BlackRock
Frontiers Investment Trust plc
(LEI: 5493003K5E043LHLO706)
Annual results
announcement for the year ended 30 September
2018
PERFORMANCE RECORD
Attributable to ordinary
shareholders |
30 September 2018 |
30 September 2017 |
|
|
|
US Dollar |
|
|
Net assets (US$’000) |
356,495 |
350,247 |
Net asset value per ordinary share
(cents) |
177.70 |
196.91 |
Ordinary share price (mid
market)1 (cents) |
182.25 |
199.91 |
|
-------- |
-------- |
Sterling |
|
|
Net assets (£’000)1 |
273,365 |
261,047 |
Net asset value per ordinary
share1 (pence) |
136.26 |
146.76 |
Ordinary share price (mid market)
(pence) |
139.75 |
149.00 |
|
-------- |
-------- |
Premium |
2.6% |
1.5% |
|
===== |
===== |
Performance – total return basis |
Year ended
30 September 2018
% |
Year ended
30 September 2017
% |
Since
inception4
% |
US Dollar |
|
|
|
Net asset value per share (with
dividends reinvested) |
-6.6 |
+21.5 |
+48.8 |
Reference Index (NR)2,
3 |
+2.3 |
n/a |
+35.8 |
MSCI Frontier Markets Index
(NR)2, 3 |
-7.7 |
+25.5 |
+22.5 |
MSCI Emerging Markets Index
(NR)3 |
-0.8 |
+22.5 |
+14.1 |
Ordinary share price (with dividends
reinvested) |
-5.7 |
+23.6 |
+50.1 |
|
|
|
|
Sterling |
|
|
|
Net asset value per share (with
dividends reinvested) |
-4.0 |
+17.7 |
+77.5 |
Reference Index (NR)2,
3 |
+5.3 |
n/a |
+62.3 |
MSCI Frontier Markets Index
(NR)2,3 |
-5.1 |
+21.5 |
+46.4 |
MSCI Emerging Markets Index
(NR)3 |
+2.0 |
+18.6 |
+36.5 |
Ordinary share price (with dividends
reinvested) |
-3.1 |
+19.8 |
+78.7 |
1 Based on an exchange rate of
$1.3041 to £1 at 30 September 2018 and $1.3417 to £1 at 30
September 2017.
2 With effect from 1
April 2018, the Reference Index changed to the MSCI Emerging
Markets Index ex Selected Countries + MSCI Frontier Markets Index
+MSCI Saudi Arabia Index. Prior to 1 April
2018, the Reference Index was the MSCI Frontier
Markets Index. The
performance of the Reference Index during the year has been blended
to reflect this change.
3 Net return (NR) indices include the
reinvestment of dividends net of withholding taxes using the tax
rates applicable to non-resident institutional investors.
4 The Company was incorporated on
15 October 2010 and its shares were
admitted to trading on the London Stock Exchange on 17 December 2010.
CHAIRMAN’S STATEMENT
Dear Shareholder,
I am pleased to present to you the Annual Report and Financial
Statements for the year ended 30 September
2018.
OVERVIEW
During the year to 30 September 2018,
your Company’s Net Asset Value per share (NAV) decreased by 6.6%,
compared with the Reference Index, which rose by 2.3%. As
shareholders will be aware, and as set out below, on 1 April 2018 we adopted a revised investment
policy and new benchmark which the Board and the Manager believe
provides a better and more consistent basis for the fund in the
future. To some extent therefore, 2018 represents a
transition year as the portfolio is realigned to reflect the new
investment policy. Our NAV total return was ahead of the
outcome for the year of the previous benchmark, the MSCI Frontier
Markets Index, but behind the new Reference Index (as set out
below). Relative performance has been measured against the
performance of the previous benchmark up to 31 March 2018, chain-linked with the performance
of the new Reference Index from 1 April
2018 to the financial year end. No performance fee will be
payable this year.
Over the longer term, your Company has generated an impressive
total return of 48.8% since launch in 2010, comparing favourably to
an increase of 35.8% for the Reference Index over the same
period. Returns are higher for sterling based investors given the
depreciation of the pound, with a sterling equivalent NAV
total return of 77.5% since launch, compared with the return on the
Reference Index in sterling terms of 62.3% over the same
period.
The contributors and detractors to overall investment
performance during the period and the Investment Managers’ view on
the outlook for Frontier Markets are given in their report which
follows.
REVISED INVESTMENT POLICY
As reported in the Company’s half-yearly report, the Board, having
consulted with the Manager and the Company’s advisers, proposed
that shareholders consider the adoption of a revised investment
policy which would permit a broadened investment universe to
include any country which is neither part of the MSCI World Index
of developed markets nor one of the eight largest countries by
market capitalisation in the MSCI Emerging Markets Index as at
1 April 2018: being Brazil, China, India,
Korea, Mexico, Russia, South
Africa and Taiwan. As part
of this change it was also proposed that the Company also adopt a
new Reference Index: the MSCI Emerging Markets Index ex Selected
Countries + MSCI Frontier Markets Index + MSCI Saudi Arabia Index
(net total return, USD).
Prior to 1 April 2018, the
Reference Index was the MSCI Frontier Markets Index. The
performance of the Reference Index during the year ended
30 September 2018 has been calculated
on a blended basis to reflect this change. The Reference Index for
the year ended 30 September 2017 was the MSCI Frontier Markets
Index. (All performance figures are in US Dollars on a total return
basis.)
At a General Meeting of the Company held on 27 March 2018 an ordinary resolution of the
Company was duly passed by shareholders adopting the revised
investment objective and policy (including the new benchmark index)
with effect from 1 April 2018.
I am also very pleased to be able to report to Shareholders that
the Company has been awarded “Best Global Emerging Market Equities
Trust” in the Citywire Investment Trust Awards 2018.
REVENUE RETURN AND DIVIDENDS
The Company’s revenue return per share for the year amounted to
10.13 cents (2017: 7.70 cents). The revenue per share has been
enhanced by a number of stock and special dividends this year,
which are likely to be one-off payments and unlikely to be
repeated. Consequently, your Board is recommending an
increase in the final dividend to 4.40
cents per ordinary share and an additional special dividend
of 1.00 cent per ordinary share for
the year ended 30 September 2018. It
is necessary to pay the latter to maintain investment trust status
which requires the distribution of 85% of the Company’s
revenue. The Directors are recommending the payment of a final
dividend of 4.40 cents per ordinary share (2017: 4.20 cents) and a special dividend of
1.00 cent per ordinary share in
respect of the year ended 30 September
2018 (2017: nil). Together with the interim dividend of
3.00 cents per share (2017:
2.70 cents), this represents a total
of 8.40 cents per share (2017: 6.90
cents), an increase of 21.7% over total dividends paid in
the previous year. Subject to shareholder approval, this dividend
will be paid on 7 February 2019 to
shareholders on the register of members at close of business on
4 January 2019. The Company does not
have a policy of actively targeting income; nevertheless, this
return represents an attractive yield of 4.6%. We believe this is
an attractive element of the total return generated for
shareholders, particularly given the low returns being offered by
traditional sources of income.
C SHARE ISSUE
As set out in the Circular and C Share Prospectus sent to
shareholders in October 2018, the
Directors proposed that shareholders consider the issue of up to
150 million C Shares in connection with a reconstruction and
winding up of another BlackRock investment trust, BlackRock
Emerging Europe plc (the ‘Scheme Issue’), and in tandem with a
wider placing and offer for subscription (the ‘Issue’).
The Board believed that the Scheme Issue and the Issue would
have the following principal benefits for Shareholders:
-
the additional capital raised would enable the Company to take
advantage of attractive investment opportunities, whilst also
diversifying its investment portfolio;
-
the increase in the size of the Company was expected to improve
market liquidity of the Ordinary Shares, enhancing the
marketability of the Company and might result in a broader investor
base over the longer term; and
- an increase in the size of the Company would mean that the
fixed costs of operating the Company were spread over a larger
asset base thereby reducing the Company’s ongoing charges
ratio.
At a General Meeting of the Company held on 15 November 2018, the proposals were approved by
shareholders and on 27 November 2018 a total of 44,927,580 C
Shares were issued for cash and admitted to the Official List on
the London Stock Exchange. The net proceeds from the Scheme
Issue and the Issue will be accounted for as a separate pool of
assets until the conversion date to ensure existing Ordinary
Shareholders are not disadvantaged through exposure to a portfolio
which may contain a proportion of uninvested cash, nor to the costs
of investing the net proceeds. The NAV of the existing Ordinary
Shares will not be diluted by the expenses associated with the
Issues, which will be borne by the subscribers for C Shares.
It is anticipated that the C Shares issued will convert into
Ordinary Shares in January 2019. Upon
Conversion the investments which were attributable to the C Shares
will be merged with the Company’s existing portfolio of
investments. The new Ordinary Shares arising on Conversion of the C
Shares will rank pari passu, with the Ordinary Shares then in
issue.
SHARE CAPITAL
The Directors recognise the importance to investors of ensuring
that the Company’s share price is as close to its underlying NAV as
possible. Accordingly, the Directors monitor the share price
closely and will consider the issue of shares at a premium or the
repurchase at a discount to balance demand and supply in the
market. As at 30 September 2018, the
Company had 200,616,108 ordinary shares in issue. In response to
sustained demand for the Company’s shares, a total of 22,748,000
new ordinary shares were issued during the year to 30 September 2018. A further 3,625,000 new
ordinary shares were issued during the period from 1 October 2018 up to the date of this report,
bringing the total number of new shares issued to 26,373,000. Thus,
the authority taken from shareholders at the last AGM has been
fully utilised, save in respect of 876,610 shares.
Following the Scheme Issue and Issue described above, 37,375,087
C Shares were issued at a price of 100
pence per C Share on 27 November
2018 pursuant to the Scheme Issue to shareholders of
BlackRock Emerging Europe plc, and a further 7,552,493 C Shares
were issued pursuant to the placing and offer for subscription at
an issue price of 100 pence per C
Share.
For the year under review, the Company’s ordinary shares have
traded at an average premium to NAV of 3.2% and were trading at a
premium of 3.2% on a cum-income basis at 7 December 2018, the
latest practicable date prior to the issue of this report. The
Directors have the authority to buy back up to 14.99% of the
Company’s issued share capital (excluding any shares held in
treasury) and also to issue or sell from treasury on a non
pre-emptive basis up to 10% of the Company’s issued share capital,
having renewed this power at a General Meeting held on 15 November 2018. Both authorities expire on the
conclusion of the forthcoming AGM at which time resolutions will be
put to shareholders seeking a renewal of these powers. Further
information can be found in the Directors’ Report on pages 33 to 37
of the Annual Report and Financial Statements.
CAPITAL GAINS TAXATION
On 30 March 2017 the Board made the
decision to accrue for Argentine Capital Gains Tax potentially
payable in respect of investments held through American Depositary
Receipts (“ADRs”). Following the enactment of Argentine tax reform
(Law No. 27,430), effective 1 January
2018, and discussions with the Company’s advisers, it was
noted that ADRs over Argentine equity held by a non-resident
purchaser would not give rise to an Argentine Capital Gains Tax
liability. In addition, the law removed any liability for unpaid
capital gains tax arising from transactions prior to 1 January 2018. The Board therefore decided to
reverse the accrual with effect from that date. Further details can
be found in note 7 on page 62 of the Annual Report and Financial
Statements.
BOARD COMPOSITION
The Board consists of five wholly Independent Non-executive
Directors. There have been no changes to the composition of the
Board or its committees during the year. The Board has a succession
plan in place which ensures that a suitable balance of skills,
knowledge, experience, independence and diversity is achieved to
enable the Board to effectively discharge its duties. The Directors
have agreed to submit themselves to annual re-election and
therefore all Directors will retire and will stand for re-election
at the forthcoming Annual General Meeting (“AGM”).
Further information on the experience and background of the
Directors can be found in their biographies on page 26 of the
Annual Report and Financial Statements.
OUTLOOK
Global economic growth is expected to continue, although growth is
likely to vary across the major developed economies. Markets are
also becoming increasingly volatile, largely driven by heightened
geopolitical tensions – in particular the threat of an escalation
in the US/China trade war through
the imposition of fresh US trade tariffs and concerns in
Europe about the economic
consequence of Brexit and tensions arising from Italian government
spending. The strength of the US economy, the consequent strong US
dollar, and the impact of rising US interest rates as a result of
tightening monetary policy, have created headwinds for many of the
countries in the Frontiers Universe whose debt is often denominated
in US dollars.
Although the last financial year has been challenging with a
significant derating for both Frontier and Emerging Markets, we
believe the case for investing in the Frontiers Universe continues
to present an attractive proposition for the medium to long-term
investor. The Board believes that the Company’s broadened
investable universe provides the investment managers with the
flexibility to adjust the portfolio’s geographic exposure to take
advantage of specific opportunities or in response to the natural
evolution of Frontier Markets. The Board is confident that the
investment managers are well positioned to take full advantage of
the new opportunities this may create in what remains a dynamic and
exciting asset class. We look forward to a new chapter for the
Company and believe that it is now well placed to deliver continued
success in the years to come.
ANNUAL GENERAL MEETING
The AGM of the Company will be held at BlackRock’s offices at 12
Throgmorton Avenue, London EC2N
2DL on Tuesday, 5 February 2019 at
12.00 noon. Details of the business of the meeting are set out in
the Notice of Meeting on pages 88 to 91 of the Annual Report and
Financial Statements. The investment managers will make a
presentation to shareholders on the Company’s progress and the
outlook for Frontier Markets. My fellow Directors and I look
forward to meeting shareholders at this year’s AGM and encourage
you to attend.
AUDLEY
TWISTON-DAVIES
Chairman
10 December 2018
INVESTMENT MANAGER’S REPORT
PORTFOLIO & MARKET COMMENTARY
During the 12 months to 30 September
2018, the Company returned -6.6%* (on a US Dollar basis with
dividends reinvested) versus the Reference Index which rose by
2.3%**. The MSCI Frontier Markets Index declined by 7.7%, while the
MSCI Emerging Markets Index returned -0.8% over the same period.
Since inception the Company has returned +48.8%, compared to +35.8%
return of the Reference Index, while the MSCI Emerging Markets
Index has lagged, returning +14.1%.
* Source: BlackRock, as at 30 September
2018. ** Source: MSCI as at 30
September 2018. The benchmark changed from MSCI Frontier
Markets Index to MSCI Emerging Markets Index ex Selected Countries
+ MSCI Frontier Markets Index + MSCI Saudi Arabia Index ("Reference
Index") from 1 April 2018.
The Company changed its benchmark in April 2018 from the MSCI Frontier Markets Index
to MSCI Emerging Markets Index ex Selected Countries + MSCI
Frontier Markets Index + MSCI Saudi Arabia Index (the “Frontiers
Universe”). The new Index excludes the largest eight countries
(by market capitalisation), that is, Brazil, China, India,
Korea, Mexico, Russia, South
Africa and Taiwan, and
includes the other 16 countries in the MSCI Emerging Markets Index.
With a combined weight of only 15% (on a market weighted basis) of
the MSCI Emerging Markets Index, these 16 smaller ‘forgotten’
countries are less followed by investors in Emerging Markets and
share many characteristics with our historically defined Frontier
Markets; hence we expanded the investment universe to include these
countries. The performance of the new benchmark has been
significantly better than the previous benchmark over the period,
which demonstrated the benefits of an expanded, more diverse and
less concentrated investment universe.
Argentina (-46%) was both
a contributor and detractor during the year. In the first half
of the period, the Argentine market index was approximately flat,
whilst the Company benefited from stock selection with our
holdings in Argentine financials, such as Grupo Galicia and Grupo
Supervielle, contributing strongly to returns. Whilst we did
significantly decrease exposure to Argentina through this period, we did not cut
our exposure sufficiently as the market fell 46% over the following
six months, hurting performance of the Company. As US quantitative
tightening started to impact markets, those countries which had
twin deficits and a high reliance on external funding
fared particularly badly and Argentina, with an arguably overvalued
currency and reliance on huge monthly bond auctions, was at
the forefront of this. Aware of their vulnerability, the Central
Bank in Argentina approached the
IMF (International Monetary Fund) at the first sign of problems in
April, and were able to agree a US$50bn package with the IMF. Thinking that this
would be sufficient to comfort the markets with respect to
Argentina’s financing requirements, we added to our remaining
positions into this sell off. In hindsight, these additions
were too early, with the market continuing to fall throughout
the summer.
Crisis point for Argentina was
reached in August with a run on the currency which the Central Bank
was unable to contain on its own. This precipitated an expanded
agreement with the IMF, which came with additional requirements for
Argentina to further reduce its
fiscal deficit and shift from inflation targeting to monetary
aggregate targeting. Under the agreement, the IMF will cover the
gross financing requirement to the end of 2019 in the event that
Argentina is not able to access
debt markets. Whilst it is impossible to categorically rule out a
debt default by Argentina, given
current yields, the extent of the currency devaluation and the IMF
backstop, we think risk reward tilts in our favour by remaining
long.
The positions in Greek banks performed poorly over the period,
falling over 26% as investors were concerned about an escalation of
the tensions post elections in Italy spilling over into the wider Eurozone.
Furthermore, our holdings in National Bank of Greece and Alpha
Bank reported disappointing results as they struggled to
reduce stock of non-performing exposures ("NPE"s) on balance
sheets to the extent that investors expected. This led to increased
fears about the potential for capital raises from the banks which
given their valuations would be very dilutive
for shareholders. Whilst the results missed our expectations,
we think that the extent of the reaction to these results was
excessive and we would expect better news on NPE reductions going
forward.
Turkey (-41%) has had a
troubled year with the currency devaluing by 25% in August alone.
Investors became concerned with a central bank substantially behind
the curve, spiralling inflation and a government which continued to
stoke activity with loose fiscal policy. We are currently zero
weighted in Turkey, concerned
about the extent of foreign currency debt owed by the corporate
sector and have no desire to add to exposure until the government
reverses its current policy course. In a similar vein, we have had
no exposure to Pakistan, have
significantly reduced our exposure to Sri
Lanka and Bangladesh and
are running meaningful short exposure in the Philippines.
On a more positive note, the Kazakhstan (+23%) market rose over the period
driven by Halyk Bank which rallied post the take-over of
competitor, Kazkommertsbank. We remain holders of the bank given
its strong market position and competitive advantage in terms of
cost of funding versus peers.
Colombian oil producer, Ecopetrol (+50%), was one of the largest
stock contributors to returns. Whilst the increase in the oil price
was no doubt helpful for returns, the company was also able to
stabilise production post a number of years of declines and to
achieve better than expected cost discipline. Following the strong
performance, we have fully exited the position.
Positions in Romania (+19%)
also benefited returns, as both BRD, a leading bank in the country,
and Romgaz, an oil and gas producer, reported strong earnings
backed by robust cash flow generation supported by strong domestic
macro-economic environment.
Vietnam (+35%) was the best
performing country in the universe over the period. The economy
continued to be supported by strong net Foreign Direct Investment
as attractive labour costs attracted many companies to set up
manufacturing operations in the country. The resulting strong
growth in exports has provided a good support to both domestic
activity and the current account surplus. The Company’s exposure to
Vietnam contributed well to
performance. Our position in a listed brokerage firm, Saigon
Securities, rose over 70% as it benefited from increasing trading
volumes and increasing market valuations.
A holding in MHP, a Ukrainian food processor specialising in
poultry exports, added to performance. The stock benefited from
increased margins as a result of strong pricing, especially across
the Middle East where they took
market share from the Brazilian poultry exporters on the back of
their domestic problems. The company continued to expand its
international customer base and strengthen its position as Europe’s
largest poultry farm thanks to the development and capacity
expansion of the Vinnytsia Complex.
Saudi Arabia (+7%) rose over
the period thanks to a strong oil price and US dollar, to
which the market is sensitive. The holding in Al Rajhi Bank
contributed to returns as the stock rose helped by good earnings
due to increased loan volumes.
BLACKROCK FRONTIERS INVESTMENT TRUST:
SURPRISINGLY LOW VOLATILITY
|
% |
BlackRock Frontiers Investment Trust
NAV |
1.5 |
S&P 500 |
1.8 |
FTSE All-Share |
2.2 |
MSCI EM |
2.4 |
The figures shown relate to past performance. Past
performance is not a reliable indicator of current or future
results and should not be the sole factor of consideration when
selecting a product or strategy. Source: Bloomberg, MSCI, as at
end September 2018. Volatility of
weekly returns since 17th December
2010, inception date of the BlackRock Frontiers Investment
Trust.
PORTFOLIO ACTIVITY
We started the year somewhat geared, something that we reduced
through the year to reach a net exposure of exactly 100% at the end
of September 2018. We have most
significantly decreased exposure to Argentina since the start of the period by
locking in the profits in the names that performed well and keeping
the exposure to high conviction names. We have mainly exited or
significantly reduced exposure to positions in Sri Lanka, Bangladesh, Estonia, Slovenia and Morocco, taking profits in a number of long
held names as we see better opportunities elsewhere.
The Company has maintained its exposure to Egypt on the back of an improved macro
environment with lower than expected inflation and a lower trade
deficit. We also added to exposure in Nigeria as we believed the exchange rate had
reached a sustainable level and the stock market was overly
pessimistic on the country.
Following the benchmark change, we built up the exposure to
ASEAN countries, Thailand and
Indonesia. In Thailand, consumption remains firm and its
current account is in surplus. We initiated a position in Land and
Houses, a real estate development company with a strong balance
sheet and Polyethylene Tirephtallate (PET) plastic producer,
Indorama. In Indonesia, we bought
a position in conglomerate Astra International, where we thought
that analysts were too pessimistic on revenue and margin turnaround
potential for their auto business. We also initiated a position in
a clothing retailer which is midst implementation of a balance
sheet turnaround plan.
In Eastern Europe. we bought
Gedeon Richter, a Hungarian generic
pharmaceutical producer that also has two speciality drugs in the
women’s health and central nervous system areas, which are
currently in the ramp up stage. We expect the performance of both
drugs to beat analyst expectations and think that the company is
cheap on that basis. We added to Alior Bank, the largest challenger
bank in Poland, which benefits
from a strong IT platform. The bank trades at attractive valuations
and is seeing rapid earnings growth as it completes a restructuring
programme. We also took advantages of the Company’s ability to
short on a limited basis and had some short positions in
Turkey on the back of macro
concerns.
In the Middle East, we added a
number of positions in UAE and Qatar, including Industries Qatar, a domestic
commodity producer which we have since exited following strong
share price performance, and Emaar Properties, the largest UAE real
estate developer, where we think the market is overly discounting
the company’s long-term potential.
Over the period MSCI announced index changes affecting
Argentina, Saudi Arabia and Kuwait. Our expanded investment universe
encompassing all but the largest eight Emerging Markets is
unaffected by these latest MSCI announcements. Argentina, Saudi
Arabia and Kuwait will
remain part of our investable universe and offer interesting
investment opportunities for investors in our view.
OUTLOOK
We continue to be positive on the Frontiers Universe,
especially where those markets are experiencing improved
macroeconomic conditions, better political governance, cash flow
growth, and cheap valuations.
Emerging and Frontier Markets have de-rated considerably. Whilst
further rises in US rates would likely put pressure on some
Emerging Market Central Banks to mirror these increases, we believe
that, in general, Emerging Markets are better positioned to weather
this strain than they were in the previous periods of monetary
tightening of 2013 and 2015. At current levels, Emerging Markets
are historically low on price to book valuations, which we believe
is an attractive level. Despite the sell off and increased market
concerns in 2018, we think that the expanded Frontiers Universe
continues to exhibit strong GDP growth, has low government debt
levels, and represents an opportunity to invest in companies with
strong cash flow and high dividend yields, on some of the lowest
valuations in the world.
SAM VECHT & EMILY FLETCHER
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
10 December 2018
TEN LARGEST INVESTMENTS1 AS
AT 30 SEPTEMBER 2018
Astra International (Indonesia, Consumer Discretionary, 4.6% (2017:
0.0%)) is an Indonesian conglomerate. It owns Southeast Asia’s
largest independent automotive group and is the leading provider of
a full range of automobile and motorcycle products. Astra also has
interests in financial services, heavy equipment, mining,
construction and energy, agribusiness, infrastructure and
logistics, information technology and property. It is also an
active participant in the development of Indonesia’s strategic
infrastructure, including toll roads, energy transportation and
logistics and sea ports.
MHP (Ukraine, Consumer
Staples, 3.5% (2017: 3.2%)) is a food processor, specialising in
poultry exports. From hatching through to finished poultry
products, the production process is 100% owned. MHP also owns 11
distribution centres and a refrigerated delivery vehicle fleet
which enables the company to distribute products directly to
customers.
Halyk Savings Bank (Kazakhstan, Financials, 3.3%
(2017: 3.6%)) is one of Kazakhstan’s leading financial
services groups and a leading retail bank with the largest domestic
customer base and distribution network in Kazakhstan. Following the recent merger with
Kazkommertsbank, Halyk’s branch network consists of 657 outlets
across the country, with 4,411 ATMs.
Ooredoo2 (Qatar, Telecommunication Services, 3.3%
(2017: 0.1%)) is an international communications company with
a customer base of more than 100 million across the Middle East, North
Africa and Southeast Asia
with headquarters in Doha, Qatar.
Ooredoo provides mobile, wireless, and content services with over
40% market share in the domestic and international
telecommunication markets, and in business and residential
markets.
Gedeon Richter
(Hungary, Health Care, 3.2% (2017:
0.0%)) is a generic pharmaceutical producer in Central Eastern
Europe and Russia that is
currently in the process of transforming itself into a specialty
pharma company. In the past, it has largely developed APIs (Active
Pharmaceutical Ingredients) and generics, but it is now starting to
generate an increasing share of its profits from higher margin,
innovative drugs both for women’s health care and the central
nervous system. We hold the stock on the premise that these higher
margin and faster growing speciality drugs will drive up both the
Company’s reserves and margins.
Land & Houses Public Company (Thailand, Real Estate, 3.2% (2017: 0.0%)) is a
large real-estate company based in Thailand. It operates in two segments: real
estate business, and rental and service business. The real estate
business segment develops and sells houses, townhouses, and
residential condominium projects. The rental and service business
segment is involved in the rental of shopping malls, hotels, and
apartments.
YPF (Argentina, Energy,
3.1% (2017: 2.5%)) is a vertically integrated Argentine state
controlled energy company, engaged in oil and gas exploration and
production, and the transportation, refining, and marketing of gas
and petroleum products.
Emaar Properties (United Arab
Emirates, Real Estate, 3.1% (2017: 0.0%)) is a real estate
development company located in the United
Arab Emirates. The company operates internationally,
providing property development and management services. Emaar
Properties Dubai is one of the largest real estate developers in
the UAE and is known for various large-scale projects such as
developing Burj Khalifa, the tallest building in the world.
Indorama Ventures (Thailand, Materials, 3.1% (2017: 0.0%)) is one
of the world’s leading producers in the intermediate petrochemicals
industry and a global manufacturer of wool yarns. It is the world’s
largest producer of polyethylene terephthalate (PET) resin, the
main material in PET bottles. It also produces polyester fibres and
purified terephthalic acid, ingredients of polyfibres.
Al Rajhi Bank (P-Note) (Saudi
Arabia, Financials, 3.0% (2017: 0.0%)) is the largest
Islamic bank in the world and it is a major investor in Saudi
Arabia’s business world. The bank is Saudi Arabia’s largest bank by
market value and the Kingdom’s second largest lender with over SR
330.5 billion in assets and over 600 branches.
1 Gross market exposure as a % of net
assets. Percentages in brackets represent the portfolio holding at
30 September 2017.
2 Includes exposure gained via both
contracts for difference and equity holdings.
PORTFOLIO ANALYSIS
COUNTRY ALLOCATION: ABSOLUTE WEIGHTS (% OF GROSS MARKET
EXPOSURE)
Thailand |
10.2 |
Indonesia |
9.2 |
Vietnam |
9.0 |
Argentina |
8.8 |
Egypt |
8.0 |
Romania |
6.2 |
Nigeria |
5.9 |
Kuwait |
5.6 |
United Arab Emirates |
5.6 |
Ukraine |
5.5 |
Qatar |
5.4 |
Saudi Arabia |
5.3 |
Philippines |
4.1 |
Malaysia |
4.0 |
Kazakhstan |
3.4 |
Greece |
3.3 |
Pan-Asia |
3.2 |
Hungary |
3.2 |
Pan-Africa |
2.4 |
Poland |
2.4 |
Kenya |
2.0 |
Tanzania |
1.3 |
Morocco |
0.8 |
Sri Lanka |
0.4 |
Bangladesh |
0.3 |
Estonia |
0.0 |
Source: BlackRock.
COUNTRY ALLOCATION RELATIVE TO THE REFERENCE INDEX
(%)
Egypt |
7.4 |
Vietnam |
7.3 |
Argentina |
7.2 |
Romania |
5.7 |
Ukraine |
5.5 |
Nigeria |
5.1 |
Kazakhstan |
3.3 |
Kuwait |
3.1 |
United Arab Emirates |
2.3 |
Greece |
1.9 |
Hungary |
1.7 |
Kenya |
1.4 |
Tanzania |
1.3 |
Qatar |
0.5 |
Sri Lanka |
0.3 |
Bangladesh |
0.0 |
Morocco |
-0.1 |
Tunisia |
-0.1 |
Senegal |
-0.1 |
Jordan |
-0.1 |
Croatia |
-0.2 |
Oman |
-0.2 |
Slovenia |
-0.2 |
Lebanon |
-0.2 |
Mauritius |
-0.3 |
Pakistan |
-0.3 |
Bahrain |
-0.5 |
Thailand |
-0.5 |
Indonesia |
-0.6 |
Philippines |
-0.7 |
Czech Republic |
-1.0 |
Peru |
-2.1 |
Colombia |
-2.5 |
Turkey |
-3.2 |
Poland |
-3.5 |
Other |
-3.9 |
Saudi Arabia |
-5.3 |
Chile |
-5.8 |
Malaysia |
-7.1 |
Source: BlackRock and Datastream.
SECTOR ALLOCATION: ABSOLUTE WEIGHTS (% OF GROSS MARKET
EXPOSURE)
Financials |
33.6 |
Consumer Discretionary |
16.5 |
Real Estate |
16.3 |
Consumer Staples |
10.9 |
Materials |
10.1 |
Health Care |
8.9 |
Energy |
7.5 |
Telecommunication Services |
5.8 |
Industrials |
4.5 |
Information Technology |
1.4 |
Source: BlackRock and Datastream.
SECTOR ALLOCATION RELATIVE TO THE REFERENCE INDEX (%)
Consumer Discretionary |
11.7 |
Real Estate |
11.4 |
Health Care |
6.9 |
Consumer Staples |
2.8 |
Information Technology |
1.0 |
Materials |
-1.2 |
Energy |
-1.2 |
Industrials |
-1.9 |
Telecommunication Services |
-2.8 |
Utilities |
-5.2 |
Financials |
-6.0 |
Source: BlackRock and Datastream.
INVESTMENTS AS AT 30 SEPTEMBER 2018
Company |
Principal
country of
operation |
Sector |
Fair value
and market
exposure1
US$’000 |
Gross market
exposure
as a % of
net assets3 |
Equity portfolio |
|
|
|
|
YPF ADR |
Argentina |
Energy |
11,188 |
3.1 |
Banco Macro |
Argentina |
Financials |
8,690 |
2.5 |
Irsa Inversiones GDR |
Argentina |
Real Estate |
6,479 |
1.8 |
Loma Negra Compania Industrial
Argentina ADS |
Argentina |
Materials |
4,585 |
1.3 |
|
|
|
-------- |
-------- |
|
|
|
30,942 |
8.7 |
|
|
|
-------- |
-------- |
Orascom Construction |
Egypt |
Industrials |
9,514 |
2.7 |
Integrated Diagnostics |
Egypt |
Health Care |
6,763 |
1.9 |
Medinet Nasr |
Egypt |
Real Estate |
5,113 |
1.4 |
Eastern Tobacco |
Egypt |
Consumer
Staples |
4,942 |
1.4 |
Centamin |
Egypt |
Materials |
1,233 |
0.3 |
Cleopatra Hospital |
Egypt |
Health Care |
1 |
– |
|
|
|
-------- |
-------- |
|
|
|
27,566 |
7.7 |
|
|
|
-------- |
-------- |
BRD Groupe Société Générale |
Romania |
Financials |
8,211 |
2.3 |
S.N.G.N. Romgaz |
Romania |
Energy |
7,074 |
2.0 |
Banca Transilvania |
Romania |
Financials |
6,660 |
1.9 |
|
|
|
-------- |
-------- |
|
|
|
21,945 |
6.2 |
|
|
|
-------- |
-------- |
Zenith Bank |
Nigeria |
Financials |
9,329 |
2.6 |
United Bank for Africa |
Nigeria |
Financials |
7,775 |
2.2 |
Nigerian Breweries |
Nigeria |
Consumer
Staples |
3,882 |
1.1 |
|
|
|
-------- |
-------- |
|
|
|
20,986 |
5.9 |
|
|
|
-------- |
-------- |
Emaar Properties |
United Arab
Emirates |
Real Estate |
11,096 |
3.1 |
Emaar Development |
United Arab
Emirates |
Real Estate |
9,016 |
2.5 |
|
|
|
-------- |
-------- |
|
|
|
20,112 |
5.6 |
|
|
|
-------- |
-------- |
Mobile Telecommunications |
Kuwait |
Telecommunication
Services |
8,570 |
2.4 |
Burgan Bank |
Kuwait |
Financials |
5,721 |
1.6 |
Mezzan |
Kuwait |
Consumer
Staples |
3,233 |
0.9 |
Kuwait Investment Projects |
Kuwait |
Financials |
2,393 |
0.7 |
|
|
|
-------- |
-------- |
|
|
|
19,917 |
5.6 |
|
|
|
-------- |
-------- |
MHP |
Ukraine |
Consumer
Staples |
12,528 |
3.5 |
Ferrexpo |
Ukraine |
Materials |
7,019 |
2.0 |
|
|
|
-------- |
-------- |
|
|
|
19,547 |
5.5 |
|
|
|
-------- |
-------- |
Thai Beverage |
Thailand |
Consumer
Staples |
7,453 |
2.1 |
Siam Commercial Bank |
Thailand |
Financials |
6,553 |
1.8 |
|
|
|
-------- |
-------- |
|
|
|
14,006 |
3.9 |
|
|
|
-------- |
-------- |
Halyk Savings Bank |
Kazakhstan |
Financials |
11,718 |
3.3 |
Kcell Joint Stock Company |
Kazakhstan |
Telecommunication
Services |
444 |
0.1 |
|
|
|
-------- |
-------- |
|
|
|
12,162 |
3.4 |
|
|
|
-------- |
-------- |
Vivo Energy |
Pan-Africa |
Consumer
Discretionary |
8,603 |
2.4 |
|
|
|
-------- |
-------- |
|
|
|
8,603 |
2.4 |
|
|
|
-------- |
-------- |
Alior Bank |
Poland |
Financials |
8,460 |
2.4 |
|
|
|
-------- |
-------- |
|
|
|
8,460 |
2.4 |
|
|
|
-------- |
-------- |
Indo Tambangraya |
Indonesia |
Energy |
5,123 |
1.4 |
Mitra Adiperkasa |
Indonesia |
Consumer
Discretionary |
1,633 |
0.5 |
Ciputra Development |
Indonesia |
Real Estate |
404 |
0.1 |
|
|
|
-------- |
-------- |
|
|
|
7,160 |
2.0 |
|
|
|
-------- |
-------- |
Equity Group |
Kenya |
Financials |
6,908 |
1.9 |
|
|
|
-------- |
-------- |
|
|
|
6,908 |
1.9 |
|
|
|
-------- |
-------- |
LT Group |
Philippines |
Industrials |
6,481 |
1.8 |
|
|
|
-------- |
-------- |
|
|
|
6,481 |
1.8 |
|
|
|
-------- |
-------- |
Crystal International Group |
Pan-Asia |
Consumer
Discretionary |
4,105 |
1.2 |
|
|
|
-------- |
-------- |
|
|
|
4,105 |
1.2 |
|
|
|
-------- |
-------- |
Douja Promotion Groupe Addoha |
Morocco |
Real Estate |
2,875 |
0.8 |
|
|
|
-------- |
-------- |
|
|
|
2,875 |
0.8 |
|
|
|
-------- |
-------- |
Ooredoo |
Qatar |
Telecommunication
Services |
2,360 |
0.7 |
|
|
|
-------- |
-------- |
|
|
|
2,360 |
0.7 |
|
|
|
-------- |
-------- |
Chevron Lubricants |
Sri Lanka |
Materials |
1,591 |
0.4 |
|
|
|
-------- |
-------- |
|
|
|
1,591 |
0.4 |
|
|
|
-------- |
-------- |
Sapura Energy |
Malaysia |
Energy |
772 |
0.2 |
|
|
|
-------- |
-------- |
|
|
|
772 |
0.2 |
|
|
|
-------- |
-------- |
Square Pharmaceuticals |
Bangladesh |
Health Care |
308 |
0.1 |
|
|
|
-------- |
-------- |
|
|
|
308 |
0.1 |
|
|
|
-------- |
-------- |
Equity investments |
|
|
236,806 |
66.4 |
|
|
|
-------- |
-------- |
BlackRock’s Institutional Cash
Series plc – US Dollar Liquidity Fund (Cash Fund) |
|
|
100,917 |
28.3 |
|
|
|
-------- |
-------- |
Total equity investments
(including Cash Fund) |
|
|
337,723 |
94.7 |
|
|
|
-------- |
-------- |
P-Notes |
|
|
|
|
Al Rajhi Bank P-Note 19/01/2021 |
Saudi Arabia |
Financials |
10,778 |
3.0 |
|
|
|
-------- |
-------- |
Total investments excluding
CFDs |
|
|
348,501 |
97.7 |
|
|
|
======== |
======== |
Company |
Principal
country of
operation |
Sector |
Fair value1
US$’000 |
Gross market
exposure2
US$’000 |
Gross
market
exposure
as a % of
net assets3 |
|
|
|
|
|
|
CFD portfolio |
|
|
|
|
|
Long positions |
|
|
|
|
|
Mobile World |
Vietnam |
Consumer
Discretionary |
|
9,000 |
2.6 |
Petrovietnam Fertilizer &
Chemicals |
Vietnam |
Materials |
|
6,413 |
1.8 |
Quang Ngai Sugar |
Vietnam |
Consumer
Staples |
|
6,411 |
1.7 |
Vincom Retail |
Vietnam |
Real Estate |
|
5,250 |
1.5 |
FPT |
Vietnam |
Information
Technology |
|
4,975 |
1.4 |
|
|
|
|
-------- |
-------- |
|
|
|
|
32,049 |
9.0 |
|
|
|
|
-------- |
-------- |
Astra International |
Indonesia |
Consumer
Discretionary |
|
16,415 |
4.6 |
Mitra Adiperkasa |
Indonesia |
Consumer
Discretionary |
|
4,745 |
1.4 |
Ciputra Development |
Indonesia |
Real Estate |
|
4,414 |
1.2 |
|
|
|
|
-------- |
-------- |
|
|
|
|
25,574 |
7.2 |
|
|
|
|
-------- |
-------- |
Land & Houses Public
Company |
Thailand |
Real Estate |
|
11,447 |
3.2 |
Indorama Ventures |
Thailand |
Materials |
|
10,917 |
3.1 |
|
|
|
|
-------- |
-------- |
|
|
|
|
22,364 |
6.3 |
|
|
|
|
-------- |
-------- |
Alpha Bank |
Greece |
Financials |
|
7,150 |
2.0 |
National Bank of Greece |
Greece |
Financials |
|
4,461 |
1.3 |
|
|
|
|
-------- |
-------- |
|
|
|
|
11,611 |
3.3 |
|
|
|
|
-------- |
-------- |
Gedeon Richter |
Hungary |
Health Care |
|
11,461 |
3.2 |
|
|
|
|
-------- |
-------- |
|
|
|
|
11,461 |
3.2 |
|
|
|
|
-------- |
-------- |
Ooredoo |
Qatar |
Telecommunication
Services |
|
9,228 |
2.6 |
|
|
|
|
-------- |
-------- |
|
|
|
|
9,228 |
2.6 |
|
|
|
|
-------- |
-------- |
UMW Holdings |
Malaysia |
Consumer
Discretionary |
|
5,990 |
1.7 |
Sapura Energy |
Malaysia |
Energy |
|
2,823 |
0.8 |
|
|
|
|
-------- |
-------- |
|
|
|
|
8,813 |
2.5 |
|
|
|
|
-------- |
-------- |
National Medical Care |
Saudi
Arabia |
Health Care |
|
6,730 |
1.9 |
Samba Financial Group |
Saudi
Arabia |
Financials |
|
612 |
0.2 |
Herfy Food Services |
Saudi
Arabia |
Consumer
Discretionary |
|
569 |
0.1 |
Abdullah Al Othaim |
Saudi
Arabia |
Consumer
Staples |
|
270 |
0.1 |
|
|
|
|
-------- |
-------- |
|
|
|
|
8,181 |
2.3 |
|
|
|
|
-------- |
-------- |
Acacia Mining |
Tanzania |
Materials |
|
4,787 |
1.3 |
|
|
|
|
-------- |
-------- |
|
|
|
|
4,787 |
1.3 |
|
|
|
|
-------- |
-------- |
Cleopatra Hospital |
Egypt |
Health Care |
|
1,134 |
0.3 |
|
|
|
|
-------- |
-------- |
|
|
|
|
1,134 |
0.3 |
|
|
|
|
-------- |
-------- |
Square Pharmaceuticals |
Bangladesh |
Health Care |
|
670 |
0.2 |
|
|
|
|
-------- |
-------- |
|
|
|
|
670 |
0.2 |
|
|
|
|
-------- |
-------- |
Biotoscana Investments |
Argentina |
Health Care |
|
352 |
0.1 |
|
|
|
|
-------- |
-------- |
|
|
|
|
352 |
0.1 |
|
|
|
|
-------- |
-------- |
Equity Group |
Kenya |
Financials |
|
331 |
0.1 |
|
|
|
|
-------- |
-------- |
|
|
|
|
331 |
0.1 |
|
|
|
|
-------- |
-------- |
Tallink |
Estonia |
Industrials |
|
147 |
– |
|
|
|
|
-------- |
-------- |
|
|
|
|
147 |
– |
|
|
|
|
-------- |
-------- |
Chevron Lubricants |
Sri Lanka |
Materials |
|
70 |
– |
|
|
|
|
-------- |
-------- |
|
|
|
|
70 |
– |
|
|
|
|
-------- |
-------- |
Kuwait Food
(Americana)4 |
Kuwait |
Consumer
Discretionary |
|
3 |
– |
|
|
|
|
-------- |
-------- |
|
|
|
|
3 |
– |
|
|
|
-------- |
-------- |
-------- |
Total long CFD positions |
|
|
1,112 |
136,775 |
38.4 |
|
|
|
-------- |
-------- |
-------- |
Total short CFD
positions |
|
|
(612) |
(27,461) |
(7.7) |
|
|
|
-------- |
-------- |
-------- |
Total CFD portfolio |
|
|
500 |
109,314 |
30.7 |
|
|
|
===== |
====== |
===== |
FAIR VALUE AND GROSS MARKET EXPOSURE
OF INVESTMENTS AS AT 30 SEPTEMBER
2018
Portfolio |
Fair value1
US$’000 |
Gross
market
exposure2
US$’000 |
Gross
market
exposure
as a %
of net
assets3 |
Equity investments and P-Notes |
247,584 |
247,584 |
69.4 |
|
-------- |
-------- |
-------- |
Total long CFD positions |
1,112 |
136,775 |
38.4 |
|
-------- |
-------- |
-------- |
Total short CFD positions |
(612) |
(27,461) |
(7.7) |
|
-------- |
-------- |
-------- |
Total gross exposure |
248,084 |
356,898 |
100.1 |
|
-------- |
-------- |
-------- |
Cash Fund3 |
100,917 |
100,917 |
28.3 |
|
-------- |
-------- |
-------- |
Total investments and
derivatives |
349,001 |
457,815 |
128.4 |
|
-------- |
-------- |
-------- |
Cash and cash equivalents1,
3 |
4,425 |
(104,389) |
(29.3) |
|
-------- |
-------- |
-------- |
Other net current assets |
3,088 |
3,088 |
0.9 |
|
-------- |
-------- |
-------- |
Non-current liabilities |
(19) |
(19) |
– |
|
-------- |
-------- |
-------- |
Net assets |
356,495 |
356,495 |
100.0 |
|
-------- |
-------- |
-------- |
1 Fair value is determined as
follows:
– Listed investments are
valued at bid prices where available, otherwise at latest market
traded quoted prices.
– The sum of the fair
value column for the CFD contracts totalling US$500,000 represents the fair valuation of all
the CFD contracts, which is determined based on the difference
between the purchase price and value of the underlying shares in
the contract (in effect the unrealised gains/(losses) on the
exposed positions). The cost of purchasing the securities held
through long CFD positions directly in the market would have
amounted to US$135,663,000 at the
time of purchase, and subsequent market rises in prices have
resulted in unrealised gains on the CFD contracts of US$1,112,000, resulting in the value of the total
market exposure to the underlying securities rising to US$136,775,000 as at 30
September 2018. The proceeds from selling the securities to
which exposure was gained via the short CFD positions would have
been US$26,849,000 at the time of
entering into the contract, and subsequent price rises have
resulted in unrealised losses on the short CFD positions of
US$612,000 and the value of the
market exposure of these investments increasing to US$27,461,000 at 30
September 2018. If the short positions had been closed on
30 September 2018 this would have
resulted in a loss of US$612,000 for
the Company.
– P-Notes are valued
based on the quoted bid price of the underlying security to which
they relate.
2 Market exposure in the case of equity
investments is the same as fair value. In the case of CFDs it is
the market value of the underlying shares to which the portfolio is
exposed via the contract.
3 The gross market exposure column for cash
and cash equivalents has been adjusted to assume the Company
purchased direct holdings rather than exposure being gained through
CFDs.
4 Unquoted investment.
STRATEGIC REPORT
The Directors present the Strategic Report of the Company for
the year ended 30 September 2018.
PRINCIPAL ACTIVITY
The Company carries on business as an investment trust and its
principal activity is portfolio investment.
INVESTMENT OBJECTIVE
The Company’s investment objective was to achieve long-term capital
growth from investment in companies operating in Frontier Markets
or whose stocks are listed on the stock markets of such
countries.
With effect from 1 April 2018, and
following shareholder approval, the Company adopted a new
investment objective and investment policy which is set out
below.
The Company’s investment objective is to achieve long-term
capital growth by investing in companies domiciled or listed in, or
exercising the predominant part of their economic activity in, less
developed countries. These countries (the “Frontiers
Universe”) are any country which is neither part of the MSCI
World Index of developed markets, nor one of the eight largest
countries by market capitalisation in the MSCI Emerging Markets
Index as at 1 April 2018: being
Brazil, China, India,
Korea, Mexico, Russia, South
Africa and Taiwan (the
“Selected Countries”).
STRATEGY, BUSINESS MODEL AND INVESTMENT POLICY
Strategy
To achieve its objective, the Company invests globally in the
securities of companies domiciled or listed in, or exercising the
predominant part of their economic activity in, the Frontiers
Universe.
Business model
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 BlackRock Fund Managers Ltd (“BFM”) (“The Manager”) which
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 has delegated certain investment
management and other ancillary services to BlackRock Investment
Management (UK) Limited (“BIM (UK)”) (“the Investment Manager”).
The contractual arrangements with, and assessment of, the Manager
are summarised on pages 32 and 33 of the Annual Report and
Financial Statements. The Investment 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 and the Fund Accountant, The Bank of New
York Mellon (International) Limited, and the Registrar,
Computershare Investor Services PLC. Details of the contractual
terms with third-party service providers are set out in the
Directors’ Report in the Annual Report and Financial
Statements.
Investment policy (from 1 April
2018)
The Company will seek to maximise total return and will invest
globally in the securities of companies domiciled or listed in, or
exercising the predominant part of their economic activity in, the
Frontiers Universe. Performance is measured against the Company’s
Reference Index (“Reference Index”), which is a composite of the
MSCI Emerging Markets Index ex Selected Countries + MSCI Frontier
Markets Index + MSCI Saudi Arabia Index (net total return, USD).
The Investment Manager is not constrained by the geographical
weightings of the Reference Index and the Company’s portfolio may
frequently be overweight or underweight relative to the Reference
Index. The Company will exit any investment as soon as reasonably
practicable following the relevant company ceasing to be domiciled
or listed in, or exercising the predominant part of its
economic activity in, the Frontiers Universe.
In order to achieve the Company’s investment objective, the
Investment Manager selects investments through a process of
fundamental and geopolitical analysis, seeking long-term
appreciation from mispriced value or growth. The Investment Manager
employs both a top-down and bottom-up approach to investing. It is
expected that the Company will have exposure to between 35 to 65
holdings.
Where possible, investment will generally be made directly in
the stock markets of the Frontiers Universe. Where the Investment
Manager determines it appropriate, investment may be made through
collective investment schemes, although such investments are not
likely to be significant. Investment in other closed-ended
investment funds admitted to the Official List will not exceed more
than 10 per cent., in aggregate, of the value of the Gross Assets
(calculated at the time of any relevant investment). It is intended
that the Company will generally be invested in equity investments;
however, the Investment Manager may invest in equity-related
investments, such as derivatives or convertibles, and, to a lesser
extent, in bonds or other fixed-income securities, including high
risk debt securities. These securities may be below investment
grade.
Due to national and/or international regulation, excessive
operational risk, prohibitive costs and/or the time period involved
in establishing trading and custody accounts in certain countries
in the Frontiers Universe, the Company may be unable to invest
(whether directly or through nominees) in companies in certain
countries in the Frontiers Universe or, in the opinion of the
Company and/or the Investment Manager, it may not be advisable to
do so. In such circumstances, or in countries where acceptable
custodial and other arrangements are not in place to safeguard the
Company’s investments, the Company intends to gain economic
exposure to companies in such countries by investing indirectly
through derivatives. Derivatives are financial instruments linked
to the performance of another asset or security, such as promissory
notes, contracts for difference, futures or traded options. Save as
provided below, there is no restriction on the Company investing in
derivatives in such circumstances or for efficient portfolio
management purposes.
The Company may be geared through borrowings and/or by entering
into derivative transactions (taking both long and short positions)
that have the effect of gearing the Company’s portfolio to enhance
performance. The Company may also use borrowings for the settlement
of transactions, to facilitate share repurchases (where applicable)
and to meet on-going expenses.
The respective limits on gearing (whether through the use of
derivatives, borrowings or a combination of both) are set out
below:
-
Maximum gearing through the use of derivatives or borrowings to
gain exposure to long positions in securities: 140 per cent. of net
assets
-
Maximum exposure to short positions (for shorting purposes the
Company may use indices or individual stocks): 10 per cent. of net
assets
-
Maximum gross exposure (total long exposure plus total short
exposure): 150 per cent. of net assets
- Maximum net exposure (total long exposure minus total short
exposure): 130 per cent. of net assets
In normal circumstances, the Company will typically have net
exposure of between 95 per cent. and 120 per cent. of net
assets.
When investing via derivatives, the Company will seek to
mitigate and/or spread its counterparty risk exposure by
collateralisation and/or contracting with a potential range of
counterparty banks, as appropriate, each of which shall, at the
time of entering into such derivatives, have a Standard &
Poor’s credit rating of at least A- on its long-term senior
unsecured debt.
The Company may invest up to 5 per cent. of its Gross Assets (at
the time of such investment) in unquoted securities. The Company
will invest so as not to hold more than 15 per cent. of its Gross
Assets in any one stock or derivative position at the time of
investment (excluding cash management activities).
No material change will be made to the investment policy without
the approval of Shareholders by ordinary resolution.
A detailed analysis of the Company’s portfolio has been provided
on pages 10 to 17 of the Annual Report and Financial
Statements.
Portfolio construction is a continuous process, with the
Investment Manager analysing constantly the impact of new ideas and
information on the portfolio as a whole. The approach is flexible,
varying through market and economic cycles to create a portfolio
appropriate to the focused and unconstrained strategy of the
Company. The macroeconomic environment is factored into all
portfolio decisions. In general, macroeconomic analysis is a more
dominant factor in investment decision making when the outlook is
negative. The macro process is comprised of three parts: political
assessment, macroeconomic analysis and appraisal of the valuation
of a country’s market, which can only take place with thorough
analysis of stock specific opportunities.
The Investment Manager’s research team generates ideas from a
diverse range of sources. These include frequent travel to the
markets in which the Company invests and regular conversations with
contacts that allow the Frontiers team to assess the entire
eco-system around a company; namely competitors, suppliers,
financiers, customers and regulators. The team leverages the
internal research network sharing information between BlackRock’s
investment teams using a proprietary research application and
database, and develops insights from macroeconomic analysis. The
Board believes that BlackRock’s research platform is a significant
competitive advantage, both in terms of information specific to
Emerging and Frontier Market equities and through its global
insights across asset classes. Access to companies is extremely
good given BlackRock’s market presence, which makes it possible to
develop a detailed knowledge of a company and its management.
The research process focuses on cash flow, as the investment
team believes that this is ultimately the driver of share prices
over time. The process is designed with the aim of identifying
companies that can translate top line revenue growth to free cash
flow and investing in these companies when the analysis suggests
that the cash flow stream is undervalued. Financial models are
developed focusing on company financials, particularly cash flow
statements, rather than relying on third party research.
The Investment Manager’s research team monitors differing levels
of risk throughout the process and believes that avoiding major
downside events can generate significant outperformance over the
long-term. Inputs from BlackRock’s Risk & Quantitative Analysis
Team (RQA) are an integral part of the investment process. The
overall premise of BlackRock’s risk analysis is to try and
understand risk as opposed to avoiding risk. RQA analyse market and
portfolio risk factors including stress tests, correlations, factor
returns, cross-sectional volatility and attributions. BlackRock’s
evaluation procedures and financial analysis of the companies
within the portfolio also take into account environmental, social
and governance matters and other business issues. The Company
invests primarily on financial grounds to meet its stated
objectives.
PERFORMANCE
Details of the Company’s performance for the year are given in the
Chairman’s Statement. The Investment Managers’ Report includes a
review of the main developments during the period, together with
information on investment activity within the Company’s
portfolio.
RESULTS AND DIVIDENDS
The results for the Company are set out in the Statement of
Comprehensive Income. The total loss for the year, after taxation,
was US$29,342,000 (2017: profit of
US$60,204,000) of which the revenue
return amounted to US$19,328,000
(2017: US$13,107,000) and the capital
loss amounted to US$48,670,000 (2017:
profit of US$47,097,000).
The Directors are recommending the payment of a final dividend
of 4.40 cents per ordinary share and a one-off special
dividend of 1.00 cent per ordinary
share in respect of the year ended 30
September 2018 (2017: 4.20
cents) as set out in the Chairman’s Statement.
KEY PERFORMANCE INDICATORS
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 and which are comparable to
those reported by other investment trusts are set out below.
Performance measured against the benchmark
At each meeting the Board reviews the performance of the portfolio
as well as the net asset value and share price for the Company and
compares this to the return of the Company’s benchmark. The Board
considers this to be an important key performance indicator and has
determined that it should also be used to calculate whether a
performance fee is payable to BlackRock. The Company’s absolute and
relative performance is set out in the performance record table on
page 3 of the Annual Report and Financial Statements.
Share rating
The Directors recognise the importance to investors that the
Company’s share price should not trade at a significant discount to
NAV. Accordingly, the Directors monitor the share rating closely
and will consider share repurchases in the market if the discount
widens significantly, or the issue of shares to the market to meet
demand to the extent that the Company’s shares are trading at a
premium. In addition, in accordance with the Directors’ commitment
at launch the Company will formulate and submit to shareholders
proposals to provide them with an opportunity at each five year
anniversary since launch, to realise the value of their ordinary
shares at the applicable NAV per share less costs. The next
opportunity will take place on or around the date of the Company’s
AGM in 2021.
For the year under review the Company’s shares have traded at an
average premium to the cum-income NAV of 3.2% during the year, and
were trading at a premium of 3.2% on a cum-income basis at 7
December 2018. The Directors have the authority to buy back up to
14.99% of the Company’s issued share capital (excluding treasury
shares). The Directors sought and received shareholder authority at
the last AGM to issue up to 10% of the Company’s issued share
capital (via the issue of new shares or sale of shares from
treasury) on a non pre-emptive basis. Further information can be
found in the Directors’ Report on page 36 of the Annual Report and
Financial Statements.
Ongoing charges
The ongoing charges reflect those expenses which are likely to
recur in the foreseeable future, whether charged to capital or
revenue, and which relate to the operation of the investment
company as a collective investment fund, excluding the costs of
acquisition or disposal of investments, financing charges and gains
or losses arising on investments and performance fees. The ongoing
charges are based on actual costs incurred in the year as being the
best estimate of future costs. The Board reviews the ongoing
charges and monitors the expenses incurred by the Company.
The table below sets out the key KPIs for the Company.
Alternative
Performance Measures (see glossary on pages 92 and 93 of the Annual
Report and Financial Statements).
|
Year ended
30 September 20181 |
Year ended
30 September 20171 |
|
£% |
US$% |
£% |
US$% |
|
|
|
|
|
Net asset value total
return2 |
-4.0 |
-6.6 |
+17.7 |
+21.5 |
Share price total
return3 |
-3.1 |
-5.7 |
+19.8 |
+23.6 |
Reference Index
return4 |
+5.3 |
+2.3 |
+21.5 |
+25.5 |
Premium to cum-income NAV |
|
2.6 |
|
1.5 |
Ongoing charges5 |
|
1.42 |
|
1.44 |
Ongoing charges including
performance fees |
|
1.42 |
|
1.64 |
1 Based on an exchange rate of
US$1.3041 to £1 at 30 September 2018 and US$1.3417 to £1 at 30
September 2017.
2 Calculated with dividends reinvested in
accordance with AIC guidelines.
3 Calculated on a mid to mid basis with
dividends reinvested.
4 With effect from 1
April 2018, the Reference Index changed to a composite of
the MSCI Emerging Markets Index ex Selected Countries + MSCI
Frontier Markets Index + MSCI Saudi Arabia Index. Prior to
1 April 2018, the Reference Index was
the MSCI Frontier Markets Index. The performance of the reference
indices during the year ended 30 September
2018 has been blended to reflect this change. The Reference
Index shown for the year ended 30 September
2017 is the MSCI Frontier Markets Index.
5 Calculated as a percentage of average net
assets and using expenses, excluding performance fees, VAT
refunded, transaction charges, finance costs and taxation.
The Board also regularly reviews a number of indices and ratios
to understand the impact on the Company’s relative performance of
the various components such as asset allocation and stock
selection. The Board also reviews the performance of the Company
against a peer group of Frontier Market open and closed-ended
funds.
PRINCIPAL RISKS
The Board has in place a robust process to identify, assess and
monitor the principal risks of the Company, including those that
they consider would threaten its business model, future
performance, solvency or liquidity. A core element of this is the
Company’s risk register, which identifies the risks facing the
Company and assesses the likelihood and potential impact of each
risk, and the quality of the controls operating to mitigate the
risk. A residual risk rating is then calculated for each risk based
on the outcome of this assessment. This approach allows the effect
of any mitigating procedures to be reflected in the final
assessment.
The register, its method of preparation and the operation of the
key controls in BlackRock’s and other third party service
providers’ systems of internal control are reviewed on a regular
basis by the Company’s Audit and Management Engagement Committee.
In order to gain a more comprehensive understanding of BlackRock’s
and other third party service providers’ risk management processes
and how these apply to the Company’s business, the Audit and
Management Engagement Committee periodically receives presentations
from BlackRock’s Internal Audit and Risk & Quantitative
Analysis teams, and reviews Service Organisation Control
(SOC 1) reports from BlackRock and the Company’s Custodian and
Fund Accountant, The Bank of New York Mellon (International)
Limited.
The current risk register includes a range of risks spread
between performance risk, income/dividend risk, legal &
regulatory risk, counterparty risk, operational risk, market risk,
political risk and financial risk.
The principal risks and uncertainties faced by the Company
during the year, together with the potential effects, controls and
mitigating factors, are set out as follows.
Principal Risk |
Mitigation/Control |
Investment
Performance Risk
The Board is responsible for:
- setting the investment policy to fulfil the Company’s
objectives;
- monitoring the performance of the Company’s Investment Manager
and the strategy adopted.
An inappropriate policy or strategy may lead to:
- poor performance compared to the Company’s benchmark, peer group
or shareholder expectations;
- a widening discount to NAV;
- a reduction or permanent loss of capital; and
- dissatisfied shareholders and reputational damage. |
To manage these risks the Board:
- regularly reviews the Company’s investment mandate and long-term
strategy;
- has set, and regularly reviews, the investment guidelines and has
put in place appropriate limits on levels of gearing and the use of
derivatives;
- receives from the Investment Manager a regular explanation of
stock selection decisions, portfolio gearing and any changes in
gearing and the rationale for the composition of the investment
portfolio;
- receives from the Investment Manager regular reporting on the
portfolio’s exposure through derivatives, including the extent to
which the portfolio is geared in this manner and the value of any
short positions; and
- monitors the maintenance of an adequate spread of investments in
order to minimise the risks associated with particular countries or
factors specific to particular sectors, based on the
diversification requirements inherent in the Company’s investment
policy. |
Income/Dividend
Risk
The amount of dividends and future dividend growth will depend on
the Company’s underlying portfolio. Any change in the tax treatment
of the 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 Company does not have a policy of actively seeking income. The
Board monitors this risk through the receipt of detailed income
forecasts and considers the level of income at each meeting. The
Company also has a revenue reserve and powers to pay dividends from
capital which could potentially be used to support the Company’s
dividend if required. |
Legal &
Regulatory Risk
The Company has been approved by HM Revenue & Customs as an
investment trust, subject to continuing to meet the relevant
eligibility conditions, and operates as an investment trust in
accordance with Chapter 4 of Part 24 of the Corporation Tax Act
2010. As such, the Company is exempt from capital gains tax on the
profits realised from the sale of its investments.
Any breach of the relevant eligibility conditions could lead to the
Company losing its investment trust status and being subject to
corporation tax on capital gains realised within the Company’s
portfolio.
In such event the investment returns of the Company may be
adversely affected. Any serious breach could result in the Company
and/or the Directors being fined or the subject of criminal
proceedings or the suspension of the Company’s shares which would
in turn lead to a breach of the Corporation Tax Act 2010. Amongst
other relevant laws and regulations, the Company is required to
comply with the provisions of the Companies Act 2006, the
Alternative Investment Fund Managers’ Directive, the Market Abuse
Act, the UK Listing Rules and the Disclosure Guidance &
Transparency Rules.
|
The Investment Manager monitors investment movements, the level of
forecast income and expenditure 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 and the
results are reported to the Board at each meeting.
Following authorisation under the Alternative Investment Fund
Managers’ Directive (AIFMD), the Company and its appointed
Alternative Investment Fund Manager (AIFM) are subject to the risks
that the requirements of this Directive are not correctly complied
with. The Board and the AIFM also monitor changes in government
policy and legislation which may have an impact on the Company.
Compliance with the accounting standards applicable to quoted
companies and those applicable to investment trusts are also
regularly monitored to ensure compliance.
The Company Secretary and the Company’s professional advisers
monitor developments in relevant laws and regulations and provide
regular reports to the Board in respect of the Company’s
compliance. |
Counterparty
Risk
The Company’s investment policy also permits the use of both
exchange-traded and over-the-counter derivatives (including
contracts for difference). The potential loss that the Company
could incur if a counterparty is unable (or unwilling) to perform
on its commitments. |
Due diligence is undertaken before contracts are entered into and
exposures are diversified across a number of counterparties. The
Board reviews the controls put in place by the Investment Manager
to monitor and to minimise counterparty exposure, which include
intra-day monitoring of exposures to ensure that these are within
set limits. |
Operational
Risk
In common with most other investment trust companies, the Company
has no employees. The Company therefore relies upon the services
provided by third parties and is dependent on the control systems
of BlackRock (the Investment Manager and AIFM), and of The Bank of
New York Mellon (International) Limited (the Depositary and Fund
Accountant), which ensures safe custody of the Company’s assets and
maintains the Company’s accounting records. The Company’s share
register is maintained by the Registrar, Computershare.
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, as a result of a cyber-attack or otherwise, could
impact the monitoring and reporting of the Company’s financial
position.
The security of the Company’s assets, dealing procedures,
accounting records and maintenance of regulatory and legal
requirements, depend on the effective operation of these
systems. |
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 Fund Accountant’s and the Manager’s internal control processes
are regularly tested and monitored throughout the year and are
evidenced through their Service Organisation Control (SOC 1)
reports, which are subject to review by an Independent Service
Assurance Auditor. The SOC 1 reports provide assurance in respect
of the effective operation of internal controls.
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 that the loss was
a result of an event beyond its reasonable control.
The Board considers succession arrangements for key employees of
the Manager and the Investment Manager and receives reports on the
business continuity arrangements for the Company’s key service
providers.
The Board also receives regular reports from BlackRock’s internal
audit function. |
Market Risk
Market risk arises from volatility in the prices of the Company’s
investments. It represents the potential loss the Company might
suffer through realising investments in the face of negative market
movements. The securities markets of the Frontiers Universe 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. There are a limited number
of attractive investment opportunities in Frontier Markets and this
may lead to a delay in investment and may affect the price at which
such investments may be made and reduce potential investment
returns for the Company.
There is also exposure to currency, market and political risk due
to the location of the operation of the businesses in which the
Company may invest. As a consequence of this and other market
factors the Company may invest in a concentrated portfolio of
shares and this focus may result in higher risk when compared to a
portfolio that has spread or diversified investments more
broadly.
Corruption also remains a significant issue across the Frontiers
Universe and the effects of corruption could have a material
adverse effect on the Company’s performance. Accounting, auditing
and financial reporting standards and practices and disclosure
requirements applicable to many companies in developing countries
may be less rigorous than in developed markets. As a result there
may be less information available publicly to investors in these
securities, and such information as is available is often less
reliable.
The Company also gains exposure to the Frontiers Universe by
investing indirectly through Promissory Notes (P-Notes) which
presents additional risk to the Company as P-Notes are
uncollateralised resulting in the Company being subject to full
counterparty risk via the P-Note issuer. P-Notes also present
liquidity issues as the Company, being a captive client of a P-Note
issuer, may only be able to realise its investment through the
P-Note issuer and this may have a negative impact on the liquidity
of the P-Notes which does not correlate to the liquidity of the
underlying security.
|
Market risk represents the risks of investment in a particular
market, country or geographic region. Therefore, this is largely
outside of the scope of the Board’s control. However, the Board
carefully considers asset allocation, stock selection 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. Market risk is also mitigated through portfolio
diversification across countries and regions. The Board monitors
the implementation and results of the investment process with the
Investment Manager regularly.
The Investment Manager also regularly reports to the Board on
relative market risks associated with investment in such regions.
Further information is provided under ‘Political Risk’. |
Political Risk
Investments in the Frontiers Universe may include a higher element
of risk compared to more developed markets due to greater political
instability. Political and diplomatic events in the Frontiers
Universe where the Company invests (for example, governmental
instability, corruption, adverse changes in legislation or other
diplomatic developments such as the outbreak of war or imposition
of sanctions) could substantially and adversely affect the
economies of such countries or the value of the Company’s
investments in those countries. |
The Investment Manager mitigates this risk by applying stringent
controls over where investments are made and through close
monitoring of political risks. The Investment Manager’s approach to
filtering the investment universe takes account of the political
background to regions and is backed up by rigorous stock specific
research and risk analysis, individually and collectively, in
constructing the portfolio. The management team has a wide network
of business and political contacts which provides economic insights
with public and private bodies. This enables the Investment Manager
to assess potential investments in an informed and disciplined way,
as well as being able to conduct regular monitoring of investments
once made. However, given the nature of political risk, all
investments will be exposed to a degree of risk and the Investment
Manager will ensure that the portfolio remains diversified across
countries to mitigate the risk. |
Financial Risk
The Company’s investment activities expose it to a variety of
financial risks which include foreign currency risk, liquidity
risk, currency risk and interest rate 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. |
VIABILITY STATEMENT
In accordance with provision C.2.2 of the UK Corporate Governance
Code, the Directors have assessed the prospects of the Company over
a longer period than the 12 months referred to by the ‘Going
Concern’ guidelines. The Board conducted this review for the period
up to the AGM in 2023. In determining this period, the Board took
into account the Company’s investment objective to achieve
long-term capital growth and the fact that on or around the AGM in
2021 it will be necessary for the Board to formulate and submit to
shareholders proposals (which may constitute a tender offer and/or
other method of distribution, as was the case in 2016) to provide
an opportunity to realise the value of their investment in the
Company at NAV less applicable costs.
In making this assessment the Board has considered the following
factors:
The Board has also considered a number of financial metrics,
including:
-
The level of current and historic ongoing charges incurred by
the Company;
-
The Company’s borrowings and its ability to meet its liabilities
as they fall due;
-
The premium or discount to NAV;
-
The level of income generated by the Company;
-
Future income forecasts; and
- The liquidity of the Company’s portfolio.
The Company is an investment company with a relatively liquid
equity portfolio (as at 30 September
2018, 89.5% of the equity portfolio was capable of being
liquidated in less than 20 days) and largely fixed overheads
(excluding performance fees) which comprise a very small percentage
of net assets (1.42%). In addition, any performance fees are capped
at 1% of NAV in years where the NAV per share has fallen or 2.5% in
years where the NAV per share has increased. Therefore, the Board
has concluded that even in exceptionally stressed operating
conditions, the Company would comfortably be able to meet its
ongoing operating costs as they fall due.
However, investment companies may face other challenges, such as
regulatory changes and the tax treatment of Investment Trusts, or a
significant decrease in size due to substantial share buy-back
activity, which may result in the Company no longer being of
sufficient market capitalisation to represent viable investment
propositions or no longer being able to continue in operation.
THE UK’S EXIT FROM THE EUROPEAN UNION
The Board has also considered the adverse impact of potential
changes in law, regulation and taxation and the matter of foreign
exchange risk. They have determined that although there are a
number of potential risks associated with the Brexit process, any
transition following any agreement, and the legal, fiscal and
regulatory landscape thereafter, they do not believe that this
represents a material threat to the Company’s strategy and business
model, nor do they believe that the Investment Manager would be
materially impeded in achieving the Company’s investment
objective.
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 on the achievement of capital growth and
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 in the Investment Manager’s
Report.
SOCIAL, COMMUNITY AND HUMAN RIGHTS ISSUES
As an investment trust, the Company has no direct social or
community responsibilities. However, the Company believes that it
is in shareholders’ interests to consider environmental, social and
governance factors and human rights issues when selecting and
retaining investments. Details of the Company’s policy on socially
responsible investment are set out on page 30 of the Annual
Report and Financial Statements.
MODERN SLAVERY ACT
As an investment vehicle the Company does not provide goods or
services in the normal course of business, and does not have
customers. Accordingly, the Directors consider that the Company is
not required to make any slavery or human trafficking statement
under the Modern Slavery Act 2015. In any event, the Board
considers the Company’s supply chain, dealing predominantly with
professional advisers and service providers in the financial
services industry, to be low risk in relation to this matter.
DIRECTORS, GENDER REPRESENTATION AND EMPLOYEES
The Directors of the Company on 30 September
2018, all of whom held office throughout the year, are set
out in the Directors’ biographies on page 26 of the Annual Report
and Financial Statements. As at the date of this report, the Board
consists of five men. The Company does not have any employees.
BY ORDER OF THE BOARD
KEVIN MAYGER
FOR AND ON BEHALF OF
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
Company Secretary
10 December 2018
RELATED PARTY TRANSACTIONS
BlackRock Fund Managers Limited (BFM) provides management and
administration services to the Company under a contract which is
terminable on six months’ notice. BFM has (with the Company’s
consent) delegated certain portfolio and risk management services,
and other ancillary services, to BlackRock Investment Management
(UK) Limited (BIM (UK)). Further
details of the investment management contract are disclosed in the
Directors’ Report on pages 32 and 33 of the Annual Report and
Financial Statements.
The investment management fee due for the year ended
30 September 2018 amounted to
US$4,280,000 (2017: US$3,361,000). No performance fee is payable for
the year ended 30 September 2018
(2017: US$596,000). At the year end,
US$1,024,000 was outstanding in
respect of management fees (2017: US$2,606,000) and US$nil (2017: US$596,000) was outstanding in respect of
performance fees.
In addition to the above services, BlackRock has provided
marketing services. The total fees paid or payable for these
services for the year ended 30 September
2018 amounted to US$93,000
excluding VAT (2017: US$73,000) of
which marketing fees of US$68,000
excluding VAT (2017: US$55,000) were
outstanding as at year end.
The Company has an investment in the Cash Fund of US$100,917,000 (2017: US$66,194,000) at the year end, which is a fund
managed by a company within the BlackRock Group.
Disclosures of the Directors’ interests in the ordinary shares
of the Company and fees and expenses payable to the Directors are
set out in the Directors’ Remuneration Report on pages 38
to 40 of the Annual Report and Financial Statements. At
30 September 2018, US$16,000 (£12,000) (2017: US$16,000 (£12,000)) was outstanding in respect
of Directors’ fees.
At the date of this report, the Board consists of five
non-executive Directors, all of whom are considered to be
independent of the Manager by the Board. None of the Directors has
a service contract with the Company. For the year ended
30 September 2018, the Chairman
received an annual fee of £36,000, the Chairman of the Audit &
Management Engagement Committee receives an annual fee of £30,000
and each of the other Directors received an annual fee of
£26,000. The Board’s remuneration was last reviewed on
5 December 2018. Following this
review it was agreed that all Directors’ fees would increase by
£1,000 per annum with effect from 1 October
2018.
All members of the Board hold ordinary shares in the Company
with the exception of Mr Zok who does not currently hold any
shares. Audley Twiston-Davies holds 128,935 ordinary shares,
John Murray holds 121,967 ordinary
shares, Nick Pitts-Tucker holds
110,148 ordinary shares and Stephen
White holds 30,000 ordinary shares.
STATEMENT OF DIRECTORS’
RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND FINANCIAL
STATEMENTS
The Directors are responsible for preparing the Annual Report,
the Directors’ Remuneration Report and the financial statements in
accordance with applicable United
Kingdom law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law, the Directors
are required to prepare the financial statements under IFRS as
adopted by the European Union. 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 and of the profit or loss of the Company for that
period.
In preparing these financial statements, the Directors are
required to:
-
present fairly the financial position, financial performance and
cash flows of the Company;
-
select suitable accounting policies in accordance with
IAS 8: Accounting Policies, Changes in Accounting Estimates
and Errors 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 the financial statements have been prepared in
accordance with IFRS as adopted by the European Union, subject to
any material departures disclosed and explained in the financial
statements;
-
provide additional disclosures when compliance with the specific
requirements in IFRS as adopted by the European Union is
insufficient to enable users to understand the impact of particular
transactions, other events and conditions on the Company’s
financial position and financial performance; 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, the Directors’
Report, the Directors’ Remuneration Report, Corporate Governance
Statement and the Report of the Audit and Management Engagement
Committee in accordance with the Companies Act 2006 and applicable
regulations, including the requirements of the Listing Rules and
the Disclosure Guidance and Transparency Rules. The Directors have
delegated responsibility to the Investment Manager and the AIFM for
the maintenance and integrity of the Company’s corporate and
financial information included on BlackRock’s website. Legislation
in the United Kingdom governing
the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
Each of the Directors, whose names are listed on page 26 of the
Annual Report and Financial Statements, confirms to the best of
their knowledge that:
-
the financial statements, which have been prepared in accordance
with IFRS as adopted by the European Union, give a true and fair
view of the assets, liabilities, financial position and net return
of the Company; and
- the Strategic Report contained in the Annual Report and
Financial Statements 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 2016 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 and Management
Engagement Committee advise on whether it considers that the Annual
Report and Financial Statements fulfil these requirements. The
process by which the Committee has reached these conclusions is set
out in the Audit and Management Engagement Committee’s report on
pages 41 to 45 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 30
September 2018, taken as a whole, is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Company’s position and performance,
business model and strategy.
FOR AND ON BEHALF OF THE BOARD
AUDLEY TWISTON-DAVIES
Chairman
10 December 2018
STATEMENT OF COMPREHENSIVE INCOME FOR
THE YEAR ENDED 30 SEPTEMBER 2018
|
Notes |
Revenue
2018
US$’000 |
Revenue
2017
US$’000 |
Capital
2018
US$’000 |
Capital
2017
US$’000 |
Total
2018
US$’000 |
Total
2017
US$’000 |
Income |
|
|
|
|
|
|
|
Income from investments held at fair
value through profit or loss |
3 |
19,295 |
13,195 |
– |
– |
19,295 |
13,195 |
Net income from contracts for
difference |
3 |
3,245 |
2,731 |
– |
– |
3,245 |
2,731 |
Other income |
3 |
103 |
42 |
– |
– |
103 |
42 |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
Total revenue |
|
22,643 |
15,968 |
– |
– |
22,643 |
15,968 |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
Net (loss)/profit on investments
held at fair value through profit or loss |
|
– |
– |
(27,899) |
54,896 |
(27,899) |
54,896 |
Net loss on foreign exchange |
|
– |
– |
(336) |
(835) |
(336) |
(835) |
Net (loss)/profit from contracts for
difference |
|
– |
– |
(22,830) |
3,367 |
(22,830) |
3,367 |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
Total |
|
22,643 |
15,968 |
(51,065) |
57,428 |
(28,422) |
73,396 |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
Expenses |
|
|
|
|
|
|
|
Investment management and
performance fees |
4 |
(856) |
(672) |
(3,424) |
(3,285) |
(4,280) |
(3,957) |
Other operating expenses |
5 |
(1,252) |
(1,062) |
(118) |
(130) |
(1,370) |
(1,192) |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
Total operating expenses |
|
(2,108) |
(1,734) |
(3,542) |
(3,415) |
(5,650) |
(5,149) |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
Net profit/(loss) on ordinary
activities before finance costs and taxation |
|
20,535 |
14,234 |
(54,607) |
54,013 |
(34,072) |
68,247 |
Finance costs |
|
(5) |
(2) |
(18) |
(7) |
(23) |
(9) |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
Net profit/(loss) on ordinary
activities before taxation |
|
20,530 |
14,232 |
(54,625) |
54,006 |
(34,095) |
68,238 |
Taxation |
|
(1,202) |
(1,125) |
5,955 |
(6,909) |
4,753 |
(8,034) |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
Profit/(loss) for the
year |
|
19,328 |
13,107 |
(48,670) |
47,097 |
(29,342) |
60,204 |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
Earnings/(loss) per ordinary
share (cents) |
7 |
10.13 |
7.70 |
(25.50) |
27.67 |
(15.37) |
35.37 |
|
|
===== |
===== |
===== |
===== |
===== |
===== |
The total column of this statement represents the Company’s
Statement of Comprehensive Income, prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by
the European Union (EU). The supplementary revenue and capital
columns are both prepared under guidance published by the
Association of Investment Companies (AIC). All items in the above
statement derive from continuing operations. No operations were
acquired or disposed of during the year. All income is attributable
to the equity holders of the Company.
The Company does not have any other comprehensive income. The
net profit/(loss) for the year disclosed above represents the
Company’s total comprehensive income.
STATEMENT OF CHANGES IN EQUITY FOR THE
YEAR ENDED 30 SEPTEMBER 2018
|
Notes |
Called
up share
capital
US$’000 |
Share
premium
account
US$’000 |
Capital
redemption
reserve
US$’000 |
Special
reserve
US$’000 |
Capital
reserves
US$’000 |
Revenue
reserve
US$’000 |
Total
US$’000 |
For the year ended
30 September 2018 |
|
|
|
|
|
|
|
|
At 30 September 2017 |
|
1,778 |
46,275 |
5,798 |
230,776 |
55,901 |
9,719 |
350,247 |
Total comprehensive income: |
|
|
|
|
|
|
|
|
Net (loss)/profit for the year |
|
– |
– |
– |
– |
(48,670) |
19,328 |
(29,342) |
Transactions with owners, recorded
directly to equity: |
|
|
|
|
|
|
|
|
Share issues |
8,9 |
228 |
49,119 |
– |
– |
– |
– |
49,347 |
Share issue costs |
9 |
– |
(299) |
– |
– |
– |
– |
(299) |
C Share issue costs – write
back |
9 |
– |
– |
– |
23 |
– |
– |
23 |
Dividends paid* |
6 |
– |
– |
– |
– |
– |
(13,481) |
(13,481) |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
At 30 September 2018 |
|
2,006 |
95,095 |
5,798 |
230,799 |
7,231 |
15,566 |
356,495 |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
For the year ended
30 September 2017 |
|
|
|
|
|
|
|
|
At 30 September 2016 |
|
1,643 |
21,456 |
5,798 |
230,794 |
8,804 |
7,902 |
276,397 |
Total comprehensive income: |
|
|
|
|
|
|
|
|
Net profit for the year |
|
– |
– |
– |
– |
47,097 |
13,107 |
60,204 |
Transactions with owners, recorded
directly to equity: |
|
|
|
|
|
|
|
|
Share issues |
|
135 |
24,967 |
– |
– |
– |
– |
25,102 |
Share issue costs |
|
– |
(148) |
– |
– |
– |
– |
(148) |
C Share issue costs |
|
– |
– |
– |
(18) |
– |
– |
(18) |
Dividends paid** |
6 |
– |
– |
– |
– |
– |
(11,290) |
(11,290) |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
At 30 September 2017 |
|
1,778 |
46,275 |
5,798 |
230,776 |
55,901 |
9,719 |
350,247 |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
* Final dividend of 4.20 cents per share for the year ended
30 September 2017, declared on
1 December 2017 and paid on
9 February 2018 and interim dividend
paid in respect of the year ended 30
September 2018 of 3.00 cents
per share, declared on 17 May 2018
and paid on 29 June 2018.
** Final dividend of 4.00
cents per share for the year ended 30
September 2016, declared on 22
November 2016 and paid on 17 February
2017 and interim dividend paid in respect of the year ended
30 September 2017 of 2.70 cents per share, declared on 25 May 2017 and paid on 30
June 2017.
STATEMENT OF FINANCIAL POSITION AS AT
30 SEPTEMBER 2018
|
Notes |
2018
US$’000 |
2017
US$’000 |
Non current assets |
|
|
|
Investments held at fair value
through profit or loss |
|
348,501 |
354,384 |
|
|
-------- |
-------- |
Current assets |
|
|
|
Other receivables |
|
755 |
5,416 |
Derivative financial assets held at
fair value through profit or loss |
|
4,011 |
882 |
Cash and cash equivalents |
|
4,425 |
5,947 |
Cash collateral held with brokers in
respect of contracts for difference |
|
10,180 |
1,431 |
|
|
-------- |
-------- |
|
|
19,371 |
13,676 |
|
|
-------- |
-------- |
Total assets |
|
367,872 |
368,060 |
|
|
-------- |
-------- |
Current liabilities |
|
|
|
Other payables |
|
(7,847) |
(7,644) |
Derivative financial liabilities
held at fair value through profit or loss |
|
(3,511) |
(2,281) |
Cash collateral received in respect
of contracts for difference |
|
– |
(1,930) |
|
|
-------- |
-------- |
|
|
(11,358) |
(11,855) |
|
|
-------- |
-------- |
Total assets less current
liabilities |
|
356,514 |
356,205 |
|
|
-------- |
-------- |
Non current liabilities |
|
|
|
Non current tax liability |
|
– |
(3,286) |
Deferred taxation liability |
|
– |
(2,653) |
Management shares of £1.00 each (one
quarter paid) |
|
(19) |
(19) |
|
|
-------- |
-------- |
Net assets |
|
356,495 |
350,247 |
|
|
-------- |
-------- |
Equity attributable to equity
holders |
|
|
|
Called up share capital |
8 |
2,006 |
1,778 |
Share premium account |
9 |
95,095 |
46,275 |
Capital redemption reserve |
9 |
5,798 |
5,798 |
Special reserve |
9 |
230,799 |
230,776 |
Capital reserves |
9 |
7,231 |
55,901 |
Revenue reserve |
9 |
15,566 |
9,719 |
|
|
-------- |
-------- |
Total equity |
|
356,495 |
350,247 |
|
|
-------- |
-------- |
Net asset value per ordinary
share (cents) |
7 |
177.70 |
196.91 |
|
|
======== |
======== |
CASH FLOW STATEMENT FOR THE YEAR ENDED
30 SEPTEMBER 2018
|
2018
US$’000 |
2017
US$’000 |
Operating activities |
|
|
Net (loss)/profit on ordinary
activities before taxation |
(34,095) |
68,238 |
Add back finance costs |
23 |
9 |
Net loss/(profit) on investments and
contracts for difference held at fair value through profit or loss
(including transaction costs) |
47,874 |
(59,209) |
Net loss on foreign exchange |
336 |
835 |
Sales of investments held at fair
value through profit or loss |
245,347 |
164,419 |
Purchases of investments held at
fair value through profit or loss |
(232,640) |
(172,655) |
Sales of Cash Fund* |
195,025 |
65,645 |
Purchases of Cash Fund* |
(229,748) |
(89,213) |
Realised losses on closure of
contracts for difference |
(77,413) |
(24,567) |
Realised gains on closure of
contracts for difference |
55,539 |
30,586 |
(Increase)/decrease in other
receivables |
(203) |
705 |
Decrease in other payables |
(2,139) |
(568) |
Decrease in amounts due from
brokers |
3,567 |
294 |
Increase in amounts due to
brokers |
2,342 |
2,507 |
Net cash collateral
(pledged)/received |
(10,679) |
782 |
Taxation paid |
(1,186) |
(2,095) |
|
-------- |
-------- |
Net cash outflow from operating
activities |
(38,050) |
(14,287) |
|
-------- |
-------- |
Financing activities |
|
|
Interest paid |
(23) |
(9) |
Proceeds from share issues |
50,644 |
23,805 |
Share issue costs paid |
(276) |
(166) |
Dividends paid |
(13,481) |
(11,290) |
|
-------- |
-------- |
Net cash inflow from financing
activities |
36,864 |
12,340 |
|
-------- |
-------- |
Decrease in cash and cash
equivalents |
(1,186) |
(1,947) |
Effect of foreign exchange rate
changes |
(336) |
(835) |
|
-------- |
-------- |
Change in cash and cash
equivalents |
(1,522) |
(2,782) |
Cash and cash equivalents at the
start of the year |
5,947 |
8,729 |
|
-------- |
-------- |
Cash and cash equivalents at the
end of the year |
4,425 |
5,947 |
|
-------- |
-------- |
Comprised of: |
|
|
Cash at bank |
4,425 |
5,947 |
|
-------- |
-------- |
|
4,425 |
5,947 |
|
-------- |
-------- |
* Cash Fund represents funds held on
deposit with BlackRock’s Institutional Cash Series plc – US Dollar
Liquidity Fund.
NOTES TO THE FINANCIAL STATEMENTS
1. PRINCIPAL ACTIVITY
The principal activity of the Company is that of an investment
trust company within the meaning of section 1158 of the Corporation
Tax Act 2010. The Company was incorporated on 15 October 2010, and this is the eighth Annual
Report.
2. ACCOUNTING POLICIES
The principal accounting policies adopted by the Company are set
out below.
(a) Basis of preparation
The financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by
the European Union and as applied in accordance with the provisions
of the Companies Act 2006. All of the Company’s operations are of a
continuing nature.
Insofar as the Statement of Recommended Practice (SORP) for
investment trust companies and venture capital trusts issued by the
Association of Investment Companies (AIC) in November 2014 and updated in January 2017, is compatible with IFRS, the
financial statements have been prepared in accordance with the
guidance set out in the SORP.
Substantially all of the assets of the Company consist of
securities that are readily realisable and, accordingly, the
Directors believe that the Company has adequate resources to
continue in operational existence for the foreseeable future.
Consequently, the Directors have determined that it is appropriate
for the financial statements to be prepared on a going concern
basis.
The Company’s financial statements are presented in US Dollars,
which is the functional currency of the Company and the currency of
the primary economic environment in which the Company operates. All
values are rounded to the nearest thousand dollars (US$’000) except
where otherwise indicated.
A number of new standards, amendments to standards and
interpretations are effective for the annual periods beginning on
or after 1 October 2018 and have not
been applied in preparing these financial statements (major changes
and new standards issued are detailed below) as these are not
expected to have any effect on the measurement of the amounts
recognised in the financial statements of the Company.
IFRS standards that have been adopted during the
year:
Amendments to IAS 7 – Disclosure initiative – Statement of Cash
Flows (effective 1 January 2017). The
amendments did not have a significant effect on the presentation of
the Cash Flow Statement within the financial statements of the
Company as the Company does not have any debt.
Amendments to IAS 12 – Recognition of deferred tax assets for
unrealised losses (effective 1 January
2017). The amendment has had no effect on the measurement of
amounts recognised in the financial statements of the Company.
IFRS standards that have yet to be adopted:
IFRS 9 (2014) – Financial Instruments replaces IAS 39 and deals
with a package of improvements including principally a revised
model for classification and measurement of financial instruments,
a forward looking expected loss impairment model and a revised
framework for hedge accounting. In terms of classification and
measurement, the revised standard is principles based depending on
the business model and nature of cash flows. Under this approach,
instruments are measured at either amortised cost or fair value.
Under IFRS 9 equity and derivative investments will be held at fair
value because they fail the ‘solely payments of principal and
interest’ test and debt investments will be held at fair value
because the business model is to manage them on a fair value basis.
The standard is effective for periods beginning on or after
1 January 2018 with earlier
application permitted. The Company does not plan to early adopt
this standard.
IFRS 15 – Revenue from Contracts with Customers (effective for
periods beginning on or after 1 January
2018) specifies how and when an entity should recognise
revenue and enhances the nature of revenue disclosures. Given the
nature of the Company’s revenue streams from financial instruments,
the provisions of this standard are not expected to have an
impact.
(b) Presentation of the Statement of Comprehensive
Income
In order to reflect better the activities of an investment trust
company and in accordance with guidance issued by the AIC,
supplementary information which analyses the Statement of
Comprehensive Income between items of a revenue and a capital
nature has been presented alongside the Statement of Comprehensive
Income.
(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 recognised 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. Provision is made for any
dividends not expected to be received. Special dividends, if any,
are treated as a capital or a revenue receipt depending on the
facts or circumstances of each dividend. The return on a debt
security is recognised on a time apportionment basis so as to
reflect the effective yield on the debt security.
Deposit interest receivable is accounted for on an accruals
basis.
Where the Company has elected to receive its dividends in the
form of additional shares rather than in cash, the cash equivalent
of the dividend is recognised as revenue. Any excess in the value
of the shares received over the amount of the cash dividend is
recognised in capital.
(e) Expenses
All expenses, including finance costs, are accounted for on an
accruals basis. Expenses have been charged wholly to the revenue
column of the Statement of Comprehensive Income, except as
follows:
-
expenses which are incidental to the acquisition or sale of an
investment are charged to the capital column of the Statement of
Comprehensive Income. Details of transaction costs on the purchases
and sales of investments are disclosed within note 10 to the
Financial Statements on page 63 of the Annual Report and Financial
Statements;
-
expenses are treated as capital where a connection with the
maintenance or enhancement of the value of the investments can be
demonstrated;
-
the investment management fee and finance costs have been
allocated 80% to the capital column and 20% to the revenue column
of the Statement of Comprehensive Income 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 are allocated 100% to the capital column of the
Statement of Comprehensive Income as fees are generated in
connection with enhancing the value of the investment
portfolio.
(f) Taxation
The tax expense represents the sum of the tax currently payable and
deferred tax. The tax currently payable is based on the taxable
profit for the period. Taxable profit differs from net profit as
reported in the Statement of Comprehensive Income because it
excludes items of income or expenses that are taxable or deductible
in other years and it further excludes items that are never taxable
or deductible. The Company’s liability for current tax is
calculated using tax rates that were applicable at the balance
sheet date.
Where expenses are allocated between capital and revenue, any
tax relief in respect of the expenses is allocated between capital
and revenue returns on the marginal basis using the Company’s
effective rate of corporation tax for the accounting period.
Deferred taxation is recognised in respect of all temporary
differences that have originated but not reversed at the financial
reporting date, where transactions or events that result in an
obligation to pay more taxation in the future or right to pay less
tax in the future have occurred at the financial reporting date.
This is subject to deferred tax 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 assets and liabilities are measured
at the rates applicable to the legal jurisdictions in which they
arise.
(g) Investments held at fair value through profit or
loss
The Company’s investments are designated upon initial recognition
as held at fair value through profit or loss in accordance with IAS
39 – “Financial Instruments: Recognition and Measurement” and are
managed and evaluated on a fair value basis in accordance with its
investment strategy.
All investments are measured initially and subsequently 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.
The fair value of the financial investments is based on their
quoted bid price at the financial reporting date, without deduction
for the estimated selling costs. This policy applies to all current
and non current asset investments held by the Company. The fair
value of the P-Notes are, when held, based on the quoted bid price
of the underlying equity to which they relate.
Changes in the value of investments held at fair value through
profit or loss and gains and losses on disposal are recognised in
the Statement of Comprehensive Income as “Profits or losses on
investments held at fair value through profit or loss”. Also
included within the heading are transaction costs in relation to
the purchase or sale of investments.
For all financial instruments not traded in an active market,
the fair value is determined by using various valuation techniques.
Valuation techniques include market approach (i.e., using recent
arm’s length market transactions adjusted as necessary and
reference to the current market value of another instrument that is
substantially the same) and the income approach (e.g., discounted
cash flow analysis and option pricing models making use of
available and supportable market data as possible). Where no
reliable fair value can be estimated for such instruments, they are
carried at cost subject to any provision for impairment.
(h) Derivatives
The Company can hold long and short positions in contracts for
difference (CFD) which are held at fair value based on the bid
prices of the underlying securities in respect of long positions,
and the offer prices of the underlying securities in respect of
short positions.
Profits and losses on derivative transactions are recognised in
the Statement of Comprehensive Income. They are shown in the
capital column of the Statement of Comprehensive Income if they are
of a capital nature and are shown in the revenue column of the
Statement of Comprehensive Income if they are of a revenue nature.
To the extent that any profits or losses are of a mixed revenue and
capital nature, they are apportioned between revenue and capital
accordingly.
(i) Other receivables and other payables
Other receivables and other payables do not carry any interest and
are short term in nature and are accordingly stated at their
nominal value.
(j) Dividends payable
Under IFRS, final dividends should not be accrued in the financial
statements unless they have been approved by shareholders before
the financial reporting date. Interim dividends should not be
accrued in the financial statements unless they have been paid.
Dividends payable to equity shareholders are recognised in the
Statements of Changes in Equity.
(k) Foreign currency translation
Transactions involving foreign currencies are converted at the rate
ruling at the date of the transaction. Foreign currency monetary
assets and liabilities and non monetary assets held at fair value
are translated into US Dollars at the rate ruling on the financial
reporting date. Foreign exchange differences arising on translation
are recognised in the Statement of Comprehensive Income as a
revenue or capital item depending on the income or expense to which
they relate. For investment transactions and investments held at
the year end, denominated in a foreign currency, the resulting
gains or losses are included in the profit/(loss) on investments
held at fair value through profit or loss in the Statement of
Comprehensive Income.
(l) 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.
The Company’s investment in BlackRock’s Institutional Cash
Series plc – US Dollar Liquidity Fund (Cash Fund) of US$100,917,000 (2017: US$66,194,000) is managed as part of the
Company’s investment policy and, accordingly, this investment,
along with purchases and sales of this investment, has been
classified in the Statement of Financial Position as an investment
and not as a cash equivalent as defined under IAS 7.
(m) Critical accounting estimates and judgements
The Company makes estimates and assumptions concerning the future.
The resulting accounting estimates and assumptions will, by
definition, seldom equal the related actual results. Estimates and
judgements are regularly evaluated and are based on historical
experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances.
The Directors do not believe that any accounting judgements or
estimates have a significant risk of causing a material adjustment
to the carrying amount of assets and liabilities within the next
financial year.
3. INCOME
|
2018
US$’000 |
2017
US$’000 |
Investment income: |
|
|
UK dividends |
24 |
– |
Overseas listed dividends |
12,415 |
10,627 |
Overseas listed special
dividends |
707 |
488 |
Overseas listed stock dividends |
3,798 |
1,507 |
Income from P-Notes |
547 |
97 |
Interest from Cash Fund |
1,804 |
476 |
|
-------- |
-------- |
|
19,295 |
13,195 |
|
-------- |
-------- |
Net income from contracts for
difference |
3,245 |
2,731 |
|
-------- |
-------- |
|
22,540 |
15,926 |
|
-------- |
-------- |
Other Income: |
|
|
Deposit interest |
103 |
42 |
|
-------- |
-------- |
Total income |
22,643 |
15,968 |
|
====== |
====== |
Dividends and interest received in cash during the year amounted
to US$17,706,000 and US$1,771,000 (2017: US$15,701,000 and US$468,000).
No special dividends have been recognised in capital (2017:
nil).
4. INVESTMENT MANAGEMENT AND
PERFORMANCE FEES
|
2018 |
2017 |
|
Revenue
US$’000 |
Capital
US$’000 |
Total
US$’000 |
Revenue
US$’000 |
Capital
US$’000 |
Total
US$’000 |
|
|
|
|
|
|
|
Investment management fee |
856 |
3,424 |
4,280 |
672 |
2,689 |
3,361 |
Performance fee |
– |
– |
– |
– |
596 |
596 |
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
Total |
856 |
3,424 |
4,280 |
672 |
3,285 |
3,957 |
|
===== |
===== |
===== |
===== |
===== |
===== |
An investment management fee equivalent to 1.10% per annum of
the Company’s gross assets (defined as the aggregate net assets of
the long equity and CFD portfolios of the Company) is payable to
the Manager. In addition, the Manager is also entitled to receive a
performance fee at a rate of 10% of any increase in the NAV at the
end of a performance period over and above what would have been
achieved had the NAV since launch increased in line with the
Reference Index, which, since 1 April
2018, is a composite of the MSCI Emerging Markets Index ex
Selected Countries + MSCI Frontier Markets Index + MSCI Saudi
Arabia Index. Prior to 1 April 2018,
the Reference Index was the MSCI Frontier Markets Index. For the
purposes of calculation of performance fee for the year to
30 September 2018, the performance of
the Net Asset Value total return has been measured against the
performance of the benchmark indices on a blended basis during the
year.
For the year to 30 September 2018,
the Company’s NAV performance of -6.6% generated a deficit of
US$39.88 million (2017: NAV
performance of 21.5% and excess returns of US$5.96 million) resulting in no performance fees
for the year (2017: US$596,000). The
performance fee payable in any year is capped at an amount equal to
2.5% or 1% of the gross assets if there is any increase or decrease
in the NAV per share at the end of the relevant performance period,
respectively. Any capped excess outperformance for a period may be
carried forward to the next two performance periods, subject to the
then applicable annual cap. The performance fee is also subject to
a high watermark such that any performance fee is only payable to
the extent that the cumulative relative outperformance of the NAV
is greater than what would have been achieved had the NAV increased
in line with the Reference Index since the last date in relation to
which a performance fee had been paid.
5. OTHER OPERATING EXPENSES
|
2018
US$’000 |
2017
US$’000 |
Allocated to revenue: |
|
|
Custody fee |
503 |
429 |
Auditor’s remuneration: |
|
|
– audit services |
38 |
36 |
– other assurance
services1 |
9 |
9 |
Registrar’s fee |
52 |
37 |
Directors’ emoluments |
205 |
179 |
Broker fees |
62 |
38 |
Depositary fees2 |
44 |
35 |
Marketing fees |
93 |
73 |
Other administrative costs |
246 |
226 |
|
-------- |
-------- |
|
1,252 |
1,062 |
|
-------- |
-------- |
Allocated to capital: |
|
|
Custody transaction charges |
118 |
130 |
|
-------- |
-------- |
|
1,370 |
1,192 |
|
-------- |
-------- |
The Company’s ongoing charges,
calculated as a percentage of average net assets and using
expenses, excluding performance fees, VAT refunded, transaction
costs and taxation were: |
1.42% |
1.44% |
|
-------- |
-------- |
The Company’s ongoing charges,
calculated as a percentage of average net assets and using expenses
and performance fees but excluding VAT refunded, transaction costs
and taxation were: |
1.42% |
1.64% |
|
-------- |
-------- |
1 Fees of US$9,000 (2017: US$9,000) relating to the review of the interim
financial statements.
2 All expenses other than depositary fees
are paid in Sterling and are therefore subject to exchange rate
fluctuations.
For the year ended 30 September
2018, expenses of US$118,000
(2017: US$130,000) were charged to
the capital column of the Statement of Comprehensive Income, which
relate to transaction costs charged by the custodian on sale and
purchase trades.
No fees were payable in 2018 or 2017 in relation to investing in
new markets.
Details of the Directors’ emoluments are given in the Directors’
Remuneration Report on page 39 of the Annual Report and Financial
Statements.
6. DIVIDENDS
Dividends paid on equity shares: |
Record date |
Payment date |
2018
US$’000 |
2017
US$’000 |
|
|
|
|
|
2017 final of 4.20 cents (2016: 4.00
cents) per ordinary share |
5 January
2018 |
9 February
2018 |
7,631 |
6,573 |
2018 interim of 3.00 cents (2017:
2.70 cents) per ordinary share |
1 June 2018 |
29 June
2018 |
5,850 |
4,717 |
|
|
|
--------- |
--------- |
|
|
|
13,481 |
11,290 |
|
|
|
===== |
===== |
The total dividends payable in respect of the year ended
30 September 2018 which form the
basis of section 1158 of the Corporation Tax Act 2010 and section
833 of the Companies Act 2006, and the amounts proposed, meet the
relevant requirements as set out in this legislation.
|
2018
US$’000 |
2017
US$’000 |
|
|
|
Interim dividend of 3.00 cents per
ordinary share (2017: 2.70 cents) |
5,850 |
4,717 |
Final proposed dividend of 4.40
cents per ordinary share (2017: 4.20 cents)* |
8,987 |
7,592 |
Special dividend of 1.00 cent per
ordinary share (2017: nil)* |
2,042 |
- |
|
-------- |
-------- |
|
16,879 |
12,309 |
|
-------- |
-------- |
* Based on 204,241,108 ordinary
shares in issue on 10 December 2018.
7. EARNINGS AND NET ASSET VALUE PER ORDINARY SHARE
Total revenue, capital return and net asset value per ordinary
share are shown below and have been calculated using the
following:
|
Year ended
30 September 2018 |
Year ended
30 September 2017 |
|
|
|
Net revenue profit attributable to
ordinary shareholders (US$’000) |
19,328 |
13,107 |
Net capital (loss)/profit
attributable to ordinary shareholders (US$’000) |
(48,670) |
47,097 |
|
-------- |
-------- |
Total (loss)/profit attributable to
ordinary shareholders (US$’000) |
(29,342) |
60,204 |
|
-------- |
-------- |
Equity shareholders’ funds
(US$’000) |
356,495 |
350,247 |
|
----------------- |
----------------- |
The weighted average number of
ordinary shares in issue during the year, on which the return per
ordinary share was calculated was: |
190,842,459 |
170,192,369 |
|
----------------- |
----------------- |
The actual number of ordinary shares
in issue at the year end, on which the net asset value per ordinary
share was calculated was: |
200,616,108 |
177,868,108 |
|
---------------- |
----------------- |
Return per ordinary
share |
|
|
Revenue earnings per share
(cents) |
10.13 |
7.70 |
Capital (loss)/earnings per share
(cents) |
(25.50) |
27.67 |
|
-------- |
-------- |
Total (loss)/profit per share
(cents) |
(15.37) |
35.37 |
|
-------- |
-------- |
|
|
|
|
As at
30 September 2018 |
As at
30 September 2017 |
|
|
|
Net asset value per ordinary share
(cents) |
177.70 |
196.91 |
|
-------- |
-------- |
Ordinary share price (cents)* |
182.25 |
199.91 |
|
-------- |
-------- |
Net asset value per ordinary share
(pence) |
136.26 |
146.76 |
|
-------- |
-------- |
Ordinary share price (pence) |
139.75 |
149.00 |
|
-------- |
-------- |
* The Company’s share price is quoted in
Sterling and the above represents the US Dollar equivalent based on
an exchange rate of US$1.3041 to £1
as at 30 September 2018 (30 September
2017: US$1.3417 to £1).
8. CALLED UP SHARE CAPITAL
|
Number of
ordinary
shares in
issue |
Nominal
value
US$’000 |
Allotted, called up and fully
paid share capital comprised: |
|
|
|
---------------- |
-------- |
At 30 September 2017 |
177,868,108 |
1,778 |
|
----------------- |
-------- |
Share issues |
22,748,000 |
228 |
|
----------------- |
-------- |
At 30 September 2018 |
200,616,108 |
2,006 |
|
========== |
===== |
The Company also has in issue 50,000 management shares which
carry the right to a fixed cumulative preferred dividend.
Additional information is given in note 14 to the Financial
Statements in the Annual Report and Financial Statements.
During the year ended 30 September
2018 the Company issued 22,748,000 (2017: 13,535,000) shares
for a total gross consideration of US$49,347,000 (2017: US$25,102,000).
A further 3,625,000 shares have been issued since the year end
and up to and including the date of this report.
Following the C Share Scheme Issue and Issue, as described on
page 4 of the Annual Report and Financial Statements, 37,375,087 C
Shares were issued on 27 November
2018 pursuant to the Scheme Issue to shareholders of
BlackRock Emerging Europe plc, and a further 7,552,493 C Shares
were issued pursuant to the placing and offer for subscription at
an issue price of 100 pence per C
Share.
9. RESERVES
|
Share
premium
account
US$’000 |
Capital
redemption
reserve
US$’000 |
Special
reserve
US$’000 |
Capital
reserve
arising on
investments sold
US$’000 |
Capital
reserve
arising on
revaluation
of investments
US$’000 |
Revenue
reserve
US$’000 |
|
|
|
|
|
|
|
At 30 September 2017 |
46,275 |
5,798 |
230,776 |
36,945 |
18,956 |
9,719 |
Movement during the year: |
|
|
|
|
|
|
Total Comprehensive Income: |
|
|
|
|
|
|
Net profit/(loss) for the year |
– |
– |
– |
12,830 |
(61,500) |
– |
Transactions with owners: |
|
|
|
|
|
|
Share issues |
49,119 |
– |
– |
– |
– |
– |
Share issue costs |
(299) |
– |
– |
– |
– |
– |
C Share issues costs - write
back |
– |
– |
23 |
– |
– |
– |
Revenue return for the year |
– |
– |
– |
– |
– |
19,328 |
Dividends paid |
– |
– |
– |
– |
– |
(13,481) |
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
At 30 September 2018 |
95,095 |
5,798 |
230,799 |
49,775 |
(42,544) |
15,566 |
|
===== |
===== |
====== |
===== |
===== |
===== |
The share premium account and capital redemption reserve are not
distributable profits under the Companies Act 2006. The special
reserve may be used as distributable profits for all purposes and,
in particular, for the repurchase by the Company of its ordinary
shares and for payment as dividends. In accordance with the
Company’s status as an investment company under the provisions of
section 1158 of the Corporation Tax Act 2010, net capital returns
may be distributed by way of dividend.
10. VALUATION OF FINANCIAL
INSTRUMENTS
Financial assets and financial liabilities are either carried in
the Statement of Financial Position at their fair value
(investments and derivatives) or at an amount which is a reasonable
approximation of fair value (due from brokers, dividends and
interest receivable, due to brokers, accruals, cash at bank and
bank overdrafts). IFRS 13 requires the Company to classify fair
value measurements using a fair value hierarchy that reflects the
significance of inputs used in making the measurements. The
valuation techniques used by the Company are explained in the
accounting policies note 2(g) to the Financial Statements on
pages 57 and 58 of the Annual Report and Financial
Statements.
Categorisation within the hierarchy has been determined on the
basis of the lowest level of input that is significant to the fair
value measurement of the relevant asset as follows.
The fair value hierarchy has the following levels:
Level 1 – Quoted market price for identical instruments in
active markets
A financial instrument is regarded as quoted in an active market if
quoted prices are readily and regularly available from an exchange,
dealer, broker, industry group, pricing service or regulatory
agency and those prices represent actual and regularly occurring
market transactions on an arm’s length basis. The Company does not
adjust the quoted price for these instruments.
Level 2 – Valuation techniques using observable
inputs
This category includes instruments valued using quoted prices for
similar instruments in markets that are considered less than
active, or other valuation techniques where all significant inputs
are directly or indirectly observable from market data. Valuation
techniques used for non-standardised financial instruments such as
options, currency swaps and other over-the-counter derivatives
include the use of comparable recent arm’s length transactions,
reference to other instruments that are substantially the same,
discounted cash flow analysis, option pricing models and other
valuation techniques commonly used by market participants making
the maximum use of market inputs and relying as little as possible
on entity specific inputs.
As at the year ended 30 September
2018, the P-Notes were valued using the underlying equity
bid price and the inputs to the valuation were the exchange rates
used to convert the P-Note valuation from the relevant local
currency to US Dollars at the year end date. There were no P-Notes
held as at the year ended 30 September
2017.
As at the year end the CFDs were valued using the underlying
equity bid price and the inputs to the valuation were the exchange
rates used to convert the CFD valuation from the relevant local
currency in which the underlying equity was priced to US Dollars at
the year end date. There have been no changes to the valuation
technique since the previous year or as at the date of this
report.
Level 3 – Valuation techniques using significant unobservable
inputs
This category includes all instruments where the valuation
technique includes inputs not based on market data and these inputs
could have a significant impact on the instrument’s valuation.
This category also includes instruments that are valued based on
quoted prices for similar instruments where significant entity
determined adjustments or assumptions are required to reflect
differences between the instruments and instruments for which there
is no active market. The determination of what constitutes
‘observable’ inputs requires significant judgement by the
Investment Manager. The Investment Manager considers observable
data to be that market data that is readily available, regularly
distributed or updated, reliable and verifiable, not proprietary,
and provided by independent sources that are actively involved in
the relevant market.
The level in the fair value hierarchy within which the fair
value measurement is categorised in its entirety is determined on
the basis of the lowest level input that is significant to the fair
value measurement. If a fair value measurement uses observable
inputs that require significant adjustment based on unobservable
inputs, that measurement is a Level 3 measurement.
Assessing the significance of a particular input to the fair
value measurement in its entirety requires judgement, considering
factors specific to the asset or liability. The determination of
what constitutes ‘observable’ inputs requires significant judgement
by the Investment Manager.
Contracts for difference and P-Notes have all been classified as
Level 2 investments as their valuation has been based on market
observable inputs represented by the market prices of the
underlying quoted securities to which these contracts expose the
Company.
Transfers between levels of the fair value hierarchy are deemed
to have occurred at the end of the reporting period.
Fair values of financial assets and financial
liabilities
The table below sets out fair value measurements using IFRS 13 fair
value hierarchy.
Financial assets/(liabilities)
at fair value through profit or loss at 30 September 2018 |
Level 1
US$’000 |
Level 2
US$’000 |
Level 3
US$’000 |
Total
US$’000 |
Assets: |
|
|
|
|
Equity investments |
236,806 |
– |
– |
236,806 |
P-Notes |
– |
10,778 |
– |
10,778 |
Cash Fund |
100,917 |
– |
– |
100,917 |
Contracts for difference (gross
exposure on long positions) |
– |
136,772 |
3 |
136,775 |
Liabilities: |
|
|
|
|
Contracts for difference (gross
exposure on short positions) |
– |
(27,461) |
– |
(27,461) |
|
----- |
----- |
----- |
------ |
|
337,723 |
120,089 |
3 |
457,815 |
|
====== |
====== |
===== |
====== |
Financial assets at fair value through profit or loss at 30 September 2017 |
Level 1
US$’000 |
Level 2
US$’000 |
Level 3
US$’000 |
Total
US$’000 |
Assets: |
|
|
|
|
Equity investments |
287,979 |
– |
211 |
288,190 |
Cash Fund |
66,194 |
– |
– |
66,194 |
Contracts for difference (gross
exposure on long positions) |
– |
88,513 |
2 |
88,515 |
|
---------- |
-------- |
-------- |
---------- |
|
354,173 |
88,513 |
213 |
442,899 |
|
====== |
===== |
===== |
====== |
There were no transfers between levels of financial assets and
financial liabilities during the year recorded at fair value as at
30 September 2018. For the year ended 30 September 2017, transfers of financial assets
from fair value hierarchy Level 2 to Level 1 amounted to
US$14,146,000. These arose primarily
in relation to the Nigerian equity securities held in the
investment portfolio where observable spot exchange rates as quoted
on the FMDQ OTC Securities Exchange have been applied for valuing
the Nigerian equity securities following the introduction of a
special window for investors by the Central Bank of Nigeria effective 28 April 2017. The
Company held one Level 3 long CFD security during the year ended
30 September 2018, which is also held
at the year end. The Company held one Level 3 equity and long CFD
security throughout the year ended 30
September 2017.
A reconciliation of fair value measurement in Level 3 is set out
below.
Level 3 Financial assets at fair value through profit or loss at 30 September |
2018
US$’000 |
2017
US$’000 |
Opening fair value |
213 |
213 |
Disposal |
(211) |
– |
Change in fair value during the
year |
1 |
– |
|
------- |
-------- |
Closing fair value |
3 |
213 |
|
==== |
==== |
11. RELATED PARTY DISCLOSURE: DIRECTORS’ EMOLUMENTS
Disclosures of the Directors’ interests in the ordinary shares of
the Company and fees and expenses payable to the Directors are set
out in the Directors’ Remuneration Report on pages 38 to 40 of
the Annual Report and Financial Statements. At 30 September 2018, US$16,000 (£12,000) (2017: US$16,000 (£12,000)) was outstanding in respect
of Directors’ fees.
12. TRANSACTIONS WITH INVESTMENT MANAGER AND AIFM
BlackRock Fund Managers Limited (BFM) provides management and
administration services to the Company under a contract which is
terminable on six months’ notice. BFM has (with the Company’s
consent) delegated certain portfolio and risk management services,
and other ancillary services, to BlackRock Investment Management
(UK) Limited ("BIM (UK)"). Further
details of the investment management contract are disclosed in the
Directors’ Report on pages 32 and 33 of the Annual Report and
Financial Statements.
The investment management fee due for the year ended
30 September 2018 amounted to
US$4,280,000 (2017: US$3,361,000). No performance fee is payable for
the year ended 30 September 2018
(2017: US$596,000). At the year end,
US$1,024,000 was outstanding in
respect of management fees (2017: US$2,606,000) and US$nil (2017: US$596,000) was outstanding in respect of
performance fees.
In addition to the above services, BlackRock has provided
marketing services. The total fees paid or payable for these
services for the year ended 30 September
2018 amounted to US$93,000
excluding VAT (2017: US$73,000) of
which marketing fees of US$68,000
excluding VAT (2017: US$55,000) were
outstanding as at year end.
The Company has an investment in the Cash Fund of US$100,917,000 (2017: US$66,194,000) at the year end, which is a fund
managed by a company within the BlackRock Group.
13. CONTINGENT LIABILITIES
There were no contingent liabilities at 30
September 2018 (2017: nil).
14. POST BALANCE SHEET EVENT
Following the Scheme Issue and Issue described in the Chairman's
Statement, 37,375,087 C Shares were issued on 27 November 2018 pursuant to the Scheme Issue to
shareholders of BlackRock Emerging Europe plc, and a further
7,552,493 C Shares were issued pursuant to the placing and offer
for subscription at an issue price of 100
pence per C Share.
Following the year end and up to the date of this report the
Company issued a further 3,625,000 ordinary shares.
15. 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 2018 Annual Report and Financial Statements will be
filed with the Registrar of Companies shortly.
The report of the Auditor for the year ended 30 September 2018 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 Frontiers Investment Trust plc for the year
ended 30 September 2017, which have
been filed with the Registrar of Companies. 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
10 December 2018.
16. ANNUAL REPORT
Copies of the annual report will be sent to members shortly and
will be available from the registered office, c/o The Company
Secretary, BlackRock Frontiers Investment Trust plc, 12 Throgmorton
Avenue, London EC2N 2DL.
17. ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held at 12
Throgmorton Avenue, London EC2N
2DL on Tuesday, 5 February 2019 at 12:00 p.m.
The Annual Report will also be available on the BlackRock
website at blackrock.co.uk/brfi. Neither the contents of the
Manager’s website nor the contents of any website accessible from
hyperlinks on the Manager’s website (or any other website) is
incorporated into, or forms part of, this announcement.
FOR FURTHER INFORMATION, PLEASE CONTACT:
Simon White, Managing Director,
Investment Trusts, BlackRock Investment Management (UK) Limited
Tel: 020 7743 3000
Press enquiries:
Lucy Horne, Lansons Communications –
Tel: 020 7294 3689
E-mail: lucyh@lansons.com
11 December 2018
12 Throgmorton Avenue
London EC2N 2DL
END