Company Announcements

BlackRock Latin American Investment Trust Plc - Half-year Report

BlackRock Latin American Investment Trust plc

(Legal Entity Identifier: UK9OG5Q0CYUDFGRX4151)

Information disclosed in accordance with Article 5 Transparency Directive and DTR 4.2

Half Yearly Financial Results Announcement for Period Ended 30 June 2020

PERFORMANCE RECORD


                                                As at            As at
                                          30 June 2020 31 December 2019 Change

                                           (unaudited)        (audited)      %

Net assets (US$’000)1                          175,087          287,444  -39.1

Net asset value per ordinary share (US$        445.97c          732.15c  -39.1
cents)

– with dividends reinvested2                                             -37.6

Ordinary share price (mid-market) (US$         418.87c          643.17c  -34.9
cents)3

– with dividends reinvested2                                             -33.1

Ordinary share price (mid-market) (pence)      339.00p          485.50p  -30.2

– with dividends reinvested2                                             -28.3

Discount2                                         6.1%            12.2%    n/a

MSCI EM Latin America Index (Net return)4       361.53           558.16  -35.2



   


                                              For the six  For the six
                                              months ended months ended
                                                                        Change
                                              30 June 2020 30 June 2019
                                                                             %
                                               (unaudited)  (unaudited)

Revenue

Net profit after taxation (US$’000)                  1,119        3,111  -64.0

Revenue profit per ordinary share (US$ cents)         2.85         7.92  -64.0

Dividends per ordinary share (US$ cents)

Quarter to 31 March                                   4.59         8.56  -46.4

Quarter to 30 June                                    5.57         9.15  -39.1



Source: BlackRock.

1     The change in net assets reflects the market movements during the period and dividends paid.
2     Alternative Performance Measures, see Glossary contained within the Half Yearly Financial Report.
3     Based on an exchange rate of $1.2356 to £1 at 30 June 2020 and $1.3248 to £1 at 31 December 2019.
4     The Company’s performance benchmark (the MSCI EM Latin America Index) may be calculated on either a Gross or a Net return basis. Net return (NR) indices calculate the reinvestment of dividends net of withholding taxes using the tax rates applicable to non-resident institutional investors, and hence give a lower total return than indices where calculations are on a Gross basis (which assumes that no withholding tax is suffered). As the Company is subject to withholding tax rates for the majority of countries in which it invests, the NR basis is felt to be the most accurate, appropriate, consistent and fair comparison for the Company.

PERFORMANCE FROM 31 DECEMBER 2014 TO 30 JUNE 2020


         Share price            NAV MSCI EM Latin America Index (total return,
      (total return) (total return)                                 net basis)

2015           -30.6          -30.9                                      -31.0

2016            22.2           25.2                                       31.0

2017            31.3           29.0                                       23.7

2018            -6.9           -5.4                                       -6.6

2019            22.0           18.2                                       17.5

2020*          -33.1          -37.6                                      -35.2



Source: BlackRock Investment Management (UK) Limited and Datastream.
Performance figures are calculated in US Dollar terms with dividends reinvested.

*     Six month performance to 30 June 2020.

CHAIRMAN’S STATEMENT FOR THE SIX MONTHS TO 30 JUNE 2020

OVERVIEW AND PERFORMANCE
Latin American stock markets had a promising start to the year but were severely impacted by the COVID-19 pandemic as it escalated through the period under review. As significantly lower levels of global activity sharply affected commodity prices that generate much of Latin America’s economic wealth, the MSCI EM Latin America Index (net return) dropped sharply by 35.2% over the six months ended 30 June 2020. The Company’s NAV fell by 37.6% and the share price fell by 33.1% over the same period (all calculations with dividends reinvested on a US Dollar basis).

All countries in the region posted negative returns during the six months under review with Colombia and Brazil the worst hit (falling by 44.8% and 38.9% respectively) with the impact of COVID-19 exacerbated by the severe declines in oil prices following Saudi Arabia’s price war with Russia in March 2020.

Additional information on the main contributors to and detractors from performance for the period under review is given in the Investment Manager’s report below.

From 30 June 2020 up until close of business on 7 September 2020, the Company’s NAV has risen by 8.2% in US Dollar terms and by 1.4% in Sterling terms. The share price has fallen by 0.8% in US Dollar terms and by 7.1% in Sterling terms (all percentages calculated with dividends reinvested).

FRANKED INVESTMENT INCOME (FII) GROUP LITIGATION ORDER (GLO)
In 2003 The Prudential Assurance Company Limited filed a case against HM Revenue & Customs (HMRC) on the treatment of foreign sourced dividends. The litigation concerned the tax treatment of UK-resident companies (including investment funds) that received dividends from portfolio shareholdings in non-UK companies. It had previously been settled that the UK dividend tax regime that applied to portfolio dividends prior to 2009 was contrary to EU law, as UK dividends were not subject to tax whereas non-UK dividends were taxable.

On 25 July 2018 the UK Supreme Court handed down its judgement in the Prudential case, ruling (inter alia) that non-UK dividends remained taxable but that credit should be given for the underlying foreign tax at the foreign nominal corporate income tax rate of the source country. In June 2020, the Company received correspondence from HMRC accepting the entitlement of the Company to claim for double tax relief in the relevant accounting periods in relation to underlying tax suffered on dividends from non-UK companies. The Board was advised that the receipt of a repayment in respect of these amounts had become sufficiently certain to merit recognition in the Company’s NAV, and it announced on 7 July 2020 that an asset of £1,572,210 had been reflected in the NAV in respect of these claims; the repayment from HMRC was subsequently received by the Company on 17 August 2020. As the original tax expense was debited to the revenue column of the income statement, the benefit of this recovery has been credited to the revenue column of the income statement and will result in an uplift of 4.00 pence per share to the Company’s revenue earnings per share for the year to 31 December 2020. More information is given in note 16 below.

EARNINGS AND DIVIDENDS
The revenue profit per share for the period amounted to 2.85 cents (30 June 2019: 7.92 cents). The significant fall in dividend income reflects the challenges faced by many portfolio companies as the COVID-19 pandemic disrupts business activity and revenue streams. The Company’s dividend policy is to pay regular quarterly dividends equivalent to 1.25% of the Company’s US Dollar cum-income NAV on the last working day of March, June, September and December each year, with the dividends being paid in February, May, August and November each year. As at the date of this report, total dividends of 27.34 cents per share have been declared by the Company over the last twelve months (as set out in the table below) representing a yield of 6.5% based on the share price at 30 June 2020. The yield on the Company’s shares projecting future quarterly dividends forward based on four quarters being paid at the same rate as the June 2020 quarter dividend of 5.57 cents per share, and based on the Company’s share price at 30 June 2020 converted to US Dollars at the exchange rate on 30 June 2020, would be 5.3%.


                                Dividend rate
                             (cents per share) Announcement date        Pay date

Quarter to 30 September 2019              8.03    1 October 2019 8 November 2019

Quarter to 31 December 2019               9.15    2 January 2020 6 February 2020

Quarter to 31 March 2020                  4.59      1 April 2020     17 May 2020

Quarter to 30 June 2020                   5.57       1 July 2020  16 August 2020

                                --------------

Total                                    27.34

                                      ========



The dividends paid and declared by the Company in 2020 have been funded from a mixture of current year revenue, revenue reserves and other reserves. As at 30 June 2020, the Company had distributable reserves of US$150 million, sufficient to cover 67 quarters of dividend payments at the June 2020 quarter dividend rate. The Board believes that the use of capital reserves to fund dividend distributions removes pressure from the investment managers to seek a higher income yield from the underlying portfolio itself which could detract from total returns. The Board also believes the Company’s dividend policy will enhance demand for the Company’s shares and help to narrow the Company’s discount, whilst maintaining the portfolio’s ability to generate attractive total returns.

It is promising to note that since the dividend policy was introduced in July 2018, the Company’s discount has narrowed from 14.3% as at 31 December 2018 to 6.1% as at 30 June 2020.

DISCOUNT CONTROL
The next tender offer for 24.99% of the ordinary shares in issue (excluding treasury shares) will be implemented in 2022 if either of the following conditions are met:

(i)      the annualised total NAV return of the Company does not exceed the annualised benchmark index (being the MSCI EM Latin America Index (Net Return)) US Dollar total return by more than 100 basis points over the four-year period from 1 January 2018 to 31 December 2021 (the Calculation Period);

(ii)     the average daily discount to the cum-income NAV exceeds 12% as calculated with reference to the trading of the shares over the Calculation Period.

The tender offer is also dependent upon the continuation vote for each relevant biennial period being approved.

In respect of the above conditions, the Company’s annualised total NAV return on a US Dollar basis for the 30 months to 30 June 2020 was -13.4%, underperforming the annualised benchmark return for the same period of -12.8% by 0.6%. The cum-income discount of the Company’s ordinary shares has averaged 12.5% for this period and ranged from a discount of 2.0% to 20.6%, ending on a discount of 6.1% at 30 June 2020.

OUTLOOK
The impact of COVID-19 has adversely affected the global economy and could continue with a degree of severity and duration which cannot be predicted. The Latin American region is likely to suffer disproportionately as healthcare systems are less robust and many markets in Latin America (especially those reliant on foreign capital flows) do not have the financial reserves to adopt the extreme fiscal support policies implemented by governments elsewhere to mitigate the economic impact of the crisis. Over the second half of the year it is likely that current lockdown measures will ease further and activity in the industrial sector and in parts of the services sector where social distancing is less of a concern should rebound relatively quickly although most economies will not return to their pre-crisis level of GDP until at least 2021.

Through these times of elevated volatility and market stress, our portfolio managers remain focussed on the long-term investment horizon, and on adhering to disciplined fundamental analysis from a bottom-up perspective in order to be able to respond swiftly to dislocations in the market as opportunities present themselves.

CAROLAN DOBSON
Chairman

10 September 2020

INVESTMENT MANAGER’S REPORT

MARKET OVERVIEW
Performance in the Latin American markets was volatile through the first half of 2020. Equity markets started the year strongly, confirming the nascent recovery in global growth, but subsequently faltered as fears around the COVID-19 pandemic escalated. During the first quarter of 2020 equity markets sold-off aggressively on the back of concerns over the impact of COVID-19 and a substantial drop in oil prices on the global economy. Metals and commodities prices were hit hard as markets priced in expectations of significantly lower global growth. Later in the period Latin American equities rallied from sold off levels driven by a global rebound and a slight increase in mobility trends after distancing measures started to be lifted; optimism that  COVID-19 cases had peaked  and that from here economies would gradually reopen and economic activity normalise helped equity prices to partially recover.

The MSCI EM Latin America Index (Net return) benchmark ended the period down by 35.2% (in US Dollar terms with dividends reinvested), underperforming emerging and developed markets as shown in the table below. Weak commodity prices put pressure on local currencies in the Latin American region and exacerbated market falls. All countries in the region posted negative returns during the six months under review. Argentina was a relative winner during this period, outperforming in the region although markets still ended the period down by 12.8%. Markets in Colombia and Brazil were worst hit by heightened COVID-19 concerns and severe declines in oil prices following Saudi Arabia’s price war with Russia in March.


                 MSCI Indices MSCI Indices      Local
                                             currency     Local indices
Regions/indices:     % Price      % Total  (% vs. USD)        (% change)
                       change      return1

Argentina               -12.8        -12.8       -15.0   -21.08 (MERVAL)

Brazil                  -39.5        -38.9       -26.4 -39.54 (Ibovespa)

Chile                   -25.2        -23.2        -8.0     -14.64 (IGPA)

Colombia                -46.7        -44.8       -12.6     -31.10 (IGBC)

Mexico                  -28.8        -28.4       -17.7      -28.59 (IPC)

Peru                    -32.4        -29.1        -6.5  -23.21 (S&P/BVL)



   


                                             Commodity prices

                                                   (% change)

MSCI EM Latin America -36.0 -35.2 CRB Index2            -10.3

MSCI Emerging Asia     -4.4  -3.5 Oil (WTI)3            -35.7

MSCI Emerging Markets -10.7  -9.8       Gold             18.2

MSCI World             -6.6  -5.8     Copper             -2.9

S&P 500                -4.0  -3.4       Corn            -12.7

MSCI Europe           -14.0 -12.8   Soybeans             -6.2



1     MSCI total return indices are net of withholding taxes.
2     Commodity Research Bureau Index.
3     West Texas Intermediate.

Source: Bloomberg (all figures in US Dollar terms) for the six months to 30 June 2020.

PORTFOLIO REVIEW
During the first half of 2020 the Company’s NAV fell by 37.6%, underperforming the Company’s benchmark (the MSCI EM Latin America Index) which fell by 35.2% over the same time period (all calculations in US Dollar terms with dividends reinvested).

CONTRIBUTORS TO RELATIVE RETURNS
The Company’s stock selection in Mexico was the largest contributor to relative returns over the period under review. From a stock specific perspective, the portfolio’s overweight position in the Brazilian online retailer, B2W CIA Digital, was the largest individual contributor to relative performance during the period as the company’s online presence enabled it to maintain strong gross merchandise volume growth through the evolving pandemic. An off-benchmark holding in Via Varejo, a Brazilian retail company, also contributed positively to relative performance as the stock price rose, benefitting from the turnaround of the firm’s e-commerce platform under new management. The portfolio’s overweight position in the Brazilian retailer, Lojas Americanas, also added to relative returns.

DETRACTORS FROM RELATIVE RETURNS
Allocation to Chile detracted most from relative performance over the period. In terms of individual holdings, an overweight position in Banco do Brasil detracted most as the stock price fell on the back of interest rate cuts and fears of increasing defaults amongst borrowers as the Brazilian economy struggled in the face of the global pandemic. The lack of portfolio positioning in Magazine Luiza, one of the largest Brazilian online retail companies, was also among the top detractors to performance, as the stock continued to rise along with other online retailers benefiting from the COVID-19 lockdown. An off-benchmark holding in Qualicorp Consultoria, a healthcare insurer in Brazil, weighed on returns during the period as the stock price declined following the replacement of the Chief Financial Officer. In addition an off-benchmark position in the Brazilian low-cost airline, GOL Linhas Aéreas Inteligentes, also detracted from relative returns during the period as travel stocks were hit by the COVID-19 outbreak and fears of a global recession. 

More details in respect of the most significant stock specific contributors and detractors are set out in the table below


Top contributors:     Total effect (bps):   Top detractors: Total effect (bps):

B2W CIA Digital                        87              Azul                 -41

Via Varejo                             52               WEG                 -42

Lojas Americanas                       47 GOL Linhas Aéreas                 -52
                                               Inteligentes

IRB Brasil Resseguros                  42    Magazine Luiza                 -53

Afya                                   38   Banco do Brasil                 -63



Source: BlackRock.

PORTFOLIO POSITIONING
During times of elevated volatility and market stress it is important to focus on the long-term investment horizon, adhere to disciplined fundamental analysis from a bottom-up perspective and be ready to respond to dislocations in the market as opportunities present themselves. Consequently over the six months ending 30 June 2020 we have taken advantage of the opportunities provided by depressed valuations to increase portfolio exposure to high conviction names.

We initiated a position in Lojas Renner, the largest Brazilian department stores clothing company. We also added to our position in Vale, a Brazilian mining and iron ore company, as we felt that the stock was trading on attractive valuations and we anticipate that increased iron ore demand from China (as the economy emerges from lockdown) will boost prices.

We funded these purchases by reducing portfolio exposure to Brazilian banks, trimming holdings in Itaú Unibanco and Banco Bradesco, as we believe mounting headwinds in terms of NIM (Net Interest Margin) pressure (arising from interest rate cuts and the rising potential of loan defaults) should diminish returns going forward. We sold the portfolio’s holding in the Mexican food retailer, Walmart de Mexico and reduced exposure to the regional telecommunications operator, América Movil, taking profit on these stocks which had been strong relative outperformers thanks to their resilient business models.  Later in the period we initiated a position in AmBev as we felt that the stock price was undervalued and we anticipate a recovery in beer volumes from the prior depressed levels. We also sold our holding in the Brazilian healthcare operator, Notre Dame Intermedica, taking profits on the back of strong performance.

The Company ended the period being overweight to Brazil and Argentina and underweight to Chile, Mexico, Colombia and Peru, with off-benchmark positions in Panama. At the sector level, the portfolio was overweight to consumer discretionary and materials and underweight to consumer staples and financials.

OUTLOOK
Latin American economies bottomed through April and May amid social mobility restrictions imposed as a result of COVID-19. More recently governments have begun to gradually open their respective economies, albeit at different rates and with the pandemic only now showing signs of stabilizing in terms of new cases and deaths.  Looking ahead to the second half of the year, official second quarter GDP figures and monthly economic data indicates that of countries in the region, Brazil has experienced the lowest level of economic slowdown, with Peru at the other end of the scale.

Brazil
The Brazilian government’s aggressive fiscal programs, including the ‘corona voucher’ transfer to low income families, meant that not only was Brazil the best performing economy in the second quarter, but that it suffered the shallowest drop in output during the pandemic apart from Chile.  Retail sales in Brazil through June 2020 were back to their average pre-crisis levels, whereas other countries were at least 15% below that level. Although Brazil’s aggressive fiscal programs have supported growth, there are costs associated with this stimulus. While government support for low-income families has been economically and politically successful, it will also push the primary budget deficit to approximately 15% of GDP this year and gross debt close to 100% of GDP. With the need to reduce spending, the government is debating a redesign of its fiscal and social policies for next year, which may help diminish the government deficit to close to 5% in 2021, partially curbing a quickly-deteriorating public debt trajectory. While there are risks to the medium-term fiscal outlook, an excessively fast decrease in fiscal support could also threaten the recovery next year. The economy’s ability to balance between fiscal sustainability and a fiscal cliff of rapid spending contraction will be an ongoing challenge for the country. Given the recent strength in consumption-related numbers and business leading indicators, 2020 growth forecasts have been revised upwards by economists and a robust recovery is expected for 2021; we see some upward risk to that forecast.

Mexico
Mexico has taken a much more conservative fiscal stance than Brazil and has refrained from providing households and firms with substantial levels of COVID-19 specific support. It is not clear that such fiscal austerity in the face of the worst economic slowdown on record will pay off. Mexico was late to see an improvement in manufacturing having kept factories closed through May and has witnessed a sharp loss of employment (seven million jobs through June 2020), particularly in micro-businesses. These are jobs that may not come back quickly if firms are forced out of business, lowering Mexico's ability to generate growth going forward. Even in the absence of aggressive fiscal stimulus, Mexico faces major fiscal challenges. By the government's own admission, its stabilization funds will be mostly used up this year, while Pemex continues to deteriorate both financially as well as operationally. Moreover, private investment remains side-lined partly on account of uncertainty over the direction of government economic policy. In this context, it is difficult to see what the catalyst for growth in Mexico might be, likely resulting in a slower post-COVID-19 recovery than its peers.

Chile
The three major Andean countries (Chile, Colombia and Peru) have found themselves trying to cope with the COVID-19 health emergency while at the same time addressing long-dated domestic issues that may hinder the pace of recovery. In Chile, while activity numbers have shown a modest but sustained improvement since June, the tight political schedule of coming months may weigh on investment decisions in the next months.

Peru
Peru remains the worst performing economy as the Latin American region emerges from the COVID-19 pandemic, having imposed the strictest shutdown in the region, although its recovery is also the sharpest now that it has started to reopen. Economic recovery is reliant on the speed of reactivation in key sectors such as construction and mining. However political discord over strategies to deal with the economic emergency is feeding a climate of political uncertainty as the country moves towards general elections in April 2021.

Colombia
Along with its Andean peers, Colombia appears to be over the worst part of the COVID-19 shock on the economy, although the country has less fiscal room for manoeuvre than Chile and Peru.  With public debt rising above 65% of GDP in 2020 the Colombian economy faces an uncertain future.

REASONS TO INVEST IN LATIN AMERICA

The government-mandated temporary shutdown of businesses in practically every jurisdiction around the world has created an expected degree of havoc in activity. In pragmatic terms, we need to focus on the impacts of the path chosen (including present policies and future impacts). The focus now needs to be on identifying the recovery’s chance of continuation and any long-term trauma for the economies.

Our constructive outlook for Latin equities is based on three pillars:

i.          corporate operating leverage;
ii.          a global reflation trade underpinned by historic amounts of global stimulus; and
iii.         a prolonged period of low or negative real interest rates to help governments de-leverage.

Within this context, we retain an overweight portfolio exposure to Brazil and see positives coming from the strong tailwind of lower interest and the multiplier effect this can have on consumption and investment. Valuations were perceived as very asymmetric in March and April, but not anymore. At the same time access to debt and equity markets has been fluid during the pandemic and we are seeing companies emerge with stronger balance sheets. Additionally, we see industries becoming increasingly consolidated as the pandemic has forced businesses that were already facing challenges before the crisis to scale back, creating opportunities for the industry leading companies that we invest in to gain market share. In this regard we are optimistic on the ability for corporates to earn attractive returns relative to the prevailing cost of capital over the longer term.

Furthermore, Latin America as a region is a key supplier of raw materials to China and the majority of the economic data published in August confirms that Chinese expansion continues apace, led by manufacturing and construction. This should support higher sustainability of commodity prices which in turn provides a favourable outlook for Latin American mining companies and related sectors. Additionally, after strong depreciation of Latin American currencies in the first half of this year, we see a bias towards currency appreciation over our investment horizon as local currencies look cheap in regard to developments related to terms of trade and reduction of current account deficits across the region. Monetary policy signals and the extent of fiscal stimulus in the United States suggest that the persistent strength of the US Dollar over Latin American currencies seen in the first half of this year has ability to unwind, providing a tailwind for total return for Latin American equities purchased in hard currency.

Finally, as Latin American equities have underperformed their Emerging Market peers since relative performance peaked in January this year, Latin American equity markets currently trade at a discount relative to their 10-year historical averages and  their Emerging Market peers (based on consensus 12-month forward price-to-book value multiples). While the region still faces challenges in terms of the pace and shape of economic recovery, we are confident that long term equity investors can benefit from having exposure to the region for the reasons set out above.

ED KUCZMA and SAM VECHT
BlackRock Investment Management (UK) Limited
10 September 2020

PORTFOLIO

GEOGRAPHIC AND SECTOR ALLOCATIONS AS AT 30 JUNE 2020

GEOGRAPHIC WEIGHTING (GROSS MARKET EXPOSURE) VS MSCI EM LATIN AMERICA INDEX


          % of net assets MSCI EM Latin America Index

Brazil               74.2                        64.1

Mexico               20.0                        21.6

Argentina             5.8                         1.6

Chile                 5.6                         7.3

Peru                  1.7                         3.1

Panama                1.0                         0.0

Colombia              0.0                         2.3



Sources: BlackRock and MSCI.

SECTOR ALLOCATION (GROSS MARKET EXPOSURE) VS MSCI EM LATIN AMERICA INDEX


                       % of net assets MSCI EM Latin America Index

Financials                        23.5                        26.8

Materials                         20.8                        16.0

Consumer Discretionary            19.3                         6.8

Energy                            11.5                         9.6

Consumer Staples                  10.1                        15.7

Utilities                          7.6                         6.8

Communication Services             6.2                         7.0

Industrials                        4.9                         6.3

Real Estate                        3.9                         1.3

Information Technology             0.5                         1.4

Health Care                        0.0                         2.3




Sources: BlackRock and MSCI.

TEN LARGEST INVESTMENTS AS AT 30 JUNE 2020

1 (2019 4th)
Vale
Diversified mining company
Security type: ADS
Market value:$17,771,000
Share of portfolio: 9.4% (2019: 4.7%)
MSCI ESG Rating: CCC

One of the world’s largest mining companies, with other business in logistics, energy and steelmaking. Vale is the world’s largest producer of iron ore and nickel but also operates in the coal, copper, and manganese and ferro-alloys sectors.

2 (2019 1st)
Petrobrás
Integrated oil company
Security type: ADR
Market value:$10,221,000
Security type: Preference shares
Market value:$6,546,000
Share of portfolio: 8.8% (2019: 9.1%)
MSCI ESG Rating: BBB

Brazilian integrated oil and gas company, operating in the exploration and production, refining, marketing, transportation, petrochemicals, oil product distribution, natural gas, electricity, chemical-gas and biofuel segments of the industry. The company controls significant assets across Africa, North and South America, Europe and Asia, with a majority of production based in Brazil.

3 (2019 5th)
América Movil
Telecommunications company
Security type: ADR
Market value:$10,933,000
Share of portfolio: 5.8% (2019: 4.5%)
MSCI ESG Rating: B

The leading provider of integrated telecommunications services in Latin America, with wireless and fixed-line presence in Latin America, the US, and Central and Eastern Europe. The company touts the largest wireless subscriber base in the world outside of China and India.

4 (2019 19th)
B3
Financial services company
Security type: Ordinary Shares
Market value:$8,926,000
Share of portfolio: 4.7% (2019: 2.0%)
MSCI ESG Rating: AA

One of the world’s largest financial market infrastructure providers by market value. The services it offers range from exchange trading, clearing and other post-trade services to registration of over-the-counter (OTC) transactions and of vehicle and real estate loans.

5 (2019 3rd)
Banco Bradesco
Bank
Security type: ADR
Market value:$7,630,000
Share of portfolio: 4.0% (2019: 5.7%)
MSCI ESG Rating: A

One of Brazil’s largest private sector banks, the company divides its operations into two main areas – banking services and insurance services, management of complementary private pension plans and savings bonds.

6 (2019 2nd)
Itaú Unibanco
Bank
Security type: ADR
Market value:$7,331,000
Share of portfolio: 3.9% (2019: 7.5%)
MSCI ESG Rating: BBB

Brazil’s largest private sector bank and the largest Latin American bank by assets and market capitalization, born through the merger of Banco Itaú and Unibanco in 2009. The company’s presence spans across the Americas, Europe and Asia, offering a blend of retail, private banking, and investment and corporate banking services.

7 (2019 10th)
Ternium
Steel manufacturer
Security type: ADR
Market value:$6,815,000
Share of portfolio: 3.6% (2019: 2.6%)
MSCI ESG Rating: Unrated1

A leading steel company in Latin America, with a high integrated process to manufacture flat and long steel products. The company maintains production centres in Argentina, Brazil, Mexico, Colombia, the southern United States, and Central America.

8 (2019 12th)
AmBev
Beverage manufacturer
Security type: ADR
Market value:$6,801,000
Share of portfolio: 3.6% (2019: 2.5%)
MSCI ESG Rating: AA

Brazil’s leading beverages company with operations throughout the region. The company is well positioned to continue to benefit from its defensive position as the region’s largest consumer staples producer, while maintaining a strong focus on preserving operating cost discipline throughout its operations, a perennial AmBev management strength.

9 (2019 n/a)
Afya
Retailer
Security type: ADR
Market value:$6,011,000
Share of portfolio: 3.2% (2019: n/a)
MSCI ESG Rating: Unrated1

The leading medical education group in Brazil, based on number of medical school seats, delivering an end-to-end physician-centric ecosystem that serves students to be lifelong medical learners from the moment they join as medical students through their medical residency preparation, graduation program, and continuing medical education activities.

10 (2019 11th)
B2W CIA Digital
Retailer
Security type: Ordinary Shares
Market value:$5,853,000
Share of portfolio: 3.1% (2019: 2.5%)
MSCI ESG Rating: BBB

A Brazil-based company primarily engaged in the retail of goods through the Internet.

1   Unrated stocks have not yet been assessed by ESG ratings agencies and have not been allocated a rating. This may be for a number of reasons, including the fact that the companies may have only been publically listed for a short time and have insufficient operating history for an assessment to be made.

All percentages reflect the value of the holding as a percentage of total investments. For this purpose where more than one class of securities is held, these have been aggregated. The percentages in brackets represent the value of the holding as at 31 December 2019.

Together, the ten largest investments represent 50.1% of total investments (ten largest investments as at 31 December 2019: 47.8%).

MSCI ESG ratings look to identify environmental, social and governance risks and opportunities for individual stocks. Companies are rated on a scale from AAA to CCC according to their exposure to certain risks and their ability to manage them relative to the industry peers. A stock rated as AAA signifies a company which is leading in terms of ESG factors relative to its industry. On the other hand, a stock with a CCC score is considered a laggard, due to the presence of one or more ESG risks that MSCI perceives to be material. The rating scale is as follows: AAA, AA, A, BBB, BB, B, CCC. From AAA to AA a company is considered to be an ESG leader in its respective industry, A to BB is deemed to be an average score, whilst B and CCC represents a below average score.

PORTFOLIO AS AT 30 JUNE 2020


                                       Market value US$'000   % of investments

Brazil

Vale - ADS                                           17,771                9.4

Petrobrás – ADR                                      10,221 }              8.8

Petrobrás – preference shares – ADR                   6,546

B3                                                    8,926                4.7

Banco Bradesco – ADR                                  7,630                4.0

Itaú Unibanco – ADR                                   7,331                3.9

AmBev – ADR                                           6,801                3.6

Ayfa                                                  6,011                3.2

B2W CIA Digital                                       5,853                3.1

Lojas Americanas – preference shares                  4,319 }              3.1

Lojas Americanas                                      1,486

JBS                                                   5,455                2.9

Companhia Energetica de Minas Gerais –                5,227                2.8
preference shares

Lojas Renner                                          4,790                2.5

BB Seguridade Participações                           4,577                2.4

Energisa – units                                      4,295                2.3

Petrobás Distribuido                                  3,887                2.0

Centrais Eletricas Brasileiras                        2,532 }              2.0

Centrais Eletricas Brasileiras –                      1,330
preference shares

GOL Linhas Aéreas Inteligentes                        2,979                1.6

Via Varejo                                            2,850                1.5

Cyrela Brazil Realty                                  2,708                1.4

Cia Brasileira De Distribuição                        2,420                1.3

Arco Platform                                         1,814                1.0

Banco do Brasil                                       1,048                0.5

Cielo                                                   836                0.4

Klabin – composite units1                               191 }              0.1

Klabin 2.5% 15/06/22 bond                                73

                                             --------------     --------------

                                                    129,907               68.5

                                                   ========           ========

Mexico

América Movil – ADR                                  10,933                5.8

Grupo México                                          5,281                2.8

Grupo Financiero Banorte                              5,189                2.7

Fibra Uno Administracion – REIT                       4,186                2.2

Grupo Aeroportuario del Pacífico – ADS                2,754 }              2.0

Grupo Aeroportuario del Pacífico                        996

FEMSA – ADR                                           3,071                1.6

Corporación Inmobiliaria Vesta                        2,545                1.3

                                             --------------     --------------

                                                     34,955               18.4

                                                   ========           ========

Argentina

Ternium – ADR                                         6,815                3.6

YPF – ADR                                             3,441                1.8

                                             --------------     --------------

                                                     10,256                5.4

                                                   ========           ========

Chile

Quimica Y Minera – ADR                                3,417                1.8

Banco Santander–Chile                                 3,294                1.7

Banco de Chile                                        3,079                1.6

                                             --------------     --------------

                                                      9,790                5.1

                                                   ========           ========

Peru

Southern Copper                                       2,946                1.6

                                             --------------     --------------

                                                      2,946                1.6

                                                   ========           ========

Panama

Copa Holdings                                         1,805                1.0

                                             --------------     --------------

                                                      1,805                1.0

                                             --------------     --------------

Total Investments                                   189,659              100.0

                                                   ========           ========



All investments are in equity shares unless otherwise stated.

1     Composite Units include 1 ordinary share and 4 Preference shares.

The total number of investments held at 30 June 2020 was 43 (31 December 2019: 49). At 30 June 2020, the Company did not hold any equity interests comprising more than 3% of any company’s share capital (31 December 2019: nil).

GOVERNANCE

INTERIM MANAGEMENT REPORT AND RESPONSIBILITY STATEMENT

The Chairman’s Statement and the Investment Manager’s Report give details of the events which have occurred during the period and their impact on the financial statements.

PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks faced by the Company can be divided into various areas as follows:

    --  Counterparty;
    --  Investment performance;
    --  Income/dividend;
    --  Legal and regulatory compliance;
    --  Operational;
    --  Market;
    --  Financial; and
    --  Marketing.

The Board reported on the principal risks and uncertainties faced by the Company in the Annual Report and Financial Statements for the year ended 31 December 2019. A detailed explanation can be found on pages 18 to 21 and in note 16 on pages 93 to 100 of the Annual Report and Financial Statements which are available on the website maintained by BlackRock at blackrock.com/uk/brla.

In the view of the Board, there have not been any changes to the fundamental nature of the principal risks and uncertainties since the previous report and these are equally applicable to the remaining six months of the financial year as they were to the six months under review.

GOING CONCERN
The Board is mindful of the continuing uncertainty surrounding the potential duration of the COVID-19 pandemic and its impact on the global economy, the Company’s assets and the potential for the level of revenue derived from the portfolio to reduce versus the prior year. The Board believes that the Company and its key third-party service providers have in place appropriate business continuity plans and will be able to maintain service levels through the COVID-19 pandemic.

The Directors are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future and is financially sound. For this reason they continue to adopt the going concern basis in preparing the financial statements. The Company has a portfolio of investments which are considered to be readily realisable and is able to meet all of its liabilities from its assets and income generated from these assets. Ongoing charges excluding finance costs, direct transaction costs, custody transaction charges, taxation and certain non-recurring items for the year ended 31 December 2019 were approximately 1.13% of average net assets.

RELATED PARTY DISCLOSURE AND TRANSACTIONS WITH THE INVESTMENT MANAGER
BlackRock Fund Managers Limited (BFM) was appointed as the Company’s AIFM (Alternative Investment Fund Manager) with effect from 2 July 2014. BFM has (with the Company’s consent) delegated certain portfolio and risk management services, and other ancillary services, to BlackRock Investment Management (UK) Limited (BIM (UK)). Both BFM and BIM (UK) are regarded as related parties under the Listing Rules. Details of the fees payable are set out in note 11 below.

The related party transactions with the Directors are set out in note 12 below.

DIRECTORS’ RESPONSIBILITY STATEMENT
The Disclosure Guidance and Transparency Rules (DTR) of the UK Listing Authority require the Directors to confirm their responsibilities in relation to the preparation and publication of the Interim Management Report and Financial Statements.

The Directors confirm to the best of their knowledge and belief that:

    --  the condensed set of financial statements contained within the half
        yearly financial report has been prepared in accordance with the
        applicable UK Accounting Standard FRS 104 ‘Interim Financial Reporting’;
        and
    --  the Interim Management Report, together with the Chairman’s Statement
        and the Investment Manager’s Report, include a fair review of the
        information required by 4.2.7R and 4.2.8R of the Financial Conduct
        Authority’s (FCA) Disclosure Guidance and Transparency Rules.

The half yearly financial report has not been audited or reviewed by the Company’s Auditor.

The half yearly financial report was approved by the Board on 10 September 2020 and the above responsibility statement was signed on its behalf by the Chairman.

CAROLAN DOBSON
For and on behalf of the Board

10 September 2020

FINANCIAL STATEMENTS

INCOME STATEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2020

      

                                   Revenue US$’000                              Capital US$’000                               Total US$’000


                         Six months     Six months                    Six months     Six months                    Six months     Six months
                              ended          ended    Year ended           ended          ended    Year ended           ended          ended    Year ended
                          30.06.20       30.06.19       31.12.19       30.06.20       30.06.19       31.12.19       30.06.20       30.06.19       31.12.19
               Notes    (unaudited)    (unaudited)      (audited)    (unaudited)    (unaudited)      (audited)    (unaudited)    (unaudited)      (audited)

(Losses)/gains                    –              –              –      (107,548)         37,056         40,807      (107,548)         37,056         40,807
on investments
held at fair
value through
profit or loss

Gains/(losses)                    –              –              –             28          (336)          (128)             28          (336)          (128)
on foreign
exchange

Income from        2          1,968          4,256          9,231              –              –              –          1,968          4,256          9,231
investments
held at fair
value through
profit or loss

Other income       2              –              1              2              –              –              –              –              1              2

                     -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------

Total income                  1,968          4,257          9,233      (107,520)         36,720         40,679      (105,552)         40,977         49,912

                           ========       ========       ========       ========       ========       ========       ========       ========       ========

Expenses

Investment         3          (159)          (272)          (548)          (477)          (816)        (1,646)          (636)        (1,088)        (2,194)
management fee

Other              4          (362)          (407)          (839)           (26)            (7)           (48)          (388)          (414)          (887)
operating
expenses

                     -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------

Total                         (521)          (679)        (1,387)          (503)          (823)        (1,694)        (1,024)        (1,502)        (3,081)
operating
expenses

                           ========       ========       ========       ========       ========       ========       ========       ========       ========

Net profit/                   1,447          3,578          7,846      (108,023)         35,897         38,985      (106,576)         39,475         46,831
(loss) on
ordinary
activities
before finance
costs and
taxation

Finance costs                  (20)           (97)          (198)           (59)          (291)          (595)           (79)          (388)          (793)

                     -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------

Net profit/                   1,427          3,481          7,648      (108,082)         35,606         38,390      (106,655)         39,087         46,038
(loss) on
ordinary
activities
before
taxation

Taxation                      (308)          (370)          (542)              –              –              –          (308)          (370)          (542)

                     -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------

Net profit/                   1,119          3,111          7,106      (108,082)         35,606         38,390      (106,963)         38,717         45,496
(loss) on
ordinary
activities
after taxation

                           ========       ========       ========       ========       ========       ========       ========       ========       ========

Earnings/          7           2.85           7.92          18.10       (275.30)          90.70          97.78       (272.45)          98.62         115.88
(loss) per
ordinary share
(US$cents)

                           ========       ========       ========       ========       ========       ========       ========       ========       ========




    

The total column of this statement represents the Company's profit and loss account. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies (AIC). All items in the above statement derive from continuing operations. No operations were acquired or discontinued during the period. All income is attributable to the equity holders of the Company.

The net profit/(loss) on ordinary activities for the period disclosed above represents the Company's total comprehensive income/ (loss). The Company does not have any other comprehensive income/(loss).

STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 30 JUNE 2020

      

                  Called up          Share        Capital           Non-
              share capital        premium     redemption  distributable        Capital        Revenue
                     US$’000       account        reserve        reserve       reserves       reserves          Total
                                    US$’000        US$’000        US$’000        US$’000        US$’000        US$’000

For the six
months ended
30 June 2020
(unaudited)

At 31                  4,144         11,719          4,843          4,356        255,453          6,929        287,444
December 2019

Total
comprehensive
income/
(loss):

Net                        –              –              –              –      (108,082)          1,119      (106,963)
(loss)/profit
for the
period

Transaction
with owners,
recorded
directly to
equity:

Dividends                  –              –              –              –              –        (5,394)        (5,394)
paid1

              -------------- -------------- -------------- -------------- -------------- -------------- --------------

At 30 June             4,144         11,719          4,843          4,356        147,371          2,654        175,087
2020

              -------------- -------------- -------------- -------------- -------------- -------------- --------------

For the six
months ended
30 June 2019
(unaudited)

At 31                  4,144         11,719          4,843          4,356        217,063         13,120        255,245
December 2018

Total
comprehensive
income:

Net profit                 –              –              –              –         35,606          3,111         38,717
for the
period

Transaction
with owners,
recorded
directly to
equity:

Dividends                  –              –              –              –              –        (6,553)        (6,553)
paid2

              -------------- -------------- -------------- -------------- -------------- -------------- --------------

At 30 June             4,144         11,719          4,843          4,356        252,669          9,678        287,409
2019

              -------------- -------------- -------------- -------------- -------------- -------------- --------------

For the year
ended 31
December 2019
(audited)

At 31                  4,144         11,719          4,843          4,356        217,063         13,120        255,245
December 2018

Total
comprehensive
income:

Net profit                 –              –              –              –         38,390          7,106         45,496
for the year

Transaction
with owners,
recorded
directly to
equity:

Dividends                  –              –              –              –              –       (13,297)       (13,297)
paid3

              -------------- -------------- -------------- -------------- -------------- -------------- --------------

At 31                  4,144         11,719          4,843          4,356        255,453          6,929        287,444
December 2019

                    ========       ========       ========       ========       ========       ========       ========




    

1     Quarterly dividend of 9.15 cents per share for the year ended 31 December 2019, declared on 2 January 2020 and paid on 6 February 2020; quarterly dividend of 4.59 cents per share for the year ending 31 December 2020, declared on 1 April 2020 and paid on 20 May 2020.
2     Quarterly dividend of 8.13 cents per share for the year ended 31 December 2018, declared on 2 January 2019 and paid on 8 February 2019; quarterly dividend of 8.56 cents per share for the year ending 31 December 2019, declared on 1 April 2019 and paid on 17 May 2019.
3     Quarterly dividend of 8.13 cents per share for the year ended 31 December 2018, declared on 2 January 2019 and paid on 8 February 2019; quarterly dividend of 8.56 cents per share for the year ended 31 December 2019, declared on 1 April 2019 and paid on 17 May 2019; quarterly dividend of 9.15 cents per share for the year ended 31 December 2019, declared on 1 July 2019 and paid on 16 August 2019; quarterly dividend of 8.03 cents per share, declared on 1 October 2019 and paid on 8 November 2019.

The transaction costs incurred on the acquisition and disposal of investments amounted to US$231,000 and US$218,000 respectively for the six months ended 30 June 2020 (six months ended 30 June 2019: US$194,000 and US$188,000; year ended 31 December 2019: US$313,000 and US$346,000). All transaction costs have been included within the capital reserves.

The share premium account, capital redemption reserve and the non-distributable reserve are not distributable profits under the Companies Act 2006. In accordance with the Company’s Articles of Association, net capital reserves may be distributed by way of the repurchase by the Company of its ordinary shares and for payment as dividends.

BALANCE SHEET AS AT 30 JUNE 2020


                                   30 June 2020   30 June 2019  31 December 2019
                                        US$’000        US$’000
                            Notes    (unaudited)    (unaudited)         US$’000
                                                                       (audited)

Fixed assets

Investments held at fair                 189,659        318,587          300,571
value through profit or
loss

                                  -------------- --------------   --------------

Current assets

Debtors                                      853          1,135            7,175

Cash and cash equivalents                    125            128              305

                                  -------------- --------------   --------------

                                             978          1,263            7,480

                                  -------------- --------------   --------------

Creditors – amounts falling
due within one year

Bank overdraft                          (14,097)       (24,664)         (18,610)

Other creditors                          (1,191)        (7,515)          (1,735)

                                  -------------- --------------   --------------

                                        (15,288)       (32,179)         (20,345)

                                  -------------- --------------   --------------

Net current liabilities                 (14,310)       (30,916)         (12,865)

                                  -------------- --------------   --------------

Total assets less current                175,349        287,671          287,706
liabilities

                                  -------------- --------------   --------------

Creditors – amounts falling
due after more than one
year

Non current tax liability       6          (238)          (238)            (238)

Non-equity redeemable           6           (24)           (24)             (24)
shares

                                  -------------- --------------   --------------

                                           (262)          (262)            (262)

                                  -------------- --------------   --------------

Net assets                               175,087        287,409          287,444

                                        ========       ========         ========

Capital and reserves

Called up share capital         8          4,144          4,144            4,144

Share premium account                     11,719         11,719           11,719

Capital redemption reserve                 4,843          4,843            4,843

Non-distributable reserve                  4,356          4,356            4,356

Capital reserves                         147,371        252,669          255,453

Revenue reserves                           2,654          9,678            6,929

                                  -------------- --------------   --------------

Total shareholders’ funds       7        175,087        287,409          287,444

                                        ========       ========         ========

Net asset value per             7         445.97         732.07           732.15
ordinary share (US$ cents)

                                        ========       ========         ========



STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED 30 JUNE 2020


                              Six months ended Six months ended      Year ended
                                                                31 December 2019
                                 30 June 2020     30 June 2019
                                      US$’000          US$’000          US$’000
                                   (unaudited)      (unaudited)        (audited)

Operating activities

Net (loss)/profit on ordinary        (106,655)           39,087           46,038
activities before taxation

Add back finance costs                      79              388              793

Losses/(gains) on investments          107,548         (37,056)         (40,807)
held at fair value through
profit or loss

(Gains)/losses on foreign                 (28)              336              128
exchange

Sales of investments held at           156,366          130,661          256,355
fair value through profit or
loss

Purchases of investments held        (147,594)        (126,293)        (241,533)
at fair value through profit
or loss

Decrease in other debtors                  913            1,240               43

(Decrease)/increase in other             (543)              204              894
creditors

Taxation on investment income            (308)            (370)            (542)

                                --------------   --------------   --------------

Net cash generated from                  9,778            8,197           21,369
operating activities

                                      ========         ========         ========

Financing activities

Interest paid                             (79)            (388)            (793)

Dividends paid                         (5,394)          (6,553)         (13,297)

                                --------------   --------------   --------------

Net cash used in financing             (5,473)          (6,941)         (14,090)
activities

                                      ========         ========         ========

Increase in cash and cash                4,305            1,256            7,279
equivalents

Cash and cash equivalents at          (18,305)         (25,456)         (25,456)
the beginning of the
period/year

Effect of foreign exchange                  28            (336)            (128)
rate changes

                                --------------   --------------   --------------

Cash and cash equivalents at          (13,972)         (24,536)         (18,305)
the end of the period/year

Comprised of:                   --------------   --------------   --------------

Cash at bank                               125              128              305

Bank overdraft                        (14,097)         (24,664)         (18,610)

                                --------------   --------------   --------------

                                      (13,972)         (24,536)         (18,305)

                                      ========         ========         ========



NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE 2020

1. PRINCIPAL ACTIVITY AND BASIS OF PREPARATION
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 presents its results and positions under FRS 102, ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’ (FRS 102), which forms part of revised Generally Accepted Accounting Practice (New UK GAAP) issued by the Financial Reporting Council (FRC) in 2013 and updated in March 2018.

The condensed set of financial statements has been prepared on a going concern basis in accordance with FRS 102 and FRS 104, ‘Interim Financial Reporting’ issued by the FRC in March 2015 and the revised Statement of Recommended Practice – ‘Financial Statements of Investment Trusts Companies and Venture Capital Trusts’ (SORP) issued by the Association of Investment Companies (AIC) in October 2019 and the provisions of the Companies Act 2006.

The accounting policies applied for the condensed set of financial statements are as set out in the Company’s Annual Report and Financial Statements for the year ended 31 December 2019.

2. INCOME


                            Six months ended Six months ended      Year ended
                                                              31 December 2019
                               30 June 2020     30 June 2019
                                    US$’000          US$’000          US$’000
                                 (unaudited)      (unaudited)        (audited)

Investment income:

Overseas dividends                     1,360            3,911            7,446

Overseas REIT distributions              132              127              278

Overseas special dividends               434               41            1,270

UK dividends                               –              172              197

Fixed interest income                     42                5               40

                              --------------   --------------   --------------

                                       1,968            4,256            9,231

                              --------------   --------------   --------------

Other income:

Deposit interest                           –                1                2

                              --------------   --------------   --------------

Total income                           1,968            4,257            9,233

                                    ========         ========         ========



Dividends and interest received in cash during the period amounted to US$2,751,000 and US$67,000 (six months ended 30 June 2019: US$5,643,000 and US$18,000; year ended 31 December 2019: US$9,442,000 and US$49,000) respectively.

There were no special dividends recognised in capital (six months ended 30 June 2019: US$nil; year ended 31 December 2019: US$nil).

3. INVESTMENT MANAGEMENT FEE


              Six months ended        Six months ended           Year ended
                30 June 2020            30 June 2019          31 December 2019
                 (unaudited)             (unaudited)              (audited)

           Revenue Capital  Total  Revenue Capital  Total  Revenue Capital  Total
                           US$’000                 US$’000                 US$’000
           US$’000 US$’000         US$’000 US$’000         US$’000 US$’000

Investment     159     477     636     272     816   1,088     548   1,646   2,194
management
fee



The investment management fee has been calculated at 0.80% per annum on the Net Asset Value (NAV). The fee is allocated 25% to the revenue column and 75% to the capital column of the income statement.

4. OTHER OPERATING EXPENSES


                            Six months ended Six months ended      Year ended
                                                              31 December 2019
                               30 June 2020     30 June 2019
                                    US$’000          US$’000          US$’000
                                 (unaudited)      (unaudited)        (audited)

Allocated to revenue:

Custody fee                               27               29               61

Depositary fees1                          12               14               26

Auditor’s remuneration                    17               18               40

Registrar’s fees                          18               20               36

Directors’ emoluments                    110              123              271

Marketing fees                            49               55              117

Postage and printing fees                 16               25               47

AIC fees                                  16               11               22

Brokers fees                              21               32               59

Employer NI contributions                 10               15               32

FCA fees                                   5                5               11

Director search fees                      13                –               29

Other administration costs                48               60               88

                              --------------   --------------   --------------

                                         362              407              839

                                    ========         ========         ========

Allocated to capital:

Custody transaction charges               26                7               48

                              --------------   --------------   --------------

                                         388              414              887

                                    ========         ========         ========



1 All expenses other than depositary fees are paid in Sterling and are therefore subject to exchange rate fluctuations.

5. DIVIDENDS

The Company’s cum-income US Dollar NAV at 31 March 2020 was 366.99 US$ cents per share, and the Directors declared a first quarterly interim dividend of 4.59 cents per share. The dividend was paid on 20 May 2020 to holders of ordinary shares on the register at the close of business on 14 April 2020.

In accordance with FRS 102 Section 32 ‘Events After the End of the Reporting Period’, the final dividend payable on ordinary shares is recognised as a liability when approved by shareholders. Interim dividends are recognised only when paid.

Dividends on equity shares paid during the period were:


                              Six months ended Six months ended      Year ended
                                                                31 December 2019
                                 30 June 2020     30 June 2019
                                      US$’000          US$’000          US$’000
                                   (unaudited)      (unaudited)        (audited)

Quarter to 31 December 2018 –                –            3,192            3,192
dividend of 8.13 cents

Quarter to 31 March 2019 –                   –            3,361            3,361
dividend of 8.56 cents

Quarter to 30 June 2019 –                    –                –            3,592
dividend of 9.15 cents

Quarter to 30 September 2019                 –                –            3,152
– dividend of 8.03 cents

Quarter to 31 December 2019 –            3,592                –                –
dividend of 9.15 cents

Quarter to 31 March 2020 –               1,802                –                –
dividend of 4.59 cents

                                --------------   --------------   --------------

                                         5,394            6,553           13,297

                                      ========         ========         ========



6. CREDITORS – AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR


                                     As at          As at            As at
                              30 June 2020   30 June 2019  31 December 2019
                                   US$’000        US$’000
                                (unaudited)    (unaudited)         US$’000
                                                                  (audited)

Non current tax liability               238            238              238

Non-equity redeemable shares             24             24               24

                             -------------- --------------   --------------

                                        262            262              262

                                   ========       ========         ========



At 30 June 2020 the Company had net surplus management expenses of US$nil (30 June 2019: US$nil; 31 December 2019: US$nil) and a non-trade loan relationship deficit of US$728,000 (30 June 2019: US$nil; 31 December 2019: US$728,000). A deferred tax asset was not recognised in the period ended 30 June 2019 or in the year ended 31 December 2019 as it was unlikely that there would be sufficient future taxable profits to utilise these expenses.

Non equity redeemable shares
The redeemable shares of £1 each carry the right to receive a fixed dividend at the rate of 0.1% per annum on the nominal amount thereof. They are capable of being redeemed by the Company at any time and confer no rights to receive notice of, attend or vote at general meetings except where the rights of holders are to be varied or abrogated. On a winding up, the capital paid up on such shares ranks pari passu with, and in proportion to, any amounts of capital paid to the holders of ordinary shares, but does not confer any further right to participate in the surplus assets of the Company.

7. EARNINGS AND NET ASSET VALUE PER ORDINARY SHARE
Revenue and capital earnings per ordinary share and net asset value per ordinary share are shown below and have been calculated using the following:


                              Six months ended Six months ended      Year ended
                                                                31 December 2019
                                 30 June 2020     30 June 2019
                                   (unaudited)      (unaudited)        (audited)

Net revenue profit                       1,119            3,111            7,106
attributable to ordinary
shareholders (US$’000)

Net capital (loss)/profit            (108,082)           35,606           38,390
attributable to ordinary
shareholders (US$’000)

                               ---------------  ---------------  ---------------

Total (loss)/profit                  (106,963)           38,717           45,496
attributable to ordinary
shareholders (US$’000)

                               ---------------  ---------------  ---------------

Equity shareholders’ funds             175,087          287,409          287,444
(US$’000)

                               ---------------  ---------------  ---------------

Earnings per share

The weighted average number         39,259,620       39,259,620       39,259,620
of ordinary shares in issue
during the period on which
the earnings per ordinary
share was calculated, was:

                               ---------------  ---------------  ---------------

The actual number of ordinary       39,259,620       39,259,620       39,259,620
shares in issue at the end of
the each period on which the
net asset value per ordinary
share was calculated, was:

                               ---------------  ---------------  ---------------

The number of ordinary shares       41,441,282       41,441,282       41,441,282
in issue, including treasury
shares at the period/year end
was:

                               ---------------  ---------------  ---------------

Calculated on weighted
average number of ordinary
shares:

Revenue profit (US$ cents)                2.85             7.92            18.10

Capital (loss)/profit (US$            (275.30)            90.70            97.78
cents)

                               ---------------  ---------------  ---------------

Total (loss)/profit (US$              (272.45)            98.62           115.88
cents)

                                      ========         ========         ========



   


                                          As at          As at            As at
                                   30 June 2020   30 June 2019  31 December 2019
                                     (unaudited)    (unaudited)
                                                                       (audited)

Net asset value per ordinary              445.97         732.07           732.15
share (US$ cents)

                                  -------------- --------------   --------------

Ordinary share price (mid-market)         418.87         659.26           643.17
(US$ cents)1

                                        ========       ========         ========



1     The Company’s share price is quoted in Sterling and the above represents the US Dollar equivalent based on exchange rates of $1.2356 to £1 (30 June 2019: $1.2727; 31 December 2019: $1.3248).

8. SHARE CAPITAL


                                          Ordinary  Treasury      Total  Nominal
                                            shares    shares     shares
                                             number    number     number  value
                                                                         US$’000

Allotted, called up and fully paid share
capital comprised:

Ordinary shares of 10 cents each:

At 31 December 2019 and 30 June 2020     39,259,620 2,181,662 41,441,282   4,144



During the period to 30 June 2020, no ordinary shares were purchased and transferred to treasury (six months ended 30 June 2019: nil; year ended 31 December 2019: nil).

No treasury shares were cancelled during the period (six months ended 30 June 2019: nil; year ended 31 December 2019: nil) or for the period from 30 June 2020 to the date of this report.

9. VALUATION OF FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are either carried in the Balance Sheet at their fair value (investments) or at an amount which is a reasonable approximation of fair value (due from brokers, dividends and interest receivable, due to brokers, accruals, cash and cash equivalents and overdrafts). Section 34 of FRS 102 requires the Company to classify fair value measurements using a fair value hierarchy that reflects the significance of inputs used in making the measurements. The valuation techniques used by the Company are explained in the accounting policies note on page 84 of the Annual Report and Financial Statements for the year ended 31 December 2019.

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset.

The fair value hierarchy has the following levels:

Level 1 – Quoted market price for identical instruments in active markets
A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The Company does not adjust the quoted price for these instruments.

Level 2 – Valuation techniques using observable inputs
This category includes instruments valued using quoted prices for similar instruments in markets that are considered less than active, or other valuation techniques where all significant inputs are directly or indirectly observable from market data.

Level 3 – Valuation techniques using significant unobservable inputs
This category includes all instruments where the valuation technique includes inputs not based on market data and these inputs could have a significant impact on the instrument’s valuation.

This category also includes instruments that are valued based on quoted prices for similar instruments where significant entity determined adjustments or assumptions are required to reflect differences between the instruments and instruments for which there is no active market. The Investment Manager considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement.

Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability. The determination of what constitutes ‘observable’ inputs requires significant judgement by the Investment Manager.

The table below is an analysis of the Company’s financial instruments measured at fair value at the balance sheet date.


Financial assets at        Level 1        Level 2        Level 3          Total
fair value through          US$’000        US$’000        US$’000        US$’000
profit or loss at 30
June 2020

(unaudited)


Equity investments          189,586              –              –        189,586

Fixed interest                    –             73              –             73
investments

                     -------------- -------------- -------------- --------------

Total                       189,586             73              –        189,659

                           ========       ========       ========       ========



   


Financial assets at        Level 1        Level 2        Level 3          Total
fair value through          US$’000        US$’000        US$’000        US$’000
profit or loss at 30
June 2019

(unaudited)


Equity investments          318,249              –              –        318,249

Fixed interest                    –            338              –            338
investments

                     -------------- -------------- -------------- --------------

Total                       318,249            338              –        318,587

                           ========       ========       ========       ========



   


Financial assets at        Level 1        Level 2        Level 3          Total
fair value through          US$’000        US$’000        US$’000        US$’000
profit or loss at 31
December 2019

(audited)


Equity investments          300,226              –              –        300,226

Fixed interest                    –            345              –            345
investments

                     -------------- -------------- -------------- --------------

Total                       300,226            345              –        300,571

                           ========       ========       ========       ========



The Company held no Level 3 securities as at 30 June 2020 (30 June 2019: nil; 31 December 2019: nil).

For exchange listed equity investments the quoted price is the bid price.

10. FINANCIAL RISKS
The Company’s investment activities expose it to the various types of risk which are associated with the financial instruments and markets in which it invests. The risks are substantially consistent with those disclosed in the previous annual financial statements with the exception of those outlined below.

Market risk arising from price risk
Price risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting similar financial instruments traded in the market. Local, regional or global events such as war, acts of terrorism, the spread of infectious illness or other public health issues, recessions, or other events could have a significant impact on the Company and the market price of its investments and could result in increased premiums or discounts to the Company’s net asset value.

An outbreak of an infectious respiratory illness caused by a novel coronavirus known as COVID-19 was first detected in China in December 2019 and has now developed into a global pandemic. This coronavirus has resulted in travel restrictions, closed international borders, enhanced health screenings at ports of entry and elsewhere, disruption of and delays in healthcare service preparation and delivery, prolonged quarantines, cancellations, supply chain disruptions, and lower consumer demand, as well as general concern and uncertainty. The impact of COVID-19 has adversely affected the economies of many nations across the entire global economy, individual issuers and capital markets, and could continue to extents that cannot necessarily be foreseen. In addition, the impact of infectious illnesses in emerging market countries may be greater due to generally less established healthcare systems. Public health crises caused by the COVID-19 outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its effects cannot be determined with certainty.

A key metric used by the BlackRock Risk and Quantitative Analysis Group to measure market risk is Value-at-Risk (“VaR”) which encompasses currency, interest rate and price risk. VaR is a statistical risk measure that estimates the potential portfolio loss from adverse market movements in an ordinary market environment. VaR analysis reflects the interdependencies between risk variables, unlike a traditional sensitivity analysis.

The one-day VaR as of 30 June 2020 and 31 December 2019 based on a 99% confidence level was 14.66% and 3.23% respectively. The higher VaR number is representative of higher market volatility during the period as a result of the COVID-19 pandemic described above.

11. TRANSACTIONS WITH THE INVESTMENT MANAGER AND AIFM
BlackRock Fund Managers Limited (BFM) provides management and administration services to the Company under a contract which is terminable on six months’ notice. BFM has (with the Company’s consent) delegated certain portfolio and risk management services, and other ancillary services, to BlackRock Investment Management (UK) Limited (BIM (UK)). Further details of the investment management contract are disclosed on pages 46 & 47 of the Directors’ Report in the Company’s Annual Report and Financial Statements for the year ended 31 December 2019.

The investment management fee is levied quarterly, based on 0.80% per annum of the net asset value on the last day of each month.

The investment management fee payable for the six months ended 30 June 2020 amounted to US$636,000 (six months ended 30 June 2019: US$1,088,000; year ended 31 December 2019: US$2,194,000). At the period end, an amount of US$643,000 was outstanding in respect of investment management fees (30 June 2019: US$563,000; 31 December 2019: US$1,161,000).

In addition to the above services BIM (UK) has provided the Company with marketing services. The total fees paid or payable for these services for the period ended 30 June 2020 amounted to US$49,000 excluding VAT (six months ended 30 June 2019: US$55,000; year ended 31 December 2019: US$117,000). Marketing fees of US$166,000 were outstanding at 30 June 2020 (30 June 2019: US$169,000; 31 December 2019: US$117,000).

The ultimate holding company of the Manager and the Investment Manager is BlackRock, Inc. a company incorporated in Delaware USA. During the period, PNC Financial Services Group, Inc. (“PNC”) was a substantial shareholder in BlackRock, Inc. PNC did not provide any services to the Company during the financial year ended 31 December 2019 and the period up to the 11 May 2020. On 11 May 2020, PNC announced its intent to sell its investment in BlackRock, Inc. through a registered offering and related buyback by BlackRock, Inc.

12. RELATED PARTY DISCLOSURE
The Board consists of five non-executive Directors, all of whom are considered to be independent by the Board. None of the Directors has a service contract with the Company. With effect from 1 January 2020, the remuneration of the Chairman was increased from £47,000 to £47,800, the remuneration of the Chairman of the Audit Committee was increased from £36,000 to £36,700, the remuneration of the Senior Independent Director was increased from £34,000 to £34,600 and for the other Directors the remuneration was increased from £32,000 to £32,600.

At the period end and as at the date of this report members of the Board held ordinary shares in the Company as set out below:


                                     As at           As at
                          10 September 2020   30 June 2020
                                            Ordinary shares
                            Ordinary shares

Carolan Dobson (Chairman)             4,792           4,792

Craig Cleland                         5,000           5,000

Mahrukh Doctor                          686             686

Nigel Webber                          5,000           5,000

Laurie Meister1                         nil             nil



1     Laurie Meister was appointed as a Director of the board on 1 February 2020.

13. CONTINGENT LIABILITIES
There were no contingent liabilities at 30 June 2020, 30 June 2019 or 31 December 2019.

14. PUBLICATION OF NON STATUTORY ACCOUNTS
The financial information contained in this half yearly financial report does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. The financial information for the six months ended 30 June 2020 and 30 June 2019 has not been audited or reviewed by the Company’s auditors.

The information for the year ended 31 December 2019 has been extracted from the latest published audited financial statements, which have been filed with the Registrar of Companies. The report of the auditor in those financial statements contained no qualification or statement under sections 498(2) or (3) of the Companies Act 2006.

15. ANNUAL RESULTS
The Board expects to announce the annual results for the year ending 31 December 2020 in March 2020. Copies of the results announcement can be obtained from the Secretary on 020 7743 3000. The Annual Report and Financial Statements should be available by mid-March 2021, with the Annual General Meeting being held in May 2021.

16. POST BALANCE SHEET EVENTS
Until 2009, any dividends paid to the Company by non-UK companies were subject to UK corporation tax, although credit could be given for any withholding tax suffered. A number of cases challenging this treatment, on the basis that it was illegal under European Union law, were commenced against the UK tax authorities (“HMRC”). The litigation most relevant to the Company commenced in 2003 in the UK High Court, pursuant to the terms of a group litigation order (“GLO”). The Prudential Assurance Company Limited ultimately became the test case under the GLO.

On 25 July 2018, the UK Supreme Court handed down its judgment in the Prudential case, ruling that dividends on non-UK portfolio shareholdings were taxable but that credit should be given for the underlying foreign tax at the foreign nominal corporate income tax rate of the source country.

In June 2020, the Company received correspondence from HMRC accepting the entitlement of the Company to make a claim for double tax relief for the accounting periods to 31 December 2007, 31 December 2008 and 31 December 2009 (the “relevant accounting periods”). HMRC also confirmed in this correspondence that the Company was entitled to receive a refund for corporation tax paid in subsequent periods ending 31 December 2014, 31 December 2015 and 31 December 2016, which were paid on a protective basis in case the Company was not able to claim the double tax relief. 

The corporation tax refund expected to be received by the Company following HMRC’s acceptance of the claims for the relevant accounting periods amounted to £1,572,210 and was recognised in the NAV as revenue through the Company’s profit and loss account with effect from 7 July 2020. Subsequent to this, on 17 August 2020, an amount was received from HMRC totalling £1,744,105. This includes repayment of an amount previously recognised in the Company's net asset value prior to 7 July 2020 and interest relating to the relevant accounting periods.

For further information, please contact:

Melissa Gallagher, Managing Director, BlackRock Investment Management (UK) Limited
Tel: 020 7743 3000

Press enquiries:
Ed Hooper, Lansons Communications – Tel: 020 7294 3620
E-mail: BlackRockInvestmentTrusts@lansons.com or EdH@lansons.com
 

10 September 2020

12 Throgmorton Avenue
London EC2N 2DL

END

The Half Yearly Financial Report will also be available on the BlackRock Investment Management website at http://www.blackrock.com/uk/brla.  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.