TIDMBRFI
BlackRock Frontiers Investment Trust plc
(LEI: 5493003K5E043LHLO706)
Annual results announcement for the year ended 30 September 2023
Performance record
The Company's financial statements are presented in US Dollars. The Company's
shares are listed on the London Stock Exchange and quoted in British Pound
Sterling. The British Pound Sterling amounts for performance returns shown below
are presented for convenience. The difference in performance returns measured in
US Dollars and in British Pound Sterling reflects the change in the value of
British Pound Sterling versus the US Dollar over the period.
As at As at
30 September 30 September
2023 2022
US Dollar
Net assets (US$'000)1 363,598 302,656
Net asset value per ordinary share (cents) 192.05 159.86
Ordinary share price (mid-market)2 (cents) 175.76 142.61
--------------- ---------------
British Pound Sterling
Net assets (£'000)1,2 297,897 271,124
Net asset value per ordinary share2 (pence) 157.35 143.21
Ordinary share price (mid-market) (pence) 144.00 127.75
Discount3 8.5% 10.8%
========= =========
Performance For the year For the year Since
ended ended inception4
30 September 30 September %
2023 2022
% %
US Dollar
Net asset value per share +25.1 -10.9 +100.0
(with dividends
reinvested)3
Benchmark Index (NR)5,6 +5.0 -7.3 +42.1
MSCI Frontier Markets Index +6.5 -25.2 +32.8
(NR)6
MSCI Emerging Markets Index +11.7 -28.1 +17.3
(NR)6
Ordinary share price (with +28.8 -10.0 +81.1
dividends reinvested)3
--------------- --------------- ---------------
British Pound Sterling
Net asset value per share +14.3 +7.7 +154.6
(with dividends
reinvested)3
Benchmark Index (NR)5,6 -3.9 +12.0 +80.1
MSCI Frontier Markets Index -2.6 -9.6 +69.6
(NR)6
MSCI Emerging Markets Index +2.2 -13.2 +49.9
(NR)6
Ordinary share price (with +17.7 +8.7 +130.2
dividends reinvested)3
========= ========= =========
1The change in net assets reflects dividends paid and portfolio movements during
the year.
2Based on an exchange rate of US$1.2206 to £1 at 30 September 2023 and US$1.1163
to £1 at 30 September 2022.
3Alternative Performance Measures, see Glossary in the Company's Annual Report
for the year ended 30 September 2023.
4The Company was incorporated on 15 October 2010 and its shares were admitted to
trading on the London Stock Exchange on 17 December 2010.
5With effect from 1 April 2018, the Benchmark Index changed to the MSCI Emerging
Markets Index ex Selected Countries + MSCI Frontier Markets Index + MSCI Saudi
Arabia Index. Prior to 1 April 2018, the Benchmark Index was the MSCI Frontier
Markets Index. The performance returns of the Benchmark Index since inception
have been blended to reflect this change.
6Net return (NR) indices calculate the reinvestment of dividends net of
withholding taxes.
Sources: BlackRock and Datastream.
Chairman's statement
Overview
Over the year to 30 September 2023, your Company's Net Asset Value per share
produced a total return of +25.1%, compared to an increase in the Benchmark
Index of +5.0%, resulting in an outperformance of 20.1%1.
For Sterling based shareholders, the equivalent return for the year was +14.3%,
with the Benchmark Index returning -3.9%, representing an outperformance of
18.2%1.
Since the financial year end, and up to close of business on 27 November 2023,
the Company's NAV has increased by 0.6% compared with an increase in the
Benchmark Index of 0.9% over the same period1. For Sterling based shareholders,
the equivalent return for the financial year to date was -2.6%, with the
Benchmark Index returning -2.3%, representing an underperformance of 0.3%1.
Our portfolio managers provide a detailed description of the key contributors
and detractors to performance during the period, insight into the positioning of
the portfolio and their views on the outlook for the forthcoming year in their
report which follows.
I am also pleased to be able to tell you that the Company won the Investment
Week Investment Company of the Year Award 2023 - Global Emerging Markets
category for the second year in a row. The Company also won the AJ Bell
Investment Award 2023 in the Emerging Markets Equity - Active category and the
CityWire Investment Trust Award 2023 - Global Emerging Markets Equities Trust. I
am sure shareholders will join me in congratulating the investment team on these
achievements.
Revenue return and dividends
The Company's revenue return per share for the year amounted to 8.38 cents
(2022: 6.35 cents). The Directors are recommending the payment of a final
dividend of 4.90 cents per ordinary share (2022: 4.25 cents) in respect of the
year ended 30 September 2023. Together with the interim dividend of 3.10 cents
per share (2022: 2.75 cents), this represents a total of 8.00 cents per share
(2022: 7.00 cents).
Subject to shareholder approval, this dividend will be paid on 14 February 2024
to shareholders on the register at close of business on 5 January 2024. The ex
-dividend date will be 4 January 2024. The Company does not have a policy of
actively targeting income; nevertheless, this return represents an attractive
yield of 4.6% (please see the Glossary in the Company's Annual Report for the
year ended 30 September 2023 for the inputs to the yield calculation).
Fees and charges
Following an impressive outperformance of the Benchmark Index during the
financial year, the Manager has generated a performance fee of US$8.27m for the
year ending 30 September 2023. As per best practice, the performance fee
structure is subject to a maximum cap and a high water mark. This mechanism
requires the Manager to catch up any previous cumulative underperformance
against the benchmark before a performance fee can be generated. Further details
of the Company's costs and charges can be found in note 4 and in the Glossary in
the Company's Annual Report for the year ended 30 September 2023.
Share capital management
For the year under review, the Company's ordinary shares have traded at an
average discount to NAV of 8.4% and were trading at a discount of 7.3% on a cum
-income basis at 27 November 2023, the latest practicable date prior to the
issue of this report.
The Directors recognise the importance to investors of ensuring that the
Company's share price should not trade at a significant discount or premium to
NAV. Accordingly, the Directors monitor the share price closely and will
consider the issue of shares at a premium or the repurchase at a discount to
help balance demand and supply in the market. The Board monitors the Company's
discount to NAV closely and receives regular updates from the Manager and our
corporate broker, Winterflood Securities. In the Board's opinion it is important
to consider the discount in the context of the wider market conditions, with
investor sentiment and discounts being influenced by various external factors,
including the war in Ukraine, the conflict in the Middle East and prolonged
higher rates of inflation. Against this backdrop, the average discount for the
investment company sector as a whole has recently exceeded 16%, a level not seen
since the global financial crisis of 2008. The Company's discount compares
favourably to this, as it does to the average discount of the Global Emerging
Markets sector average which stood at 9.1% on 27 November 2023, the latest
practicable date prior to the publication of this report. Therefore, the Board
decided not to buy back any of its shares during the financial year. The Company
also provides a five yearly opportunity for shareholders to realise the value of
their ordinary shares at the applicable NAV less costs. The next such
opportunity will occur in early 2026.
The Board believes that the best way to encourage a narrowing of the discount at
which the Company's shares trade is to continue to deliver strong investment
performance and to communicate the unique attractiveness of our investment
proposition to both existing and new shareholders.
As at 30 September 2023, the Company had 189,325,748 ordinary shares in issue,
excluding 52,497,053 shares held in treasury. The Board will consider whether it
is in shareholders' interests to continue to hold shares in treasury or whether
they should be cancelled. No shares were issued or bought back during the year
under review or post year end from 1 October 2023 up to the date of this report.
The Directors have been granted the authority by shareholders to buy back up to
14.99% of the Company's issued share capital (excluding any shares held in
treasury) and also to issue or sell from treasury on a non-pre-emptive basis up
to 10% of the Company's issued share capital. Both authorities expire on the
conclusion of the forthcoming Annual General Meeting (AGM) to be held on
Tuesday, 6 February 2024, at which time resolutions will be put to shareholders
seeking a renewal of these powers. Further information can be found in the
Directors' Report in the Company's Annual Report for the year ended 30 September
2023.
Consolidation opportunities
The Board is aware of an ongoing trend of consolidation within the wealth
management industry and the implications this may have on smaller investment
companies given the demand for larger, more liquid investment vehicles. With net
assets of £290million as at 27 November 2023, the Board believes the Company is
in a good position in this regard. Further, the Board believes the Company's
strong long term performance record, relatively narrow discount and attractive
dividend should position it well to act as a consolidator. As part of the
Board's ongoing strategic considerations, and against the backdrop of a number
of mergers amongst closed-ended investment companies in recent years, the Board
regularly considers possible consolidation opportunities that might enhance
value for the Company's shareholders. The Board will always continue to
consider whether any transaction would be in shareholders' long-term interests.
Gearing
One of the advantages of the investment trust structure is that the Company can
use gearing with the objective of increasing portfolio returns over the longer
term. The Company utilised its ability to gear the portfolio through its CFD
exposure during the year. As at the year end, net gearing stood at 12.0%. This
is a higher level than in the recent past, reflecting our portfolio managers'
positive view on the smaller emerging and frontier markets opportunity set where
they see value in both currencies and equity markets across our investment
universe.
Board composition
On 1 February 2023 the Board announced that, as part of its ongoing succession
plans, and having each served for a tenure of in excess of 12 years, both Sarmad
Zok and I would step down from the Board at the next AGM to be held in February
2024. In accordance with our succession plans, the Board is currently
undertaking a process to identify a replacement for Sarmad whose in-depth
knowledge and on the ground insights into the culture, customs and business
practices in the Frontier Markets have been invaluable. The Board intends to
announce the new Board appointment in due course.
As announced in the Half-Yearly Report earlier this year, it has been agreed
that Katrina Hart, our current Senior Independent Director, will succeed me as
Chairman upon my retirement from the Board at the AGM in 2024. Katrina possesses
a great deal of investment trust specific expertise and asset management
experience, both through her executive career in investment banking and equities
research and in her current involvement with a number of complementary boards.
It has also been agreed that Elisabeth Airey, also a serving Director, will
succeed Katrina as our Senior Independent Director.
Further information on their respective backgrounds and experience can be found
in the Company's Annual Report for the year ended 30 September 2023.
As at 30 September 2023 the Board consisted of six independent non-executive
Directors. As part of its succession plan the Board regularly considers its
composition to ensure that a suitable balance of skills, knowledge, experience,
independence and diversity is achieved to enable the Board to effectively
discharge its duties. The Directors submit themselves for re-election annually
and therefore all Directors, other than myself and Sarmad Zok, will stand for re
-election at the forthcoming AGM.
Corporate governance
The Board takes its governance responsibilities very seriously and follows best
practice requirements as closely as possible. The UK Code of Corporate
Governance (the UK Code) requires enhanced disclosure setting out how we, as
Directors, have fulfilled our duties in taking into account the wider interests
of stakeholders in promoting the success of the Company.
As it does each year, and as required by the Corporate Governance Code, the
Company undertook a comprehensive Board evaluation this year. The overall
conclusion was very positive in terms of the effectiveness of the Board, and the
skills, expertise and commitment of the Directors. The combination of our
succession plan and structured search and selection process through which the
Board identifies new appointments and the annual Board evaluation of their
ongoing performance means that the Board remains confident that each Director is
discharging their role effectively.
The Board is also cognisant of the risk of "overboarding" and has considered the
time commitment required by the Directors' other roles, taking into account
their nature and complexity. The Board reviews this information annually, for
each Director, including my own as Chairman of the Board, to ensure that all
Directors have sufficient capacity to carry out their role effectively. Before
recommending a Director for re-election, their independence, attendance record
and ongoing commitment to the affairs of the Company are also considered.
Board diversity
I am pleased to report that the Board is compliant with the recommendations of
the Parker Review and the FTSE Women Leaders Review and, at the date of this
report, we have a 50:50 gender ratio. For the first time this year, and in
accordance with the Listing Rules, we have also disclosed the ethnicity of the
Board and our policy on matters of diversity. The disclosure can be found in the
Company's Annual Report for the year ended 30 September 2023.
Environmental, Social and Governance (ESG) considerations
Material ESG issues can present both opportunities and risks to long-term
investment performance. While the Company does not have an ESG investment
objective or exclude investments based only on ESG criteria, these ethical and
sustainability issues are a consideration of the Company, and your Board is
committed to a diligent oversight of the activities of our Investment Manager in
these areas. The frontier markets in which the Company can invest are home to
over 3 billion of the world's population and through our investments we bring
much needed capital to markets largely overlooked by developed world investors.
We believe that the companies in which the portfolio is invested should operate
within a healthy ecosystem of all their stakeholders whether these be
shareholders, employees, customers, regulators or suppliers and that this can
aid the sustainability of long-term returns. Further information can be found in
the Company's Annual Report for the year ended 30 September 2023.
Annual general meeting
I am pleased to report that it is the Board's intention that this year's AGM
will be held in person at 12:30 p.m. on Tuesday, 6 February 2024 at the offices
of BlackRock at 12 Throgmorton Avenue, London EC2N 2DL.
The Board very much looks forward to meeting shareholders and answering any
questions you may have on the day. We hope you can attend this year's AGM.
Shareholder communication
We appreciate how important access to regular information is to our
shareholders. To supplement our Company website, we continue to offer
shareholders the ability to sign up to the Trust Matters newsletter which
includes information on the Company as well as news, views and insights. Further
information on how to sign up is included on the inside cover of this report.
Outlook
While developed market economies have been experiencing heightened inflation,
slowing growth and the spectre of recession, by contrast, many of the countries
in our frontier market universe are in the growth phase of their economies.
Moreover, a significant proportion of frontier markets are further along the
curve in their monetary tightening cycle, having raised interest rates earlier,
and in many cases have now already cut interest rates. Our portfolio managers
believe that this represents a more stable and benign environment for growth.
Moreover, this lack of correlation with developed market economies remains one
of the Company's key attractions for investors seeking portfolio
diversification.
Our managers also note that the rise in geo-political tensions globally is
leading major developed economies to diversify their food, energy and technology
supply chains, to the benefit of many of the countries in which they invest.
This, combined with an investment universe of countries with favourable
demographics, a growing and more affluent middle-class, relatively low debt and
low stock market valuations, both versus developed markets and their own
history, presents an ever more compelling investment case for exposure to
frontier markets. In addition, alongside capital growth, the Company's dividend
yield remains an attractive element of the Company's investment proposition. I
am pleased that we have again been able to grow our earnings and increase the
dividend distributed to shareholders this year.
As I look back over my tenure as Chairman of the Board since launch in late
2010, I am reminded of the various political and economic crises through which
we have had to navigate, both domestically and globally. I am proud of what the
Company has achieved, and I thank my fellow directors, past and present, for the
benefit of their collective wisdom, experience, and expertise and their
contribution to the success of the Company. I would also like to take this
opportunity to thank our portfolio managers for their dedication to and passion
for frontier market investing, and their unwavering commitment to travelling the
globe in search of the best and brightest companies that frontier markets have
to offer.
As I sign off on my tenure, I am confident that the leadership of the Company is
in safe hands with my successor, Katrina. I am also reassured that our portfolio
managers continue to express the same infectious enthusiasm and excitement about
the opportunities available in frontier markets as they did when we launched the
Company in 2010. I believe the Company's offering is truly unique and continues
to provide our shareholders with access to dynamic markets and fast growing,
exciting companies. I wish the team well for the future and thank shareholders
for their loyalty and support.
AUDLEY TWISTON-DAVIES
Chairman
29 November 2023
1All numbers in US Dollar terms with dividends reinvested.
Investment Manager's Report For the year ended 30 September 2023
Market review
The 2020s look set to be a decade dominated by geopolitics and 2023 was no
exception. Tensions between China and the West remain at elevated levels, the
conflict between Russia and Ukraine continues and post year end we have seen
devastating loss of life in the Middle East. Remarkably, despite this backdrop,
2023 was a very strong year for Trust performance.
For the year ended 30 September 2023, the Company's NAV returned 25.1%, compared
with a Benchmark Index return of 5.0% in US Dollar terms. In British Pound
Sterling terms, the Company's NAV was up by 14.4%, relative to a Benchmark Index
return of -3.9%. For reference, the MSCI Emerging Markets Index was up by 11.7%
and the MSCI World Index by 22.0% over the same period (in US Dollar terms).
Under the hood, the drivers of various parts of the frontier markets universe
are unsurprisingly quite divergent.
Many of the countries where we invest have sought to walk the tightrope of
occupying neutral ground between the global super powers of East and West. US
policy looking to reshore manufacture of sensitive technology items is
pressuring companies to consider expanding their production bases. Coming on the
back of the supply chain challenges that we saw during COVID and the concerns
that brought around food and energy security, we have seen companies continue to
invest in geographic diversification. ASEAN, Emerging Europe and Latin America
are the likely beneficiaries and should benefit disproportionately given the
smaller size of the economies relative to the global supply chains. Investment
has come from both East and West. As an example, Vietnam has not only seen
Global players such as Apple and Dell announce expanded manufacturing
operations, but has also seen an uptick in foreign direct investment from
Chinese exporters looking fearful of losing their market share.
Inflation has dominated global investor conversations through 2023. Notably in
our markets, inflation peaked in almost all countries around the end of Q1 2023.
Central banks in frontier and small emerging markets have generally exercised
orthodox monetary policy, having started increasing rates co-incident with
inflation, equating to around 12 months ahead of the West. This has meant that
they have had some scope through H2 2023 to start to reduce rates. Latin America
and Eastern Europe contain good examples of this: Chile has cut rates 100bps
since July from 11.25% and Hungary has reduced its rate from 18% to 13%.
Normalisation of rates would typically be a good set up for our markets,
allowing domestic growth to recover and accelerate.
2023 was a notable year from a political context for many markets with elections
taking place in Greece, Thailand, and Turkey. Over the next twelve months there
will be elections in Indonesia and Ecuador to name a few. The market reactions
to these recent elections have been the strongest deservedly mixed. In Greece,
political party New Democracy, led by PM Mitsotakis picked up 41% of the vote to
Syriza's 20%, exceeding poll predictions and, giving a strong mandate for a
second term. We expect their agenda of bureaucratic reform, privatisation and
investment to provide a strong underpin for the economy. In Thailand, the Move
Forward party won more seats than Pheu Thai, the expected leaders. However, Pita
Limjaroenrat, leader of Move Forward was not able to form a sufficiently large
coalition government to win a majority in the combined upper and lower house. We
were initially hopeful for change in policy direction, but expect the current
government to lean towards policy continuity. Finally in Turkey, the opposition
lost once more! We observe the turn towards economic orthodoxy by President
Erdogan since his recent election win out of necessity but remain cautious on
the exchange rate given the recent inflation print of 61.5% for September 2023.
Markets in Central Europe have been notable performers over the 1-year period.
Hungary (+76%) and Poland (+59%) have performed well, with banks leading the way
in both markets. Higher interest rates have resulted in significant increases in
net interest margins, particularly in countries where rates are tied to European
rates, the change in profitability has been dramatic.
In Latin America all markets have generated positive returns. Within the region,
Argentina (+62%) was the best performing market ahead of elections. These
elections concluded 19 November 2023, with libertarian Javier Milei picking up a
majority of the votes ahead of Sergio Massa, the centrist rival. We believe
Milei's victory will bring with it a significant change in policy direction, and
initial market reactions to his win have been positive. We do however believe
that the economic situation in Argentina will remain challenging and difficult
due to a plethora of issues, including high inflation.
In Southeast Asia, performance was more fragmented with Philippines (+18%) being
the top performer. Philippines performance was helped by market-friendly
policies set forth by current president Ferdinand Marcos Jr, who won the
election in June last year. Vietnam on the other hand lagged. Tight liquidity
conditions, a government corruption crackdown and a slowdown in the property
sector impacted the market which fell -9% over the 1-year horizon.
Due diligence on the ground
We have continued to travel extensively across the emerging and frontier world
in the pursuit of alpha. Travel is an integral part of our responsibilities as
Fund Managers as the information we obtain on these trips serves as important
input in our decision-making progress. Speaking to companies on the ground,
understanding the ecosystem surrounding the company and talking to suppliers and
clients all matter in our effort to form a holistic view of the companies in
which we invest. To that end, travel continued as normal throughout the period,
and we have visited many countries. We will highlight just a couple here.
Recent travel to Malaysia left us more optimistic about how the country can
benefit from regional semiconductor and tech packaging supply chains
diversifying away from China and Taiwan amid growing geopolitical risks. We also
visited Egypt and came back more cautious. Although policy makers have allowed
the Egyptian Pound to materially devalue we felt there was little appetite to
allow a free float, with clear preference to sell domestic assets to raise
dollars. Whilst the plan has merits, with high inflation and an unwillingness to
raise rates further, we don't think they'll be able to sell assets fast enough
to fund that gap.
Another country the team visited over the period was Bangladesh, a fruitful trip
that left us positive on the opportunity set within the country. For example,
Bangladesh is famous for its garmenting and is now the world's second largest
garment manufacturer. We believe the country can use its manufacturing expertise
to gain market share in other manufacturing sectors. Our experience tells us
that there are real benefits to investing in an emerging market when the country
is in real need of foreign capital and before other foreign investors get there
- Bangladesh meets those criteria. However, there are challenges which still
need resolving - among them the currency needs to weaken and the floor on stock
market prices needs to be dismantled.
Portfolio performance
Over the 12-month period, the Company generated positive returns in a number of
countries. Elm (+146%), the Saudi IT company, was the biggest contributor to
relative returns over the period. The company has done well on the back of
profit growth and re-rating from the digitisation theme we are seeing in the
Kingdom. The Qatar-based oil services holding company Gulf International
Services (+48.4%) also did well. The company's Q2 earnings surprised on the
upside and the share price was also helped by the company successfully
concluding a debt restructuring deal at favourable terms with lenders.
In Argentina our off-benchmark position in energy company Vista (+146%) was
amongst the top contributors at the company level. We expect growth in shale
production in Argentina to continue its dramatic growth profile and Vista will
remain at the centre of this. The company still believes they can nearly double
production volumes from this point.
Financials exposure has benefitted the Company, primarily through our exposure
to banks across CEEMEA markets. Polish bank PKO (+80%), National Bank of Greece
(+90%) and Hungary's OTP Bank (+103%) are all amongst the top contributing
companies over the period. In addition to a beneficial rates environment in
these markets, asset quality of the bank portfolios has been very benign, which
has translated into stronger than expected earnings. Financials exposure in
Kazakhstan also contributed positively, our overweight in Kaspi (+80%), the
payments and e-commerce company, was a significant contributor to overall
returns. This has been a long-term holding in the Fund with a proposed US
listing in Q4 this year, which should hopefully lead to further value unlocking.
In Asia, Vietnamese tech conglomerate FPT Corp (+29%) did well. This business
contains a fast-growing IT services business that retains a cost advantage and
has been able to win new mandates in developed markets. Given its relatively
small size compared to Indian and global peers, the company has a long runway
for growth. Indonesian clothing retailer, Mitra Adiperkasa (+70%) did well on
the back of strong results as strong like-for-like sales continued from market
share gains in the apparel market in Indonesia.
While Financials exposure has benefitted the Fund more broadly, some names have
lagged with Saudi National Bank (-28%) being the biggest detractor over the
period. The bank made a non-core investment in Credit Suisse which had to be
written off. The market has penalised the bank for poor capital allocation and
the domestic corporate credit growth picture remains murky at best. However,
this remains our preferred bank exposure in Saudi Arabia, as it prices in rates
normalisation and the valuation is compelling at current levels. Elsewhere in
the Kingdom, Saudi Telecom also fell (-9%). While earnings per share have been
good, there has been no uplift in dividend which disappointed the market. We
exited the position in February. Another detractor over the period was our off
-benchmark holding in Nagacorp (-37%), the Cambodian integrated-gambling resort
operator. The recovery of Chinese travellers to pre-covid levels has been slower
than expected, but despite that, the company is still generating strong free
cash flows.
Investment activity
We have reduced our overall exposure to the Middle East, primarily through
reducing our financial holdings in Saudi Arabia. In the banking sector in
particular, we believe margins have peaked out, liquidity is tight and
valuations are high overall. On this view, we rotated some financials exposure
from the Kingdom to UAE by exiting our holding in Riyad Bank and rotating this
into Abu Dhabi Commercial Bank. We also exited Saudi British Bank on a similar
view. We are however finding value in other sectors within the country and have
increased exposure to petrochemical names. We initiated a position in Saudi
Basic Industries on the view that margins are at 10-year troughs and as the
company is still free cash flow positive, it should do well on an eventual
economic upswing.
We have continued to increase our exposure to countries we see benefitting from
the recalibration of supply chains, many of which are in Southeast Asia. In the
Philippines we have initiated positions in sectors spanning from real estate to
financials. We initiated a position in property developer Ayala Land as the
stock has meaningfully corrected and we see a potential turnaround in the local
real estate cycle. We also recently re-initiated a position in Bloomberry
Resorts, a Philippines based resort and casino operator, on the view that strong
volume growth will continue and that leverage is likely to fall from current
levels. Elsewhere in the region, we increased our exposure to the telecom space
in Thailand on the back of consolidation in the sector. We also continue to be
positive on Indonesia.
We have taken profits in various European banks like National Bank of Greece,
OTP Bank in Hungary and in Polish bank PKO. We exited Titan Cement, the Greek
cement and building materials producer as our investment view played out. In
Latin America, we exited pan-American airline Copa as the stock reached our
target price following a strong earnings release.
Outlook
We believe global markets are starting to feel the impact of higher interest
rates, noting slowing credit growth as evidence that a demand slowdown is
imminent in developed markets. When combined with a Chinese economy which is
struggling to find its footing we find it difficult to see where a meaningful
pick up in global growth could come from.
In contrast we see better fundamentals in frontier and smaller emerging markets.
Monetary tightening across much of our universe was ahead of that in developed
markets as well as, in many cases, stronger than in past cycles, particularly in
Latin America and Eastern Europe. With inflation falling across many countries
within our universe, rate cuts have already taken place or are underway in some
of our markets. This is typically a good set up as domestic economies should see
a cyclical pick up. This is in stark contrast to many countries in the developed
world, where major economies like the US are still in a tightening cycle.
We continue to like Indonesia and the country is currently the largest absolute
weight in the portfolio. We are positive on the country's ability to grow, due
in part to beneficial policymaking. For example, by banning the export of raw
ore, Indonesia has increased the value of its mineral exports, enhanced its
domestic processing and refining capabilities, and created more economic
opportunities for its people. We therefore remain positive on their ability to
grow the value added from their nickel exports. We are also positive on other
ASEAN markets as we believe many of these countries stand to benefit from
increased geopolitical tensions worldwide. These countries will likely maintain
trade relations with both the West and the East, and can therefore benefit from
the shifting in global supply chains away from China.
Elsewhere we note the growth in oil and gas production in Argentina which is on
an impressive trajectory and where we have exposure. This shift is especially
important for a country short on foreign currency; Argentina needs to get this
export project ramped up to meaningfully change its economic circumstance.
A growing collection of the smaller markets including Pakistan, Sri Lanka, Kenya
and Nigeria have started to pique our interest again. Despite previously having
positions in some of these markets, they have been relatively un-investible for
the last few years as imbalances built up and policy makers responded with
significant capital controls. Year to date we have now seen more orthodox steps
to let the FX find a market equilibrium, through reducing intervention and
import controls. Many countries have hiked rates and secured an International
Monetary Fund (IMF) package. All these measures will help rebalance economies
and will allow markets to function properly. If they follow through on this
there could be some interesting investment opportunities in this cohort of
countries.
We remain positive on the outlook for small emerging and frontier markets versus
developed markets, and we find significant value in currencies and equity
markets across our investment opportunity set. We are optimistic over the long
-term in our under-researched frontiers universe which should continue to offer
compelling investment opportunities.
SAM VECHT, EMILY FLETCHER AND SUDAIF NIAZ
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
29 November 2023
Ten largest investments as at 30 September 20231
The Company's ten largest investments represented 32.2% of the Company's
portfolio as at 30 September 2023 (2022: 35.2%).
1 + Bank Central Asia (2022: n/a)
Financials (Indonesia)
Portfolio value: US$16,590,000
Percentage of net assets: 4.6% (2022: nil%)
Bank Central Asia is an Indonesian commercial bank headquartered in Jakarta. It
is the largest private bank in the country, offering commercial banking and
other financial services.
2 = Saudi National Bank2 (2022: 2nd)
Financials (Saudi Arabia)
Portfolio value: US$15,365,000
Percentage of net assets: 4.2% (2022: 4.6%)
Saudi National Bank is a commercial bank based in Saudi Arabia. The bank offers
current, savings, time, and other deposit accounts, auto leases, home financing,
corporate loans, currency exchange, money transfer, asset management, share
brokerage, initial public offering subscription and private banking services.
3 + JSC Kaspi (2022: 4th)
Financials (Kazakhstan)
Portfolio value: US$11,468,000
Percentage of net assets: 3.2% (2022: 3.4%)
JSC Kaspi is the largest payments, marketplace and fintech ecosystem in
Kazakhstan. The company has seen strong growth particularly in its marketplace
and payments verticals. The company began as a bank at first but expanded into
peer-to-peer payments and online marketplaces, particularly proving vital for
businesses during the lockdowns of 2020. The company is working on expanding
into other markets in Central Asia.
4 + Bank Mandiri (2022: 23rd)
Financials (Indonesia)
Portfolio value: US$11,348,000
Percentage of net assets: 3.1% (2022: 2.0%)
Bank Mandiri is one of the largest banks in Indonesia. The bank offers a range
of banking products and services segments from corporate to retail banking.
5 + Astra International (2022: 12th)
Industrials (Indonesia)
Portfolio value: US$10,861,000
Percentage of net assets: 3.0% (2022: 2.6%)
Astra International is an Indonesian auto conglomerate and the largest
independent automotive group in South East Asia.
6 - Emaar Properties (2022: 1st)
Real Estate (United Arab Emirates)
Portfolio value: US$10,687,000
Percentage of net assets: 2.9% (2022: 4.7%)
Emaar Properties is an Emirati real estate developer. The company is involved in
property investment, development, shopping malls, retail centres, hospitality
and property management services, and serves customers in the UAE.
7 + FPT2 (2022: 11th)
Information Technology (Vietnam)
Portfolio value: US$10,336,000
Percentage of net assets: 2.8% (2022: 2.6%)
FPT is Vietnam's largest information technology services company, with a focus
on information and communications technologies. The core business focuses on
consulting, providing and deploying technology and telecommunications services
and solutions.
8 + CP All (2022: n/a)
Consumer Staples (Thailand)
Portfolio value: US$10,302,000
Percentage of net assets: 2.8% (2022: nil%)
CP All is a convenience store operator based in Thailand. It also operates
wholesale business, retail business and mall, payment centres and related
supporting services. The convenience stores are operated under the 7-Eleven
trademark.
9 + Saudi Basic Industries Corporation2 (2022: n/a)
Materials (Saudi Arabia)
Portfolio value: US$10,108,000
Percentage of net assets: 2.8% (2022: nil%)
Saudi Basic Industries Corporation (SABIC), headquartered in Riyadh, is a steel
and chemicals manufacturer. The company is a subsidiary of Saudi Arabian Oil Co,
and engages in the production of petrochemicals, chemicals, industrial polymers,
fertilisers and metals.
10 + Advanced Info Service (2022: n/a)
Communication Services (Thailand)
Portfolio value: US$10,062,000
Percentage of portfolio: 2.8% (2022: nil%)
Advanced Info Service is a Thailand based telecom services provider. The company
operates through three segments: mobile phone services, mobile phone and
equipment sales, and Datanet and broadband services.
1Gross market exposure as a % of net assets.
2Exposure gained via long contracts for difference (CFDs) only.
Percentages in brackets represent the portfolio holding as at 30 September 2022.
Symbols indicate the change in the relative ranking of the position in the
portfolio compared to its ranking as at 30 September 2022.
Portfolio analysis as at 30 September 2023
Country allocation: Absolute weights (Gross market exposure as a % of net
assets)1
+--------------------+----+
| |% |
+--------------------+----+
|Saudi Arabia |17.6|
+--------------------+----+
|Indonesia |14.4|
+--------------------+----+
|Thailand |9.1 |
+--------------------+----+
|United Arab Emirates|8.5 |
+--------------------+----+
|Kazakhstan |7.6 |
+--------------------+----+
|Philippines |7.3 |
+--------------------+----+
|Hungary |5.9 |
+--------------------+----+
|Vietnam |5.7 |
+--------------------+----+
|Chile |5.5 |
+--------------------+----+
|Qatar |4.8 |
+--------------------+----+
|Malaysia |4.7 |
+--------------------+----+
|Poland |4.2 |
+--------------------+----+
|Colombia |3.3 |
+--------------------+----+
|Multi-International |2.6 |
+--------------------+----+
|Argentina |2.2 |
+--------------------+----+
|Czech Republic |2.0 |
+--------------------+----+
|Georgia |2.0 |
+--------------------+----+
|Turkey |2.0 |
+--------------------+----+
|Greece |1.5 |
+--------------------+----+
|Peru |1.3 |
+--------------------+----+
|Romania |1.2 |
+--------------------+----+
|Kuwait |1.1 |
+--------------------+----+
|Cambodia |1.0 |
+--------------------+----+
|Egypt |1.0 |
+--------------------+----+
|Ukraine |0.6 |
+--------------------+----+
|Kenya |0.5 |
+--------------------+----+
|Bangladesh |0.4 |
+--------------------+----+
Country allocation relative to the Benchmark Index (%)1
+--------------------+----+
| |% |
+--------------------+----+
|Kazakhstan |7.0 |
+--------------------+----+
|Hungary |4.6 |
+--------------------+----+
|Philippines |3.8 |
+--------------------+----+
|Indonesia |3.4 |
+--------------------+----+
|Vietnam |3.2 |
+--------------------+----+
|Colombia |2.7 |
+--------------------+----+
|Chile |2.7 |
+--------------------+----+
|Multi-International |2.6 |
+--------------------+----+
|Argentina |2.2 |
+--------------------+----+
|Georgia |2.0 |
+--------------------+----+
|Czech Republic |1.1 |
+--------------------+----+
|Cambodia |1.0 |
+--------------------+----+
|United Arab Emirates|0.7 |
+--------------------+----+
|Ukraine |0.6 |
+--------------------+----+
|Egypt |0.5 |
+--------------------+----+
|Kenya |0.3 |
+--------------------+----+
|Romania |0.3 |
+--------------------+----+
|Bangladesh |0.1 |
+--------------------+----+
|Poland |0.0 |
+--------------------+----+
|Sri Lanka |-0.1|
+--------------------+----+
|Lithuania |-0.1|
+--------------------+----+
|Estonia |-0.1|
+--------------------+----+
|Tunisia |-0.1|
+--------------------+----+
|Peru |-0.1|
+--------------------+----+
|Mauritius |-0.2|
+--------------------+----+
|Jordan |-0.2|
+--------------------+----+
|Pakistan |-0.2|
+--------------------+----+
|Bahrain |-0.2|
+--------------------+----+
|Croatia |-0.3|
+--------------------+----+
|Nigeria |-0.3|
+--------------------+----+
|Qatar |-0.3|
+--------------------+----+
|Oman |-0.4|
+--------------------+----+
|Slovenia |-0.4|
+--------------------+----+
|Other |-0.8|
+--------------------+----+
|Morocco |-0.9|
+--------------------+----+
|Greece |-1.0|
+--------------------+----+
|Thailand |-1.2|
+--------------------+----+
|Turkey |-2.2|
+--------------------+----+
|Malaysia |-3.0|
+--------------------+----+
|Kuwait |-3.4|
+--------------------+----+
|Saudi Arabia |-5.3|
+--------------------+----+
Sector allocation: Absolute weights (Gross market exposure as a % of net
assets)1
+----------------------+----+
| |% |
+----------------------+----+
|Financials |39.1|
+----------------------+----+
|Industrials |15.2|
+----------------------+----+
|Energy |13.7|
+----------------------+----+
|Materials |12.4|
+----------------------+----+
|Consumer Staples |10.5|
+----------------------+----+
|Information Technology|7.3 |
+----------------------+----+
|Communication Services|6.7 |
+----------------------+----+
|Consumer Discretionary|6.0 |
+----------------------+----+
|Real Estate |4.7 |
+----------------------+----+
|Utilities |2.0 |
+----------------------+----+
|Health Care |0.4 |
+----------------------+----+
Sector allocation relative to the Benchmark Index (%)1
+----------------------+----+
| |% |
+----------------------+----+
|Industrials |7.6 |
+----------------------+----+
|Energy |6.2 |
+----------------------+----+
|Information Technology|5.9 |
+----------------------+----+
|Consumer Staples |4.4 |
+----------------------+----+
|Materials |2.4 |
+----------------------+----+
|Consumer Discretionary|1.8 |
+----------------------+----+
|Real Estate |0.5 |
+----------------------+----+
|Communication Services|-1.9|
+----------------------+----+
|Utilities |-2.7|
+----------------------+----+
|Health Care |-2.7|
+----------------------+----+
|Financials |-3.5|
+----------------------+----+
1 Includes exposure gained through equity positions and long and short CFD
positions.
Sources: BlackRock and Datastream.
Investments as at 30 September 2023
Equity portfolio by country of exposure
Company Principal Sector Fair Gross market
country of value1 exposure as a
operation US$'000 % of net assets3
Bank Central Asia Indonesia Financials 16,590 4.6
Bank Mandiri Indonesia Financials 11,348 3.1
Astra Indonesia Industrials 10,861 3.0
International
Indofood CBP Indonesia Consumer 6,903 1.9
Sukses Makmur Staples
Mitra Adiperkasa Indonesia Consumer 6,499 1.8
Discretionary
--------- ---------------
------
52,201 14.4
========= =========
CP All Thailand Consumer 10,302 2.8
Staples
Advanced Info Thailand Communication 10,062 2.8
Service Services
Bangkok Bank Thailand Financials 5,560 1.5
True Corporation Thailand Communication 4,726 1.3
Services
--------- ---------------
------
30,650 8.4
========= =========
JSC Kaspi Kazakhstan Financials 11,468 3.2
Kazatomprom Kazakhstan Energy 8,499 2.3
Halyk Savings Bank Kazakhstan Financials 7,781 2.1
--------- ---------------
------
27,748 7.6
========= =========
Bloomberry Philippines Consumer 6,881 1.9
Discretionary
Ayala Land Philippines Real Estate 6,519 1.8
Metrobank Philippines Financials 5,124 1.4
Jollibee Foods Philippines Consumer 4,585 1.3
Discretionary
LT Group Philippines Industrials 3,322 0.9
--------- ---------------
------
26,431 7.3
========= =========
Sociedad Quimica y Chile Industrials 7,352 2.0
Minera - ADR
Cervecerias Unidas Chile Consumer 7,151 2.0
Staples
Empresas CMPC Chile Materials 5,600 1.5
--------- ---------------
------
20,103 5.5
========= =========
OTP Bank Hungary Financials 7,151 2.0
Wizz Air Holdings Hungary Industrials 6,604 1.8
MOL Group Hungary Energy 5,192 1.4
--------- ---------------
------
18,947 5.2
========= =========
Emaar Properties United Arab Real Estate 10,687 2.9
Emirates
Air Arabia United Arab Industrials 7,401 2.1
Emirates
--------- ---------------
------
18,088 5.0
========= =========
Malaysia Airports Malaysia Industrials 7,075 1.9
Holdings Berhad
Frontken Corp Malaysia Industrials 5,142 1.4
Pentamaster Malaysia Industrials 5,002 1.4
--------- ---------------
------
17,219 4.7
========= =========
PKO Bank Polski Poland Financials 9,536 2.6
PZU Poland Financials 5,877 1.6
--------- ---------------
------
15,413 4.2
========= =========
Bancolombia Colombia Financials 6,680 1.8
Ecopetrol Colombia Energy 5,445 1.5
--------- ---------------
------
12,125 3.3
========= =========
EPAM Systems Multi Information 9,377 2.6
-International Technology
--------- ---------------
------
9,377 2.6
========= =========
Vista Oil & Gas Argentina Energy 7,770 2.2
--------- ---------------
------
7,770 2.2
========= =========
Eldorado Gold Turkey Materials 7,274 2.0
--------- ---------------
------
7,274 2.0
========= =========
Bank of Georgia Georgia Financials 7,205 2.0
--------- ---------------
------
7,205 2.0
========= =========
Komercni Banka Czech Financials 7,141 2.0
Republic
--------- ---------------
------
7,141 2.0
========= =========
National Bank of Greece Financials 5,534 1.5
Greece
--------- ---------------
------
5,534 1.5
========= =========
Qatar Gas Qatar Energy 5,477 1.5
Transport Company
--------- ---------------
------
5,477 1.5
========= =========
Credicorp Peru Financials 4,699 1.3
--------- ---------------
------
4,699 1.3
========= =========
BRD-Groupe Société Romania Financials 4,356 1.2
Générale
--------- ---------------
------
4,356 1.2
========= =========
Mobile Kuwait Communication 3,887 1.1
Telecommunications Services
--------- ---------------
------
3,887 1.1
========= =========
NagaCorp Cambodia Consumer 3,810 1.0
Discretionary
--------- ---------------
------
3,810 1.0
========= =========
Equity Group Kenya Financials 1,685 0.5
--------- ---------------
------
1,685 0.5
========= =========
Square Bangladesh Health Care 1,344 0.4
Pharmaceuticals
--------- ---------------
------
1,344 0.4
========= =========
Ferrexpo Ukraine Materials 1,158 0.3
--------- ---------------
------
1,158 0.3
========= =========
Equity investments 309,642 85.2
========= =========
BlackRock's 64,875 17.8
Institutional Cash
Series plc - US
Dollar Liquid
Environmentally
Aware Fund (Cash
Fund)
--------- ---------------
------
Total equity 374,517 103.0
investments
(including Cash
Fund)
========= =========
CFD portfolio by country of exposure
Company Principal Sector Fair Gross Gross
country of value1 market market
operation US$'000 exposure3 exposure
US$'000 as a
% of net
assets3
Long positions
Saudi National Saudi Financials 15,365 4.2
Bank Arabia
Saudi Basic Saudi Materials 10,108 2.8
Industries Arabia
Corporation
Yanbu National Saudi Materials 9,108 2.5
Petrochemical Arabia
Abdullah Al Othaim Saudi Consumer 8,870 2.4
Markets Arabia Staples
Elm Saudi Information 6,968 1.9
Arabia Technology
Arabian Saudi Communication 5,353 1.5
Contracting Arabia Services
Services
Lumi Saudi Consumer 69 0.0
Arabia Discretionary
--------- ---------
------ ------
55,841 15.3
========= =========
FPT Vietnam Information 10,336 2.8
Technology
Petrovietnam Vietnam Energy 5,571 1.5
Drilling & Well
Services
Vietnam Dairy Vietnam Consumer 5,237 1.4
Products Staples
--------- ---------
------ ------
21,144 5.7
========= =========
Borouge United Materials 7,101 2.0
Arab
Emirates
Abu Dhabi United Financials 5,632 1.5
Commercial Bank Arab
Emirates
--------- ---------
------ ------
12,733 3.5
========= =========
Gulf International Qatar Energy 9,664 2.7
Services
Qatar Gas Qatar Energy 2,045 0.6
Transport Company
--------- ---------
------ ------
11,709 3.3
========= =========
Commercial Egypt Financials 3,507 1.0
International Bank
--------- ---------
------ ------
3,507 1.0
========= =========
Wizz Air Holdings Hungary Industrials 2,439 0.7
--------- ---------
------ ------
2,439 0.7
========= =========
Ferrexpo Ukraine Materials 886 0.3
--------- ---------
------ ------
886 0.3
========= ========= =========
Total long CFD (1,919) 108,259 29.8
positions
========= ========= =========
Total short CFD 87 (10,775) (3.0)
positions
========= ========= =========
Total CFD (1,832) 97,484 26.8
portfolio
========= ========= =========
Fair value and gross market exposure of investments as at 30 September 2023
Portfolio Fair Gross Gross
value1 market market
US$'000 exposure3 exposure
US$'000 as
a % of
net
assets3
2023 2022
Equity investments (see 309,642 309,642 85.2 74.8
footnote 1(a) below)
Total long CFD positions (1,919) 108,259 29.8 31.3
(see footnote 1(b) below)
Total short CFD positions 87 (10,775) (3.0) (5.2)
(see footnote 1(b) below)
--------- --------- --------- ---------------
------ ------ ------
Total gross market 307,810 407,126 112.0 100.9
exposure
Cash Fund 64,875 64,875 17.8 23.6
--------- --------- --------- ---------------
------ ------ ------
Total investments and 372,685 472,001 129.8 124.5
derivatives
========= ========= ========= =========
Cash and cash 5,283 (94,033) (25.9) (25.7)
equivalents1,2
Other net current (14,351) (14,351) (3.9) 1.2
(liabilities)/assets
Non-current liabilities (19) (19) 0.0 0.0
--------- --------- --------- ---------------
------ ------ ------
Net assets 363,598 363,598 100.0 100.0
========= ========= ========= =========
The nature of the Company's portfolio and the fact the Company gains significant
exposure to a number of markets through long and short CFDs means that the
Company will aim to hold a level of cash (or an equivalent holding in a Cash
Fund) on its balance sheet representing of the difference between the notional
cost of purchasing or selling the investments directly and the lower initial
cost of making a collateral payment on the long or short CFD contract.
The Company was geared through the use of long and short CFD positions and gross
and net gearing as at 30 September 2023 was 17.9% and 12.0% respectively (30
September 2022: 11.3% and 1.0% respectively). Gross and net gearing are
Alternative Performance Measures, see Glossary in the Company's Annual Report
for the year ended 30 September 2023.
1Fair value is determined as follows:
(a)Listed investments are valued at bid prices where available, otherwise at
latest market traded quoted prices.
(b)The sum of the fair value column for the CFD contracts totalling
US$(1,832,000) represents the net fair valuation of all the CFD contracts, which
is determined based on the difference between the notional transaction price and
market value of the underlying shares in the contract (in effect the unrealised
gains/(losses) on the exposed long and short CFD positions). The cost of
purchasing the securities held through long CFD positions directly in the market
would have amounted to US$110,178,000 at the time of purchase, and subsequent
movements in market prices have resulted in unrealised losses on the long CFD
positions of US$1,919,000 resulting in the value of the total long CFD market
exposure to the underlying securities decreasing to US$108,259,000 as at 30
September 2023. If the long positions had been closed on 30 September 2023 this
would have resulted in a loss of US$1,919,000 for the Company. The notional
price of selling the securities to which exposure was gained via the short CFD
positions would have been US$10,862,000 at the time of entering into the
contract, and subsequent movements in market prices have resulted in unrealised
gains on the short CFD positions of US$87,000 resulting in the value of the
total short CFD market exposure of these investments decreasing to US$10,775,000
at 30 September 2023. If the short positions had been closed on 30 September
2023, this would have resulted in a gain of US$87,000 for the Company.
2The gross market exposure column for cash and cash equivalents has been
adjusted to assume the Company purchased/sold direct holdings rather than
exposure being gained through long and short CFDs and forward currency
positions.
3Gross market exposure in the case of equity investments is the same as fair
value. In the case of long and short CFDs it is the market value of the
underlying shares to which the portfolio is exposed via the contract. Market
exposure in the case of forward currency positions is the value of the
receivable portion of the forward currency contracts.
Strategic report
The Directors present the Strategic Report of the Company for the year ended 30
September 2023.
Principal activity
The Company carries on business as an investment trust and its principal
activity is portfolio investment.
Investment objective
The Company's investment objective is to achieve long-term capital growth by
investing in companies domiciled or listed in or exercising the predominant part
of their economic activity in, less developed countries. These countries (the
"Frontiers Universe") are any country which is neither part of the MSCI World
Index of developed markets, nor one of the eight largest countries by market
capitalisation in the MSCI Emerging Markets Index: being Brazil, China, India,
South Korea, Mexico, Russia, South Africa and Taiwan (the "Selected Countries").
Strategy, business model and investment policy
Strategy
To achieve its objective, the Company invests globally in the securities of
companies domiciled or listed in or exercising the predominant part of their
economic activity in, the Frontiers Universe.
Business model
The Company's business model follows that of an externally managed investment
trust; therefore the Company does not have any employees and outsources its
activities to third party service providers, including BlackRock Fund Managers
Ltd (BlackRock or BFM) (`the Manager') which is the principal service provider.
The management of the investment portfolio and the administration of the Company
have been contractually delegated to the Manager. The Manager has delegated
certain investment management and other ancillary services to BlackRock
Investment Management (UK) Limited (BIM (UK)) (`the Investment Manager'). The
contractual arrangements with, and assessment of, the Manager are summarised in
the Company's Annual Report for the year ended 30 September 2023. The Investment
Manager, operating under guidelines determined by the Board, has direct
responsibility for the decisions relating to the day-to-day running of the
Company and is accountable to the Board for the investment, financial and
operating performance of the Company. Other service providers include the
Depositary and the Fund Accountant, The Bank of New York Mellon (International)
Limited (BNYM), and the Registrar, Computershare Investor Services PLC
(Computershare). Details of the contractual terms with third party service
providers are set out in the Directors' Report in the Company's Annual Report
for the year ended 30 September 2023.
Investment policy
The Company will seek to maximise total return and will invest globally in the
securities of companies domiciled or listed in or exercising the predominant
part of their economic activity in, the Frontiers Universe. Performance is
measured against the Company's Benchmark Index, which is a composite of the MSCI
Emerging Markets Index ex Selected Countries + MSCI Frontier Markets Index +
MSCI Saudi Arabia Index (net total return, USD). The Investment Manager is not
constrained by the geographical weightings of the Benchmark Index and the
Company's portfolio may frequently be overweight or underweight any particular
country relative to the Benchmark Index. The Company will exit any investment as
soon as reasonably practicable following the relevant company ceasing to be
domiciled or listed in or exercising the predominant part of its economic
activity in, the Frontiers Universe.
In order to achieve the Company's investment objective, the Investment Manager
selects investments through a process of fundamental and geopolitical analysis,
seeking long-term appreciation from mispriced value or growth. The Investment
Manager employs both a top-down and bottom-up approach to investing. It is
expected that the Company will have exposure to between 35 to 65 holdings.
Where possible, investment will generally be made directly in the stock markets
of the Frontiers Universe. Where the Investment Manager determines it
appropriate, investment may be made through collective investment schemes,
although such investments are not likely to be significant. Investment in other
closed-ended investment funds admitted to the Official List will not exceed more
than 10%, in aggregate, of the value of the Gross Assets (calculated at the time
of any relevant investment). It is intended that the Company will generally be
invested in equity investments; however, the Investment Manager may invest in
equity-related investments, such as derivatives or convertibles, and, to a
lesser extent, in bonds or other fixed-income securities, including high risk
debt securities. These securities may be below investment grade.
Due to national and/or international regulation, excessive operational risk,
prohibitive costs and/or the time period involved in establishing trading and
custody accounts in certain countries in the Frontiers Universe, the Company may
be unable to invest (whether directly or through nominees) in companies in
certain countries in the Frontiers Universe or, in the opinion of the Company
and/or the Investment Manager, it may not be advisable to do so. In such
circumstances, or in countries where acceptable custodial and other arrangements
are not in place to safeguard the Company's investments, the Company intends to
gain economic exposure to companies in such countries by investing indirectly
through derivatives. Derivatives are financial instruments linked to the
performance of another asset or security, such as promissory notes, contracts
for difference, futures or traded options. Save as provided below, there is no
restriction on the Company investing in derivatives in such circumstances or for
efficient portfolio management purposes.
The Company may be geared through borrowings and/or by entering into derivative
transactions (taking both long and short positions) that have the effect of
gearing the Company's portfolio to enhance performance. The Company may also use
borrowings for the settlement of transactions, to facilitate share repurchases
(where applicable) and to meet on-going expenses.
The respective limits on gearing (whether through the use of derivatives,
borrowings or a combination of both) are set out below:
· Maximum gearing through the use of derivatives or borrowings to gain
exposure to long positions in securities: 140% of net assets
· Maximum exposure to short positions (for shorting purposes the Company may
use indices or individual stocks): 10% of net assets
· Maximum gross exposure (total long exposure plus total short exposure): 150%
of net assets
· Maximum net exposure (total long exposure minus total short exposure): 130%
of net assets
In normal circumstances, the Company will typically have net exposure of between
95% and 120% of net assets.
When investing via derivatives, the Company will seek to mitigate and/or spread
its counterparty risk exposure by collateralisation and/or contracting with a
potential range of counterparty banks, as appropriate, each of which shall, at
the time of entering into such derivatives, have a Standard & Poor's credit
rating of at least A- on its long-term senior unsecured debt.
The Company may invest up to 5% of its Gross Assets (at the time of such
investment) in unquoted securities. The Company will invest so as not to hold
more than 15% of its Gross Assets in any one stock or derivative position at the
time of investment (excluding cash management activities).
No material change will be made to the investment policy without the approval of
shareholders by ordinary resolution.
A detailed analysis of the Company's portfolio has been provided above.
Investment approach and process
Portfolio construction is a continuous process, with the Investment Manager
analysing constantly the impact of new ideas and information on the portfolio as
a whole. The approach is flexible, varying through market and economic cycles to
create a portfolio appropriate to the focused and unconstrained strategy of the
Company. The macro environment is factored into all portfolio decisions. In
general, macro analysis is a more dominant factor in investment decision making
when the outlook is negative. The macro process is comprised of three parts:
political assessment, macroeconomic analysis and appraisal of the valuation of a
country's market, which can only take place with thorough analysis of stock
specific opportunities.
The Investment Manager's research team generates ideas from a diverse range of
sources. When permitted, these include frequent travel to the markets in which
the Company invests and regular conversations with contacts that allow the
Frontiers team to assess the entire eco system around a company, namely
competitors, suppliers, financiers, customers and regulators. The team leverages
the internal research network, sharing information between BlackRock's
investment teams using a proprietary research application and database and
develops insights from macroeconomic analysis. The Board believes that
BlackRock's research platform is a significant competitive advantage, both in
terms of information specific to emerging and frontier market equities and
through its global insights across asset classes. Access to companies is
extremely good given BlackRock's market presence, which makes it possible to
develop a detailed knowledge of a company and its management.
The research process focuses on cash flow and future earnings growth, as the
investment team believes that this is ultimately the driver of share prices over
time. The process is designed with the aim of identifying companies that can
translate top line revenue growth to free cash flow and investing in these
companies when the analysis suggests that the cash flow stream is undervalued.
Financial models are developed focusing on company financials, particularly cash
flow statements, rather than relying on third party research.
ESG integration
The Manager defines Environmental, Social and Governance (ESG) integration as
the practice of incorporating material ESG information and consideration of
sustainability risks into investment decisions in order to enhance `long term'
risk adjusted returns. Inclusion of this statement does not imply that the
Company has a sustainability-aligned investment objective or constrain the
Investment Manager's investable universe and does not mean that a sustainable or
impact focused investment strategy or any exclusionary screens have been or will
be adopted by the Company, but rather describes how ESG information is
considered as part of the overall investment process.
In making investment decisions, the Manager assesses a variety of economic and
financial indicators which include ESG considerations in combination with other
information in the research phase of the investment process to make investment
decisions appropriate to the Company's objectives. This may also include
relevant third party insight, as well as internal engagement commentary and
input from BlackRock Investment Stewardship (BIS) on governance issues. The
portfolio managers conduct regular portfolio reviews with the BlackRock Risk and
Quantitative Analysis (RQA) team. These reviews include discussion of the
portfolio's exposure to material ESG risks, as well as exposure to
sustainability related business involvements, climate related metrics,
traditional financial risks and other factors.
The portfolio managers' approach to ESG integration is to broaden the total
amount of information its investment professionals consider in order to improve
investment analysis, seeking to meet or exceed economic return and financial
risk targets. ESG factors can be useful and relevant indicators for investment
purposes and can help portfolio managers with their decision making through
identifying potentially negative events or corporate behaviour. The Portfolio
Manager works closely with BIS to assess the governance quality of companies and
investigate any potential issues, risks or opportunities.
The Manager's research team monitors differing levels of risk throughout the
process and believes that avoiding major downside events can generate
significant outperformance over the long term. Inputs from the RQA team are an
integral part of the investment process. The RQA team analyse market and
portfolio risk factors including stress tests, correlations, factor returns,
cross sectional volatility and attributions. The Manager's evaluation procedures
and financial analysis of the companies within the portfolio also take into
account environmental, social and governance matters and other business issues.
The Company does not meet the criteria for Article 8 or 9 products under the EU
Sustainable Finance Disclosure Regulation ("SFDR") and the investments within
the portfolio do not take into account the EU criteria for environmentally
sustainable economic activities.
Further information on the Manager's approach to ESG and Socially Responsible
Investing can be found in the Strategic Report in the Company's Annual Report
for the year ended 30 September 2023.
Performance
Details of the Company's performance for the year are given in the Chairman's
Statement above. The Investment Manager's Report above includes a review of the
main developments during the period, together with information on investment
activity within the Company's portfolio.
Results and dividends
The results for the Company are set out in the Statement of Comprehensive Income
below. The total profit for the year, after taxation, was US$74,856,000 (2022:
loss of US$36,869,000) of which the revenue return amounted to US$15,872,000
(2022: US$12,013,000) and the capital profit amounted to US$58,984,000 (2022:
loss of US$48,882,000).
The Directors are recommending the payment of a final dividend of 4.90 cents per
ordinary share in respect of the year ended 30 September 2023 (2022: final
dividend of 4.25 cents) as set out in the Chairman's Statement above.
Key performance indicators
The Directors consider a number of performance measures to assess the Company's
success in achieving its objectives. The key performance indicators (KPIs) used
to measure the progress and performance of the Company over time and which are
comparable to those reported by other investment trusts are set out below.
Performance measured against the Benchmark Index
At each meeting the Board reviews the performance of the portfolio as well as
the net asset value and share price for the Company and compares this to the
return of the Company's benchmark. The Board considers this to be an important
key performance indicator and has determined that it should also be used to
calculate whether a performance fee is payable to BlackRock. The Company's
absolute and relative performance is set out in the performance record table in
the Company's Annual Report for the year ended 30 September 2023.
Share rating and discount/premium
The Directors recognise the importance to investors that the Company's share
price should not trade at a significant discount or premium to NAV. Accordingly,
the Directors monitor the share rating closely and will consider share
repurchases in the market if the discount widens significantly, or the issue of
shares to the market to meet demand to the extent that the Company's shares are
trading at a premium. In addition, in accordance with the Directors' commitment
at launch the Company will formulate and submit to shareholders proposals to
provide them with an opportunity at each five year anniversary since launch to
realise the value of their ordinary shares at the prevailing NAV per share less
applicable costs. Such an opportunity took place in the year ended 30 September
2021. The next opportunity will take place in early 2026.
For the year under review the Company's shares traded at an average discount to
the cum-income NAV of 8.4% and were trading at a discount of 7.3% on a cum
-income basis at 27 November 2023. The Directors have the authority to buy back
up to 14.99% of the Company's issued share capital (excluding treasury shares).
The Directors sought and received shareholder authority at the last AGM to issue
up to 10% of the Company's issued share capital (via the issue of new shares or
sale of shares from treasury) on a non pre-emptive basis. Further information
can be found in the Directors' Report in the Company's Annual Report for the
year ended 30 September 2023.
Ongoing charges
The ongoing charges reflect those expenses which are likely to recur in the
foreseeable future, whether charged to capital or revenue, and which relate to
the operation of the investment company as a collective investment fund,
excluding the costs of acquisition or disposal of investments, financing charges
and gains or losses arising on investments and performance fees. The ongoing
charges are based on actual costs incurred in the year as being the best
estimate of future costs. The Board reviews the ongoing charges and monitors the
expenses incurred by the Company.
The table below sets out the key KPIs for the Company (see Glossary in the
Company's Annual Report for the year ended 30 September 2023).
Year ended Year ended
30 September 20231 30 September 20221
£% US$% £% US$%
Net asset value total +14.3 +25.1 +7.7 -10.9
return2
Share price total +17.7 +28.8 +8.7 -10.0
return3
Benchmark Index -3.9 +5.0 +12.0 -7.3
return4
Discount to cum 8.5 10.8
income NAV
Ongoing charges5 1.38 1.36
Ongoing charges 3.78 1.36
including performance
fees6
========= ========= ========= =========
1Based on an exchange rate of US$1.2206 to £1 at 30 September 2023 and US$1.1163
to £1 at 30 September 2022.
2Calculated with dividends reinvested.
3Calculated on a mid to mid basis with dividends reinvested.
4The Benchmark Index is a composite of the MSCI Emerging Markets Index ex
Selected Countries + MSCI Frontier Markets Index + MSCI Saudi Arabia Index.
Benchmark Index return calculates the reinvestment of dividends net of
withholding taxes.
5Ongoing charges represent the management fee and all other operating expenses,
excluding performance fees, finance costs, direct transaction costs, custody
transaction charges, VAT recovered, taxation, prior year expenses written back
and certain non-recurring items, as a % of average daily net assets.
6Ongoing charges represent the management fee and all other operating expenses,
including performance fees, but excluding finance costs, direct transaction
costs, custody transaction charges, VAT recovered, taxation, prior year expenses
written back and certain non-recurring items, as a % of average daily net
assets.
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 of
the Company against a peer group of frontier market focussed open and closed
-ended funds.
Principal risks
As required by the 2018 UK Code of Corporate Governance, the Board has in place
a robust, ongoing process to identify, assess and monitor the principal and
emerging risks of the Company, including those that they consider would threaten
its business model, future performance, solvency or liquidity. Emerging risks
are considered by the Board as they come into view and are incorporated into the
Company's risk register where applicable. Additionally, the Manager considers
emerging risks in numerous forums and the Risk and Quantitative Analysis team
produces an annual risk survey. Any material risks of relevance to the Company
identified through the annual risk survey will be communicated to the Board.
A core element of this is the Company's risk register, which identifies the
risks facing the Company and assesses the likelihood and potential impact of
each risk, and the quality of the controls operating to mitigate the risk. A
residual risk rating is then calculated for each risk based on the outcome of
this assessment. This approach allows the effect of any mitigating procedures to
be reflected in the final assessment.
The risk register, its method of preparation and the operation of the key
controls in BlackRock's and other third party service providers' systems of
internal control are reviewed on a regular basis by the Company's Audit and
Management Engagement Committee. In order to gain a more comprehensive
understanding of BlackRock's and other third party service providers' risk
management processes and how these apply to the Company's business, the Audit
and Management Engagement Committee periodically receives presentations from
BlackRock's Internal Audit and Risk & Quantitative Analysis teams, and reviews
Service Organisation Control (SOC 1) reports from BlackRock and the Company's
Custodian and Fund Accountant, The Bank of New York Mellon (International)
Limited (BNYM).
The current risk register includes a range of risks spread between performance
risk, income/dividend risk, legal and regulatory risk, counterparty risk,
operational risk, market risk, political risk and financial risk.
The principal risks and uncertainties faced by the Company during the year,
together with the potential effects, controls and mitigating factors, are set
out below.
Investment Performance Risk
Principal risk
The Board is responsible for:
· setting the investment policy to fulfil the Company's objectives; and
· monitoring the performance of the Company's Investment Manager and the
strategy adopted.
An inappropriate policy or strategy may lead to:
· poor performance compared to the Company's benchmark peer group or
shareholder expectations;
· a widening discount to NAV;
· a reduction or permanent loss of capital; and
· dissatisfied shareholders and reputational damage.
The Board is also cognisant of the long-term risk to performance from inadequate
attention to ESG issues and in particular the impact of climate change.
Mitigation/Control
To manage this risk the Board:
· regularly reviews the Company's investment mandate and long term strategy;
· has set, and regularly reviews, the investment guidelines and has put in
place appropriate limits on levels of gearing and the use of derivatives;
· receives from the Investment Manager a regular explanation of stock
selection decisions, portfolio gearing and any changes in gearing and the
rationale for the composition of the investment portfolio;
· receives from the Investment Manager regular reporting on the portfolio's
exposure through derivatives, including the extent to which the portfolio is
geared in this manner and the value of any short positions;
· monitors the maintenance of an adequate spread of investments in order to
minimise the risks associated with particular countries or factors specific to
particular sectors, based on the diversification requirements inherent in the
Company's investment policy; and
· regularly reviews detailed performance attribution analysis.
ESG analysis is integrated into the Manager's investment process, as set out
above. This is monitored by the Board.
Income/Dividend Risk
Principal risk
The amount of dividends and future dividend growth will depend on the Company's
underlying portfolio. In addition, any change in the tax treatment of the
dividends or interest received by the Company (including as a result of
withholding taxes or exchange controls imposed by jurisdictions in which the
Company invests) may reduce the level of dividends received by shareholders.
Mitigation/Control
Although the Company does not have a policy of actively seeking income, the
Board monitors this risk through the receipt of detailed income forecasts and
considers the level of income at each meeting. The Company also has a revenue
reserve and powers to pay dividends from capital which can be used to support
the Company's dividend if required.
Legal and Regulatory Risk
Principal risk
The Company has been approved by HM Revenue & Customs as an investment trust,
subject to continuing to meet the relevant eligibility conditions, and operates
as an investment trust in accordance with Chapter 4 of Part 24 of the
Corporation Tax Act 2010. As such, the Company is exempt from capital gains tax
on the profits realised from the sale of its investments.
Any breach of the relevant eligibility conditions could lead to the Company
losing its investment trust status and being subject to corporation tax on
capital gains realised within the Company's portfolio.
In such event the investment returns of the Company may be adversely affected.
Any serious breach could result in the Company and/or the Directors being fined
or the subject of criminal proceedings or the suspension of the Company's shares
which would in turn lead to a breach of the Corporation Tax Act 2010. Amongst
other relevant laws and regulations, the Company is required to comply with the
provisions of the Companies Act 2006, the Alternative Investment Fund Managers'
Directive, the Market Abuse Act, the UK Listing Rules and the Disclosure
Guidance & Transparency Rules.
Mitigation/Control
The Investment Manager monitors investment movements, the level of forecast
income and expenditure and the amount of proposed dividends, if any, to ensure
that the provisions of Chapter 4 of Part 24 of the Corporation Tax Act 2010 are
not breached, and the results are reported to the Board at each meeting.
Following authorisation under the Alternative Investment Fund Managers'
Directive (AIFMD), the Company and its appointed Alternative Investment Fund
Manager (AIFM) are subject to the risks that the requirements of this Directive
are not correctly complied with. The Board and the AIFM also monitor changes in
government policy and legislation which may have an impact on the Company.
Compliance with the accounting standards applicable to quoted companies and
those applicable to investment trusts are also regularly monitored to ensure
compliance.
The Company Secretary and the Company's professional advisers monitor
developments in relevant laws and regulations and provide regular reports to the
Board in respect of the Company's compliance.
Counterparty Risk
Principal risk
The Company's investment policy also permits the use of both exchange-traded and
over-the-counter derivatives (including contracts for difference). The potential
loss that the Company could incur if a counterparty is unable (or unwilling) to
perform on its commitments.
Mitigation/Control
Due diligence is undertaken before contracts are entered into and exposures are
diversified across a number of counterparties. The Board reviews the controls
put in place by the Investment Manager to monitor and to minimise counterparty
exposure, which include intra-day monitoring of exposures to ensure that these
are within set limits.
Operational Risk
Principal risk
In common with most other investment trust companies, the Company has no
employees. The Company therefore relies upon the services provided by third
parties and is dependent on the control systems of BlackRock (the Investment
Manager and AIFM), and of The Bank of New York Mellon (International) Limited
(the Custodian, Depositary and Fund Accountant), which ensures safe custody of
the Company's assets and maintains the Company's accounting records. The
Company's share register is maintained by the Registrar, Computershare.
Failure by any service provider to carry out its obligations to the Company
could have a material adverse effect on the Company's performance. Disruption to
the accounting, payment systems or custody records, as a result of a cyberattack
or otherwise, could impact the monitoring and reporting of the Company's
financial position.
The security of the Company's assets, dealing procedures, accounting records and
maintenance of regulatory and legal requirements, depend on the effective
operation of these systems.
Mitigation/Control
The Board reviews the overall performance of the Manager, Investment Manager and
all other third-party service providers and compliance with the investment
management agreement on a regular basis.
The Fund Accountant's and the Manager's internal control processes are regularly
tested and monitored throughout the year and are evidenced through their Service
Organisation Control (SOC 1) reports, which are subject to review by an
Independent Service Assurance Auditor. The SOC 1 reports provide assurance in
respect of the effective operation of internal controls.
The Company's assets are subject to a strict liability regime and in the event
of a loss of financial assets held in custody, the Depositary must return assets
of an identical type or the corresponding amount, unless able to demonstrate
that the loss was a result of an event beyond its reasonable control.
The Board considers succession arrangements for key employees of the Manager and
the Board also considers the business continuity arrangements of the Company's
key service providers on an ongoing basis and reviews these as part of its
review of the Company's risk register.
The Board also receives regular reports from BlackRock's internal audit
function.
Political Risk
Principal risk
Investments in the Frontiers Universe may include a higher element of risk
compared to more developed markets due to greater political instability.
Political and diplomatic events in the Frontiers Universe where the Company
invests (for example, governmental instability, corruption, adverse changes in
legislation or other diplomatic developments such as the outbreak of war or
imposition of sanctions) could substantially and adversely affect the economies
of such countries or the value of the Company's investments in those countries.
Mitigation/Control
The Investment Manager mitigates this risk by applying stringent controls over
where investments are made and through close monitoring of political risks. The
Investment Manager's approach to filtering the investment universe takes account
of the political background to regions and is backed up by rigorous stock
specific research and risk analysis, individually and collectively, in
constructing the portfolio. The management team has a wide network of business
and political contacts which provides economic insights with public and private
bodies. This enables the Investment Manager to assess potential investments in
an informed and disciplined way, as well as being able to conduct regular
monitoring of investments once made. However, given the nature of political
risk, all investments will be exposed to a degree of risk and the Investment
Manager will ensure that the portfolio remains diversified across countries to
mitigate the risk.
Financial Risk
Principal risk
The Company's investment activities expose it to a variety of financial risks
which include foreign currency risk, liquidity risk, currency risk and interest
rate risk.
Mitigation/Control
Details of these risks are disclosed in note 17 to the financial statements in
the Company's Annual Report for the year ended 30 September 2023, together with
a summary of the policies for managing these risks.
Market Risk
Principal risk
Market risk arises from volatility in the prices of the Company's investments.
It represents the potential loss the Company might suffer through realising
investments in the face of negative market movements. The securities markets of
the Frontiers Universe are not as large as the more established securities
markets and have substantially less trading volume, which may result in a lack
of liquidity and higher price volatility. There are fewer attractive investment
opportunities in frontier markets, and this may lead to a delay in investment
and may affect the price at which such investments may be made and reduce
potential investment returns for the Company.
There is also exposure to currency, market and political risk due to the
location of the operation of the businesses in which the Company may invest. As
a consequence of this and other market factors the Company may invest in a
concentrated portfolio of shares and this focus may result in higher risk when
compared to a portfolio that has spread or diversified investments more broadly.
Corruption also remains a significant issue across the Frontiers Universe and
the effects of corruption could have a material adverse effect on the Company's
performance. Accounting, auditing and financial reporting standards and
practices and disclosure requirements applicable to many companies in developing
countries may be less rigorous than in developed markets. As a result, there may
be less information available publicly to investors in these securities, and
such information as is available is often less reliable.
The Company may also gain exposure to the Frontiers Universe by investing
indirectly through Participatory Notes (P-Notes) which presents additional risk
to the Company as P-Notes are uncollateralised resulting in the Company being
subject to full counterparty risk via the P-Note issuer. P-Notes also present
liquidity issues as the Company, being a captive client of a P-Note issuer, may
only be able to realise its investment through the P-Note issuer and this may
have a negative impact on the liquidity of the P-Notes which does not correlate
to the liquidity of the underlying security.
The Portfolio Managers seek to understand the environmental, social and
governance (ESG) risks and opportunities facing companies and industries in the
portfolio. The Company does not exclude investment in stocks based on ESG
criteria, but the Portfolio Managers consider ESG information when conducting
research and due diligence on new investments and again when monitoring
investments in the portfolio.
Mitigation/Control
Market risk represents the risks of investment in a particular market, country
or geographic region. Therefore, this is largely outside of the scope of the
Board's control. However, the Board carefully considers asset allocation, stock
selection and levels of gearing on a regular basis and has set investment
restrictions and guidelines which are monitored and reported on by the
Investment Manager. Market risk is also mitigated through portfolio
diversification across countries and regions. The Board monitors the
implementation and results of the investment process with the Investment Manager
regularly.
The Investment Manager regularly reports to the Board on relative market risks
associated with investment in such regions. Further information is provided
under `Political Risk'.
The Board recognises the benefits of a closed-end fund structure in extremely
volatile markets such as those affected by the COVID-19 pandemic, and more
recently the Russia-Ukraine conflict. Unlike open-ended counterparts, closed-end
funds are not obliged to sell-down portfolio holdings at low valuations to meet
liquidity requirements for redemptions. During times of elevated volatility and
market stress, the ability of a closed-end fund structure to remain invested for
the long term enables the Investment Manager to adhere to disciplined
fundamental analysis from a bottom-up perspective and be ready to respond to
dislocations in the market as opportunities present themselves.
Companies operating in the sectors in which the Company invests may be impacted
by new legislation governing climate change and environmental issues, which may
have a negative impact on their valuation and share price.
Viability statement
In accordance with the provisions of the UK Corporate Governance Code, the
Directors have assessed the prospects of the Company over a longer period than
the twelve months referred to by the `Going Concern' guidelines. The Board is
cognisant of the uncertainty surrounding the potential duration of the Russia
-Ukraine conflict, its impact on the global economy, and the prospects for many
of the Company's portfolio holdings. The same is true of the more recent
hostilities in the Middle-East. Notwithstanding these crises, and given the
factors stated below, the Board expects the Company to continue to meet its
liabilities as they fall due for the foreseeable future and has therefore
conducted this review for a period of five years. Five years is considered by
the Board to be a reasonable time horizon over which the performance of the
Company can be assessed. The Board also notes that this aligns with the five
-yearly assessment period adopted when the Company was launched (on the basis
that this was an appropriate time frame for shareholders to judge performance
and have the opportunity to exit the fund at the applicable NAV per ordinary
share less relevant costs.) The Board conducted this review for the period up to
the AGM in 2029.
In determining this period, the Board took into account the Company's investment
objective to achieve long-term capital growth and the Company's projected income
and expenditure. The Directors believe that five years is an appropriate
investment horizon to assess the viability of the Company. It is satisfied that
the Company has adequate resources to continue in operational existence for the
foreseeable future and is financially sound.
When the Company was launched in late 2010, the Board made a commitment that
before the Company's fifth AGM and at five yearly intervals thereafter, it would
formulate and submit to shareholders proposals to provide shareholders with an
opportunity to realise the value of their ordinary shares at the applicable NAV
per ordinary share less applicable costs. The Board put proposals to
shareholders in 2021. The Company received elections to tender representing
21.5% of the Company, with the vast majority of shareholders choosing to retain
their investment. The Board believes this is indicative of the ongoing
attractiveness of the Company's investment strategy and offering. The next such
opportunity will occur in early 2026.
In making the longer-term viability assessment the Board has considered the
following factors:
· the Company's principal risks as set out above;
· the level of ongoing demand for the Company's ordinary shares;
· the impact of a significant fall in Frontier equity markets on the value of
the Company's investment portfolio;
· the ongoing relevance of the Company's investment objective, business model
and investment policy in the current environment;
· the operational resilience of the Company and its key service providers and
their ability to continue to provide a good level of service for the foreseeable
future; and
· the effectiveness of business continuity plans in place for the Company and
key service providers.
The Board has also considered a number of financial metrics, including:
· the level of current and historic ongoing charges incurred by the Company;
· the Company's borrowings and its ability to meet its liabilities as they
fall due;
· the premium or discount to NAV;
· the level of income generated by the Company;
· future income forecasts; and
· the liquidity of the Company's portfolio.
The Company is an investment company with a relatively liquid equity portfolio
(as at 30 September 2023, 94.1% of the equity portfolio was capable of being
realised in less than 20 days in normal market conditions) and largely fixed
overheads (excluding performance fees) which comprise a very small percentage of
net assets (1.38%). In addition, any performance fees are capped at 1% of gross
assets in years where the NAV per share has fallen or 2.5% of gross assets in
years where the NAV per share has increased. Therefore, the Board has concluded
that even in exceptionally stressed operating conditions, the Company would
comfortably be able to meet its ongoing operating costs as they fall due.
However, investment companies may face other challenges, such as regulatory
changes and the tax treatment of investment trusts, or a significant decrease in
size due to substantial share buy-back activity or market falls, which may
result in the Company no longer being of sufficient market capitalisation to
represent viable investment propositions or no longer being able to continue in
operation.
The Board has determined that the factors considered are applicable to the
period up to the AGM in 2029 and beyond.
In addition, the Board's assessment of the Company's ability to operate in the
foreseeable future is included in the Going Concern Statement which can be found
in the Directors' Report.
Based on the results of their analysis, the Directors have a reasonable
expectation that the Company will be able to continue in operation and meet its
liabilities as they fall due over the period of their assessment.
Section 172 Statement: Promoting the success of the BlackRock Frontiers
Investment Trust Plc
The Companies (Miscellaneous Reporting) Regulations 2018 require directors to
explain more fully how they have discharged their duties under Section 172(1) of
the Companies Act 2006 in promoting the success of their companies for the
benefit of members as a whole. This enhanced disclosure covers how the Board has
engaged with and understands the views of stakeholders and how stakeholders'
needs have been taken into account, the outcome of this engagement and the
impact that it has had on the Board's decisions.
As the Company is an externally managed investment company and does not have any
employees or customers, the Board considers the main stakeholders in the Company
to be the shareholders, key service providers (being the Manager and Investment
Manager, the Custodian, Depositary, Registrar and Broker) and investee
companies.
A summary of the principal areas of engagement undertaken by the Board with its
key stakeholders in the year under review and how Directors have acted upon this
to promote the long-term success of the Company is set out in the tables below.
Stakeholders
Shareholders
Continued shareholder support and engagement are critical to the continued
existence of the Company and the successful delivery of its long-term strategy.
The Board is focused on fostering good working relationships with shareholders
and on understanding the views of shareholders in order to incorporate them into
the Board's strategy and objectives in delivering long-term growth and income.
Manager and Investment Manager
The Board's main working relationship is with the Manager, who is responsible
for the Company's portfolio management (including asset allocation, stock and
sector selection) and risk management, as well as ancillary functions such as
administration, secretarial, accounting and marketing services. The Manager has
sub-delegated portfolio management to the Investment Manager. Successful
management of shareholders' assets by the Investment Manager is critical for the
Company to successfully deliver its investment strategy and meet its objective.
The Company is also reliant on the Manager as AIFM to provide support in meeting
relevant regulatory obligations under the AIFMD and other relevant legislation.
Other key service providers
In order for the Company to function as an investment trust with a listing on
the premium segment of the official list of the Financial Conduct Authority
(FCA) and trade on the London Stock Exchange's (LSE) main market for listed
securities, the Board relies on a diverse range of advisors for support in
meeting relevant obligations and safeguarding the Company's assets. For this
reason, the Board considers the Company's Custodian, Depositary, Registrar and
Broker to be stakeholders. The Board maintains regular contact with its key
external providers and receives regular reporting from them through the Board
and committee meetings, as well as outside of the regular meeting cycle.
Investee companies
Portfolio holdings are ultimately shareholders' assets, and the Board recognises
the importance of good stewardship and communication with investee companies in
meeting the Company's investment objective and strategy. The Board monitors the
Manager's stewardship activities and receives regular feedback from the Manager
in respect of meetings with the management of portfolio companies.
A summary of the key areas of engagement undertaken by the Board with its key
stakeholders in the year under review and how Directors have acted upon this to
promote the long-term success of the Company are set out below.
Area of Engagement
Responsible investing
Issue
The Board is committed to promoting the role and success of the Company in
delivering on its investment mandate to shareholders over the long term.
However, the Board recognises that securities within the Company's investment
remit may involve significant additional risk due to the political volatility
and environmental, social and governance concerns facing many of the countries
in the Company's investment universe. While the Company does not have a
sustainable investment objective or exclude investments based only on ESG
criteria, these ethical and sustainability issues should be a consideration of
our Manager's research. More than ever, consideration of sustainable investment
is a key part of the investment process and should be factored in when making
investment decisions. The Board also has responsibility to shareholders to
ensure that the Company's portfolio of assets is invested in line with the
stated investment objective and in a way that ensures an appropriate balance
between spread of risk and portfolio returns.
Engagement
The Board believes that responsible investment and sustainability are important
to the longer-term delivery of growth in capital and income and has worked very
closely with the Manager throughout the year to regularly review the Company's
performance and investment strategy and to understand how ESG considerations are
integrated into the investment process.
The Manager's approach to the consideration of ESG factors in respect of the
Company's portfolio, as well as its engagement with investee companies to
encourage the adoption of sustainable business practices which support long-term
value creation, are kept under review by the Board. The Manager reports to the
Board in respect of its consideration of ESG factors and how these are
integrated into the investment process; a summary of BlackRock's approach to ESG
and sustainability is set out in the Company's Annual Report for the year ended
30 September 2023. The Investment Manager's engagement and voting policy is
detailed in the Company's Annual Report for the year ended 30 September 2023 and
on the BlackRock website.
Impact
The Board and the Manager believe there is a positive long-term correlation
between strong ESG practices and investment performance. Details regarding the
Company's NAV and share price performance can be found in the Chairman's
Statement above. The portfolio activities undertaken by the Manager, can be
found in the Investment Manager's Report above.
Discount Strategy
Issue
The Board believes that the Company's unique investment offering, strong
performance and an attractive dividend yield enhances demand for the Company's
shares, which should help to maintain the Company's discount at as close to the
underlying NAV as possible.
The Company has also put in place a 5-yearly mechanism which provides
shareholders with a periodic opportunity to exit at NAV less costs. This last
occurred in March 2021, with the next opportunity to take place in early 2026.
Engagement
The Manager reports total return performance statistics to the Board on a
regular basis, along with the portfolio yield and the impact of dividends paid
on brought forward distributable reserves.
The Board reviews the Company's discount/premium to NAV on a regular basis and
holds regular discussions with the Manager and the Company's broker regarding
the discount/premium level.
The Board also seeks shareholder authority each year to buy back up to 14.99% of
the Company's issued share capital for cancellation or to be held in treasury
for potential re-issue. Buying back the Company's shares can, in certain
circumstances, help to narrow the discount and/or reduce the volatility in the
share rating.
Impact
The average discount for the year to 30 September 2023 was 8.4%. During the year
the Company's share price traded at a maximum discount of 12.7% and a minimum
discount of 3.7%.
Service levels of third party providers
Issue
The Board acknowledges the importance of ensuring that the Company's principal
suppliers are providing a suitable level of service, including the Manager in
respect of investment performance and delivering on the Company's investment
mandate; the Custodian and Depositary in respect of their duties towards
safeguarding the Company's assets; the Registrar in its maintenance of the
Company's share register and dealing with investor queries and the Company's
Brokers in respect of the provision of advice and acting as a market maker for
the Company's shares.
Engagement
The Manager reports to the Board on the Company's performance on a regular
basis. The Board carries out a robust annual evaluation of the Manager's
performance, their commitment and available resources. As previously announced,
the Board is pleased that the portfolio management team has been bolstered this
year by the appointment of a third portfolio manager, Sudaif Niaz.
The Board performs an annual review of the service levels of all third party
service providers and concludes on their suitability to continue in their role.
The Board receives regular updates from the AIFM, Depositary, Registrar and
Brokers on an ongoing basis.
The Board works closely with the Manager to gain comfort that relevant business
continuity plans are operating effectively for all of the Company's service
providers.
Impact
All performance evaluations were performed on a timely basis and the Board
concluded that all third-party service providers, including the Manager,
Custodian, Depositary and Fund Accountant were operating effectively and
providing a good level of service.
The Board has received updates in respect of business continuity planning from
the Company's Manager, Custodian, Depositary, Fund Accountant, Broker, Registrar
and printer, and is confident that arrangements are in place to ensure that a
good level of service will continue to be provided.
Board composition
Issue
The Board is committed to ensuring that its own composition brings an
appropriate balance of knowledge, experience and skills, and that it is
compliant with best corporate governance practice under the UK Code, including
guidance on tenure and the composition of the Board's committees.
Engagement
The Board recognises the benefits of diversity and regular refreshment but does
not believe tenure alone should determine whether a Director remains
independent.
As it does each year, the Board, discharging the duties of a Nomination
Committee, considers the composition of the Board to ensure that it is suitably
aligned with the activities and needs of the Company. Following this review, and
in accordance with corporate governance best practice, the Board has resolved to
appoint Katrina Hart as Chair-elect, to take office from the conclusion of the
AGM and to appoint Elisabeth Airey as Senior Independent Director. The Board has
also commenced a search and selection process to identify a suitable replacement
for Sarmad Zok who will step down at the conclusion of the AGM. It has appointed
an independent third party recruiter, Odgers Berndtson, to assist with this
important process.
The Board will continue to keep the composition of the Board under regular
review. If it is determined that a new appointment to the Board is required, it
will agree the selection criteria, which will take into account the need to
maintain a suitable balance of skills, knowledge, independence and diversity.
All Directors are subject to a formal evaluation process on an annual basis
(more details and the conclusions in respect of the 2023 evaluation process are
given in the Company's Annual Report for the year ended 30 September 2023). All
eligible Directors stand for re-election by shareholders annually. Shareholders
may attend the AGM and raise any queries in respect of Board composition or
individual Directors in person or may contact the Company Secretary or the
Chairman using the details provided below if they wish to raise any issues.
Impact
The Directors are not aware of any issues that have been raised directly by
shareholders in respect of Board composition in 2023. Details for the proxy
voting results in favour and against individual Directors' re-election at the
2022 AGM are given on the Company's website at www.blackrock.com/uk/brfi.
Shareholders
Issue
Continued shareholder support and engagement are critical to the continued
existence of the Company and the successful delivery of its long-term strategy.
Engagement
The Board is committed to maintaining open channels of communication and
engaging with shareholders. The Company welcomes and encourages attendance and
participation from shareholders at its Annual General Meetings. Shareholders
therefore have the opportunity to meet the Directors and Investment Manager and
to address questions to them directly.
The Annual Report and Half Yearly Financial Report are available on the
BlackRock website and are also circulated to shareholders either in printed copy
or via electronic communications. In addition, regular updates on performance,
monthly factsheets, the daily NAV and other information are published on the
website at www.blackrock.com/uk/brfi.
The Board works closely with the Manager to develop the Company's marketing
strategy, with the aim of ensuring effective communication with shareholders in
respect of the investment mandate and objective. Unlike trading companies, one
-to-one shareholder meetings usually take the form of a meeting with the
Investment Manager as opposed to members of the Board. As well as attending
regular investor meetings the Investment Manager holds regular discussions with
wealth management desks and offices to build on the case for, and understanding
of, long-term investment opportunities in frontier markets.
The Manager coordinates public relations activity, including meetings between
the Investment Manager and relevant industry publications to set out their
vision for the portfolio strategy and outlook for the region.
The Manager releases monthly portfolio updates to the market to ensure that
investors are kept up to date in respect of performance and other portfolio
developments and maintains a website on behalf of the Company that contains
relevant information in respect of the Company's investment mandate and
objective.
If shareholders wish to raise issues or concerns with the Board, they are
welcome to do so at any time. The Chairman is available to meet directly with
shareholders periodically to understand their views on governance and the
Company's performance where they wish to do so. He may be contacted via the
Company Secretary whose details are given below.
Impact
The Board values any feedback and questions from shareholders ahead of and
during Annual General Meetings in order to gain an understanding of their views
and will take action when and as appropriate. Feedback and questions will also
help the Company evolve its reporting, aiming to make reports more transparent
and understandable.
Feedback from all substantive meetings between the Investment Manager and
shareholders is shared with the Board. The Directors also receive updates from
the Company's broker on any feedback from shareholders, as well as share trading
activity, share price performance and an update from the Investment Manager.
The Board's approach to ESG considerations
Material environmental, social and governance (ESG) issues can present both
opportunities and threats to long-term investment performance. The securities
within the Company's investment remit may involve significant additional risk
due to the political volatility and ESG concerns facing many of the countries in
the Company's investment universe. While the Company does not have a sustainable
investment objective or exclude investments based only on ESG criteria, these
ethical and sustainability issues are a consideration of the Board, and your
Board is committed to a diligent oversight of the activities of the Manager in
these areas. The Board believes engagement with management is, in most cases,
the most effective way of driving meaningful positive change in the behaviour of
investee company management. The Board believes that BlackRock is well placed as
Manager to fulfil these requirements due to the integration of ESG into its
investment processes, the emphasis it places on sustainability, its long-term
approach to stewardship and corporate governance, and its position in the
industry as one of the largest suppliers of sustainable investment products in
the global market. More information on BlackRock's approach to responsible
ownership is set out in the Company's Annual Report for the year ended 30
September 2023.
Future prospects
The Board's main focus is on the achievement of capital growth and the future of
the Company is dependent upon the success of the investment strategy. The
outlook for the Company is discussed in both the Chairman's Statement and in the
Investment Manager's Report above.
Social, community and human rights issues
As an investment trust, the Company has no direct social or community
responsibilities. However, the Company believes that it is in shareholders'
interests to consider environmental, social and governance factors and human
rights issues when selecting and retaining investments. Details of the Company's
policy on socially responsible investment are set out above and the Manager's
approach is described in the Company's Annual Report for the year ended 30
September 2023.
Modern slavery
As an investment vehicle the Company does not provide goods or services in the
normal course of business and does not have customers. Accordingly, the
Directors consider that the Company is not required to make any slavery or human
trafficking statement under the Modern Slavery Act 2015. In any event, the Board
considers the Company's supply chain, dealing predominantly with professional
advisers and service providers in the financial services industry, to be low
risk in relation to this matter.
Directors, gender representation and employees
The Directors of the Company on 30 September 2023 are set out in the Directors'
biographies section above. As at 29 November 2023, the Board consisted of three
men and three women constituting 50% female Board representation. The Company
does not have any employees.
BY ORDER OF THE BOARD
KEVIN MAYGER
FOR AND ON BEHALF OF
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
Company Secretary
29 November 2023
Related Party Transactions
BlackRock Fund Managers Limited (BFM) provides management and administration
services to the Company under a contract which is terminable on six months'
notice. BFM has (with the Company's consent) delegated certain portfolio and
risk management services, and other ancillary services, to BlackRock Investment
Management (UK) Limited (BIM (UK)). Further details of the investment management
contract are disclosed in the Directors' Report in the Company's Annual Report
for the year ended 30 September 2023.
The investment management fee due for the year ended 30 September 2023 amounted
to US$3,783,000 (2022: US$3,785,000). The performance fee payable for the year
ended 30 September 2023 amounted to US$8,272,000 (2022: US$nil).
At the year end, US$2,902,000 (2022: US$882,000) was outstanding in respect of
management fees and US$8,272,000 (2022: US$nil) was outstanding in respect of
performance fees.
In addition to the above services, BIM (UK) has provided the Company with
marketing services. The total fees paid or payable for these services for the
year ended 30 September 2023 amounted to US$90,000 (2022: US$76,000) excluding
VAT. Marketing fees of US$143,000 (US$53,000) excluding VAT were outstanding at
the year end.
The Company has an investment in the BlackRock Institutional Cash Series plc -
US Dollar Liquid Environmentally Aware Fund of US$64,875,000 (2022:
US$71,415,000) at the year end, which is a fund managed by a company within the
BlackRock Group.
Disclosures of the Directors' interests in the ordinary shares of the Company
and fees and expenses payable to the Directors are set out in the Directors'
Remuneration Report in the Company's Annual Report for the year ended 30
September 2023. At 30 September 2023, US$20,000 (£17,000) (2022: US$17,000
(£15,000)) was outstanding in respect of Directors' fees.
Statement of Directors' responsibilities in respect of the Annual Report and
Financial Statements
The Directors are responsible for preparing the Annual Report, the Directors'
Remuneration Report and the financial statements in accordance with applicable
United Kingdom law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law, the Directors are required to prepare the
financial statements under international accounting standards in conformity with
UK-adopted International Accounting Standards (IAS). Under Company law the
Directors must not approve the financial statements unless they are satisfied
that they give a true and fair view of the state of affairs of the Company and
of the profit or loss of the Company for that period.
In preparing these financial statements, the Directors are required to:
· present fairly the financial position, financial performance and cash flows
of the Company;
· select suitable accounting policies in accordance with IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors and then apply them
consistently;
· present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
· make judgements and estimates that are reasonable and prudent;
· state whether the financial statements have been prepared in accordance with
IAS, subject to any material departures disclosed and explained in the financial
statements;
· provide additional disclosures when compliance with the specific
requirements in IAS is insufficient to enable users to understand the impact of
particular transactions, other events and conditions on the Company's financial
position and financial performance; and
· prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and enable
them to ensure that the financial statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the Company and hence
for taking reasonable steps for the prevention and detection of fraud and other
irregularities. The Directors are also responsible for preparing the Strategic
Report, the Directors' Report, the Directors' Remuneration Report, Corporate
Governance Statement and the Report of the Audit and Management Engagement
Committee in accordance with the Companies Act 2006 and applicable regulations,
including the requirements of the Listing Rules and the Disclosure Guidance and
Transparency Rules. The Directors have delegated responsibility to the
Investment Manager and the AIFM for the maintenance and integrity of the
Company's corporate and financial information included on BlackRock's website.
Legislation in the United Kingdom governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
Each of the Directors, who were appointed as at the date of the Annual Report,
confirms to the best of their knowledge that:
· the financial statements, which have been prepared in accordance with IAS,
give a true and fair view of the assets, liabilities, financial position and
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 2018 UK Corporate Governance Code also requires Directors to ensure that the
Annual Report and Financial Statements are fair, balanced and understandable. In
order to reach a conclusion on this matter, the Board has requested that the
Audit and Management Engagement Committee advise on whether it considers that
the Annual Report and Financial Statements fulfil these requirements. The
process by which the Committee has reached these conclusions is set out in the
Audit and Management Engagement Committee's report in the Company's Annual
Report for the year ended 30 September 2023. As a result, the Board has
concluded that the Annual Report and Financial Statements for the year ended 30
September 2023, taken as a whole, is fair, balanced and understandable and
provides the information necessary for shareholders to assess the Company's
position and performance, business model and strategy.
FOR AND ON BEHALF OF THE BOARD
AUDLEY TWISTON-DAVIES
Chairman
29 November 2023
Statement of comprehensive income for the year ended 30 September 2023
2023 2022
Notes Revenue Capital Total Revenue Capital
Total
US$'000 US$'000 US$'000 US$'000 US$'000
US$'000
Income from 3 17,402 - 17,402 12,369 74
12,443
investments
held
at fair
value
through
profit or
loss
Net income 3 1,985 565 2,550 2,328 -
2,328
from
contracts
for
difference
Other 3 251 - 251 55 - 55
income
--------- --------- --------- --------- --------- ----
-----
------ ------ ------ ------ ------ ----
--
Total 19,638 565 20,203 14,752 74
14,826
income
========= ========= ========= ========= =========
=========
Net - 58,566 58,566 - (41,473)
(41,473)
profit/(loss
)
on
investments
held
at fair
value
through
profit or
loss
Net loss on - (1,980) (1,980) - (205)
(205)
foreign
exchange
Net - 12,523 12,523 - (4,425)
(4,425)
profit/(loss
)
from
derivatives
--------- --------- --------- --------- --------- ----
-----
------ ------ ------ ------ ------ ----
--
Total 19,638 69,674 89,312 14,752 (46,029)
(31,277)
========= ========= ========= ========= =========
=========
Expenses
Investment 4 (757) (11,298) (12,055) (757) (3,028)
(3,785)
management
and
performance
fees
Other 5 (942) (68) (1,010) (899) (78)
(977)
operating
expenses
--------- --------- --------- --------- --------- ----
-----
------ ------ ------ ------ ------ ----
--
Total (1,699) (11,366) (13,065) (1,656) (3,106)
(4,762)
operating
expenses
========= ========= ========= ========= =========
=========
Net 17,939 58,308 76,247 13,096 (49,135)
(36,039)
profit/(loss
)
on ordinary
activities
before
finance
costs and
taxation
Finance (23) (94) (117) (3) (14) (17)
costs
--------- --------- --------- --------- --------- ----
-----
------ ------ ------ ------ ------ ----
--
Net 17,916 58,214 76,130 13,093 (49,149)
(36,056)
profit/(loss
)
on ordinary
activities
before
taxation
Taxation (2,044) 770 (1,274) (1,080) 267
(813)
(charge)/cre
dit
--------- --------- --------- --------- --------- ----
-----
------ ------ ------ ------ ------ ----
--
Profit/(loss 15,872 58,984 74,856 12,013 (48,882)
(36,869)
) for
the year
========= ========= ========= ========= =========
=========
Earnings/(lo 7 8.38 31.16 39.54 6.35 (25.82)
(19.47)
ss)
per
ordinary
share
(cents)
========= ========= ========= ========= =========
=========
The total columns of this statement represent the Company's Statement of
Comprehensive Income, prepared in accordance with UK-adopted International
Accounting Standards (IAS). The supplementary revenue and capital accounts are
both prepared under guidance published by the Association of Investment
Companies (AIC). All items in the above statement derive from continuing
operations. No operations were acquired or discontinued during the year. All
income is attributable to the equity holders of the Company.
The Company does not have any other comprehensive income. The profit/(loss) for
the year disclosed above represents the Company's total comprehensive
income/(loss).
Statement of changes in equity for the year ended 30 September 2023
Notes Called Capital Special Capital Revenue
Total
up share redemption reserve reserves reserve
US$'000
capital reserve US$'000 US$'000 US$'000
US$'000 US$'000
For the year
ended 30
September
2023
At 30 2,418 5,798 308,804 (22,831) 8,467
302,656
September
2022
Total
comprehensive
income:
Net profit - - - 58,984 15,872
74,856
for the year
Transactions
with owners,
recorded
directly to
equity:
Dividends 6 - - - - (13,914)
(13,914)
paid1
--------- ---------- --------- --------- --------- -
--------
------ ----- ------ ------ ------ -
-----
At 30 2,418 5,798 308,804 36,153 10,425
363,598
September
2023
========= ========= ========= ========= =========
=========
For the year
ended 30
September
2022
At 30 2,418 5,798 308,804 26,051 9,707
352,778
September
2021
Total
comprehensive
(loss)/income:
Net - - - (48,882) 12,013
(36,869)
(loss)/profit
for the
year
Transactions
with owners,
recorded
directly to
equity:
Dividends 6 - - - - (13,253)
(13,253)
paid2
--------- ---------- --------- --------- --------- -
--------
------ ----- ------ ------ ------ -
-----
At 30 2,418 5,798 308,804 (22,831) 8,467
302,656
September
2022
========= ========= ========= ========= =========
=========
1Final dividend of 4.25 cents per share for the year ended 30 September 2022,
declared on 8 December 2022 and paid on 14 February 2023 and an interim dividend
of 3.10 cents per share for the year ended 30 September 2023, declared on 6 June
2023 and paid on 7 July 2023.
2Final dividend of 4.25 cents per share for the year ended 30 September 2021,
declared on 1 December 2021 and paid on 11 February 2022 and an interim dividend
of 2.75 cents per share for the year ended 30 September 2022, declared on 26 May
2022 and paid on 24 June 2022.
For information on the Company's distributable reserves please refer to note 9
below.
Statement of financial position as at 30 September 2023
Notes 2023 2022
US$'000 US$'000
Non current assets
Investments held at fair value 374,517 297,945
through profit or loss
--------------- ---------------
Current assets
Current tax asset 444 446
Other receivables 5,085 1,345
Derivative financial assets held at 1,402 755
fair value through profit or loss -
contracts for difference
Cash and cash equivalents 5,308 4,901
Cash collateral pledged with brokers 2,435 7,404
--------------- ---------------
Total current assets 14,674 14,851
========= =========
Total assets 389,191 312,796
========= =========
Current liabilities
Bank overdraft (25) -
Other payables (20,015) (4,858)
Derivative financial liabilities held (3,234) (4,613)
at fair value through profit or loss
- contracts for difference
Liability for cash collateral (2,300) (650)
received
--------------- ---------------
Total current liabilities (25,574) (10,121)
========= =========
Total assets less current liabilities 363,617 302,675
========= =========
Non current liabilities
Management shares of £1.00 each (one (19) (19)
quarter paid up)
--------------- ---------------
Net assets 363,598 302,656
========= =========
Equity attributable to equity holders
Called up share capital 8 2,418 2,418
Capital redemption reserve 9 5,798 5,798
Special reserve 9 308,804 308,804
Capital reserves 9 36,153 (22,831)
Revenue reserve 9 10,425 8,467
--------------- ---------------
Total equity 363,598 302,656
========= =========
Net asset value per ordinary share 7 192.05 159.86
(cents)
========= =========
Cash flow statement for the year ended 30 September 2023
2023 2022
US$'000 US$'000
Operating activities
Net profit/(loss) on ordinary activities 76,130 (36,056)
before taxation
Add back finance costs 117 17
Net (profit)/loss on investments held at (58,566) 41,473
fair value through profit or loss (including
transaction costs)
Net (profit)/loss from derivatives (12,523) 4,425
(including transaction costs)
Financing costs on derivatives (4,107) (1,450)
Net loss on foreign exchange 1,980 205
Sales of investments held at fair value 183,095 193,129
through profit or loss
Purchases of investments held at fair value (207,654) (203,288)
through profit or loss
Sales of Cash Fund1 163,097 214,616
Purchases of Cash Fund1 (156,544) (189,800)
Amounts paid for losses on closure of (42,659) (62,302)
derivatives
Amounts received on profit on closure of 57,263 69,002
derivatives
(Increase)/decrease in other receivables (855) 862
Increase/(decrease) in other payables 10,651 (4,680)
(Increase)/decrease in amounts due from (2,885) 2,017
brokers
Increase/(decrease) in amounts due to 4,506 (2,059)
brokers
Cash collateral pledged with brokers 4,969 (7,074)
Cash collateral received from brokers 1,650 (5,537)
Taxation paid (1,272) (841)
--------------- ---------------
Net cash inflow from operating activities 16,393 12,659
========= =========
Financing activities
Interest paid (117) (17)
Dividends paid (13,914) (13,253)
--------------- ---------------
Net cash outflow from financing activities (14,031) (13,270)
========= =========
Increase/(decrease) in cash and cash 2,362 (611)
equivalents
Effect of foreign exchange rate changes (1,980) (205)
--------------- ---------------
Change in cash and cash equivalents 382 (816)
Cash and cash equivalents at the start of 4,901 5,717
the year
--------------- ---------------
Cash and cash equivalents at the end of the 5,283 4,901
year
========= =========
Comprised of:
Cash at bank 5,308 4,901
Bank overdraft (25) -
--------------- ---------------
5,283 4,901
========= =========
1Cash Fund represents investment in the BlackRock Institutional Cash Series plc
- US Dollar Liquid Environmentally Aware Fund.
Notes to the financial statements for the year ended 30 September 2023
1. Principal activity
The principal activity of the Company is that of an investment trust company
within the meaning of Section 1158 of the Corporation Tax Act 2010. The Company
was incorporated on 15 October 2010, and this is the thirteenth Annual Report.
2. Accounting policies
The principal accounting policies adopted by the Company have been applied
consistently, other than where new policies have been adopted and are set out
below.
(a) Basis of preparation
On 31 December 2020, International Financial Reporting Standards (IFRS) as
adopted by the European Union at that date was brought into UK law and became UK
-adopted International Accounting Standards (IAS), with future changes being
subject to endorsement by the UK Endorsement Board and with the requirements of
the Companies Act 2006 as applicable to companies reporting under those
standards.
The financial statements have been prepared under the historic cost convention
modified by the revaluation of certain financial assets and financial
liabilities held at fair value through profit or loss and in accordance with UK
-adopted IAS. All of the Company's operations are of a continuing nature.
Insofar as the Statement of Recommended Practice (SORP) for investment trust
companies and venture capital trusts, issued by the Association of Investment
Companies (AIC) in October 2019 and updated in July 2022, is compatible with UK
-adopted IAS, the financial statements have been prepared in accordance with the
guidance set out in the SORP.
Substantially, all of the assets of the Company consist of securities that are
readily realisable and, accordingly, the Directors are satisfied that the
Company has adequate resources to continue in operational existence for the
foreseeable future for the period to 30 September 2024, being a period of at
least twelve months from the date of approval of the financial statements, and
therefore consider the going concern assumption to be appropriate. The Directors
have reviewed the income and expense projections and the liquidity of the
investment portfolio in making their assessment.
The Directors have considered the impact of climate change on the value of the
investments included in the Financial Statements and have concluded that:
· there was no further impact of climate change to be considered as the
investments are valued based on market pricing as required by IFRS 13; and
· the risk is adequately captured in the assumptions and inputs used in
measurement of Level 3 assets, if any, as noted in note 17 of the Financial
Statements in the Company's Annual Report for the year ended 30 September 2023.
None of the Company's other assets and liabilities were considered to be
potentially impacted by climate change.
The Company's financial statements are presented in US Dollars, which is the
functional currency of the Company and the currency of the primary economic
environment in which the Company operates. All values are rounded to the nearest
thousand dollars (US$'000) except where otherwise indicated.
Adoption of new and amended International Accounting Standards and
interpretations:
IFRS 9 - Fees in the `10 per cent' Test for Derecognition of Financial
Liabilities (effective 1 January 2022). The International Accounting Standards
Board (IASB) has amended IFRS 9 Financial Instruments to clarify the fees that a
company includes when assessing whether the terms of a new or modified financial
liability are substantially different from the terms of the original financial
liability.
Relevant International Accounting Standards that have yet to be adopted:
IFRS 17 - Insurance contracts (effective 1 January 2023). This standard replaces
IFRS 4, which currently permits a wide range of accounting practices in
accounting for insurance contracts. IFRS 17 will fundamentally change the
accounting by all entities that issue insurance contracts and investment
contracts with discretionary participation features.
This standard is unlikely to have any impact on the Company as it has no
insurance contracts.
IAS 12 - Deferred tax related to assets and liabilities arising from a single
transaction (effective 1 January 2023). The International Accounting Standards
Board (IASB) has amended IAS 12 Income Taxes to require companies to recognise
deferred tax on particular transactions that, on initial recognition, give rise
to equal amounts of taxable and deductible temporary differences. According to
the amended guidance, a temporary difference that arises on initial recognition
of an asset or liability is not subject to the initial recognition exemption if
that transaction gave rise to equal amounts of taxable and deductible temporary
differences. These amendments might have a significant impact on the preparation
of financial statements by companies that have substantial balances of right-of
-use assets, lease liabilities, decommissioning, restoration and similar
liabilities. The impact for those affected would be the recognition of
additional deferred tax assets and liabilities.
The amendment of this standard is unlikely to have any significant impact on the
Company.
IAS 8 - Definition of accounting estimates (effective 1 January 2023). The IASB
has amended IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors to help distinguish between accounting policies and accounting estimates,
replacing the definition of accounting estimates.
IAS 1 and IFRS Practice Statement 2 - Disclosure of accounting policies
(effective 1 January 2023). The IASB has amended IAS 1 Presentation of Financial
Statements to help preparers in deciding which accounting policies to disclose
in their financial statements by stating that an entity is now required to
disclose material accounting policies instead of significant accounting
policies.
IAS 12 - International Tax Reform Pillar Two Model Rules (effective 1 January
2023). The IASB has published amendments to IAS 12 Income Taxes to respond to
stakeholders' concerns about the potential implications of the imminent
implementation of the OECD pillar two rules on the accounting for income taxes.
The amendment is an exception to the requirements in IAS 12 that an entity does
not recognise and does not disclose information about deferred tax assets as
liabilities related to the OECD pillar two income taxes and a requirement that
current tax expenses must be disclosed separately to pillar two income taxes.
IAS 1 - Classification of liabilities as current or non-current (effective 1
January 2024). The IASB has amended IAS 1 Presentation of Financial Statements
to clarify its requirement for the presentation of liabilities depending on the
rights that exist at the end of the reporting period. The amendment requires
liabilities to be classified as non-current if the entity has a substantive
right to defer settlement for at least 12 months at the end of the reporting
period. The amendment no longer refers to unconditional rights.
None of the standards that have been issued but are not yet effective are
expected to have a material impact on the Company.
(b) Presentation of the Statement of Comprehensive Income
In order to better reflect the activities of an investment trust company and in
accordance with guidance issued by the AIC, supplementary information which
analyses the Statement of Comprehensive Income between items of a revenue and a
capital nature has been presented alongside the Statement of Comprehensive
Income.
(c) Segmental reporting
The Directors are of the opinion that the Company is engaged in a single segment
of business being investment business.
(d) Income
Dividends receivable on equity shares are recognised as revenue for the year on
an ex-dividend basis. Where no ex-dividend date is available, dividends
receivable on or before the year end are treated as revenue for the year.
Provision is made for any dividends and interest income not expected to be
received. Special dividends, if any, are treated as a capital or a revenue
receipt depending on the facts or circumstances of each particular case. The
return on a debt security is recognised on a time apportionment basis so as to
reflect the effective yield on the debt security. Interest income and deposit
interest are accounted for on an accruals basis.
Where the Company has elected to receive its dividends in the form of additional
shares rather than in cash, the cash equivalent of the dividend is recognised as
income. Any excess in the value of the shares received over the amount of the
cash dividend is recognised in capital.
(e) Expenses
All expenses, including finance costs, are accounted for on an accruals basis.
Expenses have been charged wholly to the revenue account of the Statement of
Comprehensive Income, except as follows:
· expenses which are incidental to the acquisition or sale of an investment
are charged to the capital account of the Statement of Comprehensive Income.
Details of transaction costs on the purchases and sales of investments are
disclosed within note 10 to the financial statements in the Company's Annual
Report for the year ended 30 September 2023;
· expenses are treated as capital where a connection with the maintenance or
enhancement of the value of the investments can be demonstrated;
· the investment management fee and finance costs have been allocated 20% to
the revenue account and 80% to the capital account of the Statement of
Comprehensive Income in line with the Board's expected long term split of
returns, in the form of capital gains and income, respectively, from the
investment portfolio; and
· performance fees are allocated 100% to the capital account of the Statement
of Comprehensive Income as fees are generated in connection with enhancing the
value of the investment portfolio.
(f) Taxation
The tax expense represents the sum of the tax currently payable and deferred
tax. The tax currently payable is based on the taxable profit for the year.
Taxable profit differs from net profit as reported in the Statement of
Comprehensive Income because it excludes items of income or expenses that are
taxable or deductible in other years and it further excludes items that are
never taxable or deductible. The Company's liability for current tax is
calculated using tax rates that were applicable at the balance sheet date.
Where expenses are allocated between capital and revenue accounts, any tax
relief in respect of the expenses is allocated between capital and revenue
returns on the marginal basis using the Company's effective rate of corporation
tax for the accounting period.
Deferred taxation is recognised in respect of all temporary differences that
have originated but not reversed at the financial reporting date, where
transactions or events that result in an obligation to pay more taxation in the
future or right to pay less taxation in the future have occurred at the
financial reporting 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 taxation assets and liabilities are measured at the rates
applicable to the legal jurisdictions in which they arise.
(g) Investments held at fair value through profit or loss
In accordance with IFRS 9, the Company classifies its investments at initial
recognition as held at fair value through profit or loss and are managed and
evaluated on a fair value basis in accordance with its investment strategy and
business model.
All investments are measured initially and subsequently at fair value through
profit or loss. Purchases of investments are recognised on a trade date basis.
Sales of investments are recognised at the trade date of the disposal.
The fair value of the financial investments is based on their quoted bid price
at the financial reporting date, without deduction for the estimated future
selling costs. This policy applies to all current and non-current asset
investments held by the Company. The fair value of the P-Notes are, when held,
based on the quoted bid price of the underlying equity to which they relate.
Changes in the value of investments held at fair value through profit or loss
and gains and losses on disposal are recognised in the Statement of
Comprehensive Income as "Net profit/(loss) on investments held at fair value
through profit or loss". Also included within the heading are transaction costs
in relation to the purchase or sale of investments.
For all financial instruments not traded in an active market, the fair value is
determined by using various valuation techniques. Valuation techniques include
market approach (i.e., using recent arm's length market transactions adjusted as
necessary and reference to the current market value of another instrument that
is substantially the same) and the income approach (i.e., discounted cash flow
analysis and option pricing models making as much use of available and
supportable market data where possible). See note 2(o) below.
(h) Derivatives
The Company can hold long and short positions in contracts for difference (CFDs)
which are held at fair value based on the bid prices of the underlying
securities in respect of long positions, and the offer prices of the underlying
securities in respect of short positions.
Profits and losses on derivative transactions are recognised in the Statement of
Comprehensive Income. They are shown in the capital account of the Statement of
Comprehensive Income if they are of a capital nature and are shown in the
revenue account of the Statement of Comprehensive Income if they are of a
revenue nature. To the extent that any profits or losses are of a mixed revenue
and capital nature, they are apportioned between revenue and capital
accordingly.
(i) Other receivables and other payables
Other receivables and other payables do not carry any interest and are short
term in nature and are accordingly stated on an amortised cost basis.
(j) Dividends payable
Under IAS, final dividends should not be accrued in the financial statements
unless they have been approved by shareholders before the financial reporting
date. Interim dividends should not be recognised in the financial statements
unless they have been paid.
Dividends payable to equity shareholders are recognised in the Statement of
Changes in Equity.
(k) Foreign currency translation
Transactions involving foreign currencies are converted at the rate ruling at
the date of the transaction. Foreign currency monetary assets and liabilities
and non-monetary assets held at fair value are translated into US Dollars at the
rate ruling on the financial reporting date. Foreign exchange differences
arising on translation are recognised in the Statement of Comprehensive Income
as a revenue or capital item depending on the income or expense to which they
relate. For investment transactions and investments held at the year end,
denominated in a foreign currency, the resulting gains or losses are included in
the profit/(loss) on investments held at fair value through profit or loss in
the Statement of Comprehensive Income.
(l) Cash and cash equivalents
Cash comprises cash in hand, bank overdrafts and on demand deposits. Cash
equivalents are short term, highly liquid investments that are readily
convertible to known amounts of cash and that are subject to an insignificant
risk of changes in value.
The Company's investment in the Cash Fund is managed as part of the Company's
investment policy and, accordingly, this investment along with purchases and
sales of this investment has been classified in the Statement of Financial
Position as an investment and not as a cash equivalent as defined under IAS 7.
(m) Bank borrowings
Bank overdrafts and loans are recorded as the proceeds received. Finance
charges, including any premium payable on settlement or redemption and direct
issue costs, are accounted for on an accruals basis in the Statement of
Comprehensive Income using the effective interest rate method and are added to
the carrying amount of the instrument.
(n) Share repurchases and share reissues
Shares repurchased and subsequently cancelled - share capital is reduced by the
nominal value of the shares repurchased and the capital redemption reserve is
correspondingly increased in accordance with Section 733 of the Companies Act
2006. The full cost of the repurchase is charged to the special reserve.
Shares repurchased and held in treasury - the full cost of the repurchase is
charged to the special reserve.
Where treasury shares are subsequently re-issued:
· amounts received to the extent of the repurchase price are credited to the
special reserve and capital reserves based on a weighted average basis of
amounts utilised from these reserves on repurchases; and
· any surplus received in excess of the repurchase price is taken to the share
premium account.
Where new shares are issued, amounts received to the extent of any surplus
received in excess of the par value are taken to the share premium account.
Share issue costs are charged to the share premium account. Costs on share
reissues are charged to the special reserve and capital reserves.
(o) Critical accounting estimates and judgements
The Company makes estimates and assumptions concerning the future. The resulting
accounting estimates and assumptions will, by definition, seldom equal the
related actual results. Estimates and judgements are regularly evaluated and are
based on historical experience and other factors, including expectations of
future events that are believed to be reasonable under the circumstances. The
Directors do not believe that any accounting judgements or estimates have a
significant risk of causing a material adjustment to the carrying amount of
assets and liabilities within the next financial year.
3. Income
2023 2022
US$'000 US$'000
Investment income:
UK dividends 362 -
Stock dividend 14 -
Overseas dividends 12,997 10,327
Overseas special dividends 1,006 1,329
Interest from Cash Fund 3,023 713
--------------- ---------------
Total investment income 17,402 12,369
========= =========
Net income from contracts for difference 1,985 2,328
Interest received on cash collateral 68 -
Deposit interest 183 55
--------------- ---------------
Total income 19,638 14,752
========= =========
Dividends and interest received in cash during the year amounted to
US$14,859,000 and US$3,182,000 (2022: US$13,766,000 and US$591,000).
Special dividends of US$nil from equity investments have been recognised in
capital (2022: US$74,000). Special dividends of US$565,000 from long contracts
for difference have been recognised in capital (2022: US$nil) and is included
within net income from contracts for difference in the capital account of the
Statement of Comprehensive Income.
4. Investment management and performance fees
2023 2022
Revenue Capital Total Revenue Capital Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Investment 757 3,026 3,783 757 3,028 3,785
management
fee
Performance - 8,272 8,272 - - -
fee
--------- --------- --------- --------- --------- ---------
------ ------ ------ ------ ------ ------
Total 757 11,298 12,055 757 3,028 3,785
========= ========= ========= ========= ========= =========
An investment management fee equivalent to 1.10% per annum of the Company's
gross assets (defined as the aggregate net assets of the long equity and CFD
portfolios of the Company) is payable to the Manager. In addition, the Manager
is entitled to receive a performance fee at a rate of 10% of any increase in the
net asset value (NAV) at the end of a performance period over and above what
would have been achieved had the NAV since launch increased in line with the
Benchmark Index, which, since 1 April 2018, is a composite of the MSCI Emerging
Markets Index ex Selected Countries + MSCI Frontier Markets Index + MSCI Saudi
Arabia Index.
For the purposes of the calculation of the performance fee, the performance of
the NAV total return was measured against the performance of the Benchmark Index
on a blended basis.
For the year ended 30 September 2023, the Company's NAV outperformed the
Benchmark Index on a US Dollar basis by 20.1% resulting in a cumulative
outperformance since launch of 57.9% (2022: underperformed by 3.6%); therefore,
a performance fee of US$8,272,000 has been accrued (2022: US$nil). Any accrued
performance fee is included within other payables in the Statement of Financial
Position.
The performance fee payable in any year is capped at 2.5% of the gross assets of
the Company if there is an increase in the NAV per share, or 1% of the gross
assets of the Company if there is a decrease of the NAV per share, at the end of
the relevant performance period. Any capped excess outperformance for a period
may be carried forward to the next two performance periods, subject to the then
applicable annual cap. The performance fee is also subject to a high watermark
such that any performance fee is only payable to the extent that the cumulative
relative outperformance of the NAV is greater than what would have been achieved
had the NAV increased in line with the Benchmark Index since the last date in
relation to which a performance fee had been paid. This mechanism requires the
Manager to catch up any previous cumulative underperformance against the
benchmark before a performance fee can be generated.
The investment management fee is allocated 20% to the revenue account and 80% to
the capital account and the performance fee is wholly allocated to the capital
account of the Statement of Comprehensive Income. There is no additional fee for
company secretarial and administration services.
5. Other operating expenses
2023 2022
US$'000 US$'000
Allocated to revenue:
Custody fee 229 274
Auditor's remuneration:
- audit services 62 52
- other assurance services1 9 7
Registrar's fee 32 38
Directors' emoluments2 243 196
Broker fees 38 36
Depositary fees3 33 29
Marketing fees 90 76
AIC fees 24 22
FCA fees 18 16
Printing and postage fees 58 35
Employer NI contributions 31 22
Stock exchange listings 13 12
Legal and professional fees 21 18
Write back of prior year expenses4 (27) (6)
Other administrative costs 68 72
--------------- ---------------
942 899
========= =========
Allocated to capital:
Custody transaction charges5 68 78
--------------- ---------------
1,010 977
========= =========
The Company's ongoing charges6, calculated 1.38% 1.36%
as a percentage of average daily net assets
and using the management fee and all other
operating expenses, excluding performance
fees, finance costs, direct transaction
costs, custody transaction charges, VAT
recovered, taxation, prior year expenses
written back and certain non-recurring
items, were:
The Company's ongoing charges6, calculated 3.78% 1.36%
as a percentage of average daily net assets
and using the management fee and all other
operating expenses and including performance
fees but excluding finance costs, direct
transaction costs, custody transaction
charges, VAT recovered, taxation, prior year
expenses written back and certain non
-recurring items, were:
========= =========
1Fees for other assurance services of £7,100 (US$9,000) (2022: £6,500
(US$7,000)) relate to the review of the interim financial statements.
2Further information on Directors' emoluments can be found in the Directors'
Remuneration Report in the Company's Annual Report for the year ended 30
September 2023. The Company has no employees.
3All expenses other than depositary fees are paid in British Pound Sterling and
are therefore subject to exchange rate fluctuations.
4Relates to Directors' expenses, miscellaneous fees and legal fees written back
during the year (2022: Directors' expenses and miscellaneous fees).
5For the year ended 30 September 2023, expenses of £56,000 (US$68,000) (2022:
£70,000 (US$78,000)) were charged to the capital account of the Statement of
Comprehensive Income. These relate to transaction costs charged by the Custodian
on sale and purchase trades.
6Alternative Performance Measures, see Glossary in the Company's Annual Report
for the year ended 30 September 2023.
No fees were payable in 2023 or 2022 in relation to investing in new markets.
6. Dividends
Dividends paid on equity shares Record Payment 2023 2022
date date US$'000 US$'000
2022 final of 4.25 cents (2021: 6 Januar 14 8,046 8,046
4.25 cents) per ordinary share y 2023 February
2023
2023 interim of 3.10 cents 16 June 7 July 5,868 5,207
(2022: 2.75 cents) per ordinary 2023 2023
share
--------- ---------
------ ------
13,914 13,253
========= =========
The total dividends payable in respect of the year ended 30 September 2023 which
form the basis of Section 1158 of the Corporation Tax Act 2010 and Section 833
of the Companies Act 2006, and the amounts proposed, meet the relevant
requirements as set out in this legislation.
Dividends paid, proposed or declared 2023 2022
on equity shares US$'000 US$'000
Interim dividend of 3.10 cents per 5,868 5,207
ordinary share (2022: 2.75 cents)
Final proposed dividend of 4.90 cents 9,277 8,046
per ordinary share (2022: 4.25 cents)1
--------------- ---------------
15,145 13,253
========= =========
1Based on 189,325,748 ordinary shares in issue on 29 November 2023.
7. Earnings and net asset value per ordinary share
Revenue, capital earnings/(loss) and net asset value per ordinary share are
shown below and have been calculated using the following:
Year ended Year ended
30 September 30 September
2023 2022
Net revenue profit attributable to ordinary 15,872 12,013
shareholders (US$'000)
Net capital profit/(loss) attributable to 58,984 (48,882)
ordinary shareholders (US$'000)
--------------- ---------------
Total profit/(loss) attributable to ordinary 74,856 (36,869)
shareholders (US$'000)
========= =========
Equity shareholders' funds (US$'000) 363,598 302,656
========= =========
The weighted average number of ordinary 189,325,748 189,325,748
shares in issue during the year on which the
earnings per ordinary share was calculated
was:
The actual number of ordinary shares in 189,325,748 189,325,748
issue at the year end on which the net asset
value per ordinary share was calculated was:
--------------- ---------------
Earnings per share
Revenue earnings per share (cents) - basic 8.38 6.35
and diluted
Capital earnings/(loss) per share (cents) - 31.16 (25.82)
basic and diluted
--------------- ---------------
Total earnings/(loss) per share (cents) - 39.54 (19.47)
basic and diluted
========= =========
As at As at
30 September 30 September
2023 2022
Net asset value per ordinary share (cents) 192.05 159.86
Ordinary share price (cents)1 175.76 142.61
Net asset value per ordinary share (pence)1 157.35 143.21
Ordinary share price (pence) 144.00 127.75
========= =========
1Based on an exchange rate of US$1.2206 to £1 at 30 September 2023 and US$1.1163
to £1 at 30 September 2022.
8. Called up share capital
Ordinary Treasury Total Nominal
shares shares shares value
in issue number number US$'000
number
Allotted, called up and fully
paid share capital comprised:
Ordinary shares of 1 cent
each:
At 30 September 2022 189,325,748 52,497,053 241,822,801 2,418
----------- ---------- ----------- ----------
------ ------- ------ -------
At 30 September 2023 189,325,748 52,497,053 241,822,801 2,418
========== ========== ========== ==========
During the year, the Company did not issue or buyback any ordinary shares (2022:
nil). Additionally, during the year no shares were transferred into treasury
(2022: nil).
Since 30 September 2023 and up to the date of this report, no ordinary shares
have been issued or bought back.
9. Reserves
For the year ended 30 September 2023
Distributable
reserves
Capital Special Capital Capital Revenue
redemption reserve reserve reserve reserve
reserve US$'000 arising on arising on US$'000
US$'000 investments revaluation
sold of
US$'000 investments
held
US$'000
At 30 5,798 308,804 21,748 (44,579) 8,467
September
2022
Movement
during the
year:
Total
comprehensive
income:
Net profit - - 10,017 48,967 15,872
for the year
Transactions
with owners,
recorded
directly to
equity:
Dividends - - - - (13,914)
paid
---------- ------------- ----------- ----------- ---------
----- -- ---- ---- ------
At 30 5,798 308,804 31,765 4,388 10,425
September
2023
========= ========= ========= ========= =========
For the year ended 30 September 2022
Distributable
reserves
Capital Special Capital Capital Revenue
redemption reserve reserve reserve reserve
reserve US$'000 arising on arising on US$'000
US$'000 investments revaluation
sold of
US$'000 investments
held
US$'000
At 30 5,798 308,804 12,959 13,092 9,707
September
2021
Movement
during the
year:
Total
comprehensive
income/(loss):
Net - - 8,789 (57,671) 12,013
profit/(loss)
for the
year
Transactions
with owners,
recorded
directly to
equity:
Dividends - - - - (13,253)
paid
---------- ------------- ----------- ----------- ---------
----- -- ---- ---- ------
At 30 5,798 308,804 21,748 (44,579) 8,467
September
2022
========= ========= ========= ========= =========
The share premium account and capital redemption reserve are not distributable
reserves under the Companies Act 2006. In accordance with ICAEW Technical
Release 02/17BL on Guidance on Realised and Distributable Profits under the
Companies Act 2006, the special reserve and capital reserves may be used as
distributable reserves for all purposes and, in particular, the repurchase by
the Company of its ordinary shares and for payments such as dividends. In
accordance with the Company's Articles of Association, the special reserve,
capital reserves and the revenue reserve may be distributed by way of dividend.
The gain on the capital reserve arising on the revaluation of investments of
US$4,388,000 (2022: loss of US$44,579,000) is subject to fair value movements
and may not be readily realisable at short notice, as such it may not be
entirely distributable. The investments are subject to financial risks; as such
capital reserves (arising on investments sold) and the revenue reserve may not
be entirely distributable if a loss occurred during the realisation of these
investments.
In June 2011, the Company cancelled its share premium account pursuant to
shareholders' approval of a special resolution and Court approval on 17 June
2011. The share premium account, which totalled US$142,704,000 was transferred
to a special reserve.
In November 2013, the Company cancelled its share premium account pursuant to
shareholders' approval of a special resolution and Court approval on 6 November
2013. The share premium account, which totalled US$88,326,000 was transferred to
a special reserve.
In March 2021, the Company cancelled its share premium account pursuant to
shareholders' approval of a special resolution and Court approval on 11 March
2021. The share premium account, which totalled US$165,984,000 was transferred
to a special reserve.
10. Valuation of financial instruments
Financial assets and financial liabilities are either carried in the Statement
of Financial Position at their fair value (investments and derivatives) or at an
amount which is a reasonable approximation of fair value (due from brokers,
dividends and interest receivable, due to brokers, accruals, cash at bank and
bank overdrafts). IFRS 13 requires the Company to classify fair value
measurements using a fair value hierarchy that reflects the significance of
inputs used in making the measurements. The valuation techniques used by the
Company are explained in the accounting policies note 2(g) to the Financial
Statements above.
Categorisation within the hierarchy has been determined on the basis of the
lowest level of input that is significant to the fair value measurement of the
relevant asset.
The fair value hierarchy has the following levels:
Level 1 - Quoted market price for identical instruments in active markets
A financial instrument is regarded as quoted in an active market if quoted
prices are readily available from an exchange, dealer, broker, industry group,
pricing service or regulatory agency and those prices represent actual and
regularly occurring market transactions on an arm's length basis. The Company
does not adjust the quoted price for these instruments.
Level 2 - Valuation techniques using observable inputs
This category includes instruments valued using quoted prices for similar
instruments in markets that are considered less active, or other valuation
techniques where all significant inputs are directly or indirectly observable
from market data.
Valuation techniques used for non-standardised financial instruments such as
options, currency swaps and other over-the-counter derivatives include the use
of comparable recent arm's length transactions, reference to other instruments
that are substantially the same, discounted cash flow analysis, option pricing
models and other valuation techniques commonly used by market participants
making the maximum use of market inputs and relying as little as possible on
entity specific inputs.
As at the year end, the CFDs were valued using the underlying equity bid price
and the inputs to the valuation were the exchange rates used to convert the CFD
valuation from the relevant local currency in which the underlying equity was
priced to US Dollars at the year end date. There have been no changes to the
valuation technique since the previous year or as at the date of this report.
Contracts for difference and forward currency contracts have all been classified
as Level 2 investments as their valuation has been based on market observable
inputs represented by the market prices of the underlying quoted securities and
exchange rates to which these contracts expose the Company.
Level 3 - Valuation techniques using significant unobservable inputs
This category includes all instruments where the valuation technique includes
inputs not based on market data and these inputs could have a significant impact
on the instrument's valuation.
This category also includes instruments that are valued based on quoted prices
for similar instruments where significant entity determined adjustments or
assumptions are required to reflect differences between the instruments and
instruments for which there is no active market. The Investment Manager
considers observable data to be that market data that is readily available,
regularly distributed or updated, reliable and verifiable, not proprietary, and
provided by independent sources that are actively involved in the relevant
market.
The level in the fair value hierarchy within which the fair value measurement is
categorised in its entirety is determined on the basis of the lowest level input
that is significant to the fair value measurement. If a fair value measurement
uses observable inputs that require significant adjustment based on unobservable
inputs, that measurement is a Level 3 measurement.
Assessing the significance of a particular input to the fair value measurement
in its entirety requires judgement, considering factors specific to the asset or
liability including an assessment of the relevant risks including but not
limited to credit risk, market risk, liquidity risk, business risk and
sustainability risk. The determination of what constitutes `observable' inputs
requires significant judgement by the Investment Manager and these risks are
adequately captured in the assumptions and inputs used in measurement of Level 3
assets or liabilities.
Fair values of financial assets and financial liabilities
The table below sets out fair value measurements using IFRS 13 fair value
hierarchy.
Financial Level 1 Level 2 Level 3 Total
assets/(liabilities) US$'000 US$'000 US$'000 US$'000
at fair value
through profit or loss
at 30 September 2023
Assets:
Equity investments 309,642 - - 309,642
Cash Fund 64,875 - - 64,875
Contracts for - 1,402 - 1,402
difference (fair
value)
--------- --------- --------- ---------
------ ------ ------ ------
Liabilities:
Contracts for - (3,234) - (3,234)
difference (fair
value)
--------- --------- --------- ---------
------ ------ ------ ------
374,517 (1,832) - 372,685
========= ========= ========= =========
Financial Level 1 Level 2 Level 3 Total
assets/(liabilities) US$'000 US$'000 US$'000 US$'000
at fair value
through profit or loss
at 30 September 2022
Assets:
Equity investments 226,530 - - 226,530
Cash Fund 71,415 - - 71,415
Contracts for - 755 - 755
difference (fair
value)
--------- --------- --------- ---------
------ ------ ------ ------
Liabilities:
Contracts for - (4,613) - (4,613)
difference (fair
value)
--------- --------- --------- ---------
------ ------ ------ ------
297,945 (3,858) - 294,087
========= ========= ========= =========
There were no transfers between levels of financial assets and financial
liabilities during the year recorded at fair value as at 30 September 2023. The
Company held no Level 3 assets or liabilities during the year ended 30 September
2023 (2022: nil).
For exchange listed equity investments, the quoted price is the bid price.
Substantially, all investments are valued based on unadjusted quoted market
prices. Where such quoted prices are readily available in an active market, such
prices are not required to be assessed or adjusted for any price related risks,
including climate risk, in accordance with the fair value related requirements
of the Company's financial reporting framework.
11. Related party disclosure
Directors' emoluments
At the date of this report, the Board consists of six non-executive Directors,
all of whom are considered to be independent of the Manager by the Board.
Disclosures of the Directors' interests in the ordinary shares of the Company
and fees and expenses payable to the Directors are set out in the Directors'
Remuneration Report in the Company's Annual Report for the year ended 30
September 2023. At 30 September 2023, US$20,000 (£17,000) (2022: US$17,000
(£15,000)) was outstanding in respect of Directors' fees.
Significant holdings
The following investors are:
a.funds managed by the BlackRock Group or are affiliates of BlackRock Inc.
("Related BlackRock Funds"); or
b.investors (other than those listed in (a) above) who held more than 20% of the
voting shares in issue in the Company and are as a result, considered to be
related parties to the Company ("Significant Investors").
As at 30 September 2023
Total % of shares held Total % of Number of Significant Investors who are not
by Related BlackRock shares held affiliates of BlackRock Group or BlackRock,
Funds by Inc.
Significant
Investors
who are not
affiliates
of
BlackRock
Group or
BlackRock,
Inc.
4.1 n/a n/a
As at 30 September 2022
Total % of shares held Total % of Number of Significant Investors who are not
by Related BlackRock shares held affiliates of BlackRock Group or BlackRock,
Funds by Inc.
Significant
Investors
who are not
affiliates
of
BlackRock
Group or
BlackRock,
Inc.
8.4 n/a n/a
12. Transactions with the Investment Manager and AIFM
BlackRock Fund Managers Limited (BFM) provides management and administration
services to the Company under a contract which is terminable on six months'
notice. BFM has (with the Company's consent) delegated certain portfolio and
risk management services, and other ancillary services, to BlackRock Investment
Management (UK) Limited (BIM (UK)). Further details of the investment management
contract are disclosed in the Directors' Report in the Company's Annual Report
for the year ended 30 September 2023.
The investment management fee due for the year ended 30 September 2023 amounted
to US$3,783,000 (2022: US$3,785,000). The performance fee payable for the year
ended 30 September 2023 amounted to US$8,272,000 (2022: US$nil).
At the year end, US$2,902,000 (2022: US$882,000) was outstanding in respect of
management fees and US$8,272,000 (2022: US$nil) was outstanding in respect of
performance fees.
In addition to the above services, BIM (UK) has provided the Company with
marketing services. The total fees paid or payable for these services for the
year ended 30 September 2023 amounted to US$90,000 (2022: US$76,000) excluding
VAT. Marketing fees of US$143,000 (US$53,000) excluding VAT were outstanding at
the year end.
The Company has an investment in the BlackRock Institutional Cash Series plc -
US Dollar Liquid Environmentally Aware Fund of US$64,875,000 (2022:
US$71,415,000) at the year end, which is a fund managed by a company within the
BlackRock Group.
The ultimate holding company of the Manager and the Investment Manager is
BlackRock, Inc., a company incorporated in Delaware, USA.
13. Contingent liabilities
There were no contingent liabilities at 30 September 2023 (2022: nil).
14. 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 2023 Annual Report
and Financial Statements will be filed with the Registrar of Companies shortly.
The report of the Auditor for the year ended 30 September 2023 contains no
qualification or statement under Section 498(2) or (3) of the Companies Act
2006.
The comparative figures are extracts from the audited financial statements of
BlackRock Frontiers Investment Trust plc for the year ended 30 September 2021,
which have been filed with the Registrar of Companies.The report of the Auditor
on those financial statements contained no qualification or statement under
Section 498 of the Companies Act.
This announcement was approved by the Board of Directors on 29 November 2023.
15. ANNUAL REPORT
Copies of the annual report will be sent to members shortly and will be
available from the registered office, c/o The Company Secretary, BlackRock
Frontiers Investment Trust plc, 12 Throgmorton Avenue, London EC2N 2DL.
16. ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held at 12 Throgmorton Avenue,
London EC2N 2DL on Tuesday, 6 February 2024 at 12:30 p.m.
The Annual Report will also be available on the BlackRock website at
blackrock.com/uk/brfi.Neither the contents of the Manager's website nor the
contents of any website accessible from hyperlinks on the Manager's website (or
any other website) is incorporated into, or forms part of, this announcement.
FOR FURTHER INFORMATION, PLEASE CONTACT:
Sarah Beynsberger, Director, Investment Trusts, BlackRock Investment Management
(UK) Limited
Tel: 020 7743 3000
Press enquiries:
Lansons Communications
Email:BlackRockInvestmentTrusts@lansons.com (https://www.investegate.co.uk/blackr
ock-frontiers--brfi-/prn/correction---annual-financial
-report/20191209162646P8256/null)
Tel:020 7490 8828
29 November 2023
12 Throgmorton Avenue
London EC2N 2DL
END
This information was brought to you by Cision http://news.cision.com
The following files are available for download:
https://mb.cision.com/Main/22403/3884150/2463998.pdf Release
END
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