Annual Financial Report
BlackRock Latin American Investment Trust plc
(Legal Entity Identifier: UK9OG5Q0CYUDFGRX4151)
Information disclosed in accordance with Article 5 Transparency Directive, DTR 4.1
Annual Results Announcement for the year ended 31 December 2020
Performance record
| As at | As at | ||
| 31 December | 31 December | ||
| 2020 | 2019 | Change % | |
| Net assets (US$’000) | 234,151 | 287,444 | –18.5 |
| Net asset value per ordinary share (US$ cents) | 596.42c | 732.15c | –18.5 |
| – with dividends reinvested1 | –14.5 | ||
| Ordinary share price (mid-market) (US$ cents)2 | 552.93c | 643.17c | –14.0 |
| – with dividends reinvested1 | –9.3 | ||
| Ordinary share price (mid-market) (pence) | 404.50p | 485.50p | –16.7 |
| – with dividends reinvested1 | –12.1 | ||
| Discount1 | 7.3% | 12.2% | n/a |
| MSCI EM Latin America Index (Net return, on a US Dollar basis)3 | 481.16 | 558.16 | –13.8 |
| For the | For the | ||
| year ended | year ended | ||
| 31 December | 31 December | ||
| 2020 | 2019 | Change % | |
| Revenue | |||
| Net profit after taxation (US$’000) | 5,834 | 7,106 | –17.9 |
| Revenue profit per ordinary share (US$ cents) | 14.86 | 18.10 | –17.9 |
| Dividends per ordinary share (US$ cents) | |||
| Quarter to 31 March | 4.59 | 8.56 | –46.4 |
| Quarter to 30 June | 5.57 | 9.15 | –39.1 |
| Quarter to 30 September | 5.45 | 8.03 | –32.1 |
| Quarter to 31 December | 7.45 | 9.15 | –18.6 |
| Total dividends paid and payable (US$ cents) | 23.06 | 34.89 | –33.9 |
Source: BlackRock.
1 Alternative Performance Measures, see Glossary contained within the Annual Report and Accounts.
2 Based on an exchange rate of US$1.3669 to £1 at 31 December 2020 and US$1.3248 to £1 at 31 December 2019.
3 The Company’s performance benchmark (the MSCI EM Latin America Index) may be calculated on either a Gross or a Net return basis. Net return (NR) indices calculate the reinvestment of dividends net of withholding taxes using the tax rates applicable to non-resident institutional investors, and hence give a lower total return than indices where calculations are on a Gross basis (which assumes that no withholding tax is suffered). As the Company is subject to withholding tax rates for the majority of countries in which it invests, the NR basis is felt to be the most accurate, appropriate, consistent and fair comparison for the Company.
Chairman’s Statement
Dear Shareholder
I am pleased to present the Annual Report to shareholders for the year ended 31 December 2020.
Review of 2020
Latin American stock markets had a promising start to the year but were severely impacted by the COVID-19 pandemic as it escalated through the period under review. As significantly lower levels of global economic activity sharply affected the commodity prices that generate much of Latin America’s economic wealth, the benchmark index (the MSCI EM Latin America Index (net return)) dropped sharply over the first half of the year. The Latin American region was also hit hard by the severity of the pandemic due to poor healthcare infrastructure and the significant fiscal deficits in many countries which reduced their ability to increase spending to ameliorate some of the worst of the economic effects. The Latin American stock markets recovered in the second half of the year aided by the significant fiscal and monetary response from governments around the world which raised expectations of global economic growth and the development of effective vaccines to combat the pandemic; however, overall the Company’s NAV ended the year down by 14.5%, a slight underperformance of the benchmark index which fell by 13.8%. The share price fell by 9.3% over the same period (all calculations with dividends reinvested on a US Dollar basis).
Brazil and Colombia were the worst performing equity markets in the region over the year. The Brazilian stock market fell by 19.0% as high levels of government debt reduced the authorities’ scope for making the very large stimulus measures taken in the developed world. Colombian markets were also down by 19.0% over the year; the impact of the pandemic was exacerbated by falling oil prices which drove up the country’s fiscal deficit. Markets in Mexico and Chile fared better and were relative outperformers, falling by just 1.9% and 5.6% respectively over the period. All figures are on a net total return basis. Additional information on the main contributors to and detractors from performance for the period under review is given in the Investment Manager’s report below.
Throughout the COVID-19 outbreak, the Board has had to adjust its mode of operation to minimise the risk the virus has posed to the health and wellbeing of those working on the management and administration of the Company. The Board has continued to meet regularly and since March 2020 all scheduled meetings have been held by video conference and the Board has been pleased by the continuing high standard of support it is receiving from our Manager and its other third-party suppliers in these difficult working conditions. The Board has worked closely with its Manager to ensure that the Company’s operations have not been adversely impacted, that BlackRock and key service providers have established business continuity plans and a good level of service has continued to be maintained. Unfortunately, however, the arrangements for last year’s Annual General Meeting were disrupted in response to the COVID-19 pandemic and, with the current restrictions in place, this may well be the case again for the forthcoming Annual General Meeting. The proposed Annual General Meeting arrangements are set out below.
Performance
Over the year ended 31 December 2020 the Company’s Net Asset Value (NAV) fell by 14.5%1 in US Dollar terms compared to a fall in the benchmark of 13.8%2. In Sterling terms the NAV fell by 17.2%1 over the same period and the benchmark in sterling terms fell by 16.2%2. The share price fell by 9.3%1 in US Dollar terms (12.1%1 in Sterling terms).
Details of the factors affecting performance are set out in the Investment Manager’s Report. Key aspects of performance attribution for the year are set out in the chart below.
Contribution to total return for the year ended 31 December 2020
| NAV Total Return1 | –14.5% |
| Management Fees and Operating Costs | –1.1% |
| Gearing | 0.7% |
| Stock Selection | –2.5% |
| Asset Allocation | 2.2% |
| Benchmark Return2 | –13.8% |
The performance attribution is based on a Brinson Fachler daily transactions-based methodology and is in line with Global Investment Performance Standards (GIPS) recommendations. Source: BNY Mellon.
1 Alternative Performance Measures. Further details of the calculation of performance with dividends reinvested are given in the Glossary contained within the Annual Report and Accounts.
2 Benchmark returns based on net return indices with dividends reinvested.
Gearing
The Board’s view is that 105% of NAV is the neutral level of gearing over the longer-term and that gearing should be used actively in an approximate range of plus or minus 10% around this as measured at the time that gearing is instigated. These current parameters sit within the Company’s gearing policy, as set out in the investment policy in the Annual Report and Financial Statements, which states that net borrowings are not expected to exceed 25% of net assets under normal circumstances, and the Company’s Articles of Association which limit net borrowings to 100% of capital and reserves. The Board is pleased to note that despite the high level of uncertainty over the year that the Managers have been bold and used gearing actively with a low of 104.1% as at 29 February 2020 and a high at 114.2% in October 2020. Average gearing for the year to 31 December 2020 was 107.7%.
Revenue return and dividends
Total revenue return for the year was 14.86 cents per share (2019: 18.10 cents per share). The decrease of 17.9% was largely due to a lower level of dividends received in the year as the impact of COVID-19 on revenues hit portfolio companies’ revenue streams.
Under the Company’s dividend policy, dividends are calculated and paid quarterly, based on 1.25% of the US Dollar NAV at close of business on the last working day of March, June, September and December respectively; additional information in respect of the payment timetable is set out in the Annual Report and Financial Statements. Dividends will be financed through a combination of available net income in each financial year and revenue and capital reserves.
The Company has declared interim dividends totaling 23.06 cents per share in respect of the year ended 31 December 2020 (2019: 34.89 cents per share) as detailed in the table below; this represented a yield of 4.2% based on the Company’s share price at 31 December 2020.
The dividends paid and declared by the Company in 2020 have been funded from current year revenue and brought forward revenue reserves. As at 31 December 2020, a balance of US$3.0 million remained in revenue reserves, which is sufficient to cover approximately one quarterly dividend payment at the most recently declared dividend rate of 7.45 cents per share. Dividends will be funded out of capital reserves to the extent that current year revenue and revenue reserves are insufficient. The Board believes that this removes pressure from the investment managers to seek a higher income yield from the underlying portfolio itself which could detract from total returns. The Board also believes the Company’s dividend policy will enhance demand for the Company’s shares and help to narrow the Company’s discount, whilst maintaining the portfolio’s ability to generate attractive total returns.
It is promising to note that since the dividend policy was introduced in July 2018, the Company’s discount has narrowed from 14.9% as at 1 July 2018 to 7.3% as at 31 December 2020.
Discount management
The Directors continue to monitor the discount at which the ordinary shares trade to their prevailing NAV and in the year to 31 December 2020 the cum–income discount on the ordinary shares in Sterling terms has averaged 9.9% and ranged between 2.0% and 16.5%.
The Board tries to reduce discount volatility by offering shareholders a discount control mechanism covering the four years to 31 December 2021 whereby shareholders are offered a tender for 24.99 per cent of the shares in issue excluding treasury shares (at a tender price reflecting the latest cum-income NAV less 2 per cent and related portfolio realisation costs) in the event that the continuation vote to be put to the Company’s AGM in 2022 is approved, where either of the following conditions have been met:
(i) the annualised total NAV return of the Company does not exceed the annualised benchmark index (being the MSCI EM Latin America Index) US Dollar (net return) by more than 100 basis points over the four year period from 1 January 2018 to 31 December 2021 (the Calculation Period).
(ii) the average daily discount to the cum-income NAV exceeds 12 per cent as calculated with reference to the trading of the shares over the Calculation Period.
Dividends declared in respect of the year ended 31 December 2020
| Dividend | Pay date | |
| Quarter to 31 March 2020 | 4.59 cents | 20 May 2020 |
| Quarter to 30 June 2020 | 5.57 cents | 11 August 2020 |
| Quarter to 30 September 2020 | 5.45 cents | 9 November 2020 |
| Quarter to 31 December 2020 | 7.45 cents | 8 February 2021 |
| Total | 23.06 cents |
In respect of the above conditions, the Company’s annualised total NAV return on a US Dollar basis for the 36 months from 1 January 2018 to 31 December 2020 was -1.49%1, outperforming the annualised benchmark return for the same period of -1.83% by 0.34%1. The cum-income discount of the Company’s ordinary shares has averaged 12.2%1 for this period and ranged from a discount of 2.0%1 to 20.6%1, ending on a discount of 7.3%1 at 31 December 2020. On these metrics a tender would be triggered if the annualised NAV performance relative to the benchmark and the average discount calculations for the three years to 31 December 2020 remain unchanged over the forthcoming year to 31 December 2021.
The making of any tender offer pursuant to the above will be conditional upon the Company having the required shareholder authority or such shareholder authority being obtained, the Company having sufficient distributable reserves to effect the repurchase and, having regard to its continuing financial requirements, sufficient cash reserves to settle the relevant transactions with shareholders, and the Company’s continuing compliance with the Listing Rules and all other applicable laws and regulations. The Company may require a minimum level of participation in any such tender offer to be met, failing which the tender offer may be declared void.
Further details of the tender mechanism and shareholder continuation vote are set out in the Strategic Report below.
1Alternative Performance Measures. Further details of the calculation of performance with dividends reinvested are given in the Glossary in the Annual Report and Financial Statements.
Share capital
As noted above, the Directors are mindful of the Company’s discount to NAV. The Board monitors the Company’s share rating closely, and is committed to making share purchases where appropriate to manage the discount. The Company has not bought back any shares during the financial year ended 31 December 2020 and up to the date of publication of this report (no shares were bought back in the year to 31 December 2019).
ESG and Socially Responsible Investment
As a Board we believe that good Environmental, Social and Governance (ESG) behaviour by the companies we invest in is critical to the long-term financial success of our Company and are very encouraged that ESG issues are also increasingly at the forefront of investors’ minds. The Latin American economies are large producers to the world of vital food, timber, minerals and oil. These are all areas that are at the forefront of modern concerns about climate change, biodiversity and proportionate and sustainable use of land and ocean resources. The Board is aware that there is significant room for improvement in terms of disclosure and adherence to global best practices for many corporates throughout the Latin American region, and also that as a whole the region lags global peers when it comes to ESG best practices. The Board receives regular reporting from the portfolio managers on ESG matters and extensive analysis of our portfolio’s ESG footprint and actively engages with the Manager to discuss when significant engagement is required with the management teams of our Company’s portfolio holdings. The portfolio managers are supported by the extensive ESG resources within BlackRock and devote a considerable amount of time to understanding the ESG risks and opportunities facing companies and industries in the portfolio. Whilst the Company does not exclude investment in stocks purely on ESG criteria, ESG analytics are fully integrated into the investment process when weighing up the risk and reward benefits of investment decisions. The Board believes that communication and engagement with portfolio companies can lead to better outcomes for shareholders and the environment than merely excluding investment in certain areas. It is encouraged by the progress made through BlackRock’s company engagement to encourage sound corporate governance frameworks that promote strong leadership by boards of directors and good management practices contributing to a better outcome for all stakeholders. More information in respect of our approach to ESG can be found below.
Annual General Meeting
The Company’s Annual General Meeting will be held at the offices of BlackRock at 12 Throgmorton Avenue, London EC2N 2DL on Wednesday, 19 May 2021 at 12.00 noon. Details of the business of the meeting are set out in the Notice of Meeting on pages 116 to 119 of the Annual Report and Accounts. At the time of writing, various guidances have been issued by the UK, Scottish and Welsh governments respectively, regarding measures to reduce the transmission of COVID-19 in the UK. These measures are, and will continue to be, subject to periodic amendment and currently impose rules on social distancing and limitations on, among other things, public gatherings.
Accordingly, in view of this guidance, the Board is changing the format of the AGM this year to follow the minimum legal requirements for an AGM. Only the formal business set out in the Notice will be considered, with no live presentation by the Investment Manager. A presentation from the Investment Manager will be made available on the Company’s website following the conclusion of the AGM. In line with this guidance, shareholders are strongly discouraged from attending the meeting and indeed entry will be refused if current UK Government guidance is unchanged. As shareholders will not be able to attend the Annual General Meeting, the Board strongly encourages all shareholders to exercise their votes by completing and returning their proxy forms in accordance with the notes to the Notice of Meeting contained in the Company’s Annual Report for the year ended 31 December 2020. If there are any changes to the arrangements for the Annual General Meeting as a result of changes to government guidance, the Company will update shareholders through the Company’s website and, if appropriate, through an announcement on the London Stock Exchange. The Board of course welcomes questions from shareholders and, given the format and prevailing circumstances, shareholders are asked to submit any questions they may have to the Board in advance of the AGM. The Board or the Investment Manager will respond by email or letter to all questions received. Shareholders may submit questions to the Board before 17 May 2021 by email at: cosec@blackrock.com. The Board would like to thank shareholders for their understanding and co-operation at this difficult time and look forward to meeting you at some safer stage in future.
Outlook
As COVID-19 continues to dominate the global economy, successful management of infection rates and the roll out of vaccines will dictate how well markets recover across the globe. In addition to pandemic-related risks to recovery, the economic growth of China and the impact on global commodity prices will be an important factor for investors in the Latin American region. In the US, President Biden’s fiscal policy and reforms should prove positive for the United States’ trading partners in Latin America, most notably Mexico. Our portfolio managers continue to monitor political developments in Latin America that could affect the sound operation of economies.
Overall, the portfolio managers believe that higher external growth from US and China, buoyant commodity prices and a liquidity boost from supportive fiscal policies in developed markets are attractive tailwinds that should set the stage for a resurgence in Latin American equities over the coming year.
Carolan Dobson
Chairman
26 March 2021
Investment manager’s report
Market Overview
Coming into 2020 on the heels of strong gains for Latin American performance in 2019, investor sentiment on global equities was riding high. However, before long risk assets were jolted by the dual onslaught of the COVID-19 outbreak and an oil price war. Global equities sunk into a bear market over the course of a three week period on concerns of an acute slowdown in economic activity, given the implementation of widespread regional and national lockdowns (encompassing more than one-third of humanity) to contain the spread of the pandemic. By way of illustration, the MSCI World Index lost over a third of its value between 12 February and 23 March 2020. The carnage witnessed in global equity markets finally ended on 23 March 2020, on cues of an unprecedented policy panic the world over. Over the course of the year, global policymakers ramped up quantitative easing profusely, with approximately US$22 trillion of policy stimulus announced since the onset of the pandemic, including US$14 trillion of fiscal stimulus, and 190 interest rate cuts across the globe over the course of the year.
Latin America in general was ill prepared to deal with the severity of the pandemic as the majority of countries in the region had to face obstacles regarding poor healthcare infrastructure and restrictive fiscal deficits. Halfway through 2020, a combination of strong currency depreciation and underperforming equity markets made Latin America one of the worst performing asset classes in global markets. As the year progressed, economic mobility started to increase, sentiment started to improve and a liquidity-driven rally boosted equity returns. Dire economic forecasts at the onset of the pandemic proved to be overly pessimistic and equity markets benefitted from sequential improvements in activity and economic surprises that helped to fuel a recovery in markets. After a brief period of consolidation ahead of US Presidential elections in September and October, that coincided with the COVID-19 second wave in Europe, Latin American equities spiked in November to their best monthly performance seen in decades, triggered by the announcement of preliminary COVID-19 vaccine results and the passage of the US election overhang. Despite a strong second half rally, Latin American equities posted a negative return of 13.8%1 in 2020, underperforming Emerging Markets (return of 18.3%) and Developed Markets (return of 15.9%).
After ending 2019 as the top performing countries in the region, Brazil and Colombia were the weakest equity markets in Latin America for 2020. Brazil’s performance was impacted by a strong depreciation in the local currency given challenging fiscal dynamics and high government indebtedness that were exacerbated during the crisis due to the amount of stimulus administered to help the economy. Similarly, Colombia declined as a result of a poor fiscal situation that was weakened further by falling oil prices (fuel exports and royalties are important contributors to government revenues). Mexico was a relative outperformer in the region on the back of a still-positive real interest rate as persistent inflation defied Banxico’s appetite for further cuts and thanks to 2020 fiscal deficit being the strongest in the region. Chile rose later in the year and reversed some of its losses on the back of its relatively successful control of the pandemic, household income support from pension withdrawals and strong performance of copper prices.
Portfolio Review
The Company posted a negative return of 14.5%1,2 in its NAV in US Dollar terms for the year ending 31 December 2020. These returns underperformed the negative return of 13.8%1 of the MSCI Emerging Markets Latin America Index (net) over the same time period.
At the country level, the portfolio overweight to Mexico was the dominant driver to relative returns; however, security selection in Brazil detracted most over the period.
At the stock level, an off-benchmark position in Ternium, the leading steel company in Latin America, was the top contributor as the stock benefitted from rising steel prices in North America. The company has been investing in a significant new growth platform for Mexico and continues to emerge as a relative winner having taken share from weaker domestic competition in 2020. An overweight in Via Varejo, a Brazilian retail company, also added to the portfolio on a relative basis, as the stock rose benefitting from the turnaround of the firm’s e-commerce platform under the new management and a relentless effort to carry on a digital transformation agenda. Conversely, the fact that the portfolio did not hold Magazine Luiza, one of the largest Brazilian online retail companies, was the top detractor from relative returns as the stock rose in line with other online retailers, which benefitted from COVID-19 related lockdowns. An overweight position in Banco do Brasil weighed on relative performance during the period as the stock declined on the back of interest rate cuts and fears of increasing delinquency amongst borrowers as the Brazilian economy faced pressure from the global pandemic. From a sector perspective, the portfolio’s overweight stance in Materials and Healthcare were considerable contributors to performance during the year. Conversely, holdings in the Real Estate sector were notable detractors given weakened activity, rent holidays and increasing vacancy.
1 All calculations in US Dollars with dividends reinvested.
2 Alternative Performance Measures, see Glossary contained within the Annual Report and Accounts.
Portfolio Positioning
During times of elevated volatility and market stress, it is important to focus on the long-term investment horizon, adhere to disciplined fundamental analysis from a bottom-up perspective and be ready to respond to dislocations in the market as opportunities present themselves. Hence, over the year we notably managed our Brazilian exposure and have been taking advantage of depressed valuations to build out exposure in high conviction names.
Early in the year, we initiated a position in Brazil’s Suzano Papel e Celulose, one of the largest pulp and paper exporters in the world. Following a material sell off throughout 2018 and 2019, pulp prices, which peaked in 2018, languished at trough levels for close to a year, far longer than the typical 3-4 months that we have witnessed historically. Pulp prices averaged close to trough levels for most of 2020, well below the marginal cost of production, as the industry remained oversupplied due to weak printing and writing paper demand from the pandemic. We had been arguing that pulp prices were unsustainably low, and that price hikes were likely as the supply demand balance tightened in the second half of the year, but the magnitude and speed of the rebound has surprised us. We expect prices to continue increasing given the improvement in pulp demand (from ongoing tissue consumption and improvement in paper and writing demand), higher paper prices globally, a weak US Dollar, and normalized inventory levels. Given the high conviction gained in our pulp price recovery thesis, we also took the opportunity to add to Chilean pulp producer, Empresas CMPC, given attractive valuations and improving outlook on the business cycle. Throughout the year the Company added Chilean materials company Sociedad Química y Minera de Chile (SQM). The outlook for SQM and global lithium peers remains favourable in 2021 on the prospects of a recovery in electronic vehicle sales and the improvement of spot lithium carbonate prices in China, which troughed in mid 2020 and have since rebounded nicely. We believe SQM is uniquely positioned relative to most of its lithium peers given its lower cost of production, ongoing capacity expansions and strong outlook for other business such as fertilizers and iodine. We funded these purchases by reducing exposure to Brazilian banks by trimming holdings of Itaú Unibanco and Banco do Brasil as we believed mounting headwinds in terms of NIM (Net Interest Margin) pressure due from interest rate cuts, rising potential of defaults on loans and strong competition from disruptive fintechs should diminish returns for incumbent banks going forward.
The portfolio ended 2020 with our largest country overweights being Mexico and Chile. Mexican equities look attractive from a valuation standpoint and could benefit from the re-opening phase and the proximity to the US. The potential for additional stimulus is relevant to the degree that any stimulus spending in the US spills over into Mexico via both countries’ various direct and indirect economic linkages; in a sense, Mexico gets stimulus it does not have to pay for. We like Chilean equities because of the country’s coordinated domestic fiscal and monetary stimulus package (one of the biggest in the region) which should counteract the negative economic impact of the COVID-19 pandemic. Additionally, our expectations of policy continuity should support the ongoing rebound in domestic economic activity, leading to improved support for moderate Presidential candidates in the November 2021 election. We reduced our exposure to Brazil throughout 2020 and enter 2021 with a slight overweight. We believe the Brazilian equity market should benefit materially from the ongoing global reflation trade because of the high exposure to commodities and financials. However, the Bolsonaro administration is struggling to steer Brazil back to fiscal sustainability as a severe second wave of the COVID-19 pandemic has triggered economic shutdowns and forced Brazil’s Congress to approve an US$8 billion emergency aid package in March 2021. Whilst considerably smaller than the US$50 billion stimulus passed at the beginning of the crisis last year, the spending will add to Brazil’s growing debt pile. In addition, political risks may start to emerge as investors pay more attention to the 2022 Presidential election given we will have poor visibility on economic policy beyond the election in an environment of fragile fiscal accounts. In terms of underweights, the Company continues to have no exposure to markets such as Peru and Colombia. We expect heightened regulatory noise ahead of the Peruvian Presidential election in April of this year which should weigh on the main investible sectors in the country. While we expect economic recovery in Colombia to rebound strongly in 2021, we see valuations in the equity market as rich on a relative basis. At the sector level, we are overweight materials and real estate, and underweight consumer staples and utilities.
Environmental, Social and Governance (ESG) issues
As society grows increasingly aware of climate risks, the need for biodiversity and the proportionate use of natural resources, the global emphasis on ESG continues to intensify and sustainability is increasingly at the forefront of decision making for governments and regulators. As portfolio managers we devote a considerable amount of time to understanding the ESG risks and opportunities facing companies and industries in the portfolio and ESG analytics are fully integrated into the investment process, it should be noted that there is a great deal of improvement that needs to be made in terms of disclosure and adherence to global best practices for corporates throughout the region. In our opinion, the Latin American region lags global peers when it comes to ESG best practices and we believe BlackRock’s communication and engagement with companies can lead to better outcomes for all stakeholders. As portfolio managers, we work very closely with and are supported by the extensive ESG resources at BlackRock which include BlackRock’s Investment Stewardship Team, Sustainable Investing Team and the Risk & Quantitative Analysis Team. We aim to engage with the directors and management of the companies that we invest in to advocate for sound corporate governance and sustainable business practices that result in long-term value creation for shareholders. More information in respect of BlackRock’s approach as a firm to ESG and shareholder engagement is given below.
Outlook
Key drivers for Latin American equities in 2021 will include the speed of global vaccine rollout, along with how individual countries are able to contain additional waves and variants of the virus. Since the end of last year we have started to see the market rotate and prepare for the re-opening of trade. Yet we are just starting to see pressure on re-opening as the inoculation process that started at the onset of 2021 may run short of vaccines with a blurry outlook for new supply amid diplomatic discussions and lack of coordination amongst distributing entities in many countries. In addition, we are starting to see states announce that the re-opening process initiated toward the end of the third quarter of 2020 is receding with the spike in the number of COVID-19 cases and rapidly increasing occupancy levels of ICUs. In our view, successful COVID-19 management matters for the continuation of the positive corporate earnings revision trend seen in the second half of 2020 and will help determine the direction of fiscal recovery in the region. While some countries in Latin America are ahead of other emerging nations in the vaccination programme, the numbers are likely to continue to be somewhat underwhelming in the early stages, especially if we compare them to developed markets. We are expecting a more meaningful percentage of the population in Latin America to be vaccinated in the second half of 2021 as new vaccines get approved.
Outside of COVID-19 related risk to recovery, the economic growth of China and the impact it will have on global commodity prices will continue to play an important role for investors in the region given Latin America’s abundance of natural resources. Furthermore, the current global environment of accommodative monetary and fiscal support provides a supportive backdrop for investors’ appetite for investing in Latin American equities. Finally, we continue to keep a close watch on political developments across the region as a number of critical issues were left unanswered in 2020 and we look forward to seeing how these events unfold in 2021.
With noticeable political changes in the United States we believe that President Biden’s fiscal policy and reforms will help to accelerate US GDP growth, providing positive tailwinds for the United States’ trading partners in Latin America, most notably Mexico. The success and pace of reform in Brazil remains an unanswered issue and we have become concerned with the lack of momentum on the reform agenda in 2020 given the understandable shift in focus for the country to deal with the impact that COVID-19 has had on Brazilian economy and society. Volatility in Brazilian markets has been on the rise in February and March as investors assess policy responses from the government related to fuel pricing and emergency aid connected to the COVID-19 pandemic. Policy credibility was questioned as February’s dismissal of the CEO of Petrobrás led to investor concerns that the hasty appointment of a new CEO might signal a potential shift away from market-friendly policies. In addition, the Senate is scheduled to vote on the emergency constitutional amendment related to government aid to individuals in March. This amendment aims to give legal support to a new round of cash transfers this year, in exchange for some medium-term adjustments to the fiscal accounts. Policy concerns escalated ahead of rumours that the additional government aid would also include proposals to further circumvent the budgetary spending cap which prompted a local market sell-off with the USD/BRL exchange rate reaching almost 5.80 at one point in early March.
However, events subsequently took a more positive turn as the government’s economic team managed to avoid including any measures to further circumvent the spending cap beyond the already-expected emergency aid. This relative improvement in the balance of risks immediately led to a market rally, as both the government and Congress chose a more credible fiscal option than that discussed ahead of voting on the amendment. The Senate then approved the emergency bill in a swift vote with more dilution of the proposed fiscal adjustment mechanisms, but limiting the emergency aid expenditure this year to BRL 44 billion (0.6% of GDP) and keeping additional cash transfer programme expenditure within the limits of the spending cap.
Following the market stress at the end of February, we believe that last week’s events were another reminder of how Brazil’s fiscal policy is on thin ice as the pandemic worsens and the spending cap becomes more binding amid a high level of debt. This policy instability is one reason we have been more cautious on Brazilian equities despite fourth quarter results coming in stronger than expected. In addition, recent COVID-19 trends have been a headwind to near-term economic recovery as positive cases and hospitalizations have risen following the increased mobility and social gatherings surrounding the annual Carnival holiday.
In our view, the risk is that the rising pressures in the country (from the increase in policy uncertainty, the worsening of the COVID-19 pandemic, and the jump in input prices) all combine to have a significantly detrimental effect on the Brazilian economy. The government’s bias appears to be toward looser fiscal policy, although this pressure has been contained by the negative market reaction which has forced politicians to compromise on a more prudent fiscal solution. However, in the future we believe that there is a risk that the government may be put in a more difficult position as the 2022 general election approaches. In this tail-risk scenario, the country could face a protracted period of low growth and elevated inflation.
In Colombia, we see headwinds to the currency stemming from the potential downgrade of the country’s sovereign rating by global debt rating agencies. Colombia’s ability to avoid such actions will be dependent on the country’s execution in delivering a revenue positive tax reform and how the economy recovers from an extended pandemic and downturn without deep structural damage.
Peru faces an uncertain presidential election in April 2021 and despite being so close to the election, uncertainty remains elevated, as there is no clear leader in the race. The election outcome remains open as the latest polls show that more than a third of the population remains undecided. Moreover, the populist bias of the main candidates as well as the fragmentation of the political system could make uncertainty persist beyond the election. These factors could limit Peru's capacity to benefit from a better external backdrop.
Looking ahead, we believe the earnings outlook for Latin America within the global context is robust and attractive, especially given the region’s large exposure to cyclical sectors such as financials, energy and materials that should benefit most as economies re-open. Illustrating this, earnings momentum in Latin America at the end of 2020 and early stages of 2021 has been firmly positive, led by Brazil where forward earnings estimates have been revised up considerably over the past 3 months. Yet in terms of valuations, Latin American markets trade at a meaningful discount to Emerging Markets and Asia. In addition, higher external growth from the US and China, buoyant commodity prices and ample liquidity from accommodative monetary and fiscal policy in developed markets are attractive tailwinds that make us optimistic on Latin American equities going forward.
Sam Vecht and Ed Kuczma
BlackRock Investment Management (UK) Limited
26 March 2021
1 All calculations in US Dollars with dividends reinvested.
2 Alternative Performance Measures, see Glossary on pages 110 to 113 of the Annual Report and Accounts.
Ten largest investments
1 Petrobrás (2019: 1st)
Energy
Market Value – American depositary receipt (ADR): US$15,194,000
Market Value – Preference Shares ADR: US$8,011,000
Share of investments: 9.2%
is a Brazilian integrated oil and gas company, operating in the exploration and production, refining, marketing, transportation, petrochemicals, oil product distribution, natural gas, electricity, chemical-gas and biofuel segments of the industry. The company controls significant assets across Africa, North and South America, Europe and Asia, with a majority of production based in Brazil.
2 Banco Bradesco (2019: 3rd)
Financials
Market Value – ADR: US$21,239,000
Share of investments: 8.5%
is one of Brazil’s largest private sector banks. The company divides its operations in two main areas - banking services and insurance services, management of complementary private pension plans and savings bonds.
3 Vale (2019: 4th)
Materials
Market Value – American depositary share (ADS): US$20,348,000
Share of investments: 8.1%
is one of the world’s largest mining companies, with other business in logistics, energy and steelmaking. Vale is the world’s largest producer of iron ore and nickel but also operates in the coal, copper, and manganese and ferro-alloys sectors.
4 B3 (2019: 19th)
Financials
Market Value – Ordinary Shares: US$12,390,000
Share of investments: 4.9%
is a stock exchange located in Brazil, providing trading services in an exchange and OTC environment. B3’s scope of activities include the creation and management of trading systems, clearing, settlement, deposit and registration for the main classes of securities, from equities and corporate fixed income securities to currency derivatives, structured transactions and interest rate, and agricultural commodities. B3 also acts as a central counterparty for most of the trades carried out in its markets and offers central depository and registration services.
5 América Movil (2019: 5th)
Communication Services
Market Value – ADR: US$10,492,000
Share of investments: 4.2%
is the leading provider of integrated telecommunications services in Latin America, with wireless and fixed-line presence in Latin America, the US, and Central and Eastern Europe. The company has the largest wireless subscriber base in the world outside of China and India.
6 Grupo México (2019: n/a)
Materials
Market Value – Ordinary Shares: US$9,441,000
Share of investments: 3.8%
is a Mexican conglomerate that operates through various divisions. It is the leading copper producer in Mexico and one of the largest copper producers in the world.
7 Walmart de México y Centroamérica (2019: 8th)
Consumer Staples
Market Value – Ordinary Shares: US$8,841,000
Share of investments: 3.5%
is the Mexican and Central American division of Wal-Mart Stores Inc, with operations in Mexico, Guatemala, El Salvador, Honduras, Nicaragua and Costa Rica. The company operates eight brands in the region, covering the discount, winery, supermarket and supercenter segments.
8 Suzano Papel e Celulose (2019: 22nd)
Materials
Market Value – Ordinary Shares: US$8,251,000
Share of investments: 3.3%
is a Brazilian pulp company and the largest pulp and paper company in Ibero America. The company operates through two segments: paper and pulp. Its business units include forestry, cellulose, paper, biotechnology, Eucafluff, tissue and lignin. The company produces hardwood pulp from eucalyptus, coated and uncoated paper, paperboard and tissue paper, as well as electricity.
9 Sociedad Química y Minera de Chile (2019: n/a)
Materials
Market Value – ADR: US$8,076,000
Share of investments: 3.2%
is a Chilean chemical company and a supplier of plant nutrients, iodine, lithium and industrial chemicals. It is the world’s biggest lithium producer.
10 Cemex (2019: 14th)
Materials
Market Value – ADR: US$7,762,000
Share of investments: 3.1%
is a Mexican multinational building materials company and is one of the world’s largest global building materials companies. It manufactures and distributes cement, ready-mix concrete and aggregates in more than 50 countries.
All percentages reflect the value of the holding as a percentage of total investments. Together, the ten largest investments represent 51.8% of the total investments (ten largest investments as at 31 December 2019: 47.8%).
Portfolio of investments as at 31 December 2020
| Market | |||
| value | % of | ||
| US$’000 | investments | ||
| Brazil | |||
| Petrobrás – ADR | 15,194 | } | 9.2 |
| Petrobrás – preference shares ADR | 8,011 | ||
| Banco Bradesco – ADR | 21,239 | 8.5 | |
| Vale – ADS | 20,348 | 8.1 | |
| B3 | 12,390 | 4.9 | |
| Suzano Papel e Celulose | 8,251 | 3.3 | |
| Banco do Brasil | 7,126 | 2.8 | |
| Notre Dame Intermedica Participaçes | 6,374 | 2.5 | |
| Afya | 5,475 | 2.2 | |
| BB Seguridade Participaçes | 5,126 | 2.1 | |
| Banco BTG Pactual – units1 | 5,106 | 2.0 | |
| Lojas Americanas – preference shares | 3,726 | } | 2.0 |
| Lojas Americanas | 1,172 | ||
| Rumo Logística Operadora Multimodal | 4,417 | 1.8 | |
| CIA Locacao America | 4,361 | 1.7 | |
| Cyrela Brazil Realty | 4,287 | 1.7 | |
| Centrais Eletricas | 2,644 | } | 1.7 |
| Centrais Eletricas – preference shares | 1,616 | ||
| Via Varejo | 4,057 | 1.6 | |
| Gol Linhas Aéreas – ADS | 3,053 | 1.2 | |
| Itaú Unibanco – ADR | 2,877 | 1.2 | |
| Fleury | 2,857 | 1.1 | |
| Pagseguro Digital | 2,745 | 1.1 | |
| Vasta Platform | 2,325 | 0.9 | |
| Movida Participaçes | 2,294 | 0.9 | |
| B2W CIA Digital | 1,075 | 0.4 | |
| Klabin 2.5% 15/06/22 convertible bond2 | 81 | – | |
| 158,227 | 62.9 |
| Mexico | |||
| América Movil – ADR | 10,492 | 4.2 | |
| Grupo México | 9,441 | 3.8 | |
| Walmart de México y Centroamérica | 8,841 | 3.5 | |
| Cemex – ADR | 7,762 | 3.1 | |
| Grupo Financiero Banorte | 6,354 | 2.5 | |
| Fibra Uno Administracion – REIT | 6,007 | 2.4 | |
| Grupo Aeroportuario del Pacifico – ADS | 4,273 | } | 2.3 |
| Grupo Aeroportuario del Pacifico | 1,559 | ||
| Grupo Televisa – ADR | 5,460 | 2.2 | |
| Corporación Inmobiliaria Vesta | 3,566 | 1.4 | |
| 63,755 | 25.4 | ||
| Chile | |||
| Sociedad Química y Minera de Chile – ADR | 8,076 | 3.2 | |
| Empresas CMPC | 6,047 | 2.4 | |
| Banco Santander-Chile – ADR | 4,135 | 1.7 | |
| Banco de Chile | 3,561 | 1.4 | |
| 21,819 | 8.7 | ||
| Argentina | |||
| Ternium – ADR | 5,383 | 2.1 | |
| Globant | 2,241 | 0.9 | |
| 7,624 | 3.0 | ||
| Total Investments | 251,425 | 100.0 |
All investments are in equity shares unless otherwise stated.
1 Composite Units include 1 ordinary share and 4 preference shares.
2 Unlisted securities.
The total number of investments held at 31 December 2020 was 43 (31 December 2019: 49). At 31 December 2020, the Company did not hold any equity interests comprising more than 3% of any company’s share capital (31 December 2019: nil).
Portfolio analysis
as at 31 December 2020
Geographical Weighting (gross market exposure) vs MSCI EM Latin America Index
|
% of net assets |
MSCI EM Latin America Index | |
| Brazil | 67.6 | 64.6 |
| Mexico | 27.2 | 21.9 |
| Chile | 9.3 | 6.4 |
| Argentina | 3.3 | 1.5 |
| Peru | 0.0 | 3.1 |
| Colombia | 0.0 | 2.5 |
Source: BlackRock and MSCI.
Sector and geographical allocations
| Net other | 2020 | 2019 | |||||||
| Brazil | Mexico | Chile | Argentina | Colombia | Peru | liabilities | Total | Total | |
| % | % | % | % | % | % | % | % | % | |
| Communication Services | – | 6.8 | – | – | – | – | – | 6.8 | 4.7 |
| Consumer Discretionary | 9.5 | – | – | – | – | – | – | 9.5 | 10.3 |
| Consumer Staples | – | 3.8 | – | – | – | – | – | 3.8 | 13.2 |
| Energy | 9.9 | – | – | – | – | – | – | 9.9 | 13.0 |
| Financials | 23.0 | 2.7 | 3.3 | – | – | – | – | 29.0 | 26.6 |
| Health Care | 3.9 | – | – | – | – | – | – | 3.9 | 3.2 |
| Industrials | 6.0 | 2.5 | – | – | – | – | – | 8.5 | 10.3 |
| Information Technology | 1.2 | – | – | 1.0 | – | – | – | 2.2 | 1.3 |
| Materials | 12.3 | 7.3 | 6.0 | 2.3 | – | – | – | 27.9 | 14.6 |
| Real Estate | – | 4.1 | – | – | – | – | – | 4.1 | 3.3 |
| Utilities | 1.8 | – | – | – | – | – | – | 1.8 | 4.0 |
| Fixed Income | – | – | – | – | – | – | – | – | 0.1 |
| Net other liabilities | – | – | – | – | – | – | (7.4) | (7.4) | (4.6) |
| 2020 total investments | 67.6 | 27.2 | 9.3 | 3.3 | – | – | (7.4) | 100.0 | – |
| 2019 total investments | 70.5 | 24.0 | 0.9 | 4.3 | 3.5 | 1.4 | (4.6) | – | 100.0 |
Source: BlackRock
Environmental, Social and Governance Approach
The Board’s approach
Environmental, social and governance (ESG) issues can present both opportunities and threats to long-term investment performance. The securities within the Company’s investment remit are typically large producers of vital food, timber, minerals and oil supplies, and consequently face many ESG challenges and headwinds as they grapple with the impact of their operations on the environment and resources. The Board is also aware that there is significant room for improvement in terms of disclosure and adherence to global best practices for corporates throughout the Latin American region, which lags global peers when it comes to ESG best practice. These ESG issues faced by companies in the Latin American investment universe are a key focus of the Board, and it is committed to a diligent oversight of the activities of the Manager in these areas. Whilst the Company does not exclude investment in stocks purely on ESG criteria, ESG analytics are fully integrated into the investment process when weighing up the risk and reward benefits of investment decisions and the Board believes that communication and engagement with portfolio companies is important and can lead to better outcomes for shareholders and the environment than merely excluding investment in certain areas.
The importance and challenges of considering ESG when investing in the Latin American Sector
| Environmental | Social | Corporate Governance |
| Some of the companies forming the largest components of the Company’s benchmark index are oil and mining companies. The oil and gas exploration company Petrobrás represents 7.5% of the benchmark at 31 December 2020, and the Brazilian mining company Vale represents nearly 10.0%. Digging mines and drilling for oil will inevitably have an impact on the local environment. Key is how companies manage this process ensuring the benefits are appropriately shared amongst all stakeholders. In addition to the human cost, the value wiped off the market capitalisation of companies such as Vale, after the Brumadinho dam collapse, highlights the key role that ESG has on share price performance. BlackRock believes that there is significant intersection between many of the topics that it discusses with companies and aspects of those UN Sustainable Development Goals in which the private sector has a role to play. BlackRock prefers direct dialogue with companies on complex issues such as climate risk and other environmental issues risks. Where it has concerns that are not addressed by engagements, BlackRock stands ready to vote against management, including against corporate directors (and in favour of certain types of shareholder proposals) should companies fail to demonstrate material progress against specific measures. | The Board believes it is vital that companies maintain their social licence to operate. By this, BlackRock means that companies consider and aim to adhere to best practice in respect of the treatment of their employees, stakeholders, local communities and the national government. The portfolio management team’s site visits to investee companies in conjunction with the BlackRock Investment Stewardship (BIS) team's engagement with these companies, provide the team with valuable insight into these issues which often cannot be properly understood from company reports. | As with all companies, good corporate governance is critical for natural resources companies. In conjunction with the BlackRock Investment Stewardship team, the portfolio management team actively engage with companies on a wide range of governance issues including board independence, executive compensation, shareholder protection and timely disclosure. |
BlackRock Latin American Investment Trust plc - engagement with portfolio companies in 2020
Given the Board’s belief in the importance of engagement and communication with portfolio companies, they receive regular updates from the Manager in respect of activity undertaken for the year under review. The Board notes that over the year to 31 December 2020, 40 total company engagements were held with the management teams of 17 portfolio companies representing 63% of the portfolio by value at 31 December 2020. To put this into context, there were 43 companies in the BlackRock Latin American Investment Trust plc’s portfolio at 31 December 2020 (31 December 2019: 49). Additional information is set out in the table below in respect of the volume of engagement activity for BlackRock globally and the Company specifically as well as the key engagement themes for the meetings held in respect of the Company’s portfolio holdings.
| BlackRock Latin American Investment Trust plc | |
| (year to 31.12.2020) | |
| Number of engagements held | 40 |
| Number of companies met | 17 |
| % of equity investments covered | 63%1 |
| Shareholder meetings voted at | 74 |
| Number of proposals voted on | 701 |
| Number of director appointments voted on | 196 |
| Number of directors where re-election was opposed | 19 |
1 Calculated based on company valuations at 31 December 2020 as a proportion of the Company’s gross portfolio value at 31 December 2020.
Engagement themes
| Engagement Themes1,2 | |
| Governance | 100% |
| Environmental | 93% |
| Social | 68% |
Top five engagement topics
| Top Five Engagement Topics1,2 | |
| Operational sustainability | 83% |
| Corporate strategy | 75% |
| Board composition and effectiveness | 68% |
| Governance structure | |
| Social risks and opportunities |
1 Information is in respect of the 40 engagements held in the year to 31 December 2020 with the management of BlackRock Latin American Investment Trust plc portfolio holdings. Engagements include multiple company meetings during the year with the same company. Most engagement conversations cover multiple topics and are based on BIS’s voting guidelines and engagement priorities which can be found at https://www.blackrock.com/corporate/about-us/investment-stewardship#engagement-priorities
2 Source: ISS Proxy Exchange and BlackRock Investment Stewardship.
BlackRock’s approach to sustainable investing
In BlackRock, the Board has appointed a Manager that has impressive breadth and scale when it comes to shareholder engagement: globally BlackRock held 3,040 engagements with 2,020 companies based in 54 markets for the year to 30 June 20201. As well as the advantages afforded by its sheer scale, the Board believes that BlackRock is well placed as Manager to fulfil these requirements due to the integration of ESG into its investment processes, the emphasis it places on sustainability, its collaborative approach in its investment stewardship activities and its position in the industry as one of the largest suppliers of sustainable investment products in the global market.
Sustainability is BlackRock’s standard for investing, based on the investment conviction that integrating sustainability can help investors build more resilient portfolios and achieve better long-term, risk-adjusted returns. BlackRock believes that climate change is a defining factor in companies’ long-term prospects and that it will have a significant and lasting impact on economic growth and prosperity. BlackRock believes that climate risk equates to investment risk and this will drive a profound reassessment of risk and asset values as investors seek to react to the impact of climate policy changes. This in turn is likely to drive a significant reallocation of capital away from traditional carbon intensive industries over the next decade. More information in respect of the actions taken by BlackRock in 2020 on making sustainability the new standard for investing can be found at www.blackrock.com/corporate/ literature/publication/our-2020-sustainability-actions.pdf.
In terms of its own reporting, BlackRock believes that the Sustainability Accounting Standards Board (SASB) provides a clear set of standards for reporting sustainability information across a wide range of issues, from labour practices to data privacy to business ethics. For evaluating and reporting climate-related risks, as well as the related governance issues that are essential to managing them, the Task Force on Climate-related Financial Disclosures (TCFD) provides a valuable framework. BlackRock’s own SASB-aligned disclosure is available on its website at www.blackrock.com/corporate/literature/ continuous-disclosure-and-important-information/ blackrock-2019-sasb-disclosure.pdf. More information on BlackRock’s policies on Corporate Sustainability can be found on BlackRock’s website at www.blackrock.com/corporate/sustainability.
A detailed summary of the BlackRock Investment Stewardship (BIS) Team’s approach to sustainability and stewardship activities during 2020 is set out in the BIS 2020 Annual Report which can be found at https://www.blackrock.com/corporate/literature/publication/blk-annual-stewardship-report-2020.pdf. BlackRock is committed to transparency in terms of disclosure on its engagement with companies and voting rationales. More details about BlackRock Investment Stewardship can be found on BlackRock’s website at www. blackrock.com/corporate/about-us/investment-stewardship. More information on BIS’s Global Principles and market-specific voting guidelines is set out in the 2021 BIS Stewardship Expectations report which can be found at https://www. blackrock.com/corporate/literature/publication/our-2021- stewardship-expectations.pdf.
1Source: ISS Proxy Exchange and BlackRock Investment Stewardship, as of 8 June 2020.
Strategic Report
The Directors present the Strategic Report of the Company for the year ended 31 December 2020.
Objective
The Company’s objective is to secure long-term capital growth and an attractive total return primarily through investing in quoted securities in Latin America.
Strategy, business model and investment policy
The Company invests in accordance with the objective given above. The Board is collectively responsible to shareholders for the long-term success of the Company and is its governing body. There is a clear division of responsibility between the Board and the Manager. Matters for the Board include setting the Company’s strategy, including its investment objective and policy, setting limits on gearing (both bank borrowings and the effect of derivatives), capital structure, governance, and appointing and monitoring of performance of service providers, including the Manager.
The Company’s business model follows that of an externally managed investment trust; therefore the Company does not have any employees and outsources its activities to third party service providers including the Manager who is the principal service provider.
In accordance with the Alternative Investment Fund Managers’ Directive (AIFMD) the Company is an Alternative Investment Fund (AIF). BlackRock Fund Managers Limited (the Manager) is the Company’s Alternative Investment Fund Manager.
The management of the investment portfolio and the administration of the Company have been contractually delegated to the Manager who in turn (with the permission of the Company) has delegated certain investment management and other ancillary services to BlackRock Investment Management (UK) Limited (BIM (UK) or the Investment Manager). The Manager, operating under guidelines determined by the Board, has direct responsibility for the decisions relating to the day-to-day running of the Company and is accountable to the Board for the investment, financial and operating performance of the Company.
The Company delegates fund accounting services to the Investment Manager, which in turn sub-delegates these services to The Bank of New York Mellon (International) Limited. Other service providers include the Depositary, The Bank of New York Mellon (International) Limited and the Registrar, Computershare Investor Services PLC.
Prior to 1 November 2017, the entity appointed as the Company’s Depositary was BNY Mellon Trust & Depositary (UK) Limited. Details of the contractual terms with these service providers are set out in the Directors’ Report on pages 46 and 47 of the Annual Report and Accounts.
Our strategy is that the portfolio will be chosen from a spread of companies which are listed in, or whose main activities are in, Latin America.
As an actively managed fund our primary aims over the medium term are significant outperformance of our benchmark index (the MSCI EM Latin America Index – net return with dividends reinvested) and most of our competitors on a risk adjusted basis. Our portfolio and performance will diverge from the returns obtained simply by investing in the index.
Investment policy
As a closed end company we are able to adopt a longer-term investment horizon, and therefore may, when appropriate, have a higher proportion of less liquid mid and smaller capitalisation companies than comparable open-ended funds.
The portfolio is subject to a number of geographical restrictions relative to the benchmark index but the Investment Manager is not constrained from investing outside the index. For Brazil, Mexico, Chile, Argentina, Peru, Colombia and Venezuela, the portfolio weighting is limited to plus or minus 20% of the index weighting for each of those countries. For all other Latin American countries the limit is plus or minus 10% of the index weighting. Additionally, the Company may invest in the securities of quoted companies whose main activities are in Latin America but which are not established or incorporated in the region or quoted on a local exchange.
The Company’s policy is that up to 10% of the gross assets of the portfolio may be invested in unquoted securities.
The Company will not hold more than 15% of the market capitalisation of any one company and no more than 15% of the Company’s investments will be held in any one company as at the date any such investment is made.
No more than 15% of the gross assets of the portfolio shall be invested in other UK listed investment companies (including other investment trusts).
The Company may deal in derivatives (including options, futures and forward currency transactions) for the purposes of efficient portfolio management (i.e. for the purpose of reducing, transferring or eliminating investment risk in the underlying investments of a collective investment undertaking, including any technique or instrument used to provide protection against exchange and credit risks). No more than 20% of the Company’s portfolio by value may be under option at any given time. No options contracts were entered into by the Company in the year under review.
The Company may underwrite or sub-underwrite any issue or offer for the sale of investments. No such commitment will be entered into if, at that time, the aggregate of such investments would exceed 10% of the net asset value of the Company or any such individual investment would exceed 3% of the net asset value of the Company.
The Company may, from time to time, use borrowings to gear its investment portfolio or in order to fund the market purchase of its own ordinary shares. Under the Company’s Articles of Association, the net borrowings of the Company may not exceed 100% of the Company’s adjusted capital and reserves. However, net borrowings are not expected to exceed 25% of net assets under normal circumstances. The Investment Manager may also hold cash or cash-equivalent securities when it considers it to be advantageous to do so.
The Company’s financial statements are maintained in US Dollars. Although many investments are likely to be denominated and quoted in currencies other than in US Dollars, the Company does not currently employ a hedging policy against fluctuations in exchange rates.
No material change will be made to the Company’s investment policy without shareholder approval.
Investment process
An overview of the investment process is set out below.
The Investment Manager’s main focus is to invest in securities that provide opportunities for strong capital appreciation relative to our benchmark. We aim to maintain a concentrated portfolio of high conviction investment ideas that typically consists of companies with a combination of mispriced growth potential and/or display attributes of sustained value creation that are underappreciated by the financial markets.
The Manager’s experienced research analyst team conducts on the ground research, meeting with target companies, competitors, suppliers and others in the region in order to generate investment ideas for portfolio construction. In addition, the investment team meets regularly with government officials, central bankers, industry regulators and consultants.
Final investment decisions result from a combination of bottom-up, company specific research with top-down, macro analysis.
Section 172 Statement: promoting the success of BlackRock Latin American Investment Trust plc
The Companies (Miscellaneous Reporting) Regulations 2018 require directors to explain more fully how they have discharged their duties under Section 172(1) of the Companies Act 2006 in promoting the success of their companies for the benefit of members as a whole. This enhanced disclosure covers how the Board has engaged with and understands the views of stakeholders and how stakeholders’ needs have been taken into account, the outcome of this engagement and the impact that it has had on the Board’s decisions.
As the Company is an externally managed investment company and does not have any employees or customers, the Board considers the main stakeholders in the Company to be the shareholders, key service providers (being the Manager and Investment Manager, the Custodian, Depositary, Registrar and Broker) and investee companies. The reasons for this determination, and the Board’s overarching approach to engagement, are set out in the table below.
| Stakeholders | |||
| Shareholders | Manager and Investment Manager | Other key service providers | Investee companies |
| Continued shareholder support and engagement are critical to the continued existence of the Company and the successful delivery of its long-term strategy. The Board is focused on fostering good working relationships with shareholders and on understanding the views of shareholders in order to incorporate them into the Board’s strategy and objectives in delivering long-term growth and income. | The Board’s main working relationship is with the Manager, who is responsible for the Company’s portfolio management (including asset allocation, stock and sector selection) and risk management, as well as ancillary functions such as administration, secretarial, accounting and marketing services. The Manager has sub-delegated portfolio management to the Investment Manager. Successful management of shareholders’ assets by the Investment Manager is critical for the Company to successfully deliver its investment strategy and meet its objective. The Company is also reliant on the Manager as AIFM to provide support in meeting relevant regulatory obligations under the AIFMD and other relevant legislation. | In order for the Company to function as an investment trust with a listing on the premium segment of the official list of the FCA and trade on the London Stock Exchange’s (LSE) main market for listed securities, the Board relies on a diverse range of advisors for support in meeting relevant obligations and safeguarding the Company’s assets. For this reason the Board considers the Company’s Custodian, Depositary, Registrar and Broker to be stakeholders. The Board maintains regular contact with its key external providers and receives regular reporting from them through the Board and Committee meetings, as well as outside of the regular meeting cycle. | Portfolio holdings are ultimately shareholders' assets, and the Board recognises the importance of good stewardship and communication with investee companies in meeting the Company’s investment objective and strategy. The Board monitors the Manager’s stewardship arrangements and receives regular feedback from the Manager in respect of meetings with the management of investee companies. |
A summary of the key areas of engagement undertaken by the Board with its key stakeholders in the year under review and how Directors have acted upon this to promote the long-term success of the Company are set out in the table below.
| Area of | |||
| Engagement | Issue | Engagement | Impact |
| Investment mandate and objective | The Board is committed to promoting the role and success of the Company in delivering on its investment mandate to shareholders over the long term. However, the Board recognises that securities within the Company’s investment remit may involve significant additional risk due to the political volatility and environmental, social and governance concerns facing many of the countries in the Company’s investment universe. These ESG issues should be a key focus of our Manager’s research. More than ever consideration of sustainable investment is a key part of the investment process and must be factored in when making investment decisions. The Board also has responsibility to shareholders to ensure that the Company’s portfolio of assets is invested in line with the stated investment objective and in a way that ensures an appropriate balance between spread of risk and portfolio returns. | The Board believes that responsible investment and sustainability are important to the longer-term delivery of growth in capital and income and has worked very closely with the Manager throughout the year to regularly review the Company’s performance, investment strategy and underlying policies, and to understand how ESG considerations are integrated into the investment process. The Manager’s approach to the consideration of ESG factors in respect of the Company’s portfolio, as well as its engagement with investee companies to encourage the adoption of sustainable business practices which support long-term value creation, are kept under review by the Board. The Manager reports to the Board in respect of its consideration of ESG factors and how these are integrated into the investment process; a summary of BlackRock’s approach to ESG and sustainability is set out on pages 25 to 27 of the Annual Report and Accounts. The Board discussed ESG concerns in respect of specific portfolio companies with the Manager, including the investment rationale for holding companies with poor ESG ratings and the engagement being entered into with management teams to address the underlying issues driving these ratings. |
The portfolio activities undertaken by the Manager, can be found in the Investment Manager’s Report above. |
| Area of | |||
| Engagement | Issue | Engagement | Impact |
| Dividend target | A key element of the Board’s overall strategy to reduce the discount at which the Company’s shares trade is the Company’s dividend policy whereby the Company pays a regular quarterly dividend equivalent to 1.25% of the Company’s US Dollar NAV at the end of each calendar quarter. The Board believes this policy which produced a dividend yield of 4.2% (based on the share price of 552.93 cents per share at 31 December 2020, equivalent to the Sterling price of 404.50 pence per share translated into US cents at the rate prevailing at 31 December 2020 of US$1.37 to £1.00), enhances demand for the Company’s shares, which will help to narrow the Company’s discount over time. These dividends are funded out of capital reserves to the extent that current year revenue and revenue reserves are insufficient; the Board believes that this removes pressure from the investment managers to seek a higher income yield from the underlying portfolio itself which could detract from total returns but keep the dividend policy and its impact on total return under review. | The Manager reports total return performance statistics to the Board on a regular basis, along with the portfolio yield and the impact of the dividend policy on brought forward distributable reserves. The Board reviews the Company’s discount on a regular basis and holds regular discussions with the Manager and the Company’s broker regarding the discount level. The Manager provides the Board with feedback and key performance statistics regarding the success of the Company’s marketing initiatives which include messaging to highlight the quarterly dividends. The Board also reviews feedback from shareholders in respect of the level of dividend. Notwithstanding the issues posed by the COVID-19 pandemic, in normal operating conditions, shareholders may attend the Company’s Annual General Meeting where formal questions may be put to the Board. |
Since the dividend policy was introduced in July 2018, the Company’s discount has narrowed from 12.2% as at 31 December 2019 to 7.3% as at 31 December 2020. At 24 March 2021 the discount stood at 6.5%. Of total dividends of US$9,054,000 paid out in the year, US$3,220,000 has been paid out of brought forward revenue reserves with US$5,834,000 paid out of current year revenue. The Company’s portfolio managers (Sam Vecht and/or Ed Kuczma) attended twenty professional investor/analyst meetings, holding discussions with over thirty-two different financial professional offices over the year to promote the Company and raise the profile in terms of the investment strategy, including the dividend policy. |
| Area of | |||
| Engagement | Issue | Engagement | Impact |
| Discount management | The Board recognises that it is in the long-term interests of shareholders that shares do not trade at a significant discount to their prevailing NAV. To this end, the Board has put in place a discount control mechanism covering the four years to 31 December 2021 whereby shareholders are offered a tender for 24.99 per cent of the shares in issue where either a performance target or an average discount target is not met (see page 7 of the Annual Report and Accounts for more details). | The Board monitors the tender trigger targets described on page 7 and page 44 of the Annual Report and Accounts on a regular basis in conjunction with the Manager. The Manager provides regular performance updates and detailed performance attribution. | The Company’s average discount for the period from 1 January 2018 to 31 December 2020 was 12.2%1 compared to the tender discount target of 12%1. The Company’s annualised NAV performance of –1.49% for the same period outperformed (for the tender not to be triggered, the NAV must outperform the benchmark by more than 1% on an annualised basis over the four years to 31 December 2021) the benchmark, which fell by 1.83% on an annualised basis over the same period, by 0.34%1 compared to a threshold of 1.00%. On this basis the tender would have been implemented if the tender trigger date had fallen on 31 December 2020. However, the Company’s discount has narrowed significantly over the year under review, from 12.2% at 31 December 2019 to 7.3% at 31 December 2020. As at 24 March 2021 the discount was 6.5%. |
1 Alternative Performance Measures, see Glossary contained within the Annual Report and Accounts.
| Area of | |||
| Engagement | Issue | Engagement | Impact |
| Service levels of third party providers | The Board acknowledges the importance of ensuring that the Company’s principal suppliers are providing a suitable level of service: including the Manager in respect of investment performance and delivering on the Company’s investment mandate; the Custodian and Depositary in respect of their duties towards safeguarding the Company’s assets; the Registrar in its maintenance of the Company’s share register and dealing with investor queries and the Company’s Brokers in respect of the provision of advice and acting as a market maker for the Company’s shares. | The Manager reports to the Board on the Company’s performance on a regular basis. The Board carries out a robust annual evaluation of the Manager’s performance, their commitment and available resources. The Board performs an annual review of the service levels of all third party service providers and concludes on their suitability to continue in their role. The Board receives regular updates from the AIFM, Depositary, Registrar and Brokers on an ongoing basis. In light of the challenges presented by the ongoing COVID-19 pandemic to the operation of business across the globe, the Board has worked closely with the Manager to gain comfort that relevant business continuity plans continue to operate effectively for all of the Company’s service providers. |
All performance evaluations were performed on a timely basis and the Board concluded that all third party service providers, including the Manager, Custodian, Depositary and Fund Administrator were operating effectively and providing a good level of service. The Board has received updates in respect of business continuity planning from the Company’s Manager, Custodian, Depositary, Fund Administrator, Brokers, Registrar and printers, and is confident that arrangements are in place to ensure that a good level of service will continue to be provided despite the impact of the COVID-19 pandemic. |
| Area of | |||
| Engagement | Issue | Engagement | Impact |
| Board composition | The Board is committed to ensuring that its own composition brings an appropriate balance of knowledge, experience and skills, and that it is compliant with best corporate governance practice under the new UK Code, including guidance on tenure and the composition of the Board’s committees. | The Board regularly reviews succession planning arrangements. The Nomination Committee has agreed the selection criteria and the method of selection, recruitment and appointment. Board diversity, including gender, is taken into account when establishing recruitment criteria. The services of an external search consultant, Cornforth Consulting Limited, were used in the year to identify potential candidates. All Directors are subject to a formal evaluation process on an annual basis (more details and the conclusions in respect of the 2020 evaluation process are given on page 61 of the Annual Report). All Directors stand for re-election by shareholders annually. Shareholders may attend the AGM and raise any queries in respect of Board composition or individual Directors in person, or may contact the Company Secretary or the Chairman using the details provided on page 104 of the Annual Report and Accounts if they wish to raise any issues. |
Ms Laurie Meister joined the Board with effect from 1 February 2020. From this date the Board was comprised of three women and two men. Ms Meister’s biography is set out on page 32 of the Annual Report and Accounts. Details of each Director’s contribution to the success and promotion of the Company are set out in the Directors’ report on pages 51 to 52 of the Annual Report and Accounts. The Directors are not aware of any issues that have been raised directly by shareholders in respect of Board composition in 2020. Details for the proxy voting results in favour and against individual Directors’ re-election at the 2020 AGM are given on the Company’s website at www.blackrock.com/uk/brla. |
| Area of | |||
| Engagement | Issue | Engagement | Impact |
| Shareholders | Continued shareholder support and engagement are critical to the continued existence of the Company and the successful delivery of its long-term strategy. | The Board is committed to maintaining open channels of communication and to engage with shareholders. Notwithstanding the challenges posed by the COVID-19 pandemic, in normal operating circumstances the Company welcomes and encourages attendance and participation from shareholders at its Annual General Meetings. Shareholders therefore have the opportunity to meet the Directors and Investment Manager and to address questions to them directly. The Annual Report and Half Yearly Financial Report are available on the BlackRock website and are also circulated to shareholders either in printed copy or via electronic communications. In addition, regular updates on performance, monthly factsheets, the daily NAV and other information are also published on the website at www.blackrock.com/uk/brla. The Board also works closely with the Manager to develop the Company’s marketing strategy, with the aim of ensuring effective communication with shareholders in respect of the investment mandate and objective. Unlike trading companies, one-to-one shareholder meetings usually take the form of a meeting with the portfolio managers as opposed to members of the Board. As well as attending regular investor meetings the portfolio managers hold regular discussions with wealth management desks and offices to build on the case for, and understanding of, long-term investment opportunities in Latin America. The Manager also coordinates public relations activity, including meetings between the portfolio managers and relevant industry publications to set out their vision for the portfolio strategy and outlook for the region. The Manager releases monthly portfolio updates to the market to ensure that investors are kept up to date in respect of performance and other portfolio developments, and maintains a website on behalf of the Company that contains relevant information in respect of the Company’s investment mandate and objective. If shareholders wish to raise issues or concerns with the Board, they are welcome to do so at any time. The Chairman is available to meet directly with shareholders periodically to understand their views on governance and the Company’s performance where they wish to do so. She may be contacted via the Company Secretary whose details are given on page 104 of the Annual Report and Accounts. |
The Board values any feedback and questions from shareholders ahead of and during Annual General Meetings in order to gain an understanding of their views and will take action when and as appropriate. Feedback and questions will also help the Company evolve its reporting, aiming to make reports more transparent and understandable. Feedback from all substantive meetings between the Investment Manager and shareholders will be shared with the Board. The Directors will also receive updates from the Company’s broker on any feedback from shareholders, as well as share trading activity, share price performance and an update from the Investment Manager. The portfolio managers attended a number of professional investor meetings throughout the year (held remotely by videoconference where required due to the impact of COVID-19), and held discussions with a range of wealth management desks and offices in respect of the Company during the year under review. Virtual roadshows were held with investors in Dublin, Glasgow, Edinburgh and the Isle of Man. The Manager also held group webcasts in the year to provide investors with portfolio updates and give them the opportunity to discuss any issues with the portfolio managers. Investors gave positive feedback in respect of the portfolio managers’ active approach in increasing the level of stock specific risk in a more concentrated portfolio and taking a proactive approach to gearing. Investors were also impressed by Mr Vecht’s track record and Mr Kuczma’s expertise in the Latin American region. Investors were concerned over the volatility of the Latin American region and market liquidity. 38 articles about the Company were published in the year under review focusing on the Company’s profile and the case for long-term investment opportunities in Latin America. These included 12 pieces of national coverage, 18 pieces of intermediary coverage and 8 pieces of consumer investment coverage. |
Performance
Details of the Company’s performance are set out in the Chairman’s Statement above.
The Investment Manager’s Report above forms part of this Strategic Report and includes a review of the main developments during the year, together with information on investment activity within the Company’s portfolio.
Portfolio analysis
A detailed analysis of the investments and the sector and geographical allocations is provided on pages 22 to 24 of the Annual Report and Accounts.
Results and dividends
The results for the Company are set out in the Income Statement below. The total loss for the year on ordinary activities, after taxation, was US$43,572,000 (2019: profit of US$45,496,000) of which the revenue profit amounted to US$5,834,000 (2019: US$7,106,000), and the capital loss amounted to US$49,406,000 (2019: profit of US$38,390,000).
With effect from July 2018, a new dividend policy was implemented whereby the Company pays a regular quarterly dividend equivalent to 1.25% of the Company’s US Dollar NAV at the end of each calendar quarter. The Company has declared interim dividends totaling 23.06 cents per share under this policy in respect of the year ended 31 December 2020 as detailed in the table below.
| Dividend | Pay date | |
| Quarter to 31 March 2020 | 4.59 cents | 20 May 2020 |
| Quarter to 30 June 2020 | 5.57 cents | 11 August 2020 |
| Quarter to 30 September 2020 | 5.45 cents | 9 November 2020 |
| Quarter to 31 December 2020 | 7.45 cents | 8 February 2021 |
| Total | 23.06 cents |
Under the Company’s new dividend policy, dividends are calculated based on 1.25% of the US Dollar NAV at close of business on the last working day of March, June, September and December and are paid in May, August, November and February respectively. Dividends will be financed through a combination of available net income in each financial year and revenue and capital reserves.
Details of this policy are also set out in the Chairman’s Statement above.
Key performance indicators
At each Board meeting, 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 are comparable to those reported by other investment trusts and are set out on page 40 of the Annual Report and Accounts.
NAV, share price and index performance
At each meeting the Board reviews the detail of the performance of the portfolio as well as the net asset value and share price (total return) for the Company and compares this to the performance of other companies in the peer group of Latin American open and closed end funds and to our benchmark.
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.
Information on the Company’s performance is given in the performance record on page 4 of the Annual Report and Accounts and the Chairman’s Statement and Investment Manager’s Report above.
Premium/discount to NAV
The Board recognises that it is in the long-term interests of shareholders that shares do not trade at a significant discount to their prevailing NAV. The Board monitors the level of the Company’s discount to NAV on an ongoing basis and considers strategies for managing any discount. In the year to 31 December 2020, the Company’s share price to NAV traded in the range of a discount of 2.0% to 16.5% on a cum-income basis.
Further details setting out how the discount or premium at which the Company’s shares trade is calculated are included in the Glossary contained within the Annual Report and Accounts.
Ongoing charges
The ongoing charges represent the Company’s management fee and all other operating expenses, excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation and certain non-recurring items expressed as a percentage of average daily net assets.
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 on an ongoing basis against a peer group of Latin American open and closed end funds. A definition setting out in detail how the ongoing charges ratio is calculated is included in the Glossary contained within the Annual Report and Accounts.
Composition of shareholder register
The Board is mindful of the importance of a diversified shareholder register and the need to make the Company’s shares attractive to long-term investors; it is therefore the Board’s aim to increase the diversity of the shareholder register over time. The Board monitors the retail element of the register, which is defined for these purposes as wealth managers, Independent Financial Advisors (IFAs) and direct private investors. On this basis the Company’s share register currently comprises 35.1% retail investors; the Board will monitor this with the aim of growing the retail element of the register over time.
The table below sets out the key KPIs for the Company. As indicated in footnote 2 to the table, some of these KPIs fall within the definition of ‘Alternative Performance Measures’ (APMs) under guidance issued by the European Securities and Markets Authority (ESMA) and additional information explaining how these are calculated is set out in the Glossary contained within the Annual Report and Accounts.
| Year ended | Year ended | |
| 31 December | 31 December | |
| Key Performance Indicators | 2020 | 2019 |
| Net asset value total return1,2 | –14.5% | 18.2% |
| Share price total return1,2 | –9.3% | 22.0% |
| Benchmark total return (net)1 | –13.8% | 17.5% |
| Discount to net asset value2 | 7.3% | 12.2% |
| Revenue return per share (cents) | 14.86 | 18.10 |
| Ongoing charges2,3 | 1.14% | 1.13% |
| Retail element of share register | 35.1% | 32.2% |
1 Calculated in US Dollar terms with dividends reinvested.
2 Alternative Performance Measures, see Glossary contained within the Annual Report and Accounts.
3 Ongoing charges represent the management fee and all other operating expenses excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered and taxation as a % of average daily net assets.
Principal risks
The Company is exposed to a variety of risks and uncertainties and the key risks are set out below. The Board has put in place a robust process to identify, assess and monitor the principal and emerging risks. A core element of this process is the Company’s risk register. This identifies the risks facing the Company and assesses the likelihood and potential impact of each risk and the quality of controls operating to mitigate it. A residual risk rating is then calculated for each risk based on the outcome of the assessment. This approach allows the effect of any mitigating procedures to be reflected in the final assessment.
The risk register is regularly reviewed and the risks reassessed. The risk environment in which the Company operates is also monitored and regularly appraised. New risks are also added to the register as they are identified which ensures that the document continues to be an effective risk management tool. The COVID-19 pandemic has given rise to unprecedented challenges for businesses across the globe and the Board has taken into consideration the risks posed to the Company by the crisis and incorporated these into the Company’s risk register.
The risk register, its method of preparation and the operation of key controls in the Manager’s and third party service providers’ systems of internal control are reviewed on a regular basis by the Audit Committee in order to gain a more comprehensive understanding of the Manager’s and other third party service providers’ risk management processes and how these apply to the Company’s business. BlackRock’s internal audit department provides an annual presentation to the Audit Committee chairmen of the BlackRock investment trusts setting out the results of testing performed in relation to BlackRock’s internal control processes. Where produced, the Audit Committee also reviews Service Organisation Control (SOC 1) reports from the Company’s service providers.
The Board has undertaken a robust assessment of both the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. Those principal risks have been described in the table that follows, together with an explanation of how they are managed and mitigated. Emerging risks are considered by the Board as they come into view and are incorporated into the existing review of the Company’s risk register. They were also considered as part of the annual evaluation process. Additionally, the Manager considers emerging risks in numerous forums and the Risk and Quantitative Analysis team produces an annual risk survey. Any material risks of relevance to the Company identified through the annual risk survey will be communicated to the Board.
The Board will continue to assess these risks on an ongoing basis. In relation to the 2018 UK Corporate Governance Code, the Board is confident that the procedures that the Company has put in place are sufficient to ensure that the necessary monitoring of risks and controls has been carried out throughout the reporting period.
The current risk register includes a number of risks which have been categorised as follows:
• Counterparty;
• Investment performance;
• Income/dividend;
• Legal and regulatory compliance;
• Operational;
• Market;
• Financial; and
• Marketing
The principal risks and uncertainties faced by the Company during the financial year, together with the potential effects, controls and mitigating factors, are set out in the following table.
| Principal Risk | Mitigation/Control |
| Counterparty | |
| Potential loss that the Company could incur if a counterparty is unable (or unwilling) to perform on its commitments. | Due diligence is undertaken before contracts are entered into and exposures are diversified across a number of counterparties. |
| The Depositary is liable for restitution for the loss of financial instruments held in custody unless able to demonstrate the loss was a result of an event beyond its reasonable control. | |
| Investment performance | |
| Returns achieved are reliant primarily upon the performance of the portfolio. The Board is responsible for:
|
To manage this risk the Board:
|
| Principal Risk | Mitigation/Control |
| Income/dividend | |
| The Company’s dividend policy is to pay dividends based on 1.25% of the US Dollar net asset value at each quarter end. Under this policy, a portion of the dividend is likely to be paid out of capital reserves, and over time this might erode the capital base of the Company, with a consequential impact on longer-term total returns. The rate at which this may occur and the degree to which dividends are funded from capital are also dependent upon the level of dividends and other income earned from the portfolio. Income returns from the portfolio are dependent, among other things, upon the Company successfully pursuing its investment policy. Any change in the tax treatment of 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. The Company has the ability to make dividend distributions out of capital reserves as well as revenue reserves to support any dividend target. These reserves totalled US$209.1 million at 31 December 2020. The Board is mindful of the balance of shareholder returns between income and capital and monitors the impact of the Company’s dividend on the Company’s capital base and the impact over time on total return. Any changes to the Company’s dividend policy are communicated to the market on a timely basis and shareholder approval will be sought for significant changes. |
| Legal and regulatory compliance | |
| The Company has been approved by HM Revenue & Customs as an investment trust, subject to continuing to meet the relevant eligibility conditions and 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. Any breach of the relevant eligibility conditions could lead to the Company losing investment trust status and being subject to corporation tax on capital gains realised within the Company’s portfolio. In such event the investment returns of the Company may be adversely affected. Any serious breach could result in the Company and/or the Directors being fined or the subject of criminal proceedings or the suspension of the Company’s shares which would in turn lead to a breach of the Corporation Tax Act 2010. Amongst other relevant laws and regulations, the Company is required to comply with the provisions of the Companies Act 2006, the Alternative Investment Fund Managers’ Directive, the UK Listing Rules and Disclosure Guidance and Transparency Rules and the Market Abuse Regulation. |
The Investment Manager monitors investment movements 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. The results are reported to the Board at each meeting. Compliance with the accounting rules affecting investment trusts is carefully and regularly monitored. The Company Secretary and the Company’s professional advisers provide regular reports to the Board in respect of compliance with all applicable rules and regulations. 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. The Market Abuse Regulation came into force across the EU on 3 July 2016. The Board has taken steps to ensure that individual Directors (and their Persons Closely Associated) are aware of their obligations under the regulation and has updated internal processes, where necessary, to ensure the risk of non-compliance is effectively mitigated. |
| Principal Risk | Mitigation/Control |
| Operational | |
| In common with most other investment trust companies, the Company has no employees. The Company therefore relies on the services provided by third parties. Accordingly, it is dependent on the control systems of the Manager and The Bank of New York Mellon (International) Limited (the Depositary and Fund Accountant) who maintain the Company’s assets, dealing procedures and accounting records. The security of the Company’s assets, dealing procedures, accounting records and adherence to regulatory and legal requirements depend on the effective operation of the systems of these other third party service providers. There is a risk that a major disaster, such as floods, fire, a global pandemic or terrorist activity, renders the Company’s service providers unable to conduct business at normal operating capacity and effectiveness. Failure by any service provider to carry out its obligations to the Company could have a material adverse effect on the Company’s performance. Disruption to the accounting, payment systems or custody records could prevent the accurate reporting and monitoring of the Company’s financial position. |
Due diligence is undertaken before contracts are entered into with third party service providers. Thereafter, the performance of the provider is subject to regular review and reported to the Board. Most third party service providers produce Service Organisation Control (SOC 1) reports to provide assurance regarding the effective operation of internal controls as reported on by their reporting accountants. These reports are provided to the Audit Committee for their review. The Company’s assets are subject to a strict liability regime and in the event of a loss of financial assets held in custody, the Depositary must return assets of an identical type or the corresponding amount, unless able to demonstrate the loss was a result of an event beyond its reasonable control. The Board reviews the overall performance of the Manager, Investment Manager and all other third party service providers and compliance with the Investment Management Agreement on a regular basis. The Board also considers the business continuity arrangements of the Company’s key service providers on an ongoing basis and reviews these as part of their review of the Company’s risk register. In respect of the risks posed by the COVID-19 pandemic in terms of the ability of service providers to function effectively, the Board have received reports from key service providers (the Manager, the Depositary, the Custodian, the Fund Administrator, the Broker, the Registrar and the printers) setting out the measures that they have put in place to address the crisis in addition to their existing business continuity framework. Having considered these arrangements and reviewed the level of service over the course of the year as the pandemic has evolved, the Board is confident that a good level of service will continue to be maintained. |
| Market | |
| Market risk arises from volatility in the prices of the Company’s investments. It represents the potential loss the Company might suffer through holding investments in the face of negative market movements. There may be exposure to significant economic, political and currency risks due to the location of the operation of the businesses in which the Company may invest, or as a result of a global economic crisis such as the COVID-19 pandemic. Shares in businesses in which the Company invests can prove volatile and this may be reflected in the Company’s share price. The Company may also invest in smaller capitalisation companies or in the securities markets of developing countries which 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. Corruption also remains a significant issue across the Latin American investment universe 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 Latin American countries may be less rigorous than in other markets. As a result, there may be less information available publicly to investors in these securities, and such information as is available is often less reliable. |
The Board considers asset allocation, stock selection, unquoted investments, if any, 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. The Board also recognises the benefits of a closed end fund structure in extremely volatile markets such as those experienced during the COVID-19 pandemic. Unlike open ended counterparts, closed end funds are not obliged to sell down portfolio holdings at low valuations to meet liquidity requirements for redemptions. During times of elevated volatility and market stress, the ability of a closed end fund structure to remain invested for the long-term enables the portfolio managers to adhere to disciplined fundamental analysis from a bottom-up perspective and be ready to respond to dislocations in the market as opportunities present themselves. |
| Financial | |
| The Company’s investment activities expose it to a variety of financial risks that include interest rate, currency and liquidity risk. | Details of these risks are disclosed in note 16 to the financial statements contained with the Annual Report and Accounts, together with a summary of the policies for managing these risks. |
| Principal Risk | Mitigation/Control |
| Marketing | |
| Marketing efforts are inadequate or do not comply with relevant regulatory requirements, and fail to communicate adequately with shareholders or reach out to potential new shareholders, resulting in reduced demand for the Company’s shares and a widening discount. | The Board focuses significant time on communicating directly with the major shareholders and reviewing marketing strategy and initiatives. All investment trust marketing documents are subject to appropriate review and authorisation. |
As required by the UK Corporate Governance Code, the Board has undertaken a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. Those principal risks have been described in the above table together with an explanation of how they are managed and mitigated. The Board will continue to assess these risks on an ongoing basis.
Viability statement
In accordance with provision 31 of the 2018 UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a longer period than the 12 months referred to by the ‘Going Concern’ guidelines. The Board recognises that it is obliged to propose a biennial continuation vote, with the next vote at the AGM to be held in May 2022, and the Board proposes to offer a tender for 24.99% of the Company’s ordinary shares in issue (excluding treasury shares) at the AGM in 2022 if certain conditions are met. The outcome of these events is unknown at the present time. In addition, the Board is cognisant of the uncertainty surrounding the potential duration of the COVID-19 pandemic and its impact on the global economy and the prospects for many of the Company’s portfolio holdings. Notwithstanding these uncertainties, given the factors stated below, the Board expects the Company to continue for the foreseeable future and has therefore conducted this review for the period up to the AGM in 2024, being a period of three years from the date of approval of this report. The Board considers three years to be an appropriate time horizon, being the period generally used to assess potential investments.
In choosing this period for its assessment of the viability of the Company the Directors have considered the following matters:
- the tender mechanism put in place by the Board in 2018 provides investors with liquidity through the ability to tender up to 24.99% of the issued share capital of the Company in 2022 if certain discount and performance targets are not met. Shareholders voted in favour of continuation at the June 2020 AGM, which the Board believes was a clear indication that shareholders were supportive of the continuation of the Company in return for the liquidity provided by the tender mechanism. The Board has had no indication that shareholder views have changed in this regard;
- the Company has a relatively liquid portfolio (as at 31 December 2020, 100% of the portfolio was estimated as being capable of being liquidated within 14 days with 95% capable of being liquidated within 3 days);
- the Company’s expenses and liabilities are relatively stable and represent a very small percentage of net assets 1.14% for the year ended 31 December 2020;
- the Board has reviewed the Company’s revenue and expense forecasts in light of the COVID-19 pandemic and its anticipated impact on dividend income and market valuations. The Board is comfortable that the Company’s business model remains viable and that the Company has sufficient resources to meet all liabilities as they fall due for the period under review;
- the Company’s business model should remain attractive for much longer than the period up to the AGM in 2024, unless there is a significant economic or regulatory change;
- to the extent that the tender offer proceeds in 2022 and is fully subscribed, the Company would remain a viable size and would retain a liquid portfolio with ongoing expenses and liabilities still representing a very small percentage of net assets;
- the Company has a US$40 million bank overdraft facility in place to meet liquidity requirements, subject to a maximum restriction of 30% of net asset value. As at 31 December 2020, US$17.2 million of this facility had been utilised, leaving an unutilised liquidity margin of US$22.8 million. As at 24 March 2021, this facility had an unutilised margin of US$21.5 million for the Company to draw on for liquidity purposes;
- the Board keeps the Company’s principal risks and uncertainties as set out above under review, and is confident that the Company has appropriate controls and processes in place to manage these and to maintain its operating model, even given the global economic challenges posed by COVID-19;
- the ongoing relevance of the Company’s investment objective, business model and investment policy in the current environment (in particular the Company’s closed end structure which provides intraday liquidity to investors and the ability for the portfolio managers to invest over a longer-term time horizon than many open-ended peers);
- the Board has reviewed the operational resilience of the Company and its key service providers (the Manager, Depositary, Custodian, Fund Administrator, Registrar and Broker) (including a review of their business continuity plans in respect of COVID-19) and have concluded that all service providers are able to provide a good level of service for the foreseeable future; and
- the level of demand for the Company’s shares.
The Directors have also reviewed the assumptions and considerations underpinning the Company’s existing going concern assertion which are based on:
- the operational robustness of key service providers and their ability to continue to provide a good level of service for the foreseeable future;
- the effectiveness of business continuity plans in place for the Company and key service providers in particular in respect of COVID-19;
- processes for monitoring costs;
- key financial ratios;
- evaluation of risk management and controls;
- portfolio risk profile;
- share price discount to NAV;
- gearing; and
- counterparty exposure and liquidity risk.
Based on the results of their analysis, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment.
Future prospects
The Board’s main focus is the achievement of capital growth and an attractive total return. 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 the Investment Manager’s Report.
Social, community and human rights issues
As an investment trust with no employees, the Company has no direct social or community responsibilities or impact on the environment. However, the Company believes that it is in shareholders’ interests to consider human rights issues, environmental, social and governance factors when selecting and retaining investments. Details of the Company’s policy on socially responsible investment are set out on page 62 of the Annual Report and Accounts.
Modern Slavery Act
As an investment vehicle the Company does not provide goods or services in the normal course of business, and does not have customers. Accordingly, the Directors consider that the Company is not required to make any slavery or human trafficking statement under the Modern Slavery Act 2015. In any event, the Board considers the Company’s supply chains, dealing predominantly with professional advisers and service providers in the financial services industry, to be low risk in relation to this matter.
Directors, gender representation and employees
The Directors of the Company on 31 December 2020, all of whom held office throughout the year, are set out in the governance structure and Directors’ biographies on pages 30 to 32 of the Annual Report and Accounts.
As at the date of this report, the Board consists of two men and three women.
The Company does not have any employees, therefore there are no disclosures to be made in that respect.
The Chairman’s Statement along with the Investment Manager’s Report and portfolio analysis form part of the Strategic Report.
The Strategic Report was approved by the Board at its meeting on 26 March 2021.
By order of the Board
SARAH BEYNSBERGER
For and on behalf of
BlackRock Investment Management (UK) Limited
Company Secretary
26 March 2021
Transactions with the AIFM and the Investment Manager
BlackRock Fund Managers Limited (BFM) provides management and administration services to the Company under a contract which is terminable on six months’ notice. 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)). Further details of the investment management contract are disclosed in the Directors’ Report on pages 46 and 47 of the Annual Report and Accounts.
The investment management fee is levied quarterly, based on 0.80% per annum of the Company’s net asset value. The investment management fee due for the year ended 31 December 2020 amounted to US$1,452,000 (2019: US$2,194,000), as disclosed in note 4 below. At the year end, an amount of US$480,000 was outstanding in respect of these fees (2019: US$1,161,000).
In addition to the above services BlackRock has provided the Company with marketing services. The total fees paid or payable for these services for the year ended 31 December 2020 amounted to US$122,000 excluding VAT (2019: US$117,000). Marketing fees of US$127,000 (2019: US$117,000) were outstanding at 31 December 2020.
During the year the Manager pays the amounts due to the Directors. These fees are then reimbursed by the Company for the amounts paid on its behalf. As at 31 December 2020, an amount of US$124,000 (2019: US$250,000) was payable to the Manager in respect of Directors’ fees.
The ultimate holding company of the Manager and the Investment Manager is BlackRock, Inc. a company incorporated in Delaware USA. During the period, PNC Financial Services Group, Inc. (“PNC”) was a substantial shareholder in BlackRock, Inc. PNC did not provide any services to the Company during the financial year ended 31 December 2019, and the period up to 11 May 2020, where PNC announced its intention to sell its investment in BlackRock, Inc. through a registered offering and related buyback by BlackRock, Inc.
Related party transactions
Disclosures of the Directors’ interests in the ordinary shares of the Company and fees and expenses payable to the Directors are set out in the Directors’ Remuneration Report on pages 54 to 56 of the Annual Report and Accounts. At 31 December 2020, an amount of £15,358 (2019: £15,358) was outstanding in respect of Directors’ fees.
The Board currently consists of five non-executive Directors, all of whom are considered to be independent by the Board. None of the Directors has a service contract with the Company. For the year ended 31 December 2020, the Chairman received an annual fee of £47,800, the Chairman of the Audit Committee received an annual fee of £36,700, the Chairman of the Remuneration Committee and Senior Independent Director received an annual fee of £34,600 and each other Director received an annual fee of £32,600. This excludes expenses paid to each of the Directors which are set out in the Directors' Remuneration Report in the Annual Report and Financial Statements. No change will be made to the level of Directors’ fees for the year ending 31 December 2021.
All current members of the Board, with the exception of Laurie Meister, hold ordinary shares in the Company. Carolan Dobson holds 4,792 ordinary shares, Mahrukh Doctor holds 686 ordinary shares, Nigel Webber holds 5,000 ordinary shares and Craig Cleland holds 5,000 ordinary shares.
Statement of directors’ responsibilities in respect of the annual report and financial statements
The Directors are responsible for preparing the Annual Report and 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 they have elected to prepare the financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).
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 as at the end of each financial year and of the profit or loss of the Company for that year.
In preparing those financial statements, the Directors are required to:
- present fairly the financial position, financial performance and cash flows of the Company;
- select suitable accounting policies 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 applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; 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, Directors’ Report, the Directors’ Remuneration Report, the Corporate Governance Statement and the Report of the Audit Committee in accordance with the Companies Act 2006 and applicable regulations, including the requirements of the Listing Rules and the Disclosure Guidance and Transparency Rules.
The Directors have delegated responsibility to the Investment Manager for the maintenance and integrity of the Company’s corporate and financial information included on the Investment Manager’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 pages 31 to 32 of the Annual Report and Accounts, confirm to the best of their knowledge that:
- the Financial Statements, prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
- the Annual Report and Financial Statements include 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 2018 UK Corporate Governance Code also requires Directors to ensure that the Annual Report and Financial Statements are fair, balanced and understandable. In order to reach a conclusion on this matter, the Board has requested that the Audit Committee advise on whether it considers that the Annual Report and Financial Statements fulfil these requirements. The process by which the Committee has reached these conclusions is set out in the Audit Committee’s report on pages 65 to 68 of the Annual Report and Accounts. As a result, the Board has concluded that the Annual Report and Financial Statements for the year ended 31 December 2020, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s position, performance, business model and strategy.
For and on behalf of the Board
CAROLAN DOBSON
Chairman
26 March 2021
Financial statements
Income statement
for the year ended 31 December 2020
| Revenue | Revenue | Capital | Capital | Total | Total | ||
| 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | ||
| Notes | US$’000 | US$’000 | US$’000 | US$’000 | US$’000 | US$’000 | |
| (Losses)/gains on investments held at fair value through profit or loss | 8 | – | – | (48,590) | 40,807 | (48,590) | 40,807 |
| Gains/(losses) on foreign exchange | – | – | 228 | (128) | 228 | (128) | |
| Income from investments held at fair value through profit or loss | 3 | 5,323 | 9,231 | – | – | 5,323 | 9,231 |
| Other income | 3 | 129 | 2 | – | – | 129 | 2 |
| Total income | 5,452 | 9,233 | (48,362) | 40,679 | (42,910) | 49,912 | |
| Expenses | |||||||
| Investment management fee | 4 | (363) | (548) | (1,089) | (1,646) | (1,452) | (2,194) |
| Other operating expenses | 5 | (804) | (839) | (58) | (48) | (862) | (887) |
| Total operating expenses | (1,167) | (1,387) | (1,147) | (1,694) | (2,314) | (3,081) | |
| Net profit/(loss) on ordinary activities before finance costs and taxation | 4,285 | 7,846 | (49,509) | 38,985 | (45,224) | 46,831 | |
| Finance costs | (41) | (198) | (124) | (595) | (165) | (793) | |
| Net profit/(loss) on ordinary activities before taxation | 4,244 | 7,648 | (49,633) | 38,390 | (45,389) | 46,038 | |
| Taxation | 1,590 | (542) | 227 | – | 1,817 | (542) | |
| Net profit/(loss) on ordinary activities after taxation | 5,834 | 7,106 | (49,406) | 38,390 | (43,572) | 45,496 | |
| Earnings/(loss) per ordinary share (US$ cents) | 7 | 14.86 | 18.10 | (125.84) | 97.78 | (110.98) | 115.88 |
The total column of this statement represents the Company’s profit and loss account. 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 discontinued during the year. All income is attributable to the equity holders of the Company.
The net profit/(loss) for the year disclosed above represents the Company’s total comprehensive income/(loss).
Statement of changes in equity
for the year ended 31 December 2020
| Called | Share | Capital | Non- | |||||
| up share | premium | redemption | distributable | Capital | Revenue | |||
| capital | account | reserve | reserve | reserves | reserve | Total | ||
| Note | US$’000 | US$’000 | US$’000 | US$’000 | US$’000 | US$’000 | US$’000 | |
| For the year ended 31 December 2020 |
||||||||
| At 31 December 2019 | 4,144 | 11,719 | 4,843 | 4,356 | 255,453 | 6,929 | 287,444 | |
| Total comprehensive (loss)/income: | ||||||||
| Net (loss)/profit for the year | – | – | – | – | (49,406) | 5,834 | (43,572) | |
| Transactions with owners, recorded directly to equity: | ||||||||
| Dividends paid1 | 6 | – | – | – | – | – | (9,721) | (9,721) |
| At 31 December 2020 | 4,144 | 11,719 | 4,843 | 4,356 | 206,047 | 3,042 | 234,151 | |
|
For the year ended 31 December 2019 |
||||||||
| At 31 December 2018 | 4,144 | 11,719 | 4,843 | 4,356 | 217,063 | 13,120 | 255,245 | |
| Total comprehensive income: | ||||||||
| Net profit for the year | – | – | – | – | 38,390 | 7,106 | 45,496 | |
| Transactions with owners, recorded directly to equity: | ||||||||
| Dividends paid2 | 6 | – | – | – | – | – | (13,297) | (13,297) |
| At 31 December 2019 | 4,144 | 11,719 | 4,843 | 4,356 | 255,453 | 6,929 | 287,444 |
1 Quarterly dividend of 9.15 cents per share for the year ended 31 December 2019, declared on 2 January 2020 and paid on 6 February 2020; quarterly dividend of 4.59 cents per share for the year ended 31 December 2020, declared on 1 April 2020 and paid on 20 May 2020; quarterly dividend of 5.57 cents per share for the year ended 31 December 2020, declared on 1 July 2020 and paid on 11 August 2020; quarterly dividend of 5.45 cents per share for the year ended 31 December 2020, declared on 1 October 2020 and paid on 9 November 2020.
2 Quarterly dividend of 8.13 cents per share for the year ended 31 December 2018, declared on 2 January 2019 and paid on 8 February 2019; quarterly dividend of 8.56 cents per share for the year ended 31 December 2019, declared on 1 April 2019 and paid on 17 May 2019; quarterly dividend of 9.15 cents per share for the year ended 31 December 2019, declared on 1 July 2019 and paid on 16 August 2019; quarterly dividend of 8.03 cents per share for the year ended 31 December 2019, declared on 1 October 2019 and paid on 8 November 2019.
For information on the Company’s distributable reserves, please refer to note 10 below.
Balance sheet
as at 31 December 2020
| 2020 | 2019 | ||
| Notes | US$’000 | US$’000 | |
| Fixed assets | |||
| Investments held at fair value through profit or loss | 8 | 251,425 | 300,571 |
| Current assets | |||
| Debtors | 445 | 7,175 | |
| Cash and cash equivalents | 509 | 305 | |
| Total current assets | 954 | 7,480 | |
| Creditors – amounts falling due within one year | |||
| Bank overdraft | (17,194) | (18,610) | |
| Other creditors | (999) | (1,735) | |
| Total current liabilities | (18,193) | (20,345) | |
| Net current liabilities | (17,239) | (12,865) | |
| Total assets less current liabilities | 234,186 | 287,706 | |
| Creditors – amounts falling due after more than one year | |||
| Non-current tax liability | (11) | (238) | |
| Non-equity redeemable shares | (24) | (24) | |
| (35) | (262) | ||
| Net assets | 234,151 | 287,444 | |
| Capital and reserves | |||
| Called up share capital | 9 | 4,144 | 4,144 |
| Share premium account | 10 | 11,719 | 11,719 |
| Capital redemption reserve | 10 | 4,843 | 4,843 |
| Non-distributable reserve | 10 | 4,356 | 4,356 |
| Capital reserves | 10 | 206,047 | 255,453 |
| Revenue reserve | 10 | 3,042 | 6,929 |
| Total shareholders’ funds | 7 | 234,151 | 287,444 |
| Net asset value per ordinary share (US$ cents) | 7 | 596.42 | 732.15 |
Statement of cash flows
for the year ended 31 December 2020
| 2020 | 2019 | |
| US$’000 | US$’000 | |
| Operating activities | ||
| Net (loss)/profit before taxation | (45,389) | 46,038 |
| Add back finance costs | 165 | 793 |
| Losses/(gains) on investments held at fair value through profit or loss | 48,590 | (40,807) |
| Net (gains)/losses on foreign exchange | (228) | 128 |
| Sales of investments held at fair value through profit or loss | 244,537 | 256,355 |
| Purchases of investments held at fair value through profit or loss | (238,513) | (241,533) |
| Decrease in debtors | 1,192 | 43 |
| (Decrease)/increase in creditors | (795) | 894 |
| UK corporation tax refunds of prior years | 2,194 | – |
| Tax on investment income | (475) | (542) |
| Net cash generated from operating activities | 11,278 | 21,369 |
| Financing activities | ||
| Interest paid | (165) | (793) |
| Dividends paid | (9,721) | (13,297) |
| Net cash used in financing activities | (9,886) | (14,090) |
| Increase in cash and cash equivalents | 1,392 | 7,279 |
| Cash and cash equivalents at the start of the year | (18,305) | (25,456) |
| Effect of foreign exchange rate changes | 228 | (128) |
| Cash and cash equivalents at end of the year | (16,685) | (18,305) |
| Comprised of: | ||
| Cash at bank | 509 | 305 |
| Bank overdraft | (17,194) | (18,610) |
| (16,685) | (18,305) |
Notes to the financial statements for the year ended 31 December 2020
1. Principal activity
The Company was incorporated on 12 March 1990 and its principal activity is that of an investment trust company within the meaning of Section 1158 of the Corporation Tax Act 2010.
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 on a going concern basis in accordance with ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’ (FRS 102) and the revised Statement of Recommended Practice – ‘Financial Statements of Investment Trust Companies and Venture Capital Trusts’ (SORP) issued by the Association of Investment Companies (AIC) in October 2019, and the provisions of the Companies Act 2006.
The Company’s Articles of Association require that an ordinary resolution be put to the Company’s shareholders to approve the continuation of the Company on a biennial basis. The Directors are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future and therefore consider the going concern assumption to be appropriate. The last resolution was put to shareholders at the 2020 AGM and the next such resolution will be put to shareholders at the AGM in 2022 (see pages 7, 47 and 48 of the Annual Report and Accounts for further details). The Directors have no reason to believe that this resolution will not be passed.
Substantially, all of the assets of the Company consist of securities that are readily realisable and, accordingly, the Directors believe that the Company has adequate resources to continue in operational existence for the foreseeable future, being a period of at least one year from the date of approval of the financial statements, and therefore consider the going concern assumption to be appropriate. Consequently, the Directors have considered any potential impact of the COVID-19 pandemic and the mitigation measures which key service providers, including the Manager, have in place to maintain operational resilience on the going concern of the Company. The Directors have reviewed compliance with the covenants associated with the bank overdraft, income and expense projections and the liquidity of the investment portfolio in making their assessment.
The principal accounting policies adopted by the Company are set out below. Unless specified otherwise, the policies have been applied consistently throughout the year and are consistent with those applied in the preceding year. All of the Company’s operations are of a continuing nature.
The Company’s financial statements are presented in US Dollars, which is the functional and presentation currency of the Company. The US Dollar is the functional currency because it is the currency most related to the primary economic environment in which the Company operates. All values are rounded to the nearest thousand Dollars (US$’000) except where otherwise indicated.
(b) Presentation of income statement
In order to reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Income Statement between items of a revenue and a capital nature has been presented alongside the Income Statement.
(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 treated 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. Provisions are made for dividends not expected to be received.
Special dividends are recognised on an ex-dividend basis and treated as capital or revenue depending on the facts or circumstances of each particular dividend.
Dividends are accounted for in accordance with Section 29 of FRS 102 on the basis of income actually receivable, without adjustment for tax credits attaching to the dividend. Dividends from overseas companies continue to be shown gross of withholding tax.
Deposit interest receivable is accounted for on an accruals basis.
Where the Company has elected to receive its dividends in the form of additional shares rather than in cash, the cash equivalent of the dividend is recognised as revenue. Any excess in the value of the shares received over the amount of the cash dividend is recognised in capital.
Fixed returns on non-equity securities are recognised on a time apportionment basis. The return on a fixed interest security is recognised on a time apportionment basis so as to reflect the effective yield on the debt security. Amounts amortised during the year are recognised in the Income Statement. Interest income is 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 Income Statement, except as follows:
•expenses which are incidental to the acquisition or disposal of an investment are treated as capital. Details of transaction costs on the purchases and sales of investments are disclosed in note 10 on page 89 of the Annual Report and Accounts;
• expenses are treated as capital where a connection with the maintenance or enhancement of the value of the investments can be demonstrated; and
• the investment management fee and finance costs have been allocated 75% to the capital column and 25% to the revenue column of the Income Statement in line with the Board’s expected long-term split of returns, in the form of capital gains and income respectively, from the investment portfolio.
(f) Taxation
The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the Income Statement because it excludes items of income or expenses that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that were applicable at the balance sheet date.
The current tax effect of different items of expenditure is allocated between capital and revenue on the marginal basis using the Company’s effective rate of corporation tax for the accounting period.
Deferred taxation is recognised in respect of all timing differences at the financial reporting date, where transactions or events that result in an obligation to pay more taxation in the future or right to less taxation in the future have occurred at the balance sheet date. Deferred tax is measured on a non-discounted basis, at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. This is subject to deferred taxation 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 timing differences can be deducted.
(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 Sections 11 and 12 of FRS 102 and are managed and evaluated on a fair value basis in accordance with its investment strategy.
All investments are classified upon initial recognition as held at fair value through profit or loss. Purchases of investments are recognised on a trade date basis. Sales are recognised at the trade date of the disposal and the proceeds are measured at fair value, which is regarded as the proceeds of the sale less any transaction costs.
The fair value of the financial investments is based on their quoted bid price at the balance sheet date on the exchange on which the investment is quoted, without deduction for the estimated future selling costs.
Changes in the value of investments held at fair value through profit or loss and gains and losses on disposal are recognised in the Income Statement as ‘Gains or losses on investments held at fair value through profit or loss’. Also included within this heading are transaction costs in relation to the purchase or sale of investments.
The fair value hierarchy consists of the following three levels:
Level 1 – Quoted market prices for identical instruments in active markets.
Level 2 – Valuation techniques using observable inputs.
Level 3 – Valuation techniques using significant unobservable inputs.
Unquoted investments are valued by the Directors at fair value using International Private Equity and Venture Capital Valuation Guidelines, endorsed by the British Private Equity & Venture Capital Association. This policy applies to unquoted fixed asset investments held by the Company.
(h) Debtors
Debtors include sales for future settlement, other debtors and pre-payments and accrued income in the ordinary course of business. If collection is expected in one year or less, they are classified as current assets. If not, they are presented as non-current assets.
(i) Creditors
Creditors include purchases for future settlement, interest payable, share buy back costs and accruals in the ordinary course of business. Creditors are classified as creditors – amounts due within one year if payment is due within one year or less. If not, they are presented as creditors – amounts due after more than one year.
(j) Dividends payable
Under Section 32 of FRS 102, final dividends should not be accrued in the financial statements unless they have been approved by shareholders before the balance sheet date. Dividends payable to equity shareholders are recognised in the Statement of Changes in Equity when they have been approved by shareholders and have become a liability of the Company. Interim dividends are only recognised in the financial statements in the period in which they are paid. Dividends are financed through a combination of available net income in each financial year and revenue and capital reserves.
(k) Cash and cash equivalents
Cash comprises cash in hand and demand deposits. Cash equivalents include bank overdrafts repayable on demand and 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.
(l) Foreign currency translation
In accordance with Section 30 of FRS 102, the Company is required to nominate a functional currency being the currency in which the Company predominately operates. The functional and reporting currency is US Dollars, reflecting the primary economic environment in which the Company operates. Transactions in foreign currencies are translated into US Dollars at the rates of exchange ruling on the date of the transaction. Foreign currency monetary assets and liabilities, and non-monetary assets held at fair value are translated into US Dollars at the rates of exchange ruling at the balance sheet date. Profits and losses thereon are recognised in the capital column of the Income Statement and taken to the capital reserve.
(m) Share repurchases
Shares repurchased and subsequently cancelled – share capital is reduced by the nominal value of the shares repurchased and capital redemption reserve is correspondingly increased in accordance with Section 733 of the Companies Act 2006. The full cost of the repurchase is charged to the capital reserve.
Shares repurchased and held in treasury – the full cost of the repurchase is charged to the capital reserve.
(n) Bank borrowings
Bank overdrafts are recorded as the proceeds received. Finance charges are accounted for on an accruals basis in the Income Statement 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 period in which they arise.
(o) Critical accounting estimates and judgements
The Company makes estimates and assumptions concerning the future. The resulting accounting estimates and assumptions will, by definition, seldom equal the related actual results. Estimates and judgements are regularly evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Directors do not believe that any accounting judgements or estimates have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year.
3. Income
| 2020 | 2019 | |
| US$’000 | US$’000 | |
| Investment income: | ||
| Overseas dividends | 4,350 | 7,446 |
| Overseas REIT distributions | 276 | 278 |
| Overseas special dividends | 655 | 1,270 |
| UK dividends | – | 197 |
| Fixed interest income | 42 | 40 |
| 5,323 | 9,231 | |
| Other income: | ||
| Deposit interest | 1 | 2 |
| Interest on UK corporation tax refund1 | 128 | – |
| Total income | 5,452 | 9,233 |
1 Please see note 7(d) on page 88 of the Annual Report and Accounts for details.
Dividends and interest received in cash during the year amounted to US$6,688,000 and US$206,000 (2019: US$9,442,000 and US$49,000).
Special dividends of US$nil have been recognised in capital in 2020 (2019: US$nil).
4. Investment management fee
| 2020 | 2019 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| US$’000 | US$’000 | US$’000 | US$’000 | US$’000 | US$’000 | |
| Investment management fee | 363 | 1,089 | 1,452 | 548 | 1,646 | 2,194 |
Under the terms of the investment management agreement, BFM is entitled to a fee of 0.80% per annum based on the Company’s Net Asset Value (NAV). The fee is levied quarterly.
The investment management fee is allocated 25% to the revenue column and 75% to the capital column of the Income Statement. There is no additional fee for company secretarial and administration services.
5. Other operating expenses
| 2020 | 2019 | |
| US$’000 | US$’000 | |
| Allocated to revenue: | ||
| Custody fee | 45 | 61 |
| Depositary fees1 | 19 | 26 |
| Auditors’ remuneration2 | 42 | 40 |
| Registrar’s fees | 37 | 36 |
| Directors’ emoluments3 | 245 | 271 |
| Marketing fees | 122 | 117 |
| Postage and printing fees | 37 | 47 |
| AIC fees | 30 | 22 |
| Broker fees | 46 | 59 |
| Employer NI contributions | 23 | 32 |
| FCA fee | 13 | 11 |
| Director search fees | 30 | 29 |
| Other administration costs | 115 | 88 |
| 804 | 839 | |
| Allocated to capital: | ||
| Custody transaction charges4 | 58 | 48 |
| 862 | 887 | |
| The Company’s ongoing charges5, calculated as a percentage of average daily net assets and using the management fee and all other operating expenses, excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation and certain non-recurring items were: |
1.14% |
1.13% |
1 All expenses other than depositary fees are paid in Sterling and are therefore subject to exchange rate fluctuations.
2 No non-audit services were provided by the auditors.
3 Further information on Directors’ emoluments can be found in the Directors’ Remuneration Report on pages 54 to 58 of the Annual Report and Accounts. The Company has no employees.
4 Charges related to transaction costs charged by the custodian on the purchase and sale of investments.
5 Alternative Performance Measures, see Glossary contained within the Annual Report and Accounts.
6. Dividends
| 2020 | 2019 | |||
| Dividends paid on equity shares | Record date | Payment date | US$’000 | US$’000 |
| Quarter to 31 December 2019 – dividend of 9.15 cents | 10 January 2020 | 6 February 2020 | 3,592 | 3,192 |
| Quarter to 31 March 2020 – dividend of 4.59 cents | 14 April 2020 | 20 May 2020 | 1,802 | 3,361 |
| Quarter to 30 June 2020 – dividend of 5.57 cents | 10 July 2020 | 11 August 2020 | 2,187 | 3,592 |
| Quarter to 30 September 2020 – dividend of 5.45 cents | 9 October 2020 | 9 November 2020 | 2,140 | 3,152 |
| 9,721 | 13,297 |
On 30 May 2018, shareholders approved a resolution to amend the Company’s dividend policy to pay regular quarterly dividends equivalent to 1.25% of the Company’s US Dollar NAV on the last working day of March, June, September and December each year, with the dividends being paid in May, August, November and February each year, respectively. Therefore for the year ended 31 December 2020, the quarterly dividends were calculated based on the Company’s cum-income US Dollar NAV at the last working day of the quarter.
The Company’s cum-income US Dollar NAV at 31 December 2020 as issued to the market was 596.22 cents per share, and the Directors have declared a fourth quarterly interim dividend of 7.45 cents per share. The dividend was paid on 8 February 2021 to holders of ordinary shares on the register at the close of business on 15 January 2021.
The total dividends payable in respect of the year which form the basis of determining retained income for the purpose of Section 1158 of the Corporation Tax Act 2010 and Section 833 of the Companies Act 2006, and the amount proposed for the year ended 31 December 2020, meet the relevant requirements as set out in this legislation.
| 2020 | 2019 | |
| Dividends paid or proposed on equity shares: | US$’000 | US$’000 |
| Quarter to 31 March 2020 – 4.59 cents (2019: 8.56) | 1,802 | 3,361 |
| Quarter to 30 June 2020 – 5.57 cents (2019: 9.15) | 2,187 | 3,592 |
| Quarter to 30 September 2020 – 5.45 cents (2019: 8.03) | 2,140 | 3,152 |
| Quarter to 31 December 2020 – 7.45 cents1 (2019: 9.15) | 2,925 | 3,592 |
| 9,054 | 13,697 |
1 Based on 39,259,620 ordinary shares in issue at 15 January 2021.
All dividends paid or payable are distributed from the Company’s distributable reserves.
7. Earnings and net asset value per ordinary share
Revenue, capital earnings/(loss) and net asset value per ordinary share are shown below and have been calculated using the following:
| 2020 | 2019 | |
| Net revenue profit attributable to ordinary shareholders (US$’000) | 5,834 | 7,106 |
| Net capital (loss)/profit attributable to ordinary shareholders (US$’000) | (49,406) | 38,390 |
| Total (loss)/profit attributable to ordinary shareholders (US$’000) | (43,572) | 45,496 |
| Total shareholders’ funds (US$’000) | 234,151 | 287,444 |
| The weighted average number of ordinary shares in issue during the year on which the | ||
| earnings per ordinary share was calculated was: | 39,259,620 | 39,259,620 |
| The actual number of ordinary shares in issue at the year end on which the net asset | ||
| value was calculated was: | 39,259,620 | 39,259,620 |
| The number of ordinary shares in issue, including treasury shares at the year end was: | 41,441,282 | 41,441,282 |
| Earnings per share | ||
| Calculated on weighted average number of ordinary shares: | ||
| Revenue profit (US$ cents) | 14.86 | 18.10 |
| Capital (loss)/profit (US$ cents) | (125.84) | 97.78 |
| Total (loss)/profit (US$ cents) | (110.98) | 115.88 |
| As at | As at | |
| 31 December | 31 December | |
| 2020 | 2019 | |
| Net asset value per ordinary share (US$ cents) | 596.42 | 732.15 |
| Ordinary share price (US$ cents)1 | 552.93 | 643.17 |
1 Based on an exchange rate of US$1.3669 to £1 at 31 December 2020 and US$1.3248 to £1 at 31 December 2019.
There are no dilutive securities at the year end.
8. Investments held at fair value through profit or loss
| 2020 | 2019 | |
| US$’000 | US$’000 | |
| Overseas listed equity investments | 251,344 | 300,226 |
| Overseas unlisted fixed income investments | 81 | 345 |
| Valuation of investments at 31 December | 251,425 | 300,571 |
| Opening book cost of equity and fixed income investments | 253,368 | 243,947 |
| Investment holding gains | 47,203 | 34,177 |
| Opening fair value | 300,571 | 278,124 |
| Analysis of transactions made during the year: | ||
| Purchases at cost | 238,572 | 241,533 |
| Sales proceeds received | (239,128) | (259,893) |
| (Losses)/gains on investments | (48,590) | 40,807 |
| Closing fair value | 251,425 | 300,571 |
| Closing book cost of equity and fixed income investments | 209,565 | 253,368 |
| Closing investment holding gains | 41,860 | 47,203 |
| Closing fair value | 251,425 | 300,571 |
The Company received US$239,128,000 (2019: US$259,893,000) from investments sold in the year. The book cost of these investments when they were purchased was US$282,375,000 (2019: US$232,112,000). These investments have been revalued over time and until they were sold any unrealised gains/losses were included in the fair value of investments.
Transaction costs of US$366,000 were incurred on the acquisition of investments (2019: US$313,000). Costs relating to the disposal of investments during the year amounted to US$375,000 (2019: US$346,000). All transaction costs have been included within capital reserves.
9. Share capital
| Ordinary | Treasury | Nominal | ||
| shares | shares | Total | value | |
| number | number | shares | US$’000 | |
| Allotted, called up and fully paid share capital comprised: | ||||
| Ordinary shares of 10 cents each | ||||
| At 31 December 2019 | 39,259,620 | 2,181,662 | 41,441,282 | 4,144 |
| Shares purchased into treasury | – | – | – | – |
| At 31 December 2020 | 39,259,620 | 2,181,662 | 41,441,282 | 4,144 |
During the period to 31 December 2020, no ordinary shares were purchased and transferred to treasury (2019: nil).
The ordinary shares give shareholders voting rights, the entitlement to all of the capital growth in the Company’s assets, and to all income from the Company that is resolved to be distributed.
10. Reserves
| Distributable Reserves | |||||||
| Capital | |||||||
| reserves | |||||||
| Capital | arising on | ||||||
| reserves | revaluation | ||||||
| Share | Capital | Non- | arising on | of | |||
| premium | redemption | distributable | investments | investments | Revenue | ||
| account | reserve | reserve | sold | held | reserve | ||
| US$’000 | US$’000 | US$’000 | US$’000 | US$’000 | US$’000 | ||
| At 31 December 2019 | 11,719 | 4,843 | 4,356 | 208,534 | 46,919 | 6,929 | |
| Movement during the year: | |||||||
| Total comprehensive (loss)/income: | |||||||
| Net (loss)/profit for the year | – | – | – | (44,091) | (5,315) | 5,834 | |
| Transactions with owners, recorded directly to equity: | |||||||
| Dividends paid during the year from revenue | – | – | – | – | – | (9,721) | |
| At 31 December 2020 | 11,719 | 4,843 | 4,356 | 164,443 | 41,604 | 3,042 | |
The share premium account and capital redemption reserve are not distributable profits under the Companies Act 2006. In accordance with ICAEW Technical Release 02/17BL on Guidance on Realised and Distributable Profits under the Companies Act 2006, net capital reserves may be used as distributable profits for all purposes and, in particular, for the repurchase by the Company of its ordinary shares and for payment as dividends. Accordingly, the total amount of distributable reserves as at 31 December 2020 were US$209,089,000.
11. Valuation of financial instruments
Financial assets and financial liabilities are either carried in the Balance Sheet at their fair value (investments) or at an amount which is a reasonable approximation of fair value (due from brokers, dividends and interest receivable, due to brokers, accruals, cash at bank and bank overdrafts). Section 34 of FRS 102 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 to the Financial Statements above.
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.
The fair value hierarchy has the following levels:
Level 1 – Quoted market price for identical instruments in active markets
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. These include exchange traded derivatives. The Company does not adjust the quoted price for these instruments.
Level 2 – Valuation techniques using observable inputs
This category includes instruments valued using quoted prices for similar instruments in markets that are considered less active, or other valuation techniques where significant inputs are directly or indirectly observable from market data.
Valuation techniques used for non-standardised financial instruments such as over-the-counter derivatives, include the use of comparable recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, 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.
Level 3 – Valuation techniques using significant unobservable inputs
This category includes all instruments where the valuation technique includes inputs not based on market data and these inputs could have a significant impact on the instrument’s valuation.
This category also includes instruments that are valued based on quoted prices for similar instruments where significant entity determined adjustments or assumptions are required to reflect differences between the instruments and instruments for which there is no active market. 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.
The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement. 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’ inputs requires significant judgement by the Investment Manager.
Fair values of financial assets and financial liabilities
The table below is an analysis of the Company’s financial instruments measured at fair value at the balance sheet date.
| Financial assets at fair value through profit or loss as at | Level 1 | Level 2 | Level 3 | Total |
| 31 December 2020 | US$’000 | US$’000 | US$’000 | US$’000 |
| Equity investments | 251,344 | – | – | 251,344 |
| Fixed interest investments | – | 81 | – | 81 |
| Total | 251,344 | 81 | – | 251,425 |
| Financial assets at fair value through profit or loss as at | Level 1 | Level 2 | Level 3 | Total |
| 31 December 2019 | US$’000 | US$’000 | US$’000 | US$’000 |
| Equity investments | 300,226 | – | – | 300,226 |
| Fixed interest investments | – | 345 | – | 345 |
| Total | 300,226 | 345 | – | 300,571 |
For exchange listed equity investments the quoted price is the bid price.
12. Capital management policies and procedures
The Company’s capital management objectives are:
- to ensure it will be able to continue as a going concern; and
- to secure long-term capital growth and an attractive total return primarily through investing in quoted securities in Latin America.
Gearing will be selectively employed with the aim of enhancing returns. The Board view that 105% of the net asset value is the neutral level of gearing over the longer-term and that gearing should be used actively in an approximate range of plus or minus 10% around this as measured at the time that gearing is instigated. These current parameters sit within the Company’s gearing policy as set out in the investment policy on pages 33 and 34 of the Annual Report and Accounts which states that net borrowings are not expected to exceed 25% of net assets under normal circumstances, and the Company’s Articles of Association which limit net borrowings to 100% of capital and reserves.
The Company’s total capital as at 31 December 2020 was US$234,151,000 (2019: US$287,444,000) comprised of equity, capital and reserves.
Under the terms of the overdraft facility agreement, the Company's total indebtedness shall at no time exceed US$40 million or 30% of the Company's net asset value (whichever is the lowest) (2019: US$40 million or 30% of the Company's net asset value (whichever is the lowest)).
The Board with the assistance of the Investment Manager monitors and reviews the broad structure of the Company’s capital on an ongoing basis. This review includes:
- the planned level of gearing, which takes into account the Investment Manager’s view on the market; and
- the need to buy back equity shares, either for cancellation or to be held in treasury, which takes account of the difference between the NAV per share and the share price (i.e. the level of share price discount or premium).
The Company is subject to externally imposed capital requirements:
- as a public company, the Company has a minimum share capital of £50,000; and
- in order to be able to pay dividends out of profits available for distribution, the Company has to be able to meet one of the two capital restrictions tests imposed on investment companies by law.
During the year, the Company complied with the externally imposed capital requirements to which it was subject.
13. Transactions with the Investment Manager and AIFM
BlackRock Fund Managers Limited (BFM) provides management and administration services to the Company under a contract which is terminable on six months’ notice. 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)). Further details of the investment management contract are disclosed in the Directors’ Report on pages 46 and 47 of the Annual Report and Accounts.
The investment management fee is levied quarterly, based on 0.80% per annum of the Company’s net asset value. The investment management fee due for the year ended 31 December 2020 amounted to US$1,452,000 (2019: US$2,194,000), as disclosed in note 4 to the Financial Statements above. At the year end, an amount of US$480,000 was outstanding in respect of these fees (2019: US$1,161,000).
In addition to the above services BlackRock has provided the Company with marketing services. The total fees paid or payable for these services for the year ended 31 December 2020 amounted to US$122,000 excluding VAT (2019: US$117,000). Marketing fees of US$127,000 (2019: US$117,000) were outstanding at 31 December 2020.
During the year the Manager pays the amounts due to the Directors. These fees are then reimbursed by the Company for the amounts paid on its behalf. As at 31 December 2020, an amount of US$124,000 (2019: US$250,000) was payable to the Manager in respect of Directors’ fees.
The ultimate holding company of the Manager and the Investment Manager is BlackRock, Inc. a company incorporated in Delaware USA. During the period, PNC Financial Services Group, Inc. (“PNC”) was a substantial shareholder in BlackRock, Inc. PNC did not provide any services to the Company during the financial year ended 31 December 2019, and the period up to 11 May 2020, where PNC announced its intention to sell its investment in BlackRock, Inc. through a registered offering and related buyback by BlackRock, Inc.
14. Related party disclosure
Disclosures of the Directors’ interests in the ordinary shares of the Company and fees and expenses payable to the Directors are set out in the Directors’ Remuneration Report on pages 54 to 56 of the Annual Report and Accounts. At 31 December 2020, an amount of £15,358 (2019: £15,358) was outstanding in respect of Directors’ fees.
Significant holdings
The following investors are:
a. funds managed by the BlackRock Group or are affiliates of BlackRock, Inc. (‘Related BlackRock Funds’); or
b. investors (other than those listed in (a) above) who held more than 20% of the voting shares in issue in the Company and are as a result, considered to be related parties to the Company (‘Significant Investors’).
As at 31 December 2020
| Total % of shares held by Related BlackRock Funds | Total % of shares held by Significant Investors who are not affiliates of BlackRock Group or BlackRock, Inc. | Number of Significant Investors who are not affiliates of BlackRock Group or BlackRock, Inc. |
| 1.8 | 26.7 | 1 |
| As at 31 December 2019 | ||
| Total % of shares held by Related BlackRock Funds | Total % of shares held by Significant Investors who are not affiliates of BlackRock Group or BlackRock, Inc. | Number of Significant Investors who are not affiliates of BlackRock Group or BlackRock, Inc. |
| 1.5 | 29.4 | 1 |
15. Contingent liabilities
There were no contingent liabilities at 31 December 2020 (2019: none).
16. 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 2020 annual report and financial statements will be filed with the Registrar of Companies shortly.
The report of the Auditors for the year ended 31 December 2020 contains no qualification or statement under Section 498(2) or (3) of the Companies Act 2006.
The comparative figures are extracts from the audited financial statements of BlackRock Latin American Investment Trust plc for the year ended 31 December 2019, which have been filed with the Registrar of Companies, unless otherwise stated. The report of the Auditor on those financial statements contained no qualification or statement under Section 498 of the Companies Act.
This announcement was approved by the Board of Directors on 26 March 2021.
17. Annual Report
Copies of the annual report will be sent to members shortly and will also be available from the registered office, c/o The Company Secretary, BlackRock Latin American Investment Trust plc, 12 Throgmorton Avenue, London EC2N 2DL.
18. Annual General Meeting
The Annual General Meeting of the Company will be held at 12 Throgmorton Avenue, London EC2N 2DL on Wednesday, 19 May 2021 at 12:00 noon.
ENDS
The Annual Report will also be available on the BlackRock Investment Management website at http://www.blackrock.com/uk/brla. Neither the contents of the Investment Manager’s website nor the contents of any website accessible from hyperlinks on the Investment Manager’s website (or any other website) is incorporated into, or forms part of, this announcement.
For further information, please contact:
Melissa Gallagher, Managing Director, Investment Trusts, BlackRock Investment Management (UK) Limited
Tel: 020 7743 3893
Press Enquiries:
Ed Hooper, Lansons Communications – Tel: 020 7294 3620
E-mail: BlackRockInvestmentTrusts@lansons.com or EdH@lansons.com
26 March 2021
12 Throgmorton Avenue
London EC2N 2DL
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