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Baring Emerging Europe PLC   -  BEE   

Annual Financial Report

Released 07:03 23-Nov-2018

Annual Financial Report

Baring Emerging Europe PLC


Annual Report & Audited Financial Statements for the year ended 30 September 2018

The Directors present the Annual Financial Report of Baring Emerging Europe plc (the “Company”) for the year ended 30 September 2018. The full Annual Report and Accounts can be accessed via the Company’s website,, or by contacting the Company Secretary on 01392 477571.


Baring Emerging Europe PLC (the “Company” or the “Fund”) was incorporated on 11 October 2002. The Company is an investment trust quoted on the London Stock Exchange under the ticker code BEE. As an investment trust, the Company appoints an Alternative Investment Fund Manager, Baring Fund Managers Limited (“the AIFM”) to manage its investments and other specialised third-party service providers to establish and maintain an investment policy in line with the investment objective.

The AIFM has delegated responsibility of the investment management of the portfolio to Baring Asset Management Limited (the “Investment Manager”).


The AIFM receives an investment management fee of 0.8% of the Net Asset Value (“NAV”) of the Company.


The investment objective is to achieve long-term capital growth, principally through investment in securities listed on or traded on an Emerging European securities market or in securities of companies listed or traded elsewhere, whose revenues and/or profits are, or are expected to be, derived from activities in Emerging Europe.


The Company’s full investment policy is set out below and contains information on the policies which the Company follows relating to asset allocation, risk diversification and gearing, and includes maximum exposures, where relevant.


The Company’s comparator performance benchmark is a benchmark based on the MSCI Emerging Europe 10/40 Index.


Financial Highlights as at 30 September 2018

2018 2017
Net asset value per ordinary share (“NAV”) 824.76p 877.99p
Revenue return per ordinary share 24.77p 22.31p
Dividends per ordinary share 34.0p 32.0p
Share price 714.00p 775.00p
Ongoing charges (based on average NAV) 1.50% 1.42%
Gearing Ratio – Gross basis 106% 107%
Gearing Ratio – Commitment basis 109% 109%

Performance (total return basis)

2018 2017
Net asset value per ordinary share -2.57% +26.9%
Share price -3.61% +27.6%
Benchmark* +1.62% +21.4%

*The Comparator Benchmark Index is the MSCI Emerging Europe 10/40 Index.

Source: MSCI


2018 2017
Discount to net asset value per share* 13.40% 11.72%
Average discount to net asset value per share 12.64% 13.40%

*Based on the net asset value including income.

Return Per Ordinary Share

30 September 2018 30 September 2018 30 September 2018 30 September 2017 30 September 2017 30 September 2017
Revenue Capital Total Revenue Capital Total
Return per ordinary share 24.77p (51.98)p (27.21)p 22.31p 168.65p 190.96p

Revenue return (earnings) per ordinary share is based on the return for the year of £3,388,000 (2017: £3,294,000). Capital return per ordinary share is based on net capital loss for the financial year of £(7,109,000) (2017: net capital gains of £24,897,000). These calculations are based on the weighted average of 13,677,229 (2017: 14,762,470) ordinary shares in issue during the year.

At 30 September 2018, there were 13,135,044 ordinary shares of 10 pence each in issue (2017: 14,028,979) which excludes 3,318,207 ordinary shares held in treasury (2017: 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 year. All shares repurchased during the year were cancelled.

Chairman’s Statement

To borrow from a footballing cliché, in the year in which Russia, our most significant investee country in the Fund, hosted the World Cup, 2017/18 was a year of two halves. We reported encouraging results in the first the half of the year, despite growing geopolitical tensions arising from the Skripal affair in the UK, followed shortly after the period end by an alleged chemical attack in Syria.

Subsequently investor confidence was severely shaken following the imposition of new US sanctions on certain individuals and companies in Russia. The stand out performance of Russian energy stocks mitigated these effects and Russia ended the period as one of the strongest performing emerging market countries globally. Whilst it is hard not to be side-tracked by geopolitical factors the Board and the Investment Manager continue to believe in Russia’s investment potential, given increasing earnings and dividend flow from undervalued stocks.

The Summer brought economic turbulence in Turkey, another important investee country, which led to the devaluation of the Lira by 40.8% and sparked a currency and stock market slide in other emerging markets. Meanwhile, Polish equities, and those from other Central European countries, provided much needed stability.


In sterling terms, the NAV per share on a total return basis fell by 2.57%, which compares with an increase of 1.62% in the Company’s benchmark, the MSCI Emerging Europe 10/40 Index. This was disappointing and reflects a huge gulf in performance between “sanction proofed” energy stocks and other domestically oriented Russian companies over the period, which are perceived as more at risk. Whilst we have benefited considerably from our energy exposure, we are underweight relative to the benchmark since we see substantially more performance potential in domestic growth companies. Whilst this has hurt us in the short term the Board and the Investment Manager still believe it to be the right long-term strategy.

Operating in a volatile market we look to take a longer-term perspective as this is a much better basis on which to measure the performance of the Investment Manager. I am very pleased to be able to report that over three years, the NAV has risen by 20.4%, compared to 16.2% for the benchmark, and over five years, the NAV has returned 3.1% compared with 0.9% for the benchmark(Annualised).

Beyond the benchmark, we also keep an eye on where we sit in the peer group, conscious that you as an investor have a choice of where and how to invest. Against competitor funds, defined by the Morningstar Emerging Europe Universe, your Company ranks 95 out of 259 over one year, 22 out of 247 over three years and 43 out of 229 over five years.

These are choppy times and we appreciate the calmness and logic applied to a robust investment process by the investment team at the Investment Manager, led by Matthias Siller, who has been your investment manager for ten years. On behalf of the Board and shareholders, I would like to thank him and his colleagues, Maria Szczesna and Adnan El-Araby, for their contributions to the success of the Company.

Discount Management

Our average discount for the year has reduced to 12.64% (the previous year was 13.40%). During the year, we bought back and cancelled 893,935 shares at an average price of £7.45, equivalent to a discount on average of 12.55%. This has added approximately 7 pence per share to NAV, accounting for just under 1% of the total return to shareholders.

We continue to work to contain the discount by means of:

• share buy backs;

• working to improve shareholder communication both by meetings with actual and potential investors and by expanding the Company’s media presence via an improved website and engaging with the press to boost the Company’s profile; and

• a greater emphasis on dividends, introducing semi-annual distributions to shareholders. This has been in recognition of the improving corporate governance standards within Emerging Europe, exhibited in the rising dividend pay-out ratios of the companies in which we invest.

You will also recall that at the end of 2016 we announced that a tender for up to 25% of the equity would be triggered at the end of the 2020 fiscal year, four years after the last point at which a tender was triggered, either if the average discount was higher than 12% during the entire period or performance does not exceed 1% of the benchmark annually over that period.

Taken together, the Board hopes that these measures will constrain discount volatility, reduce the level of the discount and make the shares more attractive to a broader range of investors.


As you know, the Board announced with the tender proposals that it intended to pay dividends which might not be fully covered by the income account. At the half-year stage, the Company paid 14 pence per share. At the final stage, we are declaring a dividend of 20 pence per share. This amounts to a total for the year of 34 pence, equivalent to a yield on the current share price of 5% and up two pence on the 32 pence paid in 2017. This payment is not covered in total by the income account, which produced a net revenue per share of 24.77 pence per share (2017: 22.31 pence).


During the past year, the Company has had a borrowing facility of up to $17 million with State Street Bank and Trust Company. This was renewed on 9 April 2018 but at a reduced borrowing facility of up to $12 million (reduction of $5 million) as it had not been fully utilised in the past. The facility has been partly used throughout the period and at the year-end was fully deployed. Given low borrowing costs, the borrowing contributed positively to overall returns.

Company Secretary

We announced the retirement of our previous Company Secretary last year and I am pleased to say that the handover of this role to Link Company Matters Limited went smoothly.


Steve Bates’ stepping down as Chairman was a big loss to the Company and we shall miss his wise counsel. I realise that I have very big shoes to fill and am grateful to my colleagues for the help they have given me in settling into the role of Chairman.

The Nomination Committee has given considerable thought to Board succession in 2018. Ivo Coulson, who has been on the Board since 2010 has resigned effective 30 November 2018, and Jonathan Woollett, who has been on the Board since 2008, has decided not to seek re-election at the Annual General Meeting (“AGM”) in January 2019 and will retire from the Board after the AGM. Both Ivo and Jonathan have contributed hugely to the Company during their tenure. We will miss Ivo’s stock market and wealth management knowledge as well as Jonathan’s insight into Eastern European markets and his tenacity and determination in relation to our marketing efforts. The Nomination Committee have led the process to recruit their successors and appointed an independent external agency, Cornforth Consulting, to assist with this. The Board have subsequently identified Christopher Granville as a Non-Executive Director who will be appointed with effect from 30 November 2018. Christopher’s bio can be found in the Annual Report and Accounts. The Nomination Committee continues to consider additional candidates.

Shareholder Communication

This is your Company and your Board is here to serve your interests. One of our key responsibilities is to communicate effectively with you, and the Annual Report is an important part of that. I hope you find it informative, but please let me know if you feel differently. I and my colleagues are ready to address any concerns you have at any point, so please email the Company at with any questions you would like us to answer. You are also all invited to attend the AGM, to be held at the new offices (20 Old Bailey, London EC4M 7BF) of the Investment Manager on Thursday, 10 January 2019 at 2.30pm, at which Matthias will give his customary presentation on the markets and the outlook for the year ahead. Details can be found below.

You will find enclosed with this Annual Report a letter asking if you would prefer to receive future annual reports and other communications from the Company in electronic form rather than in printed form.

To further reduce the environmental impact, we will be removing paper proxies from our voting process for future meetings in favour of a quicker and more secure method of voting online via our registrars’ website. You can however request a paper proxy if you wish from our registrars at the appropriate time.


Matthias refers in his Investment Manager’s Report to the fact that Emerging Europe provides a highly uncorrelated investment universe which is prone to examples of both stellar performance and pronounced weakness from different parts of the region within one reporting period. For this reason, it is hard to generalise about the region without dividing it up into its component parts, noting the importance of both asset allocation and stock selection to performance:

• Whilst one should not underestimate the effects of US sanctions, particularly if these are tightened in the future, Russian economic progress continues, which should benefit domestically focused companies. The fall in the Ruble helps exporters, especially in the energy sector where they benefit from lower Ruble costs whilst reporting income in US Dollars. With valuations low despite rising earnings and dividends, it is clear, that the market currently prices in significant further deterioration in the overall political situation with a knock-on effect on the Russian economy. Whether this is justified remains to be seen; we continue to be overweight in this region.

• We are cautious about Turkey and remain underweight. Nevertheless, current valuation levels are very attractive and following government monetary policy measures to stabilise the Lira we will look to take advantage of selective opportunities.

• We believe Poland and the other economies in the region will provide ballast to the portfolio with potential upside in terms of economic growth.

We are used to geopolitical concerns affecting performance in Emerging Europe but, as I write this, global markets are also showing volatility over a lengthening list of investor worries including the possibility of a US trade war with China, Italy’s budget wrangles and fears of a disorderly Brexit. Inevitably our investment universe will be drawn into this, so the important thing is to focus on the investment fundamentals over the medium term and try to look beyond the noise from short-term elements we cannot control.

Frances Daley


22 November 2018

Our Strategy


The Company is a public limited company with shares quoted on the London Stock Exchange. As an investor you become a shareholder in the Company.

Becoming a shareholder of the Company provides access to the skill and expertise of the established investment team’s active management of the stock market investments, whilst providing a regular income.

Investment Objective

The investment objective is to achieve long-term capital growth, principally through investment in securities listed on or traded on an Emerging European securities market or in securities of companies listed or traded elsewhere, whose revenues and/or profits are, or are expected to be, derived from activities in Emerging Europe.

Investment Policy

The policy of the Directors is that, in normal market conditions, the portfolio of the Company should consist primarily of diversified securities listed or traded on Emerging European securities markets (including over the counter markets). Equity securities for this purpose include equity-related instruments such as preference shares, convertible securities, options, warrants and other rights to subscribe for or acquire, or relating to, equity securities. The Company may also invest in debt instruments such as bonds, bills, notes, certificates of deposit and other debt instruments issued by private and public sector entities in Emerging Europe.

The Company may from time to time invest in unquoted securities, but the amount of such investment is not expected to be material. Furthermore the Board has agreed that the maximum exposure to unquoted securities should be restricted to 5% of the Company’s gross assets.

For the purposes of this investment policy the Board has defined Emerging Europe as the successor countries of the former Soviet Union, Poland, Hungary, the Czechia Republic, Slovakia, Turkey, the States of former Yugoslavia, Romania, Bulgaria, Albania and Greece. There is no restriction on the proportion that may be invested in these countries.

In addition, the Board has agreed that up to 15% of the gross assets may be invested in other countries* provided that any investments made are companies listed on a regulated stock exchange.

The Board has agreed that the maximum value of any one investment should not exceed 12% of the Company’s gross assets save with the prior written consent of the Board. Where excess occurs due to market movement the Investment Manager will notify the Board of this and will reduce the holding to below 12% within six months.

In addition to the above restriction on investment in a single company, the Board seeks to achieve a spread of risk in the portfolio through monitoring the country and sector weightings of the portfolio. There will be a minimum of 30 stocks in the portfolio.

*The Board currently intends that the “other countries” for the purposes of the Investment Policy will comprise Bahrain, Egypt, Jordan, Kenya, Kuwait, Lebanon, Mauritius, Morocco, Nigeria, Oman, Qatar, Saudi Arabia, South Africa, Tunisia and UAE.

Borrowings and Gearing

The Company’s Articles of Association (“Articles”) provide that the Company may borrow an amount equal to its share capital and reserves. At 30 September 2018, the only loan facility in place was a US$12 million loan facility with State Street Bank and Trust Company which can be used as a source of gearing. In order to provide a mechanism to gear the portfolio the Board has authorised the AIFM to invest in long only derivatives in Polish, Russian and Turkish index futures where feasible. The AIFM 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.

In addition, Emerging European exposure may be obtained by indirect means. Investments may, for example, be made in securities of companies listed on securities markets outside Emerging Europe that derive, or are expected by the Directors to derive, the majority of their revenues and/or profits and/or growth from activities in Emerging Europe.

The Company may also invest in other funds in order to gain exposure to Emerging Europe where, for example, such funds afford one of the few practicable means of 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 15% of its gross assets in other UK listed investment companies (including investment trusts).

The Company renewed, at a reduced amount, its revolving credit facility during the year. The principal covenant that applies to the loan facility is that NAV must not decline by more than 20% during any one month period.

Discount control mechanism

In 2013, the Board set out a discount management target of maintaining the “Discount to NAV” for any given financial year at an average of under 12%, failing which a tender would be offered to shareholders.

The Board decided that it was in the Company’s interest that it takes certain steps to address the long-term viability of the Company’s approach to discount management and has approved the implementation of the following measures.

1. With effect from 1 June 2017, the introduction of a policy to offer shareholders a tender of up to 25% of the shares (at the minimum discount at which no dilution will occur) in the event that:

(i) the average daily Discount to NAV (‘cum-income’) exceeds 12% as calculated with reference to the trading of the shares over the four year period immediately preceding each relevant publication date of the Company’s financial results (the “New Calculation Period”), provided that the first New Calculation Period will be the period between 1 October 2016 and 30 September 2020 (Discount to NAV, for discount management purposes, was previously calculated with reference to the 365 day period prior to the publication of the Company’s results for the financial year); or

(ii) the performance of the Company’s portfolio on a total return basis does not exceed its benchmark (being the MSCI Emerging Europe 10/40 Index) by an average of 100 basis points per annum over the New Calculation Period.

2. An increase in the Company’s focus on a dividend yield by paying dividends from capital where considered appropriate by the Board. The Board anticipates paying out up to 1% per annum of NAV from capital.

Principal Risks and Uncertainties

The Audit Committee regularly (on a six monthly basis) reviews the risks facing the Company by maintaining a detailed record of the identified risks in the form of a Risk Matrix which assesses the likelihood of such risks occurring and the severity of the potential impact of such risks. This enables the Board to take action and develop strategies in order to mitigate the effect of such risks to the extent possible. An analysis of financial risks can be found in note 18 to the financial statements below.

A robust assessment of the principal risks has been carried out, including a review of those risks which would threaten the Company’s business model, future performance, solvency or liquidity.

Information about the Company’s internal control and risk management procedures can be found in the Audit Committee Report below.

The Board has identified the following as being the principal risks and uncertainties facing the Company:

Risk Mitigation
1. Adverse market conditions - Emerging markets subject to volatile geo-political and socio economic movements as well as possible imposition of selective sanctions. It can be argued that the most effective method of protecting the Company from the effects of country specific or individual stock risks is to hold a geographically diversified portfolio spread across a diversified portfolio of stocks. The Company holds 43 stocks in 19 countries and the AIFM has the ability, where necessary, to diversify the portfolio into other regions. The AIFM has a clear investment strategy as set out below. Whilst recognising there will be periods when this strategy underperforms the benchmark and peer group, the Board monitors performance at each Board meeting and reviews the investment process throughout the year. The Investment Manager’s own internal compliance functions provide robust checks that the Investment Manager complies with the investment mandate.
2. The use of gearing could cause the magnification of both gains and losses in the asset value of the Company. The Board and the Investment Manager recognise that whilst gearing should enhance investment performance over the long term, it is likely to increase any decline in asset value in the short term. Total return figures based on the basis of debt being marked to estimated market value are likely to be more volatile. The Board manages these risks by setting the gearing limits at prudent levels and the Investment Manager has historically been reluctant to utilise the full facilities available.
3. The Company makes investments in various countries and the portfolio and Company are therefore exposed to fluctuations in currency exchange rates. The Board recognises that foreign currency risk is an integral part of a portfolio which invests across a range of countries and in particular in emerging market economies. The risk is managed by the Investment Manager by diversifying the portfolio across a number of countries and with countries subject to different economic pressures. The Board regularly reviews the currency exposure of the portfolio with the Investment Manager.
4. The Company outsources all of its operations to third parties and is therefore reliant on those third parties maintaining robust controls to prevent the Company suffering financial loss or reputation as damage. The Board via the Audit Committee, review the annual controls reports provided by the service providers, including the Investment Manager, Administrator, Custodian and Depositary and assesses whether relevant controls have been operating effectively throughout the period.
5. The portfolio includes investments held in a number of jurisdictions and there is a risk of a loss of assets. The Investment Manager and Administrator have systems in place for executing and settling transactions and for ensuring assets are safe. In addition, the Company uses an internationally recognised Custodian and sub Custodians and receives regular reports of assets held, which are reconciled by the Administrator. The operation of the Custodian is overseen and reviewed by the Depositary who reports regularly to the Board on the results of its reviews.
6. The shares of the Company are traded freely and are therefore subject to the influences of supply and demand and the perception of investors to the markets the Company invests in. The share price is therefore subject to fluctuations and like all Investment Trusts may trade at a discount to the NAV. The Board seeks to manage the widening of the discount by undertaking measured buybacks of the Company’s shares. The Company and Investment Manager also have a comprehensive investor and market relationship programme in place which seeks to increase demand for the companies shares.
The Board has committed to an increased focus on dividend yield to further enhance the appeal of investing in the Company to increase demand for shares.
In addition, as set out above, the Company has offered investors the ability to realise their investments at NAV should the Company not meet targets relating to average discount or performance over a three year period.

Investment Manager Arrangements

Management Arrangements and Fees

Baring Fund Managers Limited acts as the Alternative Investment Fund Manager (“AIFM”) of the Company under an agreement terminable by either party giving not less than six months written notice. Under this agreement the AIFM receives a fee which is calculated monthly and payable at an annual rate of 0.8% of the net asset value of the Company, together with any applicable value added tax thereon and any out of pocket expenses incurred by the AIFM.

There is no performance fee for the AIFM.

The AIFM has delegated the investment management of the portfolio to Baring Asset Management Limited (the “Investment Manager”).

Details of the Investment Manager

The Investment Manager has a team of fund managers who are responsible for the management of the investment portfolio. Matthias Siller, Head of Europe, Middle East and Africa (“EMEA”) at the Investment Manager, is the lead manager and Adnan El-Araby and Maria Szczesna as co-backup managers. Matthias is supported by the wider EMEA Equity Team, which comprises seven experienced investment professionals all of whom have research responsibilities as well as the broader emerging equity professionals based in London, Hong Kong and Taiwan, utilizing their diverse local knowledge and experience. The team also draws further support from the rest of the broader equity platform at the Investment Manager, especially the knowledge, expertise and coverage of our three global sector teams: Healthcare, Resources and Technology.

Matthias joined the Investment Manager in 2006 and was appointed Head of EMEA Equities Team in 2016. Matthias is also lead manager for the Company. He began his career in fund management at Raiffeisen Zentralbank Austria in 1997 as a Market Maker/Proprietary Trader in Central & Eastern European Equities and Derivatives. He joined Bawag – PSK Invest as an EMEA equity portfolio manager in 2001 and moved to Raiffeisen Capital Management in 2003, where he was a portfolio manager for Central & Eastern European Equities. Matthias has a Masters degree from Vienna University in Economics & Business Administration. Matthias was awarded the CFA designation in 2006 and speaks fluent German.

Maria is an investment manager in the EMEA & Global Frontier Markets Equity Team. She is responsible for Financials and Consumer Staples in the region. Maria joined the Investment Manager in 2006 from the Polish Embassy in London, where she worked for three years as an economist. Prior to this, Maria worked in corporate finance at Ernst & Young and BRE Corporate Finance (part of Commerzbank Group) in Warsaw. She holds an MA in Economics from the Warsaw School of Economics and was awarded the CFA designation in 2008. Maria is fluent in Polish.

Adnan is also an investment manager in the EMEA & Global Frontier Markets Equity Team. He is responsible for Real Estate, Pharmaceuticals, Media and Infrastructure in the EMEA region. Adnan joined Barings in 2010 from Legg Mason Capital Management, where he was also an investment analyst. He holds a B.Comm degree from St. Mary’s university, Canada and was awarded the CFA designation in 2006. Adnan is fluent in Arabic.

Report of the Investment Manager

for the year ended 30 September 2018

Investment Philosophy

• We are an active manager with aims to capitalise on opportunities that arise when securities are mispriced.

• We identify investment opportunities through our differentiated and innovative investment process, at the heart of which is fundamental, bottom-up analysis.

• We favour unrecognised growth companies with well-established or improving business franchises, balance sheets and management.

• Our research process integrates macro and dynamic Environmental, Social and Governance (“ESG”) perspectives in company analysis and valuations.

• Our five year research horizon allows our deep pool of investment professionals to take a strategic view on a company’s growth outlook.

• Our experienced team of portfolio managers builds high conviction portfolios, which are tailored to client specifications, and target superior risk-adjusted returns over the long term.

Value Added

• Highly experienced and stable investment team.

• Strict adherence to our Growth at Reasonable Price (“GARP”) investment philosophy and commitment to fundamental, bottom-up research.

• We use a consistent approach globally to score the companies that we research, incorporating ESG factors in addition to macro considerations.

• Our investment style aims to provide long term risk adjusted returns with performance driven by bottom-up fundamentals.


“We view Emerging Europe as one of the most attractively valued investment geographies globally.”

“There are significant growth prospects for companies with access to these expanding markets, which now have a combined population of over 300 million people. Export opportunities are underpinned by competitive advantages such as natural resource availability and pools of highly skilled and low cost labor, while rising income levels support domestic consumption and provide substantial investment potential.”


We believe that equity markets are inefficient and that consistently applied fundamental bottom-up company analysis can identify mispriced opportunities. Fundamental research is the cornerstone of our approach in which we identify mispriced investment opportunities which possess Growth at a Reasonable Price (“GARP”) characteristics. 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.

To each company we research, we apply a consistent, analytical and qualitative framework applied through our Company Scorecard (see below) which focuses on three factors: Growth, Valuation and Quality. By applying a consistent research approach we can evaluate companies and determine relative attractiveness across countries and sectors within the region.

Consistent Company Scorecard

The company scorecard creates a consistent research approach and helps managers evaluate companies and determine relative attractiveness across geographies and sectors

Unrecognised growth, typically identified on a five year horizon where market inefficiency is more pronounced Price targets achieved by discounting long term earnings forecasts using an appropriate cost of equity and a target PE Qualitative assessment provides a level of certainty as our research horizon is five years
• Historical – last three-years’ net earnings growth • Our Valuation Method – five years discounted by COE to set price target and determine upside • Franchise – competitive advantage, efficiency, stability
• Near-term – next 12-months’ net earnings growth • Earnings based – next 12 month forward P/E multiple • Management – competence, commitment and alignment with shareholder Interest
• Long-term – next five-years’ net earnings growth • Return based valuation – P/B relative to ROE and P/B relative to cost of capital • Balance sheet – cash flow, working capital, capital structure analysis


Each of the above nine factors are scored 1-5 and equally weighted


Company fundamentals including proprietary financial forecasts
Sector / industry / macro trends and outlook
ESG considerations

Each company is rated on a scale of 1-5, with a 1 score being the most favourable and a 5 score, the least attractive.

Our investment process while focused on company analysis, does also factor in the effects of macro influences such as the economic outlook and political change as well as Environmental, Social and Governance (“ESG”) issues. We integrate these considerations through our unique Cost of Equity (“COE”) when we value companies.

Cost of Equity Used in Equity Valuation

A company’s equity value is discounted by a company-specific cost of equity to determine a price target and upside from current market prices

Risk inherent to the entire market Risk that is particular to a company
Cost of Equity (Discount Rate) = Risk Free Rate + Equity Risk Premium + Stock Specific Risk + ESG
Reflecting: Reflecting: Reflecting: Reflecting:
• Country economic factors • Economic classification • Sector risk • Our assessment of ESG
• Political risk • Regulatory risk Can add ( -1% to 2% to COE)
• Social risk • Business model cyclicality
• Credit risk • Earnings volatility and visibility
• Balance sheet structure
Can add (0 to 2% to COE)


Allows price target comparisons across sectors and geographies

We consider ESG factors among some of the most important variables that can impact an investment’s risks and returns over time. As part of our overall commitment to delivering attractive returns, we endeavour to construct portfolios that meet our clients’ risk-return requirements and this includes incorporating ESG criteria into our investment process. At the Investment Manager, ESG considerations influence both the company score we allocate to the companies we research and the cost of equity in order to capture the specific risks and inherent attractions highlighted by the company’s own ESG approach. As part of our initial and ongoing analysis, our investment professionals meet with management teams, visit operational facilities and analyse industry competitors to better understand potential risks, including ESG-related issues. This analysis assists in the formation of our assessments where we look for signs of improvement or deterioration, relying on our own research, rather than taking static recommendations from “ESG Specialists”. Our assessment is based on the evaluation of nine key topics in order to arrive at a view on the company with the rating based on how the company is refining their focus on these areas.

Incorporating ESG, a Dynamic Evaluation

A dynamic assessment of ESG is integrated in all aspects of our fundamental research process

Our ESG Approach ESG considerations influence both the equity valuation and company scorecard Factors Considered Nine Key Topics
In-House Evaluation We make our own assessments informed by in-house knowledge and research, aided by external data Franchise –
Sustainability of the Business Model
• Employee Satisfaction
Dynamic Assessment Signs of improving or deteriorating ESG factors – rather than “static assessments” – drive our analysis • Resource Intensity
• Traceability/ Security in Supply Chain
Management – Corporate Governance Credibility • Effectiveness of Supervisory/ Management Boards
• Credibility of Auditing Arrangements
• Transparency & Accountability of Management
Hidden Risks – On Balance Sheet • Environmental Footprint
• Societal Impact of Products/Services
• Business Ethics


ESG factors are rated based on how the company is refining their focus on the above factors, and given a score which impacts Cost of Equity

We take the ideas generated through our research processes to construct a portfolio which targets superior risk-adjusted returns. Risk management is central to our investment process and we apply a multi-layered approach to fully understand the risks associated with each position in the portfolio. Evaluations are made across a number of risk metrics including volatility, liquidity, concentration and macro factor sensitivity with proprietary inputs from our quant and investment risk teams to assist in the construction and monitoring of the portfolio. This ensures that the companies we invest are the key drivers of risk and return. Once invested, our investment professionals continue to monitor each company to ensure that our conviction remains intact and that an investment’s risk and return profile remains attractive relative to other opportunities available in the market. It is through this fundamental analysis we seek to gain a comprehensive understanding of the factors that influence the sustainability of the investments we make.

Investment Performance

In 2018, Emerging European markets saw the return of volatility, which increased substantially as political and macroeconomic factors weighed on investor confidence. Emerging European currencies, stock markets and sectors have behaved in such a diverse manner, that they have caused a highly uncorrelated investment universe, which exhibited examples of stellar performance and pronounced weakness. Whilst your portfolio did benefit from being broadly diversified, the Company’s NAV declined by 2.6% (including dividends), underperforming the MSCI Emerging Europe 10/40 Index benchmark by 1.6%.

Within Russia, the portfolio’s performance detracted from relative returns driven by stock selection. Technology stocks year-to-date have been some of the strongest performers globally, yet some of our Russian technology investments suffered, especially domestic orientated companies, as oil and gas significantly outperformed during the period. Under these conditions our investments in Mail.Ru, the Russian internet service and social media service provider and internet technology company Yandex suffered. Notably, the portfolio did benefit from its investment in Eastern European technology software developer EPAM, with the company delivering strong results and a healthy demand pipeline for its solutions.

The potential for further sanctions in Russia kept the Ruble weak despite the higher oil price and placed pressure on companies within financials. The Russian retail sector has also continued to experience pressure following tougher price competition. Here, our underweight position relative to the benchmark in supermarket retailer Magnit was a notable contributor to relative return as the company reported weak results while our investment in competitor X5, our preferred investment detracted.

Whilst the portfolio performance was dragged down relative to the benchmark by the underweight positions in specific energy stocks, a number of other stock selections in the sector delivered significant returns, notably, our conviction holdings Novatek and Lukoil. Novatek ended the period as the top performing energy company, continuing to benefit from strong demand for liquefied natural gas and an increasing profitability profile from its projects in the Yamal peninsula. The energy sector sits at the forefront of earnings generation in Russia, which alongside improvements in governance and rising dividend payments, have in our opinion led to reduced risk perceptions.

On 6 April 2018, the US Office of Foreign Assets Control (“OFAC”) announced sanctions against seven Russian individuals and companies they own. One of the specific sanctions was directed at the owner of the aluminium producer EN+ Group (“EN+”), where the portfolio owns global depositary receipts. As a result of these sanctions, the share price of EN+ has declined and the market has no liquidity whilst the company remains a sanctioned entity. A prudent valuation marking the investment to zero in the portfolio has been applied by the Board.

Turkish financial markets have transitioned through a period of extreme stress this Summer as an indecisive monetary framework combined with political interference and rising inflationary pressures undermined the Turkish Lira’s credibility, pushing the country’s financial system to the limit. Here, the portfolio’s overweight position in the financial sector was a notable detractor, against the benchmark, with our investments in Turkish banks Garanti and Yapi ve Kredi negatively impacted by local market weakness. Despite the recent events, we believe that there remain considerable investment opportunities in the Turkish market, especially in companies that have pricing power and strong balance sheets, which now trade at attractive valuations; providing an attractive entry point for investors who are willing to take a medium term view. One such example is mobile telecoms market leader Turkcell, which was a notable positive contributor to returns. The company operates with an impressive 50% market share and has delivered strong top line growth.

Our investment in the Polish shoe company CCC underperformed following extreme weather on the continent creating a lack of demand for its seasonal product range. Polish copper miner KGHM also suffered weakness, this followed the surprise dismissal of its chief executive officer and deputy. In Greece, the National Bank of Greece was also weak, moving in line with the wider market which continues to suffer from volatility.


As mentioned above, 2018 saw a renaissance of Russian energy stocks. With an annual average share price appreciation of approximately 50% (in USD) this sector stood out, supported by a higher oil price and a weaker Ruble. The sector dominated the performance ranking of International and Global Emerging Markets. More domestically orientated stocks fared worse as Russian consumer confidence fell and international sanctions continued to impact investors’ risk perception as well. Overall the market ended the period relatively flat, this was a respectable performance which saw Russia end the period as one of the strongest performing emerging market countries globally. As a result, the portfolio continues to be overweight in Russian stocks.


In an overall volatile Emerging European stock markets environment, it was Polish equities that provided much needed stability. In the banking sector the acquisitive large caps Santander Polska and state owned PKO PB performed solidly, gaining 7% and 20%, respectively. In our opinion, the market’s judgement is well supported by potential cost synergies such as digitalisation and leaner branch networks. Even though consumer confidence has increased, supported by high-single-digit growth in disposable income, Consumer stocks found it difficult to live up to the market’s high earnings expectations as increased competition kept margins (and inflation) in check.


Turkey was the worst performing stock market globally as the country’s economy came to an abrupt halt amidst a currency crisis, triggered by weak economic data and a deterioration of the bilateral relationship with the US. However, the Turkish index remains largely unchanged this year in local currency and it is the substantial depreciation of the Turkish lira that led to losses of approximately 40% (in USD). Not surprisingly export orientated companies, earning hard currency, did better than businesses confined to the local economy.

Other Regional Markets

The Romanian stock market developed favourably in 2018, as the banking sector benefitted from robust domestic consumption and investment backdrop. More importantly, we take notice of the slow but steady improvement in liquidity and stock market depth (via public offerings) of this most promising of European Frontier Markets.

Greek banks remained under intense scrutiny as investors continue to be concerned about their non-performing loans and asset quality. The repossession of collateral and its subsequent resale has remained a slow and tedious process, hindering the banks’ ability to shore up liquidity. Greek refineries, on the other hand, benefitted from their strategic location on the Mediterranean and improving margins.

The Hungarian market, one of the best performing stock markets over the last couple of years, ended the period relatively flat, as rising earnings were counterbalanced by investors’ concerns over ultra-dovish Central Bank policies.

Middle Eastern and North African markets benefitted from a strengthening oil price environment, while specifically, the potential inclusion of Saudi stocks into the MSCI Global Emerging Market Index, supported Saudi stocks, opening the Tadawul exchange to an international audience.

Economic and Political Background


While Russia hosted the Football World Championship to widespread acclaim, geopolitics remained centre stage and provided the backdrop for Vladimir Putin’s presidential election victory in March. It is fair to say Russia’s relationship with the US and the UK has reached a low point amidst continued allegations of US election interference and the Skripal case in the UK. This led to the eventual imposition of US sanctions on individuals and companies in Russia. The Kremlin’s relationship with the EU, Turkey and China, however, subject to a higher degree of Realpolitik, saw signs of renewed engagement. Examples include French President Macron’s visit to the St Petersburg Economic Forum, where a multi-billion dollar investment of the French energy supermajor Total in Russia’s multi-billion USD Arctic Liquified Natural Gas project was unveiled; Germany’s grand coalition’s agreement to adhere to the extension plan of NorthStream, the gas pipeline in the Baltic Sea. Further examples were evident in Turkey where President Erdogan toyed with the idea of equipping NATO’s second largest army with Russia’s state-of-the-art S-400 missile defence system or the Chinese e-commerce giant Alibaba’s announcement at the Vladivostok Eurasia Summit to pursue a multi-million USD joint venture with Russian internet firm Mail.Ru.

Over the period, the Russian economy benefitted from rising oil production, a direct result of the OPEC+ Russia agreement which has supported industrial production, while overall household consumption and investment remained muted, which we believe to be a direct consequence of sanctions. Elsewhere, the increase of the pension age and the planned rise in VAT served to support ambitious plans for infrastructure investment and increased spending on education and health. Widespread public condemnation of the pension reform eventually lead to a dilution of the original plans, showing that implementing unpopular reforms remains difficult everywhere, regardless of the political system. The Russian government’s plan to lower the economy’s oil dependency, lowering the Ruble’s sensitivity to global oil dynamics, started to take form through the introduction of a budgetary fiscal rule. This fiscal rule aims to feed surplus energy sector-related revenues from the budget to the National Wealth Fund, which is intended to be released to the budget in times of falling oil revenues, i.e. counter-cyclically. The effect of this policy on the Russian Ruble can already be felt as it has rendered the currency less susceptive to oil price swings, a development we welcome as it allows for a more balanced long term development of the economy.


Turkish financial markets have transitioned through a period of extreme stress this Summer as an indecisive monetary framework combined with political interference and rising inflationary pressures undermined the Turkish Lira’s credibility, pushing the country’s financial system to the limit. This was brought about by a number of events beginning with a lax fiscal attitude in the run-up to early presidential and parliamentary elections in June, while the continued erosion of the country’s institutional framework, exacerbated further by a sharp deterioration in bilateral relationship with the US served to portray a narrative that undermined the credibility of Turkey. This led to a crisis of trust that manifested itself into a situation where the Turkish Lira declined considerably shedding more than 1/3 of its value within a concentrated period of time. While the Turkish economy had shown signs of overheating prior to these events, market participants had priced in the expectation that Erdogan would instigate a more realistic approach to economic and foreign policies once he was able to fulfil his grand ambition to become Turkey’s first president under the recently established US-style presidential system. This perception was supported by the belated, but determined action of the Turkish Central Bank to increase interest rates in the run-up to elections, counterbalancing rising inflationary pressure on the back of rising energy prices and generous fiscal handouts during the election campaign. Amidst rising inflationary pressures, the Central Bank seemed to abandon orthodox policy leaving rates unchanged and markets reeling. The eruption of a dispute between Turkey and the US regarding the detainment of an American pastor, led the Trump administration to impose sanctions on government officials in Ankara. This served to add further pressure on the Lira at a time when concerns are mounting on the health of the Turkish economy. Crucially, Turkish policy makers and politicians have begun to recognise that the successful stabilisation of the Lira will enable Turkey to re-build trust with markets and curb inflation from spiralling out of control. This renewed stance was shown in a clear synchronised monetary and fiscal response via drastic rate hikes in September, a departure from previous growth orientated, fiscally expansive plans.

Company Weighting Versus Benchmark Index by Country of Operation

at 30 September 2018

Country of operation Company Benchmark*
Czechia Republic 1.1% 3.1%
Greece 1.8% 4.8%
Hungary 3.3% 4.8%
Poland 18.9% 20.2%
Russia 63.1% 57.0%
Turkey 10.6% 10.1%
Romania 3.1%
Ukraine 1.1%
Other Eastern Europe 2.1%
Kuwait 0.9%
Net Current Liabilities -6.0%
Total 100.0% 100.0%

*Includes rounding differences.

Source: Barings, MSCI


Poland’s economic development continued to benefit from robust export performance and rising confidence across all sectors of the economy. Poland’s multi-year economic expansion success story has provided households with substantial real wage increases, bolstering domestic activity, consumer confidence and investment. Ongoing investment in human capital, infrastructure and R&D has enabled the economy to continue to improve productivity, preserving its status as an attractive and sustainable investment destination in the ultra-competitive environment of industrial manufacturing and software services. Poland has also benefitted from knowledge transfer, finding itself as a much sought-after immigration destination in its own right, notably a hub for many Ukrainians. Citizens of the neighbouring former Soviet Republic have become an integral component of the Polish labour market, providing a flexible and responsive pool of workers benefitting from the high demand in sectors such as Agriculture or Construction. Polish officials have formalised this process by establishing a work-visa based employment system, which has successfully married flexibility with key social benefits such as social insurance. Notably, looking through the sphere of Brexit, Poland is expected to be impacted in different ways. The projected fall of immigration to the UK is predicted to stem the outflow of skilled labour from Poland, the number one country of origin of EU-citizens working in the United Kingdom, which may function to counterbalance wage inflation. Moreover, Brexit also implies that there will be a sizable reduction in contributions to the EU budget. As one of the consequences, we believe that the EU cohesion funds’ contribution to infrastructure investments in its main target area, the new EU member states will be affected negatively.

Other Economies

The European Parliament voted on 12 September 2018 to initiate disciplinary action against Hungary over alleged breaches of the EU’s core values, including the rule of law, freedom of the media, and an insufficient fight again corruption. With more than two-thirds of MEPs backing the vote, the European Union sent a clear message in defense of the institutional and legal framework across all member states, but placed a spotlight on Emerging European nations such as Hungary, Poland and Romania. Our belief is that this will highlight that European Union membership is not confined to economic implications but also a clear commitment to the development of the rule of law and investment into institutional oversight. A welcome development, initial discussions on the next European Commission multi-annual financial framework 2021-2027, proposed the introduction of a new cohesion policy conditionality related to the rule of law, thereby attaching a monetary incentive in the form of structural fund grants to compliance with EU core values. An advancement, which we view to be beneficial in fostering corporate governance and friendly shareholder practices.

Greece exited the last of its three bail out packages in August as its creditors, predominantly the European Union, and its member governments, believe the country’s finances have improved sufficiently to access public markets again. Overall, we observe economic growth to remain lackluster, and primarily confined to the tourism sector. We believe the key to increasing investment lies in unlocking the availability of credit within the banking sector. The successful monetisation of collateral, mainly re-possessed real estate, would release liquidity that could support economic activity by way of credit extension.

Investment Strategy

In light of rising energy prices the resurgence of the energy sector was one of the key determinants of stock market performance globally and Russian upstream oil and gas companies remain an integral part of our portfolio. Overall trading activity when compared to previous years, has remained relatively low. This was the result of core holdings in the energy space performing very well and your Company’s activity in the sector was largely limited to taking profits in existing stakes, for example in Lukoil, our largest single stock position, where price appreciation repeatedly drove the weighting in the portfolio close to the 12% single stock limit. In contrast, we believe that Central European refiners have found it difficult to pass rising input costs on to end consumers, justifying our decision to remain un-invested.

The increase in geopolitical tensions has justified a heightened risk premium, especially in Russia where Western sanctions continue taking their toll on economy activity and Foreign Direct Investment. We do, however, see a continuation of the gradual recovery in the Russian economy, as indicated by credit expansion, increasing profit margins and rising discretionary consumption. In response to this we have added to our position in the leading social network and e-commerce company Mail.Ru, search engine and Uber Taxi joint venture Yandex and supermarket X5. We also invested in Moscow Exchange, as we believe the rising interest rates will benefit the company’s margins and see promising long term growth areas such as the company’s data vending and clearing house businesses.

Our investments in the Turkish equity market have remained underweight relative to the benchmark for the majority of the year as we have found more attractive bottom-up opportunities elsewhere in region. Following the actions taken by Turkish policy makers to stabilise the economy and instil confidence, the decision was made to allocate more funds to the Turkish market while exiting positons which would be negatively impacted to our expectation of a recessionary environment in Turkey. Here we exited our investment in the bank which in our view, has the weakest capital position, namely Yapi Kredi. We also added to companies that can withstand inflationary pressure such as mobile telecoms market leader Turkcell. Having suffered from an indiscriminate sell off as investors feared financial stress, we considered valuation levels very attractive and took the view that the company’s superior market position and the substantial cash needs of its competitors will enable Turkcell to defend margins in a high inflation environment.

In Central Europe we decided to sell our stake in the low cost airline Wizz Air as it reached our price target and increased our exposure to the leading Polish insurer PZU. The company’s acquisition strategy has increased its influence over the Polish banking sector and has provided the insurer with access to new distribution channels in an environment of rising demand for non-life and health insurance products. Amongst Emerging European technology companies, we took profits and rotated out of one of the star performers of the year, the software integrator and IT solution provider EPAM placing the proceeds into peer Luxoft. Here the company’s shrinking business activity within its tier-1 investment banking business has led market participants to an overly pessimistic assessment of its future growth opportunities, in our view. The Company’s engagement in the extended geographical mandate of the Middle East, North Africa and Sub-Saharan Africa remains limited, as we have found significant investment opportunities within our core markets. Currently the Kuwaiti education provider Human Soft represents the region’s sole contribution to the portfolio.

The Company has made use of a gearing facility of up to 10% of NAV for the entire year, as part of its strategy to increase returns. While rising interest rates have increased the overall cost of the facility we consider the attractive valuation, earnings growth outlook and underlying dividend yield of Emerging European Equity markets an adequate opportunity set to successfully support the employment of our gearing strategy.


2018 was a testing year for Global Emerging market investors as markets had to grapple with challenges old and new. Emerging European stock markets in particular were confronted with rising political and policy risks, such as the impact of the US sanctions on the Russian economy and stock market, concerns over adequate monetary policy in Turkey, or the increasing concern of EU institutions over independence of the legal system and the overall rule of law in Emerging European member states. Against this backdrop, investors could be forgiven for not registering any of the various positive developments on the corporate but also political level that can impact earnings growth potential and stock market performance going forward.

Aided by excellent Russian earnings performance, profit margins for Emerging European companies have continued to improve and we see potential for this trend to remain intact in the future as the sectors such as finance, retailing, telecommunication, utilities are positioned to be supported by the ongoing investment into growth and efficiency as well as a more supportive political and fiscal backdrop in many countries.

As Emerging European countries find themselves at different stages of the economic cycle, we consider a synchronised growth downturn as relatively unlikely. This should also allow investors to benefit from diversification effects. This was exhibited in 2018 where we saw Russian oil stocks deliver substantial outperformance over global peers, supporting the Company’s NAV to an extent that four out of the top five stocks of the portfolio are Russian energy companies. The majority of these companies trade at or near all-time highs, standing in stark contrast to the recessionary environment within Turkey.

On a similar note, dividend generation has increased driven by increasing earnings, thereby supporting internally generated resources to fund future growth. Dividend yields on Emerging European markets are substantially higher than in other geographies mostly owing to the attractive valuation levels of stock indices in Russia, Turkey and the new EU member states.

In terms of growth, we note the substantial opportunities we see in the consumer space, export industries and social media/the internet. Rising household income levels, a well-educated, highly efficient workforce and investment into infrastructure lay the foundation for sustainable growth and the attraction of foreign investment.

We acknowledge the potential challenges posed by the prevailing economic policy and political risks. However, we are encouraged by the fact that Emerging European economies remain deeply committed to free market economics. Going forward, we believe that preserving a favourable investment climate, a prerequisite to rising growth potential, remains an important priority to all governments within the region.

Investment Portfolio

The Company’s investment portfolio at 30 September 2018, is set out in the following table:

Holding Primary country of listing or investment Market value £000 % of investment portfolio
1 Lukoil Holdings Russia  13,152 12.14*
2 Sberbank Russia  9,611 8.87
3 Novatek Russia  9,206 8.50
4 Gazprom Russia  5,739 5.30
5 AO Tatneft Russia  5,500 5.08
6 PZU Poland  4,676 4.32
7 PKO Bank Polski Poland  4,165 3.84
8 X5 Retail Group Russia  3,931 3.63
9 KGHM Polska Miedz Poland  3,860 3.56
10 Mail.Ru Russia  3,687 3.40
11 OTP Bank Hungary  3,596 3.32
12 Turkcell Iletisim Hizmetleri Turkey  3,555 3.28
13 Garanti Bank Turkey  3,238 2.99
14 Santander Bank Polska Poland  3,127 2.89
15 Alrosa Russia  3,104 2.87
16 Yandex Russia  3,005 2.77
17 CCC Poland  2,729 2.52
18 Globaltrans Russia  2,278 2.10
19 National Bank of Greece Greece  1,993 1.84
20 Moscow Exchange Russia  1,954 1.80
21 Bank Pekao Poland  1,934 1.79
22 BCA Transilvania Romania  1,565 1.44
23 Luxoft Russia  1,546 1.43
24 Detsky Mir Russia  1,456 1.34
25 Bim Birlesik Magazalar Turkey  1,446 1.34
26 TCS Russia  1,439 1.33
27 AK Bank Turkey  1,257 1.16
28 Kofola Cekoslovensko Czechia  1,227 1.13
29 LSR Russia  1,215 1.12
30 MHP Ukraine  1,100 1.02
31 Pipe Metallurgical (TMK) Russia  1,082 1.00
32 MD Medical Russia  1,021 0.94
33 Human Soft Kuwait  945 0.87
34 Societatea Comerciala Romania  930 0.86
35 Sphera Franchise Romania  880 0.81
36 Epam Systems Belarus  634 0.59
37 Koc Holdings Turkey  607 0.56
38 Coca Cola Icecek Turkey  605 0.56
39 Ulker Biskuvi Sanayi Turkey  588 0.54
40 Vostok New Ventures Russia  557 0.51
41 Global Ports Russia  422 0.39
42 DP Eurasia Turkey and Russia  220 0.20
43 Norilsk Nickel Russia  43 0.04
Total investments 114,825 105.99
Net current liabilities (6,492) (5.99)
Net assets  108,333  100.0

Review of Top Ten Holdings at 30 September 2018

Holding Sector Market value £000 % of investment portfolio End weighting relative to comparator benchmark
Lukoil Energy 13,152 12.14* Overweight High yielding Russian oil stock with potential for further dividend growth.
Sberbank Financials 9,611 8.87 Overweight Russia’s largest bank, successful implementation of modernisation strategy offers scope for further improvement of profitability.
Novatek Energy 9,206 8.50 Overweight Largest independent gas producer in Russia. Liquified Natural Gas strategy provides significant growth potential.
Gazprom Energy 5,739 5.30 Underweight Russian oil and gas producer
Tatneft Energy 5,500 5.08 Underweight Local energy champion in the Russian independent Republic of Tatarstan. Strong cash flows allow for high dividend payout ratios and pursuit of downstream growth strategy.
PZU Financials 4,676 4.32 Overweight Largest Polish insurer. Its capital base allows for substantial dividend payout ratios. Enlarging client base via strategic stakes in Polish banking sector.
PKO Bank Polski Financials 4,165 3.84 Overweight Largest Polish bank. Benefits from sector consolidation and broad depositor base.
X5 Retail Group Consumer Staples 3,931 3.63 Overweight One of the leading Russian supermarket chains, benefitting from expansion and consumption growth.
KGHM Polska Miedz Materials 3,860 3.56 Overweight Largest European copper miner. Core Polish operations' efficiency improving.
Mail.Ru Group Information Technology 3,687 3.40 Overweight Russia-based Internet company operating an integrated communications and entertainment platform which includes a social network and online games. E-commerce growth strategy via Alibaba Russia joint venture.

Baring Fund Managers Limited

22 November 2018

*Passive breach of the Company’s Investment Policy, due to a one-day substantial outperformance. This was rectified on the next trading day by the sale of a portion of the holding.

Corporate Review

The Strategic Report above has been prepared in accordance with the requirements of Section 414 of the Companies Act 2006 and best practice. Its purpose is to provide information to the shareholders of the Company and help them to assess how the Directors have performed their duty to promote the success of the Company, in accordance with Section 172 of the Companies Act 2006.

Dividend Policy

The Company will at least maintain a dividend policy where realised reserves are available.


The Board recommends a final dividend of 20 pence per share. Subject to approval of the Annual General Meeting (the “AGM”), the recommended annual dividend will be paid on 15 February 2019 to members on the register at the close of business on 11 January 2019. The shares will be marked ex-dividend on 10 January 2019.

The Discount Control Mechanism and Buyback Programme

As outlined above the Company set out a discount management target in 2013. In 2017, the Board completed a tender offer.

The NAV as at the Calculation Date for the tender offer (24 January 2017) was 806.28 pence per share. Accordingly, the tender price was 784.18 pence per share, being 97.5% of the NAV (after accounting for the costs of the Tender Offer) as at the Calculation Date.

On 27 January 2017, the Company announced that a total of 1,585,858 shares, representing approximately 10% of the Company’s issued share capital (excluding any shares held in treasury), had been successfully tendered.

During the year ended 30 September 2018, 893,935 shares were repurchased at a cost of £6,578,000 (2,358,233 shares were repurchased (including the Tender Offer) during the year ended 30 September 2017 at a cost of £17,972,000). Any shares repurchased were cancelled.

During the period from 1 October 2017 to the year ended 30 September 2018 the average discount was 12.64% (2017: 13.40%).

Continuing Appointment of the Alternative Investment Fund Manager

Investment performance is reviewed at each regular Board meeting at which representatives of the AIFM and Investment Manager are required to provide answers to any questions raised by the Board. The Board conducts an annual formal review of the AIFM, which includes consideration of:

• performance compared with Benchmark Index and peer group;

• investment resources dedicated to the Company;

• investment management fee arrangements and notice period compared with the peer group; and

• marketing effort and resources provided to the Company.

As at the date of this Report, the Board are of the opinion that the continuing appointment of the AIFM, on the terms agreed, is in the best interests of the Company. The Board believes that the AIFM has served the Company well both in terms of management of the investment portfolio and general support.

Viability Statement

In accordance with provision C.2.2 of the UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a longer period than the 12 months required by the “Going Concern” provision. The Board conducted this review for a period of three years, which was selected because it was considered to be a reasonable time horizon given that the Company invests in Emerging markets, which may be more volatile than developed markets. The Board also regularly considers the strategic position of the Company including investor demand for the Company’s shares and a three year period is considered to be a reasonable time horizon for this.

The Directors’ have carried out a robust assessment of the Company’s principal risks and its current position. The principal risks faced by the Company and the procedures in place to monitor and mitigate them are detailed above. As the Company’s portfolio consists of shares which are listed on regulated markets, many of which are highly liquid, funds can be raised to meet the Company’s liabilities as they fall due. The Company has no long term debt. At 30 September 2018, the Company had drawn down US$12 million from its loan facility with State Street Bank and Trust Company as a result of which the Company’s portfolio was 5.99% geared. This exposure does increase risk but is carefully monitored by the Board and in any event is limited to 10% of gross assets. The interest cost of the loan is covered 19 times by the revenue surplus. On the basis of the current portfolio yield, the Directors expect the Company to continue to generate a revenue surplus.

Based on the above assessment the Directors confirm that they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities over the three year period to December 2021.

This Strategic Report has been approved by the Board and signed on its behalf by:

Frances Daley


22 November 2018

Board of Directors

FRANCES DALEY FCA, MCSI – Chairman and Nomination Committee Chairman

CALUM THOMSON FCA – Non-Executive Director and Audit Committee Chairman

NADYA WELLS – Non-Executive Director and Senior Independent Director (“SID”)

JONATHAN WOOLLETT – Non-Executive Director

IVO COULSON MCSI – Non-Executive Director

Report of the Directors

The Directors of the Company are pleased to present their Report and the Audited Financial Statements of the Company for the year ended 30 September 2018.

In accordance with the Listing Rules and the Disclosure, Guidance and Transparency Rules, the reports within the Corporate Governance section of the Annual Report and Financial Statements should be read in conjunction with one another, and the Strategic Report. As permitted, some of the matters normally included in the Directors’ Report have instead been included in the Strategic Report (above) as the Board considers them to be of strategic importance.


The Company is registered as a public limited company under the Companies Act and as an investment trust company under Section 833 Of the Companies Act 2006. It is a member of the Association of Investment Companies (“AIC”).

In the opinion of the Directors, the Company has conducted its affairs during the period under review, and subsequently, so as to maintain its status as an investment trust for the purposes of Chapter 4 of Part 24 of the Corporation Tax Act 2010. The Company has obtained written approval as an investment trust from HM Revenue & Customs for all accounting periods up to the year ended 30 September 2013 and has made a successful application under Regulation 5 of the Investment Trust (Approved Company) (Tax) Regulations 2011 for investment trust status to apply to all accounting periods starting on or after 1 October 2013 subject to the Company continuing to meet the eligibility conditions contained in Section 1158 of the Corporation Tax Act 2010 and the ongoing requirements outlined in Chapter 3 of Part 2 of the Regulations.

The Company is not a close company for taxation purposes.

The Company is managed by external parties in respect of investment management, custodial services and the day-to-day accounting and company secretarial requirements.


The Directors in office at the date of this Report and the dates of their appointment are shown above, together with their full biographies. Steven Bates retired as Chairman and non-executive director of the Company on 16 January 2018.

Ivo Coulson tendered his resignation as a Director of the Company on 30 November 2018. Jonathan Woollett has indicated his intention to retire from the Board at the forthcoming AGM. The Nomination Committee initiated a search for replacement Board members, with the assistance of an independent external executive search agency. The Nomination Committee have recommended, and the Board will approve the appointment of Christopher Granville to the Board with effect from 30 November 2018. The Nomination Committee continues its search process for a further Board member.

In accordance with the policy adopted by the Board, all the Directors, with the exception of Ivo Coulson and Jonathan Woollett, will retire and seek re-election at the Company’s forthcoming AGM. Christopher Granville will seek election at the AGM.

There were no contracts or arrangements subsisting during or at the end of the financial year in which any Director is or was materially interested.

Indemnity of Directors

Pursuant to the Articles and pursuant to the Companies Act, the Directors are indemnified against any liability. There are no other qualifying third-party indemnity provisions in place. In addition, the Company has procured Directors’ and Officers’ liability insurance.


The Board of Directors of the Company comprises of three males and two females.

The Board adopted a Diversity Policy in November 2018. The Board recognises the importance and benefits of improving the gender balance of the Board and the Board does not consider that it would be appropriate to set diversity targets as all Board appointments are made on merit, against objective criteria and with due regard for the benefits of diversity on the Board.

Going Concern

The Directors believe that, having considered the Company’s investment objectives, risk management policies, capital management policies and procedures, nature of the portfolio and expenditure projections, the Company has adequate resources and an appropriate financial structure in place to continue in operational existence for the foreseeable future. The assets of the Company consist mainly of securities which are readily realisable. For these reasons, they consider that there is reasonable evidence to continue to adopt the going concern basis in preparing the accounts.

Requirements of the Listing Rules

Listing Rule 9.8.4 requires the Company to disclose specific information in a single identifiable section of the Annual Report. The Directors confirm that there are no disclosures to be made under the Listing Rule 9.8.4.

Socially Responsible Investment

The Board has delegated the investment management function to the AIFM. Its primary objective is to produce superior financial returns for investors. It believes that over the long-term sound social, environmental and ethical policies make good business sense and takes these issues into account when, in its view, they have a material impact on either the investment risk or the expected return from an investment.

Global Greenhouse Gas Emissions

The Company has no greenhouse gas emissions to report from the operations of the Company, nor does it have responsibility for any other emission producing sources under the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013.

Conflict of Interest

Section 175 of the Companies Act 2006, which came in to effect on 1 October 2009, introduced a duty for directors to avoid unauthorised conflicts of interest. The Articles of Association approved by Resolution 2 at the General Meeting held on 15 January 2009 allow the Directors to authorise such conflicts and potential conflicts, where appropriate. The Board has expanded the terms of reference of the Audit Committee to review conflicts and potential conflicts and make recommendations to the Board as to whether any such conflicts should be authorised.

Companies Act 2006 Disclosures

In accordance with Section 992 of the Companies Act 2006 the Directors disclose the following information:

• the Company’s capital structure is summarised below, voting rights are summarised in the full Annual Report and Accounts, and there are no restrictions on voting rights nor any agreement between holders of securities that result in restrictions on the transfer of securities or on voting rights;

• there exist no securities carrying special rights with regard to the control of the Company;

• details of the substantial shareholders in the Company are listed above;

• the Company does not have an employees’ share scheme;

• the rules concerning the appointment and replacement of Directors, amendment of the Articles of Association and powers to issue or buy back the Company’s shares are contained in the Articles of Association of the Company and the Companies Act 2006;

• there exist no agreements to which the Company is party to that may affect its control following a takeover bid; and

• there exist no agreements between the Company and its Directors providing for compensation for loss of office that may occur because of a takeover bid.

The Board recognises the requirement under Section 417(5) of the Act to detail information about environmental matters (including the impact of the Company’s business on the environment), any Company employees and social and community issues; including information about any policies it has in relation to these matters and effectiveness of these policies. As the Company has no employees or policies in these matters this requirement does not apply. Notwithstanding, the AIFM takes into account these considerations when making investment decisions and determines its voting instructions at investee company meetings accordingly.

Share Capital

As at 30 September 2018, the Company’s total issued share capital was 13,135,044 ordinary shares (30 September 2017: 14,028,979), of which the Company held 3,318,207 ordinary shares 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 year. All shares repurchased during the year were cancelled. All of the Company’s ordinary shares are listed on the premium listing segment of the London Stock Exchange and each ordinary share carries one vote.

The rights attached to the Company’s shares are set out in the Company’s Articles of Association. The Company’s ordinary shares are freely transferable. However, the Director may refuse to register a transfer of shares which are not fully paid nor where the instrument of transfer is not duly stamped or shown to be exempt from stamp duty. The Directors may also decline to register a transfer of an uncertificated share in the circumstances set out in the uncertificated securities rules, and where the number of joint holders to whom the uncertificated share is to be transferred exceeds four.

Amendments of the Company’s Articles of Association and the giving of authority to issue or buy back the Company’s shares requires an appropriate resolution to be passed by shareholders.

There are no restrictions on voting for the holders of ordinary shares, who are entitled to attend and vote at a shareholder meeting.

Purchase of Own Shares

At last year’s AGM, the Directors were authorised to make market purchase of up to 14.99% of each of the Company’s ordinary shares, amounting to 2,075,401 shares. Since the AGM held on 16 January 2018, the Company brought back 653,982 ordinary shares with a nominal value of 0.10 pence per share, and at a total cost of £4,678,000 under this authority. As at 30 September 2018, the remaining authority for the purchase of own shares is 1,421,419 shares. A total of 3,318,207 ordinary shares are held in treasury, representing 20.3% of the issued share capital at 21 November 2018.

Substantial Shareholdings

Information on major interests in shares provided to the Company under the Disclosure, Guidance and Transparency Rules of the UK Listing Authority is published via a Regulatory Information Service.

The Company has received notification of the following disclosable interests in the voting rights of the Company:

At 30 September 2018
Shareholder Number of Ordinary shares notified % Interest in share capital
City of London Investment Management Company Limited 2,700,123 16.41%
Lazard Asset Management LLC, New York, United States of America 1,096,747 6.7%
City of Bradford Metropolitan District Council 925,158 5.6%

The Company has not been informed of any changes to the notifiable interests between 30 September 2018 and the date of this Report.

Corporate Governance

The statement of Corporate Governance, forms part of this report by reference. The Directors have prepared a statement on how the principles and recommendations of the AIC Corporate Governance Code have been applied. This forms part of this report by reference. This can be found in full in the Annual Report and Accounts.

Financial Risk Management

The principal financial risks and the Company’s policies for managing these risks are set out in note 18 to the financial statements.


The Company’s Auditor, KPMG LLP, has indicated its willingness to continue in office. The Audit Committee has responsibility for making a recommendation to the Board on the re-appointment of the Independent Auditors. Resolutions for the re-appointment of KPMG LLP and to authorise the Board to determine its remuneration will be proposed at the AGM.

Audit Information

The Directors who held office at the date of approval of this report confirm that, so far as they are aware, there is no relevant information which the Company’s auditor is unaware; and each Director has taken all reasonable steps that she or he ought to have taken as a Directors to make himself or herself aware of any relevant audit information and to establish that the Company’ auditor is aware of that information.

Annual General Meeting

The AGM will be held on Thursday, 10 January 2018 at 2.30pm at the new offices of the Investment Manager (20 Old Bailey, London EC4M 7BF). The formal notice of the AGM is set out below. Separate resolutions are proposed for each substantive issue. Resolutions relating to the items of special business will be proposed at the AGM, for which shareholder approval is required in order to comply with the Companies Act 2006.

A full explanation of the resolutions being proposed at the AGM may be found in the full Annual Report and Accounts along with a proxy form. For future meetings, we will be removing paper proxies in favour of online voting via our registrar’s website.

The Board considers that all the resolutions to be put to the meeting are in the best interests of the Company and its shareholders as a whole. The Board unanimously recommends that you vote in favour of them, as those Directors who hold shares in the Company, intend to do so.

By order of the Board

Link Company Matters Limited


22 November 2018

Statement of Directors’ Responsibilities in Respect of the Annual Report and the Financial Statements

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with UK Accounting Standards and applicable law, including FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”.

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgments and estimates that are reasonable and prudent;

• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;

• assess the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

• use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement that comply with that law and those regulations.

The financial statements are published on the Company’s website:, which is maintained by the Investment Manager. The maintenance and integrity of the website maintained by the Investment Manager is, so far as it relates to the Company, the responsibility of the Investment Manager. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility Statement of the Directors In Respect of the Annual Report

Each of the Directors, whose names are listed above, confirm to the best of each person’s knowledge:

• the Financial Statements prepared in accordance with applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

• the Strategic Report includes a fair review of the development and performance of the business and the position of the issuer, together with a description of the principal risks and uncertainties that they face.

We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy.

For and on behalf of the Board

Frances Daley


22 November 2018


The financial information set out below does not constitute the Company’s statutory accounts for the year ended 30 September 2018 but is derived from those accounts. Statutory accounts for the year ended 30 September 2018 will be delivered to the Registrar of Companies in due course. The Auditors have reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditors’ report can be found in the Company’s full Annual Report and Accounts on the Company’s website at

Income Statement

(incorporating the Revenue Account*) for the year ended 30 September 2018

Year ended 30 September 2018 Year ended 30 September 2018 Year ended 30 September 2018 Year ended 30 September 2017 Year ended 30 September 2017 Year ended 30 September 2017
Revenue Capital Total Revenue Capital Total
Notes £000 £000 £000 £000 £000 £000
(Losses)/gains on investments held at fair value through profit or loss 9 (6,112) (6,112) 25,502 25,502
Income 2 5,036 5,036 5,146 5,146
Investment management fee 3 (185) (750) (935) (476) (476) (952)
Other expenses 4 (836) (836) (765) (765)
Return on ordinary activities 4,015 (6,862) (2,847) 3,905 25,026 28,931
Finance costs 5 (62) (247) (309) (129) (129) (258)
Return on ordinary activities before taxation 3,953 (7,109) (3,156) 3,776 24,897 28,673
Taxation 6 (565) (565) (482) (482)
Return for the year 3,388 (7,109) (3,721) 3,294 24,897 28,191
Return per ordinary share 8 24.77p (51.98)p (27.21)p 22.31p 168.65p 190.96p

*The total column of this statement is the profit and loss account of the Company.

All revenue and capital items in the above statement derive from continuing operations.

The annexed notes below form part of these accounts.

The supplementary revenue and capital columns are both prepared under the guidance published by the Association of Investment Companies.

There is no other comprehensive income and therefore the return for the year is also the total comprehensive income for the year.

Statement of Financial Position

as at 30 September 2018

2018 2017
Notes £000 £000
Fixed assets
Investments at fair value through profit or loss 9 114,825 131,220
Current assets
Debtors 10 1,460 1,679
Cash and cash equivalents 1,706 762
3,166 2,441
Current liabilities
Creditors: amounts falling due within one year 11 (9,658) (10,488)
Net current liabilities (6,492) (8,047)
Net assets 108,333 123,173
Capital and reserves
Called-up share capital 12 1,646 1,735
Share premium account 1,411 1,411
Redemption reserve 3,142 3,053
Capital reserve 97,697 111,384
Revenue reserve 4,437 5,590
Total Shareholders’ funds 108,333 123,173
Net asset value per share 13 824.76p 877.99p

The financial statements above were approved by the Board on 22 November 2018 and signed on its behalf by:

Frances Daley


The annexed notes below form part of these accounts.

Company registration number 4560726

Statement of Changes in Equity

for the year ended 30 September 2018

Called-up Share
share premium Redemption Capital Revenue
capital account reserve reserve reserve Total
£000 £000 £000 £000 £000 £000
For the year ended 30 September 2018
Beginning of year 1,735 1,411 3,053 111,384 5,590 123,173
Return for the year (7,109) 3,388 (3,721)
Buyback of own shares for cancellation (6,578) (6,578)
Transfer to capital redemption reserve (89) 89
Dividends paid (4,541) (4,541)
Balance at 30 September 2018 1,646 1,411 3,142 97,697 4,437 108,333


Called-up Share
share premium Redemption Capital Revenue
capital account reserve reserve reserve Total
£000 £000 £000 £000 £000 £000
For the year ended 30 September 2017
Beginning of year 1,971 1,411 2,817 104,459 7,792 118,450
Return for the year 24,897 3,294 28,191
Buyback of own shares for cancellation (17,682) (17,682)
Transfer to capital redemption reserve (236) 236
Tender offer costs (290) (290)
Dividends paid (5,496) (5,496)
Balance at 30 September 2017 1,735 1,411 3,053 111,384 5,590 123,173

The annexed notes below form part of these accounts.

Distributable reserves comprise: the revenue reserve and capital reserve attributable to realised profits. The split between realised and unrealised capital reserves is provided in note 14.

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.

Notes to the Accounts

for the year ended 30 September 2018

1. Accounting policies

A summary of the principal policies, all of which have been applied consistently throughout the year, is set out below:

(a) Basis of accounting

The financial statements have been prepared in accordance with the applicable UK Accounting Standards, being FRS 102 – The Financial Reporting Standard – and with the Statement of Recommended Practice “Financial Statements of Investment Trust Companies and Venture Capital Trusts” (issued in November 2014 and updated in January 2017).

As an investment fund the Company has the option, which it has taken, not to present a cash flow statement. A cash flow statement is not required when an investment fund meets all the following conditions: substantially all investments are highly liquid and are carried at market value, and where a statement of changes in assets as defined in FRS 102 section 7.

The Directors have decided that in order to better reflect the Company’s long term aim of enhancing capital growth it would be more appropriate to allocate the investment management fee and finance costs 80% to capital and 20% to income rather than 50% to each which has been applied in prior years.

They have also been prepared on the assumption that approval as an investment trust will continue to be granted. The Directors consider that the Company has adequate resources to enable it to continue in operational existence for the foreseeable future. Accordingly, the Directors believe that it is appropriate to adopt the going concern basis in preparing the Company’s financial statements.

(b) Valuation of investments

Upon initial recognition the investments are designated by the Company as “at fair value through profit or loss”. They are included initially at fair value which is taken to be their cost, including expenses incidental to purchase. Subsequently the investments are valued at fair value which is bid market price for listed investments. Unquoted investments are included at a valuation determined by the Directors after discussion with the Alternative Investment Fund Manager on the basis of the latest accounting and other relevant information.

Changes in the fair value of investments held at fair value through profit or loss and gains or losses on disposal are included in the capital column of the income statement within “Gains/(losses) from investments held at fair value through profit or loss”. All purchases and sales are accounted for on a trade date basis.

Year-end exchange rates are used to translate the value of investments which are denominated in foreign currencies.

(c) Foreign currency

Transactions denominated in foreign currencies are translated into sterling at actual exchange rates as at the date of the transaction or, where appropriate, at the rate of exchange in a related forward exchange contract. Monetary assets and liabilities denominated in foreign currencies at the year-end are reported at the rates of exchange prevailing at the year end or, where appropriate, at the rate of exchange in a related forward exchange contract. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss in capital reserve. Foreign exchange movements on fixed asset investments are included in the Income Statement within gains on investments held at fair value through profit or loss.

(d) Income

Investment income, which includes related taxation, has been accounted for on an ex-dividend basis or when the Company’s right to the income is established.

Interest receivable on deposits is accounted for on an accruals basis.

(e) Expenses

All expenses are accounted for on an accruals basis and are charged as follows:

• the basic investment management fee is charged 20% (2017: 50%) to revenue and 80% (2017: 50%) to capital;

• any investment performance bonus payable to Baring Fund Managers Limited is charged wholly tocapital;

• dealing costs are charged wholly to capital; and

• other expenses are charged wholly to revenue.

(f) Interest payable

Interest payable is accounted for on an accruals basis, and is charged 20% (2017: 50%) to revenue and 80% (2017: 50%) to capital.

(g) Capital reserve

Gains or losses on disposal of investments and changes in fair values of investments are transferred to the capital reserve. Any investment performance fee payable to Baring Fund Managers Limited is accounted for in the capital reserve.

(h) Special reserve

Pursuant to a special resolution passed on 8 November 2002, the Company’s application to reduce its share premium account was approved by the High Court and registered with the Registrar of Companies on 18 December 2002. The amount of the reduction was £86,624,982, representing the share premium arising on the issue of shares by the Company on 17 December 2002. This amount was transferred to a special reserve which has been utilised for the repurchase by the Company of its own shares.

(i) Taxation

The charge for taxation is based upon the net revenue for the year. The tax charge is allocated to the revenue and capital accounts according to the marginal basis whereby revenue expenses are first matched against taxable income arising in the revenue account; the effect of this for the year ended 30 September 2018 was that all the deductions for tax purposes went to the revenue account.

Deferred taxation will be recognised as an asset or a liability if transactions have occurred at the balance sheet date that give rise to an obligation to pay more taxation in the future, or a right to pay less taxation in the future. An asset will not be recognised to the extent that the transfer of economic benefit is uncertain.

2. Income

2018 2017
£000 £000
Income from investments
Overseas dividends – Quoted 5,028 5,146
Other income
Bank interest 8
Total income 5,036 5,146

3. Investment management fee

Baring Fund Managers Limited acts as the Alternative Investment Fund Manager (“AIFM”) of the Company under an agreement terminable by either party giving not less than six months’ written notice. Under this agreement the AIFM receives a basic fee (charged 20% to revenue (2017: 50%) and 80% to capital (2017: 50%)) which is calculated monthly and payable at an annual rate of 0.8% of the Net Asset Value of the Company.

The investment management fee comprises:

2018 2017
£000 £000
Basic fee (20% (2017: 50%) charged to revenue) 185 476
Basic fee (80% (2017: 50%) charged to capital) 750 476
935 952

At 30 September 2018, £75,000 (30 September 2017: £86,000) of this fee remained outstanding.

4. Other expenses

2018 2017
£000 £000
Custody and administration expenses 660 599
Auditor’s remuneration for:
– audit 32 31
Directors’ fees 144 135
836 765

5. Finance costs

2018 2017
£000 £000
On short-term loan and gearing facility with State Street Bank & Trust Company
repayable within 5 years, not by installments
Bank loan interest (20% (2017: 50%) charged to revenue) 62 129
Bank loan interest (80% (2017: 50%) charged to capital) 247 129
309 258

6. Taxation

(a) Current tax charge for the year:

2018 2018 2018 2017 2017 2017
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Overseas taxation (note 6(b)) 565 565 482 482

(b) Factors affecting the current tax charge for the year

The taxation rate assessed for the year is different from the standard rate of corporation taxation in the UK. The differences are explained below:

2018 2018 2018 2017 2017 2017
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Return on ordinary activities before taxation 3,953 (7,109) (3,156) 3,776 24,897 28,673
Return on ordinary activities multiplied by the standard rate of corporation tax of 19% (2017: 19.5%) 751 (1,351) (600) 736 4,855 5,591
Effects of:
Non taxable overseas dividends (955) (955) (1,003) (1,003)
Overseas withholding tax 565 565 482 482
Capital gains/(losses) not subject to tax 1,161 1,161 (4,973) (4,973)
Non-trade loan relationship debts not utilised 10 47 57 25 25 50
Management expenses not utilised 194 143 337 242 93 335
Current tax charge for the year 565 565 482 482

The Company is not liable to tax on capital gains due to its status as an investment trust.

The Company has an unrecognised deferred tax asset of £2,266,000 (2017: £1,389,000) based on the long term prospective corporation tax rate of 17.0% (2017: 17.0%). This asset has accumulated because deductible expenses have exceeded taxable income in past years. No asset has been recognised in the accounts because, given the composition of the Company’s portfolio, it is not likely that this asset will be utilised in the foreseeable future.

7. Dividend

2018 2018 2017 2017
Pence per share £000 Pence per share £000
Annual dividend per ordinary share 20p 2,606 19p 2,665
Interim dividend per ordinary share 14p 1,920 13p 1,848

8. Return per ordinary share

Total Total
Revenue Capital 2018 Revenue Capital 2017
Return per ordinary share 24.77p (51.98)p (27.21)p 22.31p 168.65p 190.96p

Revenue return (earnings) per ordinary share is based on the net revenue on ordinary activities after taxation of £3,388,000 (2017: £3,294,000).

Capital loss per ordinary share is based on net capital loss for the financial year of £(7,109,000) (2017: net capital profit of £24,897,000).

These calculations are based on the weighted average of 13,677,229 (2017: 14,762,470) ordinary shares in issue during the year.

At 30 September 2018 there were 13,135,044 ordinary shares of 10 pence each in issue (2017: 14,028,979) which excludes 3,318,207 ordinary shares held in treasury (2017: 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 year.

9. (i) Fixed asset investments

Quoted Total Quoted Total
overseas 2018 overseas 2017
Primary country of investment £000 £000 £000 £000
Hungary 3,596 3,596 7,239 7,239
Czechia Republic 1,227 1,227 3,901 3,901
Poland 20,491 20,491 17,483 17,483
Russia 69,948 69,948 77,586 77,586
Turkey 11,296 11,296 14,170 14,170
Greece 1,993 1,993 3,522 3,522
Romania 3,375 3,375 4,447 4,447
Other 2,899 2,899 2,872 2,872
Total 114,825 114,825 131,220 131,220

9. (ii) Movements in the year

Book cost at beginning of year 109,045 109,045 117,902 117,902
Gains/(losses) on investments held at beginning of year 22,175 22,175 6,625 6,625
Valuation at beginning of year 131,220 131,220 124,527 124,527
Movements in year:
Purchases at cost 47,136 47,136 51,628 51,628
Sales proceeds (57,450) (57,450) (70,648) (70,648)
Gains on investments sold in year 5,264 5,264 10,163 10,163
(Losses)/gains on investments held at year end (11,345) (11,345) 15,550 15,550
Valuation at end of year 114,825 114,825 131,220 131,220


Net realised gains based on historical cost 5,264 5,264 10,163 10,163
Exchange movements on foreign currency loans and cash balances (31) (31) (211) (211)
Movement in investments holdings (losses)/gains in year (11,345) (11,345) 15,550 15,550
(Losses)/gains on investments (6,112) (6,112) 25,502 25,502

Expenses incidental to the purchase or sale of investments are included within the purchase cost or deducted from sales proceeds. Transaction costs on purchases for the year ended 30 September 2018 amounted to £44,000 (2017: £87,000) and on sales for the year they amounted to £50,000 (2017: £114,000).

A list of the Company’s investments by market value is shown above, and a geographical classification and industrial classification of the investment portfolio are shown above.

10. Debtors

2018 2017
£000 £000
Amounts due within one year
Amounts due from brokers 1,065 1,359
Prepayments and accrued income 377 308
Other debtors 18 12
1,460 1,679

11. Creditors

2018 2017
£000 £000
Amounts falling due within one year
Bank loans 9,202 8,944
Amounts outstanding to brokers due to the buyback of own shares 113 1,245
Other creditors 343 299
9,658 10,488

The Company has a US$12 million loan facility with State Street Bank and Trust Company. The amount outstanding in relation to this facility at 30 September 2018 was US$12 million (at 30 September 2017: US$12 million) which is repayable on 31 December 2018, interest is charged at the rate of LIBOR plus 1.25%.

12. Called-up share capital

2018 2017
£000 £000
Allotted, issued and fully paid up
16,453,251 (2017: 17,347,186) ordinary shares of 10 pence (fully paid) 1,646 1,735

During the year 893,935 ordinary shares were repurchased for cancellation for £6,578,201 (2017: 2,352,233 ordinary shares were repurchased for cancellation for £17,682,000). During the year no ordinary shares were repurchased to be held in treasury and no ordinary shares which were held in treasury were cancelled. The Company holds 3,318,207 ordinary shares in treasury which are treated as not being in issue when calculating the number of ordinary shares in issue during the year (2017: 3,318,207 ordinary shares were held in treasury). Shares held in treasury are non-voting and not eligible for receipt of dividends. Subsequent to the year end a further 107,468 shares have been repurchased for cancellation.

13. Net asset value per share

Total shareholders’ funds and the net asset value per share attributable to the ordinary shareholders at the year end calculated in accordance with the Articles of Association were as follows:

2018 2017
Total shareholders’ funds (£000) 108,333 123,173
Net asset value (pence per share) 824.76p 877.99p

The net asset value per share is based on total shareholders’ funds above, and on 13,135,044 ordinary shares in issue at the year end (2017: 14,028,979 ordinary shares in issue) which excludes 3,318,207 ordinary shares held in treasury (2017: 3,318,207 ordinary shares held in treasury). The ordinary shares held in treasury are treated as not being in issue when calculating the net asset value per share.

14. Capital reserve

         Capital reserve
Realised Gains/(losses) on sale of investments Unrealised Investment holdings gains/(losses) Total
£000 £000 £000
At 1 October 2017 90,512 20,872 111,384
Net gains on disposal of investments 5,264 5,264
Repurchase of share costs (6,578) (6,578)
Net movement in unrealised appreciation of investments (11,345) (11,345)
Losses on foreign exchange 221 (252) (31)
Management fees charged to capital (750) (750)
Finance charges charged to capital (247) (247)
At 30 September 2018 88,422 9,275 97,697


         Capital reserve
Realised Gains/(losses) on sale of investments Unrealised Investment holdings gains/(losses) Total
£000 £000 £000
At 1 October 2016 98,926 5,533 104,459
Net gains on disposal of investments 10,163 10,163
Repurchase of share costs (17,972) (17,972)
Net movement in unrealised appreciation of investments 15,550 15,550
Losses on foreign exchange (211) (211)
Management fees charged to capital (476) (476)
Finance charges charged to capital (129) (129)
At 30 September 2017 90,512 20,872 111,384

15. Financial commitments

At 30 September 2018, there were no outstanding capital commitments (2017: £nil).

16. Custodian’s lien

Under the terms of the Custody Agreement with State Street Bank & Trust Company (“State Street”), the Company has granted a lien over its securities and other assets that are deposited with State Street to cover all sums due in connection with the loan facility and the Custody Agreement.

17. Related party disclosures and transactions with the Alternative Investment Fund Manager

The Company is required to provide additional information concerning its relationship with the Alternative Investment Fund Manager, and details of the investment management fee charged by Baring Fund Managers Limited (“AIFM”) are set out in note 3. The ultimate holding company of the AIFM is Massachusetts Mutual Life Insurance Company, 1295 State Street, Springfield, MA 01111-0001. Fees paid to the Directors and full details of Directors’ interests are disclosed in the Directors’ Remuneration Report above.

18. Risk management policies and procedures

As an investment trust the Company invests in equities and other investments for the long-term so as to secure its investment objective stated above. In pursuing its investment objective, the Company is exposed to a variety of risks that could result in either a reduction in the Company’s net assets or a reduction of the profits available for dividends.

These risks, include market risk (comprising currency risk, interest rate risk, and other price risk), liquidity risk, and credit risk, and the Directors’ approach to the management of them are set out below.

The objectives, policies and processes for managing the risks, and the methods used to measure the risks, that are set out below, have not changed from the previous accounting period.

(a) Market risk

Special considerations and risk factors associated with the Company’s investments are discussed above. The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements – currency risk (see (b) below), interest rate risk (see (c) below) and other price risk (see (d) below). The Board of Directors reviews and agrees policies for managing these risks, which have remained substantially unchanged from those applying in the year ended 30 September 2017. The Company’s AIFM assesses the exposure to market risk when making each investment decision, and monitors the overall level of market risk on the whole of the investment portfolio on an ongoing basis.

(b) Currency risk

Most of the Company’s assets, liabilities, and income, are denominated in currencies other than sterling (the Company’s functional currency, and in which it reports its results). As a result, movements in the rate of exchange between sterling and the currencies of the countries in which the Company invests, which are identified in the table shown in note 9, may affect the sterling value of those items. In addition the Company’s uninvested cash balances are usually held in US Dollars.

Management of the risk

The AIFM monitors the Company’s exposure and reports to the Board on a regular basis.

Income denominated in foreign currencies is converted to sterling on receipt. The Company does not use financial instruments to mitigate the currency exposure in the period between the time that income is included in the financial statements and its receipt.

Foreign currency exposures

At 30 September 2018 monetary assets included cash balances totalling £1,706,322 (2017: £761,741) that were held in US Dollars.

At 30 September 2018 monetary liabilities included a bank loan totalling £9,202,100 (2017: £8,944,211) that was due in US Dollars.

At 30 September 2018 and at 30 September 2017 all of the equity investments were priced in a foreign currency.

Foreign currency sensitivity

The following table illustrates the sensitivity of the revenue return for the year in regard to the Company’s monetary financial assets to changes in the exchange rates for the various currencies to which the Company is exposed.

If sterling had weakened by an average of 10%, this would have had the following effect:

2018 2017
£000 £000
Income statement – profit after taxation:
Revenue return – increase 336 355
Capital return – increase 11,483 13,122
Total 11,819 13,477

If sterling had strengthened by an average of 10%, this would have had the following effect:

2018 2017
£000 £000
Income statement – profit after taxation:
Revenue return – decrease (336) (355)
Capital return – decrease (11,483) (13,122)
Total (11,819) (13,477)

Impact on capital return is disclosed in note 18 (d).

(c) Interest rate risk

Interest rate movements may affect the level of income receivable on cash deposits.

Cash at bank at 30 September 2018 (and 30 September 2017) was held at floating interesting rates, linked to current short-term market rates.

Interest rate movements may affect the interest payable on the Company’s variable rate borrowings.

Management of the risk

The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when borrowing under the bank loan facility.

Interest rate exposure

The exposure at 30 September 2018 of financial assets and financial liabilities to floating interest rates is shown below:

2018 2017
Total (within one year) Total (within one year)
£000 £000
Exposure to floating interest rates:
Cash at bank 1,706 762
Borrowings under bank loan facility (9,202) (8,944)
(7,496) (8,182)

Interest rate sensitivity

The Company is primarily exposed to interest rate risk through its bank loan facility.

Due to the insignificant impact of fluctuations in interest rates no sensitivity analysis is shown.

(d) Other price risk

Other price risk (i.e. changes in market prices other than those arising from interest rate risk or currency risk) may affect the value of the quoted and unquoted equity investments.

Management of the risk

The Board of Directors believe that as the Company’s investment objective is to provide exposure to Emerging European Securities its neutral position in respect of this risk is full exposure to the market as represented by its Benchmark Index. The AIFM has been given discretion around the Benchmark Index to enable it to add value. The amount by which the portfolio diverges from the Benchmark Index is closely monitored by the Board with the goal of ensuring that the risk taken is proportionate to the value added.

Concentration of exposure to other price risk

An analysis of the Company weighting versus Benchmark Index and a sector breakdown and geographical allocation of the portfolio is contained in the Investment Manager’s Report above.

Other price risk sensitivity

The following table illustrates the sensitivity of the profit after taxation for the year and the equity to an increase or decrease of 10% in the fair values of the Company’s equities. This level of change is considered to be reasonably possible based on observation of current market conditions. The sensitivity analysis is based on the Company’s equities at each balance sheet date, with all other variables held constant.

Increase in Decrease in Increase in Decrease in
fair value fair value fair value fair value
2018 2018 2017 2017
£000 £000 £000 £000
Income statement – profit after taxation:
Capital return – increase/(decrease) 11,483 (11,483) 13,122 (13,122)
Total profit after taxation other than arising from interest rate or currency risk – increase/(decrease) 11,483 (11,483) 13,122 (13,122)
Equity 11,483 (11,483) 13,122 (13,122)

(e) Liquidity risk

This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.

Management of the risk

Liquidity risk is not significant as the majority of the Company’s assets are investments in quoted equities that are readily realisable.

The Company has a bank loan facility of US$12 million of which £9,202,100 (2017: £8,944,211) was drawn down at 30 September 2018.

Liquidity risk exposure

The contractual maturities of the financial liabilities at 30 September 2018, based on the earliest date on which payment can be required were as follows:

2018 2017
Total Total
(due within one year) (due within one year)
£000 £000
Bank loan 9,202 8,944
Other creditors and accruals 456 1,544
9,658 10,488

The Board gives guidance to the AIFM as to the maximum amount of the Company’s resources that should be invested in any one holding.

(f) Credit risk

The failure of the counterparty to a transaction to discharge its obligations under that transaction could result in the Company suffering a loss.

Management of the risk

This risk is not significant, and is managed as follows:

• the majority of transactions take place through clearing houses on a delivery versus payment basis;

• investment transactions are carried out with an approved list of brokers, whose credit-standing is reviewed periodically by the AIFM, and limits are set on the amount that may be due from any one broker; and

• cash at bank is held only with reputable banks with high quality external credit ratings.

None of the Company’s financial assets are secured by collateral or other credit enhancements.

(g) Fair values of financial assets and liabilities

Financial assets and liabilities are either carried in the balance sheet at their fair value (investments), or the balance sheet amount if it is a reasonable approximation of fair value (amounts due from brokers, dividends receivable, accrued income, amounts due to brokers, accruals and cash balances).

The table below sets out fair value measurements using the fair value hierarchy.

Financial assets at fair value through profit or loss at 30 September 2018: Level 1 2018
£000 £000
Equity investments 114,825 114,825
Total 114,825 114,825


Financial assets at fair value through profit or loss at 30 September 2017: Level 1 2017
£000 £000
Equity investments 131,220 131,220
Total 131,220 131,220

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset as follows:

Level 1 – valued using quoted prices in active markets for identical assets.
Level 2 – valued by reference to valuation techniques using observable inputs other than quoted prices included within Level 1 (there are no Level 2 investments at 30 September 2018).
Level 3 – valued by reference to valuation techniques using inputs that are not based on observable market data (there are no Level 3 investments at 30 September 2018).

The valuation techniques used by the Company are explained in the accounting policies note above.

19. Subsequent events

There are no significant events after the year end of reporting period requiring disclosure.

The Alternative Investment Fund Manager & AIFMD disclosures (unaudited)

The Alternative Investment Fund Manager

Baring Fund Managers Limited (the “AIFM”), authorised by the Financial Conduct Authority as an Alternative Investment Fund Manager, under the Alternative Investment Fund Managers Directive (“AIFMD”), is the appointed AIFM to the Company.

AIFMD Disclosures

Pre-investment Disclosures

The AIFM and the Company are required to make certain disclosures available to investors in accordance with the AIFD. Those disclosures that are required to be made pre-investment can be found on the Company’s website under the prospectus and literature heading, the document is titled “Pre-investment disclosures”, dated September 2016. There have been no material changes to the disclosures contained within the document since publication in July 2015.

Leverage Disclosure

For the purposes of this disclosure, leverage is any method by which the Company’s exposure is increased, whether through borrowing cash or securities, or leverage embedded in contracts for difference or by any other means. The AIFMD requires that each leverage ratio be expressed as the ratio between a Company’s exposure and its NAV, and prescribes two required methodologies, the Gross Methodology and the Commitment Methodology (as set out in AIFMD Level 2 Implementation Guidance), for calculating such exposure.

Using the methodologies prescribed under the AIFMD, the leverage ratios of the Company calculated on a Gross Basis was 106% and on a Commitment Basis was 109% as at 30 September 2018.

Remuneration Disclosure

The Investment Manager’s Remuneration Policy ensures that the remuneration arrangements of AIFMD remuneration “Code Staff” as defined in “ESMA’s Guidelines on Sound Remuneration Policy under AIFMD, ESMA 2013/201” (the ‘ESMA Guidelines’), (as amended) are:

(i) consistent with and promote sound and effective risk management and do not encourage risk-taking which is inconsistent with the risk profile, rules or instruments of incorporation of the Investment Manager or the Fund; and

(ii) consistent with the Investment Manager’s business strategy, objectives, values and interests and includes measures to avoid conflicts of interest.

The Investment Manager is also subject to the FCA’s AIFM Remuneration Code (SYSC 19B). An AIFM firm must comply with the AIFMD remuneration principles in a way and to the extent that is appropriate to its size and business.

Remuneration Committee

Due to the size and nature of the AIFM, the Board of Directors of the AIFM (the “Manager Board”) considers it appropriate to dis-apply the requirement to appoint a remuneration committee.

The AIFM forms part of the Barings Europe Limited (UK) group of companies (“Barings”). Barings has appointed two remuneration committees to take remuneration decisions, namely the Remunerations Committee and the Senior Compensation Committee.

The remuneration committees ensure the fair and proportionate application of the remuneration rules and requirements and to ensure that potential conflicts arising from remuneration are managed and mitigated appropriately.

AIFMD Remuneration Code Staff

The AIFM must determine its Code Staff, whose professional activities have a material impact on its risk profile. Code Staff consists of staff whose professional activities have a material impact on the risk profiles of the AIFM or the Fund, which includes senior managers, controlled functions and risk takers.

a) Senior Managers and Controlled Functions

The AIFM Board currently comprises of three directors (the “AIFM Directors”). The AIFM Directors have waived their entitlement to receive a director’s fee from the AIFM.

The AIFM has no employees and therefore there are no other controlled functions or senior management employed by the AIFM.

b) Risk Takers

Risk takers as defined by the AIFM’s Remuneration Policy are as follows:

i. The Permanent Risk Management Function (“PRMF”): The AIFM’s PRMF is comprised of an Organisational Risk team and an Investment Risk team. The individuals who discharge these functions are Code staff and are remunerated by the Investment Manager. Their remuneration is not directly linked to the performance of the Company.

ii. Portfolio Managers: The AIFM has delegated investment management to the Investment Manager and accordingly the Portfolio Managers are remunerated by the Investment Manager under an equivalent remuneration regime (the Investment Manager and its subsidiaries are subject to remuneration rules contained in the Capital Requirements Directive (“CRD”) and these are considered to be equally as effective as those contained in the AIFMD).

Remuneration Disclosure: Baring Emerging Europe Plc

The table below summarises the fixed and variable remuneration paid to AIFMD Remuneration Code Staff as well as other Barings’ staff (remunerated by the Investment Manager) that carry out activities for the AIFM, for the AIFM’s financial year ending 31 December 2017. The disclosures below show remuneration relevant to the Company, apportioned using the Investment Manager’s group total Assets Under Management (“AUM”).

AIF Level Number of beneficiaries Total Fixed Remuneration for the period Total Variable Remuneration for the period Total Remuneration
AIFM Staff 328 £237,648 £450,763 £688,411
Code Staff 6 £135,968 £361,377 £497,345


1. AIFM staff: this assumes all UK staff employed by the Investment Manager carry out some activities on behalf of the AIFM. Remuneration is apportioned based on an AUM basis. Other than the Code Staff noted above, none of the staff are considered to be senior managers or others whose actions may have a material impact on the risk profile of the Fund.

2. Code staff: These are as defined in the Investment Manager’s Remuneration Policy; no direct payments are received by Code Staff from the AIFM. Remuneration is paid by the Investment Manager and is apportioned on an AUM basis.

3. Variable remuneration consists of cash bonus and deferred awards awarded in the period.

4. The Company does not pay either performance related fees or carried interests to any person.


We assess our performance using a variety of measures that are not specifically defined under FRS and therefore termed APMs. The APMs that we use may not be directly comparable with those used by other companies.

Net Asset Value or NAV

The value of total assets less current liabilities. The net asset value divided by the number of shares in issue produces the net asset value per share. NAV divided by number of ordinary shares in issue at the year-end (see note 13).


Discount is the amount by which the Ordinary share price is lower than the net asset value per Ordinary share. The discount is normally expressed as a percentage of the net asset value per share. NAV minus share price divided by NAV.

If the share price of an investment trust is lower than the NAV per share, the Company’s shares are said to be trading at a discount. The discount/premium is shown above. The Board monitors the level of discount or premium and consideration is given to ways in which share price performance may be enhanced, including the effectiveness of marketing and share buy-backs, where appropriate.

Return Per Share

Return per share is calculated using the net return on ordinary activities after finance costs and taxation divided by the weighted average number of shares in issue for the financial year (see note 8). The Directors also regard return per share to be a key indicator of performance.

Total Return

Total return is the increase/(decrease) in NAV per share plus the dividends paid, which are assumed to be reinvested at the time the share price is quoted ex-dividend.

Risk-Adjusted Returns

Risk-adjusted return refines an investment’s return by measuring how much risk is involved in producing that return.

Ongoing Charges

The ongoing charges represent the ratio of expenses as a percentage of average daily shareholders’ funds calculated as per the Association of Investment Companies industry standard method. Annualised ongoing charges, including those charged to capital but excluding loan interest, incurred by the Company, divided by the average NAV reported in the year.

Ongoing charges for the year = management fees of £935,000 + other operating expenses of £836,000 = £1,771,000 (see notes 3 and 4).
Average daily shareholders’ fund for the year = £118,175,000
£1,771,000/£118,175,000 = 1.50%


Two methods of calculating such exposure are set out in the AIFMD, gross and commitment.

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 divided by Total Shareholders’ funds.

The commitment method takes into account hedging and other netting arrangements designed to limit risk, offsetting them against the underlying exposure. Investments plus current assets divided by Total Shareholders’ funds.

Growth at a Reasonable Price or 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.

Environmental, Social and Governance or 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.

ESG factors are a subset of non-financial performance indicators which include sustainable, ethical and corporate governance issues such as managing the company’s carbon footprint and ensuring there are systems in place to ensure accountability.

Comparator Benchmark

A comparative benchmark is used to measure the performance of an investment fund for the purpose of tracking relative return and defining the asset allocation or a portfolio.

Directors and Officers


Frances Daley, Chairman
Calum Thomson
Nadya Wells
Jonathan Woollett
Ivo Coulson

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


Alternative Investment Fund Manager

Baring Fund Managers Limited
20 Old Bailey
London EC4M 7BF

Telephone: 020 7628 6000
Facsimile: 020 7638 7928


15 Canada Square
London E14 5GL


State Street Trustees Limited
20 Churchill Place
Canary Wharf
London E14 5HJ


State Street Bank & Trust Company Limited
20 Churchill Place
Canary Wharf
London E14 5HJ


Northern Trust Global Services SE
50 Bank Street
Canary Wharf
London E14 5NT

Telephone: 0207 982 2000

Registrars and transfer office

Link Asset Services
The Registry
34 Beckenham Road
Kent BR3 4TU

Telephone: 0871 664 0300
Overseas: +44 371 664 0300

(Calls cost 12p per minute plus your phone company’s access charge. Calls outside the United Kingdom are charged at the applicable international rate.)

Lines are open 9:00 am - 5:30 pm, Monday to Friday



Please note this should be accessed via the Barings website ( Please select Investment Trust.


The Annual General Meeting of the Company will be held on Thursday, 10 January 2019 at 2.30pm at 20 Old Bailey, London, EC4M 7BF

A copy of the Annual Report and Accounts will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated 


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Annual Financial Report - RNS