Half-yearly Report
Pacific Assets Trust plc
Unaudited Half Year Results For The Six Months Ended
31 July 2012
Company Summary
Key Statistics
As at As at
31
31 July January
2012 2012 % change
Share price 126.8p 115.3p +10.0
Net asset value per share 141.5p 131.7p +7.4
Discount of share price to net asset
value per share 10.4% 12.5% n/a
Shareholders' funds £165.3m £153.9m +7.4
Market capitalisation £148.1m £134.7m +10.0
Six One year
months to to
31
31 July January
2012 2012
Share price (total return)* +12.5% -11.5%
Net asset value per share (total
return)* +9.5% -3.0%
MSCI All Country Asia ex Japan Index
(total return, sterling adjusted)* -0.9% -5.9%
*Source: Morningstar and Frostrow
Capital LLP
Year Year
ended ended
31 31
January January
Dividends 2012 2011
Final dividend per share 2.60p 1.29p +101.6
Half Year's Highs/Lows High Low
Net asset value per share 141.5p 131.4p
Share price 126.8p 113.4p
Discount of share price to net asset
value per share†8.9% 14.0%
†Discount high - Narrowest discount in period Discount low - Widest discount
in period
Chairman's Statement
"...during the six month period under review, the Company's net asset value
total return was +9.5%, making your Company the best performing investment
trust by some margin in our peer group..."
Performance
I am particularly pleased to report that during the six month
period under review, the Company's net asset value total return was +9.5%,
making your Company the best performing investment trust by some margin 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 +12.5%, reflecting a decrease in
the share price discount to net asset value per share from 12.5% as at 31
January 2012 to 10.4% as at 31 July 2012. Further information on the Company's
investment strategy can be found in our Investment Manager's review beginning
on page 4.
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.
Revenue Account and Dividend
As mentioned at the year-end, the investments selected by First
State Stewart have given rise to an investment portfolio which generates a
good level of income. This, together with the Board's continued determination
to control costs, has resulted in another strong level of net income for the
period of £2.1m (six months ended 31 July 2011: £2.3m). The Board reminds
shareholders that it remains the Company's policy to pursue capital growth for
shareholders with income being a secondary consideration.
Outlook
Recent gloomy economic reports from Asian nations show that
Europe's debt crisis and the broader global downturn are taking a growing toll
on the region even as governments respond with extra spending and lower
interest rates. Difficult economic conditions and a slowdown across the region
generally has adversely affected Asian currencies and is expected to reduce
the outlook for exports that are needed to drive the region's growth in the
short term. Attempts to stimulate growth have yet to take effect and the short
term economic outlook remains uncertain despite relatively robust domestic
consumer demand.
Notwithstanding short term economic concerns, your Board continues
to believe that the overall prospects for the region remain healthy and that
the Company's investment portfolio is well positioned to provide superior
investment returns over the longer term.
David Nichol
Chairman
24 September 2012
Investment Manager's Review
"Engagement remains a core part of our investment process."
Political Risk Rising
The greatest threat to long-term returns in Asia remains political
risk. On the night of 16 January, two large army units advanced on Delhi,
stopped at the city gates and then turned around. While it seems unlikely that
this was a genuine attempt at a coup, it is plausible that the Indian army
wished to display its dissatisfaction with politicians in Delhi. The recent
power cuts which affected more than 600 million residents, is just the latest
reminder of how India's politicians are failing their voters in spectacular
fashion. Effective demand to purchase electricity exists, despite low income
levels. Many Indian families pay extortionate rates for intermittent
electricity generated by fuming diesel generators and poor quality water from
the back of trucks. The capital to build the power stations and lay the water
pipes is also ready and willing, as evidenced by the queues of international
and domestic investors lined up to invest in those projects which do get off
the ground.
In China, the events surrounding Bo Xi Lai are well known, and
despite the recent conclusion of his wife's trial, it is unlikely that
political tensions in China have peaked. Meanwhile the rise of China is also
creating new border tensions with its neighbours. As bottom-up investors, such
political risks often provide opportunities to increase our positions in our
favourite companies. However, it also creates serious risks for companies
whose franchises have been built with the help of favourable government
treatment.
Old versus New Corporate Asia?
We are increasingly wondering whether Asian companies fall into two
distinct categories; "Old" and "New". This is undoubtedly too simplistic but
there does seem to be a noticeable gap opening up between those Asian
companies who continue to believe in "business as usual" and those who believe
they need to change significantly in order to stay relevant and fit for
purpose.
"Old Asia" companies seem reluctant to change. Instead they are
reverting to type by striving to hold onto the insurance of patronage and
power. Many Asian companies continue to cite as a key competitive advantage
their "good government relationships." Last month we met a water utility and a
telecoms company who both made that claim. Such companies fall cleanly into
the "Old Asia" category. By contrast, "New Asia" companies recognise their
future lies in their ability to secure a license to operate from their
customers and broader society. The two approaches could not be further apart.
From telecoms to water provision to banking, Asian companies failing to
deliver good quality, affordable services are likely to get found out sooner
rather than later, regardless of how strong their government relationships
are.
A second key factor driving change is the growing realisation that
Asia's development path needs to shift away from the resource and consumption
intensive route followed historically by Western economies. Here too, there is
a gap opening up between companies who are positioning for this change and
companies who are not. Perhaps this difference is most noticeable amongst
Asia's consumer companies. Companies such as portfolio holdings Dabur and
Marico of India, Amorepacific of South Korea and Uni-President of Taiwan are
all focused on developing healthier, more environmentally friendly, less
resource intensive products for changing Asian consumer preferences. This is
not an easy process and often involves a recognition that the current product
range will struggle to remain fit for purpose.
Taken together, these changes leave Asian companies with a
difficult decision to make. Either they take a leap into unchartered waters in
an attempt to make themselves relevant in the twenty first century, or they
take an even greater risk and do nothing. "New Asia" companies brave enough to
do the former are much more likely to be rewarded over time than "Old Asia"
companies who choose to carry on as before.
China and India Slowing Dramatically
The rise in political risk goes hand in hand with slowing economic
growth. China and India are both slowing quickly, but for different reasons.
China's economy is suffering from a dramatic slowdown in end demand from
Europe and the US, coupled with the structural challenges posed by a unique
economic development model that is testing the limits of its current design.
The result is a slowdown in economic activity across most parts of the economy
- cement demand is
Investment Manager's Review
Continued
negative, traffic on the toll roads is contracting, electricity
consumption growth is dwindling to a standstill and manufacturing order books
are drying up. India's problems, on the other hand are largely home grown,
resulting from an astonishing, even by Indian standards, implosion of the
political and governance framework needed to enable private investment in the
country. The accompanying lack of confidence has thrown into the limelight
India's longstanding twin deficit problem. It seems unlikely that the economic
fortunes of either China or India are likely to reverse in the short-term,
although a collapse in the oil price would give India a little more breathing
room. Outside Asia's large "BRIC" markets, the economic outlook is not so
bleak. The Philippines is finally reaping the reward of a long period of
structural reforms, whilst Thailand, Malaysia and to a lesser extent Singapore
are all well positioned to benefit from the renaissance of Burma and the
ongoing developments in the greater Mekong region. It is easy to forget that
Rangoon used to have Asia's busiest airport!
Significant New Investments
It is rare to find Asian companies these days whose businesses
remain confined to their home markets. For example, we have recently increased
the Company's position in Marico, an Indian company which started life as a
single product consumer company, providing edible grade coconut oil. It has
now expanded into a fully fledged consumer staple company, with products
ranging from haircare to skincare to healthy foods such as premium, low
cholesterol edible oil and healthy breakfast cereals. In addition, the company
has expanded geographically, from South Africa and the Middle East to
Bangladesh, Burma and Malaysia. Overseas sales now account for 25% of the
business and are the fastest growing part of the business. Crucially, the
company has a strong license to operate in its chosen markets, providing good
quality, affordable consumer products set to benefit from trends towards
health and wellbeing. The other significant recent addition is very similar in
spirit. Amorepacific is a Korean cosmetics company with a strong focus on
positioning the business to benefit from shifting consumer preferences towards
natural ingredients, more environmentally sensitive packaging and a general
sense of LOHAS (LOHAS is a home grown Asian concept for "sustainable living").
A major long-term investment theme for us is the growing trend towards Asian
culture and LOHAS amongst Asian consumers. This may well be nothing but
wishful thinking, but there seems to be enough evidence to suggest the trend
is real - witness the size and influence of K-Pop and J-Pop today in Asia.
Neither Amorepacific nor Marico is cheap, but we have taken the opportunity of
mild share price and currency weakness to build up our positions further.
Significant Disposals
The majority of the Company's disposals over the period are related
to corporate governance concerns, ranging from the sale of Henderson Land
(allegations of corruption in China) to the sale of Chunghwa Telecom (use of
minorities' cashflows to buy an airline).
Engagement
Engagement remains a core part of our investment process. Sometimes
we engage on environmental, social and governance (ESG) issues to gather
information. More often we spend time trying to build up a better
understanding of the quality of management by focusing on how they seek to
manage specific risks. We also spend time trying to encourage companies to
alter their approach to specific ESG issues where appropriate. For example,
over recent months we engaged the management of Dabur on allegations that
antibiotics have been found in their honey. As a company with a valuable brand
heritage based on healthy, natural ingredients, this represented an important
risk to the company's franchise if not addressed. Fortunately the company
appears to be responding well and we are hopeful that processes are now in
place to stop this from happening in the future. Elsewhere, we had an
interesting discussion with GlaxoSmithKline (GSK) following its US$3billion
fine from the US Food and Drug Administration. Although your portfolio does
not currently contain any GSK related companies, there are three Asian listed
GSK-linked companies which are high up our list of potential investments for
the Company. As long-term investors in the region, we also believe there is a
strong investment case to be made for engaging with other industry
participants where appropriate. Over the past few months we have engaged with
stock exchange regulators and treasury officials on the topic of market
fairness, the head of an Asian broking firm on the topics of client
entertainment and conflicts of interest, and regional stock exchanges on the
topic of high frequency trading. Many of these discussions are long-term in
nature, but we believe that over time they play an important role in helping
to generate attractive risk-adjusted returns for investors in the Company.
David Gait
Senior Investment Manager
First State Investment Management (UK) Limited
24 September 2012
Portfolio
as at 31 July 2012
% of total
Market assets less
valuation current Country of
Investment Sector* £'000 liabilities incorporation
Manila Water Utilities 9,429 5.7 Philippines
Taiwan Semiconductor Information
Manufacturing Company Technology 9,324 5.6 Taiwan
Consumer
Marico Staples 8,372 5.1 India
Consumer
Amorepacific Staples 8,232 5.0 South Korea
DBS Group Financials 7,783 4.7 Singapore
Kasikornbank Financials 7,190 4.4 Thailand
Singapore Telecom
Telecommunications Services 6,437 3.9 Singapore
Cayman
Towngas China Utilities 6,320 3.8 Islands
Samsung Fire & Marine
Insurance Financials 5,129 3.1 South Korea
Telecom
Axiata Services 4,865 2.9 Malaysia
Ten largest
investments 73,081 44.2
SMRT Industrials 4,309 2.6 Singapore
Public Bank Financials 4,198 2.5 Malaysia
Philippine Long Telecom
Distance Telephone Services 4,047 2.4 Philippines
DGB Financial Financials 3,938 2.4 South Korea
Satyam Computer Information
Services Technology 3,710 2.3 India
Hongkong & China Gas Utilities 3,629 2.2 Hong Kong
SembCorp Industries Industrials 3,591 2.2 Singapore
E.Sun Financial
Holdings Financials 3,287 2.0 Taiwan
Consumer
Dabur India Staples 3,175 1.9 India
Uni-President Consumer
Enterprises Staples 3,098 1.9 Taiwan
Twenty largest
investments 110,063 66.6
Swire Pacific Financials 2,989 1.8 Hong Kong
Delta Electronics Information
(Thailand) Technology 2,961 1.8 Thailand
Consumer
Giant Manufacturing Discretionary 2,823 1.7 Taiwan
Vitasoy International Consumer
Holdings Staples 2,696 1.6 Hong Kong
Information
Chroma ATE Technology 2,512 1.5 Taiwan
Singapore Post Industrials 2,483 1.5 Singapore
Information
Infosys Technology 2,277 1.4 India
MTR Corporation Industrials 2,183 1.3 Hong Kong
Consumer
E-Mart Staples 2,157 1.3 South Korea
Telecom
KT Corporation ADR Services 2,136 1.3 South Korea
Thirty largest
investments 135,280 81.8
Consumer
Hindustan Unilever Staples 1,982 1.2 India
Delta Electronics Information
(Taiwan) Technology 1,980 1.2 Taiwan
Sabana Shari'ah
Compliant REIT Financials 1,961 1.2 Singapore
Ayala Corporation Financials 1,884 1.1 Philippines
Cayman
Mindray Medical Health Care 1,552 0.9 Islands
Telecom
XL Axiata Services 1,173 0.7 Indonesia
Information
Wipro Technology 1,094 0.7 India
EID Parry India Materials 927 0.6 India
Information
Simplo Technology Technology 910 0.6 Taiwan
Consumer
Sheng Siong Staples 876 0.5 Singapore
Forty largest
investments 149,619 90.5
*MSCI sector classifications
Portfolio
as at 31 July 2012
Continued
% of total
Market assets less
valuation current Country of
Investment Sector* £'000 liabilities incorporation
Kotak Mahindra
Bank Financials 824 0.5 India
Globe Telecom Telecom Services 802 0.5 Philippines
Ayala Land Financials 790 0.5 Philippines
Chugoku Marine
Paints Materials 770 0.5 Japan
Tube Investments
of India Industrials 737 0.4 India
Taiflex Scientific Industrials 595 0.4 Taiwan
Information
ITEQ Technology 571 0.3 Taiwan
Transport
International
Holdings Industrials 546 0.3 Bermuda
Swire Properties Financials 520 0.3 Hong Kong
China Mengniu Cayman
Dairy Consumer Staples 474 0.3 Islands
Fifty largest
investments 156,248 94.5
Godrej Consumer Staples 393 0.2 India
Hemas Holdings Industrials 324 0.2 Sri Lanka
Marico Bangladesh Consumer Staples 273 0.2 Bangladesh
Idea Cellular Telecom Services 263 0.1 India
Dialog Axiata Telecom Services 171 0.1 Sri Lanka
Information
Simplo Technology Technology 91 0.1 Taiwan
Total portfolio 157,763 95.4
Net current assets 7,541 4.6
Total assets less
current
liabilities 165,304 100.0
*MSCI sector classifications
Income Statement
for the six months ended 31 July 2012
(Unaudited) (Unaudited) (Audited)
Six months
Six months ended ended Year ended
31 July 2012 31 July 2011 31 January 2012
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on
investments held
at
fair value
through profit or
loss - 13,489 13,489 - 2,273 2,273 - (7,333) (7,333)
Exchange
differences on
currency
balances - (8) (8) - (31) (31) - (1) (1)
Income (note 2) 2,703 - 2,703 3,043 - 3,043 4,923 - 4,923
Investment
management,
management and
performance
fees (note 3) (187) (1,121) (1,308) (186) (558) (744) (358) (1,074) (1,432)
Other expenses (246) (3) (249) (336) (2) (338) (629) (9) (638)
Return on
ordinary 2,270 12,357 14,627 2,521 1,682 4,203 3,936 (8,417) (4,481)
activities before
taxation
Taxation on
ordinary
activities (155) - (155) (246) - (246) (256) - (256)
Return
attributable to 2,115 12,357 14,472 2,275 1,682 3,957 3,680 (8,417) (4,737)
equity
shareholders
Return per
ordinary
share (p) (note
4) 1.8 10.6 12.4 2.0 1.4 3.4 3.2 (7.2) (4.0)
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.
Reconciliation of Movements in Shareholders' Funds
for the six months ended 31 July 2012
(Unaudited) (Unaudited) (Audited)
Year
Six months Six months ended
31
ended ended January
31 July 31 July
2012 2011 2012
£'000 £'000 £'000
Opening shareholders' funds 153,870 160,086 160,086
Return for the period 14,472 3,957 (4,737)
Dividends paid (3,038) (1,507) (1,507)
Return of unclaimed dividends - 28 28
Closing shareholders' funds 165,304 162,564 153,870
Balance Sheet
as at 31 July 2012
(Unaudited) (Unaudited) (Audited)
As at As at As at
31
31 July 31 July January
2012 2011 2012
£'000 £'000 £'000
Fixed assets
Investments held at fair value
through profit or loss 157,763 152,135 146,882
Current assets
Debtors 894 853 359
Cash at bank 7,658 10,216 7,108
8,552 11,069 7,467
Creditors (amounts falling due
within one year) (1,011) (640) (479)
Net current assets 7,541 10,429 6,988
Net assets 165,304 162,564 153,870
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 129,048 126,790 116,691
Revenue reserve 5,426 4,944 6,349
Equity shareholders' funds 165,304 162,564 153,870
Net asset value per ordinary share
(p) (note 5) 141.5 139.1 131.7
Cash Flow Statement
for the six months ended 31 July 2012
(Unaudited) (Unaudited) (Audited)
Six months Six months Year
ended ended ended
31
31 July 31 July January
2012 2011 2012
£'000 £'000 £'000
Net cash inflow from operating
activities 1,290 1,175 1,899
Servicing of finance - - -
Financial investment
Purchases of investments (25,791) (27,633) (48,945)
Sales of investments 28,097 27,993 45,443
Net cash inflow/(outflow) from
financial investment 2,306 360 (3,502)
Equity dividends paid (3,038) (1,507) (1,507)
Return of unclaimed dividends - 28 28
Equity dividends (3,038) (1,479) (1,479)
Increase/(decrease) in cash 558 56 (3,082)
Reconciliation of net cash flow to
movement
in net funds
Increase/(decrease) in cash resulting
from cash flows 558 56 (3,082)
Exchange differences on currency
balances (8) (31) (1)
Movement in net funds 550 25 (3,083)
Net funds at beginning of period 7,108 10,191 10,191
Net funds at period end 7,658 10,216 7,108
Reconciliation of net return before
finance costs and
taxation to net cash flow from
operating activities
Net return/(loss) before finance
costs and taxation 14,627 4,203 (4,481)
(Gains)/losses on investments (13,489) (2,273) 7,333
Exchange differences on currency
balances 8 31 1
Irrecoverable withholding tax on
investment income (174) (135) (242)
Changes in working capital and other
non-cash items 318 (651) (712)
Net cash inflow from operating
activities 1,290 1,175 1,899
Notes to the Accounts
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 2012 have been applied in these financial statements.
2. Income (Unaudited) (Unaudited) (Audited)
Six months Six months Year
ended ended ended
31
31 July 31 July January
2012 2011 2012
£'000 £'000 £'000
Investment income 2,703 3,041 4,921
Interest receivable - 2 2
Total income 2,703 3,043 4,923
3. Investment Management fee, Management and Performance fees
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
31 July 2012 31 July 2011 31 January 2012
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Investment
management fee 151 452 603 150 449 599 288 864 1,152
Management fee 36 109 145 36 109 145 70 210 280
Performance fee
accrued* - 560 560 - - - - - -
187 1,121 1,308 186 558 744 358 1,074 1,432
*Details of the performance fee basis can be found in the Report of
the Directors on page 17 of the Annual Report for the year ended 31 January
2012.
4. Return per ordinary share
The total return per ordinary share price is based on the total
return attributable to Shareholders of £14,472,000 (six months ended 31 July
2011: £3,957,000; year ended 31 January 2012: loss £4,737,000) and on
116,848,386 shares (six months ended 31 July 2011: 116,848,386; year ended 31
January 2012: 116,848,386), 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 £2,115,000
(six months ended 31 July 2011: £2,275,000; year ended 31 January 2012:
£3,680,000) 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 £12,357,000
(six months ended 31 July 2011: £1,682,000; year ended 31 January 2012: loss
£8,417,000) by the weighted average number of shares in issue as above.
5. Net asset value per ordinary share
The net asset value per ordinary share is based on the net assets
attributable to Shareholders of £165,304,000 (31 July 2011: £162,564,000; 31
January 2012: £153,870,000) and on 116,848,386 shares in issue (31 July 2011:
116,848,386; 31 January 2012: 116,848,386).
Notes to the Accounts
Continued
6. 2012 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 2012, 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 2012 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.
Interim Management Report
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 2012. 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.
Directors' Responsibilities
The Board of Directors confirms that, to the best of its knowledge:
(i) the condensed set of financial statements contained within the
Half Year Report has been prepared in accordance with applicable accounting
standards; and
(ii) the interim management report includes a fair review of the
information required by 4.2.7R and 4.2.8R of the UK Listing Authority and
Transparency Rules.
The Half Year Report has not been reviewed or audited by the Company's
auditors.
The Half Year Report was approved by the Board on 24 September 2012 and the
above responsibility statement was signed on its behalf by:
David Nichol
Chairman
Frostrow Capital LLP
Company Secretary
25 September 2012
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