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 shareâ€
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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