BLACKROCK FRONTIERS INVESTMENT TRUST PLC
BLACKROCK FRONTIERS INVESTMENT TRUST PLC
LEI: 5493003K5E043LHLO706 - Article 5 Transparency Directive, DTR 4.2
Half Yearly Financial Report for the six months ended 31 March 2017
INVESTMENT OBJECTIVE
The Company's investment objective is to achieve long-term capital growth from
investment in companies operating in Frontier Markets or whose stocks are
listed on the Stock Markets of such countries.
PERFORMANCE RECORD
FINANCIAL HIGHLIGHTS
31 March 2017 30 September 2016
US Dollar
Net assets (US$'000) 307,228 276,397
Net asset value per share (cum income) 180.32c 168.19c
Share price1 183.82c 167.58c
-------- --------
Sterling
Net assets (£'000)1 245,684 212,777
Net asset value per share (cum income)1 144.20p 129.48p
Share price 147.00p 129.00p
-------- --------
Premium/(discount) 1.9% (0.4%)
====== ======
Six months ended Year ended Since
31 March 2017 30 September 2016 inception3
Performance - total return basis % % %
US Dollar
Net asset value per share (with income +9.7 +9.3 +43.8
reinvested)
MSCI Frontier Markets Index (NR2) +9.4 +0.9 +15.7
MSCI Emerging Markets Index (NR2) +6.8 +16.8 +0.4
Ordinary share price (with income +12.1 +11.6 +44.4
reinvested)
Sterling
Net asset value per share (with income +14.0 +27.4 +79.0
reinvested)
MSCI Frontier Markets Index (NR2) +13.7 +17.7 +44.3
MSCI Emerging Markets Index (NR2) +11.0 +36.2 +25.2
Ordinary share price (with income +16.5 +30.0 +79.4
reinvested)
1. Based on an exchange rate of US$1.2505 to £1 at 31 March 2017 and US$1.2990
to £1 at 30 September 2016.
2. Net return indices calculate the reinvestment of dividends net of
withholding taxes using the tax rates applicable to non-resident institutional
investors.
3. The Company was incorporated on 15 October 2010 and its shares were admitted
to trading on the London Stock Exchange on 17 December 2010.
CHAIRMAN'S STATEMENT
for the six months to 31 March 2017
Dear Shareholder
I am pleased to present the Company's half-yearly financial report for the six
months to 31 March 2017.
PERIOD HIGHLIGHTS
* Interim dividend of 2.70 cents per share;
* Yield of 3.5% (based on share price at 23 May 2017 and interim dividend for
2017 and final dividend for 2016);
* NAV total return of 9.7% (in US Dollar terms);
* Share price total return of 12.1% (in US Dollar terms); and
* 6,050,000 new Ordinary shares issued at a premium to NAV.
OVERVIEW
I am pleased to report that during the period to 31 March 2017 the Company
returned 9.7%, marginally outperforming its benchmark, the MSCI Frontier
Markets Index, by 0.3%. The Company's share price rose by 12.1%. Over the same
period, the Emerging Markets Index rose by 6.8%. Notwithstanding that the
Company has generated a strong absolute return during the past six months, the
Company's investment objective aims to achieve long-term capital growth and
therefore it is important to consider the Company's performance over the longer
term. Since launch in December 2010, the Company's NAV has increased by 43.8%,
comparing very favourably to the increase in the benchmark index of just 15.7%
(all calculations are in US Dollar terms with income reinvested). For sterling
based investors performance is further enhanced with a sterling equivalent NAV
total return of 79.0% since launch, versus the benchmark return of 44.3%.
Frontier Markets performed strongly during the period, particularly during the
first three months of 2017, predominantly driven by domestic, rather than
global, economic and political forces. The Investment Manager increased
portfolio gearing, through the use of contracts for difference, in anticipation
of the market rally and this, coupled with effective regional allocation and
stock selection, aided overall performance. The ability to increase or reduce
gearing to take advantage of market conditions is a key advantage of the
closed-end investment trust structure and was applied to good effect during the
period.
Argentina and Kazakhstan were the stand out performers by country. Kuwait,
Romania and Vietnam continued to benefit from the implementation of structural
reform, infrastructure investment, improved corporate governance and business
friendly initiatives designed to cultivate economic growth and encourage
foreign investment. The portfolio's underweight exposure to Nigeria also aided
overall performance relative to the benchmark as the fall in the global oil
price and the overvalued local currency continued to negatively impact the oil
export dependent Nigerian economy.
As you will read in the Investment Manager's report which follows, your
investment managers believe that countries such as Vietnam, Kuwait, Egypt and
Kenya present exciting opportunities and have increased portfolio exposure to
them. The portfolio's weighting in Pakistan, Bangladesh and Sri Lanka reduced
somewhat. Further details of the changes to portfolio composition and the
significant components of overall portfolio performance are set out in the
Investment Manager's report which follows.
REVENUE RETURN AND DIVIDENDS
The Company's revenue return per share for the six months ended 31 March 2017
amounted to 2.74 cents (2016: 2.14 cents). Previously, the Company has paid out
approximately a third of its revenues at the interim stage and the balance in
the form of a final dividend. As I mentioned in my statement in the Annual
Report, the Board has decided that, when deemed to be appropriate, the Company
may distribute a greater proportion of its revenue at the interim dividend
stage to better reflect the timing of the underlying income earned by the
Company. The Board is pleased to declare an interim dividend of 2.70 cents per
share (2016: 2.60 cents per share) payable on 30 June 2017 to shareholders on
the Company's register on 9 June 2017. The final dividend of 4.00 cents per
share for the year ended 30 September 2016, declared on 22 November 2016, was
paid to shareholders on 17 February 2017.
SHARE CAPITAL
The Directors recognise the importance to investors of ensuring that the
Company's share price remains as close to its underlying NAV as possible.
Accordingly, the Directors monitor the share price closely and will consider
the issue at a premium or repurchase at a discount of ordinary shares to
balance demand and supply in the market. For the period under review the
Company's ordinary shares have traded at an average premium to NAV of 0.8%, and
were trading at a premium of 2.5% on a cum-income basis at 23 May 2017.
The Directors have the authority to buy back up to 14.99% of the Company's
issued share capital and also to issue up to 10% of the Company's issued share
capital (excluding any shares held in treasury). Both authorities expire at the
conclusion of the 2018 AGM, at which time it is anticipated that renewal
resolutions will be put to shareholders.
In response to sustained demand for its shares during the period, the Company
has issued 6,050,000 new ordinary shares during the period at an average price
of 144.4 pence per share and for a total consideration of £8,739,200. The new
shares were issued at a premium to the prevailing NAV and were therefore
accretive. The Board believes that the issue of new shares by the Company -
where demand cannot be met in the market - helps to regulate the share price
premium/discount to NAV and the resultant economies of scale achieved through
the enlargement of the Company are beneficial to shareholders. Since the period
end and up to the date of this report, the Company has issued a further
4,310,000 new ordinary shares at an average price of 146.2 pence per share and
for a total consideration of £6,300,000. No shares were bought back in the
period under review or up to the date of this report.
OUTLOOK
Frontier Markets remain a dynamic place to invest, with new entrants to the
market offering exciting investment opportunities at attractive valuations.
Your Board is confident that the Company is well positioned to take full
advantage and that your investment managers possess the skills and local market
knowledge required to maximise the rewards of doing so effectively. In
addition, the low correlation of Frontier Markets with Developed Markets can
provide diversification benefits and may offer a degree of insulation from
global volatility. In a world of subdued growth, shifting policies and where
heightened political and macroeconomic uncertainty dominate market sentiment,
the Board believe that the Company's ability to generate strong relative
returns, complemented by a sustainable income stream, is a particularly
attractive proposition for investors with a medium to long-term investment
horizon.
Audley Twiston-Davies
Chairman
25 May 2017
INTERIM MANAGEMENT REPORT AND RESPONSIBILITY STATEMENT
The Chairman's Statement and the Investment Manager's Report give details of
the important events which have occurred during the period and their impact on
the financial statements.
PRINCIPAL RISKS AND UNCERTAINTIES
A detailed explanation of the risks relating to the Company can be divided into
various areas as follows:
* Investment Performance Risk;
* Income/dividend Risk;
* Legal & Regulatory Risk;
* Operational Risk;
* Counterparty Risk;
* Market Risk;
* Political Risk; and
* Financial Risk.
The Board reported on the principal risks and uncertainties faced by the
Company in the Annual Report and Financial Statements for the year ended 30
September 2016. A detailed explanation can be found in the Strategic Report on
pages 16 to 22 and in note 18 on pages 62 to 72 of the Annual Report and
Financial Statements which are available on the website maintained by BlackRock
at www.blackrock.co.uk/brfi.
In the view of the Board, there have not been any material changes to the
fundamental nature of these risks since the previous report and these principal
risks and uncertainties, as summarised, are equally applicable to the remaining
six months of the financial year as they were to the six months under review.
GOING CONCERN
The Directors, having considered the nature and liquidity of the portfolio, the
Company's investment objective and the Company's projected income and
expenditure, are satisfied that the Company has adequate resources to continue
in operational existence for the foreseeable future and is financially sound.
For this reason, they continue to adopt the going concern basis in preparing
the financial statements. The Company has a portfolio of investments which are
considered to be readily realisable and is able to meet all of its liabilities
from its assets and income generated from these assets. Ongoing charges
(excluding any performance fees, interest costs and taxation) were
approximately 1.4% of average net assets for the year ended 30 September 2016.
RELATED PARTY DISCLOSURE AND TRANSACTIONS WITH THE AIFM AND INVESTMENT MANAGER
BlackRock Fund Managers Limited ('BFM') is the Company's AIFM. 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)'). Both BFM and BIM (UK) are regarded as related parties
under the Listing Rules. Details of the management and performance fees payable
are set out in note 5 and note 14 of this report. The related party
transactions with the Directors are set out in note 15.
DIRECTORS' RESPONSIBILITY STATEMENT
The Disclosure and Transparency Rules ('DTR') of the UK Listing Authority
require the Directors to confirm their responsibilities in relation to the
preparation and publication of the Interim Management Report and Financial
Statements.
The Directors confirm to the best of their knowledge that:
* the condensed set of financial statements contained within the half yearly
financial report has been prepared in accordance with the International
Accounting Standard 34 - Interim Financial Reporting; and
* the interim management report, together with the Chairman's Statement and
Investment Manager's Report, includes a fair review of the information
required by 4.2.7R and 4.2.8R of the Financial Conduct Authority ('FCA')
Disclosure and Transparency Rules.
The half yearly financial report has been reviewed by the Company's Auditors.
The half yearly financial report was approved by the Board on 25 May 2017 and
the above responsibility statement was signed on its behalf by the Chairman.
Audley Twiston-Davies
For and on behalf of the Board
25 May 2017
INVESTMENT MANAGER'S REPORT
PORTFOLIO AND MARKET COMMENTARY
In the six months to 31 March 2017, the Company outperformed the benchmark by
0.3% returning 9.7%, compared with the benchmark return of 9.4%. By comparison,
over the same time period the MSCI Emerging Markets Index rose by 6.8%. Since
inception the Company has returned 43.8%, compared with the return of 15.7%
from the benchmark (all calculations are in US Dollar terms with income
reinvested).
Frontier Markets performed well over the period thanks to a great start to
2017, which marked the best start to the calendar year since 2013. The past six
months have once again demonstrated the benefits of investing in such a diverse
and widely spread asset class. In most countries domestic, rather than global,
economic and political developments have driven market returns. The Company was
geared throughout the period with net long exposure increasing to 115.8% at the
end of February 2017, which contributed to performance. Following a period of
robust performance, we have reduced the gearing level of the Company to 108.9%
as at 30 April 2017.
The Kazakh market was the strongest performer during the period, rising by 27%.
The Company benefited from its significant above benchmark exposure, with 8% of
the portfolio invested in this market as at the end of March 2017. Kazmunaigas
was the strongest performing stock, rising by 31% as the company returned to
positive free cash flow generation following a change in economics on domestic
production. The Company also benefited from the holding in Halyk Savings Bank,
which rose by 13% following the announcement that they were considering a
merger with Kazkommertsbank ('KKB') if the government were to recapitalise KKB
in some format.
The Company benefitted from favourable stock selection in Argentina, which
continued to perform strongly over the period, rising by 18%. Recently
published GDP data showed that the Argentine economy grew at 0.5%
quarter-on-quarter in the fourth quarter of 2016, exiting recession. Economists
forecast activity to continue to improve through 2017 and this, together with
global appetite for high carry assets, has led to compression of Argentine
yields in 2017 and driven the equity market to new highs. In particular,
Argentine utility, Pampa Energia (+55%), contributed after announcing increases
in tariffs across almost all their gas and electricity businesses as well as
growth in their Exploration & Production business.
Romania, another market where we have a large overweight position, rallied 9%
over the period. The Romanian economy is the fastest growing economy in
Europe, with GDP up 5.7% year-on-year in Q1 2017, while retail sales grew 8% in
the same period. Our positions there benefitted from the positive
macroeconomic environment.
The underweight to Nigeria continued to benefit the Company on a relative
basis. Although we have a positive view on the long term potential of the
country, the decline in oil prices and the reluctance of monetary authorities
to allow the currency to adjust has placed pressure on the economy. The
country's foreign exchange issues continue to persist and the central bank's
decision not to devalue the Naira any further has resulted in a scarcity of US
Dollars available at the official rate, and the dispersion between the official
and black market exchange rates remains.
The Kuwaiti market had an unusually strong period of performance, rising by
23%. The rally was driven by positive local sentiment around the implementation
of the long-awaited Kuwait National Development Plan and oil price stability.
Whilst we had increased our exposure to Kuwait, our overall underweight to the
country detracted on a relative basis.
A number of individual stocks contributed to overall performance, such as
off-benchmark positioning in Egyptian gold miner, Centamin, which rallied with
the strong gold price and the company reporting better than expected year end
results. Conversely, Eurasian bottler, Coca-Cola Icecek, underperformed as
results disappointed investors, despite improved volume performance from
Pakistan.
Details of the performance of the constituents of the MSCI Frontier Markets
Index are set out in the table below:
FOR THE 6 MONTH PERIOD ENDED 31 MARCH 2017
Country %
Kazakhstan 26.8
Saudi Arabia 24.7
Kuwait 21.9
Argentina 18.3
Pakistan 13.7
Romania 9.1
Bangladesh 8.3
Morocco 6.5
Vietnam -1.3
Nigeria -4.0
Mauritius -4.6
Oman -5.3
Kenya -6.5
Sri Lanka -10.1
All performance figures calcuated on a US dollar basis.
Source: BlackRock
PORTFOLIO ACTIVITY
We have increased our overall Kuwaiti exposure, initiating two new positions in
Burgan Bank and Kipco on the belief that both companies have reached attractive
valuation levels. Furthermore, the acceleration of government led reform
initiatives to increase infrastructure spending and reduce inefficiencies in
the economy make Kuwait a more attractive opportunity than it has been for a
number of years.
In Egypt, we initiated a position in the medical diagnostic services company,
Integrated Diagnostics Holdings, on market weakness following the devaluation
of the Egyptian Pound. The company later reported satisfactory year-end results
despite the macro challenges, highlighting the strength of the company's
business model, overall quality and its ability to maintain pricing power over
the longer term. We believe that the company has the potential to grow
significantly in an under-penetrated space given its notable scale advantages
versus its peers.
We have also slightly reduced our overall exposure to Pakistan. The market has
done well, rising by nearly 100% over the last 5 years and we have taken some
profits in companies where we see limited upside.
OUTLOOK
We retain our preference for Frontier Markets that are experiencing improving
macroeconomic conditions, better political governance, cash flow growth and
cheap valuations. Our preferred countries are Argentina, Kuwait, Romania and
Vietnam and we have recently been increasing our weighting in Egypt. Given the
recent exceptional performance of the Argentine stock market and our belief
that stocks remain under-priced given the encouraging outlook, we expect that
the fund weight in Argentina could increase to circa. 20% if the right
political and economic conditions persist.
We highlight Vietnam as one of the more exciting countries in our universe. The
economy is expanding driven by ongoing Foreign Direct Investment. The
government is also pushing a stock market reform agenda which we expect will
result in companies increasing their free float, lifting foreign ownership
restrictions and the launch of a number of IPOs. With valuations that are some
of the cheapest in Asia, we have identified a number of attractive
opportunities.
Frontier Markets continue to exhibit the characteristics that we believe
represent a compelling opportunity for long-term investors. The combination of
the countries with the fastest growing GDP, the best demographic profiles, the
lowest government debt and a substantial commodity endowment, where it is
possible to invest in companies on some of the lowest valuations in the world,
provides an unrivalled investment opportunity. The low correlation between
Frontier Markets and all developed and emerging markets means that the
inclusion of a Frontier Markets fund within a portfolio can bring significant
diversification benefits.
Sam Vecht and Emily Fletcher
BlackRock Investment Management (UK) Limited
25 May 2017
TEN LARGEST INVESTMENTS1
31 March 2017
MCB Bank (Pakistan, Financials, 4.4% (2016: 4.8%)) is one of the leading
private banks in Pakistan. The Bank has a customer base of approximately 4
million and a nationwide distribution network of over 1,100 branches.
Halyk Savings Bank2 (Kazakhstan, Financials, 3.9% (2016: 3.4%)) is one of
Kazakhstan's leading financial services groups and a leading retail bank with
the largest customer base and distribution network in Kazakhstan. It has the
largest branch network consisting of 544 outlets across the country, 2,034 ATMs
and 11,172 POS terminals.
Pampa Energia (Argentina, Utilities, 3.9% (2016: 2.4%)) is the largest utility
company in Argentina, which through its subsidiaries participates in the
generation, transmission and distribution of electricity. The company also has
significant oil and gas exploration and production assets, some of which were
acquired through the acquisition of Petrobras Argentina.
Mobile Telecommunications (Kuwait, Telecommunication Services, 3.8% (2016:
2.0%)) is a leading mobile and data services operator with a commercial
footprint in eight Middle Eastern and African countries providing a
comprehensive range of mobile voice and data services to over 47 million active
individual and business customers.
Equity Group2 (Kenya, Financials, 3.7% (2016: 2.7%)) is a large East African
financial services company headquartered in Nairobi. The bank differentiates
itself from its peers through its large retail customer base with nearly half
of all bank accounts in Kenya.
Square Pharmaceuticals2 (Bangladesh, Health Care, 3.3% (2016: 3.3%)) is the
largest pharmaceutical company in Bangladesh, with a domestic market share of
16%.
Banco Macro (Argentina, Financials, 3.3% (2016: 4.0%)) is the sixth largest
bank in Argentina with around 6% share of total assets in the banking system.
Around 80% of the bank's branches are located outside of the City of Buenos
Aires and Province of Buenos Aires. Macro is the leading bank in personal
lending with around 14% market share.
S.N.G.N. Romgaz2 (Romania, Energy, 3.1% (2016: 2.9%)) is the largest natural
gas producer in Romania, supplying c. 5.6bcm of gas per year. The company's
main production comes from the Transylvanian basin; the company also engages in
exploration projects in the Black Sea.
MHP (Ukraine, Consumer Staples, 3.1% (2016: 3.1%)) is an agricultural company,
specialising in poultry production. The company is involved across the
production process, from hatching to finished poultry products. MHP also has a
large land bank allowing it to be vertically integrated in feed production.
Maroc Telecom3 (Morocco, Telecommunication Services, 3.0% (2016: 3.0%)) is the
largest telecommunication company in Morocco with 33 million customers and a
network covering 97% of the Moroccan population. The company also has
substantial African operations with a presence in nine other countries.
1. Gross market exposure as a % of net assets. Percentages in brackets
represent the portfolio holding at 30 September 2016.
2. Includes exposure gained via both contracts for difference and equity
holdings.
3. Denotes exposure gained via contract for difference.
COUNTRY AND SECTOR ALLOCATION
31 March 2017
COUNTRY ALLOCATION (%)*
Relative to MSCI Frontier Markets Absolute weights
Index
Kazakhstan 6.4 Argentina 16.2
Ukraine 6.0 Kuwait 10.7
Romania 5.9 Romania 9.6
Bangladesh 5.6 Pakistan 9.2
Vietnam 4.9 Vietnam 8.6
Egypt 4.4 Kazakhstan 8.1
Sri Lanka 4.4 Bangladesh 8.0
Saudi Arabia 3.0 Sri Lanka 6.1
Philippines 2.3 Ukraine 6.0
Argentina 1.8 Kenya 5.7
Colombia 1.7 Egypt 4.4
Eurasia 1.6 Morocco 4.2
Estonia 1.3 Nigeria 3.2
Pakistan 0.6 Saudi Arabia 3.0
Kenya 0.0 Philippines 2.3
Bulgaria -0.1 Estonia 1.9
Serbia -0.2 Colombia 1.7
Lithuania -0.2 Slovenia 1.6
Slovenia -0.7 Eurasia 1.6
Jordan -0.7
Tunisia -0.8
Croatia -1.5
Mauritius -1.8
Bahrain -1.9
Morocco -3.4
Lebanon -3.8
Oman -4.5
Nigeria -8.6
Kuwait -9.6
Source: BlackRock and Datastream.
* Based on portfolio gross market exposure as a % of net assets (excluding the
investment in BlackRock's Institutional
Cash Series plc - US Dollar Liquidity Fund), compared to the MSCI Frontier
Markets Index.
SECTOR ALLOCATION (%)*
Relative to MSCI Frontier Markets Absolute weights
Index
Consumer Staples 9.9 Financial 36.0
Information Technology 5.5 Consumer Staples 17.7
Utilities 5.3 Telecommunication 12.2
Services
Health Care 4.6 Materials 9.3
Materials 2.5 Energy 8.5
Industrials 0.9 Health Care 8.0
Consumer Discretionary 0.3 Utilities 6.6
Energy -1.3 Information Technology 5.9
Telecommunication -1.5 Industrials 4.2
Services
Real Estate -3.3 Real Estate 2.3
Financials -10.8 Consumer Discretionary 1.4
Source: BlackRock and Datastream.
* Based on portfolio gross market exposure as a % of net assets (excluding the
investment in BlackRock's Institutional
Cash Series plc - US Dollar Liquidity Fund), compared to the MSCI Frontier
Markets Index.
INVESTMENTS
as at 31 March 2017
Gross market
Principal Fair value and exposure
country of market exposure1 as a % of
Company operation Sector US$'000 net assets3
Equity portfolio
Pampa Energia Argentina Utilities 11,927 3.9
Banco Macro Argentina Financials 10,192 3.3
Grupo Financiero Galicia Argentina Financials 8,714 2.8
Irsa Inversiones GDR Argentina Real Estate 7,211 2.3
Transportadora De Gas Del Sur Argentina Energy 6,060 2.0
Globant Argentina Information 5,792 1.9
Technology
-------- --------
49,896 16.2
-------- --------
Mobile Telecommunications Kuwait Telecommunication 11,661 3.8
Services
Mezzan Holdings Kuwait Consumer Staples 8,070 2.6
Burgan Bank Kuwait Financials 6,767 2.2
Kuwait Projects Company Kuwait Financials 6,109 2.0
National Gulf Holding Kuwait Consumer 208 0.1
Discretionary
-------- --------
32,815 10.7
-------- --------
S.N.G.N. Romgaz Romania Energy 9,300 3.0
Societatea Energetica Romania Utilities 7,672 2.5
Electrica
Banca Transilvania Romania Financials 5,778 1.9
BRD Groupe Societe Generale Romania Financials 5,669 1.9
-------- --------
28,419 9.3
-------- --------
MCB Bank Pakistan Financials 13,417 4.4
United Bank Pakistan Financials 5,525 1.8
Engro Corporation Pakistan Materials 4,729 1.5
D.G. Khan Cement Pakistan Materials 4,625 1.5
--------- -------
28,296 9.2
-------- --------
Halyk Savings Bank Kazakhstan Financials 11,821 3.8
Kcell Joint Stock Company Kazakhstan Telecommunication 7,721 2.5
Services
KazMunaiGas Exploration Kazakhstan Energy 5,172 1.7
Production
-------- --------
24,714 8.0
-------- --------
MHP Ukraine Consumer Staples 9,558 3.1
Luxoft Ukraine Information 9,048 2.9
Technology
-------- --------
18,606 6.0
-------- --------
Equity Group Kenya Financials 10,924 3.6
Safaricom Kenya Telecommunication 3,872 1.3
Services
East African Breweries Kenya Consumer Staples 2,139 0.7
-------- --------
16,935 5.6
-------- --------
Chevron Lubricants Sri Lanka Materials 4,966 1.6
Melstacorp Sri Lanka Consumer Staples 4,902 1.6
Hatton National Bank Sri Lanka Financials 3,244 1.1
-------- --------
13,112 4.3
-------- --------
Integrated Diagnostics Egypt Health Care 7,458 2.4
Centamin Egypt Materials 4,122 1.3
Cleopatra Hospital Egypt Health Care 1 -
-------- --------
11,581 3.7
-------- --------
Grameenphone Bangladesh Telecommunication 4,912 1.6
Services
Olympic Industries Bangladesh Consumer Staples 3,825 1.2
Square Pharmaceuticals Bangladesh Health Care 2,532 0.8
-------- --------
11,269 3.6
-------- --------
Zenith Bank Nigeria Financials 3,986 1.3
United Bank for Africa Nigeria Financials 3,663 1.3
Guaranty Trust Bank Nigeria Financials 1,867 0.6
-------- --------
9,516 3.2
-------- --------
LT Group Philippines Industrials 7,147 2.3
-------- --------
7,147 2.3
-------- --------
Tallink Estonia Industrials 5,528 1.8
-------- --------
5,528 1.8
-------- --------
Ecopetrol ADR Colombia Energy 5,162 1.7
-------- --------
5,162 1.7
-------- --------
KRKA Slovenia Health Care 4,528 1.5
-------- --------
4,528 1.5
-------- --------
Attijariwafa Bank Morocco Financials 3,504 1.1
-------- --------
3,504 1.1
-------- --------
Equity Investments 271,028 88.2
-------- --------
BlackRock's Institutional Cash 21,370 7.0
Series plc - US Dollar
Liquidity Fund
-------- --------
Total equity investments 292,398 95.2
(including BlackRock's
Institutional Cash
Series plc - US Dollar
Liquidity Fund)
-------- --------
P-Notes
Abdullah Al Othaim Saudi Consumer Staples 5,577 1.8
Arabia
Saudi International Saudi Materials 3,615 1.2
Petrochemical Arabia
-------- --------
Total P-Notes 9,192 3.0
-------- --------
Total investments excluding 301,590 98.2
CFDs
======== ========
Principal Gross market Gross market
country of Fair value1 exposure2 exposure as a % of
Company operation Sector US$'000 US$'000 net assets3
CFD portfolio
Long positions
Masan Vietnam Consumer Staples 6,997 2.3
Petrovietnam Vietnam Materials 6,416 2.1
Fertilizer &
Chemicals
Saigon Securities Vietnam Financials 4,399 1.4
Mobile World Vietnam Consumer 4,041 1.3
Discretionary
FPT Vietnam Information 3,227 1.1
Technology
Quang Ngai Sugar Vietnam Consumer Staples 1,343 0.4
-------- --------
26,423 8.6
-------- --------
Square Bangladesh Health Care 7,666 2.5
Pharmaceuticals
British American Bangladesh Consumer Staples 5,567 1.8
Tobacco
Olympic Industries Bangladesh Consumer Staples 377 0.1
-------- --------
13,610 4.4
-------- --------
Maroc Telecom Morocco Telecommunication 9,146 3.0
Services
Attijariwafa Bank Morocco Financials 409 0.1
-------- --------
9,555 3.1
-------- --------
Hatton National Bank Sri Lanka Financials 3,651 1.2
Melstacorp Sri Lanka Consumer Staples 1,580 0.5
Chevron Lubricants Sri Lanka Materials 205 0.1
-------- --------
5,436 1.8
-------- --------
Coca Cola Icecek Eurasia Consumer Staples 5,032 1.6
-------- --------
5,032 1.6
-------- --------
Cleopatra Hospital Egypt Health Care 2,133 0.7
-------- --------
2,133 0.7
-------- --------
Societatea Energetica Romania Utilities 714 0.2
Electrica
S.N.G.N. Romgaz Romania Energy 284 0.1
-------- --------
998 0.3
-------- --------
Halyk Savings Bank Kazakhstan Financials 432 0.1
-------- --------
432 0.1
-------- --------
Equity Group Kenya Financials 267 0.1
-------- --------
267 0.1
-------- --------
Tallink Estonia Industrials 242 0.1
-------- --------
242 0.1
-------- --------
KRKA Slovenia Health Care 189 0.1
-------- --------
189 0.1
-------- --------
National Gulf Holding Kuwait Consumer 2 -
Discretionary
-------- --------
2 -
-------- --------
D.G. Khan Cement Pakistan Materials - -
-------- --------
- -
-------- --------
Total long CFD 306 64,319 20.9
positions
-------- -------- --------
Equity investments 280,220 280,220 91.2
(excluding
BlackRock's
Institutional Cash
Series plc - US
Dollar
Liquidity Fund) and
P-Notes
-------- -------- --------
BlackRock's 21,370 21,370 7.0
Institutional Cash
Series plc - US
Dollar Liquidity
Fund4 (Liquidity
Fund)
-------- -------- --------
Total Investments 301,896 365,909 119.1
-------- -------- --------
Cash and cash 9,609 (54,404) (17.7)
equivalents4
-------- -------- --------
Net current (4,277) (4,277) (1.4)
liabilities
-------- -------- --------
Net assets 307,228 307,228 100.0
======== ======== ========
1. Fair value is determined as follows:
- Listed and AIM quoted investments are valued at bid prices where
available, otherwise at latest market traded quoted prices.
- The sum of the fair value column for the CFD contracts totalling
US$306,000 represents the fair valuation of all the CFD contracts, which is
determined based on the difference between the purchase price and value of the
underlying shares in the contract (in effect the unrealised gains/losses on the
exposed positions). The cost of purchasing the securities held through long CFD
positions directly in the market would have amounted to US$64,013,000 at the
time of purchase, and subsequent market rises in prices have resulted in
unrealised gains on the CFD contracts of US$306,000, resulting in the value of
the total market exposure to the underlying securities rising to US$64,319,000
as at 31 March 2017.
- P-Notes are valued based on the quoted bid price of the underlying
security to which they relate.
2. Market exposure in the case of equity and P-Note investments is the same as
fair value. In the case of CFDs it is the market value of the underlying shares
to which the portfolio is exposed via the contract.
3. % based on the total market exposure.
4. The gross market exposure column for cash and cash equivalents has been
adjusted to assume the Company purchased direct holdings rather than exposure
being gained through CFDs.
INDEPENDENT REVIEW REPORT
to BlackRock Frontiers Investment Trust plc
INTRODUCTION
We have been engaged by the Company to review the condensed set of financial
statements in the half yearly financial report for the six months ended 31
March 2017 which comprises the Statement of Comprehensive Income, Statement of
Changes in Equity, Statement of Financial Position, Cash Flow Statement,
Reconciliation of Net Profit/(Loss) before Taxation to Net Cash Flow from
Operating Activities and the related notes. We have read the other information
contained in the half yearly financial report and considered whether it
contains any apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
This report is made solely to the Company in accordance with guidance contained
in International Standard on Review Engagements 2410 (UK and Ireland) "Review
of Interim Financial Information Performed by the Independent Auditor of the
Entity" issued by the Auditing Practices Board. To the fullest extent permitted
by law, we do not accept or assume responsibility to anyone other than the
Company, for our work, for this report, or for the conclusions we have formed.
DIRECTORS' RESPONSIBILITIES
The half yearly financial report is the responsibility of, and has been
approved by, the Directors. The Directors are responsible for preparing the
half yearly financial report in accordance with the Disclosure and Transparency
Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the Company are
prepared in accordance with IFRS's as adopted by the European Union. The
condensed set of financial statements included in this half yearly financial
report has been prepared in accordance with International Accounting Standard
34, "Interim Financial Reporting", as adopted by the European Union.
OUR RESPONSIBILITY
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half yearly financial report based on our
review.
SCOPE OF REVIEW
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
CONCLUSION
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half yearly
financial report for the six months ended 31 March 2017 is not prepared, in all
material respects, in accordance with International Accounting Standard 34 as
adopted by the European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
London
25 May 2017
STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 31 March 2017
Revenue US$'000 Capital US$'000 Total US$'000
Six Six Six Six Six Six
months months Year months months Year months months Year
ended 31.03.16 ended ended 31.03.16 ended ended 31.03.16 ended
31.03.17 (Restated)1 30.09.16 31.03.17 (Restated)1 30.09.16 31.03.17 (Restated)1 30.09.16
Notes (unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited)
Income from 4 4,770 3,479 11,041 - - - 4,770 3,479 11,041
investments held
at fair value
through profit
or loss
Net income from 4 1,054 1,197 1,954 - - - 1,054 1,197 1,954
contracts for
difference
Other income 4 5 33 4 - - - 5 33 4
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total revenue 5,829 4,709 12,999 - - - 5,829 4,709 12,999
-------- -------- -------- -------- -------- -------- -------- -------- --------
Profit on - - - 29,412 259 15,625 29,412 259 15,625
investments held
at fair value
through profit
or loss
(Loss)/profit on - - - (212) 240 1,973 (212) 240 1,973
foreign exchange
Net (loss)/ - - - (434) (1,921) 915 (434) (1,921) 915
profit from
contracts for
difference
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total 5,829 4,709 12,999 28,766 (1,422) 18,513 34,595 3,287 31,512
-------- -------- -------- -------- -------- -------- -------- -------- --------
Expenses
Investment 5 (308) (201) (494) (2,244) (1,445) (4,557) (2,552) (1,646) (5,051)
management and
performance fees
Other operating 6 (481) (526) (1,005) (59) (50) (70) (540) (576) (1,075)
expenses
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total operating (789) (727) (1,499) (2,303) (1,495) (4,627) (3,092) (2,222) (6,126)
expenses
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net profit/ 5,040 3,982 11,500 26,463 (2,917) 13,886 31,503 1,065 25,386
(loss) before
finance costs
and taxation
Finance costs 7 - (276) (277) - (1,104) (1,106) - (1,380) (1,383)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net profit/ 5,040 3,706 11,223 26,463 (4,021) 12,780 31,503 (315) 24,003
(loss) on
ordinary
activities
before taxation
Taxation 8 (504) (448) (1,110) (4,316) 111 275 (4,820) (337) (835)
(charge)/credit
-------- -------- -------- -------- -------- -------- -------- -------- --------
Profit/(loss) 4,536 3,258 10,113 22,147 (3,910) 13,055 26,683 (652) 23,168
for the period
-------- -------- -------- -------- -------- -------- -------- -------- --------
Earnings/(loss) 10 2.74 2.14 6.40 13.40 (2.58) 8.26 16.14 (0.44) 14.66
per ordinary
share (cents)
======== ======== ======== ======== ======== ======== ======== ======== ========
1 see note 3.
The total column of this statement represents the Company's Statement of
Comprehensive Income, prepared in accordance with International Financial
Reporting Standards ('IFRS') as adopted by the European Union ('EU'). The
supplementary revenue and capital columns 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 disposed of during the period.
The Company does not have any other comprehensive income. The net profit/(loss)
for the period disclosed above represents the Company's total comprehensive
income/(loss).
STATEMENT OF CHANGES IN EQUITY
for the six months ended 31 March 2017
Called up Share Capital
share premium redemption Special Capital Revenue
capital account reserve reserve reserves reserve Total
Notes US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
For the six months
ended 31 March
2017 (unaudited)
At 30 September 1,643 21,456 5,798 230,794 8,804 7,902 276,397
2016
Total
comprehensive
income:
Net profit for the - - - - 22,147 4,536 26,683
period
Transactions with
owners, recorded
directly to
equity:
Share issues 11 61 10,757 - - - - 10,818
Share issue costs - - - - (54) - (54)
Cash exit tender - - - (43) - - (43)
offer costs
Dividend paid (a) 9 - - - - - (6,573) (6,573)
-------- -------- -------- -------- -------- -------- --------
At 31 March 2017 1,704 32,213 5,798 230,751 30,897 5,865 307,228
-------- -------- -------- -------- -------- -------- --------
For the six months
ended 31 March
2016 (unaudited)
(Restated)
At 30 September 1,506 - 5,798 231,030 (4,251) 8,312 242,395
2015
Total
comprehensive
income:
Net (loss)/profit - - - - (3,910) 3,258 (652)
for the period
Transactions with
owners, recorded
directly to
equity:
Share issues - 12 137 21,456 - - - - 21,593
conversion of C
shares
Cash exit tender - - - (250) - - (250)
offer costs
Dividend paid (b) 9 - - - - - (6,251) (6,251)
-------- -------- -------- -------- -------- -------- --------
At 31 March 2016 1,643 21,456 5,798 230,780 (8,161) 5,319 256,835
-------- -------- -------- -------- -------- -------- --------
For the year ended
30 September 2016
(audited)
At 30 September 1,506 - 5,798 231,030 (4,251) 8,312 242,395
2015
Total
comprehensive
income:
Net profit for the - - - - 13,055 10,113 23,168
year
Transactions with
owners, recorded
directly to
equity:
Share issues - 12 137 21,456 - - - - 21,593
conversion of C
shares
Cash exit tender - - - (236) - - (236)
offer costs
Dividend paid (c) 9 - - - - - (10,523) (10,523)
-------- -------- -------- -------- -------- -------- --------
At 30 September 1,643 21,456 5,798 230,794 8,804 7,902 276,397
2016
-------- -------- -------- -------- -------- -------- --------
(a) Final dividend of 4.00 cents per share for the year ended 30 September
2016, declared on 22 November 2016 and paid on 17 February 2017.
(b) Final dividend of 4.15 cents per share for the year ended 30 September
2015, declared on 17 December 2015 and paid on 19 February 2016.
(c) Final dividend of 4.15 cents per share for the year ended 30 September
2015, declared on 17 December 2015 and paid on 19 February 2016 and interim
dividend paid in respect of the year ended 30 September 2016 of 2.60 cents per
share, declared on 16 May 2016 and paid on 1 July 2016
The transaction costs incurred on the acquisition and disposal of investments
are included within the capital reserves. Purchase and sale costs amounted to
US$262,000 and US$205,000 respectively for the period ended 31 March 2017 (six
months ended 31 March 2016: US$309,000 and US$289,000; year ended 30 September
2016: US$637,000 and US$445,000).
STATEMENT OF FINANCIAL POSITION
as at 31 March 2017
31 March 2016
31 March 2017 (Restated)1 30 September 2016
US$'000 US$'000 US$'000
Notes (unaudited) (unaudited) (audited)
Non current assets
Investments held at fair value 301,590 258,436 267,684
through profit or loss
-------- -------- --------
Current assets
Other receivables 3,617 3,554 5,118
Derivative financial assets held at 1,153 2,505 884
fair value through profit or loss
Cash held on margin deposit with - 1,500 450
brokers
Cash and cash equivalents 10,799 4,362 8,729
-------- -------- --------
15,569 11,921 15,181
Total assets 317,159 270,357 282,865
Current liabilities
Other payables (3,475) (10,962) (5,705)
Collateral held in respect of (1,190) (710) (167)
contracts for difference
Derivative financial liabilities held (847) (1,831) (577)
at fair value through profit or loss
-------- -------- --------
(5,512) (13,503) (6,449)
-------- -------- --------
Net current assets/(liabilities) 10,057 (1,582) 8,732
-------- -------- --------
Total assets less current liabilities 311,647 256,854 276,416
======== ======== ========
Non current liabilities
Non current tax liabilities 8 (1,734) - -
Deferred taxation 8 (2,666) - -
Management shares of £1.00 each (one (19) (19) (19)
quarter paid)
-------- -------- --------
Net assets 307,228 256,835 276,397
======== ======== ========
Equity attributable to equity holders
Called up share capital 11 1,704 1,643 1,643
Share premium account 32,213 21,456 21,456
Capital redemption reserve 5,798 5,798 5,798
Special reserve 230,751 230,780 230,794
Capital reserves 30,897 (8,161) 8,804
Revenue reserve 5,865 5,319 7,902
-------- -------- --------
Total equity 307,228 256,835 276,397
======== ======== ========
Net asset value per ordinary share 10 180.32 156.29 168.19
(US cents)
======== ======== ========
1 see note 3.
CASH FLOW STATEMENT
for the six months ended 31 March 2017
Six months Six months
ended ended Year ended
31 March 2017 31 March 2016 30 September 2016
US$'000 US$'000 US$'000
(unaudited) (unaudited) (audited)
Net cash outflow from operating activities (1,866) (15,225) (8,330)
-------- -------- --------
Financing activities
Interest paid - - (3)
-------- -------- --------
Tender costs paid (43) (250) (236)
-------- -------- --------
Share issue costs paid - (691) (691)
-------- -------- --------
Proceeds from issue of C shares - 20,904 20,904
-------- -------- --------
Net proceeds from issue of ordinary shares 10,764 - -
Dividends paid (6,573) (6,251) (10,523)
-------- -------- --------
Net cash inflow from financing activities 4,148 13,712 9,451
-------- -------- --------
Increase/(decrease) in cash and cash 2,282 (1,513) 1,121
equivalents
Effect of foreign exchange rate changes (212) 240 1,973
-------- -------- --------
Change in cash and cash equivalents 2,070 (1,273) 3,094
Cash and cash equivalents at start of period 8,729 5,635 5,635
-------- -------- --------
Cash and cash equivalents at end of period 10,799 4,362 8,729
-------- -------- --------
Comprised of:
Cash at bank 10,799 4,362 8,729
-------- -------- --------
10,799 4,362 8,729
======== ======== ========
RECONCILIATION OF NET PROFIT/(LOSS) BEFORE TAXATION TO NET CASH FLOW FROM
OPERATING ACTIVITIES
for the six months ended 31 March 2017
Six months Six months
ended ended Year ended
31 March 2017 31 March 2016 30 September 2016
US$'000 US$'000 US$'000
(unaudited) (unaudited) (audited)
Operating activities
Net profit/(loss) before taxation 31,503 (315) 24,003
Add back finance costs - 1,380 1,383
(Profit)/loss on investments and CFDs held at (29,348) 1,420 (17,094)
fair value through profit or loss (including
transaction costs)
Net losses/(profit) on foreign exchange 212 (240) (1,973)
Sale of investments held at fair value through 66,441 70,642 134,040
profit or loss
Purchase of investments held at fair value (92,191) (99,445) (156,952)
through profit or loss
Purchase of Liquidity Fund (18,556) (35,736) (102,881)
Sale of Liquidity Fund 39,812 45,809 113,180
Realised losses on closure of CFD contracts (13,223) (12,262) (19,917)
Realised gains on closure of CFD contracts 13,159 10,889 22,060
Increase in other receivables (1,393) (2,203) (47)
(Decrease)/increase in other payables (1,111) 744 1,653
Decrease in amounts due from brokers 2,894 4,019 300
Net movement in cash held on margin deposit 450 (355) 695
with brokers
(Decrease)/increase in amounts due to brokers (1,118) 315 (5,852)
Collateral returned/(paid) in respect of 1,023 450 (93)
contracts for difference
-------- -------- --------
Taxation paid (420) (337) (835)
-------- -------- --------
Net cash outflow from operating activities (1,866) (15,225) (8,330)
======== ======== ========
NOTES TO THE FINANCIAL STATEMENTS
for the six months ended 31 March 2017
1. Principal activity
The principal activity of the Company is that of an investment trust company
within the meaning of section 1158 of the Corporation Tax Act 2010.
2. Basis of preparation
The half yearly financial statements have been prepared using the same
accounting policies as set out in the Company's Annual Report and Financial
Statements for the year ended 30 September 2016 which were prepared in
accordance with International Financial Reporting Standards ('IFRS') as adopted
by the European Union and applied in accordance with International Accounting
Standard 34, 'Interim Financial Reporting'. Insofar as the Statement of
Recommended Practice ('SORP') for investment trust companies and venture
capital trusts issued by the Association of Investment Companies ('AIC'),
revised in November 2014 is compatible with IFRS, the Financial Statements have
been prepared in accordance with guidance set out in the SORP.
3. Restatement of 2016 interim accounts
C shares were initially treated as equity in the interim financial statements
for the six months ended 31 March 2016. This accounting treatment was amended
in the audited financial statements for the year ended 30 September 2016 to
reflect the C shares as a liability. Comparative numbers for the six months
ended 31 March 2016 have been restated to reflect the change. The restatement
resulted in the issue costs and the return on the C shares being treated as
finance costs in the Company's Statement of Comprehensive Income with the
return on the C shares representing an increase in the liability attributable
to the C shares over and above the net proceeds raised from the issue of C
shares.
The accounting policy adopted for the treatment of C shares is set out in note
2(m) on page 55 of the Annual Report and Financial Statements for the year
ended 30 September 2016.
4. Income
Six months Six months Year
ended ended ended
31 March 2017 31 30 September 2016
US$'000 March 2016 US$'000
(unaudited) US$'000 (audited)
(unaudited)
Investment income:
Overseas listed dividends 4,770 3,479 11,041
-------- -------- --------
Income from contracts for difference 1,054 1,197 1,954
-------- -------- --------
5,824 4,676 12,995
Interest receivable and other income:
Deposit interest 5 33 4
-------- -------- --------
Total income 5,829 4,709 12,999
===== ===== =====
Dividends and interest received during the period amounted to US$5,008,000 and
US$5,000 (six months ended 31 March 2016: US$2,429,000 and US$33,000; year
ended 30 September 2016: US$13,165,000 and US$4,000) respectively.
5. Investment management and performance fees
Six months ended Six months ended Year ended
31 March 2017 31 March 2016 30 September 2016
(unaudited) (unaudited) (audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Investment management 308 1,232 1,540 201 804 1,005 494 1,976 2,470
fee
Performance fee - 1,012 1,012 - 641 641 - 2,581 2,581
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total 308 2,244 2,552 201 1,445 1,646 494 4,557 5,051
-------- -------- -------- -------- -------- -------- -------- -------- --------
An investment management fee equivalent to 1.10% per annum of the Company's
gross assets (defined as the aggregate value of the total assets of the
Company) is payable to the Manager. In addition, the Manager is also entitled
to receive a performance fee at a rate of 10% of any increase in the NAV at the
end of a performance period over and above what would have been achieved had
the cumulative NAV since launch increased in line with the MSCI Frontiers
Markets Index ('the Reference Index'). The performance fee payable in any year
is capped at an amount equal to 2.5% or 1% of the gross assets if there is any
increase or decrease in the NAV per share at the end of the relevant
performance period, respectively. Any capped excess outperformance for a period
may be carried forward to the next two performance periods, subject to the then
applicable annual cap. The performance fee is also subject to a high watermark
such that any performance fee is only payable to the extent that the cumulative
relative outperformance of the NAV is greater than what would have been
achieved had the NAV increased in line with the Reference Index since the last
date in relation to which a performance fee had been paid. The management and
performance fees are payable to BFM.
For the six months ended 31 March 2017, the Company's NAV had outperformed the
MSCI Frontiers Markets Index on a US dollar basis and a performance fee of
US$1,012,000 has been accrued (six months ended 31 March 2016: US$641,000; year
ended 30 September 2016: US$2,581,000).
Under the terms of the C share issue in February 2016, BlackRock had agreed to
waive the management fees payable by the Company up to the value of issue
expenses that exceeded the capped amount of 1.75% of the gross proceeds from
the issue of C shares. As the issue expenses exceeded the capped amount, the
excess issue expenses of US$325,000 have been offset against the investment
management fee payable by the Company during the six months period ended 31
March 2016 and year ended 30 September 2016.
6. Other operating expenses
Six months ended Six months ended Year ended
31 March 2017 31 March 2016 30 September 2016
US$'000 US$'000 US$'000
(unaudited) (unaudited) (audited)
Allocated to revenue:
Custody fee1 187 170 342
Auditor's remuneration1:
- audit services 12 18 41
- other non audit services 7 19 23
Registrar's fee1 12 19 32
Directors' emoluments1 89 84 171
Broker fees1 18 21 40
Depositary fees 16 14 29
Marketing fees1 28 51 58
Other administrative costs 112 130 269
-------- -------- --------
481 526 1,005
-------- -------- --------
Allocated to capital:
Transaction charges 59 50 70
-------- -------- --------
540 576 1,075
-------- -------- --------
1 Custody fees, audit fees, registrar's fees, directors' fees, broker fees and
marketing fees are paid in sterling and therefore subject to exchange rate
fluctuations.
7. Finance costs
Six months ended Six months ended Year ended
31 March 2017 31 March 2016 30 September 2016
(unaudited) (unaudited) (Restated) (audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Interest payable - - - - - - - 1 2 3
bank overdraft
Amortisation of C - - - 138 553 691 138 553 691
share issue costs
Return on C shares - - - 138 551 689 138 551 689
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total - - - 276 1,104 1,380 277 1,106 1,383
===== ===== ===== ===== ==== ==== ==== ==== ====
8. Taxation
Six months ended Six months ended Year ended
31 March 2017 31 March 2016 30 September 2016
(unaudited) (unaudited) (audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Analysis of tax charge
/ (credit) for the
period:
Current tax:
Corporation tax 84 (84) - 111 (111) - 275 (275) -
Overseas tax 420 - 420 337 - 337 835 - 835
Capital gains tax - 1,734 1,734 - - - - - -
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total current tax 504 1,650 2,154 448 (111) 337 1,110 (275) 835
charge
Deferred tax - 2,666 2,666 - - - - - -
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total 504 4,316 4,820 448 (111) 337 1,110 (275) 835
===== ===== ===== ===== ===== ===== ===== ===== =====
During the six months ended 31 March 2017, the Company has accounted for a
provision for capital gains tax potentially payable in Argentina. At 31 March
2017, capital gains tax provided for in the financial statements for the six
months ended 31 March 2017 amounted to US$1,734,000 on realised gains and
US$2,666,000 on unrealised gains from Argentinian securities since 23 September
2013, the date when the Argentine tax reform bill became effective. There is
still uncertainty as to whether the capital gains tax will become payable and
there is currently no established mechanism for paying it. In the event that no
tax becomes payable the provision will be reversed.
9. Dividend
The Board has declared an interim dividend of 2.70 cents per share payable on
30 June 2017 to shareholders on the register at 9 June 2017 (six months ended
31 March 2016, interim dividend of 2.60 cents per share paid on 1 July 2016 to
shareholders on the register at 3 June 2016). This dividend has not been
accrued in the financial statements for the six months ended 31 March 2017, as
under IFRS, interim dividends are not recognised until paid. Dividends are
debited directly to reserves.
10. Earnings and net asset value per ordinary share
Total revenue and capital returns per share are shown below and have been
calculated using the following:
Six months ended Six months ended Year ended
31 March 2017 31 March 2016 30 September 2016
(unaudited) (unaudited) (audited)
Net revenue profit attributable to ordinary 4,536 3,258 10,113
shareholders (US$'000)
Net capital profit/(loss) attributable to 22,147 (3,910) 13,055
ordinary shareholders (US$'000)
-------- -------- --------
Total profit/(loss) attributable to ordinary 26,683 (652) 23,168
shareholders (US$'000)
-------- -------- --------
Total equity attributable to shareholders 307,228 256,835 276,397
(US$'000)
The weighted average number of ordinary shares 165,363,328 151,820,440 158,076,774
in issue during the period on which the return
per ordinary share was calculated was:
-------- -------- --------
The actual number of ordinary shares in issue 170,383,108 164,333,108 164,333,108
at the end of each period on which the net
asset value per ordinary share was calculated
was:
======== ======== ========
Revenue earnings per ordinary share - (US 2.74 2.14 6.40
cents)
======== ======== ========
Capital earnings/(loss) per ordinary share - 13.40 (2.58) 8.26
(US cents)
======== ======== ========
Total earnings/(loss) per ordinary share - (US 16.14 (0.44) 14.66
cents)
======== ======== ========
Net asset value per ordinary share - (US 180.32 156.29 168.19
cents)
======== ======== ========
Share price* (US cents) 183.82 152.72 167.58
Share price (pence) 147.00 106.25 129.00
======== ======== ========
* The Company's share price is quoted in sterling and the above represents the
US dollar equivalent based on exchange rates of 1.2505 at 31 March 2017, 1.4374
at 31 March 2016 and 1.2990 at 30 September 2016.
11. Called up share capital
Number of ordinary Total shares Nominal value
shares in issue in issue US$'000
Allotted, called up and fully paid share
capital comprised:
Ordinary shares of 1 cent each:
At 30 September 2016 164,333,108 164,333,108 1,643
Ordinary shares issued 6,050,000 6,050,000 61
--------------- ---------------- --------
At 31 March 2017 170,383,108 170,383,108 1,704
========== ========= =====
During the period 6,050,000 ordinary shares were issued for a total
consideration of US$10,818,000 before the deduction of issue costs. Since the
period end, a further 4,310,000 ordinary shares were issued for a total
consideration of US$8,036,000 before the deduction of issue costs.
12. C Shares financial liability
At 31 March 2017 At 31 March 2016 At 30 September 2016
US$'000 US$'000 US$'000
(unaudited) (unaudited) (audited)
Proceeds from issue of C shares - 20,213 20,213
Amortisation of C share issue costs - 691 691
Return on C share liability - 689 689
Extinguishment of C share liability upon - (21,593) (21,593)
conversion to ordinary shares
-------- -------- --------
- - -
===== ===== =====
On 29 February 2016 the Company issued 15,000,001 C shares with a nominal value
of 10 cents each. On 15 March 2016 the C shares were converted into ordinary
shares. The conversion ratio, which has been calculated by reference to the net
assets of the Company attributable to the ordinary shares and the net assets of
the Company attributable to the C shares as at the close of business on 7 March
2016 was 0.9141 for every C share held.
The C shares (when in issue) were listed on the London Stock Exchange. After
the conversion of the C shares into ordinary shares, the shares were delisted
on 21 March 2016.
Whilst the C shares were in issue, the results, assets and liabilities
attributable to the C shares were accounted for in a separate pool to the
results, assets and liabilities of the ordinary shares. A share of management
fee and other expenses for the period the C shares had been in issue was
allocated to the C share pool.
The tables below give a summary of the results of the C share pool up to the
date of conversion.
For the period from issue to conversion on 15 March 2016 US$'000
Proceeds from issue of C shares 20,904
C share issue costs (691)
Net revenue income 63
Fair value gains on investments and contracts for difference 626
Finance costs - amortisation of C share issue costs 691
--------
Value of C shares on conversion 21,593
======
13. Valuation of financial instruments
Financial assets and financial liabilities are either carried in the Statement
of Financial Position at their fair value (investments and derivatives) or at
an amount which is a reasonable approximation of fair value (due from brokers,
dividends and interest receivable, due to brokers, accruals, cash at bank and
bank overdrafts). IFRS 13 requires the Company to classify fair value
measurements using a hierarchy that reflects the significance of inputs used in
making the measurements. The valuation techniques used by the Company are
explained in the accounting policies note 2(g) as set out in the Company's
Annual Report and Financial Statements for the year ended 30 September 2016.
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 in an active market for an identical instrument.
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.
Level 2 - Valuation techniques used to price securities based on observable
inputs. Valuation techniques used for non-standard instruments such as options,
currency swaps and other over-the-counter derivatives include the use of
comparable recent arm's length transactions, reference to other instruments
that are substantially the same, discounted cash flow analysis, option pricing
models and other valuation techniques commonly used by market participants
making the maximum use of market inputs.
As at the period end the P-Notes and CFDs are valued using the underlying
equity bid price and the inputs to the valuation were the exchange rates used
to convert the P-Notes and CFD valuation from the relevant local currency to US
Dollars at the accounting period end date.
Level 3 - Valuation techniques using significant unobservable inputs other than
quoted prices within Level 1. This category includes all instruments where the
valuation technique includes inputs not based on observable market data and
unobservable inputs could have a significant impact on the instrument's
valuation. This category includes instruments that are valued based on quoted
prices for similar instruments where significant unobservable adjustments or
assumptions are required to reflect differences between the instruments and
instruments for which there is no active market. The level in the fair value
hierarchy where 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 in its entirety.
For this purpose, the significance of an input is assessed against the fair
value measurement in its entirety. If a fair value measurement uses observable
inputs that require significant adjustment based on unobservable inputs, that
measurement is a Level 3 measurement. Assessing the significance of a
particular input to the fair value measurement in its entirety requires
judgement, considering factors specific to the asset or liability.
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.
There has been no change to the valuation techniques during the period under
review or as at the date of this report.
CFDs and P-Notes have all been classified as Level 2 investments as their
valuation has been based on market observable inputs represented by the market
prices of the underlying quoted securities to which these contracts expose the
Company and relevant foreign currency exchange rates.
The table below sets out fair value measurements using IFRS 13 fair value
hierarchy.
Financial assets/(liabilities)
at fair value through profit or loss Level 1 Level 2 Level 3 Total
at 31 March 2017 (unaudited) US$'000 US$'000 US$'000 US$'000
Assets:
Equity investments 261,304 9,516 208 271,028
P-Notes - 9,192 - 9,192
BlackRock's Institutional Cash Series 21,370 - - 21,370
plc - US Dollar Liquidity Fund
Contracts for difference - long - 64,317 2 64,319
(gross exposure)
-------- -------- -------- --------
282,674 83,025 210 365,909
======== ======== ======== ========
Financial assets/(liabilities)
at fair value through profit or loss Level 1 Level 2 Level 3 Total
at 31 March 2016 (unaudited) US$'000 US$'000 US$'000 US$'000
Assets:
Equity investments 209,101 - - 209,101
P-Notes - 6,484 - 6,484
BlackRock's Institutional Cash Series 42,851 - - 42,851
plc - US Dollar Liquidity Fund
Contracts for difference - long - 61,345 - 61,345
(gross exposure)
Liabilities:
Contracts for difference - short - (3,110) - (3,110)
(gross exposure)
-------- -------- -------- --------
251,952 64,719 - 316,671
======== ======== ======== ========
Financial assets/(liabilities)
at fair value through profit or loss Level 1 Level 2 Level 3 Total
at 30 September 2016 (audited) US$'000 US$'000 US$'000 US$'000
Assets:
Equity investments 215,612 8,792 211 224,615
P-Notes - 444 - 444
BlackRock's Institutional Cash Series 42,625 - - 42,625
plc - US Dollar Liquidity Fund
Contracts for difference - long - 62,359 2 62,361
(gross exposure)
-------- -------- -------- --------
258,237 71,595 213 330,045
======== ======== ======== ========
There were no transfers between levels for financial assets and financial
liabilities during the period recorded at fair value as at 31 March 2017 or 31
March 2016. For the year ended 30 September 2016, transfers of financial assets
from fair value hierarchy Level 1 to Level 2 amounted to US$8,792,000. These
arose primarily in relation to the Nigerian equity securities held in the
investment portfolio where the 3 month non deliverable US$-Nigerian Naira
forward exchange rate was used in place of the spot exchange rates following
the devaluation of the Nigerian Naira. At 31 March 2017, these equity
securities were valued at US$9,516,000. Since the period end and effective from
28 April 2017, the Company has applied the spot exchange rates quoted on the
FMDQ OTC Securities Exchange for valuing the Nigerian Securities following the
introduction of a special window for investors by the Central Bank of Nigeria.
The Company held one Level 3 security throughout the financial period under
review and as at 30 September 2016. No Level 3 securities were held as at 31
March 2016.
31 March 2017 31 March 2016 30 September 2016
(unaudited) (unaudited) (audited)
US$'000 US$'000 US$'000
Level 3 Financial assets at fair value through
profit or loss
Opening fair value 213 - -
Investment acquired - corporate action spin - - 213
off received
Total gains or losses included in gains/ (3) - -
(losses) on investments in the Statement of
Comprehensive Income
-------- -------- --------
Closing balance 210 - 213
======== ======== ========
14. Transactions with the AIFM and investment manager
BlackRock Fund Managers Limited ('BFM') was appointed as the Company's
Alternative Investment Fund Manager ('AIFM') with effect from 2 July 2014. 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)").
The investment management fee due to BFM for the six months ended 31 March 2017
amounted to US$1,540,000 (six months ended 31 March 2016: US$1,005,000; year
ended 30 September 2016: US$2,470,000). In addition a performance fee of
US$1,012,000 (six months ended 31 March 2016: US$641,000; year ended 30
September 2016: US$2,581,000) was accrued for the six months ended 31 March
2017.
At the period end US$1,855,000 was outstanding in respect of the investment
management fee (31 March 2016: US$1,724,000; 30 September 2016: US$1,151,000).
Any final performance fee for the full year to 30 September 2017 will not
crystallise and fall due until the calculation date of 30 September 2017.
In addition to the above services, BlackRock provides the Company with
marketing services. The total fees paid or payable for these services to 31
March 2017 amounted to US$28,000 excluding VAT (six months ended 31 March 2016:
US$51,000; year ended 30 September 2016: US$58,000). Marketing fees of
US$68,000 excluding VAT (31 March 2016: US$90,000; 30 September 2016:
US$40,000) were outstanding at 31 March 2017.
The Company has an investment in BlackRock's Institutional Cash Series plc - US
Dollar Liquidity Fund of US$21,370,000 at 31 March 2017 (31 March 2016:
US$42,851,000; 30 September 2016: US$42,625,000).
15. Related party disclosure
The Board consists of five non-executive Directors, all of whom are considered
to be wholly independent by the Board. None of the Directors has a service
contract with the Company. The Chairman receives an annual fee of £36,000, the
Chairman of the Audit and Management Engagement Committee receives an annual
fee of £30,000 and each other Director receives an annual fee of £26,000.
As at 31 March 2017 an amount of £12,000 (31 March 2016: £11,000; 30 September
2016: £13,000) was outstanding in respect of Directors' fees.
At the period end, the interests of the Directors in the ordinary shares of the
Company were as set out below:
Ordinary
shares
Audley Twiston-Davies 128,935
John Murray 121,967
Nicholas Pitts-Tucker 110,148
Sarmad Zok 38,787
Stephen White 30,000
16. Contingent liabilities
There were no contingent liabilities at 31 March 2017 (31 March 2016 and 30
September 2016: nil).
17. Publication of non statutory accounts
The financial information contained in this half yearly financial report does
not constitute statutory accounts as defined in section 435 of the Companies
Act 2006. The financial information for the six months ended 31 March 2017 has
not been audited.
The information for the year ended 30 September 2016 has been extracted from
the latest published audited financial statements, which have been filed with
the Registrar of Companies. The report of the auditor on those accounts
contained no qualifications or statement under section 498(2) or 498(3) of the
Companies Act 2006.
18. Annual results
The Board expects to announce the annual results for the year ended 30
September 2017 in early December 2017. Copies of the annual results
announcement can be obtained from the Secretary on 020 7743 3000. The Annual
Report and Financial Statements should be available by late December with the
Annual General Meeting being held in February 2018.
FOR FURTHER INFORMATION, PLEASE CONTACT:
Simon White, Managing Director, Investment Trusts, BlackRock Investment
Management (UK) Limited
Tel: 020 7743 5284
Press enquiries:
Lucy Horne, Lansons Communications
Tel: 020 7294 3689
E-mail: lucyh@lansons.com
25 May 2017
12 Throgmorton Avenue
London EC2N 2DL
END
Blackrock Frontiers Inv Tst : Investment Trust Plc - Half-year Report
May 25, 2017 at 08:35 am EDT
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