ALAI.L Regulatory News (ALAI)

ABRDN LATIN AMERICAN INCOME FUND LIMITED

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 AUGUST 2022

Legal Entity Identifier (LEI): 549300DN623WEGE2MY04

Performance Highlights

Financial Calendar, Dividends and Highlights

Dividends

Chairman's Statement

Overview

The last twelve months have been volatile for investors. Not only have Latin American economies had to deal with the more inflationary post-Covid environment, as fuel and energy prices rose, but they have also had to contend with the pressure of an uncertain political landscape.

For the Company this has led to contrasting fortunes for its two asset classes over the period. Equities underperformed, predominantly due to a shift in market focus from growth to value stocks. At the same time, the fixed income sleeve was more successful, as the bond investments targeted by your Manager benefited from the rising yield curve. With inflationary pressures leading to higher yields, but the same environment punishing long-term quality growth stocks, overall the Company's net asset value ("NAV") rose 6.8% in total return terms over the year ended 31 August 2022, compared with an increase of 11.5% for the benchmark. The share price was broadly flat over the period, ending the year at 52.25p.

Despite this recent volatility in markets, your Manager is confident in the region's long-term growth potential and has also taken steps to ensure the Company is sufficiently defensive in the current macro environment. You can find out more detail on this later in this statement and in the Investment Manager's Review on pages 11 to 14 of the 2022 Annual Report, along with a more detailed explanation of performance.

Looking over the full year to 31 August 2022, there were three main themes at play:

1) monetary policy and interest rate increases;

2) domestic politics and a very busy election calendar; and

3) global events, most notably the shockwaves felt worldwide from Russia's invasion of Ukraine.

Focusing on monetary policy first, central banks in Latin America moved swiftly to tackle the spiralling post-pandemic inflation we have witnessed. The Banco Central do Brasil, which has recently gained full independence, was first to act and has now taken the base rate from a low of 2% to 13.75%. Chile has raised rates to 11.25%, while Colombia increased them to 11%. Others are still likely to climb higher. In August, the Bank of Mexico raised the base rate to 8.5%, its highest in 16 years.

Looking at the region as a whole, it is clear central banks have been well ahead of the rate-rising cycles of other emerging and developed markets with India's rising to 5.4% and the US Federal Reserve increasing rates six times in 2022 (up to 4% in November), whilst the European Union only started with a rise to 1.25% in September, with a further increase to 2% on 27 October 2022.

In terms of the impact of these central bank policies on markets, the rate rises were particularly painful for the Company's equity holdings and have penalised some of the more expensive growth-style stocks favoured by your Manager. On the plus side, the rate rises were fairly positive for fixed income - in Brazil, for example, the large rises benefited domestic bond returns in the medium term.

Political risk has been another important factor, with several high-profile elections over the year. Colombia elected its first-ever left-wing president Gustavo Petro, who stood on a platform of land reform, universal healthcare and promises to continue his country's commitment to the peace process; and Chile, meanwhile, voted in the relatively inexperienced 36-year-old Gabriel Boric (another left-winger) as president. After our year end, Chile went to the polls again, for a constitutional referendum which was roundly rejected by voters, seeing it as too radical (the current constitution dates back to the days of General Pinochet).

In Peru, asset classes saw significant improvement over the year. The country had already witnessed a massive sell-off in equities and bonds in 2021, following the election of left-winger Pedro Castillo, prior to the start of this reporting period. For investors, political risk now appears to have somewhat diminished. One area to note though in Peru, is its approval of early withdrawals from pension funds, to support the country's recovery from the pandemic and the impact of surging global prices. While these actions can help in stabilising the economy, they also fuel higher inflation and withdrawal of pension savings in previous years from Peru and Chile resulted in sovereign downgrades.

Naturally, elections in Latin America's largest economy, Brazil, have been a global talking point, as the incumbent Jair Bolsonaro, seeking a second term in office, ran against former president Lula. Even though the election fell outside the year covered by this report, the atmosphere of uncertainty posed by Brazil's vote - including doubts cast by Bolsonaro of the legitimacy of the election process - have been a headwind for Brazil's asset classes. In the run up to the election, we also saw some fiscal loosening. This was a concern for investors because it runs the risk of losing the fiscal anchor (a ceiling on spending, deficit, or debt) that has played an important role in improving Brazil's balances. Brazil is running a primary fiscal surplus for the first time in a long while.

Finally, wider global events have of course had a major impact on the region's fortunes. Extreme weather events and, most notably, war in Ukraine have resulted in higher commodity prices and put pressure on the global supply chain. Economies in Latin America are highly sensitive to commodity prices. Brazil is a large exporter of soybean and iron ore, while Chile and Peru are notable exporters of copper. Oil is a key concern, with Peru and Chile large importers and countries such as Mexico being large exporters. While some businesses have seen a positive impact from higher energy prices, in the long run, higher food and fuel prices add to the inflationary environment that has led central banks to start raising policy rates.

At the portfolio level, there were mixed fortunes over the period. In terms of equities, interest rate rises and the higher cost of capital have penalised some of the quality growth stocks favoured by your Manager. The Company's fixed income performance, on the other hand, has been much better, with the decision not to take exposure to Chile, one of the worst performers, and a substantial overweight to Uruguay which has fared well. In terms of positioning over the period, with the changing macro picture, your Manager has focussed on ensuring the portfolio is resilient to the global environment and adopted a slightly more defensive stance. From an equities perspective, this meant exiting some smaller growth stocks and those exposed to reducing consumer demand in the face of inflationary pressures and either reinvesting in companies where the Manager has higher conviction, or moving into areas like telecoms which your Manager believes will be more resilient. Meanwhile, anticipating a moderation in inflation as central banks in the region near the end of the hiking cycle, your Manager is moving towards fixed income assets with a longer duration.

For more on portfolio activity and wider performance, read the Investment Manager review on pages 11 to 14 of the 2022 Annual Report.

Results and Dividends

The earnings per share for the year ended 31 August 2022 were 4.84p (2021: 2.66p), reflecting an 82% increase over 2021 with a recovery in dividend pay-outs post-pandemic and importantly strengthened foreign exchange rates versus sterling. The Company was able to return to paying a fully covered dividend this year and has continued to pay four interim dividends of 0.875p per share (2021: 0.875p) in respect of the financial year, maintaining the total level of dividends for the year at 3.5p per share (2021: 3.5p). As stated in previous reports, the Board is aware of the importance of income to the Company's shareholders, particularly during times of prolonged market stress, and has maintained the dividend throughout with that in mind, using the revenue reserve built previously in order to maintain the level of dividend in difficult times. Following the payment of dividends during the financial year, the Company has carried forward a healthy £2.25 million in its revenue reserve (2021: £1.48m), representing 0.9 times the current level of dividend after accounting for the payment of the fourth interim dividend.

The Board is pleased that the Manager continues to support the Company to ensure that its ongoing charges ratio ("OCR") does not exceed 2.0% when calculated annually as at 31 August. To the extent that the OCR exceeds 2.0%, the Manager continues to rebate part of its fees in order to reduce the ratio down to 2.0%. Subsequent to the year end, a sum of £132,000 (2021: £127,000) had been repaid by the Manager to the Company in order to maintain the OCR at 2.0%.

Portfolio

During the year, the allocation between equities and bonds has remained relatively stable. At the financial year end, the portfolio comprised 61.9% in equities and 38.1% in bonds (2021: 64.5% equities, 35.5% bonds). The Board and Manager will continue to keep this portfolio split under review to seek to exploit market opportunities.

Share Capital

There has been no change to the Company's share capital structure during the financial year. The Company has not bought back any shares, or issued any shares, in light of the volatile markets witnessed. However, the Company will make selective use of buybacks, subject to prevailing market conditions and having regard to the size of the Company, where it would be in the best interests of shareholders to do so. At the time of writing, the Company's Ordinary share price discount to NAV is 11.2%.

Gearing

The Company has a £6 million two year unsecured revolving multi-currency loan facility with The Bank of Nova Scotia, London Branch, which expires on 14 August 2023. At the year-end £5,500,000 was drawn down (2021 - £5,500,000). The Board continues to monitor the level of gearing under recommendation from the Manager and in light of market conditions.

Board Changes

As announced in the Company's Half-Yearly Report, the Directors were delighted to welcome Michael Gray to the Board on 18 February 2022, following the retirement of Richard Prosser. Michael brings a wealth of experience as a non-executive director of closed-end funds and a knowledge of investment management that complements the balance of skills and experience on the Board as a whole.

Annual General Meeting

This year's Annual General Meeting ("AGM") will be held on Wednesday, 14 December 2022 at 10:00 a.m. at the offices of abrdn Capital International Limited, 1st Floor, Sir Walter Raleigh House, 48-50 Esplanade, St Helier, Jersey JE2 3QB. I hope that shareholders will be able to attend the AGM, following a two year hiatus owing to the global pandemic, and I look forward to meeting shareholders on the day.

As usual, the Board encourages all shareholders to exercise their votes in respect of the meeting in advance to ensure that votes are registered and counted at the meeting.

The Board welcomes questions from our shareholders and I would ask that shareholders submit questions to the Board prior to the AGM, and in any event before Friday, 9 December 2022. The Board or the Investment Manager will respond to all questions received. You may submit questions to the Board by email to latin.american@abrdn.com.

Outlook

My predecessor as Chairman, Richard Prosser, commented last year that the outlook for Latin America was brighter, although the Board remained mindful of remaining risks. This remains true. And while some of these risks have diminished - economies have continued to reopen post pandemic - others have also emerged.

For now, GDP forecasts for the region, which were downgraded in the second quarter, appear to be improving. Brazil's economic ministry has raised expectations for its 2022 growth figure to 2.7%. Central banks have been quick to react to rising inflation and have made adjustments to weather the environment of rising prices. In Brazil, inflation has already been falling since July (as measured by the IPCA benchmark inflation index). If, as is hoped, the period of interest rate hikes is coming to an end, it could be expected that inflation rates elsewhere in the region reach their peak as early as next year.

Furthermore, with the most recent run of elections now out of the way, I believe we are now moving from what has been an extremely volatile period over the last 18 months to potentially a calmer environment, one that should give investors greater visibility - and make for more stable market conditions.

Looking to the longer term, Latin America continues to be an appealing investment destination. The region is full of great promise and is home to assets that are attractively valued compared with other emerging markets and developed economies. Your Board remains convinced by your Manager's focus on the wealth of opportunities that are backed by major structural drivers, such as the emerging power of middle-class consumers, increased digitalisation and the growth of green technologies.

The Manager's recent focus has been to tilt the portfolio to a more defensive positioning but the commitment to quality remains undiminished. The portfolio still retains its diverse pool of income-supporting bonds, combined with quality stocks trading at attractive valuations. With improving results at an individual company level, we expect to benefit from exposure to underpenetrated sectors such as financial services, domestic consumption, healthcare, infrastructure, renewables and digitalisation trends. Your Manager remains focussed on companies that are well-run, with solid financials, clear competitive advantages and that are committed to good environmental, social and governance ("ESG") practices. The focus on quality is essential to delivering sustainable long-term returns for all shareholders.

Howard MylesChairman10 November 2022

Investment Manager's Review

Performance Commentary

Latin American markets rallied over the review period, which was marked by intensifying price pressures as the region, and the world, began its post-pandemic recovery. Amid economies reopening and consumers worldwide unleashing their pent-up demand for goods, services and travel, rising inflation became a key driver of market events. Steepening inflation, evident since 2021, was exacerbated in February 2022 by Russia's invasion of Ukraine. The ensuing sanctions on Russia's export of oil and commodities led to the prices of these resources skyrocketing. By March, a month into the invasion, oil prices had soared to their highest levels since 2008. This turned out to be a boon for resource rich countries in Latin America, in particular Brazil and Chile, which boasted double-digit equity returns for the period. At the end of the Company's financial year, Latin American stocks had outperformed all other equity markets outside of the Middle East oil-rich region, thanks to the stellar performances of the region's energy and commodity companies.

Having said that, while Latin America's miners and energy producers benefited, spiralling fuel prices hit the everyday consumer hard, driving food and travel costs too high, too quickly. The reaction from central banks, was to limit liquidity in the market by raising interest rates. "Interest rate hiking" almost became a catchphrase globally for the second half of the Company's financial year, but we must acknowledge that Latin American central banks were ahead of their peers in this respect, having begun their monetary policy tightening towards the end of 2021. This meant that while most equity markets in recent months were rocked by the US Federal Reserve's (the "Fed") aggressive rate increases (4% at the time of writing), Latin American stocks were far more resilient, having already priced in monetary tightening since late 2021 and even earlier for Brazilian equities. At the time of writing, interest rates in Brazil, Chile, Colombia and Mexico stand at 13.75%, 11.25%, 11% and 9.25% respectively, compared to other emerging markets like India (5.9%), Indonesia (4.75%) or Poland (6.75%), for example. In the case of Brazil, whose central bank was earliest to act, the strategy has visibly borne fruit. Despite the continued interest rate hikes the Brazilian government bond market outperformed major emerging markets.

On the downside, however, the evolving domestic political landscape has been somewhat of a drawback for investors. Major political events in Chile, Colombia, Peru and Argentina led to investors taking a more cautious approach towards these regional markets. There has been a palpable change in the political tide, as dominant right-wing parties were voted out in favour of leftist, socially-oriented leadership in Chile and Colombia. This led to capital flight, putting pressure on the currencies and the bond markets. Meanwhile, Brazil's presidential elections have been intense and have left investors uncertain. While the polls seemed to favour former, leftist-president Luis Inacio Lula da Silva over the incumbent right-winger, President Jair Bolsonaro, the latter had a surprisingly strong result after the first round of voting on 2 October 2022. Lula won 48% of the votes against Bolsonaro's 43% but fell short of the clear majority of over 50% of valid votes required to prevent a run-off. He eventually secured his lead on 30 October, with 50.9% of the votes against Bolsonaro's 49.1% and the transition process for the new president-elect has begun. Overall, despite these bouts of uncertainty and sporadic market weaknesses, Latin American stocks generally had a robust year and emerged top of their asset class.

Against this backdrop, the Company's portfolio underperformed its benchmark over the year, with the net asset value increase of 6.8% lagging the composite benchmark's 11.5% rise. This relatively weaker overall performance was primarily due to the weaker performance of the equity sleeve of the portfolio, which returned 3.34% versus the index's 10.79% gain. This underperformance was attributable to the equity market shift away from growth stocks, that had proved relatively robust during the pandemic, towards value. The tighter monetary climate drove investors to rebalance their portfolios, preferring to invest instead in utilities and commodity stocks instead of growth-oriented stocks, such as technology and ecommerce. Unfortunately, this market rotation undermined the Company's strategic longer-term focus on quality growth stocks.

In contrast, our fixed income exposure in the portfolio did better. Our large overweight exposure to Uruguay had a major positive contribution to relative performance, as did the lack of any exposure to Chile which, together with Colombia, significantly underperformed other regional markets. Uruguay's good performance was attributable to a strong soybean harvest, which is a key export for the country. Additionally, rising food prices helped the Uruguayan peso outperform its neighbours over the period due to its position as a major exporter of beef. Meanwhile, Chile, one of the world's top copper producers, struggled over the year due to lower copper prices. A severely weakened Chilean peso alongside a stronger US dollar also negatively affected the country's performance, despite a US$25 billion intervention by its central bank that had aimed to quell exchange-rate volatility. Colombia also had a difficult year, as the country's July inflation number was 10.2% year on year, which was its highest reading in over a decade. The Colombian peso was also weighed down by the interest-rate hikes from the Fed and the strong US dollar, along with a growing import bill and profit remittances from commodity companies operating in the country but actually based outside.

Looking more closely at the performance of your Company's underlying stock holdings, the exposure to companies linked to dynamic growth themes which we had considered in our process, such as ecommerce, digitalisation and renewables were punished by the steepening of yield curves across the globe. As such, the portfolio's exposure to XP Investimentos, which is the largest brokerage firm in Brazil, detracted, as did its exposures to renewable energy producer Raizen, and software services provider Totvs. Additionally, Sequoia, which largely benefited from the increased demand in ecommerce-related logistics, massively corrected on the back of concerns over slowing global growth and its impact on this ecommerce demand. Sequoia's share price was also hurt as its margins were shrinking due to higher-than-expected operational costs, in particular, from the cost of diesel. Over the year, we exited XP and Sequoia, but we have kept your Company's exposure to Raizen and Totvs, which are well thought of stocks, that we think will benefit returns in the longer term.

In terms of the portfolio's performance by sector, the lower exposure to the energy sector detracted the most. While your Company's exposure to Brazilian state-owned petroleum producer Petrobras added to overall returns as prices soared, the underweight exposure compared to the benchmark once again hurt relative returns. Petrobras rallied amid the surge in crude oil prices, and investors were doubly enthusiastic when the company announced record dividends. Investors were also optimistic about the talk of possible privatisation of the company following a new business plan that stressed capital discipline and a commitment to dividends. Although we gradually increased our exposure to this stock over the second half of the year, our underweight exposure negatively impacted the portfolio's relative performance. More positively, the exposure to Geopark, which is not in the benchmark, helped. The Colombian oil and gas explorer did well over the period and lifted performance. The company also cheered investors by increasing its quarterly dividends for the third time in a year.

Elsewhere, the exposure to materials stocks was mixed. Brazilian miner Vale was the top contributor, as the company's shares recovered from the weakness in iron ore prices seen at the start of the year and rose in tandem with other commodity producers in the region. Our lack of exposure to Mexican building materials company Cemex was also a positive with the company lagging the benchmark over the period. Having said that, not holding Chilean miner and fertiliser producer SQM proved costly, as investors remained bullish on the prospects for lithium prices due to rising demand levels. Ultimately, as bottom-up stock pickers, our investment decisions are driven by company fundamentals rather than short-term market trends, and with that in mind, we will continue with our due diligence and keep a close eye on the company's progress.

What did help were our decisions on holdings in the consumer sector. Your Company benefited from not holding cosmetics group Natura & Co. and from the underweight to Magazine Luiza as we exited the stock during the year. The exposure to footwear retailer Arezzo also proved beneficial.

Portfolio Activity

The key portfolio changes on the equity side centred around the holdings in Brazil, and our attempt to reposition the portfolio against the downside risks of shrinking domestic consumer demand due to the inflationary pressures mentioned above. To this end, we sold several consumer discretionary holdings, such as fast food franchise BK Brasil, clothing department store Lojas Renner, retail chain Magazine Luiza and ecommerce retailer Mobly. We also exited Chilean shopping malls' operator Parque Arauco on the back of the more challenging outlook for discretionary spending. Instead, we took advantage of attractive valuations to take a position in Assai, a leading cash and carry Brazilian retailer that we think is well-positioned to capture consumers' changing habits.

Additionally, we also sought to reduce exposure to growth stocks that were punished by the market rotation brought about by steeper borrowing prices. We therefore exited growth names such as education software firm Arco and online services platform GetNinjas in favour of better opportunities elsewhere, as well as selling Sequoia and XP, as mentioned earlier.

While there has been a traditional focus on high-quality growth stocks as we sought to tap into the demographics of the region with its large and growing middle class base, we have simultaneously kept a watchful eye on high-quality value stocks. For example, Telefonica Brasil, which we introduced during the year, is the leading telecommunications company in Brazil. We had been cautious about the sector due to its capital intensity and a stringent regulatory environment, but we continued to do our due diligence and decided to introduce the holding as we believe that the Brazilian telecommunications will benefit from an improving competitive and regulatory environment. Earlier in the year, we had introduced three other value stocks, including junior exploration and production company 3R Petroleum, Peru's leading banking franchise Credicorp, and vertically integrated pulp and paper producer Klabin. We funded these new acquisitions through the sale of our sub-scale positions in renewable energy holdings, Omega and Weg.

Meanwhile, on the fixed income side, in the first half of the year, we had taken a more defensive approach in the face of rising inflation, reducing our duration exposure in Brazil, Mexico, Peru and Uruguay. Towards the end of the Company's financial year, we cautiously started adding back longer-duration bonds to the portfolio as the monetary policy tightening cycles matured and we observed what we considered to be the peak of the inflationary pressures.

ESG Engagement

During the year we continued our engagement with companies on various ESG matters, with a focus as always on collaboratively improving long-term quality for investors.

For example, in line with promoting good governance, we continued our efforts with Assai to help strengthen the group's corporate governance credentials. Elsewhere, we communicated with the Board of Vale with feedback regarding its board refreshment program, in view of the 2023 board election. We also met with the management of Raizen and Klabin's board members to discuss various governance topics, and we collaborated with the Brazilian stock-exchange, B3, to discuss issues around diversity at the board level. We are in the process of formulating suggestions to contribute to the public hearing on ESG enhancements, and diversity and integration requirements for listed companies.

In the area of sustainability, we engaged with Arezzo in order to get a detailed view on some aspects of the company's operations, as well as to suggest some improvements in disclosure and practices, particularly regarding raw material sourcing, carbon footprint and chemical safety. Lastly, we engaged with 3R's new chairman to discuss board functioning, strategy and risk management, including the company's offshore operations.

Outlook

With the region's clamorous election season gradually drawing to a close, we expect foreign capital to return to Latin America as investors start to regain confidence in the respective new administrations. Brazil remains a country to watch, at least until the end of the year, with the transition of the president-elect ongoing.

As a result, we are cautiously optimistic about the near-term outlook for your Company's equity and bond investments in Latin America. Amid changing governments and political alliances, we have observed that fiscal policies in the region have been disciplined, and we believe this will continue. On that front, if inflation continues to stabilise, and we are seeing signs of that now, we expect that by early next year, Latin American central banks should gradually begin loosening interest rates. This will be a challenge for the region, as it will be for central banks around the world - to manage the fine line between keeping inflation in check whilst, at the same time, not holding back economic growth.

We also expect the demand for energy and commodities to remain strong, especially if the Russia-Ukraine conflict remains unresolved. However, we are cognisant of the headwinds, such as slowing demand from China, which has already weighed on GDP growth forecasts for the region, as well as supply chain bottlenecks due to geopolitical uncertainties.

At the individual stock level, while we have begun investing in holdings that we had traditionally avoided due to the stringent regulatory environment or due to the cyclical nature of these businesses, we have done this now after rigorous due diligence, and with confidence that these new additions to the portfolio will serve to enhance the value of your Company. We will also continue to position the Company's portfolio around the dynamic structural growth themes in the region, which we feel will allow it to deliver sustainable returns for shareholders in the longer term. With this is mind, we remain committed to seeking out fundamentally strong, quality companies that can stand the test of time and periods of upheaval, and will ultimately benefit shareholders for several years to come.

Brunella Isper and Viktor SzabóAberdeen Asset Managers Limited10 November 2022

Overview of Strategy

Investment Objective and Business Model

The Company aims to provide private and institutional investors with exposure to the above average long-term capital growth prospects of Latin America combined with an attractive yield.

The business of the Company is that of an investment company and the Directors do not envisage any change in this activity in the foreseeable future. 

Investment Policy and Approach

The Company invests in:

- companies listed on stock exchanges in the Latin American region;

- Latin American securities (such as American Depository Receipts and Global Depositary Receipts) listed on international stock exchanges;

- companies listed on international exchanges that derive significant revenues or profits from the Latin American region; and

- debt issued by governments and companies in the Latin American region.

The Company has a diversified portfolio consisting primarily of equities, equity-related and fixed income investments, with at least 25% of its gross assets invested in equity and equity-related investments and at least 25% of its gross assets invested in fixed income investments. The Company's investment policy is flexible, enabling it to invest in all types of securities, including (but not limited to) equities, preference shares, debt, convertible securities, warrants, depositary receipts and other equity-related securities.

Whilst the Board has provided the Investment Manager with broad investment guidelines in order to ensure a spread of risk, the Company's portfolio is not managed by reference to any benchmark and, therefore, the composition of its portfolio is not restricted by minimum or maximum country, market capitalisation or sector weightings. The Manager follows a bottom-up investment process based on its conviction in individual stocks. Top-down factors are secondary in portfolio construction, with diversification rather than formal controls guiding geographical and sector weights. 

The Company may invest, where appropriate, in open-ended collective investment schemes and closed-ended funds that invest in the Latin American region.

Derivative investments may be used for efficient portfolio management and hedging and may also be used in order to achieve the investment objective and to enhance portfolio performance. The Company may purchase and sell derivative investments such as exchange-listed and over-the-counter put and call options on currencies, securities, fixed income, currency and interest rate indices and other financial instruments, purchase and sell financial futures contracts and options thereon and enter into various interest rate and currency transactions such as swaps, caps, floors or collars or credit transactions and credit derivative instruments. The Company may also purchase derivative instruments that combine features of these instruments. The Manager employs a risk management process to oversee and manage the Company's exposure to derivatives. The Manager may use one or more separate counterparties to undertake derivative transactions on behalf of the Company, and may be required to pledge collateral in order to secure the Company's obligations under such contracts. The Manager will assess on a continuing basis the creditworthiness of counterparties as part of its risk management process.

The Company may underwrite or sub-underwrite any issue or offer for sale of investments.

The Board considers that returns to Ordinary Shareholders can be enhanced by the judicious use of borrowing. The Board is responsible for the level of gearing in the Company and reviews the position on a regular basis. Pursuant to the level of gearing set by the Board, the Company may borrow up to an amount equal to 20% of its net assets calculated at the time of drawing. The Company will not have any fixed, long-term borrowings.

The Company may also use derivative instruments for gearing purposes, in which case the investment restrictions will be calculated on the basis that the Company has acquired the securities to which the derivatives are providing exposure.

The Company will normally be fully invested. However, during periods in which economic conditions or other factors warrant, the Company may reduce its exposure to securities and increase its position in cash and money market instruments.

The Company invests and manages its assets, including its exposure to derivatives, with the objective of spreading risk in line with the Company's investment policy.

The Company may only make material changes to its investment policy with the approval of Ordinary Shareholders (in the form of an ordinary resolution).

Investment Restrictions

The minimum and maximum percentage limits set out under "Investment Policy and Approach" and "Investment Restrictions" will only be applied at the time of the relevant acquisition, trade or borrowing. No more than 15% of the Company's gross assets will be invested in any one company.

The Company will not invest more than 10%, in aggregate, of the value of its gross assets in other investment companies admitted to the Official List of the Financial Conduct Authority, provided that this restriction does not apply to investments in any such investment companies which themselves have stated investment policies to invest no more than 15% of their gross assets in other listed investment companies admitted to the Official List of the Financial Conduct Authority.

The Company may invest up to 25% of its gross assets in non-investment grade government debt issues (being debt issues rated BB+/Ba1 or lower).

The Company's aggregate gross exposure to derivative instruments will not exceed 50% of its gross assets.

The Company will not acquire securities that are unlisted or unquoted at the time of investment (with the exception of securities which are about to be listed or traded on a stock exchange). However, the Company may continue to hold securities that cease to be listed or quoted if the Investment Manager considers this to be appropriate.

No underwriting or sub-underwriting commitment will be entered into if the aggregate of such investments would exceed 10% of the Company's net assets and no such individual investment would exceed 5% of the Company's net assets.

The Board has adopted a policy that the value of the Company's borrowings or derivatives (but excluding collateral held in respect of any such derivatives) will not exceed 30% of the Company's net assets.

Duration

The Company does not have a fixed life or continuation vote.

Benchmark

The Company measures its performance against a composite benchmark index weighted as to 60% MSCI EM Latin America 10/40 Index and 40% JP Morgan GBI-EM Global Diversified (Latin America Carve Out) (both in sterling terms) (the "Benchmark"). The Company does not seek to replicate the Benchmark index in constructing its portfolio and the portfolio is not managed by reference to any index. It is likely, therefore, that there will be periods when the Company's performance will be uncorrelated to any index or benchmark.

Promoting the Company's Success

In accordance with corporate governance best practice, the Board is required to describe to the Company's shareholders how the Directors have discharged their duties and responsibilities over the course of the financial year following the guidelines set out in the UK under section 172 (1) of the Companies Act 2006 (the "s172 Statement"). This Statement, from "Promoting the Success of the Company" to "Long Term Investment" on page 18 of the 2022 Annual Report, provides an explanation of how the Directors have promoted the success of the Company for the benefit of its members as a whole, taking into account the likely long term consequences of decisions, the need to foster relationships with all stakeholders and the impact of the Company's operations on the environment.

The purpose of the Company is to provide private and institutional investors with exposure to the above average long-term capital growth prospects of Latin America combined with an attractive yield. The Company's Investment Objective is disclosed on page 15 of the 2022 Annual Report. The activities of the Company are overseen by the Board of Directors of the Company.

The Board's philosophy is that the Company should operate in a transparent culture where all parties are treated with respect and provided with the opportunity to offer practical challenge and participate in positive debate which is focused on the aim of achieving the expectations of shareholders and other stakeholders alike. The Board reviews the culture and manner in which the Manager operates at its regular meetings and receives regular reporting and feedback from the other key service providers.

Investment trusts, such as the Company, are long-term investment vehicles, with a recommended holding period of five or more years. Typically, investment trusts are externally managed, have no employees, and are overseen by an independent non-executive board of directors. Your Company's Board of Directors sets the investment mandate, monitors the performance of all service providers (including the Manager) and is responsible for reviewing strategy on a regular basis. All this is done with the aim of preserving and enhancing shareholder value over the longer term.

Shareholder Engagement

The following table describes some of the ways we engage with our shareholders

Other Service Providers

The other key stakeholder group is that of the Company's third party service providers. The Board is responsible for selecting the most appropriate outsourced service providers and monitoring the relationships with these suppliers regularly in order to ensure a constructive working relationship. Our service providers look to the Company to provide them with a clear understanding of the Company's needs in order that those requirements can be delivered efficiently and fairly. The Board, via the Management Engagement Committee, ensures that the arrangements with service providers are reviewed at least annually in detail. The aim is to ensure that contractual arrangements remain in line with best practice, services being offered meet the requirements and needs of the Company and performance is in line with the expectations of the Board, Manager, Investment Manager and other relevant stakeholders. Reviews include those of the Company's custodian, registrar, broker and auditor. 

Principal Decisions

Pursuant to the Board's aim of promoting the long term success of the Company, the following principal decisions have been taken during the year:

Continuing Appointment of the Manager It is the Board's duty to shareholders to ensure that the Investment Manager delivers on the investment objective. The Investment Manager has continued to manage the investment portfolio throughout the year under the supervision of the Board. The Investment Manager's Review on pages 11 to 14 of the 2022 Annual Report details the key investment decisions taken during the year. The Board continues to support the Company's mandate and has reviewed and challenged the decisions made by the Manager during the year. The Management Engagement Committee, on behalf of the Board, has undertaken its annual review of the Manager's performance, and the terms of the Management Agreement, and believes that its continued appointment is in the best interests of shareholders.

Board Appointment The Board continued to progress its succession plans during the year, resulting in the appointment of Michael Gray as an independent Non-Executive Director with effect from 28 February 2022. Further details are provided in the Chairman's Statement. The Board believes that the appointment of Michael Gray benefits shareholders by ensuring an orderly refreshment of the Board, which serves to provide continuity and maintain the Board's independent oversight of the Manager.

Dividend The Board has maintained the level of the Company's dividend, supplemented at times by revenue reserves, despite the lingering impact of the Covid-19 pandemic and the difficult economic backdrop. The Board regularly reviews revenue forecasts, together with the Manager, and places great emphasis on exercising prudence, particularly in these uncertain times, to ensure that the robustness of the Company's balance sheet is maintained, and continues to keep its distribution policy under review.

ESG The Board is responsible for overseeing the work of the Manager and this is not limited solely to the investment performance of the portfolio companies. The Board also has regard for environmental (including climate change), social and governance matters that subsist within the portfolio companies. The Board has met with the Manager to gain an improved understanding of its approach to ESG engagement with investee companies, including review of their reporting, and how it meets its reporting requirements on ESG; the Board is supportive of the Manager's pro-active approach and the Manager will continue to evolve the quality and content of its reporting to the Board. The Manager produces a half yearly report which looks at ESG characteristics of the equity holdings within the portfolio, including carbon emissions. Discussions have taken place on how to improve communication in this area to shareholders and the wider public, given its increasing importance, particularly with respect to climate change. More information on the Manager's approach to ESG can be found on pages 36 to 41 of the 2022 Annual Report.

Long Term Investment

The Investment Manager's investment process seeks to outperform over the longer term. The Board has in place the necessary procedures and processes to continue to promote the long term success of the Company. The Board will continue to monitor, evaluate and seek to improve these processes as the Company continues to grow over time, seeking to ensure that the investment proposition is delivered to shareholders and other stakeholders in line with their expectations.

Key Performance Indicators ("KPIs")

The Board uses a number of financial performance measures to assess the Company's success in achieving its objective and determine the progress of the Company in pursuing its investment policy. The main KPIs identified by the Board in relation to the Company which are considered at each Board meeting are as follows:

Further commentary on the Company's performance is contained in the Chairman's Statement and Investment Manager's Review and further explanation of the terms is provided in the Glossary on pages 108 to 110 of the 2022 Annual Report.

Principal Risks and Uncertainties

There are a number of risks which, if realised, could have a material adverse effect on the Company and its financial condition, performance and prospects. The Board has carried out a robust assessment of the risks and uncertainties facing the Company at the current time together with a description of the mitigating actions taken by the Board. This process is supported by use of a risk matrix and heat map which describes the principal risks set out in the table on pages 20 to 21 of the 2022 Annual Report. The Board also has a process for identifying newly emerging risks, including geopolitical developments.

The principal risks associated with an investment in the Company's shares are published monthly on the Company's factsheet and they can be found in the Pre-Investment Disclosure Document published by the Manager, both of which are on the Company's website.

The principal uncertainty for the Company during the financial year was the continuing impact of the global pandemic and geopolitical developments following Russia's invasion of Ukraine in February 2022. These events have caused significant economic disruption and contributed to global stock market volatility; their longer-term effects on the Latin American region are as yet unknown and the likelihood of a global recession in 2023 has increased. The Manager has sought assurances from, and reported to the Audit Committee on, the Company's key service providers, as well as its own operations, business continuity and contingency arrangements. Other than these global developments, the Audit Committee does not consider the principal risks and uncertainties of the Company to have changed materially during the year ended 31 August 2022.

The Board also regularly considers the increasing risk of ESG-related matters, particularly regarding the impact of climate change on financial performance of companies and the monitoring of developments in ESG reporting requirements, including how the Manager seeks to address them.

An explanation of other risks relating to the Company's investment activities, specifically market risk including interest rate risk, foreign currency risk and other price risk, liquidity risk, credit risk and a note of how these risks are managed, is contained in note 15 to the financial statements on pages 88 to 97 of the 2022 Annual Report.

Viability Statement

The Company does not have a formal fixed period strategic plan but the Board formally considers risks and strategy at least annually. The Board considers the Company, with no fixed life, to be a long term investment vehicle, but for the purposes of this viability statement has decided that a period of three years is an appropriate period over which to report. The Board considers that this period reflects an appropriate balance between looking out over a long term horizon and the inherent uncertainties of looking out further than three years.

In assessing the viability of the Company over the review period the Directors have carried out a robust assessment of the principal risks detailed in the Strategic Report focussing upon the following factors:

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

- The demand for the Company's shares evidenced by the historical level of premium and or discount;

- The level of income generated by the Company;

- The liquidity of the Company's portfolio; and,

- The flexibility of the Company's multi-currency loan facility which matures in August 2023 including the financial covenants of the loans. The Directors will aim to agree a new facility upon the expiry of the current one in 2023 and in the event that satisfactory renewal terms are not available at that time the facility will be repaid from portfolio sales.

Accordingly, taking into account the Company's current position, the fact that abrdn has agreed to reduce the fees payable to the Manager to the extent necessary to ensure that the Ongoing Charges Ratio does not exceed 2.0%, the fact that the Company's investments are mostly liquid and the potential impact of its principal risks and uncertainties, the Board has a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due for a period of three years from the date of this Report. In making this assessment, the Board has considered that matters such as the ongoing Covid-19 pandemic, significant economic or stock market volatility, significant discount to NAV, a substantial reduction in the liquidity of the portfolio, or changes in investor sentiment could have an impact on its assessment of the Company's prospects and viability in the future.

Promoting the Company

The Board recognises the importance of promoting the Company to prospective investors both for improving liquidity and enhancing the value and rating of the Company's shares. The Board believes an effective way to achieve this is through subscription to and participation in the promotional programme run by abrdn on behalf of a number of investment companies under its management. The Company's financial contribution to the programme is matched by abrdn. abrdn's promotional team reports quarterly to the Board giving analysis of the promotional activities as well as updates on the shareholder register and any changes in the make-up of that register.

The purpose of the programme is both to communicate effectively with existing shareholders and to gain new shareholders with the aim of improving liquidity and enhancing the value and rating of the Company's shares. Communicating the long-term attractions of your Company is key and therefore the Company also supports the abrdn investor relations programme which involves regional roadshows, promotional and public relations campaigns. 

Board Diversity

The Board recognises the importance of having a range of skilled, experienced individuals with the right knowledge represented on the Board in order to allow the Board to fulfil its obligations. The Board also recognises the benefits and is supportive of the principle of diversity in its recruitment of new Board members. The Board will not display any bias for age, gender, race, sexual orientation, religion, ethnic or national origins, or disability in considering the appointment of its Directors. However, the Board will continue to ensure that all appointments are made on the basis of merit against the specification prepared for each appointment and, therefore, the Company does not consider it appropriate to set diversity targets. At 31 August 2022, there were two male and two female Directors on the Board.

Environmental, Social and Human Rights Issues

The Company has no employees as it is managed by abrdn Capital International Limited ("aCIL") and ordinarily all activities are contracted out to third party service providers. There are therefore no disclosures to be made in respect of employees. The Company's socially responsible investment policy is outlined on page 15 of the 2022 Annual Report. The Board has appointed Hazel Adam as the director responsible for ESG matters and she helps promote close monitoring and further development in this area for the Company.

Due to the nature of the Company's business, being a company that does not offer goods and services to customers, the Board considers that it is not within the scope of the Modern Slavery Act 2015 because it has no turnover. The Company is therefore not required to make a slavery and human trafficking statement. In any event, the Board considers the Company's supply chains, dealing predominantly with professional advisers and service providers in the financial services industry, to be low risk in relation to this matter. Through the Manager and its engagement with investee companies, the Company has oversight over supply chains within the portfolio. The Board encourages the Manager to engage with investee companies on all ESG matters, which could include modern slavery and human rights issues in investment portfolio companies. More information can be found on the Investment Manager's approach to ESG engagement on pages 36 to 41 of the 2022 Annual Report.

The Company's Manager has confirmed that it complies with the Modern Slavery Act 2015.

Global Greenhouse Gas Emissions and Streamlined Energy and Carbon Reporting ("SECR")

All of the Company's activities are outsourced to third parties. The Company therefore has no greenhouse gas emissions to report from the operations of its business, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013. For the same reason as set out above, the Company considers itself to be a low energy user under the SECR and therefore is not required to disclose energy and carbon information. 

Future

Many of the non-performance related trends likely to affect the Company in the future are common across all closed-ended investment companies, such as the attractiveness of investment companies as investment vehicles and the impact of regulatory changes. These factors need to be viewed alongside the outlook for the Company, both generally and specifically, in relation to the portfolio. The Board's views on the general outlook for the Company can be found in the Chairman's Statement on page 10, whilst the Investment Manager's views on the outlook for the portfolio are included on pages 13 to 14 of the 2022 Annual Report.

For and on behalf of the BoardHoward Myles, Chairman10 November 2022

Results

Performance (total return)

Ten Year Financial Record

Ten Largest Investments

As at 31 August 2022

Investment Portfolio - Equities

Investment Portfolio - Bonds

Directors' Report

The Directors present their Report and the audited financial statements for the year ended 31 August 2022.

Status

The Company is registered with limited liability in Jersey as a closed-ended investment company under the Companies (Jersey) Law 1991 with registered number 106012. In addition, the Company is constituted and regulated as a collective investment fund under the Collective Investments Funds (Jersey) Law 1988. The Company has no employees and makes no political or charitable donations. The Company has a wholly owned subsidiary, abrdn Latin American Income Fund LLC, registered in Delaware. The subsidiary is used to hold certain investments as part of the efficient management of the group.

The Company intends to continue to manage its affairs so as to be a qualifying investment for inclusion in the stocks and shares component of an Individual Savings Account and it is the Directors' intention that the Company should continue to be a qualifying investment.

Results and Dividends

Details of the Company's results and dividends are shown above. The Company's dividend policy is to pay interim dividends on a quarterly basis and for the year to 31 August 2022 dividends have been paid in January, May, August and October 2022.

Management Arrangements

The Company has an agreement (the "Management Agreement") with aCIL for the provision of management, company secretarial and promotional services, details of which are shown in notes 5, 6 and 17 to the financial statements.

Under the Management Agreement, the Manager is entitled to both a management fee and a company secretarial and administration fee. The Manager has agreed to ensure that the Company's ongoing charges ratio ("OCR") will not exceed 2.0% when calculated annually as at 31 August. Until further notice, to the extent that the OCR ever exceeds 2.0% the Manager will rebate part of its fees in order to bring that ratio down to 2.0%. In relation to the year ended 31 August 2022 an OCR rebate of £132,000 (2021: £127,000) was payable by the Manager in order to ensure that the OCR did not exceed 2.0%. 

The Directors review the terms of the Management Agreement on a regular basis and have confirmed that, due to the investment skills, experience and commitment of the Management team, in their opinion the continuing appointment of aCIL on the terms agreed, is in the interests of Shareholders as a whole.

Share Capital

As at 31 August 2022 there were 57,113,324 Ordinary shares in issue and 6,107,500 Ordinary shares held in treasury. There were no changes to the Company's shares in issue during the year. 

Ordinary shareholders are entitled to vote on all resolutions which are proposed at general meetings of the Company. The Ordinary shares carry a right to receive dividends. On a winding up, after meeting the liabilities of the Company, the surplus assets will be paid to Ordinary shareholders in proportion to their shareholdings.

Risk Management

Details of the principal risks and uncertainties and KPIs are disclosed on pages 19 to 21 of the 2022 Annual Report. Details of the financial risk management policies and objectives relative to the use of financial instruments by the Company are set out in note 15 to the financial statements.

Directors

Hazel Adam, Michael Gray, Heather MacCallum, Howard Myles and Richard Prosser were the only Directors in office during the financial year. As part of an agreed succession plan, Richard Prosser retired as a director of the Company in February 2022 and Michael Gray was appointed on 18 February 2022.

The Directors' beneficial holdings are disclosed in the Directors' Remuneration Report. No Director has a service contract with the Company. The Directors' interests in contractual arrangements with the Company are as shown in note 6 to the financial statements. All of the Directors are retiring and seeking re-election at the AGM on 14 December 2022, with the exception of Michael Gray who will be seeking election by shareholders for the first time.

Corporate Governance

The Company is committed to high standards of corporate governance. The Board is accountable to the Company's Shareholders for good governance.

The Company is a member of the Association of Investment Companies ("AIC"). The Board has considered the principles and provisions of the AIC Code of Corporate Governance as published in February 2019 ("AIC Code"). The AIC Code addresses the principles and provisions set out in the UK Corporate Governance Code ("UK Code"), as well as setting out provisions on issues which are of specific relevance to the Company.

The AIC Code is available on the AIC's website:  theaic.co.uk. 

The Board considers that reporting against the provisions of the AIC Code which has been endorsed by the FRC provides more relevant information to shareholders.

The Board confirms that, during the year, the Company complied with the principles and provisions of the AIC, and the relevant provisions of the UK Code, except as set out below:

- The UK Corporate Governance Code includes provisions relating to:

- interaction with the workforce (provisions 2, 5 and 6);

- the role and responsibility of the chief executive (provisions 9 and 14);

- appointment of a senior independent director (provision 12);

- previous experience of the chairman of a remuneration committee (provision 32); and

- executive directors' remuneration (provisions 33 and 36 to 40).

The Board considers that these provisions are not relevant to the position of the Company, being an externally-managed investment company, with four Directors. In particular, all of the Company's day-to-day management and administrative functions are outsourced to third parties. As a result, the Company has no executive directors, employees or internal operations. The Company has therefore not reported further in respect of these provisions. The full text of the Company's Corporate Governance Statement can be found on the Company's website, latamincome.co.uk.

The Directors attended scheduled Board and Committee meetings during the year ended 31 August 2022 as follows (with their eligibility to attend the relevant meeting in brackets):

1Richard Prosser retired and Michael Gray was appointed on 18 February 2022.

In addition to scheduled meetings, additional meetings of the Board and its Committees were held on an ad hoc basis throughout the year to deal with business outside of normal reporting cycles.

Policy on Tenure

In normal circumstances, it is the Board's expectation that Directors will not serve beyond the AGM following the ninth anniversary of their appointment. However, the Board takes the view that independence of individual Directors is not necessarily compromised by length of tenure on the Board and that continuity and experience can add significantly to the Board's strength. The Board believes that recommendation for re-election should be on an individual basis following a rigorous review which assesses the contribution made by the Director concerned, but also considering the need for managed succession and diversity.

It is also the Board's policy that the Chair of the Board will not serve as a Director beyond the AGM following the ninth anniversary of their appointment to the Board. However, this may be extended in exceptional circumstances or to facilitate effective succession planning and the development of a diverse Board. In such a situation the reasons for the extension will be fully explained to shareholders.

The Board has a schedule of matters reserved to it for decision and the requirement for Board approval on these matters is communicated directly to the senior staff at abrdn. Such matters include strategy, gearing, treasury and dividend policy. Full and timely information is provided to the Board to enable the Directors to function effectively and to discharge their responsibilities. The Board also reviews the financial statements, performance and revenue budgets.

There is an agreed procedure for Directors to take independent professional advice if necessary and at the Company's expense. This is in addition to the access which every Director has to the advice and services of the Company Secretary, which is responsible to the Board for ensuring that Board procedures are followed and that applicable rules and regulations are complied with.

Board Committees

As the Company has no employees and the Board is comprised wholly of non-executive Directors and given the size and nature of the Company, the Board has not established a separate remuneration committee. Directors' remuneration is determined by the Board as a whole. The remuneration of the Directors has been set in order to attract individuals of a calibre appropriate to the future development of the Company. The Company's policy on Directors' remuneration, together with details of the remuneration of each Director, is detailed in the Directors' Remuneration Report on pages 59 to 61 of the 2022 Annual Report.

Audit Committee

The Report of the Audit Committee is on pages 56 to 58 of the 2022 Annual Report.

Management Engagement Committee

The Board has appointed a Management Engagement Committee which comprises the entire Board. The Company Chairman is also Chairman of the committee. It has defined terms of reference which are reviewed on an annual basis. Copies of the terms of reference are published on the Company's website: latamincome.co.uk.

The function of this committee is to review performance of the Company's service providers and to ensure that the Manager and the Investment Manager comply with the terms of the Management Agreement and that the provisions of the agreement follow industry practice, and remain competitive and in the best interest of Shareholders as a whole. The committee remains satisfied that the continuing appointment of the Investment Manager and Manager on the terms agreed is in the interests of Shareholders as a whole. The key factors considered in reaching this decision were the investment skills, experience and commitment and performance record of abrdn. The Management Agreement may be terminated by either party by giving not less than twelve months' notice in writing. The committee has also considered the performance of the Company's other service providers and remains satisfied that they support the Company effectively on reasonable commercial terms.

Nomination Committee

The Board has established a Nomination Committee, comprising all of the Directors, with Howard Myles as Chairman. Appointments to the Board of Directors are considered by the Nomination Committee. The committee has defined terms of reference which are reviewed on an annual basis. Copies of the terms of reference are published on the Company's website: latamincome.co.uk. 

The committee reviews the effectiveness of the Board, succession planning, Board appointments, inductions and training, and determines the Directors' remuneration policy and level of remuneration.

During the year, the committee also undertook an annual appraisal of the performance of the Chairman, the individual Directors, the Board as a whole and the Board's committees. The process involved the completion of questionnaires by each Director. The results of the process were discussed by the Nomination Committee following its completion. The outcome of the appraisal process was considered to be satisfactory with all Directors having contributed effectively at the meetings that they had attended during the year. The Chairman's and Directors' other commitments were also reviewed and it was concluded that each Director is capable of devoting sufficient time to the Company.

The Company is not required to do an external evaluation of the effectiveness of the Board as it is not a constituent of the FTSE 350. No external evaluation was conducted during the year as the Board concluded that it would not add value at this time. This approach will be kept under review.

At the AGM on 14 December 2022, Hazel Adam, Heather MacCallum and Howard Myles will offer themselves for re-election as Directors of the Company. Michael Gray will offer himself for election by shareholders for the first time.

The Board has considered the contribution of each Director, as set out on pages 46 and 47 of the 2022 Annual Report, and considers that there is a balance of skills and experience within the Board to lead the Company and that all Directors contribute effectively. The Chairman's performance appraisal is led by the Chair of the Audit Committee.

Accordingly, the Board has reviewed, and unanimously supports, the proposed re-election of Hazel Adams, Heather MacCallum and Howard Myles and the election of Michael Gray. 

The Board's policy on diversity is disclosed in the Strategic Report on page 22 of the 2022 Annual Report.

The Role of the Chairman

The Chairman is responsible for providing effective leadership to the Board, by setting the tone of the Company, demonstrating objective judgement and promoting a culture of openness and debate. The Chairman facilitates the effective contribution, and encourages active engagement, by each Director. In conjunction with the Company Secretary, the Chairman ensures that Directors receive accurate, timely and clear information to assist them with effective decision-making. The Chairman leads the evaluation of the Board and individual Directors, and acts upon the results of the evaluation process by recognising strengths and addressing any weaknesses. The Chairman also engages with major shareholders and ensures that all Directors understand shareholder views.

Going Concern

In accordance with the FRC's guidance the Board has undertaken a rigorous review of the Company's ability to continue as a going concern. The Company's assets including those of its wholly owned subsidiary, abrdn Latin American Income Fund LLC, consist of a diverse portfolio of listed equities, equity-related investments and fixed income investments exposed to the Latin American market which in most circumstances are realisable within a very short timescale. 

The Company has considerable financial resources and, as a consequence, the Board believes that the Company is well placed to manage its business risks successfully despite uncertainties in the economic outlook.

The Board is mindful of the principal risks and uncertainties disclosed on pages 20 to 21 of the 2022 Annual Report, including gearing, the ongoing impact of Covid-19 as well as geopolitical developments and their impact on the economic outlook for the Latin American region. It has reviewed forecasts detailing revenue and liabilities and believes that the Company has adequate financial resources to continue its operational existence for the foreseeable future and at least twelve months from the date of this Annual Report. Accordingly, the Board continues to adopt the going concern basis in preparing the financial statements of the Company as at the date of the approval of this Report.

Internal Controls and Risk Management

The design, implementation and maintenance of controls and procedures to safeguard the assets of the Company and to manage its affairs properly extends to operational and compliance controls and risk management. The Board has prepared its own risk register which identifies potential risks both major and minor relating to: strategy; investment management; Shareholders; marketing; gearing; regulatory and financial obligations; third party service providers and the Board. The Board considers the potential cause and possible impact of these risks as well as reviewing the controls in place to mitigate these potential risks. A risk is rated by having a likelihood and an impact rating and the residual risk is plotted on a "heat map" and is reviewed regularly.

The Board is ultimately responsible for the Company's system of internal control and for reviewing its effectiveness. The Board confirms that there is an ongoing process for identifying, evaluating and managing the principal risks faced by the Company. This process has been in place for the period under review and up to the date of approval of this Annual Report and financial statements, and is regularly reviewed by the Board and accords with the FRC's guidance on internal controls. The Board has reviewed the effectiveness of the system of internal control. In particular, it has reviewed and updated the process for identifying and evaluating the principal risks affecting the Company and policies by which these risks are managed. The principal risks and uncertainties faced by the Company are detailed in the Strategic Report.

The key components designed to provide effective internal control are outlined below:

- the Manager prepares monthly forecasts and management accounts which allow the Board to assess the Company's activities and review its performance;

- the Board and the Manager have agreed clearly defined investment criteria, specified levels of authority and exposure limits; reports on these issues, including performance statistics and investment valuations, are regularly submitted to the Board and there are meetings with the Manager as appropriate;

- as a matter of course the Manager's compliance department continually reviews its operations;

- written agreements are in place which specifically define the roles and responsibilities of the Manager and other third-party service providers and the Audit Committee reviews, where relevant, periodic ISAE3402 Reports, a global assurance standard for reporting on internal controls for service organisations; the Board is made aware by the Manager of relevant exceptions in ISAE3402 reporting from key third party service providers as part of the Manager's third party service provider oversight regime;

- at its November 2022 meeting, the Audit Committee members carried out an annual assessment of internal controls for the year ended 31 August 2022 by considering documentation from abrdn, including the internal audit and compliance functions and taking account of events since 31 August 2022. The results of the assessment were then reported to the Directors at the Board meeting which followed; and,

- the Board has considered the need for an internal audit function but, because of the compliance and internal control systems in place at the Manager, has decided to place reliance on the Manager's systems and internal audit procedures.

Internal control systems are designed to meet the Company's particular needs and the risks to which it is exposed. Accordingly, the internal control systems are designed to manage rather than eliminate the risk of failure to achieve business objectives and by their nature can only provide reasonable and not absolute assurance against misstatement and loss.

Management of Conflicts of Interest

The Board has a procedure in place to deal with a situation where a Director has a conflict of interest. As part of this process, the Directors prepare a list of other positions held and all other conflict situations that may need to be authorised either in relation to the Director themselves or their connected persons. The Board considers each Director's situation and decides whether to approve any conflict, taking into consideration what is in the best interests of the Company and whether the Director's ability to act in accordance with their wider duties is affected. Each Director is required to notify the Company Secretary of any potential, or actual, conflict situations that will need authorising by the Board. Authorisations given by the Board are reviewed at each Board meeting.

No Director has a service contract with the Company although each Director is issued with a letter of appointment when appointed to the Board. The Directors' interests in contractual arrangements with the Company are as shown in note 6 to the financial statements. No Director had any interest in contracts with the Company during the period or subsequently.

The Board has adopted appropriate procedures designed to prevent bribery. The Company receives periodic reports from its service providers on the anti-bribery policies of these third parties. It also receives regular compliance reports from the Manager.

In the UK the Criminal Finances Act 2017 introduced a new corporate criminal offence of "failing to take reasonable steps to prevent the facilitation of tax evasion". The Board has confirmed that it is the Company's policy to conduct all of its business in an honest and ethical manner. The Board takes a zero-tolerance approach to facilitation of tax evasion, whether under UK law or under the law of any foreign country.

Substantial Interests

The Company has been advised that the following Shareholders owned 3% or more of the issued Ordinary share capital of the Company at 31 August 2022:

On 30 September 2022, 1607 Capital Partners notified the Company that it had sold shares in the Company and now holds 9.4% of the issued Ordinary share capital. On 28 September 2022 and 13 October 2022, City of London Investment Management Company notified the Company that it had bought Ordinary shares in the Company resulting in a holding of 20.8% and then 21.85% respectively.

There have been no other significant changes notified to the Company in respect of the above holdings between 31 August 2022 and 10 November 2022.

Alternative Investment Fund Managers Directive ("AIFMD")

On 14 July 2014, the Jersey Financial Services Commission granted the Company a certificate of exemption from the application of the Alternative Investment Funds (Jersey) Regulations 2012 to any marketing it may carry out within any EU member state. aCIL, as the Company's non-EEA alternative investment fund manager, also notified the FCA in accordance with the requirements of the UK National Private Placement Regime for inclusion of the Company on the UK register as a non-EEA alternative investment fund being marketed in the UK.

In addition, in accordance with Article 23 of the AIFMD and Rule 3.2.2 of the FCA FUND Sourcebook, aCIL is required to make available certain disclosures for potential investors in the Company and these are available on the Company's website: latamincome.co.uk.

Annual General Meeting

The AGM will be held at 10:00am on Wednesday, 14 December 2022 at the Company's registered office, Sir Walter Raleigh House, 48 - 50 Esplanade, St Helier, Jersey JE2 3QB. Resolutions including the following business will be proposed:

Dividend Policy

As a result of the timing of the payment of the Company's quarterly dividends, the Company's Shareholders are unable to approve a final dividend each year. In line with good corporate governance, the Board therefore proposes to put the Company's dividend policy to Shareholders for approval at the AGM and on an annual basis thereafter.

The Company's dividend policy is that interim dividends on the Ordinary Shares are payable quarterly in relation to periods ending November, February, May and August. It is intended that, over the long term, the Company will pay quarterly dividends consistent with the expected annual underlying portfolio yield. Resolution 3 will seek shareholder approval for the dividend policy.

Appointment of Independent Auditor

The Directors will put a resolution before the AGM to re-appoint PricewaterhouseCoopers CI LLP ("PwC") as independent auditor for the ensuing year, and to authorise the Directors to determine their remuneration.

Authority to Purchase the Company's Shares

In the past the Company has quoted that the aim of its discount management policy has been to try to maintain the price at which the Ordinary shares trade relative to the Company's NAV at a discount of no more that 5%. The Company's discount to NAV was -17.3% at 31 August 2022. As set out in the Chairman's Statement on page 9 of the 2022 Annual Report, in light of ongoing market volatility, the size of the company, the adverse effect on market liquidity if the number of shares in issue reduced and the lack of meaningful impact on the discount, the Board decided not to buy back any shares during the financial year. No shares have been bought back since the financial year end. 

Purchases of Ordinary shares will only be made through the market for cash at prices below the prevailing exclusive of income NAV per Ordinary share (as last calculated), subject to prevailing market conditions and having regard to the size of the Company, where the Directors believe it is in the best interest of shareholders to do so.

Resolution 10, a special resolution, will be proposed to renew the Directors' authority to make market purchases of the Ordinary shares in accordance with the provisions of the FCA's Listing Rules. The Company will seek authority to purchase up to a maximum of 8,561,287 Ordinary shares (representing 14.99% of the current issued Ordinary share capital excluding treasury shares as at the date of publication of this Annual Report). The authority being sought shall expire at the conclusion of the AGM in 2023 unless such authority is renewed prior to that time. Any Ordinary shares purchased in this way will either be cancelled and the number of Ordinary shares will be reduced accordingly, or the Ordinary shares will be held in treasury, in accordance with the authority previously conferred by Shareholders.

The Companies (Jersey) Law 1991 allows companies to either cancel shares or hold them in treasury following a buy-back. These powers give Directors additional flexibility and the Board considers that it is in the interest of the Company that such powers be available, including the power to hold treasury shares. Any future sales of Ordinary shares from treasury will only be undertaken at a premium to the prevailing NAV per Ordinary share for the benefit of all Shareholders. The Directors monitor the level of shares held in treasury and whilst there are no upper limits on the number of shares that can be held in treasury consideration will be given to cancelling treasury shares if the number becomes excessively high compared to the issued share capital.

Directors' Authority to Allot Relevant Securities

There are no provisions under Jersey law which confer rights of pre-emption upon the issue or sale of any class of shares in the Company. However, as the Ordinary shares are traded on the main market of the London Stock Exchange and have a premium listing, the Company is required to offer pre-emption rights to its Shareholders and the Articles of Association reflect this. Ordinary shares will only be issued at a premium to the prevailing NAV per Ordinary share and, therefore, any issue will not be dilutive to existing Ordinary Shareholders. 

Unless previously disapplied by special resolution, in accordance with the FCA's Listing Rules, the Company is required to first offer any new shares or securities (or rights to subscribe for, or to convert or exchange into, shares) proposed to be issued for cash to Shareholders in proportion to their holdings in the Company. In order to provide for such share issues, your Board is therefore also proposing that an annual disapplication of the pre-emption rights is given to the Directors so that they may issue shares as and when appropriate. Accordingly, resolution 11, a special resolution, proposes a disapplication of the pre-emption rights in respect of 10% of the shares in issue, set to expire on the earlier of eighteen months from the date of the resolution or at the conclusion of the AGM to be held in 2023.

Recommendation

Your Board considers all resolutions to be in the best interests of the Company and its members as a whole. Accordingly, your Board recommends that Ordinary Shareholders should vote in favour of all resolutions to be proposed at the AGM.

Directors' & Officers Liability Insurance

Directors' & Officers' liability insurance cover has been maintained throughout the period at the expense of the Company.

Relations with Shareholders

The Directors place a great deal of importance on communication with Shareholders and welcome feedback from all Shareholders. The Chairman meets periodically with the largest Shareholders to discuss the Company. The Annual Report and financial statements are widely distributed to other parties who have an interest in the Company's performance. Shareholders and investors may obtain up to date information on the Company through the Manager's freephone information service and the Company's website: latamincome.co.uk.

The Board's policy is to communicate directly with Shareholders and their representative bodies without the involvement of the management group (either the Company Secretary or the Manager) in situations where direct communication is required.

The Notice of the AGM, included within the Annual Report and financial statements, is ordinarily sent out at least 20 working days in advance of the meeting. All Shareholders have the opportunity to put questions to the Board or Manager, either formally at the Company's AGM or informally following the meeting. The Company Secretary is available to answer general Shareholder queries at any time throughout the year. The Directors are keen to encourage dialogue with Shareholders and the Chairman welcomes direct contact from Shareholders. You may submit questions to the Board by email to latin.american@abrdn.com.

Responsible Investment

The Board is aware of its duty to act in the best interests of the Company. The Board acknowledges that there are risks associated with investment in companies which fail to conduct business in a socially responsible manner. The Manager considers social, environmental and ethical factors which may affect the performance or value of the Company's investments. The Directors, through the Company's Manager, encourage companies in which investments are made to adhere to best practice in the area of Corporate Governance. They believe that this can best be achieved by entering into a dialogue with company management to encourage them, where necessary, to improve their policies in this area. The Company's ultimate objective, however, is to deliver superior investment returns for its shareholders. Accordingly, whilst the Manager will seek to favour investment in companies which pursue best practice in ESG matters, this is always considered in the context of return on the investment portfolio.

UK Stewardship Code and Proxy Voting as an Institutional Shareholder

Responsibility for actively monitoring the activities of portfolio companies has been delegated by the Board to the Manager which has sub-delegated that authority to the Investment Manager.

The full text of the Company's response to the Stewardship Code may be found on the Company's website: latamincome.co.uk.

ESG Policy

As an investment company, the Company has no direct social, environmental or community responsibilities. However, the Board acknowledges that there are risks associated with investment in companies which fail to conduct business in a socially responsible manner and the Board, therefore, challenges the Investment Manager as to whether decisions take appropriate account of the social, environment and ethical factors, which may affect the performance or value of the Company's investments, including climate change. More details on the Investment Manager's approach to ESG engagement can be found on pages 36 to 41 of the 2022 Annual Report.

For and on behalf of the Boardabrdn Capital International Limited,Secretary10 November 2022

1st Floor, Sir Walter Raleigh House48 - 50 Esplanade,St HelierJersey JE2 3QB

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

The Companies (Jersey) Law 1991 requires the Directors to prepare financial statements for each financial period in accordance with any generally accepted accounting principles. The financial statements of the Company are required by law to 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 should:

- select suitable accounting policies and then apply them consistently;

- make judgments and estimates that are reasonable;

- specify which generally accepted accounting principles have been adopted in their preparation;

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

- assess whether the Annual Report and financial statements, taken as a whole, is 'fair, balanced and understandable'.

The Directors are responsible for keeping accounting records which are sufficient to show and explain its transactions and are such as to disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements prepared by the Company comply with the requirements of the Companies (Jersey) Law 1991. 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.

Under applicable law and regulations, the Directors are also responsible for ensuring that the Company complies with the provisions of the Listing Rules and the Disclosure, Guidance & Transparency Rules of the Financial Conduct Authority which, with regard to corporate governance, require disclosure of how the Board has applied the principles, and complied with the provisions, of the UK Corporate Governance Code as applicable to the Company.

Declaration

The Directors listed on pages 46 and 47 of the 2022 Annual Report, being the persons responsible, hereby confirm to the best of their knowledge:

- that the financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company;

- that in the opinion of the Directors, the Annual Report and financial statements taken as a whole, is fair, balanced and understandable and it provides the information necessary to assess the Company's position and performance, business model and strategy; and

- the Strategic Report, including the Chairman's Statement and the Investment Manager's Review, include a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that the Company faces.

For and on behalf of the BoardHoward Myles,Chairman10 November 2022

1st Floor, Sir Walter Raleigh House48 - 50 Esplanade,St HelierJersey JE2 3QB

The Manager is responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in Jersey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Statement of Comprehensive Income

Statement of Financial Position

Statement of Changes in Equity

Statement of Cash Flows

Notes to the Financial Statements

For the year ended 31 August 2022