Final Results
BlackRock Frontiers Investment Trust plc
Investment Objective
The Company's investment objective is to achieve long term capital growth from
investment in companies listed or operating in Frontier Markets (defined as any
country which is not in either the MSCI Emerging Markets Index or the MSCI
Developed Markets Index).
Summary Investment Policy
The Company will seek to maximise total return by investing in the securities
of companies domiciled or listed in, or exercising the predominant part of
their economic activity in, Frontier Markets.
Overview
Performance record
30 30
September September
2014 2013
US Dollar
Net assets (US$'000) 306,132 255,233
Net asset value per share (cum income) 203.25c 169.45c
Share price (1) 211.58c 178.13c
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Sterling
Net assets (£'000) (1) 188,819 157,610
Net asset value per share (cum income) (1) 125.36p 104.64p
Share price 130.50p 110.00p
------- -------
Premium 4.1% 5.1%
======= =======
Performance Year Year
ended ended
30 September 30 September Since
2014 2013 inception (3)
% % %
US Dollar
Net asset value per share (with
net income reinvested) +21.2 +31.6 +46.2
MSCI Frontier Markets Index (NR (2)) +30.0 +21.8 +38.3
MSCI Emerging Markets Index (NR (2)) +4.3 +1.0 -0.3
Ordinary share price (with net
income reinvested) +20.1 +43.6 +49.6
Sterling
Net asset value per share (with
net income reinvested) +21.1 +31.2 +40.5
MSCI Frontier Markets Index (NR (2)) +29.9 +21.4 +33.0
MSCI Emerging Markets Index (NR (2)) +4.2 +0.7 -4.1
Ordinary share price (with net
income reinvested) +20.0 +43.2 +43.6
1 Based on an exchange rate of 1.6213 at 30 September 2014 and 1.6194 at
30 September 2013.
2 Net return indices calculate the reinvestment of dividends net of
withholding taxes using the tax rates applicable to non-resident institutional
investors.
3 The Company was incorporated on 15 October 2010 and its shares were admitted
to trading on the London Stock Exchange on 17 December 2010.
Overview
Chairman’s statement
I am pleased to present the Annual Report to shareholders of the BlackRock
Frontiers Investment Trust plc for the year ended 30 September 2014.
OVERVIEW
Since your Company was launched in December 2010, Frontier Markets have
performed well, returning 38.3%. This represents a significant outperformance
over mainstream Emerging Markets which have been volatile and have fallen
by 0.3% over the same period. It is pleasing to note that the Company has
outperformed the Frontier Markets Index over that time, returning 46.2%,
an outperformance of 7.9% (all calculations are on a US dollar basis, with
income reinvested). This performance was recently recognised by Investment
Week who awarded us the Investment Company of the Year Award 2014 in their
Emerging Markets category.
For the year under review, Frontier Markets continued to perform strongly,
with the MSCI Frontier Markets Index increasing by 30.0%, in contrast to the
MSCI Emerging Mar-kets Index, which rose by just 4.3%. Against this backdrop,
the Company’s Net Asset Value (“NAVâ€) per share increased over the year by
21.2% and its share price rose by 20.1% (all calculations on a US dollar
basis with income reinvested).
Within the Frontiers universe, some countries have seen excellent performance
such as Bangladesh which rose by 68%, Argentina which rose by 55% and Sri
Lanka which rose by 27%. Within these countries the Company has been invested
across a wide range of sectors from Banco Macro in Argentina which rose by 65%
to Millat Tractors in Pakistan which rose by 21%. We continue to see improving
economic fundamentals across a range of markets and identify stocks within
these markets on attractive absolute and relative valuations. Whilst these
markets remain attractive, it is always necessary to remember that there are
risks investing in less developed countries.
Since the year end and up to 27 November 2014, the Company’s NAV per share has
fallen by 8.3% and the share price has fallen by 10.8% (both on a US dollar
basis with income re-invested).
REVENUE RETURN AND DIVIDENDS
The Company’s revenue return per share for the year amounted to 6.59 US cents
(30 September 2013: 6.13 US cents). The Directors are recommending the payment
of a final dividend of 4.00 cents per ordinary share in respect of the year
ended 30 September 2014. No final dividend was paid for the year ended
30 September 2013, although instead the Directors declared an additional
special interim dividend of 3.40 US cents in place of the 2013 final dividend;
this special interim dividend was paid early to avoid revenue dilution in
anticipation of the Company’s C Share issue. Together with the interim dividend
of 2.25 US cents per share (2013: 2.00 US cents per share), this represents a
total of 6.25 US cents per share, an increase of 15.7% over total dividends paid
in respect of the year to 30 September 2013. This reflects the increased level
of dividends generated from the Company’s portfolio over the year. The dividend
will be paid on 20 February 2015 to Shareholders on the register of members at
close of business on 30 January 2015. The cost of the dividend amounts to
US$6,024,864.
SHARE CAPITAL
The Directors recognise the importance to investors of ensuring that the
Company’s share price is as close to its underlying NAV as possible.
Accordingly, the Directors monitor the share price closely and will consider
the issue at a premium, or repurchase at a discount, of ordinary shares to
balance supply and demand in the market. At 30 September 2014, the Company
had 150,621,621 shares in issue. There were no share issues or share
buybacks in the year.
For the year under review the Company’s ordinary shares have traded at an
average premium to NAV of 3.1%, and were trading at a premium of 1.3%
on a cum-income basis at 27 November 2014. The Directors have the authority
to buy back up to 14.99% of the Company’s issued share capital (excluding
any shares held in treasury). This authority, which has not so far been
utilised, expires on the conclusion of the 2015 AGM, when a resolution
will be put to shareholders to renew it.
PERIODIC OPPORTUNITIES FOR RETURN OF CAPITAL
At the Company’s fifth Annual General Meeting in 2016, the Board will
provide Shareholders with an opportunity to elect to realise the value
of their ordinary shares at the applicable Net Asset Value (“NAVâ€) per
ordinary share less applicable costs. The route which will be used to
provide shareholders with an exit will depend on the level of uptake
anticipated at the time and will be established following shareholder
consultation. This is likely to be achieved through a tender offer or
a reorganisation of the Company. In all circumstances, the Board will
seek to safeguard the interests of both continuing shareholders and
those electing to realise their investment. If this initial return of
capital is not undertaken in conjunction with a liquidation of the
Company, the Directors intend to offer shareholders further opportunities
to realise the value of their ordinary shares, at the applicable NAV per
ordinary share less costs, at five yearly intervals.
ALTERNATIVE INVESTMENT FUND MANAGERS’ DIRECTIVE
BlackRock Fund Managers Limited (BFM) was appointed as the Company’s
Alternative Investment Fund Manager (AIFM or Manager) on 2 July 2014.
The Board has also appointed BNY Mellon Trust & Depositary (UK) Limited
to act as the Company’s Depositary. In complying with its new regulatory
obligations, the Board takes this opportunity to reassure shareholders
that it continues to act independently of the AIFM and the arrangements
in respect of the management and performance fees remain unchanged.
BlackRock Investment Management (UK) Limited (BIM (UK)) continues to
act as the Company’s Investment Manager under a delegation agreement
with BFM.
ANNUAL GENERAL MEETING
The Annual General Meeting (“AGMâ€) of the Company will be held at
BlackRock’s offices at 12 Throgmorton Avenue, London EC2N 2DL on
Wednesday 11 February 2015 at 12.00 noon. Details of the business
of the meeting are set out in the Notice of Meeting on pages 68 to
71 of the Annual Report and the Investment Manager will be making
a presentation to shareholders on the Company’s progress and the
outlook for Frontier Markets.
OUTLOOK
Sentiment in equity markets continues to be impacted by concerns over
global growth. Equity markets have also been impacted by geopolitical
concerns over events in Ukraine and the Middle East. Frontier Markets
are more sensitive to internal economic and political developments than
their Emerging Market and global peers which has helped them to outperform
despite this challenging backdrop. With lower levels of indebtedness,
good prospects for underlying growth and low correlation with both Developed
and Emerging Markets, the Frontier Markets universe continues to offer
considerable diversification benefits and is an attractive option for long
term investors.
AUDLEY TWISTON-DAVIES
Chairman
1 December 2014
Investment manager’s report
MARKET COMMENTARY
In the 12 months to 30 September 2014, the MSCI Frontier Markets Index performed
strongly, returning +30.0%. This is in contrast to the MSCI Emerging Markets
Index, which endured another volatile period, ending the year returning +4.3%
(all calculations are on a US dollar basis with income reinvested).
Frontier equity markets from the Middle East to Latin America, Eastern Europe
to Southern Asia all enjoyed a strong year for a variety of country specific
reasons.
Bangladesh offered outstanding returns, rising by 68%, in the period. Local
liquidity increased during the year as the Central Bank intervened to
prevent appreciation on the back of strong capital inflows. As monetary
stimulus flowed into the stock market, valuations increased with the Index
Price/Earnings multiple rising from mid-teens to above 20x. Grameenphone was
a notable performer rising by 114% during the year.
Pakistan performed well during the year, rising by 23%. We conducted a
research trip to the country at the beginning of the period, ahead of the
International Monetary Fund’s (“IMFâ€) first review of its extended
arrangement package. We observed that the Pakistan economy was recovering,
aided by government’s implementation of a programme of structural reforms.
This view was corroborated by the IMF following their first review of the
country. Economic growth expectations of the IMF have been consistently
positive. The equity market reacted well to these developments and, with a
number of privatisations planned, the prospects for the Pakistan equity
markets appear bullish.
The returns of the Argentinian stock market were also notable, rising by 55%.
Despite the country defaulting on its international debt, seeing a precipitous
fall in foreign exchange reserves and local inflation rising to nearly 40%,
investors rushed to put their assets into the stock market, one of an
increasingly limited pool of assets available to local investors looking to
preserve the real value of their savings.
In terms of individual markets, The United Arab Emirates (“UAEâ€) and Qatar
were both strong performers during the year, especially in the months prior
to May 2014, when these markets were upgraded to Emerging Markets by index
provider MSCI. Capital flowed into the markets as investors positioned
themselves ahead of the index changes, and liquidity also increased
substantially, driven almost exclusively by local retail investors. In the
run up to the re-classification, daily trading volumes in Qatar reached
US$300 million, up from around US$60 million per day in 2013 whilst the UAE
reached volumes of US$1 billion per day, up 50 fold from volumes seen 18
months previously.
As a result of the classification transition, the Frontier Markets Index
has taken on a new, more diversified complexion and is now less dependent
on the Middle East and less beholden to energy exporters. In addition, the
weight of Frontier financial names has decreased in favour of consumer
staples and telecom companies. The countries that remain give the benchmark
an even better demographic profile and it now features countries that are primed
to benefit from the productivity gains that have driven growth and investor
returns in more mature markets.
Events in Ukraine were one dark spot in a broadly bright Frontiers investment
environment. The market was clearly intensely worried about the rising
geopolitical tensions, which weighed on security markets. Elsewhere, Ghana,
often held up as a template for African transformation, dismayed investors as
the currency fell by 33% against the US Dollar during the year to 30 September
2014 as the country reported a much wider than expected current account deficit.
PORTFOLIO COMMENTARY
The Company’s NAV per share returned +21.2% during the 12 months to the end of
September 2014 (on a US Dollar basis with income reinvested).
Both Developed and Emerging Markets are suffering from excessive debt burdens
and anaemic rates of growth. Frontier Markets, driven to a much greater extent
by endogenous factors, have outperformed and as a result we are starting to see
interest in these markets from companies based elsewhere. The Company’s holdings
are benefiting from this phenomenon. Shares in Americana (the Kuwaiti fast
food company), rose by 32% over the year to September 2014 (on a US Dollar basis)
on the back of takeover speculation from both global private equity companies
and a listed Saudi entity. We believe that, irrespective of M&A speculation,
the shares remain attractive relative to global peers. After the reporting
period ended it was revealed that Vietnamese holding, Kinh Do have sold their
confectionary and snacks business to US multi-national Mondelez International.
Finally, the parent company of KMG EP, KMG NC, have announced that they are
considering buying out the minorities in KMG EP.
Bangladesh delivered strong absolute and relative performance. BAT Bangladesh
rose by 80% over the period as it continued to report robust results. Square
Pharmaceuticals rose by 73% over the period as investors discovered the value
of its dominant franchise in the underpenetrated Bangladeshi pharmaceutical
market.
Positions in Sri Lanka, particularly in the company Chevron Lubricants which
rallied by 35% from its March lows, contributed positively to performance.
The Sri Lankan economy is witnessing a quiet revival, while the market has
been lagging the Frontiers universe. Balance of payments conditions are improving,
driven by rising Foreign Direct Investment, workers’ remittances and tourism.
For the year to August 2014, tourism earnings were up by 34% compared to the
previous year. We therefore remain positive on the outlook for the market.
Positions in Qatar and the UAE contributed to absolute performance. However,
they represented a drag in relative terms as we reduced holdings into the market
strength during the January to March period. As previously mentioned, both
markets were buoyant ahead of the transition to Emerging Market status. We
have reiterated that we do not believe in committing capital to markets which
are demonstrably overvalued. We note that subsequent to the index transitions,
the UAE suffered a significant draw-down during June, with Dubai falling 22%.
We have now fully divested from both of these markets in keeping with our
mandate as a pure play Frontier Markets investment trust.
Positions in Iraq have also detracted from relative performance over the year.
The deteriorating security situation threatened to compromise oil producing
assets and energy focused names suffered as a result.
PORTFOLIO ACTIVITY
We have increased exposure to Romania, initiating a new position in the
energy firm, Romgaz. The company successfully completed an Initial Public
Offering at the end of 2013. The government has undertaken to liberalise
prices in the energy sector as part of a reform agenda agreed with the
IMF and on the back of this the stock looks attractively valued.
We also increased exposure to Pakistan, buying shares in United Bank,
by participating in the current government’s privatization of their
remaining 19% stake. This was valued at an attractive discount. The bank
is well positioned to benefit from accelerating loan growth in Pakistan
and has a strong fee franchise as the domestic leader in inward remittances.
In Argentina, we increased positions in Banco Macro. Argentina has been a
volatile market this year, offering substantial opportunities for the
diligent investor, and we took the opportunity to buy a very strong franchise
on a cheap valuation.
We remain bullish on Sri Lanka. We view the country as a compelling
investment opportunity: investments in road and port infrastructure as
well as power should promote supply driven economic growth; necessary
adjustments to the currency and tariffs helped reduce the current account
deficit making the external position more sustainable. Hatton National Bank,
which is a core portfolio holding, is valued at just 7x forward price to
earnings and 1x forward price to book. While the market is less liquid
compared to other Frontier Markets, we expect this to improve over time.
Following the inclusion of Morocco into the Frontiers Index, we took the
opportunity to add Maroc Telecom to the portfolio. Following the
negotiations with UAE based incumbent Etisalat, Maroc Telecom’s growth
profile has improved as fast growing West African markets represent an
increased percentage of their portfolio.
We have significantly reduced our exposure to Nigeria. Market performance
may be constrained by a lacklustre earnings outlook, pressure on the
currency and reserves. This has increased in recent weeks in the context
of a weaker and more volatile oil price than we have seen for the last
few years.
OUTLOOK
Despite the strong performance of Frontier Markets over the last three
years, valuations are still attractive. In the past some nascent asset
classes have performed well, perhaps too well, leading to dislocation
between market enthusiasm and underlying fundamentals. Thanks to the
resilience of corporate earnings across the universe we are not
observing this trend in Frontier Markets.
We also note that, despite the increased popularity of Frontier Market
investing, correlations between Frontier Markets and both Emerging and
Developed markets have declined. This highlights the portfolio diversification
benefits for international investors. It is for this reason that we
believe Frontier Markets represent a compelling opportunity for long term
investors. In addition, the combination of the countries with the fastest
growing GDP, the best demographic profiles, the lowest government debt and
a substantial commodity endowment where it is also possible to invest in
companies on some of the lowest valuations in the world provides an
unrivalled investment opportunity.
Sam Vecht & Emily Fletcher
BlackRock Investment Management (UK) Limited1
1 December 2014
1 BlackRock Fund Managers Limited ("BFM") was appointed as the alternative
Investment Fund Manager on 2 July 2014. BFM has (with the Company's consent)
delegated certain portfolio and risk management services and other ancillary
services to BIM (UK).
Performance
Ten largest investments* as at 30 September 2014
Kuwait Foods (Americana) (Kuwait, Consumer Discretionary, 5.4% (2013: 2.2%)
americana-group.net) also known as `Americana', operates fast food franchises
across North Africa, Central Asia and the Middle East.
MHP (Ukraine, Consumer Staples, 5.2% (2013: 2.3%)) is a food processor,
specialising in poultry exports. From hatching through to finished poultry
products, the production process is 100% owned. MHP also owns 11 distribution
centres and a refrigerated delivery vehicle fleet which enables them to
distribute their products, chilled as well as frozen, directly to their customers.
Mobile Telecommunications** (Kuwait, Telecommunications, 5.1% (2013:
2.8%)) also known as Zain, Mobile Telecommunications Kuwait has a commercial
presence in 8 countries across the Middle East and North Africa with over 44
million subscribers. The Company enjoys a 40% market share in its home market,
Kuwait.
Halyk Savings Bank (Kazakhstan, Financials, 4.2% (2013: 3.3%) halykbank.kz) is
one of Kazakhstan's leading financial services groups and a leading retail bank
with the largest customer base and distribution network in Kazakhstan. Halyk's
branch network consists of 566 outlets across the country, with 1,913 ATMs.
Zenith Bank** (Nigeria, Financials, 4.1% (2013: 4.6%) zenithbank.com) is
Nigeria's second largest bank with 350 branches in Nigeria accounting for over
10% of the country's banking assets. Zenith offers a full range of retail and
corporate banking services and has subsidiaries in Ghana, The Gambia and Sierra
Leone.
Bank Muscat (Oman, Financials, 3.5% (2013: 1.5%)) is the leading financial
services provider in Oman with operations in Corporate Banking, Retail Banking,
Investment Banking, Islamic Banking, Treasury, Private Banking and Asset
Management.
BRD Société Générale (Romania, Financials, 3.2% (2013: nil)) is one of the
largest banks in Romania with approximately €8.7 billion of assets. It has over
2.2 million clients and more than 900 branches.
Herfy Food Services^ (Saudi Arabia, Consumer Discretionary, 3.1% (2013: nil))
is a fast-growing network of over 170 fast food restaurants across Saudi
Arabia. Herfy is the biggest and fastest growing fast food chain in Saudi
Arabia.
Maroc Telecom^^ (Morocco, Telecommunications, 3.0% (2013: nil)) is the main
telecommunication services company in Morocco and employs around 11,000
employees.
Banco Macro (Argentina, Financials, 2.9% (2013: 0.9%)) is the second largest
domestically-owned private bank in Argentina. The bank focuses on low and
middle income individuals as well as SMEs.
* Gross market exposure as a % of net assets. Percentages in brackets represent
the portfolio holding at 30 September 2013.
** Includes exposure gained via both contracts for difference and equity
holdings.
^ Denotes exposure gained via P-Notes.
^^ Denotes exposure gained via a contract for difference.
Performance
Portfolio analysis
COUNTRY ALLOCATION: ABSOLUTE WEIGHTS (% OF GROSS ASSETS)
%
Kuwait 12.9
Nigeria 9.2
Pakistan 8.1
Bangladesh 7.7
Saudi Arabia 7.1
Kazakhstan 6.9
Sri Lanka 6.5
Ukraine 6.1
Oman 5.6
Romania 5.5
Argentina 4.5
Iraq 4.2
Vietnam 4.1
Morocco 3.0
Turkmenistan 2.9
Slovenia 2.1
Pan Frontiers 1.5
Estonia 1.2
Panama 1.1
Short positions -0.8
Source: BlackRock.
COUNTRY ALLOCATION: RELATIVE TO THE MSCI FRONTIER MARKETS INDEX (%)
%
Saudi Arabia 7.1
Ukraine 5.9
Bangladesh 5.4
Sri Lanka 4.5
Iraq 4.2
Romania 3.4
Kazakhstan 2.9
Turkmenistan 2.9
Pan Frontiers 1.5
Pakistan 1.3
Panama 1.1
Estonia 0.8
Vietnam 0.7
Oman 0.7
Lithuania -0.1
Bulgaria -0.2
Serbia -0.2
Slovenia -0.5
Tunisia -0.6
Jordan -0.7
Short positions -0.8
Mauritius -1.2
Bahrain -1.3
Croatia -1.7
Lebanon -2.1
Argentina -3.1
Morocco -3.3
Kenya -5.1
Nigeria -10.0
Kuwait -12.1
Source: BlackRock.
SECTOR ALLOCATION: ABSOLUTE WEIGHTS (% OF GROSS ASSETS)
%
Financials 30.8
Consumer Staples 16.7
Energy 15.5
Telecommunications 12.9
Consumer Discretionary 8.5
Industrials 6.5
Health Care 5.0
Utilities 2.5
Materials 1.8
Short positions -0.8
Source: BlackRock.
SECTOR ALLOCATION: RELATIVE TO THE MSCI FRONTIER MARKETS INDEX (%)
%
Consumer Discretionary 8.0
Consumer Staples 6.6
Energy 3.6
Industrials 2.9
Health Care 2.2
Utilities 2.1
Short positions -0.8
Telecommunications -1.8
Materials -4.1
Financials -19.3
Source: BlackRock.
Performance
Investments as at 30 September 2014
Gross
Fair market
Principal value and exposure
country market as a % of
of exposure(1) net
Company operation Sector US$'000 net assets(3)
Equity portfolio
Agility Kuwait Industrials 7,301 2.4
APR Energy Pan Frontiers Energy 4,542 1.5
Avangardco Ukraine Consumer Staples 2,827 0.9
Banco Macro Argentina Financials 8,977 2.9
BankMuscat Oman Financials 10,590 3.5
BRD Société Générale Romania Financials 9,860 3.2
Cable & Wireless Panama Telecommunications 3,419 1.1
Chevron Lubricants Sri Lanka Energy 5,824 1.9
Commercial Bank of Ceylon Sri Lanka Financials 119 -
Distilleries Co of Sri
Lanka Sri Lanka Consumer Staples 2,272 0.7
Dragon Oil Turkmenistan Energy 8,811 2.9
Engro Pakistan Materials 1,039 0.3
Engro Foods Pakistan Consumer Staples 5,990 2.0
Genel Energy Iraq Energy 8,342 2.7
Guaranty Trust Bank Nigeria Financials 4,860 1.6
Gulf Keystone Petroleum Iraq Energy 1,644 0.6
Halyk Savings Bank Kazakhstan Financials 12,798 4.2
Hatton National Bank Sri Lanka Financials 3,069 1.0
Hub Power Pakistan Utilities 2,210 0.7
Kazmunaigas Exploration
Production Kazakhstan Energy 8,306 2.7
KRKA Slovenia Health Care 6,426 2.1
Kuwait Foods (Americana) Kuwait Consumer Discretionary 16,379 5.4
MHP Ukraine Consumer Staples 16,030 5.2
Millat Tractors Pakistan Industrials 2,950 1.0
Mobile Telecommunications Kuwait Telecommunications 11,857 3.9
Olympic Industries Bangladesh Consumer Staples 454 0.1
Omantel Oman Telecommunications 6,450 2.1
S.N.G.N. Romgaz Romania Energy 7,115 2.3
Tallink Estonia Industrials 3,581 1.2
Telecom Argentina Argentina Telecommunications 5,037 1.6
Unilever Nigeria Nigeria Consumer Staples 1,220 0.4
United Bank for Africa Nigeria Financials 5,502 1.8
Zenith Bank Nigeria Financials 5,334 1.8
------- -----
Equity investments 201,135 65.7
------- -----
BlackRock's Institutional
Cash Fund 69,384 22.7
------- -----
Total equity investments
(including BlackRock's
Institutional Cash Fund) 270,519 88.4
------- -----
P-Notes
Herfy Food Services 08/10/15 Saudi Arabia Consumer Discretionary 7,190 2.3
Herfy Food Services 06/07/17 Saudi Arabia Consumer Discretionary 2,471 0.8
Samba Financial 10/02/15 Saudi Arabia Financials 6,186 2.0
United International
Transportation 23/02/15 Saudi Arabia Industrials 5,952 1.9
------- -----
Total P-Notes 21,799 7.0
------- -----
Total investments
excluding CFDs 292,318 95.4
======= =====
Gross
market
Principal Gross exposure
country Fair market as a %
of value (1) exposure (2) of net
Company operation Sector US$'000 US$'000 assets (3)
CFD portfolio
Long positions
Access Bank Nigeria Financials - -
British American
Tobacco Bangladesh Consumer Staples 8,759 2.9
Commercial Bank of
Ceylon Sri Lanka Financials 2,282 0.7
Distilleries Co of Sri
Lanka Sri Lanka Consumer Staples 2,000 0.7
Engro Fertilizer Pakistan Materials - -
Gulf Keystone
Petroleum Iraq Energy 2,793 0.9
Hatton National Bank Sri Lanka Financials 5,024 1.6
Hub Power Pakistan Utilities 5,382 1.8
Kinh Do Vietnam Consumer Staples 7,965 2.6
Maroc Telecom Morocco Telecommunications 9,090 3.0
Mobile Kuwait Telecommunications 3,779 1.2
Telecommunications
Petrovietnam
Fertilizer & Chemicals Vietnam Materials 4,456 1.5
Square Pharmaceuticals Bangladesh Health Care 8,969 2.9
Unilever Nigeria Nigeria Consumer Staples 3,972 1.3
United Bank Pakistan Financials 6,976 2.3
United Commercial Bank Bangladesh Financials 5,424 1.8
Zenith Bank Nigeria Financials 7,074 2.3
------- ------- -----
Total long CFD
positions 11,330 83,945 27.5
------- ------- -----
Total short CFD
positions 266 (2,434) (0.8)
------- ------- -----
Total CFD portfolio 11,596 81,511 26.7
------- ------- -----
Equity investments
(excluding BlackRock's
Institutional Cash
Fund) and P-Notes 222,934 222,934 72.7
------- ------- -----
BlackRock's
Institutional Cash
Fund (4) 69,384 69,384 22.7
------- ------- -----
Total Investments 303,914 373,829 122.1
------- ------- -----
Cash and cash
equivalents (4) 2,936 (66,979) (21.9)
------- ------- -----
Net current
liabilities (718) (718) (0.2)
------- ------- -----
Net assets 306,132 306,132 100.0
======= ======= =====
1 Fair value is determined as follows:
- Listed and AIM quoted investments are valued at bid prices where available,
otherwise at published price quotations.
- The sum of the fair value column for the CFD contracts totalling
US$11,596,000 represents the fair valuation of all the CFD contracts, which is
determined based on the difference between the purchase price and value of the
underlying shares in the contract (in effect the unrealised gains/(losses) on
the exposed positions). The cost of purchasing the securities held through long
CFD positions directly in the market would have amounted to US$72,615,000 at
the time of purchase, and subsequent market rises in prices have resulted in
unrealised gains on the CFD contracts of US$11,330,000, resulting in the value
of the total market exposure to the underlying securities rising to
US$83,945,000 as at 30 September 2014. The cost of acquiring the securities to
which exposure was gained via the short CFD positions would have been
US$2,700,000 at the time of entering into the contract, and subsequent price
rises have resulted in unrealised gains on the short CFD positions of
US$266,000 and the value of the market exposure of these investments decreasing
to US$2,434,000 at 30 September 2014. If the short position had been closed on
30 September 2014 this would have resulted in a gain of US$266,000 for
the Company.
- P-Notes are valued based on the quoted bid price of the underlying security
to which they relate.
2 Market exposure in the case of equity and P-Note investments is the same as
fair value. In the case of CFDs it is the market value of the underlying shares
to which the portfolio is exposed via the contract.
3 % based on the total market exposure.
4 The gross market exposure column for Cash and Cash Fund investments has been
adjusted to assume the Company purchased direct holdings rather than exposure
being gained through CFDs.
Business review
Strategic report
The Directors present the Strategic Report of the Company for the year ended 30
September 2014.
Principal activity
The Company carries on business as an investment trust and its principal
activity is portfolio investment.
Objective
The Company's investment objective is to achieve long term capital growth from
investment in companies operating in Frontier Markets or whose stocks are
listed on the stock markets of such countries. To achieve this objective, the
Company invests globally in the securities of companies domiciled or listed in,
or exercising the predominant part of their economic activity in, Frontier
Markets.
Investment may also be made in the securities of companies domiciled or listed
in, or exercising the predominant part of their economic activity in, more
developed markets with significant business operations in Frontier Markets. A
Frontier Market is a country which, at the time of any relevant investment, is
not a constituent of the MSCI Emerging Markets Index or the MSCI Developed
Markets Index. The Company will exit any investment relating to a Frontier
Market as soon as reasonably practicable following that Frontier Market
becoming a constituent of the Emerging Markets Index or the Developed Markets
Index.
Strategy
In order to achieve the Company's investment objective, the Investment Manager
selects stocks by fundamental analysis of countries, sectors and companies, looking
for long term appreciation from mispriced value or growth. The Investment Manager
employs both a top-down and bottom-up approach to investing. Risk is spread through
investing in a number of holdings and it is expected that the Company will have
35 to 65 holdings. Where possible, investment will generally be made directly
in the stock markets of Frontier Markets. Where the Investment Manager determines
appropriate, investment may be made in Frontier Markets through collective
investment schemes, although such investment is not likely to be substantial.
Investment in other closed-ended investment funds admitted to the Official List
will not exceed 10%, in aggregate, of the value of the gross assets (calculated
at the time of any relevant investment).
Business model and investment policy
Due to regulatory requirements, excessive operational risk, prohibitive costs
and the time period involved in establishing trading and custody accounts in
certain of the Company's target Frontier Markets, the Company may be unable to
invest in certain of its target Frontier Markets. In such circumstances, the
Company intends to gain economic exposure to such Frontier Markets by investing
indirectly through derivatives (including contracts for difference) and
structured financial instruments, for example Promissory Notes. Save as
provided below, there is no restriction on the Company investing in these
instruments in such circumstances.
If the Company invests in derivatives and structured financial instruments for
investment purposes (other than to gain access to a target Frontier Market as
described above) or for efficient portfolio management purposes it shall only
hold up to, in aggregate, 20% of its gross assets in these instruments for such
purposes. The Company may take both long and short positions and may short up
to a limit of 10% of gross assets. For shorting purposes the Company may use
indices or individual stocks.
The maximum exposure the Company may have to derivatives and structured
financial instruments for investment purposes and efficient portfolio
management purposes, in aggregate, shall be 100% of the Company's portfolio.
The Company may use borrowings and enter into derivative transactions that have
the effect of gearing the Company's portfolio to enhance performance. The
aggregate gearing of the Company is currently not anticipated to exceed 20% of
gross assets. No material change will be made to the investment policy without
shareholder approval.
The Company invests so as not to hold more than 15% of its Gross Assets in any
one stock or derivative position at the time of investment. The investment
policy was updated earlier this year to clarify that this restriction does not
apply to cash management activities. Surplus cash in the Company's portfolio is
substantially invested in the BlackRock's Institutional Cash Fund, a triple
A-rated, UCITS compliant fund, and from time to time this may exceed 15% of the
Company's portfolio by value. At 30 September 2014 the Company held cash and
cash equivalents of $84 million, of which $69 million (22.7% of the Company's
portfolio) was invested in the BlackRock's Institutional Cash Fund. This level
of cash is held predominantly to back the Company's CFD portfolio such that the
Company is not geared through the use of CFDs.
The Company invests in a nil fee share class of BlackRock's Institutional Cash
Fund so no additional charges are levied as a result.
Performance
Details of the Company's performance for the year are given in the Chairman's
Statement. The Investment Manager's Report includes a review of the main
developments during the period, together with information on investment activity
within the Company's portfolio.
Results and dividends
The results for the Company are set out in the Statement of Comprehensive
Income. The total return for the year, after taxation, was US$54,288,000
(2013: US$39,870,000) of which the revenue return amounted to US$9,922,000
(2013: US$5,868,000) and the capital return amounted to US$44,366,000
(2013: US$34,002,000).
The Directors are recommending the payment of a final dividend of 4.00 cents
per ordinary share in respect of the year ended 30 September 2014 (no final
dividend was paid for the year ended 30 September 2013, although instead the
Directors declared an additional special interim dividend of 3.40 US cents per
share in place of the 2013 final dividend; this special interim dividend was
paid early to avoid revenue dilution in anticipation of the Company's C share
issue). Together with the interim dividend of 2.25 US cents per share (2013:
2.00 US cents per share), this represents a total of 6.25 US cents per share,
an increase of 15.7% over total dividends paid in respect of the year to
30 September 2013. This reflects the increased level of dividends generated from
the Company's portfolio over the year. The dividend will be paid on
20 February 2015 to shareholders on the register of members at close of business
on 30 January 2015. The cost of the dividend amounts to US$6,024,864.
Key performance indicators
The Directors consider a number of performance measures to assess the Company's
success in achieving its objectives. The key performance indicators ("KPIs")
used to measure the progress and performance of the Company over time and which
are comparable to those reported by other investment trusts are set out below.
Performance measured against the benchmark
At each meeting the Board reviews the performance of the portfolio as well as
the net asset value and share price for the Company and compares this to the
return on the Company's benchmark. The Board considers this to be an important
key performance indicator and has determined that it should also be used to
calculate whether a performance fee is payable to BlackRock.
Premium/discount to net asset value ("NAV")
At each Board meeting, the Board monitors the level of the Company's premium or
discount to NAV and considers strategies for managing this. The Company did not
issue or buy back any shares in the year.
Ongoing charges
The ongoing charge reflects those expenses which are likely to recur in the
foreseeable future, whether charged to capital or revenue, and which relate to
the operation of the investment company as a collective investment fund, excluding
the costs of acquisition or disposal of investments, financing charges and gains or
losses arising on investments and performance fees. The ongoing charges are
based on actual costs incurred in the year as being the best estimate of future
costs. The Board reviews the ongoing charges and monitors the expenses incurred
by the Company. The table below sets out the key KPIs for the Company.
Year ended Year ended
30 September 2014 (1) 30 September 2013 (1)
£% US$% £% US$%
Change in net Asset Value (2) 21.1 21.2 31.2 31.6
Change in share price (3) 20.0 20.1 43.2 43.6
Change in benchmark index (4) 29.9 30.0 21.4 21.8
Premium to cum income NAV 4.1 5.1
Ongoing charges (5) 1.5 1.6
Ongoing charges plus taxation and
performance fees 1.5 2.6
1 Based on an exchange rate of 1.6213 at 30 September 2014 and 1.6194 as at
30 September 2013.
2 Calculated in accordance with AIC guidelines.
3 Calculated on a mid to mid basis.
4 MSCI Frontier Markets Index, (Net Return).
5 Calculated as a percentage of average net assets and using expenses,
excluding performance fees, VAT refunded, finance costs and taxation.
The Board also regularly reviews a number of indices and ratios to understand
the impact on the Company's relative performance of the various components such
as asset allocation and stock selection. The Board also reviews the performance
of the Company against a peer group of Frontier Markets open and closed-ended
funds.
Share rating and share buy backs
The Directors recognise the importance to investors that the Company's share
price should not trade at a significant discount to NAV. Accordingly, the
Directors monitor the share rating closely and will consider share repurchases
in the market if the discount widens significantly. In addition, before the
Company's fifth AGM in 2016 the Board will provide shareholders with an
opportunity to realise the value of their ordinary shares at NAV per share less
costs. For the year under review the Company's shares have traded at an average
premium to NAV of 3.1%, and were trading at a premium of 1.3% on a cum-income
basis at 27 November 2014.
The Directors have the authority to buy back up to 14.99% of the Company's
issued share capital. This authority, which has not so far been utilised,
expires at the 2015 AGM, when a resolution will be put to shareholders to renew
it.
Principal risks
The key risks faced by the Company are set out below. The Board regularly
reviews and agrees policies for managing each risk, as summarised below:
Performance risk - The Board is responsible for deciding the investment policy
to fulfil the Company's objectives and for monitoring the performance of the
Company's investment manager ("Investment Manager") and the strategy adopted.
An inappropriate policy or strategy may lead to poor performance, dissatisfied
Shareholders and a widening discount. The Company's investment policy permits
the use of both exchange-traded and over-the-counter derivatives (including
contracts for difference). To manage these risks the Board regularly reviews
the Company's investment mandate and long term strategy, and has put in place
appropriate limits over levels of gearing and the use of derivatives. Levels of
portfolio exposure through derivatives, including the extent to which the
portfolio is geared in this manner and the value of any short positions, are
reported regularly to the Board and monitored. The Board also reviews the
controls put in place by the Investment Manager to monitor and to minimise
counterparty exposure, which include intra-day monitoring of exposures to
ensure these are within set limits. The Investment Manager provides an
explanation of significant stock selection decisions, the rationale for the
composition of the investment portfolio and movements in the level of gearing.
The Board monitors the maintenance of an adequate spread of investments in
order to minimise the risks associated with particular countries or factors
specific to particular sectors, based on the diversification requirements
inherent in the Company's investment policy.
Income/dividend risk - The amount of dividends and future dividend growth will
depend on the Company's underlying portfolio. Any change in the tax treatment
of the dividends or interest received by the Company (including as a result of
withholding taxes or exchange controls imposed by jurisdictions in which the
Company invests) may reduce the level of dividends received by shareholders.
The Board monitors this risk through the receipt of detailed income forecasts
and considers the level of income at each meeting.
Regulatory risk - The Company operates as an investment trust in accordance
with Chapter 4 of Part 24 of the Corporation Tax Act 2010. As such, the Company
is exempt from capital gains tax on the profits realised from the sale of its
investments. The Investment Manager monitors investment movements, the level
and type of forecast income and expenditure and the amount of proposed
dividends, if any, to ensure that the provisions of Chapter 4 of Part 24 of the
Corporation Tax Act 2010 are not breached and the results are reported to the
Board at each meeting. Following authorisation under the Alternative Investment
Fund Managers' Directive (AIFMD), the Company and its appointed Alternative
Investment Fund Manager (AIFM) are subject to the risks that the requirements
of this Directive are not correctly complied with. The Board and the AIFM also
monitor changes in government policy and legislation which may have an
impact on the Company.
Operational risk - In common with most other investment trust companies, the
Company has no employees. The Company therefore relies upon the services
provided by third parties and is dependent on the control systems of the
Manager, BNY Mellon Trust & Depositary (UK) Limited (the Depositary) and the
Bank of New York Mellon (International) Limited, who maintain the Company's
accounting records. The security of the Company's assets, dealing procedures,
accounting records and maintenance of regulatory and legal requirements, depend
on the effective operation of these systems. These have been regularly tested
and monitored throughout the year which is evidenced through their Service
Organisation Control (SOC) reports to provide assurance regarding the effective
operation of internal controls which are reported on by their reporting
accountants and give assurance regarding the effective operation of controls.
The Board also considers succession arrangements for key employees of the
Investment Manager and the business continuity arrangements for the Company's
key service providers.
Market risk - Market risk arises from volatility in the prices of the Company's
investments. It represents the potential loss the Company might suffer through
realising investments in the face of negative market movements. The securities
markets of Frontier Markets are not as large as the more established securities
markets and have substantially less trading volume, which may result in a lack
of liquidity and higher price volatility. There are a limited number of
attractive investment opportunities in Frontier Markets and this may lead to a
delay in investment and may affect the price at which such investments may be
made and reduce potential investment returns for the Company. There is also
exposure to currency risk due to the location of the operation of the
businesses in which the Company may invest. As a consequence of this and other
market factors the Company may invest in a concentrated portfolio of shares and
this focus may result in higher risk when compared to a portfolio that has
spread or diversified investments more broadly.
Corruption also remains a significant issue across Frontier Markets and the
effects of corruption could have a material adverse effect on the Company's
performance. Accounting, auditing and financial reporting standards and
practices and disclosure requirements applicable to many companies in
developing countries are less rigorous than in developed markets. As a result
there may be less information available publicly to investors in such
securities. Such information which is available is often less reliable.
The Company also gains exposure to Frontier Markets by investing indirectly
through Promissory Notes ("P-Notes") which presents additional risk to the
Company as the use of P-Notes is uncollateralised resulting in the Company
being subject to full counterparty risk via the P-Note issuer. P-Notes also
present liquidity issues as the Company, being a captive client of a P-Note
issuer, may only be able to realise its investment through the P-Note issuer
and this may have a negative impact on the liquidity of the P-Notes which does
not correlate to the liquidity of the underlying security. The Board considers
asset allocation, stock selection and levels of gearing on a regular basis and
has set investment restrictions and guidelines which are monitored and reported
on by the Investment Manager. The Board monitors the implementation and results
of the investment process with the Investment Manager.
Political Risk - Investments in Frontier Markets may include a higher element
of risk compared to more developed markets due to greater political
instability. Political and diplomatic events in Frontier Markets where the
Company invests (for example, governmental instability, corruption, adverse
changes in legislation or other diplomatic developments such as the outbreak of
war) could substantially and adversely affect the economies of such countries
or the value of the Company's investments in those countries.
The Investment Manager recognises this in applying stringent controls over
where investments are made and close monitoring of political risks in reaching
this assessment. The Investment Manager's approach to filtering the investment
universe takes account of the political background to regions, and is backed up
by rigorous stock specific research and risk analysis, individually and
collectively, in constructing the portfolio. The management team has a wide
network of business and political contacts which provides economic insights
with public and private bodies, and enables the Investment Manager to assess
potential investments in an informed and disciplined way, as well as being able
to conduct regular monitoring of investments once made. However, given the
nature of political risk, all investments will be exposed to a degree of risk
and the Investment Manager will ensure that the portfolio remains diversified
across countries to mitigate the risk.
Financial risks - The Company's investment activities expose it to a variety of
financial risks which include foreign currency risk and interest rate risk.
Further details are disclosed in note 17 to the financial statements of the Annual
Report, together with a summary of the policies for managing these risks.
Future prospects
The Board's main focus is the achievement of capital growth and the future of
the Company is dependent upon the success of the investment strategy. The
outlook for the Company is discussed in both the Chairman's Statement and in the
Investment Manager's Report.
Social, community and human rights issues
As an investment trust, the Company has no direct social or community
responsibilities. However, the Company believes that it is in shareholders'
interests to consider environmental, social and governance factors and human
rights issues when selecting and retaining investments. Details of the
Company's policy on socially responsible investment are set out on page 20 of
the Annual Report.
Directors, gender representation and employees
The Directors of the Company on 30 September 2014, all of whom held office
throughout the year, are set out in the Directors' biographies on page 17 of
the Annual Report. The Board consists of four men and one woman. The Company
does not have any employees.
By order of the Board
BlackRock Investment Management (UK) Limited
Company Secretary
1 December 2014
Related party transactions
BIM (UK) provided management and administration services to the Company during
the period under review under a contract which was terminated with effect from
2 July 2014. BlackRock Fund Managers Limited (“BFMâ€) was appointed as the
Company’s AIFM with effect from 2 July 2014. BFM has (with the Company’s consent)
delegated certain portfolio and risk management services, and other ancillary
services, to BIM (UK). Details of the fees payable to BIM (UK) up to 1 July 2014
and to BFM with effect from 2 July 2014 are set out in note 4. Transactions and
relationship details are set out in the Director’s Report on pages 22 and 23 of
the Annual Report.
The investment management fee for the year was US$3,156,000 (2013: US$1,780,000),
as disclosed in note 4. In addition, a performance fee was payable of US$nil (2013:
US$1,624,000). At the year end, an amount of US$834,000 was outstanding in respect
of these fees (2013: US$2,240,000).
In addition to the above services, with effect from 1 November 2013, BlackRock
has provided the Company with marketing services. The total fees paid or
payable for these services for the year ended 30 September 2014 amounted to £
44,550 excluding VAT (2013: nil), of which £44,550 (2013: nil) was outstanding
at 30 September 2014.
The Board consists of five non-executive Directors, all of whom are considered
to be independent of the Manager by the Board. None of the Directors has a
service contract with the Company. For the years ended 30 September 2014, the
Chairman received an annual fee of £33,000, the Chairman of the Audit Committee
receives an annual fee of £27,000 and each of the other Directors received an
annual fee of £23,000. With effect from 1 October 2014, the remuneration of the
Chairman increased to £34,000, the Chairman of the Audit & Management
Engagement Committee increased to £28,000, and the other Directors to £24,000.
As at 30 September 2014, an amount of £10,750 was payable to Directors in
respect of their annual fees (2013: £9,250).
All five members of the Board hold ordinary shares in the Company. Audley
Twiston-Davies holds 128,935 ordinary shares, John Murray holds 121,967
ordinary shares, Nick Pitts-Tucker holds 110,148 ordinary shares, Lynn Ruddick
holds 47,456 ordinary shares (which includes a related party holding of 9,665
shares held through an ISA by her husband, Mr Dewar) and Sarmad Zok holds
38,787 ordinary shares.
Statement of Directors' Responsibilities in respect of the Annual Report and
Financial Statements
The Directors are responsible for preparing the Annual Report, the Directors'
Remuneration Report and the financial statements in accordance with applicable
United Kingdom law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law, the Directors are required to prepare the
financial statements under IFRS as adopted by the European Union. 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:
* present fairly the financial position, financial performance and cash flows
of the Company;
* select suitable accounting policies in accordance with IAS 8: Accounting
Policies, Changes in Accounting Estimates and Errors and then apply them
consistently;
* present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
* make judgements and estimates that are reasonable and prudent;
* state whether the financial statements have been prepared in accordance
with IFRS as adopted by the European Union, subject to any material
departures disclosed and explained in the financial statements;
* provide additional disclosures when compliance with the specific
requirements in IFRS as adopted by the European Union is insufficient to
enable users to understand the impact of particular transactions, other
events and conditions on the Company's financial position and financial
performance; and
* prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
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 the financial statements comply with the Companies
Act 2006.
They are also responsible for safeguarding the assets of the Company and hence
for taking reasonable steps for the prevention and detection of fraud and other
irregularities. The Directors are also responsible for preparing the Strategic
Report, the Directors' Report, the Directors' Remuneration Report and the
Corporate Governance Statement in accordance with the Companies Act 2006 and
applicable regulations, including the requirements of the Listing Rules and the
Disclosure and Transparency Rules. The Directors have delegated responsibility
to the Investment Manager and the AIFM for the maintenance and integrity of the
Company's corporate and financial information included on BlackRock's website.
Legislation in the United Kingdom governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
Each of the Directors, whose names are listed on page 17 of the Annual Report,
confirm to the best of their knowledge that:
* the financial statements, which have been prepared in accordance with IFRS
as adopted by the European Union, give a true and fair view of the assets,
liabilities, financial position and net return of the Company; and
* the Annual Report includes a fair review of the development and performance
of the business and the position of the Company, together with a
description of the principal risks and uncertainties that it faces.
The 2012 UK Corporate Governance Code also requires Directors to ensure that
the Annual Report and Accounts are fair, balanced and understandable. In order
to reach a conclusion on this matter, the Board has requested that the Audit
and Management Engagement Committee advise on whether it considers that the
Annual Report and Accounts fulfils these requirements. The process by which the
Committee has reached these conclusions is set out in the Audit & Management
Engagement Committee's report on pages 30 to 32 of the Annual Report. As a
result, the Board has concluded that the Annual Report for the year ended
30 September 2014, taken as a whole, is fair, balanced and understandable and
provides the information necessary for shareholders to assess the Company's
performance, business model and strategy.
For and on behalf of the Board
Audley Twiston-Davies
Chairman
1 December 2014
Financial statements
Statement of Comprehensive Income for the year ended 30 September 2014
Revenue Revenue Capital Capital Total Total
2014 2013 2014 2013 2014 2013
Notes US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Profits on investments
held at fair value through
profit or loss - - 37,157 18,174 37,157 18,174
Losses on foreign exchange - - (199) (76) (199) (76)
Net profits from contracts
for difference 3 2,540 2,131 9,732 18,618 12,272 20,749
Income from investments
held at fair value through
profit or loss 3 10,112 5,564 - - 10,112 5,564
Other income 3 64 55 - - 64 55
------ ------ ------ ------ ------ ------
Total revenue 12,716 7,750 46,690 36,716 59,406 44,466
------ ------ ------ ------ ------ ------
Expenses
Investment management and
performance fees 4 (633) (355) (2,523) (3,049) (3,156) (3,404)
Operating expenses 5 (1,019) (762) (202) (57) (1,221) (819)
------ ------ ------ ------ ------ ------
Total operating expenses (1,652) (1,117) (2,725) (3,106) (4,377) (4,223)
------ ------ ------ ------ ------ ------
Net profit on ordinary
activities before finance
costs and taxation 11,064 6,633 43,965 33,610 55,029 40,243
Finance costs - (2) (1) (8) (1) (10)
------ ------ ------ ------ ------ ------
Net profit on ordinary
activities before taxation 11,064 6,631 43,964 33,602 55,028 40,233
Taxation (1,142) (763) 402 400 (740) (363)
------ ------ ------ ------ ------ ------
Net profit on ordinary
activities after taxation 9,922 5,868 44,366 34,002 54,288 39,870
------ ------ ------ ------ ------ ------
Earnings per ordinary
share (cents) 7 6.59 6.13 29.45 35.54 36.04 41.67
====== ====== ====== ====== ====== ======
The total column of this statement represents the Company's Statement of
Comprehensive Income, prepared in accordance with International Financial
Reporting Standards ("IFRS") as adopted by the European Union. The
supplementary revenue and capital columns are both prepared under guidance
published by the Association of Investment Companies ("AIC"). All items in the
above statement derive from continuing operations.
The Company does not have any other recognised gains or losses. The net profit
for the year disclosed above represents the Company's total comprehensive
income.
Statement of Changes in Equity
Called
up
share Share Captial Special Capital Revenue
capital account reserve reserve reserves reserve Total
Notes US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
For the year ended
30 September 2014
At 30 September 2013 1,506 88,326 5,798 142,704 15,350 1,549 255,233
Total comprehensive
income:
Net profit for the year - - - - 44,366 9,922 54,288
Cancellation of
share premium - (88,326) - 88,326 - - -
Dividend paid* 6 - - - - - (3,389) (3,389)
----- ------ ----- ------- ------ ----- -------
At 30 September 2014 1,506 - 5,798 231,030 59,716 8,082 306,132
----- ------ ----- ------- ------ ----- -------
For the year ended
30 September 2013
At 30 September 2012 948 - - 142,704 (18,652) 3,262 128,262
Total comprehensive
income:
Net profit for the year - - - - 34,002 5,868 39,870
Transaction with
owners, recorded
directly to equity:
Share issues - C share 6,356 90,013 - - - - 96,369
Share issue costs - (1,687) - - - - (1,687)
Share conversion -
C share to ordinary
shares (5,798) - 5,798 - - - -
Dividend paid** 6 - - - - - (7,581) (7,581)
----- ------ ----- ------- ------ ----- -------
At 30 September 2013 1,506 88,326 5,798 142,704 15,350 1,549 255,233
===== ====== ===== ======= ====== ===== =======
* Interim dividend paid in respect of the year ended 30 September 2014 of 2.25
cents per share, declared on 20 May 2014 and paid on 4 July 2014.
** Final dividend paid in respect of the year ended 30 September 2012 of 2.60
cents per share, declared on 30 January 2013 and paid on 8 March 2013, interim
dividend of 2.00 cents per share and special dividend of 3.40 cents per share
paid in respect of the year ended 30 September 2013, declared on 5 June 2013
and paid on 5 July 2013.
Statement of Financial Position as at 30 September 2014
30 30
September September
2014 2013
Notes US$'000 US$'000
Non current assets
Investments designated as held at fair value
through profit or loss 292,318 179,094
------- -------
Current assets
Other receivables 2,142 1,207
Derivative financial assets held at fair value
through profit or loss 18,493 4,234
Cash held on margin deposit with brokers 90 1,205
Cash and cash equivalents 14,770 89,920
------- -------
35,495 96,566
------- -------
Current liabilities
Other payables (2,841) (15,054)
Net collateral received in respect of contracts
for difference (11,924) (2,720)
Derivative financial liabilities held at fair
value through profit or loss (6,897) (2,634)
------- -------
(21,662) (20,408)
------- -------
Net current assets 13,833 76,158
------- -------
Total assets less current liabilities 306,151 255,252
Creditors: amounts falling due after more than one
year
Management shares of £1.00 each (one quarter paid) (19) (19)
------- -------
Net assets 306,132 255,233
------- -------
Capital and reserves
Called up share capital 8 1,506 1,506
Share premium account 9 - 88,326
Capital redemption reserve 9 5,798 5,798
Special reserve 9 231,030 142,704
Capital reserves 9 59,716 15,350
Revenue reserve 9 8,082 1,549
------- -------
Total equity 306,132 255,233
------- -------
Net asset value per share (US cents) 7 203.25 169.45
====== ======
Cash flow statement for the year ended 30 September 2014
30 30
September September
2014 2013
US$'000 US$'000
Operating activities
Profit before taxation 55,028 40,233
Profits on investments and CFDs held at fair value
through profit or loss (including transaction costs) (47,591) (37,319)
Net movement on foreign exchange 199 76
Sale of investments held at fair value through profit or
loss 264,935 170,194
Purchase of investments held at fair value through profit
or loss (341,002) (233,347)
Realised losses on closure of CFD contracts (3,571) (1,478)
Gains on realisation of CFDs 4,009 21,842
Increase in other receivables (404) (686)
(Decrease)/increase in other payables (1,347) 1,797
(Increase)/decrease in amounts due from brokers (531) 6
(Decrease)/increase in amounts due to brokers (10,866) 10,757
Taxation paid (740) (425)
------ ------
Net cash outflow from operating activities before
financing activities (81,881) (28,350)
------ ------
Financing activities
Equity dividends paid (3,389) (7,581)
Proceeds from issue of C shares - 94,682
Share issue costs paid - (260)
------ ------
Net cash (outflow)/inflow from financing activities (3,389) 86,841
------ ------
(Decrease)/increase in cash and cash equivalents (85,270) 58,491
Effect of foreign exchange rate changes (199) (76)
------ ------
Change in cash and cash equivalents (85,469) 58,415
Cash and cash equivalents at start of year 88,405 29,990
------ ------
Cash and cash equivalents at end of year 2,936 88,405
------ ------
Comprised of:
Cash and cash equivalents 14,770 89,920
Add: Cash held on margin deposit with brokers 90 1,205
Less: Collateral received in respect of contracts for
difference (11,924) (2,720)
------ ------
2,936 88,405
====== ======
Notes to the financial statements
1. Principal activity
The principal activity of the Company is that of an investment trust company
within the meaning of section 1158 of the Corporation Tax Act 2010. The Company
was incorporated on 15 October 2010, and this is the fourth Annual Report.
2. Accounting policies
The principal accounting policies adopted by the Company are set out below.
(a) Basis of preparation
The financial statements have been prepared in accordance with International
Financial Reporting Standards ("IFRS") as adopted by the European Union and as
applied in accordance with the provisions of the Companies Act 2006. All of the
Company's operations are of a continuing nature. The Company's financial
statements are presented in US dollars, which is the currency of the primary
economic environment in which the Company operates.
All values are rounded to the nearest thousand dollars (US$'000) except where
otherwise indicated.
Insofar as the Statement of Recommended Practice ("SORP") for investment trust
companies and venture capital trusts issued by the AIC, revised in January
2009, is compatible with IFRS, the financial statements have been prepared in
accordance with the guidance set out in the SORP.
A number of new standards, amendments to standards and interpretations are
effective for annual periods beginning on or after 1 January 2014, and have not
been applied in preparing these financial statements (major changes and new
standards issued detailed below). None of these are expected to have a
significant effect on the measurement of the amounts recognised in the
financial statements of the Company.
IFRS 9 Financial Instruments (2014) replaces IAS 39 and deals with a package of
improvements including principally a revised model for classification and
measurement of financial instruments, a forward looking expected loss
impairment model and a revised framework for hedge accounting. In terms of
classification and measurement the revised standard is principles based
depending on the business model and nature of cash flows. Under this approach
instruments are measured at either amortised cost or fair value, though the
standard retains the fair value option allowing designation of debt instruments
at initial recognition to be measured at fair value.
The standard is effective from 1 January 2018 with earlier application
permitted but has not yet been endorsed by the European Commission. The company
does not plan to early adopt this standard.
IFRS 10 Consolidated Financial Statements Investment Entities amendments
(effective 1 January 2014) establish a single control model that applies to all
entities including special purpose entities. The changes introduced by the
Investment Entities amendments require management to exercise significant
judgement to determine which entities are controlled, and therefore are
required to be consolidated by a parent.
The Company does not prepare consolidated financial statements hence the
provisions of these amendments are not applicable.
IFRS 12 Disclosure of Involvement with Other Entities (effective 1 January
2014) requires additional disclosures that relate to an entity's interests in
subsidiaries, joint arrangements, associates and structured entities.
This is not applicable to the Company as it does not prepare consolidated
financial statements and does not hold structural entities.
IFRS 14 Regulatory Deferral Accounts (effective 1 January 2016) allows first
time IFRS adopters to continue to account for 'regulatory deferral account
balances' in accordance with previous GAAP.
As the Company has already adopted IFRS the provisions of this standard are not
applicable.
IFRS 15 Revenue from Contracts with Customers (effective 1 January 2017)
specifies how and when an entity should recognise revenue and enhances the
nature of revenue disclosures.
Given the nature of the Company's revenue streams from financial instruments
the provisions of this standard are not expected to be applicable.
(b) Presentation of the Statement of Comprehensive Income
In order to reflect better the activities of an investment trust company and in
accordance with guidance issued by the AIC, supplementary information which
analyses the Statement of Comprehensive Income between items of a revenue and a
capital nature has been presented alongside the Statement of Comprehensive
Income. In accordance with the Company's Articles, net capital returns may not
be distributed by way of dividend.
(c) Segmental reporting
The Directors are of the opinion that the Company is engaged in a single
segment of business being investment business.
(d) Income
Dividends receivable on equity shares are recognised as revenue for the year on
an ex-dividend basis. Where no ex-dividend date is available dividends
receivable on or before the year end are treated as revenue for the year.
Provision is made for any dividends not expected to be received. Special
dividends, if any, are treated as a capital or a revenue receipt depending on
the facts or circumstances of each particular case. The return on a debt
security is recognised on a time apportionment basis so as to reflect the
effective yield on the debt security.
Interest income and expenses are accounted for on an accruals basis.
(e) Expenses
All expenses, including finance costs, are accounted for on an accruals basis.
Expenses have been charged wholly to the revenue column of the Statement of
Comprehensive Income, except as follows
* expenses which are incidental to the acquisition of an investment are
included within the cost of the investment. Details of transaction costs on
the purchases and sales of investments are disclosed within note 10 to the
Financial Statements on page 47 of the Annual Report;
* expenses are treated as capital where a connection with the maintenance or
enhancement of the value of the investments can be demonstrated;
* the investment management fees and finance costs of borrowing borne by the
Company have been allocated 80% to the capital column and 20% to the
revenue column of the Statement of Comprehensive Income in line with the
Board's expectations of the long term split of returns, in the form of
capital gains and income, respectively, from the investment portfolio;
- performance fees are allocated 100% to the capital column of the Statement of
Comprehensive Income as fees are generated in connection with enhancing the
value of the investment portfolio.
(f) Taxation
Deferred taxation is recognised in respect of all temporary differences that
have originated but not reversed at the financial reporting date, where
transactions or events that result in an obligation to pay more tax in the
future or right to pay less tax in the future have occurred at the financial
reporting date. This is subject to deferred tax assets only being recognised if
it is considered more likely than not that there will be suitable profits from
which the future reversal of the temporary differences can be deducted.
Deferred tax assets and liabilities are measured at the rates applicable to the
legal jurisdictions in which they arise.
(g) Investments held at fair value through profit or loss
The Company's investments are classified as held at fair value through profit
or loss in accordance with IAS 39 - "Financial Instruments: Recognition and
Measurement" and are managed and evaluated on a fair value basis in accordance
with its investment strategy.
All investments are initially recognised as held at fair value through profit
or loss and subsequently at fair value. Purchases of investments are recognised
on a trade date basis. The sale of investments are recognised at the trade date
of the disposal. Proceeds are measured at fair value, which is regarded as the
proceeds of sale less any transaction costs.
The fair value of the financial investments is based on their quoted bid price,
or as otherwise stated at the financial reporting date, without deduction for
the estimated future selling costs. This policy applies to all current and non
current asset investments held by the Company. The fair value of the P-Note is
based on the quoted bid price of the underlying equity to which it relates.
Changes in the value of investments held at fair value through profit or loss
and gains and losses on disposal are recognised in the Statement of
Comprehensive Income as "Gains or losses on investments held at fair value
through profit or loss". Also included within the heading are transaction costs
in relation to the purchase or sale of investments.
Fair values for unquoted investments, or investments for which the market is
inactive, are established by using various valuation techniques. These may
include recent arm's length market transactions or the current fair value of
another instrument which is substantially the same. Where no reliable fair
value can be estimated for such instruments, they are carried at cost subject
to any provision for impairment. The Company held no unquoted investments at 30
September 2014.
(h) Derivatives
Derivatives are held at fair value based on the bid prices of the underlying
securities in respect of long positions, and the offer prices of the underlying
securities in respect of short positions, which the Company is exposed to
through the use of contracts for difference ("CFD"). Gains and losses on
derivative transactions are recognised in the Statement of Comprehensive
Income. They are recognised as capital and are shown in the capital column of
the Statement of Comprehensive Income if they are of a capital nature and are
recognised as revenue and shown in the revenue column of the Statement of
Comprehensive Income if they are of a revenue nature. To the extent that any
gains or losses are of a mixed revenue and capital nature, they are apportioned
between revenue and capital accordingly.
(i) Other receivables and other payables
Other receivables and other payables do not carry any interest and are short
term in nature and are accordingly stated at their nominal value.
(j) Dividends payable
Under IFRS interim dividends are recognised when paid to shareholders. Final
dividends, if any, are only recognised after they have been approved by
shareholders.
(k) Foreign currency translation
Transactions involving foreign currencies are converted at the rate ruling at
the date of the transaction.
Foreign currency monetary assets and liabilities are translated into US dollars
at the rate ruling on the financial reporting date. Foreign exchange
differences arising on translation are recognised in the Statement of
Comprehensive Income as a revenue or capital item depending on the income or
expense to which they relate.
(l) Cash and cash equivalents
Cash comprises cash in hand and on demand deposits. Cash equivalents are short
term, highly liquid investments that are readily convertible to known amounts
of cash and that are subject to an insignificant risk of changes in value.
(m) Bank borrowings
Bank overdrafts are recorded as the proceeds are received. Finance charges are
accounted for on an accruals basis in the Statement of Comprehensive Income
using the effective interest rate method and are added to the carrying amount
of the instruments to the extent that they are not settled in the year in which
they arise.
3. Income
2014 2013
US$'000 US$'000
Investment Income:
UK listed dividends 314 195
Overseas listed dividends 9,796 5,369
Fixed interest income 2 -
------ -----
10,112 5,564
Income from contracts for difference 2,540 2,131
------ -----
12,652 7,695
Interest receivable and other income:
Deposit interest 64 55
------ -----
Total income 12,716 7,750
====== =====
4. Investment management and performance fees
2014 2013
Revenue Capital Total Revenue Capital Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Investment management fee 633 2,523 3,156 355 1,425 1,780
Performance fee - - - - 1,624 1,624
--- ----- ----- --- ---- -----
Total 633 2,523 3,156 355 3,049 3,404
=== ==== ==== === ==== ====
An investment management fee equivalent to 1.10% per annum of the Company's
gross assets (defined as the aggregate value of the total assets of the
Company) is payable to the Investment Manager. In addition, the Investment
Manager is also entitled to receive a performance fee at a rate of 10% of any
increase in the NAV at the end of a performance period over and above what
would have been achieved had the cumulative NAV since launch increased in line
with the MSCI Frontier Markets Index ("the Reference Index"). The performance
fee payable in any year is capped at an amount equal to 2.5% or 1% of the gross
assets if there is any increase or decrease in the NAV per share at the end of
the relevant performance period, respectively. Any capped excess outperformance
for a period may be carried forward to the next two performance periods,
subject to the then applicable annual cap. At 30 September 2014, fees of
US$834,000 were payable to the Investment Manager. The management and
performance fees were payable to BIM (UK) up to 2 July 2014. After this date
all fees are payable to BFM as AIFM, but the basis of the fee calculations
remain unchanged.
For the year to 30 September 2014, the Company's NAV had not outperformed the
Reference Index (2013: outperformed by 9.8%) on a US dollar basis and no
performance fee has been accrued at 30 September 2014 (2013: US$1,624,000).
5. Operating expenses
2014 2013
US$'000 US$'000
Custody fee 359 176
Auditors' remuneration:
- audit services 46 44
- other non-audit services (1) 10 10
Depository fee 9 -
Directors' emoluments 215 174
Registrar's fee 25 49
Other administration costs 355 309
----- ---
1,019 762
===== ===
1 Fees for non audit services of US$9,700 (2013: US$9,700) relate to the review
of the interim financial statements. In 2013 the auditors performed work in
respect of the Company's C share issue for fees of £15,000 (US$24,300) (all VAT
exclusive). These fees in respect of the C share issue were charged to the
C share holders as part of the issuance costs and were not debited to the
Company's Statement of Comprehensive Income.
The Company's ongoing charges, calculated as a percentage of average net assets
and using expenses, excluding performance fees and interest costs were 1.5%
(2013: 1.6%). Inclusive of performance fees the ongoing charges for 2014 were
1.5% (2013: 2.6%).
For the year ended 30 September 2014, expenses of US$202,000 (2013: US$57,000)
were charged to the capital column of the Statement of Comprehensive Income,
these relate to transaction costs of US$202,000 (2013: US$33,000). No fees were
payable in 2014 in relation to investing in new markets (2013: US$24,000).
6. Dividends
Record Payment 2014 2013
Dividends paid on equity shares date date US$'000 US$'000
2012 final of 2.60 cents
per ordinary share 1 February 2013 8 March 2013 - 2,464
2013 special dividend of
3.40 cents per ordinary
share 7 June 2013 5 July 2013 - 3,222
2014 interim of 2.25 cents
per ordinary share 6 June 2014 4 July 2014 3,389 1,895
----- -----
3,389 7,581
===== =====
The Directors have proposed a final dividend of 4.00 cents per share (2013:
nil). The dividend will be paid on 20 February 2015, subject to shareholder
approval on 11 February 2015, to shareholders on the Company's register on
30 January 2015. Under IFRS the proposed final dividend has not been recognised as
a liability in the financial statements as final dividends are only recognised
in the financial statements when they have been approved by shareholders, and
special and interim dividends are not recognised until they are paid. They are
also debited directly to revenue reserves.
The total dividends payable in respect of the period ended 30 September 2014
which form the basis of section 1158 of the Corporation Tax Act 2010 and
section 833 of the Companies Act 2006, and the amounts proposed, meet the
relevant requirements as set out in this legislation.
Dividends per share paid or proposed on equity shares 2014 2013
US$'000 US$'000
Interim dividend paid of 2.25 cents per ordinary share (2013: 2.00) 3,389 1,895
Special dividend paid of 3.40 cents per ordinary share - 3,222
Final proposed dividend of 4.00 cents per ordinary share
(2013: nil)* 6,025 -
----- -----
9,414 5,117
===== =====
* Based on 150,621,621 ordinary shares in issue on 1 December 2014.
7. Return and net asset value per ordinary share
2014 2013
Net revenue profit attributable to ordinary
shareholders (US$'000) 9,922 5,868
Net capital profit attributable to ordinary
shareholders (US$'000) 44,366 34,002
------- -------
Total profit attributable to ordinary shareholders
(US$'000) 54,288 39,870
------- -------
Total equity attributable to shareholders (US$'000) 306,132 255,233
------- -------
The weighted average number of ordinary shares in issue
during the year, on which the earnings per ordinary
share was calculated, was: 150,621,621 95,684,437
----------- ----------
The actual number of ordinary shares in issue at the
end of the year, on which the net asset value per
ordinary share was calculated, was: 150,621,621 150,621,621
----------- -----------
Revenue earnings per share - (US cents) 6.59 6.13
Capital earnings per share - (US cents) 29.45 35.54
------ ------
Total earnings per share - (US cents) 36.04 41.67
------ ------
Net asset value per share - (US cents) 203.25 169.45
------ ------
Share price* - (US cents) 211.58 178.13
------ ------
Net asset value per share - (pence) 125.36 104.64
------ ------
Share price (pence) 130.50 110.00
====== ======
* The Company's share price is quoted in sterling and the above represents the US dollar
equivalent.
8. Called up share capital
Number
of ordinary Nominal
shares value
in issue US$'000
Allotted, called up and fully paid share capital
comprised:
Ordinary shares of 1 cent each
----------- -----
At 30 September 2013 150,621,621 1,506
----------- -----
At 30 September 2014 150,621,621 1,506
=========== =====
The Company also has in issue 50,000 management shares which carry the right to
a fixed cumulative preferred dividend. Additional information is given in note
14 to the Financial Statements in the Annual Report.
9. Share premium and reserves
Capital Capital
reserve reserve
Share Capital arising on arising on
premium redemption Special investments revaluation of Revenue
account reserve reserve sold investments reserve
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
At 30 September 2013 88,326 5,798 142,704 6,718 8,632 1,549
Movement during the
year:
Total Comprehensive
Income:
Cancellation of share (88,326) - 88,326 - - -
premium
Gain on realisation of - - - 34,767 - -
investments
Changes in investment - - - - 2,390 -
holding gains
Losses on foreign - - - (166) (33) -
currency transactions
(Losses)/gains on - - - (264) 9,996 -
contracts for
differences
Finance costs and - - - (2,324) - -
investment management
fee charged to capital
after taxation
Revenue return for the - - - - - 9,922
year
Dividends paid - - - - - (3,389)
----- ----- ------- ------ ------ -----
At 30 September 2014 - 5,798 231,030 38,731 20,985 8,082
===== ===== ======= ====== ====== =====
Pursuant to Board approval, the Company applied to the Court for cancellation
of its share premium account so that the amount standing to the credit of that
account immediately following the issue of ordinary shares pursuant to the
offer, be cancelled. Court approval was received on 6 November 2013 and
US$88,326,000 was transferred from the share premium account to distributable
reserves.
10. Contingent liabilities
There were no contingent liabilities at 30 September 2014 (2013: nil).
11. Publication of non statutory accounts
The financial information contained in this announcement does not constitute
statutory accounts as defined in the Companies Act 2006. The 2014 annual report
and financial statements will be filed with the Registrar of Companies shortly.
The report of the Auditor for the period ended 30 September 2014 contains no
qualification or statement under section 498(2) or (3) of the Companies Act
2006.
This announcement was approved by the Board of Directors on 1 December 2014.
12. Annual report
Copies of the annual report will be sent to members shortly and will be
available from the registered office, c/o The Company Secretary, BlackRock
Frontiers Investment Trust plc, 12 Throgmorton Avenue, London EC2N 2DL.
13. Annual General Meeting
The Annual General Meeting of the Company will be held at 12 Throgmorton
Avenue, London EC2N 2DL on Wednesday, 11 February 2015 at 12.00 noon.
ENDS
The Annual Report will also be available on the BlackRock website at
blackrock.co.uk/brfi. Neither the contents of the Manager's website nor the
contents of any website accessible from hyperlinks on the Manager's website (or
any other website) is incorporated into, or forms part of, this announcement.
For futher information, please contact:
Simon White, Managing Director, Investment Companies, BlackRock Investment
Management (UK) Limited
Tel: 020 7743 5284
Henrietta Guthrie, Lansons Communications
Tel: 020 7294 3612
1 December 2014
12 Throgmorton Avenue
London EC2N 2DL
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