Half-year Report
BlackRock Frontiers Investment Trust plc
Half Yearly Financial Report for the six months ended 31 March 2016
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.
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.
PERFORMANCE RECORD
FINANCIAL HIGHLIHTS
| 31 March 2016 |
30 September 2015 |
|
| US Dollar | ||
| Net assets (US$’000) | 256,835 | 242,395 |
| Net asset value per share (cum income) | 156.29c | 160.93c |
| Share price1 | 152.72c | 157.15c |
| -------- | -------- | |
| Sterling | ||
| Net assets (£’000) 1 | 178,680 | 160,028 |
| Net asset value per share (cum income) 1 | 108.73p | 106.25p |
| Share price | 106.25p | 103.75p |
| -------- | -------- | |
| Discount | 2.3% | 2.4% |
| ====== | ===== |
| Performance – total return basis | Six months ended 31 March 2016 % |
Year ended 30 September 2015 % |
Since inception3 % |
| US Dollar | |||
| Net asset value per share (with income reinvested) | -0.1 | -17.9 | +19.9 |
| MSCI Frontier Markets Index (net return2) | -2.2 | -24.2 | +2.6 |
| MSCI Emerging Markets Index (net return2) | +6.4 | -19.3 | -14.4 |
| Ordinary share price (with income reinvested) | +0.1 | -22.9 | +15.5 |
| -------- | -------- | -------- | |
| Sterling | |||
| Net asset value per share (with income reinvested) | +5.2 | -12.2 | +29.7 |
| MSCI Frontier Markets Index (net return2) | +3.1 | -18.9 | +11.3 |
| MSCI Emerging Markets Index (net return2) | +12.1 | -13.6 | -7.1 |
| Ordinary share price (with income reinvested) | +5.4 | -17.5 | +24.8 |
| -------- | -------- | -------- | |
| 1. Based on an exchange rate of 1.4374 at 31 March 2016 and 1.5147 at 30 September 2015. 2. Net return indices calculate the reinvestment of dividends net of withholding taxes using the tax rates applicable to non-residential 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. |
|||
CHAIRMAN'S STATEMENT
for the six months to 31 March 2016
I am pleased to present the Company’s half yearly financial report for the six months ended 31 March 2016.
Hiighlights
- Company’s life extended for a further five years;
- 5.9 million tendered shares (4% of issued share capital) successfully placed in the secondary market;
- C Share raised £15 million;
- Interim dividend of 2.60 cents per share;
- Yield of 4.2% (based on share price at 13 May 2016);
- NAV total return of 19.9% (in US Dollar terms), since inception, outperforming the benchmark index by 17.3%; and
- Share price total return of 15.5% (in US Dollar terms) since inception.
OVERVIEW
The six months under review have been a challenging period for world equity markets, with exceptional volatility driven by reaction to concerns over weakening economic growth in China, the impact of higher interest rates in the US, and the significance of the ongoing decline in the oil price. Against this backdrop, the Company’s NAV outperformed the MSCI Frontier Markets Index during the period, falling by just 0.1% compared to a drop of 2.2% in the Index, and the share price remained flat, demonstrating clearly the benefits of the diversity available in the Frontier Markets universe. Since the Company’s launch in December 2010, the Company’s NAV has increased by 19.9%, outperforming the benchmark index by 17.3%. Over the same period the Company’s share price rose by 15.5% (all calculations are in USD terms with net income reinvested).
Further details of changes to portfolio composition over the period under review and significant components of portfolio performance are set out in the Investment Manager’s report.
REVENUE RETURN AND DIVIDENDS
The Company’s revenue return per share for the six months ended 31 March 2016 amounted to 2.33 cents (2015: 2.54 cents). Previously, the Company has paid out approximately a third of its revenues at the interim stage and the balance in the form of a final dividend. However the Board has decided to rebalance the split between interim and final dividends to better reflect the timing of the underlying income earned by the Company. As at 12 May 2016 the Company had accrued current year revenue earnings of 2.65 cents per share, and the Board has declared an interim dividend of 2.60 cents per share (2015: 2.40 cents per share) payable on 1 July 2016 to shareholders on the Company’s register on 3 June 2016. The Board anticipates that the total dividends declared by the Company for the full year to 30 September 2016 will be broadly in-line with last year's full year dividends of 6.55 cents per share declared in respect of the year to 30 September 2015, despite currency headwinds and portfolio allocation changes away from countries such as Nigeria, where historically dividend yields have been high. The cost of the dividend amounts to US$4,272,661 in aggregate.
The final dividend of 4.15 cents per share for the year ended 30 September 2015, declared on 17 December 2015 was paid to shareholders on 19 February 2016.
TENDER OFFER
When the Company was launched in late 2010, the Board made a commitment that prior to the Company’s fifth AGM and at five yearly intervals thereafter, it would formulate and submit to shareholders proposals for an opportunity to realise the value of their ordinary shares at the applicable NAV per ordinary share less costs. Accordingly, shareholders were given the opportunity to participate in a tender for up to 100% of the Company’s issued share capital in February 2016. As announced on 1 February 2016, 5,995,293 shares were tendered as a result. Due to the strength of demand for the Company’s shares the Company’s brokers were subsequently able to place all tendered shares in the secondary market (under the terms set out in the tender circular). I am therefore delighted to report that the Company’s first 5 year exit opportunity concluded successfully with no outflow of capital and the life of the Company was extended for a further five years. The Directors intend to offer shareholders further opportunities to realise the value of their ordinary shares, at the applicable net asset value per ordinary share less costs, at five yearly intervals.
C SHARE ISSUE
On 5 February 2016, the Company announced a placing and offer for subscription for up to 65 million C shares. The offer closed on 29 February 2016, and notwithstanding the exceptional volatility of the market backdrop, there was sufficient demand in the market place for the issue of 15,000,001 C shares at a price of 100 pence per share. All the C shares were subsequently converted into 13,711,487 new ordinary shares on 16 March 2016. The conversion ratio, which was calculated by reference to the net assets of the Company attributable to the C shares at the close of business on 7 March 2016 was 0.9141 for every C share held; additional information is given in note 8.
At 31 March 2016 the Company had 164,333,108 shares in issue. There were no other share allotments or share buybacks in the period under review.
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. For the period under review the Company’s ordinary shares have traded at an average discount to NAV of 3.8%, and were trading at a discount of 1.1% on a cum-income basis at 12 May 2016. 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) and also to issue on a non-pre-emptive basis up to 10% of the Company’s issued share capital. Neither of these authorities has been utilised in the period. Both authorities expire on the conclusion of the 2017 AGM, when resolutions will be put to shareholders for renewal.
CHANGE TO INVESTMENT POLICY
At the Company’s fifth Annual General Meeting on 10 February 2016, shareholders approved amendments to the Company’s investment policy. The policy was amended to define Frontier Markets as any country that was not a constituent of the MSCI Emerging Markets Index or the MSCI Developed Markets Index as at 1 December 2015. In addition, shareholders approved the investment of up to 20% of the gross value of the portfolio in Colombia, Egypt, Peru or the Philippines. These were countries identified by the Investment Manager as members of the MSCI Emerging Markets Index as at 1 December 2015 that shared similar characteristics to those of less developed markets (such as low per capita GDP, high growth potential and less developed capital markets). The new policy became effective from 10 February 2016. It is pleasing to note that the Investment Manager has made portfolio additions in both Egypt and Colombia subsequent to the change. We believe this emphasises the attractive opportunities and additional diversification that are available in the expanded investment universe.
OUTLOOK
The first five years of the Company’s life, which concluded with the tender offer in February, have seen Frontier Markets evolve, with material changes in index constituents (following the transition of UAE and Qatar to Emerging Market status) and significant reform in many Frontier Market economies and capital markets. The next five years are likely to see further transformation, but your Board believes that the investment opportunities which can be accessed through Frontier Markets remain compelling, with a broad array of fast growing and often overlooked companies in the investment universe. The underlying economies to which they are exposed in many cases exhibit very little correlation to the world economy overall. Although individually Frontier Markets can exhibit significant political risk, this aspect can be mitigated by acquiring a spread of holdings.
Your Board is confident that the Company, with its expanded investment policy, is well positioned to take advantage of the investment opportunities and diversification benefits available, and looks forward to the next five year chapter in the Company’s life with confidence.
Audley Twiston-Davies
Chairman
16 May 2016
INTERIM MANAGEMENT REPORT AND RESPONSIBILITY STATEMENT
The Chairman’s Statement and the Investment Manager’s Report give details of the important events which have occurred during the period and their impact on the financial statements.
PRINCIPAL RISKS AND UNCERTAINTIES
A detailed explanation of the risks relating to the Company can be divided into various areas as follows:
- Performance;
- Income/dividend;
- Regulatory;
- Operational;
- Market;
- Political; and
- Financial.
The Board reported on the principal risks and uncertainties faced by the Company in the Annual Report and Financial Statements for the year ended 30 September 2015. A detailed explanation can be found in the Strategic Report on pages 16 to 18 and in note 17 on pages 54 to 65 of the Annual Report and Financial Statements which are available on the website maintained by BlackRock at blackrock.co.uk/brfi.
In the view of the Board, there have not been any changes to the fundamental nature of these risks since the previous report and these principal risks and uncertainties, as summarised, are equally applicable to the remaining six months of the financial year as they were to the six months under review.
GOING CONCERN
The Directors, having considered the nature and liquidity of the portfolio, the Company’s investment objective and the Company’s projected income and expenditure, are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future and is financially sound. For this reason, they continue to adopt the going concern basis in preparing the financial statements. The Company has a portfolio of investments which are considered to be readily realisable and is able to meet all of its liabilities from its assets and income generated from these assets. Ongoing charges (including any performance fees but excluding interest costs and taxation) are approximately 1.6% of average net assets.
RELATED PARTY DISCLOSURE AND TRANSACTIONS WITH THE AIFM AND INVESTMENT MANAGER
BlackRock Fund Managers Limited ('BFM') 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 BlackRock Investment Management (UK) Limited ('BIM (UK)'). Both BFM and BIM (UK) are regarded as related parties under the Listing Rules. Details of the management and performance fees payable are set out in note 4 and note 10. The related party transactions with the Directors are set out in note 11.
DIRECTORS’ RESPONSIBILITY STATEMENT
The Disclosure and Transparency Rules ('DTR') of the UK Listing Authority require the Directors to confirm their responsibilities in relation to the preparation and publication of the Interim Management Report and Financial Statements.
The Directors confirm to the best of their knowledge that:
-
the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with the International Accounting Standard 34 Interim Financial Reporting; and
-
the interim management report, together with the Chairman’s Statement and Investment Manager’s Report, includes a fair review of the information required by 4.2.7R and 4.2.8R of the Financial Conduct Authority ('FCA') Disclosure and Transparency Rules.
The half yearly financial report has been reviewed by the Company’s Auditors.
The half yearly financial report was approved by the Board on 16 May 2016 and the above responsibility statement was signed on its behalf by the Chairman.
Audley Twiston-Davies
For and on behalf of the Board
16 May 2016
INVESTMENT MANAGER'S REPORT
PORTFOLIO AND MARKET COMMENTARY
In the six months to 31 March 2016, the Company’s NAV fell by 0.1%, outperforming the MSCI Frontier Markets Index by 2.1%. Since inception the Company’s NAV has returned 19.9% compared to a return of 2.6% for the MSCI Frontier Market Index and -14.4% for the MSCI Emerging Market Index (all calculations are in USD terms with net income reinvested).
The past six months have once again demonstrated the benefits of investing in a diverse asset class. While some countries have been impacted by a lower oil price, others have benefitted from the fall in energy prices, while elsewhere, domestic political developments have driven returns.
Political change helped Argentina to deliver the strongest performance of any country over the period, with the MSCI Argentina Index rising by 36.2%. The stellar performance was driven by the results of the Presidential elections which saw the City of Buenos Aires mayor Mauricio Macri defeat the ruling party candidate, Daniel Scioli. Although victory for either candidate was expected to put Argentina on a more orthodox economic footing, the election of Macri represented a greater positive shift in economic policy.
Since Macri took office, his administration has impressed investors. The new President has made good progress in dismantling the protectionist structures of the economy, including eliminating currency controls, cutting export taxes and removing energy subsidies. Perhaps most significant is the resolution of the dispute with the hold-out creditors, a legacy from the 2001 debt crisis. This will allow Argentina to return to international capital markets for the first time in over a decade. Against this backdrop, the Company benefitted from increasing portfolio exposure to Argentina, particularly in the financial sector. Company positions in Banco Macro and Grupo Galicia increased in value by 68% and 59% respectively, contributing to the positive relative performance from Argentina during the period.
The largest relative contribution to performance over the period came from the Company’s significant underweight portfolio exposure to Nigeria. Although we have a long-term positive view of the country, the decline in oil prices and the reluctance of monetary authorities to allow the currency to adjust has placed pressure on the economy. Performance of the stock market has reflected this economic deterioration, with the MSCI Nigerian index falling by 23.0% over this period. Within the portfolio, exposure to Nigeria has been reduced to less than 1% of the portfolio.
Stock selection within Pakistan was a key source of alpha within the portfolio. Whilst the headline performance of the market wasn’t exceptional, with the index falling by 1.3% over the time period, the portfolio benefited from holdings in a number of stocks which have outperformed the market including Hub Power company, DG Khan Cement and Engro Foods. The share price of Engro Foods, a domestic milk producer, rose following the announcement that Friesland Campina had entered negotiations to acquire the company.
The Company also benefitted from individual stock drivers such as Caribbean telecom operator, Cable and Wireless Communication (CWC), Estonian ferry operator, Tallink, and Frontier market bottling franchise, Coca-Cola Icecek. Liberty Global announced a take-over of CWC, as they moved towards consolidating their position across the Americas region. We exited our position, which we had bought in 2012, following the announcement of the deal at a price which was around double our initial purchase price. Tallink performed well after announcing strong results for the fourth quarter of 2015. The company reported growth in revenues and strong free cash flow generation with a tail wind from the lower oil price. Icecek has operations in Frontier markets such as Pakistan, Iraq and the CIS and across the Middle East and North African region. The company is the highest-growth bottler across the Coca Cola franchise universe with some of the lowest market penetration figures, meaning that it has good long-term potential. For example, if consumption rose to UK levels, Iraq volumes could quadruple and Pakistan could grow sevenfold. Falls in raw material prices (including sugar) had a positive impact on margins in 2015, which, combined with its growth profile, was recognised by investors as an attractive proposition.
The largest detractor from performance was Sri Lanka where the index fell by 15.6% over the period under review. Investors became increasingly concerned about the extent of the fiscal deficit and the lack of coherence in the budget for 2016.
PORTFOLIO ACTIVITY
During the first half of the financial year, we continued to increase positions in Argentina, both prior to and following the election of President Macri in line with our expectation of a shift towards economic normalisation in Argentina.
Positions were also increased in Kazakhstan, Kenya and Romania. In Kazakhstan, we added to positions in KazMunaiGas on the belief that the company is undervalued as it is trading at a significant discount to the value of net cash on its balance sheet. In Kenya, we initiated a position in Equity Bank. Having a market share of current account customers of more than 50%, we believe that the bank’s deposit franchise gives it a sustainable funding advantage in a country which is heavily reliant on external funding sources. In Romania, we added a position in a utility, Electrica. The company generates a sustainable real return from its assets resulting in a dividend yield above 7%. With cash representing more than 70% of its market cap, we believe that the company is well positioned to make accretive acquisitions.
Early in 2016, we added to a number of positions, taking the opportunity presented by temporary market weakness to increase the net exposure of the portfolio. These included the Pakistan cement company, DG Khan, which is the third largest cement company in Pakistan by local market share (11%). The company is set to benefit from increased housebuilding and government infrastructure projects in the north of the country.
Bancolombia, a Colombian bank with operations across Central America, was added to the portfolio. The stock is trading at much cheaper valuations than its historical levels, a result of enduring margin compression and a credit cycle, prompted by the fall in the oil price driving the currency down and interest rates up. We now see the economic situation stabilising and Bancolombia will be a key beneficiary as a result.
Another new addition to the portfolio was Centamin, a gold mining company with operations in Egypt. The company is ramping up production to record levels as its underground expansion has come into full operation. With expansion capital expenditure now complete and a long mine life ahead, the company is well-placed to generate free cashflow and has a strong balance sheet with no debt.
It is important to note that both these additions are in countries that only became part of the Company’s investible universe as a result of amendments to the Company’s investment policy which were approved by shareholders at the AGM in February 2016; we believe that this illustrates the attractive opportunities that are available in the expanded investment universe.
As mentioned previously, the Company continued to reduce exposure to Nigeria on the back of our strongly held views that the currency needs to devalue substantially from current levels.
We took the decision to exit from our positions in Iraqi oil stocks during the period. These holdings had suffered as a result of the low oil price and the realisation that despite being low cost producers, the regional Kurdish Government and Iraqi government are highly geared to the oil price.
OUTLOOK
Over the previous five years, Frontier Markets have differentiated themselves from broader Emerging Markets, significantly outperforming their larger peers. Somewhat immune from the earnings downgrades that have plagued Emerging Markets, and often disconnected from global capital flows, the performance of Frontier Markets has been largely determined by endogenous factors. Over the last few years, notable positive political developments have taken place in countries as diverse as Argentina, Nigeria, Pakistan and Sri Lanka. Whilst at least an equal set of countries, including Bangladesh and Morocco have seen substantially positive economic developments. However, despite this backdrop, Frontier Markets are currently trading around the lowest valuation levels (as measured by price/earnings ratio), that we have seen during the life of the Company, and therefore we believe that Frontier Markets continue to present an attractive investment opportunity.
Sam Vecht and Emily Fletcher
BlackRock Investment Management (UK) Limited
16 May 2016
TEN LARGEST INVESTMENTS1
As at 31 March 2016
KazMunaiGas Exploration Production2 (Kazakhstan, Energy, 4.2% (2015:1.6%)) is the largest onshore oil producer in Kazakhstan, with c.250kbpd annual production.
MCB Bank2 (Pakistan, Financials, 4.2% (2015:1.7%)) MCB is one of the leading private banks in Pakistan. The Bank has a customer base of approximately 4 million and a nationwide distribution network of over 1100 branches.
MHP2 (Ukraine, Consumer Staples, 3.9% (2015: 4.3%)) is a vertically integrated poultry producer in Ukraine, with 55% domestic market share and multiple export destinations.
Grupo Financiero Galicia2 (Argentina, Financials, 3.9% (2015: 2.4%)) is one of the largest private sector banks in Argentina, with a deposit market share of 9%. Through its various subsidiaries, Galicia is the largest credit card issuer in Argentina having issued over 9.5m credit cards.
S.N.G.N. Romgaz2 (Romania, Energy, 3.7% (2015: 2.9%)) is the largest natural gas producer in Romania, supplying c.5.6bcm of gas per year. Romgaz's main production comes from the Transylvanian basin; the company also engages in exploration projects in the Black Sea.
Hub Power2 (Pakistan, Utilities, 3.6% (2015: 3.3%)) is the largest independent power producer in the country with operational capacity of approx. 1500MW from oil, diesel and hydro-electric power generation. It is also at the forefront of establishing coal based generation capacity (1320MW) in liaison with the Chinese and Pakistani governments.
Kuwait Foods (Americana)2 (Kuwait, Consumer Discretionary, 3.6% (2015: 4.1%)) also known as ‘Americana’, operates fast food franchises across North Africa, Central Asia and the Middle East.
Banco Macro2 (Argentina, Financials, 3.5% (2015: 2.5%)) was formed through the combination of a number of regional banks. The bank is dominant in the interior of the country where 79% of its branches are based. It has the leading market share in personal loans in the country with 15% market share.
Coca-Cola Icecek3 (Eurasia, Consumer Staples, 3.4% (2015: 1.4%)) is a regional bottling company for the Coca-Cola company with operations in Frontier markets such as Pakistan, Iraq, the CIS and across the Middle East and North African region.
Square Pharmaceuticals2 (Bangladesh, Health Care, 3.3% (2015: 3.3%)) is the largest pharmaceutical company in Bangladesh, with a domestic market share of 16%.
1. Gross market exposure as a % of net assets. Percentages in brackets represent the portfolio holding at 30 September 2015.
2. Includes exposure gained via both contracts for difference and equity holdings.
3. Denotes exposure gained via contract for difference.
COUNTRY AND SECTOR ALLOCATION
COUNTRY ALLOCATION (%)*
| Relative to MSCI Frontier Markets Index | Absolute weights | ||
| Bangladesh | 6.9 | Argentina | 13.8 |
| Kazakhstan | 6.5 | Pakistan | 13.6 |
| Ukraine | 6.4 | Romania | 10.0 |
| Romania | 6.3 | Bangladesh | 9.3 |
| Pakistan | 5.0 | Kazakhstan | 8.2 |
| Sri Lanka | 4.9 | Sri Lanka | 6.6 |
| Eurasia | 3.4 | Ukraine | 6.4 |
| Caribbean | 2.9 | Morocco | 5.9 |
| Saudi Arabia | 2.5 | Kenya | 5.8 |
| Estonia | 1.8 | Kuwait | 5.6 |
| Colombia | 1.1 | Vietnam | 4.1 |
| Egypt | 0.9 | Eurasia | 3.4 |
| Peru | 0.7 | Caribbean | 2.9 |
| Vietnam | 0.4 | Saudi Arabia | 2.5 |
| Kenya | 0.1 | Estonia | 2.4 |
| Slovenia | - | Slovenia | 2.3 |
| Bulgaria | -0.1 | Oman | 1.3 |
| Lithuania | -0.2 | Colombia | 1.1 |
| Serbia | -0.2 | Egypt | 0.9 |
| Tunisia | -0.5 | Peru | 0.7 |
| Argentina | -0.6 | Nigeria | 0.7 |
| Jordan | -0.7 | Tunisia | 0.3 |
| Short Positions | -1.2 | Short Positions | -1.2 |
| Croatia | -1.5 | ||
| Morocco | -1.7 | ||
| Mauritius | -1.8 | ||
| Bahrain | -1.9 | ||
| Oman | -3.2 | ||
| Lebanon | -3.8 | ||
| Nigeria | -11.1 | ||
| Kuwait | -14.7 |
Source: BlackRock and Datastream.
* Based on portfolio gross market exposure as a % of portfolio assets (excluding the investment in BlackRock’s Institutional Cash Fund), compared to the MSCI Frontier Markets Index.
SECTOR ALLOCATION (%)*
| Relative to MSCI Frontier Markets Index |
Absolute weights |
|||
| Consumer Staples | 11.2 | Financials | 35.7 | |
| Utilities | 5.3 | Consumer Staples | 19.5 | |
| Consumer Discretionary | 2.5 | Energy | 9.9 | |
| Technology | 2.5 | Telecommunications | 8.7 | |
| Information Technology | 2.3 | Materials | 7.0 | |
| Health Care | 2.2 | Utilities | 6.6 | |
| Mining | 1.6 | Health Care | 5.6 | |
| Industrials | 1.5 | Industrials | 4.4 | |
| Materials | 0.2 | Consumer Discretionary | 3.6 | |
| Energy | 0.1 | Information Technology | 2.7 | |
| Short Positions | -1.2 | Technology | 2.5 | |
| Telecommunications | -5.0 | Mining | 1.6 | |
| Financials | -16.6 | Short Positions | -1.2 |
Source: BlackRock and Datastream.
* Based on portfolio gross market exposure as a % of portfolio assets (excluding the investment in BlackRock’s Institutional Cash Fund), compared to the MSCI Frontier Markets Index.
INVESTMENTS
as at 31 March 2016
Company |
Principal country of operation |
Sector |
Fair value and market exposure1 US$’000 |
Gross market exposure as a % of net assets3 |
| Equity portfolio | ||||
| Agility | Kuwait | Industrials | 1,210 | 0.5 |
| Attijariwafa Bank | Morocco | Financials | 6,770 | 2.6 |
| Banco Macro | Argentina | Financials | 8,546 | 3.3 |
| Bancolombia | Colombia | Financials | 2,711 | 1.1 |
| BankMuscat | Oman | Financials | 3,434 | 1.3 |
| BRD Groupe Société Générale | Romania | Financials | 7,691 | 3.0 |
| Centamin | Egypt | Mining | 2,449 | 0.9 |
| Chevron Lubricants | Sri Lanka | Energy | 4,596 | 1.8 |
| D.G. Khan Cement | Pakistan | Materials | 6,577 | 2.6 |
| Distilleries Company of Sri Lanka | Sri Lanka | Consumer Staples | 4,458 | 1.7 |
| Electrica | Romania | Utilities | 6,992 | 2.7 |
| Engro Foods | Pakistan | Consumer Staples | 3,277 | 1.3 |
| Equity Group | Kenya | Financials | 7,995 | 3.1 |
| Globant | Argentina | Information Technology | 4,104 | 1.6 |
| Grupo Financiero Galicia | Argentina | Financials | 9,517 | 3.7 |
| Halyk Savings Bank | Kazakhstan | Financials | 6,045 | 2.4 |
| Hatton National Bank | Sri Lanka | Financials | 2,906 | 1.1 |
| Hochschild Mining | Peru | Mining | 1,777 | 0.7 |
| Hub Power | Pakistan | Utilities | 7,930 | 3.1 |
| Irsa Inversiones GDR | Argentina | Financials | 2,824 | 1.1 |
| KazMunaiGas Exploration Production | Kazakhstan | Energy | 10,523 | 4.1 |
| Kcell Joint Stock Company | Kazakhstan | Telecommunication | 3,767 | 1.5 |
| KRKA | Slovenia | Health Care | 5,740 | 2.2 |
| Kuwait Foods (Americana) | Kuwait | Consumer Discretionary | 9,087 | 3.5 |
| Luxoft | Ukraine | Technology | 6,235 | 2.4 |
| MCB Bank | Pakistan | Financials | 9,805 | 3.8 |
| Mercadolibre | Argentina | Information Technology | 2,847 | 1.1 |
| Mezzan Holdings | Kuwait | Consumer Staples | 1,192 | 0.5 |
| MHP | Ukraine | Consumer Staples | 9,634 | 3.7 |
| Millat Tractors | Pakistan | Industrials | 3,539 | 1.4 |
| Mobile Telecommunications | Kuwait | Telecommunication | 2,561 | 1.0 |
| Oil & Gas Development | Pakistan | Energy | 235 | 0.1 |
| Olympic Industries | Bangladesh | Consumer Staples | 3,801 | 1.5 |
| Pampa Energia | Argentina | Financials | 6,305 | 2.5 |
| Pricesmart | Caribbean | Consumer Staples | 7,102 | 2.8 |
| S.N.G.N. Romgaz | Romania | Energy | 8,869 | 3.4 |
| Safaricom | Kenya | Telecommunication | 6,316 | 2.5 |
| Square Pharmaceuticals | Bangladesh | Health Care | 2,126 | 0.8 |
| Tallink | Estonia | Industrials | 5,816 | 2.3 |
| United Bank for Africa | Nigeria | Financials | 1,792 | 0.7 |
| ----------- | -------- | |||
| Equity Investments | 209,101 | 81.4 | ||
| ----------- | -------- | |||
| BlackRock's Institutional Cash Fund | 42,851 | 16.7 | ||
| ----------- | -------- | |||
| Total equity investments (including BlackRock's Institutional Cash Fund) | 251,952 | 98.1 | ||
| ----------- | -------- | |||
| P-Notes | ||||
| Yanbu National Petrochemical 31/07/17 | Saudi Arabia | Materials | 6,484 | 2.5 |
| ------------- | -------- | |||
| Total P-Notes | 6,484 | 2.5 | ||
| ------------ | -------- | |||
| Total investments excluding CFDs | 258,436 | 100.6 | ||
| ======= | ===== |
Company |
Principal country of operation |
Sector |
Fair value1 US$’000 |
Gross market exposure2 US$’000 |
Gross market exposure as a % of net assets3 |
| CFD portfolio | |||||
| Long positions: | |||||
| Attijariwafa Bank | Morocco | Financials | 638 | 0.3 | |
| Banco Macro | Argentina | Financials | 534 | 0.2 | |
| BankMuscat | Oman | Financials | 34 | 0.0 | |
| BRD Groupe Société Générale | Romania | Financials | 733 | 0.3 | |
| British American Tobacco | Bangladesh | Consumer Staples | 5,985 | 2.3 | |
| Chevron Lubricants | Sri Lanka | Energy | 189 | 0.1 | |
| Coca Cola Icecek | Eurasia | Consumer Staples | 8,834 | 3.4 | |
| D.G. Khan Cement | Pakistan | Materials | 559 | 0.2 | |
| Distilleries Company of Sri Lanka | Sri Lanka | Consumer Staples | 1,436 | 0.6 | |
| Electrica | Romania | Utilities | 664 | 0.3 | |
| Engro Foods | Pakistan | Consumer Staples | 140 | 0.1 | |
| Equity Group | Kenya | Financials | 324 | 0.1 | |
| Grupo Financiero Galicia | Argentina | Financials | 390 | 0.2 | |
| Halyk Savings Bank | Kazakhstan | Financials | 253 | 0.1 | |
| Hatton National Bank | Sri Lanka | Financials | 3,267 | 1.3 | |
| Hub Power | Pakistan | Utilities | 1,240 | 0.5 | |
| KazMunaiGas Exploration Production | Kazakhstan | Energy | 355 | 0.1 | |
| KRKA | Slovenia | Health Care | 240 | 0.1 | |
| Kuwait Foods (Americana) | Kuwait | Consumer Discretionary | 330 | 0.1 | |
| Luxoft | Ukraine | Technology | 200 | 0.1 | |
| Maroc Telecom | Morocco | Telecommunication | 7,773 | 3.0 | |
| Masan | Vietnam | Consumer Staples | 2,011 | 0.8 | |
| MCB Bank | Pakistan | Financials | 926 | 0.4 | |
| Mercadolibre | Argentina | Information Technology | 113 | 0.0 | |
| MHP | Ukraine | Consumer Staples | 380 | 0.2 | |
| Millat Tractors | Pakistan | Industrials | 186 | 0.1 | |
| Mobile Telecommunications | Kuwait | Telecommunication | 101 | 0.0 | |
| Mobile World | Vietnam | Telecommunication | 1,624 | 0.6 | |
| Oil & Gas Development | Pakistan | Energy | 79 | 0.0 | |
| Olympic Industries | Bangladesh | Consumer Staples | 375 | 0.2 | |
| Pampa Energia | Argentina | Financials | 263 | 0.1 | |
| Petrovietnam Fertilizers & Chemicals | Vietnam | Materials | 4,342 | 1.7 | |
| Pricesmart | Caribbean | Consumer Staples | 336 | 0.1 | |
| Safaricom | Kenya | Telecommunication | 268 | 0.1 | |
| Saigon Securities | Vietnam | Financials | 2,664 | 1.0 | |
| Societe Frigorifique et Brasserie de Tunis | Tunisia | Consumer Staples | 839 | 0.3 | |
| S.N.G.N. Romgaz | Romania | Energy | 772 | 0.3 | |
| Square Pharmaceuticals | Bangladesh | Health Care | 6,439 | 2.5 | |
| Tallink | Estonia | Industrials | 255 | 0.1 | |
| United Commercial Bank | Bangladesh | Financials | 5,254 | 2.0 | |
| -------- | ----------- | -------- | |||
| Total long CFD positions | 803 | 61,345 | 23.9 | ||
| -------- | ---------- | -------- | |||
| Total short CFD positions | (129) | (3,110) | (1.2) | ||
| -------- | ----------- | -------- | |||
| Total CFD portfolio | 674 | 58,235 | 22.7 | ||
| -------- | ----------- | -------- | |||
| Equity investments (excluding BlackRock's Institutional Cash Fund) and P-Notes | 215,585 | 215,585 | 83.9 | ||
| ----------- | ----------- | -------- | |||
| BlackRock's Institutional Cash Fund4 | 42,851 | 42,851 | 16.7 | ||
| ----------- | ------------ | -------- | |||
| Total Investments | 259,110 | 316,671 | 123.3 | ||
| ----------- | ------------ | -------- | |||
| Cash and cash equivalents4 | 4,362 | (53,199) | (20.7) | ||
| -------- | ------------ | -------- | |||
| Net current liabilities | (6,637) | (6,637) | (2.6) | ||
| ----------- | ------------ | -------- | |||
| Net assets | 256,835 | 256,835 | 100.0 | ||
| ====== | ====== | ==== |
1. Fair value is determined as follows:
-
Listed/Fixed interest 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$674,000 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$60,542,000 at the time of purchase, and subsequent market rises in prices have resulted in unrealised gains on the CFD contracts of US$803,000, resulting in the value of the total market exposure to the underlying securities rising to US$61,345,000 as at 31 March 2016. The cost of acquiring the securities to which exposure was gained via the short CFD positions would have been US$2,981,000 at the time of entering into the contract, and subsequent price rises have resulted in unrealised losses on the short CFD positions of US$129,000 and the value of the market exposure of these investments increasing to US$3,110,000 at 31 March 2016. If the short position had been closed on 31 March 2016 this would have resulted in a loss of US$129,000 for the Company.
-
P-Notes are valued based on the quoted bid price of the underlying security to which they relate.
2. Market exposure in the case of equity and P-Note investments is the same as fair value. In the case of CFDs it is the market value of the underlying shares to which the portfolio is exposed via the contract.
3. % based on the total market exposure.
4. The gross market exposure column for Cash and Cash Fund investments has been adjusted to assume the Company purchased direct holdings rather than exposure being gained through CFDs.
STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 31 March 2016
Notes |
Revenue US$’000 Six months ended 31.03.16 (unaudited) |
Revenue US$’000 Six months ended 31.03.15 (unaudited) |
Revenue US$’000 Year ended 30.09.15 (audited) |
Capital US$’000 Six months ended 31.03.16 (unaudited) |
Capital US$’000 Six months ended 31.03.15 (unaudited) |
Capital US$’000 Year ended 30.09.15 (audited) |
Total US$’000 Six months ended 31.03.16 (unaudited) |
Total US$’000 Six months ended 31.03.15 (unaudited) |
Total US$’000 Year ended 30.09.15 (audited) |
|
| Income from investments held at fair value through profit or loss | 3 | 3,479 | 3,639 | 9,704 | – | – | – | 3,479 | 3,639 | 9,704 |
| Net income from contracts for difference | 3 | 1,197 | 1,315 | 3,171 | – | – | – | 1,197 | 1,315 | 3,171 |
| Other income | 3 | 33 | 59 | 1 | – | – | – | 33 | 59 | 1 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| 4,709 | 5,013 | 12,876 | – | – | – | 4,709 | 5,013 | 12,876 | ||
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| Profit/(loss) on investments held at fair value through profit or loss | – | – | – | 259 | (34,062) | (53,524) | 259 | (34,062) | (53,524) | |
| Profit on foreign exchange | – | – | – | 240 | 266 | 272 | 240 | 266 | 272 | |
| Net loss from contracts for difference | – | – | – | (1,921) | (6,463) | (8,446) | (1,921) | (6,463) | (8,446) | |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| Total revenue | 4,709 | 5,013 | 12,876 | (1,422) | (40,259) | (61,698) | 3,287 | (35,246) | (48,822) | |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| Expenses | ||||||||||
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| Investment management and performance fees | 4 | (201) | (305) | (598) | (1,445) | (1,221) | (2,633) | (1,646) | (1,526) | (3,231) |
| Operating expenses | 5 | (526) | (466) | (1,094) | (50) | (13) | (49) | (576) | (479) | (1,143) |
| -------- | --------- | ---------- | --------- | ---------- | ---------- | --------- | ---------- | --------- | ||
| Total operating expenses | (727) | (771) | (1,692) | (1,495) | (1,234) | (2,682) | (2,222) | (2,005) | (4,374) | |
| -------- | --------- | ---------- | --------- | ---------- | ---------- | --------- | ---------- | --------- | ||
| Net profit/(loss) before finance costs and taxation | 3,982 | 4,242 | 11,184 | (2,917) | (41,493) | (64,380) | 1,065 | (37,251) | (53,196) | |
| Finance costs | – | (1) | (1) | – | (5) | (6) | – | (6) | (7) | |
| -------- | --------- | ---------- | --------- | ---------- | ---------- | --------- | ---------- | --------- | ||
| Net profit/(loss) on ordinary activities before taxation | 3,982 | 4,241 | 11,183 | (2,917) | (41,498) | (64,386) | 1,065 | (37,257) | (53,203) | |
| Taxation | (448) | (410) | (1,313) | 111 | 144 | 419 | (337) | (266) | (894) | |
| -------- | --------- | ---------- | --------- | ---------- | ---------- | --------- | ---------- | --------- | ||
| Profit/(loss) for the period | 3,534 | 3,831 | 9,870 | (2,806) | (41,354) | (63,967) | 728 | (37,523) | (54,097) | |
| -------- | --------- | ---------- | --------- | ---------- | ---------- | --------- | ---------- | --------- | ||
| Earnings/(loss) per ordinary share (cents) | 7 | 2.33 | 2.54 | 6.55 | (1.85) | (27.45) | (42.47) | 0.48 | (24.91) | (35.92) |
| ====== | ===== | ===== | ===== | ===== | ===== | ===== | ===== | ===== |
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 (‘EU’). 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. No operations were acquired or disposed of during the period. All income is attributable to the equity holders of the Company.
The Company does not have any other comprehensive income. The net profit/(loss) for the period disclosed above represents the Company’s total comprehensive income/(loss).
STATEMENT OF CHANGES IN EQUITY
for the six months ended 31 March 2016
Notes |
Called up share capital US$’000 |
Share premium account US$’000 |
Capital redemption reserve US$’000 |
Special reserve US$’000 |
Capital reserves US$’000 |
Revenue reserve US$’000 |
Total US$’000 |
|
| For the six months ended 31 March 2016 (unaudited) |
||||||||
| At 30 September 2015 | 1,506 | – | 5,798 | 231,030 | (4,251) | 8,312 | 242,395 | |
| Total comprehensive income: | ||||||||
| Net (loss)/profit for the period | – | – | – | – | (2,806) | 3,534 | 728 | |
| Transactions with owners, recorded directly to equity: | ||||||||
| Share issues – C share | 8 | 1,500 | 19,404 | – | – | – | – | 20,904 |
| Share conversion – C shares to ordinary shares | 8 | (1,363) | – | 1,363 | – | – | – | – |
| Share issue costs | – | (691) | – | – | – | – | (691) | |
| Share tender offer costs | – | – | – | (250) | – | – | (250) | |
| Dividend paid (a) | 6 | – | – | – | – | – | (6,251) | (6,251) |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| At 31 March 2016 | 1,643 | 18,713 | 7,161 | 230,780 | (7,057) | 5,595 | 256,835 | |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| For the six months ended 31 March 2015 (unaudited) | ||||||||
| At 30 September 2014 | 1,506 | – | 5,798 | 231,030 | 59,716 | 8,082 | 306,132 | |
| Total comprehensive income: | ||||||||
| Net (loss)/profit for the period | – | – | – | – | (41,354) | 3,831 | (37,523) | |
| Transactions with owners, recorded directly to equity: | ||||||||
| Dividend paid (b) | 6 | – | – | – | – | – | (6,025) | (6,025) |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| At 31 March 2015 | 1,506 | - | 5,798 | 231,030 | 18,362 | 5,888 | 262,584 | |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| For the year ended 30 September 2015 (audited) | ||||||||
| At 30 September 2014 | 1,506 | – | 5,798 | 231,030 | 59,716 | 8,082 | 306,132 | |
| Total comprehensive income: | ||||||||
| Net (loss)/profit for the year | – | – | – | – | (63,967) | 9,870 | (54,097) | |
| Transactions with owners, recorded directly to equity: | ||||||||
| Dividends paid(c) | 6 | – | – | – | – | – | (9,640) | (9,640) |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| At 30 September 2015 | 1,506 | – | 5,798 | 231,030 | (4,251) | 8,312 | 242,395 | |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| (a) Final dividend of 4.15 cents per share for the year ended 30 September 2015, declared on 17 December 2015 and paid on 19 February 2016. (b) Final dividend of 4.00 cents per share for the year ended 30 September 2014, declared on 1 December 2014 and paid on 20 February 2015. (c) Final dividend of 4.00 cents per share for the year ended 30 September 2014, declared on 1 December 2014 and paid on 20 February 2015 and interim dividend paid in respect of the year ended 30 September 2015 of 2.40 cents per share, declared on 18 May 2015 and paid on 3 July 2015. |
||||||||
The transaction costs incurred on the acquisition and disposal of investments are included within the capital reserves. Purchase and sale costs amounted to US$309,000 and US$289,000 respectively for the period ended 31 March 2016 (six months ended 31 March 2015: US$292,000 and US$226,000; year ended 30 September 2015: US$548,000 and US$380,000).
STATEMENT OF FINANCIAL POSITION
as at 31 March 2016
Notes |
31 March 2016 US$’000 (unaudited) |
31 March 2015 US$’000 (unaudited) |
30 September 2015 US$’000 (audited) |
|
| Non current assets | ||||
| Investments held at fair value through profit or loss | 258,436 | 261,615 | 239,446 | |
| -------- | -------- | -------- | ||
| Current assets | ||||
| Other receivables | 3,554 | 3,822 | 5,371 | |
| Derivative financial assets held at fair value through profit or loss | 2,505 | 2,244 | 1,828 | |
| Cash held on margin deposit with brokers | 1,500 | 3,170 | 1,145 | |
| Cash and cash equivalents | 4,362 | 956 | 5,635 | |
| -------- | -------- | -------- | ||
| 11,921 | 10,192 | 13,979 | ||
| Total assets | 270,357 | 271,807 | 253,425 | |
| Current liabilities | ||||
| Other payables | (10,962) | (6,714) | (9,904) | |
| Collateral held in respect of contracts for difference | (710) | – | (260) | |
| Derivative financial liabilities held at fair value through profit or loss | (1,831) | (2,490) | (847) | |
| -------- | -------- | -------- | ||
| (13,503) | (9,204) | (11,011) | ||
| -------- | -------- | -------- | ||
| Net current (liabilities)/assets | (1,582) | 988 | 2,968 | |
| -------- | -------- | -------- | ||
| Total assets less current liabilities | 256,854 | 262,603 | 242,414 | |
| ====== | ====== | ====== | ||
| Non current liabilities | ||||
| Management shares of £1.00 each (one quarter paid) | (19) | (19) | (19) | |
| -------- | -------- | -------- | ||
| Net assets | 256,835 | 262,584 | 242,395 | |
| ====== | ====== | ====== | ||
| Equity attributable to equity holders | ||||
| Called up share capital | 8 | 1,643 | 1,506 | 1,506 |
| Share premium account | 18,713 | – | – | |
| Capital redemption reserve | 7,161 | 5,798 | 5,798 | |
| Special reserve | 230,780 | 231,030 | 231,030 | |
| Capital reserves | (7,057) | 18,362 | (4,251) | |
| Revenue reserve | 5,595 | 5,888 | 8,312 | |
| -------- | -------- | -------- | ||
| Total equity | 256,835 | 262,584 | 242,395 | |
| ====== | ====== | ====== | ||
| Net asset value per ordinary share (US cents) | 7 | 156.29 | 174.33 | 160.93 |
| ====== | ====== | ====== |
CASH FLOW STATEMENT
for the six months ended 31 March 2016
| Six months ended 31 March 2016 US$’000 (unaudited) |
Six months ended 31 March 2015 US$’000 (unaudited) |
Year ended 30 September 2015 US$’000 (audited) |
|
| Net cash (outflow)/inflow from operating activities | (15,225) | (8,049) | 240 |
| -------- | -------- | -------- | |
| Financing activities | |||
| Finance costs paid | – | (6) | (7) |
| Tender costs paid | (250) | – | – |
| Share issue costs paid | (691) | – | – |
| Proceeds from issue of C shares | 20,904 | – | – |
| Dividends paid | (6,251) | (6,025) | (9,640) |
| -------- | -------- | -------- | |
| Net cash inflow/(outflow) from financing activities | 13,712 | (6,031) | (9,647) |
| -------- | -------- | -------- | |
| Decrease in cash and cash equivalents | (1,513) | (14,080) | (9,407) |
| Effect of foreign exchange rate changes | 240 | 266 | 272 |
| -------- | -------- | -------- | |
| Change in cash and cash equivalents | (1,273) | (13,814) | (9,135) |
| Cash and cash equivalents at start of period | 5,635 | 14,770 | 14,770 |
| -------- | -------- | -------- | |
| Cash and cash equivalents at end of period | 4,362 | 956 | 5,635 |
| -------- | -------- | -------- | |
| Comprised of: | |||
| Cash and cash equivalents | 4,362 | 956 | 5,635 |
| -------- | -------- | -------- | |
| 4,362 | 956 | 5,635 | |
| ===== | ==== | ===== |
RECONCILIATION OF NET PROFIT/(LOSS) BEFORE TAXATION TO NET CASH FLOW FROM OPERATING ACTIVITIES
for the six months ended 31 March 2016
| Six months ended 31 March 2016 |
Six months ended 31 March 2015 |
Year ended 30 September 2015 |
|
| US$’000 (unaudited) |
US$’000 (unaudited) |
US$’000 (audited) |
|
| Operating activities | |||
| Net profit/(loss) before taxation* | 1,065 | (37,257) | (53,203) |
| Add back finance costs | – | 6 | 7 |
| Losses on investments and CFDs held at fair value through profit or loss (including transaction costs) | 1,420 | 34,540 | 61,368 |
| Net profits on foreign exchange | (240) | (266) | (272) |
| Sale of investments held at fair value through profit or loss | 116,451 | 99,636 | 198,588 |
| Purchase of investments held at fair value through profit or loss | (135,181) | (97,313) | (199,240) |
| Realised losses on closure of CFD contracts | (12,262) | (12,865) | (40,864) |
| Gains on realisation of CFDs | 10,889 | 18,547 | 43,635 |
| (Increase)/decrease in other receivables | (2,203) | 715 | 496 |
| Increase in other payables | 744 | 4,377 | 416 |
| Decrease/(increase) in amounts due from brokers | 4,019 | (2,395) | (3,725) |
| Net movement in cash held on margin deposit with brokers | (355) | (3,080) | (1,055) |
| Increase/(decrease) in amounts due to brokers | 315 | (504) | 6,647 |
| Collateral received in respect of contracts for difference | 450 | (11,924) | (11,664) |
| Taxation paid | (337) | (266) | (894) |
| -------- | -------- | -------- | |
| Net cash (outflow)/inflow from operating activities | (15,225) | (8,049) | 240 |
| -------- | -------- | -------- |
* Includes dividends and interest received in the period of US$2,429,000 and US$33,000 (six months ended 31 March 2015: US$2,751,000 and US$1,000; year ended 30 September 2015: US$13,265,000 and US$2,000) respectively.
NOTES TO THE FINANCIAL STATEMENTS
for the six months ended 31 March 2016
1. Principal activity
The principal activity of the Company is that of an investment trust company within the meaning of section 1158 of the Corporation Tax Act 2010.
2. Basis of preparation
The half yearly financial statements have been prepared using the same accounting policies as set out in the Company’s Annual Report and Financial Statements for the year ended 30 September 2015 which were prepared in accordance with International Financial Reporting Standards (‘IFRS’) as adopted by the European Union and applied in accordance with International Accounting Standard 34, ‘Interim Financial Reporting’. Insofar as the Statement of Recommended Practice (‘SORP’) for investment trust companies and venture capital trusts issued by the Association of Investment Companies (‘AIC’), revised in November 2014 is compatible with IFRS, the Financial Statements have been prepared in accordance with guidance set out in the SORP.
3. Income
| Six months ended 31 March 2016 US$’000 (unaudited) |
Six months ended 31 March 2015 US$’000 (unaudited) |
Year ended 30 September 2015 US$’000 (audited) |
|
| Investment income: | |||
| UK listed dividends | – | 59 | 207 |
| Overseas listed dividends | 3,479 | 3,580 | 9,495 |
| Fixed interest income | – | – | 2 |
| Income from contracts for difference | 1,197 | 1,315 | 3,171 |
| -------- | -------- | -------- | |
| 4,676 | 4,954 | 12,875 | |
| Interest receivable and other income: | |||
| Deposit interest | 33 | 59 | 1 |
| -------- | -------- | -------- | |
| Total income | 4,709 | 5,013 | 12,876 |
| ===== | ===== | ===== |
4. Investment management and performance fees
| Six months ended 31 March 2016 (unaudited) |
Six months ended 31 March 2015 (unaudited) |
Year ended 30 September 2015 (audited) |
|||||||
| Revenue US$’000 |
Capital US$’000 |
Total US$’000 |
Revenue US$’000 |
Capital US$’000 |
Total US$’000 |
Revenue US$’000 |
Capital US$’000 |
Total US$’000 |
|
| Investment management fee | 201 | 804 | 1,005 | 305 | 1,221 | 1,526 | 598 | 2,399 | 2,997 |
| Performance fee | – | 641 | 641 | – | – | – | – | 234 | 234 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |
| Total | 201 | 1,445 | 1,646 | 305 | 1,221 | 1,526 | 598 | 2,633 | 3,231 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |
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 Frontiers 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. The performance fee is also subject to a high watermark such that any performance fee is only payable to the extent that the cumulative relative outperformance of the NAV is greater than what would have been achieved had the NAV increased in line with the reference index since the last date in relation to which a performance fee had been paid. The management and performance fees are payable to BFM.
For the six months ended 31 March 2016, the Company’s NAV had outperformed the MSCI Frontiers Markets Index by 2.1% on a US dollar basis and a performance fee of US$641,000 has been accrued (six months ended 31 March 2015: nil; year ended 30 September 2015: US$234,000).
Under the terms of the C share issue in February 2016, BlackRock had agreed to waive the management fees payable by the Company up to the value of issue expenses that exceeded the capped amount of 1.75% of the gross proceeds from the issue of C shares. As the issue expenses exceeded the capped amount, the excess issue expenses of US$325,000 have been offset against the investment management fee payable by the Company during the period ended 31 March 2016.
5. Operating expenses
| Six months ended 31 March 2016 US$’000 (unaudited) |
Six months ended 31 March 2015 US$’000 (unaudited) |
Year ended 30 September 2015 US$’000 (audited) |
|
| Allocated to revenue: | |||
| Custody fee | 170 | 144 | 336 |
| Auditor’s remuneration: | |||
| – audit services | 18 | 11 | 39 |
| – non audit services | 19 | 10 | 10 |
| Registrar’s fee | 19 | 13 | 25 |
| Directors’ emoluments | 84 | 84 | 191 |
| Broker fees | 21 | 20 | 44 |
| Depositary fees | 14 | 16 | 31 |
| Marketing fees | 51 | 31 | 73 |
| Other administration costs | 130 | 137 | 345 |
| -------- | -------- | -------- | |
| 526 | 466 | 1,094 | |
| -------- | -------- | -------- | |
| Allocated to capital: | |||
| -------- | -------- | -------- | |
| Transaction charges – capital | 50 | 13 | 49 |
| -------- | -------- | -------- | |
| 576 | 479 | 1,143 | |
| -------- | -------- | -------- |
6. Dividend
The Board has declared an interim dividend of 2.60 cents per share payable on 1 July 2016 to shareholders on the register at 3 June 2016 (six months ended 31 March 2015, interim dividend of 2.40 cents per share paid on 3 July 2015 to shareholders on the register at 5 June 2015). This dividend has not been accrued in the financial statements for the six months ended 31 March 2016, as under IFRS, interim dividends are not recognised until paid. Dividends are debited directly to reserves.
7. Earnings and net asset value per ordinary share
Total revenue and capital returns per share are shown below and have been calculated using the following:
| Six months ended 31 March 2016 (unaudited) |
Six months ended 31 March 2015 (unaudited) |
Year ended 30 September 2015 (audited) |
|
| Net revenue profit attributable to ordinary shareholders (US$’000) | 3,534 | 3,831 | 9,870 |
| Net capital loss attributable to ordinary shareholders (US$’000) | (2,806) | (41,354) | (63,967) |
| -------- | -------- | -------- | |
| Total profit/(loss) attributable to ordinary shareholders (US$’000) | 728 | (37,523) | (54,097) |
| -------- | -------- | -------- | |
| Total equity attributable to equity holders (US$’000) | 256,835 | 262,584 | 242,395 |
| The weighted average number of ordinary shares in issue during the period on which the return per ordinary share was calculated was: | 151,820,440 | 150,621,621 | 150,621,621 |
| --------------- | ---------------- | ---------------- | |
| The actual number of ordinary shares in issue at the end of each period on which the net asset value per ordinary share was calculated was: | 164,333,108 | 150,621,621 | 150,621,621 |
| ======== | ======== | ======== | |
| Revenue earnings per share – (US cents) | 2.33 | 2.54 | 6.55 |
| Capital losses per share – (US cents) | (1.85) | (27.45) | (42.47) |
| -------------- | -------------- | -------------- | |
| Total earnings/(loss) per share – (US cents) | 0.48 | (24.91) | (35.92) |
| ======== | ======== | ======== | |
| Net asset value per share – (US cents) | 156.29 | 174.33 | 160.93 |
| ======== | ======== | ======== | |
| Share price* (US cents) | 152.72 | 167.38 | 157.15 |
| ======== | ======== | ======== | |
* The Company’s share price is quoted in sterling and the above represents the US dollar equivalent based on exchange rates of 1.4374 at 31 March 2016, 1.4845 at 31 March 2015 and 1.5147 at 30 September 2015. |
|||
8. Called up share capital
| Number of ordinary shares in issue |
Number of C shares in issue |
Nominal value US$’000 |
|
| Allotted, called up and fully paid share capital comprised: | |||
| Ordinary shares of 1 cent each: | |||
| At 30 September 2015 | 150,621,621 | – | 1,506 |
| C share of 10 cents each | |||
| C shares issued | – | 15,000,001 | 1,500 |
| Conversion of C shares into ordinary shares | 13,711,487 | (15,000,001) | (1,363) |
| --------------- | -------------- | -------- | |
| At 31 March 2016 | 164,333,108 | – | 1,643 |
| ========= | ======== | ===== |
On 29 February 2016 the Company issued 15,000,001 C shares with a nominal value of 10 cents each. On 15 March 2016 the C shares were converted into ordinary shares. The conversion ratio, which has been calculated by reference to the net assets of the Company attributable to the ordinary shares and the net assets of the Company attributable to the C shares as at the close of business on 7 March 2016 was 0.9141 for every C share held.
9. Valuation of financial instruments
Financial assets and financial liabilities are either carried in the Statement of Financial Position at their fair value (investments and derivatives) or at an amount which is a reasonable approximation of fair value (other receivables and payables, cash at bank, collateral held and margin deposits). IFRS 13 requires the Company to classify fair value measurements using a fair value hierarchy that reflects the significance of inputs used in making the measurements. The valuation techniques used by the Company are explained in the accounting policies note 2(g) as set out in the Company’s Annual Report and Financial Statements for the year ended 30 September 2015.
Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset as follows.
The fair value hierarchy has the following levels:
Level 1 – Quoted market price in an active market for an identical instrument. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis.
Level 2 - Valuation techniques used to price securities based on observable inputs. Valuation techniques used for non-standardised financial instruments such as options, currency swaps and other over-the-counter derivatives, include the use of comparable recent arm’s length transactions, reference to other instruments that are substantially the same, option pricing models and other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entity specific inputs.
As at the period end the P-Notes are valued using the underlying equity bid price and the inputs to the valuation were the exchange rates used to convert the P-Note valuation from the relevant local currency to US Dollars at the accounting period end date. There have been no changes to the valuation technique during the period under review or as at the date of this report.
As at the period end the CFD’s are valued using the underlying equity bid price and the inputs to the valuation were the exchange rates used to convert the CFD valuation from the relevant local currency in which the underlying equity is priced to US Dollars at the accounting period end date. There have been no changes to the valuation technique during the period under review or as at the date of this report.
Level 3 – Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable market data and the unobservable inputs could have a significant impact on the instrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments and instruments for which there is no active market.
For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular Input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.
The determination of what constitutes “observable†requires significant judgement by the Investment Manager. The Investment Manager considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.
There has been no change to the valuation techniques during the period under review or as at the date of this report.
CFD’s and P-Notes have all been classified as level 2 investments as their valuation has been based on market observable inputs represented by the market prices of the underlying quoted securities to which these contracts expose the Company.
The table below sets out fair value measurements using IFRS 13 fair value hierarchy.
| Financial assets/(liabilities) at fair value through profit or loss at 31 March 2016 |
Level 1 US$’000 |
Level 2 US$’000 |
Level 3 US$’000 |
Total US$’000 |
| Assets: | ||||
| Equity investments | 209,101 | – | – | 209,101 |
| P-Notes | – | 6,484 | – | 6,484 |
| BlackRock’s Institutional Cash Fund | 42,851 | – | – | 42,851 |
| Contracts for difference – long | – | 803 | – | 803 |
| Liabilities: | ||||
| Contracts for difference – short | – | (129) | – | (129) |
| -------- | -------- | -------- | ---------- | |
| 251,952 | 7,158 | – | 259,110 | |
| ====== | ==== | ==== | ====== |
| Financial assets/(liabilities) at fair value through profit or loss at 31 March 2015 |
Level 1 US$’000 |
Level 2 US$’000 |
Level 3 US$’000 |
Total US$’000 |
| Assets: | ||||
| Equity investments | 194,700 | – | – | 194,700 |
| Fixed interest | 177 | – | – | 177 |
| P-Notes | – | 9,453 | – | 9,453 |
| BlackRock’s Institutional Cash Fund | 57,285 | – | – | 57,285 |
| Contracts for difference – long | – | (70) | – | (70) |
| Liabilities: | ||||
| Contracts for difference – short | – | (176) | – | (176) |
| -------- | -------- | -------- | -------- | |
| 252,162 | 9,207 | – | 261,369 | |
| ====== | ===== | ===== | ====== |
| Financial assets/(liabilities) at fair value through profit or loss at 30 September 2015 |
Level 1 US$’000 |
Level 2 US$’000 |
Level 3 US$’000 |
Total US$’000 |
| Assets: | ||||
| Equity investments | 184,837 | – | – | 184,837 |
| P-Notes | – | 1,685 | – | 1,685 |
| BlackRock’s Institutional Cash Fund | 52,924 | – | – | 52,924 |
| Contracts for difference – long | – | 926 | – | 926 |
| Liabilities: | ||||
| Contracts for difference – short | – | 55 | – | 55 |
| -------- | -------- | -------- | -------- | |
| 237,761 | 2,666 | – | 240,427 | |
| ====== | ===== | ===== | ====== |
There were no transfers between levels for financial assets and financial liabilities during the period recorded at fair value as at 31 March 2016, 31 March 2015 and 30 September 2015. The Company did not hold any level 3 securities throughout the financial period under review or as at 31 March 2016, 31 March 2015 or 30 September 2015.
10. Transactions with the AIFM and Investment Manager
BlackRock Fund Managers Limited (‘BFM’) was appointed as the Company’s Alternative Investment Fund Manager (‘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 BlackRock Investment Management (UK) Limited (BIM (UK)).
The investment management fee due to BFM for the six months ended 31 March 2016 amounted to US$1,005,000 (six months ended 31 March 2015: US$1,526,000; year ended 30 September 2015: US$2,997,000). In addition a performance fee was payable of US$641,000 (six months ended 31 March 2015: nil, year ended 30 September 2015: US$234,000).
At the period end US$1,724,000 was outstanding in respect of the investment management fee (31 March 2015: US$725,000; 30 September 2015: US$1,471,000). Any final performance fee for the full year to 30 September 2016 will not crystallise and fall due until the calculation date of 30 September 2016.
In addition to the above services, BlackRock provides the Company with marketing services. The total fees paid or payable for these services to 31 March 2016 amounted to US$51,000 excluding VAT (six months ended 31 March 2015: US$31,000; year ended 30 September 2015: US$73,000). Marketing fees of US$90,000 excluding VAT (31 March 2015: US$101,000; 30 September 2015: US$145,000) were outstanding at 31 March 2016.
The Company has an investment in BlackRock’s Institutional Cash Fund of US$42,851,000 at the period end (31 March 2015: US$57,285,000; 30 September 2015: US$52,924,000), which is a money market fund managed by BlackRock Group.
11. Related party disclosure
The Board consists of five non-executive Directors, all of whom except Ms Ruddick are considered to be independent by the Board. Ms Ruddick is also a director of another investment trust managed by BlackRock and is therefore deemed to be non-independent. None of the Directors has a service contract with the Company. The Chairman receives an annual fee of £34,000, the Chairman of the Audit and Management Engagement Committee receives an annual fee of £28,000 and each other Director receives an annual fee of £24,000.
Transactions with the AIFM and the Investment Manager are set out in note 10 above.
As at 31 March 2016 an amount of £11,000 (31 March 2015: £11,200: 30 September 2015: £11,000) was outstanding in respect of Directors’ fees.
At the period end, interests of the Directors in the ordinary shares of the Company are as set out below:
| Ordinary shares | |
| Audley Twiston-Davis | 128,935 |
| John Murray | 121,967 |
| Nick Pitts-Tucker | 110,148 |
| Lynn Ruddick | 47,456 |
| Sarmad Zok | 38,787 |
12. Contingent liabilities
There were no contingent liabilities at 31 March 2016 (31 March 2015 and 30 September 2015: nil)
13. Publication of non stautory accounts
The financial information contained in this half yearly report does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. The financial information for the six months ended 31 March 2016 and 31 March 2015 have not been audited.
The information for the year ended 30 September 2015 has been extracted from the latest published audited financial statements, which has been filed with the Registrar of Companies. The report of the auditor on those accounts contained no qualifications or statement under section 498(2) or 498(3) of the Companies Act 2006.
14. Annual results
The Board expects to announce the annual results for the year ended 30 September 2016 in early December 2016.
Copies of the annual results announcement can be obtained from the Secretary on 020 7743 3000. The Annual Report and Financial Statements should be available in December with the Annual General Meeting being held in February 2017.
For further information, please contact:
Simon White, Managing Director, Closed End Funds, BlackRock Investment Management (UK) Limited
Tel: 020 7743 5284
Press enquiries:
Lucy Horne, Lansons Communications – Tel: 020 7294 3689
E-mail: lucyh@lansons.com
16 May 2016
12 Throgmorton Avenue,
London EC2N 2DL
END
The Half Yearly Financial Report will also be available on the BlackRock website at http://www.blackrock.co.uk/bfri. 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.
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