TIDMBEMO
Barings Emerging EMEA Opportunities PLC
Half Year Report
for the six-months ended 31 March 2022
The Directors present the Half-Yearly Financial Report of the Company for the
period to 31 March 2022.
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 of the investment management for
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
The AIFM receives an investment management fee of 0.75% of the Net Asset Value
("NAV") of the Company. 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 six-month period to 31 March 2022
KEY PERFORMANCE INDICATORS
NAV total return Total Share price total return1# Discount per Ordinary Share1
Return1# #
-22. 4% -22.6% 6p
(31 March 2021: 22.7%) (31 March 2021: +24.0%) (31 March 2021: 15p)
FINANCIAL HIGHLIGHTS
31 March 2022 31 March 2021 30 September 2021
NAV per Ordinary Share1 705.6p 841.7p 920.7p
Share price 605.0p 718.0p 793.0p
Share price total return1,*,# -22.6% 24.0% +39.7%
Benchmark 1,* -13.7% 16.5% +33.3%
Discount to NAV per Ordinary 14.3% 14.7% 13.9%
Share1
Dividend yield1,2,3 2.8% 3.5% 3.3%
Ongoing charges1 1.51% 1.60% 1.62%
RETURN PER ORDINARY SHARE
31 March 2022 31 March 2021 30 September 2021
Revenue Capital Total Revenue Capital Total Revenue Capital Total
Return per 8.02p (212.24) (204.22) 8.90p 147.80p 156.70p 23.86p 225.16p 249.02p
Ordinary Share p p
Revenue return (earnings) per Ordinary Share is based on the revenue return for
the half year of £964,000 (31 March 2021: £1,090,000; and the full year to 30
September 2021: £2,912,000). Capital return per Ordinary Share is based on net
capital loss for the half year of £25,513,000 (31 March 2021: net capital
profit of £18,099,000; and full year to 30 September 2021: net capital gain of
£27,476,000). These calculations are based on the weighted average of
12,020,661 (31 March 2021: 12,245,495; and 30 September 2021: 12,202,696)
Ordinary Shares in issue during the period/year.
As at 31 March 2022, there were 12,013,503 Ordinary Shares of 10 pence each in
issue (31 March 2021: 12,243,905; and 30 September 2021: 12,044,780) which
excludes 3,318,207 Ordinary Shares held in treasury (31 March 2021: 3,318,207;
and 30 September 2021: 3,318,207 shares held in treasury). The shares held in
treasury are treated as not being in issue when calculating the weighted
average of Ordinary Shares in issue during the period/year. During the period,
31,277 Ordinary Shares were purchased and cancelled. The Company has not
purchased any of its own shares between the end of the period and the date of
this Report.
1 Alternative Performance Measures ("APMs") definitions can be found in the
Glossary on pages 87 to 89 of the Annual Report.
2 The yield as of 31 March 2022 is comprised of the 2021 final dividend of 11
pence per share and the interim dividend for the six months
to 31 March 2022 of 6 pence per share, based on the share price as at 31 March
2022.
3 The yield as of 31 March 2021 is comprised of the 2020 final dividend of 10
pence per share and the interim dividend for the six months
to 31 March 2021 of 15 pence per share, based on the share price as at 31 March
2021.
*Movement to 31 March relates to the preceding six months and movement to 30
September relates to the preceding twelve months..
# Key Performance Indicator.
RELATIVE RETURNS
NAV total return vs benchmark in the first half-year periods in each of the
past 5 years
Relative Performance (Company NAV
total return vs benchmark)
Six months to 31 March 2018 2.4%
31 March 2019 1.7%
31 March 2020 -3.2%
31 March 2021 5.3%
31 March 2022 10.5%
Source: Barings, Factset.
Chairman's Statement
After the Company's strong performance in the previous financial year, it is
intensely frustrating to be hit by unexpected geopolitical events outside our
control. Emerging EMEA equities, which began the period cautiously, suffered
significant selling in the immediate aftermath of Russia's invasion of Ukraine
at the end of February 2022. The conflict and accompanying economic sanctions
imposed on Russia increased uncertainty related to the economic growth outlook
worldwide and intensified already existing inflationary pressures.
Against this backdrop, the Company's net asset value declined significantly and
the portfolio underperformed the benchmark. This result was largely
attributable to our investments in Russian securities, which were written down
to zero, following exchange closures and sanctions activities. As a result,
whilst the portfolio does continue to hold shares in Russian companies,
exposure to Russia in the Company's net asset value is zero and management fees
are not being charged on Russian assets.
Whilst the significant drop in the Company's net asset value cannot be
overlooked, the portfolio benefited from the broadening of the mandate and
diversification of concentration risk away from Russia which was approved by
Shareholders in November 2020. Two years ago, our exposure to Russian
securities would have been closer to 70% but this had fallen to around 30% at
the end of January 2022. EMEA equities declined 13.7% over the period, but
substantially outperformed the Company's old emerging Europe investment
universe which fell approximately 70%. In contrast, the Company's newer markets
of Saudi Arabia, South Africa, the UAE and Qatar were amongst the strongest
performers, as investors sought diversification across the region.
During this volatile period, the Directors have continued to assess
the heightened geopolitical risks facing the Company and the liquidity of the
securities in which it invests. We will continue to evaluate the longer-term
implications of the conflict on the Company and monitor how best to continue to
provide compelling growth and income opportunities to our Shareholders.
The Board of Directors would like to take this opportunity to pass on our
thanks to Maria Szczesna, an investment manager for the Company, and a member
of the Barings EMEA Team, who has decided to relinquish her portfolio
management responsibilities and return to her home country for family reasons.
Maria will remain with the Company until July 2022, and we do not anticipate
any portfolio management disruption, with the remaining co-portfolio managers,
Matthias Siller and Adnan El-Araby, continuing to share responsibilities. The
Board are very grateful for Maria's involvement in managing the Company's
investment portfolio and have every confidence in the team going forward.
Performance
The NAV total return over the six-month period was -22.4% compared to the
Benchmark return of -13.7%.
The Company's investments in Russia, which made up approximately 23% of the
portfolio immediately prior to the invasion, were responsible for the majority
of this weakness after being written down to zero. Whilst the portfolio had an
overweight allocation to Russia prior to the invasion, this was reduced during
January and February. However, the impact on the portfolio was nevertheless
significant, with Russian exposures accounting for approximately 6.5% of
relative underperformance over the period.
In contrast, some of the portfolio's best performers were in South Africa,
which performed strongly supported by higher commodity prices and an improving
economic outlook for the country. Banking group Firstrand, diversified miner
Anglo American and telecoms company MTN were amongst our best performers.
Markets across the Middle East also outperformed, as concerns related to energy
security and further supply disruptions led to significant rises in the price
of oil and other commodities globally. Whilst this trend was supportive for the
region, the strong performance of holdings such as Tadawul in Saudi Arabia and
Emaar Properties in the UAE was more attributable to
company-specific developments as opposed to the favourable macroeconomic
picture.
The portfolio's underperformance over the last six months has had a significant
impact on three and five year performance numbers, with the Company lagging the
benchmark across both periods. The longer-term performance of the Company
however, has been good, generating a cumulative net asset value return of 49.1%
over 7 years and 22.4% over 10 years, both of which are ahead of the benchmark.
Discount Management
At 31 March 2022, the discount to NAV at which the Company's Ordinary Shares
traded was 14.3% compared with 13.9% at the end of September 2021. During the
six month period, 31,277 Ordinary Shares were bought back and cancelled at an
average price of £8.09 per Ordinary Share. The share buybacks added
approximately 0.34 pence per Ordinary Share to NAV, accounting for just under
0.04% of the total return to Shareholders. The Company has conducted very
limited buybacks since the outbreak of the conflict in Ukraine because of the
share price volatility.
Interim Dividend
In the first half of the financial year, the income account generated a return
of 8.0 pence per Ordinary Share, compared with 8.9 pence for the comparative
period last year. Accordingly, we are proposing an interim dividend of 6.0
pence per share.
The portfolio has historically benefited from substantial Russian dividend
payments that will be absent going forward. The Company has also taken the
decision to write off previously prospective rebates of withholding tax related
to Russian securities. Both of these factors are reflected in the reduced
interim dividend.
Given current geopolitical volatility, the Board of Directors have taken a
conscious decision to pay a lower interim dividend that is covered by the
income account, with a view to paying a higher proportion of the annual
dividend by way of a final dividend at the year end. Paying a greater amount of
income via the final dividend allows the Company increased certainty in
managing the pay-out of dividend cashflow from investee companies at a time
when income projections are subject to considerable volatility. It is expected
that the Company will continue to follow this policy going forward.
The Board is mindful of the policy, adopted in December 2017, that dividends
should represent an increasing share of total returns for Shareholders. The
Investment Manager continues to believe that the portfolio should be able to
offer supportive levels of income in future. This policy also allows the
Company to pay out up to 1% per annum of NAV from capital as income to
Shareholders, which will be considered as appropriate.
Gearing
There were no borrowings during the period. At 31 March 2022 net current assets
were £1,535,000 including cash of £1,350,000. The available cash enables the
Company to meet obligations as they fall due and finance future additional
investments. The Company will keep its gearing policy under review.
Outlook
As I write, there remains considerable uncertainty with regards to the global
economic outlook and the eventual implications of the conflict.
Geopolitical developments are likely to continue to have significant impacts on
equity markets in the short-term. While any military de-escalation in Ukraine
would bring welcome humanitarian relief, a political settlement and easing of
sanctions may take much longer.
The resulting prospect of more persistent damage to the global economy from
commodity price inflation is part of an uncertain wider economic backdrop. This
is aggravated by the likelihood of further interest rate rises across developed
economies, and continuing effects of the COVID-19 pandemic such as high
logistics costs and omicron-related lockdowns in China. All this points to an
economic slowdown that will likely prove the key near-term driver for equity
markets.
In our universe, it is clear that the implications for the Russian economy as a
result of the conflict and sanction activities will be severe. Even in the
unlikely event of a near-term peace settlement, the impact on Russian
businesses and financial markets will be long lasting.
The Company now has approximately 60% of assets invested in Saudi Arabia and
South Africa, both of which performed well over the prior sixmonths. Looking
ahead, the outlook for both of these markets is encouraging, driven by
extensive government investment in Saudi Arabia and a diversification of their
economy. Whilst an abundance of commodity resources in South Africa, most
notably a broad range of metals, have an important role to play in the energy
transition.
The Investment Manager also sees compelling investment opportunities across
central Europe, underpinned by attractive foreign direct investment,
near-shoring trends and the benefits of the European Green Deal and NextGen
economic recovery package.
Despite recent significant change across the investment universe, the portfolio
remains well diversified across a range of countries and sectors, providing our
Shareholders with exposure to a number of long-term structural growth themes. I
would encourage Shareholders to read the Investment Manager's report, where
these trends are discussed in detail.
Keeping Shareholders Informed
As mentioned in our full year results, the Board and Investment Manager have
put in place a promotional programme that seeks to raise the Company's profile
whilst also keeping its existing investors informed. As part of the plan, the
Company's website features themed content, a portfolio and pricing feed, plus
detailed information on investing through online investment trading platforms.
Our email communications programme may be particularly useful to retail
investors holding BEMO shares through an investment platform that may not
otherwise have a direct line of communication with the Company. Our email
updates provide topical 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'.
Finally, the Board of Directors are pleased with the positive feedback we have
received from Shareholders regarding our transparency and timely disclosures
over recent months and will continue to use stock exchange announcements to
provide updates on our holdings in Russia and other pertinent matters.
Frances Daley
Chairman
27 May 2022
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 on pages 20 to 22 of the Annual Report and Accounts
for the year ended 30 September 2021.
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 on page 29 of the Annual
Report and Accounts for the year ended 30 September 2021.
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.
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.
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 on pages 20 to 22 of the annual report.
Market Summary
Global markets declined significantly over the period, following Russian
President Vladimir Putin's invasion of Ukraine, which saw Western peers respond
with a range of severe economic sanctions. This conflict, and the accompanying
economic sanctions imposed on Russia, increased uncertainty for the economic
growth outlook globally whilst also exacerbating inflationary pressures, as
access to Russian and Ukrainian produced commodities declined, causing global
commodity prices to soar. This occurred at a time when markets were already
contending with supply chain disruptions and the prospect of monetary
tightening, causing risk appetites to wane across equity markets worldwide.
Against an extremely volatile backdrop, the Company's NAV declined by -22.4%
and underperformed the benchmark, which fell by -13.7%. The portfolio's
holdings in Russia accounted for approximately 6.5 percentage points of
relative underperformance over the period.
Russia's invasion of Ukraine led to broad based condemnation and a united
approach by Western nations as they applied wide-ranging sanctions to companies
and key individuals. The Russian stock market registered rapid substantial
declines which, in a bid to stabilise, led to the suspension of trading on the
Moscow Stock Exchange, whilst internationally listed depositary receipts were
also suspended.
Market Performance (GBP) 1October 2021 to 31 March 2022
Developed Markets 4.7%
Emerging Markets -6.0%
EM EMEA -13.7%
EM Europe -72.6%
EM Latin America 26.8%
EM Asia -7.4%
Source: Barings, Factset, MSCI, March 2022..
Company and Benchmark Returns (LHS, £), Country Returns (RHS, £) 1 October 2021
to 31 March 2022
Company Share Price Total -22.6%
Return
Company NAV Total Return -22.4%
Benchmark -13.7%
U.A.E. 36.9%
Qatar 25.5%
Kuwait 25.0%
South Africa 22.5%
Saudi Arabia 19.3%
Czechia 18.6%
Turkiye 2.6%
Greece -0.2%
Egypt -7.2%
Poland -9.8%
Hungary -25.4%
Russia -100.0%
Source: Barings, Factset, MSCI, March 2022
Currency Returns (vs GBP ) - 1 October 2021 to 31 March 2022
South 5.7%
African Rand
United Arab 2.6%
Emirates
Dirham
U.S. Dollar 2.6%
Saudi Rial 2.5%
Qatari Rial 2.5%
Kuwaiti 1.8%
Dinar
Czech Koruna 1.6%
Euro -2.0%
Polish Zloty -2.9%
Hungarian -4.3%
Forint
Egyptian -11.9%
Pound
Turkish Lira -37.9%
Source: Barings, Factset, MSCI, March 2022.
This, combined with sanctions activities, impaired the Company's ability to
effectively value Russian securities within the portfolio and led the Company's
Board of Directors to value all Russian assets at zero. This took place in two
phases and reflected the evolving situation at the time. Russian securities
listed on the Moscow Exchange were valued at zero as of the 28 February 2022
following restrictions of sales; whilst depositary receipts and U.S. listed
Russian stocks were valued at zero on the 2 March 2022, after they had been
suspended from trading.
In a similar measure, MSCI removed Russia from its indices as of the close of
business on the 9 March, at a price that was effectively zero. Consequently,
whilst the portfolio does continue to hold shares in Russian companies,
effective exposure to Russia in the NAV at the end of the period was 0%.
Management fees are charged based on the Company's NAV and, as a result, no
management fees are being charged on the Russian holdings. Further information
of the Company's Russian exposures can be found within its RNS announcements to
the London Stock Exchange.
Despite the setback to the Russian component of the portfolio, the expansion of
the Company into the EMEA region has served to provide some helpful
diversification, with the smaller emerging Europe subset (the Company's prior
investment universe) falling approximately 70% in comparison. In addition,
rising oil prices supported the region's energy exporters, such as Saudi
Arabia, the United Arab Emirates ("UAE" ) and Qatar, whilst a buoyant commodity
sector and a stronger Rand helped lift South Africa.
The Turkish equity market registered a small gain over the period whilst, in
contrast, its currency declined significantly. Strength across the country's
equity markets was in part caused by the positive performance of the larger
exporting companies in the benchmark, many of whom earn their income in US
Dollars and therefore benefitted from a weakening Lira. These companies tend
to be well run businesses with strong balance sheets and limited
debt. Meanwhile, the government's focus on cutting interest rates, despite
very high inflation, continued to put pressure on the currency.
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.
Our inability to receive dividends from Russian holdings has led to the loss of
a number of large dividend payers, resulting in the prospect of a lower level
of dividend generation compared to levels seen in the past five years. The
underlying revenue generation potential of the portfolio in the near-term
remains uncertain due to bans of dividend payments by Russian entities. Whilst
other factors, such as regulatory complications, deliberate cash hording and
potential merger and acquisition considerations, are also impacting company
pay-out levels.
Despite this, we are of the opinion that the underlying revenue generation
potential of the region remains one of the strongest globally. This should
express itself via the revenue potential of the portfolio over the medium term.
Importantly, we believe that this revenue level will be sustainable and
growing, as it will be generated from our Growth at a Reasonable Price
orientated portfolio.
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. This in turn helps to support the contribution to performance from
our company selection, accessing long-term growth opportunities, while reducing
the effects of declines in performance from major macro dislocations.
Energy Security
Following the events in Ukraine, oil and gas prices have seen significant
volatility, with oil rising as high as $120 a barrel before retreating to $100.
This has served to push energy security up the agenda, most notably in Europe,
where Russian supply constitutes the largest proportion of its energy mix at
approximately 40%. We believe this will lead governments to meaningfully reduce
their exposure to Russian energy over the next decade by finding new trading
partners for oil and gas, and generating significant investment into renewable
infrastructure. While this shift has impacted the long-term outlook for Russian
energy, it has created opportunities for investment across EMEA, most notably
for Middle Eastern energy exporters such as Saudi Arabia and Qatar, which have
become key partners in ensuring the West's energy security.
We believe this shift is set to benefit the economies of Middle Eastern
markets. Demand for their exports should not only improve the spending power of
its consumers, where we see investment opportunities in areas such as
healthcare and financials, but also allow for continued investment into
infrastructure and diversification of their economies away from oil, helping
support long term stability. Here the Company has investments in financials
such as Al Rajhi Bank, which has seen extensive growth in interest margins from
rapidly rising property ownership in Saudi Arabia, and Tawuniya, an insurer
well placed to benefit from the growing health insurance market.
What are the largest commodities in an Commodities (Kt)
offshore Wind Turbine?*
Steel 241Kt
Copper 190Kt
Lead 149Kt
*Based on a 500MW Offshore Wind Plant
Source: Barings.
Supplying the Green Revolution
Climate change and the need to transition toward a world less dependent on
fossil fuels remains one of the most critical issues of our time. While we
continue to see an increased demand for electric vehicles and the associated
charging infrastructure as the most tangible examples of shifting consumption
patterns, what is often overlooked are the commodities required to support this
move to a greener society. Furthermore, a lack of investment in supply has led
to growing imbalances within critical commodities such as copper, nickel and
aluminium, all of which are projected to hit supply deficits following declines
in inventory levels. This is especially relevant given the amount of steel
required for an offshore wind farm, which 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. We believe
this creates a unique prospect for these commodities, as the increase in
investment is set not only to benefit the volume of exports of these metals but
also to sustain high prices as the world wrestles with limited supply.
A renewed vigour and focus on renewable energy infrastructure offers a wealth
of benefits for global commodity producers such as South Africa which, in light
of higher prices, has seen its current account balance improve and its currency
strengthen. The country finds itself in a unique position as an enabler of the
energy transition via its access to a broad range of key metals. Currently, the
Company has investments in Anglo American, which is an industry champion in the
production of nickel, a key input in the production of electric batteries, as
well as other energy transition metals such as copper. We also hold Impala
Platinum, which supplies platinum and palladium to carmakers globally to
support the production of catalytic converters, which help reduce poisonous
emissions from vehicles. Outside South Africa, we 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 electric vehicles.
Central Europe - Changing Tide
Taking stock of the potential implications of the sanction regime, it becomes
evident that emerging European markets are most exposed to this war,
predominantly via their close energy links between the continent and Russia,
but also because of the region's geographical proximity to the conflict.
However, we believe recent weakness has served to mask the ongoing opportunity
ahead for these countries, which remain resilient.
One such area of opportunity is nearshoring, with companies increasingly
looking to bring manufacturing closer to their customers in light of supply
constraints and pandemic-related disruption. A number of European Union ("EU")
member states are well placed to provide lower cost skilled labour, strong
regulatory protection, and crucially, a lower delivery time for the end
consumer due to their closer geographical proximity. Elsewhere, the European
Green Deal, announced in 2021, is set to bring billions of euros to EU member
states to help transform their energy systems, which in turn should provide a
significant fiscal boost to these economies, supporting employment and
development.
EU's Green Deal:
* The EU's Green Deal is the continent's main new growth strategy to
transition their economy to a sustainable economic model.
* The overarching objective of the EU Green Deal is for the EU to become the
first climate neutral continent by 2050, resulting in a
cleaner environment, more affordable energy, smarter transport, new jobs
and an overall better quality of life.
* This is set to be implemented through a range of funding mechanisms,
totalling over ?1 trillion.
Company Selection
Our team regularly engages with management teams and analyses 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 perceived 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.
Exposure to Russian securities accounted for a significant amount of
underperformance over the quarter, as Russia's invasion of Ukraine created
considerably market volatility and led to exchange closures and considerable
sanctions. As already mentioned, this resulted in the Company valuing all
Russian assets at zero as of the 2 March 2022. As a result, our positions in
internet company Yandex, supermarket retailers Magnit and X5, financials
Sberbank and TCS, and energy and materials exposures Lukoil and Norilsk Nickel
were amongst the portfolio's most significant detractors to performance over
the period.
Some of the portfolio's strongest performers were in South Africa. Our holding
in banking group FirstRand was a large contributor to relative performance,
helped by an optimistic outlook with expected pent-up customer demand to
support credit volumes, whilst higher interest rates should be positive for
both margins and growth expectations. Telecoms group MTN also significantly
outperformed, following strong earnings that were underpinned by solid growth
in voice, data and fintech services. Diversified miner Anglo American was
another strong performer as the share price reflected strength in commodity
prices globally.
In the UAE, real estate company Emaar Properties contributed significantly to
relative performance, following solid earnings for the fourth quarter of 2021
as restrictions ease and economic activity picks up, which in turn helped drive
share price performance. In contrast, a lack of exposure to telecoms company
Etisalat detracted, after the stock performed well in response to an increase
in the shares foreign ownership limit, which helped drive flows from
international investors. We continue to favour other opportunities in the
sector, reflecting some concerns regarding the company's growth outlook and
population dynamics in the UAE.
In Saudi Arabia, not owning Saudi Aramco negatively impacted relative
performance as the shares outperformed against a backdrop of high oil prices.
However, we continue to prefer other compelling investment opportunities in the
country, such as banks Al Rajhi and SNB, stock exchange operator Tadawul and
telecoms company STC, all of which contributed positively to relative
performance over the period.
Engagement Case Study: First Rand
FirstRand 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 First Rand, one of South Africa's leading financial
institutions, in order to improve board-level gender diversity.
Objective:
· Our aim is to encourage the company to achieve a more balanced gender
mix at its board level, particularly to improve female representation from
its current three-of-thirteen level towards a more equal ratio.
Outcome:
· Following our interaction with the company, we believe management were
receptive to our engagement, and noted that their aim is to achieve a more
balanced gender mix over the next two years.
· Although it will take time for the board to become fully balanced,
company management has set an expectation for approximately 40% female
composition, which they believe is an achievable short-term goal.
· Based on our initial discussions we believe there has been some
progress. We plan to follow up with the company to understand if they have
achieved their targets.
Country Weight
Saudi Arabia 33.3%
South Africa 32.8%
U.A.E. 10.0%
Qatar 6.7%
Poland 6.0%
Hungary 3.5%
Turkiye 2.7%
Greece 1.9%
Kuwait 1.9%
Czech Republic 1.2%
Source: Barings. March 2022.
Sector Weight
Financials 50.2%
Materials 17.2%
Communication 11.7%
Services
Consumer 8.0%
Discretionary
Consumer Staples 4.4%
Real Estate 4.4%
Energy 2.1%
Industrials 2.0%
Source: Barings. March 2022
Outlook
In the short term, markets are likely to remain volatile as investors closely
monitor developments in the Ukraine and the knock-on impact to various
commodity markets. In an increasingly volatile global environment, one outcome
is clear: beyond the moral implications, this war will prove devastating for
the Russian economy and its civil society, destroying decades of development.
Taking stock of the potential implications of the sanction regime it becomes
evident that emerging European markets are most exposed to this war, mostly via
the close energy links between the continent and Russia. Supply disruptions
across energy markets will have an impact on inflationary trends, whilst the
region's geographic proximity to the war will harm economic sentiment. This
increase in inflationary pressures is occurring at a time when supply-side
bottlenecks have yet to be fully resolved.
Providing diversification to the portfolio, Middle Eastern economies and South
Africa can be seen as potential safe havens for investors. This is a view
reflected across stock markets, where returns are positive for the year.
In Saudi Arabia, the near-term outlook is supported by high oil prices which in
turn help keep consumer confidence high. A combination of geopolitics and tight
supply dynamics has boosted the price of fertilisers and oil products, which
bodes well for earnings growth across region. Additionally, because of the high
oil price and extensive government reserves, consumers in the region are
relatively immune from global inflationary pressures and fears regarding food
security. Longer term, the representation of Middle Eastern countries in
benchmarks is going up, whist a strong IPO pipeline is helping to broaden and
deepen the market.
South Africa continues to benefit from its key competitive advantage - access
to a broad range of metals, many of which will help enable the energy
transition. Higher commodity prices are helping to improve the country's
current account balance, which is supportive of long-term economic growth.
Whilst challenges remain, a focus on structural reforms is helping to foster
private investment and promote employment.
We will continue our process of building new or adding to existing positions in
companies with strong and sustainable business franchises, where our
proprietary bottom-up research has identified a significant degree of
undervaluation relative to their future growth potential.
Additional Comments from the Manager
We would like to take this opportunity to pass on our thanks to Maria Szczesna,
an investment manager within the team, who has decided to leave Barings. Maria
will remain at the company until July 2022, before returning to her home
country for family reasons.
We do not anticipate any disruption to the management of the portfolio. Our
equity platform has a co-portfolio manager structure in place that is designed
to avoid key person risk. Matthias Siller and Adnan El-Araby, who have a
combined investment experience of 36 years, will continue to share portfolio
management responsibilities.
Baring Asset Management Limited
Investment Manager
27 May 2022
Investment Portfolio - as at 31 March 2022
Holding Primary country of Market value £000 % of investment
listing or investment portfolio
1 Al Rajhi Bank Saudi Arabia 6,903 8.14 %
2 The Saudi National Bank Saudi Arabia 5,641 6.66 %
3 Qatar National Bank Qatar 4,966 5.86 %
4 MTN Group South Africa 4,563 5.38 %
5 Firstrand South Africa 4,315 5.09 %
6 Saudi Basic Industries Saudi Arabia 4,149 4.89 %
7 Saudi Telecom Saudi Arabia 3,654 4.31 %
8 Emaar Properties United Arab Emirates 2,733 3.22 %
9 First Abu Dhabi Bank United Arab Emirates 2,676 3.16 %
10 Anglo American South Africa 2,606 3.07 %
11 Capitec South Africa 2,402 2.83 %
12 Saudi Tadawul Group Saudi Arabia 2,336 2.76 %
13 Anglo American Platinum South Africa 2,240 2.64 %
14 Abu Dhabi Commercial United Arab Emirates 2,048 2.42 %
Bank
15 OTP Bank Hungary 1,957 2.31 %
16 Prosus South Africa 1,878 2.22 %
17 Shoprite Holdings South Africa 1,671 1.97 %
18 Anglo American South Africa 1,660 1.96 %
19 National Bank of Greece Greece 1,596 1.88 %
20 KGHM Polska Miedz Poland 1,553 1.83 %
21 The Cooperative Saudi Arabia 1,549 1.83%
Insurance
22 Etihad Etisalat Saudi Arabia 1,491 1.76%
23 Naspers Limited South Africa 1,485 1.75%
24 PZU Poland 1,484 1.75%
25 Discovery South Africa 1,394 1.65%
26 Mr Price Group South Africa 1,280 1.51%
27 Impala Platinum South Africa 1,077 1.27%
28 Saudi Arabian Mining Saudi Arabia 1,057 1.25%
29 Komercni Bank Czechia 984 1.16%
30 Mol Hungarian Oil & Gas Hungary 948 1.12%
31 Jarir Marketing Saudi Arabia 942 1.11%
32 Human Soft Kuwait 923 1.09%
33 Aldar Properties United Arab Emirates 899 1.06%
34 PKO Bank Polski Poland 885 1.04%
35 Bim Birlesik Türkiye 813 0.96%
36 Turkiye Petrol Türkiye 773 0.91%
37 Bid Corporation South Africa 761 0.90%
38 Inpost Poland 644 0.76%
39 National Bank of Kuwait Kuwait 635 0.75%
40 Industries Qatar Qatar 578 0.68%
41 KOC Holding Türkiye 478 0.56%
42 Dino Polska Poland 455 0.54%
43 D Market Electronic Türkiye 151 0.18%
Services
44 Magnit Russia - -
45 Norilsk Nickel Russia - -
46 Moscow exchange Russia - -
47 Novatek Russia - -
48 Gazprom Russia - -
49 Lukoil Holdings Russia - -
50 Sberbank Russia - -
51 Tcs Group Russia - -
52 United Company Rusal Russia - -
53 X5 Retail Group Russia - -
54 Yandex Russia - -
Total investments 83,233 98.19 %
Net current assets 1,535 1.81 %
Net assets 84,768 100.00
Income Statement
for the six-months to 31 March 2022(unaudited)
Six months to 31 March 2022 Six months to 31 March 2021 Year ended 30 September 2021
Revenue Capital Total Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
(Losses)/gains on - (25,265) (25,265) - 20,197 20,197 - 28,381 28,381
investments held at fair
value through profit or
loss
Foreign exchange gains/ - 52 52 - (1,754) (1,754) - (245) (245)
losses
Income 1,829 - 1,829 1,809 - 1,809 4,488 - 4,488
Investment management (74) (300) (374) (70) (282) (352) (149) (598) (747)
fee
Other expenses (409) - (409) (421) (62) (483) (888) (62) (950)
Return on ordinary 1,346 (25,513) (24,167) 1,318 18,099 19,417 3,451 27,476 30,927
activities
Finance costs - - - - - - - - -
Return on ordinary 1,346 (25,513) (24,167) 1,318 18,099 19,417 3,451 27,476 30,927
activities before
taxation
Taxation (382) - (382) (228) - (228) (539) - (539)
Return for the period 964 (25,513) (24,549) 1,090 18,099 19,189 2,912 27,476 30,388
Return per ordinary 3 8.02p (212.24p) (204.22p) 8.90p 147.80p 156.70p 23.86p 225.16p 249.02p
share
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 31 March 2022 (unaudited)
31 March 31 March 30
September
2022 2021 2021
Notes £'000 £'000 £'000
Fixed assets
Investments at fair value through profit or loss 6 83,233 101,512 109,233
Current assets
Debtors 647 454 667
Cash and cash equivalents 1,350 1,864 1,664
1,997 2,318 2,331
Current liabilities
Creditors: amounts falling due within one year (462) (777) (666)
Net current assets 1,535 1,541 1,665
Net assets 84,768 103,053 110,898
Capital and reserves
Called-up share capital 1,533 1,556 1,536
Capital redemption reserve 3,255 3,232 3,252
Share premium 1,411 1,411 1,411
Capital reserve 76,707 94,624 102,479
Revenue reserve 1,862 2,230 2,220
Total equity 84,768 103,053 110,898
Net asset value per share 5 705.60p 841.67p 920.71p
The notes below form part of these financial statements.
Statement of Changes in Equity
for the six-months to 31 March 2022 (unaudited)
Called-up Capital Share
share redemption premium Capital Revenue
capital reserve account reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
For the six months ended 31 March
2022
Opening balance as at 1 October 1,536 3,252 1,411 102,479 2,220 110,898
2021
Return for the six months to 31 - - - (25,513) 964 (24,549)
March 2022
Contributions by and distributions
to Shareholders:
Repurchase of Ordinary Shares (3) 3 - (259) - (259)
Dividends paid - - - - (1,322) (1,322)
Total contributions by and (3) 3 - (259) (1,322) (1,581)
distributions to Shareholders:
Balance as at 31 March 2022 1,533 3,255 1,411 76,707 1,862 84,768
Called-up Capital Share
share redemption premium Capital Revenue
capital reserve account reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
For the six months ended 31 March
2021
Opening balance as at 1 October 1,559 3,229 1,411 76,718 2,365 85,282
2020
Return for the six months to 31 - - - 18,099 1,090 19,189
March 2021
Contributions by and distributions
to Shareholders:
Repurchase of Ordinary Shares (3) 3 - (193) - (193)
Dividends paid - - - - (1,225) (1,225)
Total contributions by and (3) 3 - (193) (1,225) (1,418)
distributions to Shareholders:
Balance as at 31 March 2021 1,556 3,232 1,411 94,624 2,230 103,053
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
The distributable reserves of the Company at 31 March 2022 were £78,568,000 (31
March 2021: £88,384,000; 30 September 2021: £86,658,000).
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 Accounts
For the half year ended 31 March 2022 (unaudited)
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 set out in the Annual Report and Financial
Statements of the Company for the year ended 30 September 2021.
Basis of Preparation
The Company's Financial Statements for the six-months to 31 March 2022 have
been prepared on the basis of the accounting policies set out in the Annual
Report and Financial Statements of the Company for the year ended 30 September
2021 and in accordance with FRS 104: "Interim Financial Reporting".
The investments of the Company are listed and are carried at fair value. The
Company has therefore elected to remove the Cash Flow Statement from the
Half-Yearly Report, as permitted by FRS 102 section 7.
The accounting policies are set out in the Company's Annual Report and
Financial Statements for the year ended 30 September 2021 and remain unchanged.
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 international and economic uncertainties on the Company, operations and the
investment portfolio. These include, but are not limited to, the impact of
COVID-19, the war in Ukraine, supply shortages and inflationary pressures.
The Directors noted that the Company's current cash balance exceeds any
short-term liabilities, the Company holds a portfolio of listed investments.
The Directors are of the view that the Company is able to meet the obligations
of the Company as 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 Directors, the Manager and other service providers have put in place
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.
Comparative Information
The financial information contained in this Half Year Report does not
constitute statutory accounts as defined in the Companies Act 2006. The
financial information for the half-year period ended 31 March 2022 has not been
audited or reviewed by the Company's Auditor. The comparative figures for the
financial year ended 30 September 2021 are not the Company's statutory accounts
for that financial year. Those accounts have been reported on by the Company's
Auditor and delivered to the Registrar of Companies. The report of the Auditor
was (i) unqualified, (ii) did not include a reference to any matters to which
the Auditor 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.
2. Dividend
During the period, the Company paid a final dividend of 11p per Ordinary Share
for the year ended 30 September 2021 on 7 February 2022 to Ordinary
shareholders on the register at 17 December 2021 (ex-dividend 16 December
2021).
An interim dividend of 6p per Ordinary Share for the period ended 31 March 2022
has been declared and will be paid on 1 July 2022 to Ordinary shareholders on
the register at the close of business on 10 June 2022 (ex-dividend 9 June
2022).
3. Return per Ordinary Share
The total return per Ordinary Share is based on the return on ordinary
activities after taxation of £(24,549,000) (six-months ended 31 March 2021: £
19,189,000; and year ended 30 September 2021: £30,927,000) and on a weighted
average of 12,020,661 Ordinary Shares in issue during the six -months ended 31
March 2022 (six-months ended 31 March 2021: weighted average of 12,245,495
Ordinary Shares in issue; and year ended 30 September 2021: weighted average of
12,202,696 Ordinary Shares in issue).
The Company has made a full provision in respect of Russian securities of £
14,834,000 and recoverable withholding tax of £220,000has been fully provided
in the return for the period to 31 March 2022 in the Income Statement.
The fair values of these investments and assets are recognised at £zero in the
Half Year Report.
4. Shares in Issue
As at 31 March 2022, there were 12,013,503 Ordinary Shares of 10p each in issue
(31 March 2021: 12,243,905; and 30 September 2021: 12,044,780) which excludes
3,318,207 Ordinary Shares held in treasury (31 March 2021: 3,318,207; and 30
September 2021: 3,318,207) and treated as not being in issue when calculating
the NAV per share. Shares held in treasury are non-voting and not eligible for
receipt of dividends.
During the period, 31,277 Ordinary Shares were bought back and cancelled at a
cost of £259,000.
5. Net Asset Value per Ordinary Share
The NAV per Ordinary Share is based on net assets of £84,768,000 (31 March
2021: £103,053,000; 30 September 2021: £110,898,000) and Ordinary Shares, being
the number of Ordinary Shares in issue excluding shares held in treasury at the
relevant period ends (31 March 2022: 12,013,503, 31 March 2021: 12,243,905 and
year ended 30 September 2021: 12,044,780).
6. Fair Value of Investments
The fair value hierarchy analysis for financial instruments held at fair value
at the period end is as follows:
Financial assets at fair value through
Level 1 Level 2 Level 3 Total
profit or loss at 31 March 2022
£'000 £'000 £'000 £'000
Equity investments
83,233 - - 83,233
Financial assets at fair value through
Level 1 Level 2 Level 3 Total
profit or loss at 31 March 2021
£'000 £'000 £'000 £'000
Equity investments
101,512 - - 101,512
Financial assets at fair value through
Level 1 Level 2 Level 3 Total
profit or loss at 30 September 2021
£'000 £'000 £'000 £'000
Equity
investments 109,204
29 - 109,233
During the period the Company made a full provision in respect of Russian
investments £14,834,000, and recoverable withholding tax of £220,000 recognised
in the Income Statement. The fair values of these assets are recognised at £
zero in the Half Year Report.
Saudi South United Qatar Poland Poland Hungary Türkiye Greece Kuwait Czechia United UK Total
Arabia Africa Arab States
Emirates
SAR ZAR AED QAR PLN EUR HUF TRY EUR KWD CZK USD GBP
2022 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Cash - - - - - - - - - - - 1,279 71 1,664
Debtor - 221 73 - - - - - - 132 - 32 189 647
Creditor - - - - (201) - - - - - - - (261) (462)
Investments 27,722 27,332 8,356 5,545 4,377 644 2,904 2,215 1,596 1,558 984 - - 83,233
Total 27,772 27,553 8,429 5,545 4,176 644 2,904 2,215 1,596 1,690 984 1,311 (1) 84,768
7. Related Party Disclosures and Transactions with the AIFM
Investment management fees charged in the period were £374,000 (six-months to
31 March 2021: £352,000; year ended 30 September 2021: £747,000). At the end of
the half year, there was an investment management fee of £102,000 outstanding
(31 March 2021: £65,000;£30 September 2021: £136,000).
Fees paid to the Directors for the six-months amounted to £77,000 (six-months
to 31 March 2021: £74,000; year ended 30 September 2021: £148,000).
Fees paid to the Company's Directors are disclosed in the Director's
Remuneration Report within the Company's Annual Report and Accounts for 2021.
At the year end, there were no outstanding fees payable to the Directors (year
ended 30 September 2021: £nil).
Nadya Wells during the period was a member of the Supervisory Board of Sberbank
of Russia ("Sberbank"), in which the Company was invested during the period.
The Company sold 676,680 shares for £1,214,000. These transactions were
completed through the open market. Nadya Wells has resigned as an independent
director of the supervisory board of Sberbank of Russia with effect from 24
February 2022.
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 12 months from the
date when these financial statements were approved.
In making the assessment, the Directors have considered the impact of the
conflict in Ukraine on the Company and the investment portfolio. Whilst the
write-down of Russian securities in the portfolio has had a significant impact
on net asset value, the Company continues to operate at a size similar to
levels seen historically. The Directors have also discussed the impact of the
conflict on the Company's ability to pay dividends to Shareholders, both in the
near-term and over the next few years.
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 the obligations
of the Company as 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 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.
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 an assessment and
review of the principal risks facing the Company, together with a review of any
new risks which may have arisen during the year, including those risks which
would threaten the Company's business model, future performance, solvency or
liquidity. The Directors have considered the impact of the continued
uncertainty on the Company's financial position and based on the information
available to them at the date of this Report, have fair-value adjusted Russian
securities to zero in response to exchange closures and sanction activities as
a result of the conflict in Ukraine. The Directors have concluded that no
further adjustments are required to the accounts as at 31 March 2022.
A review of the half year including reference to the risks and uncertainties
that existed during the period and the outlook for the Company can be found in
the Chairman's Statement and in the Investment Manager's Report.
The principal risks faced by the Company fall into the following broad
categories: Investment and Strategy, Adverse Market Conditions, Size of the
Company, Share Price Volatility and Liquidity/Marketability Risk, Loss of
Assets and Engagement of Third-Party
Service.
Providers. Information on each of these areas is given in the Strategic Report
within the Annual Report and Accounts for the year ended 30 September 2021. In
the view of the Board these principal risks and uncertainties are as applicable
to the remaining six-months of the financial year as they were to the
six-months under review.
The Board is aware that due the current situation in Russia and Ukraine,
sanctions imposed by a number of jurisdictions have resulted in the devaluation
of the Russian currency, a downgrade in the country's credit rating, an
immediate freeze of Russian assets, a decline in the value and liquidity of
Russian securities, property or interests, and/or other adverse consequences.
Sanctions could also result in Russia taking counter measures or other actions
in response, which may further impair the value and liquidity of Russian
securities.
These sanctions, and the resulting disruption of the Russian economy, may cause
volatility in other regional and global markets and may negatively impact the
performance of various sectors and industries. The Board continue to monitor
the situation and will provide further updates as needed.
Related Party Transactions
The Investment Manager is regarded as a related party and details of the
management fee payable during the six- months ended 31 March 2022 is shown in
the Income Statement above. There have been no other related party transactions
during the six- months ended31 March 2022. The Directors' current level of
remuneration is £28,000 per annum for each Director, with the Chairman of the
Audit Committee receiving an additional fee of £3,500 per annum and the Senior
Independent Director receiving an additional fee of £1,000 per annum. The
Chairman's fee is £38,000 per annum.
Directors' Responsibility Statement
in respect of the Half Year Report for the six- months ended 31 March 2022
Responsibility Statement
The important events that have occurred during the period under review, the key
factors influencing the financial statements and the principal risks and
uncertainties for the remaining six- months of the financial Year are set out
in the interim management report above.
The Directors confirm that to the best of their knowledge:
· the condensed set of financial statements has been prepared in
accordance with UK Accounting Standards; Financial Reporting Standard 102,and
gives a true and fair view of the assets, liabilities and financial position of
the Company; and the interim management report (which includes the Chairman's
Statement) as required by the FCA's Disclosure Guidance and Transparency Rule
4.2.4R; and-this Half Year Report includes a fair review of the information
required by:
a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an
indication of important events that have occurred during the first six months
of the financial year and their impact on the condensed set of financial
statements; and a description of the principal risks and uncertainties for the
remaining six-months of the year; and
b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being
related party transactions that have taken place in the first six-months of the
current financial year and that have materially affected the financial position
or performance of the Company during that period; and any changes in the
related party transactions that could do so.
This Half Year Report was approved by the Board of Directors on 27 May 2022
and the above responsibility was signed on its behalf by Frances Daley,
Chairman.
Glossary
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, Türkiye 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.
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 605.00p (2021: 718.00p) from the NAV per share of 705.60p (2021: 841.67p)
and is usually expressed as a percentage of the NAV per share, 14.3% (2021:
14.7%). 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 its 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 = £83,233,000/ B = £84,768,000) 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 = £83,233,000) + (C = Cash £1,350,000 + Debtor £
647,000) / B = £84,768,000) 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 £84,768,000 by the number of Ordinary Shares in issue
excluding Treasury Shares of 12,013,503.
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 nonrecurring items) of £783,000 being investment
management fees of £374,000 and other expenses of £409,000 less non-recurring
expenses of £nil expressed as a percentage of the average net assets of £
103,417,000 during the year as disclosed to the London Stock Exchange. The OCR
for 2022 is 1.51%.
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.
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.
31 March 2022
Closing NAV per share (p) 705.6
Add back total dividends paid 11.0
in the
Six-months to 31 March 2022
(p)
Benefits from reinvesting -2.2
dividend (p)
Adjusted closing NAV (p) 714.4
Opening NAV per share (p) 920.7
NAV total return (%) -22.4
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.
31 March 2022
Closing share price (p) 605.0
Add back total dividends paid 11.0
in the six-months to 31 March
2022 (p)
Benefits from reinvesting -2.2
dividend (p)
Adjusted closing share price 613.8
(p)
Opening share price (p) 793.0
Share price total return (%) -22.6
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 Street
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
Telephone 01392 477500
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 Half-Yearly Report will be submitted to the National Storage
Mechanism ("NSM") and will be available for inspection at the NSM, which is
situated at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism
LEI: 213800HLE2UOSVAP2Y69
END
(END) Dow Jones Newswires
May 30, 2022 02:00 ET (06:00 GMT)
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