Final Results
BlackRock Latin American Investment Trust plc
Annual results announcement for the year
ended 31 December 2014
Overview
Performance record
Financial Highlights
Attributable to ordinary shareholders As at As at Change
31 December 2014 31 December 2013 %
Assets
Net assets (US$'000)* 276,423 315,345 -12.3
Net asset value per ordinary share
(US$ cents) 702.12 800.99 -12.3
- with income reinvested -9.3
Ordinary share price (mid-market)
(US$ cents)** 624.50 719.25 -13.2
- with income reinvested -9.6
Ordinary share price (mid-market)
(pence) 400.50 434.25 -7.8
- with income reinvested -4.0
* The change in net assets reflects market movements.
** Based on an exchange rate of 1.5593 (2013: 1.6563).
Year ended Year ended Change
31 December 2014 31 December 2013 %
Revenue
Net revenue after taxation (US$'000) 12,384 9,905 25.0
Revenue return per ordinary
share (US$ cents) 31.46 24.83 26.7
Dividends
Interim dividend per ordinary
share (US$ cents) 15.00 15.00 -
Final dividend per ordinary
share (US$ cents) 15.00 15.00 -
----- ----- -----
Total dividends per ordinary
share (US$ cents) 30.00 30.00 -
===== ===== =====
Ten year record
Net Net asset Total
assets value per expense
attributable ordinary share ratio/
to ordinary - debt at fair Ordinary Premium/ Return per Dividends per Effective ongoing
Year ended shareholders value (1) share (discount) ordinary ordinary gearing (2) charges (3)
31 December US$'000 cents price cents % share cents share cents % %
2005 403,252 544.0 484.0 (11.0) 10.98 9.00 (1.1) 1.6
2006 374,206 783.0 758.4 (3.1) 8.81 9.00 0.6 1.5
2007 533,281 1,115.9 1,082.9 (3.0) 12.47 9.50 0.4 1.2
2008 220,064 464.4 424.1 (8.7) 15.31 12.00 4.5 1.0
2009 443,410 1,011.5 1,037.5 2.6 18.57 15.00 8.5 1.4
2010 524,501 1,196.4 1,200.1 0.3 28.62 24.00 11.8 1.2
2011 391,550 893.1 836.9 (6.3) 35.39 30.00 9.4 1.3
2012 399,713 964.7 861.5 (10.7) 26.50 30.00 8.8 1.2
2013 315,345 801.0(4) 719.3 (10.2) 24.83 30.00 2.0(4) 1.1
2014 276,423 702.1 624.5 (11.1) 31.46 30.00 (2.4) 1.2
1. In accordance with accounting policy 2(k).
2. Effective gearing is redeemable shares, loans, convertible bonds at par
value (from 15 September 2009 to 16 October 2013), overdrafts less cash
and fixed interest stocks as a percentage of net assets.
3. Based on average net assets for the year. Effective from 2011, the ongoing
charges ratio is calculated in accordance with the AIC recommended methodology.
4. Convertible bonds were repaid, redeemed or converted in 2013.
Chairman's statement
I am pleased to present the annual report to shareholders for the year ended
31 December 2014.
MARKET OVERVIEW
With the exception of the US, it has been a difficult year for investors in
global equities generally and most markets have failed to generate attractive
returns. Latin American stock markets have been held back by political
uncertainty and a decline in the rate of Chinese economic growth, which has
dampened demand for many of the region's key commodity exports and this in turn
has contributed to lacklustre growth domestically. US Dollar-based investors
have also had to contend with a deterioration in value of most of the region's
principal currencies.
Although the prospect of political change in Brazil briefly improved sentiment
over the summer, the outcome of the Presidential elections and the sharp
sell-off in commodities at the end of the year subsequently undermined investor
confidence.
PERFORMANCE
Over the year ended 31 December 2014 the Company's net asset value (NAV)
returned -9.3% in US Dollar terms (-3.7% in Sterling terms) compared with a
benchmark return of -12.0% (-6.6% in Sterling terms). The share price returned
-9.6% in US Dollar terms (-4.0% in Sterling terms). (All percentages calculated
with income reinvested.) Details of the factors affecting performance are set
out in the Investment Manager's Report.
Since 31 December 2014 and up to the close of business on 20 February 2015, the
Company's NAV has decreased by 2.9% in Sterling terms and by 4.2% in US Dollar
terms. The share price has decreased by 5.2% in Sterling terms and by 6.6% in
US Dollar terms.
CONTRIBUTION TO TOTAL RETURN FOR THE YEAR ENDED 31 DECEMBER 2014
Benchmark return -12.0%
Asset Allocation 0.8%
Stock selection 3.0%
Management fees & operating costs -1.1%
NAV total return -9.3%
Source: BNY Mellon.
BNY Mellon provide Performance Attribution based on a Brinson Fachler daily
transactions-based methodology. This service is in line with GIPS recommendations
but may not be considered to be of audit quality, the analysis is considered
to be useful management information.
REVENUE RETURN AND DIVIDENDS
The revenue return for the year was 31.46 cents per share (2013: 24.83 cents
per share). The Board is pleased to recommend a final dividend of 15.00 cents
per share (2013: 15.00 cents per share) which will be payable on 6 May 2015 to
shareholders on the register as at 27 March 2015. This makes a total dividend
of 30.00 cents per share (2013: 30.00 cents per share) for the year.
ANNUAL GENERAL MEETING
The AGM will be held at 12.00 noon on Thursday, 30 April 2015 at the offices of
BlackRock at 12 Throgmorton Avenue, London EC2N 2DL. We hope that as many
shareholders as possible will attend. Following the AGM there will be a
presentation by Will Landers, the Portfolio Manager, on the outlook for the
year ahead and an opportunity to meet Will and the Directors.
ALTERNATIVE INVESTMENT FUND MANAGERS' DIRECTIVE (AIFMD)
Following a change in regulation, BlackRock Fund Managers Limited (BFM) was
appointed as the Company's Alternative Investment Fund Manager (AIFM or
Manager) on 2 July 2014. The Board has also appointed BNY Mellon Trust &
Depositary (UK) Limited to act as the Company's Depositary (Depositary
or BNYMTD). In complying with its new regulatory obligations, the Board
continues to act independently of the AIFM and the arrangements in respect of
the management fee remain unchanged. BlackRock Investment Management (UK)
Limited (BIM (UK)) continues to act as the Company's Investment Manager under a
delegation agreement with BFM.
OUTLOOK
The unwinding of the commodity boom has severely tested the thesis that Latin
America has managed to escape its historic role as a geared play on global
economic growth, highly dependent on energy and resource exports to sustain
respectable economic growth and viable government finances.
Many of the hoped-for benefits of Mexico's recent reform programme have taken
longer to emerge than initially expected. In Brazil, although there have been some
changes to key ministries, recent corruption investigations seem likely to cloud
the momentum behind much needed structural reforms.
In this context it is worth restating that we do not invest in the most
"problematic" countries in Latin America with extreme populist governments, and
we have not recently held shares in any companies whose operations are
primarily in Argentina.
However, despite this uninspiring backdrop, the region contains many dynamic
and well managed companies capable of generating attractive shareholder
returns, and which are less dependent on the progress of the global
economy overall. Our Manager is focused on assembling a diversified portfolio
of attractive companies which operate in the region, sourced from a wide range
of stock markets. Current valuations are not demanding and offer value to the
long term investor.
Peter Burnell
Chairman
24 February 2015
STRATEGIC REPORT
The Directors present the strategic report of the Company for the year ended
31 December 2014.
OBJECTIVE
The Company's objective is to secure long term capital growth and an attractive
total return primarily through investing in quoted securities in Latin America.
STRATEGY, BUSINESS MODEL AND INVESTMENT POLICY
Our strategy is that the portfolio will be chosen from a spread of companies
which are listed in, or whose main activities are in, Latin America.
As an actively managed fund our aim is to outperform comparable funds and the
benchmark index over the medium to long term and consequently our portfolio and
performance will diverge from the returns obtained simply by investing in the
index.
As a closed-end Company we are able to adopt a longer term investment horizon,
and therefore may, when appropriate have a higher proportion of less liquid mid
and smaller capitalisation companies than comparable open-ended funds.
The portfolio is subject to a number of geographical restrictions relative to
the benchmark index but the Investment Manager is not constrained from
investing outside the index. For Brazil, Mexico, Chile, Argentina, Peru,
Colombia and Venezuela, the portfolio weighting is limited to plus or minus 20
percentage points of the index weighting for each of those countries. For all
other Latin American countries the limit is plus or minus 10 percentage points
of the index weighting. Additionally, the Company may invest in the securities
of quoted companies whose main activities are in Latin America but which are
not established or incorporated in the region or quoted on a local exchange.
As at 31 December 2014, the Company held 62 investments (excluding call options
and outperformance warrants). The Company had 6 unquoted investments. A detailed
analysis of these investments and the sector and geographical allocations are
provided on pages 12 to 16 of the annual report.
The Company's policy is that up to 10% of the gross assets of the portfolio may
be invested in unquoted securities.
The Company will not hold more than 15% of the market capitalisation of any one
company and no more than 15% of the Company's investments will be held in any
one company as at the date any such investment is made.
No more than 15% of the gross assets of the portfolio shall be invested in
other UK listed investment companies (including other investment trusts).
The Company may deal in derivatives (including options, futures and forward
currency transactions) for the purposes of efficient portfolio management (i.e.
for the purpose of reducing, transferring or eliminating investment risk in the
underlying investments of a collective investment undertaking, including any
technique or instrument used to provide protection against exchange and credit
risks). Call options are also used for income generation purposes, no more than
20% of the Company's portfolio by value may be under option at any given time.
The Company may underwrite or sub-underwrite any issue or offer for sale of
investments. No such commitment will be entered into if, at that time, the
aggregate of such investments would exceed 10% of the net asset value of the
Company or any such individual investment would exceed 3% of the net asset
value of the Company.
The Company may, from time to time, use borrowings to gear its investment
portfolio or in order to fund the market purchase of its own ordinary shares.
Under the Company's Articles of Association, the net borrowings of the Company
may not exceed 100% of the Company's adjusted capital and reserves. However,
net borrowings are not expected to exceed 25% of net assets under normal
circumstances. The Investment Manager may also hold cash or cash-equivalent
securities when it considers it to be advantageous to do so.
The Company's financial statements will be maintained in US Dollars. Although
many investments are likely to be denominated and quoted in currencies other
than in US Dollars, the Company does not currently employ a hedging policy
against fluctuations in exchange rates.
No material change will be made to the Company's investment policy without
shareholder approval.
DISCOUNT CONTROL MECHANISM
The Directors recognise that it is in the long term interests of shareholders
that shares do not trade at a significant discount to their prevailing NAV.
A special resolution was passed at the AGM of the Company held on 30 April
2014, granting the Directors authority to make market purchases of the
Company's ordinary shares to be held, sold, transferred or otherwise dealt with
as treasury shares or cancelled upon completion of the purchase.
On 23 August 2013 the Board introduced a new discount control policy, which, in
their view, is better suited to the longer term interests of the Company and its
shareholders. If the biennial continuation vote is approved by shareholders on
each occasion, and if (i) the Company has underperformed the benchmark index on
a US Dollar total return basis by more than 1% per annum over the previous two
financial years and (ii) if the discount to the cum income NAV has on average
exceeded 5% over the same two year period, with effect from the Annual General
Meeting to take place in April 2016, the Board will implement a tender offer
for 24.99% of the ordinary shares in issue (excluding treasury shares). The
tender price will be the cum income NAV (less 2% to cover the costs of the
tender offer).
The Directors continue to monitor the discount at which the ordinary shares
trade to their prevailing NAV and in the year to 31 December 2014, the
cum income discount of the ordinary shares has averaged 10.2% and has ranged
from 6.6% to 13.7%.
PERFORMANCE
Details of the Company's performance are set out in the Chairman's Statement.
The Investment Manager's Report on pages 9 to 11 of the annual report forms
part of this Strategic Report and includes a review of the main developments
during the year, together with information on investment activity within the
Company's portfolio.
PORTFOLIO ANALYSIS
A detailed analysis of the portfolio has been provided on pages 13 to 15 of the
annual report.
RESULTS AND DIVIDENDs
The results for the Company are set out in the Income Statement. The
total loss for the year on ordinary activities, after taxation, was
US$27,112,000 (2013: a loss of US$48,978,000) of which the revenue return
amounted to US$12,384,000 (2013: US$9,905,000), and the capital loss amounted
to US$39,496,000 (2013: a loss of US$58,883,000).
The Directors recommend the payment of a final dividend as set out in the
Chairman's Statement.
KEY PERFORMANCE INDICATORS
At each Board meeting, the Directors consider a number of performance measures
to assess the Company's success in achieving its objectives. The key
performance indicators (KPIs) used to measure the progress and performance of
the Company over time are comparable to those reported by other investment
trusts and are set out below.
2014 2013
Change in net asset value (1) -9.3% -13.1%
Change in share price (1) -9.6% -12.2%
Change in benchmark index (1) -12.0% -13.2%
Discount to net asset value 11.1% 10.2%
Revenue return per share - basic (cents) 31.46 24.83
Ongoing charges (2) 1.2% 1.1%
1. Calculated in US Dollar terms with income reinvested.
2. Calculated as a percentage of average shareholders' funds and using
expenses, excluding finance costs.
The Board regularly reviews a number of indices and ratios to understand the
impact on the Company's relative performance of the various components such as
asset allocation and stock selection. The Board also reviews the performance
and ongoing charges of the Company against a peer group of Latin American open
and closed-end funds.
As detailed above, the Directors recognise that it is in the long term
interests of shareholders that shares do not trade at a significant discount to
their prevailing NAV.
PRINCIPAL RISKS
The 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
strategy to fulfil the Company's objectives and monitoring the performance of
the Investment Manager. An inappropriate strategy may lead to poor performance.
To manage this risk the Investment Manager provides an explanation of
significant stock selection decisions and the rationale for the composition of
the investment portfolio. The Board monitors and maintains an adequate spread
of investments in order to minimise the risks associated with particular
countries or factors specific to individual companies and 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 income 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.
Market risk - Arises from volatility in the prices of the Company's
investments. It represents the potential loss the Company might suffer through
holding investments in the face of negative market movements. There may be
exposure to significant economic, political and currency risks due to the
location of the operation of the businesses in which the Company may invest.
Shares in businesses in which the Company invests can prove volatile and this
may be reflected in the Company's share price. The Board considers asset
allocation, stock selection, unquoted investments, if any, and levels of
gearing on a regular basis and has set investment restrictions and guidelines
which are monitored and reported on by the Investment Manager.
The Board monitors the implementation and results of the investment process
with the Investment Manager.
Liquidity risk - Investments in the Company's portfolio are subject to
liquidity risk, particularly from any unquoted investments. The Company may
also invest in smaller capitalisation companies or in the securities markets of
developing countries which are not as large as the more established securities
markets and have substantially less trading volume, which may result in a lack
of liquidity and higher price volatility.
Financial risk - The Company's investment activities expose it to a variety of
financial risks which include market risk, foreign currency risk, credit risk
and interest rate risk.
Further details are disclosed in note 19 on pages 54 to 61 of the annual
report, together with a summary of the policies for managing these risks.
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 the amount of retained income 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 or Manager) are subject to the risks that the
requirements of this Directive are not correctly complied with. The Board and
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 the Manager, BNY Mellon Trust & Depositary (UK) Limited (the
Depositary) and the Bank of New York Mellon (International) Limited, who
maintain the Company's accounting records. The security of the Company's
assets, dealing procedures, accounting records and maintenance of regulatory
and legal requirements, depends on the effective operation of these systems.
These have been regularly tested and monitored throughout the year as evidenced
through their Service Organisation Control (SOC) report and are reported on by
their service auditors which gives assurance regarding the effective operation
of controls.
FUTURE PROSPECTS
The Board's main focus is the achievement of capital growth and an attractive
total return. The future of the Company is dependent upon the success of the
investment strategy. The outlook for the Company is discussed in both the
Chairman's Statement and the Investment Manager's Report.
SOCIAL, COMMUNITY AND HUMAN RIGHTS ISSUES
As an investment trust with no employees, the Company has no direct social or
community responsibilities or impact on the environment. However, the Company
believes that it is in shareholders' interests to consider human rights issues,
environmental, social and governance factors when selecting and retaining
investments. Details of the Company's policy on socially responsible investment
are set out on page 28 of the annual report.
DIRECTORS AND EMPLOYEES
The Directors of the Company on 31 December 2014, all of whom held office
throughout the year, are set out in the governance structure and Directors'
biographies on page 17 of the annual report. The Board consists of four men and
one woman. The Company does not have any employees.
The information set out on pages 9 to 16 of the annual report, including the
Investment Manager's Report, forms part of the Strategic Report.
The Strategic Report was approved by the Board at its meeting on 24 February
2015.
BY ORDER OF THE BOARD
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
Company Secretary
24 February 2015
RELATED PARTY TRANSACTIONS
BlackRock Investment Management (UK) Limited (BIM (UK)) provided management and
administration services to the Company under a contract which was terminated
with effect from 2 July 2014. BlackRock Fund Managers Limited (BFM) was
appointed as the Company's AIFM with effect from 2 July 2014. BIM (UK)
continues to act as the Company's Investment Manager under a delegation
agreement with BFM. Further details of the investment management contract are
disclosed in the Directors' Report on pages 18 and 22 of the annual report.
At the year end, US$598,000 was outstanding in respect of the management fee
(2013: US$1,414,000). The management fee was until 2 July 2014 payable to BIM
(UK) and thereafter to BFM.
Performance fees are allocated wholly to the capital column of the Income
Statement as performance is predominantly generated through capital returns
from the Investment Portfolio. As at 31 December 2014, no performance fee was
payable to BlackRock (2013: nil).
The total fee currently payable to BlackRock in any twelve month period is
limited to 4.99% of NAV. However, as BlackRock is only entitled to a basic fee
of 0.85% of NAV and the performance fee is capped at 1.0% of NAV, the amount
paid to BlackRock by the Company in respect of fees in any twelve month period
is expected to be substantially lower than 4.99% of NAV.
In addition to the above services, with effect from 1 November 2013, BIM (UK)
has provided the Company with marketing services. The total fees paid or
payable for these services for the year ended 31 December 2014 amounted to
US$256,000 excluding VAT (2013: nil), of which US$256,000 (2013: nil) was
outstanding at 31 December 2014.
The Board consists of six non-executive Directors, all of whom are considered
to be independent by the Board. None of the Directors has a service contract
with the Company. The Chairman receives an annual fee of £43,500, the Chairman
of the Audit Committee receives an annual fee of £33,000 and each other
Director receives an annual fee of £29,000. With effect from 1 January 2015 the
annual remuneration of the Chairman was increased to £45,000, the Chairman of
the Audit Committee/Senior Independent Director to £34,000 and the other
Directors to £30,000. This excludes expenses paid to each of the Directors
which are set out in the Directors' Remuneration Report in the Annual Report
and Financial Statements.
All members of the Board hold ordinary shares in the Company. Peter Burnell
holds 3,000 ordinary shares, Antonio Monteiro de Castro holds 47,000 ordinary
shares, The Earl St Aldwyn holds 1,470 ordinary shares, Laurence Whitehead
holds 13,967 ordinary shares and Mahrukh Doctor holds 636 ordinary shares.
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OFTHE ANNUAL REPORT AND
FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report and Financial
Statements in accordance with applicable law and regulations. Company law
requires the Directors to prepare financial statements for each financial year.
Under that law they have elected to prepare the financial statements in
accordance with applicable law and United Kingdom Accounting Standards (United
Kingdom Generally Accepted Accounting Practice).
Under company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company as at the end of each financial year and of the profit
or loss of the Company for that period.
In preparing those financial statements, the Directors are required to:
* present fairly the financial position, financial performance and cash flows
of the Company;
* select suitable accounting policies and then apply them consistently;
* present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
* make judgements and estimates that are reasonable and prudent;
* state whether applicable UK Accounting Standards have been followed,
subject to any material departures disclosed and explained in the financial
statements; and
* prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
The Directors are also responsible for preparing the Strategic Report,
Directors' Report, the Directors' Remuneration Report, the Corporate Governance
Statement and the Report of the Audit Committee in accordance with the
Companies Act 2006 and applicable regulations, including the requirements of
the Listing Rules and the Disclosure and Transparency Rules.
The Directors have delegated responsibility to the Investment Manager for the
maintenance and integrity of the Company's corporate and financial information
included on the Investment Managers' website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Each of the Directors, whose names are listed on page 17 of the annual report,
confirm to the best of their knowledge that:
* the financial statements, prepared in accordance with applicable accounting
standards, give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company; and
* the 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 2012 UK Corporate Governance Code also requires Directors to ensure that
the Annual Report and Financial Statements are fair, balanced and
understandable. In order to reach a conclusion on this matter, the Board has
requested that the Audit Committee advise on whether it considers that the
Annual Report and Financial Statements fulfils these requirements. The process
by which the Committee has reached these conclusions is set out in the Audit
Committee's report on pages 30 to 32 of the annual report. As a result, the
Board has concluded that the annual report and financial statements for the
year ended 31 December 2014, 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
Peter Burnell
Chairman
24 February 2015
Performance
Investment manager's report
Market Overview
2014 was a difficult year for Latin American equity markets as they lagged both
developed markets and global emerging markets. Three of the last four years
have seen Latin America post negative returns for the full calendar year. Some
of the main factors impacting Latin America's performance during 2014 included,
growth concerns in China and their impact on the region's commodity exports, US
Dollar strength causing Latin American currencies to devalue, lower than
forecast economic growth in most countries in the region, and a sharp decline
in commodity prices, especially oil, during the last quarter of 2014.
The early part of 2014 saw a continuation of the correction in Latin American
equity markets that had begun in November 2013. In January 2014 the market was
negatively impacted by the devaluation in Argentina's Peso, fiscal concerns in
Brazil and lower commodity prices. The market then stabilised in mid-March 2014
when currency performance improved, better than expected economic numbers for
2013 were reported from Brazil and Colombia and there was a reversal in certain
commodity prices such as iron ore. Markets were also encouraged by the
increasing possibility of an opposition victory in Brazil's Presidential
elections in October. Positive momentum continued throughout the middle of the
year and the region gained almost 32% to the early part of September (with
Brazilian politics and the prospect for a change of government being the main
driver).
Brazil's Presidential elections dominated the headlines as well as market
movements, starting in mid-March when published polls started to show falling
satisfaction with the Rousseff administration. Towards the end of the third
quarter of 2014 there was an increase in volatility as a result of the
deterioration in the polls, as the market began pricing in the re-election of
President Rousseff. As we moved into the fourth quarter of 2014, Latin America
was negatively impacted by declines in commodity prices, especially in oil and
iron ore. Falling commodity prices together with slowing growth led to currency
weakness across the region, contributing to the weaker equity returns for the
quarter, as well as the full year, in US Dollar terms. Brazilian equities
recovered somewhat in late November following the announcement of a market
friendly Finance and Planning Ministers as well as the continuation of the
current Central Bank president. November also saw the end of 'Quantitative
Easing 3' in the United States and the decision by OPEC not to cut oil
production. The latter sent the price of oil tumbling, ultimately dragging
markets lower and putting pressure on oil producing countries such as Colombia
and Mexico.
During 2014, Brazil's equity market was one of the worst performers in Latin
America. Low GDP growth, lower earnings growth than the previous year,
political uncertainty and currency weakness all contributed to the weakness in
Brazil's equity market. The Brazilian Central Bank raised interest rates by a
total of 1.75% during the year, ending at 11.75%. This tightening cycle started
in early 2013 with the final 100 basis points of a 375 basis points increase
completed by May 2014. The final two moves, amounting to 75 basis points, were
effected after the October elections.
Mexico was one of the better performing markets during the year on a relative
basis while its currency fared slightly worse than Brazil's. Overall, Mexico's
economy was weaker than expected this year as the positive effects of the
reform programme and the economic recovery has been slow to build. Low growth,
higher taxes and recent corruption allegations as well as security concerns
weighed on Mexico this year. During December the Government announced details
for the auction of several shallow water oil fields expected to be completed
during the second quarter of 2015. These are expected to be followed by onshore
fields, mature fields, unconventional fields (including shale) and deep water
fields.
In the Andean region, Peru posted the strongest returns - while growth was
below expectations, GDP outperformed its peers, helping the Peruvian Sol to be
the best performer during the year. Colombia was the worst performing market
for the year, suffering from falling oil production and its impact on listed
companies as well as the sharp decline in oil prices later in the year. Adding
to pressure in the Colombian equity market were government plans to increase
taxation, especially at the corporate level, to offset lower government intake
from oil. Chile was also a laggard during 2014, principally due to fiscal
headwinds of President Bachelet's new fiscal package. GDP growth was
disappointing, with weak commodity prices, especially copper, negatively
contributing to growth. In addition, announcements around labour reform have
also created a headwind for the domestic economy and caused further
deterioration in business confidence.
2014 PERFORMANCE REVIEW
During 2014, the Company's NAV returned -9.3% and the share price returned -9.6%
in US Dollar terms (equivalent to returns of -3.7% and -4.0%, respectively, in
Sterling terms). This is certainly disappointing in absolute terms, although
it compares favourably with the return by the MSCI Latin America Index over the
same period of -12.0% in US Dollar terms (-6.6% in Sterling terms).
Performance relative to the index during the period benefited from good stock
selection in Brazil and Mexico and our exposure to Peru. In Brazil, the largest
individual contributors to relative performance included our positions in
Kroton Educacional and BB Seguridade Participaçóes and our below market
exposure to Petrobrás. Kroton Educacional was a strong performer after the
terms for its merger with Anhanguera were adjusted in its favour during the
second quarter of the year. In addition, the company also performed well
following the conclusion of the merger and it continued to outperform versus
the sector. We took profits from the company late in the year following
concerns over changes to government financed student loans. Overall, we remain
positive about Brazilian education. BB Seguridade Participaçóes's share price
performed well after reporting strong first quarter results highlighted by good
operational and financial results but it surrendered gains later in the year as
its financial results were negatively impacted by the political uncertainty in
Brazil. Changes to our exposure to Petrobrás meant that the company was a
significant contributor to relative performance in the year. The elections in
Brazil provided positive results as the company performed well through the
middle of the year when markets were pricing in the potential for an opposition
victory. In Mexico, the largest individual contributors were property stocks
Terrafina and Vesta which have benefited from growth in manufacturing in Mexico
and their protection from the devaluation of the Mexican Peso given that a
majority of their revenues is contracted in US Dollars.
One disappointment in the year was the performance of the Peruvian company
Grana y Montero. The company was penalised earlier in the year for not
participating in a subway auction in Lima and continued to suffer after
reporting weak second quarter results which showed revenue growth decelerating
and lower margins. We continue to like the company despite this period of
adjustment for its backlog away from the mining sector. Also detracting from
performance were Cosan and Mills in Brazil. Cosan was negatively affected by
falling oil prices and their impact on the company's sugar/ethanol business. We
sold Mills during the second half of the year. Our investment thesis was around
its strong presence in the infrastructure sector, but project delays and
oversupply in the equipment rental market hurt results.
PORTFOLIO
In Brazil, we maintained over 55% of the Company's assets in the country, with
underweight positions in oil & gas, metals & mining and utilities financing and
overweight positions in banks and insurance, consumer staples and education,
all of which are areas we believe should be able to successfully navigate a low
growth environment. Key changes during the year included exiting Petrobrás and
Vale. We reduced our position in Petrobrás after the re-election of President
Rousseff and we exited the company in the wake of falling oil prices, and the
investigation into alleged corruption. Our decision to exit Vale was predicated
on the ongoing weakness in iron ore prices. We rotated some financials exposure
from Itaú Unibanco to Bradesco. We also reduced Kroton Educacional given
concerns regarding changes to government-financed student loans.
In Mexico, our exposure increased to 34% during the year. We have higher than
market exposure to the construction materials and Fibras (Real Estate) sectors
and below market exposure to telecommunications and metals & mining sectors.
Within construction materials we favour Cemex, and have added to our position
during periods of stock weakness during the year. The stock suffered later in
the year from concerns over the devaluation of the Mexican Peso and its impact
on the company's balance sheet as well as from the fall in commodity prices.
Key changes for the year included adding to the holding in Walmart de Mexico in
an attempt to benefit from the eventual economic recovery which has been slow
to build. We added to América Móvil as the company's plan to sell assets in
order to voluntarily comply with regulatory changes could potentially reduce
its regulatory risk in Mexico. However, we remain underweight as we question
their strategy of committing significant capital to expand into very
competitive markets in Europe. We also reduced our overweight position to Grupo
Televisa given concerns about the increased potential for competition on the
wireless side of their business as well as following strong outperformance by
the company.
Elsewhere in the region, our exposure to Peru increased during the year as we
reintroduced gold producer Buenaventura and added to our position in Credicorp,
the leading bank in Peru. We sold Panamanian airline Copa Holdings, due to
concerns regarding their cash balance in Venezuela as well as their ability to
reallocate capacity from Venezuela to other markets while maintaining
profitability levels. In Colombia we added Grupo Aval Acciones y Valores, one
of the largest banks in Colombia, due to our expectations of strong top line
growth, net-interest-margin expansion and strong asset quality. Finally, we
reduced our weighting in Chile given the macroeconomic headwinds in the
country.
At the year end 6.1% of the Company's portfolio was under option via covered
calls. These options had an average strike price of 103.2% with an average
maturity of 50 days although the upper and lower ranges, varied by position.
While the beginning of 2014 continued with the theme of low volatility, the
second half saw a dramatic increase in volatility, particularly in Brazil,
where uncertainty around the Presidential elections was a main contributor. As
a result of this higher level of volatility in the second half of the year,
increased option premiums led to greater opportunities to generate income.
One of the benefits of the Company's closed-end stature is our ability to
invest in smaller and lesser liquid companies in the region, including those
not in the official benchmark. At the year end, investments in small and
mid-size companies with less than US$10 billion in market capitalisation
accounted for over 32.6% of gross investments, with close to 19.0% of these
investments representing non-benchmark stocks. Effective gearing decreased from
about 3.1% at the beginning of the year to a net cash position of 1.7% at the
end of the year.
OUTLOOK
We enter 2015 with the lowest exposure to Brazil as a percentage of the
Company's investments since BlackRock were appointed managers in 2006. Brazil's
prospects for 2015 are uncertain. Growth was weak in 2014 and the required
fiscal adjustments being implemented by the new economic team are likely to
provide further headwinds to growth. In addition, the alleged corruption
investigation around Petrobrás and many of the country's largest infrastructure
companies are also likely to impede growth prospects. Mexican exposure is also
at a recent high both in absolute terms and relative to the benchmark. As the
slow economic recovery continues the country should finally start to experience
some of the positive aspects of the reform process. Oil field auctions will
begin in the second quarter of the year. A high exposure in Peru relative to
the benchmark reflects the prospect of improving economic growth throughout
2015. However, given the impact of lower commodity prices on their economies,
along with growing fiscal costs for companies and individuals, we have low
weightings in Chile and Colombia.
William Landers
BlackRock Investment Management (UK) Limited
24 February 2015
YEAR TO 31 DECEMBER 2014 PERFORMANCE FIGURES
MSCI Indices Currency Local Indices %
% Change (% vs. USD) Change in USD
Argentina +17.3 -23.0 +22.6 (Merval)
Brazil -17.4 -11.1 -13.7 (Ibovespa)
Chile -14.5 -13.4 -10.3 (IGPA)
Colombia -22.3 -18.8 -27.7 (IGBC)
Mexico -10.2 -11.6 -10.8 (IPC)
Peru +9.2 -6.1 -11.9 (IGBVL)
MSCI Latin America -14.8 CRB Index -17.9
MSCI Emerging Asia +2.5 Oil (WTI) -45.9
MSCI Emerging Markets -4.6 Gold -1.7
MSCI World +2.9 Copper -13.7
S&P 500 +11.4 Corn -4.8
MSCI Europe -8.6 Soybeans -22.1
Sources: MSCI, Bloomberg, UBS and BlackRock (all figures in US Dollar terms and
on a capital only basis).
Ten largest investments as at 31 December 2014
Itaú Unibanco - 9.4% (2013: 7.7%) is Brazil's largest private sector bank. The
company should benefit from higher interest rates, continued improvements in
asset quality, resilient employment and lower competition from public sector
banks. The bank is well positioned for a low growth environment given the
de-risking of its credit portfolios over the past few years.
Banco Bradesco - 7.2% (2013: 4.4%) is Brazil's second largest private sector
bank. The company should benefit from higher interest rates, continued
improvements in asset quality, resilient employment and lower competition from
public sector banks. Similar to Itaú Unibanco, we believe that the company is
positioned to perform well, regardless of the growth environment in 2015, given
the de-risking of its credit portfolios over the past few years.
AmBev - 5.3% (2013: 3.0%) is Brazil's leading beverages company with operations
throughout the Americas. The company is well positioned to continue to benefit
from its defensive position as the region's largest consumer staples producer,
while maintaining a strong focus on preserving operating cost discipline
throughout its operations, a perennial AmBev management strength.
BB Seguridade Participacóes - 4.9% (2013: 3.7%) is the insurance division of
Banco do Brasil and has the exclusive rights to sell insurance products
throughout the entire Banco do Brasil branch network, which is one of the
largest in Brazil.
Cemex SAB - 4.7% (2013: 4.0%) is a Mexican based global cement company that
stands to benefit from improving business trends across the world, especially
in the US. The company has successfully remodelled its debt profile and is
focused on improving operating efficiencies across its plants.
Femsa - 4.3% (2013: 3.4%) is the Mexican holding company with a controlling
interest in Coca-Cola's largest independent bottler, Coca-Cola Femsa, with
operations throughout Latin America, Mexico's fastest growing retailing chain,
Oxxo, which has over 10,000 convenience stores throughout Mexico and a 12%
stake in global brewer Heineken.
BRF - 4.2% (2013: 1.9%) is Brazil's largest food producer, with leadership
positions in poultry, pork, beef and processed meats. The company is well
positioned to benefit from its leadership in the domestic processed foods
market as well as in the export market for both in natura as well as
processed products.
América Móvil - 4.0% (2013: 3.4%) is Latin America's leading provider of
integrated telecommunications services, with a leading presence in wireless
telephony throughout the region as well as in wireline in Mexico and Brazil.
Credicorp - 4.0% (2013: 2.8%) is Peru's leading financial institution. It
offers a full range of financial services including commercial banking,
corporate finance, brokerage and asset management. The company should continue
to benefit from being the leader in one of the fastest growing economies in the
region.
Kroton Educacional - 3.6% (2013: 3.3%) is Brazil's leading provider of adult
college education. The merger with Anhanguera created the largest publicly
traded education company in the world. In addition, we expect a strong intake
to continue and for industry growth to remain strong for many years.
All percentages reflect the value of the holding as a percentage of total
investments. Percentages in brackets represent the value of the holding at
31 December 2013. Together, the ten largest investments represents 51.6% of total
investments (ten largest investments at 31 December 2013: 46.9%).
Investments as at 31 December 2014
Market value
Country of operation US$'000 % of investments
Brazil
Itaú Unibanco 25,857 9.4
Banco Bradesco 19,868 7.2
AmBev 14,617 5.3
BB Seguridade Participaçóes 13,304 4.9
BB Seguridade Participaçóes - options (45)
BRF 11,553 4.2
BRF - option (3)
Kroton Educacional 9,735 3.6
Kroton Educacional - options (8)
CBD 7,388 2.7
CBD - option -
Fibria Celulose 4,858 2.0
Fibria Celulose warrants* 549
Cielo 4,904 1.8
Cielo - options (19)
Ultrapar Participaçóes 4,839 1.8
Ultrapar Participaçóes - option (2)
CCR 4,270 1.6
CCR - option (1)
Klabin 1,826 1.5
Klabin 8% 08/01/19 convertible bond** 1,646
Klabin 2.5% 15/06/22 convertible bond** 281
Klabin 7.25% 15/06/20 convertible bond** 281
Klabin - options (31)
Klabin warrants -
Cosan 3,801 1.4
Hypermarcas 1,879 0.9
Hypermarcas 3% fixed rate debenture 15/10/15** 466
Hypermarcas 11.3% 15/10/18 convertible bond** 240
Hypermarcas - option (3)
Hypermarcas warrants -
Ser Educacional 2,607 0.9
Ser Educacional - options (45)
Arezzo Industria e Comercio 1,073 0.9
Arezzo Industria e Comercio warrants* 1,487
Qualicorp 2,156 0.8
TAESA 1,976 0.7
Raia Drogasil 1,906 0.7
Raia Drogasil - options (20)
OdontoPrev 1,484 0.5
Minerva 1,467 0.5
Minerva - option -
Iguatemi Empresa 972 0.5
Iguatemi Empresa warrants* 462
Cosan Logistica 1,317 0.5
Localiza Rent A Car warrants* 1,132 0.4
BR Properties 1,060 0.4
Lojas Renner 660 0.2
Lojas Renner - option (9)
Marcopolo 157 0.1
Lupatech 6.5% 15/04/18 convertible bond** 29 -
------- -----
151,921 55.4
------- -----
Mexico
Cemex SAB 12,949 4.7
Cemex SAB - option (2)
Femsa 11,880 4.3
América Móvil 11,085 4.0
Grupo Financiero Banorte 8,361 3.1
Grupo Televisa 8,167 3.0
Walmart de Mexico 7,857 2.9
Alfa 5,787 2.1
Alfa - option -
Fibra Uno Administracion 4,123 1.5
Fibra Uno Administracion - options (1)
Administradora Industrial 3,709 1.4
Administradora Industrial - options (13)
Corporacion Inmobiliaria Vesta 3,574 1.3
Corporacion Inmobiliaria Vesta - option (5)
Compartamos 3,123 1.1
Compartamos - options (7)
Concentradora Fibra Hotelera 2,555 0.9
Infraestructura Energetica 2,497 0.9
Infraestructura Energetica - options -
Arca Continental 1,518 0.5
Arca Continental - options (11)
Kimberly-Clark de Mexico 1,412 0.5
Grupo Sansborns 1,306 0.5
Alsea 1,011 0.4
Alsea - option (1)
Grupo Aeroportuario del Pacifico 932 0.3
Grupo Aeroportuario del Pacifico - option (2)
Alpek 495 0.2
------- -----
92,299 33.6
------- -----
Peru
Credicorp 10,888 4.0
Credicorp - options (21)
Minas Buenaventura 2,629 1.0
Grana Y Montero 2,420 0.9
Southern Copper 2,058 0.7
------- -----
17,974 6.6
------- -----
Colombia
Grupo Nutresa 2,948 1.1
Grupo Aval Acciones Y Valores 2,124 0.8
Cemex Latam 1,992 0.7
------- -----
7,064 2.6
------- -----
Chile
Corpbanca 2,794 1.0
S.A.C.I. Falabella 2,275 0.8
------- -----
5,069 1.8
------- -----
Total Investments 274,327 100.0
------- -----
Represented as follows:
Investments held at fair value through profit or
loss 274,576 100.1
Derivative financial instruments: written call
options (249) (0.1)
------- -----
Total 274,327 100.0
======= =====
* Outperformance warrants held are linked to the underlying listed securities
which have available quoted prices, however, the warrants are not listed in
their own right. The valuation of outperformance warrants has been derived from
the quoted prices of underlying securities.
** Unquoted securities.
The negative valuations of US$249,000 (31 December 2013: US$281,000) in respect
of options held represent the notional cost of repurchasing the contracts at
market prices as at 31 December 2014.
The total number of investments (excluding call options and outperformance warrants)
held at 31 December 2014 was 62 (31 December 2013: 62). At 31 December 2014, the
Company did not hold any equity interests comprising more than 3% of any company's
share capital.
All investments are in equity shares unless otherwise stated.
Sector and geographical allocations
2014 2013
Brazil Mexico Peru Colombia Chile Other Total Total
% % % % % % % %
Consumer
Discretionary 5.7 3.8 - - 0.8 - 10.3 12.9
Consumer Staples 14.1 8.3 - 1.1 - - 23.5 13.8
Energy 3.2 - - - - - 3.2 8.4
Financials 22.2 9.3 4.0 0.8 1.0 - 37.3 31.8
Health Care 1.3 - - - - - 1.3 0.5
Industrials 2.7 2.4 0.9 - - - 6.0 9.3
Information
Technology 1.8 - - - - - 1.8 -
Materials 2.6 4.9 1.7 0.7 - - 9.9 17.5
Telecommunication
Services - 4.0 - - - - 4.0 3.4
Utilities 0.7 0.9 - - - - 1.6 1.1
Fixed income 1.1 - - - - - 1.1 1.3
---- ---- --- ---- ---- ---- ----- -----
2014 total
investments 55.4 33.6 6.6 2.6 1.8 - 100.0
==== ==== === ==== === === ===== =====
2013 total
investments 60.9 28.4 5.3 1.5 2.7 1.2 100.0
---- ---- --- ---- --- --- ----- -----
GEOGRAPHICAL WEIGHTING VS MSCI EM LATIN AMERICA INDEX
Company MSCI EM Latin America Index
Chile 1.8 8.6
Colombia 2.6 4.9
Peru 6.6 2.8
Mexico 33.6 29.9
Brazil 55.4 53.8
Sources: BlackRock and MSCI.
Income statement for the year ended 31 December 2014
Revenue Revenue Capital Capital Total Total
2014 2013 2014 2013 2014 2013
Notes US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Losses on investments
held at fair value
through profit or
loss - - (38,031) (54,496) (38,031) (54,496)
Exchange gains/
(losses) - - 149 (1,380) 149 (1,380)
Income from
investments held at
fair value through
profit or loss 3 10,435 11,175 - - 10,435 11,175
Other income 3 5,335 2,362 - - 5,335 2,362
Investment management
and performance fees 4 (658) (759) (1,975) (2,276) (2,633) (3,035)
Operating expenses 5 (1,051) (1,015) (41) (83) (1,092) (1,098)
-------- -------- -------- -------- -------- --------
Net return/(loss)
before finance costs
and taxation 14,061 11,763 (39,898) (58,235) (25,837) (46,472)
Finance costs (26) (427) (77) (1,280) (103) (1,707)
-------- -------- -------- -------- -------- --------
Net return/(loss) on
ordinary activities
before taxation 14,035 11,336 (39,975) (59,515) (25,940) (48,179)
Taxation on ordinary
activities (1,651) (1,431) 479 632 (1,172) (799)
-------- -------- -------- -------- -------- --------
Return/(loss) on
ordinary activities
after taxation 7 12,384 9,905 (39,496) (58,883) (27,112) (48,978)
======== ======== ======== ======== ======== ========
Return/(loss) per
ordinary share
(US$ cents) 7 31.46 24.83 (100.32) (147.61) (68.86) (122.78)
======== ======== ======== ======== ======== ========
The total column of this statement represents the profit and loss account of
the Company.
The supplementary revenue and capital columns are both prepared under guidance
published by the Association of Investment Companies (AIC). The Company had no
recognised profits or losses other than those disclosed in the Income Statement
and the Reconciliation of Movements in Shareholders' Funds. All items in the
above statement derive from continuing operations and no operations were
acquired or discontinued during the year. There is no material difference
between the net loss on ordinary activities before taxation and the loss on
ordinary activities after taxation for the financial year stated above and
their historical cost equivalents.
Reconciliation of movements in shareholders' funds for the year ended
31 December 2014
Called
up Share Capital Non-
share premium redemption distributable Capital Revenue
capital account reserve reserve reserves reserve Total
Notes US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
For the year ended
31 December 2014
At 31 December 2013 4,144 11,719 4,843 4,356 275,683 14,600 315,345
(Loss)/return for the
year - - - - (39,496) 12,384 (27,112)
Dividends paid* 6 - - - - - (11,810) (11,810)
----- ------ ----- ----- ------- ------ -------
At 31 December 2014 4,144 11,719 4,843 4,356 236,187 15,174 276,423
----- ------ ----- ----- ------- ------ -------
For the year ended
31 December 2013
At 31 December 2012 4,384 11,641 4,602 4,356 353,772 20,958 399,713
(Loss)/return for the
year - - - - (58,883) 9,905 (48,978)
Share buy backs - - - - (19,206) - (19,206)
Cancellation of
treasury shares (241) - 241 - - - -
Conversion of bond 1 78 - - - - 79
Dividends paid** 6 - - - - - (16,263) (16,263)
----- ------ ----- ----- ------- ------ -------
At 31 December 2013 4,144 11,719 4,843 4,356 275,683 14,600 315,345
===== ====== ===== ===== ======= ====== =======
* Final dividend in respect of the year ended 31 December 2013 of 15.00 cents
per share declared on 25 February 2014 and paid on 2 May 2014 and the interim
dividend in respect of the year ended 31 December 2014 of 15.00 cents per share
declared on 19 August 2014 and paid on 3 October 2014.
** Second interim dividend in respect of the year ended 31 December 2012 of
25.00 cents per share declared on 27 February 2013 and paid on 26 April 2013
and the interim dividend in respect of the year ended 31 December 2013 of 15.00
cents per share declared on 23 August 2013 and paid on 4 October 2013.
Balance sheet as at 31 December 2014
2014 2013
Notes US$'000 US$'000
Fixed assets
Investments held at fair value through profit or
loss 274,576 325,703
-------- --------
Current assets
Debtors 1,117 2,472
Cash at bank 4,104 439
Collateral pledged with brokers 677 1,524
-------- --------
5,898 4,435
-------- --------
Creditors - amounts falling due within one year
Bank overdraft (1,177) (10,377)
Deferred taxation (229) (298)
Derivative instruments - written call options (249) (281)
Other creditors and accruals (2,372) (3,813)
-------- --------
(4,027) (14,769)
-------- --------
Net current assets/(liabilities) 1,871 (10,334)
-------- --------
Total assets less current liabilities 276,447 315,369
-------- --------
Creditors - amounts falling after more than one
year
Non-equity redeemable shares (24) (24)
======== ========
(24) (24)
======== ========
Net assets 276,423 315,345
======== ========
Capital and reserves
Called up share capital 8 4,144 4,144
Share premium account 9 11,719 11,719
Capital redemption reserve 9 4,843 4,843
Non-distributable reserve 9 4,356 4,356
Capital reserves 9 236,187 275,683
Revenue reserve 9 15,174 14,600
-------- --------
Total shareholders' funds 276,423 315,345
======== ========
Net asset value per ordinary share 7 702.12 800.99
======== ========
Cash flow statement for year ended 31 December 2014
2014 2013
Notes US$'000 US$'000
Net cash inflow from operating activities 5(b) 11,857 11,043
Servicing of finance
Finance costs (102) (2,379)
Taxation paid (1,506) (758)
-------- --------
Capital expenditure and financial investment
Purchase of investments (186,028) (263,202)
Proceeds from sale of investments 199,499 341,875
Capital expenses (41) (61)
-------- --------
Net cash inflow from capital expenditure and
financial investment 13,430 78,612
-------- --------
Equity dividends paid 6 (11,810) (16,263)
-------- --------
Net cash inflow before financing 11,869 70,255
-------- --------
Financing
Repurchase of convertible bonds - (63,921)
Share buy backs - (19,071)
Net cash outflow from financing - (82,992)
-------- --------
Increase/(decrease) in cash in the year 11,869 (12,737)
======== ========
Notes to the financial statements
1. Principal Activites
The principal activity of the Company is that of an investment trust company
within the meaning of section 1158 of the Corporation Tax Act 2010.
2. ACCOUNTING POLICIES
(a) Basis of preparation
The Company's financial statements have been prepared on a going concern basis
and on the historical cost basis of accounting, modified to include the
revaluation of fixed asset investments in accordance with the Companies Act
2006 and with applicable accounting standards in the United Kingdom, UK
Generally Accepted Accounting Practice (UK GAAP) and with the Statement of
Recommended Practice 'Financial Statements of Investment Trust Companies and
Venture Capital Trusts' (SORP), revised in January 2009.
The principal accounting policies adopted by the Company are set out below. The
policies have been applied consistently throughout the year and are consistent
with those applied in the preceding year. All of the Company's operations are
of a continuing nature.
The Company's financial statements are presented in US Dollars, which is the
functional and presentation currency of the Company. The US Dollar is the
functional currency because it is the currency most related to the primary
economic environment in which the Company operates. All values are rounded to
the nearest thousand dollars (US$'000) except where otherwise indicated.
(b) Presentation of Income Statement
In order to reflect better the activities of an investment trust company and in
accordance with guidance issued by the Association of Investment Companies
(AIC), supplementary information which analyses the Income Statement between
items of a revenue and a capital nature has been presented alongside the Income
Statement.
(c) Segmental reporting
The Directors are of the opinion that the Company is engaged in a single
segment of business being investment business.
(d) Income
Dividends receivable on equity shares are treated as revenue for the year on an
ex-dividend basis. Where no ex-dividend date is available, dividends receivable
on or before the year end are treated as revenue for the year. Provisions are
made for dividends not expected to be received. Fixed returns on non-equity
securities are recognised on a time apportionment basis.
Special dividends are treated as a capital receipt or a revenue receipt
depending on the facts or circumstances of each particular case.
Interest income is accounted for on an accruals basis.
Dividends are accounted for in accordance with Financial Reporting Standard 16
'Current Taxation' (FRS 16) on the basis of income actually receivable, without
adjustment for the tax credit attaching to the dividends. Dividends from
overseas companies continue to be shown gross of withholding tax.
Where the Company has elected to receive its dividends in the form of
additional shares rather than in cash, the amount of the cash dividend foregone
is recognised as income. Any excess in the value of the shares received over
the amount of the cash dividend foregone is recognised in capital reserve.
Options may be written over securities held in the portfolio for generating or
protecting capital returns, or for generating or maintaining revenue returns.
Where the purpose of the option is the generation of income, the premium is
treated as a revenue item. Where the purpose of the option is the maintenance
of capital, the premium is treated as a capital item. The value of the option
is subsequently marked to market to reflect the fair value of the option based
on traded prices.
Option premium income is recognised as revenue evenly over the life of the
option contract and included in the revenue column of the Income Statement
unless the option has been written for the maintenance and enhancement of the
Company's investment portfolio and represents an incidental part of a larger
capital transaction, in which case any premia arising are allocated to the
capital column of the Income Statement. Where the premium is taken to revenue,
an appropriate amount is shown as capital return such that the total return
reflects the overall change in the fair value of the option. When an option is
closed out or exercised the gain or loss is accounted for as capital.
(e) Expenses
All expenses are accounted for on an accruals basis. Expenses have been charged
wholly to the revenue column of the Income Statement, except as follows:
* expenses which are incidental to the acquisition or disposal of an
investment are included within the cost of the investments or deducted from
the disposal proceeds of investment and are thus charged to the capital
column of the Income Statement. Details of transaction costs on purchases
and sales of investments are disclosed in note 11 on page 51 of the annual
report;
* the investment management fee has been allocated 75% to the capital column
and 25% to the revenue column of the Income Statement in line with the
Board's expected long term split of returns, in the form of capital gains
and income respectively, from the investment portfolio; and
* performance fees have been allocated wholly to the capital column of the
Income Statement, as the performance fee has been predominantly generated
through capital returns of the investment portfolio.
(f) Finance costs
Finance costs are accounted for on an accruals basis. Finance costs are
allocated, insofar as they relate to the financing of the Company's
investments, 75% to the capital column and 25% to the revenue column of the
Income Statement, in line with the Board's expected long term split of returns,
in the form of capital gains and income respectively, from the investment
portfolio.
(g) Taxation
The tax effect of different items of expenditure is allocated between capital
and revenue on the marginal basis using the Company's effective rate of
corporation taxation for the accounting period.
Deferred taxation is recognised in respect of all temporary differences as at
the balance sheet date, where transactions or events that result in an
obligation to pay more tax in the future or a right to pay less tax in the
future have occurred at the balance sheet date. This is subject to deferred
taxation assets only being recognised if it is considered more likely than not
that there will be suitable profits from which the future reversal of the
temporary differences can be deducted. Deferred tax is measured at the average
tax rates that are expected to apply in the periods in which the temporary
differences are expected to reverse, based on tax rates and laws that have been
enacted or substantively enacted by the balance sheet date. Deferred tax is
measured on a non-discount basis.
(h) Investments held at fair value through profit or loss
The Company's investments are classified as held at fair value through profit
or loss in accordance with FRS 26 - 'Financial Instruments: Recognition and
Measurement' and are managed and evaluated on a fair value basis in accordance
with its investment strategy.
All investments are designated upon initial recognition as held at fair value
through profit or loss. These sales of assets are recognised at the trade date
of the disposal. Proceeds will be measured at fair value which will be regarded
as the proceeds of sale less any transaction costs.
The fair value of the financial instruments is based on their quoted bid price
at the balance sheet date, on the exchange on which the investment is quoted,
without deduction for the estimated future selling costs.
Changes in the value of investments held at fair value through profit or loss
and gains and losses on disposal are recognised in the Income Statement as
'Gains or losses on investments held at fair value through profit or loss'.
Also included within this heading are transaction costs in relation to the
purchase or sale of investments.
In order to improve the disclosure of how companies measure the fair value of
their financial investments, the disclosure requirements in FRS 29 have been
extended to include a fair value hierarchy. The fair value hierarchy consists
of the following three levels:
Level 1 - quoted prices (unadjusted) in active markets for identical assets or
liabilities
Level 2 - inputs other than quoted prices included within level 1 that are
observable for the asset or liability
Level 3 - inputs for the asset or liability that are not based on observable
market data
Unquoted investments are valued by the Directors at fair value using
International Private Equity and Venture Capital Valuation Guidelines. This
policy applies to unquoted fixed asset investments held by the Company.
(i) Dividends payable
Under FRS 21, final dividends should not be accrued in the financial statements
unless they have been approved by shareholders before the balance sheet date.
Dividends payable to equity shareholders are recognised in the Reconciliation
of Movements in Shareholders' Funds when they have been approved by
shareholders and become a liability of the Company.
Interim dividends are only recognised in the financial statements in the period
in which they are paid.
(j) Foreign currency translation
All transactions in foreign currencies are translated into US Dollars at the
rate of exchange ruling on the dates of such transactions.
(k) Convertible bonds
On 15 September 2009, the Company issued US$80 million worth of 3.5% unsecured
convertible bonds (bonds) redeemable at par on 15 September 2015 (additional
information is given in note 14 in the annual report). All the outstanding bonds
were repurchased, redeemed or converted in the year ended 31 December 2013. In
previous accounting periods bonds have been accounted for in accordance with
FRS 26 - 'Financial Instruments: Recognition and Measurement' and held at fair
value on the Company's Balance Sheet. On initial recognition, fair value was
deemed to be the issue proceeds received of US$80 million, and issue costs of
US$1.1 million which had been debited to the Income Statement and allocated 25%
to the revenue column and 75% to the capital column in line with the Board's policy
on allocation of finance costs as set out in note 2(f). Subsequent to initial
recognition, and up to the date of redemption or conversion, the bonds have
been fair valued by reference to their offer prices subject to a minimum floor
price. Movements arising from an increase or decrease in this price were
credited or debited to the capital column of the Income Statement. In the event
that the fair value of the bonds fell below the nominal value of the bonds, the
fair value adjustment did not decrease the bond valuation below this nominal
value. This was due to the requirement that the convertible bonds would be
redeemed at their nominal value if they had not been converted into equity
shares prior to 1 September 2015.
Interest costs arising on the bonds were allocated 25% to the revenue column
and 75% to the capital column of the Income Statement in line with the Board's
policy on finance costs.
(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) Capital redemption reserve
The nominal value of ordinary shares repurchased for cancellation is
transferred out of share capital and into the capital redemption reserve.
The full cost of ordinary shares repurchased and held in treasury is charged to
capital reserves. Where treasury shares are subsequently reissued, any surplus
is taken to the share premium account.
(n) Capital reserves
The following transactions are accounted for in capital reserves:
- gains and losses on the disposal of fixed asset investments;
- realised exchange differences of a capital nature;
- cost of professional advice, including irrecoverable VAT, relating to the
capital structure of the Company;
- other capital charges and credits charged or credited to this reserve in
accordance with the above policies;
- cost of purchases of own ordinary shares and warrants;
- increases and decreases in the valuation of investments held at the year end
and the change in fair value of the convertible bond; and
- unrealised exchange differences of a capital nature.
(o) Going concern
The Company's Articles of Association require that an ordinary resolution be
put to the Company's shareholders to approve the continuation of the Company on
a biennial basis. The Directors are satisfied that the Company has adequate
resources to continue in operational existence for the foreseeable future and
therefore consider the going concern assumption to be appropriate. The last
resolution was put to shareholders at the 2014 AGM and the next such resolution
will be put to shareholders at the AGM in 2016. (See pages 19 and 20 of the
annual report for further details.) The Directors have no reason to believe
that this resolution will not be passed.
(p) Debtors
Debtors are sales for future settlement, other debtors and accrued income in
the ordinary course of business. If collection is expected in one year or less,
they are classified as current assets. If not, they are presented as
non-current assets. Debtors are recognised initially at fair value and
subsequently measured at amortised cost using the effective interest rate
method.
(q) Creditors
Creditors are purchases for future settlements, interest payable, share buyback
cost and accruals in the ordinary course of business. Creditors are classified
as current liabilities if payment is due within one year or less (or in the
normal operating cycle of the business if longer). If not, they are presented
as non-current liabilities. Creditors are recognised initially at fair value
and subsequently measured at amortised cost using the effective interest rate
method.
3. INCOME
2014 2013
US$'000 US$'000
Investment income:
Overseas dividends 10,267 10,096
------ ------
Outperformance warrants 193 644
------ ------
Interest income 52 435
Amortisation of fixed interest investments (77) -
------- ------
10,435 11,175
------ ------
Other income:
Traded option premiums 5,319 2,359
Deposit interest 16 3
------ ------
Total 15,770 13,537
====== ======
The Company participated in outperformance warrant contracts in 8 securities
during the year (2013: 8) which generated income of US$193,000 (2013:
US$644,000).
In addition, the Company received premiums totalling US$5,311,000 in respect of
covered call options of which US$5,319,000 was recognised as income. At
31 December 2014, there were 44 (2013: 16) open positions with an associated
liability of US$249,000 (2013: US$281,000) in respect of the notional cost of
repurchasing the contracts at market prices at the year end.
4. INVESTMENT MANAGEMENT AND PERFORMANCE FEES
2014 2013
Revenue Capital Total Revenue Capital Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Investment management fee 658 1,975 2,633 759 2,276 3,035
---- ----- ----- ---- ----- ----
Total 658 1,975 2,633 759 2,276 3,035
==== ===== ===== ==== ===== ====
BlackRock Investment Management (UK) Limited (BIM (UK)) provided management and
administration services to the Company under a contract which was terminated
with effect from 2 July 2014. BlackRock Fund Managers Limited (BFM) was
appointed as the Company's AIFM with effect from 2 July 2014. BIM (UK)
continues to act as the Company's Investment Manager under a delegation
agreement with BFM. Further details of the investment management contract are
disclosed in the Directors' Report on pages 18 and 22 of the annual report.
At the year end, US$598,000 was outstanding in respect of the management fee
(2013: US$1,414,000). The management fee was until 2 July 2014 payable to BIM
(UK) and thereafter to BFM.
Performance fees are allocated wholly to the capital column of the Income
Statement as performance is predominantly generated through capital returns
from the Investment Portfolio. As at 31 December 2014, no performance fee
was payable to BlackRock (2013: nil).
The total fee currently payable to BlackRock in any twelve month period is
limited to 4.99% of NAV. However, as BlackRock is only entitled to a basic fee
of 0.85% of NAV and the performance fee is capped at 1.0% of NAV, the amount
paid to BlackRock by the Company in respect of fees in any twelve month period
is expected to be substantially lower than 4.99% of NAV.
In addition to the above services, with effect from 1 November 2013, BIM (UK)
has provided the Company with marketing services. The total fees paid or
payable for these services for the year ended 31 December 2014 amounted to
US$256,000 excluding VAT (2013: nil), of which US$256,000 (2013: nil) was
outstanding at 31 December 2014.
5. OPERATING EXPENSES
2014 2013
US$'000 US$'000
(a) Operating expenses
AIC subscriptions 33 42
Auditors' remuneration - audit services 47 47
Custody fee 104 121
Directors' and Officers liability insurance 15 17
Directors' emoluments - fees and services to the Company 268 363
Printing and postage 67 45
Registrar's fees 53 46
Other administrative costs 464 334
----- -----
1,051 1,015
Ongoing charges, calculated as a percentage of average
shareholders' funds and using expenses, excluding interest
costs were: 1.2% 1.1%
----- -----
There were no fees payable in the year in respect of non-audit services (2013:
nil). The underlying audit fee is invoiced in Sterling and is therefore
susceptible to exchange rate fluctuations. The fee has not changed materially
from year to year.
2014 2013
US$'000 US$'000
(b) Reconciliation of net return before finance costs and
taxation to net cash flow from operating activities
Net loss before finance costs and taxation (25,837) (46,472)
Losses on investments held at fair value through profit or
loss 38,031 54,496
Exchange (gains)/losses of a capital nature (149) 1,380
Non-operating expenses of a capital nature 41 83
Decrease in accrued income 520 1,178
(Increase)/decrease in other debtors (57) 7
(Decrease)/increase in creditors (692) 371
------ ------
Net cash inflow from operating activities 11,857 11,043
====== ======
Expenses of US$93,000 (2013: US$83,000) charged to the capital column of the
Income Statement relate to transaction costs charged by the custodian on the
purchases and sales of investments and charges on Brazilian foreign exchange
transactions.
6. DIVIDENDS
Dividend on ordinary 2014 2013
shares Register date Payment date US$'000 US$'000
2012 Second interim of 25.00 cents 22 March 2013 26 April 2013 - 10,358
2013 Interim of 15.00 cents 6 September 2013 4 October 2013 - 5,905
2013 Final of 15.00 cents 28 March 2014 2 May 2014 5,905 -
2014 Interim of 15.00 cents 5 September 2014 3 October 2014 5,905 -
------ ------
11,810 16,263
====== ======
The Directors are recommending the payment of a final dividend in respect of
the year ended 31 December 2014 of 15.00 cents per share (2013: final
dividend of 15.00 cents per share) on 6 May 2015 to shareholders on the
Company's register on 27 March 2015. The recommended final dividend has not
been included as a liability in these financial statements, as final dividends
are only recognised in the financial statements once they have been approved by
shareholders.
The dividends disclosed in the note below have been considered in view of the
requirements of section 1158 of the Corporation Tax Act 2010 and section 833 of
the Companies Act 2006, and the amount proposed for the year ended 31 December
2014 meets the relevant requirements as set out in this legislation.
2014 2013
US$'000 US$'000
Dividend payable on equity shares:
Interim dividend paid 15.00 cents (2013: 15.00 cents) 5,905 5,905
Final dividend paid 15.00 cents (2013: 15.00 cents) 5,905 5,905
------ ------
11,810 11,810
====== ======
* Based on 39,369,620 ordinary shares in issue.
7. RETURN/(LOSS) AND NET ASSET VALUE PER ORDINARY SHARE
Revenue and capital returns per share are shown below and have been calculated
using the following:
2014 2013
Net revenue return attributable to ordinary shareholders
(US$'000) 12,384 9,905
Net capital loss attributable to ordinary shareholders
(US$'000) (39,496) (58,883)
------- -------
Total loss on ordinary activities after taxation
(US$'000) (27,112) (48,978)
------- -------
Equity shareholders' funds (US$'000) 276,423 315,345
------- -------
The weighted average number of ordinary shares in issue
during the year, on which the return per ordinary share
was calculated was: 39,369,620 39,891,106
========== ==========
The actual number of ordinary shares in issue at the year
end, on which the net asset value per ordinary share was
calculated was: 39,369,620 39,369,620
========== ==========
The number of ordinary shares in issue, including
treasury shares, at the year end, was: 41,441,282 41,441,282
========== ==========
2014 2013
Revenue Capital Total Revenue Capital Total
cents cents cents cents cents cents
Return per share
Calculated on
weighted average
number of shares 31.46 (100.32) (68.86) 24.83 (147.61) (122.78)
Calculated on actual
number of shares in
issue at year end 31.46 (100.32) (68.86) 25.16 (149.57) (124.41)
-------- -------- -------- -------- -------- --------
Net asset value per
share 702.12 800.99
Ordinary share price 624.50 719.25
8. CALLED UP SHARE CAPITAL
Ordinary Treasury Total
shares shares shares Nominal
number number number US$'000
Allotted, called up and fully paid
share capital comprised:
Ordinary shares of 10 cents each
At 1 January 2014 39,369,620 2,071,662 41,441,282 4,144
At 31 December 2014 39,369,620 2,071,662 41,441,282 4,144
========== ========= ========== =====
No ordinary shares were repurchased during the year (2013: 2,071,662 ordinary
shares were repurchased, via the March 2013 tender offer, for cancellation at a
total cost of US$19,206,000). No ordinary shares were cancelled during the year
(2013: the Company cancelled 2,408,065 ordinary shares held in treasury).
The number of ordinary shares in issue at the year end was 39,369,620 (2013:
39,369,620) excluding 2,071,662 (2013: 2,071,662) shares held in treasury.
The ordinary shares (excluding any shares held in treasury) carry the right to
receive any dividends and have one voting right per ordinary share. There are
no restrictions on the voting rights of the shares or on transfer of the
shares.
9. RESERVES
Capital
reserve
Captial arising
reserve on
arising revaluation
Share Captial Non- on of
premium redemption distributable investments investments
account reserve reserve sold held
US$'000 US$'000 US$'000 US$'000 US$'000
At 1 January 2014 11,719 4,843 4,356 255,986 19,697
Movement during the year:
Losses on realisation of
investments - - - (12,291) -
Change in investment
holding gains - - - - (25,740)
Losses on foreign currency
transactions - - - 405 (256)
Interest and expenses
charged to capital after
taxation - - - (1,614) -
------ ------ ------ ------ ------
At 31 December 2014 11,719 4,843 4,356 242,486 (6,299)
====== ====== ====== ====== ======
10. CONTINGENT LIABILITIES
There were no contingent liabilities at 31 December 2014 (2013: nil).
11. PUBLICATION OF NON-STATUTORY ACCOUNTS
The financial information contained in this announcement does not constitute
statutory accounts as defined in the Companies Act 2006. The 2014 annual report
and financial statements will be filed with the Registrar of Companies shortly.
The report of the Auditors for the year ended 31 December 2014 contains no
qualification or statement under section 498(2) or (3) of the Companies Act
2006.
The comparative figures are extracts from the audited financial statements of
BlackRock Latin American Investment Trust plc for the year ended 31 December
2013, which have been filed with the Registrar of Companies, unless otherwise
stated. The report of the Auditor on those financial statements contained no
qualification or statement under section 498 of the Companies Act.
This announcement was approved by the Board of Directors on 24 February 2015.
12. ANNUAL REPORT
Copies of the annual report will be sent to members shortly and will also be
available from the registered office, c/o The Company Secretary, BlackRock
Latin American Investment Trust plc, 12 Throgmorton Avenue, London EC2N 2DL.
13. ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held at 12 Throgmorton
Avenue, London EC2N 2DL on Thursday, 30 April 2015 at 12 noon.
ENDS
The Annual Report will also be available on the BlackRock Investment Management
website at http://www.blackrock.co.uk/brla. Neither the contents of the
Investment Manager's website nor the contents of any website accessible from
hyperlinks on the Investment Manager's website (or any other website) is
incorporated into, or forms part of, this announcement.
For further information, please contact:
Simon White, Managing Director, Investment Trusts, BlackRock Investment
Management (UK) Limited
Tel: 020 7743 5284
Peter Burnell - Chairman
Tel: 01434 632292
Henrietta Guthrie, Lansons Communications
Tel: 020 7294 3612
24 February 2015
12 Throgmorton Avenue
London EC2N 2DL
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