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Annual Financial Report

Released 16:40 01-Dec-2017

Annual Financial Report

BlackRock Frontiers Investment Trust plc
(LEI: 5493003K5E043LHLO706)

PERFORMANCE RECORD

30 September
2017
30 September
2016
Attributable to ordinary shareholders
US Dollar
Net assets (US$’000) 350,247 276,397
Net asset value per share 196.91 168.19
Ordinary share price (mid market)1 199.91 167.58
-------------------- --------------------
Sterling
Net assets (£’000)1 261,047 212,777
Net asset value per share1 146.76 129.48
Ordinary share price (mid market) 149.00 129.00
-------------------- --------------------
Premium/(Discount) 1.5% (0.4%)
=========== ===========
Year ended
30 September
2017
%
Year ended
30 September
2016
%

Since
inception3
%
Performance – total return basis
US Dollar
Net asset value per share (with income reinvested) +21.5 +9.3 +59.3
MSCI Frontiers Index (NR)2 +25.5 +0.9 +32.7
MSCI Emerging Markets Index (NR)2 +22.5 +16.8 +15.1
Ordinary share price (with income reinvested) +23.6 +11.6 +59.2
------------- ----------- ------------
Sterling
Net asset value per share (with income reinvested) +17.7 +27.4 +84.8
MSCI Frontiers Index (NR)2 +21.5 +17.7 +54.2
MSCI Emerging Markets Index (NR)2 +18.6 +36.2 +33.7
Ordinary share price (with income reinvested) +19.8 +30.0 +84.5
----------- ---------- ----------

1    Based on an exchange rate of $1.3417 to £1 at 30 September 2017 and $1.2990 to £1 at 30 September 2016.
2    Net return (NR) indices calculate the reinvestment of dividends net of withholding taxes using the tax rates applicable to non-resident institutional investors.
3    The Company was incorporated on 15 October 2010 and its shares were admitted to trading on the London Stock Exchange on 17 December 2010.

CHAIRMAN’S STATEMENT

Dear Shareholder,

I am pleased to present to you the Annual Report and Financial Statements for the year ended 30 September 2017.

OVERVIEW
During the year to 30 September 2017, your Company’s Net Asset Value per share (NAV) increased by 21.5%, compared with the benchmark, the MSCI Frontier Markets Index, which rose by 25.5%. The MSCI Emerging Markets Index rose by 22.5% over the same period. (All performance figures are in US Dollars on a total return basis). Although the Company has underperformed its benchmark this year, this is nevertheless a strong absolute return for shareholders, once again demonstrating the benefits of investing in the asset class.

Over the longer term, your Company has generated an impressive total return of 59.3% since launch in 2010, comparing favourably to an increase of 32.7% for the MSCI Frontier Markets Index over the same period. Returns are even higher for sterling based investors, with a sterling equivalent NAV total return of 84.8% since launch, compared with the benchmark return in sterling terms of 54.2% over the same period.

Frontier Markets have continued to perform strongly during the year. The portfolio’s exposure to countries such as Argentina, Kuwait, Kazakhstan and Egypt have been the key drivers of the returns delivered. The investment managers have also adjusted the portfolio, increasing our exposure to Africa and the Middle East and reducing exposure to South Asian countries, such as Pakistan, as their views of the macro-economic environment, currency strength and the investment opportunities available have changed. One of the key advantages of an investment vehicle of this size is the ability to move swiftly to adjust exposure weightings and reallocate capital as the Frontier Markets evolve or when new opportunities present themselves. The contributors and detractors to overall investment performance and the Investment Manager’s view on the outlook for Frontier Markets are in the report which follows.

REVENUE RETURN AND DIVIDENDS
The Company’s revenue return per share for the year amounted to 7.70 cents (2016: 6.40 cents). The Directors are recommending the payment of a final dividend of 4.20 cents per ordinary share (2016: 4.00 cents) in respect of the year ended 30 September 2017. Together with the interim dividend of 2.70 cents per share (2016: 2.60 cents), this represents a total of 6.90 cents per share (2016: 6.60 cents), an increase of 4.5% over total dividends paid in the previous year. Subject to shareholder approval, this dividend will be paid on 9 February 2018 to shareholders on the register of members at close of business on 5 January 2018. The Company does not have a policy of actively targeting income, nevertheless, this return represents an attractive yield of 3.5%. We believe this is an attractive element of the total return generated for shareholders, particularly given the low returns being offered by traditional sources of income.

SHARE CAPITAL
The Directors recognise the importance to investors of ensuring that the Company’s share price is as close to its underlying NAV as possible. Accordingly, the Directors monitor the share price closely and will consider the issue of shares at a premium or the repurchase at a discount to balance demand and supply in the market. As at 30 September 2017, the Company had 177,868,108 ordinary shares in issue. In response to sustained demand for the Company’s shares, a total of 13,535,000 new ordinary shares were issued during the year to 30 September 2017. A further 2,898,000 new ordinary shares were issued during the period from 1 October 2017 up to the date of this report, bringing the total number of new shares issued to 16,433,000 and the authority taken from shareholders at the last AGM has been fully utilised, save in respect of 310 shares. There were no shares bought back during the year to 30 September 2017 or in the post year-end period up to the date of this report.

For the year under review the Company’s ordinary shares have traded at an average premium to NAV of 1.7% and were trading at a premium of 9.0% on a cum-income basis at 29 November 2017, the latest practicable date prior to the issue of this report. The Directors have the authority to buy back up to 14.99% of the Company’s issued share capital (excluding any shares held in treasury) and also to issue or sell from treasury on a non pre-emptive basis up to 10% of the Company’s issued share capital. Both authorities expire on the conclusion of the forthcoming AGM at which time resolutions will be put to shareholders seeking a renewal of these powers. Further information can be found in the Directors’ Report.

GENERAL MEETING
In the face of continuing demand and having regard to the benefits of enlarging the Company, the Directors have convened a General Meeting to be held at 2.00 p.m. on 11 December 2017 in order to seek Shareholder authority to issue further Ordinary Shares on a non-pre-emptive basis. In so doing the Directors have taken into account the desirability of limiting the premium to the Net Asset Value per Ordinary Share at which the Ordinary Shares trade in order to ensure that long-term investors who regularly acquire Ordinary Shares are not disadvantaged.

The Resolutions to be considered at the General Meeting will, if passed, give the Directors the authority to allot up to 18,076,610 Ordinary Shares, being approximately 10% of the issued ordinary share capital as at 13 November 2017 on a non-pre-emptive basis. The Directors intend to use this authority to satisfy continuing demand for the Ordinary Shares.

As with the Ordinary Share issuance to date, the Ordinary Shares will be issued at a premium to the last published Sterling Net Asset Value (cum-income) per Ordinary Share at the time the proposed allotment is agreed and will therefore be accretive to the Net Asset Value per Ordinary Share.

The authority conferred by the Resolutions will lapse at the conclusion of the next annual general meeting of the Company (the “2018 Annual General Meeting”), to be held in early 2018 when the Directors will seek renewed authority. If the authority conferred by the Resolutions is exhausted before the 2018 Annual General Meeting or if the authority renewed at the 2018 Annual General Meeting is subsequently exhausted, then the Directors intend to seek Shareholder authority to issue further Ordinary Shares on a non-pre-emptive basis at one or more subsequent general meetings. Further information can be found in the Director’s Report.

BOARD COMPOSITION
The Board consists of five wholly Independent Non-executive Directors. On 22 November 2016, Ms Ruddick retired from the Board having served since the Company’s inception in 2010. We thank Ms Ruddick for her invaluable contribution to the Company’s success during her tenure. Following Ms Ruddick’s retirement, Mr White was appointed as Chairman of the Company’s Audit and Management Engagement Committee. There have been no other changes to the composition of the Board or its committees during the year. The Board has a succession plan in place which ensures that a suitable balance of skills, knowledge, experience, independence and diversity is maintained to enable the Board to effectively discharge its duties. In accordance with the Company’s Articles of Association, the Directors are subject to re-election by rotation and therefore Mr Murray and Mr Pitts-Tucker will retire and will stand for re-election at the forthcoming Annual General Meeting ("AGM").

Further information on the experience and background of the Directors can be found in their biographies on page 24 of the Annual Report and Financial Statements.

OUTLOOK
Frontier Markets look relatively well positioned, with many of their  economies displaying superior growth rates, lower debt burdens and pro-business governments which are implementing structural reforms to encourage and support growth. Valuations also continue to look attractive, both in absolute and relative terms. The underlying economies to which these companies are exposed often exhibit little correlation to the global economies overall, which should provide portfolio diversification benefits.

However, the classification of what constitutes a Frontier Market by MSCI, the index provider, continues to evolve, with UAE, Qatar and Pakistan having been reclassified to Emerging Market status in recent years and Argentina currently under review for reclassification.   In the light of this the Board has discussed with the investment managers the option of widening the Trust’s remit to construct a sustainable and consistent investment universe which will allow the Company to access those markets which are fast growing and frontier in nature, show low correlations to more developed markets and are inefficient, and therefore offer the opportunity to generate attractive returns in excess of those available from the index. Currently, the largest 8 countries (Brazil, China, India, Korea, Mexico, Russia, South Africa and Taiwan) dominate the MSCI Emerging Markets index with a combined weight of 85%, while the other 16 countries represent 15% of the index and hence are often overlooked by investors in emerging markets. These ‘smaller’ Emerging Market countries, share many characteristics with the markets which are currently defined as Frontier Markets. We have discussed whether it would be sensible for the Company to expand its range of permitted markets to include these small Emerging Markets countries as and when opportunities are identified, but no decision has been made at the present time, and any change in the mandate would be subject to shareholder approval.

As you will read in the investment manager’s report which follows, the investment managers believe the case for investing in Frontier Markets remains compelling and continue to favour companies which have good growth prospects and sustainable margins, supported by robust balance sheets, low levels of debt and strong cash flows. They also remain flexible, poised to take advantage of opportunities or to reposition the portfolio, both at the country and stock level, or in anticipation of domestic, economic or political headwinds..

ANNUAL GENERAL MEETING
The AGM of the Company will be held at BlackRock’s offices at 12 Throgmorton Avenue, London EC2N 2DL on Wednesday, 7 February 2018 at 12.00 p.m. Details of the business of the meeting are set out in the Notice of Meeting on pages 86 to 89 of the Annual Report and Financial Statements. The investment managers will make a presentation to shareholders on the Company’s progress and the outlook for Frontier Markets. My fellow Directors and I look forward to meeting shareholders at this year’s AGM and encourage you to attend.

AUDLEY TWISTON-DAVIES
Chairman
1 December 2017

INVESTMENT MANAGER’S REPORT

PORTFOLIO & MARKET COMMENTARY
During the 12 months to September 2017, the BlackRock Frontiers Investment Trust returned 21.5%. The MSCI Emerging Markets Index rose by 22.5% over the same period, while the MSCI Frontier Market Index rose by 25.5%. Since inception the Company has returned 59.3%, compared to the return of 32.7% for the MSCI Frontier Market Index, while MSCI Emerging Markets have lagged significantly, returning 15.1%.

The last year has continued to demonstrate the benefits of investing in a portfolio of diverse and uncorrelated markets, where domestic rather than global economic and political developments drive market returns. All countries in the index, except for Oman, delivered positive returns over the year. However, the year was notable for the narrowness of performance leadership with Argentina (+44%) and Kuwait (+41%) the only large markets to significantly outperform the benchmark. Nine stocks across these two markets, which together contribute around 25% of benchmark weight created around half of the benchmark return.

Argentina emerged from recession in the first quarter of 2017 and the economy has continued to expand through the rest of the year. In August, the market welcomed the better than expected showing of President Mauricio Macri in mandatory primary elections, allaying market fears of a resurgence in support for previous President Christina Fernandez de Kirchner. This result, which was subsequently confirmed in October elections, should allow the current government to continue their reform agenda. At a stock level, Argentine utility, Pampa Energia (+86%), contributed most to our returns, following the announcement of substantial tariff hikes across their regulated businesses as well as growth in their E&P business.

In Kuwait, the government continues to slowly implement a reform agenda and activity levels have picked up across the economy, leading to an earnings acceleration which has driven the market. It was announced in September 2017 that the country will be reclassified as an Emerging Market by FTSE with effect from September 2018. We expect that this will attract some renewed interest in the market. Whilst we had increased our exposure to Kuwait at the beginning of the period, in particular to some bottom-up ideas which made good contributions to absolute returns, our overall underweight to the country detracted on a relative basis.

The significant weighting in Kazakhstan benefited the Company due to strong stock selection. Our holding in a mobile network operator, KCell, rose by 74% over the year and was one of the top contributors to our returns. The company guided for positive tariff revisions and a more optimistic outlook for profits in the second half of 2017, which helped its share price despite weaker than expected second quarter 2017 results. Halyk Bank rallied 43% as it announced the take-over of competitor, Kazkommertsbank. Post the merger, the bank is the leading banking franchise in the domestic market by a substantial margin which we believe will give them a sustainable competitive advantage in cost of funding versus its peers and should therefore deserve a higher valuation. We continue to hold a large weighting within the portfolio.

The Company also benefitted from individual stock picks such as a position in the medical diagnostic services company in Egypt, Integrated Diagnostics Holdings (‘IDH’), which reported good results despite the macro challenges, highlighting the strength of the firm’s business model, overall quality and its ability to maintain pricing power longer term. Conversely, Eurasian bottler, Coca-Cola Icecek, weighed on performance as its results disappointed investors despite improved volume performance from Pakistan. Also, Luxoft, an IT outsourcing company with operations in Ukraine, detracted from returns as it guided for weaker sales on the back of cuts in IT budgets by their two main financial clients.

PERFORMANCE FOR THE 12 MONTH PERIOD ENDING 30 SEPTEMBER 2017

Argentina 46.10
Kuwait 41.08
Kazakhstan 34.12
Mauritius 32.35
Serbia 31.78
Nigeria 26.07
Kenya 24.17
Estonia 24.02
Romania 22.71
Morocco 21.02
Pakistan 19.10
Croatia 15.69
Bangladesh 14.72
Bahrain 14.48
Lithuania 10.98
Jordan 10.25
Vietnam 8.45
Tunisia 4.42
Sri Lanka 3.61
Slovenia 3.47
Lebanon 2.59
Oman -7.41

Source: BlackRock.
Total return in US Dollars.

Over the past 12 months we increased our exposure to the Middle East and Africa. In Kuwait, we have added to positions in the belief that local stocks have become more attractively priced following a number of years of underperformance. We added to our exposure in Egypt following the devaluation of the Egyptian pound in November 2016. We believe that we will see the first signs of a reacceleration of activity in the third quarter 2017 economic data. The current account deficit narrowed to a two-year low of $3.5bn in the first quarter of 2017, on the back of recovering tourism, increasing remittances and a smaller trade deficit, showing the required external adjustment is taking place. We have increased our exposure to Egyptian healthcare operators; a sector where we believe growth can be driven from current low penetration levels. We have also substantially increased exposure to Nigeria over the year. Following the further devaluation of the Naira and introduction of the NAFEX rate, we believe that the exchange rate is now at a sustainable level. Whilst the policy direction has been slightly less orthodox than Egypt, nevertheless we felt that the stock market was pricing an overly pessimistic scenario and hence have added to positions.

On the other hand, we have fully exited Pakistan during the year. The market has done very well over the past 5 years and has contributed significantly to the returns of the Company, where we have been historically overweight. However, given the widening twin deficits and the decline in foreign exchange reserves, we see the currency as overvalued. In addition, we see limited upside potential in the stock names from here and hence we have sold our exposure.

The Board made the decision to accrue for Argentine Capital Gains Tax during the year. As of 30 September 2017, we have accrued $5.9m, which represents approximately 1.7% of the NAV. This has been a drag on relative performance.

EVOLUTION OF TOP COUNTRY EXPOSURE AND REGIONAL POSITIONING

Africa Asian Frontiers Balkans/Baltic/CIS Global Frontiers LatAm MENA
Dec-10 12.00 0.00 28.00 0.00 3.00 56.00
Jun-11 12.00 0.00 28.00 0.00 3.00 56.00
Dec-11 17.00 3.00 27.00 0.00 4.00 49.00
Jun-12 17.00 0.00 27.00 0.00 4.00 52.00
Dec-12 19.00 12.00 19.00 0.00 9.00 41.00
Jun-13 14.00 19.00 15.00 3.00 4.00 45.00
Dec-13 14.00 18.00 19.00 0.00 3.00 46.00
Jun-14 12.00 26.00 24.00 1.00 9.00 25.00
Dec-14 10.30 32.97 25.74 0.00 8.75 22.23
Jun-15 14.44 35.99 22.98 1.00 7.75 17.84
Dec-15 16.72 31.33 25.65 3.33 12.63 10.34
Jun-16 16.19 31.60 26.40 2.18 15.83 7.80
Dec-16 17.67 30.69 26.53 1.64 17.31 6.17
Jun-17 20.31 23.38 25.47 4.00 16.35 10.48
Sep-17 20.93 20.40 23.68 1.95 21.55 11.32

Source: BlackRock, London Stock Exchange Releases, from December 2010 to September 2017. Percentage of gross exposure.

OUTLOOK
We continue to be positive on Frontier Markets, especially where those markets are experiencing improved macroeconomic conditions, better political governance, cash flow growth, and cheap valuations.

Since the launch of the Company in December 2010, we have seen UAE and Qatar and more recently Pakistan reclassified from Frontier to Emerging Market status, whilst only Morocco has been downgraded. Given our expectation of the growth and development of stock markets across Frontier Markets, we believe that it is a natural evolution of this process and that reclassifications of countries to Emerging Markets will continue, with Argentina currently under review by MSCI. Replacements of these markets from countries currently not classified within the frontier universe will occur, but the speed of new additions is unlikely to keep pace with the promotions to Emerging Markets. As these countries leave the Frontier Markets index, there is the risk that the index loses the best performing countries and that concentration increases within the remaining index.

Frontier Markets continue to exhibit the characteristics that we believe represent a compelling opportunity for long-term investors. The combination of countries with the fastest growing GDP, the best demographic profiles, the lowest government debt and a substantial commodity endowment where it is possible to invest in companies on some of the lowest valuations in the world provides an unrivalled investment opportunity.

SAM VECHT & EMILY FLETCHER
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED

1 December 2017

TEN LARGEST INVESTMENTS1
as at 30 September 2017

Mobile Telecommunications (Kuwait, Telecommunication Services, 3.8% (2016: 2.0%)) also known as Zain, Mobile Telecommunications Kuwait has a commercial presence in 8 countries across the Middle East and North Africa with over 44 million subscribers. The Company enjoys a 40% market share in its home market, Kuwait.

Grupo Financiero Galicia (Argentina, Financials, 3.8% (2016: 3.4%)) is one of the largest private sector banks in Argentina, with a deposit market share of 9%. Through its various subsidiaries, Galicia is the largest credit card issuer in Argentina having issued over 9.5 million credit cards.

Pampa Energia (Argentina, Utilities, 3.7% (2016: 2.4%)) is the largest utility company in Argentina, which through its subsidiaries participates in the generation, transmission and distribution of electricity. The company also has significant oil and gas exploration and production assets, some of which were acquired through the acquisition of Petrobras Argentina.

IRSA Inversiones GDR (Argentina, Real Estate 3.6% (2016: 2.0%)) is the leading real estate development firm in Argentina. It is involved in the acquisition, development, and operation of shopping centers, and office and other non-shopping center properties, primarily for rental purposes. The company also acquires and operates hotels, develops and sells residential properties and acquires undeveloped land reserves for future development or sale.

Halyk Savings Bank (Kazakhstan, Financials, 3.6% (2016: 3.4%)) is one of Kazakhstan’s leading financial services groups and a leading retail bank with the largest customer base and distribution network in Kazakhstan. Halyk’s branch network consists of 566 outlets across the country, with 1,913 ATMs.

Equity Group2 (Kenya, Financials, 3.4% (2016: 2.7%)) is a large East African financial services company headquartered in Nairobi. The bank differentiates itself from its peers through its large retail customer base with nearly half of all bank accounts in Kenya.

MHP (Ukraine, Consumer Staples, 3.2% (2016: 3.1%)) is a food processor, specialising in poultry exports. From hatching through to finished poultry products, the production process is 100% owned. MHP also owns 11 distribution centres and a refrigerated delivery vehicle fleet which enables the company to distribute products directly to customers.

Burgan Bank (Kuwait, Financials, 2.9% (2016: nil)) is the third largest bank, in terms of assets, in Kuwait and is composed of five majority owned subsidiaries strategically located across the MENAT region and Turkey. It is one of the youngest banks in Kuwait, and operates a network of 24 branches and over 100 ATMs.

Square Pharmaceuticals2 (Bangladesh, Health Care, 2.9% (2016: 3.3%)) is the largest pharmaceutical company in Bangladesh, with a market share of 16%.

S.N.G.N. Romgaz (Romania, Energy, 2.7% (2016: 2.9%)) is the largest natural gas producer in Romania, supplying c. 5.6 billion cubic meters of gas per year. The company’s main production comes from the Transylvanian basin; the company also engages in exploration projects in the Black Sea.

1  Gross market exposure as a % of net assets. Percentages in brackets represent the portfolio holding at 30 September 2016.
2  Includes exposure gained via both contracts for difference and equity holdings.

PORTFOLIO ANALYSIS
as at 30 September 2017

COUNTRY ALLOCATION: ABSOLUTE WEIGHTS
(% OF GROSS MARKET EXPOSURE)

Argentina 19.8
Kuwait 12.1
Vietnam 10.5
Romania 9.4
Egypt 7.2
Kazakhstan 7.0
Morocco 5.9
Ukraine 5.2
Sri Lanka 4.7
Bangladesh 4.3
Nigeria 4.0
Kenya 3.4
Philippines 2.5
Eurasia 2.1
Slovenia 2.1
Estonia 2.0
Colombia 2.0
Other Africa 1.8
Pan – LATAM 1.5
Pan – Middle East 0.1

Source: BlackRock and Datastream.

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

Argentina 10.6
Egypt 7.2
Vietnam 6.6
Romania 5.8
Ukraine 5.2
Kazakhstan 5.2
Sri Lanka 2.8
Philippines 2.5
Eurasia 2.1
Colombia 2.0
Other Africa 1.8
Bangladesh 1.7
Estonia 1.5
Pan – LATAM 1.5
PAN – Middle East 0.1
Bulgaria -0.1
Slovenia -0.2
Lithuania -0.2
Serbia -0.2
Tunisia -0.7
Jordan -0.8
Mauritius -1.2
Bahrain -1.2
Morocco -1.3
Croatia -1.4
Kenya -2.0
Lebanon -3.6
Oman -5.6
Pakistan -8.9
Kuwait -10.0
Nigeria -11.6

Source: BlackRock.

SECTOR ALLOCATION: ABSOLUTE WEIGHTS
(% OF GROSS MARKET EXPOSURE)

Financials 35.9
Consumer Staples 13.0
Energy 11.6
Health Care 9.9
Telecommunication Services 8.1
Materials 7.3
Industrials 6.1
Real Estate 5.4
Utilities 5.3
Information Technology 3.3
Consumer Discretionary 1.7

Source: BlackRock and Datastream.

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

Health Care 6.7
Consumer Staples 4.4
Utilities 4.1
Information Technology 3.3
Energy 2.6
Industrials 2.6
Consumer Discretionary 1.3
Real Estate 0.9
Materials -0.2
Telecommunication Services -5.7
Financials -12.4

Source: BlackRock and Datastream.

INVESTMENTS
as at 30 September 2017


Principal
country of
operation



Sector
Fair value
and market
exposure1
US$’000
Gross market
exposure
as a % of
net assets3
Company
Equity portfolio
Grupo Financiero Galicia Argentina Financials 13,188 3.8
Pampa Energia Argentina Utilities 12,887 3.7
IRSA Inversiones GDR Argentina Real Estate 12,783 3.6
YPF ADR Argentina Energy 8,751 2.5
Banco Macro Argentina Financials 8,248 2.4
Grupo Supervielle ADR Argentina Financials 6,950 2.0
Transportadora De Gas Del Sur Argentina Energy 6,387 1.8
---------------------- ----------------------
69,194 19.8
---------------------- ----------------------
Mobile Telecommunications Kuwait Telecommunication Services 13,400 3.8
Burgan Bank Kuwait Financials 10,329 2.9
The National Bank of Kuwait Kuwait Financials 7,605 2.2
Mezzan Holdings Kuwait Consumer Staples 6,465 1.8
Kuwait Investment Projects Kuwait Financials 4,483 1.3
National Gulf Holding5 Kuwait Consumer Discretionary 211 0.1
---------------------- ----------------------
42,493 12.1
---------------------- ----------------------
S.N.G.N. Romgaz Romania Energy 9,489 2.7
BRD Groupe Societe Generale Romania Financials 7,046 2.0
Banca Transilvania Romania Financials 6,980 2.0
Societatea Energetica Electrica Romania Utilities 5,373 1.6
---------------------- ----------------------
28,888 8.3
---------------------- ----------------------
Halyk Savings Bank Kazakhstan Financials 12,620 3.6
Kcell Joint Stock Company Kazakhstan Telecommunication Services 6,664 1.9
KazMunaiGas Exploration Production Kazakhstan Energy 5,125 1.5
---------------------- ----------------------
24,409 7.0
---------------------- ----------------------
Integrated Diagnostics Egypt Health Care 8,746 2.5
Centamin Egypt Materials 7,800 2.2
Orascom Construction Egypt Industrials 5,464 1.6
Cleopatra Hospital Egypt Health Care 53 0.0
---------------------- ----------------------
22,063 6.3
---------------------- ----------------------
MHP Ukraine Consumer Staples 11,393 3.2
Luxoft Ukraine Information Technology 6,920 2.0
---------------------- ----------------------
18,313 5.2
---------------------- ----------------------
Zenith Bank Nigeria Financials 7,969 2.3
United Bank for Africa Nigeria Financials 6,177 1.7
---------------------- ----------------------
14,146 4.0
---------------------- ----------------------
Melstacorp Sri Lanka Consumer Staples 4,830 1.4
Hatton National Bank Sri Lanka Financials 4,079 1.2
Chevron Lubricants Sri Lanka Materials 3,535 1.0
---------------------- ----------------------
12,444 3.6
---------------------- ----------------------
Douja Promotion Groupe Addoha Morocco Real Estate 6,461 1.8
Attijariwafa Bank Morocco Financials 5,899 1.7
---------------------- ----------------------
12,360 3.5
---------------------- ----------------------
Equity Group Kenya Financials 11,668 3.3
---------------------- ----------------------
11,668 3.3
---------------------- ----------------------
LT Group Philippines Industrials 8,711 2.5
---------------------- ----------------------
8,711 2.5
---------------------- ----------------------
KRKA Slovenia Health Care 7,142 2.0
---------------------- ----------------------
7,142 2.0
---------------------- ----------------------
Ecopetrol ADR Colombia Energy 6,944 2.0
---------------------- ----------------------
6,944 2.0
---------------------- ----------------------
Tallink Estonia Industrials 6,689 1.9
---------------------- ----------------------
6,689 1.9
---------------------- ----------------------
Square Pharmaceuticals Bangladesh Health Care 2,726 0.8
---------------------- ----------------------
2,726 0.8
---------------------- ----------------------
Equity Investments 288,190 82.3
---------------------- ----------------------
BlackRock’s Institutional Cash Series plc – US Dollar Liquidity Fund 66,194 18.9
Total investments excluding CFDs 354,384 101.2
============= =============

   

Gross
market
exposure
as a %
of net
assets3
Principal
country of
operation
Gross market
exposure2
US$’000
Fair value1
US$’000
Company Sector
CFD portfolio
Long positions
Petrovietnam Fertilizer & Chemicals Vietnam Materials 7,759 2.3
Masan Vietnam Consumer Staples 7,002 2.0
Mobile World Vietnam Consumer Discretionary 5,592 1.6
FPT Vietnam Information Technology 4,664 1.3
Saigon Securities Vietnam Financials 4,636 1.3
Vietnam Prosperity JSC Bank Vietnam Financials 4,298 1.2
Quang Ngai Sugar Vietnam Consumer Staples 2,907 0.8
---------------------- ----------------------
36,858 10.5
---------------------- ----------------------
Square Pharmaceuticals Bangladesh Health Care 7,184 2.1
British American Tobacco Bangladesh Consumer Staples 4,949 1.4
---------------------- ----------------------
12,133 3.5
---------------------- ----------------------
Maroc Telecom Morocco Telecommunication Services 8,018 2.3
Attijariwafa Bank Morocco Financials 504 0.1
---------------------- ----------------------
8,522 2.4
---------------------- ----------------------
Coca Cola Icecek Eurasia Consumer Staples 7,378 2.1
---------------------- ----------------------
7,378 2.1
---------------------- ----------------------
Acacia Mining Other Africa Materials 6,242 1.8
---------------------- ----------------------
6,242 1.8
---------------------- ----------------------
Biotoscana Investments Pan – LATAM Health Care 5,306 1.5
---------------------- ----------------------
5,306 1.5
---------------------- ----------------------
Hatton National Bank Sri Lanka Financials 2,657 0.8
Melstacorp Sri Lanka Consumer Staples 1,287 0.3
Chevron Lubricants Sri Lanka Materials 145 0.0
---------------------- ----------------------
4,089 1.1
---------------------- ----------------------
OMV Petrom Romania Energy 3,684 1.1
---------------------- ----------------------
3,684 1.1
---------------------- ----------------------
Cleopatra Hospital Egypt Health Care 3,250 0.9
---------------------- ----------------------
3,250 0.9
---------------------- ----------------------
Equity Group Kenya Financials 303 0.1
---------------------- ----------------------
303 0.1
---------------------- ----------------------
Tallink Estonia Industrials 293 0.1
---------------------- ----------------------
293 0.1
---------------------- ----------------------
Ooredoo Pan – Middle East Telecommunication Services 230 0.1
---------------------- ----------------------
230 0.1
---------------------- ----------------------
KRKA Slovenia Health Care 225 0.1
---------------------- ----------------------
225 0.1
---------------------- ----------------------
National Gulf Holding5 Kuwait Consumer Discretionary 2 0.0
---------------------- ----------------------
2 0.0
---------------------- ----------------------
Total long CFD positions (1,399) 88,515 25.3
======= ============ ============

FAIR VALUE AND GROSS MARKET EXPOSURE OF INVESTMENTS
as at 30 September 2017

Gross
market
exposure
as a %
of net
assets3
Gross market
exposure2
US$’000
Fair value1
US$’000
Portfolio
Equity investments 288,190 288,190 82.3
---------------------- ---------------------- ----------------------
Total long CFD positions (1,399) 88,515 25.3
---------------------- ---------------------- ----------------------
Total gross long exposure 286,791 376,705 107.6
---------------------- ---------------------- ----------------------
BlackRock’s Institutional Cash Series plc – US Dollar Liquidity Fund4 66,194 66,194 18.9
---------------------- ---------------------- ----------------------
Total Investments 352,985 442,899 126.5
---------------------- ---------------------- ----------------------
Cash and cash equivalents4 5,448 (84,466) (24.2)
Net current liabilities (2,228) (2,228) (0.6)
Non-current liabilities (5,958) (5,958) (1.7)
---------------------- ---------------------- ----------------------
Net assets 350,247 350,247 100.0
============= ============= =============

1   Fair value is determined as follows:
–   Listed investments are valued at bid prices where available, otherwise at latest market traded quoted prices.
–   The sum of the fair value column for the CFD contracts totalling US$1,399,000 represents the fair valuation of all the CFD contracts, which is determined based on the difference between the purchase price and value of the underlying shares in the contract (in effect the unrealised gains/(losses) on the exposed positions). The cost of purchasing the securities held through long CFD positions directly in the market would have amounted to US$89,914,000 at the time of purchase, and subsequent market movement in prices have resulted in unrealised losses on the CFD contracts of US$1,399,000, resulting in the value of the total market exposure to the underlying securities rising to US$88,515,000 as at 30 September 2017.
2  Market exposure in the case of equity investments is the same as fair value. In the case of CFDs it is the market value of the underlying shares to which the portfolio is exposed via the contract.
3  % based on the total market exposure and gearing based on market exposure was 7.6%.
4  The gross market exposure column for Cash and Cash equivalents has been adjusted to assume the Company purchased direct holdings rather than exposure being gained through CFDs.
5  Unquoted investment.

STRATEGIC REPORT

The Directors present the Strategic Report of the Company for the year ended 30 September 2017.

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

INVESTMENT OBJECTIVE
The Company’s investment objective is to achieve long-term capital growth from investment in companies operating in Frontier Markets or whose stocks are listed on the stock markets of such countries.

STRATEGY, BUSINESS MODEL AND INVESTMENT POLICY
Strategy
To achieve its objective, the Company invests globally in the securities of companies domiciled or listed in, or exercising the predominant part of their economic activity in, Frontier Markets. Investment may also be made in the securities of companies domiciled or listed in, or exercising the predominant part of their economic activity in, more developed markets but with significant business operations in Frontier Markets.

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

The management of the investment portfolio and the administration of the Company have been contractually delegated to the Manager. The Manager has delegated certain investment management and other ancillary services to BlackRock Investment Management (UK) Ltd (BIM (UK)) (‘the Investment Manager’). The contractual arrangements with, and assessment of, the Manager are summarised on pages 30 and 31 of the Annual Report and Financial Statements. The Investment Manager, operating under guidelines determined by the Board, has direct responsibility for the decisions relating to the day-to-day running of the Company and is accountable to the Board for the investment, financial and operating performance of the Company. Other service providers include the Depositary and the Fund Accountant, Bank of New York Mellon (International) Limited, and the Registrar, Computershare Investor Services PLC (Computershare). Details of the contractual terms with third party service providers are set out in the Directors’ Report in the Annual Report and Financial Statements.

Investment policy
The Company will seek to maximise total return and will invest globally in the securities of companies domiciled or listed in, or exercising the predominant part of their economic activity in, Frontier Markets. A Frontier Market is defined as:

1)  any country that was not a constituent of the MSCI Emerging Markets Index or the MSCI Developed Markets Index as at 1 December 2015 (save for those countries specified in 2 below); or

2)  any of Colombia, Egypt, Peru or the Philippines, each of which was a member of the MSCI Emerging Markets Index as at 1 December 2015, but which share similar characteristics to those of less developed markets (such as low per capita GDP, high growth potential and less developed capital markets).

Investment in the securities of companies domiciled or listed in, or exercising the predominant part of their economic activity in, those countries specified in 2 above will be limited to a maximum of 20% of the gross value of the portfolio on an ongoing basis.

The Company will exit any investment as soon as reasonably practicable following that market becoming a constituent of the MSCI Developed Markets Index.

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

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

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

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

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

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

The Investment Manager will invest directly in securities only in countries where it is satisfied that acceptable custodial and other arrangements are in place to safeguard the Company’s investments. The Company’s portfolio may frequently be overweight or underweight relative to the benchmark Index.

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

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

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

A detailed analysis of the Company’s portfolio has been provided on pages 10 to 14 of the Annual Report and Financial Statements.

OUR INVESTMENT APPROACH

Portfolio construction is a continuous process, with the Investment Manager analysing constantly the impact of new ideas and information on the portfolio as a whole. The approach is flexible, varying through market and economic cycles to create a portfolio appropriate to the focused and unconstrained strategy of the Company. The macroeconomic environment is factored into all portfolio decisions. In general, macroeconomic analysis is a more dominant factor in investment decision making when the outlook is negative. The macro process is comprised of three parts: political assessment, macroeconomic analysis and appraisal of the valuation of a country’s market, which can only take place with thorough analysis of stock specific opportunities.

The Investment Manager’s research team generates ideas from a diverse range of sources. These include frequent travel to the markets in which the Company invests and regular conversations with contacts that allow the Frontiers team to assess the entire eco-system around a company; namely competitors, suppliers, financiers, customers and regulators. The team leverages the internal research network sharing information between BlackRock’s investment teams using a proprietary research application and database, and develop insights from macroeconomic analysis. The Board believes that BlackRock’s research platform is a significant competitive advantage, both in terms of information specific to emerging and frontier market equities and through its global insights across asset classes. Access to companies is extremely good given BlackRock’s market presence, which makes it possible to develop a detailed knowledge of a company and its management.

The research process focuses on cash flow, as the investment team believes that this is ultimately the driver of share prices over time. The process is designed with the aim of identifying companies that can translate top line revenue growth to free cash flow and investing in these companies when the analysis suggests that the cash flow stream is undervalued. Financial models are developed focusing on company financials, particularly cash flow statements, rather than relying on third party research.

The Investment Manager’s research team monitors differing levels of risk throughout the process and believes that avoiding major downside events can generate significant outperformance over the long term. Inputs from BlackRock’s Risk & Quantitative Analysis Team (RQA) are an integral part of the investment process. The overall premise of BlackRock’s risk analysis is to try and understand risk as opposed to avoiding risk. RQA analyse market and portfolio risk factors including stress tests, correlations, factor returns, cross-sectional volatility and attributions. BlackRock’s evaluation procedures and financial analysis of the companies within the portfolio also take into account environmental, social and governance matters and other business issues. The Company invests primarily on financial grounds to meet its stated objectives.

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

RESULTS AND DIVIDENDS
The results for the Company are set out in the Statement of Comprehensive Income which follows. The total profit for the year, after taxation, was US$60,204,000 (2016: profit of US$23,168,000) of which the revenue return amounted to US$13,107,000 (2016: US$10,113,000) and the capital profit amounted to US$47,097,000 (2016: profit of US$13,055,000).

The Directors are recommending the payment of a final dividend of 4.20 cents per ordinary share in respect of the year ended 30 September 2017 (2016: 4.00 cents) as set out in the Chairman’s Statement.

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

Performance measured against the benchmark
At each meeting the Board reviews the performance of the portfolio as well as the net asset value and share price for the Company and compares this to the return of the Company’s benchmark. The Board considers this to be an important key performance indicator and has determined that it should also be used to calculate whether a performance fee is payable to BlackRock. The Company’s absolute and relative performance is set out in the performance record table as set out at the head of this announcement.

Share rating
The Directors recognise the importance to investors that the Company’s share price should not trade at a significant discount to NAV. Accordingly, the Directors monitor the share rating closely and will consider share repurchases in the market if the discount widens significantly, or the issue of shares to the market to meet demand to the extent that the Company’s shares are trading at a premium. In addition, in accordance with the Directors’ commitment at launch the Company will formulate and submit to shareholders proposals to provide them with an opportunity at each five year anniversary since launch, to realise the value of their ordinary shares at the applicable NAV per share less costs. The next opportunity will take place on or around the date of the Company’s AGM in 2021.

For the year under review the Company’s shares have traded at an average premium to the cum-income NAV of 1.7% during the year, and were trading at a premium of 9.0% on a cum-income basis at 29 November 2017. The Directors have the authority to buy back up to 14.99% of the Company’s issued share capital (excluding treasury shares). This authority, which has not so far been utilised, expires at the 2018 AGM, when a resolution will be put to shareholders to renew it. The Directors sought and received shareholder authority at the last AGM to issue up to 10% of the Company’s issued share capital (via the issue of new shares or sale of shares from treasury) on a non pre-emptive basis. However, this authority has been fully utilised, save for 310 shares, and a renewal of this authority will be sought at a General Meeting convened specifically for this purpose on 11 December 2017. Further information can be found in the Directors’ Report on page 33 of the Annual Report and Financial Statements.

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

The table below sets out the key KPIs for the Company.

Year ended
30 September
20171
Year ended
30 September
20161
£% US$% £% US$%
Net asset value total return2 +17.7 +21.5 +27.4 +9.3
Sshare price total return3 +19.8 +23.6 +30.0 +11.6
Benchmark index total return4 +21.5 +25.5 +17.7 +0.9
Premium/(Discount) to cum income NAV 1.5 (0.4)
Ongoing charges5 1.4 1.4
Ongoing charges plus taxation and performance fees 1.6 2.4

1    Based on an exchange rate of US$1.3417 to £1 at 30 September 2017 and US$1.2990 to £1 at 30 September 2016.
2    Calculated with income reinvested in accordance with AIC guidelines.
3    Calculated on a mid to mid basis with income reinvested.
4    MSCI Frontiers Index (Net Return).
5    Calculated as a percentage of average net assets and using expenses, excluding performance fees, VAT refunded, finance costs and taxation.

The Board also regularly reviews a number of indices and ratios to understand the impact on the Company’s relative performance of the various components such as asset allocation and stock selection. The Board also reviews the performance of the Company against a peer group of Frontier Market open and closed-ended funds.

PRINCIPAL RISKS
The Board has in place a robust process to identify, assess and monitor the principal risks of the Company, including those that they consider would threaten its business model, future performance, solvency or liquidity. A core element of this is the Company’s risk register, which identifies the risks facing the Company and assesses the likelihood and potential impact of each risk, and the quality of the controls operating to mitigate the risk. A residual risk rating is then calculated for each risk based on the outcome of this assessment. This approach allows the effect of any mitigating procedures to be reflected in the final assessment.

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

The current risk register includes a range of risks spread between performance risk, income/dividend risk, legal & regulatory risk, counterparty risk, operational risk, market risk, political risk and financial risk.

The principal risks and uncertainties faced by the Company during the year, together with the potential effects, controls and mitigating factors, are set out below.

Principal Risk Mitigation/Control
Investment Performance Risk
The Board is responsible for: To manage these risks the Board:
- setting the investment policy to fulfil the Company's objective;
- monitoring the performance of the Company's Investment Manager and the strategy adopted.

An inappropriate policy or strategy may lead to:
- poor performance compared to the Company's benchmark, peer group or shareholder expectations;
- a widening discount to NAV;
- a reduction or perlmancent loss of capital; and
- dissatisfied shareholders and reputational damage.


 
- regularly reviews the Company's investment mandate and long term strategy;
- has set, and regularly reviews, the investment guidelines and has put in place appropriate limits on levels of gearing and the use of derivatives;
- recieves from the Investment Manager regular explanation of stock selection decisions, portfolio gearing and any changes in gearing and the rationale for the composition of the investment portfolio;
- receives from the Investment Manager regular reporting on the portfolio's exposure through derivatives, including the extent to which the portfolio is geared in this manner and the value of any short positions; and
- monitors the maintenance of an adequate spread of investments in order to minimise the risks associated with particular countries or factors specific to paricular sectors, based on the diversification requirements inherent in the Companys investment policy.
Income/Dividend Risk
The amount of dividends and future dividend growth will depend on the Company’s underlying portfolio. Any change in the tax treatment of the dividends or interest received by the Company (including as a result of withholding taxes or exchange controls imposed by jurisdictions in which the Company invests) may reduce the level of dividends received by shareholders. The Company does not have a policy of actively seeking income. The Board monitors this risk through the receipt of detailed income forecasts and considers the level of income at each meeting. The Company also has a revenue reserve and powers to pay dividends from capital which could potentially be used to support the Company’s dividend if required.
Legal & Regulatory Risk
The Company has been accepted by HM Revenue & Customs as an investment trust, subject to continuing to meet the relevant eligibility conditions, and operates as an investment trust in accordance with Chapter 4 of Part 24 of the Corporation Tax Act 2010. As such, the Company is exempt from capital gains tax on the profits realised from the sale of its investments.

Any breach of the relevant eligibility conditions could lead to the Company losing its investment trust status and being subject to corporation tax on capital gains realised within the Company’s portfolio.

In such event the investment returns of the Company may be adversely affected. Any serious breach could result in the Company and/or the Directors being fined or the subject of criminal proceedings or the suspension of the Company’s shares which would in turn lead to a breach of the Corporation Tax Act 2010. Amongst other relevant laws and regulations, the Company is required to comply with the provisions of the Companies Act 2006, the Alternative Investment Fund Managers’ Directive, the Market Abuse Act, the UK Listing Rules and the Disclosure & Transparency Rules.
The Investment Manager monitors investment movements, the level of forecast income and expenditure and the amount of proposed dividends, if any, to ensure that the provisions of Chapter 4 of Part 24 of the Corporation Tax Act 2010 are not breached and the results are reported to the Board at each meeting.

Following authorisation under the Alternative Investment Fund Managers’ Directive (AIFMD), the Company and its appointed Alternative Investment Fund Manager (AIFM) are subject to the risks that the requirements of this Directive are not correctly complied with. The Board and the AIFM also monitor changes in government policy and legislation which may have an impact on the Company.

Compliance with the accounting standards applicable to quoted companies and those applicable to investment trusts are also regularly monitored to ensure compliance.

The Company Secretary and the Company’s professional advisers monitor developments in relevant laws and regulations and provide regular reports to the Board in respect of the Company’s compliance.
Counterparty Risk
The Company’s investment policy also permits the use of both exchange-traded and over-the-counter derivatives (including contracts for difference). The potential loss that the Company could incur if a counterparty is unable (or unwilling) to perform on its commitments. Due diligence is undertaken before contracts are entered into and exposures are diversified across a number of counterparties. The Board reviews the controls put in place by the Investment Manager to monitor and to minimise counterparty exposure, which include intra-day monitoring of exposures to ensure that these are within set limits.
Operational Risk
In common with most other investment trust companies, the Company has no employees. The Company therefore relies upon the services provided by third parties and is dependent on the control systems of BlackRock (the Investment Manager and AIFM), and the Bank of New York Mellon (International) Limited (the Depositary and Fund Accountant), which ensures safe custody of the Company’s assets and maintains the Company’s accounting records.

Failure by any service provider to carry out its obligations to the Company could have a material adverse effect on the Company’s performance. Disruption to the accounting, payment systems or custody records, as a result of a cyber-attack or otherwise, could impact the monitoring and reporting of the Company’s financial position.

The security of the Company’s assets, dealing procedures, accounting records and maintenance of regulatory and legal requirements, depend on the effective operation of these systems.
The Board reviews the overall performance of the Manager, Investment Manager and all other third party service providers and compliance with the investment management agreement on a regular basis.

The Fund Accountant’s and the Manager’s internal control processes are regularly tested and monitored throughout the year and are evidenced through their Service Organisation Control (SOC 1) reports, which are subject to review by an Independent Service Assurance Auditor. The SOC 1 reports provide assurance in respect of the effective operation of internal controls.

The Company’s assets are subject to a strict liability regime and in the event of a loss of financial assets held in custody, the Depositary must return assets of an identical type or the corresponding amount, unless able to demonstrate that the loss was a result of an event beyond its reasonable control.

The Board considers succession arrangements for key employees of the Manager and the Investment Manager and receives reports on the business continuity arrangements for the Company’s key service providers.

The Board also receives regular reports from BlackRock’s internal audit function.
Market Risk
Market risk arises from volatility in the prices of the Company’s investments. It represents the potential loss the Company might suffer through realising investments in the face of negative market movements. The securities markets of Frontier Markets are not as large as the more established securities markets and have substantially less trading volume, which may result in a lack of liquidity and higher price volatility. There are a limited number of attractive investment opportunities in Frontier Markets and this may lead to a delay in investment and may affect the price at which such investments may be made and reduce potential investment returns for the Company.

There is also exposure to currency, market and political risk due to the location of the operation of the businesses in which the Company may invest. As a consequence of this and other market factors the Company may invest in a concentrated portfolio of shares and this focus may result in higher risk when compared to a portfolio that has spread or diversified investments more broadly.

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

The Company also gains exposure to Frontier Markets by investing indirectly through Promissory Notes (P-Notes) which presents additional risk to the Company as P-Notes are uncollateralised resulting in the Company being subject to full counterparty risk via the P-Note issuer. P-Notes also present liquidity issues as the Company, being a captive client of a P-Note issuer, may only be able to realise its investment through the P-Note issuer and this may have a negative impact on the liquidity of the P-Notes which does not correlate to the liquidity of the underlying security.
Market risk represents the risks of investment in a particular market, country or geographic region. Therefore, this is largely outside of the scope of the Board’s control. However, the Board carefully considers asset allocation, stock selection and levels of gearing on a regular basis and has set investment restrictions and guidelines which are monitored and reported on by the Investment Manager. Market risk is also mitigated through portfolio diversification across countries and regions. The Board monitors the implementation and results of the investment process with the Investment Manager regularly.

The Investment Manager also regularly reports to the Board on relative market risks associated with investment in such regions. Further information is provided under ‘Political Risk’.
Political Risk
Investments in Frontier Markets may include a higher element of risk compared to more developed markets due to greater political instability. Political and diplomatic events in Frontier Markets where the Company invests (for example, governmental instability, corruption, adverse changes in legislation or other diplomatic developments such as the outbreak of war or imposition of sanctions) could substantially and adversely affect the economies of such countries or the value of the Company’s investments in those countries. The Investment Manager mitigates this risk by applying stringent controls over where investments are made and through close monitoring of political risks. The Investment Manager’s approach to filtering the investment universe takes account of the political background to regions and is backed up by rigorous stock specific research and risk analysis, individually and collectively, in constructing the portfolio. The management team has a wide network of business and political contacts which provides economic insights with public and private bodies. This enables the Investment Manager to assess potential investments in an informed and disciplined way, as well as being able to conduct regular monitoring of investments once made. However, given the nature of political risk, all investments will be exposed to a degree of risk and the Investment Manager will ensure that the portfolio remains diversified across countries to mitigate the risk.
Financial Risk
The Company’s investment activities expose it to a variety of financial risks which include foreign currency risk, liquidity risk, currency risk and interest rate risk. Details of these risks are disclosed in note 17 to the financial statements, together with a summary of the policies for managing these risks.

VIABILITY STATEMENT
In accordance with provision C.2.2 of the UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a longer period than the 12 months referred to by the ‘Going Concern’ guidelines. The Board conducted this review for the period up to the AGM in 2022. In determining this period, the Board took into account the Company’s investment objective to achieve long-term capital growth and the fact that on or around the AGM in 2021 it will be necessary for the Board to formulate and submit to shareholders proposals (which may constitute a tender offer and/or other method of distribution, as was the case in 2016) to provide an opportunity to realise the value of their investment in the Company at NAV less applicable costs.

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

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

The Company is an investment company with a relatively liquid portfolio (as at 30 September 2017, 88% of the portfolio was capable of being liquidated in less than 20 days) and largely fixed overheads (excluding performance fees) which comprise a very small percentage of net assets (1.4%). In addition, any performance fees are capped at 1% of NAV in years where the NAV per share has fallen or 2.5% in years where the NAV per share has increased. Therefore, the Board has concluded that even in exceptionally stressed operating conditions, the Company would comfortably be able to meet its ongoing operating costs as they fall due.

However, investment companies may face other challenges, such as regulatory changes and the tax treatment of Investment Trusts, a significant decrease in size due to substantial share buy-back activity, which may result in the Company no longer being of sufficient market capitalisation to represent viable investment propositions or no longer being able to continue in operation.

The Board has also considered the current and potential future impact on the Company of the UK’s decision to leave the European Union following the referendum held in June 2016. It has concluded that the Company’s business model and strategy are not threatened by this event and therefore it does not believe that it represents a principal risk to the Company. In reaching this conclusion the Board considered whether this event has, or would be likely to have, a significant impact on the Company’s activities and whether or not the Investment Manager would be impeded in achieving its investment objectives as a result of the impact of the leave vote. The Board also considered the impact of potential changes in law, regulation and taxation and the matter of foreign exchange risk, noting that the devaluation of sterling following the vote is likely to have been beneficial for the Company’s UK investors. However, due to the complexity and general lack of information available at present, it is challenging to accurately assess the future impact of UK’s exit from the European Union. Therefore, the Board will continue to closely monitor the situation as it develops and will regularly reappraise its position.

Based on the results of their analysis, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment.

FUTURE PROSPECTS
The Board’s main focus is the achievement of capital growth and the future of the Company is dependent upon the success of the investment strategy. The outlook for the Company is discussed in both the Chairman’s Statement and in the Investment Manager’s Report.

SOCIAL, COMMUNITY AND HUMAN RIGHTS ISSUES
As an investment trust, the Company has no direct social or community responsibilities. However, the Company believes that it is in shareholders’ interests to consider environmental, social and governance factors and human rights issues when selecting and retaining investments. Details of the Company’s policy on socially responsible investment are set out on page 28 of the Annual Report and Financial Statements.

MODERN SLAVERY ACT
As an investment vehicle the Company does not provide goods or services in the normal course of business, and does not have customers. Accordingly, the Directors consider that the Company is not required to make any slavery or human trafficking statement under the Modern Slavery Act 2015. In any event, the Board considers the Company’s supply chain, dealing predominantly with professional advisers and service providers in the financial services industry, to be low risk in relation to this matter.

DIRECTORS, GENDER REPRESENTATION AND EMPLOYEES
The Directors of the Company on 30 September 2017, all of whom held office throughout the year, are set out in the Directors’ biographies on page 24 of the Annual Report and Financial Statements. As at the date of this report, the Board consists of five men. The Company does not have any employees.

BY ORDER OF THE BOARD
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED

Corporate Company Secretary
1 December 2017

RELATED PARTY TRANSACTIONS

BlackRock Fund Managers Limited (“BFM”) was appointed as the Company’s AIFM with effect from 2 July 2014. BFM has (with the Company’s consent) delegated certain portfolio and risk management services, and other ancillary services, to BIM (UK).

Details of the fees payable to BFM are set out in note 4 on page 57 of the Annual Report and Financial Statements. Transaction and relationship details are set out in the Directors' Report on pages 30 and 31 of the Annual Report and Financial Statements.

The investment management fee due for the year ended 30 September 2017 amounted to US$3,361,000 (2016: US$2,470,000). In addition, a performance fee is payable of US$596,000 (2016: US$2,581,000). At the year end, US$2,606,000 was outstanding in respect of management fees (2016: US$1,151,000) and US$596,000 (2016: US$2,581,000) was outstanding in respect of performance fees.

In addition to the above services, BlackRock has provided marketing services. The total fees paid or payable for these services for the year ended 30 September 2017 amounted to US$73,000 excluding VAT (2016: US$58,000) of which marketing fees of US$55,000 excluding VAT (2016: US$40,000) were outstanding as at year end.

The Company has an investment in BlackRock’s Institutional Cash Series plc – US Dollar Liquidity Fund of US$66,194,000 (2016: US$42,625,000) at the year end.

At the date of this report, the Board consists of five non-executive Directors, all of whom are considered to be independent of the Manager by the Board. Ms Ruddick,  who had served on the board up until 22 November 2016, was not considered to be independent as she also served as a director of another BlackRock managed investment trust.  However, Ms Ruddick retired from the Board with effect from 22 November 2016.  Mr Stephen White, who will take over from Ms Ruddick as Chairman of the Audit & Management Engagement Committee, joined the Board on 13 July 2016 and is wholly independent. 

None of the Directors has a service contract with the Company. For the year ended 30 September 2017, the Chairman received an annual fee of £36,000, the Chairman of the Audit & Management Engagement Committee receives an annual fee of £30,000 and each of the other Directors received an annual fee of £26,000.  The Board’s remuneration was last reviewed on 7 September 2017. Following this review it was agreed that all Directors’ fees would remain at the existing level.

At 30 September 2017, fees of US$16,000 (£12,000) (2016: US$17,000 (£13,000)) were outstanding to Directors in respect of their annual fees.

All  members of the Board hold ordinary shares in the Company. Audley Twiston-Davies holds 128,935 ordinary shares, John Murray holds 121,967 ordinary shares, Nick Pitts-Tucker holds 110,148 ordinary shares, Sarmad Zok holds 38,787 ordinary shares and Stephen White holds 30,000 ordinary shares.

STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND FINANCIAL STATEMENTS

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

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

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

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

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

Each of the Directors, whose names are listed on page 24 of the Annual Report, confirms to the best of their knowledge that:

The 2016 UK Corporate Governance Code also requires Directors to ensure that the Annual Report and Financial Statements are fair, balanced and understandable. In order to reach a conclusion on this matter, the Board has requested that the Audit & Management Engagement Committee advise on whether it considers that the Annual Report and Financial Statements fulfil these requirements. The process by which the Committee has reached these conclusions is set out in the Audit & Management Engagement Committee’s report on pages 42 and 43 of the Annual Report and Financial Statements. As a result, the Board has concluded that the Annual Report and Financial Statements for the year ended 30 September 2017, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy.

FOR AND ON BEHALF OF THE BOARD
AUDLEY TWISTON-DAVIES

Chairman
1 December 2017

STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 September 2017


Notes 
Revenue 
2017 
US$’000 
Revenue 
2016 
US$’000 
Capital 
2017
US$’000 
Capital 
2016 
US$’000 
Total 
2017 
US$’000 
Total 
2016 
US$’000 
Income from investments held at fair value through profit or loss 13,195  11,041   –   –  13,195  11,041 
Net income from contracts for difference 2,731  1,954   –   –  2,731  1,954 
Other income 42   –   –  42 
    --------   --------   --------   --------   --------   -------- 
Total revenue 15,968  12,999   –   –  15,968  12,999 
    --------   --------   --------   --------   --------   -------- 
Net profit on investments held at fair value through profit or loss 10   –   –  54,896  15,938  54,896  15,938 
Net (loss)/profit on foreign exchange  –   –  (835) 1,973  (835) 1,973 
Net profit from contracts for difference 11   –   –  3,367  915  3,367  915 
    --------   --------   --------   --------   --------   -------- 
Total 15,968  12,999  57,428  18,826  73,396  31,825 
    --------   --------   --------   --------   --------   -------- 
Expenses
Investment management and performance fees (672) (494) (3,285) (4,557) (3,957) (5,051)
Other operating expenses (1,062) (1,005) (130) (70) (1,192) (1,075)
    --------   --------   --------   --------   --------   -------- 
Total operating expenses (1,734) (1,499) (3,415) (4,627) (5,149) (6,126)
    --------   --------   --------   --------   --------   -------- 
Net profit on ordinary activities before finance costs and taxation 14,234  11,500  54,013  14,199  68,247  25,699 
Finance costs (2) (277) (7) (1,106) (9) (1,383)
    --------   --------   --------   --------   --------   -------- 
Net profit on ordinary activities before taxation 14,232  11,223  54,006  13,093  68,238  24,316 
Taxation (1,125) (1,110) (6,909) (38) (8,034) (1,148)
    --------   --------   --------   --------   --------   -------- 
Profit for the year 13,107  10,113  47,097  13,055  60,204  23,168 
    --------   --------   --------   --------   --------   -------- 
Earnings per ordinary share (cents) 7.70  6.40  27.67  8.26  35.37  14.66 
    ========   ========   ========   ========   ========   ======== 

The total column of this statement represents the Company’s Statement of Comprehensive Income, prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU). The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies (AIC). All items in the above statement derive from continuing operations. No operations were acquired or disposed of during the year. All income is attributable to the equity holders of the Company.

The Company does not have any other comprehensive income. The net profit for the year disclosed above represents the Company’s total comprehensive income.

STATEMENT OF CHANGES IN EQUITY
for the year ended 30 September 2017



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

Special 
reserve 
US$’000 

Capital 
reserves 
US$’000 

Revenue 
reserve 
US$’000 


Total 
US$’000 
For the year ended 30 September 2017
At 30 September 2016 1,643  21,456  5,798  230,794  8,804  7,902  276,397 
Total comprehensive income:
Net profit for the year  –   –   –   –  47,097   13,107  60,204 
Transactions with owners, recorded directly to equity:
Share issues 15 & 16   135   24,967   –  –   –   –   25,102 
Share issue costs 16   –  (148)  –  –   –   –  (148)
C share issue costs 16  –  –  –  (18) –  –  (18)
Dividends paid*  –   –   –   –   –  (11,290) (11,290)
    --------   --------   --------   --------   --------   --------   -------- 
At 30 September 2017 1,778  46,275  5,798  230,776  55,901  9,719  350,247 
    --------   --------   --------   --------   --------   --------   -------- 
For the year ended 30 September 2016
At 30 September 2015 1,506   –   5,798  231,030  (4,251) 8,312  242,395 
Total comprehensive income:
Net profit for the year  –   –   –   –  13,055  10,113  23,168 
Transactions with owners, recorded directly to equity:
Share issues – conversion of C shares 137  21,456   –   –   –   –  21,593 
Cash exit tender offer costs  –   –   –  (236)  –   –  (236)
Dividends paid**  –   –   –   –   –  (10,523) (10,523)
    --------   --------   --------   --------   --------   --------   -------- 
At 30 September 2016 1,643  21,456  5,798  230,794  8,804  7,902  276,397 
    --------   --------   --------   --------   --------   --------   -------- 

*     Final dividend of 4.00 cents per share for the year ended 30 September 2016, declared on 22 November 2016 and paid on 17 February 2017 and interim dividend paid in respect of the year ended 30 September 2017 of 2.70 cents per share, declared on 25 May 2017 and paid on 30 June 2017.
**    Final dividend of 4.15 cents per share for the year ended 30 September 2015, declared on 17 December 2015 and paid on 19 February 2016 and interim dividend paid in respect of the year ended 30 September 2016 of 2.60 cents per share, declared on 16 May 2016 and paid on 1 July 2016.
 

STATEMENT OF FINANCIAL POSITION
as at 30 September 2017

Notes  2017 
US$’000 
2016 
US$’000 
Non current assets
Investments held at fair value through profit or loss 10  354,384  267,684 
    --------   -------- 
Current assets
Other receivables 12  5,416  5,118 
Derivative financial assets held at fair value through profit or loss 11  882  884 
Cash and cash equivalents 11  5,947  8,729 
Cash held on margin deposit with brokers 11  1,431  450 
    --------   -------- 
13,676  15,181 
    --------   -------- 
Total assets 368,060  282,865 
    --------   -------- 
Current liabilities
Other payables 13  (7,644) (5,705)
Derivative financial liabilities held at fair value through profit or loss 11  (2,281) (577)
Collateral held in respect of contracts for difference 11  (1,930) (167)
    --------   -------- 
(11,855) (6,449)
    --------   -------- 
Total assets less current liabilities 356,205  276,416 
    --------   -------- 
Non current liabilities
Non current tax liability  7 (c) (3,286) – 
Deferred taxation liability  7 (c) (2,653) – 
Management shares of £1.00 each (one quarter paid) 14  (19) (19)
    --------   -------- 
Net assets 350,247  276,397 
    --------   -------- 
Equity attributable to equity holders
Called up share capital 15  1,778  1,643 
Share premium account 16  46,275  21,456 
Capital redemption reserve 16  5,798  5,798 
Special reserve 16  230,776  230,794 
Capital reserves 16  55,901  8,804 
Revenue reserve 16  9,719  7,902 
    --------   -------- 
Total equity 350,247  276,397 
    --------   -------- 
Net asset value per ordinary share (US cents) 196.91  168.19 
    ========   ======== 

CASH FLOW STATEMENT
for the year ended 30 September 2017

2017 
US$’000 
2016 
US$’000 
Operating activities
Net profit on ordinary activities before taxation 68,238  24,316 
Add back finance costs 1,383 
Net profit on investments and contracts for difference held at fair value through profit or loss (including transaction costs) (59,209) (17,407)
Net loss/(gain) on foreign exchange 835  (1,973)
Sales of investments held at fair value through profit or loss 230,064  247,533 
Purchases of investments held at fair value through profit or loss (261,868) (259,833)
Realised losses on closure of contracts for difference (24,567) (19,917)
Realised gains on closure of contracts for difference 30,586  22,060 
Increase in other receivables (592) (47)
(Decrease)/ increase in other payables (568) 1,653 
Decrease in amounts due from brokers 294  300 
Net movement in cash held on margin deposit with brokers (981) 695 
Increase/(decrease) in amounts due to brokers 2,507  (5,852)
Collateral received/(pledged) in respect of contracts for difference 1,763  (93)
 --------   -------- 
Net cash outflow from operating activities before interest and taxation (13,489) (7,182)
 --------   -------- 
Interest paid (9) (3)
Taxation paid (2,095) (1,148)
 --------   -------- 
Net cash outflow from operating activities (15,593) (8,333)
 --------   -------- 
Financing activities
Tender costs paid –  (236)
Proceeds from share issues 25,102  – 
Proceeds from issue of C shares –   20,904 
Share issue costs paid (166) (691)
Dividends paid (11,290) (10,523)
 --------   -------- 
Net cash inflow from financing activities 13,646  9,454 
 --------   -------- 
(Decrease)/increase in cash and cash equivalents (1,947) 1,121 
Effect of foreign exchange rate changes (835) 1,973 
 --------   -------- 
Change in cash and cash equivalents (2,782) 3,094 
Cash and cash equivalents at start of the year 8,729  5,635 
 --------   -------- 
Cash and cash equivalents at end of the year 5,947  8,729 
 --------   -------- 
Comprised of:
Cash at bank 5,947  8,729 
 --------   -------- 
5,947  8,729 
 ========   ======== 

NOTES TO THE FINANCIAL STATEMENTS

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

2. ACCOUNTING POLICIES
The principal accounting policies adopted by the Company are set out below.

(a) Basis of preparation
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006. All of the Company’s operations are of a continuing nature.

Insofar as the Statement of Recommended Practice (SORP) for investment trust companies and venture capital trusts issued by the Association of Investment Companies (AIC), revised in November 2014, is compatible with IFRS, the financial statements have been prepared in accordance with the guidance set out in the SORP.

Substantially, all of the assets of the Company consist of securities that are readily realisable and, accordingly, the Directors believe that the Company has adequate resources to continue in operational existence for the foreseeable future. Consequently, the Directors have determined that it is appropriate for the financial statements to be prepared on a going concern basis.

The Company’s financial statements are presented in US Dollars, which is the functional currency of the Company and 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.

A number of new standards, amendments to standards and interpretations are effective for annual periods beginning on or after 1 October 2016 and have not been applied in preparing these financial statements (major changes and new standards issue are detailed below). None of these are expected to have a significant effect on the measurement of the amounts recognised in the financial statements of the Company.

IFRS 9 – Financial Instruments (2014) replaces IAS 39 and deals with a package of improvements including principally a revised model for classification and measurement of financial instruments, a forward looking expected loss impairment model and a revised framework for hedge accounting. In terms of classification and measurement, the revised standard is principles based depending on the business model and nature of cash flows. Under this approach, instruments are measured at either amortised cost or fair value. Under IFRS 9 equity and derivative investments will be held at fair value because they fail the ‘solely payments of principal and interest’ test and debt investments will be held at fair value because the business model is to manage them on a fair value basis. The standard is effective from 1 January 2018 with earlier application permitted. The Company does not plan to early adopt this standard.

Amendments to IAS 7 – Disclosure initiative – Statement of Cash Flows (effective 1 January 2017). The amendments are not expected to have a significant effect on the presentation of the Cash Flow Statement within the financial statements of the Company as the Company does not have any debt.

Amendments to IAS 12 – Recognition of deferred tax assets for unrealised losses (effective 1 January 2017). The amendment is not expected to have a significant effect on the measurement of amounts recognised in the financial statements of the Company.

IFRS 15 – Revenue from Contracts with Customers (effective 1 January 2017) specifies how and when an entity should recognise revenue and enhances the nature of revenue disclosures. Given the nature of the Company’s revenue streams from financial instruments, the provisions of this standard are not expected to have a material impact.

(b) Presentation of the Statement of Comprehensive Income
In order to reflect better the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and a capital nature has been presented alongside the Statement of Comprehensive Income.

(c) Segmental reporting
The Directors are of the opinion that the Company is engaged in a single segment of business being investment business.

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

Deposit interest receivable is accounted for on an accruals basis.

Where the Company has elected to receive its dividends in the form of additional shares rather than in cash, the cash equivalent of the dividend is recognised as income. Any excess in the value of the shares received over the amount of the cash dividend is recognised in capital.

(e) Expenses
All expenses, including finance costs, are accounted for on an accruals basis. Expenses have been charged wholly to the revenue column of the Statement of Comprehensive Income, except as follows:

(f) Taxation
The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on the taxable profit for the period. Taxable profit differs from net profit as reported in the Statement of Comprehensive Income because it excludes items of income or expenses that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that were applicable at the balance sheet date.

Where expenses are allocated between capital and revenue, any tax relief in respect of the expenses is allocated between capital and revenue returns on the marginal basis using the Company’s effective rate of corporation tax for the accounting period.

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

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

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

The fair value of the financial investments is based on their quoted bid price at the financial reporting date, without deduction for the estimated selling costs. This policy applies to all current and non current asset investments held by the Company. The fair value of the P-Notes are, when held, based on the quoted bid price of the underlying equity to which they relate.

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

For all financial instruments not traded in an active market, the fair value is determined by using various valuation techniques. Valuation techniques include market approach (i.e., using recent arm’s length market transactions adjusted as necessary and reference to the current market value of another instrument that is substantially the same) and the income approach (e.g., discounted cash flow analysis and option pricing models making use of available and supportable market data as possible). Where no reliable fair value can be estimated for such instruments, they are carried at cost subject to any provision for impairment.

(h) Derivatives
The Company can hold long and short positions in contracts for difference (CFD) which are held at fair value based on the bid prices of the underlying securities in respect of long positions, and the offer prices of the underlying securities in respect of short positions.

Profits and losses on derivative transactions are recognised in the Statement of Comprehensive Income. They are shown in the capital column of the Statement of Comprehensive Income if they are of a capital nature and are shown in the revenue column of the Statement of Comprehensive Income if they are of a revenue nature. To the extent that any profits or losses are of a mixed revenue and capital nature, they are apportioned between revenue and capital accordingly.

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

(j) Dividends payable
Under IFRS, final dividends should not be accrued in the financial statements unless they have been approved by shareholders before the financial reporting 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 Statements of Changes in Equity.

(k) Foreign currency translation
Transactions involving foreign currencies are converted at the rate ruling at the date of the transaction. Foreign currency monetary assets and liabilities and non monetary assets held at fair value are translated into US dollars at the rate ruling on the financial reporting date. Foreign exchange differences arising on translation are recognised in the Statement of Comprehensive Income as a revenue or capital item depending on the income or expense to which they relate. For investment transactions and investments held at the year end, denominated in a foreign currency, the resulting gains or losses are included in the profit/(loss) on investments held at fair value through profit or loss in the Statement of Comprehensive Income.

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

The Company’s investment in BlackRock’s Institutional Cash Series plc – US Dollar Liquidity Fund of US$66,194,000 (2016: US$42,625,000) is managed as part of the Company’s investment policy and, accordingly, this investment along with purchases and sales of this investment has been classified in the Statement of Financial Position as an investment and not as a cash equivalent as defined under IAS 7.

3. INCOME

2017 
US$’000 
2016 
US$’000 
Investment income:
Overseas listed dividends 11,227  11,041 
Overseas listed special dividends 461  – 
Overseas listed stock dividends 1,507  – 
Income from contracts for difference 2,731  1,954 
 --------   -------- 
15,926  12,995 
 --------   -------- 
Other Income:
Deposit interest 42 
 --------   -------- 
Total income 15,968  12,999 
 ========   ======== 

Dividends and interest received during the year amounted to US$15,701,000 and US$42,000 (2016: US$13,165,000 and US$4,000).

4. INVESTMENT MANAGEMENT AND PERFORMANCE FEES

2017 2016
Revenue 
US$’000 
Capital 
US$’000 
Total 
US$’000 
Revenue 
US$’000 
Capital 
US$’000 
Total 
US$’000 
Investment management fee 672  2,689  3,361  494  1,976  2,470 
Performance fee  –   596   596   –  2,581  2,581 
 --------   --------   --------   --------   --------   -------- 
Total 672  3,285  3,957  494  4,557  5,051 
 ========   ========   ========   ========   ========   ======== 

An investment management fee equivalent to 1.10% per annum of the Company’s gross assets (defined as the aggregate value of the total assets of the Company) is payable to the Manager. In addition, the Manager is also entitled to receive a performance fee at a rate of 10% of any increase in the NAV at the end of a performance period over and above what would have been achieved had the NAV since launch increased in line with the MSCI Frontiers Markets Index (‘the Reference Index’). For the year to 30 September 2017, the Company’s NAV performance of 21.5% generated excess returns of US$5.96 million resulting in performance fees of US$596,000 (2016: US$2,581,000) which has been accrued as at 30 September 2017. The performance fee payable in any year is capped at an amount equal to 2.5% or 1% of the gross assets if there is any increase or decrease in the NAV per share at the end of the relevant performance period, respectively. Any capped excess outperformance for a period may be carried forward to the next two performance periods, subject to the then applicable annual cap. The performance fee is also subject to a high watermark such that any performance fee is only payable to the extent that the cumulative relative outperformance of the NAV is greater than what would have been achieved had the NAV increased in line with the Reference Index since the last date in relation to which a performance fee had been paid. The management and performance fees are payable to BFM.

Under the terms of the C share issue in February 2016, BlackRock had agreed to waive the management fees payable by the Company up to the value of issue expenses that exceeded the capped amount of 1.75% of the gross proceeds from the issue of C shares. As the issue expenses exceeded the capped amount, the excess issue expenses of US$325,000 have been offset against the investment management fee payable by the Company during the year ended 30 September 2016.

5. OTHER OPERATING EXPENSES

2017 
US$’000 
2016 
US$’000 
Allocated to revenue:
Custody fee 429  342 
Auditor’s remuneration1:
-audit services 36  41 
-other assurance services2 23 
Registrar’s fee 37  32 
Directors’ emoluments 179  171 
Broker fees 38  40 
Depositary fees1 35  29 
Marketing fees 73  58 
Other administrative costs 226  269 
 --------   -------- 
1,062  1,005 
 --------   -------- 
Allocated to capital:
Custody transaction charges 130  70 
 --------   -------- 
1,192  1,075 
 --------   -------- 
The Company’s ongoing charges, calculated as a percentage of average net assets and using expenses, excluding performance fees, VAT refunded, finance costs and taxation were: 1.4%  1.4% 
 --------   -------- 
The Company’s ongoing charges, calculated as a percentage of average net assets and using expenses and performance fees but excluding VAT refunded, finance costs and taxation were: 1.6%  2.4% 
 --------   -------- 

1      All expenses other than depositary fees are paid in sterling and are therefore subject to exchange rate fluctuations
2      Fees for other assurance services relate to the following provided by the Auditor:
                –   US$9,000 (2016: US$9,000) relating to the review of the interim financial statements.
                –    US$ nil (2016: US$14,170) relating to the provision of tax services.
                –    US$ nil (2016: £24,500 (US$35,300)) (excluding VAT) in respect of the work on the Company’s C share issue and cash exit tender offer. These fees were charged to the share premium and special reserves as part of the share issue costs and tender offer costs and were not debited to the Company’s Statement of Comprehensive Income.

For the year ended 30 September 2017, expenses of US$130,000 (2016: US$70,000) were charged to the capital column of the Statement of Comprehensive Income, these relate to transaction costs charged by the custodian on sale and purchase trades. No fees were payable in 2017 or 2016 in relation to investing in new markets.

Details of the Directors’ emoluments are given in the Directors’ Remuneration Report on page 37 of the Annual Report and Financial Statements.

6. DIVIDENDS

Dividends paid on equity shares: 
Record date 

Payment date 
2017 
US$’000 
2016 
US$’000 
2016 final of 4.00 cents (2015: 4.15 cents) per ordinary share 27 January 2017  17 February 2017   6,573  6,251 
2017 interim of 2.70 cents (2016: 2.60 cents) per ordinary share 9 June 2017  30 June 2017   4,717  4,272 
---------- ----------
 11,290  10,523 
 ======   ===== 

The total dividends payable in respect of the period ended 30 September 2017 which form the basis of section 1158 of the Corporation Tax Act 2010 and section 833 of the Companies Act 2006, and the amounts proposed, meet the relevant requirements as set out in this legislation.

Dividends paid or proposed on equity shares:  2017 
US$’000 
2016 
US$’000 
Interim dividend of 2.70 cents per ordinary share (2016: 2.60 cents) 4,717  4,272 
Final proposed dividend of 4.20 cents per ordinary share (2016: 4.00 cents)* 7,592   6,573 
 --------   -------- 
12,309   10,845 
 --------   -------- 

*  based on 180,766,108 ordinary shares in issue on 1 December 2017.

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

2017  2016 
Net revenue profit attributable to ordinary shareholders (US$’000) 13,107  10,113 
Net capital profit attributable to ordinary shareholders (US$’000) 47,097  13,055 
 --------   -------- 
Total profit attributable to ordinary shareholders (US$’000) 60,204  23,168 
 --------   -------- 
Equity shareholders’ funds (US$’000) 350,247  276,397 
 --------   -------- 
The weighted average number of ordinary shares in issue during the year, on which the return per ordinary share was calculated was: 170,192,369  158,076,774 
 --------   -------- 
The actual number of ordinary shares in issue at the year end, on which the net asset value per ordinary share was calculated was: 177,868,108  164,333,108 
 --------   -------- 
Return per share
Revenue earnings per share – (US cents) 7.70  6.40 
Capital earnings per share – (US cents) 27.67  8.26 
 --------   -------- 
Total profit per share – (US cents) 35.37  14.66 
 --------   -------- 
Net asset value per ordinary share – (US cents) 196.91  168.19 
 --------   -------- 
Ordinary share price – (US cents) 199.91  167.58 
 --------   -------- 
Net asset value per ordinary share – (pence) 146.76  129.48 
 --------   -------- 
Ordinary share price – (pence) 149.00  129.00 
 --------   -------- 

*       The Company’s share price is quoted in sterling and the above represents the US dollar equivalent based on an exchange rate of $1.3417 to £1 as at 30 September 2017 (30 September 2016: $1.2990 to £1).

8. CALLED UP SHARE CAPITAL

Number of 
ordinary 
shares in 
issue 

Nominal 
value 
US$’000 
Allotted, called up and fully paid share capital comprised:
Ordinary shares of 1 cent each:
 --------   -------- 
At 30 September 2016 164,333,108  1,643 
 --------   -------- 
Shares issued 13,535,000  135 
 --------   -------- 
At 30 September 2017 177,868,108  1,778 
 ========   ======== 

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

During the year ended 30 September 2017 the Company issued 13,535,000 (2016: nil) shares for a total gross consideration of US$25,102,000 (2016: nil).

A further 2,898,000 shares have been issued since the year end and up to and including the date of this report.

9. RESERVES




Share 
premium 
account 
US$’000 



Capital 
redemption 
reserve 
US$’000 




Special 
reserve 
US$’000 

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




Revenue 
reserve 
US$’000 
At 30 September 2016  21,456   5,798   230,794   14,884  (6,080)  7,902 
Movement during the year:
Total Comprehensive Income:
Net profit for the year  –   –   –   22,061   25,036  – 
Transactions with owners:
Share issues 24,967   –  –   –   –   – 
Share issue costs (148)  –  –   –   –  – 
C share issue costs –  –  (18) –  –  – 
Revenue return for the year  –   –  –   –   –   13,107 
Dividends paid  –   –  –   –   –  (11,290)
 --------   --------   --------   --------   --------   -------- 
At 30 September 2017  46,275   5,798   230,776   36,945  18,956   9,719 
 ========   ========   ========   ========   ========   ======== 

The share premium account and capital redemption reserve are not distributable profits under the Companies Act 2006. The special reserve may be used as distributable profits for all purposes and, in particular, for the repurchase by the Company of its ordinary shares and for payment as dividends. In accordance with the Company’s status as an investment company under the previous provisions of section 1158 of the Corporation Tax Act 2010, net capital returns may not be distributed by way of dividend.

10. RISK MANAGEMENT POLICIES AND PROCEDURES

VALUATION OF FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are either carried in the Statement of Financial Position at their fair value (investments and derivatives) or at an amount which is a reasonable approximation of fair value (due from brokers, dividends and interest receivable, due to brokers, accruals, cash at bank and bank overdrafts). IFRS 13 requires the Company to classify fair value measurements using a 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 2(g) to the Financial Statements on pages 55 and 56 of the Annual Report and Financial Statements.

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

The fair value hierarchy has the following levels:

Level 1 – Quoted market price in an active market for identical instrument. A financial instrument is regarded as quoted in an active market if the 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 used to price securities based on observable inputs. This category includes instruments valued using quoted market prices in active markets for similar instruments; 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. Valuation techniques used for non-standardised financial instruments such as options, currency swaps and other over-the-counter derivatives include the use of comparable recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entity specific inputs.

There were no P-Notes held as at the year ended 30 September 2017. As at the year ended 30 September 2016, the P-Notes were valued using the underlying equity bid price and the inputs to the valuation were the exchange rates used to convert the P-Note valuation from the relevant local currency to US Dollars at the year end date.

As at the year end the CFDs were valued using the underlying equity bid price and the inputs to the valuation were the exchange rates used to convert the CFD valuation from the relevant local currency in which the underlying equity was priced to US Dollars at the year end date. There have been no changes to the valuation technique since the previous year or as at the date of this report.

Level 3 – Valuation techniques using significant unobservable inputs. This category includes all instuments 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 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 level in the fair value hierarchy within the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety.

For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.

The determination of what constitutes ‘observable’ requires significant judgement by the Investment Manager. 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.

Contracts for difference and P-Notes have all been classified as level 2 investments as their valuation has been based on market observable inputs represented by the market prices of the underlying quoted securities to which these contracts expose the Company.

Transfers between levels of the fair value hierarchy are deemed to have occurred at the end of the reporting period.

Fair values of financial assets and financial liabilities
The table below sets out fair value measurements using IFRS 13 fair value hierarchy.

Financial assets at fair value through profit or loss 
at 30 September 2017 
Level 1 
US$’000 
Level 2 
US$’000 
Level 3 
US$’000 
Total 
US$’000 
Assets:
Equity investments  287,979  –   211   288,190 
BlackRock’s Institutional Cash Series plc – US Dollar Liquidity Fund  66,194  –  –   66,194 
Contracts for difference (gross exposure) –   88,513   2   88,515 
 --------   --------   --------   -------- 
 354,173   88,513   213   442,899 
 ========   ========   ========   ======== 

   

Financial assets at fair value through profit or loss 
at 30 September 2016 
Level 1 
US$’000 
Level 2 
US$’000 
Level 3 
US$’000 
Total 
US$’000 
Assets:
Equity investments 215,612  8,792  211  224,615 
P-Notes –  444  –  444 
BlackRock’s Institutional Cash Series plc – US Dollar Liquidity Fund 42,625  –  –  42,625 
Contracts for difference (gross exposure) –  62,359  62,361 
 --------   --------   --------   -------- 
258,237  71,595  213  330,045 
 ========   ========   ========   ======== 

For the year ended 30 September 2017, transfers of financial assets from fair value hierarchy Level 2 to Level 1 amounted to US$14,146,000. These arose primarily in relation to the Nigerian equity securities held in the investment portfolio where observable spot exchange rates as quoted on the FMDQ OTC Securities Exchange have been applied for valuing the Nigerian equity securities following the introduction of a special window for investors by the Central Bank of Nigeria effective 28 April 2017. For the year ended 30 September 2016, transfers of financial assets from fair value hierarchy Level 1 to Level 2 amounted to £8,792,000. These arose primarily in relation to the Nigerian equity securities held in the investment portfolio where the 3 month non deliverable US$-Nigerian Naira forward exchange rate was used in place of the spot exchange rates following the devaluation of the Nigerian Naira. The Company held one Level 3 security throughout the years ended 30 September 2017 and 30 September 2016.

A reconciliation of fair value measurement in Level 3 is set out below.

Level 3 Financial assets at fair value through profit or loss 
at 30 September 
2017 
£’000 
2016 
£’000 
Opening fair value  213  – 
Investment acquired – corporate action spin off received –   213 
 --------   -------- 
Closing balance  213   213 
 =====   ==== 

11. CONTINGENT LIABILITIES
There were no contingent liabilities at 30 September 2017 (2016: nil).

12. PUBLICATION OF NON STATUTORY ACCOUNTS

The financial information contained in this announcement does not constitute statutory accounts as defined in the Companies Act 2006.  The 2017 Annual Report and Financial Statements will be filed with the Registrar of Companies shortly.

The report of the Auditor for the year ended 30 September 2017 contains no qualification or statement under section 498(2) or (3) of the Companies Act 2006.

The comparative figures are extracts from the audited financial statements of BlackRock Frontiers Investment Trust plc for the year ended 30 September 2016, which have been filed with the Registrar of Companies.  The report of the Auditor on those financial statements contained no qualification or statement under section 498 of the Companies Act.

This announcement was approved by the Board of Directors on 1 December 2017.

13. ANNUAL REPORT

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

14. ANNUAL GENERAL MEETING

The Annual General Meeting of the Company will be held at 12 Throgmorton Avenue, London EC2N 2DL on Wednesday, 7 February 2018 at 12:00 p.m.

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

FOR FURTHER INFORMATION, PLEASE CONTACT:

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

Press enquiries:
Lucy Horne, Lansons Communications – Tel:  020 7294 3689
E-mail:  lucyh@lansons.com

1 December  2017

12 Throgmorton Avenue
London EC2N 2DL

END


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Annual Financial Report - RNS