Half-yearly Report

Half-yearly Report

Genesis Emerging Markets Fund Ld

GENESIS EMERGING MARKETS FUND LIMITED

(the “Company”; the “Fund”)

STOCK EXCHANGE ANNOUNCEMENT

HALF YEARLY MANAGEMENT REPORT

The Company has today, in accordance with DTR 6.3.5, released its Half Yearly Management Report for the six months ended 31st December 2011. The Report will shortly be available from the Manager’s website “www.giml.co.uk” and available for inspection on the National Storage Mechanism, which is located at http://hemscott.com/nsm.do where users can access the regulated information provided by listed entities.

INVESTMENT OBJECTIVE

To achieve long-term capital growth, primarily through investment in equity markets of developing countries.

BENCHMARK

MSCI Emerging Markets Index (Total Return).

MATERIAL EVENTS

    31st December 2011

US$

  31st December 2010

US$

Total net assets

 

Net assets per Participating Preference Share

 

Total (loss) / income per Participating Preference Share

1,026,794,662

 

7.61

 

 

(1.56)

1,223,843,903

 

9.07

 

 

1.85

Commenting on the results the Chairman has made the following statement:

It has been a challenging half-year for equity markets. While investors’ concerns were generally founded on problems in the developed world, emerging markets equities were of course not immune to the overwhelming negative sentiment. The Fund’s net asset value per share (NAV) fell by 14.3% in Sterling terms over the period, slightly outperforming the MSCI Emerging Markets Index – the most appropriate benchmark – which fell 16.4%.

The Fund held its Annual General Meeting on 28th October 2011, at which point the retirement of the Hon. John Train as a Director of the Fund became effective. Mr Train served the Fund and its shareholders with distinction during his tenure; my fellow Directors and I have expressed our gratitude to him for his significant contributions to the success of the Fund.

The Annual General Meeting also saw the election to the Board by shareholders of Mr Saffet Karpat, who is currently General Manager of Procter & Gamble’s businesses in Turkey, the Caucasus and Central Asia. Mr Karpat brings to the Board many years’ experience of managing consumer businesses in a number of emerging markets, which I am confident will provide a valuable source of insight to the Directors.

The Fund held its regular Information Meeting in London in early November. This is an annual event to which any and all shareholders are welcome, allowing them to hear presentations from – and ask questions of – representatives of the Manager. The discussion provided a detailed view of the Manager’s outlook for emerging markets, and the current positioning and recent performance of the Fund. The Manager’s Review that follows this Statement explains some of the changes to the portfolio over the last few months, and the key elements of the current environment.

Despite the dramatic market declines of last summer, it is worth noting that the Fund’s shareholders have still seen an increase in NAV of more than 10% per annum over the last five years (a period of course that also encompasses the crisis of 2008).

As Directors, we share with the Manager the overall view that the powerful structural growth trends in developing countries, in tandem with a prudent stock-specific investment approach, will continue to deliver attractive long-term performance to shareholders. Although the coming months may well continue to be a difficult period for equity investors, current valuation levels seem likely only to enhance the potential returns available to investors when confidence eventually returns.

Coen Teulings

February 2012

INTERIM MANAGEMENT REPORT

CAPITAL VALUES

At 31st December 2011, the value of the net assets available to shareholders was US$1,026,794,662 (30th June 2011: US$1,237,202,432) and the Equity per Participating Preference Share was US$7.61 (30th June 2011: US$9.17).

RISK MANAGEMENT

The investment objective of the Fund is to achieve capital growth over the medium to long term, primarily through investment in equity securities quoted on emerging markets. The main risks to the value of its assets arising from the Fund’s investment in financial instruments are unanticipated adverse changes in market prices and foreign currency exchange rates and an absence of liquidity. The Board reviews and agrees with the Manager policies for managing each of these risks and they are summarised below. These policies have remained unchanged since the beginning of the period to which these financial statements relate.

The economies, the currencies and the financial markets of a number of developing countries in which the Fund invests may be extremely volatile. To manage the risks posed by adverse price fluctuations the Fund’s investments are geographically diversified, and will continue to be so. The Fund will not normally invest more than 25% of its assets (at the time the investment is made) in any one country. Further, the exposure to any one company or group (other than an investment company, unit trust or mutual fund) is unlikely to exceed 5% of the Fund’s net assets at the time the investment is made.

The Fund’s assets will be invested in securities of companies in various countries and income will be received by the Fund in a variety of currencies. However, the Fund will compute its net asset value and make any distributions in US dollars and is quoted in £ Sterling. The value of the assets of the Fund as measured in US dollars may be affected favourably or unfavourably by fluctuations in currency rates and exchange control regulations. Further, the Fund may incur costs in connection with conversions between various currencies.

Trading volumes on the stock exchanges of developing countries can be substantially less than in the leading stock markets of the developed world. This lower level of liquidity exaggerates the fluctuations in the value of investments described previously. The restrictions on concentration and the diversification requirements detailed above also serve normally to protect the overall value of the Fund from the risks created by the lower level of liquidity in the markets in which the Fund operates.

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

MANAGER

In the opinion of the Directors, in order to achieve the investment objective of the Fund, and having taken into consideration the performance of the Fund, the continuing appointment of the Manager is in the interests of the shareholders as a whole.

A more detailed commentary of important events that have occurred during the period and their impact on these accounts and a description of the principal risks and uncertainties for the remaining six months of the financial year are contained in the Manager’s Review.

DIRECTORS

The following Directors served throughout the period under review, except where noted otherwise.

  Beneficial interest in
Participating
Preference Shares
Directors at 31st December 2011
Coen Teulings 40,000
Michael Hamson (including family interests) 8,700
Dr. John Llewellyn -
Dr. Geng Xiao -
Saffet Karpat (appointed on 1st October 2011) -
The Hon. John Train (including family interests, resigned on 28th October 2011) 20,510

RELATED PARTY TRANSACTIONS

During the reporting period, there is no transaction with related parties which has materially affected the financial position or performance of the fund. However, details of related party transactions are contained in the annual financial statement for the year ended 30th June 2011 which should be read in conjunction with this interim financial statement.

GOING CONCERN

The Directors are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future and, as such, a going concern basis is appropriate in preparing the financial statements.

RESPONSIBILITY STATEMENT

The Directors confirm that to the best of their knowledge:

  • the condensed set of financial statements has been prepared in accordance with IAS 34 ‘Interim Financial Reporting’;
  • as required by DTR 4.2.7R of the FSA’s Disclosure and Transparency Rules, the Interim Management Report includes a fair review of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
  • the Interim Management Report includes a fair review of the information concerning related party transactions required by DTR 4.2.8R.

Signed on behalf of the Board

Coen Teulings

Dr. John Llewellyn

February 2012

MANAGER’S REVIEW

In a world burdened by debt, investment performance has been challenging over the last few months: emerging markets lost almost a fifth of their market value over the period. While the emerging markets are at one remove from the debt crisis in the developed world – and hence it is not yet clear how the financial stress in Europe may ultimately affect our markets – the increasingly complex financial and trading linkages between developed and developing countries means of course that they are not immune.

Despite recent market performance, 2011 in general was an excellent year for consumer demand in emerging markets. Among the Fund’s many holdings in this sector, Russian food retailers, Want Want (the Chinese rice cracker maker), Lojas Renner (Brazilian retail) and Asian Paints all enjoyed extremely healthy growth. This demand strength, combined with cash-rich balance sheets, saw acceleration in international M&A, and more of this seems likely as dominant local players have grown some highly attractive assets: even China is more open to foreign buyers. Investing in consumer companies is not without risk, however. The very environment that drives such strong demand also raises the cost of raw materials and labour, testing pricing power across the sector. The superior margins will attract new entrants and a more competitive, less profitable landscape should evolve.

In terms of changes to the Fund’s positioning over the six month period, we were buying in India as prices fell, and were active in Brazil (both buying and selling). In the energy sector as a whole, exposure rose in exploration (OGX and Tullow) and away from production (Sasol). New ideas were identified in China, for example in cement and technology, and there was notable activity in technology elsewhere with the purchase of Infosys and a significant addition to Mediatek.

In the face of Europe’s drawn-out woes, the consensus for global economic growth of 4% in 2012 has been modified to something closer to 3%. Despite this, and the corresponding weak market sentiment, industrial commodity prices mostly remain at historically elevated levels. This is true for both metals and energy and reflects continued supply disappointments and sustained real customer demand (particularly from emerging markets). Superimposed on this, restocking and investment demand have led to significant market volatility. The macro-economic and political environment remains uncertain; but of course extreme uncertainty is not new to many emerging market companies, and one of the important lessons from past periods of turmoil is how quickly a good company can improve its competitive position at the expense of weaker rivals. These are the kind of businesses we strive to identify for the Fund and its shareholders, and the emerging markets continue to offer a significant number of such opportunities.

Genesis Asset Managers, LLP

February 2012

UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
       
(Audited)
31st December 30th June
2011 2011
US$ US$
ASSETS
Current assets
Financial assets at fair value through profit or loss 1,018,411,628 1,219,924,732
Amounts due from brokers 92,587 5,340,370
Dividends receivable 823,925 5,002,712
Other receivables and prepayments 162,186 161,691
Cash and cash equivalents 10,290,878 13,495,617
   
TOTAL ASSETS 1,029,781,204 1,243,925,122
 
LIABILITIES
Current liabilities
Amounts due to brokers 51,954 2,635,513
Capital gains tax payable 1,283,290 2,053,400
Payables and accrued expenses 1,651,298 2,033,777
   
TOTAL LIABILITIES 2,986,542 6,722,690
 
TOTAL NET ASSETS 1,026,794,662 1,237,202,432
 
EQUITY
Share premium 134,348,973 134,348,973
Capital reserve 861,504,420 1,068,728,454
Revenue account 30,941,269 34,125,005
 
TOTAL EQUITY 1,026,794,662 1,237,202,432
 
EQUITY PER PARTICIPATING
PREFERENCE SHARE* US$7.61 US$9.17
 
 
* Calculated on an average number of 134,963,060 Participating Preference Shares outstanding (30th June 2011: 134,963,060).
UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the six months ended 31st December 2011
     
2011 2010
US$ US$
INCOME
Net change in financial assets at fair

value through profit or loss

(207,090,637) 254,158,991
Net exchange losses (133,397) (293,005)
Dividend income 7,136,584 10,890,381
Deposit interest 6,729 14,292
Miscellaneous income 93,652 -
(199,987,069) 264,770,659
 
EXPENSES
Management fees (8,132,902) (8,499,991)
Custodian fees (706,476) (746,696)
Transaction costs (644,105) (547,331)
Directors’ fees and expenses (149,660) (208,212)
Administration fees (114,667) (78,714)
Audit fees (23,952) (28,995)
Other expenses (73,760) (131,912)
   
TOTAL OPERATING EXPENSES (9,845,522) (10,241,851)
 
OPERATING (LOSS)/PROFIT (209,832,591) 254,528,808
 
FINANCE COSTS
Bank charges (405) (244)
Interest expense (30) (238)
TOTAL FINANCE COSTS (435) (482)
 
Capital gains tax (501) (3,964,430)
Withholding taxes (574,243) (1,078,800)
 
(LOSS)/PROFIT AFTER TAX (210,407,770) 249,485,096
 
Other comprehensive income - -
 
TOTAL COMPREHENSIVE

(LOSS)/INCOME ATTRIBUTABLE TO PARTICIPATING PREFERENCE SHARES

(210,407,770) 249,485,096
 
EARNINGS PER PARTICIPATING PREFERENCE SHARE* US$(1.56) US$1.85
 
* Calculated on an average number of 134,963,060 Participating Preference Shares outstanding (31st December 2010: 134,963,060).
UNAUDITED CONSOLIDATED STATEMENT

OF CHANGES IN EQUITY

For the six months ended

31st December 2011

Share Capital Revenue
Premium Reserve Account Total
US$ US$ US$ US$

Net assets at the beginning of the period

134,348,973 1,068,728,454 34,125,005 1,237,202,432
Loss for the period - - (210,407,770) (210,407,770)
Transfer to Capital Reserve - (207,224,034) 207,224,034 -
Net assets at the end of the period 134,348,973 861,504,420 30,941,269 1,026,794,662
  For the six months ended

31st December 2010

Share   Capital   Revenue  
Premium Reserve Account Total
US$ US$ US$ US$

Net assets at the beginning of the period

134,348,973 804,245,831 35,764,003 974,358,807
Profit for the period - - 249,485,096 249,485,096
Transfer to Capital Reserve - 253,865,986 (253,865,986) -
Net assets at the end of the period 134,348,973 1,058,111,817 31,383,113 1,223,843,903
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
 
For the six For the six
months ended months ended
31st December 31st December
2011 2010
US$ US$
 
OPERATING ACTIVITIES
Dividends received 11,409,023 11,939,001
Taxation paid (1,344,854) (1,966,632)
Purchase of investments (112,079,552) (108,076,482)
Proceeds from sale of investments 109,166,243 112,903,503
Interest received 6,729 14,292
Operating expenses paid (10,228,931) (9,856,772)
Foreign exchange loss (183) (48)

 

   
NET CASH (OUTFLOW)/INFLOW FROM

OPERATING ACTIVITIES

(3,071,525) 4,956,862
 
Effect of exchange rate fluctuations

on cash and cash equivalents

(133,214) (292,957)
 
   
NET (DECREASE)/INCREASE IN

CASH AND CASH EQUIVALENTS

(3,204,739) 4,663,905
 
Cash and cash equivalents at the

beginning of the period

13,495,617 13,689,029
 
   

NET CASH AND CASH EQUIVALENTS

AT THE END OF THE PERIOD

10,290,878 18,352,934

NOTES TO THE FINANCIAL STATEMENTS

for the six months ended 31st December 2011

1. GENERAL

Genesis Emerging Markets Fund Limited (the “Company”), a closed-ended fund listed on the London Stock Exchange, was incorporated in Guernsey on 7th June 1989 and commenced activities on 19th September 1989. The Fund comprises the Company and its wholly owned subsidiary Genemar Limited. The Fund is an Authorised Closed-ended Investment Scheme as defined by the Authorised Closed-ended Investment Schemes Rules (2008) (and, as such, is subject to ongoing supervision by the Guernsey Financial Services Commission). The Fund is a constituent of the FTSE 250 Index.

The Fund’s registered office is at Arnold House, St. Julian’s Avenue, St. Peter Port, Guernsey GY1 3NF, Channel Islands.

2. BASIS OF PREPARATION

The interim financial information for the six months ended 31st December 2011 has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting'. The interim financial information should be read in conjunction with the annual financial statements for the year ended 30th June 2011, which have been prepared in accordance with International Financial Reporting Standards (‘IFRS’).

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

3. RECONCILIATION OF PUBLISHED NET ASSET VALUE ATTRIBUTABLE TO EQUITY SHAREHOLDERS TO THE IFRS EQUIVALENT

31st December 2011
 

Per Participating

Total

Preference Share

US$

US$

Published net asset value 1,030,713,230

7.64

Change from mid-market pricing to bid pricing for investments (3,918,568)

(0.03)

Net asset value under IFRS 1,026,794,662 7.61
30th June 2011
  Per Participating
Total Preference Share
US$ US$
Published net asset value 1,241,698,534

9.20

Change from mid-market pricing to bid pricing for investments (4,496,102)

(0.03)

Net asset value under IFRS 1,237,202,432 9.17

4. COSTS OF INVESTMENTS TRANSACTIONS

During the period, expenses were incurred in acquiring or disposing of investments.

  For the six For the six
months ended   months ended
31st December 2011 31st December 2010
US$ US$
 
Acquiring 300,018 328,347
Disposing 344,087 218,984
644,105 547,331

5. SEGMENT INFORMATION

The Fund has elected to treat all of its operations, for management purposes, as a single operating segment as it does not aim at controlling or having any significant influence over the entities in which it holds its investments. The Fund is invested in equity securities. All of the Funds’ activities are interrelated, and each activity is dependant on the others. Accordingly, all significant operating decisions are based upon analysis of the Fund as one segment. The financial positions and results from this segment are equivalent to the financial statements of the Fund as a whole. Internal reports are prepared on a consistent basis with the measurement and recognition principles of IFRS.
The Fund’s operating income is derived from:
  For the six months ended For the six months ended
31st December 2011   31st December 2010
US$ US$
   
Equity Securities (199,987,069) 264,770,659

For Genesis Emerging Markets Fund Limited

HSBC Securities Services (Guernsey) Limited, Secretary

February 2011

END

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