Half Yearly Report

RNS Number : 2628N

Witan Pacific Investment Trust PLC

27 September 2012

 



WITAN PACIFIC INVESTMENT TRUST PLC

Half Yearly Report of the unaudited results for the six months ended 31 July 2012

Financial Highlights

Summary of Results attributable to equity shareholders

	31 July 2012	31 January 2012	% change
Share price	203.50p	193.63p	5.1
Net asset value per share	238.11p	235.60p	1.1
Discount	-14.5%	-17.8%
Interim dividend per share*	2.00p	-
Gearing#	4.3%	3.4%

* Interim dividend introduced at 2.00p (paying October 2012); in previous years the annual dividend was paid as a single final payment in June.  For the year ended 31 January 2012 the final dividend was 4.00p.

# Calculated as the difference between the market value of investments and net assets as a percentage of net assets.

	Half year ended	Half year ended
	31 July 2012	31 July 2011
	%	%
Ongoing charges (excluding performance fee)	0.49	0.37
Ongoing charges (including performance fee)	0.83	1.15*

* includes 0.3% once-off effect of providing for future performance fees.

 Cumulative Performance (Total Returns) to 31 July 2012

	6 months	1 year	3 years	5 years
	%	%	%	%
Total shareholder return†	7.4	-4.0	38.8	25.9
Net asset value total return†	2.9	-2.4	35.8	28.1
MSCI AC Asia Pacific Free Index (£)* total return	-1.0	-6.3	21.7	12.8

^†Source: AIC Services Ltd. Returns include dividends reinvested.

* Source: Datastream. Gross dividends reinvested.

Chairman's Statement

The half year has been a successful one for the Trust with an increase in the value of the Trust's assets during a difficult market environment, outperformance of the Benchmark index and a decline in the discount. This all occurred whilst the Trust was undergoing the transition to its new three manager structure.

Following a careful review and comprehensive search, the Board took the decision to change the manager line-up of the Trust, appointing two new managers to replace Nomura. These changes were implemented in April and set out in the Annual Report. I am pleased to report that the Trust outperformed its benchmark during the period in spite of the costs of the transition. Although it is early days, the change has so far proved successful.

The Board significantly increased the dividend at the time of the final results announced in April.  It also reaffirmed the policy to increase the payment in real terms in the future. In a further development, this year for the first time we are paying an interim dividend of 2p so that shareholders receive part of their income earlier in the year.

Market Background

There was a marked contrast between the recovery in equity markets at the start of the year and the uncertain mood which dominated the summer. Firmer than expected growth in the US economy during the (exceptionally mild) winter, together with substantial liquidity injections by the European Central Bank allowed equity markets to recover much of 2011's lost ground. The optimistic mood dissipated during March, when there was a surge in the oil price related to friction between Iran and other countries over its nuclear programme. This increase in energy costs created a headwind to economic growth, which was already under pressure from the effects of fiscal tightening within Europe and the lagged impact of 2011's interest rate rises in China and other emerging economies.

In the Pacific region, Japanese growth was initially relatively firm, helped by reconstruction following last year's Tohoku earthquake and tsunami. However, weak demand elsewhere and the impact of renewed yen strength sapped optimism, ushering in renewed relative weakness in the market. China's economy has also slowed, as a result of deliberate efforts by the authorities to combat property speculation, as well as export weakness arising from problems in developed economies. In response, the Chinese authorities began to ease monetary policy to prevent the economic slowdown from going too far, during what is already a year of uncertainty on the political front as a new generation of leaders takes over.

The previous two years saw mid-year growth slowdowns usher in equity market corrections, followed by recoveries when the economic news came in better than expected (or feared). Investors are waiting to see whether this pattern repeats itself in 2012.

Manager Changes

In April 2012, the Company appointed Matthews International Capital Management LLC ("Matthews") and MW GaveKal Asia Limited ("GaveKal") to manage the part of the portfolio previously managed by Nomura. Aberdeen was retained to continue to manage its part of the portfolio. In summary, we have chosen two new managers who we consider will widen the investment opportunities in the regions, strengthen our resources and add new skills and approaches. We described the changes in detail in the Annual Report for the full year ending 31 January 2012 and further information is available on the Company's website (www.witanpacific.com).

Performance

During the first half of the Company's financial year, the Company achieved a net asset value total return of +2.9%, compared with the benchmark index total return of -1.0%. This outperformance of 3.9% was particularly encouraging since it enabled the Company's shareholders to enjoy a positive return during a period of volatile and declining markets. The share price total return was +7.4%, reflecting the narrower discount at the period end, 8.4% ahead of the benchmark index.

It is encouraging that the combination of the two newly appointed managers, Matthews and GaveKal has started well, albeit over a short period, while the Aberdeen-managed part of the portfolio also outperformed.

During the six months to 31 July 2012, the Company's discount remained in a stable range of 14-18% for most of the period and in line with its peer group, although discounts in the sector came under pressure in the thin and volatile markets seen during the summer.  The Company bought back a total of 186,868 shares for cancellation (0.3% of the total) during the period. 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 its peers, taking account of the prevailing market conditions.

 Performance for the half year ended 31 July 2012 and from inception to 31 July 2012

	Inception Date	Value of Witan Pacific's assets managed £m at 31 July 2012	% of Witan Pacific's managed assets (Note 1)	Performance half year to 31 July 2012 %	Benchmark Performance half year to 31 July 2012 %	Performance since inception to 31 July 2012 % (Note 2)	Benchmark Performance since inception to 31 July 2012 % (Note 2)
Aberdeen	31 May 2005	90.9	55.1	+3.8	-1.0	+12.9	+7.6
Matthews	30 April 2012	58.3	35.3	+3.3*	-	+3.3	-1.0
GaveKal	24 April 2012	15.9	9.6	-0.3*	-	-0.3	+0.2

Notes:

1. Excluding cash balances held centrally by Witan Pacific.

2. Manager performances are gross of management fees and are annualised where inception was before 31 January 2012.

* Since inception.

Source: WM Company, BNP Paribas Securities Services.

Gearing

The Company believes that the medium term growth prospects for the region are attractive and that it is in shareholders' interests to employ moderate levels of gearing with the objective of enhancing returns. The company aims to be around 5% geared on average. At the end of July, net gearing was 4.3%, compared with 3.4% at the end of January.

Dividend income

The Company has a policy of aiming to increase the dividend in real terms, ahead of inflation, subject to market conditions. The increases in recent years have been driven both by rising dividend income from the portfolio and a decision to increase the proportion of revenue earnings per share paid out as dividends to shareholders, given the strong revenue reserves. Revenue in the current financial year is running ahead of last year's level, with revenue earnings per share at the half year stage (3.12p) 26% higher than at the half year point in 2011. The appointment of Matthews, whose portfolio has a higher yield than that of the Nomura portfolio which it replaces should improve the income of the Trust in the future.

The Board has decided to introduce the payment of twice yearly dividends rather than a single annual payment, so that shareholders receive income earlier in the year and more regularly.  Accordingly, for the current year an interim payment of 2p will be paid on 19 October 2012 to shareholders on the register on 5 October 2012.  The Board is hopeful that, in the absence of a material change in the outlook, an increase in the total dividend for the year (which was 4p in 2012) will be possible.  The final dividend to be announced with the Annual Results will represent the difference between the dividend decided for the full year and the 2p to be paid this October.

Expenses

The continued good performance by Aberdeen means that there was an additional accrual for performance fees amounting to £0.5m. This is lower than the provision made in the comparable period in 2011, which included a revision in the basis for estimating future performance fees payable, boosting accrued costs for that period.

There were advisory costs associated with the search for new managers, amounting to £42,000, 0.03% of the total assets. In addition, the estimated cost of the portfolio transition process was £0.6m. This amounted to 0.9% of the assets in transition and 0.4% of the total portfolio. These costs do not fall within the ongoing charges but are reported to ensure transparency. The Board recognises that the costs of changing manager are significant, which is the reason so much care is taken over the selection process. The transition costs were, of course, fully taken into account in the NAVs released during April, when the transition occurred and it is worth emphasising that the significant outperformance recorded during the 6 month period was after paying the transition costs, in addition to the normal running costs of the Company.

The management fees for the two new managers appointed are higher than the basic fee previously payable to Nomura but without an additional performance-related element.  This is reflected in a rise in base management fees during the first half of 2012.  As noted in the Annual Report, the gap between the ongoing charges including and excluding performance fees will narrow now that approximately half the portfolio does not pay any performance fees.  It is expected that the ongoing charges in the current year may slightly exceed the Board's target of ongoing charges (excluding performance fees) of 1% or below, although it is encouraging that even after the increased management costs the Company's portfolio outperformed its benchmark by 3.9% during the period.  Nonetheless, the Board will continue to manage costs closely, seeking to reduce the ongoing charges as far as possible and ensure that shareholders derive value for money from the higher base management fees.

Outlook

Economic growth has slowed during 2012, under the influence of austerity policies and political disagreement within the Euro zone, the fear of US fiscal policy tightening after the elections in November and a slowdown in faster-growing economies such as China and Brazil. This slowdown has prompted a fall in commodity prices, providing some relief on the inflation front, in both emerging and developed economies and removes constraint on the introduction of easier monetary policies to stimulate growth.

The summer was marked by poor sentiment in equity markets and periods of volatility. The problems of slow growth and coping with the aftermath of the debt crisis are well known to investors. However, the solutions are likely to be relatively long-term in coming, even assuming the right decisions are made by politicians. With this in mind, there is heightened sensitivity to near-term economic news with the consequent underlying risk of volatility in markets. If growth recovers from the soft patch experienced during the summer then confidence in outlook for corporate profits will improve and the ability of debt-encumbered countries to manage their borrowings will be enhanced. There are some signs that the fall in the oil price has begun to benefit demand in oil-consuming countries, with a gradual, though fragile, improvement in growth forecasts. Monetary policy has also been eased worldwide, which should generate some benefit, at least in 2013.

Given the unpredictability of short-term political developments and market sentiment, it is more than ever sensible to view equity investment on a medium term timescale rather than a short-term trading view. With this in mind, our managers are focused on finding well-managed companies, with strong balance sheets, able to drive their own growth prospects, with the aim of delivering long-term returns from growth in earnings and dividends.

Gillian Nott

Chairman

26 September 2012

Income Statement

for the half year ended 31 July 2012

	(Unaudited) Half year ended 31 July 2012			(Unaudited) Half year ended 31 July 2011			(Audited) Year ended 31 January 2012
	Revenue return	Capital return	Total	Revenue return	Capital return	Total	Revenue Return	Capital Return	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Gains /(losses) on investments held at fair value through profit or loss	-	3,070	3,070	-	1,601	1,601	-	(8,201)	(8,201)
Exchange losses	-	(343)	(343)	-	(92)	(92)	-	(25)	(25)
Income (Note 2)	3,079	-	3,079	2,507	-	2,507	4,766	-	4,766
Management fees (Note 3)	(306)	-	(306)	(238)	-	(238)	(499)	-	(499)
Performance fees (Note 3)	-	(534)	(534)	-	(1,260)	(1,260)	-	(1,167)	(1,167)
Other expenses	(440)	(29)	(469)	(368)	(29)	(397)	(786)	(50)	(836)
Net return/(loss) before finance charges and taxation	2,333	2,164	4,497	1,901	220	2,121	3,481	(9,443)	(5,962)
Finance charges	(87)	-	(87)	(93)	-	(93)	(191)	-	(191)
Net return/(loss) on ordinary activities before taxation	2,246	2,164	4,410	1,808	220	2,028	3,290	(9,443)	(6,153)
Taxation on ordinary activities	(181)	-	(181)	(162)	-	(162)	(275)	-	(275)
Net return/(loss) on ordinary activities after taxation	2,065	2,164	4,229	1,646	220	1,866	3,015	(9,443)	(6,428)
Return/(loss) per Ordinary share - pence (Note 5)	3.12	3.27	6.39	2.48	0.33	2.81	4.55	(14.25)	(9.70)

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 half year ended 31 July 2012

	Called up share capital	Share premium account	Capital redemption reserve	Capital reserves	Revenue reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Half year ended 31 July 2012 (unaudited)
At 31 January 2012	16,559	5	41,012	86,300	12,176	156,052
Net return on ordinary activities after taxation	-	-	-	2,164	2,065	4,229
Dividends paid in respect of year ended 31 January 2012	-	-	-	-	(2,645)	(2,645)
Purchase of own shares	(47)	-	47	(369)	-	(369)
At 31 July 2012	16,512	5	41,059	88,095	11,596	157,267
Half year ended 31 July 2011 (unaudited)
At 31 January 2011	16,561	5	41,010	95,762	10,944	164,282
Net return on ordinary activities after taxation	-	-	-	220	1,646	1,866
Dividends paid in respect of year ended 31 January 2011	-	-	-	-	(1,855)	(1,855)
At 31 July 2011	16,561	5	41,010	95,982	10,735	164,293
Year ended 31 January 2012 (audited)
At 31 January 2011	16,561	5	41,010	95,762	10,944	164,282
Net (loss) / return on ordinary activities after taxation	-	-	-	(9,443)	3,015	(6,428)
Dividends paid in respect of year ended 31 January 2011	-	-	-	-	(1,855)	(1,855)
Write back of dividends over twelve years old	-	-	-	-	72	72
Purchase of own shares	(2)	-	2	(19)	-	(19)
At 31 January 2012	16,559	5	41,012	86,300	12,176	156,052

Purchase transaction costs for the half year ended 31 July 2012 were £83,000 (including transition costs) (half year ended 31 July 2011: £40,000; year ended 31 January 2012: £102,000). Sale transaction costs for the half year ended 31 July 2012 were £140,000 (including transition costs) (half year ended 31 July 2011: £44,000; year ended 31 January 2012: £111,000).

Balance Sheet

at 31 July 2012

	(Unaudited) 31 July 2012 £'000	(Unaudited) 31 July 2011 £'000	(Audited) 31 January 2012  £'000
Fixed assets
Investments held at fair value through profit or loss	164,021	171,094	161,334
Current assets
Debtors	385	635	1,796
Cash at bank and short-term deposits	2,654	4,784	2,462
	3,039	5,419	4,258
Creditors: amounts falling due within one year
Loans	(7,000)	(8,950)	(7,000)
Other	(2,611)	(2,748)	(2,181)
	(9,611)	(11,698)	(9,181)
Net current liabilities	(6,572)	(6,279)	(4,923)
Total assets less current liabilities	157,449	164,815	156,411
Provision for liabilities and charges (Note 6)	(182)	(522)	(359)
Net assets	157,267	164,293	156,052
Capital and reserves
Called up share capital (Note 7)	16,512	16,561	16,559
Share premium account	5	5	5
Capital redemption reserve	41,059	41,010	41,012
Capital reserves	88,095	95,982	86,300
Revenue reserve	11,596	10,735	12,176
Equity shareholders' funds	157,267	164,293	156,052
Net asset value per ordinary share - pence (Note 8)	238.11	248.01	235.60

Cash Flow Statement

for the half year ended 31 July 2012

	(Unaudited) Half year ended 31 July 2012 £'000	(Unaudited) Half year ended 31 July 2011 £'000	(Audited) Year ended 31 January 2012  £'000
Net cash inflow from operating activities (Note 9)	2,221	1,521	2,140
Servicing of finance
Bank and loan interest paid	(88)	(138)	(238)
Net cash outflow from servicing of finance	(88)	(138)	(238)
Capital expenditure and financial investment
Purchases of investments	(84,761)	(19,750)	(43,913)
Sales of investments	86,396	20,019	43,191
Gains on futures contracts	129	-	-
Losses on forward exchange contracts	(368)	-	-
Capital expenses paid	(35)	(30)	(50)
Net cash inflow/(outflow) from financial investment	1,361	239	(772)
Equity dividends paid	(2,645)	(1,855)	(1,783)
Net cash inflow/(outflow) before financing	849	(233)	(653)
Financing
Repurchase of own shares	(314)	-	(19)
Drawdown of bank loan	-	3,050	1,100
Net cash (outflow)/inflow from financing	(314)	3,050	1,081
Increase in cash	535	2,817	428
Reconciliation of net cash flow to movements in net debt
Increase in cash as above	535	2,817	428
Exchange movements	(343)	(92)	(25)
Increase in bank loan	-	(3,050)	(1,100)
Movement in net debt in the period	192	(325)	(697)
Net debt at start of period	(4,538)	(3,841)	(3,841)
Net debt at end of period	(4,346)	(4,166)	(4,538)

Notes to the Financial Statements

for the half year ended 31 July 2012

1. Accounting policies

The Financial Statements have been prepared under the historical cost convention, modified to include the revaluation of investments and in accordance with applicable Accounting Standards, pronouncements on interim reporting issued by the Accounting Standards Board and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies' ("SORP") revised December 2005 and January 2009. All of the Company's operations are of a continuing nature.

The same accounting policies used for the year ended 31 January 2012 have been applied.

2. Income

	(Unaudited) Half year ended 31 July 2012 £'000	(Unaudited) Half year ended 31 July 2011 £'000	(Audited)  Year ended 31 January 2012 £'000
Overseas dividends	2,838	2,232	4,103
UK dividends	232	58	167
Overseas scrip dividends	7	216	493
Other income:
Bank interest	2	1	3
	3,079	2,507	4,766

3. Management fee and performance-related management fee

On 27 May 2005, the Company appointed Witan Investment Services Limited as Executive Manager and Aberdeen Asset Managers Limited and Nomura Asset Management U.K. Limited as Investment Managers. In April 2012, the Company appointed Matthews International Capital Management LLC and Marshall Wace GaveKal Limited to replace Nomura Asset Management U.K. Limited. Each Management Agreement can be terminated at one month's notice in writing.

Each investment Manager is entitled to a base management fee, at rates between 0.20% and 0.75% per annum, calculated according to the value of the assets under their management, Aberdeen is also entitled to a performance fee based on relative outperformance against the MSCI AC Asia Pacific Index (sterling adjusted total return). The performance fee is calculated according to investment performance over a three year rolling period and is payable at a rate of 15% of the calculated outperformance relative to the benchmark (subject to a cap).

The provisions included in the Income Statement at 31 July 2012, are calculated on the actual performance of Aberdeen relative to the benchmark index. The provision for the rest of the year assumes that both the benchmark index remains unchanged and that Aberdeen's assets under management perform in line with the benchmark index to 31 May 2013, being the date the performance period ends. In addition, provisions have been made for the performance periods ending 31 May 2014 and 31 May 2015, on the assumption that Aberdeen performs in line with the benchmark to each period end. The total of these provisions amounts to £534,000.

4. Dividends per Ordinary Share

An interim dividend of 2.00p per Ordinary share (2011: nil) will be paid on 19 October 2012 to shareholders on the register on 5 October 2012.

5. Return per Ordinary Share

The return per Ordinary share is based on the net return attributable to the ordinary shares of £4,229,000 (half year ended 31 July 2011: net return £1,866,000; year ended 31 January 2012: net loss £6,428,000) and on 66,162,098 ordinary shares (half year ended 31 July 2011: 66,244,868; year ended 31 January 2012: 66,244,320) being the weighted average number of ordinary shares in issue during the period.

	(Unaudited) Half year ended 31 July 2012	(Unaudited) Half year ended 31 July 2011	(Audited) Year ended 31 January 2012
Revenue return (£'000)	2,065	1,646	3,015
Capital return/(loss) (£'000)	2,164	220	(9,443)
Total return/(loss) (£'000)	4,229	1,866	(6,428)
Weighted average number of Ordinary shares in issue during the period	66,162,098	66,244,868	66,244,320
Revenue return per Ordinary share - pence	3.12	2.48	4.55
Capital return/(loss) per Ordinary share - pence	3.27	0.33	(14.25)
Total return/(loss) per Ordinary share - pence	6.39	2.81	(9.70)

6. Provision for liabilities and charges

This represents the estimated performance fees payable for the 3 year performance fee periods ending 31 May 2014 and 31 May 2015. This accrual is based on actual performance to 31 July 2012 and the assumption that Aberdeen performs in line with the benchmark from 31 July 2012 to the end of each fee period. Changes in the level of accrual for future performance periods could arise for one of three principal reasons: a change in the degree of relative performance, the elapse of time (since this would increase the proportion of the rolling three-year performance period to which the performance calculation would be applied) or the termination of Aberdeen's contract.

7. Share Capital

During the half year ended 31 July 2012, the Company repurchased 186,868 ordinary shares for cancellation (half year ended 31 July 2011: nil; year ended 31 January 2012: 10,000 shares) at a total cost of £369,000 (half year ended 31 July 2011: nil; year ended 31 January 2012: £19,000).

8. Net Asset Value per Ordinary Share

Net asset value per Ordinary share is based on 66,048,000 Ordinary shares of 25p each in issue as 31 July 2012 (31 July 2011: 66,244,868 and 31 January 2012: 66,234,868).

9. Reconciliation of net revenue return before finance costs and taxation to net cash inflow from operating activities

	(Unaudited) Half year ended 31 July 2012	(Unaudited) Half year ended 31 July 2011	(Audited) Year ended 31 January 2012
Total return/(loss) before finance charges and taxation	4,497	2,121	(5,962)
(Less)/add: capital (return)/loss before finance charges and taxation	(2,164)	(220)	9,443
Net revenue return before finance costs and taxation	2,333	1,901	3,481
(Increase)/decrease in accrued income and other debtors	(33)	40	27
Increase in creditors	643	1,281	618
Expenses charged to capital	(534)	(1,260)	(1,167)
Management fee rebate	-	(63)	(51)
Scrip dividends	(7)	(216)	(493)
Overseas withholding tax suffered	(181)	(162)	(275)
Net cash inflow from operating activities	2,221	1,521	2,140

 10. Results

The results for the half year ended 31 July 2012 and 31 July 2011, which are unaudited and were not reviewed by the Auditors, constitute non-statutory accounts within the meaning of Section 435 of the Companies Act 2006. The latest published accounts which have been delivered to the Registrar of Companies are for the year ended 31 January 2012, the report of the Auditor thereon was unqualified and did not contain a statement under Section 498(2) or (3) of the Companies Act 2006. The comparative figures for the year ended 31 January 2012 have been extracted from those accounts.

Regulatory Disclosures

Related Party Transactions

No related party transactions took place in the period under review.

Principal Risk and Uncertainties

The principal risks faced by the Company for the remaining six months of the financial year include financial risks relating to markets, liquidity and credit. Market risk includes market price risk, currency risk and interest rate risk. Other risk categories include those relating to investment strategy, investment management resources, regulatory requirements, operational structure and the external economic and financial environment. These risks and the way in which they are managed, are described in more detail in the Annual Report for the year ended 31 January 2012 in the Business Review and in the Notes to the Financial Statements. The Report is available on the Company's website at www.witanpacific.com.

Responsibility Statement of Directors

in respect of the Half Year Report for the six months ended 31 July 2012

The Directors confirm to the best of their knowledge that:

(a) the condensed set of financial statements in this Half Year Report, which has been prepared in accordance with United Kingdom Generally Accepted Accounting Practice, gives a true and fair view of the assets, liabilities, financial position and profit or loss of the Company;

(b) the Interim Management Report which comprises the Chairman's Statement and the Regulatory Disclosures above includes a fair review, as required by Disclosure and Transparency Rule 4.2.7 R, of important events that have occurred during the first six months of the financial year, and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

(c) no related parties transactions took place in the first six months of the current financial year and no related parties transactions were described in the last Annual Report of the Company and accordingly there are no disclosures required to be made pursuant to Disclosure and Transparency Rule 4.2.8 R.

This Half Year Report was approved by the Board on 26 September 2012 and the above responsibility statement was signed on its behalf by:

Gillian Nott

Chairman

26 September 2012

 

END

 

 

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