GENESIS EMERGING MARKETS FUND LIMITED
STOCK EXCHANGE ANNOUNCEMENT
The Directors of Genesis Emerging Markets Fund Limited announce the following
results for the year ended 30th June, 2009:-
30th June 2009 30th June 2008
US$ US$
Total net assets 734,260,089 994,204,936
Net assets per Participating Share 54.39 73.65
Total income perParticipating Share (19.26) 3.37
Commenting on the results the Chairman has made the following statement:
Performance
Extreme moves in all financial markets have dominated the investment environment
over the Fund's financial year. Following the dramatic market falls in the
second half of 2008 which took the Fund's net asset value (NAV) per share from
US$74.03 at the end of June 2009 to US$39.67 at the end of December - a decline
of over 46% - markets have rebounded sharply in 2008, with the Fund's NAV per
share rising 38% over the six-month period to close the financial year at
US$54.66.
The decline in NAV per share over the full twelve month period was 26.2%,
putting the Fund slightly ahead of the performance of the MSCI Emerging Markets
Free Index, which fell 27.8% over the same period.
The Report of the Manager on the following pages describes the economic
environment more fully and comments on the activity seen in the portfolio during
the year.
Reflecting the volatile market environment, the Fund's discount to NAV has seen
significant variation, especially towards the end of 2008. Over the year under
review the discount has averaged 9.6%, closing the financial year at 10.1%.
The Fund's short-term returns are of course an important consideration for the
Board of Directors when assessing the success of the Fund and the performance of
the Manager. That said it should not be forgotten, amidst the volatile economic
and stock market environment that we have seen over the financial year, that the
key aim of the Fund is to generate performance for its shareholders over the
long term. In this context it is pleasing to note that over the last five years
the Fund has generated an annualised return of nearly 16%. To look back further,
those shareholders who invested in the Fund at its inception have now seen
returns of over 12.5% per annum for the last twenty years.
As Directors, we remain satisfied that the Manager's approach and personnel will
allow it to continue generating long-term performance. Our opinion is that
shareholders' interests remain best served by the ongoing appointment of the
Manager.
Restructuring of the Fund
In recent years the Directors and Manager have received a number of comments and
questions from shareholders relating to the sometimes low liquidity exhibited by
the Fund's shares in the marketplace. In response to this, the Board has taken
the decision to propose certain changes to the structure of the Fund, in order
to broaden and deepen the market in the Fund's shares. These proposals are to:-
1. Redenominate the Fund's share capital as nil par value from US Dollars to
permit the Fund's shares to be quoted in Sterling on the London Stock
Exchange and therefore for the Fund to become eligible for inclusion in the
FTSE 250 Index; and
2. Reduce the market price of each share by dividing each existing share into
ten redenominated shares.
It is believed that this will have the effect of making the shares more
attractive to a broader range of investors and so improve the marketability of
the Fund's shares. Shareholders will be asked to vote on these proposals at an
Extraordinary General Meeting to be held following the Fund's Annual General
Meeting in October.
The proposals will require amendments to the Fund's existing Articles of
Association in order to redenominate and split the share capital. These
amendments require approval by the Fund's shareholders. This is the first
occasion since the introduction of a new Companies Law in Guernsey in 2008 that
it has been necessary to seek approval to alter the Fund's constitutional
documents and so the Board is taking this opportunity to adopt a modern
constitution to reflect developments in Guernsey company law since the original
Articles were adopted at formation in 1989.
Further detail on these proposals is given in the Circular accompanying the
Annual Report and Financial Statements. The Board of Directors, in conjunction
with its advisers J.P. Morgan Cazenove Limited, recommend that shareholders vote
in favour of the proposals.
The Board
The Directors are sad to announce the retirement of Jeremy Paulson-Ellis from
the Board of the Fund, effective from the forthcoming Annual General Meeting.
Mr. Paulson-Ellis has served the Fund with the utmost distinction since its
formation, for much of that time as Chairman, and his involvement has been a key
factor behind the Fund's strong reputation and continued success. It is no
exaggeration to say that Mr. Paulson-Ellis is one of the earliest pioneers in
the field of emerging markets investing, and his extensive knowledge of - and
long experience in - developing countries has enabled him to act as a source of
invaluable advice and guidance to the Fund. On behalf of the Board, I would like
to express my gratitude to Mr. Paulson-Ellis for his contribution to the success
of the Fund; he will be sorely missed.
In accordance with the Articles of Association and with regulatory requirements,
the Hon. John Train offers himself for re-election at the forthcoming Annual
General Meeting (as detailed in the Notice of Meeting that accompanies the
Annual Report and Financial Statements). Mr. Train's long experience in
investment matters and his deep knowledge of the politics of developing
countries is greatly valued by his fellow Directors and I have no hesitation in
endorsing his re-election to the Board.
The notice convening the Annual General Meeting to be held on 30th October 2009
is given at the end of the Annual Report and Financial Statements. We will again
be holding an Information Meeting in London on the same day to which an
invitation is enclosed; we look forward to meeting as many shareholders as
possible at this event.
Outlook
In the short-term it seems unlikely that emerging stock markets can continue to
rise at the pace of the last few months, and indeed it seems prudent to expect
further market volatility over the near term as the global economy works its way
towards some kind of recovery. Clearly developing countries will not be immune
from these effects.
Looking past the current environment, however, the outlook for the Fund's
investments is very attractive. Over the longer-term, emerging countries ought
to continue to grow faster than their developed counterparts, with the main
factors behind this being favourable demographic trends and the deployment of
ever-cheaper technology, communications and transport infrastructure to improve
productivity, as well as increasingly competent management not only of companies
but also - by governments - of economies in general.
Notwithstanding the recent rally in markets, the Manager (as noted in the Report
that follows) remains able to identify many attractively-priced entrepreneurial
companies who are ready to take advantage of growth opportunities.
Our expectations for the asset class therefore remain extremely positive, and I,
in common with the rest of the Board of Directors, believe that the Fund will
continue to generate the highly attractive returns for its shareholders that it
has produced over the last twenty years.
Coen Teulings
Chairman
September 2009.
Commenting on the results the Manager has made the following statement:
Review
The Fund's net asset value declined by 26.2% over the twelve months to 30th June
2009, but there were of course two distinct components to this movement. A 55%
fall in the Fund's NAV from 30th June 2008 to 28th February 2009 was followed by
a rise of some 63% over the next four months.
At the end of 2008, and into 2009, emerging stock markets were caught up in the
outpouring of global economic gloom, even though many developing countries were
seeing significantly better data than the advanced economies. However in recent
months, this extreme pessimism has given way to a more optimistic view of the
world. Improved sentiment through incrementally positive economic data releases
has been compounded by companies generally beating (low) expectations in their
first half profits releases. Commonly we have seen recently that while sales
volumes have been predictably weak, pricing has been, generally speaking, above
expectations and cost savings a significant positive surprise (through a
combination of lower commodity prices and reductions in wages and travel
expenses). This means that, in many cases, corporate profit margins this year
have been above expectations.
Recent visits to the two largest markets in the emerging market indices have
supported this view. Brazil is experiencing a sharp recovery in consumer and
business confidence, for which the rapid and comprehensive response to the
crisis by the government and central bank must be credited in large part. China
is the key cog in the global economic machine, and its economic recovery seems
on track, as seen in the robust second quarter GDP growth of 7.9% (following
6.1% growth in the first). The pick-up in the economy here - again driven by
government stimulus - has been remarkable considering it has been achieved
without a meaningful recovery in exports and in the property sector. Naturally
the risks in both markets have to be recognised too: Brazil's return to
normality has come at the cost of a much higher fiscal deficit, although Chinese
banks are probably now lending too aggressively, which while beneficial for the
economy may not be ideal for their shareholders further down the line.
Turnover for the twelve-month period was, at over 30%, higher than usual for the
Fund, as volatile price movements presented us with a number of investment
opportunities. Towards the end of 2008 the more challenging environment for
companies led us to lower our earnings and cashflow expectations for many of
those that we follow, reducing our estimates of the companies' intrinsic value.
Share prices, however, generally fell by an even greater extent, allowing us to
both add to existing positions and instigate new holdings in certain attractive
opportunities that had previously been - in our view - too expensive.
This resulted in additional exposure to China through the purchase of China
Mobile, an increase in the weighting of China Shenhua. Exposure to South Africa-
based companies also increased as we added to the Fund's largest holding Anglo
American; we also added exposure in Russia in the final quarter of 2008,
establishing new positions in Novatek and Sberbank, in particular. Over the year
under review, the Fund sold out of holdings in ICBC (of China), KB Financial (of
South Korea), and the Turkish retailer Migros.
Throughout the market volatility over the last twelve months, we have focused on
applying our investment process in a consistent manner, using detailed
fundamental analysis to identify quality companies that appear to be undervalued
by the market. Even though stock markets have risen very rapidly over the past
few months, the emerging markets universe continues to offer a very large number
of investment opportunities that are attractively priced.
Genesis Asset Managers,LLP
2009
GENESIS EMERGING MARKETS FUND LIMITED
STOCK EXCHANGE ANNOUNCEMENT (continued)
CONSOLIDATED BALANCE SHEET
as at 30th June 2009
30th June 2009 30th June 2008
$ $
ASSETS
Current assets
Financial assets at fair value through
profit or loss 721,944,912 997,994,926
Amounts due from brokers - 280,281
Dividends and interest receivable 1,957,186 2,527,774
Other receivables and prepayments 165,392 161,422
Cash and cash equivalents 12,291,308 3,800,435
TOTAL ASSETS 736,358,798 1,004,744,838
LIABILITIES
Current liabilities
Amounts due to brokers 850,498 1,744,050
Payables and accrued expenses 1,248,086 1,576,299
Bank overdraft 125 7,219,553
TOTAL LIABILITIES 2,098,709 10,539,902
TOTAL NET ASSETS 734,260,089 994,204,936
EQUITY
Called-up share capital 270,633 270,633
Share premium 135,238,840 135,238,840
Capital reserve 559,694,846 821,937,433
Revenue account 40,216,270 37,918,530
Purchase of own shares (1,160,500) (1,160,500)
TOTAL EQUITY 734,260,089 994,204,936
EQUITY PER PARTICIPATING PREFERENCE SHARE $54.39 $73.65
GENESIS EMERGING MARKETS FUND LIMITED
STOCK EXCHANGE ANNOUNCEMENT (continued)
CONSOLIDATED INCOME STATEMENT
for the year ended 30th June 2009
30th June 2009 30th June 2008
$ $
INCOME
Net change in financial assets at fair
value through profit or loss (261,097,614) 28,751,404
Net exchange losses (1,144,973) (6,059,954)
Dividend income 16,964,626 45,184,609
Deposit interest 32,908 239,258
Miscellaneous income 7,725 151,577
(245,237,328) 68,266,894
TOTAL OPERATING EXPENSES (12,488,501) (20,114,143)
OPERATING (LOSS)/PROFIT (257,725,829) 48,152,751
FINANCE COSTS
Bank charges (3,543) (2,628)
Interest expense (69,942) (581,449)
TOTAL FINANCE COSTS (73,485) (584,077)
Taxation (2,145,533) (2,062,299)
(LOSS)/PROFIT FOR THE YEAR (259,944,847) 45,506,375
(DEFICIT)/RETURN PER
PARTICIPATING PREFERENCE SHARE * $(19.26) $3.372
* Calculated on a weighted average number of participating preference shares
in issue of 13,496,306(2008 - 13,496,306)
GENESIS EMERGING MARKETS FUND LIMITED
STOCK EXCHANGE ANNOUNCEMENT (continued)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30th June 2009
Share Share Capital Revenue Purchase Total
Capital Premium Reserve Account of Own
Shares
$ $ $ $ $ $
Net assets at the
beginning of the
year 270,633 135,238,840 821,937,433 37,918,530 (1,160,500) 994,204,936
Movement in the
year - - (262,242,587) 2,297,740 - (259,944,847)
Net assets at the
end of the year 270,633 135,238,840 559,694,846 40,216,270 (1,160,500) 734,260,089
For the year ended 30th June 2008
Share Share Capital Revenue Purchase Total
Capital Premium Reserve Account of Own
Shares
$ $ $ $ $ $
Net assets at the
beginning of the
year 270,633 135,238,840 799,245,983 15,103,605 (1,160,500) 948,698,561
Movement in the
year - - 22,691,450 22,814,925 - 45,506,375
Net assets at the
end of the year 270,633 135,238,840 821,937,433 37,918,530 (1,160,500) 994,204,936
GENESIS EMERGING MARKETS FUND LIMITED
STOCK EXCHANGE ANNOUNCEMENT (continued)
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 30th June 2009
30th June 2009 30th June 2008
$ $
OPERATING ACTIVITIES
Investment income received 17,538,992 45,700,263
Taxation paid (2,145,533) (2,452,986)
Interest received 37,256 241,496
Operating expenses paid (12,894,570) (20,862,060)
Purchase of investments (206,073,332) (378,087,593)
Proceeds from sale of investments 220,392,461 348,075,787
Foreign exchange loss (4,214) (47,472)
NET CASH INFLOW/(OUTFLOW)
FROM OPERATING ACTIVITIES 16,851,060 (7,432,565)
NET INCREASE/(DECREASE)IN
CASH AND CASH EQUIVALENTS 16,851,060 (7,432,565)
Effect of exchange rate fluctuations
on cash and cash equivalents (1,140,759) (6,012,482)
15,710,301 (13,445,047)
Net cash and cash equivalents at
the beginning of the year (3,419,118) 10,025,929
NET CASH AND CASH EQUIVALENTS
AT THE END OF THE YEAR 12,291,183 (3,419,118)
Comprising of:
Cash and cash equivalents 12,291,308 3,800,435
Bank overdraft (125) (7,219,553)
NET CASH AND CASH EQUIVALENTS
AT THE END OF THE YEAR 12,291,183 (3,419,118)
GENESIS EMERGING MARKETS FUND LIMITED
STOCK EXCHANGE ANNOUNCEMENT (continued)
RECONCILIATION OF PUBLISHED NET ASSET VALUE ATTRIBUTABLE TO EQUITY SHAREHOLDERS
TO THE IFRS EQUIVALENT
30th June 2009 Per Participating
Total Preference Share
$ $
Published Net Asset Value 737,694,747 54.66
Change from mid market pricing
to bid pricing for investments (3,569,428) (0.27)
Net Asset Value under IFRS 734,125,319 54.39
Equity share capital 134,770
Equity Shareholders' Funds 734,260,089
30th June 2008 Per Participating
Total Preference Share
$ $
Published Net Asset Value 999,154,562 74.03
Change from mid market pricing
to bid pricing for investments (5,084,396) (0.38)
Net Asset Value under IFRS 994,070,166 73.65
Equity share capital 134,770
Equity Shareholders' Funds 994,204,936
GENESIS EMERGING MARKETS FUND LIMITED
STOCK EXCHANGE ANNOUNCEMENT (continued)
Notes
1. Accounting policies
The Fund's financial statements have been prepared in accordance with
International Financial Reporting Standards as adopted by the European Union
(EU), and interpretations by the International Financial Reporting
Interpretations Committee of the IASB.
2. Status of stock exchange announcement
The financial information set out in this preliminary announcement does not
constitute the Fund's statutory financial statements for the years ended 30th
June 2009 or 2008. The financial information for the year ended 30th June 2009
is derived from the statutory financial statements for that year. The auditors
reported on those financial statements; their report was unqualified. The
statutory financial statements for the year ended 30thJune 2009 will be
finalised on the basis of the information presented by the Directors in this
preliminary announcement following the approval of the financial statements by
the Board of Directors. Whilst the financial information included in this
preliminary announcement has been computed in accordance with International
Financial Reporting Standards (IFRS) as adopted by the EU, this announcement
does not in itself contain sufficient information to comply with IFRS as adopted
by the EU. The Fund expects to publish full financial statements that comply
with IFRS as adopted by the EU following the approval of the financial
statements by the Board of Directors.
3. Events after the Balance Sheet Date
The Chairman's Statement describes a proposal to restructure the Fund's share
capital, change the Fund's quotation on the London Stock Exchange from US
Dollars to Sterling and to adopt a new constitution. Other than these events,
there have been no material events requiring disclosure in or amendment to these
financial statements subsequent to the year end.
For Genesis Emerging Markets Fund Limited
HSBC Securities Services (Guernsey) Limited, Secretary
18th September 2009
END