Barings Emerging EMEA Opportunities
PLC
(formerly Baring Emerging Europe
PLC)
LEI: 213800HLE2UOSVAP2Y69
Annual Report & Audited Financial
Statements for the year ended 30 September
2021
The Directors present the Annual Financial Report of Barings
Emerging EMEA Opportunities PLC (the “Company”) for the year ended
30 September 2021. The full Annual
Report and Accounts can be accessed via the Company’s website,
www.bemoplc.com or by contacting the Company Secretary on 01392
477571.
COMPANY SUMMARY
Barings Emerging EMEA Opportunities PLC (the “Company”) was
incorporated on 11 October 2002 as a
public limited company and is an investment company in accordance
with the provisions of Section 833 of the Companies Act 2006 (the
“Act”). It is a member of the Association of Investment Companies
(the “AIC”). The ticker is BEMO.
As an investment trust, the Company has appointed 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 for
the investment management of the portfolio to Baring Asset
Management Limited (the “Investment Manager” or “Manager”). Further
information on the Investment Manager, their investment philosophy
and management of the Investment Portfolio can be found below.
MANAGEMENT FEE
With effect from 13 November 2020,
the AIFM agreed to a reduction in the investment management fee
from the previous level of 0.80% of the net asset value (“NAV”) of
the Company to 0.75% of the NAV of the Company per annum. This is
paid monthly in arrears based on the level of net assets at the end
of the month.
INVESTMENT OBJECTIVE AND POLICY
The Company’s current investment objective and policy can be
found below.
BENCHMARK
The Company’s comparator benchmark is the MSCI Emerging Markets
EMEA Index (net dividends reinvested) (the “Benchmark”).
This Benchmark is considered to be most representative of the
Company’s investment mandate, which covers Emerging Europe, the
Middle East and Africa.
Financial Highlights
for the year ended 30 September
2021
Annualised NAV Total Return#1 |
Share price total
return#1 |
Dividend per Ordinary
Share#1 |
| +36.6% (2020:
-22.3%) |
+39.7% (2020:
-27.5%) |
26p (2020: 25p) |
| For the year ended 30 September |
2021 |
2020 |
% change |
| NAV per Ordinary
Share1 |
920.7p |
694.7p |
+32.5% |
| Share price |
793.0p |
587.0p |
+35.1% |
| Share price total
return1# |
+39.7% |
-27.5% |
- |
| Benchmark (annualised
)1 |
+33.3% |
-22.6% |
- |
| Discount to NAV per Ordinary
Share1 |
13.9% |
15.5% |
- |
| Dividend yield1,2 |
3.3% |
4.3% |
- |
| Ongoing charges1 |
1.62% |
1.48% |
- |
| Return per Ordinary
Share |
Year ended 30 September 2021 |
Year ended 30 September 2020 |
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
| Return per Ordinary
Share1 |
23.86p |
225.16p |
249.02p |
18.40p |
-220.52p |
-202.12p |
Revenue return (earnings) per Ordinary Share is based on the
revenue return for the year of £2,912,000 (2020: £2,281,000).
Capital return per Ordinary Share is based on net capital gain for
the financial year of £27,476,000 (2020: loss £27,339,000). These
calculations are based on the weighted average of 12,202,696 (2020:
12,397,456) Ordinary Shares in issue, excluding treasury shares,
during the year.
At 30 September 2021, there were
12,044,780 (2020: 12,276,025) Ordinary Shares of 10 pence each in issue which excludes 3,318,207
(2020: 3,318,207) Ordinary Shares held in treasury. The shares held
in treasury are not included when calculating the weighted average
of Ordinary Shares in issue during the year. All shares repurchased
during the year have been cancelled.
1Alternative Performance
Measures (“APMs”) definitions can be found in the
Glossary below.
2% based on dividend declared for the full
year.
#Key Performance Indicator.
Five Year Financial Record
| At 30 September |
2021 |
2020 |
2019 |
2018 |
2017 |
| Shareholders’ funds |
£111m |
£85m |
£116m |
£108m |
£123m |
| NAV per Ordinary Share |
920.7p |
694.7p |
930.8p |
824.0p |
878.0p |
| Share price |
793.0p |
587.0p |
846.0p |
714.0p |
775.0p |
ROLLING ANNUALISED PERFORMANCE (%)
|
3 years |
5 years |
| NAV Total Return |
7.7 |
9.1 |
| Share Price Total Return |
8.0 |
9.1 |
| Benchmark Total Return |
6.2 |
8.1 |
Source: Barings, Factset.
ANNUAL PERFORMANCE (%)
|
2017 |
2018 |
2019 |
2020 |
2021 |
| NAV Total Return |
26.9 |
-2.6 |
17.8 |
-22.3 |
36.6 |
| Share Price Total Return |
27.6 |
-4.0 |
24.3 |
-27.5 |
39.7 |
| Benchmark Total Return |
21.4 |
1.6 |
15.9 |
-22.6 |
33.3 |
Source: Barings, Factset.
Chairman’s Statement
“Our Investment Manager was not only
able to deliver a strong return in absolute terms, but also a
significant outperformance relative to the Benchmark. This result
was largely attributable to stock selection, whilst the portfolio
also benefited from the broadening of the investment mandate and
the increased diversification of its investments”.
Frances
Daley
Chairman
I am delighted to present the results for the year ended
30 September 2021. This was a period
of significant change for the Company, following Shareholders’
approval of a broadened investment mandate to include the emerging
markets of Europe, the
Middle East and Africa in November last year.
A year ago, I wrote at a time of continued global uncertainty
over COVID-19 and governments’ responses to it. The twelve months
that have passed since have been remarkable. Our region’s equity
markets, after being amongst the hardest hit in the earlier stages
of the pandemic, rebounded strongly as the successful development
of a number of COVID-19 vaccines allowed economies globally to
reopen.
Against this backdrop, our Investment Manager was not only able
to deliver a strong return in absolute terms, but also significant
outperformance relative to the Benchmark. This result was largely
attributable to stock selection, based on our Investment Manager’s
fundamental bottom-up investment process.
The portfolio has also benefited from the broadening of the
investment mandate. The effect has been to increase the
diversification of the investment portfolio. The portfolio now
comprises investments across eleven different countries and
currencies, and enjoys a deeper pool of potential stock picks. The
benefit of reduced vulnerability to negative developments in
particular countries is exemplified by Turkey. With Turkey now making up just 2.6% of the
portfolio compared to 8.1% at the end of the prior financial year,
the volatility of the country’s equity market over the period had a
negligible impact on the Company’s performance.
Performance
The NAV total return over the year was +36.6% compared to the
Benchmark return of +33.3%. On a relative basis, this represents an
outperformance of +2.4% versus the Benchmark. Over the long term,
the Company’s annualised NAV total return was +7.7% over three
years and +9.1% over five years. This remains comfortably ahead of
the Benchmark, which returned +6.2% and +8.1%
respectively.
Our region also delivered an impressive performance relative to
both developed and emerging market peers. By contrast, the total
return from developed European equities was 22.0%, whilst global
emerging market equities gained 13.3%1. This recovery
across emerging EMEA equities is particularly impressive given that
the region’s economies and financial markets were among the worst
hit in the world by the first shockwaves of the pandemic last
year.
As economies tentatively began to recover from the pandemic the
share prices of companies whose fortunes are closely aligned to the
economic cycle, and had been hardest hit by COVID-19, tended to
perform most strongly. This was despite many of these businesses
still facing uncertain outlooks and weak profitability. This is not
the type of company generally held in the portfolio, as our Manager
believes that the most effective way to deliver attractive returns
to Shareholders is to invest in structurally growing companies
rather than those tied to the economic cycle. It is therefore
worthy of note that our portfolio performed significantly better
than the Benchmark, driven by the success of our Manager’s stock
selection. This was despite the cyclical stocks that benefitted
most from the upturn in the economic cycle not being as widely held
in the portfolio.
I would like to thank the team at Barings for managing what has
been a period of great change for the Company and its
portfolio.
1 As defined by the MSCI Europe Net (Developed
Europe) and MSCI Emerging Markets Net (Global Emerging Markets)
indices.
Environmental, Social and
Governance
The Investment Manager continues to incorporate Environmental,
Social and Governance (“ESG”) parameters as a key element of the
investment process and company analysis, to reflect
improving or deteriorating corporate standards that may influence a
company’s value. This approach enables the Investment Manager to
uncover potential unrecognised investment opportunities, whilst
also mitigating risks. The Investment Manager also undertakes
active engagement to positively influence ESG practices and improve
ESG disclosures.
During the year, the Board discussed with the Investment Manager
their approach to ESG, the challenges posed by countries across our
region and reviewed some examples of companies they have engaged
with. This process included a series of online meetings with the
management teams of some of the companies the Company is invested
in. We also discussed the opportunities that ESG presents,
specifically as it relates to renewable energy sources and a
future world less dependent on fossil fuels. One particular
area of interest is the transition to greener energy sources. The
Investment Manager believes that the portfolio is well positioned
to be able to invest in businesses positively exposed to energy
transition and renewables themes.
The Board shares the Investment Manager’s view that ESG factors
are among some of the most important variables that can impact on
investment’s risks and returns over time. Further detail on the
Investment Manager’s ESG process and approach to active engagement
can be found in the Investment Manager’s Report.
Discount Management
The discount at year-end was 13.9% compared with 15.5% for the
end of the prior year. The average discount during the year was
13.1%. During the year, 231,245 Ordinary Shares were bought back
and cancelled at an average price of £7.41 per Ordinary Share, for
a total cost of £1,715,000. The share buybacks added approximately
2.1 pence per Ordinary Share to NAV,
accounting for just under 0.2% of the total return to
Shareholders.
Gearing
There were no borrowings during the period. At
30 September 2021, there was net cash
of £1.7 million (30 September 2020:
£1.7 million). The Company does not currently make use of a
loan facility but keeps its borrowing arrangements and gearing
policy under review.
Dividends
In respect of the six-month period ended 31 March 2021, the Company paid an interim
dividend of 15 pence per share (2020:
15 pence per share). For the year
under review, the Board recommends a final dividend of 11 pence per share (2020: 10 pence per share). This amounts to a total
dividend for the year of 26 pence per
share (2020: 25 pence per share),
equivalent to a yield of around 3.3% on the year end share price of
793p. This payment is not fully covered by the income account,
which produced net revenue per share of 23.86 pence per share (2020: 18.40 pence). However, it reflects our confidence
in the ability of the Investment Manager to sustainably grow the
underlying revenue generated by the portfolio over the medium term.
The Board remains committed to enhancing the appeal of investing in
the Company by providing Shareholders with an attractive level of
income.
Promotional Activity and Keeping
Shareholders Informed
The Board and Investment Manager have put in place a promotional
programme that seeks to raise the Company’s profile and its
investment remit, particularly amongst retail investors. The aim is
to benefit all shareholders by generating sustained interest in,
and demand for, the Company’s shares. As part of the plan, the
Company’s website has been refreshed with new themed content, a
portfolio and pricing feed, plus detailed information on investing
through online investment trading platforms, where many retail
investors now buy their shares. We have also put in place an email
communications programme to enhance engagement with the Company’s
existing shareholders, as well as with other supporters. These
email updates provide relevant news and views plus performance
updates. I encourage you to sign up for these targeted
communications by visiting the Company’s web page at
www.bemoplc.com and clicking on ‘Register for email updates’.
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 Tuesday, 25 January 2022 at 2.30pm. The Investment Manager will give
their customary presentation on the markets and the outlook for the
year ahead. Details can be found in the Notice of the AGM, which
has been circulated separately to this report.
While we hope that you are able to attend, the Directors are
aware that government guidance or regulation to contain the spread
of COVID-19 might change and if we are obliged to change the
arrangements for the AGM after publishing this document, details
will be published via RNS and our website.
Articles of Association
The Company’s Annual General Meeting in 2021 could not be held
as normal as a result of COVID-19 restrictions. Electronic or
hybrid meetings would allow greater Shareholder participation in
future Annual General Meetings or other general meetings should
similar situations arise. Electronic and hybrid meetings are only
permitted if expressly provided for in the Company’s Articles of
Association. As currently drafted, the Company’s Articles of
Association do not allow for hybrid meetings. The Board is
therefore proposing a Special Resolution at the Annual General
Meeting to be held on 25 January 2022
that the Articles of Association be amended to allow for hybrid
meetings and to capture any significant regulatory changes since
the drafting of the current Articles of Association. Whilst the
Board is proposing a provision for hybrid meetings, it is the
Board's preference, restrictions permitting, for Annual General
Meetings to be held in person as the Board welcomes the opportunity
to meet and engage with shareholders.
Outlook
Since the year-end, equity markets have continued to extend
their recovery from the lows of 2020, reflecting optimism that the
global economic recovery will continue. After this strong
rebound in economic activity, worries now centre around
inflationary pressures caused by the release of pent-up of demand
and the consequential disruption to global supply lines. In turn,
this has led to concerns that the stimulatory monetary policies
followed by central banks around the world might be reversed with
adverse effects on equity markets.
Despite these global concerns, there are reasons to be
optimistic for the emerging EMEA asset class. We have continued to
see a recovery in earnings growth across many of the companies in
our investment universe. This trend bodes well for the performance
of the portfolio and the income generated by the companies in the
portfolio. Underpinning this earnings growth is the strength of the
consumer. High disposable income growth across most parts of the
region, combined with ongoing efficiency gains, will remain a key
driver of earnings over the medium term. The case for investment in
the region’s equities also comprises a degree of resilience against
inflationary pressures. This has been most evident in recent
months, where rising energy prices have helped support economic
activity and stock market performance across some of region’s
markets. This will continue to be important over the coming months
as inflationary pressures persist.
Liquidity across the region is improving, underpinned by the
increased participation of retail investors. We believe this trend
is set to continue, and will help to support portfolio
diversification and valuations.
Finally, against a backdrop of monetary tightening, the region
will continue to benefit from the flexibility provided by the
independent monetary policy framework that has been established in
most of the countries (one obvious current exception being
Turkey).
The impact of some of these positive trends can be seen in the
performance of markets across the region. For example, in U.S.
Dollar terms, both Russia and
Saudi Arabia are at multi-year
highs.
These factors should help contribute to the increasing
attractiveness of emerging EMEA equities as an asset class, whilst
the Company’s diversified portfolio is well placed to continue to
deliver attractive returns for our Shareholders.
Frances
Daley
Chairman
3 December 2021
Business Model and Strategy
Business Model and Strategy
The Company has no employees and the Board is comprised of
Non-Executive Directors. The day-to-day operations and functions of
the Company have been delegated to third-party service providers,
which are subject to the ongoing oversight of the Board. In line
with the stated investment philosophy, the Manager takes a
bottom-up approach, founded on research carried out using the
Manager’s own internal resources. This research, which has a strong
focus on environmental, social and governance issues, enables the
Manager to identify what it believes to be the most attractive
stocks in EMEA markets. Further information can be found below.
The Company’s Investment Objective and Policy was changed on
13 November 2020, following approval
from Shareholders in a general meeting.
Purpose, Values and Strategy
The Company’s primary purpose is to meet its investment
objective to deliver capital growth, principally through investment
in emerging and frontier equity securities listed or traded on EMEA
markets. To achieve this, the Board uses its breadth of skills,
experience and knowledge to oversee and work with the Investment
Manager, to ensure that it has the appropriate capability,
resources and controls in place to actively manage the Company’s
assets to meet its investment objective. The Board also select and
engage reputable and competent organisations to provide other
services on behalf of the Company.
The Company’s values focus on transparency, clarity and
constructive challenge. The Directors recognise the importance of
sustaining a culture that contributes to achieving the purpose of
the Company that is consistent with its values and strategy.
Further detail on culture can be found below.
Investment Objective
The Company’s investment objective is to achieve capital growth,
principally through investment in emerging and frontier equity
securities listed or traded on Eastern European, Middle Eastern and
African (EMEA) securities markets. The Company may also invest in
securities in which the majority of underlying assets, revenues
and/or profits are, or are expected to be, derived from activities
in EMEA but are listed or traded elsewhere (EMEA Universe).
Investment Policy
The Company intends to invest for the most part in emerging and
frontier equity listed or traded on EMEA securities markets or in
securities in which the majority of underlying assets, revenues
and/or profits are, or are expected to be, derived from activities
in EMEA but are listed or traded elsewhere. To achieve the
Company’s investment objective, the Company selects investments
through a process of bottom-up fundamental analysis, seeking
long-term appreciation through investment in mispriced
companies.
Where possible, investments will generally be made directly into
public listed or traded equity securities including equity-related
instruments such as preference shares, convertible securities,
options, warrants and other rights to subscribe or acquire equity
securities, or rights relating to equity securities.
It is intended that the Company will generally be invested in
equity securities; however, the Company may invest in bonds or
other fixed-income securities, including high risk debt securities.
These securities may be below investment grade. The number of
investments in the portfolio will normally range between 20 and
65.
The Company may 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, at the time of investment, in normal
circumstances. The Company may also invest in other investment
funds in order to gain exposure to EMEA countries or gain 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
10% of its gross assets in other UK listed closed-ended investment
funds, save that, where such UK listed closed ended investment
funds have themselves published investment policies to invest no
more than 15% of their total assets in other listed closed-ended
investment funds, the Company will invest not more than 15% of its
gross assets in such UK listed closed ended investment funds.
Whilst there are no specific limits placed on exposure to any
one sector or country, the Company seeks to achieve a spread of
risk through continual monitoring of the sector and country
weightings of the portfolio. The Company’s maximum limit for any
single investment at the time of purchase is the higher of 15% of
gross assets or the weight of the purchased security in the
comparator benchmark plus 5%, with an upper maximum limit of 20% of
gross assets (excluding for cash management purposes).
Relative guidelines will be based on the Morgan Stanley Capital
International “MSCI” Emerging Markets EMEA Index (net), which will
be the index used as the benchmark.
The Company may use borrowed funds to take advantage of
investment opportunities. However, it is intended that the
Company would only be geared when the Directors, advised by the
Investment Manager, have a high level of confidence that gearing
would add significant value to the portfolio. 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.
The Company may use derivative instruments for the purpose of
efficient portfolio management (which includes hedging) and for any
investment purposes that are consistent with the investment
objective and polices of the Company.
On 13 November 2020, the Company
announced it had received Shareholder approval to broaden its
investment mandate to focus on investing in emerging equity
securities listed or traded on Emerging European, Middle Eastern
and African (“EMEA”) securities markets. The previous Investment
Objective and Investment Policy of the Company can be found in the
Report.
Benchmark
The Company’s comparator benchmark is the MSCI Emerging Markets
EMEA Index (net dividends reinvested).
Discount Control Mechanism
The Board is aware of Shareholders’ continued desire for a
strong discount control mechanism, though also mindful of the need
to provide the Company the opportunity to achieve its goal of
outperforming its Benchmark.
With effect from 1 October 2020,
the Board approved a tender offer trigger mechanism to provide
Shareholders with a tender offer for up to 25% of the Company’s
issued ordinary share capital if:
i) the average daily discount of the Company’s market
share capital to its net asset value (‘cum-income’) exceeds 12%, as
calculated with reference to the trading of the Company’s shares
over the period between 1 October
2020 and 30 September 2025;
or
ii) the performance of the Company’s net asset value per share
on a total return basis does not exceed the return on the MSCI
Emerging Markets EMEA Index (net) by an average of 50 basis points
per annum over the Calculation Period.
Please refer to the shareholder circular dated 19 October 2020 for further details.
In addition, and in order to reduce the discount, the Board
authorises the Company’s shares to be brought on the market, from
time to time, where the share price is quoted at a discount to
NAV.
Barings Emerging EMEA Opportunities
PLC
- Focusing on the markets of Emerging Europe, the Middle East and Africa, the Company seeks out attractively
valued, quality companies across this diverse and fast-changing
region.
- Large investment region underrepresented in global portfolios,
with a portfolio that aims to deliver both attractive levels of
income and capital growth over the long-term.
- Managed by one of the region’s most experienced investment
teams with a consistent track record of delivering relative
outperformance.
- A differentiated and innovative investment process driven by
fundamental bottom-up analysis – with a strong focus on
environmental, social and governance factors.
Principal and Emerging Risks
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 a robust assessment of both the emerging and principal
risks facing the Company, together with a review of any evolving
risks which may have arisen during the year, including those risks
which would threaten the Company’s business model, future
performance, solvency or liquidity. These risks are formalised
within the Company’s risk matrix.
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. A residual risk rating is then calculated for each risk
based on the outcome of the assessment. 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 14 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 14 to the Financial
Statements.
The principal risks and uncertainties faced by the Company
during the financial year, together with the potential effects,
controls and mitigating factors, are set out in the following
table. The Audit Committee will continue to assess these risks on
an ongoing basis.
| Risk |
Mitigation |
Investment
Strategy
There can be no guarantee that the investment objective will be
achieved |
The Investment Manager has a clear
investment strategy, as set out above, which is regularly reviewed
by the Board. The Investment Manager has in place a dedicated
investment process which is designed to maximise the chances 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 the
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 are subject to volatile geopolitical and
socioeconomic movements as well as the possible imposition of
selective sanctions. This may have an impact on the liquidity of
individual investments. Events such as health pandemics or
outbreaks of disease may lead to increased short-term market
volatility and may have adverse long-term effects on world
economies and markets generally. |
The Company is
closed-end and, unlike open-ended funds, does not have to sell
investments at low valuations in volatile markets.
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. As at the date of this
report, the Company holds 51 stocks in 11 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.
The Board recognises the benefits of a closed-end fund structure in
extremely volatile markets such as those affected by the COVID-19
pandemic. Unlike open ended funs, closed-ended funds are not
obliged to sell-down portfolio holdings at potentially low
valuations to meet liquidity requirements for redemptions. During
times of elevated volatility and market stress, the ability of a
closed-end fund structure to remain invested for the long term
enables the Investment Manager to adhere to the investment
management approach and be ready to respond to dislocations in the
market as opportunities present themselves. |
Size of the
Company
The size of the Company could become sub optimal as share buybacks
reduce the Company’s market capitalisation. |
The Investment Manager discusses and
agrees with the Board prior to making any buybacks of the Company’s
shares within the agreed parameters. The Investment 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. Market shocks, such as those
related to COVID-19, could continue to have a negative impact on
the share price. |
The Board seeks to
narrow the discount by undertaking measured buybacks of the
Company’s shares. The Company and Investment Manager work with the
Corporate Broker to seek to increase demand for the Company’s
shares.
The Board remains committed to an increased focus on dividend yield
to further enhance the appeal of investing in the Company and
increase demand for its shares. The Board has also put in place a
comprehensive range of promotional plans to support existing
shareholders and attract new investors.
In addition, as set out above, the Company has performance triggers
in place, which may provide Shareholders with the opportunity 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 five 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 the
Administrator reconciles. 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 outsources 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. Further, the emergence of health pandemics,
such as COVID-19, may have an impact on the operational robustness
of third party service providers and their ability to conduct
business as usual. |
The Company operates
through a series of contractual relationships with its service
providers. In the instance an epidemic and or pandemic develops
internationally, the Investment Manager is able to take proactive
steps to address the potential impacts on their people, clients,
communities and any other stakeholders they come in contact with,
directly or through their premises. This includes suspending all
international business and domestic travel. Further, the Investment
Manager has performed stress-testing on systems and processes, and
is able to operate under a 100% remote working model globally
without a degradation in their responsibilities.
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. |
In addition to the principal risks outlined above, the Board has
considered a number of issues that it views as emerging risks. This
included a discussion around the continued impact of COVID-19 and
the ongoing implications of the United Kingdom’s withdrawal from
the European Union. The COVID-19 pandemic has given rise to
unprecedented challenges for businesses and economies across the
globe and the Board has taken into consideration the risks posed to
the Company by the crisis and incorporated these into the Company’s
risk matrix.
The Board also considered the impact of climate change, which
remains a critical issue as the world seeks to reduce greenhouse
gas emissions and help combat global warming. However, a global
transition towards a lower carbon world may also provide attractive
investment opportunities. Management of the portfolio, including
the integration of ESG considerations into portfolio construction,
is delegated to the Investment Manager. The Board spent time over
the year discussing with the Investment Manager its ESG framework,
including how ESG considerations are integrated into the investment
decision-making process. Further detail on the Investment Manager’s
ESG process and approach to active engagement can be found in the
Investment Manger’s Report.
The Audit Committee routinely reviews the principal risks and
makes the required updates to the Company’s risk matrix as
required. This approach allows the effect of any mitigating factors
to be reflected in the assessment of the risk.
The risk register and the operation of the key controls of the
Company’s third-party service providers’ systems of internal
control are reviewed regularly by the Audit Committee.
Emerging risks are considered by the Board as they come into
view, the immediate significance will be evaluated and the
potential implications integrated into the existing review of the
Company’s risk matrix.
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. During the year under review, and under
this agreement, the AIFM received a fee calculated monthly and
payable at an annual rate of 0.80% of the NAV of the Company,
together with any applicable VAT thereon and any out of pocket
expenses incurred by the AIFM. With effect from 13 November 2020, this fee was reduced to 0.75%
of the NAV of the Company.
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 with Maria Szczesna
and Adnan El-Araby as supporting 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 team of 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. 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 Equity Team. She is
responsible for Financials and Consumer Staples in the region.
Maria joined Barings 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 Equity Team. He is
responsible for the entire Resource Space, Healthcare &
Pharmaceuticals, Tech & Media and Autos within the EMEA region.
Adnan joined Barings in 2010 from Legg Mason Capital Management,
where he was also an investment analyst. He holds a Bachelor of
Commerce 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 strategy seeks to diversify your portfolio by harnessing the
long-term growth and income potential of Emerging EMEA. The
portfolio is managed by our team of experienced investment
professionals, with a repeatable process that also integrates
Environmental, Social and Governance (“ESG”) criteria.
| Our strategy |
|
|
|
| Access |
First-hand Expertise |
Process |
ESG Integration |
| Experienced investment team helps to
foster strong relationships with the companies in which we
invest. |
The investment team conducts
hundreds of company meetings per year, building long-term
relationships and insight. |
Extensive primary research and
proprietary fundamental analysis, evaluating companies over a
5-year research horizon with macro considerations incorporated
through our Cost of Equity approach. |
Fully integrated dynamic ESG
assessment combined with active engagement to positively influence
ESG practices. |
A detailed description of the investment process, particularly
the ESG approach can be found below.
Market Summary
Global markets rallied significantly over the period, driven by
the approval of a number of COVID-19 vaccines. This led to an
improving picture for the global economic outlook and the hope for
a return to economic normality, supported further by unprecedented
stimulus from both the US government and European Union (“EU”).
Against this backdrop, Emerging European, Middle Eastern, and
African equities performed strongly. This reflected the continued
economic recovery from the lows of 2020, as well as a supportive
commodity price backdrop, particularly within the energy sector,
where oil and gas prices rose significantly in response to strong
demand and tightening global supply. The region comfortably
outperformed both broader developed and emerging equity markets,
alongside regional peers, which were increasingly unpredictable in
the face of rising inflation, monetary policy tightening and
weakness in China.
Sterling has been notably strong over the period, drawing
support from the last-minute agreement of a post-Brexit trade deal
with the EU, and the rapid rollout of COVID-19 vaccines, which
buoyed expectations of a swifter economic rebound. This is
especially important given the company derives its returns from
foreign assets, denominated in a range of currencies, and any
material strength in the pound weakens the value of these
repatriated investments. Despite these headwinds, over the period
the Company achieved a NAV total return of 36.6% (including
dividends), whilst the Benchmark returned 33.3% (both in GBP).
12M –
Market Performance (%, GBP)
| Developed Markets |
23.5 |
| Emerging Markets |
13.3 |
| EM EMEA |
34.8 |
| EM Latin America |
22.1 |
| EM Asia |
9.2 |
Source: Barings, Factset, MSCI,
September 2021.
Company, Benchmark Returns (Left Hand
Side, £, %) and Country Returns (Right Hand Side, £, %)
1 October
2020 to 30 September 2021
| Company Share Price Total
Return |
39.7% |
| Company NAV Total Return |
36.6% |
| Benchmark |
33.3% |
| Czech Republic |
77.6% |
| Hungary |
65.6% |
| Russia |
52.8% |
| U.A.E |
44.4% |
| Saudi Arabia |
41.6% |
| Greece |
25.0% |
| Poland |
24.1% |
| South Africa |
21.9% |
| Qatar |
10.2% |
| Turkey |
0.8% |
Source: Barings, Factset, MSCI,
September 2021.
Currency Returns (vs GBP returns, %) –
1 October 2020 to 30 September 2021
| South African Rand |
6.7% |
| Russian Ruble |
2.4% |
| Czech Koruna |
1.4% |
| Qatari Rial |
-4.1% |
| Hungarian Forint |
-4.1% |
| Saudi Riyali |
4.1% |
United Arab
Emirates Dirham |
-4.1% |
| U.S.Dollar |
4.1% |
| Euro |
-5.3% |
| Polish Zloty |
-6.7% |
| Turkish Lira |
-16.7% |
Source: Barings, Factset, MSCI,
September 2021.
Income
The Company’s key objective is to deliver capital growth from a
carefully selected portfolio of emerging EMEA companies. However,
we are also focused on generating an attractive level of income for
investors, from the companies in the portfolio.
In these times of ultra-low interest rates and equity dividend
reductions, Emerging EMEA offers UK-based income seekers an
attractive and differentiated income opportunity. A combination of
the recovery in economic growth, greater capital efficiency and
improved regulation is helping to drive dividend growth
opportunities across a number of sectors, enabling companies to pay
out more of their earnings to shareholders. In addition, many EMEA
countries and their local exchanges have adopted accountancy and
transparency standards that go beyond minimum requirements and
rival their Western counterparts, which in turn, is helping to
attract international investors and improve market liquidity.
Likewise, many EMEA companies themselves are striving to be more
transparent, more shareholder-focused and generally better run.
Russian fintech company TCS is a good example. The company recently
cancelled its voting system that gave founder Oleg Tinkoff effective control over the company.
In response, the share price rallied significantly upon the
announcement as investors applauded this major advance in corporate
governance.
TCS is not alone, with examples of emerging EMEA companies
choosing to return more cash to shareholders ranging from Turkcell
– Turkey’s leading mobile company, to PZU – Poland’s largest and
oldest insurer, to X5 – Russia’s biggest supermarket chain. As
further improvements in corporate governance lead to greater
capital efficiency, we believe dividend payout ratios in these
markets can continue to rise. Interestingly, this shift isn’t just
happening in companies primarily owned by private investors. The
Emerging EMEA region has a sizeable number of state-owned entities
that are also looking to improve corporate culture, reign in
corruption and incentivise long-term value generation. For example
Sberbank, Russia’s largest lender and majority state-controlled,
which is successfully transforming into a modern financial platform
and e-commerce ecosystem, driving long-term growth and increasing
dividend payout ratios. Sberbank is now among the top three banks
in Europe by market
capitalisation, and continued to pay out 50% of its profits during
the pandemic-stricken year 2020.
Furthermore, we are also recognising new income opportunities
away from Emerging Europe. In South
Africa, First Rand declared an interim dividend, after
withholding its final payout last year while the country battled
the worst of the COVID-19 pandemic, delivering a sign of confidence
in anticipation of the expected rebound in the economy. In the UAE,
our investment in First Abu Dhabi Bank (FAB) delivered a resilient
and stable 5% yield despite short-term headwinds, which we believe
is a strong commitment to minority shareholders.
Monthly Yield (%)
|
Oct 2020 |
Nov 2020 |
Dec 2020 |
Jan 2021 |
Feb 2021 |
Mar 2021 |
Apr 2021 |
May 2021 |
Jun 2021 |
Jul 2021 |
Aug 2021 |
Sep 2021 |
| Developed Markets |
2.1 |
1.8 |
1.8 |
1.8 |
1.8 |
1.7 |
1.7 |
1.7 |
1.7 |
1.7 |
1.7 |
1.7 |
| Emerging Markets |
2.3 |
2.1 |
2.0 |
1.9 |
1.8 |
1.8 |
1.8 |
1.8 |
1.8 |
2.0 |
2.1 |
2.2 |
| EM EMEA |
4.0 |
3.6 |
3.3 |
3.2 |
3.2 |
2.9 |
2.9 |
2.9 |
2.8 |
2.9 |
3.1 |
3.2 |
12M
Average Yield (%)
| Developed Markets |
1.8% |
| Emerging Markets |
2.0% |
| EM EMEA |
3.2% |
Source: Barings, Factset, MSCI.
Values based on MSCI regional and asset class indices. September 2021.
Macro Themes
In line with our bottom-up approach, our primary focus is to
identify attractive investment opportunities at the company level
for our shareholders. Nevertheless, we remain vigilant and mindful
of broader macro effects within the region. By utilising the
breadth of the region, we believe we are able to diversify the
company’s portfolio by reducing concentration risk and lowering
political and country-based risk. This in turn helps to support the
contribution to performance from our company selection, accessing
long-term growth opportunities, while dampening the negative
effects from major macro dislocations.
While the impressive overall performance of emerging EMEA owes
much to the region’s economic resilience, the market backdrop
remained, at times, unpredictable, reflecting worries about
inflation, fluctuations in the price of oil and gas, and in
Turkey, disruption at the central
bank.
Energy Costs and the Great
Transition
Oil and gas prices rose significantly over the year, driven by a
recovery in demand from the extreme lows of the pandemic as
economies reopened, whilst supply failed to recover at an adequate
pace. This drove the performance of the region’s bigger energy
exporters higher. In the longer term, the dominance of Russia and the Middle East in fossil fuel production may seem
to put them at a disadvantage in a world looking to wean itself off
carbon. However, a global transition away from oil and coal towards
cleaner ‘bridging’ energy sources such as natural gas, would likely
benefit Russia and Qatar—two of
the world’s top four gas producers. Recent months have seen
historic spikes in global natural gas prices, and could see further
price rises as winter approaches. This volatility owes much to
rising demand globally as economies looks to decarbonise. It is
especially prevalent in the context of the current energy
transition sought by the European Commission and China, in which natural gas represents a
readily accessible alternative to reduce greenhouse gas emissions
and help combat global warming.
Against this backdrop, whilst your Company does continue to
selectively invest in the Energy sector, in companies such as
Gazprom and Novatek.
What are the Benefits of Natural
Gas?
- Natural gas is a naturally occurring mixture of gases that can
be used across a variety of sectors across the global economy to
generate electricity, heat homes and fuel the transport of people
and goods.
- In a world rapidly evolving to meet growing global energy
demand and limit CO2 emissions, natural gas is the cleanest-burning
hydrocarbon, emitting between 45% and 55% lower greenhouse gas
emissions than coal when used to generate electricity, according to
data from the International Energy Agency (“IEA”).
Supplying the Green Revolution
Climate change and the need to move towards a world less
dependent on fossil fuels remains one of the most critical issues
globally. While we see an increased demand for electric vehicles as
the most common instance of shifting consumption patterns, what is
perhaps more pertinent for investors looking ahead is the access to
commodities that will support the move to a greener society. This
growing focus on the green energy transition has created new
investment opportunities across different industries and sectors,
For example, the amount of steel required for an offshore wind farm
is roughly four to five times greater than that required by an
onshore facility with the same gigawatt generation capacity.
Electric vehicles are another example, requiring significantly more
copper relative to a standard internal combustion engine
vehicle.
Given the wealth of minerals and commodities produced in
emerging EMEA, we believe your company is in a strong position to
be able to invest in businesses positively exposed to the energy
transition and renewables themes. Currently, we are invested in
Norilsk Nickel in Russia and
Anglo American in South Africa—both
of which are industry champions in the production of nickel, a key
input in the production of electric vehicles (EVs), as well as
other energy transition metals. We also hold a position in Koc, a
Turkish conglomerate that owns a significant stake in Ford Otosan,
a company that runs one of the most efficient car production sites
globally, and as a contract manufacturer, can focus investment
primarily into EVs.
Evolving Consumption
Emerging EMEA also offers exposure to companies that are riding
the wave of innovation or benefiting from major structural shifts
in consumer needs and behaviour. These opportunities are
particularly exciting as companies across the region are at a much
earlier stage of growth than in developed markets, and e-commerce
penetration rates are generally lower. Right now, across emerging
EMEA, from Russia, the
Middle East and down to
South Africa, we are seeing
seismic shifts in behaviour as consumers pivot from offline to
online living, including online banking, food delivery, transport
services and gaming.
Another compelling aspect to this story is that the companies
benefitting from this growth are not necessarily the ones you might
expect, and instead of turning to established global brands, ‘local
champions’ are often the preferred providers. This often reflects
the understanding that domestic players have of the local market
and infrastructure around them. For example, in Poland, local e-commerce platform Allegro has
flourished by being better able to serve the country’s largely
apartment-living population, via their pick-up boxes/locker
delivery system. Elsewhere, Russia’s most popular internet search
engine Yandex accounts for 60% of the digital advertising market
and, using its dominant position, management has successfully built
an offline to online “ecosystem” that offers the Russian consumers
a wide selection of choices with unmatched convenience. This allows
a user to order a taxi, buy goods online, search the news, or
access video on demand without leaving the app, a unique experience
they cannot replicate through international competitors.
e-Commerce in ascendancy:
- In Poland, the proportion of
total retail sales accounted for by e-commerce leapt from 5.6% in
January 2020 to almost 10% in
2021.
- Russia’s online penetration rates as a percentage of retail
sales has also accelerated after years of meagre growth caused by
low consumer awareness and inefficient logistics – and is on course
to grow from 10% in 2021 to 16% in 2025.
Turkey – and central bank independence
Elsewhere in the region, the surprising dismissal of Turkey’s
central bank Governor Naci Agbal by
President Erdogan in March sparked a correction, with the Turkish
Lira depreciating and bond and equity markets declining sharply.
Frustratingly for investors, the central bank’s interest rate hike
earlier in the year preceding this dismissal, was a clear sign of
how determined the Governor and his team were in pursuing orthodox
policies, communicating transparently with market participants and,
crucially, controlling inflationary pressures. The change at the
helm of the Turkish central bank represents, in our view, a sharp
deterioration of the country’s monetary policy framework and risks
the loss of hard-earned credibility in the eyes of international
investors.
Due to these events, our Turkish investments have detracted from
relative performance. However, because of the broadly diversified
nature of your portfolio, the effects have not been overly
detrimental. In addition, considering the economic implications of
this development, we took the decision to reduce our exposure. We
continue to hold select exposure, focusing our investments in
well-capitalised, high quality companies with tangible growth
prospects, such as BIM, a food retailer and pioneer of this
discount store model in Turkey,
and Koc, a local conglomerate group of companies.
Portfolio Country Weight (%)
| Russia |
35.5% |
| South Africa |
24.2% |
| Saudi Arabia |
17.9% |
| Poland |
5.2% |
| U.A.E |
4.5% |
| Qatar |
3.7% |
| Turkey |
2.6% |
| Hungary |
2.6% |
| Greece |
1.7% |
| Kuwait |
1.4% |
| Czech Republic |
0.9% |
Source: Barings. September 2021.
Portfolio Sector Weight (%)
| Financials |
42.0% |
| Energy |
14.5% |
| Materials |
11.7% |
| Comm. Services |
11.1% |
| Consumer Disc. |
10.8% |
| Consumer Staples |
7.1% |
| Real Estate |
1.5% |
| Industrials |
1.4% |
Source: Barings. September 2021.
Company Selection
Our team regularly engage with management teams and analyse
industry competitors to gain an insight into a company’s business
model and sustainable competitive advantages. Based on this
analysis, we seek to take advantage of these inefficiencies through
our in-depth fundamental research, which includes an integrated
Environmental, Social and Governance (ESG) assessment, and active
engagement, to identify and unlock mispriced growth opportunities
for our shareholders.
Russia’s Gazprom was the strongest contributor to relative
returns over the period, as natural gas prices have rallied to
multi-year highs caused by a prolonged winter season and strong
demand from Asia. Similarly, our
positions in Novatek and Lukoil also outperformed in light of the
improving prospects for the global economy and tight supply of oil
and gas.
Russian fintech disruptor TCS was another significant
contributor to relative returns, with the shares rallying in
response to the company’s positive corporate governance
developments that are noted above. We believe the positive market
reaction to be testament to the vast shareholder value potential
inherent in the company, which we have championed, and recognised
through their improving ESG profile. Elsewhere in Russia, our holding in Russia’s Sberbank was
another notable contributor.
Stock selection in the Middle
East added to relative performance over the period.
Saudi-based Al Rajhi Bank performed well, helped by solid results
for 2020 and a positive outlook for this year, as the company
experienced a rebound in mortgage growth. Qatar National Bank (QNB)
was another strong contributor to relative returns supported by
deposit growth and expenditure control in its operations. QNB also
has a strong ESG profile, provided by impressive talent retention
programmes, robust data privacy and investment in cyber
security.
In the Materials sector, metals and mining stocks were generally
weaker as markets softened in response to expectations of lower GDP
growth in China and reduced global
auto production. This negatively impacted our holdings in KGHM,
Polyus, and Anglo American Platinum. Despite the weaker
performance, we believe the Company’s exposure to these precious
metals companies will benefit from the close alignment with the
global green energy transition and imposition of stricter emissions
standards, particularly in the automotive sector.
Elsewhere, against a backdrop of a strong technology sector in
2020, Sistema outperformed, supported by a consistent track record
of asset monetisation. Most recently, this included the successful
IPO of Ozon, a company that has compelling exposure to the
structural growth of internet shopping, as consumers transition
from offline to online. More broadly, performance within the
Communications Services sector was mixed, with Russia’s most
popular internet search engine, Yandex, outperforming, whilst its
peer, Mail.Ru, detracted. This differential was largely a
reflection of the execution of Yandex’s business strategy,
utilising the recovery in the profitability of business units such
as Advertising and Taxi, and reinvesting excess revenues into its
e-commerce platform, which has delivered growth in excess of larger
peers. Despite the underperformance of Mail.Ru, we continue to see
an investment opportunity over the medium term, as the rising
penetration of e-commerce helps to accelerate the shift from
offline to online and the digitalisation of the economy continues
to create new ways to consume.
In Poland, game developer CD
Projekt was one of our weaker performing investments over the
period. The company has been dealt successive blows from delays in
the release of its next major franchise, Cyberpunk 2077, before the
eventual release led to a number of complaints from users regarding
glitches. Following these announcements, we decided to exit the
company until a time that we could see greater visibility on the
company’s earning trajectory.
Engagement Case Study: Mail.Ru
Mail.Ru is one of the many companies we have actively engaged
with over the period, please see below for a short case study of
our interaction:
| Overview |
We engaged with
Mail.Ru, an internet company that operates a widely utilised social
media and games platform in Russia, following a request from the
company for our assessment of their efforts surrounding ESG. |
| Objective |
Our aim was to
influence the company’s upcoming ESG strategy, and to ensure the
company has clear and transparent guidelines, to demonstrate
initiative, ownership and a roadmap for improvement. |
| Outcome |
Following our feedback,
we recommended that for an ESG strategy to be meaningful the
company needed to publicise tangible targets, benchmarked
historically, to ensure that outcomes are quantifiable, and that
investors can clearly ascertain the roadmap of improvement.
In addition, as part of this strategic review, we have evaluated
the company’s ESG reporting and transparency, highlighting key
areas of focus, which include but are not limited to, shareholder
structures, data security, customer privacy, staff turnover and
diversity and inclusion.
Following the release of the company’s second ESG report, we noted
that while the level of disclosures had been enhanced, there is
still room for improvement, particularly as it relates to
objectives and actionable targets. This is especially prevalent in
light of the company’s expansion into ecommerce and delivery, and
the implications for staff, which operate within the gig
economy. |
Outlook
In the short term, markets are likely to remain volatile as
investors closely monitor progress on containing COVID-19 outbreaks
across many EM countries. However, the ongoing trend of improving
economic and earnings momentum is encouraging, while the rolling
out of vaccination programs gives grounds for optimism.
Supply-side bottlenecks and the reopening of economies have led
to higher near-term inflationary pressures that have been
exacerbated by the recent significant rise in oil and gas prices.
This poses an additional challenge for investors. However, these
pressures should start to ease by year-end. In response, the EMEA
region has been on the front foot with its approach to monetary
tightening, with Russia,
Hungary and the Czech Republic all raising interest rates over
recent months.
In addition, political risk and the potential for periods of
instability remains a risk for our region, as it does across many
markets. This is one of the key reasons why we continue to ensure
that our portfolio is well diversified across many countries and
sectors.
Despite these short-term headwinds, we see reasons to be
optimistic across the region’s larger markets. South Africa’s
commitment to fiscal prudence increases the country’s long-term
growth potential, whilst early stage results of efforts to combat
corruption are welcomed. In addition, the country’s access to a
broad range of metals of strategic importance to the energy
transition has only become more evident in recent years.
In Russia, we see opportunities
away from the country’s traditionally dominant Energy sector, in
areas such as e-commerce, consumption and technology. The country’s
natural gas producers also have an important role to play in the
green energy transition. We continue to believe Saudi Arabia’s
petro-economy will adapt, diversify and grow its share in global
hydrocarbon production. Whilst in central Europe, we see opportunities for economies to
benefit from the EU’s Recovery Fund and Green New Deal
initiatives.
A weaker USD would provide an additional welcome boost.
Furthermore, the relative valuation of the EMEA region versus
developed equities remains attractive, suggesting investor
expectations for the asset class remain overly depressed. This
combination of steadily improving earnings, receding COVID-19 risk
and attractive valuations should create a positive backdrop for
equity markets as we look to 2022 and beyond.
Investment Process Highlights
We believe that equity markets are inefficient and that
consistently applied fundamental bottom-up company analysis can
identify mispriced opportunities. To unearth these opportunities,
we follow a Growth At a Reasonable Price (“GARP”) approach, and
apply this to all companies across our region. GARP investing is
focused on identifying companies that are positioned to grow
sustainably over the medium to long term, but where growth is not
necessarily recognised by the market. We therefore seek to select
companies that have the potential to thrive, but also offer good
value. We believe that this approach is the most effective way to
invest over longer periods as it focuses on company fundamentals,
with a focus on sustainable business franchises, strong balance
sheets and improving ESG characteristics.
Research
For company research, we use a consistent, analytical and
qualitative framework applied through our proprietary Company
Scorecard (see Chart A). This focuses on three pillars consistent
with our GARP methodology: Growth, Valuation and Quality. By
applying a consistent research approach, we can evaluate each
company on a like-for-like basis and determine relative
attractiveness across countries and sectors within the region.
Portfolio construction
We take the ideas generated through our research process and
construct a portfolio that targets sustainable investment returns.
Risk management is central to this process, and we employ a range
of approaches to fully identify all risks within your portfolio.
The ultimate aim of this process is to ensure the businesses in
which we invest drive portfolio performance, rather than broader
macroeconomic events.
Once invested, our experienced investment team continue to
monitor each company to ensure that our conviction remains intact
and that an investment remains attractive relative to other
opportunities available in the market.
A Focus On ESG
Our proprietary ESG assessment forms a core component of our
fundamental bottom-up research. It is guided by our in-depth
knowledge and regular interactions with company management
teams.
Integrating ESG
As an integral step of our research, our ESG assessment affects
both our view of a company’s quality and its valuation. This
assessment is dynamic rather than static; we closely monitor the
companies we invest in for improvements or deteriorations in their
attitudes to ESG and reflect this in our scoring of both the
quality of the business and its valuation. For each company under
our coverage we complete an ESG scorecard that focuses on three
categories as a foundation of our assessment:
- Sustainability of the Business Model (Franchise)
- Corporate Governance Credibility (Management)
- Hidden Risks on the Balance Sheet (Balance Sheet)
Within each of these categories, we identify three further
subcategories, which are relevant areas of potential risk or
opportunity (see Figure B below).
ESG and its impact on a company’s
Quality Score
We conduct a qualitative assessment of the company in order to
assess how strong the company’s franchise, management and balance
sheet are, and assign a quality score of 1 to 5 (1 strong, 5 weak).
If we consider the franchise or balance sheet of the company are
under threat due to an ESG issue, or that the company has weak
governance structures, the score we assign to the company could
deteriorate to a level where the investment becomes unattractive
from a quality perspective.
ESG and its impact on the company
valuation
Each of the nine subcategories of our ESG assessment as set out
below will be rated from Unfavorable to Exemplary:
| UNFAVORABLE |
NOT IMPROVING |
IMPROVING |
EXEMPLARY |
| +2% to COE |
|
|
-1% to COE |
The individual scoring of each of the nine subcategories will
translate into a premium or a discount that is added to the
company’s Barings Cost of Equity (“COE”), which is used to discount
our earnings forecasts. A low ESG score would translate into an
addition to the discount rate of up to 2 percent, thus penalising
the stock and reducing its attractiveness by decreasing its current
valuation. The rationale is that a company associated with poor ESG
is likely to have higher risks that should be reflected in the
discount rate. Conversely, a high ESG score can indicate a company
that is lower risk, resulting in a reduction to the COE of up to 1
percent.
Active Engagements with Investee
Companies
We undertake engagements to positively influence ESG practices
and improve ESG disclosure. Our approach is based on clear
objective setting, which strengthens our ability to monitor and
steer company progress. We also collaborate with peers and industry
groups to enhance and share best practices. We believe that by
engaging with companies in this way, rather than blanket exclusions
of entire sectors, we have a greater chance of successfully
effecting change. This can also result in value creation for our
Shareholders.
Voting
We undertake to exercise our voting rights whenever possible,
and have engaged a dedicated third-party proxy-voting provider. In
instances where we disagree with the provider’s recommendations, we
have the ability to cast our votes differently.
Figure A – Fundamental Research:
Consistent Company Scorecard
|
Fundamental Research |
| Company Meetings |
Sector / Industry /
Macro Dynamics |
|
|
| 5 Year Proprietary
Financial Forecasts |
ESG
Considerations |
| Growth |
Quality |
Valuation |
| Historical – How has the
company grown its earnings over the last 3-years? |
Franchise – Does the company
have a competitive advantage, efficiency, stability? |
Barings
Valuation Approach – We use our 5-year earnings forecasts,
discounted by our Cost of Equity, to set price targets and
determine upside. |
| Near-term – Is the company
expected to grow earnings over the next 12-months? |
Management – Are they
competent, committed and aligned with shareholders? |
| Long-term – How is the
company set to grow earnings over the next 5-years based on our
forecasts? |
Balance Sheet – Does the
company have the ability to fund its growth? |
Figure B – Fundamental Research: ESG
Assessment
|
|
Key
Topics |
Score/Rationale |
Data / Issues to
Consider |
Sustainability of the Business Model (Franchise) |
1 |
Employee
Satisfaction |
Exemplary |
Staff Turnover;
Strikes; Fair Wages; Injuries; Fatalities; Unionised Workforce;
Training and Education |
| 2 |
Resource
Intensity |
Improving |
Water Usage; GHG
Emissions; Energy Usage |
| 3 |
Traceability/Security
in Supply Chain |
Improving |
Traceability of
Key Inputs; Investments in Protecting the Business From External
Threats, e.g. Cyber Security; Backward Integration (Protection of
Key Inputs) |
Corporate Governance Credibility (Management) |
4 |
Effectiveness of
Supervisory/ Management Board |
Not Improving |
Separation of
Chair & CEO; Size of Board; Independence of Board; Frequency of
Meetings; Attendance Record; Voting Structure; Female Participation
on Boards |
| 5 |
Credibility of
Auditing Arrangements |
Not Improving |
Credible Auditor;
Independent Audit Committee; Qualification to Accounts |
| 6 |
Transparency &
Accountability of Management |
Exemplary |
Access to
Management; Financial Reporting; Tax Disclosure; Appropriate
Incentive Structure |
Hidden Risks on the Balance Sheet (Balance
Sheet) |
7 |
Environmental
Footprint |
Improving |
GHG Emissions;
Carbon Intensity; History of Environmental Fines/Sanctions;
Reduction Programs in Place for Water/Waste/Resource
Intensity |
| 8 |
Societal Impact of
Products/Services |
Exemplary |
Health/Wellness
Implications of Consumption of Goods/ Services; Product Safety
issues; Community Engagement |
| 9 |
Business Ethics |
Improving |
Anti-competitive
practices; Bribery/Corruption; Whistle- Blower Policy; Litigation
Risk; Freedom of Speech; Gender and Diversity
Considerations |
Baring Asset Management Limited
Investment Manager
3 December 2021
Investment Portfolio
Review of Top Ten Holdings
at 30 September 2021
| Investee
company |
Sector |
Market value £’000 |
% of investment portfolio |
Company
comment |
| Gazprom |
Energy |
7,846 |
7.2 |
Russia's
largest gas producer, currently offering substantial dividend
yield. |
| Sberbank |
Financials |
7,120 |
6.5 |
Russia’s
largest bank, robust business model supported by successful
implementation of digitalization strategy. Currently offers
substantial
dividend yield. |
| Lukoil Holdings |
Energy |
5,782 |
5.3 |
Russian
oil company with potential for further dividend growth. |
| Al Rajhi Bank |
Financials |
5,158 |
4.7 |
Number
one Islamic bank globally. Dominant market share supported by
extensive branch network and stable retail deposit franchise.
Beneficiary of state sponsored mortgage program. |
| The Saudi National
Bank |
Financials |
4,759 |
4.4 |
Largest
bank in Saudi Arabia, originated from merger of NCB and Samba with
synergies still to be delivered. |
| Qatar National
Bank |
Financials |
4,032 |
3.7 |
Largest
bank in Qatar, with dominant market share in both lending and
deposits. Strong management team with a long history and good track
record. |
| Norilsk Nickel |
Basic materials |
3,642 |
3.3 |
Russia’s
largest metals and mining stock with diversified portfolio. A
beneficiary of the green energy transition. |
| Yandex |
Technology |
3,547 |
3.2 |
Russia’s
largest internet search engine, using its dominant market position
to expand into areas such as e-commerce and taxi hailing. |
| Prosus |
Technology |
3,518 |
3.2 |
One of
the largest technology investors in the world, with an exciting
portfolio of businesses across multiple sectors – social media,
fintech, food
delivery and classified ads. |
| Firstrand |
Financials |
3,430 |
3.1 |
Leading
South African financial
institution offering a diverse
range of services including
transactional, lending, insurance and
investment products. |
Investment Portfolio
at 30 September 2021
|
Investee company |
Primary country of
listing or investment |
Market value £’000 |
% of Net
assets |
| 1 |
Gazprom |
Russia |
7,846 |
7.08 |
| 2 |
Sberbank |
Russia |
7,120 |
6.42 |
| 3 |
Lukoil Holdings |
Russia |
5,782 |
5.21 |
| 4 |
Al Rajhi Bank |
Saudi Arabia |
5,158 |
4.66 |
| 5 |
The Saudi National
Bank |
Saudi Arabia |
4,759 |
4.29 |
| 6 |
Qatar National
Bank |
Qatar |
4,032 |
3.64 |
| 7 |
Norilsk Nickel |
Russia |
3,642 |
3.28 |
| 8 |
Ynadex |
Russia |
3,547 |
3.20 |
| 9 |
Prosus |
South Africa |
3,518 |
3.17 |
| 10 |
Firstrand |
South Africa |
3,430 |
3.09 |
| 11 |
MTN Group |
South Africa |
3,370 |
3.04 |
| 12 |
Saudi Basic
Industries |
Saudi Arabia |
3,256 |
2.94 |
| 13 |
Saudi Telecom |
Saudi Arabia |
3,022 |
2.73 |
| 14 |
OTP Bank |
Hungary |
2,795 |
2.52 |
| 15 |
X5 Retail Group |
Russia |
2,566 |
2.31 |
| 16 |
Bid Corporation |
South Africa |
2,302 |
2.08 |
| 17 |
Novatek |
Russia |
2,212 |
1.99 |
| 18 |
PKO Bank Polski |
Poland |
2,209 |
1.99 |
| 19 |
Naspers Limited |
South Africa |
2,109 |
1.90 |
| 20 |
Anglo American |
South Africa |
2,044 |
1.84 |
| 21 |
Cooperative
Insurance |
Saudi Arabia |
1,810 |
1.63 |
| 22 |
First Abu Dhabi
Bank |
United Arab
Emirates |
1,804 |
1.63 |
| 23 |
Capitec |
South Africa |
1,768 |
1.59 |
| 24 |
Mr Price Group |
South Africa |
1,711 |
1.54 |
| 25 |
Emaar Properties |
United Arab
Emirates |
1,650 |
1.49 |
| 26 |
PZU |
Poland |
1,638 |
1.48 |
| 27 |
Anglo American
Platinum |
South Africa |
1,626 |
1.47 |
| 28 |
National Bank of
Greece |
Greece |
1,580 |
1.43 |
| 29 |
Discovery |
South Africa |
1,532 |
1.38 |
| 30 |
Jarir Marketing |
Saudi Arabia |
1,531 |
1.38 |
| 31 |
Shoprite Holdings |
South Africa |
1,497 |
1.35 |
| 32 |
Abu Dhabi Commercial
Bank |
United Arab
Emirates |
1,438 |
1.30 |
| 33 |
TCS |
Russia |
1,401 |
1.26 |
| 34 |
Bim Birlesik
Magazalar |
Turkey |
1,345 |
1.21 |
| 35 |
Mail.RU |
Russia |
1,045 |
0.94 |
| 36 |
Koc Holding |
Turkey |
1,019 |
0.92 |
| 37 |
Fix Price Group |
Russia |
1,010 |
0.91 |
| 38 |
Komercni Banka |
Czechia |
974 |
0.88 |
| 39 |
Human Soft |
Kuwait |
931 |
0.84 |
| 40 |
Moscow Exchange |
Russia |
859 |
0.78 |
| 41 |
KGHM Polska Miedz |
Poland |
841 |
0.76 |
| 42 |
Impala Platinum |
South Africa |
779 |
0.70 |
| 43 |
Sanlam Limited |
South Africa |
727 |
0.66 |
| 44 |
Segezha Group |
Russia |
579 |
0.52 |
| 45 |
Mobilnye
Telesistemy |
Russia |
569 |
0.51 |
| 46 |
Mobile
Telesystems |
Russia |
568 |
0.51 |
| 47 |
National Bank of
Kuwait |
Kuwait |
547 |
0.49 |
| 48 |
Allegro |
Poland |
532 |
0.48 |
| 49 |
Inpost |
Poland |
496 |
0.45 |
| 50 |
D Market Electronic
Services Trading |
Turkey |
443 |
0.39 |
| 51 |
Alpha Services and
Holdings |
Greece |
264 |
0.24 |
|
Total
investments |
|
109,233 |
98.50 |
|
Net current
assets |
|
1,664 |
1.50 |
|
Net assets |
|
110,897 |
100.00 |
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.
Company Status
The principal activity of the Company is to carry on business as
an investment trust. The Company intends at all times to conduct
its affairs so as to enable it to qualify as an investment trust
for the purposes of Sections 1158/1159 of the Corporation Tax Act
2010 (“S1158/1159”). The Directors do not envisage any change in
this activity in the foreseeable future.
The Company is quoted on the London Stock Exchange under the
ticker code BEMO. As an investment trust, the Company has appointed
an Alternative Investment Fund Manager, Baring Fund Managers
Limited (the “AIFM”), to manage its investments. It has also
appointed third-party service providers to manage the day-to-day
operations of the Company, whose performance is monitored and
challenged by a Board of independent Non-Executive Directors.
The Directors are of the opinion that the Company continues to
conduct its affairs so as to be able to continue to qualify as an
investment trust.
Key Performance Indicators
Our Key Performance Indicators (“KPIs”) are as follows:
- Annualised NAV total return1
- Share price total return1
- Dividend per Ordinary Share1
The returns for the year are set out under Financial Highlights
above.
1APMs. Definitions can be found in the Glossary
below
Dividend Policy
The Company seeks to generate an attractive level of income for
Shareholders, and will pay income from capital of up to 1% per
annum of NAV when considered appropriate by the Board. The Board
believes this is a sustainable policy that should improve the
Company’s appeal amongst investors.
Dividends
An interim dividend of 15 pence
per Ordinary Share was declared on 18 May
2021 and paid on 28 June
2021.
The Board recommends a final dividend of 11 pence per Ordinary Share. Subject to
Shareholder approval at the AGM, the recommended final dividend
will be paid on 7 February 2022 to
Shareholders on the register at the close of business on
17 December 2021. The Ordinary Shares
will be marked ex-dividend on 16 December
2021.
Buyback Programme
During the year under review, the average discount to NAV at
which the Company’s Ordinary Shares traded at was 13.07% (2020:
11.04%) and 231,245 Ordinary Shares were repurchased at a cost of
£1,715,000 (2020: 163,272 Ordinary Shares at a cost of £1,101,000).
All Ordinary Shares repurchased during the year have been
cancelled.
Section 172 Statement
Background
Directors have a duty to make decisions that promote the success
of a company for the benefit of shareholders as a whole. This
responsibility is formally enshrined in section 172 of the
Companies Act 2006, which stipulates that board decisions must be
made with the long-term consequences of those decisions in mind,
including consideration of the interests of a company’s employees,
suppliers, customers and other stakeholders, the impact on the
community and the environment, and the desirability of maintaining
a reputation for high standards of business conduct.
Stakeholders
The Board seeks to understand the needs and priorities of the
Company’s stakeholders and these are taken into account during
discussions and as part of its decision-making. The Board has
concluded that, as the Company is an externally managed investment
trust and does not have any employees or customers in the
traditional sense, its key stakeholders comprise its Shareholders,
its Investment Manager, its key service providers including;
Corporate Broker, Company Secretary, Registrar, Custodian, Auditor
and Administrator and, its Investee Companies. However, the Board
also takes account of the Company’s responsibilities to the
environment and the wider community. The section below discusses
the actions taken by the Company to ensure that the interests of
stakeholders are taken into account, particularly in the context of
the emerging climate agenda.
Shareholders
Continued shareholder support and engagement are important to
the existence of the Company and to the delivery of long-term
strategy.
The Board is committed to maintaining open channels of
communication and to engage with Shareholders in a manner which
they find most helpful, in order to gain an understanding of the
views of Shareholders. These include:
- Annual General Meeting – The Company welcomes and
encourages attendance and participation from Shareholders at the
AGM and, national restrictions permitting, looks forward to hosting
Shareholders again at the 2022 AGM. Shareholders have the
opportunity to meet the Directors and the Investment Manager and to
address questions to them directly. There is typically a
presentation on the Company’s performance and the future outlook,
from the Investment Manager.
- Publications – The Annual Report and Half-Year results
are made available on the Company’s website and the Annual Report
is circulated to those Shareholders requesting hard copies. These
reports provide Shareholders with detailed information on the
Company’s portfolio and financial position. This information is
supplemented by a quarterly factsheet which is released via the
stock exchange.
- Shareholder Feedback – Shareholders in investment
companies often meet with the Investment Manager rather than
members of the Board. However, the Board values the feedback and
questions that it receives from Shareholders and takes note of
individual Shareholders’ views in arriving at decisions which are
taken in the best interests of the Company. The Chairman or the
Senior Independent Director can be contacted via either the Company
Secretary or the Corporate Broker, both of which are independent of
the Investment Manager.
- Investor Relations updates – At every Board meeting, the
Directors receive updates from the Corporate Broker on share
trading activity, share price performance, the Company’s share
register and any Shareholders’ feedback. The Board also review
promotional plans, PR activity and analyst’s comments or research
reports on the Company.
The Investment Manager
Maintaining a close and constructive working relationship with
the Investment Manager is essential for the Board. The Investment
Manager aims to achieve capital growth in line with the Company’s
investment objective. The Board has a critical role in monitoring
the Investment Manager. The Board meets with the Investment Manager
at least every quarter, and adopts a tone of constructive
challenge. Further details on the management arrangements can be
found above.
Third-Party Service Providers
In order for the Company to function as an investment trust, the
Board relies on a diverse range of advisors for support. For this
reason the Board considers the Company’s third-party service
providers to be stakeholders.
The Board maintains regular contact with its key external
providers and receives regular reporting from them, both through
Board and committee meetings, as well as on an adhoc basis outside
of meetings. Their advice and views are routinely taken into
account. The Management Engagement Committee formally assesses
their performance, fees and continuing appointment annually to
ensure that the key service providers continue to function at an
acceptable level and are appropriately remunerated to deliver the
expected level of service. The Audit Committee also reviews and
evaluates the financial reporting control environments in place at
the key service providers.
Investee Companies
The Board recognises the importance of good stewardship and
communication with investee companies in meeting the Company’s
investment objective and strategy.
The Investment Manager engages with the management teams of
investee companies on a periodic basis and reports its impressions
on the prospects of these investee companies to the Board. The
Directors recognise that the Investment Manager can influence an
investee company’s approach to ESG matters, and this forms part of
the investment process as detailed above. During the year under
review, the Board met virtually with six investee companies from
different geographical and sector backgrounds to understand how
these companies operated, the sustainability of their business
models, their approach to ESG and their corporate governance
credibility.
Environment and Community
Given the outsourced nature of the Company’s operations, the
Company has very little direct impact on the community or the
environment. However, the Board recognises that it can influence an
investee company’s approach to ESG matters. The Company’s
investment approach takes into account the external impact of
investee companies’ activities on the environment, their social
practices’ social acceptability governance. The Investment Manager
discusses ESG matters with investee companies on a regular basis.
Further details on the Company’s investment approach to ESG can be
found above.
The mechanisms for engaging with stakeholders are kept under
review by the Directors and are discussed on a regular basis at
Board meetings to ensure that they remain effective.
Board Activities
During the year regular items at Board meetings include the
review of the Company’s portfolio, performance and the market,
investor relations, marketing activities, key risks, operational
matters and governance, and compliance with the AIC Code.
Decision Making
Specific Board decisions that have been made during the year
included the following:
A key strategic decision made by the Board was the broadening of
the Company’s investment objective and investment policy. It also
sought the views of the Company’s largest shareholder on the new
investment policy. Proposals were circulated to Shareholders in
October 2020 on a change to the
investment policy, which was approved by Shareholders at a General
Meeting held on 13 November 2020.
- Discount Control Mechanism
The Board recognises that it is in the long-term interests of
Shareholders that shares do not trade at a significant discount to
their prevailing NAV. To this end, in conjunction with feedback
from its largest shareholder and the Corporate Broker, the Board,
mindful of Shareholders’ continued desire for a strong discount
control mechanism, agreed tender offer trigger mechanisms for the
five year period commencing 1 October
2020.
- Allocation of discretionary funds
The Board allocated discretionary funds to marketing initiatives
by outsourcing marketing and public relations to external service
providers, in support of the Investment Manager. These initiatives
increased the reach of the Company to potential Shareholders and
also supported an improvement in communications with existing
Shareholders.
The Board recognises the importance of engaging with its core
stakeholders, and of taking account of their interests when taking
decisions.
Culture and Values
The Company’s values focus on transparency, clarity and
constructive challenge. The Directors recognise the importance of
sustaining a culture that contributes to achieving the purpose of
the Company that is consistent with its values and strategy.
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 the
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, particularly the change of mandate, and
in accordance with the Board’s expectations and has delivered good
returns.
Viability Statement
The Directors consider viability as part of their continuing
approach of monitoring risk. The Directors have assessed the
prospects of the Company over a longer period than the twelve
months required by the “Going Concern” provision. The Board
conducted this review for a period of three years, which was
selected because it was considered to be a reasonable time horizon
in the context of the Company’s investment portfolio but also
appropriately reflects the limitations forecasting the longer term
revenue generation of the portfolio.
The Directors have carried out a robust assessment of the
Company’s principal and emerging risks, as well as its current
position. The principal risks faced by the Company and the
procedures in place to monitor and mitigate them are detailed
above. The Company’s long term viability assessment is underpinned
by the characteristics below:
- the Company has a long term investment strategy, implemented
via a consistently applied investment process which is designed to
maximise the chances of the investment objectives being met;
- the Company has a portfolio of shares which are listed on
regulated markets, many of which are highly liquid, and can be
readily realised to help meet 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
88% of the portfolio able to be liquidated within one day and 100%
within three days;
- the Company has no long term debt, and restricts the level of
short term borrowings;
- underlying revenue generation of the portfolio is regularly
reviewed and monitored. The Investment Manager has seen a recovery
in the underlying revenue generation of the companies in the
portfolio to levels similar to those seen before the pandemic,
whilst longer term forecasts indicate an encouraging upward trend
that should help support a sustainable dividend; and
- the broadening of the investment policy has allowed the Company
to further diversify its country and sector risk. The change in
investment objective means the Company is now benefiting from a
larger opportunity set in high growth areas, whilst further
diversifying the portfolio and reducing the risk of idiosyncratic
events materially influencing performance.
The Board has also considered the impact on the portfolio of
further market shocks, such as those resulting from the COVID-19
pandemic. The Investment Manager performs both market based stress
tests and scenario analysis. Stress tests cover a range of
sensitivities such as the predicted impact on the portfolio based
upon: interest rate movements, commodity price changes, currency
appreciation/devaluation and equity market moves. This also
includes scenarios based on hypothetical future events and historic
points of market stress. In carrying out this assessment, the Board
has considered the diversification of the Company’s portfolio, as
well as the liquidity profile and dividend coverage of underlying
investments. This analysis did not indicate any matters of
significant concern.
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 as they fall due
over the coming three years.
Modern Slavery Act
As an investment vehicle the Company does not provide goods or
services in the normal course of business, and does not have
customers. Accordingly, the Directors consider that the Company is
not required to make any slavery or human trafficking statement
under the Modern Slavery Act 2015. In any event, the Board
considers the Company’s supply chain, dealing predominantly with
professional advisers and service providers in the financial
services industry, to be low risk in relation to this matter.
Environmental, Human Rights, Employee,
Social and Community Issues
The Company does not have any employees and all of the Directors
are non-executive and it has outsourced its functions to
third-party service providers. As an investment trust, the Company
has very limited direct impact on the community or the environment,
and as such has no environmental, human rights, social or community
policies. The Company has therefore not reported further in respect
of these provisions.
The Company aims to conduct itself responsibility, ethically and
fairly. ESG factors are considered by the Investment Manager as
part of its investment process, where appropriate. Further
information can be found in the Investment Manager’s Report above,
which is supported by the Board. A key consideration in the
decision to change the investment policy was the move away from
hydrocarbons in the portfolio.
The Board supports the Investment Manager in its belief that
good corporate governance will help deliver sustainable long-term
shareholder value. It therefore follows that in pursuing
shareholder value, the Investment Manager will implement its
investment strategy through proxy voting and active engagement with
management and Boards. Please see the full Annual Report for
further information.
This Strategic Report has been approved by the Board and signed
on its behalf by:
Frances
Daley
Chairman
3 December 2021
Board of Directors
FRANCES DALEY FCA, MCSI –
Chairman
VIVIEN GOULD – Non-Executive
Director
CHRISTOPHER GRANVILLE –
Non-Executive Director
CALUM THOMSON FCA – Non-Executive
Director and Audit Committee Chairman
NADYA WELLS – Non-Executive
Director and Senior Independent Director (“SID”)
EXTRACTS FROM THE DIRECTORS’
REPORT
Share Capital
As at 30 September 2021, the
Company’s total issued share capital was 15,362,987 Ordinary Shares
(30 September 2020: 15,594,232), of
which the Company held 3,318,207 Ordinary Shares in treasury. The
Ordinary 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 Ordinary Shares repurchased during the year
have been cancelled. All of the Company’s Ordinary Shares in
circulation are listed on the main market of the London Stock
Exchange and each Ordinary Share carries one vote.
The rights attached to the Company’s Ordinary Shares are set out
in the Company’s Articles. The Company’s Ordinary Shares are freely
transferable. However, the Directors’ may refuse to register a
transfer of Ordinary 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 shares is to be transferred
exceeds four. There are no restrictions on the voting rights of the
Company’s Ordinary Shares.
Amendments to the Company’s Articles and the granting 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 Shareholders
meeting.
Share Issues
At the Annual General Meeting held on 21
January 2021, the Directors were granted authority to allot
Ordinary Shares up to an aggregate nominal amount of £122,439
(being 10% of the issued Ordinary Share Capital as at the date of
publication of the Notice).
This authority is due to expire at the Company’s AGM. The
Company has not issued any Ordinary Shares under this authority.
Proposals for the renewal of this authority are set out in the
notice of AGM.
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 held on 21 January
2021, the Directors were authorised to make market purchases
of up to 14.99% of the Company’s Ordinary Shares in issue at that
time, amounting to 1,835,361 shares. Since the AGM held on
21 January 2021 and the year end, the
Company bought back 199,125 Ordinary Shares with a nominal value of
0.10 pence per Ordinary Shares, and
at a total cost of £1,522,000 under this authority. As at
30 September 2021, the remaining
authority for the purchase of own shares is 1,636,236 Ordinary
Shares. A total of 3,318,207 Ordinary Shares are held in treasury,
representing 21.60% of the issued share capital at 30 September 2021.
This authority is due to expire at the Company’s forthcoming
AGM. Proposals for the renewal of this authority are set out in the
notice of AGM, which is circulated separately to this report.
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, being a period of at least twelve
months from the date of approval of the financial statements. The
assets of the Company are well diversified and consist mainly of
securities which are readily realisable. For these reasons, the
Directors consider that there is reasonable evidence to continue to
adopt the going concern basis in preparing the accounts.
Statement of Directors’
Responsibilities in Respect of the Annual Report and the Financial
Statements
Directors’ responsibilities
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 the Directors
are required 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 they have been prepared in accordance with
applicable UK Accounting Standards subject to any material
departures disclosed and explained in the financial
statements;
- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the company will
continue in business; and
- prepare a Director’s report, a strategic report and Director’s
remuneration report which comply with the requirements of the
Companies Act 2006.
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
the financial statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The Directors are responsible for ensuring that the annual
report and accounts, taken as a whole, are fair, balanced, and
understandable and provides the information necessary for
Shareholders to assess the Company’s performance, business model
and strategy.
Website publication
The Financial Statements are published on the Company’s website:
www.bemoplc.com, 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.
Directors’ responsibilities pursuant
to DTR4
The Directors confirm to the best of their knowledge:
- the financial statements have been prepared in accordance with
applicable UK Accounting Standards and give a true and fair view of
the assets, liabilities, financial position and profit of the
Company; and
- the annual report includes a fair review of the development and
performance of the business and the financial position of the
Company, together with a description of the principal risks and
uncertainties that they face.
For and on behalf of the Board
Frances
Daley
Chairman
3 December 2021
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the
Company’s statutory accounts for the year ended 30 September 2021 but is derived from those
accounts. Statutory accounts for the year ended 30 September 2021 will be delivered to the
Registrar of Companies in due course. The Auditor has 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 www.bemoplc.com.
Income Statement
for the year ended 30 September
2021
|
|
For the year to 30 September 2021 |
For the year to 30 September 2020 |
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
Notes |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
| Gains/(losses) on
investments held at fair value through profit or loss |
9 |
- |
28,381 |
28,381 |
- |
(26,316) |
(26,316) |
| Foreign exchange
losses |
|
- |
(245) |
(245) |
- |
(382) |
(382) |
| Income |
2 |
4,488 |
- |
4,488 |
3,506 |
116 |
3,622 |
| Investment management
fee |
3 |
(149) |
(598) |
(747) |
(156) |
(623) |
(779) |
| Other expenses |
4 |
(888) |
(62) |
(950) |
(770) |
- |
(770) |
| Return on ordinary
activities |
|
3,451 |
27,476 |
30,927 |
2,580 |
(27,205) |
(24,625) |
| Finance costs |
5 |
- |
- |
- |
(33) |
(134) |
(167) |
| Return on ordinary
activities before taxation |
|
3,451 |
27,476 |
30,927 |
2,547 |
(27,339) |
(24,792) |
| Taxation |
6 |
(539) |
- |
(539) |
(266) |
- |
(266) |
| Return for the
year |
|
2,912 |
27,476 |
30,388 |
2,281 |
(27,339) |
(25,058) |
| Return per ordinary
share |
8 |
23.86p |
225.16p |
249.02p |
18.40p |
(220.52p) |
(202.12p) |
The total column of this statement is the income statement of
the Company.
The supplementary revenue and capital columns are both prepared
under the guidance published by the AIC.
All revenue and capital items in the above statement derive from
continuing operations. No operations were acquired or discontinued
during the period.
There is no other comprehensive income and therefore the return
for the year is also the total comprehensive income for the
year.
The notes below form part of these financial statements.
Statement of Financial Position
as at 30 September 2021
|
|
At 30
September 2021 |
At 30
September 2020 |
|
Notes |
£’000 |
£’000 |
| Fixed
assets |
|
|
|
| Investments at fair
value through profit or loss |
9 |
109,233 |
83,572 |
| Current
assets |
|
|
|
| Debtors |
10 |
667 |
272 |
| Cash and cash
equivalents |
|
1,664 |
1,825 |
|
|
2,331 |
2,097 |
|
|
|
|
| Current
liabilities |
|
|
|
| Creditors:
amounts falling due within one year |
11 |
(666) |
(387) |
|
|
|
|
| Net current
assets |
|
1,665 |
1,710 |
| Net assets |
|
110,898 |
85,282 |
|
|
|
|
| Capital and
reserves |
|
|
|
| Called-up share
capital |
12 |
1,536 |
1,559 |
| Capital redemption
reserve |
|
3,252 |
3,229 |
| Share premium
account |
|
1,411 |
1,411 |
| Capital reserve |
|
102,479 |
76,718 |
| Revenue reserve |
|
2,220 |
2,365 |
|
|
|
|
| Total
equity |
|
110,898 |
85,282 |
|
|
|
|
| Net asset value per
share |
13 |
920.71p |
694.70p |
The financial statements above were approved and authorised for
issue by the Board of Barings Emerging EMEA Opportunities PLC on
3 December 2021 and were signed on
its behalf by:
Frances
Daley
Chairman
Company registration number 04560726
The notes below form part of these financial statements.
Statement of Changes in Equity
for the year ended 30 September
2021
|
Called-up |
Capital |
Share |
|
|
|
|
share |
redemption |
premium |
Capital |
Revenue |
|
|
capital |
reserve |
account |
reserve |
reserve |
Total |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
| For the year ended 30 September
2021 |
|
|
|
|
|
|
| Opening balance as at 1 October
2020 |
1,559 |
3,229 |
1,411 |
76,718 |
2,365 |
85,282 |
| Return for the year |
- |
- |
- |
27,476 |
2,912 |
30,388 |
| Contributions by and distributions
to Shareholders: |
|
|
|
|
|
|
| Repurchase of Ordinary Shares |
(23) |
23 |
- |
(1,715) |
- |
(1,715) |
| Dividends paid |
- |
- |
- |
- |
(3,057) |
(3,057) |
| Total contributions by and
distributions to Shareholders: |
(23) |
23 |
- |
(1,715) |
(3,057) |
(4,772) |
| Balance at 30 September
2021 |
1,536 |
3,252 |
1,411 |
102,479 |
2,220 |
110,898 |
|
Called-up |
Capital |
Share |
|
|
|
|
share |
Redemption |
premium |
Capital |
Revenue |
|
|
capital |
reserve |
account |
reserve |
reserve |
Total |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
| For the year ended 30 September
2020 |
|
|
|
|
|
|
| Opening balance as at 1 October
2019 |
1,576 |
3,212 |
1,411 |
105,158 |
4,429 |
115,786 |
| Return for the year |
- |
- |
- |
(27,339) |
2,281 |
(25,058) |
| Contributions by and distributions
to Shareholders: |
|
|
|
|
|
|
| Repurchase of Ordinary Shares |
(17) |
17 |
- |
(1,101) |
- |
(1,101) |
| Dividends paid |
- |
- |
- |
- |
(4,345) |
(4,345) |
| Total contributions by and
distributions to Shareholders: |
(17) |
17 |
- |
(1,101)) |
(4,345) |
(5,446) |
| Balance at 30 September
2020 |
1,559 |
3,229 |
1,411 |
76,718 |
2,365 |
85,282 |
At 30 September 2021, the
distributable reserves of the Company were £86,658,000 which
comprise of the revenue reserve £2,220,000 and realised capital
reserves of £84,438,000. (2020: distributable reserves of
£79,083,000 comprising of revenue reserve of £2,365,000 and
realised capital reserves of £79,286,000, less capital reserve
attributable to unrealised losses of £2,568,000).
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 notes below form part of these financial statements.
Notes to the Financial Statements
for the year ended 30 September
2021
1. Accounting policies
Barings Emerging EMEA Opportunities PLC (the “Company”) is a
company incorporated and registered in England and Wales. The principal activity of the Company
is that of an investment trust company within the meaning of
Sections 1158/159 of the Corporation Tax Act 2020 and its
investment approach is detailed in the Strategic Report.
Basis of preparation
The financial statements are prepared in accordance with the
Companies Act 2006, United Kingdom Generally Accepted Accounting
Practice (‘UK GAAP’), including FRS 102 ‘The Financial Reporting
Standard applicable in the UK and Republic of Ireland’ and with the
Statement of Recommended Practice ‘Financial Statements of
Investment Trust Companies and Venture Capital Trusts’ (the ‘SORP’)
issued by the Association of Investment Companies, October 2019.
The Company meets the requirements of section 7.1A of FRS 102
and therefore has elected not to present the Statement of Cash
Flows for the year ended 30 September
2021.
The policies applied in these financial statements are
consistent with those applied in the preceding year.
Going concern
The financial statements have been prepared on a going concern
basis and on the basis that approval as an investment trust company
will continue to be met.
The Directors have made an assessment of the Company’s ability
to continue as a going concern and are satisfied that the Company
has adequate resources to continue in operational existence for a
period of at least twelve months from the date when these financial
statements were approved.
In making the assessment, the Directors have considered the
likely impacts of the current COVID-19 pandemic on the Company’s
operations and its investment portfolio.
The Directors noted that the Company’s current cash balance
exceeds any short term liabilities, the Company holds a portfolio
of liquid listed investments. The Directors are of the view that
the Company is able to meet its obligations and when they fall due.
The surplus cash enables the Company to meet any funding
requirements and finance future additional investments. The Company
is a closed-end fund, where assets are not required to be
liquidated to meet day-to-day redemptions.
The Board has reviewed stress testing and scenario analysis
prepared by the Investment Manager to assist them in assessing the
impact of changes in market value and income with associated cash
flows. In making this assessment, the Investment Manager have
considered plausible downside scenarios. These tests included the
possible further effects of the continuation of the COVID-19
pandemic but, as an arithmetic exercise, apply equally to any other
set of circumstances in which asset value and income are
significantly impaired. It was concluded that in a plausible
downside scenario, the Company could continue to meet its
liabilities.
Whilst the economic future is uncertain, and the Directors
believe that it is possible the Company could experience further
reductions in income and/or market value, the opinion of the
Directors is that this should not be to a level which would
threaten the Company’s ability to continue as a going concern.
The Investment Manager and the Company’s third-party service
providers have contingency plans to minimise disruption.
Furthermore, the Directors are not aware of any material
uncertainties that may cast significant doubt on the Company’s
ability to continue as a going concern, having taken into account
the liquidity of the Company’s investment portfolio and the
Company’s financial position in respect of its cash flows,
borrowing facilities and investment commitments (of which there are
none of significance). Therefore, the financial statements have
been prepared on the going concern basis.
Segmental reporting
The Directors are of the opinion that the Company is re-engaged
in a single segment of business, being the investment business.
Significant accounting judgements and
estimates
The preparation of the Company’s financial statements on
occasion requires the Board to make judgements, estimates and
assumptions that affect the reported amounts in the primary
financial statements and the accompanying disclosures. These
assumptions and estimates could result in outcomes that require a
material adjustment to the carrying amount of assets or liabilities
affected in the current and future periods, depending on the
circumstance.
The areas requiring significant judgement and estimation in the
preparation of the financial statements are: recognising and
classifying unusual or special dividends received as either revenue
or capital in nature; recognition of expenses between capital and
income; capital expenses and setting of the level of dividends paid
and proposed. The policies for these are set out in the notes to
the Financial Statements.
The Directors do not believe that any significant accounting
judgements or estimates have been applied to this set of financial
statements, that have a significant risk of causing a material
adjustment to the carrying amount of assets and liabilities within
the next financial year.
Investments
Upon initial recognition the investments held by the Company are
classified ‘at fair value through profit or loss’. All gains and
losses are allocated to the capital return within the Income
Statement as ‘Gains on investments held at fair value through
profit or loss’. Also included within this are transaction costs in
relation to the purchase or sale of investments. When a purchase or
sale is made under a contract, the terms of which require delivery
within the timeframe of the relevant market, the investments
concerned are recognised or derecognised on the trade date.
Subsequent to initial recognition, investments are valued at fair
value through profit or loss. For listed investments this is deemed
to be bid market prices. Fair values for unquoted investments, or
for investments for which the market is inactive, are established
by the Directors after discussion with the AIFM using various
valuation techniques in accordance with the International Private
Equity and Venture Capital (the “IPEV”) guidelines.
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 Company’s share
capital and the predominant currency in which its Shareholders
operate, has determined that Pounds Sterling is the functional
currency. Pounds Sterling is also the currency in which the
financial statements are presented.
Transactions denominated in currencies other than Pounds
Sterling are recorded at the rates of exchange prevailing on the
date of the transaction. Items that are denominated in foreign
currencies are translated at the rates prevailing on the Balance
Sheet date. Any gains or loss arising from a change in exchange
rate subsequent to the date of the transaction is included as an
exchange gain or loss in the capital reserve or the revenue account
depending on whether the gain or loss is capital or revenue in
nature.
Cash and Cash Equivalents
Cash comprises cash in hand and demand deposits.
Trade Receivables, Prepayments and
Other debtors
Trade receivables, prepayments and other debtors are recognised
at amortised cost or estimated fair value.
Trade Payables and Borrowings
Trade payables and short-term borrowings are measured at
amortised cost.
Bank borrowings
The interest bearing bank loan is recognised at amortised cost
and revalued for exchange rate movements.
Income
Dividends receivable from equity shares are included in revenue
return on an ex-dividend basis except where, in the opinion of the
Board, the dividend is capital in nature, in which case it is
included in capital return.
Overseas dividends are included gross of any withholding
tax.
Special dividends are taken to the revenue or capital account
depending on their nature. In deciding whether a dividend should be
regarded as a capital or revenue receipt, the Board reviews all
relevant information as to the sources of the dividend on a case-by
case basis.
Expenses and finance costs
All expenses are accounted for on an accruals basis. On the
basis of the Board’s expected long-term split of total returns in
the form of capital and revenue and are charged as follows:
• the investment management fee is charged 20% to revenue and
80% to capital;
• any investment performance bonus payable to AIFM are charged
wholly to capital;
• finance costs are charged 20% to revenue and 80% to
capital;
• other expenses are charged wholly to revenue.
Taxation
Current tax is provided at the amounts expected to be paid or
recovered.
Deferred tax is provided on all timing differences that have
originated but not reversed by the balance sheet date. Deferred tax
liabilities are recognised for all taxable timing differences but
deferred tax assets are only recognised to the extent that it is
more likely than not that taxable profits will be available against
which those timing differences can be utilised.
Deferred tax is measured at the tax rate which is expected to
apply in the periods in which the timing differences are expected
to reverse, based on tax rates that have been enacted or
substantively enacted at the balance sheet date and is measured on
an undiscounted basis.
Dividends payable to Shareholders
Dividends are not recognised in the accounts unless there is an
obligation to pay or have been paid.
Capital redemption reserve
The capital redemption reserve represents non-distributable
reserves that arise from the purchase and cancellation of Ordinary
Shares.
Share premium
The share premium account represents the accumulated premium
paid for shares issued in previous periods above their nominal
value less issue expenses. This is a reserve forming part of the
non-distributable reserves. The following items are taken to this
reserve:
• costs associated with the issue of equity; and
• premium on the issue of shares.
Capital reserve
The following are taken to capital reserve through the capital
column of the Income Statement:
Capital reserve – distributable
reserves
• gains and losses on the disposal of investments;
• amortisation of issue of interest bearing bank loans;
• exchange differences of a capital nature;
• expenses, together with the related taxation effect, allocated
to this reserve in accordance with the above policies; and
• distribution of dividends
Capital reserve – non-distributable
reserves
• increase and decrease in the valuation of investments held at
the year end.
Revenue reserve
The revenue reserve represents the surplus of accumulated
profits and is distributable by way of dividends.
2. Income
|
2021 |
2020 |
|
£’000 |
£’000 |
| Income from
investments |
|
|
| Listed
Investments* |
4,493 |
3,583 |
| Other
income: |
|
|
| Bank interest |
- |
1 |
| Exchange losses on
receipt of income |
(5) |
(78) |
| Total income |
4,488 |
3,506 |
All income stated above is revenue in nature
3. Investment Management Fee
Baring Fund Managers Limited has been appointed as the AIFM
under an agreement with six months notice by either party. The
annual fee of 0.75% (0.80% prior to 13
November 2020) is calculated, in accordance with the
Investment Management Agreement, on the month end NAV excluding
current period revenue and payable monthly. The charge is allocated
20% (2020: 20%) to revenue and 80% 2020: 80%) to capital. There is
no performance fee chargeable by the AIFM.
The investment management fee comprises:
|
Year ended 30 September 2021 |
Year ended 30 September 2020 |
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
| Investment management
fee |
149 |
598 |
747 |
156 |
623 |
779 |
At 30 September 2021, £136,000
(30 September 2020: £116,000) of this
fee remained outstanding and are included within other creditors in
note 11.
4. Other Expenses
|
2021 |
2020 |
|
£’000 |
£’000 |
| Custody and
administration expenses |
710 |
596 |
| Auditor’s fee
for: |
|
|
| – audit |
30 |
29 |
| Directors’
remuneration |
148 |
145 |
| Total expenses |
888 |
770 |
5. Finance Costs
|
Year ended 30 September 2021 |
Year ended 30 September 2020 |
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
| Borrowings under bank
loan facility* |
- |
- |
- |
33 |
134 |
167 |
* The Company has no loan facility. In the
prior year the loan facility was repaid on the 7 April 2020.
6. Taxation
Current tax charge for the year:
|
2021 |
2020 |
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
| Overseas tax not
recoverable |
542 |
- |
542 |
487 |
- |
487 |
| Overseas tax recovered
and deemed recoverable – previously expensed |
(3) |
- |
(3) |
(221) |
- |
(221) |
|
539 |
- |
539 |
266 |
- |
266 |
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:
|
2021 |
2020 |
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
| Return on ordinary
activities before taxation |
3,451 |
27,476 |
30,927 |
2,547 |
(27,339) |
(24,792) |
|
|
|
|
|
|
|
| Return on ordinary
activities multiplied by the standard rate of corporation tax of
19% (2020: 19%) |
656 |
5,220 |
5,876 |
484 |
(5,194) |
(4,710) |
| Effects of: |
|
|
|
|
|
|
| Overseas withholding
tax |
542 |
- |
542 |
487 |
- |
487 |
| Overseas tax recovered
and deemed recoverable – previously expensed |
(3) |
- |
(3) |
(221) |
- |
(221) |
| (Gains)/losses on
investments held at fair value through profit and loss not
allowable |
- |
(5,387) |
(5,387) |
- |
5,000 |
5,000 |
| Foreign exchange gain
not taxable |
1 |
41 |
42 |
- |
72 |
72 |
| Overseas dividends not
taxable |
(854) |
- |
(854) |
(666) |
(21) |
(687) |
| Disallowable
expenses |
- |
- |
- |
- |
- |
- |
| Management expenses
not utilised |
197 |
126 |
323 |
176 |
118 |
294 |
| Non-trade loan
relationship debts not utilised |
- |
- |
- |
6 |
25 |
31 |
| Current tax charge for
the year |
539 |
- |
539 |
266 |
- |
266 |
The Company is not liable to tax on capital gains due to its
status as an investment trust.
Factors affecting the current tax
charge for the year
At 30 September 2021, the Company
has unrelieved management expenses that are available to offset
future taxable revenue. On 3 March
2021, the UK Government announced its intention to increase
the rate of corporation tax from 19% to 25% from 1 April 2023 and this was subsequently enacted on
24 May 2021. The unrecognised
deferred tax asset of £3,894,000 (2020: £2,637,000) is based on the
long term prospective corporation tax rate of 25.0% (2020: 19.0%).
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 on Ordinary Shares
|
2021
Revenue |
2020 Revenue |
|
£’000 |
£’000 |
| Amounts
recognised as distributions to equity holder in the year: |
|
|
| Final dividend for the
year ended 30 September 2020 of 10p (2019: 20p) per Ordinary
Share |
1,224 |
2,484 |
| Interim dividend for
the year ended 30 September 2021 of 15p (2020: 15p) per Ordinary
Share |
1,833 |
1,861 |
|
3,057 |
4,345 |
Set out below are the interim and final dividends paid or
proposed on Ordinary Shares in respect of the financial year, which
is the basis on which the requirements of Section 1158 of the
Corporation Tax Act 2010 are considered.
|
2021
Revenue |
2020 Revenue |
|
£’000 |
£’000 |
| Interim dividend for
the year ended 30 September 2021 of 15p (2020: 15p) per Ordinary
Shares |
1,833 |
1,861 |
| Proposed final
dividend for the year ended 30 September 2021 of 11p (2020: 10p)
per Ordinary Share |
1,322 |
1,224
|
|
3,155 |
3,085
3,085 |
The dividend proposed in respect of the year ended 30 September 2021 is subject to shareholder
approval at the forthcoming Annual General Meeting.
8. Return per Ordinary Share
|
Year
ended 30 September 2021 |
Year ended
30 September 2020 |
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
| Return per ordinary
share |
23.86p |
225.16p |
249.02p |
18.40p |
(220.52)p |
(202.12)p |
Revenue return (earnings) per Ordinary Share is based on the net
revenue on ordinary activities after taxation of £2,912,000 (2020:
£2,281,000).
Capital return per Ordinary Share is based on net capital gain
for the financial year of £27,476,000 (2020: loss 27,339,000).
These calculations are based on the weighted average of 12,202,696
(2020: 12,397,456) Ordinary Shares in issue during the year. At
30 September 2021, there were
12,044,780 Ordinary Shares of 10
pence each in issue (2020: 12,276,025) which excludes
3,318,207 Ordinary Shares held in treasury (2020: 3,318,207). 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. Investments
Financial assets held at fair
value
|
30
September 2021 |
30
September 2020 |
|
£’000 |
£’000 |
| Opening book cost |
84,117 |
104,087 |
| Opening investment
holding (losses)/gains |
(545) |
18,004 |
| Opening fair
value |
83,572 |
122,091 |
| Movements in
year: |
|
|
| Purchases at
cost* |
99,127 |
38,847 |
| Sales proceeds* |
(101,847) |
(51,050) |
| Realised
gains/(losses) on equity sales |
9,795 |
(7,767) |
| Increase/(decrease) in
investment holding gains |
18,586 |
(18,549) |
| Closing fair
value |
109,233 |
83,572 |
| Closing book cost |
91,192 |
84,117 |
| Closing investment
holding gains/(losses) |
18,041 |
(545) |
| Closing fair
value |
109,233 |
83,572 |
*Includes transaction costs of £205,000 (2020: £33,000) relating
to purchases at cost, £82,000 (2020: £46,000) relating to sales
proceeds.
|
Year
ended
30 September 2021
£’000 |
Year
ended
30 September 2020
£’000 |
| Transaction
Cost |
|
|
| Cost on
acquisition |
205 |
33 |
| Cost on disposal |
82 |
46 |
|
287 |
79 |
|
|
|
| Analysis of capital
gains |
|
|
| Gains on sales of
financial assets |
9,795 |
(7,767) |
| Movement in investment
gains for the year |
18,586 |
(18,549) |
| Net gains on
investment |
28,381 |
(26,316) |
The Company sold investments in the year with proceeds of
£101,847,000 (2020: £51,050,000). The book cost of these
investments when purchased was £92,052,000 (2020: £58,817,000).
These investments have been revalued over time and until they were
sold any unrealised gains or losses were included in the fair value
of the investments.
Primary country of investment
|
30
September
2021
£’000 |
30
September
2020
£’000 |
| Russia |
38,746 |
61,437 |
| South Africa |
26,413 |
- |
| Saudi Arabia |
19,536 |
- |
| Poland |
5,716 |
10,449 |
| United Arab
Emirates |
4,892 |
- |
| Qatar |
4,032 |
- |
| Turkey |
2,807 |
6,858 |
| Hungary |
2,795 |
- |
| Greece |
1,844 |
2,071 |
| Kuwait |
1,478 |
755 |
| Czechia |
974 |
1,380 |
| Romania |
- |
622 |
| Total |
109,233 |
83,572 |
10. Debtors
|
2021 |
2020 |
|
£’000 |
£’000 |
| Overseas tax
recoverable |
204 |
201 |
| Prepayments and
accrued income |
356 |
32 |
| VAT Recoverable |
107 |
39 |
|
667 |
272 |
11. Creditors
|
2021 |
2020 |
|
£’000 |
£’000 |
| Amounts falling due
within one year |
|
|
| Amounts due to
brokers |
276 |
294 |
| Other creditors |
390 |
93 |
|
666 |
387 |
12. Called-up share capital
|
30 September 2021 |
30 September 2020 |
Allotted, issued and fully paid up Ordinary Shares of 10p
each
|
Number |
£’000 |
Number |
£’000 |
| Opening balance |
15,594,232 |
1,559 |
15,757,504 |
1,576 |
| Ordinary Shares bought
back and cancelled |
(231,245) |
(23) |
(163,272) |
(17) |
| Total Ordinary Shares
in issue |
15,362,987 |
1,536 |
15,594,232 |
1,559 |
| Treasury Shares |
3,318,207 |
|
3,318,207 |
|
| Total
Ordinary Shares capital excluding Treasury Shares |
12,044,780 |
|
12,276,025 |
|
During the year, 231,245 Ordinary Shares were repurchased for
cancellation for £1,715,000 (2020: 163,272 Ordinary Shares were
£1,001,000). 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 (2020:
3,318,207). Ordinary Shares held in treasury are non-voting and not
eligible for receipt of dividends. Subsequent to the year end, a
further 27,399 shares have been repurchased for cancellation for
£229,000.
13. Net Asset Value per share
The NAV per ordinary share and the NAV attributable at the year
end were as follows:
|
|
2021 |
2020 |
| Total Shareholders’
funds (£’000) |
|
110,898 |
85,282 |
| Number of shares in
issue* |
|
12,044,780 |
12,276,025 |
| NAV (pence per share)
(basic and dilutive) |
|
920.71 |
694.70 |
* Excludes 3,318,207 Ordinary Shares
held in treasury (2020: 3,318,207).
The NAV per share is based on total Shareholders’ funds above,
and on 12,044,780 Ordinary Shares in issue at the year end (2020:
12,276,025 Ordinary Shares in issue) which excludes 3,318,207
Ordinary Shares held in treasury (2020: 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. Financial Instruments and Capital
Disclosures
Investment Objective and Policy
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. With effect from 13 November 2020, the Company changed its
investment objective and policy. The Objective and Investment
Policy are set out above.
Risks
The risks identified arising from the financial instruments are
market risk (which comprises market price risk, interest rate risk,
and currency risk), liquidity risk and credit and counterparty
risk. The Board and AIFM consider and review the risks inherent in
managing the Company’s assets which are detailed below.
The objectives, policies and processes for managing the risks,
and the methods used to measure the risks, are set out below and
have not changed from the previous accounting period.
The AIFM monitors the Company’s exposure to risk and reports to
the Board on a regular basis.
Market Risk
Special considerations and risk factors associated with the
Company’s investments are discussed above. Market risk arises
mainly from uncertainty about future prices of financial
instruments used in the Company’s business. It represents the
potential loss which the Company might suffer through holding
market positions by way of price movements, interest rate movements
and exchange rate movements. 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.
Market Price Risk
Market price risk (i.e. changes in market prices other than
those arising from currency risk or interest rate risk) may affect
the value of investments.
The portfolio is managed with an awareness of the effects of
adverse price movements through detailed and continuing analysis
with the objective of maximising overall returns to Shareholders.
The Company has experienced volatility in the fair value of
investments during recent years due to COVID-19 and Brexit. If the
fair value of the Company’s investments at the year end increased
or decreased by 20% then it would have an impact on the Company’s
capital return and equity of £21,847,000 (2020: £16,714,000).
The Company has used 20% to demonstrate the impact of a
significant reduction/increase in the fair value of the investments
and the impact upon the Company that might arise from future
significant events.
Currency Risk
The value of the Company’s assets and the total return earned by
the Company’s Shareholders can be significantly affected by
currency exchange rate movements as most of the Company’s assets
are denominated in currencies other than Pounds Sterling, the
currency in which the Company’s financial statements are
prepared.
Income denominated in other currencies is converted to Pounds
Sterling upon receipt. The Company does not use financial
instruments to mitigate the currency exposure. The Company’s
uninvested cash balances are usually held in US Dollars.
A 10% rise or decline of Pounds Sterling against currency
denominated (i.e. non Pounds Sterling) assets and liabilities held
at the year end would have increased/decreased the net asset value
by £11,110,000 (2020: £8,551,000).
The currency exposure is exposure of the currency values of the
investee companies.
|
Russia |
South
Africa |
Saudi
Arabia |
Poland |
UAE |
Qatar |
Turkey |
Hungary |
Greece |
Kuwait |
Czechia |
United
States |
Netherlands |
UK |
Total |
|
RUB |
ZAR |
SAR |
PLN |
AED |
QAR |
TRY |
HUF |
EUR |
KWD |
CZK |
USD |
EUR |
GBP |
|
| 2021 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
| Cash |
1 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
1,585 |
- |
78 |
1,664 |
| Debtor |
194 |
156 |
39 |
127 |
- |
- |
- |
- |
- |
- |
- |
- |
40 |
111 |
667 |
| Creditor |
- |
- |
(276) |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
(390) |
(666) |
| Investments |
38,746 |
26,413 |
19,536 |
5,716 |
4,892 |
4,032 |
2,807 |
2,795 |
1,844 |
1,478 |
974 |
- |
- |
- |
109,233 |
| Total |
38,941 |
26,569 |
19,299 |
5,843 |
4,892 |
4,032 |
2,807 |
2,795 |
1,844 |
1,478 |
974 |
1,585 |
40 |
(201) |
110,898 |
|
Russia |
Poland |
Turkey |
Greece |
Czechia |
Kuwait |
Romania |
United
States |
Netherlands |
UK |
Total |
|
RUB |
PLN |
TRY |
EUR |
CZK |
KWD |
RON |
USD |
EUR |
GBP |
|
| 2020 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
| Cash |
1 |
- |
- |
- |
- |
- |
- |
1,744 |
- |
80 |
1,825 |
| Debtor |
191 |
- |
- |
- |
- |
- |
- |
- |
28 |
54 |
272 |
| Creditor |
- |
- |
- |
- |
- |
- |
- |
- |
- |
(387) |
(387) |
| Investments |
61,437 |
10,449 |
6,858 |
2,071 |
1,380 |
755 |
622 |
- |
- |
- |
83,572 |
| Total |
61,628 |
10,449 |
6,858 |
2,071 |
1,380 |
755 |
622 |
1,744 |
28 |
(253) |
85,282 |
Interest Rate Risk
Interest rate movements may affect:
• the level of income receivable /payable on cash deposits
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 making investment and borrowing decisions.
At 30 September 2021, the
Company’s exposure to interest rate movements in respect of its
financial assets and financial liabilities consist of:
|
2021 |
2020 |
|
Total |
Total |
|
(within one year) |
(within
one year) |
|
£’000 |
£’000 |
| Exposure to
floating interest rates: |
|
|
| Cash at bank |
1,664 |
1,825 |
|
1,664 |
1,825 |
If the above level of cash was maintained for a year, a 1%
increase in interest rates would increase the revenue return and
net assets by £17,000 (2020: £18,000). The AIFM proactively manages
cash balances. If there were a fall of 1% in interest rates, it
would potentially impact the Company by turning positive interest
to negative interest. The total effect would be a revenue
reduction/cost increase of £17,000 (2020: £18,000). The bank loan
facility was repaid on 7 April
2020.
Liquidity Risk
The Company’s assets mainly comprise readily realisable
securities which can be easily sold to meet funding commitments, if
necessary. The risk is taken into account by the Board when
arriving at its valuation of these items.
Liquidity risk is mitigated by the fact that the Company has
£1,664,000 (2020: £1,825,000) cash at bank and the assets are
readily realisable. The Company is a closed-end fund, assets do not
need to be liquidated to meet redemptions, and sufficient liquidity
is maintained to meet obligations as they fall due.
The remaining contractual payments on the Company’s financial
liabilities at 30 September 2021,
based on the earliest date on which payment can be required and
current exchange rates at the Balance Sheet date, were as
follows:
|
2021 |
2020 |
|
Total |
Total |
|
(within one year) |
(within
one year) |
|
£’000 |
£’000 |
|
|
|
| Other creditors and
accruals |
666 |
387 |
|
666 |
387 |
Credit Risk
Credit risk is the risk of financial loss to the Company if the
contractual party to a financial instrument fails to meet its
contractual obligations.
The total credit exposure represents the carrying value of cash
and receivable balances and totals £111,564,000 (2020:
£85,669,000).
The Company’s listed investments are held on its behalf by State
Street Bank & Trust Company Limited acting as the Company’s
Custodian. Bankruptcy or insolvency may cause the Company’s rights
with respect to securities held by the custodian to be delayed. The
Board monitors the Company’s risk by reviewing the Custodians
internal control reports.
Credit risk is mitigated by diversifying the counterparties
through which the AIFM conducts investment transactions. The credit
standing of all counterparties is reviewed periodically, with
limits set on amounts due from any one counterparty. As at the year
end, the cash balances are held with State Street Bank & Trust
Company Limited, which holds a Aa1 credit rating. The credit rating
is taken from Moody’s.
Fair Values of Financial Assets and
Financial Liabilities
Financial assets and financial 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).
Valuation of Financial Instruments
The Company measures fair values using the following fair value
hierarchy that reflects the significance of the inputs used in
making the measurements. 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 assets as
follows:
Level 1 – valued using quoted prices unadjusted in active
markets for identical assets or liabilities.
Level 2 – valued by reference to valuation techniques
using observable inputs for the asset or liability other than
quoted prices included within Level 1.
Level 3 – valued by reference to valuation techniques
using inputs that are not based on observable market data for the
asset or liability.
The tables below set out fair value measurements of financial
assets and liabilities in accordance with the fair value
hierarchy.
| Financial assets at
fair value through profit or loss at 30 September 2021: |
|
|
|
|
|
|
Total |
|
Level
1 |
Level
2 |
2021 |
|
£’000 |
£’000 |
£’000 |
| Equity
investments |
109,233 |
- |
109,233 |
|
109,233 |
- |
109,233 |
| Financial assets at
fair value through profit or loss at 30 September 2020: |
|
|
|
|
|
|
Total |
|
Level
1 |
Level
2 |
2020 |
|
£’000 |
£’000 |
£’000 |
| Equity
investments |
85,543 |
29 |
83,572 |
|
85,543 |
29 |
83,572 |
15. Risk management policies and
procedures
Capital Management Policies and
Procedures
The structure of the Company’s capital is described above and
details of the Company’s reserves are shown in the Statement of
Changes in Equity above.
The Company’s capital management objectives are:
• to ensure that it will be able to continue as a going
concern;
• to achieve capital growth through a focused portfolio of
investments; and
• to maximise the return to Shareholders while maintaining a
capital base to allow the Company to operate effectively and meet
obligations as they fall due.
The Board, with the assistance of the AIFM, regularly monitors
and reviews the broad structure of the Company’s capital on an
ongoing basis. These reviews include:
• the level of gearing, which takes account of the Company’s
position and the Investment Manager’s views on the market; and
• the extent to which revenue in excess of that which is
required to be distributed, should be retained. The Company’s
objectives, policies and processes for managing capital are
unchanged from last year. The Company is subject to externally
imposed capital requirements:
• as a public company, the Company is required to have a minimum
share capital of £50,000; and
• in accordance with the provisions of Sections 832 and 833 of
the Companies Act 2006, the Company, as an investment company;
• is only able to make a dividend distribution to the extent
that the assets of the Company are equal to at least one and a half
times its liabilities after the dividend payment has been made;
and
• is required to make a dividend distribution each year and to
ensure after year that it does not retain more than 15% of the
income that it derives from shares and securities.
These policies and procedures are unchanged since last year and
the Company has complied with them at all times.
16. Related Party Disclosures and
Transactions with the AlFM
Details of the investment management fee charged by the AIFM are
set out in note 3. Investment management fees charged in the year
were £747,000 (2020: £779,000) of which £136,000 (2020: £116,000)
was outstanding at the year end.
The ultimate holding company of the AIFM is Massachusetts Mutual
Life Insurance Company, 1295 State Street, Springfeld, 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.
Nadya Wells is a member of the
Supervisory Board, Chairman of the Audit Committee, Member of the
Strategic Planning Committee and a member of the Risk Management
Committee of Sberbank of Russia
(“Sberbank”), in which the Company was invested during the year. At
30 September 2021, the Company held
2,050,748 shares in Sberbank at a market value of £7,120,000,
representing 6.42% of the Company’s net assets and a holding of
6.42% of Sberbank’s total issued shares.
During the year, the Company purchased 845,178 shares in
Sberbank for £2,160,000 and sold 2,504,940 shares for
£6,894,000. These transactions were completed through the open
market.
Fees paid to the Company’s Directors are disclosed in the
Director’s Remuneration Report. At the year end, there were no
outstanding fees payable to the Directors (2020: £nil).
17. Post Balance Sheet Events
Since the year end, the Company has bought back for cancellation
27,399 Ordinary Shares with a nominal value of £2,740 at a total
cost of £229,000.
Glossary of Terms
AIFM
The AIFM, or Alternative Investment Fund Manager, is Baring Fund
Manager Limited, which manages the portfolio on behalf of the
Company’s Shareholders. The AIFM has delegated the investment
management of the portfolio to Baring Asset Management Limited (the
“Investment Manager”).
Alternative performance measures
(“APM”)
An APM is a numerical measure of the Company’s current,
historical or future financial performance, financial position or
cash flows, other than a financial measure defined or specified in
the applicable financial framework. In selecting these APMs, the
Directors considered the key objectives and expectations of typical
investors in an investment trust such as the Company.
Benchmark
The Company’s Benchmark is the MSCI Emerging Markets EMEA Index.
This index is designed to measure the performance of large and
midcap companies across 11 Emerging Markets (EM) countries in
Europe, the Middle East and Africa (EMEA). This includes, the Czechia,
Egypt, Greece, Hungary, Poland, Qatar, Russia, Saudi
Arabia, South Africa,
Turkey and United Arab Emirates.
The Benchmark is an index against which the performance of the
Company may be compared. This is an indicative performance measure
as the overall investment objectives of the Company differ to the
index and the investments of the Company are not aligned to this
index.
For the financial year ending 30
September 2020, the Company’s Benchmark was the MSCI
Emerging Europe 10/40 Index. This index measured the performance of
large and midcap companies across six Emerging Markets (EM)
countries; Czechia, Greece,
Hungary, Poland, Russia and Turkey) in Europe.
Discount/Premium (APM)
If the share price is lower than the NAV per share, the shares
are trading at a discount. The size of the discount is calculated
by subtracting the share price of 793.0p (2020: 587.0p) from the
NAV per share of 920.7p (2020: 694.7p) and is usually expressed as
a percentage of the NAV per share, 13.9% (2020: 15.5%). If the
share price is higher than the NAV per share, the situation is
called a premium.
Dividend Pay-out Ratio (APM)
The ratio of the total amount of dividends paid out to
Shareholders relative to the net income of the company. Calculated
by 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 (APM)
The annual dividend expressed as a percentage of the current
market price.
EMEA
The definition of EMEA is a shorthand designation meaning
Europe, the Middle East and Africa. The acronym is used by institutions
and governments, as well as in marketing and business when
referring to this region: it is a shorthand way of referencing the
two continents (Africa and
Europe) and the Middle Eastern
sub-continent all at once.
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
(“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. The Company will evaluate investments in investee
companies considering:
- Environmental criteria considering how the company performs as
a steward of nature;
- Social criteria examine how the company manages
relationships with employees, suppliers, customers, and
communities; and
- Governance deals with the company’s leadership, executive
pay, audits, internal controls, and shareholder
rights.
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 its markets are too illiquid to be
considered an emerging market.
Gearing (APM)
Gearing refers to the ratio of the Company’s debt to its equity
capital. The Company may borrow money to invest in additional
investments for its portfolio. If the Company assets grow, the
Shareholders’ assets grow proportionately more because the debt
remains the same. But if the value of the Company’s assets fall,
the situation is reversed. Gearing can therefore enhance
performance in rising markets but can adversely impact performance
in falling markets.
The Company repaid the bank loan facility during the prior
financial year eliminating gearing at the prior year end. Currently
the Company has no gearing.
For the purposes of AIFMD, the Company is required to disclose
the leverage. Leverage is any method which increases the Company’s
exposure, including the borrowing of cash and use of derivatives.
It is expressed as a ratio between the Company’s exposure and its
net asset value and is calculated under the Gross and Commitment
Methods in accordance with AIFMD.
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).
Gross method = 98% (A = £109,233,000/ B = £110,898,000) 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).
Commitment method = 100% (A = £109,233,000) + (C = Cash
£1,664,000 + Debtor £667,000) / B = £85,282,000) x 100.
Gross Assets
Total of all the Company’s investments and current assets.
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 (“NAV”)
The NAV is shareholders’ funds expressed as an amount per
individual Ordinary Share. Shareholders’ funds are the total value
of all the Company’s assets, at current market value, having
deducted all liabilities revalued for exchange rate movements. The
total NAV per Ordinary Share is calculated by dividing the
Shareholders’ funds of £110,898,000 by the number of Ordinary
Shares in issue excluding Treasury Shares of 12,044,780.
Ongoing Charges Ratio (APM)
The Ongoing Charges Ratio (OCR) is a measure of what it costs to
cover the cost of running the fund. The Company’s OCR is its
annualised expenses (excluding finance costs and certain
non-recurring items) of £1,628,000 being investment management fees
of £747,000 and other expenses of £950,000 less non-recurring
expenses of £69,000 expressed as a percentage of the average net
assets of £100,733,000 during the year as disclosed to the London
Stock Exchange. The OCR for 2021 is 1.62%.
Return per Ordinary Share (APM)
The return per Ordinary Share is based on the revenue/capital
earned during the year divided by the weighted average number of
Ordinary Shares in issue during the year. The calculations are set
out in note 8.
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 (APM)
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.
Systematic Risk
Systematic risk or “Market risk” is the risk inherent to the
entire market or market segment, not just a stock or industry.
Total Assets
Total assets include investments, cash, current assets and all
other assets. An asset is an economic resource, being anything
tangible or intangible that can be owned or controlled to produce
positive economic value. The total assets less all liabilities is
equivalent to total Shareholders’ funds.
Total Return (APM)
Total return statistics enable the investor to make performance
comparisons between investment trusts with different dividend
policies. The total return measures the combined effect of any
dividends paid, together with the rise or fall in the share price
or NAV. This is calculated by the movement in the NAV or share
price plus dividend income reinvested by the Company at the
prevailing NAV or share price.
NAV Total Return (APM)
NAV Total Return is calculated by assuming that dividends paid
out are reinvested into the NAV on the ex-dividend date.
|
30 September
2021 |
| Closing NAV per share (p) |
620.71 |
| Add back total dividends paid in the
year ended 30 September 2021 (p) |
25.00 |
| Benefits from reinvesting dividend
(p) |
2.98 |
| Adjusted closing NAV (p) |
948.69 |
| Opening NAV per share (p) |
694.70 |
| NAV total return (%) |
36.56 |
Share Price Total Return (APM)
Share price total return is calculated by assuming dividends
paid out are reinvested into new shares on the ex-dividend
date.
|
30 September
2021 |
| Closing share price (p) |
793.00 |
| Add back total dividends paid in the
year ended 30 September 2021 (p) |
25.00 |
| Benefits from reinvesting dividend
(p) |
1.99 |
| Adjusted closing share price
(p) |
819.99 |
| Opening share price (p) |
587.00 |
| Share price total return (%) |
39.69 |
Treasury Shares
Treasury shares are issued shares that a company keeps in its
own treasury which are not currently issued to the public. These
shares do not pay dividends, have no voting rights and are not
included in a company’s total issued share capital amount for
calculating percentage ownership. Treasury shares have come from
the buy back from shareholders, and may be reissued from treasury
to meet demand for a company’s shares in certain circumstances.
Directors and Officers
Directors
Frances Daley, Chairman
Vivien Gould
Christopher Granville
Calum Thomson
Nadya Wells
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
4560726
Alternative Investment Fund Manager
Baring Fund Managers Limited
20 Old Bailey
London EC4M 7BF
Telephone: 020 7628 6000
Facsimile: 020 7638 7928
Auditor
BDO LLP
55 Baker St.
Marylebone
London W1U 7EU
Depositary
State Street Trustees Limited
20 Churchill Place
Canary Wharf
London E14 5HJ
Custodian
State Street Bank & Trust Company Limited
20 Churchill Place
Canary Wharf
London E14 5HJ
Administrator
Link Alternative Fund Administrators Limited
Beaufort House
51 New North Road
Exeter EX4 4EP
Registrar
Link Group
10th Floor
Central Square
29 Wellington Street
Leeds LS1 4DL
Corporate Broker
JP Morgan Cazenove
25 Bank Street
Floor 29
Canary Wharf
London E14 5JP
Website
www.bemoplc.com
NATIONAL STORAGE MECHANISM
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 at:
https://www.fca.org.uk/markets/primary-markets/regulatory-disclosures/national-storage-mechanism.
LEI: 213800HLE2UOSVAP2Y69
ENDS
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.