Half Yearly Report

RNS Number : 5050C

Aberdeen All Asia Inv Tst PLC

13 November 2009

 



ABERDEEN ALL ASIA INVESTMENT TRUST PLC

HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2009

Chairman's Statement

Asia's equities staged an impressive rebound during the six months under review, with markets rising sharply from their March lows. The financial strength of the stocks in which the Company is invested allowed them to benefit from this recovery, and the portfolio has more than recovered the losses of the previous 12 months. This validates the Manager's philosophy of investing for the longer term, and is the basis for confidence that the continued economic strength of the region will be reflected in the future performance of the portfolio. 

Performance 

Your Company performed well over the past six months. During this period, the net asset value of the Company increased 44.6%, outpacing the benchmark MSCI AC Asia Pacific Free Index, which gained 32.50%. The share price rose 36.7%, from 166p to 227p, equating to a total return, including the dividend, of 38.4%. This good performance was helped by starting the period with gearing of almost 10%, which has reduced to just under 5% by the end of the period.

On 8 June 2009, your Board declared a net final dividend of 2.40p per Ordinary share in respect of the year ended March 2009, which was paid on 31 July 2009 to shareholders on the register as at 3 July 2009. 

Detailed information on performance is covered in the Manager's Report. 

Board

As I mentioned in my statement in the last Annual Report, Robert (Bob) Jenkins was appointed a Director of the Company on 27 May 2009, and elected at the AGM held on 28 July 2009. David Price, who was Chairman until September 2008, retired from the Board on 28 July 2009 and, on behalf of the Board, I should like to thank him for his contribution over many years to the Company's success.

Outlook

The key questions currently are whether major developed countries will experience a double-dip recession and, if so, how Asian economies would be affected. It is possible that, once the concerted government stimulus that averted global economic catastrophe earlier this year is withdrawn, some major economies may experience another slowdown.

While such a double-dip would impact equity market sentiment in the region, it may not be as negative for Asian economies. It might help to ease demand for commodities that are needed to fuel growth in Asia, and there has been some reduction in Asian economies' export dependence on the West, finding new markets either domestically or elsewhere in the region for their manufactured products. 

Developments on the political front are likely to continue to have a significant influence over the region's immediate fortunes. Japan's newly-elected and untested Democratic Party has its work cut out in reviving an economy bogged down by rising unemployment and a return of deflation. India's Congress Party, which returned for a second term after a landslide victory, faces a similar challenge in improving fiscal discipline to contain a burgeoning budget deficit. In Taiwan, president Mah Ying Jeou needs to rebuild popular trust and support from a disillusioned electorate, and it remains to be seen whether the new cabinet can win back public confidence after the typhoon Morakot debacle.

Having said that, Asia's sounder economic fundamentals, sizeable fiscal surpluses (excepting Japan and India), and the absence of excessive debt, have helped the region bounce back faster and more strongly than the developed world. These qualities should continue to work in its favour over the longer term. 

The Company's borrowings, denominated in US dollars and Japanese Yen, totalled a Sterling-equivalent of £3.3m at the end of the period, and were unchanged at the date of writing this report. The Board regularly reviews the overall level of borrowings in light of market conditions. 

Directors' Responsibility Statement

The Directors are responsible for preparing the Half-Yearly Financial Report in accordance with applicable law and regulations. The Directors confirm that to the best of their knowledge -

-    the condensed set of Financial Statements have been prepared in accordance with the Accounting Standards Board's statement "Half-Yearly Financial Reports"; and

-    the Interim Management Report includes a fair review of the general conditions required by 4.2.7R and 4.2.8R of the Financial Services Authority's Disclosure and Transparency Rules.

The Half-Yearly Financial Report, for the six months ended 30 September 2009, comprises an Interim Management Report in the form of the Chairman's Statement, the Directors' Responsibility Statement and a condensed set of Financial Statements and has not been audited or reviewed by the auditors pursuant to the APB guidance on Review of Interim Financial Information.

Neil Gaskell

Chairman

13 November 2009

Manager's Report

Overview

Asian equities rebounded strongly during the review period, as the feared second Great Depression failed to materialise. Fiscal stimulus and loose monetary policy steadied weakening economies, which in turn underpinned a robust recovery in risk appetite. Sentiment was also boosted by earnings results that generally exceeded expectations, as well as a resurgence in merger and acquisition activity in the West. India and Singapore featured among the best performing markets, whereas Japan lagged. Chinese stocks saw a heavy sell-off in August, owing to worries about overheating and curbs on credit growth.

On the economic front, calendar first-quarter disappointment was replaced by second-quarter relief. China continued to lead the region in growth, while Australia, Hong Kong, Korea, Singapore, Sri Lanka and Taiwan posted quarter-on-quarter improvements. Much of this, however, was due to government spending and inventory restocking, rather than a concrete recovery in final private demand. Japan downgraded second-quarter GDP numbers, as unemployment rose amid weak consumption.

Most central banks kept monetary policy loose, with India, Indonesia, Thailand, the Philippines and Sri Lanka cutting interest rates further. However, there were signs of price pressures. Commodity prices rebounded, while oil prices stabilised at around US$70 a barrel. In India, the driest monsoon since 1972 saw consumer price inflation accelerate as food prices rose sharply. Elsewhere, property price rises gathered pace in China, Hong Kong and Singapore. The Singapore government responded to potential overheating by increasing the supply of land for development and imposing stricter rules on new home loans. 

Portfolio

Over the six months ended 30 September 2009, the portfolio's net asset value per share rose by 44.60% in sterling terms compared with a gain in the benchmark, the MSCI AC Asia Pacific (including Japan) Index, of 32.50%. The underweight to Japan accounted for a significant portion of the outperformance, with the rest attributable mainly to exposure to the outperforming markets of Hong Kong, India and Singapore.

In Japan, domestic demand was lacklustre, while deflation accelerated. The political scene added further uncertainty, as a new government came into power. Although Japan is Asia's biggest market, poor corporate governance remains a concern, with many companies relying on cross-shareholdings and poison-pill defences to counter hostile takeover bids in recent years. Shareholder returns have also been relatively low. Many domestic sectors remain heavily protected and subject to tight government regulation. While this may ensure the survival of the incumbents, it does little to encourage higher returns on capital. We thus continue to focus on blue chip multinationals that have proven themselves in the highly-competitive global marketplace, and selected domestic firms that have demonstrated a commitment to generating good returns on capital.

Among our holdings, Seven & I, which runs a chain of convenience stores, posted weaker-than-expected results. Specialised chemicals maker Shin-Etsu Chemical and drugmaker Takeda Pharmaceutical also lagged. Exporters, such as Honda Motor, were weighed down by the strong yen. For lenders, rising provisions hurt profits despite decent lending activity.

Stock markets in Singapore and Hong Kong, where we have an overweight position, outperformed the region, buoyed by positive economic data. In Singapore, developer City Developments benefited from a pickup in residential property sales amid the broader sector recovery. Our financial holdings also did well, with UOB and Oversea-Chinese Banking Corporation generally in good shape, despite rising provisions. However, ST Engineering lagged on concerns over the exposure of its maintenance, repair and overhaul division to the airline industry. On an encouraging note, the group's shipbuilding arm is doing well, and its second-quarter results were better than those in the first quarter. Telco SingTel underperformed, as defensive sectors lagged in the liquidity-driven rally, which saw interest switch to cyclical stocks. Its Indian associate, Bharti Airtel, also ended merger talks with South Africa's MTN.

In Hong Kong, conglomerate Swire Pacific's consumer-related businesses were resilient, while rising property prices lifted earnings. Jardine Strategic was boosted by its Indonesian subsidiary, Astra International, which saw improved demand for cars and mining equipment. Dah Sing Financial, meanwhile, was buoyed by talk that it was a potential takeover target for one of the bigger mainland Chinese banks.

Elsewhere, the overweight to India was positive for the portfolio, as solid growth numbers and resilient corporate earnings boosted sentiment. The Congress Party's landslide election victory also raised hopes that the pace of economic reform would gather speed. Several of our holdings reported steady results, including Hero Honda, HDFC and ABB India. We are confident of India's long-term prospects, given the size of its domestic economy, and continue to see numerous compelling investment opportunities there. 

Other notable outperformers included Thailand's Siam Cement and UK-listed Standard Chartered Bank. The Thai cement-maker saw a decent quarter-on-quarter rebound in second-quarter profits, on the back of stabilising sales, while Standard Chartered's first-half earnings benefited from the exposure to emerging markets.

Our holdings in Taiwan and China were relatively weak. Taiwan Mobile lagged, being in the defensive telecom sector, while chip foundry TSMC's shares pulled back, following a strong run. China Mobile and PetroChina posted sluggish results, as sentiment cooled towards Chinese equities. 

China is undoubtedly one of the more exciting growth stories in Asia, but the positive macro environment is not always evident at the corporate level. Lending has spiked up in recent months, mainly in response to the government's directive. However, much of this has leaked into non-productive areas such as the stock market, and we expect that this will be reined in in due course. We are also cautious with regard to management quality and the extent of government intervention in key industries. Hence, we remain underweight, and prefer to gain exposure via Hong Kong-listed companies, where standards of accounting and transparency are better.

In portfolio activity, we initiated a position in Australian miner BHP Billiton, a low-cost producer with a solid balance sheet and high-quality assets, via its London-listed shares, which trade at a decent discount to the Australian listing, and thus boast a higher dividend yield. This purchase was in line with the Company's investment policy and objective of investing in companies that generate substantial parts of their revenue in the region, and that also have a listing in the region.

We also added to our telco holdings such as China Mobile and SingTel, which lagged the general market. Both companies continue to meet our expectations, and are backed by robust fundamentals and cash flows. 

On the other hand, we disposed of Hong Kong Exchanges and Clearing following a sharp run-up in its share price. We also top-sliced Korean retailer Shinsegae, Hong Kong-listed Sun Hung Kai Properties and Singapore-listed City Developments on relative price strength.  

Outlook

Asian stocks may well rise further in the short term, given supportive liquidity conditions, but valuations have become stretched, and it looks like the monetary cycle has turned. Australia was the first to raise interest rates, and other central banks may soon need to consider a similar policy reversal to fight potential asset price bubbles. The risk is that the incipient economic recovery may be stunted if policy is tightened too early.

That said, Asian economies do not suffer from the debt problems that face those in the West, and should thus recover faster. The region has healthy foreign reserves and balance sheets, as well as a growing middle class that will support domestic demand. 

We are positive about the long-term potential of the region and the prospects for the holdings in the portfolio, which have sound fundamentals and high-quality management. These companies, which are mostly in domestic sectors, possess the competitive advantages, and the resources and pricing power to increase their market share at the expense of weaker, highly-geared rivals. They are also likely to emerge from the crisis stronger and better-placed to generate good long-term returns.

  INCOME STATEMENT 

	Six months ended
	30 September 2009
	(unaudited)
	Revenue	Capital	Total
	£'000	£'000	£'000
Gains/(losses) on investments	-	13,221	13,221
Income (note 2)	666	-	666
Investment management fee	(145)	-	(145)
Performance fee	-	(338)	(338)
VAT recoverable on investment management fees	-	-	-
Administration expenses	(136)	(28)	(164)
Exchange gains/(losses)	-	287	287
	_________	_________	_________
Net return before finance costs and taxation	385	13,142	13,527
Finance costs	(42)	-	(42)
	_________	_________	_________
Net return on ordinary activities before taxation	343	13,142	13,485
Taxation on ordinary activities (note 3)	(33)	-	(33)
	_________	_________	_________
Net return on ordinary activities after taxation	310	13,142	13,452
	_________	_________	_________
Return per Ordinary share (pence)(note 4)	1.97	83.53	85.50
	_________	_________	_________

The total column of this statement represents the profit and loss account of the Company.

A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses have been reflected in the Income Statement.

All revenue and capital items in the above statement derive from continuing operations.

The accompanying notes are an integral part of the financial statements.

  INCOME STATEMENT 

	Six months ended
	30 September 2008
	(unaudited)
	Revenue	Capital	Total
	£'000	£'000	£'000
Gains/(losses) on investments	-	(5,413)	(5,413)
Income (note 2)	808	-	808
Investment management fee	(149)	-	(149)
Performance fee	-	-	-
VAT recoverable on investment management fees	-	-	-
Administration expenses	(111)	(12)	(123)
Exchange gains/(losses)	-	(326)	(326)
	_________	_________	_________
Net return before finance costs and taxation	548	(5,751)	(5,203)
Finance costs	(60)	-	(60)
	_________	_________	_________
Net return on ordinary activities before taxation	488	(5,751)	(5,263)
Taxation on ordinary activities (note 3)	(31)	-	(31)
	_________	_________	_________
Net return on ordinary activities after taxation	457	(5,751)	(5,294)
	_________	_________	_________
Return per Ordinary share (pence)(note 4)	2.83	(35.58)	(32.75)
	_________	_________	_________

  INCOME STATEMENT

	Year ended
	31 March 2009
	(audited)
	Revenue	Capital	Total
	£'000	£'000	£'000
Gains/(losses) on investments	-	(8,298)	(8,298)
Income (note 2)	1,242	-	1,242
Investment management fee	(268)	-	(268)
Performance fee	-	-	-
VAT recoverable on investment management fees	17	-	17
Administration expenses	(252)	(23)	(275)
Exchange gains/(losses)	-	(1,253)	(1,253)
	_________	_________	_________
Net return before finance costs and taxation	739	(9,574)	(8,835)
Finance costs	(125)	-	(125)
	_________	_________	_________
Net return on ordinary activities before taxation	614	(9,574)	(8,960)
Taxation on ordinary activities (note 3)	(51)	-	(51)
	_________	_________	_________
Net return on ordinary activities after taxation	563	(9,574)	(9,011)
	_________	_________	_________
Return per Ordinary share (pence)(note 4)	3.50	(59.57)	(56.07)
	_________	_________	_________

  BALANCE SHEET

		As at	As at	As at
		30 September 2009	30 September 2008	31  March  2009
		(unaudited)	(unaudited)	(audited)
	Notes	£'000	£'000	£'000
Fixed assets
Investments designated at fair value through profit or loss		45,736	37,670	33,375
		_________	_________	_________
Current assets
Debtors		162	199	209
Cash at bank and in hand		1,248	1,149	1,842
		_________	_________	_________
		1,410	1,348	2,051
		_________	_________	_________
Creditors: amounts falling due within one year
Foreign currency loans	6	(3,308)	(4,227)	(4,822)
Other creditors		(453)	(212)	(293)
		_________	_________	_________
		(3,761)	(4,439)	(5,115)
		_________	_________	_________
Net current liabilities		(2,351)	(3,091)	(3,064)
		_________	_________	_________
Net assets		43,385	34,579	30,311
		_________	_________	_________
Share capital and reserves
Called-up share capital		1,573	1,606	1,573
Special reserve		1,015	1,566	1,015
Capital redemption reserve		2,159	2,126	2,159
Capital reserve	7	38,158	28,839	25,016
Revenue reserve		480	442	548
Equity shareholders' funds		43,385	34,579	30,311
		_________	_________	_________
Net asset value per Ordinary share (pence):	8	275.77	215.25	192.67
		_________	_________	_________

  RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS

Six months ended 30 September 2009 (unaudited)
			Capital
	Share	Special	redemption	Capital	Revenue
	capital	reserve	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 March 2009	1,573	1,015	2,159	25,016	548	30,311
Dividend paid	-	-	-	-	(378)	(378)
Return on ordinary activities after taxation	-	-	-	13,142	310	13,452
	________	________	________	________	________	_______
Balance at 30 September 2009	1,573	1,015	2,159	38,158	480	43,385
	________	________	________	________	________	_______
Six months ended 30 September 2008 (unaudited)
			Capital
	Share	Special	redemption	Capital	Revenue
	capital	reserve	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 March 2008	1,627	2,022	2,105	34,590	(15)	40,329
Purchase of own shares for cancellation	(21)	(456)	21	-	-	(456)
Return on ordinary activities after taxation	-	-	-	(5,751)	457	(5,294)
	________	________	________	________	________	_______
Balance at 30 September 2008	1,606	1,566	2,126	28,839	442	34,579
	________	________	________	________	________	_______
Year ended 31 March 2009 (audited)
			Capital
	Share	Special	redemption	Capital	Revenue
	capital	reserve	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 March 2008	1,627	2,022	2,105	34,590	(15)	40,329
Purchase of own shares for cancellation	(54)	(1,007)	54	-	-	(1,007)
Return on ordinary activities after taxation	-	-	-	(9,574)	563	(9,011)
	________	________	________	________	________	_______
Balance at 31 March 2009	1,573	1,015	2,159	25,016	548	30,311
	________	________	________	________	________	_______

  CASHFLOW STATEMENT

	Six months ended	Six months ended	Year  ended
	30 September 2009	30 September 2008	31 March 2009
	(unaudited)	(unaudited)	(audited)
	£'000	£'000	£'000
Return on ordinary activities before finance costs and taxation	13,527	(5,203)	(8,835)
Adjustments for:
(Gains)/losses on investments	(13,221)	5,413	8,298
Expenses taken to capital reserve	366	12	23
Foreign exchange movements	(287)	326	1,253
	___________	___________	___________
	385	548	739
Decrease in accrued income	64	105	31
(Increase)/decrease in other debtors	(5)	8	9
Increase/(decrease) in other creditors	14	(46)	(5)
Overseas withholding tax suffered	(39)	(46)	(60)
Stock dividends included in investment income	(63)	(1)	-
	___________	___________	___________
Net cash inflow from operating activities	356	568	714
Servicing of finance
Bank and loan interest paid	(58)	(30)	(106)
Financial investment
Purchases of investments	(6,300)	(2,738)	(4,879)
Sales of investments	7,017	3,382	7,034
Expenses allocated to capital	(4)	(7)	(12)
	___________	___________	___________
Net cash inflow before financing	1,011	1,175	2,751
Financing
Purchase of Ordinary share capital	-	(456)	(1,007)
Loan drawn down	6	-	572
Dividend paid	(378)	-	-
	___________	___________	___________
Increase in cash	639	719	2,316
	___________	___________	___________
Reconciliation of net cash flow to movements in net debt
Increase in cash as above	639	719	2,316
Increase in borrowings	(6)	-	(572)
	___________	___________	___________
Decrease in net debt resulting from cash flows	633	719	1,744
Foreign exchange movements	287	(326)	(1,253)
	___________	___________	___________
Decrease in net debt in the period	920	393	491
Opening net debt	(2,980)	(3,471)	(3,471)
	___________	___________	___________
Closing net debt	(2,060)	(3,078)	(2,980)
	___________	___________	___________

  NOTES TO THE ACCOUNTS

1.	Accounting policies
	Basis of accounting
	The accounts have been prepared in accordance with applicable UK Accounting Standards, with pronouncements on Half-Yearly Reporting issued by the Accounting Standards Board and with the Statement of Recommended Practice for 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (issued in January 2009). They have also been prepared on the assumption that approval as an investment trust will continue to be granted.
	The financial statements and the net asset value per share figures have been prepared in accordance with UK Generally Accepted Accounting Practice (UK GAAP).
	The interim accounts have been prepared using the same accounting policies as the preceding annual accounts.

		Six months ended	Six months ended	Year ended
		30 September 2009	30 September 2008	31 March  2009
2.	Income	£'000	£'000	£'000
	Income from investments
	UK dividend income	9	17	59
	Overseas dividends	590	788	1,175
	Stock dividends	63	1	1
		___________	___________	___________
		662	806	1,235
		___________	___________	___________
	Other income
	Underwriting commission	4	-	2
	Deposit interest	-	2	5
		___________	___________	___________
	Total income	666	808	1,242
		___________	___________	___________

3.	Taxation
	The taxation expense reflected in the Income Statement is based on management's best estimate of the weighted average annual tax rate expected for the full financial year. The estimated average annual tax rate used for the year to 31 March 2010 is 28%.

		Six months ended	Six months ended	Year  ended
		30 September 2009	30 September 2008	31 March  2009
4.	Return per Ordinary share	£'000	£'000	£'000
	Return per share is based on the following figures:
	Revenue return	310	457	563
	Capital return	13,142	(5,751)	(9,574)
		___________	___________	___________
	Total return	13,452	(5,294)	(9,011)
		___________	___________	___________
	Weighted average number of Ordinary shares in issue	15,732,367	16,165,930	16,070,688
		___________	___________	___________

5.	Transaction costs
	During the period expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. Expenses incurred in acquiring investments have been expensed through capital and are included within administration expenses in the Income Statement, whilst expenses incurred in disposing of investments have been expensed through capital and are included within gains/(losses) on investments in the Income Statement. The total costs were as follows:
		Six months ended	Six months ended	Year ended
		30 September 2009	30 September 2008	31 March 2009
		£'000	£'000	£'000
	Purchases	24	4	11
	Sales	4	5	16
		___________	___________	___________
		28	9	27
		___________	___________	___________

		As at	As at	As at
		30 September 2009	30 September 2008	31 March  2009
6.	Foreign currency loans	£'000	£'000	£'000
	Foreign currency loans	3,308	4,227	4,822
		___________	___________	___________
	Bank loans of US$4,085,000 (30 September 2008 - US$5,700,000; 31 March 2009 - US$5,150,000), equivalent to £2,554,000 (30 September 2008 - £3,198,000; 31 March 2009 - £3,593,000) at an interest rate of 1.81% (30 September 2008 - 3.48%; 31 March 2009 - 2.73%) and JPY108,000,000 (30 September 2008 - JPY194,700,000; 31 March 2009 - JPY174,000,000), equivalent to £754,000 (30 September 2008 - £1,029,000; 31 March 2009 - £1,229,000) at an interest rate of 1.55% (30 September 2008 - 1.63%; 31 March 2009 - 2.02%) are drawn down from the £7,000,000 facility with Standard Chartered Bank (30 September 2008 - ING Bank N.V.; 31 March 2009 - Standard Chartered Bank).
	On 5 November 2009 loans of US$4,157,000 and JPY101,500,000 were rolled over to 5 February 2010 at a rate of 1.83% and to 7 December 2009 at a rate of 1.51% respectively.

7.	Capital reserve
	The capital reserve figure reflected in the Balance Sheet includes investment holdings gains of £7,199,000 (30 September 2008 - losses of £3,525,000; 31 March 2009 - losses of £5,289,000).

		As at	As at	As at
8.	Net asset value per Ordinary share	30 September 2009	30 September 2008	31 March  2009
	Attributable net assets (£'000)	43,385	34,579	30,311
	Number of Ordinary shares in issue	15,732,367	16,064,367	15,732,367
	Net asset value per Ordinary share (p)	275.77	215.25	192.67

9.	Related party disclosures
	During the course of the period, the Company sold an investment in another fund which was managed by the Company's Investment Manager for £5,191,000 compared with a book cost of £4,210,000. The value of the holdings as at 31 March 2009 was £3,782,000 (30 September 2008 - £3,757,000). When held the value of such investments were excluded from the calculation of the investment management fee.

10.	The financial information contained in this Half-yearly Financial Report does not constitute statutory accounts as defined in Sections 434 - 436 of the Companies Act 2006. The financial information for the six months ended 30 September 2009 and 30 September 2008 have not been audited.
	The information for the year ended 31 March 2009 has been extracted from the latest published audited financial statements which have been filed with the Registrar of Companies. The report of the auditors on those accounts contained no qualification or statement under Section 237 (2) or (3) of the Companies Act 1985.
	This report has not been reviewed or audited by the Company's auditors.

11.	This Half-Yearly Financial Report was approved by the Board on 13 November 2009.

12.	The Half-yearly Report will shortly be available from the Company's website (www.all-asia.co.uk) and will be posted to shareholders in November 2009.

For Aberdeen All Asia Investment Trust plc

Aberdeen Asset Management PLC, Secretaries

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