Interim Results

F&C Latin American Inv Trust PLC 13 September 2002 Date: 13 September 2002 Contact: Emily McLaughlin, F&C Emerging Markets, 020 7628 8000/Emma Chilvers, Lansons Communications, 020 7294 3606 F&C LATIN AMERICAN INVESTMENT TRUST PLC Unaudited Preliminary Statement of Results for the half-year ended 30 June 2002 HIGHLIGHTS • The Company's undiluted NAV fell 16.8% over the first six months of the year, compared to the return of the IFCG Latin American US$ Total Return Index, the benchmark, which fell 13.8%. • Since the year-end the Company has purchased and cancelled 750,000 ordinary shares and 1.3m warrants. • Brazil's election uncertainty and debt profile coupled with heightened global risk aversion continues to overshadow investment in the region. • Latin American valuations are not demanding, but growth will be heavily influenced by global conditions. The conditions for a reversal in market sentiment include a solid rebound in global equity markets and confidence in Brazil's political and economic future. SUMMARY OF RESULTS 30 June 2002 31 December 2001 % Change Net assets attributable to equity shareholders US$ 143.9m US$ 173.0m -16.82% Net assets per share - basic 193.13 cents 232.18 cents -16.82% Net assets per share - diluted 183.63 cents 215.67 cents -14.86% Share price 137.00 cents 166.50 cents -17.72% Warrant price 53.00 cents 70.50 cents -24.82% Extracts from the Chairman's Statement Net Asset Value Your Company's undiluted net asset value per share on 30 June 2002 was 193.13 cents, a fall of 16.8% over the half year. This compares with the fall of the IFCG Latin American US$ Total Return Index of 13.8% for the period. The market high was achieved in mid-April, showing an increase of over 11% on year-end levels. Since then, and against a deteriorating economic and market environment in the US, the Latin American markets, most notably Brazil, have fallen sharply. Brazilian election uncertainty and debt profile coupled with rising global risk aversion continues to overshadow investment in the region. The share price for the same period has fallen from 166.5 cents to 137.0 cents, a decrease of 17.7%. The discount to net asset value rose moderately to 25.4% from 22.8% over the period. The current discount at 30 August 2002 is 21.5%.The discount remains volatile, principally reflecting the volatility of Latin American markets and its impact on the net asset value rather than order driven fluctuations of the share price. The level of borrowings remained static over the period, representing an effective gearing level of 17.8% at the end of the period. Since then, the effective gearing level has fallen to 16.7%, reflecting a higher cash level in the current weak market environment. Since the period end, the Company was able to purchase for cancellation 750,000 ordinary shares at a discount of 21%. In addition, the Company purchased and cancelled 1.3 million warrants. Market Review Argentina In early January Argentine President Eduardo Duhalde abolished the 1:1 fixed rate peg with the US dollar and halted payment on the Country's US$141 billion debt. The Argentinean currency was initially devalued to 1.40 Argentinean pesos per US dollar, but by the end of June, the currency had fallen to as low as 3.90 Argentinean pesos per US dollar. Measures to avert a banking system collapse and halt the slide in the currency included freezing of certificates of deposits, and limiting dollar sales. After these measures failed, the government resorted to imposing shorter banking hours, and ultimately to an indefinite banking holiday after a surge in withdrawals. Using an array of complicated regulations and decrees, the government is still forcing the banks to limit the access to deposits and the sale of US dollars. Since the devaluation, two Central Bank governors and one finance minister have resigned, all citing disputes with the President over the monetary or economic policies being pursued. Inflation this year may reach over 100%. The 16% fall year-on-year in the first quarter GDP is the largest economic contraction in Argentina's history. The IMF has sharply criticised the government's use of reserves to stabilise financial markets. A fragile rapport with the IMF has been developed, but no stand-by agreement or economic strategy has emerged. President Duhalde has set the next presidential elections for March 2003, and a number of provincial governors have indicated they will be campaigning. Prospects for the Country are limited by the failure of the government to stabilise the economy, and the precarious state of the nation's banking system, but high inflation prevents the fiscal accounts from deteriorating sharply. Brazil Brazil's World Cup victory provided only a momentary celebration amidst another difficult economic phase for the Country. Market turmoil has been caused by the closely watched presidential campaign coupled with increased global risk aversion triggered by the accounting irregularities discovered in corporate America. As a barometer of Country risk, the Brazilian C Bond's spread over US Treasury's climbed to 2400 basis points at one point, compared to 750 basis points at the start of the year. The Brazilian real has broken through the psychologically important 3.00 level against the US dollar. GDP growth forecasts have been lowered for both this year and next, while The National Monetary Council announced an alteration in the inflation target for 2003 from 3.25% to 4% along with a widening of the tolerance interval to 2.5% from 2%. The new fiscal primary surplus target of 3.75% agreed with the IMF, should be well received by investors, but the concern remains with the Country's high debt levels. A slowing economy and the growing currency depreciation promotes a welcomed higher trade balance. A new US$30 billion IMF package will bolster international reserves and cover this year's external public sector financing needs, enabling the government to avoid rolling over its external debt at current prices. However, the roll over of private sector debt, already difficult, may become a critical issue if financing conditions remain difficult throughout the second half of the year. Viewed against the background of heightened global risk aversion, the periodic poll results which suggest a strong showing for the non-coalition candidates Luiz Inacio Lula da Silva (Lula) and Ciro Gomes are causing extreme market volatility long before the elections in October. Recently investors have been cheered by the fact that Ciro Gomes's position in the poll has been overtaken by that of Jose Serra. Mexico In sharp contrast to Brazil, the Mexican outlook is for an improving second half of the year. Economic fundamentals are solid, which is proving to insulate the Mexican economy from external shocks in the harsh global financial environment. The recent depreciation in the Mexican peso could offset the expected softening in US demand. The report of new orders from the US suggest that the manufacturing activities will continue, helping the momentum of both private consumption and exports. Oil prices remain above the government's 2002 budget estimates which should allow a cushion in government finances for weaker tax collection and still allow them to meet the fiscal target of 0.65% of GDP. Money market rates have responded to the Mexican peso's volatility, but the moderate upward changes have occurred in orderly increments, suggesting that investors recognise the Country's prudent fiscal and monetary policies. The Central Bank is likely to maintain a restrictive stance due to the combined effect of currency volatility and wage negotiations above the expected inflation rate. The upswing in oil prices, significant remittances from Mexican workers abroad, and the recent weakness of the Mexican peso all support a current account deficit target of 3% of GDP, which is largely financed by growing Foreign Direct Investment. Politically, President Fox has been ineffective in his reform agenda for all but the most minor of reforms. Friction with the opposition parties shows no signs of abating until perhaps after the Congressional elections in 2003, when the entire lower house faces elections. Chile After a 15-year long expansion, GDP growth has stagnated in the 2.5%-3.0% range. The potential growth rate of the economy is double its current rate, but given the economic uncertainty facing its South American neighbours, domestic confidence is too fragile to ignite this level of growth without a favourable external environment. Interest rates have been cut by 75 basis points to 3.25%, following a benign outlook for inflation. The Central Bank's focus now is on igniting growth. The economy is small, open, fairly deregulated and flexible, with a floating exchange rate and balanced fiscal accounts. The government is not highly indebted, and Chilean corporations generally have manageable debt levels. The country's high savings rates provide a funding cushion if access to international capital markets remains difficult. The Chilean market has de-rated over a long period of time and after three years of restructuring, corporate Chile has emerged in a stronger position. Peru Falling popularity and a deteriorating political environment could jeopardise President Toledo's ability both to govern and follow market friendly policies. Polls show Toledo's popularity has dropped below 20% in Lima, but a nationwide poll would likely show a more pronounced drop due to unfilled campaign promises. In this environment private investment will continue to lag, reducing growth prospects for Peru this year and next to 2% or below. The government has shown willingness to keep fiscal accounts in order by proposing tax reform measures and austerity plans. Privatisations have been halted due to social unrest and protests, which means meeting fiscal austerity targets is urgent. External financing in the current environment is difficult, as Peruvian debt spreads have risen along with Brazilian spreads. Multilateral support is frequently tied to structural reforms which the country will struggle to achieve in the current political milieu. Colombia In his victory speech, President Uribe offered an olive branch to the FARC. At his inauguration, despite the greatest security efforts, the FARC unleashed unprecedented violence bringing a previously largely rural war to the heart of Bogota. So goes the long-running feud between the Colombian government and the paramilitary guerrillas. In response, Uribe declared a state of emergency and has called for an emergency wealth tax to aid his fight for State security. The economy has never been able to bounce back to its 4%-5% growth since the recession of 1999. The lacklustre performance of the economy reflects the acute drop in investment, the fiscal adjustment pursued by the Pastrana administration and the security situation which undermines confidence. With a weakening currency fanning inflation, interest rates have been pushed upwards. Colombian debt spreads have widened in tandem with the deterioration in Brazil's circumstances, despite the fact that most of this year's borrowing needs have been funded. Venezuela The legitimacy of President Chavez's power is in doubt and vocal opposition to his government is mounting. The risk of another successful coup appears limited both by Chavez's vigilance and the disarray within opposition ranks. Venezuela is reversing a long period of currency overvaluation by allowing the Venezuelan bolivar to depreciate by 74% in the first six months of the year. The favourable effect of the Venezuelan bolivar's sharp slide on the trade account has been overshadowed by its effect on real household incomes. The budget deficit has ballooned beyond the official 3.8% government projection, despite the rhetoric of fiscal probity, modest spending cuts and tax increases. A steeper recession will put further pressure on the government to spend at a time when tax revenues are falling. Only a fierce currency depreciation which swells the local currency value of oil revenues can compensate for a widening fiscal gap. The burden of the fiscal deficit on top of existing amortisations will be too costly to finance on local or foreign debts markets. Faster inflation will likely occur, reinforcing the erosion of real incomes, which in turn deepens the recession. Outlook The global economic outlook is shrouded in uncertainty as the risks of a double dip recession in the US have increased. As a result, no increase in US short-term interest rates is expected before the year end and there is an increased possibility of a cut in interest rates. Economic and geopolitical risks are significant and global deflation cannot be entirely excluded. As global event risk remains high accompanied by a high equity risk premium, so a climate of risk aversion dominates global investment decisions. At the regional level the series of crises in various Latin American economies and poor overall economic growth both weigh heavily on the region's stock markets. Valuations are not demanding, but growth will be heavily influenced by global conditions. Looking ahead, the outcome of the Brazilian elections in October will play a critical role in the further economic development of the Country and equally in investors' perception of the region. The conditions for a reversal in Latin American market sentiment therefore include a solid rebound in global equity markets and confidence in Brazil's economic development. Peter Burnell Chairman September 2002 Statement of Total Return (incorporating the Revenue Account*) 6 months to 30 June 2002 6 months to 30 June 2001 Revenue Capital Total Revenue (restated)++ restated)++ US$'000s US$'000s US$'000s US$'000s Capital Total US$'000s US$'000s (Losses)/gains on - (30,177) (30,177) - 3,453 3,453 investments Exchange (losses)/gains (7) 26 19 (70) (149) (219) Income 3,670 - 3,670 5,214 - 5,214 Management fee (1,521) - (1,521) (1,596) - (1,596) Loss on warrants purchased - (8) (8) for cancellation Other expenses (349) (25) (374) (339) (21) (360) Net return before finance 1,793 (30,184) (28,391) 3,209 3,283 6,492 costs and taxation Interest payable and (452) - (452) (935) - (935) similar charges Return on ordinary 1,341 (30,184) (28,843) 2,274 3,283 5,557 activities before taxation Taxation on ordinary (263) 8 (255) (481) (6) (487) activities Return on ordinary 1,078 (30,176) (29,098) 1,793 3,277 5,070 activities after taxation Dividend on ordinary shares - - - - - - Amount transferred 1,078 (30,176) (29,098) 1,793 3,277 5,070 to/(from) reserves Return per ordinary share 1.44 (40.50) (39.06) 2.40 4.40 6.80 (basic) - cents Return per ordinary share 1.33 + + 2.21 4.04 6.25 (diluted) - cents * The revenue column of this statement is the profit and loss account of the Company. + There is no dilution. ++ Restated to comply with FRS 19 'Deferred Tax' All revenue and capital items in the above statement derive from continuing operations. Balance Sheet 30 June 30 June 2001 31 December 2002 (restated)++ 2001 US$'000s US$'000s US$'000s Fixed assets Listed investments 169,606 211,987 195,735 Current assets Debtors 1,311 1,652 975 Taxation recoverable 109 109 109 Short-term deposits - 1,600 6,500 Cash at bank 4,246 2,866 614 5,666 6,227 8,198 Current liabilities Creditors: amounts falling due within one year US dollar bank loans (29,500) (28,000) (29,500) Other (1,387) (899) (952) (30,887) (28,899) (30,452) Net current liabilities (25,221) (22,672) (22,254) Total assets less current liabilities 144,385 189,315 173,481 Creditors: amounts falling due after more than one year Provision for liabilities and charges (455) (1,109) (448) Net assets 143,930 188,206 173,033 Capital and Reserves Called up share capital: including non-equity share capital 7,475 7,475 7,475 Share premium 61,544 61,544 61,544 Capital redemption reserve 238 238 238 Warrant reserve 4,792 4,797 4,797 Capital reserves 71,031 116,497 101,207 Revenue reserve (1,150) (2,345) (2,228) Total shareholders' funds 143,930 188,206 173,033 Equity interests 143,906 188,182 173,009 Non-equity interests 24 24 24 Total shareholders' funds 143,930 188,206 173,033 Net asset value per ordinary share Basic - cents 193.13 252.58 232.18 Diluted - cents 183.63 232.01 215.67 ++ Restated to comply with FRS19 'Deferred Tax' . The geographical distribution of total assets less current liabilities (excluding loans) at 30 June 2002 was: Mexico - 45.9%; Brazil - 43.9%; Chile - 7.4%; Cash - 2.5%; Peru - 0.3%. Cash Flow Statement 6 months to 6 months to 30 June 2002 30 June 2001 US$'000s US$'000s Net cash inflow/(outflow) from operating activities 1,562 3,446 Interest paid - (808) Taxation paid (275) (388) Net cash (outflow)/inflow from purchases and sales of investments (4,168) 1,138 Net cash (outflow)/inflow before use of liquid resources and financing (2,881) 3,388 Decrease/(increase) in short-term deposits 6,500 (1,600) Net cash outflow from financing (13) - Increase in cash 3,606 1,788 Notes No dividend will be paid on the ordinary shares. The interim financial statements have been prepared on the basis of the accounting policies set out in the Company's financial statements at 31 December 2001. The Interim Report will be posted to shareholders in late September 2002. Copies may be obtained during normal business hours from the Company's Registered Office, Exchange House, Primrose Street, London EC2A 2NY. By order of the Board F&C Emerging Markets Limited, Secretary 12 September 2002 This information is provided by RNS The company news service from the London Stock Exchange

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