Value per Participating Preference Share(5)

£8.23

£8.44

(2.5)

Share Price

£7.18

£7.57

(5.2)

Discount of Share Price to Net Asset Value per

Participating Preference Share(1)

 

12.8%

 

10.3%

 

Number of Participating Preference Shares

121,466,754

121,466,754

 

Ongoing charges ratio(1)

1.07%

1.11%

 

Countries represented in portfolio

30

32

 

Number of holdings

96

112

 

 

(1) Alternative Performance Measures

(2) MSCI Emerging Markets (Total Return) Index.

(3) IFRS measure.

(4) A dividend of $0.17 per Participating Preference Share on the Fund's profits for the year ended 30 June 2020 has been proposed.

(5) Translation of the USD measures using the GBP/USD exchange rate as at 30 June 2020 of 1.2356 (2019: 1.2727).

Past performance is no guarantee of future performance.

 

 

Chairman's Statement

 

I have pleasure in presenting the thirty-first annual report of the Genesis Emerging Markets Fund Limited, for the year ended 30 June 2020.

 

Overview

Over the year to 30 June 2020, the Fund's net asset value (NAV) fell by 0.8% in sterling total return terms to £8.23 per Participating Preference Share. This compares to a fall of 0.1% in the Fund's benchmark, the MSCI Emerging Markets Total Return Index (the 'Index'). It should be noted that the Fund invests in a significant number of non-benchmark stocks which the Investment Manager believes have long term high growth potential. The Fund's share price fell by 3.3% to £7.18 (adjusted for dividends paid) over the same period.

 

These have obviously been extraordinary times, not least for financial markets. In response to the disruption brought about by the COVID-19 crisis, the Fund's liquid and well diversified portfolio has stood up well to the challenges posed. The Investment Manager quickly implemented effective Business Continuity Plan ('BCP') arrangements, allowing them to operate as normal. Key service providers to the Fund similarly moved swiftly to invoke BCP planning in delivering appropriate levels of support.   A full impact assessment of COVID-19 on the Fund's ability to operate as a going concern has been satisfactorily executed.

 

Against a backdrop of strong absolute and relative performance explained in this Statement last year, the impact of the COVID-19 crisis on the Fund has resulted in weaker performance this year. As discussed further in the Investment Manager's Review, the Fund added value relative to the Index before the global pandemic impacted markets from February, led by stock selection in South Korea, South Africa and Brazil. However, the Fund suffered during the height of the crisis due to underweight positions in markets that handled the pandemic well, such as China, South Korea and Taiwan. Although the average holding period in the Fund is in excess of five years, the Investment Manager has shown decisiveness when markets present compelling valuation opportunities. This was the case in recent months as volatility created by the pandemic presented opportunities to increase the quality of the portfolio at relatively attractive prices. As ever, the Investment Manager continues to focus fully on long-term investment performance. This is produced by working as a team in making investments in quality businesses at attractive prices, supported by deep fundamental research, constructive challenge and support.

 

A more detailed explanation of the year's performance and changes to positioning is provided in the Investment Manager's Review.

 

The Board is pleased to report that the Investment Manager continues to meet Environmental, Social and Governance ('ESG') related requirements in fulfilling its duties.  

 

The Fund held its Annual General Meeting ('AGM') on 4 November 2019, and as ever, we appreciate shareholders' support and thank them for their approval of all resolutions presented at the meeting. The subsequent Shareholder Information Meeting on 5 November 2019 provided shareholders an opportunity to hear from, and ask questions of, representatives of the Investment Manager.

 

A dividend of 14.78p (19.0¢) per Participating Preference Share was paid to shareholders on 13 December 2019. As discussed in the 2019 Annual Report, the Board considers that this level of dividend represents an appropriate balance between the various differing interests, and opinions, held across the shareholder base - while maintaining the fundamental focus on capital growth as the Fund's primary investment objective.

 

For the year ended 30 June 2020 a final dividend of 17.0¢ per Participating Preference Share has been proposed and is subject to approval by shareholders at the AGM.   The reduction from 19.0¢ to 17.0¢ follows the fall in income during the year caused largely by the reduction or cancellation of dividends by a number of our investments affected by COVID-19. Hopefully this will not be permanent. In addition, there has been a long term shift in Emerging Markets towards technology and internet companies which are low income investments. The payment of a 17.0¢ dividend will require withdrawal of $20.6m of which $3.1m will be funded from the Fund's brought forward revenue reserves.

 

A new Investment Management Agreement was entered into between Genesis Investment Management, LLP and the Fund effective from 30 June 2019 and the management fee payable was reduced slightly to 0.90% of net asset value ('NAV') of the Fund per annum. The Board continue to monitor the appropriateness of the fee paid to the Investment Manager and considers that such a fee level in relation to the peer group of similar closed end funds is currently appropriate.

 

Discount

The discount of the share price to NAV per Participating Preference Share at the end of the period was 12.8%. The average level of the discount over the 12 months was 11.5% and has fluctuated between 8.5% and 18.5%. The Board continue to consider carefully such statistics, their relevance in comparison with an appropriate peer group, and potential options for active management of the discount - which continues to move broadly in line with the associated peer group. Marketing activity continues to be stepped up in support of widening the Fund's shareholder base, following the appointment of an external agency, Edison, to raise exposure to both the wholesale and retail sectors. Despite lockdown constraints, the Investment Manager has continued to meet with existing and potential shareholders in a virtual fashion. In addition, a series of video interviews with portfolio managers was initiated towards the end of the Fund's financial year. These interviews will give shareholders an opportunity to learn more about the Investment Manager's approach to portfolio management and the asset class.

 

As previously announced, the Board intends that if the Fund's NAV Total Return over 5 years ending 30 June 2021 does not exceed the Fund's benchmark NAV Total Return, the Fund will undertake a tender offer for up to a further 25% of the Fund's issued share capital (excluding any shares held in treasury).

 

The Board

At a Board meeting in June 2020, Torsten Koster was appointed as an independent Non-Executive Director with effect from 1 July 2020. Mr Koster has over 30 years' experience working for large multi-national companies, including several positions as Chief Financial Officer among which Nestle Russia and Eurasia and Nestle Nespresso. The retirement of Saffet Karpat at the forthcoming AGM is noted, with the Board thanking him for nine years of excellent service. Shareholders will have the opportunity to approve Mr Koster's appointment at the AGM, at which, the remaining five Directors will stand for re-election in accordance with the requirements of the AIC Code of Corporate Governance and the UK Corporate Governance Code. As ever, we continue to review how best the Board can provide the appropriate mix of skill, expertise, diversity and experience necessary in representing the interests of all shareholders. I still feel that we have such a combination and will continue to ensure that we remain current with best market practice

 

AGM, Shareholder Meeting and Shareholder Communication

This year's AGM will be held on Monday, 2 November 2020 at 10:30 a.m. at the registered office of the Fund. However, in consideration of the wellbeing of the Fund's shareholders and in light of Government guidance around social distancing and travel restrictions, the Board, in conjunction with the Company Secretary, have made the decision that shareholders will not be permitted to attend this year's AGM in person.

 

In advance of the AGM a short presentation by the Investment Manager on the performance of the Fund over the past year will be made available on the Fund's website a t www.genesisemf.co.uk.  

 

Electronic proxy voting is now available and shareholders are encouraged to submit voting instructions using the web- based voting facility at www.eproxyappointment.com and www.proxymity.io for institutional shareholders. In order to use electronic proxy voting, shareholders will require their shareholder registration number, control number and pin. If you do not have access to these details please contact the Company's Registrar, Computershare.

 

At the end of the Annual Report is the notice convening the AGM, along with the schedule of resolutions for consideration. As ever, we encourage all shareholders to avail themselves of the opportunity to vote on the resolutions.

 

The Board wishes to ensure that shareholders have access to a range of up-to-date information about the Fund. As well as releasing announcements to the London Stock Exchange and issuing the Annual and Half-Yearly Reports, we encourage all shareholders to refer to the information on investment performance and portfolio activity contained in the Fund's monthly factsheets. These - and other Fund literature - can be found on the Fund's website: www.genesisemf.com. Shareholders will also be invited to the Fund's annual Shareholder Information Meeting which this year will take place remotely on Tuesday, 3 November 2020. We hope that as many shareholders as possible will take this opportunity to hear directly from representatives of the Investment Manager. In general, the Investment Manager will usually be best placed to address queries from shareholders. Clearly, however, it is important for shareholders to be able to communicate directly with the Board when necessary. I have continued to be available to major shareholders over the year but invite any shareholders to contact me or Russell Edey (as Senior Independent Director), or indeed any of the Board, with comments and feedback. We can be reached via either the Investment Manager or the Company Secretary.

 

Outlook

Given the magnitude of the global pandemic, the Investment Manager expects continued challenges over the short to medium term. The impact on economies and businesses will vary considerably across emerging markets. We are reminded by the Investment Manager of its bottom-up and long-term approach to investing, applying a rigorous investment process to populate the portfolio with quality businesses at attractive prices. While the pandemic has resulted in short-term relative underperformance, the resultant volatility has allowed the Investment Manager to upgrade the quality of the portfolio.

 

We continue to share the Investment Manager's confidence in the high quality of the companies invested in by the Fund, and its potential to generate returns for shareholders over the next several years. As we have noted on previous occasions, the challenging global environment provides an excellent opportunity for good businesses to outperform their peers and gain market share.

 

Stock selection remains a key skill in such an environment, and the Board believes that the Investment Manager's team approach and challenging process will generate the long-term returns that our shareholders expect.

 

 

Hélène Ploix

Chairman

5 October 2020

 

 

Strategy, Business Model and Principal Risks

 

Investment Objective

The investment objective of the Fund is to achieve long- term capital growth, primarily through investment in listed equity markets of low- and middle-income countries.

 

Investment Strategy

The core element of our investment strategy is to appoint and retain a high-quality manager whose investment philosophy best matches the Fund's objective, and carefully monitor the Fund's performance.

 

The Board believes that the Fund's Investment Manager can best deliver excellent long-term performance

by working as a team to make investments in quality businesses at attractive prices as explained below.

 

Business and Status

The Fund is a closed-ended investment scheme authorised by the Guernsey Financial Services Commission and is listed on the London Stock Exchange.

 

The Fund was incorporated in Guernsey on 7 June 1989 and commenced business on 19 September 1989.

 

Reviews of the Fund's activities are included in the Chairman's Statement and Investment Manager's Review.

 

There has been no significant change in the activities of the Fund during the year to 30 June 2020 and the Directors anticipate that the Fund will continue to operate in the same manner during the current financial year.

 

Business Model and Investment Process

The Fund has no employees or premises and the Board is comprised of non-executive Directors. The day-to- day operations and functions of the Fund have been delegated to third-party service providers who are subject to the oversight of the Board. There are therefore no disclosures to be made in respect of employees

 

During the year under review Genesis Investment Management, LLP provided investment and risk management services, JP Morgan Chase Bank was the Custodian and JP Morgan Administration Services

(Guernsey) Limited was the Administrator and Company Secretary. The Board regularly reviews the performance and risks of its primary service providers and checks that they have appropriate frameworks in place for the oversight of their internal controls, monitoring and reporting.

 

In line with the stated investment philosophy, the Investment Manager employs a bottom-up investment approach with individual members of its investment team taking responsibility for analysis on individual companies. The investment process is founded on proprietary internal research, with the Investment Manager's structure designed to allow a cohesive team of investors to generate fundamental research insights and, subject to rigorous challenge, express those insights in the portfolio. The Fund's portfolio is diversified across countries and industries and comprises 96 holdings (currently representing some 30 different countries), to give a range of 7-9 per team member. The Investment Manager believes that when its team concentrates on a smaller number of ideas, the research can be deeper and insights more valuable.

 

The portfolio comprises holdings in predominantly high- quality, sustainable businesses, both large and small. As  part of their analysis the Investment Manager's team determines quality ratings for each company, which primarily measure a business' ability to generate sustainable excess returns on capital and US$ intrinsic value stability. Many factors are incorporated into this analysis: as well as company-specific elements, the team considers the political and macroeconomic framework in which the company operates. ESG considerations are included in the analysis of sustainability, and the team takes ESG factors into account when determining the quality rating of a business. The Investment Manager recognises that governance issues in particular are relevant to all companies and has laid out the key principles that it expects companies to follow from a corporate governance perspective.

 

Given that the average holding period of investments in client portfolios has consistently been more than five years and that this characteristic is expected to persist, the Investment Manager is comfortable buying into relatively illiquid situations and building positions gradually. In the Investment Manager's experience the trading liquidity of a stock improves as its underlying merits are gradually appreciated by a wider domestic and international investor base. Turnover is correspondingly low; typically of the order of 20-25% per annum (although for the 12 months ended 30 June 2019 and 2020, it was slightly higher).

 

There is no specific company market capitalization range in which the Investment Manager invests, and it is prepared to take positions in smaller-capitalisation stocks where compelling investment cases are found, in the belief that these can be a source of particularly attractive long-term investment opportunities. The Fund invests in a large number of emerging markets and companies, many of which are not represented in the standard indices. The Investment Manager aims to retain as much flexibility as possible with respect to portfolio constraints.

 

Because the Investment Manager aims to invest in companies that can compound shareholders' capital, but also aims to invest at a discount to intrinsic value, the portfolio tends to have both growth and value characteristics.

 

The portfolio's investments are primarily listed equity securities. However, the Fund will also hold positions in Genesis related investment companies, Participatory notes and Investee Funds, where appropriate.

 

The Fund does not engage in any active management of foreign currency risk and the portfolio is currently unleveraged.

 

The Fund has participated in securities lending activities with JP Morgan Chase Bank N.A. since April 2016

 

Benchmark Index

The Fund's benchmark is the MSCI Emerging Markets (Total Return) Index.

 

Principal & Emerging Risks and Risk Management

The Board has carried out a robust assessment of the Fund's principal and emerging risks. The main risks to the value of its assets arising from the Fund's investment in financial instruments (principally equity securities) are unanticipated adverse changes in market prices and foreign currency exchange rates and an absence of liquidity. The Board reviews and agrees with the Investment Manager policies for managing each of these risks and they are summarised below. These policies have remained unchanged since the beginning of the period to which these financial statements relate.

 

Volatility of Emerging Markets and market risk

The economies, currencies and the financial markets of a number of developing countries in which the Fund invests may be extremely volatile. To manage the risks posed by adverse price fluctuations the Fund's investments are geographically diversified, and will continue to be so. The exposure to any one company or group (other than an investment company, unit trust or mutual fund) is unlikely to exceed 5% of the Fund's net assets at the time the investment is made. The Articles of Incorporation place a limit of 10% for securities issued by one company but the Board use 5% for monitoring purposes.

 

Foreign Currency Exposure

The Fund's assets will be invested in securities of companies in various countries and income will be received by the Fund in a variety of currencies. However, the Fund will compute its net asset value and distributions in US dollars. The value of the assets of the Fund as measured in US dollars may be affected favourably or unfavourably by fluctuations in currency rates and exchange control regulations. Further, the Fund may incur costs in connection with conversions between various currencies. The Fund has opted not to engage in any active management of foreign currency risk, and therefore all its open foreign exchange positions are typically unhedged.

 

Lack of liquidity

Trading volumes on the stock exchanges of developing countries can be substantially less than in the leading stockmarkets of the developed world and trading may even be temporarily suspended during certain periods. Liquidity can also be negatively impacted by temporary capital controls in certain markets. A lower level of liquidity can exaggerate the fluctuations in the value of investments described previously. The restrictions on concentration and the diversification requirements detailed above also serve normally to protect the overall value of the Fund from the risks created by the lower level of liquidity in the markets in which the Fund operates.

 

COVID-19 pandemic

The COVID-19 pandemic poses additional risks to the Fund beyond those risks described above. They include liquidity risks to markets, risks associated with the maintenance of the current dividend policy and business continuity risks for the Investment Manager and the Fund's key service providers. The day-to-day management and monitoring of these risks is carried out by the Investment Manager.

 

Custody risk and cyber security

The Fund is exposed to operational risks such as custody risk and cyber security breaches. Custody risk is the risk of loss of securities held in custody occasioned by the insolvency or negligence of the Custodian. Although an appropriate legal framework is in place that eliminates the risk of loss of value of the securities held by the Custodian, in the event of its failure, the ability of the Fund to transfer the securities might be temporarily impaired. The day-to-day management of these risks is carried out by the Investment Manager under policies approved by the Board.

 

The risk represented by breaches in cyber security is carefully monitored by the Investment Manager, Custodian and Administrator with appropriately designed and tested controls.

 

Investment policy and process

Inappropriate investment policies and processes may result in under performance against the Fund's peer group. The Board manages these risks by ensuring a diversification of investments and regularly reviewing the portfolio asset allocation and investment process. In addition, certain investment restrictions have been set and these are monitored as appropriate.

 

Investment strategy and share price movements

The objective of the Fund is to achieve long-term capital growth and it is exposed to the effect of variations in the price of its investments. A fall in the value of its portfolio will have an adverse effect on shareholders' funds. The Board reviews the Fund's investment strategy and the risk of adverse share price movements at its Board meetings taking into account the economic climate, market conditions and other factors that may have an effect on the sectors in which the Fund invests. There can be no assurances that depreciation in the value of the Fund's investments will not occur but the Board seeks to reduce this risk.

 

Discount to net asset value

A discount in the price at which the Fund's shares trade to net asset value would mean that shareholders would be unable to realise the true underlying value of their investment. As a means of controlling the discount to net asset value the Board has the ability to buy back shares. The Board reviews the Fund's discount to net asset value on a regular basis.

 

Credit and counterparty risk

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

 

Operational

Failure of the core accounting systems, or a disastrous disruption to the Administrator's or Investment Manager's business, could lead to an inability to provide accurate reporting and monitoring.

 

Loss of key personnel

The day-to-day management of the Fund has been delegated to the Investment Manager. Loss of the Investment Manager's key employees could affect investment returns. The Board is aware that Genesis recognises the importance of its employees to the success of its business. Its remuneration policy is designed to be market competitive in order to motivate and retain staff and succession planning is regularly reviewed.

 

Other Matters

 

Viability Statement

In accordance with Provision 36 of the Code of Corporate Governance as issued by the Association of Investment Companies in February 2019 (the 'AIC Code'), the Board has conducted a robust assessment of the viability of the Fund over the next three years to 30 June 2023 - this is beyond the twelve month period from the date of approval of the financial statements as required by the going concern basis of accounting. The Board considers that a three year period is appropriate to assess the viability of the Fund given the inherent uncertainty in global emerging markets and the Fund's investment cycle. As part of its assessment, the Board has considered the Fund's business model including its investment objective and investment policy as well as the principal & emerging risks that may affect the Fund.

 

In addition, the Board has discussed and considered the ongoing impact that the COVID-19 pandemic may have on equity markets and the resultant effect on the valuation of the Fund, income receipts and the liquidity of the portfolio.

 

The Board has noted that:

 

· The Fund's investment objective is to achieve capital growth over the long term and the Board believes shareholders should regard the Fund as a long-term investment. The average holding period for companies in the Fund's portfolio is currently over five years, with turnover at around 37% over the last twelve months. These attributes reflect the Investment Manager's long-term fundamental approach.

 

· The Fund's portfolio consists of a diversified group of companies from a large number of Emerging Market countries. The majority of these are traded on major international stock exchanges. In the opinion of the Investment Manager, the portfolio is sufficiently liquid to meet all ongoing and future liabilities arising from the Fund's day-to-day business.

 

· No significant increases to ongoing charges or operational expenses are anticipated.

 

· The Investment Manager and the Fund's other key service providers have the required controls in place to ensure that they can continue to provide their services to the Fund.

 

· No operational issues have arisen as a result of the COVID-19 pandemic with the Investment Manager and all key service providers are continuing to service the Fund in line with service level agreements.

 

· A potential Tender Offer of 25% of the Fund's shares, to be implemented in 2021 if performance over the five years to June 2021 is not ahead of the Index.

 

The Board has therefore concluded that there is a reasonable expectation that the Fund will be able to continue in operation and meet its liabilities as they fall due over the next three years.

 

Key Performance Indicators

At their Board meetings the Directors consider a number of performance indicators to help assess the Fund's success in achieving its objectives.

 

The key performance indicators used to measure the performance of the Fund over time are as follows:

 

· Net asset value changes over time;

 

· Participating Preference Share price movement;

 

· A comparison of Participating Preference Share price and net asset value against its peer group;

 

· Discount/premium to net asset value.

 

Environmental, Social and Governance Factors

As a bottom-up investor, Genesis' investment approach lends itself naturally to the integration of ESG factors at the company level, as part of the ongoing qualitative judgement of a company's sustainable competitive advantage and persistent capacity to generate sustainable excess returns. Genesis believes the evaluation of ESG factors contributes to a broader and deeper understanding of the strategic direction of a company and allows for a more accurate assessment of the risks and future costs. Genesis pays particular attention to the quality of company management including their alignment of interests with minority investors.

 

The Genesis investment team assesses ESG factors, including climate-related risks and opportunities, in the context of materiality, mindful of the Sustainability Accounting Standards Board framework. Sector Specialists are responsible for assessing the materiality and relevance of ESG factors in their respective sectors and providing an ESG framework to the team. Each Portfolio Manager ('PM') is individually responsible for the integration of the relevant ESG factors into their investment analysis of a company, before investing in a company and throughout the investment period.

 

Genesis released its first annual ESG report earlier this year and it can be found on their website, www.giml.co.uk. The ESG report contains more information on ESG integration in the portfolio as well as the Investment Manager's approach to stewardship and a qualitative review of the top ten portfolio positions including the company-level ESG metrics.

 

Duty to promote the success of the Fund

Under section 172 of the UK Companies Act 2006, a director of a company must act in a way he/she considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other things) to:

 

· the likely consequences of their decisions in the long term;

 

· the interests of the company's employees;

 

· the need to foster the company's business relationships with suppliers, customers and others;

 

· the impact of the company's operations on the community and the environment;

 

· the desirability of the company maintaining a reputation for high standards of business conduct; and the need to act fairly as between members of the company.

 

As an externally managed investment company, the Fund has no employees or physical assets. The key stakeholders in the Fund are its shareholders, the Investment Manager and third party service providers.

 

The Board is responsible for promoting the long-term success of the Fund for the benefit of all stakeholders and in particular its shareholders. Although the majority of the day-to-day activities of the Fund are delegated to the Investment Manager and third party service providers, the responsibilities of the Board are set out in the schedule of matters reserved for the Board and the relevant terms of reference of its committees, all of which are reviewed regularly by the Board.

 

To ensure that the Board is able to discharge this duty, both the Investment Manager and key third party service providers are required to provide the Board with regular updates. In addition, Directors, or the Board as a whole, have the authority to seek advice from professional advisers including the Company Secretary and independent external advisers as well as attend any relevant training seminars.

 

The investment management function is critical to the long-term success of the Fund. The Board monitors the performance of the Investment Manager against key performance indicators. The Board receives updates from the Investment Manager on the performance of the Fund at each Board meeting with additional performance updates being provided on a monthly basis. In addition to performance updates, the Board receives regular updates on the marketing of the Fund from both the Investment Manager and the Fund's brokers. As part of these updates the Board receives and considers feedback from its shareholders.

 

The Investment Manager and the Fund's corporate brokers hold periodic meetings with the Fund's major shareholders to discuss aspects of the Fund's positioning, performance and outlook. Members of the Board are always available to attend meetings with shareholders upon request.

 

The Board also receives updates from its key third party service providers at each Board meeting, the main purpose of which is to ensure that the services provided to the Fund remain in line with expectations and are to the benefit of its shareholders.

 

The Board also considers the impact of the Fund's decisions on the environment and the community. The Board receives updates on ESG matters from the Investment Manager and discusses how ESG factors are taken into account by the Investment Manager as part of its selection process of investee companies.

 

The Board recognises the need for good communications with its shareholders and is committed to listening to their views. The primary medium through which the Fund communicates with shareholders is through its Annual and Half Year Financial Reports. The Investment Manager also produces monthly factsheets and quarterly shareholder letters. Fund related announcements are released via the Regulatory News Service ('RNS') to the London Stock Exchange. All of the aforementioned information is available on the Fund's website, www.genesisemf.co.uk.

 

In addition to the annual general meeting, all shareholders are invited to attend the Fund's annual information meeting. This provides shareholders with the opportunity to interact directly with the Board.

 

The Board always welcomes questions from shareholders; we can be reached via either the Investment Manager or the Company Secretary

 

During the year under review the following material decisions have been made:

 

· The Board undertook a review of the potential use of gearing to ascertain whether it would be beneficial to shareholders to utilise gearing in order to increase investment performance. After due discussion and having considered various financing options and back testing of returns, the Board was in agreement that the risk associated with utilising gearing outweighed the potential additional returns that could be achieved;

 

· Marketing has continued in support of widening the Fund's shareholder base, following the appointment of an external agency, Edison, to raise exposure to both the wholesale and retail sectors;

 

· Appointment of Jefferies International Limited as joint corporate broker; and

 

· The Board undertook a review of the composition of the Board and its committees to ensure that there was the necessary combination of skills, experience and knowledge. The Board was also mindful of the need to refresh the Board in compliance with the AIC Code. As a result of the review Mr Torsten Koster was appointed as a Director of the Fund with effect from 1 July 2020 and, it was agreed that Mr Karpat, having served as a Director of the Fund for nine years will retire from his position following the conclusion of the 2020 AGM.

 

COVID-19 related:

 

· The Investment Manager was requested to keep the Board appraised of any potential issues affecting the investee companies of the portfolio;

 

· The Investment Manager was requested to review dividend receipts to ascertain whether there would be any impact on the Fund's income for the year ended 30 June 2020, which could potentially affect the Fund's dividend policy and the proposed final dividend; and

 

· The Investment Manager was requested to increase the frequency of its monitoring of the Fund's third party service providers to ensure continuity of operational functions.

 

The Board is committed to the long term success of the Fund for the benefit of its shareholders, however in doing so it also has regard to the impact of its actions on all of its stakeholders. The Board takes into account section 172 considerations in all material decisions of the Fund.

 

 

Signed on behalf of the Board

Hélène Ploix

5 October 2020

 

 

Investment Manager's Review

 

Investment Environment

The Fund's financial year was characterised by two distinct periods: the period before the emergence of the COVID-19 global pandemic, and after, when the gravity of the situation dawned on investors. During the first, lasting until February, the asset class edged close to the all-time highs of January 2018, buoyed by the easing of trade tensions and reduced fears of a global recession. Unsurprisingly, the second saw volatility increase markedly as the asset class gyrated on good and bad news related to both the pandemic and trade tensions between the US and China.

 

In the first, more benign period, the Fund performed well relative to the MSCI EM (TR) Index, adding value through security selection in markets such as South Korea, South Africa and Brazil. The Fund is a well-diversified portfolio of quality businesses. Overall, they have very little debt, and we have also been careful to limit the exposure to financially precarious countries. While we would generally expect the Fund to fare better than a steeply declining market, that was not the case during the second period noted above. The main reason is that we have relatively fewer investments in the countries that have so far managed the COVID-19 threat best: China, South Korea and Taiwan. It is not an outcome we would have predicted but these three countries have been more proactive in testing and contact tracing than those in other EM or indeed most of the world. That said, a key next question is the degree to which falling global demand for manufactured exports will undermine hopes for a rapid economic rebound in China, South Korea and Taiwan. A further question is whether domestic demand within China can be maintained.

 

In this turbulent and highly unusual environment, the Fund's NAV marginally underperformed the Index in sterling terms over the 12-month period, losing 0.8% versus a flat return for the Index.

 

Performance

 

Contributors - Markets

The leading contributor to relative performance over the period was Brazil. As a market with pre-existing macroeconomic vulnerabilities - thereby making it harder to call on fiscal or monetary policy for support - Brazil had been hit hard by the impact from the COVID-19 pandemic. The Fund benefitted from having half the exposure compared to the index, while the Fund's holdings also fared slightly better, largely due to the performance of software company Totvs (+66% until it was sold in February) and health care provider Intermédica (+22%).

 

Significant value was also added from the performance of South Korean search engine Naver. It has been the stellar performer over the period with its share price more than doubling following continued positive sentiment both within its sector, as digital businesses reaped the rewards of people staying at home in lockdown, and on its link up with Yahoo Japan. Stock selection was also the major factor in the weak South African market where our position in global internet company Naspers (+16%) was a notable performer.

 

Contributors - Sectors

Substantial gains came from Fund's underweight to the weak energy sector. COVID-19 has meant that oil markets have seen a shock to both demand and supply. On the demand side, slower activity and environmental concerns reduces the global need for energy and transportation, while on the supply side Russia and Saudi Arabia were pursuing a price war initiated in early March. The Fund added further value from stock selection in financials and communication services. In the latter, internet company Yandex (+36%), a non-index position, announced it was buying out Sberbank's stake from its increasingly difficult ecommerce joint venture, complementing returns achieved by Naver and NetEase (+79%).

 

Detractors - Markets

Sizeable value was lost in the strong Taiwanese market, which managed the COVID-19 pandemic relatively well due to its high levels of testing and contact tracing, and benefits from a comparatively more robust economy. The Fund was hurt by its underweight position in a market where the tech hardware companies outperformed, even though the large holding in TSMC gained 47%.

 

It was a similar story in China where value was also lost from the significant underweight position. China, the epicentre of the COVID-19 outbreak, was perhaps surprisingly the least impacted in terms of market performance. Digital businesses have been strong performers due to a boost in user engagement during the periods of lockdown. Large holdings such as Tencent and Alibaba have risen by 47% and 31% respectively, but the Fund is underweight in these positions relative to the index. It should be noted that in aggregate theFund's holdings in China outperformed the MSCI country benchmark with the large active positions of baijiu producer Wuliangye (+47%), private tutoring company New Oriental Education (+39%) and gaming company NetEase, all strong performers.

 

The Fund's holding in LatAm telco LiLAC has also been a notable underperformer as its operating markets were hit hard by COVID-19.

 

Detractors - Sectors

The sector contributors noted previously were offset by losses from the Fund's underweight in the strong IT sector, with the performance of the Taiwanese tech hardware companies a major factor. The Fund also

suffered sizeable losses in the health care sector: Brazilian dental care service provider OdontoPrev fell 43%; Thai health care provider Bangkok Dusit lost 9%; and in China the Fund's holdings in CSPC Pharmaceutical (-13%) and 3SBio (-24%) underperformed the Chinese health care index constituents, which rose by 65%.

 

Relative Performance Attribution in GBP - 12 months to 30 June 2020

 

GEMF vs. MSCI EM (TR) Index

 

Top 10 Stock Contributors

%

 

Top 10 Stock Detractors

%

Naver (South Korea)

1.21

 

Tencent (China)

(0.83)

Wuliangye Yibin (China)

0.89

 

Sberbank (Russia)

(0.77)

New Oriental Education (China)

0.63

 

Axis Bank (India)

(0.74)

Yandex (Russia)

0.58

 

LiLAC (Latin America)

(0.65)

NetEase (China)

0.48

 

TSMC (Taiwan)

(0.44)

Banco Bradesco (Brazil)

0.46

 

Credicorp (Peru)

(0.43)

Petrobras (Brazil)

0.44

 

JD.com (China)

(0.41)

Sunny Optical (China)

0.33

 

Kangwon Land (South Korea)

(0.36)

Hikma Pharmaceuticals (Jordan)

0.30

 

Meituan Dianping (China)

(0.33)

Delivery Hero (Germany)

0.27

 

BB Seguridade (Brazil)

(0.31)

 

Stocks in italics are not held in the portfolio but are part of the Index at period end

 

 

 

 

Top 5

 

 

Top 5

 

Sector

%

 

Country Contributors

%

 

Country Detractors

%

Energy

1.58

 

Brazil

1.78

 

Taiwan

(1.68)

Financials

0.46

 

South Africa

1.10

 

China

(1.51)

Communication Services

0.44

 

South Korea

1.06

 

Peru

(0.40)

Utilities

0.42

 

Saudi Arabia

0.58

 

India

(0.38)

Consumer Staples

0.39

 

United Arab Emirates

0.33

 

Nigeria

(0.35)

Industrials

0.38

 

 

 

 

 

 

Materials

0.35

 

 

 

 

 

 

Real Estate

0.20

 

 

 

 

 

 

Investment Companies

0.03

 

 

 

 

 

 

Consumer Discretionary

(0.59)

 

 

 

 

 

 

Health Care

(1.29)

 

 

 

 

 

 

IT

(1.67)

 

 

 

 

 

 

 

Source: Calculated by FactSet

 

Portfolio Activity

Although volatility can be alarming to asset owners in the short term, it provides a great opportunity to Managers such as us who invest with a long-term horizon. The heightened volatility during the pandemic allowed us to upgrade the quality of the portfolio at relatively attractive prices.

 

Purchases and sales were dominated by China, with a small addition the net result. Purchase activity saw the addition of six new holdings, including domestic sportswear company Anta, pharmaceutical company

CSPC, property management service provider Country Garden Services and school tutoring provider TAL Education. The majority of purchases came from building the position in Tencent as the switch from Naspers - a South African internet group that derives most of its value from its investment in Tencent - continued as the relative discount remained attractive. An additional investment in Tencent was made following the reduction of Prosus, a Naspers spin-off which consists of its internet interests outside South Africa. There were also additions to food producer WH Group, which benefitted from the outbreak of African Swine Fever among China's pig population.

 

The largest reduction came from insurer AIA due to concerns over the impact of pro-democracy protests in Hong Kong and rising tensions with China. The positions in New Oriental Education and baijiu producer Wuliangye were notably trimmed following their strong performance. The position in 58.com, China's largest online marketplace for classifieds, also saw a notable reduction as a privatisation offer was finalised and its share price climbed close to the offer price. The bidding group, which includes the CEO, controls 44% of the vote. We believe this action is opportunistic and the offer price is insufficient. In August the Fund elected to dissent against the transaction with a view to achieving a more favourable outcome for shareholders.

 

In China, five positions were sold, including internet company Momo which was sold following increased regulation surrounding mobile apps in China. AAC Technologies also exited the portfolio along with Fuyao Glass, Midea and Weibo.

 

India saw significant purchase activity as the position in Infosys was increased as a whistleblower's allegations against management were rebuffed. Infosys' IT services counterpart Tata Consultancy Services was also added to, as was the position in electrical goods company Crompton Greaves. As an example of opportunistically increasing the quality of the portfolio, there was some switching amongst the banks as the high quality HDFC Bank saw an increase as Axis Bank was reduced towards the end of the period. The position in Sun Pharmaceutical was also substantially reduced following strong share price performance in April. South Korea saw the largest net reductions over the period as positions were reduced following strong share price performance, most notably Naver and tech hardware behemoth Samsung Electronics, while Shinhan Financial and GS Retail exited the Fund.

Elsewhere, a number of higher quality positions from the consumer sector saw increases, including Bid Corp (South Africa), Richemont and Heineken. For the latter two, emerging market consumers are the source of the majority of sales but these companies are not represented in the MSCI EM Index. A few bank holdings were topped up, notably Credicorp (Peru) and OTP Bank (Hungary), while TSMC (Taiwan) and Kangwon Land (South Korea) were also added to. Other new holdings introduced during the period included Mexican toll road operator Pinfra, Russian Fintech Company TCS Group and Opera, a browser and online advertising company. Opera's digital content platform, Opera News, now has >200 million users in Africa and Southeast Asia, a 28% increase year-on-year. Delivery Hero was reintroduced to the portfolio as concerns surrounding its Korean acquisition were addressed.

 

Turning to sales, there was notable activity in Brazil as the positions in BTG Pactual and Totvs were reduced following strong performance. Lojas Americanas exited the Fund, having significantly underdelivered on its guidance. In Turkey, the position in Garanti Bank was sold, with the majority of the holding reduced during the third quarter following a 6-week 50% share price recovery, due to increased political uncertainty and continuing macroeconomic risks. A number of smaller Turkish positions were sold later in the period largely due to continued concerns on the market's macro vulnerabilities. Other positions to exit the portfolio included retailer Jeronimo Martins (Poland) which exited the Fund following reduced conviction in its Colombia operation and Commercial International Bank due to uncertainty over the macro environment in Egypt. Central Pattana, the Thai shopping mall operator was sold after 14 years in the Fund as the switch to online retail accelerated during the pandemic.

 

At the end of the period there were 96 holdings in the Fund, with 14 new positions and 30 sold. At 30 June 2020, Active Share - a measure of how different the portfolio is to the benchmark - was 73%.

 

Outlook

With the current ongoing pandemic we expect continued challenges into 2021, and a relatively weak recovery as health concerns linger. As we review our EM companies, this is the global environment we are assuming as a base case. The effects on economies and individual businesses will vary greatly. We are continuing our active investment strategy of undertaking deep fundamental research to unearth long-term investments in quality businesses at attractive prices.

 

Across Genesis' 30 year history, we have experienced other big crises (in addition to this crisis) but we remain bullish on the long-term opportunity in EM. The long-term growth outlook is compelling considering the demographics and income convergence opportunities, and our markets are often inefficiently priced - and we believe this is particularly the case today. We seek to identify a diverse group of quality companies and combine them into an attractive portfolio offering good long-term returns.

 

 

Genesis Investment Management, LLP

October 2020

 

 

Statement of Directors' Responsibilities

 

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

 

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards as adopted by the EU to meet the requirements of applicable law and regulations.

 

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

 

· select suitable accounting policies and then apply them consistently;

 

· make judgements and estimates that are reasonable and prudent;

 

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

 

· assess the Fund'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 Fund or to cease operations, or have no realistic alternative but to do so.

 

The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Fund's transactions and disclose with reasonable accuracy at any time the financial position of the Fund and enable them to ensure that its financial statements comply with the Companies (Guernsey) Law, 2008. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Fund and to prevent and detect fraud and other irregularities.

 

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Fund's website. Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

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

 

Responsibility statement of the Directors in respect of the Annual Financial Report

 

The Directors confirm that to the best of their knowledge that:

 

· 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 Fund; and

 

· the strategic report includes a fair review of the development and performance of the business and the position of the Fund, together with a description of the principal and emerging risks and uncertainties that the Fund faces.

 

The Directors consider the Annual Financial Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Fund's performance, business model and strategy.

 

There were no instances where the Fund is required to make disclosures in respect of Listing Rule 9.8.4 during the financial period under review.

 

 

For and on behalf of the Board

 

Hélène Ploix

5 October 2020

 

 

Statement of Financial Position

as at 30 June 2020

 

2020

2019

 

$'000

$'000

Assets

 

 

Current assets

 

 

Financial assets at fair value through profit or loss

1,205,287

1,290,592

Amounts due from brokers

15,541

2,079

Dividends receivable

2,809

2,512

Other receivables and prepayments

212

193

Cash and cash equivalents

16,530

19,487

Total Assets

1,240,379

1,314,863

 

 

 

Liabilities

 

 

Current Liabili ti es

 

 

Amounts due to brokers

  1,474

1,938

Capital gains tax payable

1,739

6,140

Payables and accrued expenses

1,412

1,525

Total Liabilities

4,625

  9,603

Total Net Assets

1,235,754

1,305,260

 

 

 

EQUITY

 

 

Share Premium

6,291

6,291

Capital reserve

1,178,583

1,242,603

Revenue account

50,880

56,366

Total Equity

1,235,754

1,305,260

 

 

 

Net Asset Value per Participating Preference Share*

$10.17

$10.75

 

Calculated on an average number of 121,466,754 Participating Preference Shares outstanding (2017: 121,466,754).

 

 

Signed on behalf of the Board of Genesis Emerging Markets Fund Limited

 

Hélène Ploix   Russell Edey

 

5 October 2020

 

 

 

 

 

 

 

Statement of Comprehensive Income Statement

for the year ended 30 June 2020

 

 

2020

2019

 

Capital

Revenue

 

Capital

Revenue

 

 

Reserve

Account

Total

Reserve

Account

Total

 

$'000

$'000

$'000

$'000

$'000

$'000

(Loss)/income

 

 

 

 

 

 

Net change in financial assets at fair value through profit or loss

(56,342)

-

(56,342)

40,985

-

40,985

Net exchange (losses)/gains

(1,316)

-

(1,316)

171

-

171

Dividend income

-

23,467

23,467

-

30,562

30,562

Interest income

-

346

346

-

467

467

Securities lending income

-

206

206

-

230

230

Total (loss)/income

(57,658)

24,019

(33,639)

41,156

31,259

72,415

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

Management fees

(9,193)

(2,299)

(11,492)

(9,320)

(2,330)

(11,650)

Custodian fees

-

(928)

(928)

-

(984)

(984)

Transaction costs

(1,675)

-

(1,675)

(1,814)

-

(1,814)

Directors' fees and expenses

-

(415)

(415)

-

(379)

(379)

Administration fees

-

(292)

(292)

-

(284)

(284)

Audit fees

-

(47)

(47)

-

(48)

(48)

Legal and professional fees

-

(138)

(138)

-

(789)

(789)

Other expenses

-

(204)

(204)

-

(196)

(196)

Total operating expenses

(10,868)

(4,323)

(15,191)

(11,134)

(5,010)

(16,144)

Operating (loss)/profit

(68,526)

19,696

(48,830)

30,022

26,249

56,271

Finance costs

 

 

 

 

 

 

Bank charges

-

(4)

(4)

-

(14)

(14)

Total finance costs

-

(4)

(4)

-

(14)

(14)

 

 

 

 

 

 

 

Taxation

 

 

 

 

 

 

Capital gains tax

4,506

-

4,506

(4,887)

-

(4,887)

Withholding taxes

-

(2,099)

(2,099)

-

(3,439)

(3,439)

Total taxation

4,506

(2,099)

2,407

(4,887)

(3,439)

(8,326)

 

 

 

 

 

 

 

(Loss)/profit after tax for the year attributable to Participating Preference Shares

(64,020)

17,593

(46,427)

25,135

22,796

47,931

Total comprehensive (loss)/  income

(64,020)

17,593

(46,427)

25,135

22,796

47,931

(Losses)/earnings

Per Participating preference share (basic and diluted)*

$(0.53)

$0.15

$(0.38)

$0.20

$0.19

$0.39

 

* Calculated on an average number of 121,466,754 Participating Preference Shares in issue (2019: 123,204,635).

 

The total column of this statement represents the Fund's Statement of Profit or Loss and Other Comprehensive Income prepared in accordance with IFRS. The supplementary information on the allocation between the revenue account and capital reserve is presented under guidance published by the AIC.

 

 

 

 

S t a teme n t of   Chan ge s   in Equi ty

for   the year ended   30 June 2020

 

2020

 

Share

Capital

Revenue

 

 

Premium

Reserve

Account

Total

 

$'000

$'000

$'000

$'000

Balance at the beginning of the year

6,291

1,242,603

56,366

1,305,260

Total comprehensive (loss)/Income

-

(64,020)

17,593

(46,427)

Dividends paid in the year

-

-

(23,079)

(23,079)

Balance at the end of the year

6,291

1,178,583

50,880

1,235,754

 

 

2019

 

Share

Capital

Revenue

 

 

Premium

Reserve

Account

Total

 

$'000

$'000

$'000

$'000

Balance at the beginning of the year

134,349

1,217,468

56,649

1,408,466

Repurchase and cancellation of the Fund's own shares

(128,058)

-

-

(128,058)

Total comprehensive income

-

25,135

22,796

47,931

Dividends paid in the year

-

-

(23,079)

(23,079)

Balance at the end of the year

6,291

1,242,603

56,366

1,305,260

 

 

S t a teme n t of   Cash Flows

for   the year ended   30 June 2020

 

2020

2019

 

$'000

$'000

Operating activities

 

 

Dividends and interest received

23,516

32,804

Securities lending income received

206

230

Taxation paid

(1,994)

(3,425)

Purchase of investments

(467,672)

(459,382)

Proceeds from sale of investments

482,709

591,416

Bank charges paid

(4)

(14)

Operating expenses paid

(15,323)

(16,436)

Net cash inflow from operating activities

21,438

145,193

 

 

 

Financing activities

 

 

Dividends paid

(23,079)

(23,079)

Repurchase and cancellation of the Fund's own shares

-

(128,058)

Net cash outflow from operating activities

(23,079)

(151,137)

 

 

 

Effect of exchange (losses)/gains on cash and cash equivalents

(1,316)

171

Net decrease in cash and cash equivalents

(2,957)

(5,773)

Net cash and cash equivalents at the beginning of the year

19,487

25,260

 

 

 

Net cash and cash equivalents at the end of the year

16,530

19,487

Comprising:

 

 

Cash and cash equivalents

16,530

19,487

 

 

N o te s   t o t h e   Finan c ial   S t a teme nts

for the year ended 30 June 2020

 

1.  General

 

Genesis Emerging Markets Fund Limited (the 'Fund') was incorporated in Guernsey on 7 June 1989 and commenced activities on 19 September 1989. The Fund is an Authorised Closed-Ended Investment Scheme as defined by the Authorised Closed-Ended Investment Schemes Rules (2008) (and, as such, is subject to ongoing supervision by the Guernsey Financial Services Commission). The Fund is listed on the London Stock Exchange and is a constituent of the FTSE 250 Index.

 

The Fund's registered office is 1st Floor, Les Echelons Court, Les Echelons, South Esplanade, St. Peter Port, Guernsey, GY1 6JB, Channel Islands.

 

These Financial Statements were approved by the Board of Directors and authorised for issue on 5 October 2020.

 

2.  Summary of Significant Accounting Policies

 

Basis of Preparation

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

 

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

 

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

 

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

 

Valuations use observable data to the extent practicable. Changes in any assumptions could affect the reported fair value of the financial instruments. The determination of what constitutes observable requires significant judgement by the Fund. The Fund considers observable data to be market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.

 

New standards, amendments and interpretations

The following standard amendments have been issued and are expected to be relevant to the Fund in future periods, with effective dates on or after 1 July 2020:

 

· Amendments to References to Conceptual Framework in IFRS Standards

· Interest rate benchmark reform (Amendments to IFRS 9, IAS 39 and IFRS 7)

· Definition of Material (Amendments to IAS 1 and IAS 8)

 

The Directors are currently reviewing these standards with a view to implementation on their effective date, however they do not believe their adoption will have a significant impact on the financial statements.

 

Early adoption of standards

The Fund did not early adopt any new or amended standards/interpretations for the year ended 30 June 2020.

 

3.  (Losses)/Earnings per Share

 

Basic (losses)/earnings per share are calculated by dividing the (loss)/profit for the year by the weighted average number of Participating Preference Shares in issue during the year.

 

 

2020

2019

 

$'000

$'000

Capital (loss)/return

(64,020)

25,135

Revenue return

17,593

22,796

(Loss) /profit after tax for the year attributable to Participating

Preference Shares

(46,427)

(46,427)

 

 

 

Weighted average number of Participating Preference Shares outstanding

121,466,754

123,204,635

Capital (losses)/ earnings per Participating Preference Shares

($0.53)

$0.20

Revenue earnings per Participating Preference Shares

$0.15

$0.19

Basic (losses)/ earnings per Participating Preference Shares

- basic and diluted

($0.38)

$0.39

 

4.  Capital Reserve

 

The capital reserve as at 30 June 2020 consists of the following accumulated amounts:

 

 

2020

2019

 

$'000

$'000

Realised gains on investments sold

1,132,546

1,113,846

Unrealised appreciation on revaluation of investments

89,800

164,842

Exchange losses

(8,337)

(7,021)

Transfer to share premium

(27)

(27)

Expenses charged to capital

(35,399)

(29,037)

 

1,178,583

1,242,603

 

All gains and losses derived from the sale, realisation or transfer of investments, and any other sums which in the opinion of the Directors are of a capital nature are applied to the capital reserve.

 

5.  Related Parties and Other Material Agreements

 

Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions. Related parties also include key management personnel and entities under common control of the Investment Manager.

 

(a)  Investment Manager's remuneration and terms of appointment

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

 

Under the Management Agreement, the Investment Manager is entitled to receive a management fee from the Fund, payable monthly in arrears equal to 0.90% (2019: 0.95%) per annum, calculated and accrued on the Net Asset Value of the Fund as at each weekly Valuation Day, except for investments in Investee Funds, where the Investment Manager will absorb the expenses of the management of such funds to a maximum of 1% per annum of the value of the Fund's holding in the relevant fund at the relevant time. Genesis related investment companies, refer to note 9(f), do not pay a separate management fee to the Investment Manager. The investment management fees for the year were $11,492,000 (2019: $11,650,000).

 

(b)  Administration fees

The Administrator is entitled to receive a fee, payable monthly, based on the Net Asset Value of the Fund and time incurred. Administration fees for the year were $292,000 and charged by JP Morgan Administration Services (Guernsey) Limited (2019: $284,000).Custodian fee

 

(c)  Custodian fee

Under the Custodian Agreement, the Custodian to the Fund is entitled to receive a fee payable monthly, based on the Net Asset Value of the Fund. All custody services are performed by JP Morgan Chase Bank.

 

The Fund also reimburses the charges and expenses of other organisations with whom securities are held. The total of all Custodian fees for the year represented approximately 0.08% (2019: 0.08%) per annum of the average Net Assets of the Fund. Custodian fees for the year were $928,000 (2019: $984,000).

 

(d)  Securities lending fees

The Fund generated gross income of $257,000 (2019: $287,000) from securities lending transactions during the year. Commissions amounting to $51,000 (2019: $57,000) were paid to JPMorgan Chase Bank N.A. during the year in respect of these transactions of which none were outstanding at the year end.

 

(e)  Directors' fees and expenses

Included in Directors' fees and expenses are Directors' fees for the year of $260,000 (2019: $255,000). Also included are travelling, hotel and other expenses which the Directors are entitled to when properly incurred by them in travelling to, attending and returning from meetings and while on other business of the Fund.

 

(f)  Other group investments

The Genesis Smaller Companies SICAV is a related party of the Fund by virtue of having a common Investment Manager in Genesis Investment Management, LLP (previously Genesis Asset Managers, LLP). The Fund's holding in this fund is summarised in the portfolio statement. There were no subscriptions and redemptions during the year (2019: nil) under review. No dividends were received from these funds during the year (2019: nil). The Genesis Smaller Companies SICAV was placed into liquidation on 14 December 2017.

 

There were no other transactions between the Fund and such related parties during the year (except as disclosed in this note) and there were no outstanding balances between these parties at 30 June 2020.

 

6.  Dividend

 

 

2020

2019

 

US$'000

US$'000

Dividends paid

 

 

2019 final dividend of 19.0¢ (2018: 19.0¢) per Participating Preference Share

 

23,079

 

23,079

 

23,079

23,079

Dividend proposed

 

 

2020 final dividend of 17.0¢ (2019: 19.0¢) per Participating Preference Share

 

20,649

 

23,079

 

20,649

23,079

 

The dividend proposed in respect of the year ended 30 June 2020 is subject to shareholder approval at the forthcoming AGM. In accordance with the accounting policy of the Fund, this dividend will be reflected in the financial statements for the year ending 30 June 2021.

 

7.  Events After Reporting Date

 

On 30 September 2020, the Board proposed a dividend of 17.0¢ per Participating Preference Share subject to Shareholder approval.

 

There were no other significant events to disclose since the reporting date.

 

8.  Annual Results

 

This Annual Results announcement does not constitute the Company's statutory accounts for the years ended 30 June 2020 and 30 June 2019 but is derived from those accounts. Statutory accounts for the year ended 30 June 2019 have been delivered to the Guernsey Financial Services Commission. The statutory accounts for the year ended 30 June 2020 and the year ended 30 June 2019 both received an audit report which was unqualified and did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report.

 

9.  Availability of Annual Financial Report  

 

A copy of the Annual Financial Report will shortly be submitted to the National Storage Mechanism and will be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism

 

A copy of the Annual Financial Report will also be available for download from the Company's website www.genesisemf.com

 

 

For further information, please contact:

 

Nick Archer

Genesis Investment Management, LLP

020 7201 7200

 

J.P. Morgan Administration Services (Guernsey) Limited

Company Secretary

01481758 620

 

6 October 2020

 

 

[END]

 

 

 

 

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