TIDMBRLA
BlackRock Latin American Investment Trust plc
(Legal Entity Identifier: UK9OG5Q0CYUDFGRX4151)
Information disclosed in accordance with Article 5 Transparency Directive, DTR
4.1
Annual Results Announcement for the year ended 31 December 2022
PERFORMANCE RECORD
As at As at
31 December 31 December
2022 2021
Net assets (US$'000)1 148,111 194,838
Net asset value per ordinary share (US$ cents) 502.95 496.28
Ordinary share price (mid-market) (US$ cents)2 457.10 461.19
Ordinary share price (mid-market) (pence) 380.00 340.50
Discount3 9.1% 7.1%
Performance (with dividends reinvested)
Net asset value per share (US$ cents)3 6.6% -12.5%
Ordinary share price (mid-market) (US$ cents)2,3 4.7% -11.8%
Ordinary share price (mid-market) (pence)3 18.0% -11.0%
MSCI EM Latin America Index (net return, on a US 8.9% -8.1%
Dollar basis)4
For the For the
year ended year ended
31 December 31 December
2022 2021 Change %
Revenue
Net profit after taxation (US$'000) 13,842 10,247 +35.1
Revenue profit per ordinary share (US$ cents) 41.48 26.10 +58.9
Dividends per ordinary share (US$ cents)
Quarter to 31 March 7.76 6.97 +11.3
Quarter to 30 June 5.74 7.82 -26.6
Quarter to 30 September 6.08 6.56 -7.3
Quarter to 31 December 6.29 6.21 +1.3
Special dividend5 13.00 - n/a
Total dividends paid and payable (US$ cents) 38.87 27.56 +41.0
1 The change in net assets reflects the portfolio movements during the
year, the tender offer in the year and dividends paid.
2 Based on an exchange rate of US$1.20 to £1 at 31 December 2022 and
US$1.35 to £1 at 31 December 2021.
3 Alternative Performance Measures, see Glossary contained within the
annual report and financial statements.
4 The Company's performance benchmark (the MSCI EM Latin America Index) may
be calculated on either a gross or a net return basis. Net return (NR) indices
calculate the reinvestment of dividends net of withholding taxes using the tax
rates applicable to non-resident institutional investors, and hence give a
lower total return than indices where calculations are on a gross basis (which
assumes that no withholding tax is suffered). As the Company is subject to
withholding tax rates for the majority of countries in which it invests, the NR
basis is felt to be the most accurate, appropriate, consistent and fair
comparison for the Company.
5 During the year, revenue earned by the Company was enhanced by a number
of stock and special dividends, coupled with the effect of the tender offer
reducing the number of ordinary shares in issue post May 2022. In order to
maintain investment trust status, which requires the distribution of 85% of the
Company's revenue, the Board announced the payment of an additional dividend of
13.00 cents per ordinary share for the financial year to 31 December 2022.
Sources: BlackRock Investment Management (UK) Limited and Datastream.
Performance figures are calculated in US Dollar terms with dividends
reinvested.
CHAIRMAN'S STATEMENT
Dear Shareholder
I am pleased to present the Annual Report to shareholders for the year ended 31
December 2022.
MARKET OVERVIEW
Latin American equity markets were the only region in the world to deliver
positive returns in 2022. As such, they outperformed both developed markets and
the MSCI Emerging Markets Indices, which were all negative for the year under
review, with the MSCI EM Latin America Index up by 8.9% in US Dollar terms,
compared to a fall in the MSCI Emerging Markets EMEA Index of 28.3% in US
Dollar terms and a decline in the MSCI World Index of 18.1% in US Dollar terms.
It was a challenging year for global equity markets due to the difficult global
macro-economic and geo-political backdrop caused by Russia's invasion of
Ukraine impacting global markets. In spite of this the Board was pleased to see
our region showed its defensiveness through its prudent monetary and fiscal
policy and market recognition of its role as a primary crucial raw material
producer to the world.
PERFORMANCE
Against this backdrop, over the year ended 31 December 2022 the Company's net
asset value per share rose by 6.6% over the year in US Dollar terms (lagging
the benchmark by 2.3 percentage points). The share price rose by 4.7% in US
Dollar terms (but increased by 18.0% in Sterling terms). The underperformance
against the benchmark was largely driven by stock selection in Brazil, as
tighter global liquidity and a reduced risk appetite drove valuations down for
a number of what your portfolio managers believe to be quality, domestic growth
stocks. Another factor impacting the stock performance of these quality,
domestic growth equities include the steep hiking of local interest rates in
Brazil. As a result, the domestic Brazilian equity market saw a great deal of
redemptions from local investment funds forcing prices down in a somewhat
indiscriminate manner. We believe this has created a degree of disconnect
between underlying bottom-up fundamentals of Brazilian equities and stock
market valuations.
Additional information on the main contributors to and detractors from
performance for the period under review is given in the Investment Manager's
Report below.
GEARING
The Board's view is that 105% of NAV is the neutral level of gearing over the
longer term and that gearing should be used actively in an approximate range of
plus or minus 10% around this as measured at the time that gearing is
instigated. The Board is pleased to note that despite the high level of
uncertainty over the year that the Managers have been bold and used gearing
actively with a low of 105.5% in November 2022 and a high at 111.5% in March
2022. Average gearing for the year to 31 December 2022 was 108.7%.
REVENUE RETURN AND DIVIDS
Total revenue return for the year was 41.48 cents per share (2021: 26.10 cents
per share). The increase of 59% was partially due to the increase of special
dividends received in 2022 from the portfolio companies' revenue streams. Under
the Company's dividend policy dividends are calculated and paid quarterly,
based on 1.25% of the US Dollar NAV at close of business on the last working
day of March, June, September and December respectively. An additional special
dividend of 13.00 cents per ordinary share for the financial year to 31
December 2022 was declared alongside the fourth quarterly dividend. The revenue
earned by the Company was enhanced by a number of stock and special dividends,
coupled with the effect of the tender offer reducing the number of shares in
issue post May 2022. It was necessary to pay the special dividend to maintain
investment trust status which requires the distribution of 85% of the Company's
revenue.
Information in respect of the payment timetable is set out in the annual report
and financial statements. Dividends will be financed through a combination of
available net income in each financial year and revenue and capital reserves.
The Company has declared interim dividends totalling 38.87 cents per share in
respect of the year ended 31 December 2022 (2021: 27.56 cents per share) as
detailed in the table below; this represented a yield of 8.5% based on the
Company's share price at 31 December 2022.
The dividends paid and declared by the Company in 2022 have been funded from
current year revenue and brought forward revenue reserves. As at 31 December
2022, a balance of US$8,706,000 million remained in revenue reserves, which is
sufficient to cover approximately four and a half quarterly dividend payments
at the most recently declared dividend rate of 6.29 cents per share (excluding
the additional special dividend of 13.00 cents per share).
Dividends will be funded out of capital reserves to the extent that current
year revenue and revenue reserves are insufficient. The Board believes that
this removes pressure from the investment managers to seek a higher income
yield from the underlying portfolio itself which could detract from total
returns. The Board also believes the Company's dividend policy will enhance
demand for the Company's shares and help to narrow the Company's discount,
whilst maintaining the portfolio's ability to generate attractive total
returns. It is promising to note that since the dividend policy was introduced
in 2018, the Company's discount has narrowed from 14.9% as at 1 July 2018 to
9.1% as at 31 December 2022.
Dividends declared in respect of the year ended 31 December 2022
Dividend Pay date
Quarter to 31 March 2022 7.76 cents 16 May 2022
Quarter to 30 June 2022 5.74 cents 12 August 2022
Quarter to 30 September 2022 6.08 cents 9 November 2022
Quarter to 31 December 20221 19.29 cents 8 February 2023
Total 38.87 cents
1 Quarter to 31 December 2022 includes an additional special dividend of 13.00
cents.
ESG AND SOCIALLY RESPONSIBLE INVESTMENT
As a Board we believe that good Environmental, Social and Governance (ESG)
behaviour by the companies we invest in is important to the long-term financial
success of our Company and are very encouraged that ESG issues are also
increasingly at the forefront of investors' minds. The Latin American economies
are large producers to the world of vital food, timber, minerals and oil. These
are all areas that are at the forefront of modern concerns about climate
change, biodiversity and proportionate and sustainable use of land and ocean
resources. The Board is aware that there is significant room for improvement in
terms of disclosure and adherence to global best practices for many corporates
throughout the Emerging Markets2 area and the Latin American region is no
exception to this. The Board is also aware that as a whole the region lags
global peers when it comes to ESG best practices.
The Board receives regular reporting from the Portfolio Managers on ESG matters
and extensive analysis of our portfolio's ESG footprint and actively engages
with the Portfolio Managers to discuss when significant engagement may be
required with the management teams of our Company's portfolio holdings. The
Portfolio Managers are supported by the extensive ESG resources within
BlackRock and devote a considerable amount of time to understanding the ESG
risks and opportunities facing companies and industries in the portfolio. While
the Company has not adopted an ESG investment strategy or exclusionary screens,
consideration of ESG analytics, data and insights is integrated into the
investment process when weighing up the risk and reward benefits of investment
decisions. More information in relation to BlackRock's approach to ESG
integration can be found below.
The Board believes that communication and engagement with portfolio companies
can lead to better outcomes for shareholders and the environment than merely
excluding investment in certain areas. It is encouraged by the progress made
through BlackRock's company engagement to encourage sound corporate governance
frameworks that promote strong leadership by boards of directors and good
management practices contributing to a better outcome for all stakeholders.
More information in respect of our approach to ESG can be found within the
annual report and financial statements.
2 Emerging Markets in this respect represented by the MSCI Emerging Markets
Index.
PERFORMANCE TRIGGERED TER OFFER
Your Company's Directors have always recognised that our role is to act in the
best interests of all our shareholders. We have regularly consulted with our
major shareholders to understand their objectives and used their input to guide
our strategy and policies. We note their desire for the Company to continue
with its existing investment policy and the overwhelming shareholder support
for the vote on the continuation of the Company at the AGM in May 2022. We also
recognise that it is in the long-term interests of shareholders that shares do
not trade at a significant discount to their prevailing NAV and to this end,
the Board put in place a discount control mechanism covering the four years to
31 December 2021 to offer a tender for up to 24.99% of shares in issue to the
extent that certain performance and average discount targets over the four year
period to 31 December 2021 were not met (more detail on the performance and
discount targets and the tender mechanism for the period to 31 December 2021
can be found in the Company's Annual Report for the year to 31 December 2021 on
pages 7 and 8). This resulted in a tender offer for 24.99% of the Company's
shares being put to shareholders for approval at a General Meeting held on 19
May 2022 and subsequently implemented as summarised below.
A total of 22,844,851 shares were validly tendered under the tender offer,
representing approximately 58.2% of the Company's issued share capital,
excluding shares held in treasury. As the offer was oversubscribed, it was
scaled back and eligible shareholders who validly tendered shares in excess of
their basic entitlement of 24.99% had their basic entitlement satisfied in full
plus approximately 19.71% of the excess amount they tendered, in accordance
with the process described in the tender circular published on 5 April 2022. In
total, 9,810,979 shares (representing 24.99% of the eligible share capital)
were repurchased by the Company and subsequently cancelled.
The price at which tendered shares were repurchased was equal to 98% of the Net
Asset Value per share as at a calculation date of 20 May 2022, as adjusted for
the estimated related portfolio realisation costs per tendered share, and
amounted to 417.09 pence per share. Tender proceeds were paid to shareholders
on 26 May 2022.
DISCOUNT MANAGEMENT AND NEW DISCOUNT CONTROL MECHANISM
The Board remains committed to taking appropriate action to ensure that the
Company's shares do not trade at a significant discount to their prevailing NAV
and have sought to reduce discount volatility by offering shareholders a new
discount control mechanism covering the four years to 31 December 2025. This
mechanism will offer shareholders a tender for 24.99% of the shares in issue
excluding treasury shares (at a tender price reflecting the latest cum-income
NAV less 2% and related portfolio realisation costs) in the event that the
continuation vote to be put to the Company's AGM in 2026 is approved, where
either of the following conditions have been met:
(i) the annualised total NAV return of the Company does not exceed the
annualised benchmark index (being the MSCI EM Latin America Index) US Dollar
(net return) by more than 50 basis points over the four year period from 1
January 2022 to 31 December 2025 (the Calculation Period); or
(ii) the average daily discount to the cum-income NAV exceeds 12% as calculated
with reference to the trading of the shares over the Calculation Period.
In respect of the above conditions, the Company's total NAV return on a
US Dollar basis for the year ended 31 December 2022 was +6.6%, underperforming
the benchmark return of +8.9% over the year by 2.3 percentage points. The
cum-income discount of the Company's ordinary shares has averaged 8.9% for the
year ending 31 December 2022.
Other than the shares repurchased under the tender offer implemented in May
2022, the Company has not bought back any shares during the year ended 31
December 2022 and up to the date of publication of this report (no shares were
bought back in the year to 31 December 2021).
CHANGE IN PORTFOLIO MANAGER
As announced on 9 September 2022, Sam Vecht, who has co-managed the portfolio
alongside Ed Kuczma since December 2018, became the lead portfolio manager of
the Company with Mr Kuczma stepping down from his role. Christoph Brinkmann has
been appointed as deputy portfolio manager. Mr Vecht is a Managing Director in
BlackRock's Global Emerging Markets Equities team and has extensive Latin
American experience in the investment trust sector, having managed a number of
UK investment trusts since 2004. He has also been portfolio manager for the
BlackRock Emerging Markets Equity Strategies Fund since September 2015, and the
BlackRock Frontiers Investment Trust plc since 2010, both of which have
invested in the Latin American region since launch.
Mr Brinkmann, a Vice President in the Global Emerging Markets Equities team,
has covered multiple sectors and countries across the Latin American region. He
joined BlackRock in 2015 after graduating from the University of Cologne with a
Masters in Finance and a CEMS Masters in International Management.
Mr Vecht and Mr Brinkmann are supported by the extensive resources and
significant expertise of BlackRock's Global Emerging Market team which has a
proven track record in emerging market equities. The team is made up of c.40
investment professionals researching over 1,000 companies across the global
emerging markets universe inclusive of Latin America. Your Board notes that Mr
Vecht's new role as lead portfolio manager provides continuity for the Company
and welcomes the addition of Mr Brinkmann to the team as deputy portfolio
manager. The Board are grateful to Mr Kuczma for his commitment and
contribution to the Company and wish him well in his future endeavours.
BOARD COMPOSITION
As previously advised in last year's Annual Report, Professor Doctor has
indicated that she will not seek re-election at the 2023 AGM. The Board wishes
to thank Professor Doctor for her many years of excellent service, we wish her
the best for the future.
ANNUAL GENERAL MEETING
The Company's Annual General Meeting will be held in person at the offices of
BlackRock at 12 Throgmorton Avenue, London EC2N 2DL on Monday, 22 May 2023 at
12.00 noon. Details of the business of the meeting are set out in the Notice of
Annual General Meeting contained within the annual report and financial
statements.
The Board very much looks forward to meeting shareholders and answering any
question you may have on the day. We hope you can attend this year's AGM; a
buffet lunch will be made available to shareholders who have attended the AGM.
OUTLOOK
The end of years of government and central banks creating ultra low interest
rates, heavily intervening in the bond markets and creating excess money was
never likely to be smooth. Sharp adjustments in specific areas are starting to
emerge such as UK pensions Liability Driven Investing (LDI) problems in
September 2022 and the collapse of US banks such as SVB in March 2023. It would
be unduly optimistic not to expect more problems to suddenly emerge. Despite
the fact that central banks in Latin America have not pursued these monetary
policies, Latin America could remain vulnerable to getting caught in a fallout
of repricing of risk globally. However, we believe once this adjustment is
behind us the longer term fundamentals are much better in emerging markets than
in developed markets, especially in Latin America. Central banks in the region
have been ahead of the curve during this tightening cycle and most countries in
the region are now offering some of the highest real interest rates in the
world.
The region is rich in natural resources, including fossil fuels of crude oil
and natural gas, creating favourable supply and demand dynamics. It is also a
major source of copper and lithium, critical materials for the green energy
revolution. With the removal of Russia from western supply chains, the
importance of Latin America in these markets has increased. The post Covid-19
trend for companies to move away from off-shoring (especially in China) to
near-shoring should also benefit the Latin American region and your Board
believes Mexico will continue to be an even stronger global beneficiary of new
marginal foreign direct investment flows.
Carolan Dobson
Chairman
29 March 2023
INVESTMENT MANAGER'S REPORT
MARKET OVERVIEW
Latin America performed well in 2022 and was the only region globally to end
the year in positive territory, the MSCI EM Latin America Index gaining +8.9%.
For reference the MSCI Emerging Markets Index was down -20.1% with MSCI Asia
Pacific ex-Japan retracing -17.5% and the MSCI Emerging Markets EMEA Index
losing -28.3%. The region also significantly outpaced the MSCI USA Index, down
-19.8%, and Developed Market equities, as represented by the MSCI World Index,
down -18.1%.
The first half of the year was turbulent driven by external macro conditions.
Latin America1 surged +27.3% in the first quarter as the commodity rich region
benefitted from a spike in prices caused by Russia's invasion of Ukraine as
capacity was taken offline and supply chains were materially disrupted. The
resulting improvements in the current account, due to higher exports, paired
with already attractive interest rates benefitted both currency and bond
markets.
Whilst domestically, politics dominated the headlines with legislative and
primaries elections in Colombia, impeachment rejection in Peru and a new
constitution moving forward in Chile, it was not enough to derail stronger
macro factors. However, the region retracted -21.9%1 in the second quarter as
equities priced in falling commodity demand and growing fears of a global
recession. The pessimism was also felt in the currencies, as the Chilean Peso,
Brazilian Real and Colombian Peso were some of the worst performers across
emerging markets.
The second half of the year saw slightly less volatile returns for the region,
with all markets except for Colombia gaining in the last six months of the
year. Brazil fared well into October as inflation showed signs of peaking with
investors anticipating an easing of monetary policy. However, the presidential
election and subsequent uncertainty surrounding Lula's cabinet and future
fiscal policy put pressure on the market into the year-end. Colombia and Chile
also remained affected by politics. Whilst generally viewed as a more positive
outcome, the latter market still pulled back following a rejection in the
September 4th referendum of a new constitution. Argentina was a standout
performer in second half of the year, supported by newly appointed Finance
Minister Massa signalling that the country would not seek to alter the goals
already set with the IMF.
Argentina was the top performing market in the region for the 12 months ending
31 December 2022, gaining +35.9%, Chile +19.4%, Brazil +14.2% and Peru +9.4%
ended in positive territory, whilst Mexico fell -2.0% and Colombia -6.0% lagged
but still did considerably better than almost all developed and emerging
markets outside the region1.
1 Source: Bloomberg. As at 31 December 2022. All performance figures are the
local MSCI indices in USD terms on a net basis.
PERFORMANCE REVIEW AND POSITIONING
The Company underperformed its benchmark over the 12 month period ended 31
December 2022, returning +6.6% in NAV terms. Over the same time horizon, the
Company's benchmark, the MSCI Latin America Index, returned +8.9% on net basis
in US Dollar terms.
Stock selection in Mexico and having very limited exposure to Colombia
throughout the year contributed to relative returns. Brazil and Chile were the
largest detractors on a relative basis due to stock positioning. At the sector
level, Consumer Staples and Real Estate exposure performed well, whilst Health
Care, Materials and IT weighed on returns.
Overweight positions in Brazilian financials such as stock exchange, B3, and
insurer, BB Seguridade, were amongst the period's top performers as inflation
in Brazil appeared to be peaking, and investors began to anticipate an
inflection in interest rates. Staples exposure across the region also
contributed to relative returns, adding resiliency to the portfolio throughout
the year. Mexican beverage name, FEMSA, was amongst the largest contributors,
supported by their Oxxo convenience store chain showing strong earnings and
revenue growth in their same-store sales. Brazilian cash and carry outlet,
Assai, also performed well and is a great example of cheap, quality earnings
growth from a management team that has delivered. Elsewhere, off-benchmark
exposure to Mexican real estate company, Corporacion Inmobiliaria Vesta, helped
the Company, supported by attractive demand dynamics for industrial warehousing
on the back of near-shoring of supply chains benefitting Mexican property
developers. Grupo Financiero Banorte, our preferred financials exposure in
Mexico, did well throughout the period, and the stock was further supported in
the fourth quarter by an announcement that they will no longer be bidding for
Citi's Banamex unit, which should pave the way for higher dividends. Also in
the latter half of the year, travel-related names such as Mexican airport
operator, Grupo Aeroportuario del Pacifico, and regional, low-cost carrier,
Copa Holdings, contributed to performance as tourism and business travel
rebounded.
An off-benchmark position in Argentine IT and software developer, Globant,
weighed heavily on returns as global markets rotated away from growth stocks.
An overweight in Mexican cement company, Cemex, also hurt returns as
profitability was temporarily hit by rising energy costs due to the lagging
nature of cement price increases. In Brazil, health care service provider,
Hapvida Participações, was the period's largest detractor, as the company
continues to face a tough operating environment due to high medical usage and
continued cost pressures. In addition, the merger with Intermedica is proving
more complex than anticipated. Adding exposure to XP in the back end of the
year weighed on performance due in part to weaker domestic sentiment related to
the fiscal policy uncertainty in the fourth quarter. Expectations of higher
rates remaining for a longer period, has resulted in continued retail
preference for fixed income over equities, putting pressure on asset managers
like XP, given lower fees associated with those products. On the commodity
side, a persistent underweight to Chilean miner, SQM, was a drag on returns as
lithium prices remained elevated for much of the year, and an underweight to
Vale also detracted as the stock remained resilient despite weaker volumes
outlook.
During the period we added significantly to Brazil, and trimmed positions in
Mexico, whilst remaining overweight. We added to Brazilian brewing company,
AmBev, as we believe the stock is trading at attractive valuations while the
company focuses on premiumization, innovation and diversification to bring new
consumers on board and strengthen its brands. Despite underperformance we added
to our position in health care insurer, Hapvida Participações, where the market
seems too focused on the short-term environment for the sector and is
forgetting about the much brighter outlook for the name in 2023 and 2024 as
medical loss ratios should trend down and merger synergies will come through.
We have added to higher conviction consumer-related ideas, such as supermarket
chain, Assai, and clothing retailer, Arezzo Industria e Comercio SA after the
team visited stores and spoke to multiple competitors while travelling to
Brazil in November. In our view, domestic cyclicals continue to look attractive
in light of the anticipated decline in interest rates over the next
12-18 months.
On the other hand, we sold our position in Brazilian food processing company,
Marfrig, as we see signs of the cattle cycle turning for next few years leading
to downside in margin expectations. In Mexico we reduced exposure to
telecommunications company, América Movil, following strong relative
performance on the back of deleveraging efforts. We also reduced exposure to
Walmex, given a preference for FEMSA in the staples space, particularly given a
strong operating environment for its core convenience store business Oxxo.
Elsewhere, we exited Chilean retail platform, Falabella, as we expect
suboptimal returns following excessive investment. More broadly, we reduced the
number of stocks in Brazil, selling names which ranked at the lower end of our
conviction spectrum. Examples of stocks exiting the fund included Brazilian
small-caps Santos (port operator) and Afya (online education), which had the
added benefit of improving the liquidity profile of the portoflio.
The Company ended the period leveraged, given our highly positive outlook and
was overweight Brazil and Mexico, while maintaining off-benchmark exposure to
Argentina and Panama. We are underweight Colombia, Chile and Peru. At the
sector level, we are overweight real estate and financials, while being most
underweight materials and utilities.
OUTLOOK
We continue to believe that global interest rates need to rise from here and
global liquidity will tighten somewhat as central banks fight to bring
inflation down. While markets have adjusted somewhat in our view the risk of
further downside risk to global markets is still there. We maintain this view
even as several lead indicators of goods inflation look to have peaked out and
are retracing. However, the larger issue in our view remains excess broad money
creation in western markets which needs time to correct.
From this lens, Latin America could remain vulnerable to getting caught in
a fall out of repricing of risk globally. However, we believe once this
adjustment is behind us the longer term fundamentals are much better in
emerging markets than in developed markets, especially in Latin America.
Central banks in the region have been ahead of the curve during this tightening
cycle and most countries in the region are now offering some of the highest
real interest rates in the world. Chile is a standout case with rates now at
some of the highest observed levels over the past 25 years. Similarly, rates in
Colombia have not been this high since 2008. This is a very different backdrop
to developed markets, where central banks are earlier in their tightening
cycles and excess broad money creation has yet to be absorbed.
Brazil's economy is holding up well despite high interest rates. Real rates,
the difference between interest rates and inflation, are significantly positive
in Brazil as the country is farthest along in the rate rising cycle, setting up
a positive outlook for the equity market as rates peak. Historically when this
has happened it has attracted foreign capital and led to a significant rally in
risk asset prices. Despite continued uncertainty around future fiscal policy
and a potential delay in the downward path of interest rates, we still expect
interest rates to shift downwards from the current level of 13.75% over the
next twelve months, which should lay the foundation for a meaningful cyclical
pick-up.
We also like Mexico, based on the stable politics and solid economic trends,
including a rising share of exports to the U.S.
Elsewhere, whilst we remain underweight, parts of the Chilean market have begun
to pique our interest from a relative value lens as selling pressure across the
market, led by pension reductions and diversification efforts from
high-net-worth individuals, has led to decent assets trading at more attractive
valuations.
Sam Vecht and Christoph Brinkmann
BlackRock Investment Management (UK) Limited
29 March 2023
TEN LARGEST INVESTMENTS
as at 31 December 2022
1 = Vale (2021: 1st)
Materials
Market value - American depositary share (ADS): US$15,084,000
Share of investments: 9.5% (2021: 7.6%)
is one of the world's largest mining groups, with other business in logistics,
energy and steelmaking. Vale is the world's largest producer of iron ore and
nickel but also operates in the coal, copper, manganese and ferro-alloys
sectors.
2 = Petrobrás (2021: 2nd)
Energy
Market value - American depositary receipt (ADR): US$6,783,000
Market value - Preference shares ADR: US$4,384,000
Share of investments: 7.1% (2021: 7.5%)
is a Brazilian integrated oil and gas group, operating in the exploration and
production, refining, marketing, transportation, petrochemicals, oil product
distribution, natural gas, electricity, chemical-gas and biofuel segments of
the industry. The group controls significant assets across Africa, North and
South America, Europe and Asia, with a majority of production based in Brazil.
3 + FEMSA (2021: 15th)
Consumer Staples
Market value - ADR: US$9,513,000
Share of investments: 6.0% (2021: 2.5%)
is a Mexican beverages group which engages in the production, distribution and
marketing of beverages. The firm also produces, markets, sells and distributes
Coca-Cola trademark beverages, including sparkling beverages.
4 + AmBev (2021: 26th)
Consumer Staples
Market value - ADR: US$8,401,000
Share of investments: 5.3% (2021: 1.6%)
is a Brazilian brewing group which engages in the production, distribution and
sale of beverages. Its products include beer, carbonated soft drinks and other
non-alcoholic and non-carbonated products with operations in Brazil, Central
America, the Caribbean (CAC) and Canada.
5 = B3 (2021: 5th)
Financials
Market value - Ordinary shares: US$8,295,000
Share of investments: 5.2% (2021: 4.6%)
is a stock exchange located in Brazil, providing trading services in an
exchange and OTC environment. B3's scope of activities include the creation and
management of trading systems, clearing, settlement, deposit and registration
for the main classes of securities, from equities and corporate fixed income
securities to currency derivatives, structured transactions and interest rates,
and agricultural commodities. B3 also acts as a central counterparty for most
of the trades carried out in its markets and offers central depository and
registration services.
6 - Banco Bradesco (2021: 4th)
Financials
Market value - ADR: US$8,086,000
Share of investments: 5.1% (2021: 5.3%)
is one of Brazil's largest private sector banks. The bank divides its
operations in to two main areas - banking services and insurance services,
management of complementary private pension plans and savings bonds.
7 + Itaú Unibanco (2021: 21st)
Financials
Market value - ADR: US$7,701,000
Share of investments: 4.9% (2021: 1.9%)
is a Brazilian financial services group that services individual and corporate
clients in Brazil and abroad. Itaú Unibanco was formed through the merger of
Banco Itaú and Unibanco in 2008. It operates in the retail banking and
wholesale banking segments.
8 - Grupo Financiero Banorte (2021: 7th)
Financials
Market value - Ordinary shares: US$7,574,000
Share of investments: 4.8% (2021: 4.5%)
is a Mexican banking and financial services holding company and is one of the
largest financial groups in the country. It operates as a universal bank and
provides a wide array of products and services through its broker dealer,
annuities and insurance companies, retirements savings funds (Afore), mutual
funds, leasing and factoring company and warehousing.
9 + Hapvida Participações (2021: n/a)
Health Care
Market value - Ordinary shares: US$4,442,000
Share of investments: 2.8% (2021: n/a)
is a Brazilian holding healthcare company, the company operates with a vertical
service structure and is one of the largest healthcare solutions providers in
the country. The company provides medical assistance and dental care plans,
their operating structure includes facilities such as hospitals, walk-in
emergencies, clinics, or diagnostic imaging units.
10 - Cemex (2021: 8th)
Materials
Market value - ADR: US$4,437,000
Share of investments: 2.8% (2021: 3.6%)
is a Mexican multinational building materials company and is one of the world's
largest global building materials companies. It manufactures and distributes
cement, ready-mix concrete and aggregates in more than 50 countries.
All percentages reflect the value of the holding as a percentage of total
investments. For this purpose, where more than one class of securities is held,
these have been aggregated. The percentages in brackets represent the value of
the holding as at 31 December 2021.
Together, the ten largest investments represent 53.5% of the total investments
(ten largest investments as at 31 December 2021: 51.3%).
PORTFOLIO OF INVESTMENTS
as at 31 December 2022
Market
value % of
US$'000 investments
Brazil
Vale - ADS 15,084 9.5
Petrobrás - ADR 6,783 } 7.1
Petrobrás - preference shares ADR 4,384
AmBev - ADR 8,401 5.3
B3 8,295 5.2
Banco Bradesco - ADR 8,086 5.1
Itaú Unibanco - ADR 7,701 4.9
Hapvida Participações 4,442 2.8
Sendas Distribuidora 4,229 2.7
Suzano Papel e Celulose 3,513 2.2
Gerdau - Preference Shares 3,008 1.9
Arezzo Industria e Comercio SA 2,973 1.9
Iguatemi 2,796 1.8
XP 2,751 1.7
Banco Bradesco - Preference Shares 2,673 1.7
Rede D'or Sao Luiz 2,111 1.3
IRB Brasil Resseguros 1,894 1.2
Localiza Rent A Car 1,698 1.1
Movida Participações 1,608 1.0
Mrv Engenharia 1,570 1.0
Rumo 881 0.6
Localiza Rent A Car Rights 1 -
94,882 60.0
Mexico
FEMSA - ADR 9,513 6.0
Grupo Financiero Banorte 7,574 4.8
Cemex - ADR 4,437 2.8
Corporación Inmobiliaria Vesta 3,824 2.4
Grupo Aeroportuario del Pacifico - ADS 3,688 2.3
América Movil - ADR 3,642 2.3
Fibra Uno Administracion - REIT 3,601 2.3
Walmart de México y Centroamérica 3,010 1.9
Grupo México 2,759 1.7
Sitios Latinoamerica 86 0.1
42,134 26.6
Chile
Empresas CMPC 3,212 2.0
Banco Santander-Chile - ADR 3,043 1.9
Cia Cervecerias Unidas - ADR 1,385 } 1.7
Cia Cervecerias Unidas 1,237
8,877 5.6
Argentina
Tenaris 2,806 1.8
Globant 2,258 1.4
5,064 3.2
Peru
Credicorp 3,775 2.4
3,775 2.4
Panama
Copa Holdings 3,417 2.2
3,417 2.2
Total investments 158,149 100.0
All investments are in equity shares unless otherwise stated.
The total number of investments held at 31 December 2022 was 40 (31 December
2021: 40). At 31 December 2022, the Company did not hold any equity interests
comprising more than 3% of any company's share capital (31 December 2021:
none).
PORTFOLIO ANALYSIS
as at 31 December 2022
Geographical Weighting (gross market exposure) vs MSCI EM Latin America Index
% of MSCI EM Latin
net assets America Index
Brazil 64.0 62.1
Mexico 28.5 26.9
Chile 6.1 6.6
Argentina 3.4 0.0
Peru 2.5 3.1
Panama 2.3 0.0
Colombia 0.0 1.3
Sources: BlackRock and MSCI.
Sector and geographical allocations
Net other 2022 2021
Brazil Mexico Chile Argentina Peru Panama liabilities Total Total
% % % % % % % % %
Communication Services - 2.5 - - - - - 2.5 10.9
Consumer Discretionary 3.1 0.1 - - - - - 3.2 4.0
Consumer Staples 8.5 8.4 1.8 - - - - 18.7 12.2
Energy 7.5 - - 1.9 - - - 9.4 8.2
Financials 21.2 5.1 2.1 - 2.5 - - 30.9 27.1
Health Care 4.4 - - - - - - 4.4 5.7
Industrials 2.8 2.5 - - - 2.3 - 7.6 8.7
Information Technology - - - 1.5 - - - 1.5 3.1
Materials 14.6 4.9 2.2 - - - - 21.7 23.2
Real Estate 1.9 5.0 - - - - - 6.9 4.1
Utilities - - - - - - - - 1.7
Net other liabilities - - - - - - (6.8) (6.8) (8.9)
2022 total investments 64.0 28.5 6.1 3.4 2.5 2.3 (6.8) 100.0 -
2021 total investments 60.1 33.5 6.1 3.1 3.8 2.3 (8.9) - 100.0
Source: BlackRock.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE ISSUES AND APPROACH
The Board's approach
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 are typically large producers of vital
food, timber, minerals and oil supplies, and consequently face many ESG
challenges and headwinds as they grapple with the impact of their operations on
the environment and resources. The Board is also aware that there is
significant room for improvement in terms of disclosure and adherence to global
best practices for corporates throughout the Latin American region, which lags
global peers when it comes to ESG best practice. These ESG issues faced by
companies in the Latin American investment universe are a key focus of the
Board, and it is committed to a diligent oversight of the activities of the
Manager in these areas. Whilst the Company does not exclude investment in
stocks on ESG criteria, and has not adopted an ESG investment strategy, ESG
analytics are integrated into the investment process when weighing up the risk
and reward benefits of investment decisions. The Board believes that
communication and engagement with portfolio companies is important and can lead
to better outcomes for shareholders and the environment than merely excluding
investment in certain areas.
More information on BlackRock's global approach to ESG integration, as well as
activity specific to the BlackRock Latin American Investment Trust plc
portfolio, is set out below. BlackRock has defined ESG integration as the
practice of incorporating material ESG information and consideration of
sustainability risks into investment decisions in order to enhance
risk-adjusted returns. ESG integration does not change the Company's investment
objective. More information on sustainability risks may be found in the AIFMD
Fund Disclosures document of the Company available on the Company's website at
https://www.blackrock.com/uk/individual/literature/policies/
itc-disclosure-blackrock-latin-america-trust-plc.pdf. The Investment Manager
has access to a range of data sources, including principal adverse indicator
(PAI) data, when making decisions on the selection of investments. However,
whilst BlackRock considers ESG risks for all portfolios and these risks may
coincide with environmental or social themes associated with the PAIs, the
Company does not commit to considering PAIs in driving the selection of its
investments.
BlackRock Latin American Investment Trust plc - Investment Stewardship
Engagement with portfolio companies in the year ended 31 December 2022
Given the Board's belief in the importance of engagement and communication with
portfolio companies, it receives regular reports from the Manager in respect of
activity undertaken for the year under review. The Board reviews these closely
and asks for further updates and progress reports from the Portfolio Managers
in respect of evolving ESG issues and the action being taken where appropriate.
The Board notes that over the year to 31 December 2022, 58 total company
engagements were held with the management teams of 27 portfolio companies
representing 75% of the portfolio by value at 31 December 2022. Additional
information is set out in the tables below.
BlackRock Latin American Investment Trust
plc
year ended 31 December 2022
Number of engagements held 58
Number of companies met 27
% of equity investments covered 75%
Shareholder meetings voted at 55
Number of proposals voted on 544
Number of votes against management 56
% of total votes represented by votes 10.29%
against management
Engagement Themes1 Engagement Themes1
Governance 58%
Environmental 49%
Social 32%
Engagement Topics 1 Engagement Topics 1
Business oversight/risk management 51%
Governance structure 50%
Corporate strategy 49%
Board composition and effectiveness 46%
Executive management 40%
Climate risk management 40%
Operational sustainability 38%
Remuneration 34%
Environmental impact management 27%
Human capital management 21%
Social risks and opportunities 21%
1 Engagements include multiple company meetings during the year with the
same company. Most engagement conversations cover multiple topics and are based
on BlackRock's voting guidelines and BlackRock's engagement priorities can be
found at: www.blackrock.com/corporate/about-us/investment-stewardship#
engagement-priorities. Percentages reflect the number of meetings at which a
particular topic is discussed as a percentage of the total meetings held; as
more than one topic is discussed at each meeting the total will not add up to
100%.
BlackRock's approach
The importance and challenges of considering ESG when engaging with investee
companies in the Latin American Sector and BlackRock's approach to ESG
integration
Environmental Social Corporate Governance
As well as the longer-term In our experience, companies As with all companies, good
contribution to carbon are better positioned to corporate governance is
emissions and the impact on deliver long-term shareholder especially critical for
the environment, the value when they build strong natural resources companies.
activities undertaken by many relationships throughout In our experience, the sound
companies in the portfolio their value chain, including governance, in terms of both
such as digging mines or with employees, business process and practice, is
drilling for oil will partners (such as suppliers critical to the success of a
inevitably have an impact on and distributors), clients company, the protection of
local surroundings. It is and consumers, regulators, shareholders' interests, and
important how companies and the communities in which long-term shareholder value
manage this process and companies operate. creation.
ensure that an appropriate
risk oversight framework is In BlackRock's experience, Governance issues, including
in place, with consideration companies that build strong the management of material
given to all stakeholders. relationships with their sustainability issues that
The value wiped off the stakeholders are more likely have a significant impact for
market capitalisation of to meet their own strategic natural resource companies,
companies like Vale, after objectives, while poor all require effective
the Brumadinho dam collapse, relationships may create leadership and oversight from
highlights the key role that adverse impacts that expose a a company's board.
ESG has on share price company to legal, regulatory,
performance. operational, and reputational BlackRock believes that
risks and jeopardize their companies with experienced,
BlackRock's approach to ability to deliver engaged and diverse
climate risk and sustainable, long-term directors, who are effective
opportunities and the global financial performance. in actively advising and
energy transition is based on overseeing management as a
our role as a fiduciary to board, are well-positioned to
our clients. As the world deliver long-term value
works toward a transition to creation.
a low-carbon economy,
BlackRock are interested in It is our view that
hearing from companies about climate-related risks and
their strategies and plans opportunities can be an
for responding to the important factor in many
challenges and capturing the companies' long-term
opportunities that this prospects. We continue to
transition creates. When look for companies to
companies consider disclose strategies they have
climate-related risks, it is in place that mitigate and
likely that they will also are resilient to any material
assess their impact and risks to their long-term
dependence on natural business model associated
capital. with a range of
climate-related scenarios.
Engagement with investee companies
Case study: Grupo México
BIS determined that it was in the best financial interests of BlackRock's
clients to not support the proposal to elect directors at the 2022 AGM of Grupo
México, S.A.B. de C.V. (Grupo México), a Mexican materials company. At the time
of the shareholder meeting, the company did not have up to date
sustainability-related reporting, and in particular, their climate-related data
and disclosures had not been updated since the release of their 2020
Sustainable Development Report. This made it difficult for investors to assess
the progress the company had made against their targets.
BlackRock Investment Stewardship: Engagement with investee companies
The BlackRock Investment Stewardship team have regular engagement with investee
companies, examples can be seen below through the last AGM cycle:
https://www.blackrock.com/corporate/literature/press-release/
vote-bulletinpetrobras-april-2022.pdf
https://www.blackrock.com/corporate/literature/press-release/
vote-bulletinbanorte-april-2022.pdf
https://www.blackrock.com/corporate/literature/press-release/
vote-bulletingrupo-mexico-april-2022.pdf
BlackRock's approach to ESG integration
BlackRock believes that sustainability risk - and climate risk in particular -
now equates to investment risk, and this will drive a profound reassessment of
risk and asset values as investors seek to react to the impact of climate
policy changes. This in turn, in BlackRock's view, is likely to drive a
significant reallocation of capital away from traditional carbon intensive
industries over the next decade. BlackRock believes that carbon-intensive
companies will play an integral role in unlocking the full potential of the
energy transition, and to do this, they must be prepared to adapt, innovate and
pivot their strategies towards to low carbon economy.
As part of BlackRock's structured investment process, ESG risks and
opportunities (including sustainability/climate risk) are considered within the
portfolio management team's fundamental analysis of companies and industries
and the Company's portfolio managers work closely with BlackRock's Investment
Stewardship team to assess the governance quality of companies and investigate
any potential issues, risks or opportunities.
As part of their approach to ESG integration, the portfolio managers use ESG
information when conducting research and due diligence on new investments and
again when monitoring investments in the portfolio. In particular, portfolio
managers at BlackRock now have access to 1,200 key ESG performance indicators
in Aladdin (BlackRock's proprietary trading system) from third-party data
providers. BlackRock's internal sustainability research framework scoring is
also available alongside third-party ESG scores in core portfolio management
tools. BlackRock's analyst's sector expertise and local market knowledge allows
it to engage with companies through direct interaction with management teams
and conducting site visits. In conjunction with the portfolio management team,
BlackRock Investment Stewardship's (BIS) meets with boards of companies
frequently to evaluate how they are strategically managing their longer-term
issues, including those surrounding ESG and the potential impact these may have
on company financials. BIS's and the portfolio management team's understanding
of ESG issues is further supported by BlackRock's Sustainable and Transition
Solutions (STS). The STS team lead BlackRock's sustainability and transition
strategy, drive cross-functional change, support client and external
engagement, power product ideation, and embed expertise across the firm.
Investment Stewardship
Consistent with BlackRock's fiduciary duty as an asset manager, BIS seeks to
support investee companies in their efforts to deliver long-term durable
financial performance on behalf of our clients. These clients include public
and private pension plans, governments, insurance companies, endowments,
universities, charities and, ultimately, individual investors, among others.
BIS serves as an important link between BlackRock's clients and the companies
they invest in. Clients depend on BlackRock to help them meet their investment
goals; the business and governance decisions that companies make will have a
direct impact on BlackRock's clients' long-term investment outcomes and
financial well-being.
Global Principles
BlackRock's approach to corporate governance and stewardship is comprised in
BIS' Global Principles and market-specific voting guidelines. BIS' policies set
out the core elements of corporate governance that guide its investment
stewardship activities globally and within each regional market, including when
voting at shareholder meetings for those clients who have authorized BIS to
vote on their behalf. Each year, BIS reviews its policies and updates them as
necessary to reflect changes in market standards and regulations, insights
gained over the year through third-party and its own research, and feedback
from clients and companies. BIS' Global Principles are available on its website
at www.blackrock.com/corporate/literature/fact-sheet/
blkresponsible-investment-engprinciples-global.pdf.
Market-specific proxy voting guidelines
BIS' voting guidelines are intended to help clients and companies understand
its thinking on key governance matters. They are the benchmark against which it
assesses a company's approach to corporate governance and the items on the
agenda to be voted on at a shareholder meeting. BIS applies its guidelines
pragmatically, taking into account a company's unique circumstances where
relevant. BlackRock informs voting decisions through research and engages as
necessary. BIS reviews its voting guidelines annually and updates them as
necessary to reflect changes in market standards, evolving governance practice
and insights gained from engagement over the prior year. BIS' market-specific
voting guidelines are available on its website at www.blackrock.com/corporate/
about-us/investment-stewardship#stewardship-policies. BlackRock is committed to
transparency in terms of disclosure on its stewardship activities on behalf of
clients. BIS publishes its stewardship policies such as the Global Principles,
engagement priorities, and voting guidelines - to help BlackRock's clients
understand its work to advance their interests as long-term investors in public
companies. Additionally, BIS publishes both annual and quarterly reports
detailing its stewardship activities, as well as vote bulletins that describe
its rationale for certain votes at high profile shareholder meetings. More
detail in respect of BIS reporting can be found at www.blackrock.com/corporate/
about-us/investment-stewardship.
1 Source: BlackRock's 2022 voting spotlight report which can be found at https:
//www.blackrock.com/corporate/about-us/investment-stewardship.
BlackRock's reporting and disclosures
In terms of its own reporting, BlackRock believes that the SASB provides a
clear set of standards for reporting sustainability information across a wide
range of issues, from labour practices to data privacy to business ethics. For
evaluating and reporting climate-related risks, as well as the related
governance issues that are essential to managing them, the TCFD provides
a valuable framework.
BlackRock recognises that reporting to these standards requires significant
time, analysis and effort. BlackRock's 2021 TCFD report can be found at
www.blackrock.com/corporate/literature/
continuous-disclosure-andimportantinformation/tcfd-report-2021-blkinc.pdf.
STRATEGIC REPORT
The Directors present the Strategic Report of the Company for the year ended 31
December 2022.
Objective
The Company's objective is to secure long-term capital growth and an attractive
total return primarily through investing in quoted securities in Latin America.
Strategy, business model and investment policy
The Company invests in accordance with the objective given above. The Board is
collectively responsible to shareholders for the long-term success of the
Company and is its governing body. There is a clear division of responsibility
between the Board and the Manager. Matters for the Board include setting the
Company's strategy, including its investment objective and policy, setting
limits on gearing (both bank borrowings and the effect of derivatives), capital
structure, governance, and appointing and monitoring of performance of service
providers, including the Manager.
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 the Manager who is the
principal service provider.
In accordance with the Alternative Investment Fund Managers' Directive (AIFMD),
as implemented, retained and onshored in the UK, the Company is an Alternative
Investment Fund (AIF). BlackRock Fund Managers Limited (the Manager) is the
Company's Alternative Investment Fund Manager.
The management of the investment portfolio and the administration of the
Company have been contractually delegated to the Manager who in turn (with the
permission of the Company) has delegated certain investment management and
other ancillary services to BlackRock Investment Management (UK) Limited (BIM
(UK) or the Investment Manager). The 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. The Company
delegates fund accounting services to the Manager, which in turn sub-delegates
these services to The Bank of New York Mellon (International) Limited. Other
service providers include the Depositary, The Bank of New York Mellon
(International) Limited and the Registrar, Computershare Investor Services PLC.
Details of the contractual terms with these service providers are set out in
the Directors'Report contained with the annual report and financial sttatements
for the year ended 31 December 2022. Our strategy is that the portfolio will be
chosen from a spread of companies which are listed in, or whose main activities
are in, Latin America.
As an actively managed fund, over the medium term we seek outperformance of our
benchmark index (the MSCI EM Latin America Index - net total return basis) and
most of our competitors on a risk adjusted basis. Our portfolio and performance
will diverge from the returns obtained simply by investing in the index.
Investment policy
As a closed end company we are able to adopt a longer-term investment horizon,
and therefore may, when appropriate, have a higher proportion of less liquid
mid and smaller capitalisation companies than comparable open ended funds.
The portfolio is subject to a number of geographical restrictions relative to
the benchmark index but the Investment Manager is not constrained from
investing outside the index. For Brazil, Mexico, Chile, Argentina, Peru,
Colombia and Venezuela, the portfolio weighting is limited to plus or minus 20%
of the index weighting for each of those countries. For all other Latin
American countries the limit is plus or minus 10% of the index weighting.
Additionally, the Company may invest in the securities of quoted companies
whose main activities are in Latin America but which are not established or
incorporated in the region or quoted on a local exchange.
The Company's policy is that up to 10% of the gross assets of the portfolio may
be invested in unquoted securities.
The Company will not hold more than 15% of the market capitalisation of any one
company and no more than 15% of the Company's investments will be held in any
one company as at the date any such investment is made.
No more than 15% of the gross assets of the portfolio shall be invested in
other UK listed investment companies (including other investment trusts).
The Company may deal in derivatives (including options, futures and forward
currency transactions) for the purposes of efficient portfolio management (i.e.
for the purpose of reducing, transferring or eliminating investment risk in the
underlying investments of a collective investment undertaking, including any
technique or instrument used to provide protection against exchange and credit
risks). No more than 20% of the Company's portfolio by value may be under
option at any given time.
The Company may underwrite or sub-underwrite any issue or offer for the sale of
investments. No such commitment will be entered into if, at that time, the
aggregate of such investments would exceed 10% of the net asset value of the
Company or any such individual investment would exceed 3% of the net asset
value of the Company.
The Company may, from time to time, use borrowings to gear its investment
portfolio or in order to fund the market purchase of its own ordinary shares.
Under the Company's Articles of Association, the net borrowings of the Company
may not exceed 100% of the Company's adjusted capital and reserves (as defined
in the Glossary contained within the annual report and financial statements for
the year ended 31 December 2022). However, net borrowings are not expected to
exceed 25% of net assets under normal circumstances. The Investment Manager may
also hold cash or cash-equivalent securities when it considers it to be
advantageous to do so.
The Company's financial statements are maintained in US Dollars. Although many
investments are likely to be denominated and quoted in currencies other than in
US Dollars, the Company does not currently employ a hedging policy against
fluctuations in exchange rates.
No material change will be made to the Company's investment policy without
shareholder approval.
Investment process
An overview of the investment process is set out below.
The Investment Manager's main focus is to invest in securities that provide
opportunities for strong capital appreciation relative to our benchmark. We aim
to maintain a concentrated portfolio of high conviction investment ideas that
typically consists of companies with a combination of mispriced growth
potential and/or display attributes of sustained value creation that are
underappreciated by the financial markets.
The Manager's experienced research analyst team conducts on the ground
research, meeting with target companies, competitors, suppliers and others in
the region in order to generate investment ideas for portfolio construction. In
addition, the investment team meets regularly with government officials,
central bankers, industry regulators and consultants.
Final investment decisions result from a combination of bottom-up, company
specific research with top-down, macro analysis.
Share rating and discount control
The Directors recognise that it is in the long term interests of shareholders
that shares do not trade at a significant discount to their prevailing NAV. The
Board monitors the level of the Company's discount to NAV on an ongoing basis.
Over the year under review, the Company's share price traded in the range of a
discount of 19.6% to a premium of 0.6% and at the year end stood at a discount
of 9.1%. Further details setting out how the discount or premium at which the
Company's shares trade is calculated are included in the Glossary contained
within the annual report and financial statements for the year ended 31
December 2022).
A special resolution was passed at the AGM of the Company held on 19 May 2022,
granting the Directors' authority to make market purchases of the Company's
ordinary shares to be held, sold, transferred or otherwise dealt with as
treasury shares or cancelled upon completion of the purchase. The Board intends
to renew this authority at the AGM to be held in May 2023.
The Board adopted a new discount control mechanism, for the four year period
from 1 January 2022 to 31 December 2025. Under this new mechanism the Board
undertakes to make a tender offer to shareholders for 24.99% of the issued
share capital (excluding treasury shares) of the Company at a tender price
reflecting the latest cum-income Net Asset Value (NAV) less 2% and related
portfolio realisation costs if, over the four year period from 1 January 2022
to 31 December 2025 (the 'Calculation Period'), either of the following
conditions are met:
(i) the annualised total NAV return of the Company does not exceed the
annualised benchmark index (being the MSCI EM Latin America Index) US Dollar
net total return by more than 50 basis points over the Calculation Period; or
(ii) the average daily discount to the cum-income NAV exceeds 12% as calculated
with reference to the trading of the ordinary shares over the Calculation
Period.
The making and implementation of this tender offer will be conditional, amongst
other things, upon the Company having the required shareholder authority or
such shareholder authority being obtained, the Company having sufficient
distributable reserves to effect the repurchase of any successfully tendered
shares and, having regard to its continuing financial requirements, sufficient
cash reserves to settle the relevant transactions with shareholders, the
Company's biennial continuation votes being approved at the Annual General
Meetings in 2024 and 2026. The Board believes that a four year performance
target enables the Manager to take a sufficiently long term approach to
investing in quality companies in the region, and it believes that it is in
shareholders' interests as a whole that this time period for assessing
performance be adopted.
SECTION 172 STATEMENT: PROMOTING THE SUCCESS OF BLACKROCK LATIN AMERICAN
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. The reasons for this determination, and the Board's
overarching approach to engagement, are set out in the table below.
Stakeholders
Shareholders Manager and Other key service Investee companies
Investment Manager providers
Continued shareholder The Board's main In order for the Portfolio holdings
support and working relationship Company to function are ultimately
engagement are is with the Manager, as an investment shareholders' assets,
critical to the who is responsible trust with a listing and the Board
continued existence for the Company's on the premium recognises the
of the Company and portfolio management segment of the importance of good
the successful (including asset official list of the stewardship and
delivery of its allocation, stock and FCA and trade on the communication with
long-term strategy. sector selection) and London Stock investee companies in
The Board is focused risk management, as Exchange's (LSE) main meeting the Company's
on fostering good well as ancillary market for listed investment objective
working relationships functions such as securities, the Board and strategy. The
with shareholders and administration, relies on a diverse Board monitors the
on understanding the secretarial, range of advisors for Manager's stewardship
views of shareholders accounting and support in meeting arrangements and
in order to marketing services. relevant obligations receives regular
incorporate them into The Manager has and safeguarding the feedback from the
the Board's strategy sub-delegated Company's assets. For Manager in respect of
and objectives in portfolio management this reason the Board meetings with the
delivering long-term to the Investment considers the management of
growth and income. Manager. Successful Company's Custodian, investee companies.
management of Depositary, Registrar
shareholders' assets and Broker to be
by the Investment stakeholders. The
Manager is critical Board maintains
for the Company to regular contact with
successfully deliver its key external
its investment providers and
strategy and meet its receives regular
objective. The reporting from them
Company is also through the Board and
reliant on the Committee meetings,
Manager as AIFM to as well as outside of
provide support in the regular meeting
meeting relevant cycle.
regulatory
obligations under the
AIFMD and other
relevant legislation.
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 in the table below.
Area of
Engagement Issue Engagement Impact
Investment mandate and The Board is committed The Board believes The portfolio
objective to promoting the role that responsible activities undertaken
and success of the investment and by the Manager, can be
Company in delivering sustainability are found in the
on its investment important to the Investment Manager's
mandate to longer-term delivery Report above.
shareholders over the of growth in capital
long term. However, and income and has
the Board recognises worked very closely
that securities within with the Manager
the Company's throughout the year to
investment remit may regularly review the
involve significant Company's performance,
additional risk due to investment strategy
the political and underlying
volatility and policies, and to
environmental, social understand how ESG
and governance considerations are
concerns facing many integrated into the
of the countries in investment process.
the Company's
investment universe. While the Company has
These ESG issues not adopted an ESG
should be a key focus investment strategy or
of our Manager's exclusionary screens,
research. More than the Manager's approach
ever, consideration of to the consideration
material ESG of ESG factors in
information and respect of the
sustainability risk is Company's portfolio,
an important element as well as its
of the investment engagement with
process and must be investee companies to
factored in when encourage the adoption
making investment of sustainable
decisions. The Board business practices
also has which support
responsibility to long-term value
shareholders to ensure creation, are kept
that the Company's under review by the
portfolio of assets is Board. The Manager
invested in line with reports to the Board
the stated investment in respect of its
objective and in a way consideration of ESG
that ensures an factors and how these
appropriate balance are integrated into
between spread of risk the investment
and portfolio returns. process; a summary of
BlackRock's approach
to ESG integration is
set out within the
annual report and
financial statements.
The Board discussed
ESG concerns in
respect of specific
portfolio companies
with the Manager,
including the
investment rationale
for holding companies
with poor ESG ratings
and the engagement
being entered into
with management teams
to address the
underlying issues
driving these ratings.
The Company does not
meet the criteria for
Article 8 or 9
products under the EU
Sustainable Finance
Disclosure Regulation
(SFDR) and the
investments underlying
this financial product
do not take into
account the EU
criteria for
environmentally
sustainable economic
activities. The
Investment Manager has
access to a range of
data sources,
including principal
adverse indicator
(PAI) data, when
making decisions on
the selection of
investments. However,
whilst BlackRock
considers ESG risks
for all portfolios and
these risks may
coincide with
environmental or
social themes
associated with the
PAIs, unless stated
otherwise in the AIFMD
Disclosure Document,
the Company does not
commit to considering
PAIs in driving the
selection of its
investments.
Dividend target A key element of the The Manager reports Since the dividend
Board's overall total return policy was introduced
strategy to reduce the performance statistics in July 2018, the
discount at which the to the Board on a Company's discount has
Company's shares trade regular basis, along narrowed from an
is the Company's with the portfolio average of 13.5% for
dividend policy yield and the impact the two year period
whereby the Company of the dividend policy preceding the
pays a regular on brought forward introduction of the
quarterly dividend distributable new policy on 13 March
equivalent to 1.25% of reserves. 2018 to an average of
the Company's US 11.0% for the period
Dollar NAV at the end The Board reviews the from 14 March 2018 to
of each calendar Company's discount on 31 December 2022. At
quarter. The Board a regular basis and 27 March 2023 the
believes this policy holds regular discount stood at
which produced a discussions with the 12.9%.
dividend yield of Manager and the
8.5%, including the Company's broker Of total dividends of
special dividend of regarding the discount US$12,207,000 paid out
13.00 cents per share level. in the year, all has
(based on the share been paid out of
price of 457.10 cents The Manager provides current year revenue.
per share at the Board with
31 December 2022, feedback and key The Company's
equivalent to the performance statistics portfolio managers
Sterling price of regarding the success attend professional
380.00 pence per share of the Company's investor/analyst
translated into US marketing initiatives meetings and webcast
cents at the rate which include presentations live to
prevailing at messaging to highlight professional and
31 December 2022 of the quarterly private investors over
US$1.20290 to £1), dividends. the year to promote
enhances demand for the Company and raise
the Company's shares, The Board also reviews the profile in terms
which will help to feedback from of the investment
narrow the Company's shareholders in strategy, including
discount over time. respect of the level the dividend policy.
These dividends are of dividend,
funded out of capital shareholders may
reserves to the extent attend the Company's
that current year Annual General Meeting
revenue and revenue where formal questions
reserves are may be put to the
insufficient; the Board.
Board believes that
this removes pressure
from the investment
managers to seek a
higher income yield
from the underlying
portfolio itself which
could detract from
total returns but keep
the dividend policy
and its impact on
total return under
review.
Discount management The Board recognises The Board has put in The Company's average
that it is in the place a discount discount for the
long-term interests of control mechanism period from
shareholders that covering the four 1 January 2022 to
shares do not trade at years to 31 December 31 December 2022 was
a significant discount 2025 whereby 8.9%1 compared to the
to their prevailing shareholders will be tender discount target
NAV. been met: offered a tender for of 12%1.
24.99% of the shares
in issue, excluding The Company's
treasury shares, (at a annualised NAV
tender price performance of 6.6%
reflecting the latest for the same period
cum income NAV less 2% underperformed the
and related portfolio benchmark (which rose
realisation costs) in by 8.9% on an
the event that the annualised basis) by
continuation vote for 2.3% (equivalent to
each relevant biennial 230 basis points). For
period is approved the tender not to be
(being the triggered, the NAV
continuation votes at must outperform the
the AGMs in 2024 and benchmark by more than
2026), where either of 50 basis points on an
the following annualised basis over
conditions have been the four years to 31
met: December 2025.
The Company's discount
(i) the annualised has widened over the
total NAV return of year under review,
the Company does not from 7.1% at
exceed the annualised 31 December 2021 to
benchmark index (being 9.1% at
the MSCI EM Latin 31 December 2022.
America Index) US
Dollar net total As at 27 March 2023
return by more than 50 the discount was
basis points over the 12.9%.
four year period from
1 January 2022 to 31 Tender proceeds were
December 2025; or paid to shareholders
on 26 May 2022, in
(ii) the average daily accordance with the
discount to the process described in
cum-income NAV exceeds the tender circular
12% as calculated with published on 5 April
reference to the 2022. In total,
trading of the shares 9,810,979 shares
over the Calculation (representing 24.99%
Period. Further of the eligible share
details are set in the capital) were
Strategic Report repurchased by the
below. Company and
subsequently
The Board monitors the cancelled.
tender trigger targets
described within the
annual report and
financial statements
on a regular basis in
conjunction with the
Manager. The Manager
provides regular
performance updates
and detailed
performance
attribution.
Service levels of The Board acknowledges The Manager reports to All performance
third party providers the importance of the Board on the evaluations were
ensuring that the Company's performance performed on a timely
Company's principal on a regular basis. basis and the Board
suppliers are The Board carries out concluded that all
providing a suitable a robust annual third party service
level of service: evaluation of the providers, including
including the Manager Manager's performance, the Manager,
in respect of their commitment and Custodian, Depositary
investment performance available resources. and Fund Accountant
and delivering on the were operating
Company's investment The Board performs an effectively and
mandate; the Custodian annual review of the providing a good level
and Depositary in service levels of all of service.
respect of their third party service
duties towards providers and The Board has received
safeguarding the concludes on their updates in respect of
Company's assets; the suitability to business continuity
Registrar in its continue in their planning from the
maintenance of the role. Company's Manager,
Company's share Custodian, Depositary,
register and dealing The Board receives Fund Accountant,
with investor queries regular updates from Broker, Registrar and
and the Company's the AIFM, Depositary, Printer, and is
Broker in respect of Registrar and Broker confident that
the provision of on an ongoing basis. arrangements are in
advice and acting as a place to ensure that a
market maker for the The Board works good level of service
Company's shares. closely with the will be maintained.
Manager to gain
comfort that business
continuity plans
continue to operate
effectively for all of
the Company's service
providers.
Board composition The Board is committed The Board regularly As at the date of this
to ensuring that its reviews succession report, the Board is
own composition brings planning arrangements. comprised of three
an appropriate balance The Nomination women and two men.
of knowledge, Committee has agreed
experience and skills, the selection criteria Details of each
and that it is and the method of Director's
compliant with best selection, recruitment contribution to the
corporate governance and appointment. Board success and promotion
practice under the diversity, including of the Company are set
UK Code, including gender, is taken into out in the Directors'
guidance on tenure and account when Report contained
the composition of the establishing within the annual
Board's committees. recruitment criteria. report and financial
When undertaking statements. The
recruitment activity, Directors are not
the Board will use the aware of any issues
services of an that have been raised
external search directly by
consultant to identify shareholders in
suitable candidates. respect of Board
composition in 2022.
All Directors are Details for the proxy
subject to a formal voting results in
evaluation process on favour and against
an annual basis (more individual Directors'
details and the re-election at
conclusions in respect the 2021 AGM are
of the 2022 evaluation given on the Company's
process are given website at
within the annual www.blackrock.com/uk/
report and financial brla.
statements). All
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
within the annual
report and financial
statements if they
wish to raise any
issues.
Shareholders Continued shareholder The Board is committed The Board values any
support and engagement to maintaining open feedback and questions
are critical to the channels of from shareholders
continued existence of communication and to ahead of and during
the Company and the engage with Annual General
successful delivery of shareholders. The Meetings in order to
its long-term Company welcomes and gain an understanding
strategy. encourages attendance of their views and
and participation from will take action when
shareholders at its and as appropriate.
Annual General Feedback and questions
Meetings. Shareholders will also help the
therefore have the Company evolve its
opportunity to meet reporting, aiming to
the Directors and make reports more
Investment Manager and transparent and
to address questions understandable.
to them directly.
Feedback from all
The Annual Report and substantive meetings
Half Yearly Financial between the Investment
Report are available Manager and
on the BlackRock shareholders will be
website and are also shared with the Board.
circulated to The Directors will
shareholders either in also receive updates
printed copy or via from the Company's
electronic broker on any feedback
communications. In from shareholders, as
addition, regular well as share trading
updates on activity, share price
performance, monthly performance and an
factsheets, the daily update from the
NAV and other Investment Manager.
information are also
published on the The portfolio managers
website at attended a number of
www.blackrock.com/uk/ professional investor
brla. meetings throughout
the year and held
The Board also works discussions with a
closely with the range of wealth
Manager to develop the management desks and
Company's marketing offices in respect of
strategy, with the aim the Company during the
of ensuring effective year under review. The
communication with Manager also held
shareholders in group webcasts in the
respect of the year to provide
investment mandate and investors with
objective. Unlike portfolio updates and
trading companies, give them the
one-to-one shareholder opportunity to discuss
meetings usually take any issues with the
the form of a meeting portfolio managers. 96
with the portfolio press articles about
managers as opposed to the Company were
members of the Board. published in the year
As well as attending under review focusing
regular investor on the Company's
meetings the portfolio profile and the case
managers hold regular for long-term
discussions with investment
wealth management opportunities in
desks and offices to Latin America. These
build on the case for, included 4 pieces of
and understanding of, national coverage,
long-term investment 37 pieces of
opportunities in Latin intermediary coverage
America. The Manager and 55 pieces of
also coordinates consumer investment
public relations coverage.
activity, including
meetings between the
portfolio managers 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. She may be
contacted via the
Company Secretary
whose details are
given within the
annual report and
financial statements.
Performance
Details of the Company's performance are set out in the Chairman's Statement
above.
The Investment Manager's Report above forms part of this Strategic Report and
includes a review of the main developments during the year, together with
information on investment activity within the Company's portfolio.
Portfolio analysis
A detailed analysis of the investments and the sector and geographical
allocations is provided above.
Results and dividends
The results for the Company are set out in the Income Statement below. The
total gain for the year on ordinary activities, after taxation, was
US$13,669,000 (2021: loss of US$28,006,000) of which the revenue profit
amounted to US$13,842,000 (2021: US$10,247,000), and the capital loss amounted
to US$173,000 (2022: capital loss of US$38,253,000).
Under the Company's dividend policy, dividends are calculated based on 1.25% of
the US Dollar NAV at close of business on the last working day of March, June,
September and December and are paid in May, August, November and February
respectively. Dividends will be financed through a combination of available net
income in each financial year and revenue and capital reserves. An additional
special dividend of 13.00 cents per ordinary share for the financial year to 31
December 2022 was declared alongside the fourth quarterly dividend as it was
necessary to pay the special dividend to maintain investment trust status which
requires the distribution of 85% of the Company's revenue. The Company has
declared interim dividends totalling 38.87 cents per share under this policy in
respect of the year ended 31 December 2022 as detailed in the table below.
Details of this policy are also set out in the Chairman's Statement above.
Dividend Pay date
Quarter to 31 March 2022 7.76 cents 16 May 2022
Quarter to 30 June 2022 5.74 cents 12 August 2022
Quarter to 30 September 2022 6.08 cents 9 November 2022
Quarter to 31 December 2022* 19.29 cents 8 February 2023
Total 38.87 cents
* Quarter to 31 December 2022 includes an additional special dividend of 13.00
cents.
NAV, share price and index performance
At each meeting the Board reviews the detail of the performance of the
portfolio as well as the net asset value and share price (total return) for the
Company and compares this to the performance of other companies in the peer
group of Latin American open and closed end funds and to our benchmark.
The Board also 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.
Information on the Company's performance is given in the performance record
contained within the annual report and financial statements and the Chairman's
Statement and Investment Manager's Report above.
Details of the Company's discount control
The Board recognises that it is in the long-term interests of shareholders that
shares do not trade at a significant discount to their prevailing NAV. The
Board monitors the level of the Company's discount to NAV on an ongoing basis
and considers strategies for managing any discount. In the year to 31 December
2022, the Company's share price to NAV traded in the range of a discount of
19.6% to a premium of 0.6% on a cum-income basis. The Board has in place
a discount control mechanism whereby it will offer shareholders the ability to
tender up to 24.99% of the Company's issued share capital at the AGM in 2026 if
certain performance and discount targets are not met. More details are given in
the Strategic Report above.
Further details setting out how the discount or premium at which the Company's
shares trade is calculated are included in the Glossary contained within the
annual report and financial statements.
Ongoing charges
The ongoing charges represent the Company's management fee and all other
operating expenses, excluding finance costs, direct transaction costs, custody
transaction charges, VAT recovered, taxation and certain non-recurring items
expressed as a percentage of average daily net assets.
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 on an ongoing basis against a
peer group of Latin American open and closed end funds. A definition setting
out in detail how the ongoing charges ratio is calculated is included in the
Glossary contained within the annual report and financial statements.
Composition of shareholder register
The Board is mindful of the importance of a diversified shareholder register
and the need to make the Company's shares attractive to long-term investors; it
is therefore the Board's aim to increase the diversity of the shareholder
register over time. The Board monitors the retail element of the register,
which is defined for these purposes as wealth managers, Independent Financial
Advisors (IFAs) and direct private investors. As at 31 December 2022, the
Company's share register comprised 53.2% retail investors; the Board will
monitor this with the aim of growing the retail element of the register over
time.
Key performance indicators
At each Board meeting, the Directors consider a number of performance measures
to assess the Company's success in achieving its objectives. The key
performance indicators (KPIs) used to measure the progress and performance of
the Company over time are comparable to those reported by other investment
trusts and are set out below.
The table below sets out the key KPIs for the Company. As indicated in footnote
2 to the table, some of these KPIs fall within the definition of 'Alternative
Performance Measures' (APMs) under guidance issued by the European Securities
and Markets Authority (ESMA) and additional information explaining how these
are calculated is set out in the Glossary contained within the annual report
and financial statements.
Year ended Year ended
31 December 31 December
Key Performance Indicators 2022 2021
Net asset value total return1,2 6.6% -12.5%
Share price total return1,2 4.7% -11.8%
Benchmark total return (net)1 8.9% -8.1%
Discount to net asset value2 9.1% 7.1%
Average discount to net asset value for the year 8.9% 10.0%
Revenue return per share 41.48c 26.10c
Ongoing charges2,3 1.13% 1.14%
Retail element of share register4 53.2% 38.6%
1 Calculated in US Dollar terms with dividends reinvested.
2 Alternative Performance Measures, see Glossary contained within the
annual report and financial statements.
3 Ongoing charges represent the management fee and all other operating
expenses 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.
4 Source: Richard Davies Investor Relations.
PRINCIPAL RISKS
The Company is exposed to a variety of risks and uncertainties and the key
risks are set out below. The Board has put in place a robust process to
identify, assess and monitor the principal and emerging risks. A core element
of this process is the Company's risk register. This identifies the risks
facing the Company and assesses the likelihood and potential impact of each
risk and the quality of controls operating to mitigate it. A residual risk
rating is then calculated for each risk based on the outcome of the assessment.
This approach allows the effect of any mitigating procedures to be reflected in
the final assessment.
The risk register is regularly reviewed and the risks reassessed. The risk
environment in which the Company operates is also monitored and regularly
appraised. New risks are also added to the register as they are identified
which ensures that the document continues to be an effective risk management
tool. The COVID-19 pandemic has given rise to unprecedented challenges for
businesses across the globe. Additionally, the risk that unforeseen or
unprecedented events including (but not limited to) heightened geo-political
tensions such as the war in Ukraine, high inflation and the current cost of
living crisis has had a significant impact on global markets. The Board has
taken into consideration the risks posed to the Company by the crisis and
incorporated these into the Company's risk register.
The risk register, its method of preparation and the operation of key controls
in the Manager's and third party service providers' systems of internal control
are reviewed on a regular basis by the Audit Committee in order to gain a more
comprehensive understanding of the Manager's and other third party service
providers' risk management processes and how these apply to the Company's
business. BlackRock's internal audit department provides an annual presentation
to the Audit Committee chairmen of the BlackRock investment trusts setting out
the results of testing performed in relation to BlackRock's internal control
processes. Where produced, the Audit Committee also reviews Service
Organisation Control (SOC 1) reports from the Company's service providers.
As required by the UK Corporate Governance Code, the Board has undertaken a
robust assessment of both the principal and emerging risks facing the Company,
including those that would threaten its business model, future performance,
solvency or liquidity. Those principal risks have been described in the table
that follows, together with an explanation of how they are managed and
mitigated. The Board will continue to assess these risks on an ongoing basis.
Emerging risks are considered by the Board as they come into view and are
incorporated into the existing review of the Company's risk register. They were
also considered as part of the annual evaluation process. 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.
The Board will continue to assess these risks on an ongoing basis. In relation
to the 2018 UK Corporate Governance Code, the Board is confident that the
procedures that the Company has put in place are sufficient to ensure that the
necessary monitoring of risks and controls has been carried out throughout the
reporting period.
The current risk register includes a number of risks which have been
categorised as follows:
* Counterparty;
* Investment performance;
* Income/dividend;
* Legal and regulatory compliance;
* Operational;
* Market;
* Financial; and
* Marketing
The principal risks and uncertainties faced by the Company during the financial
year, together with the potential effects, controls and mitigating factors, are
set out in the following table.
Principal Risk Mitigation/Control
Counterparty
Potential loss that the Company could incur if a Due diligence is undertaken before contracts
counterparty is unable (or unwilling) to perform on are entered into and exposures are
its commitments. 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.
The Depositary is liable for restitution for
the loss of financial instruments held in
custody unless able to demonstrate the loss
was a result of an event beyond its
reasonable control.
Investment performance
Returns achieved are reliant primarily upon the To manage this risk the Board:
performance of the portfolio.
* regularly reviews the Company's
The Board is responsible for: investment mandate and long-term
strategy;
* deciding the investment strategy to fulfil the * has set investment restrictions and
Company's objective; and guidelines which the Investment Manager
* monitoring the performance of the Investment monitors and regularly reports on;
Manager and the implementation of the investment * receives from the Investment Manager a
strategy. regular explanation of stock selection
decisions, portfolio exposure, gearing
An inappropriate investment strategy may lead to: and any changes in gearing and the
rationale for the composition of the
* poor performance compared to the benchmark index investment portfolio; and
and the Company's peer group; * monitors the maintenance of an adequate
* a widening discount to NAV; spread of investments in order to
* a reduction or permanent loss of capital; and minimise the risks associated with
* dissatisfied shareholders and reputational factors specific to particular sectors,
damage. based on the diversification
requirements inherent in the investment
policy.
The Board is also cognisant of the long term risk to
performance from inadequate attention to ESG issues, Consideration of material ESG information
and in particular the impact of Climate Change. More and sustainability risks is integrated in
detail in respect of these risks can be found in the the Manager's investment process, as set out
AIFMD Fund Disclosures document available on the within the annual report and financial
Company's website at https://www.blackrock.com/uk/ statements. This is monitored by the Board.
individual/literature/policies/
itc-disclosure-blackrock-latin-america-trust-plc.pdf.
Income/dividend
The Company's dividend policy is to pay dividends The Board monitors this risk through the
based on 1.25% of the US Dollar net asset value at receipt of detailed income forecasts and
each quarter end. Under this policy, a portion of the considers the level of income at each
dividend is likely to be paid out of capital meeting.
reserves, and over time this might erode the capital
base of the Company, with a consequential impact on The Company has the ability to make dividend
longer-term total returns. The rate at which this may distributions out of capital reserves as
occur and the degree to which dividends are funded well as revenue reserves to support any
from capital are also dependent upon the level of dividend target. These reserves totalled
dividends and other income earned from the portfolio. US$123.0 million at 31 December 2022.
Income returns from the portfolio are dependent,
among other things, upon the Company successfully The Board is mindful of the balance of
pursuing its investment policy. shareholder returns between income and
capital and monitors the impact of the
Any change in the tax treatment of dividends or Company's dividend on the Company's capital
interest received by the Company, including as a base and the impact over time on total
result of withholding taxes or exchange controls return.
imposed by jurisdictions in which the Company
invests, may reduce the level of dividends received Any changes to the Company's dividend policy
by shareholders. are communicated to the market on a timely
basis and shareholder approval will be
sought for significant changes.
An additional special dividend was declared
alongside the fourth quarterly dividend. The
revenue had been enhanced by a number of
stock and special dividends received during
the year ended 31 December 2022, coupled
with the effect of the tender offer reducing
the number of ordinary shares in issue post
May 2022. Consequently, the Board
recommended an additional special dividend
of 13.00 cents per ordinary share for the
financial year to 31 December 2022. It was
necessary to pay the special dividend to
maintain investment trust status which
requires the distribution of 85% of the
Company's revenue.
Legal and regulatory compliance
The Company has been approved by HM Revenue & Customs The Investment Manager monitors investment
as an investment trust, subject to continuing to meet movements and the amount of proposed
the relevant eligibility conditions and operates as dividends, if any, to ensure that the
an investment trust in accordance with Chapter 4 of provisions of Chapter 4 of Part 24 of the
Part 24 of the Corporation Tax Act 2010. As such, the Corporation Tax Act 2010 are not breached.
Company is exempt from capital gains tax on the The results are reported to the Board at
profits realised from the sale of its investments. each meeting.
Any breach of the relevant eligibility conditions Compliance with the accounting rules
could lead to the Company losing investment trust affecting investment trusts is carefully and
status and being subject to corporation tax on regularly monitored. The Company Secretary
capital gains realised within the Company's and the Company's professional advisers
portfolio. In such event the investment returns of provide regular reports to the Board in
the Company may be adversely affected. respect of compliance with all applicable
rules and regulations.
Any serious breach could result in the Company and/or
the Directors being fined or the subject of criminal Following authorisation under the
proceedings or the suspension of the Company's shares Alternative Investment Fund Managers'
which would in turn lead to a breach of the Directive (AIFMD), the Company and its
Corporation Tax Act 2010. appointed Alternative Investment Fund
Manager (AIFM) are subject to the risks that
Amongst other relevant laws and regulations, the the requirements are not correctly complied
Company is required to comply with the provisions of with. The Board and the AIFM also monitor
the Companies Act 2006, the Alternative Investment changes in government policy and legislation
Fund Managers' Directive, the UK Listing Rules, which may have an impact on the Company.
international sanctions and the FCA's Disclosure
Guidance and Transparency Rules. The Market Abuse Regulation came into force
on 3 July 2016. The Board takes steps to
ensure that individual Directors (and their
Persons Closely Associated) are aware of
their obligations under the regulation and
has updated internal processes, which seek
to ensure the risk of non-compliance is
effectively mitigated.
Operational
In common with most other investment trust companies, Due diligence is undertaken before contracts
the Company has no employees. The Company therefore are entered into with third party service
relies on the services provided by third parties. providers. Thereafter, the performance of
Accordingly, it is dependent on the control systems the provider is subject to regular review
of the Manager and The Bank of New York Mellon and reported to the Board.
(International) Limited (the Custodian, Depositary
and Fund Accountant) who maintain the Company's Most third party service providers produce
assets, dealing procedures and accounting records. Service Organisation Control (SOC 1) reports
The Company's share register is maintained by the to provide assurance regarding the effective
Registrar, Computershare Investor Services PLC. The operation of internal controls as reported
security of the Company's assets, dealing procedures, on by their reporting accountants. These
accounting records and adherence to regulatory and reports are provided to the Audit Committee
legal requirements depend on the effective operation for their review.
of the systems of these other third party service
providers. There is a risk that a major disaster, The Company's assets/financial instruments
such as floods, fire, a global pandemic or terrorist held in custody are subject to a strict
activity, renders the Company's service providers liability regime and in the event of a loss
unable to conduct business at normal operating of such financial assets held in custody,
capacity and effectiveness. the Depositary must return assets of an
identical type or the corresponding amount,
Failure by any service provider to carry out its unless able to demonstrate the loss was a
obligations to the Company could have a material result of an event beyond its reasonable
adverse effect on the Company's performance. control.
Disruption to the accounting, payment systems or
custody records could prevent the accurate reporting The Board reviews the overall performance of
and monitoring of the Company's financial position. the Manager, Investment Manager and all
other third party service providers and
compliance with the Investment Management
Agreement on a regular basis. 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 their review of the
Company's risk register. The Board has
received updates from key service providers
(the Manager, the Depositary, the Custodian,
the Fund Accountant, the Broker, the
Registrar and the Printer) confirming that
appropriate business continuity arrangements
are in place.
Market
Market risk arises from volatility in the prices of The Board considers asset allocation, stock
the Company's investments. It represents the selection, unquoted investments, if any, and
potential loss the Company might suffer through levels of gearing on a regular basis and has
holding investments in the face of negative market set investment restrictions and guidelines
movements. There may be exposure to significant which are monitored and reported on by the
economic, geo-political and currency risks due to the Investment Manager.
location of the operation of the businesses in which
the Company may invest, or as a result of a global The Board monitors the implementation and
economic crisis such as the COVID-19 pandemic. Shares results of the investment process with the
in businesses in which the Company invests can prove Investment Manager.
volatile and this may be reflected in the Company's
share price. Market risk includes the potential The Board also recognises the benefits of a
impact of events which are outside the Company's closed end fund structure in extremely
control, including (but not limited to) heightened volatile markets such as those experienced
geo-political tensions and military conflict, a during the COVID-19 pandemic and more
global pandemic and high inflation. The Company may recently the Russia-Ukraine conflict. Unlike
also invest in smaller capitalisation companies or in open ended counterparts, closed end funds
the securities markets of developing countries which are not obliged to sell down portfolio
are not as large as the more established securities holdings at low valuations to meet liquidity
markets and have substantially less trading volume, requirements for redemptions. During times
which may result in a lack of liquidity and higher of elevated volatility in markets following
price volatility. the Russian invasion of Ukraine and market
stress, the ability of a closed end fund
Corruption also remains a significant issue across structure to remain invested for the long
the Latin American investment universe and the term enables the portfolio managers to
effects of corruption could have a material adverse adhere to disciplined fundamental analysis
effect on the Company's performance. Accounting, from a bottom-up perspective and be ready to
auditing and financial reporting standards and respond to dislocations in the market as
practices and disclosure requirements applicable to opportunities present themselves.
many companies in Latin American countries may be
less rigorous than in other 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.
Financial
The Company's investment activities expose it to a Details of these risks are disclosed in note
variety of financial risks that include interest 16 to the financial statements, together
rate, currency and liquidity risk. with a summary of the policies for managing
these risks.
Marketing
Marketing efforts are inadequate or do not comply The Board focuses significant time on
with relevant regulatory requirements, and fail to communicating directly with the major
communicate adequately with shareholders or reach out shareholders and reviewing marketing
to potential new shareholders, resulting in reduced strategy and initiatives.
demand for the Company's shares and a widening
discount. All investment trust marketing documents are
subject to appropriate review and
authorisation.
Viability statement
In accordance with provision 31 of the 2018 UK Corporate Governance Code, the
Directors have assessed the prospects of the Company over a longer period than
the 12 months referred to by the 'Going Concern' guidelines. The Board
recognises that it is obliged to propose a biennial continuation vote, with the
next vote at the AGM to be held in May 2024. The outcome of these events is
unknown at the present time. In addition, the Board is cognisant of the
uncertainty surrounding the potential duration of the Russia-Ukraine conflict
and its impact on the global economy and the prospects for many of the
Company's portfolio holdings. Notwithstanding these uncertainties, given the
factors stated below, the Board expects the Company to continue for the
foreseeable future and has therefore conducted this review for the period up to
the AGM in 2026, being a period of three years from the date of approval of
this report. The Board considers three years to be an appropriate time horizon,
being a reasonable time horizon to assess potential investments and the period
being used to assess performance for the Company's Discount Control mechanism
(as set out in more detail in the Strategic Report above).
In choosing this period for its assessment of the viability of the Company the
Directors have considered the following matters:
* the Company's business model should remain attractive for much longer than
the period up to the AGM in 2026, unless there is a significant economic or
regulatory change;
* the ongoing relevance of the Company's investment objective, business model
and investment policy in the current environment (in particular the
Company's closed end structure which provides intraday liquidity to
investors and the ability for the portfolio managers to invest over
a longer-term time horizon than many open ended peers). This longer-term
investment horizon is well-suited to Latin America as the volatility of
this region can make short term investing more challenging. The Company is
also one of only two investment trusts with exposure to the Latin American
region and is substantially larger than its competitor in the peer group at
more than three times the size;
* the Board keeps the Company's principal risks and uncertainties as set out
above under review, and is confident that the Company has appropriate
controls and processes in place to manage these and to maintain its
operating model, even given the global economic challenges posed by the
Russia-Ukraine conflict, the impact of climate change on portfolio
companies and the current climate of heightened geo-political risk;
* if the tender offer was to be implemented in 2026 was fully subscribed, the
Directors consider that the Company will still retain sufficient assets and
liquidity to remain viable and to continue to operate in accordance with
its business model and investment mandate; and
* the Board has reviewed the operational resilience of the Company and its
key service providers (the Manager, Depositary, Custodian, Fund Accountant,
Registrar and Broker) and have concluded that all service providers are
able to provide a good level of service for the foreseeable future.
The Directors have also reviewed the assumptions and considerations
underpinning the Company's existing going concern assertion which are based on:
* processes for monitoring costs;
* key financial ratios;
* evaluation of risk management and controls;
* portfolio risk profile;
* share price discount to NAV;
* gearing; and
* counterparty exposure and liquidity risk.
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.
Future prospects
The Board's main focus is the achievement of capital growth and an attractive
total return. The future of the Company is dependent upon the success of the
investment strategy. The outlook for the Company is discussed in both the
Chairman's Statement and the Investment Manager's Report above.
Social, community and human rights issues
As an investment trust with no employees, the Company has no direct social or
community responsibilities or impact on the environment. However, the Company
believes that it is in shareholders' interests to consider human rights issues,
environmental, social and governance factors when selecting and retaining
investments. Details of the Company's policy on socially responsible investment
are set out above.
Modern Slavery Act
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 chains, 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 31 December 2022, all of whom held office
throughout the year, are set out in the governance structure and Directors'
biographies contained within the annual report and financial statements.
As at the date of this report, the Board consists of two men and three women,
and also is inclusive of other protected characteristics covered in
legislation. The Board recognises the importance of diverse backgrounds and
skill sets, and in particular having a range of experienced Directors who, both
individually and collectively, possess a suitable balance of skills, knowledge,
and independence to enable it to fulfil its obligations. The Board believes
that the current composition of the Board meets these objectives, and equality,
diversity and inclusion are at the forefront of Directors' minds when
undertaking succession planning.
Further information on the composition and diversity of the Board can be found
in the disclosure table which follows below:
Number Number
of Board Percentage of senior
Gender members of Board roles held1
Men 2 40 1
Women 3 60 2
Ethnicity2
White British (or any
other white background) 4 80.0 2
Other 1 20.0 1
1 A senior position is defined as the role of Chairman, Audit Committee
Chairman or Senior Independent Director.
2 Categorisation of ethnicity is stated in accordance with the Office of
National Statistics classification.
The Company does not have any employees, therefore there are no disclosures to
be made in that respect.
The Chairman's Statement above, along with the Investment Manager's Report and
portfolio analysis above form part of the Strategic Report.
The Strategic Report was approved by the Board at its meeting on 29 March 2023.
By order of the Board
GRAHAM VENABLES
For and on behalf of BlackRock Investment Management (UK) Limited
Company Secretary
29 March 2023
Transactions with the AIFM and the Investment Manager
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 contained within the
annual report and financial statements.
The investment management fee is levied quarterly, based on 0.80% per annum of
the Company's net asset value. The investment management fee due for the year
ended 31 December 2022 amounted to US$1,332,000 (2021: US$1,726,000), as
disclosed in note 4 to the Financial Statements below. At the year end, an
amount of US$588,000 was outstanding in respect of these fees (2021:
US$815,000).
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 31 December 2022 amounted to US$83,000 excluding VAT (2021:
US$101,000). Marketing fees of US$81,000 (2021: US$108,000) were outstanding at
31 December 2022.
During the year the Manager pays the amounts due to the Directors. These fees
are then reimbursed by the Company for the amounts paid on its behalf. As at 31
December 2022, an amount of US$110,000 (2021: US$124,000) was payable to the
Manager in respect of Directors' fees.
The ultimate holding company of the Manager and the Investment Manager is
BlackRock, Inc., a company incorporated in Delaware, USA.
Related party disclosures
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 contained within the annual report and financial
statements. At 31 December 2022, an amount of US$18,000 (2021: US$15,000) was
outstanding in respect of Directors' fees
The Board currently consists of five non-executive Directors, all of whom are
considered to be independent by the Board. This will reduce to four
non-executive Directors with effect from 1 April 2023 when Professor Doctor
retires from the Board. None of the Directors has a service contract with the
Company. For the year ended 31 December 2022, the Chairman received an annual
fee of £47,800, the Chairman of the Audit Committee received an annual fee of £
36,700, the Chairman of the Remuneration Committee and Senior Independent
Director received an annual fee of £34,600 and each other Director received an
annual fee of £32,600. This excludes expenses paid to each of the Directors
which are set out in the Directors' Remuneration Report contained within the
annual report and financial statements. For the year ending 31 December 2023,
the Chairman will receive an annual fee of £50,200, the Chairman of the Audit
Committee will receive an annual fee of £38,600, the Chairman of the
Remuneration Committee and Senior Independent Director received an annual fee
of £36,400 and each other Director received an annual fee of £34,300.
All current members of the Board hold ordinary shares in the Company. Carolan
Dobson holds 4,792 ordinary shares, Mahrukh Doctor holds 686 ordinary shares,
Nigel Webber holds 5,000 ordinary shares, Craig Cleland holds 12,000 ordinary
shares and Laurie Meister holds 2,915 ordinary shares.
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND
FINANCIAL STATEMENTS
The Directors are responsible for preparing the annual report and 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 they have elected to prepare the financial
statements in accordance with applicable law and United Kingdom Accounting
Standards (United Kingdom Generally Accepted Accounting Practice).
Under company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company as at the end of each financial year and of the profit
or loss of the Company for that year.
In preparing those financial statements, the Directors are required to:
* present fairly the financial position, financial performance and cash flows
of the Company;
* select suitable accounting policies and then apply them consistently;
* present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
* make judgements and estimates that are reasonable and prudent;
* state whether applicable UK Accounting Standards have been followed,
subject to any material departures disclosed and explained in the financial
statements; and
* prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
The Directors are also responsible for preparing the Strategic Report,
Directors' Report, the Directors' Remuneration Report, the Corporate Governance
Statement and the Report of the Audit Committee in accordance with the
Companies Act 2006 and applicable regulations, including the requirements of
the Listing Rules and the Disclosure Guidance and Transparency Rules.
The Directors have delegated responsibility to the Manager for the maintenance
and integrity of the Company's corporate and financial information included on
the Investment Manager's website.
Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
Each of the Directors, whose names are listed within the annual report and
financial statements, confirm to the best of their knowledge that:
* the Financial Statements, prepared in accordance with applicable accounting
standards, give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company; and
* the Annual Report and Financial Statements include 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 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
Committee's report contained within the annual report and financial statements.
As a result, the Board has concluded that the Annual Report and Financial
Statements for the year ended 31 December 2022, taken as a whole, are fair,
balanced and understandable and provide the information necessary for
shareholders to assess the Company's position, performance, business model and
strategy.
For and on behalf of the Board
CAROLAN DOBSON
Chairman
29 March 2023
INCOME STATEMENT
for the year ended 31 December 2022
2022 2021
Revenue Capital Total Revenue Capital Total
Notes US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Gains/(losses) on investments
held
at fair value through profit or 8 - 1,258 1,258 - (36,963) (36,963)
loss
(Losses)/gains on foreign - (183) (183) - 173 173
exchange
Income from investments held at
fair value through profit or 3 15,438 - 15,438 12,199 - 12,199
loss
Other income 3 21 - 21 - - -
Total income/(loss) 15,459 1,075 16,534 12,199 (36,790) (24,591)
Expenses
Investment management fee 4 (333) (999) (1,332) (431) (1,295) (1,726)
Other operating expenses 5 (609) (17) (626) (783) (10) (793)
Total operating expenses (942) (1,016) (1,958) (1,214) (1,305) (2,519)
Net profit/(loss) on ordinary
activities before finance costs
and taxation 14,517 59 14,576 10,985 (38,095) (27,110)
Finance costs (81) (243) (324) (53) (158) (211)
Net profit/(loss) on ordinary
activities before taxation 14,436 (184) 14,252 10,932 (38,253) (27,321)
Taxation (charge)/credit (594) 11 (583) (685) - (685)
Net profit/(loss) on ordinary
activities after taxation 13,842 (173) 13,669 10,247 (38,253) (28,006)
Earnings/(loss) per ordinary
share (US$ cents) 7 41.48 (0.52) 40.96 26.10 (97.44) (71.34)
The total column of this statement represents the Company's profit and loss
account. 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 net profit/(loss) for the year disclosed above represents the Company's
total comprehensive income/(loss).
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2022
Called Share Capital Non-
up share premium redemption distributable Capital Revenue
capital account reserve reserve reserves reserve Total
Note US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
For the year ended
31 December 2022
At 31 December 2021 4,144 11,719 4,843 4,356 165,947 3,829 194,838
Total comprehensive
(loss)/income:
Net (loss)/profit - - - - (173) 13,842 13,669
for the year
Transactions with
owners, recorded
directly to equity:
Tender offer1 9 - - - - (51,017) - (51,017)
Tender offer cost 9 - - - - (414) - (414)
Cancellation of (981) - 981 - - - -
shares
Dividends paid2 6 - - - - - (8,965) (8,965)
At 31 December 2022 3,163 11,719 5,824 4,356 114,343 8,706 148,111
For the year ended
31 December 2021
At 31 December 2020 4,144 11,719 4,843 4,356 206,047 3,042 234,151
Total comprehensive
(loss)/income:
Net (loss)/profit - - - - (38,253) 10,247 (28,006)
for the year
Transactions with
owners, recorded
directly to equity:
Dividends paid3 6 - - - - (1,847) (9,460) (11,307)
At 31 December 2021 4,144 11,719 4,843 4,356 165,947 3,829 194,838
1 On 26 May 2022, the Company repurchased and subsequently cancelled
9,810,979 shares. The price at which tendered shares were repurchased was
417.09 pence per share.
2 Quarterly dividend of 6.21 cents per share for the year ended 31 December
2021, declared on 4 January 2022 and paid on 8 February 2022; quarterly
dividend of 7.76 cents per share for the year ended 31 December 2022, declared
on 1 April 2022 and paid on 16 May 2022; quarterly dividend of 5.74 cents per
share for the year ended 31 December 2022, declared on 1 July 2022 and paid on
12 August 2022; and quarterly dividend of 6.08 cents per share, declared on 3
October 2022 and paid on 9 November 2022.
3 Quarterly dividend of 7.45 cents per share for the year ended 31 December
2020, declared on 4 January 2021 and paid on 8 February 2021; quarterly
dividend of 6.97 cents per share for the year ended 31 December 2021, declared
on 1 April 2021 and paid on 10 May 2021; quarterly dividend of 7.82 cents per
share for the year ended 31 December 2021, declared on 1 July 2021 and paid on
6 August 2021; and quarterly dividend of 6.56 cents per share for the year
ended 31 December 2021, declared on 1 October 2021 and paid on 8 November 2021.
For information on the Company's distributable reserves, please refer to note
10 below.
BALANCE SHEET
as at 31 December 2022
2022 2021
Notes US$'000 US$'000
Fixed assets
Investments held at fair value through profit or loss 8 158,149 212,182
Current assets
Debtors 1,572 466
Cash and cash equivalents 160 463
Total current assets 1,732 929
Creditors - amounts falling due within one year
Bank overdraft (10,731) (16,980)
Other creditors (1,015) (1,258)
Total current liabilities (11,746) (18,238)
Net current liabilities (10,014) (17,309)
Net current assets 148,135 194,873
Creditors - amounts falling due after more than one year
Non-current tax liability - (11)
Non-equity redeemable shares (24) (24)
(24) (35)
Net assets 148,111 194,838
Capital and reserves
Called up share capital 9 3,163 4,144
Share premium account 10 11,719 11,719
Capital redemption reserve 10 5,824 4,843
Non-distributable reserve 10 4,356 4,356
Capital reserves 10 114,343 165,947
Revenue reserve 10 8,706 3,829
Total shareholders' funds 7 148,111 194,838
Net asset value per ordinary share (US$ cents) 7 502.95 496.28
STATEMENT OF CASH FLOWS
for the year ended 31 December 2022
2022 2021
US$'000 US$'000
Operating activities
Net profit/(loss) on ordinary activities before taxation 14,252 (27,321)
Add back finance costs 324 211
(Gains)/losses on investments held at fair value through profit (1,258) 36,963
or loss
Losses/(gains) on foreign exchange 183 (173)
Sales of investments held at fair value through profit or loss 123,691 144,427
Purchases of investments held at fair value through profit or (68,345) (142,206)
loss
Increase in other debtors (1,100) (21)
(Decrease)/increase in other creditors (304) 318
Tax on investment income (594) (685)
Net cash generated from operating activities 66,849 11,513
Financing activities
Interest paid (324) (211)
Tender offer (51,017) -
Tender offer costs (414) -
Dividends paid (8,965) (11,307)
Net cash used in financing activities (60,720) (11,518)
Increase/(decrease) in cash and cash equivalents 6,129 (5)
Cash and cash equivalents at the start of the year (16,517) (16,685)
Effect of foreign exchange rate changes (183) 173
Cash and cash equivalents at end of the year (10,571) (16,517)
Comprised of:
Cash at bank 160 463
Bank overdraft (10,731) (16,980)
(10,571) (16,517)
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
1. Principal activity
The Company was incorporated on 12 March 1990 and its principal activity is
that of an investment trust company within the meaning of Section 1158 of the
Corporation Tax Act 2010.
2. Accounting policies
The principal accounting policies adopted by the Company are set out below.
(a) Basis of preparation
The financial statements have been prepared on a going concern basis in
accordance with 'The Financial Reporting Standard applicable in the UK and
Republic of Ireland' (FRS 102) and the revised Statement of Recommended
Practice - 'Financial Statements of Investment Trust Companies and Venture
Capital Trusts' (SORP), issued by the Association of Investment Companies (AIC)
in October 2019 and updated in July 2022, and the provisions of the Companies
Act 2006.
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
period to 31 December 2024, being a period of at least 12 months from the date
of approval of these financial statements, and therefore consider the going
concern assumption to be appropriate. The Directors have reviewed compliance
with the covenants associated with the bank overdraft, 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 FRS 102.
None of the Company's other assets and liabilities were considered to be
potentially impacted by climate change.
The principal accounting policies adopted by the Company are set out below.
Unless specified otherwise, the policies have been applied consistently
throughout the year and are consistent with those applied in the preceding
year. All of the Company's operations are of a continuing nature.
The Company's financial statements are presented in US Dollars, which is the
functional and presentation currency of the Company. The US Dollar is the
functional currency because it is the currency in which the bulk of the
Company's assets (notably portfolio investments, cash at bank, bank overdrafts
and amounts due to and from brokers) are denominated. All values are rounded to
the nearest thousand US Dollars (US$'000) except where otherwise indicated.
(b) Presentation of Income Statement
In order to reflect the activities of an investment trust company and in
accordance with guidance issued by the AIC, supplementary information which
analyses the Income Statement between items of a revenue and a capital nature
has been presented alongside the Income Statement.
(c) Segmental reporting
The Directors are of the opinion that the Company is engaged in a single
segment of business being investment business.
(d) Income
Dividends receivable on equity shares are treated as revenue for the year on an
ex-dividend basis. Where no ex-dividend date is available, dividends receivable
on or before the year end are treated as revenue for the year. Provisions are
made for dividends not expected to be received.
Special dividends are recognised on an ex-dividend basis and treated as capital
or revenue depending on the facts or circumstances of each particular dividend.
Dividends are accounted for in accordance with Section 29 of FRS 102 on the
basis of income actually receivable, without adjustment for tax credits
attaching to the dividend. Dividends from overseas companies continue to be
shown gross of withholding tax.
Deposit interest receivable is 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 revenue. Any excess in the value of the shares received over the
amount of the cash dividend is recognised in capital.
Fixed returns on non-equity securities are recognised on a time apportionment
basis. The return on a fixed interest security is recognised on a time
apportionment basis so as to reflect the effective yield on the debt security.
Amounts amortised during the year are recognised in the Income Statement.
Interest income is accounted for on an accruals basis.
(e) Expenses
All expenses, including finance costs, are accounted for on an accruals basis.
Expenses have been charged wholly to the revenue account of the Income
Statement, except as follows:
* expenses which are incidental to the acquisition or disposal of an
investment are treated as capital. Details of transaction costs on the
purchases and sales of investments are disclosed in note 8 below;
* expenses are treated as capital where a connection with the maintenance or
enhancement of the value of the investments can be demonstrated; and
* the investment management fee and finance costs have been allocated 75% to
the capital account and 25% to the revenue account of the Income Statement
in line with the Board's expected long-term split of returns, in the form
of capital gains and income respectively, from the investment portfolio.
(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 Income Statement
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.
The current tax effect of different items of expenditure is allocated between
capital and revenue on the marginal basis using the Company's effective rate of
corporation tax for the accounting period.
Deferred taxation is recognised in respect of all timing differences at the
financial reporting date, where transactions or events that result in an
obligation to pay more taxation in the future or right to less taxation in the
future have occurred at the balance sheet date. Deferred taxation is measured
on a non-discounted basis, at the average tax rates that are expected to apply
in the periods in which the timing differences are expected to reverse based on
tax rates and laws that have been enacted or substantively enacted by the
balance sheet date. This is subject to deferred taxation assets only being
recognised if it is considered more likely than not that there will be suitable
profits from which the future reversal of the timing differences can be
deducted.
(g) Investments held at fair value through profit or loss
The Company's investments are classified as held at fair value through profit
or loss in accordance with Sections 11 and 12 of FRS 102 and are managed and
evaluated on a fair value basis in accordance with its investment strategy.
All investments are classified upon initial recognition as held at fair value
through profit or loss. Purchases of investments are recognised on a trade date
basis. Sales are recognised at the trade date of the disposal and the proceeds
are measured at fair value, which is regarded as the proceeds of the sale less
any transaction costs.
The fair value of the financial investments is based on their quoted bid price
at the balance sheet date on the exchange on which the investment is quoted,
without deduction for the estimated future selling costs.
Unquoted investments are valued by the Directors at fair value using
International Private Equity and Venture Capital Valuation Guidelines. This
policy applies to all current and non-current asset investments of the Company.
These guidelines are aligned with FRS 102 and, where this does not align, FRS
102 prevails.
Changes in the value of investments held at fair value through profit or loss
and gains and losses on disposal are recognised in the Income Statement as
'Gains or losses on investments held at fair value through profit or loss'.
Also included within this heading are transaction costs in relation to the
purchase or sale of investments.
The fair value hierarchy consists of the following three levels:
Level 1 - Quoted market prices for identical instruments in active markets.
Level 2 - Valuation techniques using observable inputs.
Level 3 - Valuation techniques using significant unobservable inputs.
(h) Debtors
Debtors include sales for future settlement, other debtors and prepayments and
accrued income in the ordinary course of business. If collection is expected in
one year or less, they are classified as current assets. If not, they are
presented as non-current assets.
(i) Creditors
Creditors include purchases for future settlement, interest payable, share buy
back costs and accruals in the ordinary course of business. Creditors are
classified as creditors - amounts falling due within one year if payment is due
within one year or less. If not, they are presented as creditors - amounts
falling due after more than one year.
(j) Dividends payable
Under Section 32 of FRS 102, final dividends should not be accrued in the
financial statements unless they have been approved by shareholders before the
balance sheet date. Dividends payable to equity shareholders are recognised in
the Statement of Changes in Equity when they have been approved by shareholders
and have become a liability of the Company. Interim dividends are only
recognised in the financial statements in the period in which they are paid.
Dividends are financed through a combination of available net income in each
financial year and revenue and capital reserves.
(k) Cash and cash equivalents
Cash comprises cash in hand and demand deposits. Cash equivalents include bank
overdrafts repayable on demand and 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.
(l) Foreign currency translation
In accordance with Section 30 of FRS 102, the Company is required to determine
a functional currency being the currency in which the Company predominately
operates. The functional and reporting currency is US Dollars, reflecting the
primary economic environment in which the Company operates. Transactions in
foreign currencies are translated into US Dollars at the rates of exchange
ruling on 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 rates of exchange ruling at the balance sheet date. Profits and
losses thereon are recognised in the capital account of the Income Statement
and taken to the capital reserve.
(m) Share repurchases, share reissues and new share issues
Shares repurchased and subsequently cancelled - share capital is reduced by the
nominal value of the shares repurchased and 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 capital reserve.
Shares repurchased and held in treasury - the full cost of the repurchase is
charged to the capital redemption reserve.
Where treasury shares are subsequently re-issued:
* amounts received to the extent of the repurchase price are credited to the
capital redemption reserve; and
* any surplus received in excess of the repurchase price is taken to the
share premium account.
Where new shares are issued, the par value is taken to called up share capital
and 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 capital reserve.
(n) Bank borrowings
Bank overdrafts are recorded as the proceeds received. Finance charges are
accounted for on an accruals basis in the Income Statement using the effective
interest rate method and are added to the carrying amount of the instruments to
the extent that they are not settled in the period in which they arise.
(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
2022 2021
US$'000 US$'000
Investment income:
Overseas dividends 14,515 11,655
Overseas REIT distributions 421 307
Overseas special dividends 480 223
Fixed interest income 22 14
Total investment income 15,438 12,199
Other income:
Deposit interest 21 -
Total income 15,459 12,199
Dividends and interest received in cash during the year amounted to
US$14,413,000 and US$45,000 (2021: US$12,285,000 and US$12,000).
Special dividends of US$nil have been recognised in capital in 2022 (2021:
US$nil).
4. Investment management fee
2022 2021
Revenue Capital Total Revenue Capital Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Investment management fee 333 999 1,332 431 1,295 1,726
Under the terms of the investment management agreement, BFM is entitled to a
fee of 0.80% per annum based on the Company's daily Net Asset Value (NAV). The
fee is levied quarterly.
The investment management fee is allocated 25% to the revenue account and 75%
to the capital account of the Income Statement. There is no additional fee for
company secretarial and administration services.
5. Other operating expenses
2022 2021
US$'000 US$'000
Allocated to revenue:
Custody fees 35 61
Depositary fees1 15 22
Auditor's remuneration2 50 60
Registrar's fees 33 40
Directors' emoluments3 231 254
Marketing fees 83 101
Postage and printing fees 45 73
AIC fees - 22
Broker fees 38 56
Employer NI contributions 23 27
FCA fee 10 12
Write back of prior year expenses4,5 (23) (42)
Other administration costs 69 97
609 783
Allocated to capital:
Custody transaction charges6 17 10
626 793
The Company's ongoing charges7, calculated as a percentage of average
daily net assets and
using the management fee and all other operating expenses, excluding
finance costs, direct
transaction costs, custody transaction charges, VAT recovered,
taxation, prior year expenses
written back and certain non-recurring items were: 1.13% 1.14%
1 All expenses, other than depositary fees, are paid in Sterling and are
therefore subject to exchange rate fluctuations.
2 No non-audit services were provided by the Company's Auditor.
3 Further information on Directors' emoluments can be found in the
Directors' Remuneration Report contained within the annual report and financial
statements. The Company has no employees.
4 Relates to prior year accrual for postage and printing fees, broker fees
and other administration costs written back during the year ended 31 December
2022.
5 Relates to prior year accrual for AIC fees and Directors search fees
written back during the year ended 31 December 2021.
6 For the year ended 31 December 2022, expenses of US$17,000 (2021:
US$10,000) were charged to the capital account of the Income Statement. These
relate to transaction costs charged by the Custodian on sale and purchase
trades.
7 Alternative Performance Measures, see Glossary contained within the
annual report and financial statements.
6. Dividends
2022 2021
Dividends paid on equity shares: Record date Payment date US$'000 US$'000
Quarter to 31 December 2021 - dividend 14 January 8 February 2,438 2,925
of 6.21 cents 2022 2022
Quarter to 31 March 2022 - dividend of 19 April 2022 16 May 2022 3,047 2,736
7.76 cents
Quarter to 30 June 2022 - dividend of 15 July 2022 12 August 2022 1,690 3,070
5.74 cents
Quarter to 30 September 2022 - dividend 14 October 9 November 1,790 2,576
of 6.08 cents 2022 2022
8,965 11,307
The Company's dividend policy is to pay regular quarterly dividends equivalent
to 1.25% of the Company's US Dollar NAV on the last working day of March, June,
September and December each year, with the dividends being paid in May, August,
November and February each year, respectively. For the year ending 31 December
2022, the quarterly dividends were calculated based on the Company's cum-income
US Dollar NAV at the last working day of the quarter.
The Company's cum-income US Dollar NAV at 31 December 2022 as issued to the
market was 502.95 cents per share, and the Directors have declared a fourth
quarterly interim dividend of 6.29 cents per share. In addition, the Directors
have declared a special dividend of 13.00 cents per share. It is necessary to
pay the special dividend to maintain investment trust status which requires the
distribution of 85% of the Company's income. The fourth quarterly interim
dividend and the special dividend were paid on 8 February 2023 to holders of
ordinary shares on the register at the close of business on 13 January 2023.
The total dividends payable in respect of the year which form the basis of
determining retained income for the purpose of Section 1158 of the Corporation
Tax Act 2010 and Section 833 of the Companies Act 2006, and the amount proposed
for the year ended 31 December 2022, meet the relevant requirements as set out
in this legislation.
2022 2021
Dividends paid or proposed on equity shares: US$'000 US$'000
Quarter to 31 March 2022 - 7.76 cents (2021: 6.97) 3,047 2,736
Quarter to 30 June 2022 - 5.74 cents (2021: 7.82) 1,690 3,070
Quarter to 30 September 2022 - 6.08 cents (2021: 6.56) 1,790 2,576
Quarter to 31 December 2022 - 6.29 cents1 (2021: 6.21) 1,852 2,438
Year to 31 December 2022 - 13.00 cents1 (2021: n/a) 3,828 -
12,207 10,820
1 Based on 29,448,641 ordinary shares in issue at 13 January 2023.
All dividends paid or payable are distributed from the Company's distributable
reserves.
7. Earnings and net asset value per ordinary share
Revenue, capital loss and net asset value per ordinary share are shown below
and have been calculated using the following:
2022 2021
Net revenue profit attributable to ordinary shareholders 13,842 10,247
(US$'000)
Net capital loss attributable to ordinary shareholders (173) (38,253)
(US$'000)
Total gains/(loss) attributable to ordinary shareholders 13,669 (28,006)
(US$'000)
Total shareholders' funds (US$'000) 148,111 194,838
The weighted average number of ordinary shares in issue
during the year on which the
earnings per ordinary share was calculated was: 33,373,033 39,259,620
The actual number of ordinary shares in issue at the year end
on which the net asset
value was calculated was: 29,448,641 39,259,620
The number of ordinary shares in issue, including treasury 31,630,303 41,441,282
shares at the year end was:
Earnings per share
Calculated on weighted average number of ordinary shares:
Revenue earnings per share (US$ cents) - basic and diluted 41.48 26.10
Capital loss per share (US$ cents) - basic and diluted (0.52) (97.44)
Total earnings/(loss) per share (US$ cents) - basic and 40.96 (71.34)
diluted
As at As at
31 December 31 December
2022 2021
Net asset value per ordinary share (US$ cents) 502.95 496.28
Ordinary share price (US$ cents)1 457.10 461.19
1 Based on an exchange rate of US$1.20 to £1 at 31 December 2022 and US$1.35 to
£1 at 31 December 2021.
There are no dilutive securities at the year end.
8. Investments held at fair value through profit or loss
2022 2021
US$'000 US$'000
Overseas listed equity investments 158,149 212,151
Overseas unlisted fixed income investments - 31
Valuation of investments at 31 December 158,149 212,182
Opening book cost of equity and fixed income investments 204,909 209,565
Investment holding gains 7,273 41,860
Opening fair value 212,182 251,425
Analysis of transactions made during the year:
Purchases at cost 68,406 142,147
Sales proceeds received (123,697) (144,427)
Gains/(losses) on investments 1,258 (36,963)
Closing fair value 158,149 212,182
Closing book cost of equity and fixed income investments 157,988 204,909
Closing investment holding gains 161 7,273
Closing fair value 158,149 212,182
The Company received US$123,697,000 (2021: US$144,427,000) from investments
sold in the year. The book cost of these investments when they were purchased
was US$115,327,000 (2021: US$146,803,000). These investments have been revalued
over time and until they were sold any unrealised gains/losses were included in
the fair value of investments.
Transaction costs of US$93,000 were incurred on the acquisition of investments
(2021: US$136,000). Costs relating to the disposal of investments during the
year amounted to US$119,000 (2021: US$178,000). All transaction costs have been
included within capital reserves.
9. Share capital
Ordinary Treasury Total Nominal
shares shares shares value
number number number US$'000
Allotted, called up and fully paid share
capital comprised:
Ordinary shares of 10 cents each
At 31 December 2021 39,259,620 2,181,662 41,441,282 4,144
Tender offer (9,810,979) - (981)
(9,810,979)
At 31 December 2022 29,448,641 2,181,662 31,630,303 3,163
During the period to 31 December 2022, 9,810,979 ordinary shares were purchased
for cancellation as a result of a tender offer for a total cost of
US$51,431,000 (2021: nil).
The ordinary shares give shareholders voting rights, the entitlement to all of
the capital growth in the Company's assets and to all income from the Company
that is resolved to be distributed.
10. Reserves
Distributable Reserves
Capital
reserves
Capital arising on
reserves revaluation
Share Capital Non- arising on of
premium redemption distributable investments investments Revenue
account reserve reserve sold held reserve
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
At 31 December 2021 11,719 4,843 4,356 158,700 7,247 3,829
Movement during the year:
Total comprehensive income/
(loss):
Net profit/(loss) for the - - - 6,909 (7,082) 13,842
year
Transactions with owners,
recorded directly to equity:
Tender offer - - - (51,017) - -
Tender offer cost - - - (414) - -
Cancellation of shares - 981 - - - -
Dividends paid during the - - - - - (8,965)
year from revenue
At 31 December 2022 11,719 5,824 4,356 114,178 165 8,706
The share premium account, capital redemption reserve and non-distributable
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 capital reserve may be
used as distributable reserves for all purposes and, in particular, the
repurchase by the Company of its ordinary shares and for payments as dividends.
In accordance with the Company's Articles of Association, capital reserves and
the revenue reserve may be distributed by way of dividend. The capital reserve
arising on the revaluation of investments of US$165,000 (2021: gain of
US$7,247,000) 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.
11. Valuation of financial instruments
Financial assets and financial liabilities are either carried in the Balance
Sheet at their fair value (investments) 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).
Section 34 of FRS 102 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 to the Financial Statements contained
within the annual report and financial statements.
Categorisation within the hierarchy has been determined on the basis of the
lowest level 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 and regularly 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.
These include exchange traded derivatives. 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 significant inputs are directly or indirectly observable from
market data.
Valuation techniques used for non-standardised financial instruments such as
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.
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 Level 3
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 the measurement of
Level 3 asset or liability.
Fair values of financial assets and financial liabilities
The table below is an analysis of the Company's financial instruments measured
at fair value at the balance sheet date.
Financial assets at fair value through profit or Level 1 Level 2 Level 3 Total
loss as at
31 December 2022 US$'000 US$'000 US$'000 US$'000
Equity investments 158,149 - - 158,149
Fixed interest investments - - - -
Total 158,149 - - 158,149
Financial assets at fair value through profit or Level 1 Level 2 Level 3 Total
loss as at
31 December 2021 US$'000 US$'000 US$'000 US$'000
Equity investments 212,151 - - 212,151
Fixed interest investments - 31 - 31
Total 212,151 31 - 212,182
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 business risks,
including climate change risk, in accordance with the fair value related
requirements of the Company's Financial Reporting Framework.
12. Capital management policies and procedures
The Company's capital management objectives are:
* to ensure it will be able to continue as a going concern; and
* to secure long-term capital growth and an attractive total return primarily
through investing in quoted securities in Latin America.
Gearing will be selectively employed with the aim of enhancing returns. The
Board view that 105% of the net asset value is the neutral level of gearing
over the longer term and that gearing should be used actively in an approximate
range of plus or minus 10% around this as measured at the time that gearing is
instigated. These current parameters sit within the Company's gearing policy as
set out in the investment policy contained within the annual report and
financial statements, which states that net borrowings are not expected to
exceed 25% of net assets under normal circumstances, and the Company's Articles
of Association which limit net borrowings to 100% of capital and reserves.
The Company's total capital as at 31 December 2022 was US$148,111,000 (2021:
US$194,838,000) comprised of equity, capital and reserves.
Under the terms of the overdraft facility agreement, the Company's total
indebtedness shall at no time exceed US$25 million or 30% of the Company's net
asset value (whichever is the lowest) (2021: US$40 million or 30% of the
Company's net asset value (whichever is the lowest)).
The Board with the assistance of the Investment Manager monitors and reviews
the broad structure of the Company's capital on an ongoing basis. This review
includes:
* the planned level of gearing, which takes into account the Investment
Manager's view on the market; and
* the need to buy back equity shares, either for cancellation or to be held
in treasury, which takes account of the difference between the NAV per
share and the share price (i.e. the level of share price discount or
premium).
The Company is subject to externally imposed capital requirements:
* as a public company, the Company has a minimum share capital of £50,000;
and
* in order to be able to pay dividends out of profits available for
distribution, the Company has to be able to meet one of the two capital
restrictions tests imposed on investment companies by law.
During the year, the Company complied with the externally imposed capital
requirements to which it was subject.
13. 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 contained within the
annual report and financial statements.
The investment management fee is levied quarterly, based on 0.80% per annum of
the Company's net asset value. The investment management fee due for the year
ended 31 December 2022 amounted to US$1,332,000 (2021: US$1,726,000), as
disclosed in note 4 to the Financial Statements above. At the year end, an
amount of US$588,000 was outstanding in respect of these fees (2021:
US$815,000).
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 31 December 2022 amounted to US$83,000 excluding VAT (2021:
US$101,000). Marketing fees of US$81,000 (2021: US$108,000) were outstanding at
31 December 2022.
During the year the Manager pays the amounts due to the Directors. These fees
are then reimbursed by the Company for the amounts paid on its behalf. As at 31
December 2022, an amount of US$110,000 (2021: US$124,000) was payable to the
Manager in respect of Directors' fees.
The ultimate holding company of the Manager and the Investment Manager is
BlackRock, Inc., a company incorporated in Delaware, USA.
14. Related party disclosure
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 contained within the annual report and financial
statements. At 31 December 2022, an amount of US$18,000 (2021: US$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 31 December 2022
Total % of shares held by Number of Significant
Significant Investors who
Total % of shares held by Related Investors who are not are not affiliates of
affiliates of BlackRock Group
BlackRock Funds BlackRock Group or or BlackRock, Inc.
BlackRock, Inc.
1.7 20.7 1
As at 31 December 2021
Total % of shares held by Number of Significant
Significant Investors who
Total % of shares held by Related Investors who are not are not affiliates of
affiliates of BlackRock Group
BlackRock Funds BlackRock Group or or BlackRock, Inc.
BlackRock, Inc.
1.3 26.8 1
15. Contingent liabilities
There were no contingent liabilities at 31 December 2022 (2021: none).
16. 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 2022 Annual Report
and Financial Statements will be filed with the Registrar of Companies shortly.
The Report of the Auditors for the year ended 31 December 2022 contains no
qualification or statement under Section 498(2) or (3) of the Companies Act
2006.
The comparative figures are extracts from the audited financial statements of
BlackRock Latin American Investment Trust plc for the year ended 31 December
2022, which have been filed with the Registrar of Companies, unless otherwise
stated. The Report of the Auditor on those financial statements contained no
qualification or statement under Section 498 of the Companies Act.
This announcement was approved by the Board of Directors on 29 March 2023.
17. Annual Report
Copies of the Annual Report will be sent to members shortly and will also be
available from the registered office, c/o The Company Secretary, BlackRock
Latin American Investment Trust plc, 12 Throgmorton Avenue, London EC2N 2DL.
18. Annual General Meeting
The Annual General Meeting of the Company will be held at 12 Throgmorton
Avenue, London EC2N 2DL on Monday, 22 May 2023 at 12:00 noon.
ENDS
The Annual Report will also be available on the BlackRock Investment Management
website at http://www.blackrock.co.uk/brla. Neither the contents of the
Investment Manager's website nor the contents of any website accessible from
hyperlinks on the Investment Manager's website (or any other website) is
incorporated into, or forms part of, this announcement.
For further information, please contact:
Melissa Gallagher, Managing Director, Investment Trusts, BlackRock Investment
Management (UK) Limited
Tel: 020 7743 3893
Press Enquiries:
Ed Hooper, Lansons Communications - Tel: 020 7294 3620
E-mail: BlackRockInvestmentTrusts@lansons.com or EdH@lansons.com
29 March 2023
12 Throgmorton Avenue
London EC2N 2DL
END
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