Final Results
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 2022
PERFORMANCE RECORD
| As at | As at | ||
| 31 December | 31 December | ||
| 2022 | 2021 | ||
| Net assets (US$’000)1 | 148,111 | 194,838 | |
| Net asset value per ordinary share (US$ cents) | 502.95 | 496.28 | |
| Ordinary share price (mid-market) (US$ cents)2 | 457.10 | 461.19 | |
| Ordinary share price (mid-market) (pence) | 380.00 | 340.50 | |
| Discount3 | 9.1% | 7.1% | |
| Performance (with dividends reinvested) | |||
| Net asset value per share (US$ cents)3 | 6.6% | –12.5% | |
| Ordinary share price (mid-market) (US$ cents)2,3 | 4.7% | –11.8% | |
| Ordinary share price (mid-market) (pence)3 | 18.0% | –11.0% | |
| MSCI EM Latin America Index (net return, on a US Dollar basis)4 | 8.9% | -8.1% |
| For the | For the | ||
| year ended | year ended | ||
| 31 December | 31 December | ||
| 2022 | 2021 | Change % | |
| Revenue | |||
| Net profit after taxation (US$’000) | 13,842 | 10,247 | +35.1 |
| Revenue profit per ordinary share (US$ cents) | 41.48 | 26.10 | +58.9 |
| Dividends per ordinary share (US$ cents) | |||
| Quarter to 31 March | 7.76 | 6.97 | +11.3 |
| Quarter to 30 June | 5.74 | 7.82 | –26.6 |
| Quarter to 30 September | 6.08 | 6.56 | –7.3 |
| Quarter to 31 December | 6.29 | 6.21 | +1.3 |
| Special dividend5 | 13.00 | – | n/a |
| Total dividends paid and payable (US$ cents) | 38.87 | 27.56 | +41.0 |
1 The change in net assets reflects the portfolio movements during the year, the tender offer in the year and dividends paid.
2 Based on an exchange rate of US$1.20 to £1 at 31 December 2022 and US$1.35 to £1 at 31 December 2021.
3 Alternative Performance Measures, see Glossary contained within the annual report and financial statements.
4 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.
5 During the year, revenue earned by the Company was enhanced by a number of stock and special dividends, coupled with the effect of the tender offer reducing the number of ordinary shares in issue post May 2022. In order to maintain investment trust status, which requires the distribution of 85% of the Company’s revenue, the Board announced the payment of an additional dividend of 13.00 cents per ordinary share for the financial year to 31 December 2022.
Sources: BlackRock Investment Management (UK) Limited and Datastream.
Performance figures are calculated in US Dollar terms with dividends reinvested.
CHAIRMAN’S STATEMENT
Dear Shareholder
I am pleased to present the Annual Report to shareholders for the year ended 31 December 2022.
MARKET OVERVIEW
Latin American equity markets were the only region in the world to deliver positive returns in 2022. As such, they outperformed both developed markets and the MSCI Emerging Markets Indices, which were all negative for the year under review, with the MSCI EM Latin America Index up by 8.9% in US Dollar terms, compared to a fall in the MSCI Emerging Markets EMEA Index of 28.3% in US Dollar terms and a decline in the MSCI World Index of 18.1% in US Dollar terms. It was a challenging year for global equity markets due to the difficult global macro-economic and geo-political backdrop caused by Russia’s invasion of Ukraine impacting global markets. In spite of this the Board was pleased to see our region showed its defensiveness through its prudent monetary and fiscal policy and market recognition of its role as a primary crucial raw material producer to the world.
PERFORMANCE
Against this backdrop, over the year ended 31 December 2022 the Company’s net asset value per share rose by 6.6% over the year in US Dollar terms (lagging the benchmark by 2.3 percentage points). The share price rose by 4.7% in US Dollar terms (but increased by 18.0% in Sterling terms). The underperformance against the benchmark was largely driven by stock selection in Brazil, as tighter global liquidity and a reduced risk appetite drove valuations down for a number of what your portfolio managers believe to be quality, domestic growth stocks. Another factor impacting the stock performance of these quality, domestic growth equities include the steep hiking of local interest rates in Brazil. As a result, the domestic Brazilian equity market saw a great deal of redemptions from local investment funds forcing prices down in a somewhat indiscriminate manner. We believe this has created a degree of disconnect between underlying bottom-up fundamentals of Brazilian equities and stock market valuations.
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.
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. 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 105.5% in November 2022 and a high at 111.5% in March 2022. Average gearing for the year to 31 December 2022 was 108.7%.
REVENUE RETURN AND DIVIDENDS
Total revenue return for the year was 41.48 cents per share (2021: 26.10 cents per share). The increase of 59% was partially due to the increase of special dividends received in 2022 from the 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. An additional special dividend of 13.00 cents per ordinary share for the financial year to 31 December 2022 was declared alongside the fourth quarterly dividend. The revenue earned by the Company was enhanced by a number of stock and special dividends, coupled with the effect of the tender offer reducing the number of shares in issue post May 2022. It was necessary to pay the special dividend to maintain investment trust status which requires the distribution of 85% of the Company’s revenue.
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 totalling 38.87 cents per share in respect of the year ended 31 December 2022 (2021: 27.56 cents per share) as detailed in the table below; this represented a yield of 8.5% based on the Company’s share price at 31 December 2022.
The dividends paid and declared by the Company in 2022 have been funded from current year revenue and brought forward revenue reserves. As at 31 December 2022, a balance of US$8,706,000 million remained in revenue reserves, which is sufficient to cover approximately four and a half quarterly dividend payments at the most recently declared dividend rate of 6.29 cents per share (excluding the additional special dividend of 13.00 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 2018, the Company’s discount has narrowed from 14.9% as at 1 July 2018 to 9.1% as at 31 December 2022.
Dividends declared in respect of the year ended 31 December 2022
| Dividend | Pay date | |
| Quarter to 31 March 2022 | 7.76 cents | 16 May 2022 |
| Quarter to 30 June 2022 | 5.74 cents | 12 August 2022 |
| Quarter to 30 September 2022 | 6.08 cents | 9 November 2022 |
| Quarter to 31 December 20221 | 19.29 cents | 8 February 2023 |
| Total | 38.87 cents |
1 Quarter to 31 December 2022 includes an additional special dividend of 13.00 cents.
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 important 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 Emerging Markets2 area and the Latin American region is no exception to this. The Board is also aware 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 Portfolio Managers to discuss when significant engagement may be 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. While the Company has not adopted an ESG investment strategy or exclusionary screens, consideration of ESG analytics, data and insights is integrated into the investment process when weighing up the risk and reward benefits of investment decisions. More information in relation to BlackRock's approach to ESG integration can be found below.
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 within the annual report and financial statements.
2 Emerging Markets in this respect represented by the MSCI Emerging Markets Index.
PERFORMANCE TRIGGERED TENDER OFFER
Your Company’s Directors have always recognised that our role is to act in the best interests of all our shareholders. We have regularly consulted with our major shareholders to understand their objectives and used their input to guide our strategy and policies. We note their desire for the Company to continue with its existing investment policy and the overwhelming shareholder support for the vote on the continuation of the Company at the AGM in May 2022. We also recognise that it is in the long-term interests of shareholders that shares do not trade at a significant discount to their prevailing NAV and to this end, the Board put in place a discount control mechanism covering the four years to 31 December 2021 to offer a tender for up to 24.99% of shares in issue to the extent that certain performance and average discount targets over the four year period to 31 December 2021 were not met (more detail on the performance and discount targets and the tender mechanism for the period to 31 December 2021 can be found in the Company’s Annual Report for the year to 31 December 2021 on pages 7 and 8). This resulted in a tender offer for 24.99% of the Company’s shares being put to shareholders for approval at a General Meeting held on 19 May 2022 and subsequently implemented as summarised below.
A total of 22,844,851 shares were validly tendered under the tender offer, representing approximately 58.2% of the Company’s issued share capital, excluding shares held in treasury. As the offer was oversubscribed, it was scaled back and eligible shareholders who validly tendered shares in excess of their basic entitlement of 24.99% had their basic entitlement satisfied in full plus approximately 19.71% of the excess amount they tendered, in accordance with the process described in the tender circular published on 5 April 2022. In total, 9,810,979 shares (representing 24.99% of the eligible share capital) were repurchased by the Company and subsequently cancelled.
The price at which tendered shares were repurchased was equal to 98% of the Net Asset Value per share as at a calculation date of 20 May 2022, as adjusted for the estimated related portfolio realisation costs per tendered share, and amounted to 417.09 pence per share. Tender proceeds were paid to shareholders on 26 May 2022.
DISCOUNT MANAGEMENT AND NEW DISCOUNT CONTROL MECHANISM
The Board remains committed to taking appropriate action to ensure that the Company’s shares do not trade at a significant discount to their prevailing NAV and have sought to reduce discount volatility by offering shareholders a new discount control mechanism covering the four years to 31 December 2025. This mechanism will offer shareholders a tender for 24.99% of the shares in issue excluding treasury shares (at a tender price reflecting the latest cum-income NAV less 2% and related portfolio realisation costs) in the event that the continuation vote to be put to the Company’s AGM in 2026 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 50 basis points over the four year period from 1 January 2022 to 31 December 2025 (the Calculation Period); or
(ii) the average daily discount to the cum-income NAV exceeds 12% as calculated with reference to the trading of the shares over the Calculation Period.
In respect of the above conditions, the Company’s total NAV return on a US Dollar basis for the year ended 31 December 2022 was +6.6%, underperforming the benchmark return of +8.9% over the year by 2.3 percentage points. The cum-income discount of the Company’s ordinary shares has averaged 8.9% for the year ending 31 December 2022.
Other than the shares repurchased under the tender offer implemented in May 2022, the Company has not bought back any shares during the year ended 31 December 2022 and up to the date of publication of this report (no shares were bought back in the year to 31 December 2021).
CHANGE IN PORTFOLIO MANAGER
As announced on 9 September 2022, Sam Vecht, who has co-managed the portfolio alongside Ed Kuczma since December 2018, became the lead portfolio manager of the Company with Mr Kuczma stepping down from his role. Christoph Brinkmann has been appointed as deputy portfolio manager. Mr Vecht is a Managing Director in BlackRock’s Global Emerging Markets Equities team and has extensive Latin American experience in the investment trust sector, having managed a number of UK investment trusts since 2004. He has also been portfolio manager for the BlackRock Emerging Markets Equity Strategies Fund since September 2015, and the BlackRock Frontiers Investment Trust plc since 2010, both of which have invested in the Latin American region since launch.
Mr Brinkmann, a Vice President in the Global Emerging Markets Equities team, has covered multiple sectors and countries across the Latin American region. He joined BlackRock in 2015 after graduating from the University of Cologne with a Masters in Finance and a CEMS Masters in International Management.
Mr Vecht and Mr Brinkmann are supported by the extensive resources and significant expertise of BlackRock’s Global Emerging Market team which has a proven track record in emerging market equities. The team is made up of c.40 investment professionals researching over 1,000 companies across the global emerging markets universe inclusive of Latin America. Your Board notes that Mr Vecht’s new role as lead portfolio manager provides continuity for the Company and welcomes the addition of Mr Brinkmann to the team as deputy portfolio manager. The Board are grateful to Mr Kuczma for his commitment and contribution to the Company and wish him well in his future endeavours.
BOARD COMPOSITION
As previously advised in last year’s Annual Report, Professor Doctor has indicated that she will not seek re-election at the 2023 AGM. The Board wishes to thank Professor Doctor for her many years of excellent service, we wish her the best for the future.
ANNUAL GENERAL MEETING
The Company’s Annual General Meeting will be held in person at the offices of BlackRock at 12 Throgmorton Avenue, London EC2N 2DL on Monday, 22 May 2023 at 12.00 noon. Details of the business of the meeting are set out in the Notice of Annual General Meeting contained within the annual report and financial statements.
The Board very much looks forward to meeting shareholders and answering any question you may have on the day. We hope you can attend this year’s AGM; a buffet lunch will be made available to shareholders who have attended the AGM.
OUTLOOK
The end of years of government and central banks creating ultra low interest rates, heavily intervening in the bond markets and creating excess money was never likely to be smooth. Sharp adjustments in specific areas are starting to emerge such as UK pensions Liability Driven Investing (LDI) problems in September 2022 and the collapse of US banks such as SVB in March 2023. It would be unduly optimistic not to expect more problems to suddenly emerge. Despite the fact that central banks in Latin America have not pursued these monetary policies, Latin America could remain vulnerable to getting caught in a fallout of repricing of risk globally. However, we believe once this adjustment is behind us the longer term fundamentals are much better in emerging markets than in developed markets, especially in Latin America. Central banks in the region have been ahead of the curve during this tightening cycle and most countries in the region are now offering some of the highest real interest rates in the world.
The region is rich in natural resources, including fossil fuels of crude oil and natural gas, creating favourable supply and demand dynamics. It is also a major source of copper and lithium, critical materials for the green energy revolution. With the removal of Russia from western supply chains, the importance of Latin America in these markets has increased. The post Covid-19 trend for companies to move away from off-shoring (especially in China) to near-shoring should also benefit the Latin American region and your Board believes Mexico will continue to be an even stronger global beneficiary of new marginal foreign direct investment flows.
Carolan Dobson
Chairman
29 March 2023
INVESTMENT MANAGER’S REPORT
MARKET OVERVIEW
Latin America performed well in 2022 and was the only region globally to end the year in positive territory, the MSCI EM Latin America Index gaining +8.9%. For reference the MSCI Emerging Markets Index was down –20.1% with MSCI Asia Pacific ex-Japan retracing –17.5% and the MSCI Emerging Markets EMEA Index losing –28.3%. The region also significantly outpaced the MSCI USA Index, down -19.8%, and Developed Market equities, as represented by the MSCI World Index, down -18.1%.
The first half of the year was turbulent driven by external macro conditions. Latin America1 surged +27.3% in the first quarter as the commodity rich region benefitted from a spike in prices caused by Russia’s invasion of Ukraine as capacity was taken offline and supply chains were materially disrupted. The resulting improvements in the current account, due to higher exports, paired with already attractive interest rates benefitted both currency and bond markets.
Whilst domestically, politics dominated the headlines with legislative and primaries elections in Colombia, impeachment rejection in Peru and a new constitution moving forward in Chile, it was not enough to derail stronger macro factors. However, the region retracted –21.9%1 in the second quarter as equities priced in falling commodity demand and growing fears of a global recession. The pessimism was also felt in the currencies, as the Chilean Peso, Brazilian Real and Colombian Peso were some of the worst performers across emerging markets.
The second half of the year saw slightly less volatile returns for the region, with all markets except for Colombia gaining in the last six months of the year. Brazil fared well into October as inflation showed signs of peaking with investors anticipating an easing of monetary policy. However, the presidential election and subsequent uncertainty surrounding Lula’s cabinet and future fiscal policy put pressure on the market into the year-end. Colombia and Chile also remained affected by politics. Whilst generally viewed as a more positive outcome, the latter market still pulled back following a rejection in the September 4th referendum of a new constitution. Argentina was a standout performer in second half of the year, supported by newly appointed Finance Minister Massa signalling that the country would not seek to alter the goals already set with the IMF.
Argentina was the top performing market in the region for the 12 months ending 31 December 2022, gaining +35.9%, Chile +19.4%, Brazil +14.2% and Peru +9.4% ended in positive territory, whilst Mexico fell –2.0% and Colombia –6.0% lagged but still did considerably better than almost all developed and emerging markets outside the region1.
1 Source: Bloomberg. As at 31 December 2022. All performance figures are the local MSCI indices in USD terms on a net basis.
PERFORMANCE REVIEW AND POSITIONING
The Company underperformed its benchmark over the 12 month period ended 31 December 2022, returning +6.6% in NAV terms. Over the same time horizon, the Company’s benchmark, the MSCI Latin America Index, returned +8.9% on net basis in US Dollar terms.
Stock selection in Mexico and having very limited exposure to Colombia throughout the year contributed to relative returns. Brazil and Chile were the largest detractors on a relative basis due to stock positioning. At the sector level, Consumer Staples and Real Estate exposure performed well, whilst Health Care, Materials and IT weighed on returns.
Overweight positions in Brazilian financials such as stock exchange, B3, and insurer, BB Seguridade, were amongst the period’s top performers as inflation in Brazil appeared to be peaking, and investors began to anticipate an inflection in interest rates. Staples exposure across the region also contributed to relative returns, adding resiliency to the portfolio throughout the year. Mexican beverage name, FEMSA, was amongst the largest contributors, supported by their Oxxo convenience store chain showing strong earnings and revenue growth in their same-store sales. Brazilian cash and carry outlet, Assai, also performed well and is a great example of cheap, quality earnings growth from a management team that has delivered. Elsewhere, off-benchmark exposure to Mexican real estate company, Corporacion Inmobiliaria Vesta, helped the Company, supported by attractive demand dynamics for industrial warehousing on the back of near-shoring of supply chains benefitting Mexican property developers. Grupo Financiero Banorte, our preferred financials exposure in Mexico, did well throughout the period, and the stock was further supported in the fourth quarter by an announcement that they will no longer be bidding for Citi’s Banamex unit, which should pave the way for higher dividends. Also in the latter half of the year, travel-related names such as Mexican airport operator, Grupo Aeroportuario del Pacifico, and regional, low-cost carrier, Copa Holdings, contributed to performance as tourism and business travel rebounded.
An off-benchmark position in Argentine IT and software developer, Globant, weighed heavily on returns as global markets rotated away from growth stocks. An overweight in Mexican cement company, Cemex, also hurt returns as profitability was temporarily hit by rising energy costs due to the lagging nature of cement price increases. In Brazil, health care service provider, HapvidaParticipaçes, was the period’s largest detractor, as the company continues to face a tough operating environment due to high medical usage and continued cost pressures. In addition, the merger with Intermedica is proving more complex than anticipated. Adding exposure to XP in the back end of the year weighed on performance due in part to weaker domestic sentiment related to the fiscal policy uncertainty in the fourth quarter. Expectations of higher rates remaining for a longer period, has resulted in continued retail preference for fixed income over equities, putting pressure on asset managers like XP, given lower fees associated with those products. On the commodity side, a persistent underweight to Chilean miner, SQM, was a drag on returns as lithium prices remained elevated for much of the year, and an underweight to Vale also detracted as the stock remained resilient despite weaker volumes outlook.
During the period we added significantly to Brazil, and trimmed positions in Mexico, whilst remaining overweight. We added to Brazilian brewing company, AmBev, as we believe the stock is trading at attractive valuations while the company focuses on premiumization, innovation and diversification to bring new consumers on board and strengthen its brands. Despite underperformance we added to our position in health care insurer, HapvidaParticipaçes, where the market seems too focused on the short-term environment for the sector and is forgetting about the much brighter outlook for the name in 2023 and 2024 as medical loss ratios should trend down and merger synergies will come through. We have added to higher conviction consumer-related ideas, such as supermarket chain, Assai, and clothing retailer, Arezzo Industria e Comercio SA after the team visited stores and spoke to multiple competitors while travelling to Brazil in November. In our view, domestic cyclicals continue to look attractive in light of the anticipated decline in interest rates over the next 12-18 months.
On the other hand, we sold our position in Brazilian food processing company, Marfrig, as we see signs of the cattle cycle turning for next few years leading to downside in margin expectations. In Mexico we reduced exposure to telecommunications company, América Movil, following strong relative performance on the back of deleveraging efforts. We also reduced exposure to Walmex, given a preference for FEMSA in the staples space, particularly given a strong operating environment for its core convenience store business Oxxo. Elsewhere, we exited Chilean retail platform, Falabella, as we expect suboptimal returns following excessive investment. More broadly, we reduced the number of stocks in Brazil, selling names which ranked at the lower end of our conviction spectrum. Examples of stocks exiting the fund included Brazilian small-caps Santos (port operator) and Afya (online education), which had the added benefit of improving the liquidity profile of the portoflio.
The Company ended the period leveraged, given our highly positive outlook and was overweight Brazil and Mexico, while maintaining off-benchmark exposure to Argentina and Panama. We are underweight Colombia, Chile and Peru. At the sector level, we are overweight real estate and financials, while being most underweight materials and utilities.
OUTLOOK
We continue to believe that global interest rates need to rise from here and global liquidity will tighten somewhat as central banks fight to bring inflation down. While markets have adjusted somewhat in our view the risk of further downside risk to global markets is still there. We maintain this view even as several lead indicators of goods inflation look to have peaked out and are retracing. However, the larger issue in our view remains excess broad money creation in western markets which needs time to correct.
From this lens, Latin America could remain vulnerable to getting caught in a fall out of repricing of risk globally. However, we believe once this adjustment is behind us the longer term fundamentals are much better in emerging markets than in developed markets, especially in Latin America. Central banks in the region have been ahead of the curve during this tightening cycle and most countries in the region are now offering some of the highest real interest rates in the world. Chile is a standout case with rates now at some of the highest observed levels over the past 25 years. Similarly, rates in Colombia have not been this high since 2008. This is a very different backdrop to developed markets, where central banks are earlier in their tightening cycles and excess broad money creation has yet to be absorbed.
Brazil’s economy is holding up well despite high interest rates. Real rates, the difference between interest rates and inflation, are significantly positive in Brazil as the country is farthest along in the rate rising cycle, setting up a positive outlook for the equity market as rates peak. Historically when this has happened it has attracted foreign capital and led to a significant rally in risk asset prices. Despite continued uncertainty around future fiscal policy and a potential delay in the downward path of interest rates, we still expect interest rates to shift downwards from the current level of 13.75% over the next twelve months, which should lay the foundation for a meaningful cyclical pick-up.
We also like Mexico, based on the stable politics and solid economic trends, including a rising share of exports to the U.S.
Elsewhere, whilst we remain underweight, parts of the Chilean market have begun to pique our interest from a relative value lens as selling pressure across the market, led by pension reductions and diversification efforts from high-net-worth individuals, has led to decent assets trading at more attractive valuations.
Sam Vecht and Christoph Brinkmann
BlackRock Investment Management (UK) Limited
29 March 2023
TEN LARGEST INVESTMENTS
as at 31 December 2022
1
=
Vale (2021: 1st)
Materials
Market value – American depositary share (ADS): US$15,084,000
Share of investments: 9.5% (2021: 7.6%)
is one of the world’s largest mining groups, 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, manganese and ferro-alloys sectors.
2
=
Petrobrás (2021: 2nd)
Energy
Market value – American depositary receipt (ADR): US$6,783,000
Market value – Preference shares ADR: US$4,384,000
Share of investments: 7.1% (2021: 7.5%)
is a Brazilian integrated oil and gas group, 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 group controls significant assets across Africa, North and South America, Europe and Asia, with a majority of production based in Brazil.
3
+
FEMSA (2021: 15th)
Consumer Staples
Market value – ADR: US$9,513,000
Share of investments: 6.0% (2021: 2.5%)
is a Mexican beverages group which engages in the production, distribution and marketing of beverages. The firm also produces, markets, sells and distributes Coca-Cola trademark beverages, including sparkling beverages.
4
+
AmBev (2021: 26th)
Consumer Staples
Market value – ADR: US$8,401,000
Share of investments: 5.3% (2021: 1.6%)
is a Brazilian brewing group which engages in the production, distribution and sale of beverages. Its products include beer, carbonated soft drinks and other non-alcoholic and non-carbonated products with operations in Brazil, Central America, the Caribbean (CAC) and Canada.
5
=
B3 (2021: 5th)
Financials
Market value – Ordinary shares: US$8,295,000
Share of investments: 5.2% (2021: 4.6%)
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 rates, 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.
6
-
Banco Bradesco (2021: 4th)
Financials
Market value – ADR: US$8,086,000
Share of investments: 5.1% (2021: 5.3%)
is one of Brazil’s largest private sector banks. The bank divides its operations in to two main areas – banking services and insurance services, management of complementary private pension plans and savings bonds.
7
+
Itaú Unibanco (2021: 21st)
Financials
Market value – ADR: US$7,701,000
Share of investments: 4.9% (2021: 1.9%)
is a Brazilian financial services group that services individual and corporate clients in Brazil and abroad. Itaú Unibanco was formed through the merger of Banco Itaú and Unibanco in 2008. It operates in the retail banking and wholesale banking segments.
8
-
Grupo Financiero Banorte (2021: 7th)
Financials
Market value – Ordinary shares: US$7,574,000
Share of investments: 4.8% (2021: 4.5%)
is a Mexican banking and financial services holding company and is one of the largest financial groups in the country. It operates as a universal bank and provides a wide array of products and services through its broker dealer, annuities and insurance companies, retirements savings funds (Afore), mutual funds, leasing and factoring company and warehousing.
9
+ Hapvida
Participaçes
(2021: n/a)
Health Care
Market value – Ordinary shares: US$4,442,000
Share of investments: 2.8% (2021: n/a)
is a Brazilian holding healthcare company, the company operates with a vertical service structure and is one of the largest healthcare solutions providers in the country. The company provides medical assistance and dental care plans, their operating structure includes facilities such as hospitals, walk-in emergencies, clinics, or diagnostic imaging units.
10
-
Cemex (2021: 8th)
Materials
Market value – ADR: US$4,437,000
Share of investments: 2.8% (2021: 3.6%)
is a Mexican multinational building materials company and is one of the world’s largest global building materials companies. It manufactures and distributes cement, ready-mix concrete and aggregates in more than 50 countries.
All percentages reflect the value of the holding as a percentage of total investments. For this purpose, where more than one class of securities is held, these have been aggregated. The percentages in brackets represent the value of the holding as at 31 December 2021.
Together, the ten largest investments represent 53.5% of the total investments (ten largest investments as at 31 December 2021: 51.3%).
PORTFOLIO OF INVESTMENTS
as at 31 December 2022
| Market | |||
| value | % of | ||
| US$’000 | investments | ||
| Brazil | |||
| Vale - ADS | 15,084 | 9.5 | |
| Petrobrás - ADR | 6,783 | } | 7.1 |
| Petrobrás – preference shares ADR | 4,384 | ||
| AmBev - ADR | 8,401 | 5.3 | |
| B3 | 8,295 | 5.2 | |
| Banco Bradesco - ADR | 8,086 | 5.1 | |
| Itaú Unibanco – ADR | 7,701 | 4.9 | |
| Hapvida Participaçes | 4,442 | 2.8 | |
| Sendas Distribuidora | 4,229 | 2.7 | |
| Suzano Papel e Celulose | 3,513 | 2.2 | |
| Gerdau - Preference Shares | 3,008 | 1.9 | |
| Arezzo Industria e Comercio SA | 2,973 | 1.9 | |
| Iguatemi | 2,796 | 1.8 | |
| XP | 2,751 | 1.7 | |
| Banco Bradesco - Preference Shares | 2,673 | 1.7 | |
| Rede D'or Sao Luiz | 2,111 | 1.3 | |
| IRB Brasil Resseguros | 1,894 | 1.2 | |
| Localiza Rent A Car | 1,698 | 1.1 | |
| Movida Participaçes | 1,608 | 1.0 | |
| Mrv Engenharia | 1,570 | 1.0 | |
| Rumo | 881 | 0.6 | |
| Localiza Rent A Car Rights | 1 | – | |
| 94,882 | 60.0 | ||
| Mexico | |||
| FEMSA - ADR | 9,513 | 6.0 | |
| Grupo Financiero Banorte | 7,574 | 4.8 | |
| Cemex - ADR | 4,437 | 2.8 | |
| Corporación Inmobiliaria Vesta | 3,824 | 2.4 | |
| Grupo Aeroportuario del Pacifico - ADS | 3,688 | 2.3 | |
| América Movil - ADR | 3,642 | 2.3 | |
| Fibra Uno Administracion - REIT | 3,601 | 2.3 | |
| Walmart de México y Centroamérica | 3,010 | 1.9 | |
| Grupo México | 2,759 | 1.7 | |
| Sitios Latinoamerica | 86 | 0.1 | |
| 42,134 | 26.6 | ||
| Chile | |||
| Empresas CMPC | 3,212 | 2.0 | |
| Banco Santander-Chile - ADR | 3,043 | 1.9 | |
| Cia Cervecerias Unidas - ADR | 1,385 | } | 1.7 |
| Cia Cervecerias Unidas | 1,237 | ||
| 8,877 | 5.6 | ||
| Argentina | |||
| Tenaris | 2,806 | 1.8 | |
| Globant | 2,258 | 1.4 | |
| 5,064 | 3.2 | ||
| Peru | |||
| Credicorp | 3,775 | 2.4 | |
| 3,775 | 2.4 | ||
| Panama | |||
| Copa Holdings | 3,417 | 2.2 | |
| 3,417 | 2.2 | ||
| Total investments | 158,149 | 100.0 |
All investments are in equity shares unless otherwise stated.
The total number of investments held at 31 December 2022 was 40 (31 December 2021: 40). At 31 December 2022, the Company did not hold any equity interests comprising more than 3% of any company’s share capital (31 December 2021: none).
PORTFOLIO ANALYSIS
as at 31 December 2022
Geographical Weighting (gross market exposure) vs MSCI EM Latin America Index
|
% of net assets |
MSCI EM Latin America Index | |
| Brazil | 64.0 | 62.1 |
| Mexico | 28.5 | 26.9 |
| Chile | 6.1 | 6.6 |
| Argentina | 3.4 | 0.0 |
| Peru | 2.5 | 3.1 |
| Panama | 2.3 | 0.0 |
| Colombia | 0.0 | 1.3 |
Sources: BlackRock and MSCI.
Sector and geographical allocations
| Net other | 2022 | 2021 | |||||||
| Brazil | Mexico | Chile | Argentina | Peru | Panama | liabilities | Total | Total | |
| % | % | % | % | % | % | % | % | % | |
| Communication Services | – | 2.5 | – | – | – | – | – | 2.5 | 10.9 |
| Consumer Discretionary | 3.1 | 0.1 | – | – | – | – | – | 3.2 | 4.0 |
| Consumer Staples | 8.5 | 8.4 | 1.8 | – | – | – | – | 18.7 | 12.2 |
| Energy | 7.5 | – | – | 1.9 | – | – | – | 9.4 | 8.2 |
| Financials | 21.2 | 5.1 | 2.1 | – | 2.5 | – | – | 30.9 | 27.1 |
| Health Care | 4.4 | – | – | – | – | – | – | 4.4 | 5.7 |
| Industrials | 2.8 | 2.5 | – | – | – | 2.3 | – | 7.6 | 8.7 |
| Information Technology | – | – | – | 1.5 | – | – | – | 1.5 | 3.1 |
| Materials | 14.6 | 4.9 | 2.2 | – | – | – | – | 21.7 | 23.2 |
| Real Estate | 1.9 | 5.0 | – | – | – | – | – | 6.9 | 4.1 |
| Utilities | – | – | – | – | – | – | – | – | 1.7 |
| Net other liabilities | – | – | – | – | – | – | (6.8) | (6.8) | (8.9) |
| 2022 total investments | 64.0 | 28.5 | 6.1 | 3.4 | 2.5 | 2.3 | (6.8) | 100.0 | – |
| 2021 total investments | 60.1 | 33.5 | 6.1 | 3.1 | 3.8 | 2.3 | (8.9) | – | 100.0 |
Source: BlackRock.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE ISSUES AND 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 on ESG criteria, and has not adopted an ESG investment strategy, ESG analytics are 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 is important and can lead to better outcomes for shareholders and the environment than merely excluding investment in certain areas.
More information on BlackRock’s global approach to ESG integration, as well as activity specific to the BlackRock Latin American Investment Trust plc portfolio, is set out below. BlackRock has defined ESG integration as the practice of incorporating material ESG information and consideration of sustainability risks into investment decisions in order to enhance risk-adjusted returns. ESG integration does not change the Company’s investment objective. More information on sustainability risks may be found in the AIFMD Fund Disclosures document of the Company available on the Company’s website at https://www.blackrock.com/uk/individual/literature/policies/itc-disclosure-blackrock-latin-america-trust-plc.pdf. The Investment Manager has access to a range of data sources, including principal adverse indicator (PAI) data, when making decisions on the selection of investments. However, whilst BlackRock considers ESG risks for all portfolios and these risks may coincide with environmental or social themes associated with the PAIs, the Company does not commit to considering PAIs in driving the selection of its investments.
BlackRock Latin American Investment Trust plc - Investment Stewardship Engagement with portfolio companies in the year ended 31 December 2022
Given the Board’s belief in the importance of engagement and communication with portfolio companies, it receives regular reports from the Manager in respect of activity undertaken for the year under review. The Board reviews these closely and asks for further updates and progress reports from the Portfolio Managers in respect of evolving ESG issues and the action being taken where appropriate. The Board notes that over the year to 31 December 2022, 58 total company engagements were held with the management teams of 27 portfolio companies representing 75% of the portfolio by value at 31 December 2022. Additional information is set out in the tables below.
| BlackRock Latin American Investment Trust plc | |
| year ended 31 December 2022 | |
| Number of engagements held | 58 |
| Number of companies met | 27 |
| % of equity investments covered | 75% |
| Shareholder meetings voted at | 55 |
| Number of proposals voted on | 544 |
| Number of votes against management | 56 |
| % of total votes represented by votes against management | 10.29% |
| Engagement Themes1 | Engagement Themes1 |
| Governance | 58% |
| Environmental | 49% |
| Social | 32% |
| Engagement Topics 1 | Engagement Topics 1 |
| Business oversight/risk management | 51% |
| Governance structure | 50% |
| Corporate strategy | 49% |
| Board composition and effectiveness | 46% |
| Executive management | 40% |
| Climate risk management | 40% |
| Operational sustainability | 38% |
| Remuneration | 34% |
| Environmental impact management | 27% |
| Human capital management | 21% |
| Social risks and opportunities | 21% |
1 Engagements include multiple company meetings during the year with the same company. Most engagement conversations cover multiple topics and are based on BlackRock’s voting guidelines and BlackRock’s engagement priorities can be found at: www.blackrock.com/corporate/about-us/investment-stewardship#engagement-priorities. Percentages reflect the number of meetings at which a particular topic is discussed as a percentage of the total meetings held; as more than one topic is discussed at each meeting the total will not add up to 100%.
BlackRock’s approach
The importance and challenges of considering ESG when engaging with investee companies in the Latin American Sector and BlackRock's approach to ESG integration
| Environmental | Social | Corporate Governance |
| As well as the longer-term contribution to carbon emissions and the impact on the environment, the activities undertaken by many companies in the portfolio such as digging mines or drilling for oil will inevitably have an impact on local surroundings. It is important how companies manage this process and ensure that an appropriate risk oversight framework is in place, with consideration given to all stakeholders. The value wiped off the market capitalisation of companies like Vale, after the Brumadinho dam collapse, highlights the key role that ESG has on share price performance. BlackRock’s approach to climate risk and opportunities and the global energy transition is based on our role as a fiduciary to our clients. As the world works toward a transition to a low-carbon economy, BlackRock are interested in hearing from companies about their strategies and plans for responding to the challenges and capturing the opportunities that this transition creates. When companies consider climate-related risks, it is likely that they will also assess their impact and dependence on natural capital. |
In our experience, companies are better positioned to deliver long-term shareholder value when they build strong relationships throughout their value chain, including with employees, business partners (such as suppliers and distributors), clients and consumers, regulators, and the communities in which companies operate. In BlackRock’s experience, companies that build strong relationships with their stakeholders are more likely to meet their own strategic objectives, while poor relationships may create adverse impacts that expose a company to legal, regulatory, operational, and reputational risks and jeopardize their ability to deliver sustainable, long-term financial performance. |
As with all companies, good corporate governance is especially critical for natural resources companies. In our experience, the sound governance, in terms of both process and practice, is critical to the success of a company, the protection of shareholders’ interests, and long-term shareholder value creation. Governance issues, including the management of material sustainability issues that have a significant impact for natural resource companies, all require effective leadership and oversight from a company’s board. BlackRock believes that companies with experienced, engaged and diverse directors, who are effective in actively advising and overseeing management as a board, are well-positioned to deliver long-term value creation. It is our view that climate-related risks and opportunities can be an important factor in many companies’ long-term prospects. We continue to look for companies to disclose strategies they have in place that mitigate and are resilient to any material risks to their long-term business model associated with a range of climate-related scenarios. |
Engagement with investee companies
Case study: Grupo México
BIS determined that it was in the best financial interests of BlackRock’s clients to not support the proposal to elect directors at the 2022 AGM of Grupo México, S.A.B. de C.V. (Grupo México), a Mexican materials company. At the time of the shareholder meeting, the company did not have up to date sustainability-related reporting, and in particular, their climate-related data and disclosures had not been updated since the release of their 2020 Sustainable Development Report. This made it difficult for investors to assess the progress the company had made against their targets.
BlackRock Investment Stewardship: Engagement with investee companies
The BlackRock Investment Stewardship team have regular engagement with investee companies, examples can be seen below through the last AGM cycle:
https://www.blackrock.com/corporate/literature/press-release/vote-bulletinpetrobras-april-2022.pdf
https://www.blackrock.com/corporate/literature/press-release/vote-bulletinbanorte-april-2022.pdf
https://www.blackrock.com/corporate/literature/press-release/vote-bulletingrupo-mexico-april-2022.pdf
BlackRock’s approach to ESG integration
BlackRock believes that sustainability risk – and climate risk in particular - now 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, in BlackRock’s view, is likely to drive a significant reallocation of capital away from traditional carbon intensive industries over the next decade. BlackRock believes that carbon-intensive companies will play an integral role in unlocking the full potential of the energy transition, and to do this, they must be prepared to adapt, innovate and pivot their strategies towards to low carbon economy.
As part of BlackRock’s structured investment process, ESG risks and opportunities (including sustainability/climate risk) are considered within the portfolio management team’s fundamental analysis of companies and industries and the Company’s portfolio managers work closely with BlackRock’s Investment Stewardship team to assess the governance quality of companies and investigate any potential issues, risks or opportunities.
As part of their approach to ESG integration, the portfolio managers use ESG information when conducting research and due diligence on new investments and again when monitoring investments in the portfolio. In particular, portfolio managers at BlackRock now have access to 1,200 key ESG performance indicators in Aladdin (BlackRock’s proprietary trading system) from third-party data providers. BlackRock’s internal sustainability research framework scoring is also available alongside third-party ESG scores in core portfolio management tools. BlackRock’s analyst’s sector expertise and local market knowledge allows it to engage with companies through direct interaction with management teams and conducting site visits. In conjunction with the portfolio management team, BlackRock Investment Stewardship’s (BIS) meets with boards of companies frequently to evaluate how they are strategically managing their longer-term issues, including those surrounding ESG and the potential impact these may have on company financials. BIS’s and the portfolio management team’s understanding of ESG issues is further supported by BlackRock’s Sustainable and Transition Solutions (STS). The STS team lead BlackRock’s sustainability and transition strategy, drive cross-functional change, support client and external engagement, power product ideation, and embed expertise across the firm.
Investment Stewardship
Consistent with BlackRock’s fiduciary duty as an asset manager, BIS seeks to support investee companies in their efforts to deliver long-term durable financial performance on behalf of our clients. These clients include public and private pension plans, governments, insurance companies, endowments, universities, charities and, ultimately, individual investors, among others. BIS serves as an important link between BlackRock’s clients and the companies they invest in. Clients depend on BlackRock to help them meet their investment goals; the business and governance decisions that companies make will have a direct impact on BlackRock’s clients’ long-term investment outcomes and financial well-being.
Global Principles
BlackRock’s approach to corporate governance and stewardship is comprised in BIS’ Global Principles and market-specific voting guidelines. BIS’ policies set out the core elements of corporate governance that guide its investment stewardship activities globally and within each regional market, including when voting at shareholder meetings for those clients who have authorized BIS to vote on their behalf. Each year, BIS reviews its policies and updates them as necessary to reflect changes in market standards and regulations, insights gained over the year through third-party and its own research, and feedback from clients and companies. BIS’ Global Principles are available on its website at www.blackrock.com/corporate/literature/fact-sheet/blkresponsible-investment-engprinciples-global.pdf.
Market-specific proxy voting guidelines
BIS’ voting guidelines are intended to help clients and companies understand its thinking on key governance matters. They are the benchmark against which it assesses a company’s approach to corporate governance and the items on the agenda to be voted on at a shareholder meeting. BIS applies its guidelines pragmatically, taking into account a company’s unique circumstances where relevant. BlackRock informs voting decisions through research and engages as necessary. BIS reviews its voting guidelines annually and updates them as necessary to reflect changes in market standards, evolving governance practice and insights gained from engagement over the prior year. BIS’ market-specific voting guidelines are available on its website at www.blackrock.com/corporate/about-us/investment-stewardship#stewardship-policies. BlackRock is committed to transparency in terms of disclosure on its stewardship activities on behalf of clients. BIS publishes its stewardship policies such as the Global Principles, engagement priorities, and voting guidelines – to help BlackRock’s clients understand its work to advance their interests as long-term investors in public companies. Additionally, BIS publishes both annual and quarterly reports detailing its stewardship activities, as well as vote bulletins that describe its rationale for certain votes at high profile shareholder meetings. More detail in respect of BIS reporting can be found at www.blackrock.com/corporate/about-us/investment-stewardship.
1 Source: BlackRock’s 2022 voting spotlight report which can be found at https://www.blackrock.com/corporate/about-us/investment-stewardship.
BlackRock’s reporting and disclosures
In terms of its own reporting, BlackRock believes that the 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 TCFD provides a valuable framework.
BlackRock recognises that reporting to these standards requires significant time, analysis and effort. BlackRock’s 2021 TCFD report can be found at www.blackrock.com/corporate/literature/continuous-disclosure-andimportantinformation/tcfd-report-2021-blkinc.pdf.
STRATEGIC REPORT
The Directors present the Strategic Report of the Company for the year ended 31 December 2022.
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), as implemented, retained and onshored in the UK, 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 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.
Details of the contractual terms with these service providers are set out in the Directors’Report contained with the annual report and financial sttatements for the year ended 31 December 2022. 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, over the medium term we seek outperformance of our benchmark index (the MSCI EM Latin America Index – net total return basis) 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.
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 (as defined in the Glossary contained within the annual report and financial statements for the year ended 31 December 2022). 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.
Share rating and discount control
The Directors recognise 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.
Over the year under review, the Company’s share price traded in the range of a discount of 19.6% to a premium of 0.6% and at the year end stood at a discount of 9.1%. 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 financial statements for the year ended 31 December 2022).
A special resolution was passed at the AGM of the Company held on 19 May 2022, granting the Directors’ authority to make market purchases of the Company’s ordinary shares to be held, sold, transferred or otherwise dealt with as treasury shares or cancelled upon completion of the purchase. The Board intends to renew this authority at the AGM to be held in May 2023.
The Board adopted a new discount control mechanism, for the four year period from 1 January 2022 to 31 December 2025. Under this new mechanism the Board undertakes to make a tender offer to shareholders for 24.99% of the issued share capital (excluding treasury shares) of the Company at a tender price reflecting the latest cum-income Net Asset Value (NAV) less 2% and related portfolio realisation costs if, over the four year period from 1 January 2022 to 31 December 2025 (the ‘Calculation Period’), either of the following conditions are 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 total return by more than 50 basis points over the Calculation Period; or
(ii) the average daily discount to the cum-income NAV exceeds 12% as calculated with reference to the trading of the ordinary shares over the Calculation Period.
The making and implementation of this tender offer will be conditional, amongst other things, upon the Company having the required shareholder authority or such shareholder authority being obtained, the Company having sufficient distributable reserves to effect the repurchase of any successfully tendered shares and, having regard to its continuing financial requirements, sufficient cash reserves to settle the relevant transactions with shareholders, the Company’s biennial continuation votes being approved at the Annual General Meetings in 2024 and 2026. The Board believes that a four year performance target enables the Manager to take a sufficiently long term approach to investing in quality companies in the region, and it believes that it is in shareholders’ interests as a whole that this time period for assessing performance be adopted.
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 material ESG information and sustainability risk is an important element 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. While the Company has not adopted an ESG investment strategy or exclusionary screens, 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 integration is set out within the annual report and financial statements. 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 Company does not meet the criteria for Article 8 or 9 products under the EU Sustainable Finance Disclosure Regulation (SFDR) and the investments underlying this financial product do not take into account the EU criteria for environmentally sustainable economic activities. The Investment Manager has access to a range of data sources, including principal adverse indicator (PAI) data, when making decisions on the selection of investments. However, whilst BlackRock considers ESG risks for all portfolios and these risks may coincide with environmental or social themes associated with the PAIs, unless stated otherwise in the AIFMD Disclosure Document, the Company does not commit to considering PAIs in driving the selection of its investments. |
The portfolio activities undertaken by the Manager, can be found in the Investment Manager’s Report above. |
| 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 8.5%, including the special dividend of 13.00 cents per share (based on the share price of 457.10 cents per share at 31 December 2022, equivalent to the Sterling price of 380.00 pence per share translated into US cents at the rate prevailing at 31 December 2022 of US$1.20290 to £1), 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, 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 an average of 13.5% for the two year period preceding the introduction of the new policy on 13 March 2018 to an average of 11.0% for the period from 14 March 2018 to 31 December 2022. At 27 March 2023 the discount stood at 12.9%. Of total dividends of US$12,207,000 paid out in the year, all has been paid out of current year revenue. The Company’s portfolio managers attend professional investor/analyst meetings and webcast presentations live to professional and private investors over the year to promote the Company and raise the profile in terms of the investment strategy, including the dividend policy. |
| 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. been met: | The Board has put in place a discount control mechanism covering the four years to 31 December 2025 whereby shareholders will be offered a tender for 24.99% of the shares in issue, excluding treasury shares, (at a tender price reflecting the latest cum income NAV less 2% and related portfolio realisation costs) in the event that the continuation vote for each relevant biennial period is approved (being the continuation votes at the AGMs in 2024 and 2026), 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 total return by more than 50 basis points over the four year period from 1 January 2022 to 31 December 2025; or (ii) the average daily discount to the cum-income NAV exceeds 12% as calculated with reference to the trading of the shares over the Calculation Period. Further details are set in the Strategic Report below. The Board monitors the tender trigger targets described within the annual report and financial statements 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 2022 to 31 December 2022 was 8.9%1 compared to the tender discount target of 12%1. The Company’s annualised NAV performance of 6.6% for the same period underperformed the benchmark (which rose by 8.9% on an annualised basis) by 2.3% (equivalent to 230 basis points). For the tender not to be triggered, the NAV must outperform the benchmark by more than 50 basis points on an annualised basis over the four years to 31 December 2025. The Company’s discount has widened over the year under review, from 7.1% at 31 December 2021 to 9.1% at 31 December 2022. As at 27 March 2023 the discount was 12.9%. Tender proceeds were paid to shareholders on 26 May 2022, in accordance with the process described in the tender circular published on 5 April 2022. In total, 9,810,979 shares (representing 24.99% of the eligible share capital) were repurchased by the Company and subsequently cancelled. |
| 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 Broker 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 Broker on an ongoing basis. The Board works closely with the Manager to gain comfort that 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 Accountant 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 Accountant, Broker, Registrar and Printer, and is confident that arrangements are in place to ensure that a good level of service will be maintained. |
| 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 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. When undertaking recruitment activity, the Board will use the services of an external search consultant to identify suitable candidates. All Directors are subject to a formal evaluation process on an annual basis (more details and the conclusions in respect of the 2022 evaluation process are given within the annual report and financial statements). 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 within the annual report and financial statements if they wish to raise any issues. |
As at the date of this report, the Board is comprised of three women and two men. Details of each Director’s contribution to the success and promotion of the Company are set out in the Directors’ Report contained within the annual report and financial statements. The Directors are not aware of any issues that have been raised directly by shareholders in respect of Board composition in 2022. Details for the proxy voting results in favour and against individual Directors’ re-election at the 2021 AGM are given on the Company’s website at www.blackrock.com/uk/brla. |
| 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. 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 within the annual report and financial statements. |
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 and held discussions with a range of wealth management desks and offices in respect of the Company during the year under review. 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. 96 press 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 4 pieces of national coverage, 37 pieces of intermediary coverage and 55 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 above.
Results and dividends
The results for the Company are set out in the Income Statement below. The total gain for the year on ordinary activities, after taxation, was US$13,669,000 (2021: loss of US$28,006,000) of which the revenue profit amounted to US$13,842,000 (2021: US$10,247,000), and the capital loss amounted to US$173,000 (2022: capital loss of US$38,253,000).
Under the Company’s 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. An additional special dividend of 13.00 cents per ordinary share for the financial year to 31 December 2022 was declared alongside the fourth quarterly dividend as it was necessary to pay the special dividend to maintain investment trust status which requires the distribution of 85% of the Company’s revenue. The Company has declared interim dividends totalling 38.87 cents per share under this policy in respect of the year ended 31 December 2022 as detailed in the table below.
Details of this policy are also set out in the Chairman’s Statement above.
| Dividend | Pay date | |
| Quarter to 31 March 2022 | 7.76 cents | 16 May 2022 |
| Quarter to 30 June 2022 | 5.74 cents | 12 August 2022 |
| Quarter to 30 September 2022 | 6.08 cents | 9 November 2022 |
| Quarter to 31 December 2022* | 19.29 cents | 8 February 2023 |
| Total | 38.87 cents |
* Quarter to 31 December 2022 includes an additional special dividend of 13.00 cents.
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 contained within the annual report and financial statements and the Chairman’s Statement and Investment Manager’s Report above.
Details of the Company’s discount control
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 2022, the Company’s share price to NAV traded in the range of a discount of 19.6% to a premium of 0.6% on a cum-income basis. The Board has in place a discount control mechanism whereby it will offer shareholders the ability to tender up to 24.99% of the Company’s issued share capital at the AGM in 2026 if certain performance and discount targets are not met. More details are given in the Strategic Report above.
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 financial statements.
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 financial statements.
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. As at 31 December 2022, the Company’s share register comprised 53.2% retail investors; the Board will monitor this with the aim of growing the retail element of the register over time.
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 below.
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 financial statements.
| Year ended | Year ended | |
| 31 December | 31 December | |
| Key Performance Indicators | 2022 | 2021 |
| Net asset value total return1,2 | 6.6% | –12.5% |
| Share price total return1,2 | 4.7% | –11.8% |
| Benchmark total return (net)1 | 8.9% | –8.1% |
| Discount to net asset value2 | 9.1% | 7.1% |
| Average discount to net asset value for the year | 8.9% | 10.0% |
| Revenue return per share | 41.48c | 26.10c |
| Ongoing charges2,3 | 1.13% | 1.14% |
| Retail element of share register4 | 53.2% | 38.6% |
1 Calculated in US Dollar terms with dividends reinvested.
2 Alternative Performance Measures, see Glossary contained within the annual report and financial statements.
3 Ongoing charges represent the management fee and all other operating expenses excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation, prior year expenses written back and certain non-recurring items as a % of average daily net assets.
4 Source: Richard Davies Investor Relations.
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. Additionally, the risk that unforeseen or unprecedented events including (but not limited to) heightened geo-political tensions such as the war in Ukraine, high inflation and the current cost of living crisis has had a significant impact on global markets. 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.
As required by the UK Corporate Governance Code, 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. The Board will continue to assess these risks on an ongoing basis. 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 Board reviews the controls put in place by the Investment Manager to monitor and to minimise counterparty exposure, which include intra-day monitoring of exposures to ensure that these are within set limits. 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. |
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Investment performance
Returns achieved are reliant primarily upon the performance of the portfolio. The Board is responsible for:
The Board is also cognisant of the long term risk to performance from inadequate attention to ESG issues, and in particular the impact of Climate Change. More detail in respect of these risks can be found in the AIFMD Fund Disclosures document available on the Company’s website at https://www.blackrock.com/uk/individual/literature/policies/itc-disclosure-blackrock-latin-america-trust-plc.pdf. |
To manage this risk the Board:
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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$123.0 million at 31 December 2022. 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. An additional special dividend was declared alongside the fourth quarterly dividend. The revenue had been enhanced by a number of stock and special dividends received during the year ended 31 December 2022, coupled with the effect of the tender offer reducing the number of ordinary shares in issue post May 2022. Consequently, the Board recommended an additional special dividend of 13.00 cents per ordinary share for the financial year to 31 December 2022. It was necessary to pay the special dividend to maintain investment trust status which requires the distribution of 85% of the Company’s revenue. |
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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, international sanctions and the FCA’s Disclosure Guidance and Transparency Rules. |
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 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 on 3 July 2016. The Board takes steps to ensure that individual Directors (and their Persons Closely Associated) are aware of their obligations under the regulation and has updated internal processes, which seek to ensure the risk of non-compliance is effectively mitigated. |
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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 Custodian, Depositary and Fund Accountant) who maintain the Company’s assets, dealing procedures and accounting records. The Company’s share register is maintained by the Registrar, Computershare Investor Services PLC. 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/financial instruments held in custody are subject to a strict liability regime and in the event of a loss of such 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. The Board has received updates from key service providers (the Manager, the Depositary, the Custodian, the Fund Accountant, the Broker, the Registrar and the Printer) confirming that appropriate business continuity arrangements are in place. |
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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, geo-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. Market risk includes the potential impact of events which are outside the Company’s control, including (but not limited to) heightened geo-political tensions and military conflict, a global pandemic and high inflation. 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 and more recently the Russia-Ukraine conflict. 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 in markets following the Russian invasion of Ukraine 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. |
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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, together with a summary of the policies for managing these risks. |
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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. |
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 2024. 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 Russia-Ukraine conflict 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 2026, 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 a reasonable time horizon to assess potential investments and the period being used to assess performance for the Company’s Discount Control mechanism (as set out in more detail in the Strategic Report above).
In choosing this period for its assessment of the viability of the Company the Directors have considered the following matters:
- the Company’s business model should remain attractive for much longer than the period up to the AGM in 2026, unless there is a significant economic or regulatory change;
- 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). This longer-term investment horizon is well-suited to Latin America as the volatility of this region can make short term investing more challenging. The Company is also one of only two investment trusts with exposure to the Latin American region and is substantially larger than its competitor in the peer group at more than three times the size;
- 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 the Russia-Ukraine conflict, the impact of climate change on portfolio companies and the current climate of heightened geo-political risk;
- if the tender offer was to be implemented in 2026 was fully subscribed, the Directors consider that the Company will still retain sufficient assets and liquidity to remain viable and to continue to operate in accordance with its business model and investment mandate; and
- the Board has reviewed the operational resilience of the Company and its key service providers (the Manager, Depositary, Custodian, Fund Accountant, Registrar and Broker) and have concluded that all service providers are able to provide a good level of service for the foreseeable future.
The Directors have also reviewed the assumptions and considerations underpinning the Company’s existing going concern assertion which are based on:
- 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 above.
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 above.
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 2022, all of whom held office throughout the year, are set out in the governance structure and Directors’ biographies contained within the annual report and financial statements.
As at the date of this report, the Board consists of two men and three women, and also is inclusive of other protected characteristics covered in legislation. The Board recognises the importance of diverse backgrounds and skill sets, and in particular having a range of experienced Directors who, both individually and collectively, possess a suitable balance of skills, knowledge, and independence to enable it to fulfil its obligations. The Board believes that the current composition of the Board meets these objectives, and equality, diversity and inclusion are at the forefront of Directors’ minds when undertaking succession planning.
Further information on the composition and diversity of the Board can be found in the disclosure table which follows below:
| Number | Number | ||
| of Board | Percentage | of senior | |
| Gender | members | of Board | roles held1 |
| Men | 2 | 40 | 1 |
| Women | 3 | 60 | 2 |
| Ethnicity2 | |||
| White British (or any | |||
| other white background) | 4 | 80.0 | 2 |
| Other | 1 | 20.0 | 1 |
1 A senior position is defined as the role of Chairman, Audit Committee Chairman or Senior Independent Director.
2 Categorisation of ethnicity is stated in accordance with the Office of National Statistics classification.
The Company does not have any employees, therefore there are no disclosures to be made in that respect.
The Chairman’s Statement above, along with the Investment Manager’s Report and portfolio analysis above form part of the Strategic Report.
The Strategic Report was approved by the Board at its meeting on 29 March 2023.
By order of the Board
GRAHAM VENABLES
For and on behalf of BlackRock Investment Management (UK) Limited
Company Secretary
29 March 2023
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 contained within the annual report and financial statements.
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 2022 amounted to US$1,332,000 (2021: US$1,726,000), as disclosed in note 4 to the Financial Statements below. At the year end, an amount of US$588,000 was outstanding in respect of these fees (2021: US$815,000).
In addition to the above services BIM (UK) has provided the Company with marketing services. The total fees paid or payable for these services for the year ended 31 December 2022 amounted to US$83,000 excluding VAT (2021: US$101,000). Marketing fees of US$81,000 (2021: US$108,000) were outstanding at 31 December 2022.
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 2022, an amount of US$110,000 (2021: US$124,000) 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.
Related party disclosures
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 contained within the annual report and financial statements. At 31 December 2022, an amount of US$18,000 (2021: US$15,000) 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. This will reduce to four non-executive Directors with effect from 1 April 2023 when Professor Doctor retires from the Board. None of the Directors has a service contract with the Company. For the year ended 31 December 2022, 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 contained within the annual report and financial statements. For the year ending 31 December 2023, the Chairman will receive an annual fee of £50,200, the Chairman of the Audit Committee will receive an annual fee of £38,600, the Chairman of the Remuneration Committee and Senior Independent Director received an annual fee of £36,400 and each other Director received an annual fee of £34,300.
All current members of the Board 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, Craig Cleland holds 12,000 ordinary shares and Laurie Meister holds 2,915 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 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 within the annual report and financial statements, 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 contained within the annual report and financial statements. As a result, the Board has concluded that the Annual Report and Financial Statements for the year ended 31 December 2022, 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
29 March 2023
INCOME STATEMENT
for the year ended 31 December 2022
| 2022 | 2021 | ||||||
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| Notes | US$’000 | US$’000 | US$’000 | US$’000 | US$’000 | US$’000 | |
| Gains/(losses) on investments held | |||||||
| at fair value through profit or loss | 8 | – | 1,258 | 1,258 | – | (36,963) | (36,963) |
| (Losses)/gains on foreign exchange | – | (183) | (183) | – | 173 | 173 | |
| Income from investments held at | |||||||
| fair value through profit or loss | 3 | 15,438 | – | 15,438 | 12,199 | – | 12,199 |
| Other income | 3 | 21 | – | 21 | – | – | – |
| Total income/(loss) | 15,459 | 1,075 | 16,534 | 12,199 | (36,790) | (24,591) | |
| Expenses | |||||||
| Investment management fee | 4 | (333) | (999) | (1,332) | (431) | (1,295) | (1,726) |
| Other operating expenses | 5 | (609) | (17) | (626) | (783) | (10) | (793) |
| Total operating expenses | (942) | (1,016) | (1,958) | (1,214) | (1,305) | (2,519) | |
| Net profit/(loss) on ordinary | |||||||
| activities before finance costs | |||||||
| and taxation | 14,517 | 59 | 14,576 | 10,985 | (38,095) | (27,110) | |
| Finance costs | (81) | (243) | (324) | (53) | (158) | (211) | |
| Net profit/(loss) on ordinary | |||||||
| activities before taxation | 14,436 | (184) | 14,252 | 10,932 | (38,253) | (27,321) | |
| Taxation (charge)/credit | (594) | 11 | (583) | (685) | – | (685) | |
| Net profit/(loss) on ordinary | |||||||
| activities after taxation | 13,842 | (173) | 13,669 | 10,247 | (38,253) | (28,006) | |
| Earnings/(loss) per ordinary | |||||||
| share (US$ cents) | 7 | 41.48 | (0.52) | 40.96 | 26.10 | (97.44) | (71.34) |
The total column of this statement represents the Company’s profit and loss account. The supplementary revenue and capital accounts 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 2022
| 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 2022 |
||||||||
| At 31 December 2021 | 4,144 | 11,719 | 4,843 | 4,356 | 165,947 | 3,829 | 194,838 | |
| Total comprehensive (loss)/income: | ||||||||
| Net (loss)/profit for the year | – | – | – | – | (173) | 13,842 | 13,669 | |
| Transactions with owners, recorded | ||||||||
| directly to equity: | ||||||||
| Tender offer1 | 9 | – | – | – | – | (51,017) | – | (51,017) |
| Tender offer cost | 9 | – | – | – | – | (414) | – | (414) |
| Cancellation of shares | (981) | – | 981 | – | – | – | – | |
| Dividends paid2 | 6 | – | – | – | – | – | (8,965) | (8,965) |
| At 31 December 2022 | 3,163 | 11,719 | 5,824 | 4,356 | 114,343 | 8,706 | 148,111 | |
|
For the year ended 31 December 2021 |
||||||||
| At 31 December 2020 | 4,144 | 11,719 | 4,843 | 4,356 | 206,047 | 3,042 | 234,151 | |
| Total comprehensive (loss)/income: | ||||||||
| Net (loss)/profit for the year | – | – | – | – | (38,253) | 10,247 | (28,006) | |
| Transactions with owners, recorded | ||||||||
| directly to equity: | ||||||||
| Dividends paid3 | 6 | – | – | – | – | (1,847) | (9,460) | (11,307) |
| At 31 December 2021 | 4,144 | 11,719 | 4,843 | 4,356 | 165,947 | 3,829 | 194,838 |
1 On 26 May 2022, the Company repurchased and subsequently cancelled 9,810,979 shares. The price at which tendered shares were repurchased was 417.09 pence per share.
2 Quarterly dividend of 6.21 cents per share for the year ended 31 December 2021, declared on 4 January 2022 and paid on 8 February 2022; quarterly dividend of 7.76 cents per share for the year ended 31 December 2022, declared on 1 April 2022 and paid on 16 May 2022; quarterly dividend of 5.74 cents per share for the year ended 31 December 2022, declared on 1 July 2022 and paid on 12 August 2022; and quarterly dividend of 6.08 cents per share, declared on 3 October 2022 and paid on 9 November 2022.
3 Quarterly dividend of 7.45 cents per share for the year ended 31 December 2020, declared on 4 January 2021 and paid on 8 February 2021; quarterly dividend of 6.97 cents per share for the year ended 31 December 2021, declared on 1 April 2021 and paid on 10 May 2021; quarterly dividend of 7.82 cents per share for the year ended 31 December 2021, declared on 1 July 2021 and paid on 6 August 2021; and quarterly dividend of 6.56 cents per share for the year ended 31 December 2021, declared on 1 October 2021 and paid on 8 November 2021.
For information on the Company’s distributable reserves, please refer to note 10 below.
BALANCE SHEET
as at 31 December 2022
| 2022 | 2021 | ||
| Notes | US$’000 | US$’000 | |
| Fixed assets | |||
| Investments held at fair value through profit or loss | 8 | 158,149 | 212,182 |
| Current assets | |||
| Debtors | 1,572 | 466 | |
| Cash and cash equivalents | 160 | 463 | |
| Total current assets | 1,732 | 929 | |
| Creditors – amounts falling due within one year | |||
| Bank overdraft | (10,731) | (16,980) | |
| Other creditors | (1,015) | (1,258) | |
| Total current liabilities | (11,746) | (18,238) | |
| Net current liabilities | (10,014) | (17,309) | |
| Net current assets | 148,135 | 194,873 | |
| Creditors – amounts falling due after more than one year | |||
| Non-current tax liability | – | (11) | |
| Non-equity redeemable shares | (24) | (24) | |
| (24) | (35) | ||
| Net assets | 148,111 | 194,838 | |
| Capital and reserves | |||
| Called up share capital | 9 | 3,163 | 4,144 |
| Share premium account | 10 | 11,719 | 11,719 |
| Capital redemption reserve | 10 | 5,824 | 4,843 |
| Non-distributable reserve | 10 | 4,356 | 4,356 |
| Capital reserves | 10 | 114,343 | 165,947 |
| Revenue reserve | 10 | 8,706 | 3,829 |
| Total shareholders’ funds | 7 | 148,111 | 194,838 |
| Net asset value per ordinary share (US$ cents) | 7 | 502.95 | 496.28 |
STATEMENT OF CASH FLOWS
for the year ended 31 December 2022
| 2022 | 2021 | |
| US$’000 | US$’000 | |
| Operating activities | ||
| Net profit/(loss) on ordinary activities before taxation | 14,252 | (27,321) |
| Add back finance costs | 324 | 211 |
| (Gains)/losses on investments held at fair value through profit or loss | (1,258) | 36,963 |
| Losses/(gains) on foreign exchange | 183 | (173) |
| Sales of investments held at fair value through profit or loss | 123,691 | 144,427 |
| Purchases of investments held at fair value through profit or loss | (68,345) | (142,206) |
| Increase in other debtors | (1,100) | (21) |
| (Decrease)/increase in other creditors | (304) | 318 |
| Tax on investment income | (594) | (685) |
| Net cash generated from operating activities | 66,849 | 11,513 |
| Financing activities | ||
| Interest paid | (324) | (211) |
| Tender offer | (51,017) | – |
| Tender offer costs | (414) | – |
| Dividends paid | (8,965) | (11,307) |
| Net cash used in financing activities | (60,720) | (11,518) |
| Increase/(decrease) in cash and cash equivalents | 6,129 | (5) |
| Cash and cash equivalents at the start of the year | (16,517) | (16,685) |
| Effect of foreign exchange rate changes | (183) | 173 |
| Cash and cash equivalents at end of the year | (10,571) | (16,517) |
| Comprised of: | ||
| Cash at bank | 160 | 463 |
| Bank overdraft | (10,731) | (16,980) |
| (10,571) | (16,517) |
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
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 updated in July 2022, and the provisions of the Companies Act 2006.
Substantially, all of the assets of the Company consist of securities that are readily realisable and, accordingly, the Directors are satisfied that the Company has adequate resources to continue in operational existence for the period to 31 December 2024, being a period of at least 12 months from the date of approval of these financial statements, and therefore consider the going concern assumption to be appropriate. 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 Directors have considered the impact of climate change on the value of the investments included in the Financial Statements and have concluded that there was no further impact of climate change to be considered as the investments are valued based on market pricing as required by FRS 102.
None of the Company’s other assets and liabilities were considered to be potentially impacted by climate change.
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 in which the bulk of the Company’s assets (notably portfolio investments, cash at bank, bank overdrafts and amounts due to and from brokers) are denominated. All values are rounded to the nearest thousand US 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 account 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 8 below;
- 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 account and 25% to the revenue account 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 taxation 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.
Unquoted investments are valued by the Directors at fair value using International Private Equity and Venture Capital Valuation Guidelines. This policy applies to all current and non-current asset investments of the Company. These guidelines are aligned with FRS 102 and, where this does not align, FRS 102 prevails.
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.
(h) Debtors
Debtors include sales for future settlement, other debtors and prepayments 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 falling due within one year if payment is due within one year or less. If not, they are presented as creditors – amounts falling 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 determine 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 account of the Income Statement and taken to the capital reserve.
(m) Share repurchases, share reissues and new share issues
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 redemption reserve.
Where treasury shares are subsequently re-issued:
- amounts received to the extent of the repurchase price are credited to the capital redemption reserve; and
- any surplus received in excess of the repurchase price is taken to the share premium account.
Where new shares are issued, the par value is taken to called up share capital and amounts received to the extent of any surplus received in excess of the par value are taken to the share premium account.
Share issue costs are charged to the share premium account. Costs on share reissues are 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
| 2022 | 2021 | |
| US$’000 | US$’000 | |
| Investment income: | ||
| Overseas dividends | 14,515 | 11,655 |
| Overseas REIT distributions | 421 | 307 |
| Overseas special dividends | 480 | 223 |
| Fixed interest income | 22 | 14 |
| Total investment income | 15,438 | 12,199 |
| Other income: | ||
| Deposit interest | 21 | – |
| Total income | 15,459 | 12,199 |
Dividends and interest received in cash during the year amounted to US$14,413,000 and US$45,000 (2021: US$12,285,000 and US$12,000).
Special dividends of US$nil have been recognised in capital in 2022 (2021: US$nil).
4. Investment management fee
| 2022 | 2021 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| US$’000 | US$’000 | US$’000 | US$’000 | US$’000 | US$’000 | |
| Investment management fee | 333 | 999 | 1,332 | 431 | 1,295 | 1,726 |
Under the terms of the investment management agreement, BFM is entitled to a fee of 0.80% per annum based on the Company’s daily Net Asset Value (NAV). The fee is levied quarterly.
The investment management fee is allocated 25% to the revenue account and 75% to the capital account of the Income Statement. There is no additional fee for company secretarial and administration services.
5. Other operating expenses
| 2022 | 2021 | |
| US$’000 | US$’000 | |
| Allocated to revenue: | ||
| Custody fees | 35 | 61 |
| Depositary fees1 | 15 | 22 |
| Auditor’s remuneration2 | 50 | 60 |
| Registrar's fees | 33 | 40 |
| Directors’ emoluments3 | 231 | 254 |
| Marketing fees | 83 | 101 |
| Postage and printing fees | 45 | 73 |
| AIC fees | – | 22 |
| Broker fees | 38 | 56 |
| Employer NI contributions | 23 | 27 |
| FCA fee | 10 | 12 |
| Write back of prior year expenses4,5 | (23) | (42) |
| Other administration costs | 69 | 97 |
| 609 | 783 | |
| Allocated to capital: | ||
| Custody transaction charges6 | 17 | 10 |
| 626 | 793 | |
| The Company’s ongoing charges7, 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, prior year expenses | ||
| written back and certain non-recurring items were: | 1.13% | 1.14% |
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 Company’s Auditor.
3 Further information on Directors’ emoluments can be found in the Directors’ Remuneration Report contained within the annual report and financial statements. The Company has no employees.
4 Relates to prior year accrual for postage and printing fees, broker fees and other administration costs written back during the year ended 31 December 2022.
5 Relates to prior year accrual for AIC fees and Directors search fees written back during the year ended 31 December 2021.
6 For the year ended 31 December 2022, expenses of US$17,000 (2021: US$10,000) were charged to the capital account of the Income Statement. These relate to transaction costs charged by the Custodian on sale and purchase trades.
7 Alternative Performance Measures, see Glossary contained within the annual report and financial statements.
6. Dividends
| 2022 | 2021 | |||
| Dividends paid on equity shares: | Record date | Payment date | US$’000 | US$’000 |
| Quarter to 31 December 2021 - dividend of 6.21 cents | 14 January 2022 | 8 February 2022 | 2,438 | 2,925 |
| Quarter to 31 March 2022 - dividend of 7.76 cents | 19 April 2022 | 16 May 2022 | 3,047 | 2,736 |
| Quarter to 30 June 2022 - dividend of 5.74 cents | 15 July 2022 | 12 August 2022 | 1,690 | 3,070 |
| Quarter to 30 September 2022 - dividend of 6.08 cents | 14 October 2022 | 9 November 2022 | 1,790 | 2,576 |
| 8,965 | 11,307 |
The Company’s dividend policy is to pay regular quarterly dividends equivalent to 1.25% of the Company’s US Dollar NAV on the last working day of March, June, September and December each year, with the dividends being paid in May, August, November and February each year, respectively. For the year ending 31 December 2022, the quarterly dividends were calculated based on the Company’s cum-income US Dollar NAV at the last working day of the quarter.
The Company’s cum-income US Dollar NAV at 31 December 2022 as issued to the market was 502.95 cents per share, and the Directors have declared a fourth quarterly interim dividend of 6.29 cents per share. In addition, the Directors have declared a special dividend of 13.00 cents per share. It is necessary to pay the special dividend to maintain investment trust status which requires the distribution of 85% of the Company’s income. The fourth quarterly interim dividend and the special dividend were paid on 8 February 2023 to holders of ordinary shares on the register at the close of business on 13 January 2023.
The total dividends payable in respect of the year which form the basis of determining retained income for the purpose of Section 1158 of the Corporation Tax Act 2010 and Section 833 of the Companies Act 2006, and the amount proposed for the year ended 31 December 2022, meet the relevant requirements as set out in this legislation.
| 2022 | 2021 | |
| Dividends paid or proposed on equity shares: | US$’000 | US$’000 |
| Quarter to 31 March 2022 - 7.76 cents (2021: 6.97) | 3,047 | 2,736 |
| Quarter to 30 June 2022 - 5.74 cents (2021: 7.82) | 1,690 | 3,070 |
| Quarter to 30 September 2022 - 6.08 cents (2021: 6.56) | 1,790 | 2,576 |
| Quarter to 31 December 2022 - 6.29 cents1 (2021: 6.21) | 1,852 | 2,438 |
| Year to 31 December 2022 - 13.00 cents1 (2021: n/a) | 3,828 | – |
| 12,207 | 10,820 |
1 Based on 29,448,641 ordinary shares in issue at 13 January 2023.
All dividends paid or payable are distributed from the Company’s distributable reserves.
7. Earnings and net asset value per ordinary share
Revenue, capital loss and net asset value per ordinary share are shown below and have been calculated using the following:
| 2022 | 2021 | |
| Net revenue profit attributable to ordinary shareholders (US$’000) | 13,842 | 10,247 |
| Net capital loss attributable to ordinary shareholders (US$’000) | (173) | (38,253) |
| Total gains/(loss) attributable to ordinary shareholders (US$’000) | 13,669 | (28,006) |
| Total shareholders’ funds (US$’000) | 148,111 | 194,838 |
| The weighted average number of ordinary shares in issue during the year on which the | ||
| earnings per ordinary share was calculated was: | 33,373,033 | 39,259,620 |
| The actual number of ordinary shares in issue at the year end on which the net asset | ||
| value was calculated was: | 29,448,641 | 39,259,620 |
| The number of ordinary shares in issue, including treasury shares at the year end was: | 31,630,303 | 41,441,282 |
| Earnings per share | ||
| Calculated on weighted average number of ordinary shares: | ||
| Revenue earnings per share (US$ cents) – basic and diluted | 41.48 | 26.10 |
| Capital loss per share (US$ cents) – basic and diluted | (0.52) | (97.44) |
| Total earnings/(loss) per share (US$ cents) – basic and diluted | 40.96 | (71.34) |
| As at | As at | |
| 31 December | 31 December | |
| 2022 | 2021 | |
| Net asset value per ordinary share (US$ cents) | 502.95 | 496.28 |
| Ordinary share price (US$ cents)1 | 457.10 | 461.19 |
1 Based on an exchange rate of US$1.20 to £1 at 31 December 2022 and US$1.35 to £1 at 31 December 2021.
There are no dilutive securities at the year end.
8. Investments held at fair value through profit or loss
| 2022 | 2021 | |
| US$’000 | US$’000 | |
| Overseas listed equity investments | 158,149 | 212,151 |
| Overseas unlisted fixed income investments | – | 31 |
| Valuation of investments at 31 December | 158,149 | 212,182 |
| Opening book cost of equity and fixed income investments | 204,909 | 209,565 |
| Investment holding gains | 7,273 | 41,860 |
| Opening fair value | 212,182 | 251,425 |
| Analysis of transactions made during the year: | ||
| Purchases at cost | 68,406 | 142,147 |
| Sales proceeds received | (123,697) | (144,427) |
| Gains/(losses) on investments | 1,258 | (36,963) |
| Closing fair value | 158,149 | 212,182 |
| Closing book cost of equity and fixed income investments | 157,988 | 204,909 |
| Closing investment holding gains | 161 | 7,273 |
| Closing fair value | 158,149 | 212,182 |
The Company received US$123,697,000 (2021: US$144,427,000) from investments sold in the year. The book cost of these investments when they were purchased was US$115,327,000 (2021: US$146,803,000). 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$93,000 were incurred on the acquisition of investments (2021: US$136,000). Costs relating to the disposal of investments during the year amounted to US$119,000 (2021: US$178,000). All transaction costs have been included within capital reserves.
9. Share capital
| Ordinary | Treasury | Total | Nominal | |
| shares | shares | shares | value | |
| number | number | number | US$’000 | |
| Allotted, called up and fully paid share capital comprised: | ||||
| Ordinary shares of 10 cents each | ||||
| At 31 December 2021 | 39,259,620 | 2,181,662 | 41,441,282 | 4,144 |
| Tender offer | (9,810,979) | – | (9,810,979) | (981) |
| At 31 December 2022 | 29,448,641 | 2,181,662 | 31,630,303 | 3,163 |
During the period to 31 December 2022, 9,810,979 ordinary shares were purchased for cancellation as a result of a tender offer for a total cost of US$51,431,000 (2021: nil).
The ordinary shares give shareholders voting rights, the entitlement to all of the capital growth in the Company's assets and to all income from the Company that is resolved to be distributed.
10. Reserves
| Distributable Reserves | ||||||
| Capital | ||||||
| reserves | ||||||
| Capital | arising on | |||||
| reserves | revaluation | |||||
| Share | Capital | Non- | arising on | of | ||
| premium | redemption | distributable | investments | investments | Revenue | |
| account | reserve | reserve | sold | held | reserve | |
| US$’000 | US$’000 | US$’000 | US$’000 | US$’000 | US$’000 | |
| At 31 December 2021 | 11,719 | 4,843 | 4,356 | 158,700 | 7,247 | 3,829 |
| Movement during the year: | ||||||
| Total comprehensive income/(loss): | ||||||
| Net profit/(loss) for the year | – | – | – | 6,909 | (7,082) | 13,842 |
| Transactions with owners, recorded directly to equity: | ||||||
| Tender offer | – | – | – | (51,017) | – | – |
| Tender offer cost | – | – | – | (414) | – | – |
| Cancellation of shares | – | 981 | – | – | – | – |
| Dividends paid during the year from revenue | – | – | – | – | – | (8,965) |
| At 31 December 2022 | 11,719 | 5,824 | 4,356 | 114,178 | 165 | 8,706 |
The share premium account, capital redemption reserve and non-distributable reserve are not distributable reserves 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, the capital reserve may be used as distributable reserves for all purposes and, in particular, the repurchase by the Company of its ordinary shares and for payments as dividends. In accordance with the Company’s Articles of Association, capital reserves and the revenue reserve may be distributed by way of dividend. The capital reserve arising on the revaluation of investments of US$165,000 (2021: gain of US$7,247,000) is subject to fair value movements and may not be readily realisable at short notice, as such it may not be entirely distributable. The investments are subject to financial risks; as such capital reserves (arising on investments sold) and the revenue reserve may not be entirely distributable if a loss occurred during the realisation of these investments.
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 contained within the annual report and financial statements.
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 Level 3 asset or liability including an assessment of the relevant risks including but not limited to credit risk, market risk, liquidity risk, business risk and sustainability risk. The determination of what constitutes ‘observable’ inputs requires significant judgement by the Investment Manager, and these risks are adequately captured in the assumptions and inputs used in the measurement of Level 3 asset or liability.
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 2022 | US$’000 | US$’000 | US$’000 | US$’000 |
| Equity investments | 158,149 | – | – | 158,149 |
| Fixed interest investments | – | – | – | – |
| Total | 158,149 | – | – | 158,149 |
| Financial assets at fair value through profit or loss as at | Level 1 | Level 2 | Level 3 | Total |
| 31 December 2021 | US$’000 | US$’000 | US$’000 | US$’000 |
| Equity investments | 212,151 | – | – | 212,151 |
| Fixed interest investments | – | 31 | – | 31 |
| Total | 212,151 | 31 | – | 212,182 |
For exchange listed equity investments the quoted price is the bid price. Substantially all investments are valued based on unadjusted quoted market prices. Where such quoted prices are readily available in an active market, such prices are not required to be assessed or adjusted for any business risks, including climate change risk, in accordance with the fair value related requirements of the Company’s Financial Reporting Framework.
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 contained within 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 Company’s total capital as at 31 December 2022 was US$148,111,000 (2021: US$194,838,000) 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$25 million or 30% of the Company’s net asset value (whichever is the lowest) (2021: 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 contained within the annual report and financial statements.
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 2022 amounted to US$1,332,000 (2021: US$1,726,000), as disclosed in note 4 to the Financial Statements above. At the year end, an amount of US$588,000 was outstanding in respect of these fees (2021: US$815,000).
In addition to the above services BIM (UK) has provided the Company with marketing services. The total fees paid or payable for these services for the year ended 31 December 2022 amounted to US$83,000 excluding VAT (2021: US$101,000). Marketing fees of US$81,000 (2021: US$108,000) were outstanding at 31 December 2022.
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 2022, an amount of US$110,000 (2021: US$124,000) 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.
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 contained within the annual report and financial statements. At 31 December 2022, an amount of US$18,000 (2021: US$15,000) 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 2022
| Total % of shares held by Significant | Number of Significant Investors who | |
| Total % of shares held by Related | Investors who are not affiliates of | are not affiliates of BlackRock Group |
|
BlackRock Funds
|
BlackRock Group or BlackRock, Inc. | or BlackRock, Inc. |
| 1.7 | 20.7 | 1 |
| As at 31 December 2021 | ||
| Total % of shares held by Significant | Number of Significant Investors who | |
| Total % of shares held by Related | Investors who are not affiliates of | are not affiliates of BlackRock Group |
|
BlackRock Funds
|
BlackRock Group or BlackRock, Inc. | or BlackRock, Inc. |
| 1.3 | 26.8 | 1 |
15. Contingent liabilities
There were no contingent liabilities at 31 December 2022 (2021: 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 2022 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 2022 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 2022, 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 29 March 2023.
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 Monday, 22 May 2023 at 12:00 noon.
ENDS
The Annual Report will also be available on the BlackRock Investment Management website at http://www.blackrock.co.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
29 March 2023
12 Throgmorton Avenue
London EC2N 2DL
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