19 February 2008
MERRILL LYNCH LATIN AMERICAN INVESTMENT TRUST PLC
Preliminary announcement of results in respect of the year
ended 31 December 2007
- The net asset value per share at 31 December 2007 was 1115.89 cents
(2006: 783.03 cents).
- Net asset value total return of 44.1% (in US dollar terms).
- Share price total return of 44.5% (in US dollar terms).
- Second interim dividend of 7.0 cents (2006: 6.5 cents) per share
payable on 16 April 2008 to shareholders on the register as at 29
February 2008.
For further information please contact:
Peter Burnell - Chairman - 01434 632292
Jonathan Ruck Keene, Managing Director Investment Trusts - 020 7743 2178
Emma Phillips, Media & Communications - 020 7743 5938
BlackRock Investment Management (UK) Limited
or
William Clutterbuck - 020 7379 5151
The Maitland Consultancy
The Chairman, Peter Burnell, comments:
For the fifth year running I am pleased to report excellent performance from
Latin American equity markets. Since 2 January 2003 the Company's net asset
value per share ("NAV") has grown by 636% and the share price by 817.4% (both
in US$ terms with income reinvested). During 2007 Latin America benefited from
a stable macro environment in the form of low debt levels allied to
strengthening currencies (against the US$). The Brazilian market now
represents 64.6% of the index. It particularly benefits from very strong
growth in exports of hard and soft commodities, fuelled principally by the
growth of China and India, coupled with strong increases in domestic consumer
demand. Despite increased volatility which affected all global equity markets,
the region was able to recover strongly from the periodic setbacks, a
recurring theme of late. The development of the Latin American Market over the
past 5 years from a market cap of US$ 92.6 billion to US$ 744.4 billion is
striking. Latin America now represents 21.3% of the MSCI Global Emerging
Markets Index, which in turn represents approximately 6% of global indices.
There are 148 companies within the benchmark index of which close to 100 are
considered to be sufficiently liquid to be investable by the Company and a further
75 investable companies with a daily free float that is in excess of US$ 2
million exist outside the benchmark index. We currently have interests in 33
of them.
The NAV of your shares rose 44.1% in US$ terms on a total return basis
(41.6% in sterling terms) compared to the benchmark return of 50.7%
(48.1% in sterling terms). The share price returned 42.0% in sterling
terms and 44.5% in US$ terms.
The underperformance against the benchmark was due in particular to the
underweight position in Petrobras.
During the month of January 2008 the NAV fell by 7.4% in US$ terms, against
our benchmark index's 6.2% fall in the month, whilst the share price fell by
9.0%.
Revenue return and dividends
The Company generated a total return per share of 341.44 cents during the year
(2006: 254.41 cents per share) of which 12.47 cents is the revenue return
(2006: 8.81 cents per share). The Board declared an initial interim dividend
of 2.5 cents per share which was paid on 28 September 2007 (2006: 2.5 cents
per share) and is pleased to declare an additional interim dividend of 7.0
cents per share which will be payable on 16 April 2008 to shareholders on the
register as at 29 February 2008. This makes a total dividend of 9.5 cents per
share for the year. No final dividend is proposed. This represents an increase
of 5.6% over the previous year.
Discount Control
During a volatile period when investment trust discounts have in general
widened, ours has averaged 3.0% in 2007. At times the shares have traded at a
premium to their net asset value, and there was no month in the period in
which the discount was not below 2% at some point. This rating was achieved
without recourse to either tender offers or buybacks, and compares favourably
to historic discounts for the Company which have fallen each consecutive year
since 1998, from over 30% to a closing discount of 3% at 31 December 2007.
The Board has decided not to implement the next tender offer which would
otherwise have taken place at the end of March but will continue to closely
monitor the rating of the shares in the market and where necessary will
implement buybacks.
Gearing
As at 18 February 2008 the Company had an uncommitted facility of US$22.5
million and a committed facility of US$22.5 million. The Company did not have
any drawings under these facilities in the year under review, other than to
cover short term timing differences arising from the settlement of investment
transactions.
The Board's policy is to make tactical use of gearing when markets are
considered to be significantly over or under valued.
Company Name
Following the merger of Merrill Lynch Investment Managers with BlackRock in
September 2006, BlackRock became the master brand for the merged business.
Accordingly, a full product rebrand is under way and the Board now expects to
put forward proposals with regard to your Company's name for shareholder
approval at a general meeting in late April. BlackRock will bear the costs
incurred in changing the name of the Company.
Directorate
It is with much regret that I report that Mr Fred Packard decided to retire as
a Director of the Company on 31 December 2007. Fred was a co-founder of the
Company and has served as a director since its launch in 1990. I would again
like to express our sincere thanks to Fred for his outstanding contribution to
the success of the Company during his long service.
In his place we were very pleased to welcome Mr Antonio Monteiro de Castro to
the Board in November 2007. He retired from British American Tobacco ("BAT")
on 31 December 2007 following a long career with BAT which culminated in his
appointment as Chief Operating Officer in 2004. Mr Monteiro de Castro also has
wide-ranging Latin American and international experience.
Management and Performance Fees
It was announced on 28 June 2007 that having taken financial advice from
Cenkos Securities plc, the Board had recently reviewed the basis of
remuneration of the Manager and agreed a revised management fee basis. The new
arrangements took effect from 1 July 2007.
Revised basic management fee: The Manager was previously entitled to a fee of
1.0% per annum of NAV, paid quarterly in arrears. This has been reduced to
0.85% per annum of NAV.
New performance fee: The Manager is now entitled to a performance fee equal to
10.0% of any outperformance of the NAV per share (on a US dollar total return
basis) over the MSCI EM Latin American Index (on a US dollar total return
basis) plus a hurdle of 1.0%. The amount of performance fee payable in any one
year will be capped at 1.0% of NAV. For the first six month period running
from 1 July 2007 to 31 December 2007, the cap would have been pro-rated
accordingly but in the event no performance fee was payable . Any performance
fee will only be paid to the extent that the cumulative performance since 1
July 2007 is ahead of the MSCI EM Latin American Index (on a US dollar total
return basis).
Outlook
Latin America, particularly in the wake of recent market corrections,
continues to offer attractive valuation levels given superior earnings growth
prospects by comparison with other regions. The overall fundamentals remain
strong and these should allow good performance to continue over the coming
year.
Brazil seems set to lead the way, with growth in the in the 4% to 5% range and
strong support via increasing domestic demand. Mexico, whilst slowing in
harness with the US economy, is still growing at a healthy rate. Although
Latin America as a region continues to trade on some of the lowest forward P/E
multiples in the world, valuations in Chile and the Andean markets look less
attractive.
It is important to remain wary of economic developments in the US. However,
the likelihood of sustained growth in Global Emerging Markets seems set to
provide sound support for Latin American equities.
Continuation Vote
Given the continuing strong performance of Latin American equity markets the
Board recommends that Shareholders vote in favour of the bi-annual
continuation vote which will be proposed at the forthcoming Annual General
Meeting
Annual General Meeting
The Annual General Meeting will be held at 12 noon on Tuesday, 13 May 2008 at
the offices of BlackRock at 33 King William Street, London EC4R 9AS. We hope
that as many shareholders as possible will attend. Following the AGM there
will be a presentation by Will Landers, the Portfolio Manager on the outlook
for the year ahead, and therefore an opportunity to meet with the Manager and
Directors and light refreshments.
Commenting upon the outlook for the Company, Will Landers of BlackRock, the
Investment Manager, notes:
Overview
In the year under review, Latin America once again ranked among the best
performing markets in the world. The MSCI EM Latin America Index has posted a
compounded annual rate of return of 50.8% for the last five years. The region
continues to benefit from stable, mid-single digit GDP growth, a current
account surplus in aggregate that has reduced the region's vulnerability to
external shocks, strong balance sheets and growing margins at the corporate
level and global investors that continue to search for higher yields. In
addition, in several markets, local institutional investors are becoming more
active, creating a captive buyer for local shares that over time should help
to reduce volatility.
The year was dominated by volatility in equity markets across Latin America
and the wider markets. In February 2007, concerns about Chinese economic
growth drove Latin American markets down 12.5% in a two week period. From
early March to mid-July, markets performed strongly as concerns regarding
China abated, earnings revisions throughout the region were positive, the
Brazilian Central Bank continued to cut interest rates, and commodity prices
began to move upwards resulting in a market appreciation of 47.8%. In
mid-summer we saw the beginning of the sub prime crisis and the decline in
Latin American markets by 22.9% through to mid-August. From that point, the
market reacted positively to the US Federal Reserve indicating that it would
act if necessary, resulting in a series of rate cuts for the year amounting to
100 basis points. The market appreciated another 47.8% to an all-time high of
4,619 points on 29 October 2007. From there the market was range bound,
finishing the year 4.6% off its high.
Brazil was by far the strongest performing market during 2007, ending the year
up 72.4%. Performance in the Brazilian market was led by mega cap Petrobr�s
the region's largest company by market capitalisation which increased its
market position by appreciating 132%. Steel and mining stocks also performed
strongly whilst oil and materials were the only two sectors to outperform the
overall market. Peru was the second leading market in the region led by its
mining stocks which benefited from strong commodity prices. Chile was a
distant third, with local pension funds forced to reduce exposure to the
domestic market during the fourth quarter as Chilean equities had become too
large relative to regulatory maximum weights. Finally, the Mexican market
produced a return of just above 10%; however, the market sold off 10% in the
last two months of the year given its close correlation to the US economy and
investors' concerns about the state of the US economy.
Equity Foreign Country
market exchange risk
% change FX/ % % YTD
Region/indices Level US$ US$ change BPS change
Argentina 2,152 - 3.15 -2.8 219 -32
Brazil 63,886 72.4 1.78 20.0 220 30
Chile 3,052 21.4 498 7.1 151 67
Colombia 10,694 6.4 2,018 22.0 195 34
Mexico 29,526 10.6 10.92 -0.9 172 57
Peru 17,525 45.0 3.00 6.6 178 60
Venezuela 37,904 -27.4 2,147 - 523 340
MSCI GEMs 1,245 36.5 - - - -
MSCI Latam 4,400 50.7 - - - -
MSCI Asia 513 38.3 - - - -
MSCI EMEA 463 25.8 - - - -
Source: Santander Investment Research
Portfolio Review
The Company posted a 44.1% return for 2007, underperforming the 50.7% return
of its benchmark, the MSCI EM Latin American Index (both percentages in US
dollar terms with income reinvested). Our country allocation during the year
was correct, as we actually increased the weighting in Brazil significantly to
almost 72% of the portfolio compared with 61% at the beginning of the year,
most of this coming at the expense of Mexico, which finished the year with a
weighting just below 20%. We also increased our weighting in Argentina while
further reducing exposure to Chile and Colombia. Stock selection and
interaction accounted for our underperformance as described below.
Our Brazilian portfolio accounted for a majority of the underperformance
during 2007. As mentioned earlier, Petrobr�s' shares more than doubled during
the year. While we had started the year with a slight underweight position
relative to its 13.9% benchmark weight, we reduced the position in the middle
of the year to fund investments in companies we believed offered stronger,
domestic-oriented growth while we were concerned with Petrobr�s' operating
performance. However, in the fourth quarter, the company announced a
significant new oil find in its Tupi field (offshore in Brazil), causing a
significant rally in the stock. We increased our position to approximately 14%
of assets by early December, still a significant underweight position given
the stock's year end benchmark weight of 19.5% but our holding is restricted
by the Company's investment trust requirements. Overall, Brazil accounted for
approximately two thirds of the underperformance compared with the benchmark.
In Mexico, while maintaining an underweight position of approximately 250
basis points throughout the year and generating positive allocation
contribution to returns, the portfolio suffered from its overweight position
in Mexican homebuilders. Notwithstanding fundamentals which are unrelated to
the performance of US homebuilders, the Mexican counterparts underperformed
the market despite posting superior revenue and earnings growth and thus
resulted in negative selection and interaction attribution. This
underperformance was somewhat offset by our large underweight position in
global cement player Cemex, which increased its exposure to the US market in
the early part of the year and saw its stock price fall by 22% for the year.
In Chile, we generated both positive stock selection and country allocation as
we maintained an overweight position in retail and airlines while staying away
from the country's expensive material names (mostly pulp producers). Our zero
weight position in Peru also generated negative attribution, valuations in
this Andean market seemed excessive and we continue to look for a more
attractive opportunity.
In Argentina, the election of Cristina Kirchner as president did not change
our negative stance towards that market due to populist policies, government
intervention and severe capital controls (none of which changed in the early
days of Mrs Kirchner's presidency). We added to Tenaris in the second half of
the year with the expectation of improving results in the company's North
American operations and higher margins as new rigs are delivered worldwide.
Finally, in Colombia, we maintained an underweight position given capital
controls. The successful local listing of oil monopoly Ecopetrol adds a
potential new investment in the oil sector if and when the country lifts
capital controls.
Outlook and Positioning
We enter 2008 with a portfolio that is positioned to benefit from a
continuation of increased domestic economic activity in Brazil, a continuation
of the positive environment for both mining and oil stocks (Petrobr�s and Vale
each currently represent over 14% of the portfolio), and lower growth in
Mexico due to the slow down in the US economy. We expect that China will
continue to demand significant amounts of hard and soft commodities, and that
Latin America is uniquely positioned to benefit from this demand. This leads
to higher employment and increasing wages and thus domestic economic growth.
In Brazil, we are overweight in financials (despite the increase in the social
contribution tax rate for financial institutions announced early in 2008),
real estate developers, consumer stocks and materials. Brazilian investments
represent over 70% of assets, with over 28% being attributable to Petrobr�s
and CVRD. We expect that the Brazilian market will once again lead Latin
American equity returns. The IPO calendar has set consecutive capital raising
records in the past three years, and markets permitting should remain busy
during 2008. While the Brazilian Central Bank is currently on hold given that
inflation expectations are close to its year end target of 4.5%, we expect
overall loan growth to remain robust, the mortgage market to continue to
expand, and consumer lending to continue reaching new segments of the
population. As a result, domestic themes dominate the portfolio and will be
key for performance in 2008.
In Mexico we are underweight in consumer related names, most large
capitalisation stocks (with the exception of Am�rica M�vil), and continue to
be overweight in homebuilders. We are concerned about the negative contagion
that the current US economic slowdown has on the Mexican economy and expect
that Mexico may be the one country in Latin America which will suffer from
negative earnings revisions. However, Mexican homebuilders continue to be
attractive with expected revenue growth in the low teens for the sector
overall, Homex, our preferred name, has reiterated several times its
expectation for growing profitably at a faster pace than the overall Mexican
housing market. Our overweight position in the wireless pan-regional giant
Am�rica M�vil stems from our expectations of another year of strong growth,
but now with better margins given the company's larger base of existing
subscribers.
In Argentina, the overweight position in Tenaris hinges on an improving
operating environment as the rig count grows and North American operations are
now fully integrated, improving margins. The underweight position in Chile
reflects our concerns with valuations, higher than expected inflation levels,
and continued sales from local pension funds. Our exposure in Colombia remains
limited due to the capital controls currently in place while our underweight
position in Peru stems from the combination of few liquid investment
opportunities and relatively high valuation levels.
Overall, we don't anticipate that the current slowdown in the US economy
should have a significant impact on Global Emerging Markets' economic growth
levels given sustained growth levels in China and India. We continue to be
optimistic regarding Latin American equity prospects.
Ten Largest Investments
Petrobr�s - 14.3% (2006: 12.5%) represents one of the most attractive energy
stocks in all Emerging Markets. The Brazilian company continues to invest
heavily in increasing its production, utilising free cash flow generated from
elevated oil prices to guarantee future production growth. Recent new findings
off the coast of Brazil provide a new source of potentially sizeable oil and
gas reserves.
Cia Vale do Rio Doce - 13.4% (2006: 9.6%) CVRD is the world's largest producer
of iron ore and nickel (following the acquisition of Inco in Canada). The
Brazilian company is also active in copper, alumina, and other metals.
Am�rica M�vil - 9.1% (2006: 9.8%) is Latin America's leading provider of
wireless communications. The Mexican company continues to grow its subscriber
base while improving operating margins given its growing economies of scale.
Banco Bradesco - 6.7% (2006: 6.8%) Brazil's leading private sector bank is in
an advantageous position to benefit from the strong demand for credit in the
domestic market. Credit is expected to continue growing in 2008 at similar
rates to those recorded over the past two years.
Usiminas - 3.8% (2006: 2.2%) is Brazil's largest steel producer and is
enjoying growth of higher value added products to the domestic market due to
growing demand from automobile and white goods manufacturers.
Tenaris - 3.5% (2006: 2.8%) Argentine headquartered Tenaris is one of the
world's leading producers of seamless pipes - as such, the company is a
leading provider of raw materials to the oil services industry and should
continue to benefit from increased investments in oil exploration and
development projects.
Unibanco - 3.3% (2006: 2.7%) is Brazil's third largest private bank and a
leader in consumer financing. The company continues to enjoy higher margins
from an ongoing cost rationalisation program.
AmBev Cia De Bebidas - 2.5% (2006: 3.0%) is Brazil's leading beverages company
with operations throughout the Americas. The company is well positioned to
benefit from the expected growth in Brazil's domestic economy while also
growing and improving profitability levels in operations elsewhere.
All Am�rica Latina Log�stica - 1.5% (2006: 1.9%) is Brazil's largest operator
of railroads, controlling the cargo network for the South and Southeast areas
dominated by agribusiness. The company is also in the process of revitalising
the recently acquired Southeast network.
Banco Ita� - 1.5% (2006: 1.0%) is Brazil's second largest private bank and has
been increasing its presence in consumer credit. Ita� is also a leader in
wholesale and corporate banking, and has invested heavily in its investment
banking operations.
INCOME STATEMENT
for the year ended 31 December 2007
Revenue Revenue Capital Capital
return return return return Total Total
2007 2006 2007 2006 2007 2006
Notes US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Gains on investments held at fair value
through profit
or loss - - 159,691 152,026 159,691 152,026
Exchange losses - - (245) (282) (245) (282)
Income from investments 3 10,887 10,224 - - 10,887 10,224
Other income 3 58 96 - - 58 96
Management fees 4 (999) (1,072) (2,998) (3,216) (3,997) (4,288)
Other operating expenses 5 (1,395) (1,306) (34) (36) (1,429) (1,342)
--------- --------- ---------- ---------- ---------- ----------
Net return before finance costs and taxation 8,551 7,942 156,414 148,492 164,965 156,434
Finance costs 7 (40) (204) (121) (611) (161) (815)
--------- --------- ---------- ---------- ---------- ----------
Return on ordinary activities before taxation 8,511 7,738 156,293 147,881 164,804 155,619
Taxation on ordinary activities 8 (2,554) (2,406) 919 769 (1,635) (1,637)
--------- --------- ---------- ---------- ---------- ----------
Return on ordinary activities after taxation 5,957 5,332 157,212 148,650 163,169 153,982
--------- --------- ---------- ---------- ---------- ----------
Return per ordinary share - cents 10 12.47 8.81 328.97 245.60 341.44 254.41
--------- --------- ---------- ---------- ---------- ----------
The total column of this statement represents the Income Statement of the
Company. The supplementary revenue and capital return columns are both
prepared under guidance published by the AIC. The Company had no recognised
gains or losses other than those disclosed in the Income Statement and the
Reconciliation of Movements in Shareholders' Funds. All items in the above
statement derive from continuing operations. No operations were acquired or
discontinued during the year.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the year ended 31 December 2007
Non
Share Capital distri- Capital Capital
Share premium redemption Special butable reserve - reserve - Revenue
capital account reserve reserve reserve realised unrealised reserve Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
For the year ended 31
December
2007
At 31 December 2006 4,779 11,655 4,207 - 4,356 213,110 130,248 5,851 374,206
Return for the year - - - - - 65,565 91,647 5,957 163,169
Share repurchase
costs written back - - - - - 207 - - 207
Dividends paid (a)* - - - - - - - (4,301) (4,301)
-------- --------- -------- ---------- -------- ----------- ----------- -------- ----------
At 31 December 2007 4,779 11,655 4,207 - 4,356 278,882 221,895 7,507 533,281
-------- --------- -------- ---------- -------- ----------- ----------- -------- ----------
For the year ended 31
December
2006
At 31 December 2005 7,413 11,655 1,573 32,837 4,356 210,799 127,892 6,727 403,252
Return for the year - - - - - 146,294 2,356 5,332 153,982
Shares repurchased
and cancelled (2,634) - 2,634 (32,837) - (143,983) - - (176,820)
Dividends paid (b)* - - - - - - - (6,208) (6,208)
-------- --------- -------- ---------- -------- ----------- ----------- -------- ----------
At 31 December 2006 4,779 11,655 4,207 - 4,356 213,110 130,248 5,851 374,206
-------- --------- -------- ---------- -------- ----------- ----------- -------- ----------
(a) The second interim dividend paid in respect of the year ended 31 December
2006 of 6.5 cents per share declared on 15 February 2007 and paid on 27 March
2007 and the first interim dividend for the year ended 31 December 2007 of 2.5
cents per share declared on 7 August 2007 and paid on 28 September 2007.
(b) The second interim dividend paid in respect of the year ended 31 December
2005 of 6.5 cents per share declared on 10 April 2006 and paid on 19 May 2006
and the first interim dividend for the year ended 31 December 2006 of 2.5
cents per share declared on 8 August 2006 and paid on 12 September 2006.
* See note 9
BALANCE SHEET
as at 31 December 2007
2007 2006
Note US$'000 US$'000
Fixed assets
Investments held at fair value through profit or 534,759 376,782
loss
----------- ----------
Current assets
Debtors 3,162 3,286
----------- ----------
3,162 3,286
Creditors: amounts falling due within one year
Bank overdrafts (1,891) (2,321)
Other creditors (2,725) (3,517)
----------- ----------
(4,616) (5,838)
----------- ----------
Net current liabilities (1,454) (2,552)
----------- ----------
Total assets less current liabilities 533,305 374,230
----------- ----------
Creditors: amounts falling due after more than (24) (24)
one year
----------- ----------
Net assets 533,281 374,206
----------- ----------
Capital and reserves
Share capital 4,779 4,779
Share premium account 11,655 11,655
Capital redemption reserve 4,207 4,207
Non distributable reserve 4,356 4,356
Capital reserve - realised 278,882 213,110
Capital reserve - unrealised 221,895 130,248
Revenue reserve 7,507 5,851
----------- ----------
Total equity shareholders' funds 533,281 374,206
----------- ----------
Net asset value per ordinary share (cents) 10 1,115.89 783.03
----------- ----------
CASH FLOW STATEMENT
for the year ended 31 December 2007
2007 2006
Note US$'000 US$'000
Net cash inflow from operating activities 6 5,114 6,018
Servicing of finance (163) (819)
Taxation paid (1,311) (1,049)
Capital expenditure and financial investment
Purchase of investments (203,174) (311,035)
Proceeds from sale of investments 204,581 483,082
Capital expenses (34) (34)
---------- ----------
Net cash inflow from capital expenditure and
financial investment 1,373 172,013
---------- ----------
Equity dividends paid (4,301) (6,208)
---------- ----------
Net cash inflow before financing 712 169,955
---------- ----------
Financing:
Repurchase of ordinary shares - (176,576)
Tender offer costs paid (37) -
---------- ----------
Net cash outflow from financing (37) (176,576)
---------- ----------
Increase/(decrease) in cash in the year 675 (6,621)
---------- ----------
NOTES TO THE PRELIMINARY RESULTS
1. Principal activity
The principal activity of the Company is that of an investment trust company
within the meaning of section 842 of the ICTA.
2. Accounting policies
(a) Basis of preparation
The Company's financial statements have been prepared in accordance with UK
Generally Accepted Accounting Practice ("UK GAAP") and with the Statement of
Recommended Practice 'Financial Statements of Investment Trust Companies'
("SORP") revised in December 2005 and the Companies Act 1985 applicable to
companies reporting under UK GAAP. The principal accounting policies adopted
by the Company are set out below. All of the Company's operations are of a
continuing nature.
The Company's financial statements are presented in US dollars, which is the
currency of the primary economic environment in which the Company operates.
All values are rounded to the nearest thousand dollars (US$'000) except where
otherwise indicated.
(b) Presentation of Income Statement
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 Income Statement between items of a revenue and capital nature
has been presented alongside the Income Statement. In accordance with the
Company's status as a UK investment company under section 266 of the Companies
Act 1985, net capital returns may not be distributed by way of dividend.
(c) Segmental reporting
The Directors are of the opinion that the Company is engaged in a single
segment of business being investment business.
(d) Income
Dividends receivable on equity shares are treated as revenue for the year on
an ex-dividend basis. Where no ex-dividend date is available, dividends
receivable on or before the year end are treated as revenue for the year.
Provisions are made for dividends not expected to be received. Fixed returns
on non equity securities are recognised on a time apportionment basis.
Interest income and expenses are accounted for on an accruals basis.
Dividends are accounted for in accordance with Financial Reporting Standard 16
'Current Taxation' (FRS16) on the basis of income actually receivable, without
adjustment for the tax credit attaching to the dividends. Dividends from
overseas companies continue to be shown gross of withholding tax.
Where the Company has elected to receive its dividends in the form of
additional shares rather than in cash, the amount of the cash dividend
foregone is recognised as income. Any excess in the value of the shares
received over the amount of the cash dividend foregone is recognised in
capital reserve.
Special dividends are recognised on an ex-dividend basis and treated as a
capital or revenue item depending on the facts or circumstances of each
dividend.
(e) Expenses
All expenses are accounted for on an accruals basis. Expenses have been
treated as revenue except as follows:
- expenses which are incidental to the acquisition or disposal of investments
are included within the cost of the investments or deducted from the disposal
proceeds of investments and are thus charged to the capital return;
- the investment management fee has been allocated 75% to the capital reserve
- realised and 25% to the revenue return in line with the Board's expected
long term split of returns, in the form of capital gains and income
respectively, from the investment portfolio.
- any performance fees are allocated 100% to the capital reserve - realised,
as performance is assumed to be predominantly generated through capitalreturns of the investment portfolio.
(f) Finance costs
Finance costs are accounted for on an accruals basis. Finance costs are
allocated, insofar as they relate to the financing of the Company's
investments, 75% to capital reserve - realised and 25% to the revenue return,
in line with the Board's expected long term split of returns, in the form of
capital gains and income respectively, from the investment portfolio.
(g) Taxation
Deferred taxation is recognised in respect of all temporary differences at the
balance sheet date, where transactions or events that result in an obligation
to pay more taxation in the future or right to pay less taxation in the future
have occurred at the balance sheet date. This is subject to deferred taxation
assets only being recognised if it is considered more likely than not that
there will be suitable profits from which the future reversal of the temporary
differences can be deducted.
Where expenses are allocated between capital and revenue, any tax relief
obtained in respect of those expenses is allocated between capital and revenue
on the marginal basis using the Company's effective rate of corporation
taxation for the accounting period.
(h) 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 FRS 26 - Financial Instruments: Recognition and
Measurement and are managed and evaluated on a fair value basis in accordance
with its investment strategy.
All investments are designated upon initial recognition as held at fair value
through profit or loss. These sales of assets are recognised at the trade date
of the disposal. Proceeds will be measured at fair value which will be
regarded as the proceeds of sale less any transaction costs.
The fair value of the financial instruments is based on their quoted bid price
at the balance sheet date on the exchange on which the investment is quoted,
without deduction for the estimated future selling costs. Unquoted investments
are valued by the Directors at fair value using International Private Equity
and Venture Capital Association Guidelines. This policy applies to all current
and non current asset investments of the Company.
Changes in the value of investments held at fair value through profit or loss
and gains and losses on disposal are recognised in the Income Statement as
"Gains or losses on investments held at fair value through profit or loss".
Also included within this heading are transaction costs in relation to the
purchase or sale of investments.
(i) Capital redemption reserve
The nominal value of ordinary share capital repurchased for cancellation is
transferred out of share capital and into the capital redemption reserve.
(j) Capital reserves
Capital reserve - unrealised
The following transactions are accounted for in this reserve:
- gains and losses on the realisation of non current asset investments
- realised exchange differences of a capital nature
- costs of professional advice, including irrecoverable VAT, relating to the
capital structure of the Company
- other capital charges and credits charged or credited to this account in
accordance with the above policies
- cost of purchasing ordinary share capital and warrants
Capital reserve - unrealised
The following transactions are accounted for in this reserve:
- increases and decreases in the valuation of investments held at the year end
- unrealised exchange differences of a capital nature.
(k) Dividends payable
Under FRS 21 final dividends should not be accrued in the financial statements
unless they have been approved by shareholders before the balance sheet date.
Interim dividends should not be accrued in the financial statements unless
they have been paid. Dividends payable to equity shareholders are recognised
in the Reconciliation of Movements in Shareholders' Funds when they have been
approved by shareholders in the case of a final dividend, or paid in the case
of an interim dividend, and become a liability of the Company.
(l) Foreign currency translation
All transactions in foreign currencies are translated into US dollars at the
rates of exchange ruling on the dates of such transactions. Foreign currency
assets and liabilities at the balance sheet date are translated into US
dollars at the exchange rates ruling at that date. Exchange differences
arising on the revaluation of investments held as fixed assets are included in
capital reserve - unrealised. Exchange differences arising on the translation
of foreign currency assets and liabilities are taken to capital reserve -
realised.
(m) Going concern
The Company's Articles of Association require that at the 2008 AGM an Ordinary
Resolution be put to the Company's shareholders to approve its continuation. The
Directors are recommending that the Company's shareholders vote in favour of the
resolution. The Directors believe that the Company has adequate resources to
continue in existence for the foreseeable future. For these reasons the Board
has agreed that it is appropriate for the accounts to be prepared on a going
concern basis.
3. Income
2007 2006
US$'000 US$'000
Investment income:
Overseas listed dividends 10,696 9,985
Scrip dividend 191 239
-------- --------
10,887 10,224
-------- --------
Other income:
Deposit interest 58 96
-------- --------
Total 10,945 10,320
-------- --------
4. Management fees
2007 2006
Revenue Capital Revenue Capital
return return Total return return Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Management fees to
Blackrock 999 2,998 3,997 535 1,606 2,141
Management fees to
FCEM - - - 537 1,610 2,147
Total 999 2,998 3,997 1,072 3,216 4,288
The Investment Manager is also entitled to a performance fee equal to 10% of
any outperformance of the NAV per share against the benchmark, the MSCI EM
Latin America Index (in US dollar terms on a total return basis) plus a hurdle
of 1%. In the period to 31 December 2007 the performance fee was capped at
0.5% of net asset value and thereafter it is capped at 1%.
No performance fee is payable in respect of the year ended 31 December 2007.
Following the success of the AIC and JPMorgan Claverhouse Investment Trust plc
case against HM Revenue & Customs, investment trusts are no longer subject to
VAT on management fees. The case will have no financial impact on the Company
as it reclaims all of its VAT.
5. Other expenses
2007 2006
US$'000 US$'000
AIC subscriptions 36 26
Auditors' remuneration:
- for audit services 60 54
- for other services* - 15
Custody fees 418 318
Directors' and Officers' liability insurance 28 32
Directors' emoluments:
- fees for services to the Company 307 353
Printing and postage 72 52
Professional fees 264 194
Registrar's fees 33 29
Sundry expenses 177 233
-------- --------
1,395 1,306
-------- --------
The Company's total expense ratio ("TER"), calculated as a percentage of
average net assets using expenses, excluding performance fees and finance
costs, after relief for taxation, was 0.8% (2006: 1.0%).
The other expenses include VAT where applicable.
*Total Auditor's remuneration, exclusive of VAT, for other services amounted
to nil (2006: US$60,000 of which $45,000 related to services provided in
connection with the tender offer and was offset against the repurchases of
shares which were charged to the special reserve.
Expenses of US$34,000 charged to the capital return column of the income
statement relate to transaction costs charged by the custodian on the
purchases and sales of investments (2006: US$36,000).
6. Reconciliation of net return before finance costs and taxation to net cash
flow from operating activities
2007 2006
US$'000 US$'000
Net return before finance costs and taxation 164,965 156,434
Less: Gains on investments held at fair value through
profit
or loss (159,691) (152,026)
Exchange losses of a capital nature 245 282
Non-operating expenses of a capital nature 34 36
(Increase)/decrease in accrued income (181) 356
Decrease in other debtors 108 17
(Decrease)/increase in creditors (175) 1,158
Scrip Dividends (191) (239)
-------- --------
Net cash inflow from operating activities 5,114 6,018
-------- --------
7. Finance costs
2007 2006
Revenue Capital Revenue Capital
return return Total return return Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Interest payable -
overdraft and loans 40 121 161 204 611 815
8. Taxation
(a) Analysis of the charge in year
2007 2006
Revenue Capital Revenue Capital
return return Total return return Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Current taxation:
Corporate taxation 2,378 (919) 1,459 2,493 (1,148) 1,345
Double taxation
relief (560) - (560) (1,029) - (1,029)
1,818 (919) 899 1,464 (1,148) 316
Foreign taxation 846 - 846 598 - 598
Prior year
adjustment 5 - 5 - - -
Total current
taxation
(see note 8b below) 2,669 (919) 1,750 2,062 (1,148) 914
Deferred taxation (115) - (115) 344 379 723
Total taxation 2,554 (919) 1,635 2,406 (769) 1,637
(b) Factors affecting the current taxation charge for the year
The taxation assessed for the year is lower than the standard rate of
corporation taxation in the UK for a large company of 30% (2006: 30%). The
differences are explained below:
2007 2006
US$'000 US$'000
Income from operations before taxation 164,804 155,619
---------- ---------
Return on ordinary activities multiplied by standard
rate of
corporation taxation (30%) 49,441 46,685
Effects of:
Non taxable gains on investments held at fair value
through
profit or loss (47,824) (45,512)
Relief for overseas taxation (560) (1,029)
Income taxable in different periods (96) 243
Overseas income not subject to corporation taxation (57) (71)
Effect of change in corporation taxation rate (23) -
Overseas taxation 846 598
Taxable special dividend 17 -
Prior year adjustment 5 -
Disallowed expenses 1 -
Capital expenses set off against income 919 1,148
Tax credit for the use of capital expenses (919) (1,148)
-------- --------
Current corporation taxation charge (note 7(a)) 1,750 914
-------- --------
Investment trusts are exempt from corporation taxation on capital gains
provided the Company obtains agreement from HMRC that section 842 ICTA tests
have been met.
(c) Movement in provision for deferred taxation
2007 2006
Revenue Capital Revenue Capital
return return Total return return Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Balance brought
forward 344 - 344 - (379) (379)
Charge of the year (115) - (115) 344 379 723
Balance carried
forward 229 - 229 344 - 344
9. Dividends
2007 2006
Dividends on ordinary shares Register date Payment date US$'000 US$'000
2005 Second interim of 6.50
cents 18 April 2006 19 May 2006 - 4,818
2006 Interim of 2.50 cents 18 August 2006 12 September 2006 - 1,390
2006 Second interim of 6.50
cents 2 March 2007 27 March 2007 3,106 -
2007 Interim of 2.50 cents 17 August 2007 28 September 2007 1,195 -
------- -------
4,301 6,208
------- -------
The Directors propose to pay a second interim dividend in respect of the year
ended 31 December 2007 of 7.0 cents per share on 16 April 2008, to all
shareholders on the register as at 29 February 2008. The proposed second
interim dividend has not been included as a liability in these financial
statements as interim dividends are only recognised in the financial
statements in the period in which they are paid.
The dividends disclosed in the note below have been considered in view of the
requirements of section 842 of the ICTA and section 266 of the Companies Act
1985, and the amounts proposed meet the relevant requirements as set out in
this legislation.
2007 2006
US$'000 US$'000
Dividend payable on equity shares:
First interim paid 2.50 cents (2006: 2.50 cents) 1,195 1,390
Second interim payable of 7.0 cents (2006: 6.50 cents) 3,345 3,106
-------- --------
4,540 4,496
-------- --------
Undistributed revenue comprises 13.0% of income from investments of
US$10,887,000.
10. Return and net asset value per ordinary share
Revenue and capital returns per share are shown below and have been calculated
using the following:
2007 2006
Net revenue attributable to ordinary shareholders (US$'000) 5,957 5,332
Net capital return attributable to ordinary shareholders
(US$'000) 157,212 148,650
---------- ----------
Total return (US$'000) 163,169 153,982
---------- ----------
Equity shareholders' funds (US$'000) 533,281 374,206
---------- ----------
The weighted average number of ordinary shares in issue
during the
year, on which the return per ordinary share was
calculated, was 47,789,753 60,524,468
-------------- --------------
The actual number of ordinary shares in issue at the end of
each year,
on which the net asset value was calculated, was 47,789,753 47,789,753
-------------- --------------
2007 2006
Revenue Capital Revenue Capital
return return Total return return
cents cents cents cents cents Total cents
Returns per share
Calculated on weighted
average number of
shares 12.47 328.97 341.44 8.81 245.60 254.41
Calculated on actual
number of shares 12.47 328.97 341.44 11.16 311.05 322.21
Net asset value per share 1,115.89 783.03
11. Share capital
2007 2006
Number US$'000 Number US$'000
Authorised share capital comprised:
Ordinary shares of 10 cents each 110,000,000 11,000 110,000,000 11,000
Allotted, issued and fully paid:
Ordinary shares in issue 47,789,753 4,779 74,134,179 7,413
Purchase of ordinary shares for
cancellation - - (26,344,426) (2,634)
--------------- --------------- --------------- ---------------
47,789,753 4,779 47,789,753 4,779
--------------- --------------- --------------- ---------------
During the year, no ordinary shares were purchased (2006: 26,344,426 shares at
a total cost of US$176,820,000).
The number of ordinary shares in issue at the year end was 47,789,753 (2006:
47,789,753).
The preliminary figures for the year ended 31 December 2007, which do not
constitute statutory accounts, are an extract from the Company's draft
accounts for the year. These accounts have not yet been delivered to the
Registrar of Companies, nor have the auditors yet reported on them. The
figures and financial information for the year ended 31 December 2006 are an
extract from the latest published accounts of the Company and do not
constitute the statutory accounts for that year. Those accounts have been
delivered to the Registrar of Companies and included the report of the
auditors which was unqualified and did not contain a statement under either
section 237(2) or section 237(3) of the Companies Act 1985.
The Annual General Meeting of the Company will be held at 33 King William
Street, London EC4R 9AS on Tuesday, 13 May 2008 at 12 noon.
The annual report and accounts will be posted to shareholders in late February
or early March 2008. Copies will also be available from the Company's
registered office at 33 King William Street, London, EC4R 9AS.
19 February 2008
33 King William Street
London EC4R 9AS
END
Grafico Azioni Merrill Lynch Latin Ame (LSE:MLLA)
Storico
Da Mag 2024 a Giu 2024
Grafico Azioni Merrill Lynch Latin Ame (LSE:MLLA)
Storico
Da Giu 2023 a Giu 2024
