Half-year Report
BlackRock Latin American Investment Trust plc
(Legal Entity Identifier: UK9OG5Q0CYUDFGRX4151)
Information disclosed in accordance with Article 5 Transparency Directive and DTR 4.2
Half Yearly Financial Results Announcement for Period Ended 30 June 2018
PERFORMANCE RECORD
FINANCIAL HIGHLIGHTS
| For the six months ended 30 June 2018 (unaudited) |
For the six months ended 30 June 2017 (unaudited) |
Change % |
|
| Revenue | |||
| Net profit after taxation (US$’000) | 3,022 | 2,953 | +2.3 |
| Revenue profit per ordinary share (US$ cents) | 7.68c | 7.50c | +2.4 |
| Dividends per ordinary share | |||
| Interim (US$ cents) | 7.57c | 6.00c | +26.2 |
Attributable to ordinary shareholders |
As at 30 June 2018 (unaudited) |
As at 31 December 2017 (audited) |
Change1 % |
| Assets | |||
| Net assets (US$’000) | 237,680 | 279,590 | -15.0 |
| Net asset value per ordinary share (US$ cents)1 | 605.41c | 710.17c | -14.0 |
| Ordinary share price (mid-market) (US$ cents)1 | 514.90c | 622.29c | -16.4 |
| Ordinary share price (mid-market) (pence)1,2 | 390.00p | 460.00p | -14.3 |
| MSCI EM Latin America Index (Net return)3 | 451.90 | 508.61 | -11.2 |
| MSCI EM Latin America Index (Gross return)3 | 6,436.56 | 7,231.10 | -11.0 |
1. Percentage change calculations for NAV and share price per share performance in the table above are on a total return basis and assume that the dividend of 7.00 cents per share that went ex-dividend on 26 April 2018 was reinvested on the ex-dividend date.
2. Based on an exchange rate of US$1.3203 to £1 at 30 June 2018 and US$1.3528 to £1 at 31 December 2017.
3. The Company’s performance benchmark (the MSCI EM Latin America Index) may be calculated on either a Gross or a Net return basis. Net return (NR) indices calculate the reinvestment of dividends net of withholding taxes using the tax rates applicable to non-resident institutional investors, and hence give a lower total return than indices where calculations are on a Gross basis (which assumes that no withholding tax is suffered). As the Company is subject to withholding tax rates for the majority of countries in which it invests, the NR basis is felt to be the most accurate, appropriate, and consistent and fair comparison for the Company. Historically the benchmark data for the Company has always been stated on a Gross basis. However going forward it is the Board’s intention to monitor the Company’s performance with reference to the NR version of the benchmark. For transparency both sets of benchmark data have been provided in the performance data contained in this half yearly financial report.
Source: BlackRock.
CHAIRMAN’S STATEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2018
OVERVIEW AND PERFORMANCE
The recovery seen in Latin American markets in the second half of 2017 suffered a set-back in 2018 as shifts in global monetary policy, political tensions and market concerns over trade tariffs resulted in heightened volatility. The MSCI EM Latin America Index fell by 11.2% over the six months to 30 June 2018 in US Dollar terms (down by 9.0% in Sterling terms); against this backdrop the Company’s NAV per share fell by 14.0% in US Dollar terms (11.8% in Sterling terms) and the share price fell by 16.4% in US Dollar terms (14.3% in Sterling terms) over the same period (all calculations with dividends reinvested, benchmark data on a net return basis). The main drivers of the NAV underperformance relative to the benchmark were the portfolio’s overweight positions in Brazil and Argentina, where stock markets were negatively impacted by the strengthening of the US Dollar relative to most Emerging Market currencies late in the period under review.
The year started well, with the benchmark index hitting its highest level since 2014 in January 2018. However, higher US interest rates and a strengthening US Dollar placed increasing pressure on Latin American markets. Concern over economic policies in Argentina unsettled foreign investors and the Argentinian stock market was down by more than 45% over the period under review. Markets in Brazil also suffered a significant decline, with a transport strike in May causing major economic disruption. Persistent inflation, higher interest rates and the ongoing North American Free Trade Association (NAFTA) negotiations all created headwinds for the Mexican economy ahead of their presidential election, and markets here ended the period down by 2.6%. On the positive side, the strong oil price helped to bolster the Colombian economy and the country was the region’s best performer over the period, with the equity market up by 11.6%. Peru also performed well, up by 6.8% over the period. Further details of the factors which contributed to performance are set out in the Investment Manager’s Report.
Since 30 June 2018 and up until close of business on 28 August 2018, the Company’s NAV per share has increased by 1.1% in US Dollar terms and by 3.7% in Sterling terms. The share price has increased by 3.5% in US Dollar terms and by 6.1% in Sterling terms (all percentages calculated with income reinvested).
EARNINGS AND DIVIDENDS
The revenue return per share for the period amounted to 7.68 cents (30 June 2017: 7.50 cents). As previously announced, and as approved by shareholders at the Company’s Annual General Meeting in May 2018, the Board of the BlackRock Latin American Investment Trust plc has introduced a new dividend policy whereby the Company will pay regular quarterly dividends equivalent to 1.25% of the Company’s US Dollar cum-income NAV on the last working day of March, June, September and December each year, with the dividends being paid in February, May, August and November each year respectively. The first quarterly dividend under this new policy of 7.57 cents was declared on 3 July 2018 and was paid on 23 August 2018. The yield on the Company’s shares projecting future quarterly dividends forward based on four quarters being paid at the same rate as the July dividend, and based on the Company’s share price at 30 June 2018 converted to US Dollars at the exchange rate on 30 June 2018, would be 5.9%.
This increased level of dividend will be funded out of capital reserves to the extent that current year revenue and revenue reserves are insufficient. The Board believes that if pressure were placed on the investment managers to seek a higher income yield from the underlying portfolio itself then this could detract from total returns. By uncoupling the dividend policy of the Company from the actual revenue returns generated by the portfolio, the Board’s aim is to attract new buyers for the Company’s shares, whilst maintaining the portfolio’s ability to generate attractive total returns. The Board believes that this change to the Company’s dividend policy will widen the appeal of the Company to private investors as it will provide a more attractive yield. In turn, the increased demand for the Company’s shares is expected to result in a narrowing of the discount to net asset value over time.
DISCOUNT CONTROL
The next tender offer for 24.99% of the ordinary shares in issue (excluding treasury shares) will be implemented in 2022 if 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 total return (net basis) by more than 100 basis points over the four year period from 1 January 2018 to 31 December 2021 (the Calculation Period);
(ii) the average daily discount to the cum-income NAV exceeds 12 per cent as calculated with reference to the trading of the shares over the Calculation Period.
The tender offer is also dependent upon the continuation vote for each relevant biennial period being approved.
The Directors continue to monitor the discount at which the ordinary shares trade to their prevailing NAV and in the six months from 1 January 2018 to 30 June 2018 the cum-income discount of the Company’s ordinary shares has averaged 13.9% and ranged from a discount of 10.8% to 16.2%. Over the same period the Company’s NAV has fallen by 14.0% compared to a decrease in the benchmark of 11.2% (both on a US Dollar basis with income reinvested and benchmark data on a net return basis).
OUTLOOK
The outlook for the Latin American region remains uncertain in the second half of 2018. Despite this, there are reasons to be cautiously optimistic. The landslide election victory in Mexico for the presidency and congress, along with positive news on trade negotiations with the US, holds promise for a more stable political environment. In the region’s largest economy, Brazil, much will hinge on the outcome of the forthcoming election in October, and the ability of the new administration to tackle the much needed fiscal reform, and in particular to put state pension spending on a firmer footing.
Carolan Dobson
Chairman
30 August 2018
INTERIM MANAGEMENT REPORT AND RESPONSIBILITY STATEMENT
The Chairman’s Statement and the Investment Manager’s Report give details of the events which have occurred during the period and their impact on the financial statements.
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks faced by the Company can be divided into various areas as follows:
- Counterparty;
- Investment performance;
- Income/dividend;
- Legal and regulatory compliance;
- Operational;
- Market;
- Financial; and
- Marketing.
The Board reported on the principal risks and uncertainties faced by the Company in the Annual Report and Financial Statements for the year ended 31 December 2017. A detailed explanation can be found on pages 11 to 14 of the Annual Report and Financial Statements which are available on the website at blackrock.co.uk/brla.
In the view of the Board, there have not been any changes to the fundamental nature of the principal risks and uncertainties since the previous report and these are equally applicable to the remaining six months of the financial year as they were to the six months under review.
GOING CONCERN
The Directors are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future and is financially sound. For this reason they continue to adopt the going concern basis in preparing the financial statements. The Company has a portfolio of investments which are considered to be readily realisable and is able to meet all of its liabilities from its assets and income generated from these assets. Ongoing charges (excluding finance costs and taxation) for the year ended 31 December 2017 were approximately 1.1% of net assets.
RELATED PARTY DISCLOSURE AND TRANSACTIONS WITH THE INVESTMENT MANAGER
BlackRock Fund Managers Limited (BFM) was appointed as the Company’s Alternative Investment Fund Manager (AIFM) with effect from 2 July 2014. BFM has (with the Company’s consent) delegated certain portfolio and risk management services, and other ancillary services, to BlackRock Investment Management (UK) Limited (BIM UK)). Both BFM and BIM (UK) are regarded as related parties under the Listing Rules. Details of the fees payable are set out in note 10.
The related party transactions with the Directors are set out in note 11.
DIRECTORS’ RESPONSIBILITY STATEMENT
The Disclosure and Transparency Rules (DTR) of the UK Listing Authority require the Directors to confirm their responsibilities in relation to the preparation and publication of the Interim Management Report and Financial Statements.
The Directors confirm to the best of their knowledge and belief that:
- the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with applicable UK Accounting Standards and the Accounting Standards Board’s Statement ‘Half Yearly Financial Reports’; and
- the Interim Management Report, together with the Chairman’s Statement and the Investment Manager’s Report, include a fair review of the information required by 4.2.7R and 4.2.8R of the Financial Conduct Authoriity's (FCA) Disclosure and Transparency Rules.
The half yearly financial report has not been audited or reviewed by the Company’s Auditor.
The half yearly financial report was approved by the Board on 30 August 2018 and the above responsibility statement was signed on its behalf by the Chairman.
Carolan Dobson
For and on behalf of the Board
30 August 2018
INVESTMENT MANAGER’S REPORT
MARKET OVERVIEW
The performance of Latin American markets was volatile through the first half of 2018, as a shift in global monetary policy, approaching presidential elections, and intensified trade rhetoric drove volatility higher. The MSCI EM Latin America Index declined by 11.2% over the period, underperforming both Emerging and Developed Markets. Whilst January was very strong with indices and flows hitting recent highs, February was marked by a sharp correction and a rise in volatility triggered by a systematic correction in the US, the surge in US 10-year bond yields and rising expectations of the Federal Reserve tightening monetary policy. This continued into the second quarter of 2018 with markets weakening under FX pressure from higher US rates and a persistently strong US Dollar.
Colombia (+11.6%) was the region’s top performer amid oil strength and positive sentiment throughout the period surrounding pro-market candidate, and now president, Ivan Duque. Peru (+6.8%) also ended the first half of 2018 in positive territory. Despite seeing downgrades to Gross Domestic Product (GDP) growth estimates, outperformance was driven by a resilient Peruvian currency, while earlier in the period markets moved on speculation of a renewed political scenario after Pedro Pablo Kuczynski (PPK) resigned as president ahead of the scheduled congressional impeachment vote. Mexico ended the period under review down by 2.6%. Earlier in the year, persistent inflation resulted in the Central Bank raising rates in December, while complexity surrounding NAFTA negotiations continued to put pressure on the currency. The market and currency rallied in June as volatility led by the presidential race declined. Despite improved confidence, falling inflation and further Central Bank rate cuts in the beginning of the year, markets in Brazil declined by 17.3% in the first half of 2018, as volatility spiked following the May truckers strike and the approach of presidential elections. Argentina (-45.1%) was the region’s worst performer, plagued by outflows most recently associated with Central Bank missteps to combat rising inflation, leading to a US$50 billion Stand-By Arrangement with the International Monetary Fund (IMF) to help support the currency.
All figures in US Dollar terms and on a total return basis.
Regions/indices |
MSCI indices Price change % |
MSCI indices Total return1 % |
Local currency (% vs. USD) |
Local indices Total return (% in local currency) |
| Argentina | -46.0 | -45.1 | -35.8 | -13.4 (Merval) |
| Brazil | -18.6 | -17.3 | -14.2 | -4.8 (Ibovespa) |
| Chile | -11.5 | -9.5 | -5.8 | -4.1 (IGPA) |
| Colombia | 10.3 | 11.6 | 1.9 | 10.3 (IGBC) |
| Mexico | -3.7 | -2.6 | -0.6 | -2.3 (IPC) |
| Peru | 5.2 | 6.8 | -1.2 | -0.9 (S&P/BVL) |
| Commodity prices (% change) | ||||
| MSCI EM LatAm | -12.4 | -11.2 | CRB Index | 1.6 |
| MSCI Emerging Asia | -5.9 | -5.0 | Oil (Brent) | 18.8 |
| MSCI Emerging Markets | -7.7 | -6.6 | Gold | -3.9 |
| MSCI World | -0.7 | 0.7 | Copper | -10.6 |
| S&P 500 | 1.7 | 2.6 | Soybeans | -9.8 |
| MSCI Europe | -5.3 | -3.0 | ||
1. MSCI total return indices are net of withholding tax.
Source: Bloomberg (all figures in US Dollar terms unless otherwise stated) for the six months to 30 June 2018.
PORTFOLIO REVIEW
During the first half of 2018, the Company posted a 14.0% decrease in its NAV per share in US Dollar terms. These returns underperformed the -11.2% return of the MSCI EM Latin America Index (on a net return basis) over the same time period. Brazilian selection was the top contributor to returns led by early gains, and resiliency from energy and materials names did not offset broader weakness across more domestically focused sectors, amid oil price gains and commodity tightness. Vale and pulp producer, Suzano Papel e Celulose, were among the top performers, the latter of which posted strong results amid lower costs and higher prices. Positive earnings momentum should be maintained as the company also benefits from the recent currency devaluation. Mexico was also among the better performers amid falling concern with the election of Andres Manuel Lopes Obrador (AMLO). Lender, Banorte, and defensive staples Walmart de México y Centroamérica and Femsa both performed well on strong execution and resiliency through this period of macro uncertainty. Chilean copper miner, Antofagasta, was the top individual contributor in the first half of 2018. On the other hand our lack of positioning in Colombia weighed on performance on the back of oil strength, supported by speculation over potential re-imposition of sanctions against Iran and Venezuela. Argentina was the largest detractor for the period as outflows continued despite a US$50 billion Stand-By Arrangement with the IMF to help support the currency and MSCI’s decision to reclassify the country to Emerging Market status. Lenders, Grupo Supervielle and Galicia, both detracted. Similarly, Brazilian banks Banco Bradesco and Itaú Unibanco were among the worst performers amid pressure on the Real and increasing volatility on the back of approaching presidential elections.
| Top contributors | Total effect (bps) | Top detractors | Total effect (bps) |
| Antofagasta (overweight) | 45 | Ecopetrol (not held) | –31 |
| Magazine Luiza (overweight) | 43 | Itaú Unibanco (overweight) | –34 |
| Grupo Cementos de Chihuahua (overweight) | 37 | Bancolombia (underweight) | –36 |
| Ceilo (not held) | 37 | Banco Bradesco (overweight) | –40 |
| BRF (not held) | 37 | Grupo Supervielle (overweight) | –72 |
Source: BlackRock.
PORTFOLIO POSITIONING
Over the six months ended 30 June 2018, we notably shifted risk into Mexico, bringing our exposure to a more neutral position. We increased exposure to Chile, predominantly through mining names, while exiting our Peruvian exposure as we found better prospects elsewhere. Most recently we increased our overweight to Brazil, while also shifting positioning within the country. Specifically, we added to underperforming State Owned Enterprises (SOEs) in Brazil given significant underperformance, attractive valuation, and our continued belief that the October election will elect a government committed to the current economic reform process. We notably took profits from Rumo and Magazine Luiza amid strong performance, while adding to Petrobrás and Banco do Brasil on weakness. On the other hand, we increased exposure across Mexico, moving the country exposure from underweight to neutral, on the expectation that an eventual AMLO administration would initially embark in market friendly economic policies. We also initiated a position in Colombia, while trimming some exposure to off-benchmark Argentina as tough fiscal and Consumer Price Index (CPI) targets associated with the IMF Stand-By Agreement are likely to result in lower growth. The portfolio ended June being overweight Brazil while being underweight Chile, Peru and Colombia and neutral Mexico. We also maintain an off-benchmark allocation to Argentina. At the sector level, we are overweight the domestic consumer and real estate, while being underweight utilities and financials.
OUTLOOK
While Brazilian risk assets are likely to remain volatile through the election, we will look to take opportunities of down markets. Meanwhile, after a landslide victory for the presidency and congress, all eyes remain on how much of AMLO’s campaign rhetoric will flow through into practice. Our sentiment and positioning here have improved as we expect a less controversial administration initially with a more tempered agenda. We continue to be underweight Chile due to rich valuations and lack of free-float liquidity, and have become more cautious on Peru given disappointing growth figures. We are keeping a close eye on Argentine inflation and the effectiveness of government measures to stabilize the currency; however at this point we remain comfortable with our exposure and have initiated a position in Colombia given higher oil prices, which will reduce fiscal concerns.
Will Landers
BlackRock Investment Management (UK) Limited
30 August 2018
GEOGRAPHIC AND SECTOR ALLOCATIONS AS AT 30 JUNE 2018
GEOGRAPHIC WEIGHTING VS MSCI EM LATIN AMERICA INDEX
| Company (%) |
MSCI EM Latin America Index (%) |
|
| Brazil | 64.0 | 54.2 |
| Mexico | 27.6 | 27.2 |
| Chile | 4.3 | 10.4 |
| Argentina | 2.9 | 0.0 |
| Colombia | 1.2 | 4.4 |
| Peru | 0.0 | 3.8 |
Sources: BlackRock and MSCI.
SECTOR ALLOCATION VS MSCI EM LATIN AMERICA INDEX
| Company (%) |
MSCI EM Latin America Index (%) |
|
| Financials | 28.6 | 29.5 |
| Materials | 21.7 | 19.0 |
| Consumer Staples | 11.3 | 16.0 |
| Consumer Discretionary | 11.1 | 6.2 |
| Energy | 7.9 | 8.8 |
| Telecommunication Services | 7.8 | 6.7 |
| Industrials | 6.9 | 6.2 |
| Utilities | 1.4 | 4.6 |
| Information Technology | 1.2 | 0.9 |
| Health Care | 1.1 | 0.6 |
| Real Estate | 1.0 | 1.5 |
Sources: BlackRock and MSCI.
TEN LARGEST INVESTMENTS AS AT 30 JUNE 2018
Vale – 9.4% (2017: 8.1%) is the world’s largest producer of iron ore, with operations in several other commodities, including nickel, copper and alumina, among others. The company is the lowest cash cost producer of iron ore and is positioned to benefit from a positive management change and improving corporate governance, most recently seen when shareholders approved a share conversion plan that should boost investor transparency and give equal votes to all shares.
Itaú Unibanco – 7.3% (2017: 7.4%) is Brazil’s largest private sector bank. We continue to prefer private sector banks over government controlled banks and should benefit from their strong balance sheets and readiness to resume loan growth as the Brazilian economy recovers.
Banco Bradesco – 7.3% (2017: 6.7%) is Brazil’s second largest private sector bank. Like Itaú, the bank has been managing its loan book conservatively ahead of Brazil’s economic slowdown and should benefit from their readiness to resume loan growth as the Brazilian economy recovers.
Petrobrás – 6.7% (2017: 6.4%) is Brazil’s vertically integrated oil company. The company stands to benefit from improved governance, asset sales and a clear pricing policy for gasoline and diesel.
América Movil – 6.0% (2017: 5.1%) is Latin America’s largest telecommunications provider. The company is expected to benefit from easing regulatory and competitive pressures.
Femsa – 4.2% (2017: 3.9%) is the Mexican holding company that provides an investment vehicle to Mexico’s domestic retail market via its controlling interest in Coca-Cola’s largest independent bottler, Coca-Cola Femsa, with operations throughout Latin America. It operates Mexico’s fastest growing retailing chain, Oxxo, which has over 10,000 convenience stores throughout Mexico and also has a 12% stake in global brewer Heineken.
Grupo Financiero Banorte – 4.0% (2017: 2.6%) is the leading Mexican-owned bank and is expected to continue to benefit from growing strength in the domestic economy and growth in lending activity.
Walmart de México y Centroamérica – 3.5% (2017: 2.2%) is the leading retailer in Mexico and Central America, with over three thousand stores located in over 550 cities. The company operates in several formats, including small retailers, supermarkets and wholesale retailers. The company is benefitting from the formalization of the region’s economies, growth in domestic consumption and the overall improvement in consumers’ purchasing power.
B3 – 3.1% (2017: 2.9%) is Brazil’s leading financial exchange and stands to benefit from higher trading volumes as investment comes back to Brazil as well as from synergies resulting from its merger with Cetip.
Cemex SAB – 2.8% (2017: 1.9%) is one of the world’s largest global building materials companies and is a leading supplier of cement, ready-mix concrete, and aggregates. The company should benefit from strong cement demand and prices in the US.
All percentages reflect the value of the holding as a percentage of total investments. Percentages in brackets represent the value of the holding as at 31 December 2017. Together, the ten largest investments represents 54.3% of the total investments (ten largest investments as at 31 December 2017: 50.8%).
INVESTMENTS AS AT 30 JUNE 2018
Country of operation |
Market value US$’000 |
% of investments |
|
| Brazil | |||
| Vale – ADS | 24,339 | 9.4 | |
| Itaú Unibanco – ADR | 18,925 | 7.3 | |
| Banco Bradesco – ADR Petrobrás – preference shares – ADR |
18,865 | 7.3 | |
| 10,375 | 6.7 |
||
| Petrobrás – ADR | 6,884 | ||
| B3 | 7,973 | 3.1 | |
| Suzano Papel e Celulose | 6,417 | 2.5 | |
| Lojas Renner | 6,086 | 2.3 | |
| Gerdau – preference shares | 2,890 | 2.2 |
|
| Gerdau – ADR | 2,832 | ||
| Rumo Logistica Operada Multimodal | 5,288 | 2.0 | |
| Lojas Americanas | 4,328 | 1.7 | |
| Localiza Rent A Car | 4,317 | 1.7 | |
| AmBev – ADR | 4,167 | 1.6 | |
| Banco do Brasil | 3,903 | 1.5 | |
| TIM Participaçóes | 1,887 | 1.5 |
|
| TIM Participaçóes – ADR | 1,856 | ||
| Azul – ADR | 3,380 | 1.3 | |
| Cosan | 3,200 | 1.2 | |
| Fleury | 2,852 | 1.1 | |
| BR Malls Participaçóes | 2,670 | 1.0 | |
| Arezzo Industria e Comércio | 2,588 | 1.0 | |
| B2W Cia Digital | 2,447 | 0.9 | |
| MRV Engenharia | 2,291 | 0.9 | |
| Klabin | 1,778 | 0.9 |
|
| Klabin 7.25% 15/06/20 convertible bond†| 262 | ||
| Klabin 2.5% 15/06/22 convertible bond†| 161 | ||
| Klabin warrants 15/06/20†| – | ||
| Iochpe-Maxion | 2,142 | 0.8 |
|
| Iochpe-Maxion warrants 20/04/19 | 25 | ||
| Iguatemi Empresa | 2,124 | 0.8 | |
| Magazine Luiza | 1,858 | 0.7 | |
| WEG | 1,839 | 0.7 | |
| Linx | 1,610 | 0.6 | |
| Eneva | 1,217 | 0.5 | |
| Companhia de Saneamento | 1,109 | 0.4 | |
| Minerva | 631 | 0.2 | |
| Companhia Energética de São Paulo – preference shares | 622 | 0.2 | |
| Hypera Pharma 11.3% 15/10/18 convertible bond†| 21 | – | |
| -------- | -------- | ||
| 166,159 | 64.0 | ||
| -------- | -------- | ||
| Mexico | |||
| América Movil – ADR | 15,660 | 6.0 | |
| Femsa – ADR | 10,974 | 4.2 | |
| Grupo Financiero Banorte | 10,397 | 4.0 | |
| Walmart de México y Centroamérica | 9,040 | 3.5 | |
| Cemex SAB – ADR | 7,216 | 2.8 | |
| Arca Continental | 4,647 | 1.8 | |
| Alsea | 3,996 | 1.6 | |
| Banco Del BajÃo | 2,914 | 1.1 | |
| Grupo Cementos de Chihuahua | 2,820 | 1.1 | |
| Corporacion Inmobiliaria Vesta | 1,806 | 0.7 | |
| Administradora Industrial | 1,448 | 0.6 | |
| Grupo GICSA | 520 | 0.2 | |
| -------- | -------- | ||
| 71,438 | 27.6 | ||
| -------- | -------- | ||
| Chile | |||
| Antofagasta | 6,077 | 2.3 | |
| S.A.C.I. Falabella | 5,214 | 2.0 | |
| -------- | -------- | ||
| 11,291 | 4.3 | ||
| -------- | -------- | ||
| Argentina | |||
| Globant | 1,429 | 0.6 | |
| Loma Negra Compañia Industrial Argentina – ADS | 1,222 | 0.5 | |
| Corporacion America Airports | 1,131 | 0.4 | |
| Grupo Supervielle – ADR | 1,005 | 0.4 | |
| Grupo Financiero Galicia – ADR | 954 | 0.4 | |
| Pampa EnergÃa – ADR | 894 | 0.3 | |
| Telecom Argentina – ADR | 887 | 0.3 | |
| -------- | -------- | ||
| 7,522 | 2.9 | ||
| -------- | -------- | ||
| Colombia | |||
| Bancolombia – ADR | 3,135 | 1.2 | |
| -------- | -------- | ||
| 3,135 | 1.2 | ||
| -------- | -------- | ||
| Total Investments | 259,545 | 100.0 | |
| ====== | ===== |
†Unlisted securities.
All investments are in equity shares unless otherwise stated.
The total number of investments held at 30 June 2018 was 61 (31 December 2017: 65). At 30 June 2018, the Company did not hold any equity interests comprising more than 3% of any company’s share capital (31 December 2017: nil).
INCOME STATEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2018
Notes |
Revenue US$’000 | Capital US$’000 | Total US$’000 | ||||||||
| Six months ended | Year ended | Six months ended | Year ended | Six months ended | Year ended | ||||||
| 30.06.18 (unaudited) |
30.06.17 (unaudited) |
31.12.17 (audited) |
30.06.18 (unaudited) |
30.06.17 (unaudited) |
31.12.17 (audited) |
30.06.18 (unaudited) |
30.06.17 (unaudited) |
31.12.17 (audited) |
|||
| (Losses)/gains on investments held at fair value through profit or loss | – |
– |
– |
(40,535) |
23,337 |
60,641 |
(40,535) |
23,337 |
60,641 |
||
| Gains/(losses) on foreign exchange | – | – | – | 84 | (57) | (94) | 84 | (57) | (94) | ||
| Income from investments held at fair value through profit or loss | 2 |
4,099 |
3,938 |
6,975 |
– |
– |
– |
4,099 |
3,938 |
6,975 |
|
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |||
| Total income | 4,099 | 3,938 | 6,975 | (40,451) | 23,280 | 60,547 | (36,352) | 27,218 | 67,522 | ||
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |||
| Expenses Investment management fee |
3 |
(270) |
(244) |
(530) |
(810) |
(732) |
(1,589) |
(1,080) |
(976) |
(2,119) |
|
| Other operating expenses | 4 | (301) | (392) | (766) | (22) | (12) | (86) | (323) | (404) | (852) | |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |||
| Total operating expenses | (571) | (636) | (1,296) | (832) | (744) | (1,675) | (1,403) | (1,380) | (2,971) | ||
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |||
| Net profit/(loss) on ordinary activities before finance costs and taxation | 3,528 |
3,302 |
5,679 |
(41,283) |
22,536 |
58,872 |
(37,755) |
25,838 |
64,551 |
||
| Finance costs | (78) | (22) | (79) | (235) | (65) | (236) | (313) | (87) | (315) | ||
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |||
| Net profit/(loss) on ordinary activities before taxation | 3,450 |
3,280 |
5,600 |
(41,518) |
22,471 |
58,636 |
(38,068) |
25,751 |
64,236 |
||
| Taxation | (428) | (327) | (471) | – | (397) | – | (428) | (724) | (471) | ||
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |||
| Net profit/(loss) on ordinary activities after taxation | 3,022 |
2,953 |
5,129 |
(41,518) |
22,074 |
58,636 |
(38,496) |
25,027 |
63,765 |
||
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |||
| Earnings/(loss) per ordinary share (US$ cents) | 7 |
7.68 |
7.50 |
13.03 |
(105.52) |
56.07 |
148.93 |
(97.84) |
63.57 |
161.96 |
|
| ===== | ===== | ===== | ===== | ===== | ===== | ===== | ===== | ===== | |||
The total column of this statement represents the Company’s profit and loss account. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies (AIC). All items in the above statement derive from continuing operations. No operations were acquired or discontinued during the period. All income is attributable to the equity holders of the Company.
The net profit/(loss) on ordinary activities for the period disclosed above represents the Company’s total comprehensive income.
STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 30 JUNE 2018
| Called up share capital US$’000 |
Share premium account US$’000 |
Capital redemption reserve US$’000 |
Non- distributable reserve US$’000 |
Capital reserves US$’000 |
Revenue reserve US$’000 |
Total US$’000 |
|
| For the six months ended 30 June 2018 (unaudited) | |||||||
| At 31 December 2017 | 4,144 | 11,719 | 4,843 | 4,356 | 240,131 | 14,397 | 279,590 |
| Total comprehensive income: | |||||||
| (Loss)/profit for the period | – | – | – | – | (41,518) | 3,022 | (38,496) |
| Transaction with owners, recorded directly to equity: | |||||||
| Ordinary shares purchased into treasury | – | – | – | – | (655) | – | (655) |
| Share purchase costs | – | – | – | – | (3) | – | (3) |
| Dividends paid(a) | – | – | – | – | – | (2,756) | (2,756) |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | |
| At 30 June 2018 | 4,144 | 11,719 | 4,843 | 4,356 | 197,955 | 14,663 | 237,680 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | |
| For the six months ended 30 June 2017 (unaudited) | |||||||
| At 31 December 2016 | 4,144 | 11,719 | 4,843 | 4,356 | 181,495 | 15,173 | 221,730 |
| Total comprehensive income: | |||||||
| Profit for the period | – | – | – | – | 22,074 | 2,953 | 25,027 |
| Transaction with owners, recorded directly to equity: | |||||||
| Dividends paid(b) | – | – | – | – | – | (3,543) | (3,543) |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | |
| At 30 June 2017 | 4,144 | 11,719 | 4,843 | 4,356 | 203,569 | 14,583 | 243,214 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | |
| For the year ended 31 December 2017 (audited) | |||||||
| At 31 December 2016 | 4,144 | 11,719 | 4,843 | 4,356 | 181,495 | 15,173 | 221,730 |
| Total comprehensive income: | |||||||
| Profit for the year | – | – | – | – | 58,636 | 5,129 | 63,765 |
| Transaction with owners, recorded directly to equity: Dividends paid(c) |
– |
– |
– |
– |
– |
(5,905) |
(5,905) |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | |
| At 31 December 2017 | 4,144 | 11,719 | 4,843 | 4,356 | 240,131 | 14,397 | 279,590 |
| ====== | ===== | ===== | ===== | ====== | ===== | ====== |
(a) Final dividend of 7.00 cents per share for the year ended 31 December 2017, declared on 13 March 2018 and paid on 6 June 2018.
(b) Final dividend of 9.00 cents per share for the year ended 31 December 2016, declared on 9 March 2017 and paid on 12 May 2017.
(c) Interim dividend of 6.00 cents per share for the year ended 31 December 2017, declared on 27 September 2017 and paid on 30 October 2017. Final dividend of 9.00 cents per share for the year ended 31 December 2016, declared on 9 March 2017 and paid on 12 May 2017.
The transaction costs incurred on the acquisition and disposal of investments are included within the capital reserve and amounted to US$124,000 and US$89,000 respectively for the six months ended 30 June 2018 (six months ended 30 June 2017: US$80,000 and US$92,000; year ended 31 December 2017: US$145,000 and US$169,000).
BALANCE SHEET AS AT 30 JUNE 2018
Notes |
30 June 2018 US$’000 (unaudited) |
30 June 2017 US$’000 (unaudited) |
31 December 2017 US$’000 (audited) |
|
| Fixed assets Investments held at fair value through profit or loss |
259,545 |
256,698 |
303,628 |
|
| -------- | -------- | -------- | ||
| Current assets Debtors |
989 |
1,805 |
1,658 |
|
| Cash and cash equivalents | 153 | 69 | 20 | |
| -------- | -------- | -------- | ||
| 1,142 | 1,874 | 1,678 | ||
| -------- | -------- | -------- | ||
| Creditors – amounts falling due within one year | ||||
| Bank overdraft | (19,924) | (13,085) | (23,702) | |
| Other creditors | (2,821) | (1,615) | (1,752) | |
| -------- | -------- | -------- | ||
| (22,745) | (14,700) | (25,454) | ||
| -------- | -------- | -------- | ||
| Net current liabilities | (21,603) | (12,826) | (23,776) | |
| -------- | -------- | -------- | ||
| Total assets less current liabilities | 237,942 | 243,872 | 279,852 | |
| -------- | -------- | -------- | ||
| Creditors – amounts falling due after more than one year | ||||
| Non current tax liability | 6 | (238) | (634) | (238) |
| Non-equity redeemable shares | 6 | (24) | (24) | (24) |
| -------- | -------- | -------- | ||
| (262) | (658) | (262) | ||
| -------- | -------- | -------- | ||
| Net assets | 237,680 | 243,214 | 279,590 | |
| -------- | -------- | -------- | ||
| Capital and reserves Called up share capital |
8 |
4,144 |
4,144 |
4,144 |
| Share premium account | 11,719 | 11,719 | 11,719 | |
| Capital redemption reserve | 4,843 | 4,843 | 4,843 | |
| Non-distributable reserve | 4,356 | 4,356 | 4,356 | |
| Capital reserves | 197,955 | 203,569 | 240,131 | |
| Revenue reserve | 14,663 | 14,583 | 14,397 | |
| -------- | -------- | -------- | ||
| Total shareholders’ funds | 7 | 237,680 | 243,214 | 279,590 |
| -------- | -------- | -------- | ||
| Net asset value per ordinary share (US$ cents) | 7 | 605.41 | 617.77 | 710.17 |
| ====== | ====== | ====== |
STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED 30 JUNE 2018
| Six months ended 30 June 2018 US$’000 (unaudited) |
Six months ended 30 June 2017 US$’000 (unaudited) |
Year ended 31 December 2017 US$’000 (audited) |
|
| Operating activities | |||
| Net (loss)/profit before taxation | (38,068) | 25,751 | 64,236 |
| Add back finance costs | 313 | 87 | 315 |
| Losses/(gains) on investments held at fair value through profit or loss | 40,535 | (23,337) | (60,641) |
| (Gains)/losses on foreign exchange | (84) | 57 | 94 |
| Sales of investments | 89,289 | 60,028 | 110,490 |
| Purchases of investments | (85,741) | (65,460) | (125,099) |
| Decrease/(increase) in debtors | 669 | 681 | (22) |
| Increase/(decrease) in other creditors | 1,069 | (87) | 452 |
| Tax on investment income | (428) | (327) | (471) |
| -------- | -------- | -------- | |
| Net cash generated from/(used in) operating activities | 7,554 | (2,607) | (10,646) |
| -------- | -------- | -------- | |
| Financing activities | |||
| Ordinary shares purchased into treasury | (655) | – | – |
| Share purchase costs | (3) | – | – |
| Interest paid | (313) | (87) | (315) |
| Dividends paid | (2,756) | (3,543) | (5,905) |
| -------- | -------- | -------- | |
| Net cash used in financing activities | (3,727) | (3,630) | (6,220) |
| -------- | -------- | -------- | |
| Increase/(decrease) in cash and cash equivalents | 3,827 | (6,237) | (16,866) |
| -------- | -------- | -------- | |
| Cash and cash equivalents at the beginning of the period | (23,682) | (6,722) | (6,722) |
| Effect of foreign exchange rate changes | 84 | (57) | (94) |
| -------- | -------- | -------- | |
| Cash and cash equivalents at the end of the period | (19,771) | (13,016) | (23,682) |
| -------- | -------- | -------- | |
| Comprised of: | |||
| Cash at bank | 153 | 69 | 20 |
| Bank overdraft | (19,924) | (13,085) | (23,702) |
| -------- | -------- | -------- | |
| (19,771) | (13,016) | (23,682) | |
| ====== | ====== | ====== |
NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE 2018
1. PRINCIPAL ACTIVITY AND BASIS OF PREPARATION
The principal activity of the Company is that of an investment trust company within the meaning of section 1158 of the Corporation Tax Act 2010.
The Company presents its results and positions under FRS 102, ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’ (FRS 102), which forms part of revised Generally Accepted Accounting Practice (New UK GAAP) issued by the Financial Reporting Council (FRC) in 2013.
The condensed set of financial statements has been prepared on a going concern basis in accordance with FRS 102 and FRS 104, ‘Interim Financial Reporting’ issued by the FRC in March 2015 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 November 2014 and updated in January 2017.
The accounting policies applied for the condensed set of financial statements are as set out in the Company’s Annual Report and Financial Statements for the year ended 31 December 2017.
2. INCOME
| Six months ended 30 June 2018 US$’000 (unaudited) |
Six months ended 30 June 2017 US$’000 (unaudited) |
Year ended 31 December 2017 US$’000 (audited) |
|
| Investment income: | |||
| Overseas listed dividends | 3,013 | 3,273 | 6,016 |
| Overseas listed REIT distributions | 69 | – | 62 |
| Overseas listed special dividends | 618 | 72 | 168 |
| Overseas listed stock dividends | – | 579 | 668 |
| UK listed dividends | 189 | – | – |
| Fixed interest income | 186 | 14 | 111 |
| Amortisation of fixed interest investments | 24 | – | (50) |
| -------- | -------- | -------- | |
| Total income | 4,099 | 3,938 | 6,975 |
| ===== | ===== | ===== |
There were no special dividends recognised in capital (six months ended 30 June 2017: US$360,000; year ended 31 December 2017: US$554,000).
Dividends and interest received in cash during the period amounted to US$4,978,000 and US$192,000 (six months ended 30 June 2017: US$4,444,000 and US$216,000; year ended 31 December 2017: US$6,748,000 and US$283,000) respectively.
3. INVESTMENT MANAGEMENT FEE
| Six months ended 30 June 2018 (unaudited) |
Six months ended 30 June 2017 (unaudited) |
Year ended 31 December 2017 (audited) |
|||||||
| Revenue US$’000 |
Capital US$’000 |
Total US$’000 |
Revenue US$’000 |
Capital US$’000 |
Total US$’000 |
Revenue US$’000 |
Capital US$’000 |
Total US$’000 |
|
| Investment management fee | 270 | 810 | 1,080 | 244 | 732 | 976 | 530 | 1,589 | 2,119 |
The investment management fee has been calculated at 0.80% per annum on the Net Asset Value (NAV). The fee is allocated 25% to the revenue column and 75% to the capital column of the Income Statement.
4. OTHER OPERATING EXPENSES
| Six months ended 30 June 2018 US$’000 (unaudited) |
Six months ended 30 June 2017 US$’000 (unaudited) |
Year ended 31 December 2017 US$’000 (audited) |
|
| Taken to revenue: | |||
| Custody fee | 32 | 30 | 64 |
| Depositary fees* | 17 | 14 | 29 |
| Auditor’s remuneration: | |||
| – Audit fees | 21 | 25 | 40 |
| – Non-audit fees** | – | – | 8 |
| Registrar’s fees | 11 | 20 | 38 |
| Directors’ emoluments | 81 | 121 | 241 |
| Marketing fees | 57 | 63 | 120 |
| Other administration costs | 82 | 119 | 226 |
| -------- | -------- | -------- | |
| 301 | 392 | 766 | |
| -------- | -------- | -------- | |
| Taken to capital: | |||
| Transaction charges | 22 | 12 | 86 |
| -------- | -------- | -------- | |
| 323 | 404 | 852 | |
| ===== | ===== | ===== |
* All expenses other than depositary fees are paid in Sterling and are therefore subject to exchange rate fluctuations.
** Non-audit fees relate to services provided by the auditors to review performance calculations for the two years ended 31 December 2017 used as a basis for the discount control mechanism.
5. DIVIDENDS
On 30 May 2018, shareholders approved a resolution to amend the Company’s dividend policy to pay regular quarterly dividends equivalent to 1.25% of the Company’s US Dollar NAV on the last working day of March, June, September and December each year, with the dividends being paid in February, May, August and November each year, respectively. Therefore for the year ending 31 December 2018, the first quarterly dividend under this new policy was calculated based on the Company’s cum-income US Dollar NAV at 29 June 2018 (being the last working day of the quarter).
The Company’s cum-income US Dollar NAV at 29 June 2018 was 605.54 US cents per share, and the Directors have declared a first quarterly interim dividend of 7.57 cents per share. The dividend was paid on 23 August 2018 to holders of ordinary shares on the register at the close of business on 13 July 2018.
In accordance with FRS 102 Section 32 ‘Events After the End of the Reporting Period’, the final dividend payable on ordinary shares is recognised as a liability when approved by shareholders. Interim dividends are recognised only when paid.
6. CREDITORS – AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
| As at 30 June 2018 US$’000 (unaudited) |
As at 30 June 2017 US$’000 (unaudited) |
As at 31 December 2017 US$’000 (audited) |
|
| Non current tax liability | 238 | 634 | 238 |
| Non-equity redeemable shares | 24 | 24 | 24 |
| -------- | -------- | -------- | |
| 262 | 658 | 262 | |
| ==== | ==== | ==== |
During the six months ended 30 June 2017, the Company accounted for a provision for capital gains tax (CGT) that was potentially payable in Argentina. At 30 June 2017, CGT provided for in the financial statements for the six months ended 30 June 2017 amounted to US$217,000 on realised gains and US$180,000 on unrealised gains from Argentinian securities since 23 September 2013, the date when the Argentine tax reform bill became effective. Following the enactment of the Argentine tax reform (Law No. 27,430), effective 1 January 2018, and discussions with the Company’s advisers, capital gains on American Depositary Receipts over Argentine equity held by the Company will not give rise to an Argentine CGT liability and accordingly the provision for CGT of US$397,000 previously accrued by the Company has been reversed during the year ended 31 December 2017.
A deferred tax asset in respect of excess management expenses of US$273,000 (30 June 2017: US$nil; 31 December 2017: US$nil) and a non-trade loan relationship deficit of US$254,000 (30 June 2017: US$nil; 31 December 2017: US$nil) has not been recognised as it is unlikely that there will be sufficient future taxable profits to utilise these expenses.
Non equity redeemable shares
The redeemable shares of £1 each carry the right to receive a fixed dividend at the rate of 0.1% per annum on the nominal amount thereof. They are capable of being redeemed by the Company at any time and confer no rights to receive notice of, attend or vote at general meetings except where the rights of holders are to be varied or abrogated. On a winding up, the capital paid up on such shares ranks pari passu with, and in proportion to, any amounts of capital paid to the holders of ordinary shares, but does not confer any further right to participate in the surplus assets of the Company.
7. EARNINGS AND NET ASSET VALUE PER ORDINARY SHARE
Revenue and capital earnings per ordinary share and net asset value per ordinary share are shown below and have been calculated using the following:
| Six months ended 30 June 2018 (unaudited) |
Six months ended 30 June 2017 (unaudited) |
Year ended 31 December 2017 (audited) |
|
| Net revenue profit attributable to ordinary shareholders (US$’000) | 3,022 | 2,953 | 5,129 |
| Net capital (loss)/profit attributable to ordinary shareholders (US$’000) | (41,518) | 22,074 | 58,636 |
| -------- | -------- | -------- | |
| Total (loss)/profit attributable to ordinary shareholders (US$’000) | (38,496) | 25,027 | 63,765 |
| -------- | -------- | -------- | |
| Equity shareholders’ funds (US$’000) | 237,680 | 243,214 | 279,590 |
| -------- | -------- | -------- | |
| Earnings per share | |||
| The weighted average number of ordinary shares in issue during the period on which the earnings per ordinary share was calculated, was: |
39,345,117 |
39,369,620 |
39,369,620 |
| --------------- | -------------- | -------------- | |
| The actual number of ordinary shares in issue at the end of each period on which the net asset value per ordinary share was calculated, was: |
39,259,620 |
39,369,620 |
39,369,620 |
| -------------- | -------------- | -------------- | |
| Calculated on weighted average number of ordinary shares: | |||
| Revenue profit (US$ cents) | 7.68 | 7.50 | 13.03 |
| Capital (loss)/profit (US$ cents) | (105.52) | 56.07 | 148.93 |
| -------- | -------- | -------- | |
| Total (loss)/profit (US$ cents) | (97.84) | 63.57 | 161.96 |
| ===== | ===== | ===== |
| As at 30 June 2018 (US$ cents) (unaudited) |
As at 30 June 2017 (US$ cents) (unaudited) |
As at 31 December 2017 (US$ cents) (audited) |
|
| Net asset value | 605.41 | 617.77 | 710.17 |
| -------- | -------- | -------- | |
| Ordinary share price (mid-market)* | 514.90 | 529.67 | 622.29 |
| ====== | ====== | ====== |
* The Company’s share price is quoted in sterling and the above represents the US dollar equivalent based on exchange rates of 1.3203 (30 June 2017: 1.2990; 31 December 2017: 1.3528).
8. SHARE CAPITAL
| Ordinary shares number |
Treasury shares number |
Total shares number |
Nominal value US$’000 |
|
| Allotted, called up and fully paid share capital comprised: | ||||
| Ordinary shares of 10 cents each | ||||
| At 31 December 2017 | 39,369,620 | 2,071,662 | 41,441,282 | 4,144 |
| -------------- | ------------- | -------------- | -------- | |
| Shares purchased and held in treasury | (110,000) | 110,000 | – | – |
| -------------- | ------------- | -------------- | -------- | |
| At 30 June 2018 | 39,259,620 | 2,181,662 | 41,441,282 | 4,144 |
| ======== | ======== | ======== | ===== |
During the period to 30 June 2018, 110,000 ordinary shares were purchased and transferred to treasury at a total cost of US$658,000 (six months ended 30 June 2017: nil ordinary shares at a total cost of US$nil; year ended 31 December 2017: nil ordinary shares at a total cost of US$nil).
No treasury shares were cancelled during the period (six months ended 30 June 2017: nil; year ended 31 December 2017: nil).
No shares have been repurchased since 30 June 2018 and up to the date of this report.
9. 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 and cash equivalents and overdrafts). Section 11 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 in the Financial Statements on page 49 of the Annual Report and Financial Statements for the year ended 31 December 2017.
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. 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 in active markets for similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.
Level 3 – Valuation techniques using significant unobservable inputs.
This category includes all instruments where the valuation technique includes inputs not based on observable market data and the observable inputs could have a significant impact on the instrument’s valuation.
This category also includes instruments that are valued based on quoted prices for similar instruments where significant entity determined adjustments or assumptions are required to reflect differences between the instruments and instruments for which there is no active market. The Investment Manager considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.
The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement.
Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability. The determination of what constitutes ‘observable’ inputs requires significant judgement by the Investment Manager.
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 30 June 2018 (unaudited) | Level 1 US$’000 |
Level 2 US$’000 |
Level 3 US$’000 |
Total US$’000 |
| Equity investments | 259,101 | – | – | 259,101 |
| Fixed interest investments | – | 423 | 21 | 444 |
| -------- | -------- | -------- | ---------- | |
| Total | 259,101 | 423 | 21 | 259,545 |
| ====== | ===== | ===== | ====== |
| Financial assets at fair value through profit or loss as at 30 June 2017 (unaudited) | Level 1 US$’000 |
Level 2 US$’000 |
Level 3 US$’000 |
Total US$’000 |
| Equity investments | 254,933 | – | – | 254,933 |
| Fixed interest investments | – | 527 | 1,238 | 1,765 |
| -------- | -------- | -------- | ---------- | |
| Total | 254,933 | 527 | 1,238 | 256,698 |
| ====== | ===== | ===== | ====== |
| Financial assets at fair value through profit or loss as at 31 December 2017 (audited) | Level 1 US$’000 |
Level 2 US$’000 |
Level 3 US$’000 |
Total US$’000 |
| Equity investments | 301,804 | – | – | 301,804 |
| Fixed interest investments | – | 485 | 1,339 | 1,824 |
| -------- | -------- | -------- | ---------- | |
| Total | 301,804 | 485 | 1,339 | 303,628 |
| ====== | ===== | ===== | ====== |
A reconciliation of fair value measurement in Level 3 is set out below.
| Level 3 Financial assets at fair value through profit or loss | Six months ended 30 June 2018 US$’000 (unaudited) |
Six months ended 30 June 2017 US$’000 (unaudited) |
Year ended 31 December 2017 US$’000 (audited) |
| Opening fair value | 1,339 | 1,398 | 1,398 |
| Fixed interest converted to equity and transferred to Level 1 | (1,471) | – | – |
| Total gains/(losses) included in (losses)/gains on investments in the Income Statement: | |||
| – assets disposed during the period | 180 | – | – |
| – assets held at the end of the period | (27) | (160) | (59) |
| ------- | -------- | -------- | |
| Closing balance | 21 | 1,238 | 1,339 |
| ==== | ==== | ==== |
The Level 3 investment in the table above relates to the Hypera Pharma 11.3% 15/10/18 convertible bond.
During the period, the Klabin 8% 08/01/19 convertible bond held at 31 December 2017 was converted to equity and consequently transferred to Level 1.
The Company held one Level 3 security as at 30 June 2018 (30 June 2017: 2; 31 December 2017: 2).
For exchange listed equity investments the quoted price is the bid price.
The unquoted fixed asset investments, as shown in Level 3, have been valued based on the Directors’ best estimate based on latest information in line with the principles of the International Private and Venture Capital Valuation Guidelines.
10. TRANSACTIONS WITH THE AIFM AND INVESTMENT MANAGER
BFM provides management and administration services to the Company under a contract which is terminable by either party on six months’ notice. BFM has (with the Company’s consent) delegated certain portfolio and risk management services, and other ancillary services, to BIM (UK). Further details of the investment management contract are disclosed in the Directors’ Report in the Annual Report and Financial Statements for the year ended 31 December 2017 on pages 23 and 24.
The investment management fee is levied quarterly, based on 0.80% per annum of the net asset value on the last day of each month.
The investment management fee payable for the six months ended 30 June 2018 amounted to US$1,080,000 (30 June 2017: US$976,000; 31 December 2017: US$2,119,000). At the period end, an amount of US$1,087,000 was outstanding in respect of investment management fees (30 June 2017: US$492,000; 31 December 2017: US$1,150,000).
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 period ended 30 June 2018 amounted to US$57,000 excluding VAT (30 June 2017: US$63,000; 31 December 2017: US$120,000). Marketing fees of US$169,000 were outstanding at 30 June 2018 (30 June 2017: US$148,000; 31 December 2017: US$112,000).
11. RELATED PARTY DISCLOSURE
The Board consists of five non-executive Directors, all of whom are considered to be independent by the Board. None of the Directors has a service contract with the Company. The Chairman receives an annual fee of £46,000, the Chairman of the Audit Committee/Senior Independent Director receives an annual fee of £35,000 and each of the other Directors receives an annual fee of £31,000. At 30 June 2018, an amount of US$nil (30 June 2017: US$nil; 31 December 2017: US$nil) was outstanding in respect of Directors’ fees.
At the period end and as at the date of this report members of the Board held ordinary shares in the Company as set out below:
| As at 30 August 2018 Ordinary shares |
As at 30 June 2018 Ordinary shares |
|
| Carolan Dobson (Chairman) | 4,792 | 4,792 |
| Mahrukh Doctor | 686 | 686 |
| Antonio Monteiro de Castro | 47,000 | 47,000 |
| Nigel Webber | 5,000 | 5,000 |
| Laurence Whitehead | 15,203 | 15,203 |
12. CONTINGENT LIABILITIES
There were no contingent liabilities at 30 June 2018, 30 June 2017 or 31 December 2017.
13. PUBLICATION OF NON STATUTORY ACCOUNTS
The financial information contained in this half yearly financial report does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. The financial information for the six months ended 30 June 2018 and 30 June 2017 has not been audited or reviewed by the Company’s auditors.
The information for the year ended 31 December 2017 has been extracted from the latest published audited financial statements, which have been filed with the Registrar of Companies. The report of the auditor in those financial statements contained no qualification or statement under sections 498(2) or (3) of the Companies Act 2006.
14. ANNUAL RESULTS
The Board expects to announce the annual results for the year ending 31 December 2018 in March 2019. Copies of the results announcement can be obtained from the Secretary on 020 7743 3000. The Annual Report and Financial Statements should be available by mid-March 2019, with the Annual General Meeting being held in May 2019.
For further information, please contact:
Simon White, Managing Director, BlackRock Investment Management (UK) Limited
Tel: 020 7743 3000
Press enquiries:
Lucy Horne, Lansons Communications – Tel: 020 7294 3689
E-mail: lucyh@lansons.com
30 August 2018
12 Throgmorton Avenue
London EC2N 2DL
END
The Half Yearly Financial Report will also be available on the BlackRock Investment Management website at http://www.blackrock.co.uk/brla. Neither the contents of the Manager’s website nor the contents of any website accessible from hyperlinks on the Manager’s website (or any other website) is incorporated into, or forms part of, this announcement.
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