Half Yearly Report

RNS Number : 9096A

Genesis Emerging Markets Fund Ld

25 February 2014

GENESIS EMERGING MARKETS FUND LIMITED

(The "Company"; the "Fund")

(Registration Number : 20790)

STOCK EXCHANGE ANNOUNCEMENT

HALF YEAR REPORT

The Directors of Genesis Emerging Markets Fund Limited announce the Fund's results for the six months ended 31^st December 2013. The Half Year Report will shortly be available from the Manager's website www.giml.co.uk and also for inspection on the National Storage Mechanism, which is located at http://www.morningstar.co.uk/uk/NSM where users can access the regulated information provided by listed entities.

INVESTMENT APPROACH

The investment approach is to identify companies which are able to take advantage of growth opportunities in emerging markets for the benefit of shareholders, and invest in them when they are trading at an attractive discount to the Manager's assessment of their intrinsic value.

BENCHMARK

MSCI Emerging Markets (Total Return) Index.

RESULTS

	31^st December 2013	30^th June 2013

Published net asset value*	£746.7m	£757.6m
Published net asset value per Participating Preference Share*	£5.53	£5.61
Published net asset value per Participating Preference Share*†	$9.16	$8.51
Earnings per Participating Preference Share	$0.66	$4.96

* Figures are based on the last traded price for investments.

† A reconciliation to the net asset value per Participating Preference Share under International Financial Reporting Standards is shown in note 2.

CHAIRMAN'S STATEMENT

Performance

Emerging market returns have been somewhat lacklustre for most of 2013, particularly in contrast with their developed counterparts. The improved economic conditions in the US have enhanced investor sentiment in that market while the likelihood of higher US interest rates has heightened concerns about the sustainability of emerging market performance in a tighter liquidity environment. Meanwhile, the macro-economic fundamentals of a number of key emerging market countries remain relatively weak. The result was that emerging markets underperformed developed markets by a considerable margin: over the six months to the end of December the MSCI EM(TR) Index returned -1.2% in sterling terms vs the MSCI World (TR) Index's +7.2%. (Over 2013 as a whole the difference was even more extreme, with the MSCI World's +25.0% substantially outperforming the MSCI EM's return of -4.1%.)

Over the half-year period, the Fund's net asset value per share ("NAV") declined from £5.61 to £5.53, a -1.4% return, meaning it underperformed the index slightly. The Fund's share price rose by 1.0% overall during the same period with the discount ending 2013 at a typical 9.5%, although these figures mask some of the market swings over the last few months.

The Board

The Fund held its Annual General Meeting on 31^st October, at which Sujit Banerji was elected to the Board. As noted in last year's Annual Report, I am confident that Mr Banerji's broad experience working in corporate strategy roles in a number of the Fund's markets over the last 30 years will make him a valuable addition to the Board and a useful source of insight for his fellow Directors.

Also, as noted previously, Dr Geng Xiao did not stand for re-election at the AGM as a result of increasing commitments in other roles away from the Fund. The number of Directors accordingly remains at six.

All proposals at the Annual General Meeting were passed by the Fund's shareholders, and I would like to thank them for their continued support of the Fund and its Board.

The Fund also held its regular Shareholder Information Meeting in London in late October. This is an annual event to which all shareholders are welcome and allows them to hear views direct from, and to ask questions of, the Manager's representatives. As part of the discussion the Manager presented the latest views on the outlook for emerging markets, as well as comments on the Fund's holdings and recent performance. The Manager's Review that follows this Statement explains the Manager's current thinking on holdings and how it sees the immediate prospects for emerging markets in general.

On regulatory matters, the Board is reviewing the impact of the Alternative Investment Fund Managers Directive ("AIFMD") on the Fund and is working closely with the Manager to ensure compliance with the new regulations which are effective from July 2014.

Outlook

The weakness of emerging market returns has continued in 2014 and the difficulties faced by developing economies and the businesses within them remain significant. As noted in past reports to shareholders there remain a number of challenges to the profitability of the Fund's holdings. These include an increasingly competitive environment as developed market companies continue to seek new business in the emerging world, increased government intervention in certain sectors for political ends and a lack of impetus behind reform measures in many markets. However it is important to realise that there is a positive perspective to this too, in that such an environment will generally widen the difference in business performance between good and bad business - that is, that higher quality businesses will cope more ably and will come through the short-term challenges with their competitive position enhanced.

I would emphasise, that we as a Board share the Manager's confidence that the high quality companies chosen to make up the Fund's portfolio are those that will benefit from this short-term effect and therefore over the long term deliver the performance that the Fund's shareholders have come to expect.

Coen Teulings

February 2014

DIRECTORS' REPORT

CAPITAL VALUES

At 31^st December 2013, the value of Equity Shareholders' Funds was $1,234,678,000 (30^th June 2013: $1,145,305,000) and the Equity per Participating Preference Share was $9.15 (30^th June 2013: $8.48).

PRINCIPAL RISKS AND UNCERTAINTIES

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

The economies, the currencies and the financial markets of a number of developing countries in which the Fund invests may be extremely volatile. To manage the risks posed by adverse price fluctuations the Fund's investments are geographically diversified, and will continue to be so. The Fund will not normally invest more than 25% of its assets (at the time the investment is made) in any one country. Further, the exposure to any one company or group (other than an investment company, unit trust or mutual fund) is unlikely to exceed 5% of the Fund's net assets at the time the investment is made. The Articles of Incorporation place a limit of 10% for securities issued by one company but the Directors use 5% for monitoring purposes.

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. 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's key operational risk is 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):

Coen Teulings, Michael Hamson, Saffet Karpat, Dr John Llewellyn, Hélène Ploix, Sujit Banerji (appointed on 31st October 2013) and Dr Geng Xiao (resigned on 30th October 2013).

As at 31st December 2013, Participating Preference Shares were held by Coen Teulings (40,000), Michael Hamson (8,700), Saffet Karpat (7,500), and Hélène Ploix (7,690).

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 30^th June 2013 which should be read in conjunction with this Interim Financial Statement.

GOING CONCERN

The Directors believe that the Fund has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

DIRECTORS' RESPONSIBILITY STATEMENT

In accordance with Chapter 4 of the Disclosure and Transparency Rules 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' and gives a true and fair view of the assets, liabilities, financial position and return of the Fund;

· the Half Year Report includes a fair review of important events that have occurred during the first six months of the financial year, their impact on the condensed financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

· the Half Year Report includes a fair review of the information concerning related party transactions.

Approved by the Board

Coen Teulings

Saffet Karpat

February 2014

MANAGER'S REVIEW

Historic tailwinds, which have driven economic growth and asset performance over the past decade, partly dissipated over 2013 leaving many developing economies facing a more challenging policy environment. Macroeconomic vulnerabilities were also exposed in the currency markets. Weakness in the Brazilian real, the Indian rupee, the Indonesian rupiah, the Turkish lira and the South African rand each had a significant impact on the return of the Fund. In addition due to tighter global financial conditions, the IMF's October summary of the current global economic outlook described the challenge of slower growth reflecting both cyclical (e.g. Russia and South Africa) and structural factors (the IMF highlights China and India in particular). However, as the year progressed there were encouraging signs that many developing countries, notably India, Indonesia and Mexico, were initiating policies designed to encourage investment and enhance competitiveness.

The Fund's net asset value performed roughly in line with that of the MSCI Emerging Markets (TR) Index over the half year, falling 1.4%in sterling terms. In terms of significant drivers of relative performance, holdings from the materials sector were prominent with Anglo American and First Quantum Minerals both rebounding somewhat from difficult periods earlier in the year. Elsewhere holdings from the IT sector also contributed, led by the Indian positions of Cognizant and Infosys. The Chinese positions of Tencent, Baidu and Ctrip also featured with stellar returns in excess of 60% over the six-month period. India topped the list of country contributors to relative performance through good stock selection. In contrast, the Fund's overweight position in the underperforming market of Turkey, which is struggling with twin deficits, and the Fund's underweight position in the strong South Korean market were chief among the detractors.

Looking at changes to the Fund's positioning over the six month period, purchase activity saw a number of Asian positions increased. In China, Tingyi and AAC Technologies were added to and new holdings, Belle International, a shoe manufacturer and distributor, and Beijing Yanjing Brewery were introduced. India saw significant purchase activity, with the majority of capital deployed in August when the market and its currency were under pressure. Two banks (Axis and Kotak), two motor vehicle manufacturers (Maruti Suzuki and Hero Motocorp) and Ambuja Cements all saw notable purchases, with Hero being a new portfolio holding. Similar conditions in Thailand resulted in additions to the existing positions of Siam Commercial Bank and Central Pattana. Elsewhere, Tullow Oil was notably increased and a number of other new names were introduced to the portfolio including CCR, a Brazilian infrastructure investor; Russian diamond producer Alrosa; and Turkish snacks and confectionary producer Ülker. In terms of sales, there were large reductions in Itaú Unibanco (Brazil) and the Mexican telecoms giant América Móvil and three sizeable positions were eliminated: Ctrip (China), Kepco (South Korea) and Bank of Ayudhya (Thailand). Elsewhere, three holdings from the IT sector were scaled back following strong runs, namely MediaTek (Taiwan), Baidu and Tencent (both China).

Looking forward, 2014 will see elections in - amongst other countries - three of the BRICS nations with Brazilians, Indians and South Africans all voting for their next governments. In all three, the economies are weaker than would have been hoped for at the previous elections and there is evident dissatisfaction with the ruling politicians. The investment implications are probably higher taxes on businesses and tighter regulation, continuing a trend we have been seeing for some time now. In addition, those companies which have prospered through a cosy relationship with politicians could well find the going tougher. For us, we are confident of the quality of the companies in the Fund and its expected annual return over the long term remains in double digits in US dollar terms. We currently forecast that earnings growth in 2014 will be approximately 10%, following limited growth in 2013. Our estimates suggest that while some pockets appear relatively expensive (such as consumer companies, India and Thailand), others appear much cheaper, such as Russia, South Korea and the financial sector, with especially notable upside present in the energy and materials holdings.

Genesis Asset Managers, LLP

February 2014

UNAUDITED STATEMENT OF FINANCIAL POSITION

as at 31^st December 2013 and 30^th June 2013

			(Audited)
	Note	31^st December 2013 $'000	30^th June 2013 $'000

ASSETS
Current assets
Financial assets at fair value through profit or loss		1,221,291	1,134,380
Amounts due from brokers		2,707	4,067
Dividends receivable		1,602	1,845
Other receivables and prepayments		179	167
Cash and cash equivalents		11,158	9,389

TOTAL ASSETS		1,236,937	1,149,848


LIABILITIES
Current Liabilities
Amounts due to brokers		11	2,216
Capital gains tax payable		145	247
Payables and accrued expenses		2,103	2,080


TOTAL LIABILITIES		2,259	4,543


TOTAL NET ASSETS		1,234,678	1,145,305

EQUITY
Share premium		134,349	134,349
Capital reserve		1,072,239	982,168
Revenue account		28,090	28,788


TOTAL EQUITY	2	1,234,678	1,145,305


NET ASSET VALUE PER PARTICIPATING PREFERNCE SHARE*	2	$9.15	$8.48

* Calculated on an average number of 134,963,060 Participating Preference Shares outstanding (30^th June 2013: 134,963,060).

UNAUDITED STATEMENT OF COMPREHENSIVE INCOME

for the six months ended 31^st December 2013 and 31^st December 2012

	Six months ended 31^st December 2013 $'000	Six months ended 31^st December 2012 $'000


INCOME
Net change in financial assets at fair value through profit or loss	89,758	150,621
Net exchange gains/(losses)	212	(127)
Dividend income	10,785	8,472
Miscellaneous income	-	17


	100,755	158,983


EXPENSES
Management fees	(9,074)	(8,715)
Custodian fees	(370)	(677)
Transaction costs	(733)	(593)
Directors' fees and expenses	(228)	(163)
Administration fees	(143)	(106)
Audit fees	(54)	(36)
Other expenses	(114)	(107)


TOTAL OPERATING EXPENSES	(10,716)	(10,397)


OPERATING PROFIT	90,039	148,586
FINANCE COSTS
Bank charges	-	-


TOTAL FINANCE COSTS	-	-

Capital gains tax	101	(1,008)
Withholding taxes	(767)	(965)

PROFIT AFTER TAX	89,373	146,613


Other Comprehensive Income	-	-


TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO PARTICIPATING PREFERENCE SHARES	89,373	146,613


EARNINGS PER PARTICIPATING PREFERENCE SHARE*	$0.66	$1.09

* Calculated on an average number of 134,963,060 Participating Preference Shares outstanding (2012: 134,963,060).

UNAUDITED STATEMENT OF CHANGES IN EQUITY

for the six months ended 31^st December 2013 and 31^st December 2012

	For the six months ended 31^st December 2013
	Share Premium $'000	Capital Reserve $'000	Revenue Account $'000	Total $'000

Balance at the beginning of the year	134,349	982,168	28,788	1,145,305
Total Comprehensive Income	-	-	89,373	89,373
Transfer to Capital Reserve	-	90,071	(90,071)	-


Balance at the end of the year	134,349	1,072,239	28,090	1,234,678


	For the six months ended 31^st December 2012
	Share Premium $'000	Capital Reserve $'000	Revenue Account $'000	Total $'000

Balance at the beginning of the year	134,349	916,195	31,016	1,081,560
Total Comprehensive Income	-	-	146,613	146,613
Transfer to Capital Reserve	-	150,494	(150,494)	-

Balance at the end of the year	134,349	1,066,689	27,135	1,228,173

UNAUDITED STATEMENT OF CASH FLOWS

for the six months ended 31^st December 2013 and 31^st December 2012

	2013 $'000	2012 $'000

OPERATING ACTIVITIES
Dividends received	10,254	10,409
Taxation paid	6	(1,589)
Purchase of investments	(142,972)	(99,514)
Proceeds from sale of investments	144,242	109,803
Operating expenses paid	(9,973)	(10,526)

NET CASH OUTFLOW FROM OPERATING ACTIVITIES	1,557	8,583

Effect of exchange gains/(losses) on cash and cash equivalents	212	(127)

NET INCREASE IN CASH AND CASH EQUIVALENTS	1,769	8,456

Net cash and cash equivalents at the beginning of the period	9,389	10,407

NET CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD	11,158	18,863

Comprising: Cash and cash equivalents	11,158	18,863

1. BASIS OF PREPARATION

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

The Interim Financial Information for the six months ended 31^st December 2013 has been prepared in accordance with International Accounting Standards 34, 'Interim Financial Reporting'. The Interim Financial Information should be read in conjunction with the Annual Financial Statements for the year ended 30^th June 2013, which have been prepared in accordance with International Financial Reporting Standards ("IFRS").

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

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

	31^st December 2013
	Total $'000	Per Participating Preference Share $
Published net asset value	1,236,899	9.16
Change from last traded price to bid pricing for investments	(2,221)	(0.01)


Net asset value under IFRS	1,234,678	9.15

	30^th June 2013
	Total $'000	Per Participating Preference Share $

Published net asset value	1,148,987	8.51
Change from last traded price to bid pricing for investments	(3,682)	(0.03)

Net asset value under IFRS	1,145,305	8.48

3. COST OF INVESTMENT TRANSACTIONS

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

	For the six months ended
	31^st December 2013	30^th June 2013
	$'000	$'000

Acquiring	393	281
Disposing	340	312

	733	593

4. SEGMENT INFORMATION

The Fund treats 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 Fund's 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 those per the financial statements of the Fund as a whole, as internal reports are prepared on a consistent basis in accordance with the measurement and recognition principles of IFRS.

The table below analyses the Fund's operating income by investment: