Crude Oil ( ) Brent Crude ( ) Natural Gas ( ) S&P 500 ( ) PHLX Oil ( )
 December 17, 2015 - 10:50 AM EST
Print Email Article Font Down Font Up
BLACKROCK FRONTIERS INVESTMENT TRUST PLC - Final Results

BlackRock Frontiers Investment Trust plc

PERFORMANCE RECORD

30 September 2015  30 September 2014 
US Dollar
Net assets (US$’000)  242,395   306,132 
Net asset value per share (cum income) 160.93   203.25 
Share price (1) 157.15   211.58 
 --------   -------- 
Sterling
Net assets (£’000) (1)  160,028   188,819 
Net asset value per share (cum income) (1) 106.25   125.36 
Share price 103.75   130.50 
 --------   -------- 
(Discount)/Premium (2.4%) 4.1% 
 =====   ===== 

   

Performance  Year ended 
30 September 2015 
Year ended 
30 September 2014 

Since inception (3) 
US Dollar
Net asset value per share (with income reinvested) -17.9  +21.2  +20.0 
MSCI Frontier Markets Index (NR) (2) -24.2  +30.0  +4.8 
MSCI Emerging Markets Index (NR) (2) -19.3  +4.3  -19.5 
Ordinary share price (with income reinvested) -22.9  +20.1  +15.4 
 --------   --------   -------- 
Sterling
Net asset value per share (with income reinvested) -12.2  +21.1  +23.3 
MSCI Frontier Markets Index (NR) (2) -18.9  +29.9  +7.9 
MSCI Emerging Markets Index (NR) (2) -13.6  +4.2  -17.2 
Ordinary share price (with income reinvested) -17.5  +20.0  +18.4 

1     Based on an exchange rate of $1.5147 to £1 at 30 September 2015 and $1.6213 to £1 at 30 September 2014.
2     Net return indices assume 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

I am pleased to present the Annual Report for the year ended 30 September 2015.

OVERVIEW

In a challenging year for world equity markets, and especially for Frontier and Emerging Markets, the Company’s NAV outperformed the MSCI Frontier Markets Index during the reporting period. As the Company approaches its five year anniversary, the investment team has generated a return of 20%* since the Company’s launch in December 2010 compared to an increase of 4.8%* for the MSCI Frontiers Markets Index and a fall of 19.5%* for the MSCI Emerging Markets Index.

Over the year to 30 September 2015, the Company’s NAV per share fell by 17.9%* and the share price fell by 22.9%*. The MSCI Frontier Markets Index fell by 24.2%* and the MSCI Emerging Markets Index fell by 19.3%*, respectively.

The Company’s outperformance compared to the MSCI Frontiers Market Index can be attributed to the investment team’s ability to navigate a changing economic landscape and the team’s fundamental research process which yielded strong stock selection.

Specifically, returns were helped by the portfolio managers’ decision early in the period to reduce exposure to oil exporting countries, like Nigeria, in favour of countries which would benefit from lower energy costs, including Sri Lanka, Pakistan and Bangladesh. The positioning in Pakistan was particularly timely as the team saw the ongoing turnaround in the macroeconomic environment backed by the government’s desire to privatise businesses. Additionally, we expect Pakistan to come under consideration for Emerging Market status in the coming years.

Frontier Markets continue to exhibit the characteristics we believe represent a compelling opportunity for long-term investors and have shown a strong fundamental research team is able to outperform its benchmark index in both up and down years. The combination of an attractive investment universe, bottom-up and macroeconomic insights and the closed-ended structure provide our investors a unique investment capability in today’s market. These building-blocks of Frontier Market investing have driven both the portfolio returns since inception and the strong relative outperformance over the previous 12 months.

We believe the next five years will prove equally interesting as the last. Countries as diverse as Romania and Pakistan will come under consideration for Emerging Market status in the coming years, while Saudi Arabia’s market reforms may allow for inclusion in global indices for the first time. This should provide ample ground for investment opportunities.

Since the year end and up to 15 December 2015, the Company’s NAV per share has decreased by 1.3% and the share price has fallen by 5.7%.

REVENUE RETURN AND DIVIDENDS

The Company’s revenue return per share for the year amounted to 6.55 cents (2014: 6.59 cents). The Directors are recommending the payment of a final dividend of 4.15 cents per ordinary share (2014: 4.00 cents) in respect of the year ended 30 September 2015. Together with the interim dividend of 2.40 cents per share (2014: 2.25 cents per share), this represents a total of 6.55 cents per share (2014:6.25 cents), an increase of 4.8% over total dividends paid in respect of the year to 30 September 2014. The dividend will be paid on 19 February 2016 to Shareholders on the register of members at close of business on 29 January 2016. The cost of the dividend amounts to US$6,250,797 in aggregate.

PERIODIC OPPORTUNITIES FOR RETURN OF CAPITAL

When the Company was launched in late 2010, the Board made a commitment that before the Company’s fifth AGM and at five yearly intervals thereafter, it would formulate and submit to shareholders proposals to provide shareholders with an opportunity to realise the value of their ordinary shares at the applicable NAV per ordinary share less applicable costs.

Accordingly, it is proposed that all shareholders will be given the opportunity to tender their shares for repurchase by Winterflood (the Company’s broker).

The Board is aware that certain investors may wish to increase their shareholdings in the Company and, to the extent practicable, the Company’s broker may sell tendered shares in the market rather than the Company repurchasing them.

To implement the tender, a separate realisation pool will be set up, the proceeds of which will be paid to tendering shareholders when the assets have been fully realised. The Directors may, at their discretion, elect to transfer only cash and near cash assets to the tender pool (instead of a pro-rata share of the Company’s assets) in order to expedite the tender process where they consider this to be in the best interests of shareholders as a whole.

The tender offer proposals will require the approval of shareholders at a general meeting to be held on 10 February 2016, immediately prior to the Company’s fifth Annual General Meeting (AGM).

Full details of the proposals are set out in the Circular dated 17 December which has been posted to shareholders together with this Annual Report.

If the number of shares tendered is such that the Directors are of the view that the continuance of the Company is not in the best interests of the continuing shareholders, they may withdraw the tender offer, and in such circumstances the Company will put forward further proposals to shareholders.

All Directors hold shares in the Company, and no Director will exercise his or her option to exit for cash.

The Investment Manager believes that there is scope to increase the capacity of its Frontier Markets strategy and in current market conditions the Investment Manager could deploy an additional circa US$100 million in this strategy. As such, should there be limited take-up of the tender offer as well as sufficient demand from investors to be able to utilise this capacity, the Board will explore options available to satisfy such demand. Given the potentially illiquid nature of the Company’s investment opportunities and the time it could take to deploy any proceeds, depending on the level of demand it may be appropriate for the Company to issue C shares to satisfy this demand. The Company is therefore seeking shareholder authority at the AGM to issue up to 65 million C shares at 100 pence per C share, as more fully described in the Directors' Report contained within and Annual Report and Financial Statements. The Board gives no assurance that any C shares will be issued and a prospectus would be required in connection with any issue, but if shareholder approval is granted at the AGM the Company would have the required shareholder authorities to issue C shares without needing to convene a separate general meeting.

CHANGE TO INVESTMENT POLICY

The Company currently invests in companies listed or operating in Frontier Markets (defined as any country which is not in either the MSCI Emerging Markets Index or the MSCI Developed Markets Index). The Board is proposing an amendment to the Company’s current investment objective and policy so as to define Frontier Markets as any country that is not a constituent of the MSCI Emerging Markets Index or the MSCI Developed Markets Index as at 1 December 2015.  In addition to this, it is proposed that up to 20% of the gross value of the portfolio (on an ongoing basis) may be invested in Columbia, Egypt, Peru or The Philippines, which have been identified by the Investment Manager as countries that are members of the MSCI Emerging Markets Index as at 1 December 2015 but which share similar characteristics to those of less developed markets (such as low per capita GDP, high growth potential and less developed capital markets).  The amended investment policy will apply, subject to shareholder approval, with effect from the date of the Company’s AGM on 10 February 2016. Full details of the amended investment objective and policy are set out in the appendix on pages 80 and 81 of the Annual Report and Financial Statements.

The Board believes that the amendment will provide the Investment Manager with additional flexibility to invest whilst remaining consistent with the spirit of the existing mandate. At the same time it will avoid the requirement to sell attractive securities as and when individual countries are moved from the Frontier to Emerging Market indices following a decision by the index compilers. Your Board strongly recommends that shareholders vote in favour of this resolution.

CHANGE OF ARTICLES

Since the Company was launched, the statutory rules governing investment trusts have been amended and, as a result of these changes, there is no longer a requirement for a company’s articles to prohibit the distribution as a dividend of surpluses arising from the realisation of investments. Accordingly, the Board no longer considers it appropriate to have such a prohibition in the articles and will therefore be seeking shareholder approval at the forthcoming Annual General Meeting to remove it. While the Board has no present intention of making use of such powers, it believes it prudent to provide the Company with the necessary flexibility to do so should it prove appropriate in the future.

SHARE CAPITAL

The Directors recognise the importance to investors of ensuring that the Company’s share price is 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 supply and demand in the market. At 30 September 2015, the Company had 150,621,621 shares in issue. There were no share issues or share buybacks in the year.

For the year under review the Company’s ordinary shares have traded at an average discount to NAV of 2.4%, and were trading at a discount of 6.7% on a cum-income basis at 15 December 2015. The Directors have the authority to buy back up to 14.99% of the Company’s issued share capital (excluding any shares held in treasury) and also to issue on a non-pre-emptive basis up to 5% of the Company’s issued share capital. Neither of these authorities has been utilised to date. Both authorities expire on the conclusion of the 2016 AGM, when resolutions will be put to shareholders to renew the buyback authority and to seek authority to issue on a non-pre-emptive basis up to 10% of the Company's share capital.

ANNUAL GENERAL MEETING

The AGM of the Company will be held at BlackRock’s offices at 12 Throgmorton Avenue, London EC2N 2DL on Wednesday 10 February 2016 at 12.05 p.m. (or such later time as the General Meeting to approve the tender proposals closes). Details of the business of the meeting are set out in the Notice of Meeting contained within the Annual Report and Financial Statements, the portfolio manager will be making a presentation to shareholders on the Company’s progress and the outlook for Frontier Markets.

OUTLOOK

Although the last financial year has been more challenging than previous ones, the case for investing in Frontier Markets as part of a diversified portfolio remains a strong one. The investment opportunities which can be accessed through Frontier Markets comprise a broad array of fast growing and often overlooked companies. The underlying economies to which they are exposed in many cases exhibit very little correlation to the world economy overall. Although individually Frontier Markets can exhibit significant political risk, this aspect can be mitigated by acquiring a spread of holdings.

An encouraging aspect of the Company’s development since launch has been the growth in dividends from the underlying holdings, to the extent that the Company now offers an increasingly competitive dividend yield. As investors continue to search for attractive and diversified sources of income we anticipate that demand for the Company’s shares – and its highly distinctive investment strategy – will remain strong. Your Board therefore looks forward to the next chapter in the Company’s life with considerable confidence.

AUDLEY TWISTON-DAVIES
Chairman
17 December 2015

* All calculations on a US dollar basis with net income reinvested.

INVESTMENT MANAGER’S REPORT

PORTFOLIO AND MARKET COMMENTARY

In the 12 months to September 2015, the Company’s NAV per share outperformed the benchmark by 6.3%, returning -17.9% relative to the benchmark’s -24.2%. Since inception the Company’s NAV per share has cumulatively returned +20.0% compared to the MSCI Frontier Market Index’s +4.8%. Over the same period, since December 2010, the MSCI Emerging Markets Index has fallen by 19.5% (all calculations on a US Dollar basis with net income reinvested).

As the Company reaches its five year anniversary, we remain convinced that the features which made for such a compelling investment case at launch in December 2010 still exist today. The virtues of Frontier Markets include access to some of the world’s fastest growing markets, with the opportunity to invest in a range of attractively valued companies. Frontier Markets often have favourable demographic profiles, low levels of debt and untapped natural resources, which can be leveraged to support future economic growth. The low correlation between Frontier Markets and Developed and Emerging Markets means that the inclusion of a Frontier Markets fund within a portfolio can bring significant diversification benefits. Holdings within the Company’s portfolio also generate a relatively high dividend yield.

Over the past five years, we have seen first-hand the rich diversity of Frontier countries in which we sought to uncover new opportunities. We have undertaken investment trips to countries as diverse as Argentina, Bangladesh, Iran, Kyrgyzstan, Myanmar, Nigeria, Saudi Arabia, and Zimbabwe. We believe that it is important to spend time on the ground in order to build a picture of the political, economic and competitive landscape in which a company operates. We are aware that the picture within many Frontier Markets is continuously evolving and so will be returning to many of those countries to continue our due diligence processes.

We believe that the Company’s outperformance, since inception and over the previous 12 months, has been broadly driven by three features. Firstly, active management remains key to generating performance in Frontier Markets. We believe that as the Frontier Market investment universe offers a large and diverse range of investment opportunities, it is essential that managers remain active and construct portfolios that reflect conviction rather than benchmark weights. The portfolio has made use of this flexibility over the period through underweight positions in both Kuwait and Nigeria.

Secondly, the investment process combines insights from bottom-up fundamental analysis with top-down macroeconomic research. Our aim is to generate hard currency returns for our investors, which requires a comprehensive approach to Frontier Market investing. Divergent currency performance over the year highlights this. Specifically, the Pakistani rupee fared reasonably well over the year, depreciating by only 1.7% against the US Dollar. The Kazakh Tenge and Ukrainian Hryvnia on the other hand, depreciated by more than 30% relative to the US Dollar over the same period.

Finally, the closed-end structure of the Company allows us to take a long term view of stocks with high growth potential. These opportunities can often be found in smaller Frontier Markets, which are growing quickly from a low starting point. Subsequently, we have been able to identify attractive stocks in countries such as Bangladesh and Sri Lanka and the closed end structure has enabled the team to build positions which accurately represent the long-term potential of these companies.

These building-blocks of Frontier Market investing have driven both the portfolio returns since inception and the strong outperformance relative to the Company’s benchmark over the previous 12 months.

Given the investment conditions outlined above, it is no surprise that the trend of Frontier Market companies identified as take-over targets continued. In previous years we have seen Japanese insurers, faced with weak growth prospects at home, looking to Vietnam’s underpenetrated insurance markets and growth potential. Emerging Market companies have also joined the party, with Tiger Brands of South Africa entering Nigeria one of the most high profile examples.

The previous 12 months have been no different and the Company has been well-positioned to benefit from these developments. The Company benefitted from its holding in Turkmenistan focussed energy company, Dragon Oil. The company was subject to a takeover bid from its parent company, ENOC, which we believe vindicated the high conviction of the team in a position which we have held for a number of years.

Other holdings which were the subject of bid speculation during the year included Kuwait Foods, the operator of American fast food brands throughout the Middle East and North Africa. More recently, Cable and Wireless Communications, a London listed telecoms company with operations across the Caribbean, has been rumoured to be targeted by US Liberty Global, although no formal offer has yet been launched. Whether or not these deals come to fruition, we believe that the interest displayed in our holdings validates our opinion that these companies had and have significant upside.

2015 was a good year for our holdings in Pakistan which significantly outperformed the benchmark index, which fell by 10%. Domestic power producer, Hub Power, was the top performer, rising by 67% as investors were attracted to their sovereign guaranteed US Dollar return profile in an environment of falling interest rates. Dairy company, Engro Foods, rose by 43% over the year. The company benefited from substantial margin expansion as it took advantage of falling international milk powder prices. Pakistan remains one of the largest country weights in the portfolio as we believe that the ongoing turnaround in the macroeconomic environment, such that Pakistan actually reported a current account surplus in September 2015, will continue to drive stock market performance.

Positions in Bangladesh were also strong over the period. The Company has been well positioned in terms of stock selection with positive contributions coming from stocks in the health care, consumer and telecoms sector. The market has been driven by the easing of political problems and a large current account surplus which is driving liquidity and keeping interest rates stable and low. The standout performer was confectionary producer, Olympic Industries which rose by 63% over the period. The market has recognised the growth potential of the company, which has been driven by an increase in capacity. Olympic Industries sustains a competitive advantage by leveraging its distribution network and the strength of the brand.

Our underweight position in Nigeria also supported relative performance, as the reference index fell by 35% over the year. Despite our long-term structurally positive view of the country, in the near term we are far more cautious. Specifically, oil prices at current levels continue to place pressure on external balances and the fiscal budget. As such we retain our underweight position.

Stock selection was strong in 2015, the most notable example being Belarussian IT outsourcer, EPAM Systems, which we held for the majority of the year. We rotated our exposure into Luxoft in June on the belief that despite the company maintaining revenue growth rates above 25%, the valuation of EPAM was now fully reflecting this growth, selling the stock at a price 66% above where we had bought it. Holdings in Saigon Securities, a brokerage firm in Vietnam also added to returns. The first company in Vietnam to lift Foreign Ownership Restrictions under the new regulations, the stock rallied by nearly 20% from where we initiated the position as investors anticipated an increase in domestic trading volumes.

Positions in Kazakhstan had a negative impact on performance as the fall in oil price significantly impacted government revenues and export earnings forcing the Central bank to devalue the Kazakh Tenge. Halyk Bank has fallen by 45% over the period as expectations of devaluation constrained loan growth and raised concerns of loan quality deterioration. We maintain our position in the stock as we believe that it is reasonably priced at 4.5x price to earnings, 0.8x price to book value and has a very strong balance sheet (with a 19% Capital Adequacy Ratio).

Holdings in Iraqi oil stocks DNO and Genel also negatively impacted performance as they fell by 39% and 69% respectively. Despite very low internal lifting costs, the significant impact on the Kurdistan Regional Government budget from lower oil prices restricted their ability to make payments to the International Oil Companies, putting strain on the company balance sheets.

PORTFOLIO ACTIVITY

Over the 12 months to the end of September 2015, the team made more significant changes to portfolio allocations than in a typical year.

Holding a view that the substantial fall in oil prices that we saw in Q4 2014 required substantial portfolio action, positions in Nigeria were reduced aggressively at the end of 2014 on the back of our view that the fall in oil prices would likely weigh on domestic growth and force the Central Bank to devalue the currency. Additionally, the Company materially reduced exposure to Saudi Arabia which now represents less than 1% of portfolio exposure. We believe that the fall in the oil price has yet to be reflected in the equity market.

The majority of capital was redeployed to Asian markets. We have increased our weighting in Bangladesh, Pakistan and Sri Lanka believing that the macroeconomic trajectory of these countries was improving. More recently, we have increased positions in Argentina reflecting our conviction that the Presidential election brings an opportunity for the new government to shift towards more orthodox economic policy.

OUTLOOK

Over the previous five years, Frontier Markets have continued their gradual evolution. There has been a material change in index constituents following the transition of UAE and Qatar to Emerging Market status. Following this transition, an increasing number of Frontier Markets now believe that they can enact sufficient reforms to achieve Emerging Market status. We expect countries as diverse as Romania and Pakistan to come under consideration for Emerging Market status in the coming years, while Saudi Arabia’s market reforms may allow for inclusion in global indices for the first time.

One of the key features which continues to drive the benefits of diversification is the composition of the investor base. Domestic investors are the driving force in many Frontier Markets. The assets under management of international institutional investors in Frontier Markets account for approximately US$20 billion which is dwarfed by the estimated US$1 trillion in Emerging Markets. As a consequence, Frontier Market performance is driven by domestic issues which vary greatly from country to country. Developments in Brussels, Washington and Tokyo can drive the capital markets of Emerging Markets yet are largely irrelevant to investors in Colombo, Karachi and Lagos. Frontier Markets are not yet fully integrated into the world economic system and local factors tend to be far more significant in these markets than global economic challenges.

Despite these changes, Frontier Markets still 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 to both global and regional investors.

Sam Vecht & Emily Fletcher
BlackRock Investment Management (UK) Limited
17 December 2015

TEN LARGEST INVESTMENTS* AS AT 30 SEPTEMBER 2015

MHP (Ukraine, Consumer Staples, 4.3% (2014: 5.2%)) is a food processor, specialising in poultry exports. From hatching through to finished poultry products, the production process is 100% owned. MHP also owns 11 distribution centres and a refrigerated delivery vehicle fleet which enables the company to distribute products directly to customers.

Kuwait Foods (Americana) (Kuwait, Consumer Discretionary, 4.1% (2014: 5.4%)) operates fast food franchises across North Africa, Central Asia and the Middle East.

Hub Power** (Pakistan, Utilities, 3.3% (2014: 2.5%)). The Hub power station was one of the first Independent Power Producers in Pakistan financed by the private sector.

BRD Groupe Société Générale (Romania, Financials, 3.3% (2014: 3.2%)) is the second largest Romanian Bank, with over 2 million clients and 900 branches.

Square Pharmaceuticals** (Bangladesh, Health Care, 3.3% (2014: 2.9%)) is the largest pharmaceutical company in Bangladesh, with a market share of 16%.

United Bank for Africa (Nigeria, Financials, 3.0% (2014: 1.8%)) is based in Nigeria and is recognised as the country’s third largest bank..  The company has a footprint covering 19 African markets, serving 9 million customers.

Halyk Savings Bank (Kazakhstan, Financials, 2.9% (2014: 4.2%)) is one of Kazakhstan’s leading financial services groups and a leading retail bank with the largest customer base and distribution network in Kazakhstan. Halyk’s branch network consists of 566 outlets across the country, with 1,913 ATMs.

S.N.G.N. Romgaz (Romania, Energy, 2.9% (2014: 2.3%)) is the largest natural gas producer and the main supplier in Romania, privatised in November 2013.

Mobile Telecommunications (Kuwait, Telecommunications 2.9% (2014: 5.1%)) also known as Zain, Mobile Telecommunications has a commercial presence in 8 countries across the Middle East and North Africa with over 44 million subscribers. The company enjoys a 40% market share in its home market, Kuwait.

Telecom Argentina (Argentina, Telecommunications, 2.8% (2014: 1.6%)) is   primarily engaged in the provision of national fixed-line telecommunications services, international long–distance service, data transmission and internet services, as well as mobile telephony.

*     Gross market exposure as a % of net assets. Percentages in brackets represent the portfolio holding at 30 September 2014.
**    Includes exposure gained via both contracts for difference and equity holdings.

PORTFOLIO ANALYSIS

COUNTRY ALLOCATION: ABSOLUTE WEIGHTS (% OF GROSS ASSETS)

Bangladesh 12.6
Pakistan 11.4
Sri Lanka 9.5
Kuwait 9.2
Argentina 8.8
Romania 6.2
Ukraine 6.0
Vietnam 5.7
Nigeria 5.3
Morocco 4.8
Kazakhstan 4.5
Kenya 2.5
Iraq 2.3
Slovenia 2.2
Oman 2.1
Caribbean 1.9
Estonia 1.7
Eurasia 1.4
Tunisia 1.1
Algeria 0.9
Saudi Arabia 0.7
Georgia 0.7
Short Positions -1.0

Source: BlackRock

COUNTRY ALLOCATION RELATIVE TO THE MSCI FRONTIER MARKETS INDEX (%)

Bangladesh 10.0
Sri Lanka 7.6
Ukraine 6.0
Kazakhstan 2.7
Romania 2.6
Pakistan 2.5
Iraq 2.3
Caribbean 1.9
Vietnam 1.8
Eurasia 1.4
Estonia 1.2
Algeria 0.9
Saudi Arabia 0.7
Georgia 0.7
Tunisia 0.4
Slovenia -0.1
Bulgaria -0.1
Lithuania -0.2
Serbia -0.2
Argentina -0.4
Jordan -0.8
Short Positions -1.0
Bahrain -1.2
Mauritius -1.2
Croatia -1.4
Morocco -2.4
Kenya -2.9
Oman -3.5
Lebanon -3.6
Nigeria -10.3
Kuwait -12.9

Source: BlackRock

SECTOR ALLOCATION: ABSOLUTE WEIGHTS (% OF GROSS ASSETS)

Financials 37.2
Consumer Staples 17.4
Telecommunications 13.2
Energy 11.5
Health Care 5.5
Industrials 5.1
Consumer Discretionary 4.8
Utilities 3.3
Materials 1.8
Technology 1.7
Short Positions -1.0

Source: BlackRock

SECTOR ALLOCATION RELATIVE TO THE MSCI FRONTIER MARKETS INDEX (%)

Consumer Staples 8.4
Consumer Discretionary 4.4
Energy 2.4
Health Care 2.4
Utilities 2.1
Industrials 2.0
Technology 1.7
Telecommunications -0.6
Short Positions -1.0
Materials -5.7
Financials -15.6

Source: BlackRock

PERFORMANCE




Company 

Principal 
country of 
operation 



Sector 
Fair value 
and market 
exposure (1) 
US$’000 
Gross market 
exposure 
as a % of 
net assets (3) 
Equity portfolio
Agility  Kuwait  Industrials  5,358  2.2 
Attijariwafa Bank  Morocco  Financials  5,411  2.2 
Banco Macro  Argentina  Financials  6,086  2.5 
Bank of Georgia  Georgia  Financials  1,639  0.7 
BankMuscat  Oman  Financials  5,120  2.1 
BRD Groupe Société Générale  Romania  Financials  7,928  3.3 
Cable & Wireless Caribbean  Telecommunications  4,629  1.9 
Chevron Lubricants  Sri Lanka  Energy  5,972  2.5 
Commercial Bank of Ceylon  Sri Lanka  Financials  1,315  0.5 
Distilleries Co of Sri Lanka  Sri Lanka  Consumer Staples  5,099  2.1 
DNO ASA  Iraq  Energy  5,163  2.1 
Engro Foods  Pakistan  Consumer Staples  3,041  1.3 
Equity Group  Kenya  Financials  2,095  0.9 
Genel Energy  Iraq  Energy  423  0.2 
Global Telecom Algeria  Telecommunications  2,209  0.9 
Grupo Financiero Galicia  Argentina  Financials  5,881  2.4 
Guaranty Trust Bank  Nigeria  Financials  1,498  0.6 
Habib Bank  Pakistan  Financials  6,235  2.6 
Halyk Savings Bank  Kazakhstan  Financials  7,145  2.9 
Hatton National Bank  Sri Lanka  Financials  3,194  1.3 
Hub Power  Pakistan  Utilities  6,354  2.6 
KazMunaiGas Exploration Production  Kazakhstan  Energy  3,892  1.6 
KRKA  Slovenia  Health Care  5,253  2.2 
Kuwait Food (Americana)  Kuwait  Consumer Discretionary  10,152  4.1 
Luxoft  Ukraine  Technology  4,126  1.7 
MCB Bank  Pakistan  Financials  4,143  1.7 
MHP  Ukraine  Consumer Staples  10,690  4.3 
Millat Tractors  Pakistan  Industrials  2,798  1.2 
Mobile Telecommunications  Kuwait  Telecommunications  6,982  2.9 
Olympic Industries  Bangladesh  Consumer Staples  4,260  1.8 
Pampa Energia  Argentina  Financials  2,603  1.1 
S.N.G.N. Romgaz  Romania  Energy  7,123  2.9 
Safaricom  Kenya  Telecommunications  3,793  1.6 
Square Pharmaceuticals  Bangladesh  Health Care  2,131  0.9 
Tallink  Estonia  Industrials  4,040  1.7 
Telecom Argentina  Argentina  Telecommunications  6,765  2.8 
United Bank  Pakistan  Financials  3,041  1.3 
United Bank for Africa  Nigeria  Financials  7,249  3.0 
Zenith Bank  Nigeria  Financials  4,001  1.7 
 --------   -------- 
Equity Investments 184,837  76.3 
 --------   -------- 
BlackRock’s Institutional Cash Fund 52,924  21.8 
 --------   -------- 
Total equity investments (including BlackRock’s Institutional Cash Fund) 237,761  98.1 
 --------   -------- 
P-Notes
Herfy Food Services 08/10/15  Saudi Arabia  Consumer Discretionary  1,685  0.7 
 --------   -------- 
Total P-Notes 1,685  0.7 
 ----------   -------- 
Total investments excluding CFDs 239,446  98.8 
 ======   ===== 

   




Company 

Principal 
country of 
operation 



Sector 

Fair 
value (1) 
US$’000 
Gross 
market 
exposure (2) 
US$’000 
Gross market 
exposure 
as a % of 
net assets (3) 
CFD portfolio
Long positions
British American Tobacco  Bangladesh  Consumer Staples  6,364  2.6 
Coca Cola Icecek Eurasia  Consumer Staples  3,437  1.4 
Commercial Bank of Ceylon  Sri Lanka  Financials  2,175  0.9 
Distilleries Co of Sri Lanka  Sri Lanka  Consumer Staples  1,635  0.7 
Hatton National Bank  Sri Lanka  Financials  3,523  1.5 
Hub Power  Pakistan  Utilities  1,687  0.7 
Maroc Telecom  Morocco  Telecommunication  6,455  2.6 
Masan  Vietnam  Consumer Staples  5,113  2.1 
Mobile World  Vietnam  Telecommunication  1,158  0.5 
Petrovietnam Fertilizers & Chemicals  Vietnam  Materials  4,305  1.8 
Saigon Securities  Vietnam  Financials  3,204  1.3 
Societe Frigorifique et Brasserie de Tunis  Tunisia  Consumer Staples  2,662  1.1 
Square Pharmaceuticals  Bangladesh  Health Care  5,708  2.4 
Titas Gas Transmission & Distribution  Bangladesh  Energy  5,301  2.2 
United Commercial Bank  Bangladesh  Financials  6,761  2.7 
 --------   --------   -------- 
Total long CFD positions 926  59,488  24.5 
 --------   --------   -------- 
Total short CFD positions 55  (2,533) (1.0)
 --------   --------   -------- 
Total CFD portfolio 981  56,955  23.5 
 --------   --------   -------- 
Equity investments (excluding BlackRock’s Institutional Cash Fund) and P-Notes 186,522  186,522  77.0 
 --------   --------   -------- 
BlackRock’s Institutional Cash Fund (4) 52,924  52,924  21.8 
 --------   --------   -------- 
Total Investments 240,427  296,401  122.3 
 --------   --------   -------- 
Cash and cash equivalents (4) 6,520  (49,454) (20.4)
 --------   --------   -------- 
Net current liabilities (4,552) (4,552) (1.9)
 --------   --------   -------- 
Net assets 242,395  242,395  100.0 
 ======   ======   ==== 

1     Fair value is determined as follows:

 –        Listed and AIM quoted investments are valued at bid prices where available, otherwise at published price quotations.

 –        The sum of the fair value column for the CFD contracts totalling US$981,000 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$58,562,000 at the time of purchase, and subsequent market rises in prices have resulted in unrealised gains on the CFD contracts of US$926,000, resulting in the value of the total market exposure to the underlying securities rising to US$59,488,000 as at 30 September 2015. The cost of acquiring the securities to which exposure was gained via the short CFD positions would have been US$2,588,000 at the time of entering into the contract, and subsequent price rises have resulted in unrealised gains on the short CFD positions of US$55,000 and the value of the market exposure of these investments decreasing to US$2,533,000 at 30 September 2015. If the short position had been closed on 30 September 2015 this would have resulted in a gain of US$55,000 for the Company.

 –        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 Fund investments has been adjusted to assume the Company purchased direct holdings rather than exposure being gained through CFDs.

STRATEGIC REPORT

The Directors present the Strategic Report of the Company for the year ended 30 September 2015. As noted in the Chairman’s Statement, a proposal is being put forward at the Company’s AGM to seek approval from shareholders to make an amendment to the investment policy of the Company. The proposed amendment, if approved, shall come into effect from 10 February 2016. The proposed amendment to the Company’s investment policy and consequential amendment to the Company’s investment objective are described in the appendix on pages 80 and 81 of the Annual Report and Financial Statements.

PRINCIPAL ACTIVITY

The Company carries on business as an investment trust and its principal activity is portfolio investment.

INVESTMENT OBJECTIVE

The Company’s investment objective is to achieve long-term capital growth from investment in companies listed or operating in Frontier Markets (defined as any country which is not in either the MSCI Emerging Markets Index or the MSCI Developed Markets Index).

STRATEGY, BUSINESS MODEL AND INVESTMENT POLICY

Strategy

To achieve its objective, the Company invests globally in the securities of companies domiciled or listed in, or exercising the predominant part of their economic activity in, Frontier Markets. Investment may also be made in the securities of companies domiciled or listed in, or exercising the predominant part of their economic activity in, more developed markets but with significant business operations in Frontier Markets. A Frontier Market is defined as a country which, at the time of any relevant investment, is not a constituent of the Emerging Markets Index or the Developed Markets Index.

Business model

The Company’s business model follows that of an externally managed investment trust, therefore the Company does not have any employees and outsources its activities to third party service providers including BlackRock Fund Managers Ltd (BFM) (‘The Manager’) which is the principal service provider.

The management of the investment portfolio and the administration of the Company have been contractually delegated to the Manager. The Manager has delegated certain investment management and other ancillary services to BlackRock Investment Management (UK) Ltd (BIM (UK)) (“the Investment Manager”). The contractual arrangements with, and assessment of the Manager are summarised on pages 25 and 26 of the Annual Report and Financial Statements. The Investment Manager, operating under guidelines determined by the Board, has direct responsibility for the decisions relating to the day-to-day running of the Company and is accountable to the Board for the investment, financial and operating performance of the Company. Other service providers include the Depositary, BNY Mellon Trust & Depositary (UK) Limited, the Administrator, Bank of New York Mellon (International) Limited, and the Registrar, Computershare Investor Services PLC (Computershare). Details of the contractual terms with third party service providers are set out in the Directors’ Report contained within the Annual Report and Financial Statements.

Investment policy

The Company will seek to maximise total return and will invest globally in the securities of companies domiciled or listed in, or exercising the predominant part of their economic activity in, Frontier Markets. Investment may also be made in the securities of companies domiciled or listed in, or exercising the predominant part of their economic activity in, more developed markets with significant business operations in Frontier Markets. The Company will exit any investment relating to a Frontier Market as soon as reasonably practicable following that Frontier Market becoming a constituent of the Emerging Markets Index or the Developed Markets Index.

With effect from 10 February 2016, subject to shareholder approval, the Board proposes to amend the wording of this policy to clarify that investment may be made in the securities of companies domiciled or listed in any Frontier Market country, defined as any country that is not a constituent of the MSCI Emerging Markets Index or the MSCI Developed Markets Index as at 1 December 2015.  In addition to this, it is proposed that up to 20% of the gross value of the portfolio (on an ongoing basis) may be invested in the securities of companies domiciled in Columbia, Egypt, Peru or The Philippines, which have been identified by the Investment Manager as countries that are members of the MSCI Emerging Markets Index as at 1 December 2015 but which share similar characteristics to those of less developed markets (such as low per capita GDP, high growth potential and less developed capital markets).  The amended investment policy will apply, subject to shareholder approval, with effect from the date of the Company’s AGM on 10 February 2016. Full details of the amended investment objective and policy are set out in the appendix on pages 80 and 81 of the Annual Report and Financial Statements.

In order to achieve the Company’s investment objective, the Investment Manager selects stocks by fundamental analysis of countries, sectors and companies, looking for long-term appreciation from mispriced value or growth. The Investment Manager employs both a top-down and bottom-up approach to investing. Risk is spread through investing in a number of holdings and, typically, it is expected that the Company will invest in between 35 to 65 holdings.

Where possible, investment will generally be made directly in the stock markets of Frontier Markets. Where the Investment Manager determines it appropriate, investment may be made in Frontier Markets through collective investment schemes, although such investment is not likely to be substantial. Investment in other closed-ended investment funds admitted to the Official List will not exceed more than 10%, in aggregate, of the value of the Gross Assets (calculated at the time of any relevant investment).

It is intended that the Company will generally be invested in equity investments, however, the Investment Manager may invest in equity related investments such as convertibles or fixed-interest securities where there are perceived advantages in doing so. The Investment Manager may invest in bonds or other fixed-income securities, including high risk debt securities. These securities may be below investment grade.

Due to national and/or international regulation, excessive operational risk, prohibitive costs and/or the time period involved in establishing trading and custody accounts in certain of the Company’s target Frontier Markets, the Company may temporarily, or, on an on-going basis, be unable to invest (whether directly or through nominees) in certain of its target Frontier Markets or, in the opinion of the Company and/or the Investment Manager, it may not be advisable to do so. In such circumstances, the Company intends to gain economic exposure to such target Frontier Markets by investing indirectly through derivatives (including contracts for difference) and/or structured financial instruments, for example P-Notes. Save as provided below, there is no restriction on the Company investing in derivatives and/or structured financial instruments in such circumstances.

If the Company invests in derivatives and/or structured financial instruments for investment purposes (other than to gain access to a target Frontier Market as described above) and/or for efficient portfolio management purposes it shall only hold up to, in aggregate, 20% of its Gross Assets in derivatives and/or structured financial instruments for such purposes. The Company may take both long and short positions. The Company may short up to a limit of 10% of Gross Assets. For shorting purposes the Company may use indices or individual stocks.

The maximum exposure the Company may have to derivatives and/or structured financial instruments for investment purposes (including gaining access to target Frontier Markets) and efficient portfolio management purposes, in aggregate, shall be 100% of the Company’s portfolio. When investing via derivatives and/or structured financial instruments (whether for investment purposes (including gaining access to target Frontier Markets) and/or for efficient portfolio management purposes), the Company will seek to mitigate and/or spread its counterparty risk exposure by collateralisation and/or contracting with a potential range of counterparty banks, as appropriate, each of whom shall, at the time of entering into such derivatives and/or structured financial instruments, have a Standard & Poors credit rating of at least A- long-term senior unsecured. When investing via derivatives and/or structured financial instruments, the Company could have exposure to between 35 to 65 underlying companies.

The Investment Manager will invest directly in securities only in countries where it is satisfied that acceptable custodial and other arrangements are in place to safeguard the Company’s investments.

The Company’s portfolio will frequently be overweight or underweight relative to the Reference Index.

The Company may invest up to 5% of its Gross Assets (at the time of such investment) in unquoted securities. The Company will invest so as not to hold more than 15% of its Gross Assets in any one stock or derivative position at the time of investment (excluding cash management activities).

The Company may use borrowings for settlement of transactions, to facilitate share repurchases (where applicable) and to meet on-going expenses and may be geared through borrowings and/or by entering into derivative transactions that have the effect of gearing the Company’s portfolio to enhance performance. The aggregate of gearing through borrowing and the use of derivatives will not exceed 40% of the Gross Assets. It is anticipated that the aggregate of such gearing will not exceed 20% of the Gross Assets at the time of drawdown of the relevant borrowings or entering into the relevant transaction, as appropriate.

No material change will be made to the investment policy without the approval of Shareholders by ordinary resolution.

A detailed analysis of the Company’s portfolio has been provided within this announcement.

PERFORMANCE

Details of the Company’s performance for the year are given in the Chairman’s Statement. The Investment Manager’s Report includes a review of the main developments during the period, together with information on investment activity within the Company’s portfolio.

RESULTS AND DIVIDENDS

The results for the Company are set out in the Statement of Comprehensive Income. The total loss for the year, after taxation, was US$54,097,000 (2014: profit of US$54,288,000) of which the revenue return amounted to US$9,870,000 (2014: US$9,922,000) and the capital loss amounted to US$63,967,000 (2014: profit of US$44,366,000).

The Directors are recommending the payment of a final dividend of 4.15 cents per ordinary share in respect of the year ended 30 September 2015 (2014: 4.00 cents) as set out in the Chairman’s Statement.

KEY PERFORMANCE INDICATORS

The Directors consider a number of performance measures to assess the Company’s success in achieving its objectives. The key performance indicators (KPIs) used to measure the progress and performance of the Company over time and which are comparable to those reported by other investment trusts are set out below.

Performance measured against the benchmark

At each meeting the Board reviews the performance of the portfolio as well as the net asset value and share price for the Company and compares this to the return of the Company’s benchmark. The Board considers this to be an important key performance indicator and has determined that it should also be used to calculate whether a performance fee is payable to BlackRock.

Share rating

The Directors recognise the importance to investors that the Company’s share price should not trade at a significant discount to NAV. Accordingly, the Directors monitor the share rating closely and will consider share repurchases in the market if the discount widens significantly, or the issue of shares to the market to meet demand to the extent that the Company’s shares are trading at a premium. In addition, in accordance with the Directors’ commitment at launch the Company has formulated and submitted to shareholders proposals to provide shareholders with an opportunity at this, the five year anniversary since launch, to realise the value of their ordinary shares at the applicable NAV per share less costs.

For the year under review the Company’s shares have traded at an average discount to NAV of 2.4%, and were trading at a discount of 6.7% on a cum-income basis at 15 December 2015. The Directors have the authority to buy back up to 14.99% of the Company’s issued share capital (excluding treasury shares). This authority, which has not so far been utilised, expires at the 2016 AGM, when a resolution will be put to shareholders to renew it. The Directors also have the authority to issue up to 5% of the Company’s issued share capital on a non-pre-emptive basis; the Board will put a resolution to shareholders to issue up to 10% of the Company's issued share capital in a non-pre-emptive basis at the next AGM.

Ongoing charges

The ongoing charges reflect those expenses which are likely to recur in the foreseeable future, whether charged to capital or revenue, and which relate to the operation of the investment company as a collective investment fund, excluding the costs of acquisition or disposal of investments, financing charges and gains or losses arising on investments and performance fees. The ongoing charges are based on actual costs incurred in the year as being the best estimate of future costs. The Board reviews the ongoing charges and monitors the expenses incurred by the Company. The table below sets out the key KPIs for the Company.

Year ended 
30 September 
2015 (1) 
Year ended 
30 September 
2015 (1) 
Year ended 
30 September 
2014 (1) 
Year ended 
30 September 
2014 (1) 
£%  US$%  £%  US$% 
Change in Net Asset Value (2) -12.2  -17.9  21.1  21.2 
Change in Share price (3) -17.5  -22.9  20.0  20.1 
Change in Benchmark index (4) -18.9  -24.2  29.9  30.0 
(Discount)/Premium to cum income NAV -2.4  4.1 
Ongoing charges (5) 1.5  1.5 
Ongoing charges plus taxation and performance fees 1.6  1.5 

1     Based on an exchange rate of $1.5147 to £1 at 30 September 2015 and $1.6213 to £1 as at 30 September 2014.
2     Calculated in accordance with AIC guidelines.
3     Calculated on a mid to mid basis.
4     MSCI Frontier Markets Index, (Net Return).
5     Calculated as a percentage of average net assets and using expenses, excluding performance fees, VAT refunded, finance costs and taxation.

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. The Board also reviews the performance of the Company against a peer group of Frontier Markets open and closed-ended funds.

PRINCIPAL RISKS

The key risks faced by the Company are set out below. The Board has in place a robust process to assess and monitor the principal risks of the Company. A core element of this is the Company’s risk register, which identifies the risks facing the Company and assesses the likelihood and potential impact of each risk, and the quality of the controls operating to mitigate the risk. A residual risk rating is then calculated for each risk based on the outcome of this assessment. This approach allows the effect of any mitigating procedures to be reflected in the final assessment.

The register, its method of preparation and the operation of the key controls in BlackRock’s and other third party service providers systems of internal control are reviewed on a regular basis by the Audit & Management Engagement Committee. In order to gain a more comprehensive understanding of BlackRock’s and other third party service providers’ risk management processes and how these apply to the Company’s business, the Audit Committee periodically receives presentations from BlackRock’s Internal Audit and Risk & Quantitative Analysis teams, and reviews SOC 1 reports from the Company’s custodian and administrator.

In relation to the 2014 update to the UK Corporate Governance Code, the Board is comfortable that the procedures that the Company has in place are sufficient to ensure that the necessary monitoring of risks and controls has been carried out throughout 2015.

The current risk register includes 46 risks spread between performance risk, income/dividend risk, regulatory risk, operational risk and market risk, political risk and financial risk. The principal risks and uncertainties faced by the Company in 2015, together with the potential effects, controls and mitigating factors, are set out below.

Performance risk – The Board is responsible for setting the investment policy to fulfil the Company’s objectives and for monitoring the performance of the Company’s Investment Manager and the strategy adopted. An inappropriate policy or strategy may lead to poor performance, dissatisfied shareholders and a widening discount. The Company’s investment policy permits the use of both exchange-traded and over-the-counter derivatives (including contracts for difference). To manage these risks the Board regularly reviews the Company’s investment mandate and long term strategy, and has put in place appropriate limits over levels of gearing and the use of derivatives. Levels of portfolio exposure through derivatives, including the extent to which the portfolio is geared in this manner and the value of any short positions, are reported regularly to the Board and monitored. The Board also 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 these are within set limits. The Investment Manager provides an explanation of significant stock selection decisions, the rationale for the composition of the investment portfolio and movements in the level of gearing. The Board monitors the maintenance of an adequate spread of investments in order to minimise the risks associated with particular countries or factors specific to particular sectors, based on the diversification requirements inherent in the Company’s investment policy.

Income/dividend risk – The amount of dividends and future dividend growth will depend on the Company’s underlying portfolio. Any change in the tax treatment of the dividends or interest received by the Company (including as a result of withholding taxes or exchange controls imposed by jurisdictions in which the Company invests) may reduce the level of dividends received by shareholders. The Board monitors this risk through the receipt of detailed income forecasts and considers the level of income at each meeting.

Regulatory risk – The Company operates as an investment trust in accordance with Chapter 4 of Part 24 of the Corporation Tax Act 2010. As such, the Company is exempt from capital gains tax on the profits realised from the sale of its investments. The Investment Manager monitors investment movements, the level and type of forecast income and expenditure and the amount of proposed dividends, if any, to ensure that the provisions of Chapter 4 of Part 24 of the Corporation Tax Act 2010 are not breached and the results are reported to the Board at each meeting. Following authorisation under the Alternative Investment Fund Managers’ Directive (AIFMD), the Company and its appointed Alternative Investment Fund Manager (AIFM) are subject to the risks that the requirements of this Directive are not correctly complied with. The Board and the AIFM also monitor changes in government policy and legislation which may have an impact on the Company.

Operational risk – In common with most other investment trust companies, the Company has no employees. The Company therefore relies upon the services provided by third parties and is dependent on the control systems of BlackRock, BNY Mellon Trust & Depositary (UK) Limited (the Depositary) and the Bank of New York Mellon (International) Limited (the Administrator), which maintains the Company’s accounting records. The security of the Company’s assets, dealing procedures, accounting records and maintenance of regulatory and legal requirements, depend on the effective operation of these systems. These have been regularly tested and monitored throughout the year which is evidenced through their Service Organisation Control (SOC1) reports to provide assurance regarding the effective operation of internal controls which are reported on by their service auditors and give assurance regarding the effective operation of controls. The Board also considers succession arrangements for key employees of the Manager and the Investment Manager and the business continuity arrangements for the Company’s key service providers.

Market risk – Market risk arises from volatility in the prices of the Company’s investments. It represents the potential loss the Company might suffer through realising investments in the face of negative market movements. The securities markets of Frontier Markets are not as large as the more established securities markets and have substantially less trading volume, which may result in a lack of liquidity and higher price volatility. There are a limited number of attractive investment opportunities in Frontier Markets and this may lead to a delay in investment and may affect the price at which such investments may be made and reduce potential investment returns for the Company. There is also exposure to currency risk due to the location of the operation of the businesses in which the Company may invest. As a consequence of this and other market factors the Company may invest in a concentrated portfolio of shares and this focus may result in higher risk when compared to a portfolio that has spread or diversified investments more broadly.

Corruption also remains a significant issue across Frontier Markets and the effects of corruption could have a material adverse effect on the Company’s performance. Accounting, auditing and financial reporting standards and practices and disclosure requirements applicable to many companies in developing countries are less rigorous than in developed markets. As a result there may be less information available publicly to investors in these securities, and such information as is available is often less reliable.

The Company also gains exposure to Frontier Markets by investing indirectly through Promissory Notes (P-Notes) which presents additional risk to the Company as P-Notes are uncollateralised resulting in the Company being subject to full counterparty risk via the P-Note issuer. P-Notes also present liquidity issues as the Company, being a captive client of a P-Note issuer, may only be able to realise its investment through the P-Note issuer and this may have a negative impact on the liquidity of the P-Notes which does not correlate to the liquidity of the underlying security. The Board considers asset allocation, stock selection and levels of gearing on a regular basis and has set investment restrictions and guidelines which are monitored and reported on by the Investment Manager. The Board monitors the implementation and results of the investment process with the Investment Manager.

Political Risk – Investments in Frontier Markets may include a higher element of risk compared to more developed markets due to greater political instability. Political and diplomatic events in Frontier Markets where the Company invests (for example, governmental instability, corruption, adverse changes in legislation or other diplomatic developments such as the outbreak of war) could substantially and adversely affect the economies of such countries or the value of the Company’s investments in those countries.

The Investment Manager recognises this in applying stringent controls over where investments are made and close monitoring of political risks in reaching this assessment. The Investment Manager’s approach to filtering the investment universe takes account of the political background to regions, and is backed up by rigorous stock specific research and risk analysis, individually and collectively, in constructing the portfolio. The management team has a wide network of business and political contacts which provides economic insights with public and private bodies, and enables the Investment Manager to assess potential investments in an informed and disciplined way, as well as being able to conduct regular monitoring of investments once made. However, given the nature of political risk, all investments will be exposed to a degree of risk and the Investment Manager will ensure that the portfolio remains diversified across countries to mitigate the risk.

Financial risks – The Company’s investment activities expose it to a variety of financial risks which include foreign currency risk and interest rate risk. Further details are disclosed in note 17 to the financial statements, together with a summary of the policies for managing these risks.

VIABILITY STATEMENT

In accordance with provision C.2.2 of the 2014 Code on UK Corporate Governance, 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 conducted this review for the period up to the AGM in 2021 which is the second deadline (following the tender offer in 2016) by which the Board will formulate and submit to shareholders proposals (which may constitute a tender offer and/or other method of distribution) to provide an opportunity to realise the value of their investment in the Company at NAV less applicable costs.

In making this assessment the Board has considered the following factors:

-  The Company’s principal risks as set out above;

-  The ongoing relevance of the Company’s investment objective in the current environment;

-  The level of demand for the Company’s ordinary shares; and

-  The expected outcome of the 2016 tender opportunity.

The Board has also considered a number of financial metrics, including:

-  The level of current and historic ongoing charges incurred by the Company;

-  The premium or discount to NAV;

-  The level of income generated by the Company;

-  Future income forecasts; and

-  The liquidity of the Company’s portfolio.

BlackRock Frontiers Investment Trust plc is an investment company with a relatively liquid portfolio (as at 30 September 2015, 78% of the portfolio was capable of being liquidated in 20-40 days) and largely fixed overheads (excluding performance fees) which comprise a very small percentage of net assets (1.5%). In addition, any performance fees are capped at 1% of NAV in years where the NAV per share has fallen or 2.5% in years where the NAV per share has increased. Therefore the Board has concluded that even in exceptionally stressed operating conditions, the Company would comfortably be able to meet its ongoing operating costs as they fall due.

However, investment companies may face other challenges, such as a significant decrease in size due to substantial share buy-back activity, which may result in the company no longer being of sufficient market capitalisation to represent viable investment propositions or no longer being able to continue in operation. As explained in more detail in the Chairman’s Statement, the Company will offer all shareholders the opportunity to tender their shares for repurchase by Winterflood at the applicable NAV less applicable costs in early 2016, with results of the tender offer elections being available on 10 February 2016. The Board has reviewed the potential impact that these proposals may have on the Company’s viability, and in particular has considered feedback received from the Company’s broker, Winterflood, regarding shareholder demand for the Company’s shares and investor appetite for the Company’s investment strategy. Winterflood remains in regular communication with shareholders and, based on shareholder views at the time of publication of this report, does not expect that demand for the tender offer will be at a level which jeopardises the ongoing viability of the Company. Therefore the Board is confident that, in current market conditions, the tender offer proposals will not have a detrimental impact on the Company’s ongoing viability.

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 the future of the Company is dependent upon the success of the investment strategy. The outlook for the Company is discussed in both the Chairman’s Statement and in the Investment Manager’s Report.

SOCIAL, COMMUNITY AND HUMAN RIGHTS ISSUES

As an investment trust, the Company has no direct social or community responsibilities. However, the Company believes that it is in shareholders’ interests to consider environmental, social and governance factors and human rights issues when selecting and retaining investments. Details of the Company’s policy on socially responsible investment are set out on page 23 of the Annual Report and Financial Statements.

DIRECTORS, GENDER REPRESENTATION AND EMPLOYEES

The Directors of the Company on 30 September 2015, all of whom held office throughout the year, are set out in the Directors’ biographies on page 20 of the Annual Report and Financial Statements. The Board consists of four men and one woman. The Company does not have any employees.

By order of the Board
BlackRock Investment Management (UK) Limited
Company Secretary
17 December 2015

RELATED PARTY TRANSACTIONS
BlackRock Fund Managers Limited (“BFM”) was appointed as the Company’s 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 BIM (UK). Details of the fees payable to BFM are set out in note 4. Transaction and relationship details are set out in the Director’s Report on pages 25 and 26 of the Annual Report and Financial Statements.

The investment management fee for the year was US$2,997,000 (2014: US$3,156,000) as disclosed in note 4 to the Financial Statements. In addition, a performance fee was payable of US$234,000 (2014: US$ nil). At the year end, an amount of US$1,471,000 was outstanding in respect of management fees (2014: US$834,000) and US$234,000 (2014: US$ nil) was outstanding in respect of performance fees.

In addition to the above services, BlackRock provides the Company with marketing services. The total fees paid or payable for these services for the year ended 30 September 2015 amounted to US$73,000 excluding VAT (2014: US$72,000) of which US$145,000 excluding VAT (2014: US$72,000) was outstanding at 30 September 2015.

The Company has an investment in BlackRock’s Institutional Cash Fund of US$52,924,000 (2014: US$69,384,000) at the year end.

The Board consists of five non-executive Directors, of whom four are considered to be independent. Ms Ruddick is not considered to be independent as she also serves as a director of another BlackRock managed investment trust.  None of the Directors has a service contract with the Company. For the year ended 30 September 2015, the Chairman received an annual fee of £34,000, the Chairman of the Audit Committee receives an annual fee of £28,000 and each of the other Directors received an annual fee of £24,000. No changes will be made for the year ending 30 September 2016.

As at 30 September 2015, an amount of £11,000 was payable to Directors in respect of their annual fees (2014: £11,000).

All five members of the Board hold ordinary shares in the Company. Audley Twiston-Davies holds 128,935 ordinary shares, John Murray holds 121,967 ordinary shares, Nick Pitts-Tucker holds 110,148 ordinary shares, Lynn Ruddick holds 47,456 ordinary shares (which includes a related party holding of 9,665 shares held through an ISA by her husband, Mr Dewar) and Sarmad Zok holds 38,787 ordinary shares.

STATEMENT OF DIRECTORS’ RESPONSIBILTIES IN RESEPCT OF THE ANNUAL REPORT AND FINANCIAL STATEMENTS

The Directors are responsible for preparing the Annual Report, the Directors’ Remuneration Report and the financial statements in accordance with applicable United Kingdom law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors are required to prepare the financial statements under IFRS as adopted by the European Union. Under Company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

In preparing these financial statements, the Directors are required to:

  • present fairly the financial position, financial performance and cash flows of the Company;

  • select suitable accounting policies in accordance with IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently;

  • present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

  • make judgements and estimates that are reasonable and prudent;

  • state whether the financial statements have been prepared in accordance with IFRS as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements;

  • provide additional disclosures when compliance with the specific requirements in IFRS as adopted by the European Union is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Company’s financial position and financial performance; and

  • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006.

They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are also responsible for preparing the Strategic Report, the Directors’ Report, the Directors’ Remuneration Report and the Corporate Governance Statement in accordance with the Companies Act 2006 and applicable regulations, including the requirements of the Listing Rules and the Disclosure and Transparency Rules. The Directors have delegated responsibility to the Investment Manager and the AIFM for the maintenance and integrity of the Company’s corporate and financial information included on BlackRock’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the Directors, whose names are listed on page 20 of the Annual Report, confirms to the best of their knowledge that:

  • the financial statements, which have been prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and net return of the Company; and

  • the Annual Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

The 2014 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 & Management Engagement Committee advise on whether it considers that the Annual Report and Financial Statements fulfils these requirements. The process by which the Committee has reached these conclusions is set out in the Audit & Management Engagement Committee’s report on pages 33 to 35 of the Annual Report. As a result, the Board has concluded that the Annual Report for the year ended 30 September 2015, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s performance, business model and strategy.

For and on behalf of the Board
Audley Twiston-Davies
Chairman
17 December 2015

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 SEPTEMBER 2015



Notes 
Revenue 
2015 
US$’000 
Revenue 
2014 
US$’000 
Capital 
2015 
US$’000 
Capital 
2014 
US$’000 
Total 
2015 
US$’000 
Total 
2014 
US$’000 
(Loss)/Profit on investments held at fair value through profit or loss –  –  (53,524) 37,157  (53,524) 37,157 
Profit/(loss) on foreign exchange –  –  272  (199) 272  (199)
Net profit/(loss) from contracts for difference 3,171  2,540  (8,446) 9,732  (5,275) 12,272 
Income from investments held at fair value through profit or loss 9,704  10,112  –  –  9,704  10,112 
Other income 64  –  –  64 
    --------   --------   --------   --------   --------   -------- 
Total revenue 12,876  12,716  (61,698) 46,690  (48,822) 59,406 
    --------   --------   --------   --------   --------   -------- 
Expenses
Investment management and performance fees (598) (633) (2,633) (2,523) (3,231) (3,156)
Other expenses (1,094) (1,019) (49) (202) (1,143) (1,221)
    --------   --------   --------   --------   --------   -------- 
Total operating expenses (1,692) (1,652) (2,682) (2,725) (4,374) (4,377)
    --------   --------   --------   --------   --------   -------- 
Net profit/(loss) on ordinary activities before finance costs and taxation 11,184  11,064  (64,380) 43,965  (53,196) 55,029 
Finance costs (1) –  (6) (1) (7) (1)
    --------   --------   --------   --------   --------   -------- 
Net profit/(loss) on ordinary activities before taxation 11,183  11,064  (64,386) 43,964  (53,203) 55,028 
Taxation (1,313) (1,142)  419  402  (894) (740)
    --------   --------   --------   --------   --------   -------- 
Net profit/(loss) on ordinary activities after taxation 9,870  9,922  (63,967) 44,366  (54,097) 54,288 
    --------   --------   --------   --------   --------   -------- 
Earnings/(losses) per ordinary share (cents) 6.55  6.59  (42.47) 29.45  (35.92) 36.04 
    =====   =====   =====   =====   =====   ===== 

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. 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.

The Company does not have any other recognised gains or losses. The net (loss)/profit for the year disclosed above represents the Company’s total comprehensive (loss)/income.

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 SEPTEMBER 2015




Note 
Called 
up share 
capital 
US$’000 
Share 
premium 
account 
US$’000 
Capital 
redemption 
reserve 
US$’000 

Special 
reserve 
US$’000 

Capital 
reserves 
US$’000 

Revenue 
reserve 
US$’000 


Total 
US$’000 
For the year ended
30 September 2015
At 30 September 2014 1,506  –  5,798  231,030  59,716  8,082  306,132 
Total comprehensive
income:
Net (loss)/profit for the year –  –  –  –  (63,967)  9,870  (54,097)
Dividends paid* –  –  –  –  –  (9,640) (9,640)
    --------   --------   --------   --------   --------   --------   -------- 
At 30 September 2015 1,506  –  5,798  231,030  (4,251) 8,312  242,395 
    --------   --------   --------   --------   --------   --------   -------- 
For the year ended
30 September 2014
At 30 September 2013 1,506   88,326   5,798  142,704  15,350  1,549  255,233 
Total comprehensive
income:
Net profit for the year –  –  –  –  44,366  9,922  54,288 
Cancellation of share
premium
–  (88,326) –   88,326  –  –  – 
Dividends paid** –  –  –  –  –  (3,389) (3,389)
    --------   --------   --------   ----------   --------   --------  ---------- 
At 30 September 2014 1,506  –  5,798  231,030  59,716  8,082  306,132 
    ====   =====   =====   ======   =====   =====   ====== 

*     Final dividend of 4.00 cents per share for the year ended 30 September 2014, declared on 1 December 2014 and paid on 20 February 2015 and interim dividend paid in respect of the year ended 30 September 2015 of 2.40 cents per share, declared on 18 May 2015 and paid on 3 July 2015.

**    Interim dividend paid in respect of the year ended 30 September 2014 of 2.25 cents per share, declared on 20 May 2014 and paid on 4 July 2014.

STATEMENT OF FINANCIAL POSITION AS AT 30 SEPTEMBER 2015



Notes 
30 September 2015 
US$’000 
30 September 
2014 
US$’000 
Non current assets
Investments designated as held at fair value through profit or loss 239,446  292,318 
 --------   -------- 
Current assets
Other receivables 5,371  2,142 
Derivative financial assets held at fair value through profit or loss 1,828  18,493 
Cash held on margin deposit with brokers 1,145  90 
Cash and cash equivalents 5,635  14,770 
 --------   -------- 
13,979  35,495 
 --------   -------- 
Current liabilities
Other payables (9,904) (2,841)
Collateral held in respect of contracts for difference (260) (11,924)
Derivative financial liabilities held at fair value through profit or loss (847) (6,897)
 --------   -------- 
(11,011) (21,662)
 --------   -------- 
Net current assets 2,968  13,833 
 --------   -------- 
Total assets less current liabilities 242,414  306,151 
Non current liability
Management shares of £1.00 each (one quarter paid) (19) (19)
    --------   -------- 
Net assets 242,395  306,132 
    --------   -------- 
Capital and reserves
Called up share capital 1,506  1,506 
Capital redemption reserve 5,798  5,798 
Special reserve 231,030  231,030 
Capital reserves (4,251) 59,716 
Revenue reserve 8,312  8,082 
    --------   -------- 
Total equity 242,395  306,132 
    --------   -------- 
Net asset value per share (US cents) 160.93  203.25 
    ======   ====== 

CASH FLOW STATEMENT FOR THE YEAR ENDED 30 SEPTEMBER 2015

30 September 2015 
US$’000 
30 September 2014 
US$’000 
Operating activities
(Loss)/profit before taxation (53,203) 55,028 
Loss/(profit) on investments and CFDs held at fair value through profit or loss (including transaction costs) 61,368  (47,591)
Net movement on foreign exchange (272) 199 
Sale of investments held at fair value through profit or loss 198,588  264,935 
Purchase of investments held at fair value through profit or loss (199,240) (341,002)
Realised losses on closure of CFD contracts (40,864) (3,571)
Gains on realisation of CFDs 43,635  4,009 
Decrease/(increase) in other receivables 496  (404)
Increase/(decrease) in other payables 416  (1,347)
Increase in amounts due from brokers (3,725) (531)
Net movement in cash held on margin deposit with brokers (1,055) 1,115 
Increase/(decrease) in amounts due to brokers 6,647  (10,866)
Collateral received in respect of contracts for differences (11,664) 9,204 
Taxation paid (894) (740)
 --------   -------- 
Net cash inflow/(outflow) from operating activities before financing activities 233  (71,562)
 --------   -------- 
Financing activities
Equity dividend paid (9,640) (3,389)
 --------   -------- 
Net cash outflow from financing activities (9,640) (3,389)
 --------   -------- 
Decrease in cash and cash equivalents (9,407) (74,951)
Effect of foreign exchange rate changes 272  (199)
 --------   -------- 
Change in cash and cash equivalents (9,135) (75,150)
Cash and cash equivalents at start of year 14,770  89,920 
 --------   -------- 
Cash and cash equivalents at end of year 5,635  14,770 
 --------   -------- 
Comprised of:
Cash and cash equivalents 5,635  14,770 
 --------   -------- 
5,635  14,770 
 =====   ====== 

NOTES TO THE FINANCIAL STATEMENTS

1. Principal activity

The principal activity of the Company is that of an investment trust company within the meaning of section 1158 of the Corporation Tax Act 2010. The Company was incorporated on 15 October 2010, and this is the fifth Annual Report.

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 in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006. All of the Company’s operations are of a continuing nature. The Company’s financial statements are presented in US Dollars, which is the currency of the primary economic environment in which the Company operates.

All values are rounded to the nearest thousand dollars (US$’000) except where otherwise indicated.

Insofar as the Statement of Recommended Practice (SORP) for investment trust companies and venture capital trusts issued by the AIC, revised in January 2009, is compatible with IFRS, the financial statements have been prepared in accordance with the guidance set out in the SORP.

A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 October 2015, and have not been applied in preparing these financial statements (major changes and new standards issued detailed below). None of these are expected to have a significant effect on the measurement of the amounts recognised in the financial statements of the Company.

IFRS 9 Financial Instruments (2014) replaces IAS 39 and deals with a package of improvements including principally a revised model for classification and measurement of financial instruments, a forward looking expected loss impairment model and a revised framework for hedge accounting. In terms of classification and measurement the revised standard is principles based depending on the business model and nature of cash flows. Under this approach instruments are measured at either amortised cost or fair value, though the standard retains the fair value option allowing designation of debt instruments at initial recognition to be measured at fair value.

The standard is effective from 1 January 2018 with earlier application permitted but has not yet been endorsed by the European Commission. The Company does not plan to early adopt this standard.

IFRS 14 Regulatory Deferral Accounts (effective 1 January 2016) allows first time IFRS adopters to continue to account for ‘regulatory deferral account balances’ in accordance with previous GAAP.

As the Company has already adopted IFRS the provisions of this standard are not applicable.

IFRS 15 Revenue from Contracts with Customers (effective 1 January 2018) specifies how and when an entity should recognise revenue and enhances the nature of revenue disclosures.

Given the nature of the Company’s revenue streams from financial instruments the provisions of this standard are not expected to be applicable.

Amendments to IFRS 10, IFRS 12 and IAS 28 ( effective 1 January 2016) are in relation to applying the consolidation exception for investment entities.

The Company does not control any of its investments or have any subsidiaries hence the provisions of this statement are not applicable.

Amendments to IAS 1 (effective 1 January 2016) requires changes to the presentation of financial instruments.

The amendments are not expected to have a significant effect on the measurement of amounts recognised in the financial statements of the Company.

(b) Presentation of the Statement of Comprehensive Income

In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and a capital nature has been presented alongside the Statement of Comprehensive Income. In accordance with the Company’s Articles, and as at the date of publication of this report, net capital returns may not be distributed by way of dividend. The Board is seeking shareholder approval to amend the Company’s Articles to permit the Company to pay out accumulated realised capital profits in the form of dividends at the AGM on 10 February 2016.

(c) Segmental reporting

The Directors are of the opinion that the Company is engaged in a single segment of business being investment business.

(d) Income

Dividends receivable on equity shares are recognised as revenue for the year on an ex-dividend basis. Where no ex-dividend date is available dividends receivable on or before the year end are treated as revenue for the year. Provision is made for any dividends not expected to be received. Special dividends, if any, are treated as a capital or a revenue receipt depending on the facts or circumstances of each particular case. The return on a debt security is recognised on a time apportionment basis so as to reflect the effective yield on the debt security.

Interest income and expenses are 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 column of the Statement of Comprehensive Income, except as follows:

-  expenses which are incidental to the acquisition or sale of an investment are charged to capital. Details of transaction costs on the purchases and sales of
   investments are disclosed within note 10 to the Financial Statements on page 50 of the Annual Report and Financial Statements;

- expenses are treated as capital where a connection with the maintenance or enhancement of the value of the investments can be demonstrated;

- the investment management fees and finance costs of borrowing borne by the Company have been allocated 80% to the capital column and 20% to the revenue
  column of the Statement of Comprehensive Income in line with the Board’s expectations of the long term split of returns, in the form of capital gains and income,
  respectively, from the investment portfolio;

- performance fees are allocated 100% to the capital column of the Statement of Comprehensive Income as fees are generated in connection with enhancing the value
  of the investment portfolio.

(f) Taxation

Deferred taxation is recognised in respect of all temporary differences that have originated but not reversed at the financial reporting date, where transactions or events that result in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the financial reporting date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the temporary differences can be deducted. Deferred tax assets and liabilities are measured at the rates applicable to the legal jurisdictions in which they arise.

(g) Investments held at fair value through profit or loss

The Company’s investments are classified as held at fair value through profit or loss in accordance with IAS 39 – “Financial Instruments: Recognition and Measurement” and are managed and evaluated on a fair value basis in accordance with its investment strategy.

All investments are initially recognised as held at fair value through profit or loss and subsequently at fair value. Purchases of investments are recognised on a trade date basis. The sale of investments are recognised at the trade date of the disposal. Proceeds are measured at fair value, which is regarded as the proceeds of sale less any transaction costs.

The fair value of the financial investments is based on their quoted bid price, or as otherwise stated at the financial reporting date, without deduction for the estimated future selling costs. This policy applies to all current and non current asset investments held by the Company. The fair value of the P-Note is based on the quoted bid price of the underlying equity to which it relates.

Changes in the value of investments held at fair value through profit or loss and gains and losses on disposal are recognised in the Statement of Comprehensive Income as “Gains or losses on investments held at fair value through profit or loss”. Also included within the heading are transaction costs in relation to the purchase or sale of investments.

Fair values for unquoted investments, or investments for which the market is inactive, are established by using various valuation techniques. These may include recent arm’s length market transactions or the current fair value of another instrument which is substantially the same. Where no reliable fair value can be estimated for such instruments, they are carried at cost subject to any provision for impairment. The Company held no unquoted investments at 30 September 2015.

(h) Derivatives

Derivatives are held at fair value based on the bid prices of the underlying securities in respect of long positions, and the offer prices of the underlying securities in respect of short positions, which the Company is exposed, through the use of contracts for difference (“CFD”). Gains and losses on derivative transactions are recognised in the Statement of Comprehensive Income. They are recognised as capital and are shown in the capital column of the Statement of Comprehensive Income if they are of a capital nature and are recognised as revenue and shown in the revenue column of the Statement of Comprehensive Income if they are of a revenue nature. To the extent that any gains or losses are of a mixed revenue and capital nature, they are apportioned between revenue and capital accordingly.

(i) Other receivables and other payables

Other receivables and other payables do not carry any interest and are short term in nature and are accordingly stated at their nominal value.

(j) Dividends payable

Under IFRS interim dividends are recognised when paid to shareholders. Final dividends, if any, are only recognised after they have been approved by shareholders.

(k) Foreign currency translation

Transactions involving foreign currencies are converted at the rate ruling at the date of the transaction.

Foreign currency monetary assets and liabilities are translated into US dollars at the rate ruling on the financial reporting date. Foreign exchange differences arising on translation are recognised in the Statement of Comprehensive Income as a revenue or capital item depending on the income or expense to which they relate.

(l) Cash and cash equivalents

Cash comprises cash in hand and on demand deposits. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value.

In the Cash Flow Statement within the Annual Report and Financial Statements for the year ended 30 September 2015, cash held on margin deposit with brokers and collateral received in respect of contracts for difference is shown as a receivable from and payable to the broker and does not form part of cash and cash equivalents in the Cash Flow Statement. The comparative numbers in the Cash Flow Statement have been updated to reclassify these amounts from cash and cash equivalents to receivables and payables.

(m) Bank borrowings

Bank overdrafts are recorded as the proceeds are received. Finance charges are accounted for on an accruals basis in the Statement of Comprehensive Income using the effective interest rate method and are added to the carrying amount of the instruments to the extent that they are not settled in the year in which they arise.

3. INCOME

2015 
US$’000 
2014 
US$’000 
Investment Income:
UK listed dividends  207  314 
Overseas listed dividends  9,495  9,796 
Fixed interest income  2 
 --------   -------- 
 9,704  10,112 
Income from contracts for difference  3,171  2,540 
 --------   -------- 
 12,875  12,652 
Interest receivable and other income:
Deposit interest  1  64 
 --------   -------- 
Total income  12,876  12,716 
 =====   ===== 

4. INVESTMENT MANAGEMENT AND PERFORMANCE FEES

Revenue 
US$’000
2015 
Capital 
US$’000
2015 
Total 
US$’000
2015 
Revenue 
US$’000
2014 
Capital 
US$’000
2014 
Total 
US$’000
2014 
Investment management fee 598   2,399   2,997  633  2,523  3,156 
Performance fee –   234   234  –  –  – 
 -------   --------   --------   --------   --------   -------- 
Total 598   2,633   3,231  633  2,523  3,156 
 ====   =====   =====   =====   =====   ===== 

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 Investment Manager. In addition, the Investment 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 Frontier 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 year to 30 September 2015, the Company’s NAV had outperformed the Reference Index by 6.5% (2014: not outperformed) on a US dollar basis and a performance fee of US$234,000 (2014: nil) has been accrued at 30 September 2015.

5. OPERATING EXPENSES

2015 
US$’000 
2014 
US$’000 
Custody fee 336  359 
Auditors’ remuneration:
– audit services 39  46 
– other non-audit services (1) 10  10 
Depositary fee 31 
Directors’ emoluments 191  215 
Marketing fees 73  72 
Registrar’s fee 25  25 
Other administration costs 389  283 
 --------   -------- 
 1,094   1,019 
 =====   ===== 

1     Fees for non-audit services of US$10,100 (2014: US$9,700) relate to the review of the interim financial statements.

The Company’s ongoing charges, calculated as a percentage of average net assets and using expenses, excluding performance fees and interest costs were 1.5% (2014: 1.5%). Inclusive of performance fees the ongoing charges for 2015 were 1.6% (2014: 1.5%).

For the year ended 30 September 2015, expenses of US$49,000 (2014: US$202,000) were charged to the capital column of the Statement of Comprehensive Income, these relate to transaction costs. No fees were payable in 2015 or 2014 in relation to investing in new markets.

6. DIVIDENDS

Dividends paid on equity shares 
Record date 

Payment date 
2015 
US$’000 
2014 
US$’000 
2014 final of 4.00 cents per ordinary share 30 January 15  20 February 15   6,025  – 
2015 interim of 2.40 cents per ordinary share 5 June 15  3 July 15   3,615  3,389 
--------- ----------
9,640 3,389
-------- =====

The Directors have proposed a final dividend of 4.15 cents per share (2014: 4.00 cents). The dividend will be paid on 19 February 2016, subject to shareholder approval on 10 February 2016, to shareholders on the Company’s register on 29 January 2016. Under IFRS the proposed final dividend has not been recognised as a liability in the financial statements as final dividends are only recognised in the financial statements when they have been approved by shareholders, and special and interim dividends are not recognised until they are paid. They are also debited directly to revenue reserves.

The total dividends payable in respect of the period ended 30 September 2015 which form the basis of section 1158 of the Corporation Tax Act 2010 and section 833 of the Companies Act 2006, and the amounts proposed, meet the relevant requirements as set out in this legislation.

Dividends paid or proposed on equity shares:  2015 
US$’000 
2014 
US$’000 
Interim dividend of 2.40 cents per ordinary share (2014: 2.25 cents) 3,615  3,389 
Final proposed dividend of 4.15 cents per ordinary share (2014: 4.00 cents)* 6,251   6,025 
 --------   -------- 
9,866   9,414 
 ======   ===== 

*     Based on 150,621,621 ordinary shares in issue on 17 December 2015.

7. EARNINGS AND NET ASSET VALUE PER ORDINARY SHARE

2015  2014 
Net revenue profit attributable to ordinary shareholders (US$’000) 9,870  9,922 
Net capital (loss)/profit attributable to ordinary shareholders (US$’000) (63,967) 44,366 
 --------   -------- 
Total (loss)/profit attributable to ordinary shareholders (US$’000) (54,097) 54,288 
 --------   -------- 
Total equity attributable to shareholders (US$’000) 242,395  306,132 
 --------   -------- 
The weighted average number of ordinary shares in issue during the year, on which the earnings per ordinary share was calculated, was: 150,621,621  150,621,621 
 -----------------   ----------------- 
The actual number of ordinary shares in issue at the end of the year, on which the net asset value per ordinary share was calculated, was: 150,621,621  150,621,621 
 -----------------   ----------------- 
Revenue earnings per share – (US cents) 6.55  6.59 
Capital (losses)/earnings per share – (US cents) (42.47) 29.45 
 --------   -------- 
Total (losses)/earnings per share – (US cents) (35.92) 36.04 
 --------   -------- 
Net asset value per share – (US cents) 160.93  203.25 
 --------   -------- 
Share price* – (US cents)  157.15  211.58 
 --------   -------- 
Net asset value per share – (pence) 106.25  125.36 
 --------   -------- 
Share price (pence) 103.75  130.50 
 =====   ===== 

*  The Company’s share price is quoted in sterling and the above represents the US dollar equivalent.

8. CALLED UP SHARE CAPITAL

Number of 
ordinary 
shares in 
issue 

Nominal 
value 
US$’000 
Allotted, called up and fully paid share capital comprised:
Ordinary shares of 1 cent each
At 30 September 2014 150,621,621  1,506 
 -----------------   -------- 
At 30 September 2015 150,621,621  1,506 
 ==========   ===== 

The Company also has in issue 50,000 management shares which carry the right to a fixed cumulative preferred dividend. Additional information is given in note 14 of the Annual Report and Financial Statements.

9. RESERVES



Capital 
redemption 
reserve 
US$’000 



Special 
reserve 
US$’000 

Capital 
reserve 
arising on 
investments sold 
US$’000 
Capital 
reserve 
arising on 
revaluation of 
investments 
US$’000 



Revenue 
reserve 
US$’000 
At 30 September 2014  5,798   231,030   38,731   20,985   8,082 
Movement during the year:
Total Comprehensive Income:
Loss on realisation of investments –  –  (9,136) –  – 
Changes in investment holding gains –  –  –  (44,388) – 
Gains on foreign currency transactions –  –  242   30 
Gains/(losses) on contracts for differences –  –  2,169  (10,615) – 
Finance costs, capital expenses, investment management and
performance fee charged to capital after taxation
–  –  (2,269) –  – 
Revenue return for the year –  –  –  –   9,870 
Dividends paid –  –  –  –  (9,640)
 --------   --------   --------   --------   -------- 
At 30 September 2015  5,798   231,030   29,737  (33,988)  8,312 
 =====   =======   ======   ======   ===== 

10. CONTINGENT LIABILITIES

There were no contingent liabilities at 30 September 2015 (2014: nil).

11. 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 2015 Annual Report and Financial Statements will be filed with the Registrar of Companies shortly.

The report of the Auditor for the year ended 30 September 2015 contains no qualification or statement under section 498(2) or (3) of the Companies Act 2006.

The comparative figures are extracts from the audited financial statements of BlackRock Frontiers Investment Trust plc for the year ended 30 September 2014, which have been filed with the Registrar of Companies.  The report of the auditor on those financial statements contained no qualification or statement under section 498 of the Companies Act.

This announcement was approved by the Board of Directors on 17 December 2015.

12. ANNUAL REPORT

Copies of the annual report will be sent to members shortly and will be available from the registered office, c/o The Company Secretary, BlackRock Frontiers Investment Trust plc, 12 Throgmorton Avenue, London EC2N 2DL. 

13. ANNUAL GENERAL MEETING

The Annual General Meeting of the Company will be held at 12 Throgmorton Avenue, London EC2N 2DL on Wednesday, 10 February 2016 at 12.05pm (or such later time as the General Meeting to approve the tender proposals closes).

ENDS

The Annual Report will also be available on the BlackRock website at blackrock.co.uk/brfi.  Neither the contents of the Manager’s website nor the contents of any website accessible from hyperlinks on the Manager’s website (or any other website) is incorporated into, or forms part of, this announcement.

FOR FURTHER INFORMATION, PLEASE CONTACT:

Simon White, Managing Director, Investment Companies, BlackRock Investment Management (UK) Limited
Tel: 020 7743 5284

Henrietta Guthrie, Lansons Communications
Tel: 020 7294 3612

17 December 2015

12 Throgmorton Avenue
London EC2N 2DL


Source: PR Newswire (December 17, 2015 - 10:50 AM EST)

News by QuoteMedia
www.quotemedia.com