Preliminary Announcement of Results
For immediate release
27 September 2011
To: City Editors
Pacific Assets Trust plc
Announces Interim Results for the six months to 31 July 2011
As at As at 31 %
31 July 2011 January 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 net 10.9% 4.0% n/a
asset value
per share
Shareholders' funds £162.6m £160.1m +1.5
Market capitalisation £144.9m £153.7m -5.7
Six months to One year to
31 July 2011 31 January 2011
Share price (total return)* -4.7% +27.6%
Net asset value per share (total +2.1% +21.4%
return)*
MSCI All Country Asia ex Japan +0.9% +26.4%
Index (total return, sterling
adjusted)*
*Source - Morningstar Year ended Year ended
31 January 2011 31 January 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 net 4.0% 11.6%
asset value per share+
Notes
+ Discount high - Narrowest
discount in period
Discount low - Widest discount in
period
For and on behalf of
Frostrow Capital LLP, Secretary
27 September 2011
The following are attached:
- Chairman's Statement
- Investment Manager's Report
- Unaudited Income Statement
- Unaudited Balance Sheet
- Unaudited Reconciliation of Movements in Shareholders' Funds
- Summarised Unaudited Statement of Cash Flows
- Notes to the Interim Accounts
For further information please contact:
Alastair Smith/Mark Pope, Frostrow Capital LLP 020 3008 4911/4913
Stuart Paul, First State Investment Management (UK) Limited 0131 473 2200
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.
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
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 30 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 3,043 - 3,043 1,942 - 1,942 3,279 - 3,279
balances
(186) (558) (744) (186) (560) (746) (509) (1,117) (1,626)
Income
Investment
management and
management
fees
Other expenses (336) (2) (338) (720) - (720) (1,153) (36) (1,189)
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 Balance Sheet
As at 31 July 2011
As at As at As at
31 July 2011 31 July 2010 31 January 2011
£'000 £'000 £'000
Fixedassets
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 (640) (1,137) (7,038)
falling 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 1,648 1,648 1,648
reserve
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' 162,564 140,814 160,086
funds
Net asset value per 139.12p 120.51p 137.00p
Ordinary share (note 3)
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 2011 31 July 2010 2011
£'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 for - (1,650) (1,650)
cancellation
Dividend paid (1,507) (1,527) (1,527)
Return of unclaimed dividends 28 - -
Closing shareholders' funds 162,564 140,814 160,086
Summarised Unaudited Statement of Cash Flows
For the six months ended 31July 2011
Six months Six months Year ended
ended ended 31 January
31July 2011 31 July 2010 2011
£'000 £'000 £'000
Net cash inflow from operating 1,175 301 680
activities
Servicing of finance - (2) -
Financial investment
Purchase of investments and (27,633) (123,732) (152,641)
derivatives
Sales of investments and derivatives 27,993 132,675 163,875
Net cash inflow from financial 360 8,943 11,234
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 inflowbefore financing 56 7,715 10,387
Financing - repurchase of own shares - (1,650) (1,650)
for cancellation
Increase in cash 56 6,065 8,737
Reconciliation of net cash flow to
movement in net funds
Increase in cash resulting from 56 6,065 8,737
cashflows
Exchange differences on currency (31) 586 635
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 January 10,216 7,470 10,191
Reconciliation of net return before
finance costs and taxation to net cash
flow from operating activities
Net return before finance costs and 4,203 8,917 28,115
taxation
(2,273) (7,883) (27,044)
Gains on investments
- 28 28
Losses on derivative arrangements
31 (586) (635)
Exchange differences on currency
balances (135) (121) (281)
Irrecoverable withholding tax on
investment income
Changes in working capital and other (651) (54) 497
non-cash items
Net cash inflow from operating 1,175 301 680
activities
Notes to the interim 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
2011 have been applied in these financial statements.
2. Return per ordinary share
The total return per ordinary share 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 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 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 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 delivered to
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.
Frostrow Capital LLP
Company Secretary
27 September 2011
- ENDS -
Pacific Assets Trust plc
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