BlackRock Frontiers Investment Trust plc
Investment Objective
The Company's investment objective is to achieve long term capital growth from
investment in companies listed or operating in Frontier Markets (defined as any
country which is not in either the MSCI Emerging Markets Index or the MSCI
Developed Markets Index).
Summary Investment Policy
The Company will seek to maximise total return by investing in the securities
of companies domiciled or listed in, or exercising the predominant part of
their economic activity in, Frontier Markets.
Performance Record
30 30
September September
2013 2012
US Dollar
Net assets^^ (US$'000) 255,233 128,262
Net asset value per share (cum income) (US cents) 169.45c 135.35c
Share price (US cents)* 178.13c 130.40c
------- -------
Sterling
Net assets^^ (£'000)* 157,610 79,429
Net asset value per share (cum income) (pence)* 104.64p 83.82p
Share price (pence) 110.00p 80.75p
------- -------
Premium/(discount) 5.1% (3.7%)
------- -------
Performance Year Year
ended ended
30 30
September September Since
2013 % 2012 % inception%^
US dollar
Net asset value per share
(with income reinvested) +31.6 +14.7 +20.6
MSCI Frontiers Index (NR**) +21.8 +3.6 +6.3
MSCI Emerging Markets Index (NR**) +1.0 +16.9 (4.4)
Ordinary share price
(with income reinvested) +43.6 +15.6 +24.6
Sterling
Net asset value per share
(with income reinvested) +31.2 +10.7 +16.0
MSCI Frontiers Index (NR**) +21.4 (0.1) +2.4
MSCI Emerging Markets Index (NR**) +0.7 +12.8 (8.0)
Ordinary share price
(with income reinvested) +43.2 +11.5 +19.7
* Based on an exchange rate of 1.6194 at 30 September 2013 and 1.6148 at
30 September 2012.
** Net return indices calculate the reinvestment of dividends net of
withholding taxes using the tax rates applicable to non-resident institutional
investors.
^ The Company was incorporated on 15 October 2010 and its shares were admitted
to trading on the London Stock Exchange on 17 December 2010.
^^ The change in net assets reflects market movements during the year and the
issue of C shares.
Sources: BlackRock and Datastream.
Chairman's Statement
I am pleased to present the annual report to shareholders of the BlackRock
Frontiers Investment Trust plc for the year ended 30 September 2013.
Overview
Frontier Markets performed strongly throughout the year to 30 September 2013,
with the MSCI Frontier Markets Index increasing by 21.8%, in contrast to the
MSCI Emerging Markets Index, which rose by just 1%. Against this backdrop, I am
pleased to report that the Company's net asset value ("NAV") per share
increased over the year by 31.6% and its share price rose by 43.6%. (All
calculations are on a US dollar basis, with net income reinvested.)
The largest contribution to performance came from the Middle East, where the
decision by MSCI to upgrade United Arab Emirates and Qatar from Frontier Market
to Emerging Market status buoyed returns. These markets also saw significant
growth in their local economies and flourishing real estate sectors. As a
Frontier Markets investment trust, the Company will have sold substantially all
of its positions in UAE and Qatar prior to changes in the indices taking effect
in the second quarter of 2014. We expect that anticipated inflows into these markets
will provide a favourable background against which to sell our holdings. The Company's
holdings in Argentina also performed well, mainly as a result of increased soya
prices and growing investor confidence that a change in macroeconomic policy
would occur after the poor government performance in the August primaries.
Within Africa, Kenya was the best performer, with relatively peaceful
presidential and parliamentary elections and the introduction of the first
government bond index.
Since the period end, the Company's NAV per share has increased by 4.5%
and the share price has risen by 3.3% (both on a US dollar basis with
net income reinvested).
Revenue return and dividends
The Company's revenue return per share for the year amounted to 6.13 US cents
(30 September 2012: 4.14 US cents). 5.40 US cents per share have been
distributed to shareholders in the year by way of an ordinary interim dividend
of 2.00 cents per share (2012: 1.20 cents per share) and a special interim
dividend of 3.40 US cents per share. This represents an increase of 42.1% over
the total dividends of 3.80 US cents paid in relation to the year ended 30
September 2012. This reflects the increased level of dividends generated from
the Company's portfolio over the year.
The Directors do not recommend the payment of a final dividend. As explained in
the Company's Interim Report, the Directors declared an additional special
interim dividend of 3.40 US cents on 30 May 2013, payable to shareholders on
5 July 2013, in place of a final dividend. This dividend was paid early in
anticipation of the Company's C Share issue, and represented the additional
revenue expected to be generated between 1 April 2013 and the C Share
conversion date on 25 September 2013. For the year ended 30 September 2012, a
final dividend of 2.60 US cents was paid.
C Share issue
It was encouraging that the placing and offer for subscription for C Shares
made by the Company met with strong demand, and 63,566,000 C Shares of 100
pence each were issued on 31 July 2013. These C Shares were subsequently
converted into 55,855,354 new ordinary shares on 25 September 2013. The issue
was well supported both by existing shareholders and new investors. At
30 September 2013, the Company had 150,621,621 shares in issue. There were no
other share allotments or share buybacks in the year.
Share rating and share buy backs
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.
Periodic opportunities for return of capital
At the Company's fifth annual general meeting in 2016, the Board will provide
Shareholders with an opportunity to elect to realise the value of their
Ordinary Shares at the applicable Net Asset Value per Ordinary Share less
applicable costs. The route which will be used to provide Shareholders with an
exit will depend on the level of uptake anticipated at the time and will be
established following Shareholder consultation. This is likely to be achieved
through a tender offer or a reorganisation of the Company. In all
circumstances, the Board will seek to safeguard the interests of both
continuing Shareholders and those electing to realise their investment. If this
initial return of capital is not undertaken in conjunction with a liquidation
of the Company, the Directors intend to offer Shareholders further
opportunities to realise the value of their Ordinary Shares, at the applicable
Net Asset Value per Ordinary Share less costs, at five yearly intervals.
For the year under review the Company's ordinary shares have traded at an
average discount to NAV of 0.8%, and were trading at a premium of 3.9% on a
cum-income basis at the date 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). This authority, which has not so far been utilised,
expires on the conclusion of the 2014 AGM, when a resolution will be put to
shareholders to renew it.
New reporting requirements
There have been a number of revisions to reporting requirements for companies
with accounting periods beginning on or after 1 October 2012. These include
the addition of a new Strategic Report which is intended to replace the Business
Review section of the Director’s Report, providing insight into the Company’s
objectives, strategy and principal risks, and enabling shareholders to assess
how effective Directors have been in promoting the success of the Company
during the course of the year under review. Other changes comprise additional
Audit Committee reporting requirements on the external audit process, as set
out on pages 31 to 33 of the annual report, and changes to the structure and
voting requirements in respect of the Directors’ Remuneration Report which are
explained in more detail on pages 23 to 25 of the Annual Report.
Alternative Investment Fund Managers' Directive
The Alternative Investment Fund Managers' Directive ("the Directive") is a
European directive which seeks to reduce systemic risk by regulating
alternative investment fund managers ("AIFMs"). AIFMs are responsible for
managing investment products that fall within the category of Alternative
Investment Funds ("AIFs") and investment trusts are included in this. The
Directive was implemented on 22 July 2013 although the Financial Conduct
Authority ("FCA") permits a transitional period of one year after that, during
which UK AIFMs must seek authorisation. The Board has taken, and will continue
to take, independent advice on the consequences for the Company of the
implementation of the Directive. It has decided in principle that BlackRock
Fund Managers Limited will be appointed as its AIFM before the end of the
transitional period on 22 July 2014.
New Articles of Association
At the forthcoming Annual General Meeting, shareholders will be asked to approve
new Articles of Association in substitution for the current Articles. The Board
is proposing to make these amendments to the Articles in response to AIFMD
Regulations coming into force; details of the principal changes are given on
pages 21 and 22 of the Annual Report.
Annual General Meeting
The AGM of the Company will be held at BlackRock's offices at 12 Throgmorton
Avenue, London EC2N 2DL on Monday, 3 February 2014 at 12.00 noon. Details of
the business of the meeting are set out in the Notice of Meeting on pages 65 to
68 of the Annual Report and the Investment Manager will be making a
presentation to shareholders on the Company's progress and the outlook for
Frontier Markets.
Outlook
Frontier Markets have seen strong returns in 2013, outperforming Emerging
Markets by a wide margin over the year to 30 September 2013, as well as
demonstrating lower volatility. Our managers remain confident that valuations
continue to be attractive, both in absolute terms and relative to mainstream
Emerging Markets. Frontier Markets in the main continue to provide compelling
investment opportunities, given their strong GDP growth, dynamic demographic
profiles and low debt burdens. The low correlation of Frontier Markets with
both Developed and Emerging Markets provides considerable diversification
benefits making the asset class an attractive option for long-term investors.
Audley Twiston-Davies
26 November 2013
Investment Manager's Report
Market overview
Over the twelve months to 30 September 2013, Frontier markets performed
strongly, returning +21.8%. This is in contrast to mainstream Emerging Markets,
which have endured another volatile period, ending the year up by just 1%.
Strong returns were generated by a wide range of Frontier Markets, with various
Middle Eastern, European, Latin American and African markets rising in excess
of 25% over the year.
The United Arab Emirates was the strongest performer over the twelve months,
rising by 62%. The decision by the MSCI to upgrade United Arab Emirates, as
well as Qatar, from Frontier Markets to Emerging Markets, with effect from the
second quarter of 2014, reflects a growing realisation of how far these
economies and financial markets have developed in recent years. The performance
of the equity market also reflects a significant resurgence in the local
economy and an improving real estate market.
Argentina was also amongst the best performing Frontier Markets in the twelve
months to September, rising by 61%, despite the currency depreciating by nearly
20% versus the US dollar over the same period. Investors have become
increasingly hopeful of a change in macroeconomic policy occurring after the
government had a poor result in the August primaries. The increase in soya
prices also provided relief to the beleaguered economy.
Of the large African markets, Kenya was the best performer. Financial
developments over the year include the introduction of Kenya's first government
bond index, with the aim of deepening capital markets. Presidential and
parliamentary elections passed off relatively peacefully, in contrast to the
2007 poll which saw widespread violence, and Uhurru Kenyatta was declared
President having secured 50.07% of the vote, in what international observers
declared free and fair elections.
In addition, Eastern European Frontier markets were buoyed by the easing of
systemic financial risk in mainstream Europe. The exception to this was Ukraine
where poor performance was driven by concerns over the level of sovereign debt,
which placed additional pressure on the currency and equity markets.
The sell-off in mainstream Emerging Markets was largely driven by falls in bond
prices on the back of rhetoric from the US Federal Reserve suggesting that
improvements in the US economy could eventually lead to a tapering of the
current quantitative easing programme. Emerging Markets, especially those which
have been beneficiaries of the `carry-trade', were impacted, with many bonds,
currencies and equities across the developing world posting losses.
Portfolio overview
The Company was well positioned over geographies and individual stocks,
returning 31.6% (USD terms), outperforming the MSCI Frontier Markets Index by
9.8%.
Positions in the Middle East were notable relative performers with the
strongest being United Arab Emirates hospital operator NMC Health. The company
was a large relative contributor to performance, reporting a 17% rise in net
profit for the first half of 2013, driven by higher occupancy levels. The
company stated that the inflow of patients crossed the one million mark in the
first six months and expects that number to exceed 2 million by the end of
2013.
Outside the Middle East, contributors to performance included Pan African
contracting company, Shikun and Binui, which rose by 50%. Investors were
cheered by the news that the company had secured a three year, US$500 million
project with the Nigerian government for the paving and widening of a road in
the Shgamu-Benin area of the country. Like many Frontier market companies, the
company also paid a healthy dividend, implying a yield in excess of 5%.
In Bangladesh, holdings in tobacco company, BAT Bangladesh, a subsidiary of the
UK listed multinational, added significantly to performance as the stock price
rose by substantially more than 100% over the year and also paid a dividend
yielding more than 5%. This undervalued stock remains a core holding in the
portfolio. In Vietnam, Consumer Staples company, Kinh Do Corp, the leading
domestic producer of moon cakes was another strong performer, rising 85% over
the year, as the company continued to prove its dominance in distribution in
the local market as it rebranded and relaunched a number of its brands driving
increased volumes.
The largest detractor from performance was Sundance Resources, owners of an
iron ore asset in Cameroon. The company share price suffered after a proposed
takeover failed to complete.
Portfolio activity
Over the year we reduced the Company's exposure to African markets,
predominantly Nigeria and Kenya and increased exposure to South East Asian
markets such as Bangladesh and Vietnam.
Nigeria was one of our most favoured countries. Having successfully addressed a
banking crisis, Nigeria is tackling challenges associated with its lack of
power capacity, high fuel subsidies and energy sector investment. The market
has been buoyant, rising 30% over the period, which has tempered our bullish
view, although we remain excited by the immense long-term potential for
Nigeria.
We also took profits in holdings in Kenya, a market which we now view as
excessively valued, trading on an index valuation of four times price to book.
We increased exposure to Bangladesh through health care company, Square
Pharmaceutical. The positive view on the Bangladeshi market is driven by a
combination of increased political stability and international flows into an
undervalued market. The prospect of reforms to deepen the equity market in
Dhaka also improved sentiment. Despite being the leading health care company in
the country, Square Pharmaceutical is trading on a ratio of less than 10x price
to earnings.
We also added to the position in Sri Lankan financial, Hatton Bank. The bank
operates one of the strongest deposit franchises in the country due to its
historic dominance in rural areas. Despite some current pressure on results
from the current weak economic environment in Sri Lanka, the bank is well
placed to benefit as the economic environment turns. Trading on an earnings
multiple of less than 8x with a dividend yield above 5%, we believe that this
is currently one of the most attractive banks in the Frontier universe.
We sold a position in Cambodian casino operator, Nagacorp. The stock performed
well over the period but we decided to take profits following the announcement
of a new casino project, which will require at least US$350 million of
investment. Precise details of the project have yet to be announced but the
casino-resort venture on the outskirts of the Russian port city of
Vladivostock, a country in which the company has no prior experience, will take
several years to bear fruit.
Outlook
2013 has been a break out year for Frontier Markets. During this twelve month
period, Frontier Markets have strongly outperformed Emerging Markets whilst at
the same time showing lower volatility than both Emerging and Developed Markets.
Frontier Market valuations remain attractive both in absolute and relative
terms to mainstream Emerging Markets. Companies operating very profitably in
Sub-Saharan Africa, Asia and the Middle East offer exposure to some of the
fastest growing markets globally yet are trading on valuations of under 10x
price to earnings supported by high dividend yields.
More than 2 billion people live in Frontier Markets but until now they have
attracted little investor attention. With their strong GDP growth, positive
demographic profile, low debt burden and relatively low correlation to
developed and emerging markets, we think that Frontier Markets, although not
without risk, are a great place to invest for those who have both a long-term
horizon and wish to see capital and income growth. In a changing world, we
believe that opportunities abound for unconventional investors.
Sam Vecht and Emily Fletcher
BlackRock Investment Management (UK) Limited
26 November 2013
Ten Largest Investments*
30 September 2013
Zenith Bank** (Nigeria, Financials, 4.6% (2012: 4.9%) www.zenithbank.com) is
Nigeria's second largest bank with 350 branches in Nigeria accounting for over
10% of the country's banking assets. Zenith offers a full range of retail and
corporate banking services and has subsidiaries in Ghana, The Gambia and Sierra
Leone.
Emaar Properties (United Arab Emirates, Financials, 4.0% (2012: nil)
www.emaar.com) is currently the Persian Gulf region's largest land and real
estate developer. Emaar's activities include property investment and
development, property management services, education, health care, retail and
hospitality sectors, as well as investing in financial service providers.
Doha Bank (Qatar, Financials, 3.9% (2012: 1.4%) www.dohabank.com.qa) Doha Bank
is the largest private commercial bank in Qatar. Doha Bank provides banking
services to individuals and commercial, corporate and institutional clients
through an extensive banking network and multiple access channels.
Halyk Savings Bank (Kazakhstan, Financials, 3.3% (2012: 3.2%) www.halykbank.kz)
is one of Kazakhstan's leading financial services groups and a leading retail
bank with the largest customer base and distribution network in Kazakhstan.
Halyk's branch network consists of 566 outlets across the country, with 1,913
ATMs.
Abdullah Al Othaim^ (Saudi Arabia, Consumer Staples, 3.1% (2012: 2.0%)
www.othaimmarkets.com) operates supermarkets across Saudi Arabia. The company
has opened 108 branches across hypermarket, supermarket and express formats. In
2012, 40 million customers visited Al Othaim stores.
Dragon Oil (Turkmenistan, Energy, 3.0% (2012: nil) www.dragonoil.com) is a
leading independent international oil and gas exploration, development and
production company. Its principal asset is the Cheleken Contract Area, in the
eastern section of the Caspian Sea, offshore Turkmenistan. Dragon Oil had oil
and gas reserves and resources as at 31 December 2012 of 677 million barrels of
2P oil and condensate reserves, 1.5 trillion cubic feet of gas reserves, 59
million barrels of oil and condensate contingent resources and 1.4 trillion
cubic feet of gas resources.
Qatar Gas Transportation (Qatar, Energy, 3.0% (2012: nil) www.qatargas.com) is
a shipping company which owns, operates and manages LNG vessels and provides
shipping and marine-related services to a range of participants within the
Qatari hydrocarbon sector. The company is an integral component of the supply
chain of some of the largest, most advanced energy projects in the world.
Qatar National Bank (Qatar, Financials, 3.0% (2012: nil) www.qnb.com.qa) has
steadily grown to be among the largest banks in the Middle East and North
Africa Region with US$104.4 billion of assets. The bank is the leading
financial institution in Qatar with a market share approaching 45% of banking
sector assets.
Square Pharmaceuticals^^ (Bangladesh, Health Care, 3.0% (2012: nil)
www.squarepharma.com.bd) is the largest pharmaceutical company in Bangladesh.
The company generates revenue of US$163 million with a market share of 16%.
Mobile Telecommunications (Kuwait, Telecommunication Services 2.8% (2012: Nil)
also known as Zain, Mobile Telecommunications Kuwait has a commercial presence
in 8 countries across the Middle East and North Africa with over 44 million
subscribers. The Company enjoys a 40% market share in its home market, Kuwait.
* Gross market exposure as a % of net assets. Percentages in brackets represent
the portfolio holding at 30 September 2012.
** Includes exposure gained via both contracts for difference and equity
holdings.
^ Includes exposure gained via P-Notes.
^^ Denotes exposure gained via a contract for difference.
Portfolio Analysis
Country Allocation: Absolute Weights (% of Gross Assets)
Saudi Arabia 12.0
Nigeria 11.4
United Arab Emirates 11.3
Qatar 11.2
Bangladesh 6.5
Kazakhstan 5.8
Kuwait 5.0
Iraq 4.6
Ukraine 3.6
Oman 3.5
Vietnam 3.5
Pakistan 3.4
Sri Lanka 3.1
Turkmenistan 3.0
Slovenia 2.2
Panama 2.2
Pan Africa 2.1
Kyrgyzstan 1.4
Croatia 1.4
Other 1.6
----
98.8
====
Short positions -1.4
Source: BlackRock.
Country Allocation Relative to the MSCI Frontiers Index (%)*
Saudi Arabia 12.0
Bangladesh 5.1
Iraq 4.6
Ukraine 3.5
Turkmenistan 3.0
Kazakhstan 2.8
Panama 2.2
Pan Africa 2.1
Vietnam 1.8
Sri Lanka 1.8
Kyrgyzstan 1.4
Slovenia 0.4
Oman 0.2
Bulgaria -0.1
Lithuania -0.1
Estonia -0.1
Serbia -0.2
Croatia -0.2
Pakistan -0.6
Tunisia -0.6
Jordan -0.6
Bahrain -0.7
Romania -1.0
Mauritius -1.0
Short positions -1.4
Lebanon -1.9
Nigeria -2.9
United Arab Emirates -2.9
Argentina -3.0
Kenya -3.4
Qatar -4.5
Kuwait -18.1
Source: BlackRock.
* Based on portfolio gross market exposure as a percentage of gross assets,
compared to the MSCI Frontier Markets Index - Net Return.
Net return indices calculate the reinvestment of dividends net of withholding
taxes using the rates applicable to non-resident institutional investors.
Sector Allocation: Absolute Weights (% of Gross Assets)
Financials 32.4
Consumer Staples 14.8
Energy 13.1
Telecommunications 11.8
Health Care 9.4
Industrials 7.8
Materials 5.8
Consumer Discretionary 2.2
Utilities 1.5
----
98.8
====
Short positions -1.4
Source: BlackRock.
Sector Allocation Relative to the MSCI Frontiers Index (%)*
Health Care 7.4
Energy 5.9
Consumer Staples 5.9
Materials 2.4
Consumer Discretionary 2.1
Utilities 0.2
Short positions -1.4
Telecommunications -2.0
Industrials -2.2
Financials -20.9
Source: BlackRock.
* Based on portfolio gross market exposure as a percentage of gross assets,
compared to the MSCI Frontier Markets Index - Net Return.
Net return indices calculate the reinvestment of dividends net of withholding
taxes using the rates applicable to non-resident institutional investors.
Investments
as at 30 September 2013
Fair Gross
value market
Principal and exposure
country market as a %
of exposure* of net
Company operation Sector US$'000 assets***
Equity portfolio
Air Arabia United Arab Industrials 5,170 2.0
Emirates
Avangardco Ukraine Consumer Staples 3,314 1.3
Banco Macro Argentina Financials 2,203 0.9
BankMuscat Oman Financials 3,924 1.5
Cable & Wireless Panama Telecommunications 5,635 2.2
Centerra Gold Kyrgyzstan Materials 3,541 1.4
Distilleries Co of Sri Lanka Consumer Staples 911 0.4
Sri Lanka
DNO International Iraq Energy 4,822 1.9
Doha Bank Qatar Financials 10,066 3.9
Dragon Oil Turkmenistan Energy 7,782 3.0
Emaar Properties United Arab Financials 10,316 4.0
Emirates
First Gulf Bank United Arab Financials 3,854 1.5
Emirates
Gulf Keystone Iraq Energy 2,565 1.0
Petroleum
Halyk Savings Bank Kazakhstan Financials 8,433 3.3
Hatton National Bank Sri Lanka Financials 1,704 0.7
Hrvatski Croatia Telecommunications 3,510 1.4
Telekomunikacije
Kazmunaigas Exploration Kazakhstan Energy 6,257 2.4
Production
Kenya Airways Kenya Industrials 974 0.4
KRKA Slovenia Health Care 5,591 2.2
Kuwait Foods Kuwait Consumer 5,575 2.2
(Americana) Discretionary
MHP Ukraine Consumer Staples 5,755 2.3
Mobile Kuwait Telecommunications 3,097 1.2
Telecommunications
NMC Health United Arab Health Care 6,300 2.5
Emirates
Nova Kreditna Banka Slovenia Financials 133 0.1
Maribor
Omantel Oman Telecommunications 5,083 2.0
Ooredoo Qatar Telecommunications 3,364 1.3
Qatar Gas Transportation Qatar Energy 7,628 3.0
Qatar National Bank Qatar Financials 7,661 3.0
Shikun & Binui Pan Africa Industrials 5,484 2.1
Tallink Estonia Industrials 708 0.3
Zenith Bank Nigeria Financials 4,437 1.7
------- -----
Equity Investments 145,797 57.1
------- -----
BlackRock's Institutional
Cash Fund 2,642 1.0
------- -----
Total Equity Investments 148,439 58.1
------- -----
P-Notes
Abdullah Al Othaim Saudi Arabia Consumer Staples 6,845 2.7
Markets P-Note 13/08/14
Abdullah Al Othaim Saudi Arabia Consumer Staples 914 0.4
Markets P-Note 03/09/15
Al Mouwasat Medical Saudi Arabia Health Care 4,391 1.7
P-Note 13/04/15
Etihad Etisalat P-Note 05 Saudi Arabia Telecommunications 5,400 2.1
/12/14
Saudi Arabian Amiantit Saudi Arabia Industrials 2,903 1.1
P-Note 11/05/15
Saudi Basic Industries Saudi Arabia Materials 5,646 2.2
P-Note 23/02/15
United International Saudi Arabia Industrials 4,556 1.8
Transportation P-Note
23/02/15
------- -----
Total P-Notes 30,655 12.0
------- -----
Total investments
excluding CFDs 179,094 70.1
======= =====
Gross
market
Principal Gross exposure
country Fair market as a %
of value* exposure** of net
Company operation Sector US$'000 US$'000 assets***
CFD Portfolio
Long positions:
Access Bank Nigeria Financials 5,296 2.1
British American Bangladesh Consumer Staples 4,832 1.9
Tobacco
Distilleries Co of Sri Sri Lanka Consumer Staples 1,535 0.6
Lanka
Engro Pakistan Materials 2,530 1.0
FBN Holdings Nigeria Financials 4,904 1.9
First Gulf Bank United Arab Financials 3,212 1.3
Emirates
Guinness Nigeria Nigeria Consumer Staples 2,707 1.1
Gulf Keystone Iraq Energy 4,376 1.7
Petroleum
Hatton National Bank Sri Lanka Financials 3,693 1.4
Hub Power Pakistan Utilities 3,914 1.5
Intercontinental Wapic Nigeria Financials 86 0.0
Insurance
Kinh Do Vietnam Consumer Staples 5,773 2.3
Marico Bangladesh Bangladesh Consumer Staples 1,002 0.4
MCB Bank Pakistan Financials 2,286 0.9
Mobile Kuwait Telecommunications 4,145 1.6
Telecommunications
Petrovietnam Vietnam Materials 3,178 1.3
Fertilizer & Chemicals
Square Pharmaceuticals Bangladesh Health Care 7,694 3.0
Unilever Nigeria Nigeria Consumer Staples 4,231 1.7
United Commercial Bank Bangladesh Financials 3,126 1.2
Zenith Bank Nigeria Financials 7,434 2.9
------- ------- -----
Total long CFD
positions 1,460 75,954 29.8
------- ------- -----
Total short CFD
positions 140 (3,591) (1.4)
------- ------- -----
Total CFD portfolio 1,600 72,363 28.4
------- ------- -----
Equity investments
(excluding BlackRock's
Institutional Cash
Fund) and P-Notes 176,452 176,452 69.1
------- ------- -----
BlackRock
Institutional Cash
Fund**** 2,642 2,642 1.0
------- ------- -----
Total investments 180,694 251,457 98.5
------- ------- -----
Cash and cash
equivalents**** 89,920 19,157 7.5
------- ------- -----
Net current
liabilities (15,381) (15,381) (6.0)
------- ------- -----
Net assets 255,233 255,233 100.0
======= ======= =====
* Fair value is determined as follows:
- Listed and AIM quoted investments are valued at bid prices where available,
otherwise at published price quotations.
- The sum of the fair value column for the CFD contracts totalling US$1,600,000
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$74,494,000 at the
time of purchase, and subsequent market rises in prices have resulted in
unrealised gains on the CFD contracts of US$1,460,000, resulting in the value
of the total market exposure to the underlying securities rising to
US$75,954,000 as at 30 September 2013. The cost of acquiring the securities to
which exposure was gained via the short CFD positions would have been
US$3,731,000 at the time of entering into the contract, and subsequent price
falls have resulted in unrealised gains on the short CFD positions of
US$140,000 and the value of the market exposure of these investments decreasing
to US$3,591,000 at 30 September 2013. If the short position had been closed on
30 September 2013 this would have resulted in a gain of US$140,000 for the
Company.
- P-Notes are valued based on the quoted bid price of the underlying equity
security to which they relate.
** Market exposure in the case of equity and P-Note 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.
*** % based on the total market exposure.
**** The gross market exposure column for cash and cash fund investments has
been adjusted to assume the Company purchased direct holdings rather than
exposure being gained through CFDs.
Principal risks
Extract from Strategic Report:
The key risks faced by the Company are set out below. The Board regularly
reviews and agrees policies for managing each risk, as summarised below:
Performance risk - The Board is responsible for deciding the investment policy
to fulfil the Company's objectives and for monitoring the performance of the
Company's investment manager ("Investment Manager") and the strategy adopted.
An inappropriate policy or strategy may lead to poor performance, dissatisfied
Shareholders and a widening discount. The Company's investment policy permits
the use of both exchange-traded and over-the-counter derivatives (including
contracts for difference). To manage these risks the Board regularly reviews
the Company's investment mandate and long-term strategy, and has put in place
appropriate limits over levels of gearing and the use of derivatives. Levels of
portfolio exposure through derivatives, including the extent to which the
portfolio is geared in this manner and the value of any short positions, are
reported regularly to the Board and monitored. The Board also 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 these are within set limits. The Investment Manager provides an
explanation of significant stock selection decisions, the rationale for the
composition of the investment portfolio and movements in the level of gearing.
The Board 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 Board monitors this risk through the receipt of detailed income forecasts
and considers the level of income at each meeting.
Regulatory risk - The Company 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. The Investment Manager monitors investment movements, the level
and type 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. The Board and the Investment Manager also monitor
changes in government policy and legislation which may have an impact on the
Company.
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 the
Investment Manager and the Company's other service providers. The security, for
example, of the Company's assets, dealing procedures, accounting records and
maintenance of regulatory and legal requirements, depend on the effective
operation of these systems. These have been regularly tested and monitored and
an internal controls report, which includes an assessment of risks together
with procedures to mitigate such risks, is prepared by the Investment Manager
and reviewed by the Audit Committee at least twice a year. The Investment
Manager and the custodian Bank of New York Mellon (International) Limited
("BNYM") also produce a regular Service Organisation Control report (SOC 1)
which is reviewed by their reporting accountants and gives assurance regarding
the effective operation of controls. The Board also considers succession
arrangements for key employees of the Investment Manager and the business
continuity arrangements for the Company's key service providers.
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 Frontier Markets 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 increase the price at which such investments may be
made and reduce potential investment returns for the Company. There is also
exposure to currency 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 Frontier Markets 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 are less rigorous than in developed markets. As a result
there may be less information available publicly to investors in such
securities. Such information which is available is often less reliable.
The Company also gains exposure to Frontier Markets by investing indirectly
through Promissory Notes ("P-Notes") which presents additional risk to the
Company as the use of P-Notes is 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. The Board 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. The Board monitors the implementation and results
of the investment process with the Investment Manager.
Political Risk - Investments in Frontier Markets may include a higher element
of risk compared to more developed markets due to greater political
instability. Political and diplomatic events in Frontier Markets where the
Company invests (for example, governmental instability, corruption, adverse
changes in legislation or other diplomatic developments such as the outbreak of
war) could substantially and adversely affect the economies of such countries
or the value of the Company's investments in those countries.
The Investment Manager recognises this in applying stringent controls over where
investments are made and close monitoring of political risks in reaching this
assessment. 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, and 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 risks - The Company's investment activities expose it to a variety of
financial risks which include foreign currency risk and interest rate risk.
Further details are disclosed in note 16 to the financial statements, together
with a summary of the policies for managing these risks.
Related party transactions
BlackRock Investment Management (UK) Limited, the Manager, is considered to be
a related party of the Company in terms of the IFRS definitions. Transactions
and relationship details are set out in the Director's Report.
The investment management fee for the year was US$1,780,000 (2012: US$1,347,000),
as disclosed in note 4 to the Financial Statements. In addition a performance fee
was payable of US$1,624,000 (2012: US$689,000). At the year end, an amount of
US$2,240,000 was outstanding in respect of these fees (2012: US$1,360,000).
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 years ended 30 September 2013 and
2012, the Chairman received an annual fee of £28,000, the Chairman of the Audit
Committee receives an annual fee of £23,000 and each of the other Directors
received an annual fee of £20,000. With effect from 1 October 2013, the
remuneration of the Chairman increased to £33,000, the Chairman of the Audit &
Management Engagement Committee increased to £27,000, and the other Directors
to £23,000. As at 30 September 2013, an amount of £9,250 was payable to
Directors in respect of their annual fees (2012: £9,250).
All five members of the Board hold ordinary shares in the Company. Audley
Twiston-Davies holds 128,935 ordinary shares, John Murray holds 121,967
ordinary shares, Nick Pitts-Tucker holds 110,148 ordinary shares, Lynn Ruddick
holds 47,967 ordinary shares (which includes a related party holding of 9,665
shares held through an ISA by her husband, Mr Dewar) and Sarmad Zok holds 38,787
ordinary shares.
Statement of Directors' Responsibilities
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 and the Corporate Governance Statement in accordance
with the Companies Act 2006 and applicable regulations, including the
requirements of the Listing Rules and the Disclosure and Transparency
Rules. The Directors have delegated responsibility to the Investment Manager
for the maintenance and integrity of the Company’s corporate and financial
information included on the Investment Manager’s website. Legislation in
the United Kingdom governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Each of the Directors, whose names are listed on page 13 of the Annual Report,
confirm 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 Annual Report includes a fair review of the development and performance
of the business and the position of the Company, together with a description
of the principal risks and uncertainties that it faces.
The 2012 UK Corporate Governance Code also requires Directors to ensure that
the Annual Report and Accounts 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 Accounts fulfils these requirements. The process by which
the Committee has reached these conclusions is set out in the Audit &
Management Engagement Committee’s report on pages 31 to 33 of the Annual Report.
As a result, the Board has concluded that the Annual Report for the year ended
30 September 2013, taken as a whole, is fair, balanced and understandable and
provides the information necessary for shareholders to assess the Company’s
performance, business model and strategy.
For and on behalf of the Board
Audley Twiston-Davies
Chairman
26 November 2013
Statement of Comprehensive Income
for the year ended 30 September 2013
Revenue Revenue Capital Capital Total Total
2013 2012 2013 2012 2013 2012
Notes US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Profits on
investments held at
fair value through
profit or loss 9 - - 18,174 3,973 18,174 3,973
Losses on foreign
exchange - - (76) (76) (76) (76)
Net profits from
contracts for
difference 3 2,131 2,109 18,618 10,203 20,749 12,312
Loss on credit
default swap - - - (4) - (4)
Income from
investments held at
fair value through
profit or loss 3 5,564 3,306 - - 5,564 3,306
Other income 3 55 28 - - 55 28
----- ----- ------ ------ ------ ------
Total revenue 7,750 5,443 36,716 14,096 44,466 19,539
----- ----- ------ ------ ------ ------
Expenses
Investment
management and
performance fees 4 (355) (269) (3,049) (1,767) (3,404) (2,036)
Other expenses 5 (762) (556) (57) (86) (819) (642)
----- ----- ------ ------ ------ ------
Total operating
expenses (1,117) (825) (3,106) (1,853) (4,223) (2,678)
----- ----- ------ ------ ------ ------
Net profit on
ordinary activities
before finance costs
and taxation 6,633 4,618 33,610 12,243 40,243 16,861
Finance costs (2) (1) (8) (3) (10) (4)
----- ----- ------ ------ ------ ------
Net profit on
ordinary activities
before taxation 6,631 4,617 33,602 12,240 40,233 16,857
Taxation (763) (698) 400 454 (363) (244)
----- ----- ------ ------ ------ ------
Net profit on
ordinary activities
after taxation 5,868 3,919 34,002 12,694 39,870 16,613
===== ===== ====== ====== ====== ======
Earnings per
ordinary share
(cents) 7 6.13 4.14 35.54 13.39 41.67 17.53
===== ===== ====== ====== ====== ======
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. 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.
The Company does not have any other recognised gains or losses. The net profit
for the year disclosed above represents the Company's total comprehensive
income.
Statement of Changes in Equity
Called
up Share Capital
share premium redemption Special Capital Revenue
capital account reserve reserve reserves reserve Total
Notes US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
For the year ended
30 September 2013
At 30 September 2012 948 - - 142,704 (18,652) 3,262 128,262
Total
Comprehensive
Income:
Net profit for the
year - - - - 34,002 5,868 39,870
Transaction with
owners, recorded
directly to
equity:
Share issues -
C share 6,356 90,013 - - - - 96,369
Share issue costs - (1,687) - - - - (1,687)
Share conversion -
C share to
ordinary shares (5,798) - 5,798 - - - -
Dividend paid* 6 - - - - - (7,581) (7,581)
----- ------ ----- ------- ------ ----- -------
At 30 September 2013 1,506 88,326 5,798 142,704 15,350 1,549 255,233
----- ------ ----- ------- ------ ----- -------
For the year ended
30 September 2012
At 30 September 2011 948 - - 142,704 (31,346) 3,323 115,629
Total
Comprehensive
Income:
Net profit for the
year - - - - 12,694 3,919 16,613
Transaction with
owners, recorded
directly to
equity:
Dividend paid* 6 - - - - - (3,980) (3,980)
----- ------ ----- ------- ------ ----- -------
At 30 September 2012 948 - - 142,704 (18,652) 3,262 128,262
----- ------ ----- ------- ------ ----- -------
* Final dividend paid in respect of the year ended 30 September 2012 of 2.60
cents per share, declared 30 November 2012 and paid on 8 March 2013, interim
dividend of 2.00 cents per share and special dividend of 3.40 cents per share
paid in respect of the year ended 30 September 2013, declared 30 May 2013 and
paid on 5 July 2013.
Statement of Financial Position
as at 30 September 2013
30 30
September September
2013 2012
Notes US$'000 US$'000
Non current assets
Investments designated as held at fair value
through profit or loss 179,094 97,767
------- -------
Current assets
Other receivables 1,207 499
Derivative financial assets held at fair value 4,234 5,547
through profit or loss
Cash held on margin deposit with brokers 1,205 231
Cash and cash equivalents 89,920 33,707
------- -------
96,566 39,984
Current liabilities
Other payables (15,054) (2,794)
Net collateral received in respect of contracts
for difference (2,720) (3,948)
Derivative financial liabilities held at fair
value through profit or loss (2,634) (2,728)
------- -------
(20,408) (9,470)
------- -------
Net current assets 76,158 30,514
------- -------
Total assets less current liabilities 255,252 128,281
Creditors: amounts falling due after more than one
year
Management shares of £1.00 each (one quarter paid) (19) (19)
------- -------
Net assets 255,233 128,262
======= =======
Capital and reserves
Ordinary share capital 8 1,506 948
Share premium account 9 88,326 -
Capital redemption reserve 9 5,798 -
Special reserve 9 142,704 142,704
Capital reserves 9 15,350 (18,652)
Revenue reserve 1,549 3,262
------- -------
Total equity 255,233 128,262
======= =======
Net asset value per share (cents) 7 169.45 135.35
======= =======
Cash Flow Statement
for the year ended 30 September 2013
30 30
September September
2013 2012
US$'000 US$'000
Operating activities
Profit before taxation 40,233 16,857
Profits on investments and CFDs held at fair value (37,319) (14,638)
through profit or loss (including transaction costs)
Net movement on foreign exchange 76 76
Sale of investments held at fair value through profit or 170,194 66,508
loss
Purchases of investments held at fair value through (233,347) (68,515)
profit or loss
Realised losses on closure of CFD contracts (1,478) (7,280)
Gains on realisation of CFDs 21,842 6,443
Proceeds of Credit Default Swap - 646
(Increase)/decrease in other receivables (686) 27
Increase in other payables 1,797 179
Decrease in amounts due from brokers 6 361
Increase in amounts due to brokers 10,757 265
Taxation paid (425) (693)
------ ------
Net cash (outflow)/inflow from operating activities
before financial activities (28,350) 236
------ ------
Financing activities
Equity dividends paid (7,581) (3,980)
Proceeds from issue of C shares 94,682 -
Share issue costs paid (260) (1,381)
------ ------
Net cash inflow/(outflow) from financing activities 86,841 (5,361)
------ ------
Increase/(decrease) in cash and cash equivalents 58,491 (5,125)
Effect of foreign exchange rate changes (76) (62)
------ ------
Change in cash and cash equivalents 58,415 (5,187)
Cash and cash equivalents at start of the year 29,990 35,177
------ ------
Cash and cash equivalents at end of the year 88,405 29,990
------ ------
Comprised of:
Cash and cash equivalents 89,920 33,707
Add: Cash held on margin deposit with brokers 1,205 231
Less: Collateral received in respect of contracts for
difference (2,720) (3,948)
------ ------
88,405 29,990
====== ======
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 third 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. The Company's financial
statements are presented in US Dollars, which is 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.
Insofar as the Statement of Recommended Practice ("SORP") for investment trust
companies and venture capital trusts issued by the AIC, revised in January
2009, is compatible with IFRS, the financial statements have been prepared in
accordance with the guidance set out in the SORP.
A number of new standards, amendments to standards and interpretations are
effective for annual periods beginning after 1 January 2013, and have not been
applied in preparing these financial statements. None of these are expected to
have a significant effect on the measurement of the amounts recognised in the
financial statements of the Company. However, IFRS 9 "Financial Instruments"
issued in November 2009 will change the classification of financial assets, but
is not expected to have an impact on the measurement basis of the financial
assets since the majority of the Company's financial assets are measured at
fair value through profit or loss.
IFRS 9 (2009) deals with classification and measurement of financial assets and
its requirements represent a significant change from the existing requirements
in IAS 39 in respect of financial assets. The standard contains two primary
measurement categories for financial assets: at amortised cost and fair value.
A financial asset would be measured at amortised cost if it is held within a
business model whose objective is to hold assets in order to collect
contractual cash flows, and the asset's contractual terms give rise on
specified dates to cash flows that are solely payments of principal and
interest on the principal outstanding. All other financial assets would be
measured at fair value. The standard eliminates the existing IAS 39 categories
of "held to maturity", "available for sale" and "loans and receivables".
The standard has not yet been approved by the EU. Earlier application is
permitted. The company does not plan to early adopt this standard.
IFRS 10 Consolidated Financial Statements (effective 1 January 2014)
establishes a single control model that applies to all entities including
special purpose entities. The changes introduced by IFRS 10 will require
management to exercise significant judgement to determine which entities are
controlled, and therefore are required to be consolidated by a parent.
The Company does not prepare consolidated financial statements hence the
provisions of this statement are not applicable.
IFRS 11 Joint Arrangements (effective 1 January 2014) removes the option to
account for jointly controlled entities (JCEs) using proportionate
consolidation.
This is not applicable to the Company as it holds no interests in joint
arrangements.
IFRS 12 Disclosure of Involvement with Other Entities (effective 1 January
2014) now requires additional disclosures that relate to an entity's interests
in subsidiaries, joint arrangements, associates and structured entities.
This is not applicable to the Company as it does not prepare consolidated
financial statements.
IFRS 13 Fair Value measurement (effective 1 January 2013) establishes a single
source of guidance under IFRS for all fair value measurements. It does not
change when an entity is required to use fair value, but rather provides
guidance on how to measure fair value under IFRS when fair value is required or
permitted.
The Company has assessed the impact of this standard on the financial position
and performance and concluded it is unlikely to result in changes to the fair
value measurement techniques currently in place.
(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. In accordance with the Company's Articles, net capital returns may not
be distributed by way of dividend.
(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 period end are treated as revenue for the period.
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 particular case. The return on a debt
security is recognised on a time apportionment basis so as to reflect the
effective yield on the debt security.
Interest income and expenses are accounted for on an accruals basis.
(e) Expenses
All expenses, including finance costs, are accounted for on an accruals basis.
Expenses have been charged wholly to the revenue column of the Statement of
Comprehensive Income, except as follows:
- expenses which are incidental to the acquisition of an investment are
included within the cost of the investment. Details of transaction costs on the
purchases and sales of investments are disclosed within note 9 to the 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 fees and finance costs of borrowing borne by the
Company 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
expectations of the long-term split of returns, in the form of capital gains
and income, respectively, from the investment portfolio;
- 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
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 tax 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 classified 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 initially recognised as held at fair value through profit
or loss. Purchases of investments are recognised on a trade date basis. The
sale of investments are recognised at the trade date of the disposal. Proceeds
are measured at fair value, which is regarded as the proceeds of sale less any
transaction costs.
The fair value of the financial investments is based on their quoted bid price,
or as otherwise stated 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 a Promissory Note is
based on the quoted bid price of the underlying equity to which it relates.
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 "Gains 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.
Fair values for unquoted investments, or investments for which the market is
inactive, are established by using various valuation techniques. These may
include recent arm's length market transactions or the current fair value of
another instrument which is substantially the same. Where no reliable fair
value can be estimated for such instruments, they are carried at cost subject
to any provision for impairment. The Company held no unquoted investments at
30 September 2013.
(h) Derivatives
Derivatives 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 the Company is exposed to through
contracts for difference ("CFDs"). Credit Default Swaps are valued based on
broker price quotes received daily. Gains and losses on derivative transactions
are recognised in the Statement of Comprehensive Income. They are recognised as
capital and are shown in the capital column of the Statement of Comprehensive
Income if they are of a capital nature and are recognised as revenue and shown
in the revenue column of the Statement of Comprehensive Income if they are of a
revenue nature. To the extent that any gains 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 interim dividends are recognised when paid to shareholders. Final
dividends, if any, are only recognised after they have been approved by
shareholders.
(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 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.
(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.
(m) Bank borrowings
Bank overdrafts are recorded as the proceeds received. Finance charges are
accounted for on an accruals basis in the Statement of Comprehensive Income
using the effective interest rate method and are added to the carrying amount
of the instruments to the extent that they are not settled in the period in
which they arise.
3. Income
2013 2012
US$'000 US$'000
Investment Income:
UK listed dividends 195 56
Overseas listed dividends 5,369 3,250
----- -----
5,564 3,306
Income from contracts for difference 2,131 2,109
----- -----
7,695 5,415
Interest receivable and other income:
Deposit interest 55 28
----- -----
Total income 7,750 5,443
===== =====
4. Investment management and performance fees
2013 2012
Revenue Capital Total Revenue Capital Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Investment management fee 355 1,425 1,780 269 1,078 1,347
Performance fees - 1,624 1,624 - 689 689
--- ----- ----- --- ----- -----
Total 355 3,049 3,404 269 1,767 2,036
=== ===== ===== === ===== =====
An investment management fee equivalent to 1.10% per annum of the Company's
gross assets is payable to the Investment Manager. In addition, the Investment
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 cumulative NAV since launch increased in line
with the MSCI Frontiers Markets Index ("the Reference Index"). 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.
For the year to 30 September 2013, the Company's NAV had outperformed the MSCI
Frontiers Markets Index by 9.8% on a US dollar basis and a performance fee of
US$1,624,000 (2012: US$689,000) has been accrued at 30 September 2013.
5. Operating expenses
2013 2012
US$'000 US$'000
Custody fee 176 138
Auditors' remuneration:
- audit services 44 45
- other non-audit services* 10 10
Registrar's fee 49 29
Directors' emoluments 174 188
Other administration costs 309 146
--- ---
762 556
=== ===
The Company's ongoing charges, calculated as a percentage of average net assets
and using expenses, excluding performance fees and interest costs were 1.6%
(2012: 1.6%).
Fees for non audit services of US$9,700 (2012: US$10,000) relate to the review
of the interim financial statements In addition the auditors performed work in
respect of the Company's C share issue for fees of £15,000 (US$24,300) (all VAT
exclusive). The fees in respect C share issue were charged to the C share
holders as part of the issuance costs and were not debited to the Company's
Income Statement.
For the year ended 30 September 2013, expenses of US$57,000 (2012: US$86,000)
were charged to the capital column of the Statement of Comprehensive Income,
these relate to US$33,000 (2012: US$29,000) of transaction costs and US$24,000
of fees in relation to investing in new markets (2012: US$57,000).
6. Dividends
2013 2012
Record date Payment date US$'000 US$'000
Dividends paid on equity shares:
2012 final of 2.60 cents 01 February 2013 08 March 2013 2,464 2,843
2013 interim of 2.00 cents 07 June 2013 05 July 2013 1,895 1,137
2013 special dividend of 3.40 cents 07 June 2013 05 July 2013 3,222 -
----- -----
7,581 3,980
===== =====
The Directors have not proposed a final dividend for the year (2012: 2.60
cents).
The total dividends payable in respect of the year ended 30 September 2013
which form the basis of section 1158 of the Corporation Tax Act 2010 and
section 833 of the Companies Act 2006, and the amounts proposed, meet the
relevant requirements as set out in this legislation.
2013 2012
US$'000 US$'000
Dividends on equity shares:
----- -----
Interim paid 2.00 cents (2012: 1.20) 1,895 1,137
Special paid 3.40 cents (2012: nil cents) 3,222 -
Proposed final ordinary dividend of nil cents (2012: 2.60
cents*) - 2,464
----- -----
5,117 3,601
----- -----
* The dividend payments are based on 94,766,267 ordinary
shares.
7. Earnings and net asset value per ordinary share
2013 2012
Net revenue profit attributable to ordinary shareholders
(US$'000) 5,868 3,919
Net capital profit attributable to ordinary shareholders
(US$'000) 34,002 12,694
------- -------
Total profit attributable to ordinary shareholders
(US$'000) 39,870 16,613
------- -------
Total equity attributable to shareholders (US$'000) 255,233 128,262
----------- ----------
The weighted average number of ordinary shares in issue
during the period on which the earnings per ordinary
share was calculated was: 95,684,437 94,766,267
----------- ----------
The actual number of ordinary shares in issue at the
end of the period on which the net asset value per
ordinary share was calculated was: 150,621,621 94,766,267
----------- ----------
Revenue earnings per share - (cents) 6.13 4.14
Capital earnings per share - (cents) 35.54 13.39
------ ------
Total earnings per share - (cents) 41.67 17.53
------ ------
Net asset value per share basic and diluted - (cents) 169.45 135.35
------ ------
Share price* - (cents) 178.13 130.40
====== ======
Net asset value per share basic and diluted - (pence) 104.64 83.82
------ ------
Share price (pence) 110.00 80.75
------ ------
* The Company's share price is quoted in sterling and the above represents the
US dollar equivalent.
Basic and diluted earnings per share and net asset value per share are the same
as the Company does not have any dilutive securities outstanding.
8. Called up share capital
Number Number
of of
ordinary C
shares shares Nominal
in in value
issue issue US$'000
Allotted, called up and fully paid share
capital comprised:
Ordinary shares of 1 cent each and C shares of
10 cents each
----------- ---------- -----
At 30 September 2012 94,766,267 - 948
----------- ---------- -----
C shares issued - 63,566,000 6,356
----------- ---------- -----
Conversion of C shares into ordinary shares 55,855,354 (63,566,000) (5,798)
----------- ---------- -----
At 30 September 2013 150,621,621 - 1,506
=========== ========== =====
On 31 July 2013 the Company issued 63,566,000 C shares with nominal value of
10 cents each. On 25 September 2013 the C shares were converted into Ordinary
shares. The conversion ratio, which has been calculated by reference to the
total assets of the Company and the net assets of the Company's attributable to
C shareholders as at the close of business on 18 September 2013 was 0.8787.
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
13 to the Financial Statements.
The new ordinary shares arising on conversion rank pari passu with, and have
the same rights as, the ordinary shares of the Company already in issue.
9. Share premium and reserves
Capital
reserve
Capital arising
reserve on
arising revaluation
Share Capital on of
premium redemption Special investments investments Revenue
account reserve reserve sold held reserve
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
At 30 September 2012 - - 142,704 (7,657) (10,995) 3,262
Movement during the
period:
Total Comprehensive
Income:
Issue of C shares 88,326 - - - - -
Conversion of C shares - 5,798 - - - -
into ordinary shares
Loss on realisation of - - - (2,672) - -
investments
Changes in investment - - - - 20,846 -
holding gains
Losses on foreign - - - (76) - -
currency transactions
Gains/(losses) on - - - 19,837 (1,219) -
contracts for
differences
Realised loss on - - - - - -
credit default swaps
Finance costs and - - - (2,714) - -
investment management
fee charged to capital
after taxation
Revenue return for the - - - - - 5,868
year
Dividends paid - - - - - (7,581)
------ ----- ------- ------ ------ ------
At 30 September 2013 88,326 5,798 142,704 6,718 8,632 1,549
====== ===== ======= ====== ====== ======
On 18 October 2013 the Company applied for the share premium account arising on
the issue of C Shares to be cancelled and the balance transferred to the
special reserve. This was completed on 6 November 2013.
10. Related party disclosure
BlackRock Investment Management (UK) Limited, the manager, is considered to be
a related party of the Company under the UK Listing Rules definitions.
Transactions and relationship details are set out in the Director's Report.
The investment management fee for the year was US$1,780,000 (2012:
US$1,347,000). In addition a performance fee was payable of US$1,624,000
(2012: US$689,000). At the year end, an amount of US$2,240,000 was outstanding
in respect of these fees (2012: US$1,360,000).
The Board consists of five non-executive Directors, all of whom are considered
to be independent of the Investment Manager by the Board. None of the Directors
has a service contract with the Company. For the years ended 30 September 2013
and 2012, the Chairman received an annual fee of £28,000, the Chairman of the
Audit & Management Engagement Committee receives an annual fee of £23,000 and
each of the other Directors received an annual fee of £20,000. With effect from
1 October 2013, the remuneration of the Chairman increased to £33,000, the
Chairman of the Audit & Management Engagement Committee increased to £27,000,
and the other Directors to £23,000. As at 30 September 2013, an amount of £
9,250 was payable to Directors in respect of their annual fees (2012: £9,250).
At 30 September 2013, the Directors' interests in the Company's Ordinary
Shares, were as follows:
2013 2012
Audley Twiston-Davies (Chairman) 128,935 85,000
Lynn Ruddick* 47,967 26,000
John Murray 121,967 100,000
Nick Pitts-Tucker 110,148 75,000
Sarmad Zok 38,787 30,000
*Chairman of the Audit & Management Engagement Committee. Ms Ruddick's holding
includes a related party holding of 9,665 shares held through an ISA by her
husband, Mr Dewar.
The Company has an investment in the BlackRock Institutional Cash Fund of
US$2,642,000 (2012: US$14,590,000) at the year end.
11. Publication of non statutory accounts
The financial information contained in this announcement does not constitute
statutory accounts as defined in the Companies Act 2006. The 2013 annual report
and financial statements will be filed with the Registrar of Companies shortly.
The report of the Auditor for the period ended 30 September 2013 contains no
qualification or statement under section 498(2) or (3) of the Companies Act
2006.
This announcement was approved by the Board of Directors on 26 November 2013.
12. 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.
13. Annual General Meeting
The Annual General Meeting of the Company will be held at 12 Throgmorton
Avenue, London EC2N 2DL on Monday, 3 February 2014 at 12.00 noon.
ENDS
The Annual Report will also be available on the BlackRock Investment Management
website at http://www.blackrock.co.uk/individual/literature/annual-report/
blackrock-frontiers-investment-trust-plc-annual-report-2013.pdf. Neither the
contents of the Investment Manager's website nor the contents of any website
accessible from hyperlinks on the Investment Manager's website (or any other
website) is incorporated into, or forms part of, this announcement.
For further information, please contact:
Simon White, Managing Director, Investment Companies, BlackRock Investment
Management (UK) Limited
Tel: 020 7743 5284
Henrietta Guthrie, Lansons Communications
Tel: 020 7294 3612
26 November 2013
12 Throgmorton Avenue
London EC2N 2DL