TIDMBEMO
Barings Emerging EMEA Opportunities PLC
(formerly Baring Emerging Europe PLC)
LEI: 213800HLE2UOSVAP2Y69
Annual Report & Audited Financial Statements for the year ended 30 September
2021
The Directors present the Annual Financial Report of Barings Emerging EMEA
Opportunities PLC (the "Company") for the year ended 30 September 2021. The
full Annual Report and Accounts can be accessed via the Company's website,
www.bemoplc.com or by contacting the Company Secretary on 01392 477571.
COMPANY SUMMARY
Barings Emerging EMEA Opportunities PLC (the "Company") was incorporated on 11
October 2002 as a public limited company and is an investment company in
accordance with the provisions of Section 833 of the Companies Act 2006 (the
"Act"). It is a member of the Association of Investment Companies (the "AIC").
The ticker is BEMO.
As an investment trust, the Company has appointed an Alternative Investment
Fund Manager, Baring Fund Managers Limited (the "AIFM"), to manage its
investments.
The AIFM is authorised and regulated by the Financial Conduct Authority (the
"FCA"). The AIFM has delegated responsibility for the investment management of
the portfolio to Baring Asset Management Limited (the "Investment Manager" or
"Manager"). Further information on the Investment Manager, their investment
philosophy and management of the Investment Portfolio can be found below.
MANAGEMENT FEE
With effect from 13 November 2020, the AIFM agreed to a reduction in the
investment management fee from the previous level of 0.80% of the net asset
value ("NAV") of the Company to 0.75% of the NAV of the Company per annum. This
is paid monthly in arrears based on the level of net assets at the end of the
month.
INVESTMENT OBJECTIVE AND POLICY
The Company's current investment objective and policy can be found below.
BENCHMARK
The Company's comparator benchmark is the MSCI Emerging Markets EMEA Index (net
dividends reinvested) (the "Benchmark").
This Benchmark is considered to be most representative of the Company's
investment mandate, which covers Emerging Europe, the Middle East and Africa.
Financial Highlights
for the year ended 30 September 2021
Share price total return Dividend per Ordinary
Annualised NAV Total Return#1 #1 Share#1
+36.6% (2020: -22.3%) +39.7% (2020: -27.5%) 26p (2020: 25p)
For the year ended 30 September 2021 2020 % change
NAV per Ordinary Share1 920.7p 694.7p +32.5%
Share price 793.0p 587.0p +35.1%
Share price total return1# +39.7% -27.5% -
Benchmark (annualised )1 +33.3% -22.6% -
Discount to NAV per Ordinary 13.9% 15.5% -
Share1
Dividend yield1,2 3.3% 4.3% -
Ongoing charges1 1.62% 1.48% -
Return per Year ended 30 September 2021 Year ended 30 September 2020
Ordinary
Share
Revenue Capital Total Revenue Capital Total
Return per 23.86p 225.16p 249.02p 18.40p -220.52p -202.12p
Ordinary
Share1
Revenue return (earnings) per Ordinary Share is based on the revenue return for
the year of £2,912,000 (2020: £2,281,000). Capital return per Ordinary Share is
based on net capital gain for the financial year of £27,476,000 (2020: loss £
27,339,000). These calculations are based on the weighted average of 12,202,696
(2020: 12,397,456) Ordinary Shares in issue, excluding treasury shares, during
the year.
At 30 September 2021, there were 12,044,780 (2020: 12,276,025) Ordinary Shares
of 10 pence each in issue which excludes 3,318,207 (2020: 3,318,207) Ordinary
Shares held in treasury. The shares held in treasury are not included when
calculating the weighted average of Ordinary Shares in issue during the year.
All shares repurchased during the year have been cancelled.
1Alternative Performance Measures ("APMs") definitions can be found in the
Glossary below.
2% based on dividend declared for the full year.
#Key Performance Indicator.
Five Year Financial Record
At 30 September 2021 2020 2019 2018 2017
Shareholders' funds £111m £85m £116m £108m £123m
NAV per Ordinary 920.7p 694.7p 930.8p 824.0p 878.0p
Share
Share price 793.0p 587.0p 846.0p 714.0p 775.0p
ROLLING ANNUALISED PERFORMANCE (%)
3 years 5 years
NAV Total Return 7.7 9.1
Share Price Total 8.0 9.1
Return
Benchmark Total Return 6.2 8.1
Source: Barings, Factset.
ANNUAL PERFORMANCE (%)
2017 2018 2019 2020 2021
NAV Total Return 26.9 -2.6 17.8 -22.3 36.6
Share Price Total 27.6 -4.0 24.3 -27.5 39.7
Return
Benchmark Total Return 21.4 1.6 15.9 -22.6 33.3
Source: Barings, Factset.
Chairman's Statement
"Our Investment Manager was not only able to deliver a strong return in
absolute terms, but also a significant outperformance relative to the
Benchmark. This result was largely attributable to stock selection, whilst the
portfolio also benefited from the broadening of the investment mandate and the
increased diversification of its investments".
Frances Daley
Chairman
I am delighted to present the results for the year ended 30 September 2021.
This was a period of significant change for the Company, following
Shareholders' approval of a broadened investment mandate to include the
emerging markets of Europe, the Middle East and Africa in November last year.
A year ago, I wrote at a time of continued global uncertainty over COVID-19 and
governments' responses to it. The twelve months that have passed since have
been remarkable. Our region's equity markets, after being amongst the hardest
hit in the earlier stages of the pandemic, rebounded strongly as the successful
development of a number of COVID-19 vaccines allowed economies globally to
reopen.
Against this backdrop, our Investment Manager was not only able to deliver a
strong return in absolute terms, but also significant outperformance relative
to the Benchmark. This result was largely attributable to stock selection,
based on our Investment Manager's fundamental bottom-up investment process.
The portfolio has also benefited from the broadening of the investment mandate.
The effect has been to increase the diversification of the investment
portfolio. The portfolio now comprises investments across eleven different
countries and currencies, and enjoys a deeper pool of potential stock picks.
The benefit of reduced vulnerability to negative developments in particular
countries is exemplified by Turkey. With Turkey now making up just 2.6% of the
portfolio compared to 8.1% at the end of the prior financial year, the
volatility of the country's equity market over the period had a negligible
impact on the Company's performance.
Performance
The NAV total return over the year was +36.6% compared to the Benchmark return
of +33.3%. On a relative basis, this represents an outperformance of +2.4%
versus the Benchmark. Over the long term, the Company's annualised NAV total
return was +7.7% over three years and +9.1% over five years. This remains
comfortably ahead of the Benchmark, which returned +6.2% and +8.1%
respectively.
Our region also delivered an impressive performance relative to both developed
and emerging market peers. By contrast, the total return from developed
European equities was 22.0%, whilst global emerging market equities gained
13.3%1. This recovery across emerging EMEA equities is particularly impressive
given that the region's economies and financial markets were among the worst
hit in the world by the first shockwaves of the pandemic last year.
As economies tentatively began to recover from the pandemic the share prices of
companies whose fortunes are closely aligned to the economic cycle, and had
been hardest hit by COVID-19, tended to perform most strongly. This was despite
many of these businesses still facing uncertain outlooks and weak
profitability. This is not the type of company generally held in the portfolio,
as our Manager believes that the most effective way to deliver attractive
returns to Shareholders is to invest in structurally growing companies rather
than those tied to the economic cycle. It is therefore worthy of note that our
portfolio performed significantly better than the Benchmark, driven by the
success of our Manager's stock selection. This was despite the cyclical stocks
that benefitted most from the upturn in the economic cycle not being as widely
held in the portfolio.
I would like to thank the team at Barings for managing what has been a period
of great change for the Company and its portfolio.
1 As defined by the MSCI Europe Net (Developed Europe) and MSCI Emerging
Markets Net (Global Emerging Markets) indices.
Environmental, Social and Governance
The Investment Manager continues to incorporate Environmental, Social and
Governance ("ESG") parameters as a key element of the investment process and
company analysis, to reflect improving or deteriorating corporate standards
that may influence a company's value. This approach enables the Investment
Manager to uncover potential unrecognised investment opportunities, whilst also
mitigating risks. The Investment Manager also undertakes active engagement to
positively influence ESG practices and improve ESG disclosures.
During the year, the Board discussed with the Investment Manager their approach
to ESG, the challenges posed by countries across our region and reviewed some
examples of companies they have engaged with. This process included a series of
online meetings with the management teams of some of the companies the Company
is invested in. We also discussed the opportunities that ESG presents,
specifically as it relates to renewable energy sources and a future world less
dependent on fossil fuels. One particular area of interest is the transition to
greener energy sources. The Investment Manager believes that the portfolio is
well positioned to be able to invest in businesses positively exposed to energy
transition and renewables themes.
The Board shares the Investment Manager's view that ESG factors are among some
of the most important variables that can impact on investment's risks and
returns over time. Further detail on the Investment Manager's ESG process and
approach to active engagement can be found in the Investment Manager's Report.
Discount Management
The discount at year-end was 13.9% compared with 15.5% for the end of the prior
year. The average discount during the year was 13.1%. During the year, 231,245
Ordinary Shares were bought back and cancelled at an average price of £7.41 per
Ordinary Share, for a total cost of £1,715,000. The share buybacks added
approximately 2.1 pence per Ordinary Share to NAV, accounting for just under
0.2% of the total return to Shareholders.
Gearing
There were no borrowings during the period. At 30 September 2021, there was
net cash of £1.7 million (30 September 2020: £1.7 million). The Company does
not currently make use of a loan facility but keeps its borrowing arrangements
and gearing policy under review.
Dividends
In respect of the six-month period ended 31 March 2021, the Company paid an
interim dividend of 15 pence per share (2020: 15 pence per share). For the year
under review, the Board recommends a final dividend of 11 pence per share
(2020: 10 pence per share). This amounts to a total dividend for the year of 26
pence per share (2020: 25 pence per share), equivalent to a yield of around
3.3% on the year end share price of 793p. This payment is not fully covered by
the income account, which produced net revenue per share of 23.86 pence per
share (2020: 18.40 pence). However, it reflects our confidence in the ability
of the Investment Manager to sustainably grow the underlying revenue generated
by the portfolio over the medium term. The Board remains committed to enhancing
the appeal of investing in the Company by providing Shareholders with an
attractive level of income.
Promotional Activity and Keeping Shareholders Informed
The Board and Investment Manager have put in place a promotional programme that
seeks to raise the Company's profile and its investment remit, particularly
amongst retail investors. The aim is to benefit all shareholders by generating
sustained interest in, and demand for, the Company's shares. As part of the
plan, the Company's website has been refreshed with new themed content, a
portfolio and pricing feed, plus detailed information on investing through
online investment trading platforms, where many retail investors now buy their
shares. We have also put in place an email communications programme to enhance
engagement with the Company's existing shareholders, as well as with other
supporters. These email updates provide relevant news and views plus
performance updates. I encourage you to sign up for these targeted
communications by visiting the Company's web page at www.bemoplc.com and
clicking on 'Register for email updates'.
Annual General Meeting
The Board would be delighted to meet Shareholders at the Company's Annual
General Meeting ("AGM"), to be held at the offices of the Investment Manager,
20 Old Bailey, London EC4M 7BF, on Tuesday, 25 January 2022 at 2.30pm. The
Investment Manager will give their customary presentation on the markets and
the outlook for the year ahead. Details can be found in the Notice of the AGM,
which has been circulated separately to this report.
While we hope that you are able to attend, the Directors are aware that
government guidance or regulation to contain the spread of COVID-19 might
change and if we are obliged to change the arrangements for the AGM after
publishing this document, details will be published via RNS and our website.
Articles of Association
The Company's Annual General Meeting in 2021 could not be held as normal as a
result of COVID-19 restrictions. Electronic or hybrid meetings would allow
greater Shareholder participation in future Annual General Meetings or other
general meetings should similar situations arise. Electronic and hybrid
meetings are only permitted if expressly provided for in the Company's Articles
of Association. As currently drafted, the Company's Articles of Association do
not allow for hybrid meetings. The Board is therefore proposing a Special
Resolution at the Annual General Meeting to be held on 25 January 2022 that the
Articles of Association be amended to allow for hybrid meetings and to capture
any significant regulatory changes since the drafting of the current Articles
of Association. Whilst the Board is proposing a provision for hybrid meetings,
it is the Board's preference, restrictions permitting, for Annual General
Meetings to be held in person as the Board welcomes the opportunity to meet and
engage with shareholders.
Outlook
Since the year-end, equity markets have continued to extend their recovery from
the lows of 2020, reflecting optimism that the global economic recovery will
continue. After this strong rebound in economic activity, worries now centre
around inflationary pressures caused by the release of pent-up of demand and
the consequential disruption to global supply lines. In turn, this has led to
concerns that the stimulatory monetary policies followed by central banks
around the world might be reversed with adverse effects on equity markets.
Despite these global concerns, there are reasons to be optimistic for the
emerging EMEA asset class. We have continued to see a recovery in earnings
growth across many of the companies in our investment universe. This trend
bodes well for the performance of the portfolio and the income generated by the
companies in the portfolio. Underpinning this earnings growth is the strength
of the consumer. High disposable income growth across most parts of the region,
combined with ongoing efficiency gains, will remain a key driver of earnings
over the medium term. The case for investment in the region's equities also
comprises a degree of resilience against inflationary pressures. This has been
most evident in recent months, where rising energy prices have helped support
economic activity and stock market performance across some of region's markets.
This will continue to be important over the coming months as inflationary
pressures persist.
Liquidity across the region is improving, underpinned by the increased
participation of retail investors. We believe this trend is set to continue,
and will help to support portfolio diversification and valuations.
Finally, against a backdrop of monetary tightening, the region will continue to
benefit from the flexibility provided by the independent monetary policy
framework that has been established in most of the countries (one obvious
current exception being Turkey).
The impact of some of these positive trends can be seen in the performance of
markets across the region. For example, in U.S. Dollar terms, both Russia and
Saudi Arabia are at multi-year highs.
These factors should help contribute to the increasing attractiveness of
emerging EMEA equities as an asset class, whilst the Company's diversified
portfolio is well placed to continue to deliver attractive returns for our
Shareholders.
Frances Daley
Chairman
3 December 2021
Business Model and Strategy
Business Model and Strategy
The Company has no employees and the Board is comprised of Non-Executive
Directors. The day-to-day operations and functions of the Company have been
delegated to third-party service providers, which are subject to the ongoing
oversight of the Board. In line with the stated investment philosophy, the
Manager takes a bottom-up approach, founded on research carried out using the
Manager's own internal resources. This research, which has a strong focus on
environmental, social and governance issues, enables the Manager to identify
what it believes to be the most attractive stocks in EMEA markets. Further
information can be found below.
The Company's Investment Objective and Policy was changed on 13 November 2020,
following approval from Shareholders in a general meeting.
Purpose, Values and Strategy
The Company's primary purpose is to meet its investment objective to deliver
capital growth, principally through investment in emerging and frontier equity
securities listed or traded on EMEA markets. To achieve this, the Board uses
its breadth of skills, experience and knowledge to oversee and work with the
Investment Manager, to ensure that it has the appropriate capability, resources
and controls in place to actively manage the Company's assets to meet its
investment objective. The Board also select and engage reputable and competent
organisations to provide other services on behalf of the Company.
The Company's values focus on transparency, clarity and constructive challenge.
The Directors recognise the importance of sustaining a culture that contributes
to achieving the purpose of the Company that is consistent with its values and
strategy. Further detail on culture can be found below.
Investment Objective
The Company's investment objective is to achieve capital growth, principally
through investment in emerging and frontier equity securities listed or traded
on Eastern European, Middle Eastern and African (EMEA) securities markets. The
Company may also invest in securities in which the majority of underlying
assets, revenues and/or profits are, or are expected to be, derived from
activities in EMEA but are listed or traded elsewhere (EMEA Universe).
Investment Policy
The Company intends to invest for the most part in emerging and frontier equity
listed or traded on EMEA securities markets or in securities in which the
majority of underlying assets, revenues and/or profits are, or are expected to
be, derived from activities in EMEA but are listed or traded elsewhere. To
achieve the Company's investment objective, the Company selects investments
through a process of bottom-up fundamental analysis, seeking long-term
appreciation through investment in mispriced companies.
Where possible, investments will generally be made directly into public listed
or traded equity securities including equity-related instruments such as
preference shares, convertible securities, options, warrants and other rights
to subscribe or acquire equity securities, or rights relating to equity
securities.
It is intended that the Company will generally be invested in equity
securities; however, the Company may invest in bonds or other fixed-income
securities, including high risk debt securities. These securities may be below
investment grade. The number of investments in the portfolio will normally
range between 20 and 65.
The Company may invest in unquoted securities, but the amount of such
investment is not expected to be material. The maximum exposure to unquoted
securities should be restricted to 5% of the Company's gross assets, at the
time of investment, in normal circumstances. The Company may also invest in
other investment funds in order to gain exposure to EMEA countries or gain
access to a particular market, or where such a fund represents an attractive
investment in its own right. The Company will not invest more than 10% of its
gross assets in other UK listed closed-ended investment funds, save that, where
such UK listed closed ended investment funds have themselves published
investment policies to invest no more than 15% of their total assets in other
listed closed-ended investment funds, the Company will invest not more than 15%
of its gross assets in such UK listed closed ended investment funds.
Whilst there are no specific limits placed on exposure to any one sector or
country, the Company seeks to achieve a spread of risk through continual
monitoring of the sector and country weightings of the portfolio. The Company's
maximum limit for any single investment at the time of purchase is the higher
of 15% of gross assets or the weight of the purchased security in the
comparator benchmark plus 5%, with an upper maximum limit of 20% of gross
assets (excluding for cash management purposes).
Relative guidelines will be based on the Morgan Stanley Capital International
"MSCI" Emerging Markets EMEA Index (net), which will be the index used as the
benchmark.
The Company may use borrowed funds to take advantage of investment
opportunities. However, it is intended that the
Company would only be geared when the Directors, advised by the Investment
Manager, have a high level of confidence that gearing would add significant
value to the portfolio. The Investment Manager has discretion to operate with
an overall exposure of the portfolio to the market of between 90% and 110%, to
include the effect of any derivative positions.
The Company may use derivative instruments for the purpose of efficient
portfolio management (which includes hedging) and for any investment purposes
that are consistent with the investment objective and polices of the Company.
On 13 November 2020, the Company announced it had received Shareholder approval
to broaden its investment mandate to focus on investing in emerging equity
securities listed or traded on Emerging European, Middle Eastern and African
("EMEA") securities markets. The previous Investment Objective and Investment
Policy of the Company can be found in the Report.
Benchmark
The Company's comparator benchmark is the MSCI Emerging Markets EMEA Index (net
dividends reinvested).
Discount Control Mechanism
The Board is aware of Shareholders' continued desire for a strong discount
control mechanism, though also mindful of the need to provide the Company the
opportunity to achieve its goal of outperforming its Benchmark.
With effect from 1 October 2020, the Board approved a tender offer trigger
mechanism to provide Shareholders with a tender offer for up to 25% of the
Company's issued ordinary share capital if:
i) the average daily discount of the Company's market share capital to its net
asset value ('cum-income') exceeds 12%, as calculated with reference to the
trading of the Company's shares over the period between 1 October 2020 and 30
September 2025; or
ii) the performance of the Company's net asset value per share on a total
return basis does not exceed the return on the MSCI Emerging Markets EMEA Index
(net) by an average of 50 basis points per annum over the Calculation Period.
Please refer to the shareholder circular dated 19 October 2020 for further
details.
In addition, and in order to reduce the discount, the Board authorises the
Company's shares to be brought on the market, from time to time, where the
share price is quoted at a discount to NAV.
Barings Emerging EMEA Opportunities PLC
* Focusing on the markets of Emerging Europe, the Middle East and Africa, the
Company seeks out attractively valued, quality companies across this
diverse and fast-changing region.
* Large investment region underrepresented in global portfolios, with a
portfolio that aims to deliver both attractive levels of income and capital
growth over the long-term.
* Managed by one of the region's most experienced investment teams with a
consistent track record of delivering relative outperformance.
* A differentiated and innovative investment process driven by fundamental
bottom-up analysis - with a strong focus on environmental, social and
governance factors.
Principal and Emerging Risks
Principal Risks and Uncertainties
The Company is exposed to a variety of risks and uncertainties. The Board,
through delegation to the Audit Committee, has undertaken a robust assessment
of both the emerging and principal risks facing the Company, together with a
review of any evolving risks which may have arisen during the year, including
those risks which would threaten the Company's business model, future
performance, solvency or liquidity. These risks are formalised within the
Company's risk matrix.
The Audit Committee regularly (on a six-monthly basis) reviews the risks facing
the Company by maintaining a detailed record of the identified risks against an
assessment of the likelihood of such risks occurring and the severity of the
potential impact of such risks. A residual risk rating is then calculated for
each risk based on the outcome of the assessment. This enables the Board to
take action and develop strategies in order to mitigate the effect of such
risks to the extent possible. An analysis of financial risks can be found in
note 14 to the Financial Statements below.
Information about the Company's internal control and risk management procedures
can be found in the Audit Committee Report below. The principal financial risks
and the Company's policies for managing these risks and the policy and practice
with regard to financial instruments are summarised in note 14 to the Financial
Statements.
The principal risks and uncertainties faced by the Company during the financial
year, together with the potential effects, controls and mitigating factors, are
set out in the following table. The Audit Committee will continue to assess
these risks on an ongoing basis.
Risk Mitigation
Investment Strategy The Investment Manager has a clear investment
There can be no guarantee that the strategy, as set out above, which is regularly
investment objective will be achieved reviewed by the Board. The Investment Manager has in
place a dedicated investment process which is
designed to maximise the chances of the investment
objective being achieved. The Board reviews regular
investment reports from the Investment Manager to
monitor performance against its stated objective and
regularly reviews the strategy. All of the Company's
investments are listed on recognised stock exchanges
and the liquidity of individual investments is
monitored by the Investment Manager and the Board.
Adverse market conditions The Company is closed-end and, unlike open-ended
Emerging markets are subject to funds, does not have to sell investments at low
volatile geopolitical and valuations in volatile markets.
socioeconomic movements as well as It can be argued that the most effective method of
the possible imposition of selective protecting the Company from the effects of country
sanctions. This may have an impact on specific or individual stock risks is to hold a
the liquidity of individual geographically diversified portfolio spread across a
investments. Events such as health diversified portfolio of stocks. As at the date of
pandemics or outbreaks of disease may this report, the Company holds 51 stocks in 11
lead to increased short-term market countries and the AIFM has the ability, where
volatility and may have adverse necessary, to diversify the portfolio into other
long-term effects on world economies regions. The AIFM has a clear investment strategy as
and markets generally. set out below. Whilst recognising there will be
periods when this strategy underperforms the
Benchmark and peer group, the Board monitors
performance at each Board meeting and reviews the
investment process throughout the year.
The Investment Manager's own internal compliance
functions provide robust checks that the Investment
Manager complies with the investment mandate.
The Board recognises the benefits of a closed-end
fund structure in extremely volatile markets such as
those affected by the COVID-19 pandemic. Unlike open
ended funs, closed-ended funds are not obliged to
sell-down portfolio holdings at potentially low
valuations to meet liquidity requirements for
redemptions. During times of elevated volatility and
market stress, the ability of a closed-end fund
structure to remain invested for the long term
enables the Investment Manager to adhere to the
investment management approach and be ready to
respond to dislocations in the market as
opportunities present themselves.
Size of the Company The Investment Manager discusses and agrees with the
The size of the Company could become Board prior to making any buybacks of the Company's
sub optimal as share buybacks reduce shares within the agreed parameters. The Investment
the Company's market capitalisation. Manager and Corporate Broker are in regular contact
with major institutional investors and report their
views to the Board on a regular basis.
Share price volatility and liquidity/ The Board seeks to narrow the discount by undertaking
marketability risk measured buybacks of the Company's shares. The
The shares of the Company are traded Company and Investment Manager work with the
freely and are therefore subject to Corporate Broker to seek to increase demand for the
the influences of supply and demand Company's shares.
and investors' perception to the The Board remains committed to an increased focus on
markets the Company invests in. The dividend yield to further enhance the appeal of
share price is therefore subject to investing in the Company and increase demand for its
fluctuations and like all investment shares. The Board has also put in place a
trusts may trade at a discount to the comprehensive range of promotional plans to support
NAV. Market shocks, such as those existing shareholders and attract new investors.
related to COVID-19, could continue In addition, as set out above, the Company has
to have a negative impact on the performance triggers in place, which may provide
share price. Shareholders with the opportunity to realise their
investment in the Company at NAV less costs, should
the Company not meet targets relating to average
discount or performance over a five year period.
Loss of assets The Investment Manager and Administrator have systems
The portfolio includes investments in place for executing and settling transactions and
held in a number of jurisdictions and for ensuring assets are safe. In addition, the
there is a risk of a loss of assets. Company uses an internationally recognised Custodian
and sub Custodians and receives regular reports of
assets held, which the Administrator reconciles. The
operation of the Custodian is overseen and reviewed
by the Depositary which reports regularly to the
Board.
Engagement of third-party service The Company operates through a series of contractual
providers relationships with its service providers. In the
The Company outsources all of its instance an epidemic and or pandemic develops
operations to third parties and is internationally, the Investment Manager is able to
therefore reliant on those third take proactive steps to address the potential impacts
parties maintaining robust controls on their people, clients, communities and any other
to prevent the Company suffering stakeholders they come in contact with, directly or
financial loss or reputation as through their premises. This includes suspending all
damage. Further, the emergence of international business and domestic travel. Further,
health pandemics, such as COVID-19, the Investment Manager has performed stress-testing
may have an impact on the operational on systems and processes, and is able to operate
robustness of third party service under a 100% remote working model globally without a
providers and their ability to degradation in their responsibilities.
conduct business as usual. The Board reviews the performance of all service
providers both in Board meetings and in the
Management Engagement Committee meeting, where the
terms on which the service providers are engaged are
also reviewed.
The Audit Committee also receives internal controls
reports from key service providers. The Board
assesses whether relevant controls have been
operating effectively throughout the period.
In addition to the principal risks outlined above, the Board has considered a
number of issues that it views as emerging risks. This included a discussion
around the continued impact of COVID-19 and the ongoing implications of the
United Kingdom's withdrawal from the European Union. The COVID-19 pandemic has
given rise to unprecedented challenges for businesses and economies across the
globe and the Board has taken into consideration the risks posed to the Company
by the crisis and incorporated these into the Company's risk matrix.
The Board also considered the impact of climate change, which remains a
critical issue as the world seeks to reduce greenhouse gas emissions and help
combat global warming. However, a global transition towards a lower carbon
world may also provide attractive investment opportunities. Management of the
portfolio, including the integration of ESG considerations into portfolio
construction, is delegated to the Investment Manager. The Board spent time over
the year discussing with the Investment Manager its ESG framework, including
how ESG considerations are integrated into the investment decision-making
process. Further detail on the Investment Manager's ESG process and approach to
active engagement can be found in the Investment Manger's Report.
The Audit Committee routinely reviews the principal risks and makes the
required updates to the Company's risk matrix as required. This approach allows
the effect of any mitigating factors to be reflected in the assessment of the
risk.
The risk register and the operation of the key controls of the Company's
third-party service providers' systems of internal control are reviewed
regularly by the Audit Committee.
Emerging risks are considered by the Board as they come into view, the
immediate significance will be evaluated and the potential implications
integrated into the existing review of the Company's risk matrix.
Investment Manager
Management Arrangements and Fees
Baring Fund Managers Limited acts as the AIFM of the Company under an agreement
terminable by either party giving not less than six months written notice.
During the year under review, and under this agreement, the AIFM received a fee
calculated monthly and payable at an annual rate of 0.80% of the NAV of the
Company, together with any applicable VAT thereon and any out of pocket
expenses incurred by the AIFM. With effect from 13 November 2020, this fee was
reduced to 0.75% of the NAV of the Company.
There is no performance fee for the AIFM.
The AIFM has delegated the investment management of the portfolio to Baring
Asset Management Limited (the "Investment Manager").
Details of the Investment Manager
The Investment Manager has a team of fund managers who are responsible for the
management of the investment portfolio. Matthias Siller, Head of Europe, Middle
East and Africa ("EMEA") at the Investment Manager, is the lead manager with
Maria Szczesna and Adnan El-Araby as supporting managers. Matthias is supported
by the wider EMEA Equity Team, which comprises seven experienced investment
professionals all of whom have research responsibilities as well as the broader
team of emerging equity professionals based in London, Hong Kong and Taiwan,
utilising their diverse local knowledge and experience. The team also draws
further support from the rest of the broader equity platform at the Investment
Manager, especially the knowledge, expertise and coverage of our three global
sector teams: Healthcare, Resources and Technology.
Matthias joined the Investment Manager in 2006 and was appointed Head of EMEA
Equities Team in 2016. He began his career in fund management at Raiffeisen
Zentralbank Austria in 1997 as a Market Maker/Proprietary Trader in Central &
Eastern European Equities and Derivatives. He joined Bawag - PSK Invest as an
EMEA equity portfolio manager in 2001 and moved to Raiffeisen Capital
Management in 2003, where he was a portfolio manager for Central & Eastern
European Equities. Matthias has a Masters degree from Vienna University in
Economics & Business Administration. Matthias was awarded the CFA designation
in 2006 and speaks fluent German.
Maria is an Investment Manager in the EMEA Equity Team. She is responsible for
Financials and Consumer Staples in the region. Maria joined Barings in 2006
from the Polish Embassy in London, where she worked for three years as an
economist. Prior to this, Maria worked in corporate finance at Ernst & Young
and BRE Corporate Finance (part of Commerzbank Group) in Warsaw. She holds an
MA in Economics from the Warsaw School of Economics and was awarded the CFA
designation in 2008. Maria is fluent in Polish.
Adnan is an Investment Manager in the EMEA Equity Team. He is responsible for
the entire Resource Space, Healthcare & Pharmaceuticals, Tech & Media and Autos
within the EMEA region. Adnan joined Barings in 2010 from Legg Mason Capital
Management, where he was also an investment analyst. He holds a Bachelor of
Commerce degree from St. Mary's University, Canada and was awarded the CFA
designation in 2006. Adnan is fluent in Arabic.
Report of the Investment Manager
Our strategy seeks to diversify your portfolio by harnessing the long-term
growth and income potential of Emerging EMEA. The portfolio is managed by our
team of experienced investment professionals, with a repeatable process that
also integrates Environmental, Social and Governance ("ESG") criteria.
Our strategy
Access First-hand Expertise Process ESG Integration
Experienced investment The investment team Extensive primary Fully integrated
team helps to foster conducts hundreds of research and dynamic ESG assessment
strong relationships company meetings per proprietary combined with active
with the companies in year, building fundamental analysis, engagement to
which we invest. long-term evaluating companies positively influence
relationships and over a 5-year research ESG practices.
insight. horizon with macro
considerations
incorporated through
our Cost of Equity
approach.
A detailed description of the investment process, particularly the ESG approach
can be found below.
Market Summary
Global markets rallied significantly over the period, driven by the approval of
a number of COVID-19 vaccines. This led to an improving picture for the global
economic outlook and the hope for a return to economic normality, supported
further by unprecedented stimulus from both the US government and European
Union ("EU").
Against this backdrop, Emerging European, Middle Eastern, and African equities
performed strongly. This reflected the continued economic recovery from the
lows of 2020, as well as a supportive commodity price backdrop, particularly
within the energy sector, where oil and gas prices rose significantly in
response to strong demand and tightening global supply. The region comfortably
outperformed both broader developed and emerging equity markets, alongside
regional peers, which were increasingly unpredictable in the face of rising
inflation, monetary policy tightening and weakness in China.
Sterling has been notably strong over the period, drawing support from the
last-minute agreement of a post-Brexit trade deal with the EU, and the rapid
rollout of COVID-19 vaccines, which buoyed expectations of a swifter economic
rebound. This is especially important given the company derives its returns
from foreign assets, denominated in a range of currencies, and any material
strength in the pound weakens the value of these repatriated investments.
Despite these headwinds, over the period the Company achieved a NAV total
return of 36.6% (including dividends), whilst the Benchmark returned 33.3%
(both in GBP).
12M - Market Performance (%, GBP)
Developed Markets 23.5
Emerging Markets 13.3
EM EMEA 34.8
EM Latin America 22.1
EM Asia 9.2
Source: Barings, Factset, MSCI, September 2021.
Company, Benchmark Returns (Left Hand Side, £, %) and Country Returns (Right
Hand Side, £, %)
1 October 2020 to 30 September 2021
Company Share Price Total 39.7%
Return
Company NAV Total Return 36.6%
Benchmark 33.3%
Czech Republic 77.6%
Hungary 65.6%
Russia 52.8%
U.A.E 44.4%
Saudi Arabia 41.6%
Greece 25.0%
Poland 24.1%
South Africa 21.9%
Qatar 10.2%
Turkey 0.8%
Source: Barings, Factset, MSCI, September 2021.
Currency Returns (vs GBP returns, %) - 1 October 2020 to 30 September 2021
South 6.7%
African
Rand
Russian 2.4%
Ruble
Czech 1.4%
Koruna
Qatari -4.1%
Rial
Hungarian -4.1%
Forint
Saudi 4.1%
Riyali
United -4.1%
Arab
Emirates
Dirham
U.S.Dollar 4.1%
Euro -5.3%
Polish -6.7%
Zloty
Turkish -16.7%
Lira
Source: Barings, Factset, MSCI, September 2021.
Income
The Company's key objective is to deliver capital growth from a carefully
selected portfolio of emerging EMEA companies. However, we are also focused on
generating an attractive level of income for investors, from the companies in
the portfolio.
In these times of ultra-low interest rates and equity dividend reductions,
Emerging EMEA offers UK-based income seekers an attractive and differentiated
income opportunity. A combination of the recovery in economic growth, greater
capital efficiency and improved regulation is helping to drive dividend growth
opportunities across a number of sectors, enabling companies to pay out more of
their earnings to shareholders. In addition, many EMEA countries and their
local exchanges have adopted accountancy and transparency standards that go
beyond minimum requirements and rival their Western counterparts, which in
turn, is helping to attract international investors and improve market
liquidity.
Likewise, many EMEA companies themselves are striving to be more transparent,
more shareholder-focused and generally better run. Russian fintech company TCS
is a good example. The company recently cancelled its voting system that gave
founder Oleg Tinkoff effective control over the company. In response, the share
price rallied significantly upon the announcement as investors applauded this
major advance in corporate governance.
TCS is not alone, with examples of emerging EMEA companies choosing to return
more cash to shareholders ranging from Turkcell - Turkey's leading mobile
company, to PZU - Poland's largest and oldest insurer, to X5 - Russia's biggest
supermarket chain. As further improvements in corporate governance lead to
greater capital efficiency, we believe dividend payout ratios in these markets
can continue to rise. Interestingly, this shift isn't just happening in
companies primarily owned by private investors. The Emerging EMEA region has a
sizeable number of state-owned entities that are also looking to improve
corporate culture, reign in corruption and incentivise long-term value
generation. For example Sberbank, Russia's largest lender and majority
state-controlled, which is successfully transforming into a modern financial
platform and e-commerce ecosystem, driving long-term growth and increasing
dividend payout ratios. Sberbank is now among the top three banks in Europe by
market capitalisation, and continued to pay out 50% of its profits during the
pandemic-stricken year 2020.
Furthermore, we are also recognising new income opportunities away from
Emerging Europe. In South Africa, First Rand declared an interim dividend,
after withholding its final payout last year while the country battled the
worst of the COVID-19 pandemic, delivering a sign of confidence in anticipation
of the expected rebound in the economy. In the UAE, our investment in First Abu
Dhabi Bank (FAB) delivered a resilient and stable 5% yield despite short-term
headwinds, which we believe is a strong commitment to minority shareholders.
Monthly Yield (%)
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
2020 2020 2020 2021 2021 2021 2021 2021 2021 2021 2021 2021
Developed 2.1 1.8 1.8 1.8 1.8 1.7 1.7 1.7 1.7 1.7 1.7 1.7
Markets
Emerging Markets 2.3 2.1 2.0 1.9 1.8 1.8 1.8 1.8 1.8 2.0 2.1 2.2
EM EMEA 4.0 3.6 3.3 3.2 3.2 2.9 2.9 2.9 2.8 2.9 3.1 3.2
12M Average Yield (%)
Developed Markets 1.8%
Emerging Markets 2.0%
EM EMEA 3.2%
Source: Barings, Factset, MSCI. Values based on MSCI regional and asset class
indices. September 2021.
Macro Themes
In line with our bottom-up approach, our primary focus is to identify
attractive investment opportunities at the company level for our shareholders.
Nevertheless, we remain vigilant and mindful of broader macro effects within
the region. By utilising the breadth of the region, we believe we are able to
diversify the company's portfolio by reducing concentration risk and lowering
political and country-based risk. This in turn helps to support the
contribution to performance from our company selection, accessing long-term
growth opportunities, while dampening the negative effects from major macro
dislocations.
While the impressive overall performance of emerging EMEA owes much to the
region's economic resilience, the market backdrop remained, at times,
unpredictable, reflecting worries about inflation, fluctuations in the price of
oil and gas, and in Turkey, disruption at the central bank.
Energy Costs and the Great Transition
Oil and gas prices rose significantly over the year, driven by a recovery in
demand from the extreme lows of the pandemic as economies reopened, whilst
supply failed to recover at an adequate pace. This drove the performance of the
region's bigger energy exporters higher. In the longer term, the dominance of
Russia and the Middle East in fossil fuel production may seem to put them at a
disadvantage in a world looking to wean itself off carbon. However, a global
transition away from oil and coal towards cleaner 'bridging' energy sources
such as natural gas, would likely benefit Russia and Qatar-two of the world's
top four gas producers. Recent months have seen historic spikes in global
natural gas prices, and could see further price rises as winter approaches.
This volatility owes much to rising demand globally as economies looks to
decarbonise. It is especially prevalent in the context of the current energy
transition sought by the European Commission and China, in which natural gas
represents a readily accessible alternative to reduce greenhouse gas emissions
and help combat global warming.
Against this backdrop, whilst your Company does continue to selectively invest
in the Energy sector, in companies such as Gazprom and Novatek.
What are the Benefits of Natural Gas?
* Natural gas is a naturally occurring mixture of gases that can be used
across a variety of sectors across the global economy to generate
electricity, heat homes and fuel the transport of people and goods.
* In a world rapidly evolving to meet growing global energy demand and limit
CO2 emissions, natural gas is the cleanest-burning hydrocarbon, emitting
between 45% and 55% lower greenhouse gas emissions than coal when used to
generate electricity, according to data from the International Energy
Agency ("IEA").
Supplying the Green Revolution
Climate change and the need to move towards a world less dependent on fossil
fuels remains one of the most critical issues globally. While we see an
increased demand for electric vehicles as the most common instance of shifting
consumption patterns, what is perhaps more pertinent for investors looking
ahead is the access to commodities that will support the move to a greener
society. This growing focus on the green energy transition has created new
investment opportunities across different industries and sectors, For example,
the amount of steel required for an offshore wind farm is roughly four to five
times greater than that required by an onshore facility with the same gigawatt
generation capacity. Electric vehicles are another example, requiring
significantly more copper relative to a standard internal combustion engine
vehicle.
Given the wealth of minerals and commodities produced in emerging EMEA, we
believe your company is in a strong position to be able to invest in businesses
positively exposed to the energy transition and renewables themes. Currently,
we are invested in Norilsk Nickel in Russia and Anglo American in South
Africa-both of which are industry champions in the production of nickel, a key
input in the production of electric vehicles (EVs), as well as other energy
transition metals. We also hold a position in Koc, a Turkish conglomerate that
owns a significant stake in Ford Otosan, a company that runs one of the most
efficient car production sites globally, and as a contract manufacturer, can
focus investment primarily into EVs.
Evolving Consumption
Emerging EMEA also offers exposure to companies that are riding the wave of
innovation or benefiting from major structural shifts in consumer needs and
behaviour. These opportunities are particularly exciting as companies across
the region are at a much earlier stage of growth than in developed markets, and
e-commerce penetration rates are generally lower. Right now, across emerging
EMEA, from Russia, the Middle East and down to South Africa, we are seeing
seismic shifts in behaviour as consumers pivot from offline to online living,
including online banking, food delivery, transport services and gaming.
Another compelling aspect to this story is that the companies benefitting from
this growth are not necessarily the ones you might expect, and instead of
turning to established global brands, 'local champions' are often the preferred
providers. This often reflects the understanding that domestic players have of
the local market and infrastructure around them. For example, in Poland, local
e-commerce platform Allegro has flourished by being better able to serve the
country's largely apartment-living population, via their pick-up boxes/locker
delivery system. Elsewhere, Russia's most popular internet search engine Yandex
accounts for 60% of the digital advertising market and, using its dominant
position, management has successfully built an offline to online "ecosystem"
that offers the Russian consumers a wide selection of choices with unmatched
convenience. This allows a user to order a taxi, buy goods online, search the
news, or access video on demand without leaving the app, a unique experience
they cannot replicate through international competitors.
e-Commerce in ascendancy:
* In Poland, the proportion of total retail sales accounted for by e-commerce
leapt from 5.6% in January 2020 to almost 10% in 2021.
* Russia's online penetration rates as a percentage of retail sales has also
accelerated after years of meagre growth caused by low consumer awareness
and inefficient logistics - and is on course to grow from 10% in 2021 to
16% in 2025.
Turkey - and central bank independence
Elsewhere in the region, the surprising dismissal of Turkey's central bank
Governor Naci Agbal by President Erdogan in March sparked a correction, with
the Turkish Lira depreciating and bond and equity markets declining sharply.
Frustratingly for investors, the central bank's interest rate hike earlier in
the year preceding this dismissal, was a clear sign of how determined the
Governor and his team were in pursuing orthodox policies, communicating
transparently with market participants and, crucially, controlling inflationary
pressures. The change at the helm of the Turkish central bank represents, in
our view, a sharp deterioration of the country's monetary policy framework and
risks the loss of hard-earned credibility in the eyes of international
investors.
Due to these events, our Turkish investments have detracted from relative
performance. However, because of the broadly diversified nature of your
portfolio, the effects have not been overly detrimental. In addition,
considering the economic implications of this development, we took the decision
to reduce our exposure. We continue to hold select exposure, focusing our
investments in well-capitalised, high quality companies with tangible growth
prospects, such as BIM, a food retailer and pioneer of this discount store
model in Turkey, and Koc, a local conglomerate group of companies.
Portfolio Country Weight (%)
Russia 35.5%
South Africa 24.2%
Saudi Arabia 17.9%
Poland 5.2%
U.A.E 4.5%
Qatar 3.7%
Turkey 2.6%
Hungary 2.6%
Greece 1.7%
Kuwait 1.4%
Czech Republic 0.9%
Source: Barings. September 2021.
Portfolio Sector Weight (%)
Financials 42.0%
Energy 14.5%
Materials 11.7%
Comm. Services 11.1%
Consumer Disc. 10.8%
Consumer Staples 7.1%
Real Estate 1.5%
Industrials 1.4%
Source: Barings. September 2021.
Company Selection
Our team regularly engage with management teams and analyse industry
competitors to gain an insight into a company's business model and sustainable
competitive advantages. Based on this analysis, we seek to take advantage of
these inefficiencies through our in-depth fundamental research, which includes
an integrated Environmental, Social and Governance (ESG) assessment, and active
engagement, to identify and unlock mispriced growth opportunities for our
shareholders.
Russia's Gazprom was the strongest contributor to relative returns over the
period, as natural gas prices have rallied to multi-year highs caused by a
prolonged winter season and strong demand from Asia. Similarly, our positions
in Novatek and Lukoil also outperformed in light of the improving prospects for
the global economy and tight supply of oil and gas.
Russian fintech disruptor TCS was another significant contributor to relative
returns, with the shares rallying in response to the company's positive
corporate governance developments that are noted above. We believe the positive
market reaction to be testament to the vast shareholder value potential
inherent in the company, which we have championed, and recognised through their
improving ESG profile. Elsewhere in Russia, our holding in Russia's Sberbank
was another notable contributor.
Stock selection in the Middle East added to relative performance over the
period. Saudi-based Al Rajhi Bank performed well, helped by solid results for
2020 and a positive outlook for this year, as the company experienced a rebound
in mortgage growth. Qatar National Bank (QNB) was another strong contributor to
relative returns supported by deposit growth and expenditure control in its
operations. QNB also has a strong ESG profile, provided by impressive talent
retention programmes, robust data privacy and investment in cyber security.
In the Materials sector, metals and mining stocks were generally weaker as
markets softened in response to expectations of lower GDP growth in China and
reduced global auto production. This negatively impacted our holdings in KGHM,
Polyus, and Anglo American Platinum. Despite the weaker performance, we believe
the Company's exposure to these precious metals companies will benefit from the
close alignment with the global green energy transition and imposition of
stricter emissions standards, particularly in the automotive sector.
Elsewhere, against a backdrop of a strong technology sector in 2020, Sistema
outperformed, supported by a consistent track record of asset monetisation.
Most recently, this included the successful IPO of Ozon, a company that has
compelling exposure to the structural growth of internet shopping, as consumers
transition from offline to online. More broadly, performance within the
Communications Services sector was mixed, with Russia's most popular internet
search engine, Yandex, outperforming, whilst its peer, Mail.Ru, detracted. This
differential was largely a reflection of the execution of Yandex's business
strategy, utilising the recovery in the profitability of business units such as
Advertising and Taxi, and reinvesting excess revenues into its e-commerce
platform, which has delivered growth in excess of larger peers. Despite the
underperformance of Mail.Ru, we continue to see an investment opportunity over
the medium term, as the rising penetration of e-commerce helps to accelerate
the shift from offline to online and the digitalisation of the economy
continues to create new ways to consume.
In Poland, game developer CD Projekt was one of our weaker performing
investments over the period. The company has been dealt successive blows from
delays in the release of its next major franchise, Cyberpunk 2077, before the
eventual release led to a number of complaints from users regarding glitches.
Following these announcements, we decided to exit the company until a time that
we could see greater visibility on the company's earning trajectory.
Engagement Case Study: Mail.Ru
Mail.Ru is one of the many companies we have actively engaged with over the
period, please see below for a short case study of our interaction:
Overview We engaged with Mail.Ru, an internet company that operates a widely utilised
social media and games platform in Russia, following a request from the
company for our assessment of their efforts surrounding ESG.
Objective Our aim was to influence the company's upcoming ESG strategy, and to ensure
the company has clear and transparent guidelines, to demonstrate initiative,
ownership and a roadmap for improvement.
Outcome Following our feedback, we recommended that for an ESG strategy to be
meaningful the company needed to publicise tangible targets, benchmarked
historically, to ensure that outcomes are quantifiable, and that investors
can clearly ascertain the roadmap of improvement.
In addition, as part of this strategic review, we have evaluated the
company's ESG reporting and transparency, highlighting key areas of focus,
which include but are not limited to, shareholder structures, data security,
customer privacy, staff turnover and diversity and inclusion.
Following the release of the company's second ESG report, we noted that
while the level of disclosures had been enhanced, there is still room for
improvement, particularly as it relates to objectives and actionable
targets. This is especially prevalent in light of the company's expansion
into ecommerce and delivery, and the implications for staff, which operate
within the gig economy.
Outlook
In the short term, markets are likely to remain volatile as investors closely
monitor progress on containing COVID-19 outbreaks across many EM countries.
However, the ongoing trend of improving economic and earnings momentum is
encouraging, while the rolling out of vaccination programs gives grounds for
optimism.
Supply-side bottlenecks and the reopening of economies have led to higher
near-term inflationary pressures that have been exacerbated by the recent
significant rise in oil and gas prices. This poses an additional challenge for
investors. However, these pressures should start to ease by year-end. In
response, the EMEA region has been on the front foot with its approach to
monetary tightening, with Russia, Hungary and the Czech Republic all raising
interest rates over recent months.
In addition, political risk and the potential for periods of instability
remains a risk for our region, as it does across many markets. This is one of
the key reasons why we continue to ensure that our portfolio is well
diversified across many countries and sectors.
Despite these short-term headwinds, we see reasons to be optimistic across the
region's larger markets. South Africa's commitment to fiscal prudence increases
the country's long-term growth potential, whilst early stage results of efforts
to combat corruption are welcomed. In addition, the country's access to a broad
range of metals of strategic importance to the energy transition has only
become more evident in recent years.
In Russia, we see opportunities away from the country's traditionally dominant
Energy sector, in areas such as e-commerce, consumption and technology. The
country's natural gas producers also have an important role to play in the
green energy transition. We continue to believe Saudi Arabia's petro-economy
will adapt, diversify and grow its share in global hydrocarbon production.
Whilst in central Europe, we see opportunities for economies to benefit from
the EU's Recovery Fund and Green New Deal initiatives.
A weaker USD would provide an additional welcome boost. Furthermore, the
relative valuation of the EMEA region versus developed equities remains
attractive, suggesting investor expectations for the asset class remain overly
depressed. This combination of steadily improving earnings, receding COVID-19
risk and attractive valuations should create a positive backdrop for equity
markets as we look to 2022 and beyond.
Investment Process Highlights
We believe that equity markets are inefficient and that consistently applied
fundamental bottom-up company analysis can identify mispriced opportunities. To
unearth these opportunities, we follow a Growth At a Reasonable Price ("GARP")
approach, and apply this to all companies across our region. GARP investing is
focused on identifying companies that are positioned to grow sustainably over
the medium to long term, but where growth is not necessarily recognised by the
market. We therefore seek to select companies that have the potential to
thrive, but also offer good value. We believe that this approach is the most
effective way to invest over longer periods as it focuses on company
fundamentals, with a focus on sustainable business franchises, strong balance
sheets and improving ESG characteristics.
Research
For company research, we use a consistent, analytical and qualitative framework
applied through our proprietary Company Scorecard (see Chart A). This focuses
on three pillars consistent with our GARP methodology: Growth, Valuation and
Quality. By applying a consistent research approach, we can evaluate each
company on a like-for-like basis and determine relative attractiveness across
countries and sectors within the region.
Portfolio construction
We take the ideas generated through our research process and construct a
portfolio that targets sustainable investment returns. Risk management is
central to this process, and we employ a range of approaches to fully identify
all risks within your portfolio. The ultimate aim of this process is to ensure
the businesses in which we invest drive portfolio performance, rather than
broader macroeconomic events.
Once invested, our experienced investment team continue to monitor each company
to ensure that our conviction remains intact and that an investment remains
attractive relative to other opportunities available in the market.
A Focus On ESG
Our proprietary ESG assessment forms a core component of our fundamental
bottom-up research. It is guided by our in-depth knowledge and regular
interactions with company management teams.
Integrating ESG
As an integral step of our research, our ESG assessment affects both our view
of a company's quality and its valuation. This assessment is dynamic rather
than static; we closely monitor the companies we invest in for improvements or
deteriorations in their attitudes to ESG and reflect this in our scoring of
both the quality of the business and its valuation. For each company under our
coverage we complete an ESG scorecard that focuses on three categories as a
foundation of our assessment:
* Sustainability of the Business Model (Franchise)
* Corporate Governance Credibility (Management)
* Hidden Risks on the Balance Sheet (Balance Sheet)
Within each of these categories, we identify three further subcategories, which
are relevant areas of potential risk or opportunity (see Figure B below).
ESG and its impact on a company's Quality Score
We conduct a qualitative assessment of the company in order to assess how
strong the company's franchise, management and balance sheet are, and assign a
quality score of 1 to 5 (1 strong, 5 weak). If we consider the franchise or
balance sheet of the company are under threat due to an ESG issue, or that the
company has weak governance structures, the score we assign to the company
could deteriorate to a level where the investment becomes unattractive from a
quality perspective.
ESG and its impact on the company valuation
Each of the nine subcategories of our ESG assessment as set out below will be
rated from Unfavorable to Exemplary:
UNFAVORABLE NOT IMPROVING IMPROVING EXEMPLARY
+2% to COE -1% to COE
The individual scoring of each of the nine subcategories will translate into a
premium or a discount that is added to the company's Barings Cost of Equity
("COE"), which is used to discount our earnings forecasts. A low ESG score
would translate into an addition to the discount rate of up to 2 percent, thus
penalising the stock and reducing its attractiveness by decreasing its current
valuation. The rationale is that a company associated with poor ESG is likely
to have higher risks that should be reflected in the discount rate. Conversely,
a high ESG score can indicate a company that is lower risk, resulting in a
reduction to the COE of up to 1 percent.
Active Engagements with Investee Companies
We undertake engagements to positively influence ESG practices and improve ESG
disclosure. Our approach is based on clear objective setting, which strengthens
our ability to monitor and steer company progress. We also collaborate with
peers and industry groups to enhance and share best practices. We believe that
by engaging with companies in this way, rather than blanket exclusions of
entire sectors, we have a greater chance of successfully effecting change. This
can also result in value creation for our Shareholders.
Voting
We undertake to exercise our voting rights whenever possible, and have engaged
a dedicated third-party proxy-voting provider. In instances where we disagree
with the provider's recommendations, we have the ability to cast our votes
differently.
Figure A - Fundamental Research: Consistent Company Scorecard
Fundamental Research
Company Meetings Sector / Industry / Macro Dynamics
5 Year Proprietary Financial Forecasts ESG Considerations
Growth Quality Valuation
Historical - How has the Franchise - Does the company Barings Valuation Approach -
company grown its earnings have a competitive advantage, We use our 5-year earnings
over the last 3-years? efficiency, stability? forecasts, discounted by our
Cost of Equity, to set price
Near-term - Is the company Management - Are they targets and determine upside.
expected to grow earnings competent, committed and
over the next 12-months? aligned with shareholders?
Long-term - How is the Balance Sheet - Does the
company set to grow earnings company have the ability to
over the next 5-years based fund its growth?
on our forecasts?
Figure B - Fundamental Research: ESG Assessment
Key Topics Score/Rationale Data / Issues to Consider
1 Employee Exemplary Staff Turnover; Strikes; Fair
Sustainability Satisfaction Wages; Injuries; Fatalities;
of the Unionised Workforce; Training and
Business Model Education
(Franchise)
2 Resource Intensity Improving Water Usage; GHG Emissions; Energy
Usage
3 Traceability/ Improving Traceability of Key Inputs;
Security in Supply Investments in Protecting the
Chain Business From External Threats,
e.g. Cyber Security; Backward
Integration (Protection of Key
Inputs)
4 Effectiveness of Not Improving Separation of Chair & CEO; Size of
Supervisory/ Board; Independence of Board;
Corporate Management Board Frequency of Meetings; Attendance
Governance Record; Voting Structure; Female
Credibility Participation on Boards
(Management)
5 Credibility of Not Improving Credible Auditor; Independent Audit
Auditing Committee; Qualification to
Arrangements Accounts
6 Transparency & Exemplary Access to Management; Financial
Accountability of Reporting; Tax Disclosure;
Management Appropriate Incentive Structure
7 Environmental Improving GHG Emissions; Carbon Intensity;
Hidden Risks Footprint History of Environmental Fines/
on the Balance Sanctions; Reduction Programs in
Sheet (Balance Place for Water/Waste/Resource
Sheet) Intensity
8 Societal Impact of Exemplary Health/Wellness Implications of
Products/Services Consumption of Goods/ Services;
Product Safety issues; Community
Engagement
9 Business Ethics Improving Anti-competitive practices; Bribery
/Corruption; Whistle- Blower
Policy; Litigation Risk; Freedom of
Speech; Gender and Diversity
Considerations
Baring Asset Management Limited
Investment Manager
3 December 2021
Investment Portfolio
Review of Top Ten Holdings
at 30 September 2021
Investee company Sector Market value Company comment
£'000 % of investment
portfolio
Gazprom Energy 7,846 7.2 Russia's largest gas producer,
currently offering substantial
dividend yield.
Sberbank Financials 7,120 6.5 Russia's largest bank, robust
business model supported by
successful implementation of
digitalization strategy. Currently
offers substantial
dividend yield.
Lukoil Holdings Energy 5,782 5.3 Russian oil company with potential
for further dividend growth.
Al Rajhi Bank Financials 5,158 4.7 Number one Islamic bank globally.
Dominant market share supported by
extensive branch network and
stable retail deposit franchise.
Beneficiary of state sponsored
mortgage program.
The Saudi Financials 4,759 4.4 Largest bank in Saudi Arabia,
National Bank originated from merger of NCB and
Samba with synergies still to be
delivered.
Qatar National Financials 4,032 3.7 Largest bank in Qatar, with
Bank dominant market share in both
lending and deposits. Strong
management team with a long
history and good track record.
Norilsk Nickel Basic 3,642 3.3 Russia's largest metals and mining
materials stock with diversified portfolio.
A beneficiary of the green energy
transition.
Yandex Technology 3,547 3.2 Russia's largest internet search
engine, using its dominant market
position to expand into areas such
as e-commerce and taxi hailing.
Prosus Technology 3,518 3.2 One of the largest technology
investors in the world, with an
exciting portfolio of businesses
across multiple sectors - social
media, fintech, food
delivery and classified ads.
Firstrand Financials 3,430 3.1 Leading South African financial
institution offering a diverse
range of services including
transactional, lending, insurance
and
investment products.
Investment Portfolio
at 30 September 2021
Primary country % of Net assets
Investee company of listing or Market value £
investment '000
1 Gazprom Russia 7,846 7.08
2 Sberbank Russia 7,120 6.42
3 Lukoil Holdings Russia 5,782 5.21
4 Al Rajhi Bank Saudi Arabia 5,158 4.66
5 The Saudi National Bank Saudi Arabia 4,759 4.29
6 Qatar National Bank Qatar 4,032 3.64
7 Norilsk Nickel Russia 3,642 3.28
8 Ynadex Russia 3,547 3.20
9 Prosus South Africa 3,518 3.17
10 Firstrand South Africa 3,430 3.09
11 MTN Group South Africa 3,370 3.04
12 Saudi Basic Industries Saudi Arabia 3,256 2.94
13 Saudi Telecom Saudi Arabia 3,022 2.73
14 OTP Bank Hungary 2,795 2.52
15 X5 Retail Group Russia 2,566 2.31
16 Bid Corporation South Africa 2,302 2.08
17 Novatek Russia 2,212 1.99
18 PKO Bank Polski Poland 2,209 1.99
19 Naspers Limited South Africa 2,109 1.90
20 Anglo American South Africa 2,044 1.84
21 Cooperative Insurance Saudi Arabia 1,810 1.63
22 First Abu Dhabi Bank United Arab 1,804 1.63
Emirates
23 Capitec South Africa 1,768 1.59
24 Mr Price Group South Africa 1,711 1.54
25 Emaar Properties United Arab 1,650 1.49
Emirates
26 PZU Poland 1,638 1.48
27 Anglo American Platinum South Africa 1,626 1.47
28 National Bank of Greece Greece 1,580 1.43
29 Discovery South Africa 1,532 1.38
30 Jarir Marketing Saudi Arabia 1,531 1.38
31 Shoprite Holdings South Africa 1,497 1.35
32 Abu Dhabi Commercial Bank United Arab 1,438 1.30
Emirates
33 TCS Russia 1,401 1.26
34 Bim Birlesik Magazalar Turkey 1,345 1.21
35 Mail.RU Russia 1,045 0.94
36 Koc Holding Turkey 1,019 0.92
37 Fix Price Group Russia 1,010 0.91
38 Komercni Banka Czechia 974 0.88
39 Human Soft Kuwait 931 0.84
40 Moscow Exchange Russia 859 0.78
41 KGHM Polska Miedz Poland 841 0.76
42 Impala Platinum South Africa 779 0.70
43 Sanlam Limited South Africa 727 0.66
44 Segezha Group Russia 579 0.52
45 Mobilnye Telesistemy Russia 569 0.51
46 Mobile Telesystems Russia 568 0.51
47 National Bank of Kuwait Kuwait 547 0.49
48 Allegro Poland 532 0.48
49 Inpost Poland 496 0.45
50 D Market Electronic Services Turkey 443 0.39
Trading
51 Alpha Services and Holdings Greece 264 0.24
Total investments 109,233 98.50
Net current assets 1,664 1.50
Net assets 110,897 100.00
Corporate Review
The Strategic Report above and the Audited Financial Statements has been
prepared in accordance with the requirements of Section 414 of the Companies
Act 2006 and best practice. Its purpose is to provide information to the
Shareholders of the Company and help them to assess how the Directors have
performed their duty to promote the success of the Company, in accordance with
Section 172 of the Companies Act 2006.
Company Status
The principal activity of the Company is to carry on business as an investment
trust. The Company intends at all times to conduct its affairs so as to enable
it to qualify as an investment trust for the purposes of Sections 1158/1159 of
the Corporation Tax Act 2010 ("S1158/1159"). The Directors do not envisage any
change in this activity in the foreseeable future.
The Company is quoted on the London Stock Exchange under the ticker code BEMO.
As an investment trust, the Company has appointed an Alternative Investment
Fund Manager, Baring Fund Managers Limited (the "AIFM"), to manage its
investments. It has also appointed third-party service providers to manage the
day-to-day operations of the Company, whose performance is monitored and
challenged by a Board of independent Non-Executive Directors.
The Directors are of the opinion that the Company continues to conduct its
affairs so as to be able to continue to qualify as an investment trust.
Key Performance Indicators
Our Key Performance Indicators ("KPIs") are as follows:
* Annualised NAV total return1
* Share price total return1
* Dividend per Ordinary Share1
The returns for the year are set out under Financial Highlights above.
1APMs. Definitions can be found in the Glossary below
Dividend Policy
The Company seeks to generate an attractive level of income for Shareholders,
and will pay income from capital of up to 1% per annum of NAV when considered
appropriate by the Board. The Board believes this is a sustainable policy that
should improve the Company's appeal amongst investors.
Dividends
An interim dividend of 15 pence per Ordinary Share was declared on 18 May 2021
and paid on 28 June 2021.
The Board recommends a final dividend of 11 pence per Ordinary Share. Subject
to Shareholder approval at the AGM, the recommended final dividend will be paid
on 7 February 2022 to Shareholders on the register at the close of business on
17 December 2021. The Ordinary Shares will be marked ex-dividend on 16 December
2021.
Buyback Programme
During the year under review, the average discount to NAV at which the
Company's Ordinary Shares traded at was 13.07% (2020: 11.04%) and 231,245
Ordinary Shares were repurchased at a cost of £1,715,000 (2020: 163,272
Ordinary Shares at a cost of £1,101,000). All Ordinary Shares repurchased
during the year have been cancelled.
Section 172 Statement
Background
Directors have a duty to make decisions that promote the success of a company
for the benefit of shareholders as a whole. This responsibility is formally
enshrined in section 172 of the Companies Act 2006, which stipulates that board
decisions must be made with the long-term consequences of those decisions in
mind, including consideration of the interests of a company's employees,
suppliers, customers and other stakeholders, the impact on the community and
the environment, and the desirability of maintaining a reputation for high
standards of business conduct.
Stakeholders
The Board seeks to understand the needs and priorities of the Company's
stakeholders and these are taken into account during discussions and as part of
its decision-making. The Board has concluded that, as the Company is an
externally managed investment trust and does not have any employees or
customers in the traditional sense, its key stakeholders comprise its
Shareholders, its Investment Manager, its key service providers including;
Corporate Broker, Company Secretary, Registrar, Custodian, Auditor and
Administrator and, its Investee Companies. However, the Board also takes
account of the Company's responsibilities to the environment and the wider
community. The section below discusses the actions taken by the Company to
ensure that the interests of stakeholders are taken into account, particularly
in the context of the emerging climate agenda.
Shareholders
Continued shareholder support and engagement are important to the existence of
the Company and to the delivery of long-term strategy.
The Board is committed to maintaining open channels of communication and to
engage with Shareholders in a manner which they find most helpful, in order to
gain an understanding of the views of Shareholders. These include:
* Annual General Meeting - The Company welcomes and encourages attendance and
participation from Shareholders at the AGM and, national restrictions
permitting, looks forward to hosting Shareholders again at the 2022 AGM.
Shareholders have the opportunity to meet the Directors and the Investment
Manager and to address questions to them directly. There is typically a
presentation on the Company's performance and the future outlook, from the
Investment Manager.
* Publications - The Annual Report and Half-Year results are made available
on the Company's website and the Annual Report is circulated to those
Shareholders requesting hard copies. These reports provide Shareholders
with detailed information on the Company's portfolio and financial
position. This information is supplemented by a quarterly factsheet which
is released via the stock exchange.
* Shareholder Feedback - Shareholders in investment companies often meet with
the Investment Manager rather than members of the Board. However, the Board
values the feedback and questions that it receives from Shareholders and
takes note of individual Shareholders' views in arriving at decisions which
are taken in the best interests of the Company. The Chairman or the Senior
Independent Director can be contacted via either the Company Secretary or
the Corporate Broker, both of which are independent of the Investment
Manager.
* Investor Relations updates - At every Board meeting, the Directors receive
updates from the Corporate Broker on share trading activity, share price
performance, the Company's share register and any Shareholders' feedback.
The Board also review promotional plans, PR activity and analyst's comments
or research reports on the Company.
The Investment Manager
Maintaining a close and constructive working relationship with the Investment
Manager is essential for the Board. The Investment Manager aims to achieve
capital growth in line with the Company's investment objective. The Board has a
critical role in monitoring the Investment Manager. The Board meets with the
Investment Manager at least every quarter, and adopts a tone of constructive
challenge. Further details on the management arrangements can be found above.
Third-Party Service Providers
In order for the Company to function as an investment trust, the Board relies
on a diverse range of advisors for support. For this reason the Board considers
the Company's third-party service providers to be stakeholders.
The Board maintains regular contact with its key external providers and
receives regular reporting from them, both through Board and committee
meetings, as well as on an adhoc basis outside of meetings. Their advice and
views are routinely taken into account. The Management Engagement Committee
formally assesses their performance, fees and continuing appointment annually
to ensure that the key service providers continue to function at an acceptable
level and are appropriately remunerated to deliver the expected level of
service. The Audit Committee also reviews and evaluates the financial reporting
control environments in place at the key service providers.
Investee Companies
The Board recognises the importance of good stewardship and communication with
investee companies in meeting the Company's investment objective and strategy.
The Investment Manager engages with the management teams of investee companies
on a periodic basis and reports its impressions on the prospects of these
investee companies to the Board. The Directors recognise that the Investment
Manager can influence an investee company's approach to ESG matters, and this
forms part of the investment process as detailed above. During the year under
review, the Board met virtually with six investee companies from different
geographical and sector backgrounds to understand how these companies operated,
the sustainability of their business models, their approach to ESG and their
corporate governance credibility.
Environment and Community
Given the outsourced nature of the Company's operations, the Company has very
little direct impact on the community or the environment. However, the Board
recognises that it can influence an investee company's approach to ESG matters.
The Company's investment approach takes into account the external impact of
investee companies' activities on the environment, their social practices'
social acceptability governance. The Investment Manager discusses ESG matters
with investee companies on a regular basis. Further details on the Company's
investment approach to ESG can be found above.
The mechanisms for engaging with stakeholders are kept under review by the
Directors and are discussed on a regular basis at Board meetings to ensure that
they remain effective.
Board Activities
During the year regular items at Board meetings include the review of the
Company's portfolio, performance and the market, investor relations, marketing
activities, key risks, operational matters and governance, and compliance with
the AIC Code.
Decision Making
Specific Board decisions that have been made during the year included the
following:
* Investment Policy
A key strategic decision made by the Board was the broadening of the Company's
investment objective and investment policy. It also sought the views of the
Company's largest shareholder on the new investment policy. Proposals were
circulated to Shareholders in October 2020 on a change to the investment
policy, which was approved by Shareholders at a General Meeting held on 13
November 2020.
* Discount Control Mechanism
The Board recognises that it is in the long-term interests of Shareholders that
shares do not trade at a significant discount to their prevailing NAV. To this
end, in conjunction with feedback from its largest shareholder and the
Corporate Broker, the Board, mindful of Shareholders' continued desire for a
strong discount control mechanism, agreed tender offer trigger mechanisms for
the five year period commencing 1 October 2020.
* Allocation of discretionary funds
The Board allocated discretionary funds to marketing initiatives by outsourcing
marketing and public relations to external service providers, in support of the
Investment Manager. These initiatives increased the reach of the Company to
potential Shareholders and also supported an improvement in communications with
existing Shareholders.
The Board recognises the importance of engaging with its core stakeholders, and
of taking account of their interests when taking decisions.
Culture and Values
The Company's values focus on transparency, clarity and constructive challenge.
The Directors recognise the importance of sustaining a culture that contributes
to achieving the purpose of the Company that is consistent with its values and
strategy.
Continuing Appointment of the Alternative Investment Fund Manager
The Board keeps the performance of the AIFM under continual review. The
Management Engagement Committee conducts an annual appraisal of the AIFM's
performance and makes a recommendation to the Board about the continuing
appointment of the AIFM. As the AIFM has delegated the portfolio management
function to the Investment Manager, the performance of the Investment Manager
is also regularly reviewed. The annual review of the performance of the
Investment Manager includes consideration of:
* overall performance and performance compared with the Benchmark and peer
group;
* investment resources dedicated to the Company;
* investment management fee arrangements compared with the peer group; and
* marketing effort and resources provided to the Company.
It is the opinion of the Board that the continuing appointment of the AIFM, on
the terms agreed, is in the best interests of Shareholders as a whole. The
Board is of the view that the AIFM has managed the portfolio well, particularly
the change of mandate, and in accordance with the Board's expectations and has
delivered good returns.
Viability Statement
The Directors consider viability as part of their continuing approach of
monitoring risk. The Directors have assessed the prospects of the Company over
a longer period than the twelve months required by the "Going Concern"
provision. The Board conducted this review for a period of three years, which
was selected because it was considered to be a reasonable time horizon in the
context of the Company's investment portfolio but also appropriately reflects
the limitations forecasting the longer term revenue generation of the
portfolio.
The Directors have carried out a robust assessment of the Company's principal
and emerging risks, as well as its current position. The principal risks faced
by the Company and the procedures in place to monitor and mitigate them are
detailed above. The Company's long term viability assessment is underpinned by
the characteristics below:
* the Company has a long term investment strategy, implemented via a
consistently applied investment process which is designed to maximise the
chances of the investment objectives being met;
* the Company has a portfolio of shares which are listed on regulated
markets, many of which are highly liquid, and can be readily realised to
help meet liabilities as they fall due. It has been reported by the
Investment Manager that the portfolio has sufficient liquidity to meet all
requirements with approximately 88% of the portfolio able to be liquidated
within one day and 100% within three days;
* the Company has no long term debt, and restricts the level of short term
borrowings;
* underlying revenue generation of the portfolio is regularly reviewed and
monitored. The Investment Manager has seen a recovery in the underlying
revenue generation of the companies in the portfolio to levels similar to
those seen before the pandemic, whilst longer term forecasts indicate an
encouraging upward trend that should help support a sustainable dividend;
and
* the broadening of the investment policy has allowed the Company to further
diversify its country and sector risk. The change in investment objective
means the Company is now benefiting from a larger opportunity set in high
growth areas, whilst further diversifying the portfolio and reducing the
risk of idiosyncratic events materially influencing performance.
The Board has also considered the impact on the portfolio of further market
shocks, such as those resulting from the COVID-19 pandemic. The Investment
Manager performs both market based stress tests and scenario analysis. Stress
tests cover a range of sensitivities such as the predicted impact on the
portfolio based upon: interest rate movements, commodity price changes,
currency appreciation/devaluation and equity market moves. This also includes
scenarios based on hypothetical future events and historic points of market
stress. In carrying out this assessment, the Board has considered the
diversification of the Company's portfolio, as well as the liquidity profile
and dividend coverage of underlying investments. This analysis did not indicate
any matters of significant concern.
Based on the above assessment, the Directors confirm that they have a
reasonable expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the coming three years.
Modern Slavery Act
As an investment vehicle the Company does not provide goods or services in the
normal course of business, and does not have customers. Accordingly, the
Directors consider that the Company is not required to make any slavery or
human trafficking statement under the Modern Slavery Act 2015. In any event,
the Board considers the Company's supply chain, dealing predominantly with
professional advisers and service providers in the financial services industry,
to be low risk in relation to this matter.
Environmental, Human Rights, Employee, Social and Community Issues
The Company does not have any employees and all of the Directors are
non-executive and it has outsourced its functions to third-party service
providers. As an investment trust, the Company has very limited direct impact
on the community or the environment, and as such has no environmental, human
rights, social or community policies. The Company has therefore not reported
further in respect of these provisions.
The Company aims to conduct itself responsibility, ethically and fairly. ESG
factors are considered by the Investment Manager as part of its investment
process, where appropriate. Further information can be found in the Investment
Manager's Report above, which is supported by the Board. A key consideration in
the decision to change the investment policy was the move away from
hydrocarbons in the portfolio.
The Board supports the Investment Manager in its belief that good corporate
governance will help deliver sustainable long-term shareholder value. It
therefore follows that in pursuing shareholder value, the Investment Manager
will implement its investment strategy through proxy voting and active
engagement with management and Boards. Please see the full Annual Report for
further information.
This Strategic Report has been approved by the Board and signed on its behalf
by:
Frances Daley
Chairman
3 December 2021
Board of Directors
FRANCES DALEY FCA, MCSI - Chairman
VIVIEN GOULD - Non-Executive Director
CHRISTOPHER GRANVILLE - Non-Executive Director
CALUM THOMSON FCA - Non-Executive Director and Audit Committee Chairman
NADYA WELLS - Non-Executive Director and Senior Independent Director ("SID")
EXTRACTS FROM THE DIRECTORS' REPORT
Share Capital
As at 30 September 2021, the Company's total issued share capital was
15,362,987 Ordinary Shares (30 September 2020: 15,594,232), of which the
Company held 3,318,207 Ordinary Shares in treasury. The Ordinary Shares held in
treasury are treated as not being in issue when calculating the weighted
average of Ordinary Shares in issue during the year. All Ordinary Shares
repurchased during the year have been cancelled. All of the Company's Ordinary
Shares in circulation are listed on the main market of the London Stock
Exchange and each Ordinary Share carries one vote.
The rights attached to the Company's Ordinary Shares are set out in the
Company's Articles. The Company's Ordinary Shares are freely transferable.
However, the Directors' may refuse to register a transfer of Ordinary Shares
which are not fully paid nor where the instrument of transfer is not duly
stamped or shown to be exempt from stamp duty. The Directors may also decline
to register a transfer of an uncertificated share in the circumstances set out
in the uncertificated securities rules, and where the number of joint holders
to whom the uncertificated shares is to be transferred exceeds four. There are
no restrictions on the voting rights of the Company's Ordinary Shares.
Amendments to the Company's Articles and the granting of authority to issue or
buy back the Company's shares requires an appropriate resolution to be passed
by Shareholders.
There are no restrictions on voting for the holders of Ordinary Shares, who are
entitled to attend and vote at a Shareholders meeting.
Share Issues
At the Annual General Meeting held on 21 January 2021, the Directors were
granted authority to allot Ordinary Shares up to an aggregate nominal amount of
£122,439 (being 10% of the issued Ordinary Share Capital as at the date of
publication of the Notice).
This authority is due to expire at the Company's AGM. The Company has not
issued any Ordinary Shares under this authority. Proposals for the renewal of
this authority are set out in the notice of AGM.
Treasury Shares
Shares brought back by the Company may be held in treasury, from where they
could be re-issued at a premium to NAV quickly and cost effectively. This
provides the Company with additional flexibility in the management of its
capital bases. No shares were purchased for treasury during the year or since
the year end. The Company holds 3,318,207 ordinary shares in treasury.
Purchase of Own Shares
At last year's AGM held on 21 January 2021, the Directors were authorised to
make market purchases of up to 14.99% of the Company's Ordinary Shares in issue
at that time, amounting to 1,835,361 shares. Since the AGM held on 21 January
2021 and the year end, the Company bought back 199,125 Ordinary Shares with a
nominal value of 0.10 pence per Ordinary Shares, and at a total cost of £
1,522,000 under this authority. As at 30 September 2021, the remaining
authority for the purchase of own shares is 1,636,236 Ordinary Shares. A total
of 3,318,207 Ordinary Shares are held in treasury, representing 21.60% of the
issued share capital at 30 September 2021.
This authority is due to expire at the Company's forthcoming AGM. Proposals for
the renewal of this authority are set out in the notice of AGM, which is
circulated separately to this report.
Going Concern
The Directors believe that, having considered the Company's investment
objectives, risk management policies, capital management policies and
procedures, nature of the portfolio and expenditure projections, the Company
has adequate resources and an appropriate financial structure in place to
continue in operational existence for the foreseeable future, being a period of
at least twelve months from the date of approval of the financial statements.
The assets of the Company are well diversified and consist mainly of securities
which are readily realisable. For these reasons, the Directors consider that
there is reasonable evidence to continue to adopt the going concern basis in
preparing the accounts.
Statement of Directors' Responsibilities in Respect of the Annual Report and
the Financial Statements
Directors' responsibilities
The Directors are responsible for preparing the annual report and the financial
statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors are required to prepare the
financial statements in accordance with UK Accounting Standards and applicable
law, including FRS 102 "The Financial Reporting Standard applicable in the UK
and Republic of Ireland".
Under company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and of the profit or loss of the Company for that
period.
In preparing these financial statements, the Directors are required to:
* select suitable accounting policies and then apply them consistently;
* make judgments and estimates that are reasonable and prudent;
* state whether they have been prepared in accordance with applicable UK
Accounting Standards subject to any material departures disclosed and
explained in the financial statements;
* prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business; and
* prepare a Director's report, a strategic report and Director's remuneration
report which comply with the requirements of the Companies Act 2006.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
The Directors are responsible for ensuring that the annual report and accounts,
taken as a whole, are fair, balanced, and understandable and provides the
information necessary for Shareholders to assess the Company's performance,
business model and strategy.
Website publication
The Financial Statements are published on the Company's website:
www.bemoplc.com, which is maintained by the Investment Manager. The maintenance
and integrity of the website maintained by the Investment Manager is, so far as
it relates to the Company, the responsibility of the Investment Manager.
Legislation in the UK governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Directors' responsibilities pursuant to DTR4
The Directors confirm to the best of their knowledge:
* the financial statements have been prepared in accordance with applicable
UK Accounting Standards and give a true and fair view of the assets,
liabilities, financial position and profit of the Company; and
* the annual report includes a fair review of the development and performance
of the business and the financial position of the Company, together with a
description of the principal risks and uncertainties that they face.
For and on behalf of the Board
Frances Daley
Chairman
3 December 2021
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the Company's
statutory accounts for the year ended 30 September 2021 but is derived from
those accounts. Statutory accounts for the year ended 30 September 2021 will be
delivered to the Registrar of Companies in due course. The Auditor has reported
on those accounts; their report was (i) unqualified, (ii) did not include a
reference to any matters to which the Auditors drew attention by way of
emphasis without qualifying their report and (iii) did not contain a statement
under Section 498 (2) or (3) of the Companies Act 2006. The text of the
Auditors' report can be found in the Company's full Annual Report and Accounts
on the Company's website at www.bemoplc.com.
Income Statement
for the year ended 30 September 2021
For the year to 30 September 2021 For the year to 30 September 2020
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on investments held at fair 9 - 28,381 28,381 - (26,316) (26,316)
value through profit or loss
Foreign exchange losses - (245) (245) - (382) (382)
Income 2 4,488 - 4,488 3,506 116 3,622
Investment management fee 3 (149) (598) (747) (156) (623) (779)
Other expenses 4 (888) (62) (950) (770) - (770)
Return on ordinary activities 3,451 27,476 30,927 2,580 (27,205) (24,625)
Finance costs 5 - - - (33) (134) (167)
Return on ordinary activities before taxation 3,451 27,476 30,927 2,547 (27,339) (24,792)
Taxation 6 (539) - (539) (266) - (266)
Return for the year 2,912 27,476 30,388 2,281 (27,339) (25,058)
Return per ordinary share 8 23.86p 225.16p 249.02p 18.40p (220.52p) (202.12p)
The total column of this statement is the income statement of the Company.
The supplementary revenue and capital columns are both prepared under the
guidance published by the AIC.
All revenue and capital items in the above statement derive from continuing
operations. No operations were acquired or discontinued during the period.
There is no other comprehensive income and therefore the return for the year is
also the total comprehensive income for the year.
The notes below form part of these financial statements.
Statement of Financial Position
as at 30 September 2021
At 30 At 30
September September
2021 2020
Notes £'000 £'000
Fixed assets
Investments at fair value through profit or loss 9 109,233 83,572
Current assets
Debtors 10 667 272
Cash and cash equivalents 1,664 1,825
2,331 2,097
Current liabilities
Creditors: amounts falling due within one year 11 (666) (387)
Net current assets 1,665 1,710
Net assets 110,898 85,282
Capital and reserves
Called-up share capital 12 1,536 1,559
Capital redemption reserve 3,252 3,229
Share premium account 1,411 1,411
Capital reserve 102,479 76,718
Revenue reserve 2,220 2,365
Total equity 110,898 85,282
Net asset value per share 13 920.71p 694.70p
The financial statements above were approved and authorised for issue by the
Board of Barings Emerging EMEA Opportunities PLC on 3 December 2021 and were
signed on its behalf by:
Frances Daley
Chairman
Company registration number 04560726
The notes below form part of these financial statements.
Statement of Changes in Equity
for the year ended 30 September 2021
Called-up Capital Share
share redemption premium Capital Revenue
capital reserve account reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
For the year ended 30 September
2021
Opening balance as at 1 October 1,559 3,229 1,411 76,718 2,365 85,282
2020
Return for the year - - - 27,476 2,912 30,388
Contributions by and distributions
to Shareholders:
Repurchase of Ordinary Shares (23) 23 - (1,715) - (1,715)
Dividends paid - - - - (3,057) (3,057)
Total contributions by and (23) 23 - (1,715) (3,057) (4,772)
distributions to Shareholders:
Balance at 30 September 2021 1,536 3,252 1,411 102,479 2,220 110,898
Called-up Capital Share
share Redemption premium Capital Revenue
capital reserve account reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
For the year ended 30 September
2020
Opening balance as at 1 October 1,576 3,212 1,411 105,158 4,429 115,786
2019
Return for the year - - - (27,339) 2,281 (25,058)
Contributions by and distributions
to Shareholders:
Repurchase of Ordinary Shares (17) 17 - (1,101) - (1,101)
Dividends paid - - - - (4,345) (4,345)
Total contributions by and (17) 17 - (1,101)) (4,345) (5,446)
distributions to Shareholders:
Balance at 30 September 2020 1,559 3,229 1,411 76,718 2,365 85,282
At 30 September 2021, the distributable reserves of the Company were £
86,658,000 which comprise of the revenue reserve £2,220,000 and realised
capital reserves of £84,438,000. (2020: distributable reserves of £79,083,000
comprising of revenue reserve of £2,365,000 and realised capital reserves of £
79,286,000, less capital reserve attributable to unrealised losses of £
2,568,000).
All investments are held at fair value through profit or loss. When the Company
revalues the investments still held during the period, any gains or losses
arising are credited/charged to the capital reserve.
The notes below form part of these financial statements.
Notes to the Financial Statements
for the year ended 30 September 2021
1. Accounting policies
Barings Emerging EMEA Opportunities PLC (the "Company") is a company
incorporated and registered in England and Wales. The principal activity of the
Company is that of an investment trust company within the meaning of Sections
1158/159 of the Corporation Tax Act 2020 and its investment approach is
detailed in the Strategic Report.
Basis of preparation
The financial statements are prepared in accordance with the Companies Act
2006, United Kingdom Generally Accepted Accounting Practice ('UK GAAP'),
including FRS 102 'The Financial Reporting Standard applicable in the UK and
Republic of Ireland' and with the Statement of Recommended Practice 'Financial
Statements of Investment Trust Companies and Venture Capital Trusts' (the
'SORP') issued by the Association of Investment Companies, October 2019.
The Company meets the requirements of section 7.1A of FRS 102 and therefore has
elected not to present the Statement of Cash Flows for the year ended 30
September 2021.
The policies applied in these financial statements are consistent with those
applied in the preceding year.
Going concern
The financial statements have been prepared on a going concern basis and on the
basis that approval as an investment trust company will continue to be met.
The Directors have made an assessment of the Company's ability to continue as a
going concern and are satisfied that the Company has adequate resources to
continue in operational existence for a period of at least twelve months from
the date when these financial statements were approved.
In making the assessment, the Directors have considered the likely impacts of
the current COVID-19 pandemic on the Company's operations and its investment
portfolio.
The Directors noted that the Company's current cash balance exceeds any short
term liabilities, the Company holds a portfolio of liquid listed investments.
The Directors are of the view that the Company is able to meet its obligations
and when they fall due. The surplus cash enables the Company to meet any
funding requirements and finance future additional investments. The Company is
a closed-end fund, where assets are not required to be liquidated to meet
day-to-day redemptions.
The Board has reviewed stress testing and scenario analysis prepared by the
Investment Manager to assist them in assessing the impact of changes in market
value and income with associated cash flows. In making this assessment, the
Investment Manager have considered plausible downside scenarios. These tests
included the possible further effects of the continuation of the COVID-19
pandemic but, as an arithmetic exercise, apply equally to any other set of
circumstances in which asset value and income are significantly impaired. It
was concluded that in a plausible downside scenario, the Company could continue
to meet its liabilities.
Whilst the economic future is uncertain, and the Directors believe that it is
possible the Company could experience further reductions in income and/or
market value, the opinion of the Directors is that this should not be to a
level which would threaten the Company's ability to continue as a going
concern.
The Investment Manager and the Company's third-party service providers have
contingency plans to minimise disruption. Furthermore, the Directors are not
aware of any material uncertainties that may cast significant doubt on the
Company's ability to continue as a going concern, having taken into account the
liquidity of the Company's investment portfolio and the Company's financial
position in respect of its cash flows, borrowing facilities and investment
commitments (of which there are none of significance). Therefore, the financial
statements have been prepared on the going concern basis.
Segmental reporting
The Directors are of the opinion that the Company is re-engaged in a single
segment of business, being the investment business.
Significant accounting judgements and estimates
The preparation of the Company's financial statements on occasion requires the
Board to make judgements, estimates and assumptions that affect the reported
amounts in the primary financial statements and the accompanying disclosures.
These assumptions and estimates could result in outcomes that require a
material adjustment to the carrying amount of assets or liabilities affected in
the current and future periods, depending on the circumstance.
The areas requiring significant judgement and estimation in the preparation of
the financial statements are: recognising and classifying unusual or special
dividends received as either revenue or capital in nature; recognition of
expenses between capital and income; capital expenses and setting of the level
of dividends paid and proposed. The policies for these are set out in the notes
to the Financial Statements.
The Directors do not believe that any significant accounting judgements or
estimates have been applied to this set of financial statements, that have a
significant risk of causing a material adjustment to the carrying amount of
assets and liabilities within the next financial year.
Investments
Upon initial recognition the investments held by the Company are classified 'at
fair value through profit or loss'. All gains and losses are allocated to the
capital return within the Income Statement as 'Gains on investments held at
fair value through profit or loss'. Also included within this are transaction
costs in relation to the purchase or sale of investments. When a purchase or
sale is made under a contract, the terms of which require delivery within the
timeframe of the relevant market, the investments concerned are recognised or
derecognised on the trade date. Subsequent to initial recognition, investments
are valued at fair value through profit or loss. For listed investments this is
deemed to be bid market prices. Fair values for unquoted investments, or for
investments for which the market is inactive, are established by the Directors
after discussion with the AIFM using various valuation techniques in accordance
with the International Private Equity and Venture Capital (the "IPEV")
guidelines.
Foreign Currency
The Company is required to identify its functional currency, being the currency
of the primary economic environment in which the Company operates. The Board,
having regard to the Company's share capital and the predominant currency in
which its Shareholders operate, has determined that Pounds Sterling is the
functional currency. Pounds Sterling is also the currency in which the
financial statements are presented.
Transactions denominated in currencies other than Pounds Sterling are recorded
at the rates of exchange prevailing on the date of the transaction. Items that
are denominated in foreign currencies are translated at the rates prevailing on
the Balance Sheet date. Any gains or loss arising from a change in exchange
rate subsequent to the date of the transaction is included as an exchange gain
or loss in the capital reserve or the revenue account depending on whether the
gain or loss is capital or revenue in nature.
Cash and Cash Equivalents
Cash comprises cash in hand and demand deposits.
Trade Receivables, Prepayments and Other debtors
Trade receivables, prepayments and other debtors are recognised at amortised
cost or estimated fair value.
Trade Payables and Borrowings
Trade payables and short-term borrowings are measured at amortised cost.
Bank borrowings
The interest bearing bank loan is recognised at amortised cost and revalued for
exchange rate movements.
Income
Dividends receivable from equity shares are included in revenue return on an
ex-dividend basis except where, in the opinion of the Board, the dividend is
capital in nature, in which case it is included in capital return.
Overseas dividends are included gross of any withholding tax.
Special dividends are taken to the revenue or capital account depending on
their nature. In deciding whether a dividend should be regarded as a capital or
revenue receipt, the Board reviews all relevant information as to the sources
of the dividend on a case-by case basis.
Expenses and finance costs
All expenses are accounted for on an accruals basis. On the basis of the
Board's expected long-term split of total returns in the form of capital and
revenue and are charged as follows:
. the investment management fee is charged 20% to revenue and 80% to capital;
. any investment performance bonus payable to AIFM are charged wholly to
capital;
. finance costs are charged 20% to revenue and 80% to capital;
. other expenses are charged wholly to revenue.
Taxation
Current tax is provided at the amounts expected to be paid or recovered.
Deferred tax is provided on all timing differences that have originated but not
reversed by the balance sheet date. Deferred tax liabilities are recognised for
all taxable timing differences but deferred tax assets are only recognised to
the extent that it is more likely than not that taxable profits will be
available against which those timing differences can be utilised.
Deferred tax is measured at the tax rate which is expected to apply in the
periods in which the timing differences are expected to reverse, based on tax
rates that have been enacted or substantively enacted at the balance sheet date
and is measured on an undiscounted basis.
Dividends payable to Shareholders
Dividends are not recognised in the accounts unless there is an obligation to
pay or have been paid.
Capital redemption reserve
The capital redemption reserve represents non-distributable reserves that arise
from the purchase and cancellation of Ordinary Shares.
Share premium
The share premium account represents the accumulated premium paid for shares
issued in previous periods above their nominal value less issue expenses. This
is a reserve forming part of the non-distributable reserves. The following
items are taken to this reserve:
. costs associated with the issue of equity; and
. premium on the issue of shares.
Capital reserve
The following are taken to capital reserve through the capital column of the
Income Statement:
Capital reserve - distributable reserves
. gains and losses on the disposal of investments;
. amortisation of issue of interest bearing bank loans;
. exchange differences of a capital nature;
. expenses, together with the related taxation effect, allocated to this
reserve in accordance with the above policies; and
. distribution of dividends
Capital reserve - non-distributable reserves
. increase and decrease in the valuation of investments held at the year end.
Revenue reserve
The revenue reserve represents the surplus of accumulated profits and is
distributable by way of dividends.
2. Income
2021 2020
£'000 £'000
Income from investments
Listed Investments* 4,493 3,583
Other income:
Bank interest - 1
Exchange losses on receipt of (5) (78)
income
Total income 4,488 3,506
All income stated above is revenue in nature
3. Investment Management Fee
Baring Fund Managers Limited has been appointed as the AIFM under an agreement
with six months notice by either party. The annual fee of 0.75% (0.80% prior to
13 November 2020) is calculated, in accordance with the Investment Management
Agreement, on the month end NAV excluding current period revenue and payable
monthly. The charge is allocated 20% (2020: 20%) to revenue and 80% 2020: 80%)
to capital. There is no performance fee chargeable by the AIFM.
The investment management fee comprises:
Year ended 30 September 2021 Year ended 30 September
2020
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management fee 149 598 747 156 623 779
At 30 September 2021, £136,000 (30 September 2020: £116,000) of this fee
remained outstanding and are included within other creditors in note 11.
4. Other Expenses
2021 2020
£'000 £'000
Custody and administration 710 596
expenses
Auditor's fee for:
- audit 30 29
Directors' remuneration 148 145
Total expenses 888 770
5. Finance Costs
Year ended 30 September 2021 Year ended 30 September
2020
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Borrowings under bank loan - - - 33 134 167
facility*
* The Company has no loan facility. In the prior year the loan facility was
repaid on the 7 April 2020.
6. Taxation
Current tax charge for the year:
2021 2020
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Overseas tax not recoverable 542 - 542 487 - 487
Overseas tax recovered and (3) - (3) (221) - (221)
deemed recoverable - previously
expensed
539 - 539 266 - 266
Factors affecting the current tax charge for the year
The taxation rate assessed for the year is different from the standard rate of
corporation taxation in the UK. The differences are explained below:
2021 2020
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Return on ordinary activities 3,451 27,476 30,927 2,547 (27,339) (24,792)
before taxation
Return on ordinary activities 656 5,220 5,876 484 (5,194) (4,710)
multiplied by the standard rate
of corporation tax of 19% (2020:
19%)
Effects of:
Overseas withholding tax 542 - 542 487 - 487
Overseas tax recovered and (3) - (3) (221) - (221)
deemed recoverable - previously
expensed
(Gains)/losses on investments - (5,387) (5,387) - 5,000 5,000
held at fair value through
profit and loss not allowable
Foreign exchange gain not 1 41 42 - 72 72
taxable
Overseas dividends not taxable (854) - (854) (666) (21) (687)
Disallowable expenses - - - - - -
Management expenses not utilised 197 126 323 176 118 294
Non-trade loan relationship - - - 6 25 31
debts not utilised
Current tax charge for the year 539 - 539 266 - 266
The Company is not liable to tax on capital gains due to its status as an
investment trust.
Factors affecting the current tax charge for the year
At 30 September 2021, the Company has unrelieved management expenses that are
available to offset future taxable revenue. On 3 March 2021, the UK Government
announced its intention to increase the rate of corporation tax from 19% to 25%
from 1 April 2023 and this was subsequently enacted on 24 May 2021. The
unrecognised deferred tax asset of £3,894,000 (2020: £2,637,000) is based on
the long term prospective corporation tax rate of 25.0% (2020: 19.0%). This
asset has accumulated because deductible expenses have exceeded taxable income
in past years. No asset has been recognised in the accounts because, all
profits are non taxable in the UK due to the entity being an investment trust.
It is not likely that this asset will be utilised in the foreseeable future.
7. Dividend on Ordinary Shares
2021 Revenue 2020 Revenue
£'000 £'000
Amounts recognised as distributions to equity holder in
the year:
Final dividend for the year ended 30 September 2020 of 1,224 2,484
10p (2019: 20p) per Ordinary Share
Interim dividend for the year ended 30 September 2021 of 1,833 1,861
15p (2020: 15p) per Ordinary Share
3,057 4,345
Set out below are the interim and final dividends paid or proposed on Ordinary
Shares in respect of the financial year, which is the basis on which the
requirements of Section 1158 of the Corporation Tax Act 2010 are considered.
2021 Revenue 2020 Revenue
£'000 £'000
Interim dividend for the year ended 30 September 2021 of 1,833
15p (2020: 15p) per Ordinary Shares 1,861
Proposed final dividend for the year ended 30 September 1,322 1,224
2021 of 11p (2020: 10p) per Ordinary Share
3,155 3,085
3,085
The dividend proposed in respect of the year ended 30 September 2021 is subject
to shareholder approval at the forthcoming Annual General Meeting.
8. Return per Ordinary Share
Year ended 30 September 2021 Year ended 30 September 2020
Revenue Capital Total Revenue Capital Total
Return per ordinary 23.86p 225.16p 249.02p 18.40p (220.52)p (202.12)p
share
Revenue return (earnings) per Ordinary Share is based on the net revenue on
ordinary activities after taxation of £2,912,000 (2020: £2,281,000).
Capital return per Ordinary Share is based on net capital gain for the
financial year of £27,476,000 (2020: loss 27,339,000). These calculations are
based on the weighted average of 12,202,696 (2020: 12,397,456) Ordinary Shares
in issue during the year. At 30 September 2021, there were 12,044,780 Ordinary
Shares of 10 pence each in issue (2020: 12,276,025) which excludes 3,318,207
Ordinary Shares held in treasury (2020: 3,318,207). The shares held in treasury
are treated as not being in issue when calculating the weighted average of
Ordinary Shares in issue during the year.
9. Investments
Financial assets held at fair value
30 September 2021 30 September 2020
£'000 £'000
Opening book cost 84,117 104,087
Opening investment holding (losses)/ (545) 18,004
gains
Opening fair value 83,572 122,091
Movements in year:
Purchases at cost* 99,127 38,847
Sales proceeds* (101,847) (51,050)
Realised gains/(losses) on equity 9,795 (7,767)
sales
Increase/(decrease) in investment 18,586 (18,549)
holding gains
Closing fair value 109,233 83,572
Closing book cost 91,192 84,117
Closing investment holding gains/ 18,041 (545)
(losses)
Closing fair value 109,233 83,572
*Includes transaction costs of £205,000 (2020: £33,000) relating to purchases
at cost, £82,000 (2020: £46,000) relating to sales proceeds.
Year ended Year ended
30 September 2021 30 September 2020
£'000 £'000
Transaction Cost
Cost on acquisition 205 33
Cost on disposal 82 46
287 79
Analysis of capital gains
Gains on sales of 9,795 (7,767)
financial assets
Movement in investment 18,586 (18,549)
gains for the year
Net gains on investment 28,381 (26,316)
The Company sold investments in the year with proceeds of £101,847,000 (2020: £
51,050,000). The book cost of these investments when purchased was £92,052,000
(2020: £58,817,000). These investments have been revalued over time and until
they were sold any unrealised gains or losses were included in the fair value
of the investments.
Primary country of investment
30 September 30 September
2021 2020
£'000 £'000
Russia 38,746 61,437
South Africa 26,413 -
Saudi Arabia 19,536 -
Poland 5,716 10,449
United Arab Emirates 4,892 -
Qatar 4,032 -
Turkey 2,807 6,858
Hungary 2,795 -
Greece 1,844 2,071
Kuwait 1,478 755
Czechia 974 1,380
Romania - 622
Total 109,233 83,572
10. Debtors
2021 2020
£'000 £'000
Overseas tax recoverable 204 201
Prepayments and accrued 356 32
income
VAT Recoverable 107 39
667 272
11. Creditors
2021 2020
£'000 £'000
Amounts falling due within one
year
Amounts due to brokers 276 294
Other creditors 390 93
666 387
12. Called-up share capital
30 September 2021 30 September 2020
Allotted, issued and fully paid up Ordinary Number £'000 Number £'000
Shares of 10p each
Opening balance 15,594,232 1,559 15,757,504 1,576
Ordinary Shares bought back and cancelled (231,245) (23) (163,272) (17)
Total Ordinary Shares in issue 15,362,987 1,536 15,594,232 1,559
Treasury Shares 3,318,207 3,318,207
Total Ordinary Shares capital excluding 12,044,780 12,276,025
Treasury Shares
During the year, 231,245 Ordinary Shares were repurchased for cancellation for
£1,715,000 (2020: 163,272 Ordinary Shares were £1,001,000). The Company holds
3,318,207 Ordinary Shares in treasury which are treated as not being in issue
when calculating the number of Ordinary Shares in issue during the year (2020:
3,318,207). Ordinary Shares held in treasury are non-voting and not eligible
for receipt of dividends. Subsequent to the year end, a further 27,399 shares
have been repurchased for cancellation for £229,000.
13. Net Asset Value per share
The NAV per ordinary share and the NAV attributable at the year end were as
follows:
2021 2020
Total Shareholders' funds (£'000) 110,898 85,282
Number of shares in issue* 12,044,780 12,276,025
NAV (pence per share) (basic and 920.71 694.70
dilutive)
* Excludes 3,318,207 Ordinary Shares held in treasury (2020: 3,318,207).
The NAV per share is based on total Shareholders' funds above, and on
12,044,780 Ordinary Shares in issue at the year end (2020: 12,276,025 Ordinary
Shares in issue) which excludes 3,318,207 Ordinary Shares held in treasury
(2020: 3,318,207 Ordinary Shares held in treasury). The Ordinary Shares held in
treasury are treated as not being in issue when calculating the NAV per share.
14. Financial Instruments and Capital Disclosures
Investment Objective and Policy
As an investment trust, the Company invests in equities and other investments
for the long-term so as to secure its investment objective stated above. In
pursuing its investment objective, the Company is exposed to a variety of risks
that could result in either a reduction in the Company's net assets or a
reduction of the profits available for dividends. With effect from 13 November
2020, the Company changed its investment objective and policy. The Objective
and Investment Policy are set out above.
Risks
The risks identified arising from the financial instruments are market risk
(which comprises market price risk, interest rate risk, and currency risk),
liquidity risk and credit and counterparty risk. The Board and AIFM consider
and review the risks inherent in managing the Company's assets which are
detailed below.
The objectives, policies and processes for managing the risks, and the methods
used to measure the risks, are set out below and have not changed from the
previous accounting period.
The AIFM monitors the Company's exposure to risk and reports to the Board on a
regular basis.
Market Risk
Special considerations and risk factors associated with the Company's
investments are discussed above. Market risk arises mainly from uncertainty
about future prices of financial instruments used in the Company's business. It
represents the potential loss which the Company might suffer through holding
market positions by way of price movements, interest rate movements and
exchange rate movements. The Company's AIFM assesses the exposure to market
risk when making each investment decision, and monitors the overall level of
market risk on the whole of the investment portfolio on an ongoing basis.
Market Price Risk
Market price risk (i.e. changes in market prices other than those arising from
currency risk or interest rate risk) may affect the value of investments.
The portfolio is managed with an awareness of the effects of adverse price
movements through detailed and continuing analysis with the objective of
maximising overall returns to Shareholders. The Company has experienced
volatility in the fair value of investments during recent years due to COVID-19
and Brexit. If the fair value of the Company's investments at the year end
increased or decreased by 20% then it would have an impact on the Company's
capital return and equity of £21,847,000 (2020: £16,714,000).
The Company has used 20% to demonstrate the impact of a significant reduction/
increase in the fair value of the investments and the impact upon the Company
that might arise from future significant events.
Currency Risk
The value of the Company's assets and the total return earned by the Company's
Shareholders can be significantly affected by currency exchange rate movements
as most of the Company's assets are denominated in currencies other than Pounds
Sterling, the currency in which the Company's financial statements are
prepared.
Income denominated in other currencies is converted to Pounds Sterling upon
receipt. The Company does not use financial instruments to mitigate the
currency exposure. The Company's uninvested cash balances are usually held in
US Dollars.
A 10% rise or decline of Pounds Sterling against currency denominated (i.e. non
Pounds Sterling) assets and liabilities held at the year end would have
increased/decreased the net asset value by £11,110,000 (2020: £8,551,000).
The currency exposure is exposure of the currency values of the investee
companies.
Russia South Saudi Poland UAE Qatar Turkey Hungary Greece Kuwait Czechia United Netherlands UK Total
Africa Arabia States
RUB ZAR SAR PLN AED QAR TRY HUF EUR KWD CZK USD EUR GBP
2021 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Cash 1 - - - - - - - - - - 1,585 - 78 1,664
Debtor 194 156 39 127 - - - - - - - - 40 111 667
Creditor - - (276) - - - - - - - - - - (390) (666)
Investments 38,746 26,413 19,536 5,716 4,892 4,032 2,807 2,795 1,844 1,478 974 - - - 109,233
Total 38,941 26,569 19,299 5,843 4,892 4,032 2,807 2,795 1,844 1,478 974 1,585 40 (201) 110,898
Russia Poland Turkey Greece Czechia Kuwait Romania United Netherlands UK Total
States
RUB PLN TRY EUR CZK KWD RON USD EUR GBP
2020 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
£'000
Cash 1 - - - - - - 1,744 - 80 1,825
Debtor 191 - - - - - - - 28 54 272
Creditor - - - - - - - - - (387) (387)
Investments 61,437 10,449 6,858 2,071 1,380 755 622 - - - 83,572
Total 61,628 10,449 6,858 2,071 1,380 755 622 1,744 28 (253) 85,282
Interest Rate Risk
Interest rate movements may affect:
. the level of income receivable /payable on cash deposits
The possible effects on fair value and cash flows that could arise as a result
of changes in interest rates are taken into account when making investment and
borrowing decisions.
At 30 September 2021, the Company's exposure to interest rate movements in
respect of its financial assets and financial liabilities consist of:
2021 2020
Total Total
(within one year) (within one year)
£'000 £'000
Exposure to floating interest
rates:
Cash at bank 1,664 1,825
1,664 1,825
If the above level of cash was maintained for a year, a 1% increase in interest
rates would increase the revenue return and net assets by £17,000 (2020: £
18,000). The AIFM proactively manages cash balances. If there were a fall of 1%
in interest rates, it would potentially impact the Company by turning positive
interest to negative interest. The total effect would be a revenue reduction/
cost increase of £17,000 (2020: £18,000). The bank loan facility was repaid on
7 April 2020.
Liquidity Risk
The Company's assets mainly comprise readily realisable securities which can be
easily sold to meet funding commitments, if necessary. The risk is taken into
account by the Board when arriving at its valuation of these items.
Liquidity risk is mitigated by the fact that the Company has £1,664,000 (2020:
£1,825,000) cash at bank and the assets are readily realisable. The Company is
a closed-end fund, assets do not need to be liquidated to meet redemptions, and
sufficient liquidity is maintained to meet obligations as they fall due.
The remaining contractual payments on the Company's financial liabilities at 30
September 2021, based on the earliest date on which payment can be required and
current exchange rates at the Balance Sheet date, were as follows:
2021 2020
Total Total
(within one year) (within one year)
£'000 £'000
Other creditors and accruals 666 387
666 387
Credit Risk
Credit risk is the risk of financial loss to the Company if the contractual
party to a financial instrument fails to meet its
contractual obligations.
The total credit exposure represents the carrying value of cash and receivable
balances and totals £111,564,000 (2020: £85,669,000).
The Company's listed investments are held on its behalf by State Street Bank &
Trust Company Limited acting as the Company's Custodian. Bankruptcy or
insolvency may cause the Company's rights with respect to securities held by
the custodian to be delayed. The Board monitors the Company's risk by reviewing
the Custodians internal control reports.
Credit risk is mitigated by diversifying the counterparties through which the
AIFM conducts investment transactions. The credit standing of all
counterparties is reviewed periodically, with limits set on amounts due from
any one counterparty. As at the year end, the cash balances are held with State
Street Bank & Trust Company Limited, which holds a Aa1 credit rating. The
credit rating is taken from Moody's.
Fair Values of Financial Assets and Financial Liabilities
Financial assets and financial liabilities are either carried in the balance
sheet at their fair value (investments), or the balance sheet amount if it is a
reasonable approximation of fair value (amounts due from brokers, dividends
receivable, accrued income, amounts due to brokers, accruals and cash
balances).
Valuation of Financial Instruments
The Company measures fair values using the following fair value hierarchy that
reflects the significance of the inputs used in making the measurements.
Categorisation within the hierarchy has been determined on the basis of the
lowest level input that is significant to the fair value measurement of the
relevant assets as follows:
Level 1 - valued using quoted prices unadjusted in active markets for identical
assets or liabilities.
Level 2 - valued by reference to valuation techniques using observable inputs
for the asset or liability other than quoted prices included within Level 1.
Level 3 - valued by reference to valuation techniques using inputs that are not
based on observable market data for the asset or liability.
The tables below set out fair value measurements of financial assets and
liabilities in accordance with the fair value hierarchy.
Financial assets at fair value through profit or loss at
30 September 2021:
Total
Level 1 Level 2 2021
£'000 £'000
£'000
Equity investments 109,233 - 109,233
109,233 - 109,233
Financial assets at fair value through profit or loss at
30 September 2020:
Total
Level 1 Level 2 2020
£'000 £'000 £'000
Equity investments 85,543 29 83,572
85,543 29 83,572
15. Risk management policies and procedures
Capital Management Policies and Procedures
The structure of the Company's capital is described above and details of the
Company's reserves are shown in the Statement of Changes in Equity above.
The Company's capital management objectives are:
. to ensure that it will be able to continue as a going concern;
. to achieve capital growth through a focused portfolio of investments; and
. to maximise the return to Shareholders while maintaining a capital base to
allow the Company to operate effectively and meet obligations as they fall due.
The Board, with the assistance of the AIFM, regularly monitors and reviews the
broad structure of the Company's capital on an ongoing basis. These reviews
include:
. the level of gearing, which takes account of the Company's position and the
Investment Manager's views on the market; and
. the extent to which revenue in excess of that which is required to be
distributed, should be retained. The Company's objectives, policies and
processes for managing capital are unchanged from last year. The Company is
subject to externally imposed capital requirements:
. as a public company, the Company is required to have a minimum share capital
of £50,000; and
. in accordance with the provisions of Sections 832 and 833 of the Companies
Act 2006, the Company, as an investment company;
. is only able to make a dividend distribution to the extent that the assets of
the Company are equal to at least one and a half times its liabilities after
the dividend payment has been made; and
. is required to make a dividend distribution each year and to ensure after
year that it does not retain more than 15% of the income that it derives from
shares and securities.
These policies and procedures are unchanged since last year and the Company has
complied with them at all times.
16. Related Party Disclosures and Transactions with the AlFM
Details of the investment management fee charged by the AIFM are set out in
note 3. Investment management fees charged in the year were £747,000 (2020: £
779,000) of which £136,000 (2020: £116,000) was outstanding at the year end.
The ultimate holding company of the AIFM is Massachusetts Mutual Life Insurance
Company, 1295 State Street, Springfeld, MA 01111-0001. Fees paid to the
Directors and full details of Directors' interests are disclosed in the
Directors' Remuneration Report in the full Annual Report and Accounts.
Nadya Wells is a member of the Supervisory Board, Chairman of the Audit
Committee, Member of the Strategic Planning Committee and a member of the Risk
Management Committee of Sberbank of Russia ("Sberbank"), in which the Company
was invested during the year. At 30 September 2021, the Company held 2,050,748
shares in Sberbank at a market value of £7,120,000, representing 6.42% of the
Company's net assets and a holding of 6.42% of Sberbank's total issued shares.
During the year, the Company purchased 845,178 shares in Sberbank for £
2,160,000 and sold 2,504,940 shares for
£6,894,000. These transactions were completed through the open market.
Fees paid to the Company's Directors are disclosed in the Director's
Remuneration Report. At the year end, there were no outstanding fees payable to
the Directors (2020: £nil).
17. Post Balance Sheet Events
Since the year end, the Company has bought back for cancellation 27,399
Ordinary Shares with a nominal value of £2,740 at a total cost of £229,000.
Glossary of Terms
AIFM
The AIFM, or Alternative Investment Fund Manager, is Baring Fund Manager
Limited, which manages the portfolio on behalf of the Company's Shareholders.
The AIFM has delegated the investment management of the portfolio to Baring
Asset Management Limited (the "Investment Manager").
Alternative performance measures ("APM")
An APM is a numerical measure of the Company's current, historical or future
financial performance, financial position or cash flows, other than a financial
measure defined or specified in the applicable financial framework. In
selecting these APMs, the Directors considered the key objectives and
expectations of typical investors in an investment trust such as the Company.
Benchmark
The Company's Benchmark is the MSCI Emerging Markets EMEA Index. This index is
designed to measure the performance of large and midcap companies across 11
Emerging Markets (EM) countries in Europe, the Middle East and Africa (EMEA).
This includes, the Czechia, Egypt, Greece, Hungary, Poland, Qatar, Russia,
Saudi Arabia, South Africa, Turkey and United Arab Emirates.
The Benchmark is an index against which the performance of the Company may be
compared. This is an indicative performance measure as the overall investment
objectives of the Company differ to the index and the investments of the
Company are not aligned to this index.
For the financial year ending 30 September 2020, the Company's Benchmark was
the MSCI Emerging Europe 10/40 Index. This index measured the performance of
large and midcap companies across six Emerging Markets (EM) countries; Czechia,
Greece, Hungary, Poland, Russia and Turkey) in Europe.
Discount/Premium (APM)
If the share price is lower than the NAV per share, the shares are trading at a
discount. The size of the discount is calculated by subtracting the share price
of 793.0p (2020: 587.0p) from the NAV per share of 920.7p (2020: 694.7p) and is
usually expressed as a percentage of the NAV per share, 13.9% (2020: 15.5%). If
the share price is higher than the NAV per share, the situation is called a
premium.
Dividend Pay-out Ratio (APM)
The ratio of the total amount of dividends paid out to Shareholders relative to
the net income of the company. Calculated by dividing the Dividends Paid by Net
Income.
Dividend Reinvested Basis
Applicable to the calculation of return, this calculates the return by taking
any dividends generated over the relevant period and reinvesting the proceeds
to purchase new shares and compound returns.
Dividend Yield (APM)
The annual dividend expressed as a percentage of the current market price.
EMEA
The definition of EMEA is a shorthand designation meaning Europe, the Middle
East and Africa. The acronym is used by institutions and governments, as well
as in marketing and business when referring to this region: it is a shorthand
way of referencing the two continents (Africa and Europe) and the Middle
Eastern sub-continent all at once.
Emerging Markets
An emerging market economy is a developing nation that is becoming more engaged
with global markets as it grows. Countries classified as emerging market
economies are those with some, but not all, of the characteristics of a
developed market.
Environmental, Social and Governance ("ESG")
ESG (environmental, social and governance) is a term used in capital markets
and used by investors to evaluate corporate behaviour and to determine the
future financial performance of companies. The Company will evaluate
investments in investee companies considering:
* Environmental criteria considering how the company performs as a steward of
nature;
* Social criteria examine how the company manages relationships with
employees, suppliers, customers, and communities; and
* Governance deals with the company's leadership, executive pay, audits,
internal controls, and shareholder rights.
Frontier Markets
A frontier market is a country that is more established than the least
developed countries globally but still less established than the emerging
markets because it economy is too small, carries too much inherent risk, or its
markets are too illiquid to be considered an emerging market.
Gearing (APM)
Gearing refers to the ratio of the Company's debt to its equity capital. The
Company may borrow money to invest in additional investments for its portfolio.
If the Company assets grow, the Shareholders' assets grow proportionately more
because the debt remains the same. But if the value of the Company's assets
fall, the situation is reversed. Gearing can therefore enhance performance in
rising markets but can adversely impact performance in falling markets.
The Company repaid the bank loan facility during the prior financial year
eliminating gearing at the prior year end. Currently the Company has no
gearing.
For the purposes of AIFMD, the Company is required to disclose the leverage.
Leverage is any method which increases the Company's exposure, including the
borrowing of cash and use of derivatives. It is expressed as a ratio between
the Company's exposure and its net asset value and is calculated under the
Gross and Commitment Methods in accordance with AIFMD.
Under the Gross Method, exposure represents the aggregate of all the Company's
exposures other than cash balances held in base currency and without any
offsetting. Investments (A) divided by Total Shareholders' Funds (B).
Gross method = 98% (A = £109,233,000/ B = £110,898,000) x 100.
The Commitment Method takes into account hedging and other netting arrangements
designed to limit risk, offsetting them against the underlying exposure.
Investments (A) plus current assets (C) divided by Total Shareholders' funds
(B).
Commitment method = 100% (A = £109,233,000) + (C = Cash £1,664,000 + Debtor £
667,000) / B = £85,282,000) x 100.
Gross Assets
Total of all the Company's investments and current assets.
Growth at a Reasonable Price ("GARP") Investing
GARP investing incorporates elements of growth and value investing, focusing on
companies which have sustainable growth potential but do not demand a high
valuation premium.
Idiosyncratic Risk
Idiosyncratic or "Specific risk" is a risk that is particular to a company.
Net Asset Value ("NAV")
The NAV is shareholders' funds expressed as an amount per individual Ordinary
Share. Shareholders' funds are the total value of all the Company's assets, at
current market value, having deducted all liabilities revalued for exchange
rate movements. The total NAV per Ordinary Share is calculated by dividing the
Shareholders' funds of £110,898,000 by the number of Ordinary Shares in issue
excluding Treasury Shares of 12,044,780.
Ongoing Charges Ratio (APM)
The Ongoing Charges Ratio (OCR) is a measure of what it costs to cover the cost
of running the fund. The Company's OCR is its annualised expenses (excluding
finance costs and certain non-recurring items) of £1,628,000 being investment
management fees of £747,000 and other expenses of £950,000 less non-recurring
expenses of £69,000 expressed as a percentage of the average net assets of £
100,733,000 during the year as disclosed to the London Stock Exchange. The OCR
for 2021 is 1.62%.
Return per Ordinary Share (APM)
The return per Ordinary Share is based on the revenue/capital earned during the
year divided by the weighted average number of Ordinary Shares in issue during
the year. The calculations are set out in note 8.
Relative Returns
Relative return is the difference between investment return and the return of a
benchmark.
Risk-adjusted Returns
Risk-adjusted return refines an investment's return by measuring how much risk
is involved in producing that return.
Return on Equity (APM)
Return on equity ("ROE") is a measure of financial performance calculated by
dividing net income by Shareholders' equity. Because Shareholders' equity is
equal to a company's assets minus its debt, ROE could be thought of as the
return on net assets. This measure is used to understand how effectively
management is using a company's assets to create profits.
Share Price
The price of a single share of a company. The share price is the highest amount
someone is willing to pay for the stock, or the lowest amount that it can be
bought for.
Systematic Risk
Systematic risk or "Market risk" is the risk inherent to the entire market or
market segment, not just a stock or industry.
Total Assets
Total assets include investments, cash, current assets and all other assets. An
asset is an economic resource, being anything tangible or intangible that can
be owned or controlled to produce positive economic value. The total assets
less all liabilities is equivalent to total Shareholders' funds.
Total Return (APM)
Total return statistics enable the investor to make performance comparisons
between investment trusts with different dividend policies. The total return
measures the combined effect of any dividends paid, together with the rise or
fall in the share price or NAV. This is calculated by the movement in the NAV
or share price plus dividend income reinvested by the Company at the prevailing
NAV or share price.
NAV Total Return (APM)
NAV Total Return is calculated by assuming that dividends paid out are
reinvested into the NAV on the ex-dividend date.
30 September 2021
Closing NAV per share (p) 620.71
Add back total dividends paid in the year ended 30 25.00
September 2021 (p)
Benefits from reinvesting dividend (p) 2.98
Adjusted closing NAV (p) 948.69
Opening NAV per share (p) 694.70
NAV total return (%) 36.56
Share Price Total Return (APM)
Share price total return is calculated by assuming dividends paid out are
reinvested into new shares on the ex-dividend date.
30 September 2021
Closing share price (p) 793.00
Add back total dividends paid in the year ended 30 25.00
September 2021 (p)
Benefits from reinvesting dividend (p) 1.99
Adjusted closing share price (p) 819.99
Opening share price (p) 587.00
Share price total return (%) 39.69
Treasury Shares
Treasury shares are issued shares that a company keeps in its own treasury
which are not currently issued to the public. These shares do not pay
dividends, have no voting rights and are not included in a company's total
issued share capital amount for calculating percentage ownership. Treasury
shares have come from the buy back from shareholders, and may be reissued from
treasury to meet demand for a company's shares in certain circumstances.
Directors and Officers
Directors
Frances Daley, Chairman
Vivien Gould
Christopher Granville
Calum Thomson
Nadya Wells
Registered Office
Beaufort House
51 New North Road
Exeter EX4 4EP
Company Secretary
Link Company Matters Limited
Beaufort House
51 New North Road
Exeter EX4 4EP
Company number
4560726
Alternative Investment Fund Manager
Baring Fund Managers Limited
20 Old Bailey
London EC4M 7BF
Telephone: 020 7628 6000
Facsimile: 020 7638 7928
Auditor
BDO LLP
55 Baker St.
Marylebone
London W1U 7EU
Depositary
State Street Trustees Limited
20 Churchill Place
Canary Wharf
London E14 5HJ
Custodian
State Street Bank & Trust Company Limited
20 Churchill Place
Canary Wharf
London E14 5HJ
Administrator
Link Alternative Fund Administrators Limited
Beaufort House
51 New North Road
Exeter EX4 4EP
Registrar
Link Group
10th Floor
Central Square
29 Wellington Street
Leeds LS1 4DL
Corporate Broker
JP Morgan Cazenove
25 Bank Street
Floor 29
Canary Wharf
London E14 5JP
Website
www.bemoplc.com
NATIONAL STORAGE MECHANISM
A copy of the Annual Report and Accounts will be submitted shortly to the
National Storage Mechanism ("NSM") and will be available for inspection at the
NSM, which is situated at: https://www.fca.org.uk/markets/primary-markets/
regulatory-disclosures/national-storage-mechanism.
LEI: 213800HLE2UOSVAP2Y69
ENDS
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on the website (or any website) is incorporated
into, or forms part of, this announcement.
END
(END) Dow Jones Newswires
December 06, 2021 02:00 ET (07:00 GMT)
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