Annual Financial Report

RNS Number : 5924F

Witan Pacific Investment Trust PLC

28 April 2011

 



WITAN PACIFIC INVESTMENT TRUST PLC

Our Investment Objective is to provide shareholders with a balanced portfolio of investments in the Asia Pacific region with the aim of outperforming the

MSCI AC Asia Pacific Free Index (£)

Chairman's Statement

Market Background

Economic growth in the Pacific region remained strong throughout the year, however towards the period end, there were increasing signs that authorities were becoming concerned about inflationary pressures. These arose mainly due to rising commodity prices, and began to create political problems owing to the high importance of food and energy in the local cost of living. The resulting tightening in monetary policy, which was designed to reduce inflation, saw some of the region's earlier outperformance of developed markets reduced, particularly as it coincided with improvement in hopes for the prospect of growth in 2011 in developed economies. Japan's stock market performance by contrast, prior to the recent devastating Tohoku earthquake, had improved towards the Company's period end, as its fortunes are closely tied to the outlook for global growth and, unlike the rest of Asia, there were no significant pressures to raise interest rates.

The MSCI AC Asia Pacific Free Index (our benchmark) recorded a return in local currency terms of 11.1% during our financial year. The region's currencies strengthened significantly during the year, so in Sterling terms the rise was 20.0%.

Performance

It is pleasing therefore to record not only a year of strong absolute returns by the fund but also a significant outperformance versus our benchmark, 25.8% versus 20.0% in Sterling terms. Total shareholder return was 30.0% which reflects a narrowing of the discount between January 2010 and the end of January 2011.

The Company's multi-manager strategy is in its sixth year and since adoption of this investment approach the portfolio investment outperformance has averaged 2.3% per annum (source: WM Performance Measurement Services). Shareholders will be aware that a key rationale for the multi-manager strategy is the diversification benefit of not relying on one manager to drive returns, thereby aiming to smooth out the volatility of returns. To this end the Company has engaged two Managers with very distinct styles. Aberdeen Asset Managers ("Aberdeen") are less likely to embrace the individual country weightings which comprise the benchmark; in particular they have for many years maintained a strong preference for the Asian markets over Japan and consequently have a low exposure to Japan. Such a stance continued to be a major positive for their portfolio for most of the year and as a result Aberdeen's portfolio return was 28.7% (£) an outperformance of 8.7% over the Index. Nomura take a much more index-like position to their country weightings and whilst they too preferred the growth characteristics of Asian markets over Japan their degree of over and underweighting was far less marked. However, together with successful stock selection during the year this helped to generate a portfolio performance of 24.1%, 4.1% ahead of the benchmark. Further details of each Manager's performance, country and stock selection are given in the Investment Review section of the Business Review on.

The Board meets both Managers regularly throughout the year to monitor their progress. This is occasionally in person or more often via video link, however the Board considers that from time to time it is important to meet the Managers and other members of their investment teams in their own offices. Hence shortly after the year end, the Board conducted in depth interviews at the Managers' offices in Singapore and Tokyo to gain an on-site understanding of their investment and control processes. This also provided an opportunity to discuss such issues as team personnel changes and management succession, and to understand how coordination between the Asian offices is achieved. These are the type of important insights that are less readily gleaned from the more regular communication channels of written reports and teleconferences.

Total Expense Ratio

Last year our total expense ratio before performance fees was 0.7%; after performance fees it was 1.2% (in both instances, a reduction from the previous year's levels). As a Board we are very mindful of the impact on fees on investors' returns and it is pleasing to see that we have been able to keep our fees at a low and competitive level. This Trust thus provides a highly cost effective way to acquire exposure to the Asia Pacific region particularly when compared with open ended funds which often charge basic fee levels in excess of 1.5%.

Dividend

Our revenue return was 46.6% higher in the year. Dividend growth was buoyant, as companies reported their first full year of results following the global financial crisis. Added to this, the currencies of a number of the region's economies strengthened, increasing the value of these dividends when translated into sterling. Our revenue earnings per share as a result increased from 2.49p to 3.65p.

The strength in our revenue in recent years has already enabled the Company to double its annual dividend from 1.05p in 2005 to 2.10p last year. The continued income strength in the past year has led the Board to re-examine its dividend policy. In the past, our stated policy was "to distribute as much income as may be prudent" but to make no commitment on whether the dividend could be expected to grow over time.

The Board now considers that the current strong income position and the expectation that dividends in the region will continue to grow (albeit with cyclical fluctuations), together with the Company's healthy revenue reserves (amounting to over 5 years' dividends) warrants a more positive aim, of increasing the sterling dividend in real terms, over time. This remains subject to economic circumstances and of course the continuing commitment to a prudent basis for distributions remains.

For the year to January 2011, the Company is increasing its annual dividend by 33.3% to 2.8p. This increase should not be extrapolated, as it reflects the exceptional increase in revenue during the year, as well as the investment trust accounting limits on retained revenue.

Subject to shareholder approval, the final dividend will be paid on 24 June 2011 to shareholders on the register at the close of business on 27 May 2011 (ex-dividend 25 May 2011).

Share Buy-Backs

Your Board believes that it is in shareholders' interests to buy back the Company's shares when they are standing at a substantial and anomalous discount to their NAV, with the objective that the discount should be comparable to that of our peers, taking account of the prevailing market conditions. The Company repurchased a total of 64,000 shares for cancellation during the year. It is intended to seek renewal of the buy-back authority at the forthcoming Annual General Meeting ("AGM"). Although no shares have been taken into treasury to date, the Board regards it as sensible to seek to renew the authority to take shares into treasury for re-sale in the market at a later date. This power will be used to issue shares only at NAV or a premium to NAV.

Asia Pacific

In recent years, one part of our benchmark has performed dramatically better than the other. In 2008, it was Japan which performed well, whereas in 2009 it was the Pacific region ex-Japan. Much of 2010 was similarly better for the Pacific region excluding Japan. The fortunes were again reversed from October to the Company's year end, with Japan outperforming the region after having lagged behind earlier in the year. By holding shares in the Company, shareholders have been able to participate in the Far East's good relative equity returns, without the risk of being caught on the wrong side of these fluctuating relative fortunes within the region.

Our underweight exposure to Japan over the past year has helped to drive outperformance of our benchmark (the MSCI index as described above) and shows the advantage of using a fund that makes the asset allocation between countries in the region on the investor's behalf. However, having two managers, with differing judgments over how much to allocate to Japan (as well as other markets) reduces the performance volatility from these swings in geographic fortunes, relative to having a single decision-maker.

Shareholder Information

We outsource the day-to-day management of the Trust to Witan Investment Services Limited, whose team provides executive management services to the Company.

The Witan Pacific web site, www.witanpacific.com, was completely revamped in 2010 and is an excellent and easy to use source of up-to-date information on the Trust. In addition you will find regular market commentary from Andrew Bell (the CEO of Witan Investment Trust) on the website, covering both the Asia Pacific and other regions. Witan Wisdom provides a cost effective facility for regular savers to invest either through a regular share savings scheme or through an ISA. Details of investing through Witan Wisdom are available at www.witanwisdom.com.

Board Changes

During the year Diane Seymour-Williams was appointed to the Board. She brings considerable experience as a current investment management practitioner in the region and we welcome Diane to the Board and unhesitatingly recommend her for shareholders to confirm her election at the forthcoming AGM of the Company.

Outlook

As 2010 ended, many Asian economies found themselves contending with rapid economic growth accompanied by high imported commodity price inflation leading to economic overheating and political tensions associated with rapid food price inflation in a region where much of the population remains on low incomes. Policy makers in the region face a difficult balancing act as they try to maintain economic growth whilst seeking to curtail inflation. This dilemma is currently being addressed by a series of interest rate increases and credit-restriction measures in economies such as China and India, with the objective of securing a controlled slowdown to a more sustainable rate of growth. The recent correction in these developing markets reflects uncertainty over whether this fine-tuning will succeed.

By contrast, Japan has been struck by the tragic loss of life and destruction caused by the Tohoku earthquake and the tsunami which followed it. The principal focus in Japan will be on restoring infrastructure and housing in the affected regions and overcoming the disruption to industrial output caused by shortages of electric power and of certain specialist components previously produced in facilities which were destroyed. The Japanese people have shown notable resolve in the face of these events and policy makers have adopted pro-active policies to offset the associated loss of confidence. I am sure that shareholders will share the Board's sympathy with the Japanese population in the aftermath of this catastrophe. It is to be expected therefore that economic growth will start to recover later in the year, as reconstruction gets underway.

Events elsewhere in the world are further complicating the economic situation and outlook for markets. The wave of political unrest in Arab countries, including some important oil producers, has driven oil prices higher since the start of 2011 bringing with it worries about the potential for slower global growth. However in a highly competitive world the Far Eastern economies are still all forecasting higher growth rates than those expected in developed Western markets. Hence the case for investment in the Asia Pacific region remains strong.

Our two Managers' complementary styles have enabled your Company to outperform in a variety of market conditions during recent years. We will continue to review the appropriate balance of investment styles and geographical exposure to deliver benefits for shareholders from what we believe to be the Asia-Pacific region's enduring growth story.

The AGM of the Company will be held on Wednesday, 8 June 2011 at 12 noon at the J.P. Morgan Cazenove Auditorium, 20 Moorgate, London EC2R 6DA, and I look forward to meeting as many of you as are able to attend the meeting.

Gillian Nott

Chairman

27 April 2011

Business Review

This Business Review provides shareholders and other readers with information about the Company's business and results for the year ended 31 January 2011 and comments on the main trends and factors likely to affect the future development of the business. It is divided into two sections: Corporate Review and Investment Review.

Corporate Review

Objectives and Strategy

The Company's investment objective is to provide shareholders with a balanced portfolio of investments in the Asia Pacific region, designed to outperform the MSCI AC Asia Pacific Free Index ("MSCI Index") in Sterling terms. From an investment perspective this means that your Company will seek to provide steady above average performance compared with the relevant MSCI Index in Sterling terms, predominantly aiming to achieve this through growth in capital. Your Company aims to outperform by using an active multi-manager approach. Currently the Board has appointed two Investment Managers but their performance is subject to regular review and the Board has the ability, should it wish, to change the Managers and to change the number of Managers used.

The Company has traditionally operated a policy of deploying gearing in a tactical sense, when circumstances point to the prospect of additional benefit for shareholders. Further to this, the Company has decided to implement a modest level of gearing, which it envisages keeping in place over the medium term. As set out in the Chairman's statement, gearing is expected to rise to around 5% in the coming months. This will be financed by the Company's borrowing facilities which are short-term, since this maximises flexibility and is consistent with the modest level of gearing employed, taking account of the portfolio's liquidity.

Your Company will distribute as much income as may be prudent on an annual basis to shareholders, but now also has the additional aim of increasing the dividend in real terms over time, subject to market circumstances. The Board employs share buy-backs to manage the discount appropriately, expecting that the level will be comparable to that of its peers. Share buy-backs provide liquidity and enhance the NAV per share of the Company.

In addition, your Company sponsors an ongoing marketing programme provided by Witan Investment Services Limited. This programme reaches out to both the private and professional investor using a blend of targeted marketing programmes. Your Board aims to provide the best possible return to shareholders. The unbundling of the investment management services and other necessary services has provided greater transparency of the Company's cost base. Your Board applies strict controls on costs and expenses. For the last financial year the total expense ratio (TER) including performance fees has reduced to 1.2% (2010 1.3%). Excluding performance fees the TER is 0.7%, down from 0.8% last year.

Management Arrangements

The management of the Company's assets is entirely outsourced to third parties. Witan Investment Services Limited acts as Executive Manager to manage and monitor the outsourced structure and relationships and to assist the Board on investment strategy and marketing. In summary, the Board sets the Company's strategy and the Executive Manager monitors and implements this same strategy. The following table shows the investment management arrangements:

Equity Mandate	Investment Manager	Mandate Benchmark (£)	% of Initial Portfolio as at 31 May 2005	Actual % as at 31 January 2011
Asia Pacific	Aberdeen	MSCI AC Asia Pacific Free Index	50%	54%
Asia Pacific	Nomura	MSCI AC Asia Pacific Free Index	50%	46%

Your Company has also appointed third parties for the various supporting services it requires. The principal providers are J.P. Morgan Chase Bank, N.A. for global custody, BNP Paribas Securities Services for investment accounting and administration and Phoenix Administration Services Limited for company secretarial services. From time to time, as required, the Company also buys in services for legal, investment consulting, financial and tax advice.

As a result of its outsourced structure the Company has no employees. Accordingly it has no direct impact on social matters. However it reviews its Managers' reports on their policies relating to social issues and corporate governance standards. Both Managers are prepared to use their votes in these areas in the interests of the investments made on our behalf.

Dividend Policy

As the Chairman has said in her statement, the Company aims to grow its dividend in real terms over time, subject to the underlying trend in the Company's net income. The Company has substantial levels of revenue reserves available to smooth temporary fluctuations in dividends from investments, where this is viewed as prudent and beneficial for shareholders.

Buy-back Policy

Your Board believes that it is in shareholders' interests to buy-back the Company's shares when they are standing at a substantial and anomalous discount to the Company's net asset value (NAV). The purchase of shares priced at a discount to NAV per share will, all other things being equal, increase the Company's NAV per share and benefit the Company's share price. In the year ended 31 January 2011 the Company bought back and cancelled a total of 64,000 Ordinary shares of 25p at a cost of £127,000 including stamp duty.

The Board has an active marketing programme designed to promote and create demand for Witan Pacific shares. The Witan Pacific web site, www. witanpacific.com, was completely revamped during 2010 and is an excellent and easy to use source of up-to-date information on the Trust.

Asia

Witan Wisdom provides a cost effective facility for regular savers to invest in the Company's shares, either through a regular share savings scheme or through an ISA. Details of investing through Witan Wisdom are available at www.witanwisdom.com

Borrowings & Gearing

The Company has the power under its Articles of Association to borrow up to 100% of the adjusted total of capital and reserves. Essentially this allows the Board to seek to improve performance through gearing by borrowing amounts equivalent in value to shareholders' funds. In practice the Board would not, other than temporarily and in exceptional circumstances, borrow more than 20%. Over the past five years fully invested gearing has varied between 0% and 5%. At the start of the year the Company had in place a borrowing facility of £9m and during the course of the year it arranged an additional facility of £5m to enable it to enhance returns further when opportunities arise. At the end of the year the Company was 2.3% geared.

Key Performance Indicators

Your Board assesses its performance in meeting the Company's objective against the following key performance indicators:

·     Net asset value return

·     Total shareholder return

·     Performance against the benchmark

·     Discount to net asset value

·     Dividend payout

·     The level of buy-back activity

·     Total expense ratio

The Board also reviews both absolute and relative volatility and risk statistics for the portfolio.

Principal Risks

Because the Company is essentially a vehicle for overseas equity investment, your Board is likely in normal conditions to be fully invested, subject to the tactical positions of the Investment Managers. The prime risks, therefore, of investing in the Company, are a fall in equity prices and adverse movements in foreign currency exchange rates.

There are also other risks relating to the selection of Investment Managers and more generic risks associated with any international or regional equity portfolio relating to strategy, country, industrial sector and stock selection. Your Board seeks to manage these risks through the regular monitoring and review of portfolio information including adherence to the investment mandates, the monitoring of the investment policies and stock selection activities of the Investment Managers and the appropriate application of gearing and liquidity criteria. Whilst foreign currency exposures are reviewed on a regular basis, these are inherent in investing in overseas securities and at present there are no currency hedging contracts in place.

The Company will also bear the risk of settlement default by clearing houses and exchanges and the risk of delayed re-possession or disputed title of  the Company's assets  in the event of failure of the Custodian.

The adverse effects of a failure, however defined, by an individual Investment Manager are reduced by the multi-manager structure, the different styles of the two Investment Managers and by the Board's regular reviews of the Investment Managers' performance against the relevant Key Performance Indicators. In addition, your Company also faces the risk that its objective and strategy become inappropriate due to changes in the financial services and savings market. This is a matter which is reviewed regularly at meetings of your Board.

These reviews focus on investment policy, the role of marketing and the Witan Wisdom savings schemes and discount control policies, as well as wider industry trends.

Finally, there are operational and regulatory risks, and the risk of errors and omissions. We are affected by a complex set of regulations and laws and changes in any of these may affect returns to shareholders.

All of these risks are regularly reviewed by the Company's Audit Committee. Your Board also takes professional legal, accounting and tax advice in advance, concerning any material proposed activity of your Company.

Operationally, the multi-manager structure is robust as each of the Investment Managers, the custodian and the fund accountants keep their own records which are reconciled on a monthly basis. In addition, our Executive Manager, Witan Investment Services Limited monitors the activities of all third parties and reports any issues to the Board.

Comprehensive contractual obligations and indemnification provisions have been put in place with each of the third party service providers. In order to qualify as an investment trust the Company must comply with sections 1158-59 of the Corporation Tax Act 2010 (CTA). A breach of these sections could result in the Company losing investment trust status and, as a consequence, capital gains realised within the Company's portfolio would be subject to Corporation Tax. The criteria are monitored by Witan Investment Services Limited on behalf of the Board. The Company must comply with the provisions of the Companies Act 2006 ("the Companies Act"), and, as the Company's shares are Premium Listed for trading on the London Stock Exchange, the Company must comply with the UK Listing Authority's Listing Rules and Disclosure and Transparency Rules ("UKLA Rules"). A breach of the Companies Act could result in the Company and/or the directors being fined or becoming the subject of criminal proceedings. Breach of the UKLA Rules could result in the suspension of the Company's shares which would in turn lead to a breach of the provisions of the CTA.

The Board relies on the Executive Manager, the Company Secretary and the Company's professional advisers to ensure compliance with the Companies Act 2006 and UKLA Rules. The Audit Committee regularly reviews these risks by considering a Risk Matrix which assesses the likelihood of such risks occurring and the severity of the potential impact of such risks. This enables the Board to take action and develop strategies in order to mitigate the effect of such risks to the extent possible.

Priorities for 2011

The Board has agreed that over the coming year it would:

·     Continue to monitor and assess the Investment Managers' performance against the Company's MSCI AC Asia Pacific Free Index (£) benchmark.

·     Seek to communicate the Company's objective more actively to individual and institutional buyers for whom the multi-manager approach offers an effective route to investment in the region.

·     Consider greater use of strategic gearing to seek to enhance returns.

Investment Review

Following a year of solid returns in 2009, the Asia Pacific region continued to reward investors in 2010 with further double digit returns. Both Asian markets and the Japan market made steady progress in the first quarter of 2010, rising some 10% in local terms, before the sovereign debt problems facing European governments and weak US economic data caused a global setback in markets, from which the Asia Pacific region was not immune. The summer months saw markets tread water, but as economic data for the Asian countries proved to be robust, sentiment towards the region became more positive and substantial inflows propelled markets higher through the end of 2010 into 2011. The Japanese equity market lagged through the summer into the autumn before it too rallied from November onwards.

Asian currencies strengthened in line with the superior economic performance of the region and local stock market returns were enhanced considerably for sterling investors to the extent that the return for the twelve months to end January 2011 for the Company's benchmark index when translated into sterling was +20.0%.

The Company's investments are managed by Aberdeen Asset Managers and Nomura Asset Management, each of whom manages approximately half the total assets. Although both have strong investment philosophies their approaches differ substantially. Aberdeen are bottom up stock pickers and their country weightings are dictated more by the stock selection process than by market capitalisation weightings. Nomura operate by first assessing country and industry weightings before selecting stocks. Nomura hold a large number of stocks, in excess of 200, while Aberdeen hold a more concentrated portfolio of around 50 stocks.

During the year under review the combined portfolio returned +26.5% (gross of fees) as measured by WM Performance Measurement Services. This compares with the benchmark MSCI AC Asia Pacific Free Index return of +20.0%, both figures being Sterling adjusted.

Aberdeen Asset Managers' portfolio rose by 28.7% (£ adjusted), an outperformance of more than eight percentage points. Both asset allocation (being underweight Japan and overweight Asia markets) and stock selection were positive.

At an individual stock level, petrochemicals and cement group Siam Cement contributed most to relative return. Viewed as a proxy for the economy, it was buoyed by better GDP growth and news that lawmakers would allow most projects in the Map Ta Phut industrial area to resume operations. Hong Kong conglomerate Swire Pacific also performed well, boosted by the improving operating environment for its aviation business as well as strong office rental growth. In contrast, Australian insurer QBE's shares underperformed because of some large claims arising from natural disasters and low investment yields given loose monetary policy in major developed economies. The Australian dollar's strength also hurt its income, given the significant overseas contributions.

New holdings included Woolworths, a leading supermarket operator in Australia, as well as trading company Li & Fung, which has an excellent long-term track record of growth and a top-tier client base. Aberdeen also bought life insurer AIA Group Ltd, given its established distribution networks and a sizeable presence in many Asian markets.

Aberdeen's outlook for the region:

"Looking ahead, economic growth in Asia is likely to moderate, though the region is expected to continue leading the global recovery. Balance sheets at the government, corporate and individual levels remain resilient, underpinning demand. However, market volatility is likely to persist, given the present headwinds. Food and fuel rises have a significant impact on inflation in Asia, behaving much like an income tax. Policymakers are generally taking a benign view, and are more focused on using credit and other measures to address asset price bubbles. Some are more politically tolerant of higher prices anyway. We think the fundamental attractions of Asia remain, even if developed market equities may seem cheaper now. Topline growth appears good but there are signs that higher raw materials are feeding into costs. Whether companies soon choose, and are able, to pass these costs on is something we are watching closely."

Nomura's portfolio returned +24.1% (£ adjusted), representing a healthy degree of outperformance compared with the benchmark's return of +20.0% (£ adjusted). This outperformance was mainly attributable to positive stock selection results, while country allocation also added value. The underweight position in Japan resulted in a positive country allocation effect and stock selection there also added significant value.

Stock selection in the Asia ex Japan portion of the portfolio also contributed strongly to the outperformance of the overall portfolio. For example the Hong Kong portfolio benefited from an overweight exposure to SJM. The share price rose due to its stable dividend yield and Macau's increased gaming revenue. BOC Hong Kong also added value due to its strong Renmimbi business outlook, together with solid loan growth to Chinese companies. Swire Pacific added value as office rents in Hong Kong continued to improve.

In Taiwan, HTC was a key positive contributor as smart phone demand continued to exceed expectations. Eva Airways and Formosa International Hotels also contributed positively as the closer relationship with China will increase the number of Mainland travellers to Taiwan. Mid-cap Technology sector positions such as Radiant benefited from strong demand for new products, such as the iPad and iPhone.

In Australia the overweight exposure to the Materials sector and stock selection within this sector added value with investments such as Rio Tinto generating a large positive stock selection contribution.

The Japan equity portfolio outperformed during the period under review. Positive stock selection results contributed to the portfolio, while the sector allocation added value to the portfolio during the period when the Japanese equity market fluctuated in a directionless manner. The overweight exposures to Machinery, Automobile, and Commodities, and underweight positions in Consumption, Medical, Infrastructure and Financials were all positive. In addition, Nomura was attracted by the appealing valuations of the Communication sector and found success where these stocks outperformed despite their typically defensive characteristics.

Nomura's outlook for the region:

"We reiterate our cautiously optimistic view of the Asia Pacific markets, mainly due to our concerns over the accelerating inflationary pressures in some regional economies, especially China, Indonesia, and India. We are of the opinion that central banks in most cases have been behind the curve in dealing with the inflation issue and we expect interest rate increases to accelerate. Rising raw material costs, labour costs, and interest expenses would all put corporate margins under pressure.

The Japan weighting has been raised due to good stock selection results and we have validated this change. Exporters and manufacturing companies are benefiting from an improved global growth outlook, whilst the high-end technology sector is also helped by the massive growth in demand for mobile handsets. Unfortunately, the domestic economy remains flat and this precludes a more aggressive upgrade of Japan.

In the Asia Pacific ex Japan portion of the portfolio, we have reduced the overweight exposure to Indonesia due to heightened inflationary fears. We reinvested the proceeds in South Korea and Malaysia rather than raising the cash holdings, since we are still broadly upbeat about the prospects for the regional markets. We favoured these two countries, given South Korea's sensitivity to an improving global growth outlook, while we are also becoming more confident about the positive impact from the large capital projects being implemented in Malaysia over the next five years. For India, we have moved back to a neutral position based on concerns about the macro-economic environment, especially the outlook for inflation. The political climate has also deteriorated somewhat. However, we are still confident that Indian companies can deliver strong earnings growth, while valuations are looking more attractive following the recent market decline."

The foregoing review of the two managers' performance and investment views relates to the Company's last financial year and precedes the recent Tohoku earthquake in Japan as well as the rise in oil prices. These are discussed in the Outlook section of the Chairman's Statement.

Income Statement

for the year ended 31 January 2011

	Year ended 31 January 2011			Year ended 31 January 2010
	Revenue return £'000	Capital return £'000	Total £'000	Revenue return £'000	Capital return £'000	Total £'000
Gains on investments held at fair value through profit or loss	-	32,119	32,119	-	32,078	32,078
Exchange gains/(losses)	-	167	167	-	(222)	(222)
Income (note 2)	3,927	-	3,927	2,950	-	2,950
Management fees	(421)	-	(421)	(305)	-	(305)
Performance fees	-	(828)	(828)	-	(638)	(638)
Other expenses	(661)	(44)	(705)	(663)	(57)	(720)
Net return before finance charges and taxation	2,845	31,414	34,259	1,982	31,161	33,143
Finance charges	(163)	-	(163)	(129)	-	(129)
Net return on ordinary activities before taxation	2,682	31,414	34,096	1,853	31,161	33,014
Taxation on ordinary activities	(261)	-	(261)	(199)	34	(165)
Net return on ordinary activities after taxation	2,421	31,414	33,835	1,654	31,195	32,849
Return per Ordinary share - pence (note 3)	3.65	47.40	51.05	2.49	47.05	49.54

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

The total columns of this statement represent the Profit and Loss Account of the Company. The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies.

The Company had no recognised gains or losses other than those disclosed in the Income Statement.

Reconciliation of Movements in Shareholders' Funds

for the year ended 31 January 2011

	Called up share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Capital reserves £'000	Revenue reserve £'000	Total £'000
Year ended 31 January 2011
At 31 January 2010	16,577	5	40,994	64,475	9,915	131,966
Net return on ordinary activities after taxation	-	-	-	31,414	2,421	33,835
Dividends paid in respect of year ended 31 January 2010	-	-	-	-	(1,392)	(1,392)
Purchase of own shares	(16)	-	16	(127)	-	(127)
At 31 January 2011	16,561	5	41,010	95,762	10,944	164,282
Year ended 31 January 2010
At 31 January 2009	16,590	5	40,981	33,339	10,151	101,066
Net return on ordinary activities after taxation	-	-	-	31,195	1,654	32,849
Dividends paid in respect of year ended 31 January 2009	-	-	-	-	(1,890)	(1,890)
Purchase of own shares	(13)	-	13	(59)	-	(59)
At 31 January 2010	16,577	5	40,994	64,475	9,915	131,966

Balance Sheet

at 31 January 2011                               

	2011 £'000	2010  £'000
Fixed assets
Investments held at fair value through profit or loss	168,757	133,318
Current assets
Debtors	799	1,485
Cash at bank and short-term deposits	2,059	5,992
	2,858	7,477
Creditors: amounts falling due within one year
Bank loan	(5,900)	(5,900)
Other	(1,433)	(2,929)
	(7,333)	(8,829)
Net current liabilities	(4,475)	(1,352)
Net assets	164,282	131,966
Capital and reserves
Called up share capital	16,561	16,577
Share premium account	5	5
Capital redemption reserve	41,010	40,994
Capital reserves	95,762	64,475
Revenue reserve	10,944	9,915
Total Shareholders' funds	164,282	131,966
Net asset value per Ordinary share - pence (note 5)	247.99	199.02

Cash Flow Statement

for the year ended 31 January 2011

	2011 £'000	2011 £'000	2010 £'000	2010 £'000
Net cash inflow from operating activities		541		1,717
Servicing of finance
Bank and loan interest paid	(149)		(177)
Net cash outflow from servicing of finance		(149)		(177)
Taxation
UK Corporation tax paid	-		(497)
Net tax paid		-		(497)
Capital expenditure and financial investment
Purchases of investments	(46,406)		(47,813)
Sales of investments	43,474		46,404
Capital expenses paid	(41)		(57)
Net cash outflow from financial investment		(2,973)		(1,466)
Equity dividends paid		(1,392)		(1,890)
Net cash outflow before financing		(3,973)		(2,313)
Financing
Drawdown of loan	-		2,900
Repurchase of own shares	(127)		(59)
Net cash (outflow)/inflow from financing		(127)		2,841
(Decrease)/increase in cash		(4,100)		528
Reconciliation of net cash flow to movements
In net (debt)/funds
(Decrease)/increase in cash as above		(4,100)		528
Net cash inflow from drawdown of loan		-		(2,900)
Exchange movements		167		(222)
Movement in net (debt)/ funds in the year		(3,933)		(2,594)
Net funds at 1 February		92		2,686
Net (debt)/funds at 31 January		(3,841)		92

Notes to the Accounts

for the year ended 31 January 2011

1.  Basis of accounting

The financial statements have been prepared on a going concern basis and under the historical cost convention, modified to include revaluation of fixed asset investments at fair value and in accordance with the Companies Act 2006, accounting standards applicable in the United Kingdom and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies' revised December 2009 (the revised SORP). The accounting policies have been applied consistently throughout the year.

2.  Investment income

	2011 £'000	2010 £'000
Income from investments held at fair value through profit or loss:
Overseas dividends	3,503	2,654
UK dividends	125	78
Overseas scrip dividends	292	210
Total dividend income	3,920	2,942
Other income:
Bank interest	4	2
Underwriting commissions	3	6
Total other income	7	8
Total income	3,927	2,950

3.   Return per Ordinary share

The total return per Ordinary share is based on the net return attributable to the Ordinary shares of £33,835,000 (2010: £32,849,000) and on 66,274,098 Ordinary shares (2010: 66,312,703) being the weighted average number of shares in issue during the year.

The total return can be further analysed as follows:

	2011 £'000	2010 £'000
Revenue return	2,421	1,654
Capital return	31,414	31,195
Total return	33,835	32,849
Weighted average number of Ordinary shares	66,274,098	66,312,703
Revenue return per Ordinary share - pence	3.65	2.49
Capital return per Ordinary share - pence	47.40	47.05
Total return per Ordinary share - pence	51.05	49.54

The Company does not have any dilutive securities.

4.  Dividends

Dividends on Ordinary shares	Record date	Payment date	2011 £'000	2010 £'000
Final dividend (2.85p) (includes 1.00p special) for the year ended 31 January 2009	27 May 2009	26 June 2009	-	1,890
Final dividend (2.10p) for the year ended 31 January 2010	28 May 2010	25 June 2010	1,392	-
			1,392	1,890

The proposed final dividend is subject to approval by shareholders at the AGM and has not been included as a liability in these financial statements.

The total dividend payable in respect of the financial year which meets the requirements of Section 1158 of the Corporation Tax Act 2010 is set out below.

	2011 £'000
Revenue available for distribution by way of dividend for the year	2,421
Proposed final dividend of 2.8p for the year ended 31 January 2011 (based on 66,244,868 Ordinary shares in issue at 27 April 2011)	(1,855)
Undistributed revenue for Section 1158 CTA purposes*	566

*Undistributed revenue comprises 14.4% of income from investments of £3,920,000 (see note 2).

5. Net asset value per Ordinary share

Net asset values are based on net assets of £164,282,000 (2010: £131,966,000) and on 66,244,868 (2010: 66,308,868) Ordinary shares in issue at the year end.

6. Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Report, the Directors' Remuneration Report and the Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the net return of the Company for that period. In preparing these financial statements, the Directors are required to:

·     select suitable accounting policies and then apply them consistently;

·     make judgements and accounting estimates that are reasonable and prudent;

·     state whether applicable UK Accounting Standards have been followed; and

·     prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The financial statements are published on www.witanpacific.com, which is a website maintained by the Company's Executive Manager, Witan Investment Services Limited ("Witan"). The Directors are responsible for the maintenance and integrity of the Company's website. The work carried out by the Auditors does not involve consideration of the maintenance and integrity of the website and accordingly, the Auditors accept no responsibility for any changes that have occurred to the Annual Report and Financial Statements since they were initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements may differ from legislation in other jurisdictions.

Each of the Directors confirm that to the best of their knowledge:

·     the financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), give a true and fair view of the assets, liabilities, financial position and net return of the Company; and

·     the Annual Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

7. Financial Statements - Availability and Comparative Information

The financial information contained in this announcement does not constitute statutory accounts for the year ended 31 January 2011 or 31 January 2010 as defined by the Companies Act 2006 but is derived from those accounts. The statutory accounts for the year ended 31 January 2010 have been delivered to the Registrar of Companies and those for the year ended 31 January 2011 will be delivered following the Company's Annual General Meeting. The Independent Auditor's report on those accounts was unqualified and did not contain any statements under section 498 (2) or (3) of the Companies Act 2006.

Copies of the Annual Reports and Financial Statements for the year ended 31 January 2011 will be posted to shareholders shortly and can be requested from the Registered Office of the Company or downloaded from the Company's website www.witanpacific.com .  

Phoenix Administration Services Limited

27 April 2011

The content of the Company's web-pages and the content of any website or pages which may be accessed through hyperlinks on the Company's web-pages is neither incorporated into nor forms part of the above announcement.

 

END

 

 

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