Final Results

RNS Number : 9265Y

Advance Developing Markets Fund Ltd

30 January 2014

 



ADVANCE DEVELOPING MARKETS FUND LIMITED

Annual Financial Report Announcement

For the year ended 31 October 2013

INVESTMENT OBJECTIVE AND PERFORMANCE

Investment objective

The Company's investment objective is to achieve consistent returns for Shareholders in excess of the MSCI Emerging Markets Net Total Return Index in Sterling terms (the "Benchmark")

Performance

For the year ended 31 October 2013

Net Asset Value ("NAV") per share1	+6.1%
Share price - mid market	+7.7%
MSCI Emerging Markets Net Total Return Index in Sterling terms	+7.1%

As at 31 October 2013
NAV per share3	494.7p
Ordinary share price - mid market	452.5p
Net Assets	£317.3m

¹  Measured against a closing NAV at 31 October 2012 of 466.4p

²  Measured against a closing mid-market ordinary share price at 31 October 2012 of 420.3p

³  See note 13 in the Notes to the Financial Statements for basis of calculation

The Annual Report can be downloaded in electronic format from the website of the Investment Manager www.advance-emerging.com

CHAIRMAN'S STATEMENT 

Performance

During the financial year to 31 October 2013 the Company's net asset value ("NAV") and share price rose by 6.1% and 7.7% respectively. The benchmark MSCI Emerging Markets Net Total Return Index in Sterling terms rose by 7.1%. The Investment Manager's report provides an analysis of the Company's performance across the areas of fund selection, asset allocation and discount opportunities.

Despite making gains this financial year, the performance of equities in emerging markets compared to developed markets was disappointing, with headwinds provided by the perceived imminence of "tapering" of quantitative easing in the United States, which reduced appetite for emerging markets assets.

Tender Offer, Conditional Tender Offers and Share Repurchases

As reported in the Company's Half-year Report, a total of 11,320,272 Shares were repurchased by the Company on 15 March 2013 via a tender offer, equating to 15% of the Company's ordinary shares in issue at that time (excluding shares held in treasury).  The shares were purchased for cancellation at a 1% discount to formula asset value ("FAV"), being the net asset value of the tendered shares less the costs of the tender offer.  In addition, a mechanism was put in place for two further conditional tender offers for up to 10% of the ordinary shares in issue at a 1% discount to FAV if either: the Company's shares trade at an average discount of more than 10%, or the Company's NAV performance is behind that of the benchmark index during the six month periods ending 31 October 2013 (which has completed post year end as detailed in the paragraph below) and 30 April 2014.

In the six month measurement period ended 31 October 2013, the Company's shares traded at an average discount of 10.5%. The Company's performance over the same period, as measured by its net asset value total return, was below that of the MSCI Emerging Markets Net Total Return Index in Sterling terms. Consequently, in mid-December the Company conducted a tender offer for 10% of the shares in issue priced at a 1% discount to the FAV on 6 December 2013.  A total of 6,412,758 shares were repurchased by the Company under the tender offer and cancelled, equating to 10% of the Company's Shares in issue as at the record date of 7 November 2013. Following the completion of the tender offer the Company has 57,715,696 shares in issue (excluding 2,672,278 shares held in treasury).

It remains the case that the Board will consider judicious use of the Fund's share buyback facility as required. During the financial year 20,228 shares were repurchased by the Company at a discount to net asset value of approximately 10.5%. These shares are held in treasury and can only be resold at a price that represents a premium to the prevailing net asset value per share.

Publication of Daily Net Asset Values

With effect from 1 November 2013, with a view to increasing the Company's transparency, the Board resolved to move from weekly to daily publication of its net asset values. This brings the Company in line with its immediate peers and will allow market participants to more accurately gauge the discount and performance on a day to day basis.

Alternative Investment Fund Managers ("AIFM") Directive

As I noted in the Half Yearly Report, the Board has been considering the options available to it under the AIFM Directive.  Having taken professional advice, we have decided that the interests of investors would be best served by appointing the Investment Manager, Advance Emerging Capital Limited, as the AIFM.  The Investment Manager is applying for the necessary authorisation from the Financial Conduct Authority in the United Kingdom, a process which must be completed by 22 July 2014.  The Company must also appoint a depositary in order for the Company's and the AIFM's obligations to be fulfilled under the directive.  This will incur an additional cost for the Company.  Subject to finalisation of terms, the current intention is for Northern Trust in Guernsey to be appointed as depositary to the Company.  The Board and the Investment Manager are currently in the process of finalising the necessary arrangements in this regard.

Outlook

It is inevitable that appetite for different asset classes varies over time. Having been popular for much of the prior decade, emerging markets now are currently out of favour. As the Investment Manager argues, a great deal of negativity relating to emerging markets' future prospects appears to be priced in. While concerns about the speed and scale of "tapering" in the United States will no doubt resume at some point this year, it is important to recognise that this will be contingent on the continued improvement in the economic outlook for the United States. Current wisdom seems to be that positive news in developed markets must be negative for emerging markets. We believe that is unlikely to remain the case over the medium to longer term. The low valuations of emerging markets and the already significant rotation by investors out of the asset class bode well for better relative returns in 2014. The Company's portfolio is well placed to benefit from this trend and strongly reflects the Investment Manager's conviction in individual markets and managers.

As always, I would like to thank the Company's shareholders for their continued support, my fellow directors for their diligence and professionalism and all our advisers for their advice and assistance.

Richard Bonsor

Chairman

30 January 2014

 

 

INVESTMENT MANAGER'S REPORT

Performance review

Advance Developing Markets Fund Limited's ("ADMF", the "Fund" or the "Company") net asset value per share ("NAV") rose by 6.1% in Sterling terms during the reporting period, compared with a return of 7.1% for the Company's Benchmark (MSCI Emerging Markets Net Total Return Index in Sterling terms). The share price rose by 7.7%, with the discount to net asset value, at which the Company's shares trade, closing the period at 8.5%, having commenced it at 9.9%.

The period was an unusually testing one for investors in the asset class with markets driven by fund flows and sentiment, which in turn were determined by factors other than fundamentals. Even investors adopting a passive approach will have been disappointed, with the largest emerging market exchange traded funds lagging their benchmarks over the period.

The small underperformance of the Fund relative to the benchmark was not the result of a single standout factor, but due to a combination of asset allocation and underlying manager performance. Manager selection is discussed at a holding level later in this report, but, to summarise, many of our managers had a difficult time, particularly in the second half of the year. The Fund's look-through cash position and underweight position in Asian markets, especially Taiwan, were to blame in asset allocation terms. The positive contribution from discount opportunities was due to a small number of profitable corporate actions combined with a general narrowing of discounts across the closed-ended holdings in the portfolio.

Performance attribution for the financial year to 31 October 2013

Fund Selection	(0.3%)
Open Ended	(0.3%)
Closed Ended	0.1%
Other	(0.1%)
Asset Allocation	(0.7%)
Asia	(1.2%)
EMEA	0.0%
Latin America	0.8%
Cash (direct & underlying)	(0.4%)
Discount Opportunities	1.1%
Fees & Expenses	(1.2%)
Relative net asset value Performance	(1.1%)

Market Environment

The performance of the various markets that comprise the benchmark are shown in Sterling terms in Chart 1 of this report. For comparison, we also include the performance of MSCI Indices for the UK (+21.4%), US (+27.5%), Japan (+34.8%), World (+26.5%) and Frontier Markets (+26.3%).

Chart 1. Market performances during the financial year to 31 October 2013

see chart 1 in Annual report

The period was the worst for many years in terms of the underperformance of emerging markets relative to developed markets. In a sense, this trend became self-fulfilling, with money flowing out of the underperforming emerging markets and into strongly performing developed markets during the year, driving a number of the latter to new all-time highs by the end of the period. 

A key contributor to the lacklustre returns of emerging markets was currency weakness, with the Indonesian Rupiah, Indian Rupee, Turkish Lira, Egyptian Pound, South African Rand and Brazilian Real all depreciating significantly against Sterling (the Indonesian Rupiah was worst affected, declining by 14.3%). This weakness was driven by concerns over the ability of these countries to finance current account deficits as monetary policy in the United States becomes less accommodative. Even when "tapering" appeared to be postponed towards the end of the period, there was little respite for emerging market currencies.

The other major headwind during the period remained muted earnings growth which, in aggregate, was just 4.1% over the financial year (Source: MSCI, USD terms). Whilst modest, this is a material improvement on the prior year (when earnings declined by 11.6%) but still insufficient to conclude a sustained recovery in emerging market corporate performance is underway.

Portfolio

Corporate activity continued during the period, with key reconstructions discussed below. These, combined with continued efforts to run a more concentrated portfolio, saw a further decline in the number of holdings from 49 positions to 42 at the end of the period, with the top 20 holdings accounting for 74.2% of net assets.

The balance of investments by structure at the end of the period is shown below. The decline in open ended exposure was the result of two significant redemptions (Tarpon All Equities Fund and Atlantis China Fund). The rise in exposure to market access products (predominantly ETFs) was for asset allocation purposes (largely in Mexico, China and Taiwan) and to increase liquidity in anticipation of the 10% tender offer which was conducted by the Company in December 2013. The increase in closed-end fund exposure reflected allocations to the likes of Templeton Emerging Markets Investment Trust and India Fund Inc, which offered particular value in discount terms during the period. The average discount to net asset value on the closed end portion of the portfolio narrowed over the year to stand at 9.5% at the end of the period, from 11.0% at the end of the previous year. 

	October 2013	October 2012
Closed ended investment funds	58.9%	55.6%
Open ended investment funds	32.5%	40.7%
Market access products	6.2%	3.4%
Cash and other net assets	2.4%	0.3%

The geographic asset allocation at the end of the year is shown on page 7 of the Annual Report. There was a meaningful reduction in exposure to Brazil, a move we felt was justified based on the continued challenges facing that country. Slowing GDP growth, a retrenching consumer and a currency that remains on the expensive side (despite depreciating by more than 35% relative to Sterling from its 2011 peak) are some of the medium term issues facing the country. The upcoming Presidential election in 2014 will likely deliver little change, but has the potential to inject some uncertainty. Valuations do not necessarily reflect the challenging outlook so, for now at least, we prefer to be underweight.

Conversely, exposure to Asia increased, based on improving fundamentals in Korea and Taiwan and bottom up opportunities in India. The Company's exposure to China (including exposure to Hong Kong listed Chinese companies) remains marginally underweight against a 19.0% benchmark weight. The market itself is attractive, we believe, with concerns over slower growth and the shadow banking industry already reflected in valuations. Thailand has been a rewarding investment destination for ADMF for some time, but with valuations at a premium to other Asian emerging markets and political uncertainty resuming, we decided to reduce exposure and an instruction was placed to partially redeem an open ended fund holding. This trade took place after the end of the financial year.

In Eastern Europe, Middle East and Africa, we retain an overweight position in Russia based on attractive valuations and stronger fundamentals than the market is given credit for. Turkey remains an overweight position due to its superior medium to long term economic growth combined with reasonable valuations. We are, however, cognizant of the fact that, in the short term, external factors may cause some volatility in the market as the current account deficit remains a weakness. In South Africa, the currency was the key consideration during the period and is likely to remain so. In local currency terms, the market recently hit an all-time high despite the significant challenges facing the domestic economy. We continue to run an underweight allocation although that is tempered by an off-index allocation to the rest of the continent, where fundamentals remain superior.

Further details on the largest ten holdings at 31 October 2013 are as follows:

Korea Fund Inc (6.2% of net asset value)

The US listed closed end Korea Fund Inc is managed by the team at Allianz Global Investors in Hong Kong which invests with a fundamental growth mindset. Performance was somewhat lacklustre over the year with a share price total return of 6.7% and net asset value return of 7.1%, lagging the 13.3% gain in the MSCI Korea Index. The underperformance was in part attributable to poor stock picking in the consumer discretionary and information technology sectors. The fund ended the year trading on a discount to net asset value of 9.8%, slightly wider than the 8.0% level targeted by its share repurchase programme.

Templeton Emerging Markets Investment Trust (5.3% of net asset value)

ADMF's holding in Templeton Emerging Markets Investment Trust fluctuated over the year in tandem with the widening and narrowing of the discount to net asset value, which ranged from 5.9% to 11.3%. The trust continues to offer liquid and diversified exposure to emerging market large cap companies with Templeton's trademark long term, value oriented approach. The net asset value underperformed emerging markets marginally over the year, not helped by aggressive positioning in Brazil, India and Turkey.

BlackRock Latin American Investment Trust (5.1% of net asset value)

The trust achieved a small outperformance of the benchmark MSCI Latin American Index during the period in net asset value terms, but suffered from discount widening as the underlying region fell out of favour. The discount to net asset value widened from 7.3% to 10.5% over the period.

BlackRock Latin American Investment Trust's board of directors undertook several measures during the period to address structural issues facing the trust. In August 2013 changes were announced to the trust's discount control mechanisms. Discretionary semi-annual tenders were discontinued, replaced with a one off 24.99% tender in April 2016 if certain performance and discount related hurdles are not achieved over the next two financial years. In September 2013 a tender offer was conducted for the entirety of the trust's convertible unsecured loan stock, thus simplifying the capital structure.

We believe that these changes are in the best interests of shareholders over the long term. Over the short term however, they have had no impact on the discount to net asset value at which the trust's shares trade. A more pressing consideration is the disappointing performance since BlackRock took over as investment manager in 2006. In a region with a proliferation of talented local stock pickers, the opportunity cost of continuing to hold an illiquid regional generalist with an uninspiring portfolio has, in our opinion, become too high, even if it does trade on an apparently attractive discount to NAV. As such, we elected to reduce the position materially following the end of the period, reallocating the proceeds to locally based best of breed managers with more focussed portfolios.

JP Morgan Russian Securities (5.0% of net asset value)

JP Morgan Russian Securities is a core holding that provides almost half of ADMF's Russian exposure. During the year to 31 October 2013, the trust's net asset value and share price appreciated by 12.4% and 12.5%, respectively, while MSCI Russia gained 11.5%. The discount to net asset value averaged 11.0% over the year as Russia remained out of favour among emerging markets and global investors. The trust maintains a high exposure to consumer oriented sectors, while it is underweight energy, utilities and telecoms, which are more exposed to political interference.

Neuberger Berman - China Equity Fund (4.9% of net asset value)

Over the course of ADMF's financial year the fund delivered a return of 13.5% compared with MSCI China's return of 9.9%. The key attractions of this fund remain the quality and depth of the investment team and the exacting nature of the investment process. Neuberger's well resourced China team operates from offices in Hong Kong and Shanghai. The fund is focussed on the large to mid cap segment of the market and is run on a relatively concentrated basis with a distinct value bias.

Coronation Top 20 Fund (4.7% of net asset value)

Cape Town based Coronation continues to deliver consistent performance from a portfolio of their highest conviction South African stock picks. The NAV return for the year was 14.1%, some 8.4% ahead of the benchmark index. The fund has been ADMF's core exposure to the South African market for over 7 years.

Edinburgh Dragon Trust (4.2% of net asset value)

Edinburgh Dragon Trust invests across the Asia ex Japan markets and is managed by Aberdeen Asset Management with a bottom up "quality at the right price" investment approach.  Over the year, the trust's net asset value rose by 8.3% and its share price by 9.5% compared with a gain of 10.8% in the MSCI AC Asia ex Japan Index and 10.3% in the MSCI Emerging Asia Index.

China Fund Inc (4.1% of net asset value)

RCM Asia Pacific manages the fund's investments with a fundamental growth approach which seeks to identify high-quality companies capable of delivering superior earnings growth. During ADMF's financial year the fund outperformed its MSCI Golden Dragon Index benchmark by 7.3% on an NAV total return basis and 6.6% on a price return basis. The fund's discount to net asset value widened marginally over the year to stand at 12.1% at year end.

Schroder Asia Pacific Fund (3.6% of net asset value)

The expiry of Schroder Asia Pacific Fund's subscription shares at the end of 2012 provided an opportunity for ADMF to acquire a meaningful stake on a discount to net asset value of 11.0%. This UK listed investment trust draws on the resources of Schroders' significant Asian equity research capabilities. We continued to add to the position throughout the year. During ADMF's financial year the trust's net asset value total return was 6.9% and its share price return was 6.4% compared with a gain of 10.8% in the MSCI AC Asia ex Japan Index and 10.3% in the MSCI Emerging Asia Index.

Aberdeen Latin America Equities Fund (3.6% of net asset value)

After an excellent showing in the first 6 months of the period, the performance of this US listed closed end fund trailed off in the second half. For the period as a whole, the NAV return was still comfortably ahead of the benchmark index, up 2.8% whilst MSCI Latin America declined by 2.1%. Performance was driven by stock picking across underlying markets and a perennial underweight to resources and materials companies. 

Key sales or exits achieved as a result of corporate actions during the year include the following:

Henderson Asian Growth Trust (5.6% of net asset value as of 28 February 2013)

As stated in the Half Yearly Report, ADMF was able to exit substantially all of this holding with a significant uplift in March 2013 following a 50% tender offer. The discount to net asset value at the beginning of the period was 9.7%. The tender offer was conducted at net asset value less costs.

Tarpon All Equities Fund (4.6% of net asset value as at 31 March 2013)

This Brazil focused holding was redeemed in March 2013. From the time of ADMF's initialinvestment in November 2008 to redemption, the headline NAV of the fund gained 240.5% (33.4% annualised). This reflects substantial outperformance of the MSCI Brazil Index which gained 93.9% (16.8% annualised) over the same period. The outperformance was generated by aggressive stock selection focused on small and mid cap domestic growth companies combined with a number of successful private equity deals. ADMF retains a 0.6% exposure to side pockets in Tarpon All Equities Fund which represent private equity investments that have yet to be realised. The redemption was justified on the basis of rapid growth in the underlying manager's assets under management and continued headwinds facing the Brazilian economy.

India Fund Inc (3.2% of net asset value)

The fund conducted a regular repurchase offer in September 2013 for 5% of outstanding shares at a 2% discount to net asset value. We submitted all ADMF's shares for repurchase and received cash in respect of 14.1% of our holding, benefitting from a scaling up as not all other holders tendered their shares. The discount at the time of the tender offer was 15.6%. The fund has achieved a modest outperformance of the Indian portion of our benchmark in net asset value terms since we invested in May 2013.

Atlantis China Fund (2.7% of net asset value as of July 2013)

The position was initially trimmed in mid-June as we rotated out of a number of open-ended funds into closed-ended equivalents on attractive discounts. On 31 July we redeemed the remaining holding following discussions with Atlantis about their investment in China Metals Recycling which was the subject of a report by a short seller in January and was subsequently suspended from trading. The Hong Kong regulator acted to wind up the company in July and the Chairman was subsequently arrested for false accounting in August. During our discussions Atlantis made a robust defence of their investment and while they could be excused for poor judgment (and it will certainly take time to get to the bottom of what actually occurred), we were concerned over their poor communication on this issue during the prior six months. For that reason, we chose to exit the holding in its entirety despite our long standing relationship with, and high regard for, the manager.

BlackRock Emerging Europe plc (2.1% of net asset value)

In June 2013 shareholders approved a change of name (from The Eastern European Trust) and a revised investment policy, under which the investment manager will run a more concentrated, less benchmark oriented portfolio. At the same time, the company introduced a conditional tender offer for up to 25 per cent of the company's shares in issue which will be triggered if, over the next 3 years, the trust underperforms its benchmark by in excess of 3 per cent on a cumulative basis. Furthermore, at the fifth annual meeting following the introduction of the revised investment policy, shareholders will have the opportunity to elect to exit at NAV less costs. We were supportive of these changes believing them to align the fortunes of investors and the manager and provide the potential for superior performance over the coming years. 

At the same time as the above proposals were passed, shareholders also approved a smaller tender offer for 7.5% of outstanding shares in issue at formula asset value less 1%. ADMF's holding was tendered and cash received back in respect of 11.5% of the holding. The prevailing discount to net asset value at the time of the tender offer in July was 7.7%. The discount to net asset value ended the period at 7.3%.

Impax Asian Environmental Markets plc (1.8% of net asset value as of July 2013)

In May 2013 the board of Impax Asian Environmental Markets plc announced plans to wind up the company, offering shareholders the choice of rolling into an open-ended investment entity with an identical investment policy, or realising all or part of their investment for cash. We elected, on behalf of ADMF, for the cash exit and received the proceeds in August. This represented a significant uplift to an investment that was originally acquired in January 2012 at a discount to net asset value in excess of 20%.

Prosperity Voskhod Fund (1.0% of net asset value)

In early 2013, the board of this Russia focused closed end fund put forward proposals to adopt a new investment objective and policy with the aim of realising the somewhat illiquid portfolio within 3 years. Good progress has been made by the manager towards this end, with substantial realisations or above at carrying value. An initial distribution of USD54 million (representing 20.7% of net asset value) was made to shareholders in September. Shortly after the end of the period, plans for a second distribution (for a similar proportion of net asset value as the first) were announced. Unfortunately, the fund underperformed the Russian portion of ADMF's benchmark index by a little over 10% during the period, offsetting the benefit of the distributions. At the end of the period the discount to net asset value was in excess of 10%.

Market Outlook

Over the last 3 years, emerging markets have made the transition from "darlings" to "underdogs" in the collective mind of global investors. Moderating growth at both a macro and corporate level has come at the same time developed markets have begun to generate growth of their own. Our sense is that this reversal has gone too far, with bearish sentiment towards emerging markets now rife. Predictions that the emerging market story is over are overstated, with no foundation in reality.

Subject to such low expectations, we believe there is now scope for positive surprises. Aggregate valuations are low in emerging markets at a time when valuations in all other geographies have risen significantly, pricing in a sustained and problem free recovery. The discount in emerging market valuations relative to developed markets is back to levels last seen in the depths of the financial crisis, as can be seen in the chart below. Based on the Price to Book ratio, the valuation discount in the former relative to the latter is back to levels last seen in 2004.

Chart 2. Discount of emerging markets to developed markets on trailing Price to Earnings and Price to Book ratios.

see chart 2 in Annual report

Of course, the asset class is not without risk. The impact of "tapering" is a legitimate concern, but one that has been discussed and extensively analysed. It is a "known unknown", with the only real uncertainty being the speed and scale. If 2004 (when emerging market equities entered a bull market as soon as the Fed started hiking rates) is any guide, then it is possible that the anticipation of "tapering" will have proven more challenging than the reality. Emerging markets may have seen their seeming monopoly on GDP growth eroded, but they will, in aggregate, continue to grow faster than developed markets in absolute terms for the foreseeable future. Investors should simply be more selective in picking those areas with healthy levels of growth and where this growth is being translated into earnings and stock market returns.

In such a diverse asset class, there are always opportunities that are overlooked and misunderstood by the broader investment community. At present, China, Russia, Korea and Africa (ex South Africa) continue to look particularly attractive. Mexico and Peru are receiving more of our attention now than previously. We are happy to be investing in unloved assets once again and confident that 2014 may be the year when value investing again begins to trump "paying up for growth" and judicious, active stock picking comfortably outperforms passive strategies.

If the above assumptions prove correct, then emerging markets are due a period of catch up, and our underlying best of breed, locally based managers are well placed to outperform. Discounts on the Fund's closed-ended holdings should continue to narrow in such an environment.

Advance Emerging Capital Limited

30 January 2014

PRINCIPAL RISKS AND UNCERTAINTIES

Together with the issues discussed in the Chairman's Statement and the Investment Manager's Report, the Board considers that the main risks and uncertainties faced by the Company fall into the following categories.

(i) General market risks associated with the Company's investments

Changes in economic conditions, interest rates, foreign exchange rates and inflationary pressures, industry conditions, competition, political and diplomatic events, tax, environmental and other laws and other factors can substantially and either adversely or favourably affect the value of the securities in which the Company invests and, therefore, the Company's performance and prospects.

The Company's investments are subject to normal market fluctuations and the risks inherent in the purchase, holding or selling of securities, and there can be no assurance that appreciation in the value of those investments will occur. There can be no guarantee that any realisation of an investment will be on a basis which necessarily reflects the Company's valuation of that investment for the purposes of calculating the net asset value.

The Company's investments, although not made into developed economies, are not entirely sheltered from the negative impact of economic slowdown, decreasing consumer demands and credit shortages in such developed economies which, amongst other things, impact the demand for the products and services offered by the companies in which the Company directly or indirectly invests.

A proportion of the Company's portfolio may be held in cash or cash equivalent investments from time to time. Such proportion of the Company's assets will be out of the market and will not benefit from positive stock market movements, but may give some protection against negative stock market movements.

(ii) Developing markets

The funds selected by the Investment Manager invest in developing markets. Investing in developing markets involves certain risks and special considerations not typically associated with investing in other more established economies or securities markets. In particular there may be (a) the risk of nationalisation or expropriation of assets or confiscatory taxation; (b) social, economic and political uncertainty including war and revolution; (c) dependence on exports and the corresponding importance of international trade and commodities prices; (d) less liquidity of securities markets; (e) currency exchange rate fluctuations; (f) potentially higher rates of inflation (including hyper-inflation); (g) controls on foreign investment and limitations on repatriation of invested capital and a fund manager's ability to exchange local currencies for pounds Sterling; (h) a higher degree of governmental involvement and control over the economies; (i) government decisions to discontinue support for economic reform programmes and imposition of centrally planned economies; (j) differences in auditing and financial reporting standards which may result in the unavailability of material information about economies and issuers; (k) less extensive regulatory oversight of securities markets; (l) longer settlement periods for securities transactions; (m) less stringent laws regarding the fiduciary duties of officers and directors and protection of investors; and (n) certain consequences regarding the maintenance of portfolio securities and cash with sub-custodians and securities depositories in developing markets.

(iii) Other portfolio specific risks

(a) Small cap stocks

The underlying investee funds selected by the Investment Manager may have significant investments in smaller to medium sized companies of a less seasoned nature whose securities are traded in an "over-the-counter" market. These "secondary" securities often involve significantly greater risks than the securities of larger, better-known companies, due to shorter operating histories, potentially lower credit ratings and, if they are not listed companies, a potential lack of liquidity in their securities. As a result of lower liquidity and greater share price volatility of these "secondary" securities, there may be a disproportionate effect on the value of the investee funds and, indirectly, on the value of the Company's portfolio.

(b) Liquidity of the portfolio

The fact that a share is traded does not guarantee its liquidity and the Company's investments may be less liquid than other listed and publicly traded securities. The Company may invest in securities that are not readily tradable or may accumulate investment positions that represent a significant multiple of the normal trading volumes of an investment, which may make it difficult for the Company to sell its investments. Investors should not expect that the Company will necessarily be able to realise its investments, within a period which they would otherwise regard as reasonable, and any such realisations that may be achieved may be at a considerably lower price than prevailing indicative market prices.  The Company has an overdraft facility in place which may be utilised to assist in the management of liquidity.  The borrowing facility is described later in this Directors' Report.

Liquidity of the portfolio is further discussed in note 16 to the financial statements.

(c) Foreign exchange risks

It is not the Company's present policy to engage in currency hedging. Accordingly, the movement of exchange rates between Sterling and the other currencies in which the Company's investments are denominated or its borrowings are drawn down may have a material effect, unfavourable or favourable, on the returns otherwise experienced on the investments made by the Company.

Movements in the foreign exchange rate between Sterling and the currency applicable to a particular shareholder may have an impact upon that shareholder's returns in their own currency of account.

(iv) Internal risks 

Poor allocation of the Company's assets to both markets and investee funds by the Investment Manager, poor governance, compliance or administration, could potentially result in shareholders not making acceptable returns on their investment in the Company.

MEMORANDUM AND ARTICLES OF INCORPORATION

The Notice of the Annual General Meeting includes a Special Resolution to amend the Company's Memorandum and Articles of Incorporation to take into account changes in applicable law arising from The Companies (Guernsey) Law, 2008 ("the Law").

A number of administrative and substantive changes to the Memorandum and Articles of Incorporation are proposed, in particular, without prejudice the generality of the foregoing:-

·     The provisions regarding uncertificated securities issued through CREST or any other Relevant System have been updated and shortened.

·     As the Company has no further Subscription Shares in issue, all references to them have been deleted.

·     There have been minor administrative changes, to conform better to the Alternative Investment Markets Fund Directive of the European Union, in particular, specific reference has been made to depositories.

·     Article 46 expands upon certain requirements re reporting to Members.

A draft of the proposed Memorandum and Articles of Incorporation is being to shareholders with the Annual Report.

A black line of the proposed Memorandum and Articles of Incorporation marked against the current Memorandum and Articles of Association may be obtained from the Administrator, Legis Fund Services Limited, by email on [e-mail] or by telephone on [phone] or can be found on the Manager's website www.advance-emerging.com.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

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

Company law requires the directors to prepare financial statements for each financial year.  Under that law they have elected to prepare the financial statements in accordance with International Financial Reporting Standards and applicable law. 

The financial statements are required by law to 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 judgements and estimates that are reasonable and prudent;

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

·     prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies (Guernsey) Law, 2008.  They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the company and to prevent and detect fraud and other irregularities. 

Disclosure of information to auditor

The Directors who held office at the date of approval of this directors' report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's auditors are unaware; and each director has taken all the steps that they ought to have taken as a director to make themselves aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

Directors' responsibility statement in respect of the Annual Report and Financial Statements

The Directors confirm that to the best of their knowledge and belief the report and accounts taken as a whole, is fair, balanced and understandable and provides the information necessary to assess the Company's performance, business model and strategy.

Directors' responsibility statement under the Disclosure and Transparency Rules 4.1.12

The Directors confirm that to the best of their knowledge and belief;

(a)  the financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and

(b)  the management report (comprising the Chairman's Statement, the Investment Manager's Report and the Directors' Report) includes a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that the Company faces.

John Hawkins - Director

William Collins - Director

30 January 2014

 

STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 October 2013

		Revenue	2013 Capital	Total	Revenue	2012 Capital	Total
		£'000	£'000	£'000	£'000	£'000	£'000
	Gains/(losses) on investments designated as fair value through profit or loss	-	26,781	26,781	-	(140)	(140)
	Capital gains/(losses) on currency movements	-	117	117	-	(117)	(117)
	Net investment gains/(losses)	-	26,898	26,898	-	(257)	(257)
	Investment income	2,931	-	2,931	3,203	-	3,203
	Total revenue	2,931	26,898	29,829	3,203	(257)	2,946
	Investment management fees	(2,938)	-	(2,938)	(3,190)	-	(3,190)
	Other expenses	(688)	-	(688)	(613)	-	(613)
	Operating profit/(loss) before finance costs and taxation	(695)	26,898	26,203	(600)	(257)	(857)
	Finance costs	(28)	-	(28)	(50)	-	(50)
	Operating profit/(loss) before taxation	(723)	26,898	26,175	(650)	(257)	(907)
	Withholding tax expense	(246)	-	(246)	(257)	-	(257)
	Total comprehensive income for the year	(969)	26,898	25,929	(907)	(257)	(1,164)
	Earnings per ordinary share	(1.42p)	39.30p	37.88p	(1.20p)	(0.34p)	(1.54p)

The Company does not have any income or expenses that are not included in the profit/(loss) for the year and therefore "profit/(loss) for the year" is also the "Total comprehensive income for the year", as defined in International Accounting Standard 1 (revised).

The total column of this statement represents the Company's Statement of Comprehensive Income, prepared under IFRS.  The revenue and capital columns, including the revenue and capital earnings per share data, are supplementary information prepared under guidance published by the Association of Investment Companies.

All revenue and capital items in the above statement derive from continuing operations.  No operations were acquired or discontinued during the year. 

STATEMENT OF FINANCIAL POSITION

At 31 October 2013

	2013 £'000			2012 £'000
Non-current assets
Investments designated as fair value through profit or loss	309,697			350,987
Current assets
Cash and cash equivalents	5,413			2,948
Sales for future settlement	2,285			131
Other receivables	182			629
	7,880			3,708
Total assets	317,577			354,695
Current liabilities
Other payables	314			355
Purchases for future settlement	-			2,376
Total liabilities	314			2,731
Net assets	317,263			351,964
Equity
Share capital	245,381			306,011
Capital reserve	76,708			49,810
Revenue reserve	(4,826)			(3,857)
Total equity	317,263			351,964
Net assets per ordinary share	494.73p			466.37p
Number of ordinary shares in issue (excluding shares held in treasury)	64,128,454			75,468,954

Approved by the Board of Directors on 30 January 2014 and signed on their behalf by:

John Hawkins - Director

William Collins - Director

STATEMENT OF CHANGES IN EQUITY

For the year ended 31 October 2013

		Share capital account	Capital reserve	Revenue reserve	Total
		£'000	£'000	£'000	£'000
Opening equity		306,011	49,810	(3,857)	351,964
Tender offer		(60,533)	-	-	(60,533)
Other share buy backs		(97)	-	-	(97)
Increase/(decrease) in equity		-	26,898	(969)	25,929
Balance at 31 October 2013		245,381	76,708	(4,826)	317,263

For the year ended 31 October 2012

		Share capital account	Capital reserve	Revenue reserve	Total
		£'000	£'000	£'000	£'000
Opening equity		279,378	50,067	(2,950)	326,495
Issue of shares		28,605	-	-	28,605
Share buy backs		(1,942)	-	-	(1,942)
Share issue expenses		(30)	-	-	(30)
(Decrease) in equity		-	(257)	(907)	(1,164)
Balance at 31 October 2012		306,011	49,810	(3,857)	351,964

 STATEMENT OF CASH FLOW

 For the year ended 31 October 2013

	2013 £'000	2012 £'000
Cash flows from operating activities
Cash inflow from investment income and bank interest	3,247	2,975
Cash outflow from management expenses	(3,766)	(3,794)
Cash inflow from disposal of investments	201,756	97,420
Cash outflow from purchase of investments	(138,215)	(133,759)
Cash outflow from taxation	(15)	(257)
Net cash flow from/(used in) operating activities	63,007	(37,415)
Cash flows from financing activities
(Decrease)/increase in bank borrowings	-	(10,000)
Borrowing commitment fee and interest charges	(28)	(68)
Share issues expenses	-	(30)
Conversion of subscription shares	-	28,605
Share buy backs/Tender offer	(60,630)	(1,942)
Net cash flow (used in)/from financing activities	(60,658)	16,565
Net increase/(decrease) in cash and cash equivalents	2,349	(20,850)
Opening balance	2,948	23,919
Cash flow	2,349	(20,850)
Effect of foreign exchange transactions	116	(121)
Balance at 31 October	5,413	2,948

NOTES

1. REPORTING ENTITY

Advance Developing Markets Fund Limited (the "Company") is a closed-ended investment company, registered in Guernsey on 16 September 2009. The Company's registered office is 11 New Street, St Peter Port, Guernsey GY1 2PF.  The Company's ordinary shares hold a premium listing on the London Stock Exchange. The financial statements of the Company are presented for the year ended 31 October 2013.

The Company invests in a portfolio of funds and products which give diversified exposure to emerging market economies and those of the Pacific Rim. The Company's investment objective is to achieve consistent returns for shareholders in excess of the MSCI Emerging Markets Net Total Return Index in Sterling terms (Bloomberg ticker: NDUEEGF Index) (the "Benchmark").

The investment activities of the Company are managed by Advance Emerging Capital Limited.

This report will be sent to shareholders and copies will be made available to the public at the registered office of the Company.  It will also be available in electronic form on the Investment Manager's website, www.advance-emerging.com 

2. BASIS OF PREPARATION

(a) Statement of compliance

The financial statements which give a true and fair view have been prepared in accordance with International Financial Reporting Standards ("IFRS") adopted by the International Accounting Standards Board ("IASB") and are in compliance with the Companies (Guernsey) Law, 2008. There were no changes in the accounting policies of the Company in the year to 31 October 2013.

Where presentational guidance set out in the Statement of Recommended Practice ("SORP") for Investment Companies issued by the Association of Investment Companies ("AIC") in January 2009 is consistent with the requirements of IFRS, the directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.

The total column of the Statement of Comprehensive Income is the profit and loss account of the Company.  The capital and revenue columns provide supplementary information.

The financial statements were approved and authorised for issue by the Board on 30 January 2014.

(b) Going concern

The directors have adopted the going concern basis in preparing the financial statements. The following is a summary of the directors' assessment of the going concern status of the Company.

The directors have a reasonable expectation that the Company has adequate operational resources to continue in operational existence for at least twelve months from the date of approval of this document.  In reaching this conclusion, the directors have considered the liquidity of the Company's portfolio of investments as well as its cash position, income and expense flows.  As at 31 October 2013, the Company held £5.4m in cash and £309.7m in investments. It is estimated that approximately 85.1% of the investments held at the year end could be realised in one month.  The total operating expenses for the year ended 31 October 2013 were £3.6m, which represented approximately 1.1% of average net assets during the year.  The Company therefore has substantial operating expense cover.  The Company's net assets at 31 December 2013 were £272m.

The directors are satisfied that it is appropriate to adopt the going concern basis in preparing the financial statements and, after due consideration, the directors consider that the Company is able to continue in the foreseeable future.

(c) Basis of measurement

The financial statements have been prepared on the historical cost basis except for financial instruments at fair value through profit or loss which are measured at fair value.

(d) Functional and presentation currency

The Company's shares are issued in Sterling and the majority of its investors are UK based, therefore the financial statements are presented in Sterling, which is the Company's functional currency. All financial information presented in Sterling has been rounded to the nearest thousand pounds.

(e) Use of estimates and judgements

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

Estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are described below.

Classification and valuation of investments

Investments are designated as fair value through profit or loss on initial recognition and are subsequently valued at fair value.  The valuation of such investments requires estimates and assumptions made by the management of the Company depending on the nature of the investments as described in notes 3 (a) and 17 and fair value may not represent actual realisable value for those investments.

Allocation of investments to fair value hierarchy

IFRS 7 requires the Company to measure fair value using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements. IFRS 7 establishes a fair value hierarchy that prioritises the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of fair value hierarchy under IFRS 7 are as follows:

Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 - inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices);

Level 3 - inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.

The determination of what constitutes 'observable' requires significant judgement by the Company. The Company considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary and provided by independent sources that are actively involved in the relevant market.

Functional currency

The Company's ordinary shares are issued and traded in Sterling and a significant proportion of its investments are quoted in Sterling.  For these reasons the Company has adopted Sterling as its functional currency.

3. SIGNIFICANT ACCOUNTING POLICIES

(a) Investments

As the Company's business is investing in financial assets with a view to profiting from their total return in the form of increases in fair value, financial assets are designated as fair value through profit or loss on initial recognition.  These investments are recognised on the trade date of their acquisition at which the Company becomes a party to the contractual provisions of the instrument.  At this time, the best evidence of the fair value of the financial assets is the transaction price.  Transaction costs that are directly attributable to the acquisition or issue of the financial assets are charged to the Statement of Comprehensive Income as a capital item. Subsequent to initial recognition, investments designated as fair value through profit or loss are measured at fair value with changes in their fair value recognised in the Statement of  Comprehensive Income and determined by reference to:

i)  investments quoted or dealt on recognised stock exchanges in an active market are valued by reference to their market bid prices;

ii)  investments other than those in i) above which are dealt on a trading facility in an active market are valued by reference to broker bid price quotations, if available, for those investments;

iii)  investments in underlying funds, which are not quoted or dealt on a recognised stock exchange or other trading facility or in an active market, are valued at the net asset values provided by such entities or their administrators. These values may be unaudited or may themselves be estimates and may not be produced in a timely manner. If such information is not provided, or is insufficiently timely, the Investment Manager uses appropriate valuation techniques to estimate the value of investments. In determining fair value of such investments, the Investment Manager takes into consideration the relevant issues, which may include the impact of suspension, redemptions, liquidation proceedings and other significant factors. Any such valuations are assessed and approved by the directors. The estimates may differ from actual realisable values;  

iv) investments which are in liquidation are valued at the estimate of their remaining realisable value; and

v) any other investments are valued at directors' best estimate of fair value.

Investments are derecognised on the trade date of their disposal, which is the point where the Company transfers substantially all the risks and rewards of the ownership of the financial asset.  Gains or losses are recognised in the capital column of the Statement of Comprehensive Income. The Company uses the weighted average cost method to determine realised gains and losses on disposal of investment.  

(b) Foreign currency

Transactions in foreign currencies are translated into Sterling at the exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated into Sterling at the spot exchange rate at that date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value through profit or loss are retranslated into Sterling at the exchange rate at the date that the fair value was determined. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated into Sterling using the exchange rate at the date of the transaction.

Foreign currency differences arising on retranslation are recognised in profit or loss and, depending on the nature of the gain or loss, are allocated to the revenue or capital column of the Statement of Comprehensive Income. Foreign currency differences on retranslation of financial instruments designated as fair value through profit or loss are shown in the "Capital gains/(losses) on currency movements" line.

(c) Income from investments

Dividend income is recognised when the right to receive it is established and is reflected in the Statement of Comprehensive Income as Investment Income in the revenue column. For quoted equity securities this is usually on the basis of ex-dividend dates. For unquoted investments this is usually on the entitlement date confirmed by the relevant holding.  Income from bonds is accounted for using the effective interest rate method.

Special dividends and distributions described as capital distributions are assessed on their individual merits and may be credited to the capital reserve if considered to be closely linked to reconstructions of the investee company or other capital transactions. Bank interest receivable is accounted for on a time apportionment basis and is based on the prevailing variable interest rates for the Company's bank accounts.

(d) Treasury shares

Where the Company purchases its own share capital, the consideration paid, which includes any directly attributable costs, is recognised as a deduction from equity shareholders' funds through the Company's reserves. When such shares are subsequently sold or re-issued to the market any consideration received, net of any directly attributable incremental transaction costs, is recognised as an increase in equity shareholders' funds through the Share capital account. Shares held in treasury are excluded from calculations when determining NAV per share as detailed in note 13.

(e) Cash and cash equivalents

Cash comprises of cash at hand and demand deposits. Cash equivalents, which include bank overdrafts, are short term, highly liquid investments that are readily convertible to known amounts of cash, are subject to insignificant risks of changes in value, and are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes.

(f) Investment management fees and finance costs

Investment management fees and finance costs are charged to the Statement of Comprehensive Income as a revenue item and are accrued monthly in arrears. Finance costs include interest payable and direct loan costs. Performance-related fees, if any, are payable directly by reference to the capital performance of the Company and are therefore charged to the Statement of Comprehensive Income as a capital item. 

(g) Financial liabilities

Financial liabilities (including bank loans) are classified according to the substance of the contractual arrangements entered into. Financial liabilities at fair value through profit or loss are measured initially at fair value, with transaction costs recognised in the Statement of Comprehensive Income.

(h) Taxation

The Company applied for exempt status under the Income Tax (Exempt Bodies) (Guernsey) Ordinances 1989 and was charged an annual exemption fee of £600.

Dividend and interest income received by the Company may be subject to withholding tax imposed in the country of origin. The tax charges shown in the Statement of Comprehensive Income relate to overseas withholding tax on dividend income.

(i) Operating segments

The Company has adopted IFRS 8, 'Operating segments'. This standard requires a 'management approach', under which segment information is presented on the same basis as that used for internal reporting purposes. The Board, as a whole, has been determined as constituting the chief operating decision maker of the Company. The Board has considered the requirements of the standard and is of the view that the Company is engaged in a single segment of business, which is investing in a portfolio of funds and products which give exposure to the emerging market economies and those of the Pacific Rim. The key measure of performance used by the Board is the Net Asset Value of the Company (which is calculated under IFRS). Therefore no reconciliation is required between the measure of profit or loss used by the Board and that contained in the financial statements. 

Further information on the Company's operating segment is provided in note 18.

(j) Offsetting

Financial assets and liabilities are offset and the net amount presented in the Statement of Financial Position when, and only when, the Company has a legal right to set off the recognised amounts and it intends to either settle on a net basis or to realise the asset and settle the liability simultaneously.

Income and expenses are presented on a net basis only when permitted under IFRSs.

(k)  Standards and interpretations in issue but not yet effective

At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective:

A number of new standards, amendments to standards and interpretations are effective for annual periods beginning on or after 1 January 2013, and have not been applied in preparing these consolidated statements. None of these is expected to have a significant effect on the financial statements of the Company.

IFRS 9 Financial Instruments (2010), IFRS 9 Financial Instruments (2009)

IFRS 9 (2009) introduces new requirements for the classification and measurement of financial assets. Under IFRS 9 (2009), financial assets are classified and measured based on the business model in which they are held and the characteristics of their contractual cash flows. IFRS 9 (2010) introduces additions relating to financial liabilities. The IASB currently has an active project to make limited amendments to the classification and measurement requirements of IFRS 9 and add new requirements to address the impairment of financial assets and hedge accounting. A final standard in relation to hedge accounting is now in issue.

IFRS 9 was originally effective for accounting periods commencing on or after 1 January 2013 however the amendments made to IFRS 9 in December 2013 remove the mandatory effective date but it will be no earlier than 1 January 2017.

The adoption of IFRS 9 (2010) is not expected to have a significant impact on the Company's financial assets or financial liabilities.

IFRS 13 Fair Value Measurement (2011)

IFRS 13 provides a single source of guidance on how fair value is measured, and replaces the fair value measurement guidance that is currently dispersed throughout IFRS and it enhances fair value disclosures. Subject to limited exceptions, IFRS 13 is applied when fair value measurements or disclosures are required or permitted by other IFRSs.

IFRS 13 is effective for annual periods beginning on or after 1 January 2013 with early adoption permitted.  The adoption of IFRS13 is not expected to have a significant impact on the Company's financial assets or financial liabilities.

IFRS 10 Consolidated Financial Statements (2012)

IFRS 10 is effective for annual periods beginning on or after 1 January 2013, builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. The standard provides additional guidance to assist in the determination of control where this is difficult to assess. The new standard is not expected to have any impact on the Company's financial position or performance.

The amendments to IFRS 10 for Investment Entities define an investment entity and introduce an exemption to consolidating particular subsidiaries for investment entities. These amendments require an investment entity to measure those subsidiaries at fair value through profit or loss in its financial statements. The amendments also introduce new disclosure requirements for investment entities in IFRS 12 and IAS 27. The adoption of IFRS 10 is not expected to have a significant impact on the Company's financial statements.

IFRS 12 Disclosure of Interests in other entities

IFRS 12 is effective for annual periods beginning on or after 1 January 2013.  It includes the disclosure requirements for all forms of interests in other entities including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. The new standard in not expected to have any impact on the Company's financial position or performance but may result in additional disclosures.

4.	INVESTMENT INCOME
	Income from investments:	2013 £'000	2012 £'000
	Dividends income	2,900	2,942
	Bond interest income	31	230
	Other income	-	31
		2,931	3,203

5.	INVESTMENT MANAGEMENT FEES AND OTHER EXPENSES		2013			2012
		Revenue	Capital	Total	Revenue	Capital	Total
		£'000	£'000	£'000	£'000	£'000	£'000
	Investment management fee	3,074	-	3,074	3,270	-	3,270
	-management fee rebate	(136)	-	(136)	(80)	-	(80)
		2,938	-	2,938	3,190	-	3,190
	Administration fees	144	-	144	140	-	140
	Custodian's fees	40	-	40	43	-	43
	Registrar's fees	16	-	16	16	-	16
	Directors' fees	145	-	145	113	-	113
	Auditors' fees	49	-	49	42	-	42
	Marketing fees	32	-	32	50	-	50
	Broker fees	40	-	40	40	-	40
	Other expenses	222	-	222	169	-	169
	Total other expenses	688	-	688	613	-	613
	Total expenses	3,626	-	3,626	3,803	-	3,803

The Company's ongoing charges for the year ended 31 October 2013, calculated using the Association of Investment Companies methodology were 1.06% (2012: 1.08%).

6.      EARNINGS PER SHARE

Earnings per share is based on the total comprehensive income for the year ended 31 October 2013 profit of £25,929,000 (2012: loss of £1,164,000) attributable to the weighted average of 68,449,991 (2012: 75,693,651) ordinary shares in issue (excluding shares held in treasury) in the year ended 31 October 2013.

Earnings per share may be diluted by the impact of the subscription shares in issue during each period.

There was no dilution to earnings per share during the year ended 31 October 2013 as the final subscription of subscription shares for ordinary shares completed in November 2011. 

Supplementary information is provided as follows: revenue per share is based on the net revenue loss of £969,000 (2012: loss £907,000) and capital earnings per share is based on the net capital profit of £26,898,000 (2012: loss £257,000) attributable to the above ordinary shares.

7.        NET ASSET VALUE PER SHARE

Net assets per share is based on net assets of £317,263,000 (2012: £351,964,000) divided by 64,128,454 (2012: 75,468,954) shares (excluding shares held in treasury) in issue at the Statement of Financial Position date.

8.    RELATED PARTY DISCLOSURES

Investment Manager (the "Manager")

Advance Emerging Capital Limited ("AECL" or the "Investment Manager") has been appointed as the Company's investment manager. Details of its fee and agreement are provided in note 5.

Fees payable to the Investment Manager are shown in the Statement of Comprehensive Income.  No performance fee accrual has been included (2012: £nil).

Advance Brazil Leblon Equities Fund

As at 31 October 2013 the Company held an investment with a valuation of £10,233,889 (2012: £11,023,971) in Advance Brazil Leblon Equities Fund ("ABLE"), a fund established by Advance Emerging Capital Limited to invest in domestic growth opportunities within Brazil.  Leblon Equities Gestao de Recursos, a locally based investment manager with a highly experienced team, has been appointed as sub investment manager to run the portfolio on a day-to-day basis. The launch of this fund was a means to circumvent the lack of closed end product or appropriately structured open ended vehicles in this highly attractive market. The Company's shareholders benefit from significantly reduced management and performance fees on the investment and no double fees are charged by AECL. A rebate on management fee charged by ABLE equivalent to £136,274 (2012: £79,969) was payable to the Company in the year ended 31 October 2013.

Details of the directors' contracts and fees are provided in the Directors' Remuneration Report in the Annual Report .Total fees from the directors' in the year ended 31 October 2013 were £144,700 (2012: £112,500). Of this amount £144,700 (2012: £77,000) had been paid at the year end, with an accrual of £nil (2012: £35,500) outstanding. 

9. ANNUAL GENERAL MEETING

The Company's Annual General Meeting will be held at the Company's registered office at 11:00 a.m. on 10 April 2014.

10. FINANCIAL INFORMATION

The annual report was approved by the Board of directors on 30 January 2014.  The information in this announcement has been extracted from the annual report on which the Company's auditors have given an unqualified report.  The annual report will be posted to shareholders and will be made available on the Investment Manager's website at www.advance-emerging.com It will also be available from the registered office of Company and the UK administration agent.

This announcement contains regulated information under the Disclosure Rules and Transparency Rules of the FCA.

Registered office

11 New Street

St Peter Port

Guernsey GY1 2PF

Enquiries:

Advance Emerging Capital Limited (Investment Manager to Advance Developing Markets Fund Limited)

Dr Slim Feriani                      Tel: [phone]     

Legis Fund Services Limited (Company Secretary)

Lisa Garnham        Tel: [phone]

Cavendish Administration Limited (UK Administration Agent)

Anthony Lee        Tel: [phone]

Ordinary Shares - Listing Category: Premium - Equity Closed-ended Investment Funds

30 January 2014

END

 

END

 

 

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