TIDMAFMF
RNS Number : 4386Z
Advance Frontier Markets Fund Ltd
17 September 2015
17 September 2015
ADVANCE FRONTIER MARKETS FUND LIMITED
ANNOUNCEMENT OF RESULTS FOR THE YEAR ENDED 30 JUNE 2015
INVESTMENT OBJECTIVE
The objective of Advance Frontier Markets Fund Limited (the
"Company") is to generate long-term capital growth for its
shareholders. The Investment Manager invests predominantly in a
diversified portfolio of funds and other investment products which
derive their value from Frontier Markets. The proportion of the
portfolio invested in each component of Frontier Markets varies
according to where the Investment Manager perceives the most
attractive investment opportunities to be. Investee funds may
include closed and open-ended funds, exchange traded funds,
structured products, limited partnerships and managed accounts.
PERFORMANCE
For the year ended 30 June 2015
Net Asset Value ("NAV") per share (in US
dollar terms) -11.2%
Share price (in US dollar terms) -10.9%
As at 30 June 2015
NAV per share $0.9597
Share price (in GB pounds) GBP0.5725
Share price (in US dollars) $0.8991
Net Assets $162.6m
CHAIRMAN'S STATEMENT
On behalf of your Board, I present to you the Annual Report for
Advance Frontier Markets Fund Limited ("AFMF", "the Company", "the
Fund") for the financial year ended 30 June 2015.
During the period the Company's NAV per share fell by 11.2% and
its share price declined by 10.9% with the discount at which the
Company's shares trade narrowing from 6.6% to 6.3%. The Investment
Manager discusses the issues that affected individual markets in
greater detail in its report below, but in broad terms the weakness
exhibited by frontier equity markets over the year was widespread
with major contributing factors being the sharp declines in energy
and hard commodity prices, continued speculation about the likely
timing of any action of the US Federal Reserve and the effects of
these issues on global currency markets.
Direct equity exposure
At a meeting held in February 2015, the Company's directors
approved a modest increase in the proportion of the Fund's net
assets that can be directly invested in equity instruments, from 5%
of net asset value to 10% of net asset value. In addition, it was
agreed that the limit per individual equity holding be raised from
1% to 1.5% of net asset value at the time of purchase. The use of
direct equities within the portfolio has been accretive to
performance in the past and, the Board believes, will continue to
be, as the Investment Manager uses this flexibility to allocate on
a selective basis to attractively valued companies in markets that
are difficult to access through funds.
Board composition
In line with best corporate governance practices, the Board has
planned for succession. In light of this, Helen Green will retire
as a director of the Company at the conclusion of the Annual
General Meeting due to be held in December 2015 having served as a
director from the Company's launch. I would like to extend my
sincere gratitude to Helen on behalf of the remaining directors,
shareholders, and the Investment Manager for her valuable
contribution during her tenure. Helen's insightful input will be
missed and we wish her great success in any future endeavours.
In conjunction with this, I am pleased to confirm that David
Warr has agreed to join the Board as an independent non-executive
director of the Company with effect from 9 September 2015. David
brings with him a wealth of experience in the investment funds
sector and I am sure he will prove to be a strong and complementary
addition to the Board. Following Helen's retirement, David will be
appointed as chair of the Audit Committee.
Investment manager
On 15 September 2015 it was announced that the Company's
Investment Manager, Advance Emerging Capital Limited ("AEC") had
reached an agreement with Aberdeen Asset Management PLC
("Aberdeen") whereby Aberdeen will acquire 100% ownership of AEC.
The transaction is subject, inter alia, to regulatory approval from
the UK Financial Conduct Authority and is expected to complete
during the fourth quarter of 2015.
The Board of AFMF is supportive of the transaction. The
investment management team of AEC will remain unchanged and AEC is
expected to benefit from the significant additional resources
available from within Aberdeen.
Future prospects
In aggregate, frontier markets stand at a meaningful valuation
discount relative to history and to other equity markets and
contain many well managed, reasonably valued companies from which
AFMF's underlying managers can construct their portfolios. I am
confident that by identifying the most attractive markets and
selecting the best local fund managers, our investors will be
rewarded over the long term.
2016 will be an important year for the Company as shareholders
will be afforded an opportunity to fully realise their investment
at the prevailing net asset value less costs by way of proposals to
be put to shareholders at the time of the Company's Annual General
Meeting due to be held in late 2016. We propose to undertake a
broad shareholder consultation exercise well in advance of this to
garner feedback on this issue and I expect to be in a position to
report on our thinking in greater detail in my next report. I note
the positive impact the adoption of this bold measure has had on
the discount to net asset value at which the Fund's shares trade
which stood at 14.9% in December 2012 when it was first announced
compared with 6.3% at the end of the current period. The Fund's
long-term investment performance record is solid and I hope that
shareholders will continue to support the Fund and its manager in
2016.
I would like to thank our shareholders for their continued
support and my fellow directors, the Investment Manager and our
various advisors for their efforts over the past year.
Grant Wilson
17 September 2015
INVESTMENT MANAGER'S REPORT
Performance review(1)
During the year to 30 June 2015 the Company's net asset value
per share (NAV) and share price declined by 11.2% and 10.9%
respectively. As a point of reference, the MSCI Frontier Markets
Net Total Return Index declined by 13.9% over the period. Despite
the challenging environment for frontier markets, the discount to
NAV at which the Company's shares trade ended the period at 6.3%,
narrowing slightly from 6.6% a year earlier.
[1] All performance numbers quoted in this report are in US
dollar terms
Figure 1: Advance Frontier Markets Fund Performance Report
12 Months 3 Years 5 Years Since Inception
AFMF NAV -11.2% 30.9% 32.2% -0.9%
---------- -------- -------- ----------------
AFMF Price -10.9% 36.0% 44.2% -10.0%
---------- -------- -------- ----------------
Source: Advance Emerging Capital Limited, Bloomberg, all figures
in US dollar terms to 30 June 2015. Inception was 15 June 2007
(initial NAV per share after share issue expenses was USD
0.9685).
It is pleasing to note that asset allocation, manager selection
and discount movements all contributed positively to performance
relative to the frontier index. Our strategy of running a generally
more diversified portfolio at a geographic level worked to the
Fund's advantage. Significant exposures to Vietnam, Qatar and Saudi
Arabia, while at the same time maintaining lower allocations than
the frontier index in markets such as Nigeria and Kuwait were the
main contributors to relative outperformance.
Manager selection was broadly positive, with continued strong
relative performance from holdings including EFG-Hermes Saudi
Arabia Equity Fund (NAV +17.4% vs S&P Saudi Arabia -4.8%) and
Ashmore Middle East Equity Fund (NAV +7.2% vs MSCI Arabia -3.2%).
In Africa, the Fund's core holdings performed well in challenging
conditions. Ashmore's Africa Emerging Markets Fund benefitted from
low exposure to Nigeria throughout the year (NAV -7.0% vs MSCI
Frontier Markets Africa Index -21.1%) while SCM Africa enjoyed
strong stock selection in Egypt and Nigeria (NAV -8.6%).
Sustainable Capital's Africa Consumer Fund proved its defensive
qualities in the first two years of its life, outperforming both
African equities generally and competitor funds but was not immune
to market weakness. In the period in question its NAV declined by
14.9%. On the negative side, our investment in East Africa managed
by PineBridge proved disappointing (NAV -12.0% vs MSCI Kenya +2.9%)
on account of poor stock selection in the Kenyan market and the
fund's allocation to the weaker performing markets of Rwanda,
Mauritius and Zambia, in which the Fund also invests. Sustainable
Capital Nigeria underperformed the Nigerian market on account of
its high exposure to financials (NAV -38.6% vs MSCI Nigeria
-30.9%). Exposure to frontier natural resources and energy
companies through Tugela African Resources and selected direct
equity investments trended down in line with the fortunes of those
sectors globally.
(MORE TO FOLLOW) Dow Jones Newswires
September 17, 2015 12:15 ET (16:15 GMT)
In Vietnam, the Fund's investments in VietNam Holding Limited
and PXP Vietnam Fund (which merged into PXP Vietnam Emerging Equity
Fund during the period) outperformed the MSCI Vietnam Index while
the more diversified VinaCapital Vietnam Opportunity Fund trailed
by a small margin. In Eastern Europe, Avaron Emerging Europe Fund
and Sturgeon Central Asia Equities Fund both outperformed regional
benchmarks in declining markets, with NAV returns of -15.4% and
-20.2% respectively. In Romania, the Fund's holding in Fondul
Proprietatea underperformed the market (NAV total return -21.3% vs
MSCI Romania -13.2%). Fondul's discount stood at 32.9% at period
end, a level slightly wider than that at which it commenced the
year. This was despite the success of the listing of a depositary
receipt on its shares on the London Stock Exchange in April, which
makes it accessible to a wider audience of investors and ought to
contribute to discount compression over the longer term.
The small positive contribution to performance from discount
narrowing was helped once more by corporate activity on the Fund's
closed end investments. In mid-December 2014, shareholders in PXP
Vietnam Fund voted to approve a merger with the open-ended PXP
Vietnam Emerging Equity Fund on an NAV for NAV basis. AFMF
benefitted substantially from the elimination of PXP Vietnam Fund's
discount which stood at 13.9% at the end of August 2014, prior to
the first announcement regarding the merger. In Pakistan, the
Fund's two closed end investments (Picic Growth Fund and Picic
Investment Fund) continued to pay out significant dividends, with
the trailing yield on both funds close to 17% at year-end, despite
which they were trading on discounts of 32.0% and 26.3%
respectively. The discounts of VietNam Holding Limited (from 23.9%
to 12.1% at the end of the period) and VinaCapital Vietnam
Opportunity Fund (from 24.0% to 22.0%) both narrowed, as investor
appetite for assets in that market improved. Africa Opportunity
Fund was one of just a handful of investments to suffer from
discount widening with the fund's rating declining from a 2.9%
premium to a 10.0% discount in a period in which performance was
negatively impacted by investments in Ghana, the natural resources
and energy sectors. The NAV total return over the period was -27.3%
which was disappointing in the context of the fund's total return
objective.
Market environment
After two years of positive performance from frontier markets,
the year to the end of June 2015 presented an altogether more
challenging environment, with frontier markets declining, and
underperforming other asset classes globally (see Figure 2).
Figure 2: Performance of MSCI Frontier Markets Index compared
with Emerging and Developed Markets over year to 30 June 2015
See Annual Report
Source: Bloomberg, MSCI, net total returns in US dollar terms,
one year to 30 June 2015
The start of the period coincided with the beginning of an
eventual 40% decline in the prices of both energy and commodities
(the latter as measured by the S&P GSCI Total Return Index).
With frontier markets being, in aggregate, exporters of both energy
and other hard commodities, the expected impact of declining prices
on growth prospects was quickly reflected in currencies and stock
markets. The performance of individual frontier markets during the
period is as shown in Figure 3.
Figure 3: Market returns over the year to 30 June 2015 in US
dollar terms
See Annual Report
Source: Bloomberg, MSCI, S&P and local market indices, total
return indices where available in US dollar terms, one year to 30
June 2015
In Africa, the Nigerian market declined by 30.9%, with weakness
in the naira explaining more than half the loss. The positive
outcome of the presidential election in March 2015 prompted a sharp
relief rally, but this proved short-lived, with optimism
dissipating as President Buhari was slow to form his cabinet and
openly lamented the sorry state of the government's finances.
Kenya, as an importer of energy and with a more positive growth
outlook, was significantly more resilient, rising by 2.9% despite
weakness in the shilling towards the end of the period, as tourism
receipts and a weak spell for tea exports impacted export earnings.
The Egyptian market continued to perform well (+11.5%) helped by
attractive valuations, strong local demand for equities and
continued economic support from the Gulf States. Returns in Morocco
and Tunisia were held back by currency weakness, with the euro (the
dominant component of the baskets to which both the dinar and
dirham are pegged) depreciating by 18.6% relative to the US dollar
over the period. Terrorist attacks in Tunisia late in the period,
were a reminder of the continued threat of militant extremism in
the region.
In the Middle East, currency pegs to the US dollar and the
strength of local sovereign balance sheets proved helpful in
limiting losses in what could have been a more difficult period for
this oil-dependent region. The Kuwaiti and Bahraini markets fell by
16.1% and 19.9% whilst Saudi Arabia's market proved somewhat more
resilient, declining by just 4.8%.
In Eastern Europe, tensions between Russia and Ukraine remained
a source of negative sentiment. A 44.1% devaluation of the hryvnia
against the US dollar weighed on returns for foreign investors
while the lower oil price was the primary driver of losses in
Kazakhstan. The Balkan countries all experienced weakness in both
local stock markets and currencies. We continue to have limited
exposure to the region with the exception of Romania, where the
market fell by 13.2%.
Frontier markets in Asia were the best performing, with positive
returns generated by the Bangladeshi market, while Pakistan and
Vietnam were largely flat. These markets were helped by generally
stable currencies, with each country benefitting from lower energy
and commodity prices and reasonable performance at a corporate
level.
In Latin America, the Argentine market's 2.4% return masks the
extreme volatility experienced by investors over the year. Rampant
strength in the first nine months of the period gave way to
weakness in the final quarter as the outlook for the October 2015
presidential election became less clear, with Peronist Daniel
Scioli taking the lead in opinion polls and appointing a hardline
supporter of incumbent President Kirchner as his running mate and
potential vice-president.
Portfolio
The Fund's asset allocation at the end of the period is shown on
page 5 of the Annual Report. The portfolio is shown on page 6 of
the Annual Report, being composed of 33 holdings, with the top 20
investments representing 89.9% of NAV. At year end, the Fund was
71.0% invested through open ended funds, 27.4% through closed end
funds and 3.1% through individual equities. The average discount to
NAV at which the closed end investments within the portfolio trade
was 22.6%.
Material changes were made to the portfolio during the year as a
result of the changing investment landscape within frontier
markets. Exposure to the Middle East was reduced (from 24.5% to
14.0%) in anticipation of the eventual economic impact of lower oil
prices on this energy-dependent region, despite its strong
sovereign balance sheets. The reduction was achieved through
redemptions across a combination of holdings in the region.
Asia was the primary recipient of new funds, with the majority
flowing into the Pakistani market, where we believe the long term
macroeconomic outlook is promising and valuations are attractive
for companies that continue to deliver high returns on equity and
healthy levels of earnings growth. Pakistan's weighting rose to
10.5% at year end from 4.1% a year earlier. The majority of the
increase was achieved through a new investment in Tundra Pakistan
Fund, managed by a highly competent team split between Stockholm
and Karachi. Exposure to Vietnam was maintained at its historic
high level as discounts remain attractive on closed end fund
investments and the long term outlook for the market remains
positive, with sentiment recently boosted by an announcement
regarding long-awaited reforms to foreign ownership limits.
The Fund's weighting to Africa remains substantial, but declined
over the year largely as a result of disappointing market
performance. AFMF's position in the London traded Africa
Opportunity Fund was halved with the proceeds used to continue
building a position in the more conventionally invested SCM Africa
Fund, which holds a portfolio of deeply undervalued companies,
selected from across the continent by a talented team based in Cape
Town.
There was limited change to the Fund's allocation to Eastern
Europe and Central Asia, despite seemingly attractive levels of
valuation. For now at least, we believe the discounts at which
these markets trade relative to the majority of other frontier
markets are justified. Fondul Proprietatea, the Romanian closed end
fund, remains our core exposure to the region. We remain convinced
of the likelihood that the discount to NAV at which the fund trades
will eventually narrow as a result of further privatisations of
currently unlisted portfolio holdings, the recent listing of a
depositary receipt on the fund in London, an attractive dividend
yield, regular tender offers and a suitably incentivised investment
manager.
Investment manager
(MORE TO FOLLOW) Dow Jones Newswires
September 17, 2015 12:15 ET (16:15 GMT)
As noted in the Chairman's statement, it was announced on 15
September that the Company's Investment Manager, Advance Emerging
Capital, is being acquired by Aberdeen Asset Management PLC. The
AEC team will be based in Aberdeen's London office and will become
part of Aberdeen's Alternatives business. Aberdeen is an investment
house we have immense respect for, and with which we share a
similar investment philosophy and appreciation of the benefits of
the closed end fund structure. We are therefore delighted to be
joining them, where we will continue to implement our current
strategy and process with significant additional support provided
by Aberdeen's Closed End Funds team and the operational
infrastructure that comes with being part of a FTSE 100 company.
Sitting within Aberdeen's rapidly growing Alternatives business
will, we believe, enable us to share ideas and best practice to the
benefit of the Fund's shareholders.
Market outlook
Frontier markets have endured a challenging period on the back
of a combination of factors, some domestic, but the majority
international in nature. This period of disappointing performance
has coincided with, or perhaps encouraged, indifference towards the
asset class. While this may remain the case for some time, such
moments have historically made for attractive entry points for
those who believe in the long-term rationale for including frontier
markets (high growth and attractive valuations) in a diversified
portfolio. We believe this rationale remains valid, despite the
headwinds presented by low commodity and energy prices, a strong US
dollar and (at some point) interest rate increases in the United
States.
The valuation argument is particularly strong at present, as can
be seen in the table below, with frontier markets trading at a
significant discount to both emerging and developed markets.
Figure 4: Frontier market valuations
Trailing Price Trailing Price Dividend
to Earnings to Book Yield
MSCI Frontier Markets 10.9 1.5 3.9
--------------- --------------- ---------
MSCI Emerging Markets 13.6 1.5 2.7
--------------- --------------- ---------
MSCI World 19.6 2.3 2.4
--------------- --------------- ---------
Source: MSCI, data as at 31/07/15
When we look at the frontier market asset class, we see a
balance of opportunities and risks. We are excited by the
opportunity to buy Vietnamese assets at discounts to NAV at a time
when the economy is improving and foreign investors are being
encouraged to buy through the relaxation of foreign ownership
limits. The same is true in Saudi Arabia, where the opening of the
market to foreigners has just begun. In Pakistan, a recent upgrade
by S&P of the country's sovereign rating, the meeting of key
milestones set by the IMF and news of significant investment in
infrastructure from China all point to an improving macroeconomic
environment. Whilst the opposite may be true in Nigeria, equities
in that market are now amongst the most lowly valued in the world,
and with many still growing local currency earnings at healthy
levels. Holding one's nerve in the face of the headwinds buffeting
the country is, we believe, the right thing to do for the long-term
given the potential of what is now Africa's largest country by GDP.
In Argentina, we believe that political change in October will pave
the way for that economy to re-engage with the international
financial community after a decade long absence, irrespective of
which party secures the presidency. The risks are well known to us
(pace of reform, inflation, currency devaluation) and are reflected
in AFMF's moderate allocation to that market at present.
In general, further weakness in currencies and persistent
weakness in energy and commodity prices appear to be the major
risks facing the asset class. All three are inextricably linked to
the path of the US dollar and interest rates. As the year ahead now
seems highly likely to see the first US rate rise(s) in almost a
decade, we will remain prepared for volatility. Any reversal in
these trends would probably see frontier markets re-rate
significantly, providing the potential for handsome returns for
investors that can look beyond the current uncertainties.
At the same time as the investment case unfolds in established
frontier markets, excitement is growing regarding the opening up of
new markets, with Iran and Cuba generating significant interest at
present following a thawing of diplomatic relations and subsequent
moves to relax (or remove) sanctions. Both could potentially
qualify as frontier markets by our definition should they
eventually become investable.
In such a diverse asset class, while some markets may face
challenges, others will continue to present opportunities at the
same time. We will continue to skew the portfolio towards those
parts of the asset class we believe fall into the latter category,
accessing these markets at low valuations and discounts to asset
value where possible.
Advance Emerging Capital Limited
17 September 2015
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2015
2015 2014
Revenue Total Revenue Total
Capital Capital
--------- ---------
$'000 $'000 $'000 $'000 $'000 $'000
(Losses)/gains on investments - (19,811) (19,811) - 36,018 36,018
Capital losses on currency
movements - (76) (76) - - -
---------- --------- --------- ---------- --------- --------
Net investment (losses)/gains - (19,887) (19,887) - 36,018 36,018
Investment income 2,797 - 2,797 2,123 - 2,123
---------- --------- --------- ---------- --------- --------
Total (loss)/income 2,797 (19,887) (17,090) 2,123 36,018 38,141
Investment management
fees (669) (1,363) (2,032) (646) (3,136) (3,782)
Other expenses (816) - (816) (721) - (721)
---------- --------- --------- ---------- --------- --------
Net (loss)/profit from
operations before finance
costs and taxation 1,312 (21,250) (19,938) 756 32,882 33,638
Finance costs (136) (268) (404) (23) (48) (71)
Net (loss)/profit before
taxation 1,176 (21,518) (20,342) 733 32,834 33,567
Taxation (237) - (237) (102) - (102)
---------- --------- --------- ---------- --------- --------
Net (loss)/profit after
taxation 939 (21,518) (20,579) 631 32,834 33,465
---------- --------- --------- ---------- --------- --------
(Loss)/earnings per
ordinary share 0.55c (12.70)c (12.14)c 0.37c 19.38c 19.75c
The total column of this statement represents the Company's
Statement of Comprehensive Income, prepared under IFRS as adopted
by the European Union. The revenue and capital columns, including
the revenue and capital earnings per share data, are supplementary
information prepared under guidance published by the Association of
Investment Companies. The Company does not have any income or
expenses that are not included in the profit/(loss) for the year
and therefore the "Net Profit/(loss) after taxation" is also the
total comprehensive income for the year, as defined by IAS 1
(revised).
All revenue and capital items in the above statement derive from
continuing operations. No operations were acquired or discontinued
during the year.
STATEMENT OF FINANCIAL POSITION
AT 30 JUNE 2015
2015 2014
$'000 $'000
Non-current assets
Investments designated as fair value
through profit or loss 164,982 187,270
-------- --------
Current assets
Financial commitments paid - 1,250
Other receivables 1,388 643
Cash and cash equivalents 5,573 2,854
-------- --------
6,961 4,747
-------- --------
Total assets 171,943 192,017
-------- --------
Current liabilities
Loans payable 9,000 6,500
Other payables 318 2,313
--------
9,318 8,813
-------- --------
Total assets less current liabilities 162,625 183,204
-------- --------
Capital and reserves attributable to
equity holders
Share premium account 88,788 88,788
(MORE TO FOLLOW) Dow Jones Newswires
September 17, 2015 12:15 ET (16:15 GMT)
Share purchase reserve 82,319 82,319
Capital reserve (9,904) 11,614
Revenue reserve 1,422 483
Total Equity 162,625 183,204
-------- --------
Net assets per ordinary share (US cents) 95.97c 108.11c
Exchange rate GBP/USD (mid market) 0.6368 0.5846
Net assets per ordinary share (pence) 61.11p 63.20p
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2015
Share Share Capital Revenue Total
premium purchase reserve reserve
account reserve
$'000 $'000 $'000 $'000 $'000
Opening shareholders'
funds 88,788 82,319 11,614 483 183,204
(Loss)/profit for
the year - - (21,518) 939 (20,579)
Closing equity 88,788 82,319 (9,904) 1,422 162,625
--------- ---------- --------- --------- ---------
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2014
Share Share Capital Revenue Total
premium purchase reserve reserve
account reserve
$'000 $'000 $'000 $'000 $'000
Opening shareholders'
funds 88,788 82,319 (21,220) (148) 149,739
Profit for the
year - - 32,834 631 33,465
Closing equity 88,788 82,319 11,614 483 183,204
--------- ---------- --------- --------- --------
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2015
2015 2014
$'000 $'000
Operating activities
Cash inflow from investment income
and bank interest 2,648 2,410
Cash outflow from management expenses (4,881) (2,486)
Cash inflow from disposal of investments 53,001 42,209
Cash outflow from purchase of investments (49,965) (48,766)
Cash outflow from foreign exchange (76) -
costs
Cash outflow from taxation (237) (104)
---------
Net cash flow provided by/(used in)
operating activities 490 (6,737)
--------- ---------
Financing activities
Increase in bank borrowings 2,500 6,500
Finance charges and interest paid (271) (201)
--------- ---------
Net cash flow from financing activities 2,229 6,299
--------- ---------
Net increase/(decrease) in cash &
cash equivalents 2,719 (438)
--------- ---------
Cash and cash equivalents opening
balance 2,854 3,292
Cash inflow/(outflow) 2,719 (438)
--------- ---------
Cash and cash equivalents balance
at 30 June 5,573 2,854
--------- ---------
NOTES
1. ACCOUNTING POLICIES
Basis of Preparation
The financial statements of the Company have been prepared in
accordance with International Financial Reporting Standards (IFRS),
approved by the International Accounting Standards Board and as
adopted by the European Union.
The financial statements give a true and fair view of the state
of affairs of the Company as at the end of the year and of the
profit or loss for the year and are in accordance with The
Companies (Guernsey) Law, 2008.
Under IFRS, the Statement of Recommended Practice (SORP) issued
by the Association of Investment Companies has no formal status,
but the Company has taken the guidance of the 2009 SORP into
account to the extent that it is deemed appropriate and compatible
with IFRS and the Company's circumstances.
The particular accounting policies adopted are described
below:
(a) Accounting Convention
The accounts are prepared under the historical cost convention,
except for the measurement at fair value of investments.
(b) Investments
As the Company's business is investing in financial assets with
a view to profiting from their total return in the form of
increases in fair value, financial assets are designated as fair
value through profit or loss on initial recognition in accordance
with International Accounting Standard (IAS) 39. These investments
are recognised on the trade date of their acquisition. At this
time, fair value is the cost of investment.
After initial recognition such investments are valued at fair
value which is determined by reference to:
(i) market bid price for investments quoted on recognised stock exchanges;
(ii) net asset value per individual investee funds'
administrators for unquoted open-ended funds; and
(iii) by using other valuation techniques to establish fair
value for any other unquoted investments.
Investments are derecognised on the trade date of their
disposal. Gains or losses are recognised in the capital column of
the Statement of Comprehensive Income.
(c) Income from Investments
Dividend income from ordinary shares and units in open-ended
funds deemed equivalent to ordinary shares is accounted for on the
basis of ex-dividend dates. Income from fixed interest shares and
securities is accounted for on an accruals basis using the
effective interest method. Special dividends are assessed on their
individual merits and are credited to the capital column of the
Statement of Comprehensive Income if the substance of the payment
is a return of capital; with this exception all other investment
income is taken to the revenue column of the Statement of
Comprehensive Income. Bank interest receivable is accounted for on
a time apportionment basis.
(d) Capital Reserves
Profits and losses on disposals of investments and gains and
losses on investments held are allocated to the capital reserve via
the capital column of the Statement of Comprehensive Income.
(e) Revenue Reserves
The balance of all items allocated to the revenue column of the
Statement of Comprehensive Income in each year is transferred to
the Company's revenue reserves. Any dividends paid by the Company
would also be allocated against the revenue reserves of the
Company.
(f) Investment Management Fees
Two thirds of the basic investment management fee is allocated
to the capital column of the Statement of Comprehensive Income. The
entirety of any performance fee is allocated to the capital column
of the Statement of Comprehensive Income. Fees allocated to the
capital column are taken to the capital reserve.
(g) Foreign Currency
The Company's shares were issued in US dollars and the majority
of the Company's investments are priced in US dollars and this is
considered to be the functional currency of the Company. Therefore,
it is the Company's policy to present the accounts in US dollars.
The Company's shares are traded in Sterling on AIM and the Channel
Islands Securities Exchange.
Assets and liabilities held in currencies other than US dollars
are translated into US dollars at the market rates of exchange
prevailing at the reporting date. Currency gains and losses arising
on retranslating investments are allocated to the capital column of
the Statement of Comprehensive Income. All other currency gains and
losses are allocated to the capital or revenue columns of the
Statement of Comprehensive Income depending on the nature of the
transaction.
(h) Finance costs
Finance costs include interest payable and direct loan costs. In
line with the Company's policy for investment management fees, two
thirds of finance costs are allocated to the capital column of the
Statement of Comprehensive Income. Fees allocated to the capital
column are taken to the capital reserve. Loan arrangement costs are
amortised over the term of the loan.
(i) Financial liabilities
Financial liabilities (including bank loans) are classified
according to the substance of the contractual arrangements entered
into. Loans payable are valued at amortised cost.
(j) Cash and Cash Equivalents
Cash and Cash Equivalents in the Statement of Cash Flow comprise
cash held at the bank or by the custodian.
(k) Operating segments
IFRS 8, 'Operating segments' requires a 'management approach',
under which segment information is presented on the same basis as
that used for internal reporting purposes. The Board, as a whole,
has been determined as constituting the chief operating decision
maker of the Company. The Board has considered the requirements of
the standard and is of the view that the Company is engaged in a
single segment of business, which is to generate long-term capital
growth for its shareholders by investing in a diversified portfolio
of funds and other investment products which derive their value
from frontier markets.
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The Board of directors is responsible for ensuring that the
Company's investment objective is followed. The day-to-day
implementation of this has been delegated to the Investment Manager
but the Board retains responsibility for the overall direction of
the Company. The Board reviews the investment decisions of the
Investment Manager at regular Board meetings. The Investment
Manager has been given full authority to make investment decisions
on behalf of the Company in accordance with the investment
objective.
(l) Unconsolidated structured entities
A structured entity is an entity that has been designed so that
voting or similar rights are not the dominant factor in deciding
who controls the entity, such as when any voting rights relate to
administrative tasks only and the relevant activities are directed
by means of contractual arrangements. A structured entity often has
some or all of the following features or attributes; (a) restricted
activities, (b) a narrow and well-defined objective, such as to
provide investment opportunities for investors by passing on risks
and rewards associated with the assets of the structured entity to
investors, (c) insufficient equity to permit the structured entity
to finance its activities without subordinated financial support
and (d) financing in the form of multiple contractually linked
instruments to investors that create concentrations of credit or
other risks.
The Company holds shares, units or partnership interests in the
funds or investment products held in the Company's portfolio. The
Company does not consider its investments in listed funds to be
structured entities but does consider its investments in unlisted
funds to be investments in structured entities because the voting
rights in such entities are limited to administrative tasks and are
not the dominant factor in deciding who controls those
entities.
Changes in fair value of investments, including structured
entities, are included in the Statement of Comprehensive
Income.
(m) New standards, Interpretations and amendments
The following new standards which became effective and have been
applied for the current period, are relevant to the Company's
operations:
-- IFRS 12, 'Disclosures of interests in other entities',
effective for annual periods beginning on or after 1 January 2014,
includes the disclosure requirements for all forms of interests in
other entities, including joint arrangements, associates, special
purpose vehicles, structured entities and other off balance sheet
vehicles.
IFRS 12 requires disclosure of interests in unconsolidated
structured entities. As a result of the adoption of this new
standard, additional disclosures have been made and these can be
found in note 17.
-- IFRS 10, 'Consolidated financial statements', effective for
annual periods beginning on or after 1 January 2014, introduces a
new control model that is applicable to all investees, by focusing
on whether a company has power over an investee, exposure or rights
to variable returns from its involvement in the investee and the
ability to use its power to affect those returns. The amendments to
IFRS 10 provide an exemption to consolidation requirements in IFRS
10, for controlled "investment entities" meeting IFRS 10's
exemption criteria, and require "investment entities" to measure
particular subsidiaries at fair value through profit or loss,
rather than consolidating them. There are currently no relevant
matters to disclose.
At the date of approval of these financial statements, the
following standards, which have not been applied in these financial
statements, were in issue but not yet effective:
-- IFRS 9, 'Financial instruments', effective for annual periods
beginning on or after 1 January 2018, specifies how an entity
should classify and measure financial assets and liabilities,
including some hybrid contracts. The standard improves and
simplifies the approach for classification and measurement of
financial assets compared with the requirements of IAS 39. Most of
the requirements in IAS 39 for classification and measurement of
financial liabilities were carried forward unchanged. The standard
applies a consistent approach to classifying financial assets and
replaces the numerous categories of financial assets in IAS 39,
each of which had its own classification criteria.
The Board is currently considering the impact of the above
standard.
(n) Critical accounting estimates and judgements in applying
accounting policies
The preparation of financial statements in conformity with IFRS
requires management to make judgements, estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Estimates are continually
evaluated and based on historical experience and other factors,
including expectations of future events that are believed to be
reasonable under the circumstances. Actual results could differ
from such estimates. These financial statements have been prepared
on a going concern basis which the directors of the Company believe
to be appropriate.
The most critical judgements and estimates that management has
made in the process of applying the Company's accounting policies
and that have the most significant effect on the amounts recognised
in the financial statements are the functional currency of the
Company (see note 1(g)) and the fair value estimation of financial
assets designated as at fair value through profit or loss (see
notes 1(b) and 17).
(o) Going concern
As described in the Directors' Report, the directors have
adopted the going-concern basis in preparing the financial
statements.
2. INVESTMENT INCOME
2015 2014
Income from investments: $'000 $'000
------- -------
Dividends from investments 2,797 2,100
Interest receivable from
investments - 23
------- -------
Total Income 2,797 2,123
------- -------
3. INVESTMENT MANAGEMENT 2015 2014
FEES AND OTHER EXPENSES
-------- --------
Revenue Capital Total Revenue Capital Total
$'000 $'000 $'000 $'000 $'000 $'000
Investment management
fees - basic 669 1,337 2,006 646 1,292 1,938
Performance fee* - 26 26 - 1,844 1,844
-------- -------- ------ -------- -------- ------
Total Investment management
fees 669 1,363 2,032 646 3,136 3,782
-------- -------- ------ -------- -------- ------
Administration fees 221 - 221 222 - 222
Directors' fees 169 - 169 170 - 170
Depository and custody
fees 126 - 126 63 - 63
Legal fees 67 - 67 8 - 8
Broker fees 40 - 40 40 - 40
Registrar's fees 34 - 34 30 - 30
Auditor's fees 32 - 32 32 - 32
Nominated Adviser fees 32 - 32 32 - 32
Other expenses 95 - 95 124 - 124
-------- -------- ------ -------- -------- ------
Total other expenses 816 - 816 721 - 721
-------- -------- ------ -------- -------- ------
Total expenses 1,485 1,363 2,848 1,367 3,136 4,503
-------- -------- ------ -------- -------- ------
The Company's ongoing charges for the year ended 30 June 2015
calculated in accordance with the AIC methodology were 1.64% (2014:
1.58%). The ongoing charges figure does not include performance
fees or finance costs.
*There was no performance fee payable in respect of the year
ended 30 June 2015 (2014: $1,870,607). The charge of $26,000 for
the year ended 30 June 2015 relates to the performance fee payable
for the year ended 30 June 2014.
4. FINANCE COSTS
In accordance with directors' expectations of the split of
future returns being mostly of a capital nature, two thirds of
finance costs are charged as capital items in the Statement of
Comprehensive Income.
2015 2014
-------- --------
Revenue Capital Total Revenue Capital Total
$'000 $'000 $'000 $'000 $'000 $'000
-------- -------- --------- -------- -------- ------
Facility costs and
arrangement fees 49 98 147 14 30 44
Interest charges 87 170 257 9 18 27
-------- -------- --------- -------- -------- ------
Total finance costs 136 268 404 23 48 71
-------- -------- --------- -------- -------- ------
5. DIRECTORS' FEES
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