Half-yearly report
GENESIS EMERGING MARKETS FUND LIMITED
(the "Company"; the "Fund")
STOCK EXCHANGE ANNOUNCEMENT
Half Yearly Report
The Company has today, in accordance with DTR 6.3.5, released its Half Year
Report for the six months ended 31st December 2009. The Report will shortly be
available from the Company's website www.giml.co.uk and will shortly be
available for inspection at the UK Listing Authority's Document Viewing
Facility, which is located at:
Financial Services Authority
25 The North Colonnade
Canary Wharf
London E14 5HS
Investment Objective
To achieve long-term capital growth, primarily through investment in equity
markets of developing countries.
Benchmark
MSCI Emerging Markets Index (Total Return).
Material Events
31st December 2009 31st December 2008
US$ US$
Total net assets 994,493,032 529,520,554
Net assets per Participating Share * 7.40 3.97
Total income/(deficit)per Participating Share * 1.93 (3.44)
* Adjusted for the November 2009 ten for one share split
Commenting on the results the Chairman has made the following statement:
Emerging market investors have seen strong returns over the last six months.
Shareholders of the Fund have seen the net asset value per share rise 38% over
the period, with the return over the whole calendar year 66%. Both these figures
were in excess of the 34% and 59% return achieved by the MSCI Emerging Markets
Index, the most appropriate benchmark, over these respective periods.
The period has seen some significant changes to the Fund's structure. As I noted
in my statement in the Annual Report six months ago, the Board took the decision
to propose to shareholders, firstly a redenomination of the Fund's share capital
so as to permit the shares to be quoted in Sterling rather than US dollars, and
secondly a division of each existing share into ten, thereby reducing the market
price of each share. Our intention was to improve the marketability and
liquidity of the Fund's shares.
At the Extraordinary General Meeting at the end of October these proposals were
duly passed, and the Fund's shares commenced trading in their redenominated form
on 2nd November. The initial indications are that there has indeed been a
positive effect both in terms of the narrowing of the Fund's discount, and of
the trading volume in the shares. We anticipate that the Fund's shares will now
be more attractive to a wider range of shareholders, particularly in the UK.
In my previous statement, I also announced the approaching retirement of Jeremy
Paulson-Ellis as a Director of the Fund, noting his exceptional contribution to
the Fund over many years. His retirement was effective from the Annual General
Meeting in October.
It is with great pleasure, meanwhile, that I am able to announce the appointment
of John Llewellyn to the Board. Dr Llewellyn has had a long and distinguished
career as an international economist in both the public and financial sectors,
and in academia. We are confident that his expertise and experience will make
him a valuable source of advice to the Fund.
The Fund held its annual Information Meeting in London in October, enabling
shareholders to discuss the proposed restructuring, and hear presentations from
representatives of the Manager. Topics covered included the Fund's current
strategy, factors behind recent performance and the Manager's outlook for the
asset class.
The Manager's Review on the following pages outlines for shareholders some
current thoughts on the investment environment in emerging markets, and
highlights some of the changes made to the Fund's holdings in the last six
months. As has been observed after previous periods of stellar emerging markets
performance, it seems somewhat unlikely that the returns over the short term
from the asset class will match recent experience, and the Manager's Review
provides details on the current environment for companies in developing
countries. Fundamentally, however, your Board share with the Manager the view
that the positive growth dynamics in emerging economies (combined with the
expansion of the investment universe) will continue to provide attractive
opportunities for long-term investors in emerging markets.
Coen Teulings
February 2010
Board Report
Capital Values
At 31st December 2009 the value of net assets available to shareholders was
US$994,493,032 (30th June 2009: US$734,260,089) and the Equity per Participating
Preference Share was US$7.37 (30th June 2009: US$5.44).
Principal Risks and Uncertainties
The investment objective of the Fund is to achieve capital growth over the
medium to long term, primarily through investment in equity securities quoted on
emerging markets. The main risks to the value of its assets arising from the
Fund's investment in financial instruments are unanticipated adverse changes in
market prices and foreign currency exchange rates and an absence of liquidity.
The Board reviews and agrees with the Manager policies for managing each of
these risks and they are summarised below. These policies have remained
unchanged since the beginning of the period to which these financial statements
relate.
The economies, the currencies and the financial markets of a number of
developing countries in which the Fund invests may be extremely volatile. To
manage the risks posed by adverse price fluctuations the Fund's investments are
geographically diversified, and will continue to be so. The Fund will not
normally invest more than 25% of its assets (at the time the investment is made)
in any one country. Further, the exposure to any one company or group (other
than an investment company, unit trust or mutual fund) is unlikely to exceed 5%
of the Fund's net assets at the time the investment is made.
The Fund's assets will be invested in securities of companies in various
countries and income will be received by the Fund in a variety of currencies.
However, the Fund will compute its net asset value and make any distributions in
dollars. The value of the assets of the Fund as measured in dollars, may be
affected favourably or unfavourably by fluctuations in currency rates and
exchange control regulations. Further, the Fund may incur costs in connection
with conversions between various currencies.
Trading volumes on the stock exchanges of developing countries can be
substantially less than in the leading stock markets of the developed world.
This lower level of liquidity exaggerates the fluctuations in the value of
investments described previously. The restrictions on concentration and the
diversification requirements detailed above also serve normally to protect the
overall value of the Fund from the risks created by the lower level of liquidity
in the markets in which the Fund operates.
Manager
In the opinion of the Directors, in order to achieve the investment objective of
the Fund, and having taken into consideration the performance of the Fund, the
continuing appointment of the Manager is in the interests of the shareholders as
a whole.
A more detailed commentary of important events that have occurred during the
period and their impact on these accounts and a description of the principal
risks and uncertainties for the remaining six months of the financial year is
contained in the Manager's Review.
Directors' Interests
The following Directors served throughout the period under review, except where
noted otherwise.
Beneficial interest in
Participating Preference Shares
Directors at 31st December 2009
Coen Teulings 40,000
Jeremy Paulson-Ellis (resigned on 30th October 2009) 119,460
The Hon. John Train 20,510
Christian Baillet -
Michael Hamson -
John Llewellyn (appointed 30th October 2009) -
Related Party Transactions
During the first six months of the current financial year, no transactions with
related parties have taken place which have materially affected the financial
position or performance of the Fund during the period. Details of related party
transactions are disclosed in the annual report for the year ended 30th June
2009.
Responsibility Statement
The Directors confirm that to the best of their knowledge:
· the condensed set of financial statements has been prepared in accordance with
IAS 34 'Interim Financial Reporting';
· as required by DTR 4.2.7R of the FSA's Disclosure and Transparency Rules, the
interim management report includes a fair review of important events that have
occurred during the first six months of the financial year and their impact on
the condensed set of financial statements, and a description of the principal
risks and uncertainties for the remaining six months of the financial year; and
· the interim management report includes a fair review of the information
concerning related party transactions required by DTR 4.2.8R.
Manager's Review
The Fund ended the six months to 31st December 2009 up some 38%, continuing the
strong rebound seen during the first half of the calendar year. Emerging market
companies have generally seen resilient profitability through the global
financial crisis and the outlook for economic growth and for corporate earnings
remains good.
The most obvious clouds on the horizon would appear to be macro in nature. One
concern is that domestic demand may fall in some countries when governments
withdraw their fiscal stimulus - which could prompt a reversal of the very
favourable terms of trade in commodity exporters like Russia or Brazil. Yet for
long term development, poorer countries need to invest in infrastructure to
improve competitiveness, and the focus on short-term economic stimulus may have
diverted funding from these long term capital projects. Normalisation also
implies a recovery in private sector investment spending that was largely
deferred over the past 18 months. We should also remember that emerging markets
are fundamentally underpinned by low sovereign and corporate debt, having learnt
the hard way in the 1990s.
Of course too much of a good thing could lead to inflation or prompt a hawkish
policy reaction. Easy money combined with further capital inflows into emerging
markets may push demand to levels that create supply bottlenecks and asset price
bubbles, particularly in countries that link their currencies to the US dollar
and involuntarily adopt US monetary policy (e.g. the pressure is building in
Chinese residential property). If so we may see more restrictions on capital
movements like those recently invoked in Brazil.
At a micro level some pressures are starting to appear in operating costs. After
a year of wage freezes some increase is reasonable, particularly in view of
higher CPI inflation - although in many countries sizeable output gaps mean it
is difficult for labour to argue the case. Raw material costs are also rising
due to higher commodity prices, many of which have already exceeded our long
term equilibrium price assumptions. The pressure is mainly from supply factors
(especially in food). In some cases higher input prices are offset by domestic
currency strength, but for countries like China whose currencies shadow the US
dollar they will directly affect costs. Companies may also face higher funding
costs; the tightening cycle has already started in Asia. However the strong
demand environment should mean that most cost increases can be passed on, thus
protecting earnings. Pricing discipline has been good, and the stronger
companies have seen their competitive positions enhanced through the downturn as
the weaker companies have struggled for funding.
The dramatic rises in markets throughout the period provided us with
opportunities to reduce positions in Fund holdings that had performed relatively
well. These included Infosys Technology (India), which was sold outright, a
reduction of the position in First Quantum (Zambia), and the trimming of
exposure to a number of bank stocks, for example Banco do Brasil and Garanti
Bank (Turkey), as well as some of the Fund's Russian holdings. Major new stocks
added during the period included a number in China, including China Life
Insurance and China Merchants Bank, as well as Banco Santander Brazil. The
allocations to China and Brazil correspondingly increased.
Outlook for the Company
Valuations are generally back to normal for most of our markets, having been at
distressed levels a year ago. At this point the outlook for economic growth and
for corporate earnings remains positive for emerging markets and any revisions
to our estimates still tend to be up rather than down.
Genesis Asset Managers, LLP
February 2010
UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31st December 2009
(Audited)
31st December 2009 30th June 2009
US$ US$
ASSETS
Current Assets
Financial assets at fair value through
profit or loss 992,286,299 721,944,912
Amounts due from brokers 78,297 -
Dividends and interest receivable 772,855 1,957,186
Other receivables and prepayments 156,240 165,392
Cash and cash equivalents 5,386,767 12,291,308
TOTAL ASSETS 998,680,458 736,358,798
LIABILITIES
Current Liabilities
Amounts due to brokers 2,618,071 850,498
Payables and accrued expenses 1,534,746 1,248,086
Bank overdraft 34,609 125
TOTAL LIABILITIES 4,187,426 2,098,709
TOTAL NET ASSETS 994,493,032 734,260,089
EQUITY
Called-up share capital - 270,633
Share premium 135,509,473 135,238,840
Capital reserve 822,540,644 559,694,846
Revenue account 37,603,415 40,216,270
Purchase of own shares (1,160,500) (1,160,500)
TOTAL EQUITY 994,493,032 734,260,089
EQUITY PER PARTICIPATING
PREFERENCE SHARE* US$7.37 US$5.44
* Calculated on an average number of 134,963,060 Participating Preference
Shares outstanding (30th June 2009: 134,963,060, adjusted for the November
2009 ten for one share split).
UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 31st December 2009
2009 2008
US$ US$
INCOME
Net change in financial assets at fair
value through profit or loss 262,918,866 (465,534,583)
Net exchange losses (73,068) (870,391)
Dividend income 7,242,270 9,932,434
Deposit interest 14,841 21,520
270,102,909 (456,451,020)
EXPENSES
Management fees (6,784,210) (5,288,146)
Administration fees (64,624) (109,355)
Audit fees (16,870) (33,359)
Custodian fees (582,969) (553,873)
3 Transaction costs (642,145) (671,251)
Directors' fees and expenses (183,496) (143,835)
Other expenses (242,693) (224,420)
TOTAL OPERATING EXPENSES (8,517,007) (7,024,239)
OPERATING PROFIT/(LOSS) 261,585,902 (463,475,259)
FINANCE COSTS
Bank charges (633) (1,938)
Interest expense (2,878) (49,484)
TOTAL FINANCE COSTS (3,511) (51,422)
Withholding taxes (1,349,448) (1,157,701)
PROFIT/(LOSS) FOR THE PERIOD 260,232,943 (464,684,382)
2009 2008
RETURN/(DEFICIT) PER PARTICIPATING
PREFERENCE SHARE* US$1.93 US$(3.44)
* Calculated on an average number of 134,963,060 Participating Preference
Shares outstanding (31st December 2008: 134,963,060, adjusted for the
November 2009 ten for one share split).
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six months ended 31st December 2009
2009
Share Share Capital Revenue Purchase
of Own
Capital Premium Reserve Account Shares Total
US$ US$ US$ US$ US$ US$
Net assets at the beginning
of the period 270,633 135,238,840 559,694,846 40,216,270 (1,160,500) 734,260,089
Redenomination of shares (270,633) 270,633 - - - -
Movement in the period - - 262,845,798 (2,612,855) - 260,232,943
Net assets at the end of the
period - 135,509,473 822,540,644 37,603,415 (1,160,500) 994,493,032
2008
Share Share Capital Revenue Purchase
of Own
Capital Premium Reserve Account Shares Total
US$ US$ US$ US$ US$ US$
Net assets at the beginning of
the period 270,633 135,238,840 821,937,433 37,918,530 (1,160,500) 994,204,936
Movement in the period - - (466,404,974) 1,720,592 - (464,684,382)
Net assets at the end of
the period 270,633 135,238,840 355,532,459 39,639,122 (1,160,500) 529,520,554
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
for the six months ended 31st December 2009
2009 2008
US$ US$
OPERATING ACTIVITIES
Investment income received 8,426,022 11,018,212
Taxation paid (1,349,448) (1,157,701)
Interest received 15,420 19,446
Operating expenses paid (8,224,706) (7,607,258)
Foreign exchange loss (32) (6,011)
NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES (1,132,744) 2,266,688
INVESTING ACTIVITIES
Purchase of investments (110,824,359)(115,768,965)
Proceeds from sale of investments 105,091,114 120,362,955
NET CASH (OUTFLOW)/INFLOW FROM INVESTING ACTIVITIES (5,733,245) 4,593,990
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (6,865,989) 6,860,678
Effect of exchange rate fluctuations on cash and
cash equivalents (73,036) (864,380)
(6,939,025) 5,996,298
Net cash and cash equivalents at the beginning
of the period 12,291,183 (3,419,118)
NET CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 5,352,158 2,577,180
Comprising:
Cash and cash equivalents 5,386,767 2,577,180
Bank overdraft (34,609) -
NET CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 5,352,158 2,577,180
NOTES TO THE FINANCIAL STATEMENTS
for the six months ended 31st December 2009
1. BASIS OF PREPARATION
The principal accounting policies applied in the preparation of these financial
statements are set out below. These policies have been consistently applied to
all periods presented, unless otherwise stated.
The interim financial information for the six months ended 31st December 2009
has been prepared in accordance with International Accounting Standard 34,
'Interim Financial Reporting'. The interim financial information should be read
in conjunction with the annual financial statements for the year ended 30th June
2009, which have been prepared in accordance with International Financial
Reporting Standards.
The consolidated financial statements have been prepared under the historical
cost convention, as modified by the valuation of financial assets and financial
liabilities at fair value through profit or loss.
In October 2009, the shareholders approved a ten for one Share Split as
described in the Chairman's Statement. Any price that was expressed per share in
the prior period has been restated to the ten for one subdivision.
2. RECONCILIATION OF PUBLISHED NET ASSET VALUE ATTRIBUTABLE TO EQUITY
SHAREHOLDERS TO THE IFRS EQUIVALENT
31st December 2009
Per Participating
Total Preference Share
US$ US$
Published Net Asset Value 999,145,932 7.40
Change from mid market pricing to bid
pricing for investments (4,787,670) (0.03)
Net Asset Value under IFRS 994,358,262 7.37
Non distributable reserves 134,770
Equity shareholders'funds 994,493,032
30th June 2009
Per Participating
Total Preference Share
US$ US$
Published Net Asset Value 737,694,747 5.47
Change from mid market pricing to bid
pricing for investments (3,569,428) (0.03)
Net Asset Value under IFRS 734,125,319 5.44
Non distributable reserves 134,770
Equity shareholders' funds 734,260,089
3. COSTS OF INVESTMENTS TRANSACTIONS
During the period, expenses were incurred in acquiring or
disposing of investments.
For the six For the six For the year
months to months to ended
31st December 31st December 30th June
2009 2008 2009
US$000 US$000 US$000
Purchases 362 335 615
Sales 280 336 597
642 671 1,212
4. SEGMENT INFORMATION
The Fund has elected to treat all of its operations,
for management purposes, as a single operating segment
as it does not aim at controlling or having any
significant influence over the entities in which it
holds its investments. The Fund is invested in equity
securities. All of the Funds' activities are
interrelated, and each activity is dependant on the
others. Accordingly, all significant operating
decisions are based upon analysis of the Fund as one
segment. The financial positions and results from this
segment are equivalent to the financial statements of
the Fund as a whole, as internal reports are prepared
on a consistent basis with the measurement and
recognition principles of IFRS.
The table below analyses the Fund's operating income
per investment type.
Six months to Six months to
31st December 31st December
2009 2008
US$ US$
Equity
Securities 270,102,909 (456,451,020)
Total 270,102,909 (456,451,020)
As at 31st December 2009 and 30th June 2009, the Fund
has no assets classified as non-current assets. For the
breakdown of the Fund's financial assets carried at fair
value through profit or loss.
For Genesis Emerging Markets Fund Limited
HSBC Securities Services (Guernsey) Limited, Secretary
24th February 2010
END
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