Half-year Report
09/06/2023 07:00
Barings Emerging EMEA Opportunities PLC
Half Year Report
for the six-months ended 31 March 2023
The Directors present the Half-Yearly Financial Report of the Company for the
period to 31 March 2023.
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 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 intends predominantly to invest 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.
Further details of the 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.
The Investment Manager is not limited or constrained by the constituents of
the comparator benchmark and may invest in any companies it considers
appropriate in accordance with the investment mandate.
Financial Highlights for the six-month period to 31 March 2023
KEY PERFORMANCE INDICATORS
NAV total return Total Return 1 # Share price total return 1# Discount per Ordinary Share 1#
-2.1% -5.0% 6p
(31 March 2022: -22.4%) (31 March 2022: -22.6%) (31 March 2022: 6p)
FINANCIAL HIGHLIGHTS FOR THE SIX MONTH PERIOD TO 31 MARCH 2023
31 March 2023 31 March 2022 30 September 2022
NAV per Ordinary Share 1 607.8p 705.6p 632.1p
Share price 509.0p 605.0p 548.0p
Share price total return 1,*,# -5.0% -22.6% -29.1%
Discount to NAV per Ordinary Share 1 16.3% 14.3% 13.3%
Benchmark 1,* -5.5% -13.7% -20.1%
Dividend yield 1,2,3 3.3% 2.8% 3.1%
Ongoing charges 1 1.6% 1.5% 1.6%
RETURN PER ORDINARY SHARE
31 March 2023 31 March 2022 30 September 2022
Revenue Capital Total Revenue Capital Total Revenue Capital Total
Return per Ordinary Share 6.71p (20.78)p (14.07)p 8.02p (212.24)p (204.22)p 16.77p (289.37)p (272.60)p
Revenue return (earnings) per Ordinary Share is based on the revenue return of
£805,000 (31 March 2022: £964,000; and the full year to 30 September 2022:
£2,014,000). Capital return per Ordinary Share for the half year is based on
net capital loss of £2,492,000 (31 March 2022: net capital loss of
£25,513,000; and full year to 30 September 2022: net capital loss of
£34,746,000). These calculations are based on the weighted average of
11,921,821 (31 March 2022: 12,020,661; and 30 September 2022: 12,007,165)
Ordinary Shares in issue during the period/year.
As at 31 March 2023, there were 11,807,563 Ordinary Shares of 10 pence each in
issue (31 March 2022: 12,013,503; and 30 September 2022: 11,930,201) which
excludes 3,318,207 Ordinary Shares held in treasury (31 March 2022: 3,318,207;
and 30 September 2022: 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
122,638 Ordinary shares were purchased of which 3,727 shares were cancelled
with the balance of 118,911 pending cancellation. Since the period end and
up to 31 May 2023, the Company has bought back 10,661 shares for cancellation.
1Alternative Performance Measures (“APMs”) definitions can be found in the
Glossary on pages 88 to 91 of the Annual Report.
2 The yield as of 31 March 2023 is comprised of the 2022 final dividend of
11 pence per share and the interim dividend for the six months to 31 March
2023 of 6 pence per share, based on the share price as at 31 March 2023.
3 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.
* Movement to 31 March relates to the preceding six months and movement to
30 September relates to the preceding twelve months.
# Key Performance Indicator.
Chairman’s Statement
Frances Daley
Chairman
Performance
EMEA equity markets registered a small decline over the period, following an
extremely volatile performance in the previous financial year. The relatively
modest decline in the index of minus 5.5%, masked a diverse set of returns.
Some markets in Europe rallied in excess of 30%, whilst Middle Eastern markets
were approximately 20% weaker.
Against this backdrop, the Company’s Net Asset Value (“NAV”) registered
a small decline of minus 2.1%, with the portfolio outperforming the benchmark.
Russian assets in the portfolio continue to be valued at zero, whilst
extensive sanctions and restrictions on the sale of securities remain in
place. Dividends from Russian securities are being received into a Company
account, but cannot currently be repatriated. The Board will continue to value
these assets at zero until circumstances permit otherwise. Consequently, there
is no exposure to Russia in the Company’s NAV and Management Fees are not
being charged on these assets.
It is encouraging that performance has continued to improve post the
write-down of Russian assets, with the portfolio ahead of the benchmark over
six months and one year. Regrettably, performance over three and five years
continues to be impacted by the negative relative performance in the prior
financial year, with the Company lagging the benchmark across both periods.
However, the portfolio remains ahead of the benchmark over 7 and 10 years.
Investment Portfolio
The strong performance across markets in Emerging Europe reflected the
continent’s improving economic prospects against the backdrop of falling
energy prices, and a surge in many markets that had been undervalued relative
to other developed peers. The Company’s holdings in Central and Eastern
Europe gained between 30-50%, with holdings in financials some of our best
performers, as these companies have benefitted from rising interest rates and
high demand for loans.
Similarly, Turkish equities held in the portfolio returned in excess of 30%.
Holdings in the country performed strongest in the first half of the period,
supported by continued low interest rates and by local savers seeking a return
in the inflationary environment.
After being some of the strongest performers globally in the first half of
2022, markets in the Middle East declined in absolute terms during the period
due to a combination of lower energy prices and a weaker US dollar. After
hitting a 20-year high at the end of Q3 2022, the US Dollar began to
depreciate largely on expectations of peaking interest rates, which in turn
amplified negative returns for markets with pegged currencies, such as Saudi
Arabia and the UAE. Whilst the value of the Company’s holdings in these
markets declined over the period, stock selection across these markets was
strong and helped improve the Company’s relative performance versus the
benchmark.
Holdings in South Africa had a negative impact on relative performance.
Consumer-focused holdings were amongst the worst performers, as some
businesses had to reduce their trading hours due to disruptions to the
country’s electricity supply. In contrast, the best performers were gold
miners as investors sought out the safe haven asset amidst higher volatility.
Discount Management
The Board continued to pursue an active discount management strategy during
the period, with the aim of containing discount volatility and providing
liquidity to the market.
During the 6-month period, 122,638 Ordinary Shares were bought back for
cancellation at an average price of £5.22 per Ordinary Share, for a total
cost of £640,000. The share buybacks added approximately 1.2 pence to NAV per
Ordinary Share, accounting for just under 0.2% of the total return to
Shareholders.
The discount at 31 March 2023 was 16.3% and the average discount during the
period was 17.9%. This compares with a discount of 14.3% at 31 March 2022. The
average discount over the period has widened, primarily due to increased
levels of market volatility across our investment universe and equity markets
globally. This has had a similar impact on the discounts of many investment
trusts
and is not unique to our Company.
Interim Dividend
Income generated by the portfolio has also been impacted in the short-term by
the strong appreciation of Sterling over the reporting period relative to most
currencies in our investment universe, which has weakened dividends received
when expressed in GBP terms. The dividends received from your investments and
therefore the dividends paid out to shareholders have been negatively impacted
by the removal of high payout Russian companies from our investment universe
due to the war in Ukraine. Income generated by the portfolio has also been
impacted in the short-term by the strong appreciation of Sterling over the
reporting period relative to most currencies in our investment universe, which
has weakened dividends received when expressed in GBP terms. The Investment
Manager continues to believe the income potential of the portfolio will grow
over the medium term and that this growth will be sustainable.
In the first half of the financial year, the income account generated a return
of 6.7 pence per Ordinary Share, compared with 8.0 pence for the same period
last year. The Directors are proposing an interim dividend of 6.0 pence per
share, which is the same as last year. The rebalancing of the amount of
dividend paid by way of an Interim Dividend and a Final Dividend which
occurred last year, allows for increased certainty at a time when income
projections remain subject to considerable uncertainty.
Based on dividends over the prior 12 months and the share price as of the
end of the first half of the financial year, the Company’s shares yielded
3.3%. The Board believes that, given the circumstances, this remains an
attractive yield. The Board remains mindful of the significance of the
continued payment of dividends to Shareholders. The Company retains the
flexibility to pay out up to 1% per annum of NAV from capital as income to
Shareholders. The Investment Manager continues to believe the income potential
of the portfolio will grow over the medium term and that this growth will be
sustainable.
Gearing
There were no borrowings during the period. At 31 March 2023, there was net
cash of £1.4 million (31 March 2022: £1.4 million). The Company does not
currently use a loan facility but keeps its borrowing arrangements and gearing
policy under review. The Company may look to make use of borrowing
arrangements when markets are less volatile with the objective of increasing
portfolio returns.
Outlook
Equity markets are likely to remain volatile over the coming months as the
path for inflation and interest rates remains uncertain, and the global
economic outlook continues to present challenges for corporate earnings growth
in 2023. Whilst these trends will undoubtedly impact our investment region,
there are reasons to be optimistic.
We have already seen the positive effect Europe’s improving economic picture
has had on the returns across a number of countries in the portfolio.
Companies in the financial services sector in Eastern Europe continue to
represent a significant portion of the portfolio and the Investment Manager is
positive on the prospects for the sector.
Middle Eastern economies continue to benefit from low inflation, healthy
consumer demand and high capital investment. Whilst these markets were weaker
over the reporting period, the Investment Manager continues to find many
exciting opportunities for medium term growth across a number of sectors.
The economic backdrop in South Africa is more challenged, given the ongoing
issues with the country’s electricity supply as well as heightened political
risk. However, opportunities do exist for well managed business to navigate
what is undoubtedly a difficult macroeconomic backdrop.
Finally, the political calendar across EMEA for 2023 is fairly congested, with
the recent elections in Greece and Türkiye to be followed towards the end of
the year by elections in Poland. In Greece, the second term won by Prime
Minister Mitsotakis’ New Democracy party should help enable the continuation
of structural reform, whilst the victory for President Erdogan in Türkiye
will continue to present challenges as the country attempts to unlock its
economic potential. These are events that may provide compelling bottom-up
investment opportunities but also bring with them a degree of risk.
Promotional activity and keeping shareholders informed
The Board and Investment Manager have in place an ongoing communications
programme that seeks to maintain the Company’s profile and its investment
remit, particularly amongst retail investors. Over the review period we have
continued to distribute our monthly BEMO News which is emailed to engaged
supporters, including many hundreds of the Company’s shareholders. These
emails provide relevant news and views plus performance updates, which are
particularly useful when there is market uncertainty. If you have not already
done so, 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’. Alongside this, we are continuing to refresh
the Company’s website with new themed content, including a recent video
update from co-portfolio manager Adnan El-Araby.
Frances Daley
Chairman
8 June 2023
Business Model and Strategy
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.
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 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 2022.
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).
Purpose, Values and Strategy
To achieve this investment objective, 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.
Benchmark
The Company’s comparator Benchmark is the MSCI Emerging Markets EMEA Index
(net dividends reinvested).
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 comparator 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 policies of the Company.
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 bought on the market, from time to time, where the
share price is quoted at a discount to NAV.
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 Experienced investment team helps to foster strong relationships with the companies in which we invest. First-hand Expertise The investment team conducts hundreds of company meetings per year, building long term relationships and insight. Process Extensive primary research and proprietary fundamental analysis, evaluating companies over a 5-year research horizon ESG Integration Fully integrated dynamic ESG assessment combined with active engagement to positively influence ESG practices.
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 and Accounts for
the year ended 30 September 2022.
Market Summary
EMEA equity markets were weaker over the period, with the MSCI EM EMEA index
declining -5.5% in GBP terms. Against a challenging market backdrop, the
Company’s NAV declined by -2.1% but outperformed the benchmark, which fell
by -5.5%.
Headline performance masked a diverse set of results for countries in our
region, with markets in the Middle East suffering some profit taking after
outperforming for much of 2022 whilst, in contrast, Central and Eastern Europe
rallied significantly on improving economic prospects. The broader global
themes of high inflation and rising interest rates also had an impact on
performance at times during the period.
The EMEA region generated positive returns at the start of the period, helped
by a resilient economic backdrop and improved company earnings expectations,
as risks of a severe recession receded in light of falling energy prices that
are now back at levels last seen prior to Russia’s invasion of Ukraine.
Positive sentiment also reflected hopes that inflation across developed
countries might be cooling and, in response, major central banks would slow
the pace of interest rate hikes.
This early rally was, however, brought to an abrupt halt, as strong economic
data in the US, and higher than anticipated inflation led investors to
reassess the path for interest rates. While inflation has begun to recede as
food and energy costs have fallen, core inflation, which strips away these
more volatile facets, has not fallen as fast as anticipated. This led
investors to change their perceptions, moving from the expectation of falling
interest rates, to an environment where rates would likely stay higher for
longer.
Later in the period the market began predicting a peak in interest rates due
to the slowing pace of central bank hikes and because of stresses in the
banking sector following the collapse of US regional banks SVB and Signature,
and then shortly thereafter the effective rescue takeover of Credit Suisse by
UBS. These events contributed to the depreciation of the Dollar, which had
begun to weaken in Q4 2022, and amplified negative returns in Middle Eastern
markets due to their pegged currencies.
Regionally, markets in Central and Eastern Europe were some of the best
performers across EMEA, reflecting the reduced risk of a recession across the
continent following the significant retrenchment in energy prices. Greece,
Poland, Hungary and Czechia all returned approximately 30% over the period.
Performance was also amplified by local currency strength, with the Czech
Koruna, Hungarian Forint and Polish Zloty all appreciating versus the Pound
over the period.
EMEA Market Performance (in GBP, based on MSCI indices)
Currency Returns (local currency returns vs. GBP)
Country Returns
Greece 35.0%
Turkiye 33.2%
Poland 32.1%
Czechia 27.9%
Hungary 26.6%
Egypt 11.8%
South Africa 6.2%
Kuwait -8.1%
Saudi Arabia -16.4%
U.A.E. -17.8%
Qatar -24.0%
Source: Barings, Factset, MSCI, March 2023
Currency Returns
Greece 0.2%
Turkiye -12.7%
Poland 3.9%
Czechia 4.9%
Hungary 11.5%
Egypt -42.5%
South Africa -8.0%
Kuwait -8.5%
Saudi Arabia -9.4%
U.A.E. -9.5%
Qatar -9.4%
Source: Barings, Factset, MSCI, March 2023.
Eastern European markets were some of the strongest performers in absolute
terms, whilst weakness in middle Eastern markets was compounded by currency
depreciation.
South Africa also outperformed over the period, although to a lesser extent
than markets in Europe, amid a domestic economy with contrasting drivers. At
one end of the spectrum, the country’s gold miners were some of the best
performers as investors sought out safe haven assets, whilst retailers were
impacted by ongoing supply disruption to local electricity supply.
In contrast, markets in the Middle East suffered from some profit taking and
retreated from their earlier highs in 2022. Falling energy prices, a weaker US
dollar and concerns of oversupply following a period of robust capital market
activity also contributed to the negative performance.
Our region underperformed relative to developed and broader emerging markets
over the period. Whilst we benefitted from the significant rally across
Emerging European markets, this was offset by weakness in the Middle East,
with Gulf markets beginning to underperform in Q4 2022 at the time when
broader emerging markets began to outperform, reflecting the reopening of
China’s economy.
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.
The portfolio continues to be impacted by our inability to receive dividends
from Russian holdings, which are being accrued in a Company account but which
cannot be repatriated due to sanctions. Unfortunately, this has resulted in a
lower level of dividend generation compared to recent history. Despite this,
we are of the opinion that the underlying revenue generation potential
relative to present valuations within the region remains one of the strongest
globally.
Rising pay-out ratios, efficiency gains, and an encouraging economic
environment, most notably in the Middle East and Eastern Europe, will all
contribute positively to revenue growth for the portfolio over the medium
term. Importantly, we believe that this revenue growth will be sustainable.
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: One Year On
Russia’s invasion of Ukraine led to significant increases in energy prices
and served to push energy security up the agenda, most notably in Europe,
which relied on Russia heavily for its energy mix. Sanctions that followed
shortly after from both the EU and US included a ban on Russian coal imports,
alongside a ban on crude oil and refined petroleum products, with limited
exceptions. In response to these sanctions, Russian natural gas exports to the
EU declined significantly.
Whilst energy prices have fallen from their peaks, the issue remains a
priority for many governments as they seek alternative ways to meet their
energy needs. Prior to the invasion, Russia accounted for approximately 35% of
the European Union’s gas imports and 29% of their oil. Since then,
dependence on Russian energy has been significantly reduced, with data
released for the fourth quarter of 2022 showing that Russia accounts for
approximately 19% of the bloc’s natural gas imports and 10% of oil imports.
The US, the UK and Norway have all benefited from the EU shifting away from
Russian energy, with natural gas imports from these countries increasing
significantly since the onset of the war. There have also been opportunities
for countries in our investment universe: the share of EU oil imports coming
from Saudi Arabia increased from 5% in 2021 to 9% as of Q3 2022, whilst Qatar
now accounts for 9% of natural gas imports, up from 5% in 2021.
We believe this shift will continue to benefit the economies of Middle Eastern
markets. Demand for the region’s exports should not only improve the
spending power of its consumers, creating investment opportunities across
multiple sectors, but will also allow for continued investment into
infrastructure and the diversification of their economies away from oil,
helping support long term financial stability.
Supplying the Green Revolution
The need to transition towards a world less dependent on fossil fuels remains
one of the most critical issues of our time. This will require substantial
investments in solar and wind generation capacity and will require mining and
processing significantly higher amounts of raw materials - namely copper,
aluminum, nickel, platinum group metals, and rare earths, often referred to as
‘green metals’ - than we have in the last 30 years.
A lack of investment in supply has led to growing imbalances of these raw
materials. For example, in the last couple of years we have seen a huge
increase in the price of copper, from approximately $6000 per tonne in 2019 to
$9000 per tonne at the start of 2023. This economically sensitive commodity
has increased in price despite most economists predicting slowing global
growth or even a recession. We believe the increase in the price of copper is
caused by concerns regarding a lack of supply of a metal that is critical to
the energy transition with global inventories of copper now reportedly at
their lowest levels since 2008. Tightness in supply is not expected to be
alleviated in the near-term as the time to find, permit, develop and
commission a new mine can take up to 15 years, setting the scene for higher
pricing for the foreseeable future. These supply constraints are not just
confined to copper, as the mining of other commodities such as lithium and
nickel also require similar lead times against a backdrop of higher demand.
The Company continues to invest in a variety of companies that have a role to
play in meeting this demand for raw materials. For example, Anglo American
(nickel, copper), Anglo American Platinum and Impala Platinum (platinum group
metals) and KGHM (copper).
The Political Calendar: Türkiye and Greece
It is difficult to overstate the importance of the recent elections in the
Eastern Mediterranean neighbouring countries of Türkiye and Greece as the
electorate set the tone for what are very promising markets, with a host of
attractively valued, quality companies.
In Greece, victory for Prime Minister Mitsotakis’ New Democracy party is a
vote for the continuation of the country’s structural reform program. The
program has so far contributed to an impressive economic recovery, record
economic growth rates in the European context and a tangible pick up in
foreign direct investment. However, this has been offset somewhat by high
inflation that has dented the government’s popularity.
In Türkiye, the victory for President Erdogan will come with significant
challenges given his historic approach to monetary policy. Cleaning the slate
after the elections won’t come without challenges and it will need much more
than gestures for markets to start believing in the country’s economic
potential. However, any indication that the Erdogan administration may be
turning towards more orthodox monetary policies would likely be greeted
favourably by the market.
Portfolio Country Weight
Saudi Arabia 31.1%
South Africa 25.9%
U.A.E. 10.0%
Poland 8.0%
Qatar 5.7%
Kuwait 4.8%
Hungary 4.4%
Turkiye 4.1%
Greece 3.9%
Czechia 1.9%
Source: Barings. March 2023.
Portfolio Sector Weight
Financials 48.3%
Materials 14.7%
Consumer Discretionary 10.6%
Communication Services 9.5%
Industrials 4.8%
Real Estate 4.2%
Energy 3.2%
Consumer Staples 3.1%
Information Technology 1.5%
Health Care 0.1%
Source: Barings. March 2023.
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.
Stock selection significantly improved the portfolio’s relative return over
the period, whilst sector asset allocation had a small negative impact.
Stock selection in the Financials sector had the largest positive impact on
relative performance. The portfolio’s holdings in Emerging Europe were some
of the best performers, as high interest rates and robust credit demand across
the region have fed through to strong company earnings, whilst Polish
financials also benefitted from ongoing efforts to resolve the legacy burden
of loan loss provisions on mortgages denominated in Swiss francs. Polish
insurance business PZU, National Bank of Greece and Komercni in Czechia were
amongst the portfolio’s best performers on a relative basis.
Strong performance of European financials was partially offset by Middle
Eastern banks, with the holding Saudi National Bank (SNB) detracting after the
company came under pressure following uncertainty regarding its M&A strategy
and news that the government will be reducing mortgage subsidies. The holding
in Qatar National Bank (QNB) also underperformed, caused in part by a more
muted growth outlook domestically. We reduced the holdings in both SNB and QNB
over the period.
Despite volatility in the global banking sector towards the end of the
reporting period we continue to believe that financials in our investment
region, and BEMO’s holdings specifically, are in a strong financial
position. The banks are well capitalised, have firm regulatory oversight and
hedge their interest rate exposure. The sector is also highly concentrated,
meaning retail and corporate deposits are less vulnerable to withdrawals.
Engagement Case Study: Tawuniya (insurance company)
We regularly engage with companies with the aim of improving corporate behaviour or enhancing disclosure levels.
Overview: • Over the period we engaged with Saudi insurance company Tawuniya to discuss its ESG policies and identify areas for improvement.
Objective: • Following release of Tawuniya’s first ESG report we wanted to engage with them to give guidance on areas for improvement and to monitor targets that the company has set.
Outcome: • We initially engaged with the company to encourage them to publish a formal ESG policy, which was acknowledged and actioned shortly thereafter. • We welcomed the publication of the ESG report but recognised the potential for improvement in areas such as workers’ rights, whistleblowing, and data security. • We have since re-engaged with the company and suggested enhancements to these areas for the next report. We continue to monitor Tawuniya’s progress against these enhancements and other
targets the company has set itself.
Positioning in the Materials sector also improved relative performance over
the period, driven largely by holdings in South Africa. Gold miner AngloGold
Ashanti was one of the portfolio’s top performers on a relative basis,
helped by rising gold prices and news of a joint venture with Gold Fields to
create Africa’s largest gold mine. In contrast Anglo American Platinum
underperformed, reflecting a weaker production outlook and some short term
earnings weakness.
In the Industrials sector Turkish conglomerate Koc Holding was one of the best
performers. The operational performance of Koc’s subsidiaries has been
strong, particularly the company’s export orientated businesses, such as
refiner Tupras, that have benefitted from a weaker Lira in recent months.
The Consumer Staples sector had a negative impact on relative returns in
aggregate. South African retailers were amongst the weakest performers, as
they suffered from significant wage inflation and disruption to trading hours
because of electricity cuts. Pick N Pay and Mr Price Group were two of the
largest detractors on a relative basis and both were sold over the period. In
contrast, amongst Consumer Discretionary holdings the position in ecommerce
and technology investor Prosus outperformed. The company holds a significant
stake in Tencent, which is expected to benefit from the rebound of consumption
in China as a result of COVID-19 restrictions being lifted, and a more
favourable regulatory backdrop.
The portfolio’s underweight exposure to the Health Care sector also had a
negative impact on relative performance following the strong performance of a
small number of benchmark holdings. There continues to be a very limited
opportunity set in this space across EMEA and we believe there are better
opportunities elsewhere.
Outlook
In the short term equity markets are likely to remain volatile as investors
monitor developments in Ukraine, as well as the outlook for inflation and
global economic growth. However, there is evidence that monetary tightening
may have moderated inflation which is supportive. While the region will not be
immune to these global trends, we believe there are a number of compelling
opportunities across EMEA.
The Middle East continues to invest large sums of capital to further diversify
their economies. This, combined with robust consumer demand, lower inflation
and higher labour participation rate should continue to support earnings
growth across multiple sectors. The representation of the Middle East in major
indices has risen recently, whilst a burgeoning IPO market is broadening the
investment opportunity. Interestingly, Middle Eastern markets remain
underrepresented within investor portfolios, which – in combination with the
region’s economic and structural tailwinds mentioned above – should help
increase demand across the region’s equity markets.
South Africa presents another interesting investment opportunity, primarily
because of its access to a broad range of metals, many of which have a role to
play in the energy transition. High commodity prices have helped improve the
country’s fiscal position, whilst increased demand from China reopening its
economy will also be supportive. Political risk has increased recently and we
remain vigilant to the potential for social unrest, whilst the country
struggles to resolve the problem of electricity supply outages.
Markets across Central and Eastern Europe look set to have a softer economic
landing than originally feared, helped by the significant fall in energy
prices. Opportunities will exist as the region pivots away from Russian gas,
particularly via the support of large EU infrastructure projects, such as the
European Green Deal and NextGen EU funds. The region is also well placed to
take advantage of nearshoring trends via the provision of lower cost skilled
labour, strong regulatory protection, and crucially, a lower delivery time for
the end consumer.
While Emerging European, Middle East and African markets have experienced
challenges, the recent market volatility has also resulted in a potential
opportunity, particularly for long term investments in high quality businesses
with the potential for earnings growth that have seen their share prices
weighed down by broader market moves. Markets continue to digest near term
challenges to economic growth, alongside shifts from disruptive technological
innovation and geopolitical tensions, all of which may cause mispricings from
which the portfolio can benefit. This, however, creates an environment in
which divergence in company performance is likely to increase as companies
adjust and winners emerge stronger This environment offers improving
opportunities for active management to secure outperformance. We intend to
take advantage of this opportunity by adopting, where possible, an
increasingly active approach designed to enhance potential returns for our
shareholders.
Baring Asset Management Limited
Investment Manager
8 June 2023
Investment Portfolio
as at 31 March 2023
Holding Primary country of listing or investment Market value £’000 % of Net assets
1 Al Rajhi Bank Saudi Arabia 4,869 6.78%
2 Naspers Limited South Africa 4,489 6.25%
3 Saudi National Bank Saudi Arabia 3,493 4.87%
4 Saudi Basic Industries Saudi Arabia 3,370 4.70%
5 Qatar National Bank Qatar 2,987 4.16%
6 Firstrand South Africa 2,969 4.14%
7 MTN Group South Africa 2,600 3.62%
8 Saudi Telecom Saudi Arabia 2,477 3.45%
9 PZU Poland 2,214 3.08%
10 Abu Dhabi Commercial Bank United Arab Emirates 2,073 2.89%
11 Aldar Properties United Arab Emirates 2,051 2.86%
12 Koç Holding Türkiye 1,975 2.75%
13 National Bank of Kuwait Kuwait 1,831 2.55%
14 Anglogold Ashanti South Africa 1,787 2.49%
15 Mol Hungarian Oil and Gas Hungary 1,617 2.25%
16 Etihad Etisalat Saudi Arabia 1,590 2.22%
17 National Bank of Greece Greece 1,584 2.21%
18 OTP Bank Hungary 1,458 2.03%
19 Allegro Poland 1,441 2.01%
20 First Abu Dhabi Bank United Arab Emirates 1,374 1.91%
21 Komercni Bank Czechia 1,345 1.87%
22 Saudi Arabian Mining Saudi Arabia 1,307 1.82%
23 Anglo American South Africa 1,290 1.80%
24 Human Soft Kuwait 1,180 1.64%
25 BUPA Arabia Saudi Arabia 1,126 1.57%
26 Nedbank Group South Africa 1,058 1.47%
27 Industries Qatar Qatar 1,025 1.43%
28 Shoprite Holdings South Africa 1,021 1.42%
29 Arabian Internet and Communication Services Saudi Arabia 1,015 1.41%
30 Riyad Bank Saudi Arabia 949 1.32%
31 Anglo American Platinum South Africa 934 1.30%
32 Alpha Services and Holdings Greece 909 1.27%
33 The Cooperative Insurance Saudi Arabia 877 1.22%
34 Emaar Properties United Arab Emirates 872 1.22%
35 PKO Bank Polski Poland 855 1.19%
36 Impala Platinum South Africa 831 1.16%
37 BIM Birlesik Magazalar Türkiye 815 1.14%
38 Capitec South Africa 798 1.11%
39 KGHM Polska Poland 739 1.03%
40 Saudi Tadawul Group Saudi Arabia 623 0.87%
41 Adnoc Dilling Company United Arab Emirates 616 0.86%
42 Inpost Poland 372 0.52%
43 Bid Corporation South Africa 360 0.50%
44 Kuwait Finance House Kuwait 357 0.50%
45 Jumbo Greece 228 0.32%
46 D Market Electronic Services Türkiye 91 0.13%
47 Dr Sulaiman Al Habib Medical Group Saudi Arabia 83 0.12%
48 Gazprom Russia — 0.00%
49 GMK Norilskiy Nikel Russia — 0.00%
50 Magnit Russia — 0.00%
51 Moscow Exchange Russia — 0.00%
52 NK Lukoil Russia — 0.00%
53 Novatek Russia — 0.00%
54 Sberbank Rossi Russia — 0.00%
56 Tcs Group Holding Russia — 0.00%
56 United Company Rusal Russia — 0.00%
57 X5 Retail Group Russia — 0.00%
58 Yandex Russia — 0.00%
Total investments 69,925 97.43%
Net current assets 1,842 2.57%
Net assets 71,767 100.00%
Income Statement
for the six months to 31 March 2023 (unaudited)
Six months to 31 March 2023 Six months to 31 March 2022 Year ended 30 September 2022
Notes Revenue £’000 Capital £’000 Total £’000 Revenue £’000 Capital £’000 Total £’000 Revenue £’000 Capital £’000 Total £’000
(Losses)/gains on investments held at fair value through profit or loss — (2,167) (2,167) — (25,265) (25,265) — (34,402) (34,402)
Foreign exchange gains/losses — (104) (104) — 52 52 — 190 190
Income 1,270 — 1,270 1,829 — 1,829 3,440 — 3,440
Investment management fee (55) (221) (276) (74) (300) (374) (133) (533) (666)
Other expenses (342) — (342) (409) — (409) (790) (1) (791)
Return on ordinary activities before taxation 873 (2,492) (1,619) 1,346 (25,513) (24,167) 2,517 (34,746) (32,229)
Taxation (68) — (68) (382) — (382) (503) — (503)
Return for the period 805 (2,492) (1,687) 964 (25,513) (24,549) 2,014 (34,746) (32,732)
Return per ordinary share 3 6.71p (20.78p) (14.07p) 8.02p (212.24p) (204.22p) 16.77p (289.37p) (272.60p)
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 2023 (unaudited)
Notes At 31 March 2023 £’000 At 31 March 2022 £’000 At 30 September 2022 £’000
Fixed assets
Investments at fair value through profit or loss 6 69,925 83,233 75,059
Current assets
Debtors 976 647 467
Cash and cash equivalents 1,417 1,350 233
2,393 1,997 700
Current liabilities
Creditors: amounts falling due within one year (551) (462) (351
Net current assets 1,842 1,535 349
Net assets 71,767 84,768 349
Capital and reserves
Called-up share capital 4 1,513 1,533 1,525
Capital redemption reserve 3,275 3,255 3,263
Share premium 1,411 1,411 1,411
Capital reserve 63,886 76,707 67,018
Revenue reserve 1,682 1,862 2,191
Total equity 71,767 84,768 75,408
Net asset value per share 5 607.81p 705.60p 632.08p
Number of shares in issue excluding Treasury 11,807,563 12,013,503 11,930,201
The notes below form part of these financial statements.
Statement of Changes in Equity
for the six months to 31 March 2023 (unaudited)
Called-up share capital £’000 Capital redemption reserve £’000 Share premium account £’000 Capital reserve £’000 Revenue reserve £’000 Total £’000
For the six months ended 31 March 2023
Opening balance as at 1 October 2022 1,525 3,263 1,411 67,018 2,191 75,408
Return for the six months to 31 March 2023 — — — (2,492) 805 (1,687)
Contributions by and distributions to Shareholders:
Repurchase of Ordinary Shares (12) 12 — (640) — (640)
Dividends paid — — — — (1,314) (1,314)
Total contributions by and distributions to Shareholders: (12) 12 — (640) (1,314) (1,954)
Balance as at 31 March 2023 1,513 3,275 1,411 63,886 1,682 71,767
Called-up share capital £’000 Capital redemption reserve £’000 Share premium account £’000 Capital reserve £’000 Revenue reserve £’000 Total £’000
For the six months ended 31 March 2022
Opening balance as at 1 October 2021 1,536 3,252 1,411 102,479 2,220 110,898
Return for the six months to 31 March 2022 — — — (25,513) 964 (24,549)
Contributions by and distributions to Shareholders:
Repurchase of Ordinary Shares (3) 3 — (259) (1,322) (259)
Dividends paid — — — — (1,322) (1,322)
Total contributions by and distributions to Shareholders: (3) 3 (259) (1,581)
Balance as at 31 March 2022 1,533 3,255 1,411 76,707 1,862 84,768
Called-up share capital £’000 Capital redemption reserve £’000 Share premium account £’000 Capital reserve £’000 Revenue reserve £’000 Total £’000
For the year ended 30 September 2022
Opening balance as at 1 October 2021 1,536 3,252 1,411 102,479 2,220 110,898
Return for the year — — — 2,014 (32,732)
Contributions by and distributions to Shareholders: — (715) — (715)
Repurchase of Ordinary Shares (11) 11 — — (715)
Dividends paid — — — — (2,043) (2,043)
Total contributions by and distributions to Shareholders: (11) 11 — (715) (2,043) (2,758)
Balance at 30 September 2022 1,525 3,263 1,411 67,018 2,191 75,408
The distributable reserves of the Company at 31 March 2023 were £63,886,000
(31 March 2022: £88,384,000; 30 September 2022: £61,870,000).
All investments are held at fair value through profit or loss. When the
Company revalues the investments still held during the period, any gains or
losses arising are credited/charged to the capital reserve.
The notes below form part of these financial statements.
Notes to the Financial Statements
for the half year ended 31 March 2023 (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 2022.
Basis of Preparation
The Company’s Financial Statements for the six months to 31 March 2023 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
2022 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 2022 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, international uncertainties, political and
economic instability in the UK, 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 2023 has not
been audited or reviewed by the Company’s Auditor. The comparative figures
for the financial year ended 30 September 2022 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 11 pence per Ordinary
Share for the year ended 30 September 2022 on 6 February 2023 to Ordinary
shareholders on the register at 16 December 2022 (ex-dividend 15 December
2022).
An interim dividend of 6 pence per Ordinary Share for the period ended 31
March 2023 has been declared and will be paid on 28 July 2023 to Ordinary
shareholders on the register at the close of business on 23 June 2023
(ex-dividend 22 June 2023).
3. Return per Ordinary Share
The total return per Ordinary Share is based on the return on ordinary
activities after taxation of £(1,687,000) (six months ended 31 March 2022:
£(24,549,000); and year ended 30 September 2022: £(32,732,000)) and on a
weighted average of 11,991,821 Ordinary Shares in issue (excluding Ordinary
Shares held in treasury) during the six months ended 31 March 2023 (six months
ended 31 March 2022: weighted average of 12,020,661 Ordinary Shares in issue;
and year ended 30 September 2022: weighted average of 12,007,165 Ordinary
Shares in issue).
4. Called – up share capital
Number of shares Nominal value £’000
Allotted, issued and fully paid Ordinary Shares of 10p each
Opening balance 15,248,408 1,525
Ordinary Shares bought back for cancellation (122,638) (12)
Total Ordinary Shares in issue 15,125,770 1,513
Number of shares
Treasury shares 3,318,207
Total Ordinary Share capital excluding treasury shares 11,807,53
During the six months ended 31 March 2023 122,638 Ordinary Shares of 10p were
bought back for cancellation for an aggregate consideration of £640,000. The
shares bought back for cancellation consists of shares cancelled and pending
cancellation which are excluded when calculating the NAV on the day of
acquisition.
The Company at 31 March 2023 holds 3,318,207 Ordinary Shares in treasury and
are 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.
The allotted, called up and fully paid shares at 31 March 2023 consisted of
15,125,770 Ordinary Shares of 10p each in issue, and 3,318,207 Ordinary Shares
held in treasury. Therefore the total number of Ordinary Shares with voting
rights and ranking for dividends consisted of 11,807,563 at 31 March 2023.
Since the period end and up to 31 May 2023, the Company has bought back 10,661
shares for cancellation.
5. Net Asset Value per Ordinary Share
The NAV per Ordinary Share is based on net assets of £71,767,000 (31 March
2022: £103,053,000; 30 September 2022: £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 2023: 11,807,563, 31 March 2022:
12,243,905 and year ended 30 September 2022: 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 profit or loss at 31 March 2023 Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000
Equity investments 71,767
Financial assets at fair value through profit or loss at 31 March 2022 Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000
Equity investments 83,233 — — 83,233
Financial assets at fair value through profit or loss at 30 September 2022 Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000
Equity investments 75,059 — — 75,059
The currency exposure is exposure of the currency values of the investee
companies.
Saudi Arabia South Africa United Arab Emirates Poland Qatar Kuwait Hungary Türkiye Greece Czechia United States UK Total
2023 SAR £’000 ZAR £’000 AED £’000 PLN £’000 QAR £’000 KWD £’000 HUF £’000 TRY £’000 EUR £’000 CZK £’000 USD £’000 GBP £’000 £’000
Cash — — — — — — — — — — 1,410 7 1,417
Debtor 170 153 199 — — — — — — — — 277 976
Creditor — — (88) — — — — — — — — (463) (551)
Investments 21,779 18,137 6,986 5,621 4,012 3,368 3,075 2,881 2,721 1,345 — — 69,925
Total 21,949 18,290 7,097 5,621 4,012 3,368 3,075 2,881 2,721 1,522 1,410 (179) 71,767
7. Related Party Disclosures and Transactions with the AIFM
Investment management fees charged in the period were £276,000 (six months to
31 March 2022: £374,000; year ended 30 September 2021: £666,000). At the end
of the half year, there was an investment management fee of £45,000
outstanding (31 March 2021: £102,000;30 September 2022: £46,000).
Fees paid to the Directors for the six months amounted to £77,000 (six months
to 31 March 2022: £77,000; year ended 30 September 2022: £154,500).
Fees paid to the Company’s Directors are disclosed in the Director’s
Remuneration Report within the Company’s Annual Report and Accounts for
2022. At the year end, there were no outstanding fees payable to the Directors
(year ended 30 September 2022: £nil).
Post balance sheet event subsequent to 31 March 2023, a further 10,661
Ordinary shares have been bought back for cancellation with a nominal value of
£1,066.10 at a total cost of £53,688.
Interim Management Report
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 2023.
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 2022. 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 to 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 2023 is shown in
the Income Statement above. There have been no other related party
transactions during the six months ended 31 March 2023. 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 2023
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 8 June 2023
and the above responsibility statement 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 comparator 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, Czechia, Egypt, Greece, Kuwait, Hungary,
Poland, Qatar, 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 509.00p (2021: 605.00p) from the NAV per share of 607.81p (2021:
705.60p) and is usually expressed as a percentage of the NAV per share, 16.3%
(2021: 14.3%). 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 = £69,925,000 / B = £71,767,000) 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 = £69,925,000) + (C = Cash £1,417,000 + Debtor
£976,000) / B = £72,318,000) 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 expenses for the period (excluding
finance costs and certain non-recurring items) of £618,000 consisting of
investment management fees of £276,000 and other expenses of £342,000 less
non-recurring expenses of £nil are annualised and expressed as a percentage
of the average net assets of £75,824,000 during the period as disclosed to
the London Stock Exchange. The OCR for the period to 31 March is 1.6%.
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 2023
Closing NAV per share (p) 607.81
Add back total dividends paid in the six months to 31 March 2023 (p) 11.00
Benefits from reinvesting dividend (p) 0.00
Adjusted closing NAV (p) 618.81
Opening NAV per share (p) 632.08
NAV total return (%) -2.10%
Share price total return is calculated by assuming dividends paid
out are reinvested into new shares on the ex-dividend date.
31 March 2023
Closing share price (p) 509.00
Add back total dividends paid in the six months to 31 March 2023 (p) 11.00
Benefits from reinvesting dividend (p) 0.60
Adjusted closing share price (p) 520.60
Opening share price (p) 548.00
Share price total return (%) -5.00%
Directors and Officers
Directors
Frances Daley, Chairman
Vivien Gould
Christopher Granville
Calum Thomson
Nadya Wells
Registered Office
6th Floor
65 Gresham Street
London EC2V 7NQ
Company Secretary
Link Company Matters Limited
6th Floor
65 Gresham Street
London EC2V 7NQ
Company Number
04560726
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
Broadwalk House
Southernhay West
Exeter EX1 1TS
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
Shareholder Information
Company Number
04560726
ISIN
GB0032273343
LEI
213800HLE2UOSVAP2Y69
SEDOL
3227334
Share Dealing
Shares can be traded through your usual stockbroker.
Share Register Enquiries
The register for the Ordinary Shares is maintained by Link Group. In the event
of queries regarding your holding, please contact the Registrar on 0371 664
0300 or on +44 (0)371 664 0300, UK Calls are charged at the standard
geographic rate and will vary by provider. Calls outside the United Kingdom
will be charged at the applicable international rate. Lines are open between
09:00 - 17:30, Monday to Friday excluding public holidays in England and
Wales. You can also contact the registrar by email at
enquiries@linkgroup.co.uk.
Changes of name and/or address must be notified in writing to the Registrar:
Link Group, 10th Floor, Central Square, 29 Wellington Street, Leeds LS1 4DL.
Electronic Communications from the Company
Shareholders now have the opportunity to be notified by email when the
Company’s Annual Report and other formal communications are available on the
Company’s website, instead of receiving printed copies by post. This has
environmental benefits in the reduction of paper, printing, energy and water
usage, as well as reducing costs to the Company. If you have not already
elected to receive electronic communications from the Company and wish to do
so, please contact the Registrar using the details shown above. Please have
your investor code to hand.
If you hold shares via a nominee, it is the responsibility of the nominee to
provide you with copies of the Annual Report and any other documentation.
NAV Information
The Company releases its NAV per share daily to the LSE.
Share Price
The Company’s shares are listed on the LSE.
Annual and Half Year Reports
Copies of the Annual and Half Year Reports are available on the Company’s
website, www.bemoplc.com, or from the Secretary on telephone number +44 (0)
333 300 1950.
Financial Calendar
Date*
Announcement of interim results June 2023
Interim dividend July 2023
Announcement of final results December 2023
Annual General Meeting January 2024
Payment of final dividend February 2024
* These dates are provisional and subject to change.
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
(http://www.cmdportal.com/pages/DataWiki/lei.aspx?companyid=9ADAFAE1FADC3B3F)
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