BLACKROCK FRONTIERS INVESTMENT TRUST PLC 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 | |
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% |
|
| ========= | ========= |
|
| For the year | For the year | |
US Dollar |
|
|
|
Net asset value per share (with dividends reinvested)3 | +25.1 | -10.9 | +100.0 |
Benchmark Index (NR)5,6 | +5.0 | -7.3 | +42.1 |
MSCI Frontier Markets Index (NR)6 | +6.5 | -25.2 | +32.8 |
MSCI Emerging Markets Index (NR)6 | +11.7 | -28.1 | +17.3 |
Ordinary share price (with dividends reinvested)3 | +28.8 | -10.0 | +81.1 |
| --------------- | --------------- | --------------- |
British Pound Sterling |
|
|
|
Net asset value per share (with dividends reinvested)3 | +14.3 | +7.7 | +154.6 |
Benchmark Index (NR)5,6 | -3.9 | +12.0 | +80.1 |
MSCI Frontier Markets Index (NR)6 | -2.6 | -9.6 | +69.6 |
MSCI Emerging Markets Index (NR)6 | +2.2 | -13.2 | +49.9 |
Ordinary share price (with dividends reinvested)3 | +17.7 | +8.7 | +130.2 |
| ========= | ========= | ========= |
1 The change in net assets reflects dividends paid and portfolio movements during the year.
2 Based on an exchange rate of US$1.2206 to £1 at 30 September 2023 and US$1.1163 to £1 at 30 September 2022.
3 Alternative Performance Measures, see Glossary in the Company’s Annual Report for the year ended 30 September 2023.
4 The Company was incorporated on 15 October 2010 and its shares were admitted to trading on the London Stock Exchange on 17 December 2010.
5 With 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.
6 Net 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
1 All 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 pricewas 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 BasicIndustries on the view that margins are at 10-year troughs and as the company is still free cash flow positive, it should do wellon 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 LatinAmerica, 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 investmentsas 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.
1 Gross market exposure as a % of net assets.
2 Exposure 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
| Principal | | | Gross market |
Bank Central Asia | Indonesia | Financials | 16,590 | 4.6 |
Bank Mandiri | Indonesia | Financials | 11,348 | 3.1 |
Astra International | Indonesia | Industrials | 10,861 | 3.0 |
Indofood CBP Sukses Makmur | Indonesia | Consumer Staples | 6,903 | 1.9 |
Mitra Adiperkasa | Indonesia | Consumer Discretionary | 6,499 | 1.8 |
|
|
| --------------- | --------------- |
|
|
| 52,201 | 14.4 |
|
|
| ========= | ========= |
CP All | Thailand | Consumer Staples | 10,302 | 2.8 |
Advanced Info Service | Thailand | Communication Services | 10,062 | 2.8 |
Bangkok Bank | Thailand | Financials | 5,560 | 1.5 |
True Corporation | Thailand | Communication Services | 4,726 | 1.3 |
|
|
| --------------- | --------------- |
|
|
| 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 Discretionary | 6,881 | 1.9 |
Ayala Land | Philippines | Real Estate | 6,519 | 1.8 |
Metrobank | Philippines | Financials | 5,124 | 1.4 |
Jollibee Foods | Philippines | Consumer Discretionary | 4,585 | 1.3 |
LT Group | Philippines | Industrials | 3,322 | 0.9 |
|
|
| --------------- | --------------- |
|
|
| 26,431 | 7.3 |
|
|
| ========= | ========= |
Sociedad Quimica y Minera - ADR | Chile | Industrials | 7,352 | 2.0 |
Cervecerias Unidas | Chile | Consumer Staples | 7,151 | 2.0 |
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 Emirates | Real Estate | 10,687 | 2.9 |
Air Arabia | United Arab Emirates | Industrials | 7,401 | 2.1 |
|
|
| --------------- | --------------- |
|
|
| 18,088 | 5.0 |
|
|
| ========= | ========= |
Malaysia Airports Holdings Berhad | Malaysia | Industrials | 7,075 | 1.9 |
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-International | Information Technology | 9,377 | 2.6 |
|
|
| --------------- | --------------- |
|
|
| 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 Republic | Financials | 7,141 | 2.0 |
|
|
| --------------- | --------------- |
|
|
| 7,141 | 2.0 |
|
|
| ========= | ========= |
National Bank of Greece | Greece | Financials | 5,534 | 1.5 |
|
|
| --------------- | --------------- |
|
|
| 5,534 | 1.5 |
|
|
| ========= | ========= |
Qatar Gas Transport Company | Qatar | Energy | 5,477 | 1.5 |
|
|
| --------------- | --------------- |
|
|
| 5,477 | 1.5 |
|
|
| ========= | ========= |
Credicorp | Peru | Financials | 4,699 | 1.3 |
|
|
| --------------- | --------------- |
|
|
| 4,699 | 1.3 |
|
|
| ========= | ========= |
BRD–Groupe Société Générale | Romania | Financials | 4,356 | 1.2 |
|
|
| --------------- | --------------- |
|
|
| 4,356 | 1.2 |
|
|
| ========= | ========= |
Mobile Telecommunications | Kuwait | Communication Services | 3,887 | 1.1 |
|
|
| --------------- | --------------- |
|
|
| 3,887 | 1.1 |
|
|
| ========= | ========= |
NagaCorp | Cambodia | Consumer Discretionary | 3,810 | 1.0 |
|
|
| --------------- | --------------- |
|
|
| 3,810 | 1.0 |
|
|
| ========= | ========= |
Equity Group | Kenya | Financials | 1,685 | 0.5 |
|
|
| --------------- | --------------- |
|
|
| 1,685 | 0.5 |
|
|
| ========= | ========= |
Square Pharmaceuticals | Bangladesh | Health Care | 1,344 | 0.4 |
|
|
| --------------- | --------------- |
|
|
| 1,344 | 0.4 |
|
|
| ========= | ========= |
Ferrexpo | Ukraine | Materials | 1,158 | 0.3 |
|
|
| --------------- | --------------- |
|
|
| 1,158 | 0.3 |
|
|
| ========= | ========= |
Equity investments |
|
| 309,642 | 85.2 |
|
|
| ========= | ========= |
BlackRock’s Institutional Cash Series plc - US Dollar Liquid Environmentally Aware Fund (Cash Fund) |
|
| 64,875 | 17.8 |
|
|
| --------------- | --------------- |
Total equity investments (including Cash Fund) |
|
| 374,517 | 103.0 |
|
|
| ========= | ========= |
CFD portfolio by country of exposure
| Principal | | | Gross market | Gross market |
Long positions |
|
|
|
|
|
Saudi National Bank | Saudi Arabia | Financials |
| 15,365 | 4.2 |
Saudi Basic Industries Corporation | Saudi Arabia | Materials |
| 10,108 | 2.8 |
Yanbu National Petrochemical | Saudi Arabia | Materials |
| 9,108 | 2.5 |
Abdullah Al Othaim Markets | Saudi Arabia | Consumer Staples |
| 8,870 | 2.4 |
Elm | Saudi Arabia | Information Technology |
| 6,968 | 1.9 |
Arabian Contracting Services | Saudi Arabia | Communication Services |
| 5,353 | 1.5 |
Lumi | Saudi Arabia | Consumer Discretionary |
| 69 | 0.0 |
|
|
|
| --------------- | --------------- |
|
|
|
| 55,841 | 15.3 |
|
|
|
| ========= | ========= |
FPT | Vietnam | Information Technology |
| 10,336 | 2.8 |
Petrovietnam Drilling & Well Services | Vietnam | Energy |
| 5,571 | 1.5 |
Vietnam Dairy Products | Vietnam | Consumer Staples |
| 5,237 | 1.4 |
|
|
|
| --------------- | --------------- |
|
|
|
| 21,144 | 5.7 |
|
|
|
| ========= | ========= |
Borouge | United Arab Emirates | Materials |
| 7,101 | 2.0 |
Abu Dhabi Commercial Bank | United Arab Emirates | Financials |
| 5,632 | 1.5 |
|
|
|
| --------------- | --------------- |
|
|
|
| 12,733 | 3.5 |
|
|
|
| ========= | ========= |
Gulf International Services | Qatar | Energy |
| 9,664 | 2.7 |
Qatar Gas Transport Company | Qatar | Energy |
| 2,045 | 0.6 |
|
|
|
| --------------- | --------------- |
|
|
|
| 11,709 | 3.3 |
|
|
|
| ========= | ========= |
Commercial International Bank | Egypt | Financials |
| 3,507 | 1.0 |
|
|
|
| --------------- | --------------- |
|
|
|
| 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 positions |
|
| (1,919) | 108,259 | 29.8 |
|
|
| ========= | ========= | ========= |
Total short CFD positions |
|
| 87 | (10,775) | (3.0) |
|
|
| ========= | ========= | ========= |
Total CFD portfolio |
|
| (1,832) | 97,484 | 26.8 |
|
|
| ========= | ========= | ========= |
Fair value and gross market exposure of investments as at 30 September 2023
| | Gross market | Gross market exposure as | |
2023 | 2022 | |||
Equity investments (see footnote 1(a) below) | 309,642 | 309,642 | 85.2 | 74.8 |
Total long CFD positions (see footnote 1(b) below) | (1,919) | 108,259 | 29.8 | 31.3 |
Total short CFD positions (see footnote 1(b) below) | 87 | (10,775) | (3.0) | (5.2) |
| --------------- | --------------- | --------------- | --------------- |
Total gross market exposure | 307,810 | 407,126 | 112.0 | 100.9 |
Cash Fund | 64,875 | 64,875 | 17.8 | 23.6 |
| --------------- | --------------- | --------------- | --------------- |
Total investments and derivatives | 372,685 | 472,001 | 129.8 | 124.5 |
| ========= | ========= | ========= | ========= |
Cash and cash equivalents1,2 | 5,283 | (94,033) | (25.9) | (25.7) |
Other net current (liabilities)/assets | (14,351) | (14,351) | (3.9) | 1.2 |
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.
1 Fair 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.
2 The 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.
3 Gross 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’ Reportin 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 | ||
| £% | US$% | £% | US$% |
Net asset value total return2 | +14.3 | +25.1 | +7.7 | -10.9 |
Share price total return3 | +17.7 | +28.8 | +8.7 | -10.0 |
Benchmark Index return4 | -3.9 | +5.0 | +12.0 | -7.3 |
Discount to cum income NAV |
| 8.5 |
| 10.8 |
Ongoing charges5 |
| 1.38 |
| 1.36 |
Ongoing charges including performance fees6 |
| 3.78 |
| 1.36 |
| ========= | ========= | ========= | ========= |
1 Based on an exchange rate of US$1.2206 to £1 at 30 September 2023 and US$1.1163 to £1 at 30 September 2022.
2 Calculated with dividends reinvested.
3 Calculated on a mid to mid basis with dividends reinvested.
4 The 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.
5 Ongoing 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.
6 Ongoing 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 | ||||
| | Revenue | Capital | Total | Revenue | Capital | Total |
Income from investments held at fair value through profit or loss | 3 | 17,402 | – | 17,402 | 12,369 | 74 | 12,443 |
Net income from contracts for difference | 3 | 1,985 | 565 | 2,550 | 2,328 | – | 2,328 |
Other income | 3 | 251 | – | 251 | 55 | – | 55 |
|
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
Total income |
| 19,638 | 565 | 20,203 | 14,752 | 74 | 14,826 |
|
| ========= | ========= | ========= | ========= | ========= | ========= |
Net profit/(loss) on investments held at fair value through profit or loss |
| – | 58,566 | 58,566 | – | (41,473) | (41,473) |
Net loss on foreign exchange |
| – | (1,980) | (1,980) | – | (205) | (205) |
Net profit/(loss) from derivatives |
| – | 12,523 | 12,523 | – | (4,425) | (4,425) |
|
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
Total |
| 19,638 | 69,674 | 89,312 | 14,752 | (46,029) | (31,277) |
|
| ========= | ========= | ========= | ========= | ========= | ========= |
Expenses |
|
|
|
|
|
|
|
Investment management and performance fees | 4 | (757) | (11,298) | (12,055) | (757) | (3,028) | (3,785) |
Other operating expenses | 5 | (942) | (68) | (1,010) | (899) | (78) | (977) |
|
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
Total operating expenses |
| (1,699) | (11,366) | (13,065) | (1,656) | (3,106) | (4,762) |
|
| ========= | ========= | ========= | ========= | ========= | ========= |
Net profit/(loss) on ordinary activities before finance costs and taxation |
| 17,939 | 58,308 | 76,247 | 13,096 | (49,135) | (36,039) |
Finance costs |
| (23) | (94) | (117) | (3) | (14) | (17) |
|
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
Net profit/(loss) on ordinary activities before taxation |
| 17,916 | 58,214 | 76,130 | 13,093 | (49,149) | (36,056) |
Taxation (charge)/credit |
| (2,044) | 770 | (1,274) | (1,080) | 267 | (813) |
|
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
Profit/(loss) for the year |
| 15,872 | 58,984 | 74,856 | 12,013 | (48,882) | (36,869) |
|
| ========= | ========= | ========= | ========= | ========= | ========= |
Earnings/(loss) per ordinary share (cents) | 7 | 8.38 | 31.16 | 39.54 | 6.35 | (25.82) | (19.47) |
|
| ========= | ========= | ========= | ========= | ========= | ========= |
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
| | Called | Capital | | | | |
For the year ended 30 September 2023 |
|
|
|
|
|
|
|
At 30 September 2022 |
| 2,418 | 5,798 | 308,804 | (22,831) | 8,467 | 302,656 |
Total comprehensive income: |
|
|
|
|
|
|
|
Net profit for the year |
| – | – | – | 58,984 | 15,872 | 74,856 |
Transactions with owners, recorded directly to equity: |
|
|
|
|
|
|
|
Dividends paid1 | 6 | – | – | – | – | (13,914) | (13,914) |
|
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
At 30 September 2023 |
| 2,418 | 5,798 | 308,804 | 36,153 | 10,425 | 363,598 |
|
| ========= | ========= | ========= | ========= | ========= | ========= |
For the year ended 30 September 2022 |
|
|
|
|
|
|
|
At 30 September 2021 |
| 2,418 | 5,798 | 308,804 | 26,051 | 9,707 | 352,778 |
Total comprehensive (loss)/income: |
|
|
|
|
|
|
|
Net (loss)/profit for the year |
| – | – | – | (48,882) | 12,013 | (36,869) |
Transactions with owners, recorded directly to equity: |
|
|
|
|
|
|
|
Dividends paid2 | 6 | – | – | – | – | (13,253) | (13,253) |
|
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
At 30 September 2022 |
| 2,418 | 5,798 | 308,804 | (22,831) | 8,467 | 302,656 |
|
| ========= | ========= | ========= | ========= | ========= | ========= |
1 Final 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.
2 Final 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
| | 2023 | 2022 |
Non current assets |
|
|
|
Investments held at fair value through profit or loss |
| 374,517 | 297,945 |
|
| --------------- | --------------- |
Current assets |
|
|
|
Current tax asset |
| 444 | 446 |
Other receivables |
| 5,085 | 1,345 |
Derivative financial assets held at fair value through profit or loss – contracts for difference |
| 1,402 | 755 |
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 at fair value through profit or loss – contracts for difference |
| (3,234) | (4,613) |
Liability for cash collateral received |
| (2,300) | (650) |
|
| --------------- | --------------- |
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 quarter paid up) |
| (19) | (19) |
|
| --------------- | --------------- |
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 (cents) | 7 | 192.05 | 159.86 |
|
| ========= | ========= |
Cash flow statement for the year ended 30 September 2023
| 2023 | 2022 |
Operating activities |
|
|
Net profit/(loss) on ordinary activities before taxation | 76,130 | (36,056) |
Add back finance costs | 117 | 17 |
Net (profit)/loss on investments held at fair value through profit or loss (including transaction costs) | (58,566) | 41,473 |
Net (profit)/loss from derivatives (including transaction costs) | (12,523) | 4,425 |
Financing costs on derivatives | (4,107) | (1,450) |
Net loss on foreign exchange | 1,980 | 205 |
Sales of investments held at fair value through profit or loss | 183,095 | 193,129 |
Purchases of investments held at fair value through profit or loss | (207,654) | (203,288) |
Sales of Cash Fund1 | 163,097 | 214,616 |
Purchases of Cash Fund1 | (156,544) | (189,800) |
Amounts paid for losses on closure of derivatives | (42,659) | (62,302) |
Amounts received on profit on closure of derivatives | 57,263 | 69,002 |
(Increase)/decrease in other receivables | (855) | 862 |
Increase/(decrease) in other payables | 10,651 | (4,680) |
(Increase)/decrease in amounts due from brokers | (2,885) | 2,017 |
Increase/(decrease) in amounts due to brokers | 4,506 | (2,059) |
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 equivalents | 2,362 | (611) |
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 the year | 4,901 | 5,717 |
| --------------- | --------------- |
Cash and cash equivalents at the end of the year | 5,283 | 4,901 |
| ========= | ========= |
Comprised of: |
|
|
Cash at bank | 5,308 | 4,901 |
Bank overdraft | (25) | – |
| --------------- | --------------- |
| 5,283 | 4,901 |
| ========= | ========= |
1 Cash 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 InternationalAccounting 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 widerange 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). TheInternational 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 amendedIAS 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 amendmentsto 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 1Presentation 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 |
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 |
Investment management fee | 757 | 3,026 | 3,783 | 757 | 3,028 | 3,785 |
Performance fee | – | 8,272 | 8,272 | – | – | – |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
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 |
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 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: | 1.38% | 1.36% |
The Company’s ongoing charges6, calculated 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: | 3.78% | 1.36% |
| ========= | ========= |
1 Fees 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.
2 Further 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.
3 All expenses other than depositary fees are paid in British Pound Sterling and are therefore subject to exchange rate fluctuations.
4 Relates to Directors’ expenses, miscellaneous fees and legal fees written back during the year (2022: Directors’ expenses and miscellaneous fees).
5 For the year ended 30 September 2023, expenses of £56,000 (US$68,000) (2022: £70,000 (US$78,000)) were charged to the capital account of the Statement of Comprehensive Income. These relate to transaction costs charged by the Custodian on sale and purchase trades.
6 Alternative Performance Measures, see Glossary in the Company’s Annual Report for the year ended 30 September 2023.
No fees were payable in 2023 or 2022 in relation to investing in new markets.
6. Dividends
| | | 2023 | 2022 |
2022 final of 4.25 cents (2021: 4.25 cents) per ordinary share | 6 January 2023 | 14 February 2023 | 8,046 | 8,046 |
2023 interim of 3.10 cents (2022: 2.75 cents) per ordinary share | 16 June 2023 | 7 July 2023 | 5,868 | 5,207 |
|
|
| --------------- | --------------- |
|
|
| 13,914 | 13,253 |
|
|
| ========= | ========= |
The total dividends payable in respect of the year ended 30 September 2023 which form the basis of Section 1158 of the Corporation Tax Act 2010 and Section 833 of the Companies Act 2006, and the amounts proposed, meet the relevant requirements as set out in this legislation.
| 2023 | 2022 |
Interim dividend of 3.10 cents per ordinary share (2022: 2.75 cents) | 5,868 | 5,207 |
Final proposed dividend of 4.90 cents per ordinary share (2022: 4.25 cents)1 | 9,277 | 8,046 |
| --------------- | --------------- |
| 15,145 | 13,253 |
| ========= | ========= |
1 Based on 189,325,748 ordinary shares in issue on 29 November 2023.
7. Earnings and net asset value per ordinary share
Revenue, capital earnings/(loss) and net asset value per ordinary share are shown below and have been calculated using the following:
| Year ended | Year ended |
Net revenue profit attributable to ordinary shareholders (US$’000) | 15,872 | 12,013 |
Net capital profit/(loss) attributable to ordinary shareholders (US$’000) | 58,984 | (48,882) |
| --------------- | --------------- |
Total profit/(loss) attributable to ordinary shareholders (US$’000) | 74,856 | (36,869) |
| ========= | ========= |
Equity shareholders’ funds (US$’000) | 363,598 | 302,656 |
| ========= | ========= |
The weighted average number of ordinary shares in issue during the year on which the earnings per ordinary share was calculated was: | 189,325,748 | 189,325,748 |
The actual number of ordinary shares in issue at the year end on which the net asset value per ordinary share was calculated was: | 189,325,748 | 189,325,748 |
| --------------- | --------------- |
Earnings per share |
|
|
Revenue earnings per share (cents) – basic and diluted | 8.38 | 6.35 |
Capital earnings/(loss) per share (cents) – basic and diluted | 31.16 | (25.82) |
| --------------- | --------------- |
Total earnings/(loss) per share (cents) – basic and diluted | 39.54 | (19.47) |
| ========= | ========= |
| As at | As at |
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 |
| ========= | ========= |
1 Based 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 | | | |
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 | |
At 30 September 2022 | 5,798 | 308,804 | 21,748 | (44,579) | 8,467 |
Movement during the year: |
|
|
|
|
|
Total comprehensive income: |
|
|
|
|
|
Net profit for the year | – | – | 10,017 | 48,967 | 15,872 |
Transactions with owners, recorded directly to equity: |
|
|
|
|
|
Dividends paid | – | – | – | – | (13,914) |
| --------------- | --------------- | --------------- | --------------- | --------------- |
At 30 September 2023 | 5,798 | 308,804 | 31,765 | 4,388 | 10,425 |
| ========= | ========= | ========= | ========= | ========= |
For the year ended 30 September 2022
|
| Distributable reserves | |||
| | | | Capital | |
At 30 September 2021 | 5,798 | 308,804 | 12,959 | 13,092 | 9,707 |
Movement during the year: |
|
|
|
|
|
Total comprehensive income/(loss): |
|
|
|
|
|
Net profit/(loss) for the year | – | – | 8,789 | (57,671) | 12,013 |
Transactions with owners, recorded directly to equity: |
|
|
|
|
|
Dividends paid | – | – | – | – | (13,253) |
| --------------- | --------------- | --------------- | --------------- | --------------- |
At 30 September 2022 | 5,798 | 308,804 | 21,748 | (44,579) | 8,467 |
| ========= | ========= | ========= | ========= | ========= |
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.
| Level 1 | Level 2 | Level 3 | Total |
Assets: |
|
|
|
|
Equity investments | 309,642 | – | – | 309,642 |
Cash Fund | 64,875 | – | – | 64,875 |
Contracts for difference (fair value) | – | 1,402 | – | 1,402 |
| --------------- | --------------- | --------------- | --------------- |
Liabilities: |
|
|
|
|
Contracts for difference (fair value) | – | (3,234) | – | (3,234) |
| --------------- | --------------- | --------------- | --------------- |
| 374,517 | (1,832) | – | 372,685 |
| ========= | ========= | ========= | ========= |
| Level 1 | Level 2 | Level 3 | Total |
Assets: |
|
|
|
|
Equity investments | 226,530 | – | – | 226,530 |
Cash Fund | 71,415 | – | – | 71,415 |
Contracts for difference (fair value) | – | 755 | – | 755 |
| --------------- | --------------- | --------------- | --------------- |
Liabilities: |
|
|
|
|
Contracts for difference (fair value) | – | (4,613) | – | (4,613) |
| --------------- | --------------- | --------------- | --------------- |
| 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 by Significant Investors who are not affiliates of BlackRock Group or BlackRock, Inc. | Number of 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 by Significant Investors who are not affiliates of BlackRock Group or BlackRock, Inc. | Number of 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
Tel: 020 7490 8828
29 November 2023
12 Throgmorton Avenue
London EC2N 2DL
END
 Release |
