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MarketScreener Homepage  >  Equities  >  London Stock Exchange  >  Aberdeen Frontier Markets Invtmnt Co Ltd    AFMC   GG00B1W59J17

ABERDEEN FRONTIER MARKETS INVTMNT CO LTD

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Advance Frontier Markets Fund Limited : Final Results

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09/18/2013 | 01:55pm EDT
Advance Frontier Markets Fund Ltd

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18 September 2013

ADVANCE FRONTIER MARKETS FUND LIMITED

Announcement of results for the year ended 30 June 2013

INVESTMENT OBJECTIVE

The objective of the Company is to generate long-term capital growth for its Shareholders.  The Investment Manager invests predominantly in a diversified portfolio of funds and other investment products which derive their value from Frontier Markets.  The proportion of the portfolio invested in each component of Frontier Markets varies according to where the Investment Manager perceives the most attractive investment opportunities to be.  Investee funds may include closed and open-ended funds, exchange traded funds, structured products, limited partnerships and managed accounts.

PERFORMANCE

For the year ended 30 June 2013

Net Asset Value ("NAV") per share (in US dollar terms)

+20.5%

Share price (in US dollar terms)

+19.3%

As at 30 June 2013

NAV per share

$0.8836

Share price (in GB pounds)

£0.5188

Share price (in US dollars)

$0.7891

Net Assets

$149.7m

CHAIRMAN'S STATEMENT 

On behalf of your Board, I am pleased to present to you the Annual Report for Advance Frontier Markets Fund Limited ("AFMF", "the Company", "the Fund") for the financial year ended 30 June 2013.

AFMF's Investment Manager seeks to exploit investment opportunities in Frontier Markets in three principal ways;

·    Manager selection - allocating capital to exceptional specialist managers,

·    Geographic allocation - committing capital to the most attractive markets,

·    Discount opportunities - investing in closed end investment companies trading at substantial discounts to asset value with the expectation that such discounts will reduce in future.

It was pleasing to see frontier markets deliver strong returns during the year. The Investment Manager provides greater detail on the asset class, portfolio and the specifics of individual markets and holdings in its report.

I am of the view that, despite outperforming both emerging and developed markets over the period, the case for investing in frontier markets remains strong with the asset class offering a compelling mix of attractive valuations and solid corporate profits growth combined with low correlation between markets and lower levels of volatility than generally perceived by investors.

Turning to corporate developments, I would like to remind shareholders of the comments I made in the Company's half yearly report drawing shareholders' attention to the announcement made by the Company on 10 December 2012. At the time of the Company's annual general meeting in 2016, the Board will put proposals to shareholders that will provide them with the opportunity to fully realise their investment in the Company at the then prevailing net asset value less costs. The Directors intend to offer shareholders the same opportunity at five yearly intervals thereafter. I would also highlight the fact that in accordance with the Company's admission document, a resolution that the Company should continue in existence will be proposed at the Annual General Meeting in 2014. It is the Board's intention thereafter to replace the commitment to put a similar resolution to shareholders every three years with the exit opportunity at five yearly intervals noted above.

The Board considered several options for reducing the discount to net asset value at which shares in the Company trade and believes that offering a periodic exit at the then prevailing net asset value less costs is an attractive solution for shareholders while avoiding any immediate impact on the liquidity or total expense ratio of the Company.

The discount at which the Company's shares trade narrowed from 14.9% just prior to the aforementioned announcement to 10.6% at the close of the year. This is hopefully the start of a trend that should accelerate as frontier markets attract interest from global investors.

A Special Resolution will be put forward at the Annual General Meeting to amend the Company's Memorandum and Articles of Incorporation to take into account changes in applicable law arising from The Companies (Guernsey) Law, 2008 ("the Law").  A draft of the proposed Memorandum and Articles of Incorporation is being sent out with this Annual Report and details of the main changes can be found in the Directors' Report.

Once again I would like to thank our shareholders for their continued support and my fellow Directors and the Investment Manager for their efforts over the past year.

 Grant Wilson

18 September 2013

INVESTMENT MANAGER'S REPORT

Performance review

Frontier markets performed strongly during the financial year, with the MSCI Frontier Markets Index returning 23.0% in US dollar terms. This was ahead of returns from both developed and emerging markets. The MSCI World and Emerging Markets Indices rose by 18.6% and 2.9% respectively.

The strength of frontier markets was in part the result of renewed interest in and resultant flows into the asset class, with investors tempted by attractive valuations, the solid structural growth story, strong fundamentals including favourable demographics, high productivity growth and low debt levels.

The outperformance of frontier markets over emerging markets during the financial year should be taken in context as frontier markets lagged both emerging and developed markets by a significant margin during the recovery from the financial crisis.

Figure 1: Performance of MSCI Frontier Markets Index compared with Emerging and Developed Markets over year to 30 June 2013*

Source: Bloomberg, MSCI, net total return in US dollar terms, one year to 30 June 2013

AFMF delivered a Net Asset Value (NAV) return of 20.5% during the financial year.

The share price rose by 19.3% and the discount to NAV at the end of the year was 10.6%.

The largest contributors to AFMF's performance were its holdings in Sub-Saharan Africa, the Middle East, Pakistan, Vietnam and Romania. Less helpful was the Fund's exposure to natural resource funds, where the sector performed poorly as Chinese growth concerns impacted both sentiment and the price of most commodities.

Figure 2: Advance Frontier Markets Fund Performance Report


12 Months

3 Years

5 Years

Since Inception

AFMF NAV

20.5%

21.8%

-14.3%

-8.8%

AFMF Price

19.3%

26.5%

-27.8%

-21.1%

Source: Advance Emerging Capital Limited, Bloomberg, all figures in US dollar terms to 30 June 2013.

Inception was 15 June 2007 (initial NAV per share after share issue expenses was USD 0.9685).

Market Environment

The returns from various frontier and other equity markets over the twelve months are illustrated in figure 3. Although the overall frontier market index and the majority of markets rose there was a broad range of returns from individual markets. The lack of correlation between individual market returns continues to provide us with the ability to construct a diversified portfolio that delivers less volatile returns than most investors would expect from the asset class.

In Africa there was a clear split in terms of performance between the North African and Sub-Saharan markets. Political uncertainty continued to negatively affect markets such as Egypt (-11.9%) and Tunisia (-4.9%) while their southern counterparts Nigeria (+69.2%), Zimbabwe (+60.0%) and Kenya (+57.4%) delivered strong gains. In Nigeria and Kenya, strong earnings growth was the key driver of returns, with overall market valuation multiples only expanding modestly. Sentiment in Kenya was helped by peaceful presidential elections in March. In the case of Zimbabwe, equity valuations have risen as the economy continues to recover from its hyperinflationary crisis, although following the recent re-election of President Mugabe the market gave up some of its prior gains.

With the exception of the United Arab Emirates (UAE) (+61.9%), the main Middle Eastern markets generally provided more modest gains (Qatar +16.0, Saudi Arabia +15.1%, Kuwait +3.5%). In the UAE there is growing evidence that the economies of both Dubai and Abu Dhabi are recovering. In Dubai, a previously moribund real estate market appears to have bottomed and transaction volumes, rents and prices are picking up, while in Abu Dhabi, government spending is driving the recovery. Qatar continues to be something of a conundrum with a positive macro story failing to translate into anything more than modest stock market returns. The Saudi Arabian economy and stock market continued to perform well, helped by an accommodative fiscal and monetary policy stance from the authorities there, partly aimed at reducing the risk of contagion from the ongoing "Arab Spring".

In Asia, Pakistan led the way with a rally of +37.5%. The market gained impetus following the resounding victory by opposition candidate Nawaz Sharif in the March elections. This is the first time in Pakistan's history a civilian party has peacefully transitioned power to another civilian party. Sharif has a strong mandate to implement policy given his powerful majority in parliament; economic revitalisation and law and order will be his key priorities. Sri Lanka (+36.1%) also made good headway buoyed by renewed interest from foreign investors. Vietnam (-2.5%) proved to be somewhat disappointing as concerns over bad debts in the banking sector diminished investor appetite in the first half of the financial year. An asset management company was established late in the period which will issue bonds in exchange for non-performing loans but it remains to be seen how successful the scheme will be in terms of addressing the underlying problem. In Central Asia, the substantial correction in the commodity sector also held back returns in Kazakhstan which managed only a modest gain of 11.0% despite the market trading on deeply depressed valuations.

The smaller markets of Eastern and Central Europe also enjoyed strong returns. The Estonian benchmark (which is composed of only a handful of companies) rallied by 50.1% on stock specific news. This performance is we believe, out of synch with the prospects for the economy itself. The Ukraine, however, had a disappointing year and its market dropped by 21.3% as fears over currency devaluation combined with a second recession in five years deterred foreign investors.

Argentina (+17.7%) delivered a solid return, albeit off a low base, despite rising concerns about unorthodox economic management and a continuing legal battle with holders of its defaulted debt. The market continues to offer some of the most attractively valued companies in the frontier market universe. Mid-term elections in October appear to present a challenge to Cristina Kirchner's previously outright political control.

Figure 3: Market returns over the year to 30 June 2013 in US dollar terms*

Source: Bloomberg, MSCI, S&P and local market indices, total returns in US dollar terms, one year to 30 June 2013

Portfolio

The Fund's asset allocation at the end of the period is shown on page 6. In terms of regional exposure AFMF continued to maintain significant allocations to Africa, Asia and the Middle East.

Africa remains the Fund's largest regional exposure. Over the year the allocation rose to just over 38% of NAV, with most of that increase the result of the strong performance from Sub-Saharan markets. Nigeria represents by far the largest country weighting within the portfolio at 14.2%. We continue to view Nigeria as the quintessential frontier market, with attractive demographics, strong GDP growth and scope for massive productivity gains through infrastructural improvements. This combination of factors is likely to drive the market significantly higher over the next decade. Valuations are now high in the consumer sector but remain reasonable in the banking sector.  In Zimbabwe we were pleased with the market's strong performance, but the future drivers are less tangible than in other markets and we chose to trim the allocation at year end. We continue to explore ways to access East Africa more directly, given the attractiveness of the region's stock exchanges, with Kenya a particular focus as a hub for regionally oriented corporates. We remain in "wait and see" mode in relation to Northern Africa, as the political backdrop in Tunisia, Morocco and Egypt continues to cloud the long term outlook.

In the Middle East, the Saudi Arabian and Qatari markets remain our two preferred plays. Growth remains strong in Saudi Arabia, supported by high oil prices and government spending. Our investment focus there remains on the sectors of the market that benefit from that domestic economic strength. Qatar also offers strong growth, some interesting bottom up investment opportunities and should also see support from the recent MSCI upgrade to Emerging Market status that takes effect in mid 2014 and will bring the market to the attention of a broader range of international investors.

In Asia, which represented 19.2% of the portfolio at period end, Pakistan's weighting increased materially as we added to that market and it subsequently performed very strongly. As noted above the market was given further impetus from the resounding victory by opposition candidate Nawaz Sharif in the recent elections. Economic data presents a mixed picture, but the market remains reasonably valued despite its strong run and still trades at a discount to the rest of the region.  The Fund's holdings in Pakistan are closed ended vehicles trading on discounts in excess of 30% with portfolios invested in blue chips equities. In Vietnam, we maintained a material exposure on the grounds of attractive closed end fund discounts and a favourable long term outlook although we were disappointed with weaker growth and the slow progress on addressing bad debt issues in the banking sector.

In Central Asia, Kazakhstan's weighting declined during the period as a result of corporate activity in Tau Capital which entered liquidation and began returning capital to shareholders. The liquid part of the portfolio was sold down over a relatively short time period while the two remaining private equity holdings will require a somewhat longer period in order to best realise value. We continue to hold a constructive view on the Kazakh economy in general, with valuations again being supportive.

In Eastern and Central Europe, Romania remains AFMF's main exposure in the region through a position in Fondul Proprietatea, a closed end fund, which trades on a discount to NAV of 46% and should benefit from progress in the government's privatisation program.

Latin America remains underrepresented in the portfolio on account of continued challenges facing the main frontier market there, Argentina. We continue to monitor the political situation very closely for any signs that a turning point has been reached, beyond which more rational economic management may be adopted. Distressed valuations offer the potential of substantial returns under such circumstances.

At the end of the period the portfolio was composed of 37 holdings, with the top 20 holdings representing 85.4%. The fund was 62.9% invested in open ended funds, 31.8% in closed end funds and 2.2% in individual equities. The average discount to NAV on the closed end holdings was 21.2%.

Further details of the Fund's largest ten holdings at the year end:

AshmoreEMM Middle East Fund (7.4% of NAV)

Our core regional Middle Eastern fund had a strong period, with significant value added from stock picking, especially in the UAE. The fund's NAV rose by 41.8%. We added to the holding during the period.

EFG Hermes Saudi Arabia Equity Fund (7.2% of NAV)

EFG Hermes is the largest and most established investment house in the Middle East and their open ended Saudi Arabian fund offers one of the few attractive routes available for AFMF to invest in that market. Financials and petrochemicals are the dominant sectors within the portfolio. Performance during the period was good with the NAV increasing by 27.7% compared with a total return of just 16.1% from the local Tadawul Index.

Africa Opportunity Fund (7.1% of NAV)

The period under review was rewarding, with an NAV total return of 26.6%. Performance was helped by meaningful positions in Ghana and Nigeria but held back slightly by exposure to natural resources companies and ongoing litigation relating to Shoprite shares which are listed on the Lusaka stock exchange. The manager remains confident of a favourable solution in regard to its holding in Shoprite.  The discount to NAV finished the period where it started, at 12.9%, but was subject to considerable volatility, exceeding 20% on occasion whilst also trading as narrowly as 3.5%. The fund has a continuation vote in 2014 and we are in consultation with the fund's managers, board and advisors as to how to make the fund attractive to a broader audience and, in doing so, improve liquidity and reduce the discount to NAV.

Sustainable Capital Nigeria Fund (6.3% of NAV)

The fund did a good job of keeping up with a rampant Nigerian equity market during the period, with the NAV rising by 59.3%. The portfolio was largely unchanged during the year, with a continued focus on buying the best managed domestically focused companies. Just over 60% of the portfolio was invested in financials at the end of the period, which we and the manager continue to believe offer the best value at present.

Qatar Investment Fund (5.7% of NAV)

The Company's only dedicated Qatar vehicle delivered 19.4% on a price return basis and 17.2% on an NAV basis, outperforming the 16.0% gain in the MSCI Qatar Index. AFMF also benefitted from corporate activity as the fund conducted a tender offer for 20% of its shares in issue at a 1% discount to NAV less costs in conjunction with the passing of its continuation vote in late 2012. Two further tenders for 10% of shares in issue are scheduled for December 2013 and 2014 if the twelve month average discount is wider than 10%. The discount at the end of the period was 12.6%.

Africa Emerging Markets Fund (5.6% of NAV)

The second AshmoreEMM managed fund in the portfolio, Africa Emerging delivered a strong performance with a rise in the NAV of 30.8% driven by the fund's substantial exposure to Nigeria and particularly banks.

VinaCapital Vietnam Opportunity Fund (5.3% of NAV)

This multi-strategy Vietnam vehicle held a discontinuation vote shortly after period end which saw a large majority of shareholders support the continuation of the company. In the lead up to the vote the Board brought forward proposals that introduced a range of corporate governance enhancements and also revised the investment management and performance fees to re-align the manager's interests with those of shareholders. Performance during the year was more than satisfactory in a difficult year for the Vietnamese market with the share price gaining 42.1% and NAV up by 19.2% while the MSCI Vietnam Index fell by 2.5%. The fund's shares traded at a discount to NAV of 25.7% at year end.

Sustainable Capital Africa Consumer Fund (5.0% of NAV)

Following on from the successful launch of Sustainable Capital Nigeria Fund, we again elected to partner with this Cape Town and Mauritius based group to launch a fund focussed on African consumer companies. An initial investment was made in March 2013.

The fund's remit is to invest across Africa (excluding South Africa) in companies that offer exposure to sectors including beverages, consumer goods, food, pharmaceuticals, real estate and micro finance. We believe that such investments will generate significant returns for investors over the long term given Africa's favourable demographics and rising incomes.  

Duet Africa Opportunities Fund (4.9% of NAV)

The fund was amongst the best performing of all African funds during the period, with an NAV return of 49.7%. This was driven by stock picking and helped by the fund's focus on Sub-Saharan markets, particularly Nigeria and Kenya.

Sturgeon Central Asia Equities Fund (4.8% of NAV)

This new investment was initiated in part to replace exposure to Central Asian markets following the liquidation of the majority of Tau Capital's assets. Sturgeon's credentials in the region are solid as evidenced by the fact that they were appointed by the board of Tau in mid-2012 (following a review of its investment management arrangements) to manage the liquidation of the listed equity portfolio. The Sturgeon Central Asia Equities Fund is a Luxembourg-domiciled UCITS IV compliant fund that was launched in October 2012 although the team has been managing money in the region since 2006. The fund provides AFMF with exposure to countries such as Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Mongolia, Georgia and Azerbaijan.

Market Outlook

The strong performance of frontier markets relative to emerging markets during the year was pleasing. Frontier markets have not been affected by the capital outflows seen in more mainstream emerging markets. In the Middle East, currencies pegged to the US dollar have unquestionably helped, as has a reasonably stable oil price. In Sub-Saharan Africa it is noticeable that the major currencies held up well.  

In June, MSCI announced upcoming changes to its family of indices, which redress some of the more glaring anomalies in its current country classifications. Qatar and the UAE will be promoted from frontier to emerging market status in May 2014. Morocco will be downgraded in the opposite direction. Greece will, somewhat belatedly, make the move back from developed market to emerging market status in November 2013. The practical implications of these changes for AFMF are limited, but the general trend is unmistakeable. Over the long term, we would expect more of the struggling small emerging markets of today to eventually be reclassified downwards, whilst the rapidly growing, sizeable and relatively liquid frontier markets will become candidates for promotion.

We are resisting complacency though. Recent events in Egypt and Tunisia highlight that political risk remains highly unpredictable and the biggest risk (ahead of corporate governance risk) when investing in frontier markets. Recent elections in Zimbabwe proved to be a case in point with the market selling off sharply post the announcement of President Mugabe's re-election. The second half of the calendar year will also see mid-term elections in Argentina, which could determine the political fate of President Kirchner, another controversial leader. Recent protests have been indicative of Kirchner's dwindling support. We will be watching closely in the hope of an opportunity to add to AFMF's exposure on current low stock market valuations and the prospect of more orthodox economic management.  We will also continue to monitor developments in Egypt and Tunisia, where we may see parliamentary and/or presidential elections by year end, which could give some visibility on the political, social and economic outlook in the short and medium-term.

From a portfolio perspective, we anticipate modest shifts away from those areas that have performed well for us and where pricing anomalies have been eroded (Sub-Saharan Africa) and into those areas that offer more appealing value and growth (Middle East, Eastern Europe, Central Asia), at all times endeavouring to do so through the most attractive vehicles available to us.

Advance Emerging Capital Limited

18 September 2013

he tables and charts are included in the Annual Report which can be found on the Company's website, http://www.frontiermarketsfund.com

MEMORANDUM AND ARTICLES OF INCORPORATION

The Notice of the Annual General Meeting includes a Special Resolution to amend the Company's Memorandum and Articles of Incorporation to take into account changes in applicable law arising from The Companies (Guernsey) Law, 2008 ("the Law").

A number of administrative and substantive changes to the Memorandum and Articles of Incorporation are proposed, in particular, without prejudice the generality of the foregoing:-

·    Memorandum - this is much simplified - note that a general, unrestricted objects clause is now permissible.

·    Definitions - it will be noted that there are a number of new definitions to conform with the Law and terms used therein.

·    Article 4 - issue of shares - this has been simplified and clarified.  However, the basic principle remains that any issue of shares is subject to the pre-emption provisions in Article 4.3 unless and to the extent that the Company in general meeting has resolved to the contrary.

·    Articles 5 and 6 - rights of members and class rights - these Articles have been simplified and clarified and, in the case of class rights, brought into line with the Law.

·    Article 14 - general restrictions on registration of shares - the powers of the directors in this regard have been slightly expanded by the introduction of Article 14.1(v).

·    Article 17 - general meetings - this has been clarified and amended to bring it into compliance with the Law.

·    Article 18 - notice of general meetings - this has been expanded to bring it into compliance with the Law.

·    Article 19 - proceedings of general meetings - this has been expanded to bring it into compliance with the Law.

·    Article 20 - votes of members/proxies - this has been expanded to bring it into compliance with the Law.

·    Article 21 - written resolutions - this new provision reflects the enabling powers in the Law.

·    Article 22 - class meetings - this has been amended to reflect the Law which is more restrictive in terms of the passing of resolutions to amend the rights of any particular class of shareholders.

·    Article 28 deals with conflicts of interest/transactions with directors and now reflects the mandatory provisions of Section 162 of the Law in terms of disclosure.

·    Article 31 - Secretary and Resident Agent - this had been updated to reflect the current provisions of the Law.  The engagement of a Company Secretary is not mandatory and its duties shall be largely as agreed between the Directors and Secretary, subject only to mandatory provisions of the Law from time to time. 

·    Article 34 - this reflects the new structure of the Law with regard to the declaration of dividends.  Broadly the law requires a solvency test to be passed and certified by the board. 

·    Article 37 - Accounts and Audit - these expanded provisions reflect the Law as it now stands.

·    Article 38 - Notices - these provisions reflect the Law as it now stands and facilitate electronic communications.

·    Article 40 - Indemnity - this has been redrafted to reflect the mandatory provisions of Section 157 of the Law in terms of permitted director indemnities.

A draft of the proposed Memorandum and Articles of Incorporation is enclosed herewith.

A black line of the proposed Memorandum and Articles of Incorporation marked against the current Memorandum and Articles of Association adopted on 1 June 2007 may be obtained from the Administrator, Legis Fund Services Limited, by email on fund.enquiries@legisgroup.comor by telephone on +44 (0) 1481 726034 or by accessing the Company's website www.frontiermarketsfund.com.

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2013


Revenue

2013

Capital

Total

Revenue

2012

Capital

Total



$'000

$'000

$'000

$'000

$'000

$'000










Gains/(losses) on investments

-

26,645

26,645

-

(16,799)

(16,799)


Capital losses on currency movements

-

(73)

(73)

-

(16)

(16)


Net investment gains/(losses)

-

26,572

26,572

-

(16,815)

(16,815)


Investment income

1,166

-

1,166

1,500

-

1,500


Total income

1,166

26,572

27,738

1,500

(16,815)

(15,315)


Investment management fees

(509)

(1,017)

(1,526)

(467)

(934)

(1,401)


Other expenses

(620)

-

(620)

(579)

-

(579)


Profit/(loss) on ordinary activities before finance costs and taxation

37

25,555

25,592

454

(17,749)

(17,295)


Finance costs

-

-

-

(23)

(45)

(68)


Profit/(loss) on ordinary activities before taxation

37

25,555

25,592

431

(17,794)

(17,363)


Taxation

(67)

-

(67)

(62)

-

(62)


Profit/(loss) on ordinary activities after taxation

(30)

25,555

25,525

369

(17,794)

(17,425)


Earnings/(loss) per ordinary share

(0.02c)

15.08c

15.06c

0.22c

(10.50c)

(10.28c)










The total column of this statement represents the Company's Statement of Comprehensive Income, prepared under IFRS.  The revenue and capital columns, including the revenue and capital earnings per share data, are supplementary information prepared under guidance published by the Association of Investment Companies. The Company does not have any income or expenses that are not included in the profit/(loss) for the year and therefore the "Profit/(loss) on ordinary activities after taxation" is also the total comprehensive income for the year, as defined by IAS 1 (revised).

All revenue and capital items in the above statement derive from continuing operations.  No operations were acquired or discontinued during the year. 

STATEMENT OF FINANCIAL POSITION AT 30 JUNE 2013





2013

$'000


2012

$'000


Non-current assets

Investments designated as fair value through profit or loss

145,173


116,273



Current assets

Financial commitments paid

1,250


2,828


Other receivables

302


368


Cash and cash equivalents

3,292


4,947



4,844


8,143



Total assets

150,017


124,416



Current liabilities

Other payables

278


202



278


202












Total assets less current liabilities

149,739


124,214







Capital and reserves attributable to equity holders

Share premium account

88,788


88,788


Share purchase reserve

82,319


82,319

Capital reserve

(21,220)


(46,775)

Revenue reserve

(148)


(118)





Total Equity

149,739


124,214


Net assets per Ordinary Share (US cents)

88.36c


73.30c

Exchange rate GBP/USD (mid market)

0.6574


0.6367

Net assets per Ordinary Share (pence)

58.09p


46.67p

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2013










Share premium account

Share

purchase reserve

Capital

reserve

Revenue reserve

Total



$'000

$'000

$'000

$'000

$'000








Opening shareholders' funds


88,788

82,319

(46,775)

(118)

124,214

Profit/(loss) for the year


-

-

25,555

(30)

25,525








Closing equity


88,788

82,319

(21,220)

(148)

149,739







FOR THE YEAR ENDED 30 JUNE 2012










Share premium account

Share

purchase reserve

Capital

reserve

Revenue reserve

Total



$'000

$'000

$'000

$'000

$'000








Opening shareholders' funds


88,788

82,319

(28,981)

(487)

141,639

(Loss)/Profit for the year


-

-

(17,794)

369

(17,425)








Closing equity


88,788

82,319

(46,775)

(118)

124,214

STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2013






2013

$'000


2012

$'000





Operating activities




Cash inflow from investment income and bank interest

1,168


1,224

Cash outflow from management expenses

(2,005)


(1,995)

Cash inflow from disposal of investments

46,261


46,388

Cash outflow from purchase of investments

(46,938)


(45,034)

Cash outflow from foreign exchange costs

(73)


(16)

Cash outflow from taxation

(68)


(62)

Net cash flow (used in)/from operating activities

(1,655)


505





Financing activities




Loan facility and arrangement fee paid

-


(4)

Interest paid

-


(52)

Net cash flow used in financing activities

-


(56)





Net (decrease)/increase in cash & cash equivalents

(1,655)


449









Cash and cash equivalents opening balance

4,947


4,498

Cash (outflow)/inflow

(1,655)


449

Cash and cash equivalentsbalance at 30 June

3,292


4,947




NOTES

1. Accounting polices

Basis of Preparation

The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS), approved by the International Accounting Standards Board and as adopted by the European Union. 

The financial statements give a true and fair view of the state of affairs of the Company as at the end of the year and of the profit or loss for the year and are in accordance with The Companies (Guernsey) Law, 2008.

Under IFRS, the Statement of Recommended Practice (SORP) issued by the Association of Investment Companies has no formal status, but the Company has taken the guidance of the 2009 SORP into account to the extent that it is deemed appropriate and compatible with IFRS and the Company's circumstances. 

The particular accounting policies adopted are described below:

(a)           Accounting Convention

The accounts are prepared under the historical cost convention, except for the measurement at fair value of investments.

(b)           Investments

As the Company's business is investing in financial assets with a view to profiting from their total return in the form of increases in fair value, financial assets are designated as fair value through profit or loss on initial recognition in accordance with IAS 39.  These investments are recognised on the trade date of their acquisition.  At this time, fair value is the cost of investment. 

After initial recognition such investments are valued at fair value which is determined by reference to:

·      market bid price for investments quoted on recognised stock exchanges;

·      net asset value per individual investee funds' administrators for unquoted open-ended funds; and

·      by using other valuation techniques to establish fair value for any other unquoted investments.

Investments are derecognised on the trade date of their disposal.  Gains or losses are recognised in the capital column of the Statement of Comprehensive Income.  

(c)           Income from Investments

Dividend income from ordinary shares and units in open-ended funds deemed equivalent to ordinary shares is accounted for on the basis of ex-dividend dates.  Income from fixed interest shares and securities is accounted for on an accruals basis using the effective interest method. Special Dividends are assessed on their individual merits and are credited to the capital column of the Statement of Comprehensive Income if the substance of the payment is a return of capital; with this exception all other investment income is taken to the revenue column of the Statement of Comprehensive Income.   Bank interest receivable is accounted for on a time apportionment basis.

(d)           Capital Reserves

Profits and losses on disposals of investments and gains and losses on investments held are allocated to the capital reserve via the capital column of the Statement of Comprehensive Income.

(e)           Revenue Reserves

The balance of all items allocated to the revenue column of the Statement of Comprehensive Income in each year is transferred to the Company's revenue reserves.  Any dividends paid by the Company would also be allocated against the revenue reserves of the Company.

(f)            Investment Management Fees

Two thirds of the basic investment management fee is allocated to the capital column of the Statement of Comprehensive Income. The entirety of any performance fee is allocated to the capital column of the Statement of Comprehensive Income. Fees allocated to the capital column are taken to the capital reserve.   

(g)          Foreign Currency

The Company's shares were issued in US dollars and the majority of the Company's investments are priced in US dollars and this is considered to be the functional currency of the Company.  Therefore, it is the Company's policy to present the accounts in US dollars. The Company's shares are traded in Sterling on AIM and the Channel Islands Stock Exchange.

Assets and liabilities held in currencies other than US dollars are translated into US dollars at the market rates of exchange prevailing at the reporting date.  Currency gains and losses arising on retranslating investments are allocated to the capital column of the Statement of Comprehensive Income.  All other currency gains and losses are allocated to the capital or revenue columns of the Statement of Comprehensive Income depending on the nature of the transaction.

(h)          Cash and Cash Equivalents

Cash and Cash Equivalents in the Statement of Cash Flow comprise cash held at the bank or by the custodian.

(i)           Operating segments

IFRS 8, 'Operating segments' requires a 'management approach', under which segment information is presented on the same basis as that used for internal reporting purposes. The Board, as a whole, has been determined as constituting the chief operating decision maker of the Company. The Board has considered the requirements of the standard and is of the view that the Company is engaged in a single segment of business, which is to generate long-term capital growth for its shareholders by investing in a diversified portfolio of funds and other investment products which derive their value from frontier markets.

The Board of directors is responsible for ensuring that the Company's investment objective is followed.  The day-to-day implementation of this has been delegated to the Investment Manager but the Board retains responsibility for the overall direction of the Company.  The Board reviews the investment decisions of the Investment Manager at regular Board meetings.  The Investment Manager has been given full authority to make investment decisions on behalf of the Company in accordance with the investment objective.

(j)            New standards

(i) Standards, amendments and interpretations to existing standards effective 1 July 2012

There are no standards, interpretations or amendments to existing standards that are effective that have had a significant impact on the Company.

(ii) New standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted

At the date of authorisation of these financial statements, the following standards, which have not been applied in these financial statements, were in issue but not yet effective.

IFRS 9, 'Financial instruments', effective for annual periods beginning on or after 1 January 2015, specifies how an entity should classify and measure financial assets and liabilities, including some hybrid contracts. The standard improves and simplifies the approach for classification and measurement of financial assets compared with the requirements of IAS 39.

IFRS 13, 'Fair value measurement', effective for annual periods beginning on or after 1 January 2013, improves consistency and reduces complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs.

The Board is yet to assess the impact that the new standards are likely to have on the financial statements of the Company.

(k) Critical accounting estimates and judgements in applying accounting policies

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results could differ from such estimates. These financial statements have been prepared on a going concern basis which the directors of the Company believe to be appropriate.

The most critical judgements, apart from those involving estimates, that management has made in the process of applying the Company's accounting policies and that have the most significant effect on the amounts recognised in the financial statements are the functional currency of the Company (see Note 1(g)) and the fair value of financial assets designated as at fair value through profit or loss (see Notes 1(b) and 16).

(l) Going concern

The Board has assessed of the Company's financial position as at 30 June 2013 and the factors that may impact its performance in the forthcoming year and are of the opinion that it is appropriate to prepare these financial statements on a going concern basis.

2. Earnings/(loss) per ordinary share

Earnings per share is based on the net gain of $25,525,000 (2012: loss of $17,425,000) attributable to the weighted average of 169,460,000 (2012: 169,460,000) ordinary shares of no par value in issue during the year to 30 June 2013.

Supplementary information is provided as follows: revenue per share is based on the net revenue loss of $30,000 (2012: gains of $369,000) and capital earnings per share is based on the net capital gain of $25,555,000 (2012: loss of $17,794,000) attributable to the above ordinary shares.

3. Share capital

As at 30 June 2013 the Company had 169,460,000 (2012: 169,460,000) ordinary shares in issue.

4. Net assets per ordinary share

Net assets per ordinary share is based on net assets of $149,739,000 (2012: $124,214,000) divided by 169,460,000 (2012: 169,460,000) ordinary shares in issue at the Statement of Financial Position date.

5. Annual report

The annual report was approved by the Board of directors on 18 September 2013.  This is available on the Company's website www.frontiermarketsfund.com and will be sent to shareholders. It will also be available from the registered office of Company and the UK administration agent.

6. Annual General Meeting

The Annual General Meeting of Advance Frontier Markets Fund Limited ("the Company") will be held at 11 New Street, St Peter Port, Guernsey at 3:00 p.m. on 3 December 2013.

REGISTERED OFFICE

11 New Street

St Peter Port

Guernsey

GY1 2PF

UK ADMINISTRATION AGENT

Cavendish Administration Limited

145-157 St John Street

London

EC1V 4RU

For further information please contact:

Advance Emerging Capital Limited (investment manager to Advance Frontier Markets Fund Limited)

Roger Allen                           Tel: +44 (0)20 7016 0030                      Email: rallen@advance-emerging.com

Grant Thornton UK LLP (Nominated Adviser)

Philip Secrett/Melanie Frean              Tel: +44 (0)20 7383 5100

Numis Securities Limited(Nominated Broker)

David Benda                Tel: +44 (0) 20 7260 1275

END


This information is provided by RNS
The company news service from the London Stock Exchange
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NameTitle
John Richard Whittle Chairman
David John Warr Independent Non-Executive Director
Lynne Duquemin Non-Executive Director