Half Yearly Report

RNS Number : 9267O

Witan Pacific Investment Trust PLC

26 September 2013

 



Witan Pacific Investment Trust PLC                 

 

Half Yearly Financial Report

For the Half Year Ended 31 July 2013

Half Yearly Report of the unaudited results for the six months ended 31 July 2013.

FINANCIAL SUMMARY

Key Data

	31 July 2013	31 January 2013	% Change
Net Asset Value per share	273.03p	262.89p	+ 3.9%
Share Price	245.75p	229.25p	+ 7.2%
Discount	10.0%	12.8%
Gearing#	3.3%	4.2%

Cumulative Performance (Total Return) 

	6 months	1 year	3 years	5 years
Net Asset Value per share†	4.7%	16.5%	31.3%	67.1%
Share Price†	8.1%	23.1%	44.4%	74.7%
Benchmark*	5.5%	18.4%	24.9%	49.7%

Income

	31 July 2013	31 July 2012	% change
Revenue per share	2.69p	3.12p	-13.8%
Interim dividend per share	2.05p	2.00p	+2.5%

Ongoing charges

	31 July 2013	31 July 2012
Excluding performance fees	0.53%	0.49%
Including performance fees	0.50%§	0.83%

Total return since inception of multi-manager structure

	Cumulative return since the inception of the multi-manager structure 31/05/2005	Annualised return since the inception of the multi-manager structure 31/05/2005
Net Asset Value per share†	126.1%	10.5%
Share price†	130.7%	10.8%
Benchmark*	99.8%	8.8%

#	Calculated as the difference between the market value of investments and net assets as a percentage of net assets (equivalent to AIC definition of net gearing).
†	Source: AIC Services Ltd. Returns include dividends reinvested.
*	Source: Datastream. Gross dividends reinvested.
§	There was a reduction in the accrual for performance fees during the period (see Chairman's script below)

Chairman's Statement

Market Background

Although equity markets have generally delivered positive returns in 2013, there was a contrast between the US, Japanese and UK economies, where growth was generally better than expected and emerging economies, where uncertainty over the outlook for China led to markets underperforming.

Most Asian economies and markets performed poorly with the Asia ex Japan index registering a fall of 2%, whereas the Japanese stock market was notably strong, with a total return of +18% in sterling terms. This performance divergence in favour of Japan reverses the pattern seen in recent years and results from the new Japanese government's economic policies which have engendered hopes that its economy will break out of a 20 year era of stagnation. After many years of disappointment, investors' views differ over whether these hopes will be fulfilled but the shift has had a positive effect on sentiment towards the Tokyo market.

Performance

After several years of significant outperformance the Trust underperformed slightly during the first half of 2013. Whilst the period saw a positive return for shareholders, with an NAV total return of 4.7%, this was 0.8% behind the benchmark's total return of 5.5%. This was largely due to the underweight position the Trust had in Japan, during a period of exceptional performance in that market. Our managers are able to take a positive view on any market if they believe it offers superior prospects but have so far been wary of chasing the euphoria in Japan after so many false starts. The share price total return was 8.1%, on the back of the growth in net asset value and a 3% narrowing of the discount during the period. Taking a longer perspective, over the past 5 years the shares have enjoyed a net asset value total return of 67.1%, well ahead of the 49.7% return for the benchmark.

Recent years have seen significant variations between the relative performance of Japan, other Asian markets and the commodity-dependent Australian market. Witan Pacific's investment approach, encompassing the whole region enables investors to gain exposure to all three categories, without having to make their own timing decisions in response to these fluctuations.

The strength of the multi-manager model in balancing out performance fluctuations between managers was underlined during the period. Aberdeen, which has outperformed for many years, has lagged the benchmark this year, not only because of its underweight position in Japan but also due to stock selection in that market. GaveKal which manages a relatively small proportion of our portfolio also had disappointing performance due to asset allocation, and to underperformance within their equity portfolio. These negative effects were substantially offset by a strong outperformance by Matthews, the other manager, whose portfolio, whilst also underweight in Japan, demonstrated good stock selection in Japan and elsewhere in the region.

During the six months to 31 July 2013, the Company's discount narrowed further, from 13% to 10%, an improvement in absolute terms as well as relative to the Company's investment trust peers.

Highlights

NAV total return of 4.7%, compared with the benchmark's 5.5%.

Share price total return 8.1%, as the discount narrowed.

5 year NAV total return of 67.1%, compared with the benchmark's 49.7%.

Interim dividend increased by 2.5% to 2.05p.

Gearing 

During the period, gearing ranged between 3% and 5%, ending the period at 3.3%, compared with 4.2% at the end of January. The Company keeps the case for employing gearing under careful review, balancing the potential to enhance returns from long-term rising market trends with the greater variability in returns which can arise, as well as the adverse effects if borrowings remain invested during periods of falling markets.

Dividend Income

Revenue earnings in the current financial year are 14% lower than at the same stage last year. This follows lower than expected dividend growth in the region (reflecting slow economic growth at the end of 2012) and the weakness of some major currencies against sterling, notably the Yen and the Australian dollar. This reduces the value of the local currency dividends when translated into sterling.

The Company believes that the dividends it receives from its portfolio companies will continue to grow in coming periods, while currency factors will not always be negative. If necessary, revenue reserves can be used to support growth in dividends to shareholders when portfolio income is insufficient as the availability of accumulated revenue reserves in excess of £9m (more than three times the annual dividend payment) gives the Company flexibility in determining its dividend payments for a particular year. If there is a need to draw on reserves, this would follow seven years during when the Company increased the revenue reserve by a cumulative £3m, while paying a growing dividend each year.

Accordingly, the Company is declaring an interim dividend of 2.05p (a rise of 2.5%) which will be paid on 18th October 2013 to shareholders on the register on 4th October 2013 (2012: 2.0p).

The Company has a policy of aiming to increase the dividend in real terms, subject to market conditions. The final dividend to be announced with the Annual Results will represent the difference between the dividend decided for the full year and the 2.05p to be paid this October.

Regulatory change

The Alternative Investment Fund Managers Directive (AIFMD), which is a new European regulation covering the investment management sector, came into effect in the UK from 22 July 2013, with Companies being required to comply by 22 July 2014. The Company is carefully reviewing the options available to it and will report further at the year end. 

Expenses

General expenses were broadly unchanged.

The on-going charges figure for the period was 0.53% (2012: 0.49%) excluding performance fees and slightly lower at 0.50% including performance fees (2012: 0.83%), owing to a reduction in performance fee accruals. These figures apply for the first half and are not annualised. The base management fees for the first half of 2013 were higher (£0.43m) than in the same period of 2012 (£0.31m). This reflects the fact that the fees paid to the two new managers appointed in April 2012 are higher than the basic fee previously payable to Nomura (but without an additional performance-related element), as well as the higher level of net assets this year. The overall management fees (including charges for performance fees) fell from £0.84m to £0.38m, owing to the reduction in performance fee accruals referred to earlier.

The Board will continue to manage costs closely, seeking to minimise the on-going charges as far as possible and ensure that shareholders derive value for money from the costs incurred by the Company.

Outlook

Increased confidence in economic growth, particularly in the US, has brought into focus the question of when the exceptional monetary policies of recent years, which have taken interest rates close to zero, will end. The market volatility in May and June reflected concerns that if monetary support is ended too quickly this could undermine recovery, although the Federal Reserve's decision to leave its policy unchanged in September suggested that it is alive to these risks.

Improvements in the economic news in the UK and the US, together with signs that the low point of the recession in Europe has passed, have fuelled more positive sentiment in Western equity markets. In the East, Japan has, for the first time for many years, grown more rapidly than other developed economies, assisted by a more competitive level for the Yen and measures to stimulate the domestic economy.

This brighter picture for developed economies has not been mirrored in emerging markets or the rapidly developing exporting economies of Asia. A slowdown in China persisted for longer than anticipated although growth appeared to be improving during the summer. The earlier slowdown deflated demand for raw materials, spreading the impact of China's adjustment to other economies, such as the commodity-dependent Australian economy. The weak Yen has had negative effects on other manufacturing economies which compete with Japan, such as Korea and Taiwan. As a result, many regional stock markets have been weak performers while these evolving policies play themselves out. A key benefit of the Company's regional investment approach is that our Managers are responsible for anticipating and reacting to these fluctuations, rather than investors having to follow each change of fortune themselves.

On the positive side, Asian economies have historically tended to be highly sensitive to global economic growth. If this is improving, it is likely to flow through to better conditions for Asia. After years of rapid growth in Asian economies, fuelled by Western demand for their manufactured goods and by China's boom, the immediate future is dependent upon good economic management to address the imbalances which past policies have generated. The reforms hoped for in Japan and a rebalancing of China's economy are potentially significant positive influences in the longer term, if implemented effectively by their governments. Despite the evident tactical uncertainties, a successful effort to improve the efficiency of these two major economies would underpin the long-term investment case for the region.

Gillian Nott

Chairman

25 September 2013

INCOME STATEMENT

for the half year ended 31 July 2013

		(Unaudited) Half year ended 31 July 2013			(Unaudited) Half year ended 31 July 2012			(Audited) Year ended 31 January 2013
		Revenue  return	Capital  return	Total	Revenue  return	Capital  return	Total	Revenue  return	Capital  return	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments held at fair value through profit or loss		-	6,502	6,502	-	3,070	3,070	-	20,048	20,048
Exchange losses		-	(93)	(93)	-	(343)	(343)	-	(759)	(759)
Income	2	2,924	-	2,924	3,079	-	3,079	5,108	-	5,108
Management fees	3	(432)	-	(432)	(306)	-	(306)	(660)	-	(660)
Performance fees	3	-	55	55	-	(534)	(534)	-	(491)	(491)
Other expenses		(439)	(22)	(461)	(440)	(29)	(469)	(820)	(43)	(863)
Net return before finance charges and taxation		2,053	6,442	8,495	2,333	2,164	4,497	3,628	18,755	22,383
Finance charges		(97)	-	(97)	(87)	-	(87)	(180)	-	(180)
Net return on ordinary activities before taxation		1,956	6,442	8,398	2,246	2,164	4,410	3,448	18,755	22,203
Taxation on ordinary activities		(179)	-	(179)	(181)	-	(181)	(286)	-	(286)
Net return on ordinary activities after taxation		1,777	6,442	8,219	2,065	2,164	4,229	3,162	18,755	21,917
Return per Ordinary Share - pence	5	2.69	9.75	12.44	3.12	3.27	6.39	4.78	28.38	33.16

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 2013

	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 2013 (unaudited)
At 31 January 2013	16,512		5	41,059	104,686	11,372	173,634
Net return on ordinary activities after taxation	-		-	-	6,442	1,777	8,219
Dividends paid in respect of year ended 31 January 2013	-		-	-	-	(1,519)	(1,519)
At 31 July 2013	16,512		5	41,059	111,128	11,630	180,334
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
Year ended 31 January 2013 (audited)
At 31 January 2012	16,559		5	41,012	86,300	12,176	156,052
Net return on ordinary activities after taxation	-		-	-	18,755	3,162	21,917
Dividends paid in respect of year ended 31 January 2012	-		-	-	-	(2,645)	(2,645)
Dividends paid in respect of year ended 31 January 2013	-		-	-	-	(1,321)	(1,321)
Purchase of own shares	(47)		-	47	(369)	-	(369)
At 31 January 2013	16,512		5	41,059	104,686	11,372	173,634

Balance Sheet

at 31 July 2013

	Notes	(Unaudited) 31 July   2013  £'000	(Unaudited) 31 July  2012  £'000	(Audited) 31 January  2013   £'000
Fixed assets
Investments held at fair value through profit or loss		186,251	164,021	180,945
Current assets
Debtors		970	385	736
Cash at bank and short-term deposits		2,939	2,654	2,339
		3,909	3,039	3,075
Creditors: amounts falling due within one year
Loans		(8,500)	(7,000)	(8,500)
Other		(1,326)	(2,611)	(1,674)
		(9,826)	(9,611)	(10,174)
Net current liabilities		(5,917)	(6,572)	(7,099)
Total assets less current liabilities		180,334	157,449	173,846
Provision for liabilities and charges	6	-	(182)	(212)
Net assets		180,334	157,267	173,634
Capital and reserves
Called up share capital	7	16,512	16,512	16,512
Share premium account		5	5	5
Capital redemption reserve		41,059	41,059	41,059
Capital reserves		111,128	88,095	104,686
Revenue reserve		11,630	11,596	11,372
Equity shareholders' funds		180,334	157,267	173,634
Net asset value per Ordinary share - pence	8	273.03	238.11	262.89

Cash Flow Statement

for the half year ended 31 July 2013

	Notes	(Unaudited) Half year  ended  31 July  2013  £'000	(Unaudited) Half year  ended  31 July  2012  £'000	(Audited) Year  ended  31 January  2013   £'000
Net cash inflow from operating activities	9	1,713	2,221	2,655
Servicing of finance
Bank and loan interest paid		(98)	(88)	(182)
Net cash outflow from servicing of finance		(98)	(88)	(182)
Capital expenditure and financial investment
Purchases of investments		(18,138)	(84,761)	(100,710)
Sales of investments		18,752	86,396	101,628
Gains on futures contracts		-	129	129
Losses on forward exchange contracts		-	(368)	(368)
Capital expenses paid		(17)	(35)	(49)
Net cash inflow from financial investment		597	1,361	630
Equity dividends paid		(1,519)	(2,645)	(3,966)
Net cash inflow/(outflow) before financing		693	849	(863)
Financing
Repurchase of own shares		-	(314)	(369)
Drawdown of bank loan		-	-	1,500
Net cash (outflow)/inflow from financing		-	(314)	1,131
Increase in cash		693	535	268
Reconciliation of net cash flow to movements in net debt
Increase in cash as above		693	535	268
Exchange movements		(93)	(343)	(391)
Net cash inflow from drawdown of loan		-	-	(1,500)
Movement in net debt in the period		600	192	(1,623)
Net debt at start of period		(6,161)	(4,538)	(4,538)
Net debt at end of period		(5,561)	(4,346)	(6,161)

Notes to the Financial Statements

for the half year ended 31 July 2013

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 2013 have been applied.

2. Income

	(Unaudited) Half year  ended  31 July 2013 £'000	(Unaudited) Half year  ended  31 July  2012  £'000	(Audited)  Year  ended  31 January  2013  £'000
Overseas dividends	2,556	2,838	4,653
UK dividends	336	232	446
Overseas scrip dividends	32	7	7
Other income:
Bank interest	-	2	2
	2,924	3,079	5,108

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 Asia Limited to replace Nomura. Each Investment 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 Free 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 2013, 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 2014, being the date the performance period ends. In addition, provisions have been made for the performance periods ending 31 May 2015 and 31 May 2016, on the assumption that Aberdeen performs in line with the benchmark to each period end. The total effect is a reduction in provision at 31 July 2013 of £55,000.

4. Dividends per Ordinary share

An interim dividend of 2.05p per Ordinary share (2012: 2.0p) will be paid on 18 October 2013 to shareholders on the register on 4 October 2013.

5. Return per Ordinary share

The return per Ordinary share is based on the net return attributable to the Ordinary shares of £8,219,000 (half year ended 31 July 2012: net return £4,229,000; year ended 31 January 2013: net return £21,917,000) and on 66,048,000 Ordinary shares (half year ended 31 July 2012: 66,162,098; year ended 31 January 2013: 66,101,540) being the weighted average number of Ordinary shares in issue during the period.

	(Unaudited) Half year  ended  31 July 2013	(Unaudited) Half year  ended  31 July  2012	(Audited) Year  ended  31 January  2013
Revenue return (£'000)	1,777	2,065	3,162
Capital return (£'000)	6,442	2,164	18,755
Total return (£'000)	8,219	4,229	21,917
Weighted average number of Ordinary shares in issue during the period	66,048,000	66,162,098	66,101,540
Revenue return per Ordinary share - pence	2.69	3.12	4.78
Capital return per Ordinary share - pence	9.75	3.27	28.38
Total return per Ordinary share - pence	12.44	6.39	33.16

6. Provision for liabilities and charges

This represents the estimated performance fees payable for the 3 year performance fee periods ending 31 May 2015 and 31 May 2016. This accrual is based on actual performance to 31 July 2013 and the assumption that Aberdeen performs in line with the benchmark from 31 July 2013 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 3 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 2013; no shares were issued or repurchased, (half year ended 31 July 2012 and year ended 31 January 2013: the Company repurchased 186,868 Ordinary shares for cancellation, at a total cost of £369,000). As at 31 July 2013 there were 66,048,000 Ordinary shares of 25p in issue.

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 at 31 July 2013 (31 July 2012: 66,048,000 and 31 January 2013: 66,048,000).

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

	(Unaudited) Half year  ended  31 July 2013 £'000	(Unaudited) Half year  ended  31 July  2012  £'000	(Audited) Year  ended  31 January  2013  £'000
Total return before finance charges and taxation	8,495	4,497	22,383
Less: capital return before finance charges and taxation	(6,442)	(2,164)	(18,755)
Net revenue return before finance costs and taxation	2,053	2,333	3,628
Increase in accrued income and other debtors	(113)	(33)	(93)
(Decrease)/increase in creditors	(71)	643	(96)
Expenses charged to capital	55	(534)	(491)
Scrip dividends	(32)	(7)	(7)
Overseas withholding tax suffered	(179)	(181)	(286)
Net cash inflow from operating activities	1,713	2,221	2,655

10. Results

The results for the half year ended 31 July 2013 and 31 July 2012, 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 2013, 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 2013 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 Directors have considered the principal risks and uncertainties affecting the Company's position. 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 2013 in the business review and in the notes to the financial statements. The risks faced by the Company have not changed significantly over the first 6 months of 2013 and are not expected to change materially in the remaining 6 months. The report is available on the Company's website at www.witanpacific.com.

Going concern

The financial statements continue to be prepared on a going concern basis.

Responsibility Statement of THE Directors

in respect of the Half Year Report for the six months ended 31 July 2013

The Directors confirm, to the best of their knowledge, that this condensed set of financial statements has been prepared in accordance with United Kingdom Generally Accepted Accounting Practice and that the Half Year Management Report gives a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and includes a fair review of the information required by Rules 4.2.7 R and 4.2.8 R of the Disclosure and Transparency Rules of the United Kingdom Financial Conduct Authority.

The names and functions of the Directors of Witan Pacific Investment Trust PLC are as listed in the Company's Annual Report for 2013.

This Half Year Report was approved by the Board on 25 September 2013 and the above responsibility statement was signed on its behalf by: 

Gillian Nott

Chairman

25 September 2013

 

END

 

 

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