Final Results
F&C Latin American Inv Trust PLC
04 March 2004
Date: 4 March 2004
Contact: Rupert Brandt Lisa Stanley
F&C Emerging Markets Lansons Communications
020 7628 8000 020 7294 3692
F&C LATIN AMERICAN INVESTMENT TRUST PLC
Unaudited Preliminary Statement of Results
for the year ended 31 December 2003
HIGHLIGHTS
• The undiluted NAV rose by 88%, materially outperforming the benchmark rise
of 76%. Rupert Brandt took over the management of the Company on 1 April
2003.
• The share price rose by 80% to US$2.23, with the warrants appreciating by
201% to US$1.22. The discount ended the year at 16.9%. An interim dividend
of 0.56 cents per share will be paid to shareholders on 2 April 2004.
• Latin America was the best performing area in both the emerging market asset
class and the world in 2003 and the outlook for the current year remains
favourable. The region remains inexpensive on a price to earnings basis and
this should facilitate a continued rally.
• At the forthcoming Annual General Meeting the bi-annual resolution for the
continuation of the Company in its present form will be put to shareholders.
The Board recommends that shareholders vote in favour of the continuation
vote.
SUMMARY OF RESULTS
31 December 2003 31 December 2002 % Change
Net assets attributable to equity
shareholders US$219.9m US$116.8m +88.2
Net assets per share - basic 298.06 cents 158.37 cents +88.2
Net assets per share - diluted 268.44 cents 149.64 cents* +79.4
Dividends per share 0.56 cents - n/a
Share price 223.00 cents 124.00 cents +79.8
Warrant price 122.00 cents 40.50 cents +201.2
* Restated in accordance with the revised SORP issued in January 2003
Extracts from the Chairman's Statement
I am very pleased to report that Latin American stockmarkets experienced a major
recovery in 2003 due to a combination of a substantial improvement in the
global economic environment and constructive news from the region's principal
economies. Latin America was the best performing region in both the emerging
market asset class and the world in 2003. The result was excellent performance
by your Company during the year.
Investment Performance
Your Company's undiluted net asset value per share ('NAV') appreciated by 88% in
US dollar terms, materially outperforming the benchmark index's 76% US dollar
return (the IFCG Latin American Total Return Index). These results made your
Company the best performing closed-end Latin American fund amongst the peer
group of four (two listed in the UK and two listed in the US) against which we
monitor our relative performance. We use undiluted NAV when comparing investment
performance against the peer group and the benchmark index because it excludes
the impact of the Company's warrants and we believe that it consequently gives
the clearest guide to investment performance. In UK sterling terms the undiluted
NAV rose by 69% compared to the benchmarks 58% (UK sterling terms).
The Company's fully diluted NAV rose by 79% over the year. This figure includes
the full impact of the warrants, which had a very dilutive effect on the NAV due
to the strong appreciation of the underlying portfolio. We also outperformed all
the others in the peer group using the fully diluted NAV despite the negative
drag caused by the warrants. Over the year, the share price rose by 80% in US
dollars from US$1.24 to US$2.23, whilst the warrants appreciated by 201% from
US$0.405 to US$1.22. It is pleasing to note the share price was also the best
performing within its peer group. The discount* contracted marginally from 17.1%
at the end of December 2002 to 16.9% at the end of 2003.
Since the end of the financial year our performance has continued to be good.
From 31 December 2003 to 2 March 2004, the undiluted NAV has appreciated by 9.1%
whilst the share price has risen by 12.6%. The discount has narrowed further to
13.9%.
In passing it is worth reminding shareholders that, assuming a decision is made
at the AGM to continue the Company in its present form, the warrants expire on
31 July 2005. If 100% of the warrants are exercised, your Company will receive
an additional US$12.97 million of funds.
* Calculated in accordance with the revised SORP. Please note that the discount
as at 31 December 2002 has been restated from 19.0% to 17.1% to reflect the
revised SORP.
Performance Attribution
Looking at performance attribution in detail, there were three principal drivers
behind our outperformance. During the year, tactical gearing was successfully
deployed, with an average effective gearing level of 11.2%. Secondly, we held a
significant overweight position in Brazil throughout 2003, materially higher
than the benchmark's weighting. Thirdly, Mexican stock selection continued to be
very good, with the Mexican portfolio appreciating by 44% compared to the IFCG
Mexico's 35% rise. The negative factors in the year were the overweight asset
allocation position in Mexico and slightly sub-optimal Brazilian stock
selection, with the Brazilian portfolio returning 114% compared to the IFCG
Brazil's 117% return.
Regional Review
There were also three major factors behind the exceptionally strong performance
in Latin American equities in 2003. Firstly, Latin American equities had a very
tough year in the 2002 global bear market and consequently many of the region's
stockmarkets entered 2003 at a very low level. Secondly, global risk aversion
fell materially when the global economic outlook improved after the swift
conclusion to the Iraq war, which resulted in a return of investor flows into
emerging markets. Thirdly and most importantly, the outlook in almost all of the
region's main economies started to materially improve as the year progressed.
The Brazilian stockmarket in particular benefited from a dramatic recovery
solidly built on the new government's extremely successful political reform
agenda and the expectation that the economy is embarking on a strong investment
and export-led recovery. The much smaller Argentine market was the region's best
performer in 2003 as sentiment swung from extremely negative at the start of
2003 (with the memory of the economic crises still at the forefront of many
people's minds) to a state of complete euphoria at the end of 2003 when the
economy delivered 8% GDP growth. The Chilean market also performed very well,
with the economy delivering robust economic growth in 2003 with the promise of a
further acceleration to 4-5% GDP growth in 2004. A political stalemate in the
Mexican Congress combined with a degree of economic uncertainty resulted in the
Mexican market underperforming the region, but still delivering a 35% return.
Investment Policy
The Company announced on 22 December 2003 that its benchmark was changed from
the IFCG Latin America Total Return Index to the MSCI Emerging Markets Latin
America Gross Index with effect from 1 January 2004. The change was made because
the Company was finding it increasingly hard, and in some cases impossible, to
buy many of the smaller constituents of the IFCG index. Many shareholders were
consulted before making this change and we found that the substantial majority
were very happy for the Company to move to the MSCI index. We would also draw
your attention to our readiness, due to what we see as a logical counterpart to
the more active use of tactical gearing, to hold a net cash position for a
period, should particularly difficult markets be in prospect.
Discount and share repurchase programme
The discount at the beginning of 2003 was 17.1% and fluctuated in a fairly
volatile range during the year, reaching a low of 13.0% in May and a high of
19.1% in September before ending the year at 16.9%. Whilst we believe the main
contributor to a lower discount is generally consistent good absolute and
relative performance (relative to both the benchmark and peer group), we wish to
retain the ability to use share buy backs selectively and opportunistically;
hence the resolution to renew the authority to buy back shares at the AGM. We
are careful to balance the benefits of cancelling repurchased shares with the
impact on trading liquidity in your Company's own shares. The Board is
monitoring the evolution of treasury shares and their use but has not reached
any firm conclusion.
Dividend
Latin American companies are becoming more shareholder focused. As a result, the
dividend flow from our investments is becoming more significant than it used to
be. This enabled the Company to eliminate its revenue deficit in 2003 and put
the Company in the position of paying a dividend. The Board has declared an
interim dividend of 0.56 cents per share payable on 2 April 2004. The interim
dividend reduces the revenue reserve to nil and therefore no final dividend is
proposed. The Company hopes that in the future its total expenses will be more
than covered by its dividend inflow and consequently hopes to continue to pay
dividends.
Corporate Governance
Corporate Governance has become an increasingly important factor during the year
with significant new principles and guidelines covered by the revised Combined
Code on Corporate Governance issued by the Financial Reporting Council in July
2003, the AITC Code of Corporate Governance and other regulatory issues. The
Board agrees with the rationale for all these developments. We consider that
given its status as a listed investment trust, the Company is essentially in
compliance in all material respects with the revised Combined Code on Corporate
Governance, with one principal exception. The Board does not believe that length
of service necessarily affects the independence of a non executive director. We
subscribe to the view expressed in the AITC's Code regarding the length of Board
Members' tenure, that maintenance of an appropriate balance of experience and
skills and the continuing effectiveness of the Board, based on regular review,
is a more appropriate criteria than the adoption of an absolute limit of nine
years. Those Directors who have served nine years and who the Board feels should
continue in office will, however, be required to seek annual re-election.
Board of Directors
Alexander Zagoreos is retiring from the Board at the forthcoming AGM having
served as a Director since the launch of the Company. Alex has had a long and
distinguished career as a leader in the closed-end fund sector internationally
and has made an invaluable contribution throughout his time on the Board for
which the Board would like to express their great appreciation.
The Company employed a leading international search firm to identify candidates
in North and South America and Europe as well as the UK to replace Mr Zagoreos.
In his place we have been fortunate to secure the services of Laurence Whitehead
who is an Official Fellow in Politics and Senior Fellow of Nuffield College,
Oxford. He has followed Latin American developments for the past thirty years,
covering both economic and political trends throughout the region. He has served
on the College's Investment Committee since 1975 and became the Director of the
Oxford University Centre for Mexican Studies when founded in 2002. One of its
main research priorities are issues relating to Mexico's competitiveness.
Management
Rupert Brandt took over from Emily McLaughlin as the Fund Manager on 1 April
2003. He and his team have produced excellent results in the intervening period.
Rupert had very successfully managed the Mexican and Argentine portion of the
Company's investments since 1998, which comprised up to 50% of the Company's NAV
over this period. Jeff Chowdhry, Joint Head of Emerging Markets at F&C, also has
a close involvement to ensure that the overall resources applied to your Company
are utilised in the most effective way. F&C currently has over US$1.6 billion in
equities and US$1.5 billion in fixed interest under management in Latin America,
making it one of the leading Latin American fund managers in the world.
The Board, having reviewed the Manager's performance, proposes to continue the
management contract with F&C following, and dependent upon, the passing of the
Continuation Resolution at the AGM. We are pleased to report that we have
negotiated the following significant improvements to the terms on F&C's
appointment from 1 January 2004: the management fee structure has fallen from
1.5% per annum of gross assets up to US$216 million and 1% per annum thereafter
to 1.5% per annum of net assets up to US$200 million and 1% per annum
thereafter, and the notice period has been reduced from twelve months to six
months. F&C has also agreed to waive its right to the remaining management
company options.
Prospects
The outlook for Latin American stockmarkets remains distinctly favourable as we
enter 2004. The combination of very low interest rates in the US, EU and Japan
is providing plenty of liquidity, whilst the acceleration in the global economy
is helping to support an economic recovery across the region. We expect the
Brazilian, Chilean and Mexican economies to mount meaningful economic
accelerations over 2004 and all to report relatively robust GDP growth ranging
between 3-5%, which should help produce double digit corporate profit growth in
Latin American equities in 2004. We are particularly positive about the
Brazilian economic recovery, where we expect the rate of inflation to continue
to fall in 2004; this should result in further interest rate cuts. We believe
that very material improvements in Brazil's fiscal and balance of payments
positions have the potential to make this economic recovery much more durable
than previous recoveries. We believe that Peru and Colombia will continue
growing at similar rates to 2003. Argentina is the only economy where we expect
to see economic growth decelerate in 2004. The region remains very inexpensive,
trading on a price to earnings multiple of ten times consensus 2004 earnings
expectations, and this should facilitate a continued rally. The main external
risks are a stalling of the US economic recovery or inflationary pressures that
may start to build up causing an interest rate shock. The main regional risks
include the loss of momentum in the regional economic recovery, an unexpected
acceleration in inflation or unpredictable negative political change.
Future of your Company
At the Annual General Meeting the bi-annual resolution for the continuation of
the Company in its present form will be put to shareholders. Regular meetings
with many of our shareholders lead us to believe that there is continued demand
for a well-managed, Latin American closed-end regional fund given the volatile
nature of the region's stockmarkets. The Board and Manager believe that tactical
gearing can be used very effectively in Latin America and we envisage your
Company being either geared or in a net cash position in the future at different
times of the cycle. This is a major advantage of the closed-end structure. The F
&C Latin American Investment Trust remains the biggest and most liquid Latin
American regional fund in its peer group. The Company was the best performing
fund in our closed-end peer group over one year and are second over five years.
The Company benefits from the knowledge and experience of a dedicated Latin
American team at F&C, which is one of the largest managers of Latin American
assets in the world. The Board recommends that shareholders vote in favour of
the continuation vote at the forthcoming AGM, as they intend to do in respect of
their beneficially held shares.
Annual General Meeting
The AGM will be held at 12.15 pm on Wednesday, 5 May 2004 at the offices of F&C.
We hope that as many shareholders as possible will attend. Following the AGM,
Rupert Brandt will give a brief presentation following which shareholders are
invited to join the Board and Managers at a buffet lunch.
Peter Burnell
March 2004
Balance Sheet at 31 December
2003 2002
US$'000s US$'000s
Fixed assets
Investments 246,626 130,370
Current assets
Debtors 2,305 841
Taxation recoverable 109 109
Short-term deposits - 13,011
Cash at bank 3,185 3,474
5,599 17,435
Current liabilities
Creditors: amounts falling due within one year
Bank loans (22,250) (29,500)
Other (2,839) (1,462)
(25,089) (30,962)
Net current liabilities (19,490) (13,527)
Total assets less current liabilities 227,136 116,843
Creditors: amounts falling due after more than one year
Bank loans (7,250) -
Net assets 219,886 116,843
Capital and Reserves
Called up share capital:
Including non-equity share capital 7,400 7,400
Share premium 61,544 61,544
Capital redemption reserve 313 313
Warrant reserve 4,356 4,356
Capital reserves 146,273 44,943
Revenue reserve - (1,713)
Total shareholders' funds 219,886 116,843
Equity interests 219,862 116,819
Non-equity interests 24 24
Total shareholders' funds 219,886 116,843
Net asset value per ordinary share
Basic - cents 298.06 158.37
Diluted - cents 268.44 149.64*
* Restated in accordance with the revised SORP issued in January 2003.
Geographical distribution of total assets less current liabilities (excluding
loans) at 31 December 2003 was: Brazil 50.1%; Mexico 34.4%; Chile 14.0%; Peru
1.4%; Other 0.1%.
Statement of Total Return (incorporating the Revenue Account*)
for the year ended 31 December
2003 2002
Revenue Capital Total Revenue Capital Total
US$'000s US$'000s US$'000s US$'000s US$'000s US$'000s
Gains/(losses) on investments - 101,536 101,536 - (55,257) (55,257)
Exchange (losses)/gains (49) (189) (238) 33 312 345
Income 7,138 - 7,138 5,067 - 5,067
Management fee (2,716) - (2,716) (2,587) - (2,587)
Loss on warrants purchased for
cancellation - - - - (236) (236)
Other expenses (858) (17) (875) (680) (53) (733)
Net return before finance costs
and taxation 3,515 101,330 104,845 1,833 (55,234) (53,401)
Interest payable and similar
charges (690) - (690) (863) - (863)
Return on ordinary activities
before taxation 2,825 101,330 104,155 970 (55,234) (54,264)
Taxation on ordinary activities (699) - (699) (455) 5 (450)
Return on ordinary activities
after taxation 2,126 101,330 103,456 515 (55,229) (54,714)
Dividend on ordinary shares (413) - (413) - - -
Amount transferred
to/(from) reserves 1,713 101,330 103,043 515 (55,229) (54,714)
Return per ordinary share
(basic) - cents 2.88 137.37 140.25 0.69 (74.47) (73.78)
Return per ordinary share
(diluted) - cents 2.71 0.66
* The revenue column of this statement is the profit and loss account of the
Company.
All revenue and capital items in the above statement derive from continuing
operations.
Cash Flow Statement for
the year ended 31 December
2003 2002
US$'000s US$'000s
Net cash inflow from operating activities 2,239 1,958
Interest paid (456) (830)
Taxation paid (421) (390)
Net cash (outflow)/inflow from financial investment (14,521) 10,033
Net cash (outflow)/inflow before use of liquid resources
and financing (13,159) 10,771
Decrease/(increase) in short-term deposits 13,011 (6,511)
Net cash outflow from financing - (1,712)
(Decrease)/increase in cash (148) 2,548
Notes
The Board has declared an interim dividend 0.56 cents per share payable on 2
April 2004, to shareholders on the register on 12 March 2004. The Board is not
recommending a payment of a final dividend.
The above financial information comprises non-statutory accounts within the
meaning of section 240 of the Companies Act 1985. The financial information for
the year ended 31 December 2002 has been extracted from published accounts for
the year ended 31 December 2002 that have been delivered to the Registrar of
Companies and on which the report of the auditors was unqualified.
Diluted net asset value per ordinary share has been calculated in accordance
with the Articles basis as set out in the Statement of Recommended Practice
'Financial Statements of Investment trust Companies' (SORP) issued in January
2003. Prior period figures have been restated accordingly.
The report and accounts will be posted to shareholders at the end of March 2004
and copies
Maybe obtained during normal business hours from the Registered
Office of the Company, Exchange House, Primrose Street, London, EC2A 2NY.
The Annual General Meeting will be held at the Company's Registered Office,
Exchange House, Primrose Street, London EC2A 2NY, on Wednesday 5 May 2004, at
12.15 p.m.
By order of the Board
F&C Emerging Markets Limited, Secretary
3 March 2004
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