Final Results
BlackRock Latin American Investment Trust plc
Annual results announcement for the year
ended 31 December 2015
Performance record
Financial Highlights
| Attributable to ordinary shareholders | As at 31 December 2015 |
As at 31 December 2014 |
Change % |
| Assets | |||
| Net assets (US$’000) | 180,943 | 276,423 | -34.5 |
| Net asset value per ordinary share (US cents) | 459.60c | 702.12c | -34.5 |
| – with income reinvested | -30.9 | ||
| Ordinary share price (mid-market) (US cents)†| 408.24 | 624.50 | -34.6 |
| – with income reinvested | -30.6 | ||
| Ordinary share price (mid-market) (pence) | 277.00 | 400.50 | -30.8 |
| – with income reinvested | -26.6 |
| Year ended 31 December 2015 |
Year ended 31 December 2014 |
Change % |
|
| Revenue | |||
| Net revenue after taxation (US$’000) | 9,489 | 12,384 | -23.4 |
| Revenue return per ordinary share | 24.10c | 31.46c | -23.4 |
| Dividends | |||
| Interim dividend per ordinary share | 15.00c | 15.00c | – |
| Final dividend per ordinary share | 6.00c | 15.00c | -60.0 |
| -------- | -------- | -------- | |
| Total dividends | 21.00c | 30.00c | -30.0 |
| ===== | ===== | ==== | |
| Source: BlackRock. †Based on an exchange rate of 1.4738 as at 31 December 2015 (31 December 2014: 1.5593). |
|||
TEN YEAR RECORD
Year ended 31 December |
Net assets attributable to ordinary shareholders US$’000 |
Net asset value per ordinary share – debt at fair value cents |
Ordinary share price cents |
Premium/ (discount) % |
Return per ordinary share cents |
Dividends per ordinary share cents |
Effective gearing (1) % |
Total expense ratio/ongoing charges (2) % |
| 2006 | 374,206 | 783.0 | 758.4 | (3.1) | 8.81 | 9.00 | 0.6 | 1.5 |
| 2007 | 533,281 | 1,115.9 | 1,082.9 | (3.0) | 12.47 | 9.50 | 0.4 | 1.2 |
| 2008 | 220,064 | 464.4 | 424.1 | (8.7) | 15.31 | 12.00 | 4.5 | 1.0 |
| 2009 | 443,410 | 1,011.5 | 1,037.5 | 2.6 | 18.57 | 15.00 | 8.5 | 1.4 |
| 2010 | 524,501 | 1,196.4 | 1,200.1 | 0.3 | 28.62 | 24.00 | 11.8 | 1.2 |
| 2011 | 391,550 | 893.1 | 836.9 | (6.3) | 35.39 | 30.00 | 9.4 | 1.3 |
| 2012 | 399,713 | 964.7 | 861.5 | (10.7) | 26.50 | 30.00 | 8.8 | 1.2 |
| 2013 | 315,345 | 801.0 (3) | 719.3 | (10.2) | 24.83 | 30.00 | 2.0 (3) | 1.1 |
| 2014 | 276,423 | 702.1 | 624.5 | (11.1) | 31.46 | 30.00 | (2.4) | 1.2 |
| 2015 | 180,943 | 459.6 | 408.2 | (11.2) | 24.10 | 21.00 | (3.1) | 1.1 |
1. Effective gearing is redeemable shares, loans, convertible bonds at par value (from 15 September 2009 to 16 October 2013), overdrafts less cash and fixed interest stocks as a percentage of net assets.
2. Based on average net assets for the year. Effective from 2011, the ongoing charges ratio is calculated in accordance with the AIC recommended methodology.
3. Convertible bonds were repaid, redeemed or converted in 2013.
CHAIRMAN’S STATEMENT
I am pleased to present the Annual Report to shareholders for the year ended 31 December 2015.
MARKET OVERVIEW
Emerging markets have significantly underperformed developed markets in recent years and are currently around 30% cheaper than their historic averages relative to Developed Markets. The MSCI EM Latin America Index is now over 58% below its peak in 2011 and the Brazil Index has fallen by around 77% since that time.
In the year to 31 December 2015, equity markets continued to be negatively impacted by investor concerns over interest rate rises in the US and fears about slowing Chinese growth and its impact on commodity prices. In mid-December 2015 the US Federal Reserve finally raised interest rates by 0.25%, the first such move since the start of the financial crisis in 2008.
Within Latin America, Brazil’s lacklustre economic performance and political woes continued. Uncertainty over the impeachment of President Rousseff has left the Brazilian economy in limbo with the associated loss of political impetus to address the much needed fiscal reform. Economic growth forecasts have been revised downwards throughout the year, with the final forecast showing a likely contraction of close to 4% in 2015. This has had a negative impact on tax revenues which were lower than expected. In addition, inflation returned to double digits, finishing the year at 10.7%, and unemployment continued to rise. The Petrobrás corruption investigation continues to weigh on the economy. Against this background, Brazil’s currency and equity markets ranked amongst the worst performers in the region during the year.
More encouragingly, Mexico continued to show signs of improvement, with domestic demand showing signs of stabilisation and the successful award of oil concessions to the private sector following the implementation of energy reform. Stronger retail sales, supported by falling unemployment rates and positive trade data all point to an acceleration in economic activity led by stronger manufacturing. Regarding the drop in commodity prices, Mexico and Colombia are working to minimise the impact of lower oil prices on their federal budgets, as are Chile and Peru in relation to lower copper prices. Lastly, Argentina saw the victory of a more market friendly candidate in its presidential elections late in the year, raising the possibility of improvements in Argentina’s investment prospects. The recent agreement with the major “holdout†creditors also seems to have paved the way for a return to the international debt markets.
PERFORMANCE
Over the year ended 31 December 2015 the Company’s net asset value (NAV) returned -30.9% in US Dollar terms (-27.0% in Sterling terms) compared with a benchmark return of -30.8% (-26.8% in Sterling terms). The share price returned -30.6% in US Dollar terms (-26.6% in Sterling terms). (All percentages calculated with income reinvested.) Details of the factors affecting performance are set out in the Investment Manager’s Report.
Since 31 December 2015 and up to the close of business on 4 March 2016, the Company’s NAV has increased by 13.1% in Sterling terms and by 9.1% in US Dollar terms. The share price has increased by 12.9% in Sterling terms and by 8.9% in US Dollar terms over the same period.
CONTRIBUTION TO TOTAL RETURN FOR THE YEAR ENDED 31 DECEMBER 2015
| % | |
| Benchmark return | -30.8 |
| Asset allocation | 1.4 |
| Stock selection | -0.3 |
| Management fees & operating costs | -1.2 |
| NAV total return | -30.9 |
Source: BNY Mellon.
BNY Mellon provide Performance Attribution based on a Brinson Fachler daily transactions-based methodology. This service is in line with GIPS recommendations but may not be considered to be of audit quality, the analysis is considered to be useful management information.
REVENUE RETURN AND DIVIDENDS
The revenue return for the year was 24.10 cents per share (2014: 31.46 cents per share). The deterioration in the region’s fortunes last year has had a negative impact on the Company’s revenue account as well as its capital value. Weakness in Latin American currencies – which on average fell by 24% against the US Dollar during the year, and dividend cuts from a number of holdings have combined to reduce the Company’s US Dollar income from dividends and these factors have also had a significant negative impact on the Company’s forecast earnings for 2016. In addition to the reduction in dividend income, option premium income was also lower this year. The combination of these factors has led to a reduction in the Company’s revenue after taxation from US$12.4 million to US$9.5 million. Whilst income from option writing has been a significant contributor to income in recent years and represented 28% of gross income in 2015 (2014: 34%), shareholders should note that if market circumstances change there may be a significant reduction in, or cessation of, option writing.
The Board is therefore recommending a final dividend of 6.00 cents per share (2014: 15.00 cents per share) which will be payable on 9 May 2016 to shareholders on the register as at 29 March 2016. This makes a total dividend of 21.00 cents per share (2014: 30.00 cents per share) for the year.
With respect to future dividends it now seems prudent to recognise the changed environment. Rather than maintaining the historic level of distributions from capital, it is the Board’s intention to pay out future dividends which are in line with our reduced earnings. Whilst it is difficult so early in the year to predict the level of earnings with any accuracy, earnings for the current year indicate that the Board would be able to declare two equal dividends of 6.00 cents per share in respect of 2016. This would equate to a yield of approximately 2.7% on the share price at the time of writing. It should be noted that this indication should not be taken as a forecast and the Board reserves the right to alter the policy if market conditions change.
PERFORMANCE TRIGGERED TENDER OFFER
In the two years to 31 December 2015 the Company’s NAV decreased by 37.3% and outperformed the benchmark by 1.8% (all figures on a US Dollar total return basis). The Company’s average discount over the same period was 10.8% which is in excess of the target of 5%. The performance triggered tender offer for 25% of the Company's shares will not therefore take place as only one of the required tests has been met.
The next tender offer for 24.99% of the ordinary shares in issue (excluding treasury shares) will therefore be implemented in 2018 if:
- the continuation vote in 2018 is approved by shareholders;
- the Company has underperformed the benchmark index on a cumulative US Dollar total return basis by more than 1% per annum over the previous two financial years; and
- the discount to the cum income NAV has on average exceeded 5% over the same two year period.
The tender price will be the cum income NAV (less 2% to cover the costs of the tender offer).
CONTINUATION VOTE
Following market weakness in recent years Latin American equities are trading at attractive levels and should respond positively to any improvement in the region’s political and economic climate. The Board therefore recommends that shareholders vote in favour of the continuation vote which will be proposed at the forthcoming AGM.
DIRECTORATE
I am delighted to welcome Mrs Carolan Dobson to the Board. Mrs Dobson is the former head of UK equities at Abbey Asset Managers and head of investment trusts at Murray Johnstone, bringing a wealth of industry experience to the Board.
OUTLOOK
The macroeconomic background for the Latin American region has become even less clear over the past few months. Brazil’s continued political problems, weakening economy, high unemployment, higher inflation and the continuing investigation into alleged corruption at Petrobrás have weighed heavily on the region. Slowing growth in China has clearly had implications for Latin American markets, not least on resources producers in the region. In addition, the slump in oil prices has impacted growth potential in Mexico, particularly in the energy sector, although prudent fiscal measures have helped to keep a lid on rising inflation and debt.
Against this difficult background, our Portfolio Manager is still able to find attractively valued, well managed companies, with prospects of good, sustainable, annual earnings growth in 2016 and over the medium term. We are also optimistic that currency moves will begin to work in our favour in the coming year. Whilst the backdrop for the region’s largest economy – Brazil - remains challenging, political change in Argentina and potentially in Peru could provide scope for rewarding investment opportunities in the coming year.
CONCLUSION
Your Company was launched in July 1990 when it was only possible to invest in Latin America through a closed end structure due to exchange controls and other restrictions. Over the intervening period we have experienced many extended periods of high volatility and dramatic rises and falls in equity markets. However, it is worth noting that, according to Bloomberg data, even after a near 70% fall since the market peaked in 2010, the cumulative performance of Latin American markets since 1990 has far outstripped those of global developed markets and each of the other emerging market regions.
As I have noted before, we do not invest in what are generally regarded as the “problematic†Latin countries with extreme populist policies. Those on which we do focus have not always been well served by their political leadership and the recent corruption scandals in Petrobrás have doubtless created a very bad impression for potential inward investors. However the well diversified corporate base comprises many well run quoted private sector companies which have repeatedly shown their resilience and ability to prosper even in the face of economic and political headwinds; we have every confidence that this will continue to be the case in the future.
We strongly believe that our closed end structure is the most appropriate for active equity investment in Latin America and its well known advantages are the major factor differentiating us from our many open ended competitors. BlackRock is the largest active investor in the region and Will Landers and his well resourced and highly experienced team put us in a good position to capitalise on low valuations, and now, undervalued currencies, and to outperform during the recovery which will surely come, even though we cannot predict when this will begin.
Since I shall retire before the next annual results are announced, I would like to conclude by saying how much I have enjoyed the privilege of working with my fellow Directors, Investment Managers and Advisers since the inception of the Company. I have also very much appreciated frequent dialogue with our major shareholders and the annual opportunity of meeting our individual investors. I have been involved in many types of business in Latin America for over 45 years, including living in Brazil for nearly 10 years, and there is a great deal I will miss. However, I shall follow the progress of our Company closely and with a lot of confidence.
An announcement regarding my successor as Chairman will be made in due course.
ANNUAL GENERAL MEETING
The AGM will be held at 12.00 noon on Friday, 29 April 2016 at the offices of BlackRock at 12 Throgmorton Avenue, London EC2N 2DL. We hope that as many shareholders as possible will attend. Following the AGM there will be a presentation by Will Landers, the Portfolio Manager, on the outlook for the year ahead and an opportunity to meet Will and the Directors.
Peter Burnell
Chairman
8 March 2016
STRATEGIC REPORT
The Directors present the strategic report of the Company for the year ended 31 December 2015.
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.
The management of the investment portfolio and the administration of the Company have been contractually delegated to the 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.
Other service providers include the Depositary, BNY Mellon Trust & Depositary (UK) Limited, the fund accountant, Bank of New York Mellon (International) Limited, and the registrar, Computershare Investor Services PLC (Computershare).
Details of the contractual terms with third party service providers are set out in the Directors’ Report on pages 23 and 24 in the Annual Report and Financial Statements.
Our strategy is that the portfolio will be chosen from a spread of companies which are listed in, or whose main activities are in, Latin America.
As an actively managed fund our aim is to outperform comparable funds and the benchmark index over the medium to long term and consequently 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 percentage points of the index weighting for each of those countries. For all other Latin American countries the limit is plus or minus 10 percentage points 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). Call options are also used for income generation purposes. 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 sale of investments. No such commitment will be entered into if, at that time, the aggregate of such investments would exceed 10% of the net asset value of the Company or any such individual investment would exceed 3% of the net asset value of the Company.
The Company may, from time to time, use borrowings to gear its investment portfolio or in order to fund the market purchase of its own ordinary shares. Under the Company’s Articles of Association, the net borrowings of the Company may not exceed 100% of the Company’s adjusted capital and reserves. However, net borrowings are not expected to exceed 25% of net assets under normal circumstances. The Investment Manager may also hold cash or cash equivalent securities when it considers it to be advantageous to do so.
The Company’s financial statements are maintained in US Dollars. Although many investments are likely to be denominated and quoted in currencies other than in US Dollars, the Company does not currently employ a hedging policy against fluctuations in exchange rates.
No material change will be made to the Company’s investment policy without shareholder approval.
INVESTMENT PROCESS
An overview of the investment process is set out below.
The Manager’s main focus is to identify mispriced/undervalued companies, particularly those with proven management and good governance records, good earnings growth prospects over several years ahead, and strong balance sheets and cash flow generation.
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.
DISCOUNT CONTROL MECHANISM
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.
A special resolution was passed at the AGM of the Company held on 30 April 2015, 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.
On 23 August 2013 the Board introduced a new discount control policy, which, in their view, is better suited to the longer term interests of the Company and its shareholders. If the biennial continuation vote is approved by shareholders on each occasion, and if (i) the Company has underperformed the benchmark index on a US Dollar total return basis by more than 1% per annum over the previous two financial years and (ii) if the discount to the cum income NAV has on average exceeded 5% over the same two year period, with effect from the Annual General Meeting to take place in April 2016, the Board will implement a tender offer for 24.99% of the ordinary shares in issue (excluding treasury shares). The tender price will be the cum income NAV (less 2% to cover the costs of the tender offer).
In the two years to 31 December 2015 the Company has outperformed the benchmark by 1.8% and underperformed the benchmark by 0.1% respectively and the cum income discount of the ordinary shares in the two year period has averaged 10.8% and has ranged from 6.4% to 18.1%. The Board is not therefore required to implement a tender offer as both conditions have not been met.
It is the Board’s intention that the discount control policy will continue to apply with the next measurement period being the two years to 31 December 2017.
PERFORMANCE
Details of the Company’s performance are set out in the Chairman’s Statement.
The Investment Manager’s Report 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
As at 31 December 2015, the Company held 65 investments (excluding call options and outperformance warrants). The Company had 5 unquoted investments. A detailed analysis of these investments and the sector and geographical allocations are provided on pages 18 to 21 of the Annual Report and Financial Statements.
RESULTS AND DIVIDENDS
The results for the Company are set out in the Income Statement. The total loss for the year on ordinary activities, after taxation, was US$83,670,000 (2014: a loss of US$27,112,000) of which the revenue return amounted to US$9,489,000 (2014: US$12,384,000), and the capital loss amounted to US$93,159,000 (2014: a loss of US$39,496,000).
The Directors recommend the payment of a final dividend as set out in the Chairman’s Statement.
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.
| 2015 | 2014 | |
| Change in net asset value (1) | -30.9% | -9.3% |
| Change in share price (1) | -30.6% | -9.6% |
| Change in benchmark index (1) | -30.8% | -12.0% |
| Discount to net asset value | 11.2% | 11.1% |
| Revenue return per share – basic (cents) | 24.10 | 31.46 |
| Ongoing charges (2) | 1.1% | 1.2% |
1. Calculated in US Dollar terms with income reinvested.
2. Ongoing charges, calculated as a percentage of average shareholders’ funds and using expenses, excluding finance costs and taxation.
The Board 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. The Board also reviews the performance and ongoing charges of the Company against a peer group of Latin American open and closed end funds.
As detailed above, 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.
PRINCIPAL RISKS
The Company is exposed to a variety of risks and uncertainties. The Board has in place a robust process to identify, understand and monitor the principal risks of the Company. A core element of this process is the Company’s risk register which identifies the risks facing the Company, the likelihood and potential impact of each risk and the controls established for mitigation. A residual risk rating is calculated for each risk.
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, the Audit Committee periodically receives presentations from BlackRock’s Internal Audit and Risk & Quantitative Analysis teams. Where produced, the Audit Committee also reviews Service Organisation Control (SOC 1) reports from the Company’s service providers.
The current risk register includes 50 risks which have been categorised as follows:
- Counterparty risk;
- Investment performance;
- Income/dividend;
- Regulatory;
- 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 RISK | |
| Potential loss that the Company could incur if a counterparty is unable (or unwilling) to perform on its commitments. | Due diligence is undertaken before contracts are entered into and exposures are diversified across a number of counterparties. The Depositary is now liable for restitution for the loss of financial instruments held in custody unless able to demonstrate the loss was a result of an event beyond its reasonable control. |
| INVESTMENT PERFORMANCE | |
| Returns achieved are reliant primarily upon the performance of the portfolio. The Board is responsible for: - deciding the investment strategy to fulfil the Company’s objective; and - for monitoring the performance of the Investment Manager and the implementation of the investment strategy. An inappropriate investment strategy may lead to: - poor performance compared to the benchmark index and the Company’s peer group; - a loss of capital; and - dissatisfied shareholders. |
To manage this risk the Board: - regularly reviews the Company’s investment mandate and long term strategy; - has set investment restrictions and guidelines which the Investment Manager monitors and regularly reports on; - receives from the Investment Manager a regular explanation of stock selection decisions, portfolio exposure, gearing and any changes in gearing and the rationale for the composition of the investment portfolio; and - monitors the maintenance of an adequate spread of investments in order to minimise the risks associated with factors specific to particular sectors, based on the diversification requirements inherent in the investment policy. |
| INCOME/DIVIDEND | |
| The ability to pay dividends is dependent on a number of factors including the level of dividends 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 built up revenue reserves which can be drawn upon as required. The Investment Manager has the ability to write options (within set parameters) which generate additional income. |
| REGULATORY | |
| The Company has been accepted 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. The Company is required to comply with the provisions of the Companies Act 2006, the Alternative Investment Fund Managers Directive and the UK Listing Rules and Disclosure & 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 also 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. |
| 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, BNY Mellon Trust & Depositary (UK) Limited (the Depositary) and the Bank of New York Mellon (International) Limited (the fund accountant), who maintain the Company’s assets, dealing procedures and accounting records. 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. 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. |
Due diligence is undertaken before contracts are entered into with third party service providers. Thereafter, the performance of the provider is subject to regular review and reported to the Board. Most third party service providers produce Service Organisation Control (SOC 1) reports to provide assurance regarding the effective operation of internal controls as reported on by their reporting accountants. These reports are provided to the Audit Committee for their review. The Company’s assets are subject to a strict liability regime and in the event of a loss of financial assets held in custody, the Depositary must return assets of an identical type or the corresponding amount, unless able to demonstrate the loss was a result of an event beyond its reasonable control. The Board reviews the overall performance of the Manager, Investment Manager and all other third party service providers and compliance with the Investment Management Agreement on a regular basis. The Board also considers the business continuity arrangements of the Company’s key service providers. |
| MARKET | |
| Market risk arises from volatility in the prices of the Company’s investments. It represents the potential loss the Company might suffer through holding investments in the face of negative market movements. There may be exposure to significant economic, political and currency risks due to the location of the operation of the businesses in which the Company may invest. Shares in businesses in which the Company invests can prove volatile and this may be reflected in the Company’s share price. The Company may also invest in smaller capitalisation companies or in the securities markets of developing countries which are not as large as the more established securities markets and have substantially less trading volume, which may result in a lack of liquidity and higher price volatility. |
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. |
| 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 17 of the Annual Report and Financial Statements, together with a summary of the policies for managing these risks. |
| MARKETING | |
| Marketing efforts are inadequate or, don’t comply with relevant regulatory requirements, and fail to communicate adequately with shareholders or reach out to potential new shareholders, resulting in reduced demand for the Company's shares and a widening discount. | The Board focuses significant time on communicating directly with the major shareholders and reviewing marketing strategy and initiatives. All investment trust marketing documents are subject to appropriate review and authorisation. |
As required by the UK Corporate Governance Code (2014 Code), the Board has undertaken a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. Those principal risks have been described in the above table together with an explanation of how they are managed and mitigated. The Board will continue to assess these risks on an ongoing basis.
VIABILITY STATEMENT
In accordance with provision C.2.2 of the 2014 Code on UK Corporate Governance, 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 conducted this review for the period up to the AGM in 2021 being a five year period from the date that the Annual Report and Financial Statements will be approved by shareholders.
In its assessment of the viability of the Company the Directors have noted that:
- the Company has a relatively liquid portfolio (as at 31 December 2015, 97.7% of the portfolio was estimated as being capable of being liquidated within 20 days);
- the Company’s expenses and liabilities are largely stable; and
- notwithstanding the recent fall in the Company's NAV, the business model should remain attractive for much longer than the period up to the AGM in 2021 unless there is a significant economic or regulatory change.
Given the factors stated above the Board is confident that the continuation votes which the Company is required to put to shareholders at the AGM in 2016, 2018 and 2020 will be passed and has prepared the viability statement on this assumption.
The Directors have also reviewed:
- the Company’s principal risks and uncertainties as set out above;
- the impact of a further significant fall in Latin American markets on the value of the Company’s investment portfolio;
- the ongoing relevance of the Company’s investment objective, business model and investment policy in the current environment; and
- the level of demand for the Company’s shares.
The Directors 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.
SOCIAL, COMMUNITY AND HUMAN RIGHTS ISSUES
As an investment trust with no employees, the Company has no direct social or community responsibilities or impact on the environment. However, the Company believes that it is in shareholders’ interests to consider human rights issues, environmental, social and governance factors when selecting and retaining investments. Details of the Company’s policy on socially responsible investment are set out on page 35 of the Annual Report and Financial Statements.
DIRECTORS AND EMPLOYEES
The Directors of the Company on 31 December 2015, all of whom held office throughout the year, are set out in the governance structure and Directors’ biographies on page 22 of the Annual Report and Financial Statements.
Mrs Carolan Dobson was appointed as a director of the Company with effect from 1 January 2016 and her biography is also set out on page 22 of the Annual Report and Financial Statements.
The Board currently consists of four men and two women. The Company does not have any employees, therefore there are no disclosures to be made in that respect.
The information set out on pages 14 to 21 of the Annual Report and Financial Statements, including the Investment Manager’s Report, forms part of the Strategic Report.
The Strategic Report was approved by the Board at its meeting on 8 March 2016.
BY ORDER OF THE BOARD
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
Company Secretary
8 March 2016
RELATED PARTY TRANSACTIONS
BlackRock Fund Managers Limited (BFM) was appointed as the Company’s Alternative Investment Fund Manager (AIFM) with effect from 2 July 2014. BlackRock Investment Management (UK) Limited continues to act as the Company’s Investment Manager under a delegation agreement with BFM. Details of the fees payable in relation to these services are set out in note 4.
At the year end, an amount of US$794,000 was outstanding in respect of these fees (2014: US$598,000). No performance fee was payable for the year ended 31 December 2015 or the year ended 31 December 2014.
In addition to the above services, BlackRock provided the Company with marketing services. The total fees paid or payable for these services for the year ended 31 December 2015 amounted to US$94,000 excluding VAT (2014: US$256,000). Marketing fees of US$183,000 (2014: US$256,000) were outstanding at 31 December 2015.
The Board consists of six 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 £45,000, the Chairman of the Audit Committee receives an annual fee of £34,000 and each other Director receives an annual fee of £30,000. This excludes expenses paid to each of the Directors which are set out in the Directors' Remuneration Report in the Annual Report and Financial Statements.
All members of the Board hold ordinary shares in the Company with the exception of Carolan Dobson who joined the Board on 1 January 2016. Peter Burnell holds 3,000 ordinary shares, Antonio Monteiro de Castro holds 47,000 ordinary shares, The Earl St Aldwyn holds 1,470 ordinary shares, Laurence Whitehead holds 15,203 ordinary shares and Mahrukh Doctor holds 668 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 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 period.
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 and Transparency Rules. The Directors have delegated responsibility to the Investment Manager for the maintenance and integrity of the Company’s corporate and financial information included on the Investment Managers’ website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Each of the Directors, whose names are listed on page 22 of 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 includes 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 2014 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 fulfils these requirements. The process by which the Committee has reached these conclusions is set out in the Audit Committee’s report on pages 36 to 38 of 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 2015, taken as a whole, is 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
Peter Burnell
Chairman
8 March 2016
INVESTMENT MANAGER’S REPORT
MARKET OVERVIEW
2015 marked another difficult year for Latin American equity markets as four of the last five years have seen the region post negative returns for the full year. The region underperformed global emerging markets overall. The principal factors impacting the region’s stock markets were currency weakness, lower commodity prices, declining economic growth and the uncertainties in Brazil as a result of political and economic turmoil.
Currency weakness in Latin America was widespread for the year. The Brazilian Real slid by 17% during the first quarter and ended the year down by almost 33%. In the commodities area, 2015 saw iron ore fall by over 36%, oil price by 30% and copper price by over 24%, all of which added additional pressure to a struggling region. Despite weak economic growth indicators there were two brief rallies during the year. Firstly, at the beginning of the second quarter and another at the start of the fourth quarter. In April, Latin American equities rallied on the back of short-lived strength in oil and iron ore prices, de-risking in Brazil as political noise fell and Petrobrás released audited financial statements thus removing the risk of technical default. However, the gains early in the quarter were soon given back as growth forecasts were revised downward and fears of US policy normalization occurred. After a third quarter where no country or sector posted positive performance, the fourth quarter started strongly as latin america participated in the broader global equity rally which was predicated on a weaker US Dollar, expectations of further easing in Europe, monetary easing led by China and better-than-expected economic activity reports in China. Again, the rally was short-lived as commodity price weakness and a continued negative regional macro outlook scenario including higher rates and lower growth weighed on the region.
During 2015, Brazil’s equity market was one of the worst performers in the region, falling by 42% in US Dollar terms. The currency struggled as well and was also one of the worst performers for the year falling by approximately 33%. The main driver for Brazil was the political and economic turmoil which both contributed to falling GDP growth and earnings growth weakness. The Brazilian Central Bank finished the year with rates at 14.25%, their highest level since August 2006. With inflation finishing the year in double digits for the first time in over a decade, it is likely that the Brazilian Central Bank will resume with the interest rate tightening cycle in early 2016.
Mexico was one of the strongest relative performers for the year, falling by 16.0% versus a fall of 32.9% for the region. The currency was also a relative outperformer falling by 14.3% versus the average fall of 23.8% depreciation for Latin American currencies. Overall, Mexico has started to benefit from the positive effects of the reform process from previous years. While the economic recovery has been slow to build, the gradual, yet steady, improvement in the domestic economy has allowed it to weather this difficult market environment better than most in the region.
The investable countries of the Andean region were all impacted by the commodity price weakness during the year, with Chile and Peru being especially impacted by copper and Colombia by the falling oil prices. Chile, like Mexico, was a relative outperformer for the year and was the strongest performer in the Andean region with a fall of 18.9%. Peru fell by 32.5% and Colombia was the worst performer in the region falling by 43.9%, mostly due to the impact of falling oil prices.
2015 PERFORMANCE REVIEW
During 2015, the Company posted a fall of 30.9% in its NAV, in US Dollar terms (equivalent to a fall of 27.0% in Sterling terms). These returns were practically in line with the MSCI EM Latin America Index over the same time period which returned -30.8% in US Dollar terms (a fall of 26.8% in Sterling terms).
Performance during the year suffered as a result of an underweight position in Chile, which was one of the strongest relative performers in 2015. An overweight position and stock selection in Peru also weighed on returns. The largest individual detractors from performance included overweight positions to Brazilian education stock Kroton Educacional early in the year, Brazilian insurance stock BB Seguridade Participaçóes and Peruvian construction stock Graña y Montero. Kroton Educacional weighed on returns due to uncertainties in the Brazilian education sector, especially around changes to government-financed student loans as the budget was set for the year. BB Seguridade Participaçóes suffered along with the rest of the Brazilian market, from the continued weakness in the Brazilian economy. In Peru, Graña y Montero underperformed in the year due to its failure to win many contracts under the current administration.
Offsetting some of the negative contributions were our asset allocation where we had an overweight position in Mexico and underweight positions in Brazil and Colombia. Stock selection in Brazil and Mexico also contributed positively. At the stock level, the largest individual contributors to performance included an underweight position in Vale and overweight positions in Mexico’s Femsa and Brazil’s Fibria Celulose. Brazilian iron ore miner Vale suffered as a result of weak commodity prices, especially in iron ore. Mexican conglomerate Femsa benefited from the gradual recovery in Mexico’s domestic economy, especially via its subsidiary Oxxo. Brazilian pulp & paper stock Fibria contributed to performance due to positive sentiment towards the sector and from a weaker currency.
PORTFOLIO
We finished 2015 with 46.1% of the total portfolio invested in Brazil compared with 55.4% at the end of 2014. At the sector level relative to the benchmark, we maintained underweight positions in metals & mining, oil & gas and utilities, while having an overweight position in pulp & paper. During the year we exited Brazilian education, given concerns with the sector. We also reduced exposure to the banking and consumer sectors due to concerns about overall economic weakness. We increased exposure to the pulp & paper sector given its defensive position in an environment of a weaker Brazilian Real.
In Mexico, we increased our overweight position to 42.1% of total portfolio from 33.6% at the end of 2014. Sectors we favoured include Fibras/property, construction materials and beverages. We had underweight positions in telecommunications and media. During the year, we moved exposure in financials from neutral to overweight. The banking sector has benefited from gradual improvements in the domestic economy, resulting in expanding loan growth, a trend we continue to favour in 2016. We added Grupo Mexico to the portfolio earlier in the year given our more positive sentiment of copper within the metal commodity complex, maintaining an underweight position in metals & mining at the portfolio level.
In the Andean region, we reduced exposure to Peruvian financial company Credicorp, in anticipation of the potential negative impact to economic activity from El Niño and its potential negative impact on asset quality in the country. Similar to our thinking on copper with Grupo Mexico, we added Southern Copper in Peru and Antofagasta in Chile – given continued weakness in China and the more negative than forecasted impact on copper prices, these positions were reduced late in the year.
OUTLOOK
We are currently positioned with overweight positions in Mexico and Peru and underweight positions in Brazil, Chile and Colombia. Overall, we entered 2016 with a defensive portfolio, with a net cash position and looking for signs of stability in the world’s currency and commodity markets before looking to be more aggressive with our positioning.
Brazil’s economy continues to offer more questions than answers regarding the timing for an eventual recovery, which would include improvement in fiscal accounts, inflation returning to target, and interest rates eventually falling. In addition, the political landscape in Brazil continues to generate uncertainties. Overall, activity and confidence levels are weak in the consumer, investment (public and private) and manufacturing sectors. Our absolute weight in Brazil is the lowest it has been since BlackRock assumed the management of the Company, almost 10 years ago.
Conversely, Mexico’s absolute weight is the highest held in the Company over the same period. The country continues to show signs of a gradual economic improvement, benefiting from increased competitiveness given the fall in energy prices, the devaluation of the Mexican Peso, and low inflation. Areas of concern for 2016, include falling oil prices and the impact on the Mexican government budget and a slowing US manufacturing sector.
The Andean region is also adjusting to falling commodity prices. Both Chile and Peru have significant exposure to the copper sector, while Colombia’s budget, similarly to Mexico’s, is linked to oil revenues. The election of a market friendly candidate in the Peruvian presidential elections in April 2016 could be a potential positive catalyst for the country's equity market. We remain cautious with Chile and Colombia.
Lastly, non-benchmark Argentina saw a positive beginning of the Mauricio Macri presidency in December. The Company currently has a relatively small exposure to the country given the significant reforms still needed across several areas of the economy and the need to reach a final agreement with foreign creditors.
William Landers
BlackRock Investment Management (UK) Limited
8 March 2016
YEAR TO 31 DECEMBER 2015 PERFORMANCE FIGURES
| MSCI Indices % change |
Currency (% vs. USD) |
Local Indices % change in USD |
|
| Argentina | -1.2 | –34.5 | -10.4 (Merval) |
| Brazil | -43.5 | -32.9 | -42.0 (Ibovespa) |
| Chile | -18.9 | -14.4 | -17.6 (IGPA) |
| Colombia | -43.9 | -25.1 | -45.0 (IGBC) |
| Mexico | -16.0 | -14.3 | -14.7 (IPC) |
| Peru | -32.5 | -12.7 | -41.9 (S&P/BVL) |
| MSCI EM Latin America | -32.9 | CRB Index | -14.4 |
| MSCI Emerging Asia | -11.8 | Oil (WTI) | -38.8 |
| MSCI Emerging Markets | -17.0 | Gold | -10.8 |
| MSCI World | -2.7 | Copper | -24.6 |
| S&P 500 | -0.7 | Corn | -16.4 |
| MSCI Europe | 5.5 | Soybeans | -14.5 |
| Source: Bloomberg and BlackRock (all figures in US Dollar terms and on a capital only basis). | |||
TEN LARGEST INVESTMENTS AS AT 31 DECEMBER 2015
Femsa – 6.7% (2014: 4.3%) is a Mexican holding company which 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, Mexico’s fastest growing retailing chain, Oxxo, which has over 10,000 convenience stores throughout Mexico and a 12% stake in global brewer Heineken.
Itaú Unibanco – 6.1% (2014: 9.4%) is Brazil’s largest private sector bank. We continue to prefer private sector banks over government controlled banks. The bank which has been managing its loan book conservatively ahead of Brazil’s economic slowdown should benefit from higher interest rates and increasing spreads as well as its cost containment program.
AmBev – 5.5% (2014: 5.3%) is Brazil’s leading beverages company with operations throughout the Americas. The company is well positioned to continue to benefit from its defensive stance as the region’s largest consumer staples producer, while maintaining a strong focus on preserving operating cost discipline throughout its operations, a perennial AmBev management strength.
Grupo Financiero Banorte – 5.1% (2014: 3.1%) is Mexico’s leading privately owned bank which is expected to continue to benefit from growing strength in the domestic economy and growth in lending activity.
Walmart de Mexico – 4.4% (2014: 2.9%) is one of the largest retailers in Mexico which utilises a variety of store formats. The company stands to continue to benefit from the gradual recovery in the domestic economy and market share gains versus the informal sector.
Cemex SAB – 4.0% (2014: 4.7%) is a Mexican based global cement company that stands to benefit from improving business trends across the world, especially in the US. The company has successfully remodelled its debt profile and is focused on improving operating efficiencies across the globe, shedding non-core assets.
Banco Bradesco – 3.9% (2014: 7.2%) is Brazil’s second largest private sector bank. Like Itaú Unibanco, the bank which has been managing its loan book conservatively ahead of Brazil’s economic slowdown should benefit from higher interest rates and increasing spreads as well its cost containment program, with synergy gains expected in 2016, once it gets the final approval to acquire HSBC’s Brazilian operations.
BB Seguridade Participaçóes – 3.7% (2014: 4.9%) is the insurance division of Banco do Brasil which has the exclusive rights to sell insurance products throughout the entire Banco do Brasil branch network, one of the largest in Brazil.
América Móvil – 3.5% (2014: 4.0%) is Latin America’s leading provider of integrated telecommunications services, with a leading presence in wireless telephony throughout the region as well as in wireline in Mexico and Brazil.
BRF – 3.3% (2014: 4.2%) is Brazil’s largest food producer, with leadership positions in poultry, pork, beef and processed meats. The company is well positioned to benefit from its leadership in the domestic processed foods market as well as in the export market for both in natura as well as processed products.
All percentages reflect the value of the holding as a percentage of total investments. Percentages in brackets represent the value of the holding at 31 December 2014. Together, the ten largest investments represents 46.2% of total investments (ten largest investments at 31 December 2014: 51.6%).
INVESTMENTS AS AT 31 DECEMBER 2015
Country of operation |
Market value US$’000 |
% of investments |
| Brazil | ||
| Itaú Unibanco – ADR | 10,790 | 6.1 |
| AmBev – ADR | 9,790 | 5.5 |
| Banco Bradesco – ADR | 6,960 | 3.9 |
| BB Seguridade Participaçóes | 6,484 | 3.7 |
| BRF – ADR | 5,938 | 3.3 |
| Fibria Celulose | 2,859 | 3.1 |
| Fibria Celulose – ADR | 2,726 | |
| Fibria Celulose – options | (20) | |
| Cielo | 4,032 | 2.3 |
| Cielo – option | (4) | |
| Telefonica Brasil – preference shares | 3,298 | 2.2 |
| Telefonica Brasil – ADR | 642 | |
| BM&F Bovespa | 3,785 | 2.1 |
| BM&F Bovespa – options | (5) | |
| Klabin | 1,695 | 2.0 |
| Klabin 8.0% 08/01/19 convertible bond†| 1,288 | |
| Klabin 2.5% 15/06/22 convertible bond†| 301 | |
| Klabin 7.25% 15/06/20 convertible bond†| 301 | |
| Klabin – options | (9) | |
| Klabin warrants | – | |
| Petrobrás | 3,475 | 2.0 |
| Ultrapar Participaçóes | 3,285 | 1.9 |
| Ultrapar Participaçóes – option | – | |
| WEG | 2,740 | 1.5 |
| Raia Drogasil | 1,717 | 1.0 |
| Raia Drogasil – options | (2) | |
| CCR | 1,313 | 1.0 |
| CCR warrants* | 376 | |
| CCR – options | (2) | |
| Minerva | 1,304 | 0.7 |
| Minerva – options | (26) | |
| Arezzo Industria e Comercio | 1,189 | 0.7 |
| TAESA | 1,128 | 0.6 |
| TAESA – option | – | |
| Sao Martinho | 935 | 0.5 |
| Sao Martinho – option | (1) | |
| Valid Solucoes e Servicos de Seguranca | 933 | 0.5 |
| Valid Solucoes e Servicos de Seguranca – option | – | |
| OdontoPrev | 475 | 0.4 |
| OdontoPrev warrants* | 282 | |
| Iguatemi Empresa | 727 | 0.4 |
| Lojas Renner | 475 | 0.3 |
| Hypermarcas warrants* | 296 | 0.2 |
| Hypermarcas 11.3% 15/10/18 convertible bond†| 121 | |
| Cosan Logistica | 319 | 0.2 |
| Lupatech 6.5% 15/04/18 convertible bond†| 20 | 0.0 |
| -------- | -------- | |
| 81,930 | 46.1 | |
| -------- | -------- | |
| Mexico | ||
| Femsa | 11,816 | 6.7 |
| Grupo Financiero Banorte | 9,222 | 5.1 |
| Grupo Financiero Banorte – options | (89) | |
| Walmart de Mexico | 7,752 | 4.4 |
| Walmart de Mexico – options | (9) | |
| Cemex SAB – ADR | 7,089 | 4.0 |
| America Movil – ADR | 6,252 | 3.5 |
| Grupo Mexico | 4,135 | 2.3 |
| Grupo Mexico – option | – | |
| Grupo Televisa – ADR | 3,781 | 2.1 |
| Alfa | 3,446 | 1.9 |
| Alfa – options | (6) | |
| Gentera SAB | 2,975 | 1.7 |
| Gentera SAB – options | (18) | |
| Fibra Uno Administracion | 2,530 | 1.4 |
| Corporacion Inmobiliaria Vesta | 2,420 | 1.4 |
| Arca Continental | 2,115 | 1.2 |
| Arca Continental – options | (9) | |
| Infraestructura Energetica | 2,022 | 1.1 |
| Administradora Industrial | 1,788 | 1.0 |
| Administradora Industrial – options | – | |
| Controladora Vuela Compania de Aviacion – ADR | 1,500 | 0.8 |
| Controladora Vuela Compania de Aviacion – option | (5) | |
| Concentradora Fibra Hotelera | 1,442 | 0.8 |
| Grupo Aeroportuario del Pacifico | 1,276 | 0.7 |
| Grupo Aeroportuario del Pacifico – options | (1) | |
| Grupo Sanborns | 1,237 | 0.7 |
| Grupo Sanborns – options | (3) | |
| Alsea | 1,230 | 0.7 |
| Alsea – options | (7) | |
| Grupo GICSA | 1,095 | 0.6 |
| Grupo GICSA – option | – | |
| -------- | -------- | |
| 74,976 | 42.1 | |
| -------- | -------- | |
| Peru | ||
| Credicorp | 5,248 | 3.0 |
| Credicorp – options | (8) | |
| Southern Copper | 3,572 | 2.0 |
| Minas Buenaventura – ADR | 1,140 | 0.6 |
| Graña y Montero – ADR | 280 | 0.3 |
| Graña y Montero | 270 | |
| -------- | -------- | |
| 10,502 | 5.9 | |
| -------- | -------- | |
| Chile | ||
| Empresa Nacional de Electricidad | 1,021 | 1.1 |
| Empresa Nacional de Electricidad – ADR | 1,000 | |
| Corpbanca | 1,831 | 1.0 |
| S.A.C.I Falabella | 1,384 | 0.8 |
| -------- | -------- | |
| 5,236 | 2.9 | |
| -------- | -------- | |
| Argentina | ||
| YPF – ADR | 1,679 | 1.0 |
| Adecoagro | 1,105 | 0.6 |
| Adecoagro – option | (3) | |
| -------- | -------- | |
| 2,781 | 1.6 | |
| -------- | -------- | |
| Colombia | ||
| Grupo Nutresa | 1,539 | 0.9 |
| Cemex Latam | 935 | 0.5 |
| -------- | -------- | |
| 2,474 | 1.4 | |
| -------- | -------- | |
| Total Investments | 177,899 | 100.0 |
| -------- | -------- | |
| Represented as follows: | ||
| Investments held at fair value through profit and loss | 178,126 | 100.1 |
| Derivative financial instruments: written call options | (227) | (0.1) |
| -------- | -------- | |
| Total | 177,899 | 100.0 |
| ====== | ===== |
†Unquoted securities.
* Outperformance warrants held are linked to the underlying listed securities which have available quoted prices, however, the warrants are not listed in their own right. The valuation of outperformance warrants has been derived from the quoted prices of underlying securities.
The negative valuations of US$227,000 (31 December 2014: US$249,000) in respect of options held represent the notional cost of repurchasing the contracts at market prices as at 31 December 2015.
The total number of investments (excluding call options and outperformance warrants) held at 31 December 2015 was 65 (31 December 2014: 62). At 31 December 2015, the Company did not hold any equity interests comprising more than 3% of any company's share capital.
All investments are in equity shares unless otherwise stated.
SECTOR AND GEOGRAPHICAL ALLOCATIONS
| Brazil % |
Mexico % |
Peru % |
Chile % |
Argentina % |
Colombia % |
2015 Total |
2014 Total |
|
| Consumer Discretionary | 1.0 | 3.5 | – | 0.8 | – | – | 5.3 | 10.3 |
| Consumer Staples | 11.2 | 12.2 | – | – | 0.6 | 0.9 | 24.9 | 23.5 |
| Energy | 3.8 | – | – | – | 1.0 | – | 4.8 | 3.2 |
| Financials | 16.2 | 12.0 | 3.0 | 1.0 | – | – | 32.2 | 37.3 |
| Health Care | 0.4 | – | – | – | – | – | 0.4 | 1.3 |
| Industrials | 3.2 | 3.5 | 0.3 | – | – | – | 7.0 | 6.0 |
| Information Technology | 2.3 | – | – | – | – | – | 2.3 | 1.8 |
| Materials | 4.1 | 6.3 | 2.6 | – | – | 0.5 | 13.5 | 9.9 |
| Telecommunications Services | 2.2 | 3.5 | – | – | – | – | 5.7 | 4.0 |
| Utilities | 0.6 | 1.1 | – | 1.1 | – | – | 2.8 | 1.6 |
| Fixed income | 1.1 | – | – | – | – | – | 1.1 | 1.1 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |
| 2015 total investments | 46.1 | 42.1 | 5.9 | 2.9 | 1.6 | 1.4 | 100.0 | |
| ===== | ==== | ==== | ==== | ==== | ==== | ==== | ==== | |
| 2014 total investments | 55.4 | 33.6 | 6.6 | 1.8 | – | 2.6 | 100.0 | |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- |
GEOGRAPHICAL WEIGHTING VS MSCI EM LATIN AMERICA INDEX
| Company % | MSCI EM Latin America Index % | |
| Colombia | 1.4 | 3.5 |
| Argentina | 1.6 | 0.0 |
| Chile | 2.9 | 10.0 |
| Peru | 5.9 | 2.8 |
| Mexico | 42.1 | 37.6 |
| Brazil | 46.1 | 46.1 |
Sources: BlackRock and MSCI.
INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2015
Notes |
Revenue 2015 US$’000 |
Revenue 2014 US$’000 |
Capital 2015 US$’000 |
Capital 2014 US$’000 |
Total 2015 US$’000 |
Total 2014 US$’000 |
|
| Losses on investments held at fair value through profit or loss | - | - | (91,431) | (38,031) | (91,431) | (38,031) | |
| (Losses)/gains on foreign exchange | - | - | (590) | 149 | (590) | 149 | |
| Income from investments held at fair value through profit or loss | 3 | 8,425 | 10,435 | - | - | 8,425 | 10,435 |
| Other income | 3 | 3,301 | 5,335 | - | - | 3,301 | 5,335 |
| -------- | -------- | -------- | -------- | -------- | -------- | ||
| Total income | 11,726 | 15,770 | (92,021) | (37,882) | (80,295) | (22,112) | |
| -------- | -------- | -------- | -------- | -------- | -------- | ||
| Expenses | |||||||
| Investment management and performance fees | 4 | (455) | (658) | (1,365) | (1,975) | (1,820) | (2,633) |
| Other operating expenses | 5 | (786) | (1,051) | (45) | (41) | (831) | (1,092) |
| -------- | -------- | -------- | -------- | -------- | -------- | ||
| Total operating expenses | (1,241) | (1,709) | (1,410) | (2,016) | (2,651) | (3,725) | |
| -------- | -------- | -------- | -------- | -------- | -------- | ||
| Net profit/(loss) on ordinary activities before finance costs and taxation | 10,485 | 14,061 | (93,431) | (39,898) | (82,946) | (25,837) | |
| Finance costs | (3) | (26) | (8) | (77) | (11) | (103) | |
| -------- | -------- | -------- | -------- | -------- | -------- | ||
| Net profit/(loss) on ordinary activities before taxation | 10,482 | 14,035 | (93,439) | (39,975) | (82,957) | (25,940) | |
| Taxation | (993) | (1,651) | 280 | 479 | (713) | (1,172) | |
| ===== | ===== | ====== | ====== | ====== | ===== | ||
| Net profit/(loss) on ordinary activities after taxation | 7 | 9,489 | 12,384 | (93,159) | (39,496) | (83,670) | (27,112) |
| ===== | ===== | ====== | ====== | ====== | ===== | ||
| Earnings/(loss) per ordinary share (US$ cents) | 7 | 24.10 | 31.46 | (236.63) | (100.32) | (212.53) | (68.86) |
| ===== | ===== | ====== | ====== | ====== | ===== |
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 and no operations were acquired or discontinued during the year. All income is attributable to the equity holders of BlackRock Latin American Investment Trust plc.
The Company does not have any other recognised gains or losses. The net loss for the year disclosed above represents the Company’s total comprehensive income.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS FOR THE YEAR ENDED 31 DECEMBER 2015
Notes |
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$’000 |
|
| For the year ended 31 December 2015 | ||||||||
| At 31 December 2014 | 4,144 | 11,719 | 4,843 | 4,356 | 236,187 | 15,174 | 276,423 | |
| (Loss)/profit for the year | - | - | - | - | (93,159) | 9,489 | (83,670) | |
| Dividends paid (1) | 6 | - | - | - | - | - | (11,810) | (11,810) |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| At 31 December 2015 | 4,144 | 11,719 | 4,843 | 4,356 | 143,028 | 12,853 | 180,943 | |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| For the year ended 31 December 2014 | ||||||||
| At 31 December 2013 | 4,144 | 11,719 | 4,843 | 4,356 | 275,683 | 14,600 | 315,345 | |
| (Loss)/profit for the year | - | - | - | - | (39,496) | 12,384 | (27,112) | |
| Dividends paid (2) | 6 | - | - | - | - | - | (11,810) | (11,810) |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| At 31 December 2014 | 4,144 | 11,719 | 4,843 | 4,356 | 236,187 | 15,174 | 276,423 | |
| ===== | ===== | ===== | ===== | ====== | ===== | ====== |
1. Final dividend in respect of the year ended 31 December 2014 of 15.00 cents per share declared on 24 February 2015 and paid on 6 May 2015 and the interim dividend in respect of the year ended 31 December 2015 of 15.00 cents per share declared on 18 August 2015 and paid on 7 October 2015.
2. Final dividend paid in respect of the year ended 31 December 2013 of 15.00 cents per share declared on 25 February 2014 and paid on 2 May 2014 and interim dividend for the year ended 31 December 2014 of 15.00 cents per share declared on 19 August 2014 and paid on 3 October 2014.
BALANCE SHEET AS AT 31 DECEMBER 2015
Notes |
2015 US$’000 |
2014 US$’000 |
|
| Fixed assets | |||
| Investments held at fair value through profit or loss | 178,126 | 274,576 | |
| -------- | -------- | ||
| Current assets | |||
| Other receivables | 1,277 | 1,117 | |
| Cash and cash equivalents | 2,981 | 4,104 | |
| Collateral pledged with brokers | 703 | 677 | |
| -------- | -------- | ||
| 4,961 | 5,898 | ||
| -------- | -------- | ||
| Creditors – amounts falling due within one year | |||
| Bank overdraft | - | (1,177) | |
| Derivative financial instruments | (227) | (249) | |
| Other payables | (1,665) | (2,372) | |
| -------- | -------- | ||
| (1,892) | (3,798) | ||
| -------- | -------- | ||
| Net current assets | 3,069 | 2,100 | |
| -------- | -------- | ||
| Total assets less current liabilities | 181,195 | 276,676 | |
| -------- | -------- | ||
| Creditors – amounts falling due after more than one year | |||
| Deferred taxation | (228) | (229) | |
| Non-equity redeemable shares | (24) | (24) | |
| ====== | ====== | ||
| (252) | (253) | ||
| ====== | ====== | ||
| Net assets | 180,943 | 276,423 | |
| ====== | ====== | ||
| Capital and reserves | |||
| Called-up share capital | 8 | 4,144 | 4,144 |
| Share premium account | 9 | 11,719 | 11,719 |
| Capital redemption reserve | 9 | 4,843 | 4,843 |
| Non-distributable reserve | 9 | 4,356 | 4,356 |
| Capital reserves | 9 | 143,028 | 236,187 |
| Revenue reserve | 9 | 12,853 | 15,174 |
| -------- | -------- | ||
| Total shareholders’ funds | 180,943 | 276,423 | |
| ====== | ====== | ||
| Net asset value per ordinary share (US$ cents) | 7 | 459.60 | 702.12 |
| ====== | ====== |
CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2015
Note |
2015 US$’000 |
2014 US$’000 |
|
| Operating activities | |||
| Loss before taxation | (82,957) | (25,940) | |
| Add back finance costs | 11 | 103 | |
| Losses on investments held at fair value through profit or loss | 91,431 | 38,031 | |
| Net movement on foreign exchange | 590 | (149) | |
| Sales of investments held at fair value through profit or loss | 82,230 | 199,499 | |
| Purchases of investments held at fair value through profit or loss | (77,437) | (186,028) | |
| Decrease in other receivables | 44 | 463 | |
| Decrease in other payables | (707) | (692) | |
| Net movement in collateral pledged with brokers | (26) | 847 | |
| -------- | -------- | ||
| Net cash inflow from operating activities before interest and taxation | 13,179 | 26,134 | |
| -------- | -------- | ||
| Interest paid | (11) | (102) | |
| Taxation on investment income included within gross income | (714) | (1,506) | |
| -------- | -------- | ||
| Net cash inflow from operating activities | 12,454 | 24,526 | |
| -------- | -------- | ||
| Financing activities | |||
| Dividends paid | 6 | (11,810) | (11,810) |
| -------- | -------- | ||
| Net cash outflow from financing activities | (11,810) | (11,810) | |
| -------- | -------- | ||
| Increase in cash and cash equivalents | 644 | 12,716 | |
| -------- | -------- | ||
| Cash and cash equivalents at the start of the year | 2,927 | (9,938) | |
| Effect of foreign exchange rate changes | (590) | 149 | |
| -------- | -------- | ||
| Cash and cash equivalents at end of year | 2,981 | 2,927 | |
| ===== | ===== | ||
| Comprised of: | |||
| Cash and cash equivalents | 2,981 | 4,104 | |
| Bank overdraft | – | (1,177) | |
| -------- | -------- | ||
| 2,981 | 2,927 | ||
| ===== | ===== |
NOTES TO THE FINANCIAL STATEMENTS
1. PRINCIPAL ACTIVITIES
The principal activity of the Company is that of an investment trust company within the meaning of Section 1158 of the Corporation Tax Act 2010.
2. ACCOUNTING POLICIES
(a) Basis of preparation
This is the first year that the Company has presented its results and financial position 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 last financial statements prepared under the previous UK GAAP were for the year ended 31 December 2014.
The financial statements have been prepared on a going concern basis in accordance with 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 November 2014.
As a result of the first time adoption of ‘New UK GAAP’ and the revised SORP, comparative amounts and presentation formats have been amended where required. The changes to accounting policies relate to the change in the presentation of cash flows (see below) and fair value hierarchy of financial instruments (see note 17 of the Annual Report and Financial Statements) and there were no adjustments to the Company’s Income Statement for the financial year ended 31 December 2014 and the total equity as at 1 January 2014 and 31 December 2014 between UK GAAP as previously reported and FRS 102 as a result of changes to accounting policies. There were no adjustments to the Company’s balance sheet at 1 January 2014 or 31 December 2014 on transition to FRS 102.
The Company’s cash flow statement reflects the presentation requirements of FRS 102, which are different to that prepared under FRS 1. In addition, the cash flow statement reconciles to cash and cash equivalents whereas under previous UK GAAP the cash flow statement reconciled to cash. Cash and cash equivalents are defined in FRS 102 as ‘cash in hand and demand deposits 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’ whereas cash is defined in FRS 1 as ‘cash in hand and deposits repayable on demand with any qualifying institution, less overdrafts from any qualifying institution repayable on demand’. The FRS 1 definition is more restrictive. Accordingly, cash collateral pledged with brokers is shown as a debtor and does not form part of cash and cash equivalents in the Cash Flow Statement. The comparative figures in the Cash Flow Statement have been updated to reclassify these amounts from cash and cash equivalents to debtors.
The Company’s Articles of Association require that an ordinary resolution be put to the Company’s shareholders to approve the continuation of the Company on a biennial basis. The Directors are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future and therefore consider the going concern assumption to be appropriate. The last resolution was put to shareholders at the 2014 AGM and the next such resolution will be put to shareholders at the AGM in 2016. (See page 27 of the Annual Report and Financial Statements for further details.) The Directors have no reason to believe that this resolution will not be passed.
The principal accounting policies adopted by the Company are set out below. Unless specified otherwise, the policies have been applied consistently throughout the year and are consistent with those applied in the preceding year. All of the Company’s operations are of a continuing nature.
The Company’s financial statements are presented in US Dollars, which is the functional and presentation currency of the Company. The US Dollar is the functional currency because it is the currency most related to the primary economic environment in which the Company operates. All values are rounded to the nearest thousand dollars (US$’000) except where otherwise indicated.
(b) Presentation of Income Statement
In order to reflect better the activities of an investment trust company and in accordance with guidance issued by the Association of Investment Companies (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. Fixed returns on non-equity securities are recognised on a time apportionment basis.
Special dividends are treated as a capital receipt or a revenue receipt depending on the facts or circumstances of each particular case.
Interest income is accounted for on an accruals basis.
Dividends are accounted for in accordance with Section 29 of FRS 102 on the basis of income actually receivable, without adjustment for the tax credit attaching to the dividends. Dividends from overseas companies continue to be shown gross of withholding tax.
Where the Company has elected to receive its dividends in the form of additional shares rather than in cash, the amount of the cash dividend foregone is recognised as income. Any excess in the value of the shares received over the amount of the cash dividend foregone is recognised in capital reserve.
Options may be written over securities held in the portfolio for generating or protecting capital returns, or for generating or maintaining revenue returns. Where the purpose of the option is the generation of income, the premium is treated as a revenue item. Where the purpose of the option is the maintenance of capital, the premium is treated as a capital item. The value of the option is subsequently marked to market to reflect the fair value of the option based on traded prices.
Option premium income is recognised as revenue evenly over the life of the option contract and included in the revenue column of the Income Statement unless the option has been written for the maintenance and enhancement of the Company’s investment portfolio and represents an incidental part of a larger capital transaction, in which case any premia arising are allocated to the capital column of the Income Statement. Where the premium is taken to revenue, an appropriate amount is shown as capital return such that the total return reflects the overall change in the fair value of the option. When an option is closed out or exercised the gain or loss is accounted for as capital.
(e) Expenses
All expenses are accounted for on an accruals basis. Expenses have been charged wholly to the revenue column of the Income Statement, except as follows:
- expenses which are incidental to the acquisition or disposal of an investment are charged to the capital column of the Income Statement. Details of transaction costs on purchases and sales of investments are disclosed in note 11 on page 55 of the Annual Report and Financial Statements;
- the investment management fee has been allocated 75% to the capital column and 25% to the revenue column of the Income Statement in line with the Board’s expected long term split of returns, in the form of capital gains and income respectively, from the investment portfolio; and
- performance fees have been allocated wholly to the capital column of the Income Statement, as the performance fee has been predominantly generated through capital returns of the investment portfolio.
(f) Finance costs
Finance costs are accounted for on an accruals basis. Finance costs are allocated, insofar as they relate to the financing of the Company’s investments, 75% to the capital column and 25% to the revenue column of the Income Statement, in line with the Board’s expected long term split of returns, in the form of capital gains and income respectively, from the investment portfolio.
(g) Taxation
The 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 taxation for the accounting period.
Deferred taxation is recognised in respect of all temporary differences as at the balance sheet date, where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at 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 temporary differences can be deducted. Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the temporary differences are expected to reverse, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is measured on a non-discount basis.
(h) 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 Section 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 designated upon initial recognition as held at fair value through profit or loss. Purchases of investments are recognised on a trade date basis. Sales of investments are recognised at the trade date of the disposal. Proceeds will be measured at fair value which will be regarded as the proceeds of sale less any transaction costs.
The fair value of the financial instruments is based on their quoted bid price or as otherwise stated, at the balance sheet date, on the exchange on which the investment is quoted, without deduction for the estimated future selling costs.
Changes in the value of investments held at fair value through profit or loss and gains and losses on disposal are recognised in the Income Statement as ‘Gains or losses on investments held at fair value through profit or loss’. Also included within this heading are transaction costs in relation to the purchase or sale of investments.
In order to improve the disclosure of how companies measure the fair value of their financial investments, the disclosure requirements in Section 11 of FRS 102 have been extended to include a fair value hierarchy. The fair value hierarchy consists of the following three levels:
Level (a) – quoted prices for identical instruments in active markets
Level (b) – prices of recent transactions for identical instruments
Level (c) (i) – valuation techniques that use observable market data
Level (c) (ii) – valuation techniques that use unobservable market data
Unquoted investments are valued by the Directors at fair value using International Private Equity and Venture Capital Valuation Guidelines. This policy applies to unquoted fixed asset investments held by the Company.
(i) 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 Reconciliation of Movements in Shareholders’ Funds when they have been approved by shareholders and become a liability of the Company.
Interim dividends are only recognised in the financial statements in the period in which they are paid.
(j) Foreign currency translation
All transactions in foreign currencies are translated into US Dollars at the rate of exchange ruling on the dates of such transactions.
(k) Cash and cash equivalents
Cash comprises cash in hand and on demand deposits. Cash equivalents are 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) Capital redemption reserve
The nominal value of ordinary shares repurchased for cancellation is transferred out of share capital and into the capital redemption reserve.
The full cost of ordinary shares repurchased and held in treasury is charged to capital reserves. Where treasury shares are subsequently reissued, any surplus is taken to the share premium account.
(m) Capital reserves
The following transactions are accounted for in capital reserves:
- gains and losses on the disposal of fixed asset investments;
- realised exchange differences of a capital nature;
- cost of professional advice, including irrecoverable VAT, relating to the capital structure of the Company;
- other capital charges and credits charged or credited to this reserve in accordance with the above policies;
- cost of purchases of own ordinary shares and warrants;
- increases and decreases in the valuation of investments held at the year end; and
- unrealised exchange differences of a capital nature.
(n) Other receivables
Other receivables are sales for future settlement, other receivables 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. Other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method.
(o) Other payables
Other payables are purchases for future settlements, interest payable, share buyback cost and accruals in the ordinary course of business. Other payables are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method.
3. INCOME
| 2015 US$’000 |
2014 US$’000 |
|
| Income from investments: | ||
| Overseas dividends | 5,784 | 9,562 |
| REIT distributions | 442 | 530 |
| Special dividends | 598 | 175 |
| Stock dividends | 1,337 | – |
| Outperformance warrants | (88) | 193 |
| Interest income | 434 | 52 |
| Amortisation of fixed interest investments | (82) | (77) |
| -------- | -------- | |
| 8,425 | 10,435 | |
| -------- | -------- | |
| Other income: | ||
| Traded option premiums | 3,300 | 5,319 |
| Deposit interest | 1 | 16 |
| -------- | -------- | |
| Total | 11,726 | 15,770 |
| ===== | ===== |
Special dividends of US$100,000 have been recognised in capital (2014: US$113,000).
During the year, the Company received premiums totalling US$3,279,000 (2014: US$5,311,000) for writing covered call options for the purposes of revenue generation, of which US$3,300,000 (2014: US$5,319,000) was taken to income. All derivative transactions were based on constituent stocks in MSCI EM Latin American Index. At 31 December 2015, there were 45 open option positions with an associated liability of US$227,000 (2014: 44 open option positions and associated liability of US$249,000).
The Company also participated in 4 outperformance warrants contracts in 3 securities during the year (2014: 8 securities) which generated a loss of US$88,000 (2014: Income of US$193,000). The negative income on the current year relates to an over accrual of US$150,000 at 31 December 2014.
4. INVESTMENT MANAGEMENT AND PERFORMANCE FEES
The investment management fee has been calculated at 0.85% per annum on the NAV. The Investment Manager is also entitled to a performance fee equal to 10% of any outperformance of the NAV per share against the benchmark, the MSCI EM Latin America Index (in US Dollar terms on a total return basis) plus a hurdle of 1%. The performance fee is capped at 1% of NAV.
No performance fee was payable in respect of the year 31 December 2015 (2014: nil).
The total fee currently payable to BlackRock in any twelve month period is limited to 4.99% of the NAV. However, as BlackRock is only entitled to a basic fee of 0.85% of the NAV and the performance fee is capped at 1.0% of the NAV, the amount paid to BlackRock by the Company in respect of fees in any twelve month period is expected to be substantially lower than 4.99% of the NAV.
| 2015 Revenue US$’000 |
2015 Capital US$’000 |
2015 Total US$’000 |
2014 Revenue US$’000 |
2014 Capital US$’000 |
2014 Total US$’000 |
|
| Investment management fee | 455 | 1,365 | 1,820 | 658 | 1,975 | 2,633 |
5. OPERATING EXPENSES
| 2015 US$’000 |
2014 US$’000 |
|
| Custody fee | 58 | 104 |
| Depositary fees | 27 | 18 |
| Audit fee | 45 | 47 |
| Registrar's fees | 44 | 53 |
| Directors’ emoluments – fees for services to the Company* | 242 | 268 |
| Marketing fees | 94 | 237 |
| Other administration costs | 276 | 324 |
| -------- | -------- | |
| 786 | 1,051 | |
| -------- | -------- | |
| Transaction charges – capital | 45 | 41 |
| -------- | -------- | |
| 831 | 1,092 | |
| -------- | -------- | |
| Ongoing charges, calculated as a percentage of average shareholders’ funds and using expenses, excluding finance costs and taxation were: | 1.1% | 1.2% |
| ==== | ==== | |
| * Directors’ fees are paid in Sterling and are therefore subject to exchange rate fluctuations. |
There were no fees payable in the year in respect of non-audit services (2014: nil). The underlying audit fee is invoiced in Sterling and is therefore susceptible to exchange rate fluctuations. The fee has not changed materially from year to year.
Expenses of US$45,000 (2014: US$41,000) charged to the capital column of the Income Statement relate to transaction costs charged by the custodian on the purchase and sale of investments and charges on Brazilian foreign exchange transactions.
6. DIVIDENDS
Dividend on ordinary shares |
Register date |
Payment date |
2015 US$’000 |
2014 US$’000 |
| 2013 Final of 15.00 cents | 28 March 2014 | 2 May 2014 | – | 5,905 |
| 2014 Interim of 15.00 cents | 5 September 2014 | 3 October 2014 | – | 5,905 |
| 2014 Final of 15.00 cents | 27 March 2015 | 6 May 2015 | 5,905 | – |
| 2015 Interim of 15.00 cents | 4 September 2015 | 7 October 2015 | 5,905 | – |
| -------- | -------- | |||
| 11,810 | 11,810 | |||
| ===== | ===== |
The Directors are recommending the payment of a final dividend in respect of the year ended 31 December 2015 of 6.00 cents per share (2014: final dividend of 15.00 cents per share) on 9 May 2016 to shareholders on the Company’s register on 29 March 2016. The recommended final dividend has not been included as a liability in these financial statements, as final dividends are only recognised in the financial statements once they have been approved by shareholders.
The dividends disclosed in the note below have been considered in view of the requirements of Section 1158 of the Corporation Tax Act 2010 and Section 833 of the Companies Act 2006, and the amount proposed for the year ended 31 December 2015 meets the relevant requirements as set out in this legislation.
| 2015 US$’000 |
2014 US$’000 |
|
| Dividend payable on equity shares: | ||
| Interim dividend paid 15.00 cents (2014: 15.00 cents) | 5,905 | 5,905 |
| Final dividend payable 6.00 cents (2014: 15.00 cents) | 2,362 | 5,905 |
| -------- | -------- | |
| 8,267 | 11,810 | |
| ===== | ===== | |
| * Based on 39,369,620 ordinary shares in issue at 8 March 2016. |
All dividends paid or payable are distributed from the Company's distributable reserves.
7. EARNINGS AND NAV PER ORDINARY SHARE
| 2015 | 2014 | |
| Net revenue profit attributable to ordinary shareholders (US$’000) | 9,489 | 12,384 |
| -------- | -------- | |
| Net capital losses attributable to ordinary shareholders (US$’000) | (93,159) | (39,496) |
| -------- | -------- | |
| Total losses attributable to ordinary shareholders (US$’000) | (83,670) | (27,112) |
| -------- | -------- | |
| Total shareholders’ funds (US$’000) | 180,943 | 276,423 |
| -------------- | -------------- | |
| The weighted average number of ordinary shares in issue during the year on which the basic return per ordinary share was calculated was: | 39,369,620 |
39,369,620 |
| -------------- | -------------- | |
| The actual number of ordinary shares in issue at the end of each year on which the undiluted net asset value was calculated was: | 39,369,620 |
39,369,620 |
| ======== | ======== |
| 2015 Revenue cents |
2015 Capital cents |
2015 Total cents |
2014 Revenue cents |
2014 Capital cents |
2014 Total cents |
|
| Return per share | ||||||
| Calculated on weighted average number of shares | 24.10 | (236.63) | (212.53) | 31.46 | (100.32) | (68.86) |
| -------- | -------- | -------- | -------- | -------- | -------- | |
| Calculated on actual number of shares in issue at year end | 24.10 | (236.63) | (212.53) | 31.46 | (100.32) | (68.86) |
| -------- | -------- | -------- | -------- | -------- | -------- | |
| Net asset value per share | 459.60 | 702.12 | ||||
| -------- | -------- | |||||
| Ordinary share price | 408.24 | 624.50 | ||||
| ===== | ===== |
Basic and diluted earnings per share and net asset value per share are the same as the Company does not have any dilutive securities outstanding.
8. CALLED UP SHARE CAPITAL
| Ordinary shares number |
Treasury shares number |
Total shares |
Nominal US$’000 |
|
| Allotted, called up and fully paid share capital comprised: | ||||
| Ordinary shares of 10 cents each | ||||
| At 1 January 2015 | 39,369,620 | 2,071,662 | 41,441,282 | 4,144 |
| At 31 December 2015 | 39,369,620 | 2,071,662 | 41,441,282 | 4,144 |
No ordinary shares were repurchased during the year (2014: nil). No ordinary shares were cancelled during the year (2014: nil).
The number of ordinary shares in issue at the year end was 39,369,620 (2014: 39,369,620) excluding 2,071,662 (2014: 2,071,662) shares held in treasury.
The ordinary shares (excluding any shares held in treasury) carry the right to receive any dividends and have one voting right per ordinary share. There are no restrictions on the voting rights of the shares or on transfer of the shares.
9. RESERVES
Share premium account US$’000 |
Capital redemption reserve US$’000 |
Non- distributable reserve US$’000 |
Capital reserve arising on investments sold US$’000 |
Capital reserves arising on revaluation of investments held* US$’000 |
Revenue reserve* US$’000 |
|
| At 1 January 2015 | 11,719 | 4,843 | 4,356 | 242,486 | (6,299) | 15,174 |
| Movement during the year: | ||||||
| Losses on realisation of investments | – | – | – | (29,977) | – | – |
| Change in investment holding losses | – | – | – | – | (61,454) | – |
| (Losses)/gains on foreign currency transactions | – | – | – | (1,132) | 543 | – |
| Interest and expenses charged to capital after taxation | – | – | – | (1,139) | – | – |
| Return for the year | – | – | – | – | – | 9,489 |
| Dividends paid | – | – | – | – | – | (11,810) |
| -------- | -------- | -------- | -------- | -------- | -------- | |
| At 31 December 2015 | 11,719 | 4,843 | 4,356 | 210,238 | (67,210) | 12,853 |
| ====== | ===== | ===== | ====== | ===== | ===== | |
| * Represents the Company’s distributable reserves. | ||||||
10. CONTINGENT LIABILITIES
There were no contingent liabilities at 31 December 2015 (2014: nil).
11. 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 2015 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 2015 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 2014, 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 8 March 2016.
12. 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.
13. ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held at 12 Throgmorton Avenue, London EC2N 2DL on Friday, 29 April 2016 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:
Simon White, Managing Director, Investment Trusts, BlackRock Investment Management (UK) Limited
Tel: 020 7743 5284
Peter Burnell – Chairman
Tel: 01434 632292
Emma Phillips, Media & Communications, BlackRock Investment Management (UK) Limited
Tel: 020 7743 2922
Press Enquiries:
Lucy Horne, Lansons Communications – Tel: 020 7294 3689
E-mail: lucyh@lansons.com
8 March 2016
12 Throgmorton Avenue
London EC2N 2DL
Latest directors dealings
- 1 day ago IntegraFin Holding
- 1 day ago Spirent Communications
- 1 day ago CRH (CDI)
- 1 day ago Bezant Resources
- 1 day ago EJF Investments Ltd NPV