Half-yearly Report

LONDON STOCK EXCHANGE ANNOUNCEMENT Pacific Assets Trust plc Unaudited Half Year Results For The Six Months Ended 31 July 2011 Company Summary Objective To achieve long term capital growth through investment in selected companies in the Asia Pacific region and the Indian sub-continent, but excluding Japan, Australia and New Zealand (the `Asia Pacific Region'). Up to a maximum of 20% of the Company's total assets (at the time of investment) may be invested in companies incorporated and/or listed outside the Asia Pacific Region, but whose economic activities are predominantly within the Asia Pacific Region. Benchmark Performance is measured against the MSCI All Country Asia ex Japan Index (total return, sterling adjusted). Performance Assessment The Company exists in a competitive environment and aims to be a leader in its peer group. Reflecting this, it should consistently be within the top third of that group measured by net asset value total return. The Company is committed to building a long term investment record and will assess itself by reference to its peers on a rolling three year basis. Investment Manager First State Investment Management (UK) Limited Manager, Administrator and Company Secretary Frostrow Capital LLP Equity Shareholders' Funds £162.6 million at 31 July 2011 (31 January 2011: £160.1 million) Capital Structure The Company's capital structure is composed solely of Ordinary Shares. At 31 July 2011 there were 116,848,386 Ordinary Shares in issue (31 January 2011: 116,848,386 Ordinary Shares). ISA Status The Company's shares are eligible for Individual Savings Accounts (`ISAs'). Website The Company's website address is www.pacific-assets.co.uk Gearing The Company's committed borrowing facility of US$20 million with ING Bank N.V. was cancelled by the Company on 6 May 2011. Key Statistics As at As at 31 July 31 January 2011 2011 % change Share price 124.00p 131.50p -5.7 Net asset value per share 139.12p 137.00p +1.5 Discount of share price to 10.9% 4.0% n/a net asset value per share Shareholders' funds £162.6m £160.1m +1.5 Market capitalisation £144.9m £153.7m -5.7 Six months One year to to 31 July 31 January 2011 2011 Share price (total return) -4.7% +27.6% * Net asset value per share +2.1% +21.4% (total return)* MSCI All Country Asia ex +0.9% +26.4% Japan Index (total return, sterling adjusted)* * Source: Morningstar Year ended Year ended 31 January 31 January Dividends 2011 2010 Final dividend per share 1.29p 1.29p Half Year's Highs/Lows High Low Net asset value per share 140.51p 127.30p Share price 130.00p 115.00p Discount of share price to 4.0% 11.6% net asset value per share† Notes † Discount high - Narrowest discount in period Discount low - Widest discount in period Chairman's Statement I am pleased to report that the resolution to amend the Company's investment objective and policy was passed at the Company's Annual General Meeting in June. Your Investment Manager is now permitted to invest up to 20% of your Company's total assets in companies which are incorporated and/or listed outside the Asia Pacific region and the Indian sub-continent but excluding Japan, Australia and New Zealand, but whose economic activities are predominantly within this region. At the half-year end 5.7% of the Company's total assets were invested in such companies. A report from your Investment Manager can be found beginning on page 5. Performance During the six month period under review, the Company's net asset value total return was 2.1%, making your Company the second best performing investment trust in our peer group in terms of investment performance. This compares to a total return from the sterling adjusted MSCI All Country Asia ex Japan Index of 0.9%. The share price total return for the period was -4.7%; reflecting an increase in the share price discount to net asset value per share from 4.0% as at 31 January 2011 to 10.9% as at 31 July 2011. This is in line with a similar widening of the discounts of peer group companies. Share Capital and Discount Policy The Company renewed the authority to repurchase its own shares at the Annual General Meeting. As the Board has previously indicated, through this authority it is intended, when necessary, to ensure that the discount between the Company's share price and the net asset value per share is not out of line with the share price discount of similar peer group investment companies. During the past six months and to the date of this report there have been no repurchases of shares. Gearing The Company's loan facility, which had been provided by ING Bank N.V., was cancelled by the Board on 6 May 2011 as First State Investment Management (UK) Limited, the Company's Investment Manager, did not envisage utilising this facility during the period when it was available. The Board, in conjunction with First State, will continue to review this strategy. Revenue Account and Dividend The investments selected by First State have given rise to an investment portfolio which generates a higher level of income when compared to that of our previous Investment Manager. This, together with lower costs, particularly relating to marketing and savings scheme administration, has resulted in an increased level of net revenue for the period under review to £2.3m (six months ended 31 July 2010: £0.9m). The Board expects that, on the basis of revenue estimates for the full year, the Company's dividend will be greater than in the previous year. The Board reminds shareholders that it remains the Company's policy to pursue capital growth for shareholders with income being a secondary consideration. The amount of the dividend for the full year to 31 January 2012 is expected to be announced in March 2012. Outlook While equity markets remained firm in the first half of 2011, a change in sentiment was evident at the start of the second half as markets began to be adversely affected by global economic issues such as credit concerns in the highly indebted eurozone countries and also the ability of the US administration to address the high levels of government debt. These issues are continuing to unsettle investors at the present time and it is likely that markets will remain volatile whilst these uncertainties persist. However, the Board continues to believe that the long term investment case for the Asia Pacific region remains robust due, in part, to its demographics and continued high levels of investment spending. Your Board remains confident that the patient investor in the Asia Pacific region will be well rewarded over time. David Nichol Chairman 27 September 2011 Investment Manager's Report Performance The Asia ex-Japan region was subdued over the six month period with the benchmark index only rising by 0.9%. Markets were influenced by global concerns, in particular the ongoing sovereign debt crisis in the eurozone and worries about the outlook for the global economy. At a country level there was significant divergence with the smaller markets of Indonesia, the Philippines and Thailand performing very well as investors remained positive about the economic prospects of these markets. On the negative side, China, Hong Kong and Taiwan were particularly weak. China and Hong Kong were influenced by tightening measures in China and Taiwan was hit by worries about global demand. At a sector level, Consumer Discretionary and Consumer Staples both outperformed on increasing optimism about consumption across the region. Industrials and Information Technology underperformed on concerns about the global growth outlook. The Company outperformed its benchmark index over the period. Companies which were particularly strong included Marico (India: Consumer Staples), Kasikornbank (Thailand: Financials) and Hong Kong & China Gas (Hong Kong: Utilities). Marico rose as investor optimism towards consumption growth returned and Kasikornbank benefited from very strong performance by the Thai market. Hong Kong & China Gas added to performance on the positive outlook for the company in Mainland China. Collective denial We are frequently asked what our view is on market volatility. We do not have a view on volatility as such. However, given the dramatic collapse in investment time horizons over recent years it is not surprising that markets seem to be unable to focus on more than one day, one rumour, or one G8 meeting at a time. Perhaps this is no bad thing, as the medium-term economic and political prospects for many Western countries appear fairly bleak. The global financial system is fraught with more problems now than it was before the previous `financial crisis' while most Western societies are far from ready to face up to the challenges of deleveraging and weaning themselves off debt. A sense of collective denial still seems to be prevalent, as everyone looks to the next bailout or rescue package. Contrast this, for example, with the reaction of many South Koreans, at the height of the Asian crisis in 1997, who rallied together to donate voluntarily their own gold to rebuild the country's financial reserves. Still 30% too expensive? Despite our global concerns, we are happier stockpickers today than we have been for a long time. For several years now, the valuations of many of our favourite Asian companies have ranged from expensive to very expensive. As the global appetite for risk unwinds and much of the hot, short-term money sitting in our markets departs, we are hopeful that many of these high quality Asian companies will come back into range again. A few have already made it, but for most we are not quite there yet. Companies such as Asian Paints and HDFC of India, Ayala Land of the Philippines, China Merchant Bank and Unilever Indonesia are still probably at least 30% too expensive. Fortunately, outside the `BRIC' markets, valuations are much more reasonable. `Peripheral' areas of the market such as Korea, the Philippines and Taiwan, continue to offer good pockets of value. We would note in passing that many good quality companies in the US and Europe appear to be much more reasonably priced at present than their Asian counterparts. While the long-term growth prospects are certainly better in Asia, perhaps investors in these asset classes are still expecting too much? As we are often reminded, politics and economics do not always go hand-in-hand with stock market returns. Political earthquakes The greatest threat to long-term returns in Asia remains the risk of a large political earthquake that spreads across the region. Extended economic pain often triggers extreme political change, which by its nature is very hard to predict. While all countries are in theory vulnerable, some are much more so than others. Many European countries have already witnessed the arrival of civil unrest and the first signs of political extremism. Within Asia, there are two likely epicentres. The first is centred on Pakistan where the political fabric remains extremely vulnerable to capture by extremist groups on either side of the political divide. Recent events in Karachi are not encouraging. It also seems likely that as the US economy slows further, US troops will withdraw faster from the region, leaving the current Pakistani government increasingly exposed. The conciliatory reaction of the Indian Government in the wake of the 2008 Mumbai attacks will not be repeated again. The other potential epicentre of political risk remains China. One of Asia's better research houses, Asianomics, recently published an interesting summary on China. Gathering together the usual statistics on hidden non- performing loans, corruption and an over-dependence on fixed asset investment, they paint a worrying picture of an economy that is out of balance, with an over-reliance on state-sponsored, state-managed capital allocation. According to the report, less than 50 of the 1400 companies listed on China's mainland stock markets are genuinely private. Of course, this could be China's saving grace. Private enterprise has caused plenty of problems for Western economies in recent years and we meet plenty of Chinese state-owned enterprises who appear to run their businesses much more efficiently than their Western counterparts. That said, the challenges thrown up by this model are huge and the balancing act is becoming ever harder. The report notes that China has `gone from being the most equal society in all of Asia…to the most unequal society in all of Asia in the space of one generation.' We continue to monitor political risk across the region as closely as possible. Engagement Engagement with management teams is one important way in which we can reduce the risk in our portfolios. Our engagement approach is evolving over time, thanks to the arrival of new services such as Rep Risk. Rep Risk is a service provider which gathers all the negative news items which we are unlikely to hear from the companies themselves! It is quick and easy to use, and allows us to go into each company meeting armed with a list, sometimes long, sometimes short, of key environmental, social and governance (ESG) issues concerning the company. As time goes by, these questions have started to form a more central part of the meeting itself, rather than simply the basis for a follow-up letter. Sometimes, the issue in question is fundamental to the entire future of the Company. Community relations and license to operate often fall into this category. Sometimes the issue is on its own financially immaterial. For example, we have been engaging with one of our Indian consumer companies on the issue of antibiotics in their honey. Currently honey sales are only a very small percentage of sales. Even if they shut down their honey factories tomorrow, earnings would not be affected to any great degree. Despite this financial immateriality, engagement still provides a very useful insight into a wide range of important criteria used to assess overall quality of management. These range from insights into management integrity, board oversight and corporate attitude to risk, to the strategic vision of management in positioning their businesses for shifting consumer trends and regulatory risks. The nature of a management's response to the external challenge of such questions, can in itself provide a very useful understanding of the underlying corporate culture. Headwinds and tailwinds One of the many remarkable things about the current crisis in the West is the absence of meaningful debate on why economies became so unbalanced in the first place. Perhaps this debate will never happen. Either way, it seems likely that developed and developing economies alike will be forced to move away from the unbalanced, debt-dependent, resource-intensive economic growth models of the past and move towards more genuinely sustainable development paths. While it may take years, or even decades, for this shift to happen, companies that are overly-exposed to these old economic growth models are likely to face stiffening headwinds. By contrast, those companies well positioned for this shift are likely to benefit from favourable tailwinds. We continue to seek out well-managed companies in this latter category, be it companies providing affordable goods and services with a strong social need, responsible financial companies, cleaner and more efficient technology providers or those focused on building good quality, social infrastructure across the region. In the short-term, even these `tailwind' companies are likely to struggle to deliver positive returns if global growth slows significantly, although they remain much better placed to weather the gathering economic and political storm than their `headwind' counterparts. We also expect them to fair much better when the skies finally clear. We have no idea how long the storm will last. We are convinced, however, that when it does pass, our companies will emerge in a strong position to deliver attractive returns to those prepared to invest for the long-term in the region. David Gait Senior Investment Manager First State Investment Management (UK) Limited 27 September 2011 Portfolio as at 31 July 2011 % of total Market assets less valuation current Country of Company Sector* £'000 liabilities incorporation DBS Group Financials 8,085 5.0 Singapore Taiwan Semiconductor Information 7,641 4.7 Taiwan Manufacturing Company Technology Manila Water Utilities 6,776 4.1 Philippines Hong Kong & China Gas Utilities 6,487 4.0 Hong Kong Singapore Telecom 6,359 3.9 Singapore Telecommunications Services DGB Financial Financials 5,551 3.4 South Korea Kasikornbank Financials 5,539 3.4 Thailand Samsung Fire & Marine Financials 5,499 3.4 South Korea Insurance Delta Electronics Information 4,880 3.0 Thailand (Thailand) Technology Singapore Post Industrials 4,840 3.0 Singapore Ten largest 61,657 37.9 investments Marico Consumer 4,592 2.8 India Staples SMRT Industrials 4,473 2.8 Singapore KT Corp ADR Telecom 4,282 2.6 South Korea Services Philippine Long Telecom 4,234 2.6 Philippines Distance Telephone Services Towngas China Utilities 3,986 2.5 Cayman Islands E.Sun Financial Financials 3,904 2.4 Taiwan Holdings Henderson Land Financials 3,599 2.2 Hong Kong Development Swire Pacific Financials 3,342 2.1 Hong Kong Dabur India Consumer 3,178 2.0 India Discretionary SembCorp Industries Industrials 3,166 1.9 Singapore Twenty largest 100,413 61.8 investments Transport Industrials 3,161 1.9 Bermuda International Holdings Chunghwa Telecom Telecom 3,125 1.9 Taiwan Services Wipro Information 3,121 1.9 India Technology Tata Power Utilities 2,975 1.8 India China Telecom Telecom 2,862 1.8 China Services Chroma ATE Information 2,844 1.8 Taiwan Technology Delta Electronics Information 2,522 1.6 Taiwan Technology E-Mart Consumer 2,340 1.4 South Korea Staples Vitasoy International Consumer 2,090 1.3 Hong Kong Holdings Staples Siam Commercial Bank Financials 1,937 1.2 Thailand Thirty largest 127,390 78.4 investments Other investments 24,745 15.2 (25) Total portfolio 152,135 93.6 Net current assets 10,429 6.4 Total assets less 162,564 100.0 current liabilities *MSCI sector classifications Unaudited Income Statement for the six months ended 31 July 2011 Six months ended Six months ended Year ended 31 July 2011 31 July 2010 31 January 2011 Revenue Capital Total Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Gains on - 2,273 2,273 - 7,883 7,883 - 27,044 27,044 investments held at fair value through profit or loss Losses on - - - - (28) (28) - (28) (28) derivative arrangements Exchange - (31) (31) - 586 586 - 635 635 differences on currency balances Income 3,043 - 3,043 1,942 - 1,942 3,279 - 3,279 Investment (186) (558) (744) (186) (560) (746) (509) (1,117) (1,626) management and management fees Other (336) (2) (338) (720) - (720) (1,153) (36) (1,189) expenses Net return 2,521 1,682 4,203 1,036 7,881 8,917 1,617 26,498 28,115 before finance costs and taxation Interest - - - (2) - (2) - - - payable Return on 2,521 1,682 4,203 1,034 7,881 8,915 1,617 26,498 28,115 ordinary activities before taxation Taxation on (246) - (246) (178) - (178) (106) - (106) ordinary activities Return 2,275 1,682 3,957 856 7,881 8,737 1,511 26,498 28,009 attributable to equity shareholders Return per 1.95p 1.44p 3.39p 0.72p 6.67p 7.39p 1.29p 22.54p 23.83p Ordinary Share (note 2) The Total column of this statement represents the Company's Income Statement. The Revenue and Capital columns are supplementary to this and are both prepared under guidance published by the Association of Investment Companies (AIC). All revenue and capital items in the Income Statement derive from continuing operations. The Company had no recognised gains or losses other than those declared in the Income Statement. Unaudited Reconciliation of Movements in Shareholders' Funds for the six months ended 31 July 2011 Six months Six months Year ended ended ended 31 January 31 July 31 July 2011 2011 2010 £'000 £'000 £'000 Opening shareholders' funds 160,086 135,254 135,254 Return for the period 3,957 8,737 28,009 Repurchase of own shares - (1,650) (1,650) for cancellation Dividends paid (1,507) (1,527) (1,527) Return of unclaimed 28 - - dividends Closing shareholders' funds 162,564 140,814 160,086 Unaudited Balance Sheet as at 31 July 2011 As at As at As at 31 July 31 July 31 January 2011 2010 2011 £'000 £'000 £'000 Fixed assets Investments held at fair 152,135 133,321 151,657 value through profit or loss Current assets Debtors 853 1,160 5,276 Cash at bank 10,216 7,470 10,191 11,069 8,630 15,467 Creditors (amounts falling (640) (1,137) (7,038) due within one year) Net current assets 10,429 7,493 8,429 Net assets 162,564 140,814 160,086 Capital and reserves Share capital 14,606 14,606 14,606 Share premium account 4 4 4 Capital redemption reserve 1,648 1,648 1,648 Special reserve 14,572 14,572 14,572 Capital reserve 126,790 106,491 125,108 Revenue reserve 4,944 3,493 4,148 Equity shareholders' funds 162,564 140,814 160,086 Net asset value per Ordinary 139.12p 120.51p 137.00p Share (note 3) Summarised Unaudited Statement of Cash Flows for the six months ended 31 July 2011 Six Six Year months months ended ended ended 31 July 31 July 31 January 2011 2010 2011 £'000 £'000 £'000 Net cash inflow from 1,175 301 680 operating activities Servicing of finance - (2) - Financial investment Purchases of investments and (27,633) (123,732) (152,641) derivatives Sales of investments and 27,993 132,675 163,875 derivatives Net cash inflow from 360 8,943 11,234 financial investment Equity dividends paid (1,507) (1,527) (1,527) Return of unclaimed dividends 28 - - Equity dividends (1,479) (1,527) (1,527) Net cash inflow before 56 7,715 10,387 financing Financing - repurchase of own - (1,650) (1,650) shares for cancellation Increase in cash 56 6,065 8,737 Reconciliation of net cash flow to movement in net funds Increase in cash resulting 56 6,065 8,737 from cash flows Exchange differences on (31) 586 635 currency balances Movement in net funds 25 6,651 9,372 Net funds at 1 February 10,191 819 819 Net funds at 31 July/31 10,216 7,470 10,191 January Reconciliation of net return before finance costs and taxation to net cash flow from operating activities Net return before finance 4,203 8,917 28,115 costs and taxation Gains on investments (2,273) (7,883) (27,044) Losses on derivative - 28 28 arrangements Exchange differences on 31 (586) (635) currency balances Irrecoverable withholding tax (135) (121) (281) on investment income Changes in working capital (651) (54) 497 and other non-cash items Net cash inflow from 1,175 301 680 operating activities Notes to the Accounts for the six months ended 31 July 2011 1. Basis of preparation The condensed financial statements have been prepared under the historical cost convention, except for the measurement of investments which are valued at fair value, and in accordance with applicable accounting standards, the Statement of Recommended Practice `Financial Statements of Investment Trust Companies and Venture Capital Trusts' dated January 2009 and the UK Accounting Standards Board's Statement `Half Yearly Financial Reports'. The same accounting policies that were used for the year ended 31 January 2011 have been applied in these financial statements. 2. Return per ordinary share The total return per ordinary share price is based on the total return attributable to Shareholders of £3,957,000 (six months ended 31 July 2010: £ 8,737,000; year ended 31 January 2011: £28,009,000) and on 116,848,386 shares (six months ended 31 July 2010: 118,190,927; year ended 31 January 2011: 117,514,139), being the weighted average number of shares in issue. The revenue return per ordinary share price is calculated by dividing the net revenue return attributable to Shareholders of £2,275,000 (six months ended 31 July 2010: £856,000 ; year ended 31 January 2011: £1,511,000) by the weighted average number of shares in issue as above. The capital return per ordinary share price is calculated by dividing the net capital return attributable to Shareholders of £1,682,000 (six months ended 31 July 2010: £7,881,000; year ended 31 January 2011: £26,498,000) by the weighted average number of shares in issue as above. 3. Net asset value per ordinary share The net asset value per ordinary share is based on the net assets attributable to Shareholders of £162,564,000 (31 July 2010: £140,814,000; 31 January 2011: £ 160,086,000) and on 116,848,386 shares in issue (31 July 2010: 116,848,386; 31 January 2011: 116,848,386). 4. 2011 accounts These are not statutory accounts in terms of Section 434 of the Companies Act 2006 and are unaudited. Statutory accounts for the year to 31 January 2011, which received an unqualified audit report, have been lodged with the Registrar of Companies. No statutory accounts in respect of any period after 31 January 2011 have been reported on by the Company's auditors or delivered to the Registrar of Companies. Earnings for the first six months should not be taken as a guide to the results for the full year. Statement of Principal Risks and Uncertainties The Company's assets consist of listed securities and its main risks are therefore market related. The Company is also exposed to currency risk in respect of the markets in which it invests. Other risks faced by the Company include external, investment and strategic, regulatory, operational, and financial risks. These risks, and the way in which they are managed, are described in more detail under the heading Principal Risks and Risk Management within the Business Review in the Company's Annual Report for the year ended 31 January 2011. The Company's principal risks and uncertainties have not changed materially since the date of that report and are not expected to change materially for the remaining six months of the Company's financial year. Related Party Transactions During the first six months of the current financial year no material transactions with related parties have taken place which have affected the financial position or the performance of the Company during the period. Statement of Directors' Responsibilities in Respect of the Interim Report We confirm that to the best of our knowledge: • the condensed financial statements have been prepared in accordance with the Statement `Half Yearly Financial Reports' issued by the UK Accounting Standards Board and give a true and fair view of the assets, liabilities, financial position and return of the Company; • the Chairman's Statement and the Investment Manager's Report (together constituting the Interim Management Report) include a fair review of the information required by the Disclosure and Transparency Rules (`DTR') 4.2.7R, being an indication of important events that have occurred during the first six months of the financial year and their impact on the financial statements; • the Statement of Principal Risks and Uncertainties shown above is a fair review of the information required by DTR 4.2.7R; and • the condensed financial statements include a fair review of the information required by DTR 4.2.8R, being related party transactions that have taken place in the first six months of the financial year and that have materially affected the financial position or performance of the Company during the period, and any changes in the related party transactions described in the last Annual Report that could do so. The Interim Report has not been reviewed or audited by the Company's auditors. On behalf of the Board D B Nichol Chairman 27 September 2011 Frostrow Capital LLP Company Secretary 30 September 2011 0203 008 4913 www.frostrow.com A copy of the interim report has been submitted to the National Storage Mechanism and will shortly be available for inspection at www.hemscott.com/ nsm.do The interim report will also shortly be available on the Company's website at www.pacific-assets.co.uk where up to date information on the Company, including daily NAV, share prices and fact sheets, can also be found. END
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