Annual Financial Report

RNS Number : 5585Z

Pacific Horizon Investment Tst PLC

23 September 2009

 

PACIFIC HORIZON INVESTMENT TRUST PLC

ANNUAL FINANCIAL REPORT AND PROPOSED NEW

ARTICLES OF ASSOCIATION

Copies of the Annual Report and Financial Statements for the year ended 31 July 2009 and the proposed new Articles of Association of Pacific Horizon have been submitted to the UK Listing Authority and will shortly be available for inspection at the UK Listing Authority's Document Viewing Facility, which is situated at:

Financial Services Authority
25 The North Colonnade
Canary Wharf
London
E14 5HS

Tel: [phone]

The Annual Report and Financial Statements for the year ended 31 July 2009 including the Notice of Annual General Meeting is also available on Pacific Horizon's page of the Baillie Gifford website at:

www.pacifichorizon.co.uk

At the Annual General Meeting to be held on 2 November 2009, it is proposed that new Articles of Association be adopted in order to update the Company's existing Articles of Association to take account of changes in UK company law brought about by the further implementation of the Companies Act 2006 on 1 October 2009. More detail on the proposed changes to the Articles of Association is set out in the Directors' Report, the Notice of Annual General Meeting and the Appendix to the Notice of Annual General Meeting within the Annual Report and Financial Statements for the year ended 31 July 2009. Copies of the new Articles of Association are available for inspection at Royal London House, 22-25 Finsbury Square, London EC2A 1DX and Calton Square, 1 Greenside Row, Edinburgh EH1 3AN.

The unedited full text of those parts of the Annual Report and Financial Statements for the year ended 31 July 2009 which require to be published by DTR 4.1 is set out on the following pages. 

Baillie Gifford & Co

Company Secretaries

23 September 2009

PACIFIC HORIZON INVESTMENT TRUST PLC

CHAIRMAN'S STATEMENT

Performance

In the year to 31 July 2009 net asset value per share rose by 0.6%, compared with a rise of 8.3% in the MSCI All Country Far East ex Japan Index in sterling terms. 

Performance over the Company's year was disappointing, although the result hides a great deal of volatility during the period. Early in the year the Company's positions in businesses exposed to shipping, shipbuilding and offshore oil & gas exploration were particularly damaging. This exposure and some stock specific issues were the main reasons for the unsatisfactory result announced at the half year stage and more than offset the favourable impact of the purchase of some convertible bonds during the period, where valuations appeared attractive. On a positive note, performance in the second half of the Company's year has been more encouraging, with net asset value rising 48.8% against a rise of 37.7% in the comparative index. The main contributors to this strong result have been those companies that fell the most in the previous period, as well as some notable individual stock performances. The Managers' report below contains a more detailed explanation, together with a summary of the performance of the principal markets in which the Company is invested and the Managers' comments on them.

As mentioned above, the Company invested in some convertible bonds during the year. These were purchased at what were believed to be distressed prices caused by forced sellers, where the underlying businesses were known to be sound and capable of repaying the bonds when required. Subsequent strong performance of these bonds during the year has reduced their attractions and profits have been taken. At the year end the Company did not hold any convertible bonds. 

The Company was ungeared during the year and at the year end net current assets were equal to 1.9% of shareholders' funds. 

Earnings per share rose by 27.7% to 2.44p from 1.91p for last year. The Board is recommending that a dividend of 1.80p should be paid. 

Share Buy-Backs and Issuance

During the year we did not buy back any shares but market conditions may change and it may be the case that it will at some point in the future be to the advantage of shareholders for the Company to repurchase and cancel shares. We will therefore be asking shareholders to renew the mandate to repurchase up to 14.99% of the outstanding shares at the forthcoming Annual General Meeting. 

Your Board, as in previous years, is seeking shareholder approval to renew the 10% non-pre-emptive issuance authority which is sought annually. Issuance would only be undertaken at a premium to net asset value. This authority, if utilised, enhances net asset value per share for existing shareholders and improves liquidity in the Company's shares. 

  PACIFIC HORIZON INVESTMENT TRUST PLC

CHAIRMAN'S STATEMENT (continued)

Changes to the Board

One new Director has joined the Board during the year. As foretold in last year's Annual Report, in February we were joined by Gerald Smith, the Deputy Chief Investment Officer at Baillie Gifford & Co and the Company's former portfolio manager. His experience and expertise will strengthen the breadth and depth of your Board and I invite shareholders to ratify his appointment at the AGM. He will be subject to annual re-election.

Annual General Meeting

At the Annual General Meeting to be held on 2 November 2009, we are asking shareholders to approve a number of amendments to the Company's Memorandum and Articles of Association. Details of the changes are given in the Appendix to the Notice of Meeting on page 49 within the Annual Report and Financial Statements for the year ended 31 July 2009. 

Outlook

Unlike much of the developed world, the Asia Pacific region is largely in a position of strength and not weakness. Leverage, in aggregate, remains low and government actions appear to have been very sensible to date. Monetary and fiscal policies have been altered rapidly to accommodate the changing environment, and growth looks to be firmly on the agenda. Liquidity is ample and consumer confidence - the missing element noted at the interim results stage - appears to be recovering. Clearly there are still risks to the outlook in the short term. External demand remains weak, and recovery here is likely to take time. Corporate profitability has been hit and some companies are struggling in the current environment. However, even with these factors in mind, it does appear that the region is over the worst.

The longer term prospects for the Asia Pacific region remain encouraging. Structural factors underpinning future growth remain in place: urbanisation, industrialisation, further infrastructure build, the demographic profile and the likelihood of steadily increasing consumer demand, are individually and severally the likely drivers in the region. At the same time consumer, corporate and government balance sheets are in good shape, with savings levels remaining high. The number and quality of companies we can invest in is increasing all the time, and we see no shortage of investment prospects. With valuations remaining at attractive levels, we remain optimistic about the long term outlook.

Peter Mackay

14 September 2009

PACIFIC HORIZON INVESTMENT TRUST PLC

MANAGERS' OVERVIEW

In the year to 31 July 2009 the most striking feature has been the tremendous volatility in markets. Over the year, markets have posted reasonable returns, with the best performer in sterling terms being the Philippines followed by India. The poorest performing markets in sterling terms have been Korea, the only market to post a fall, followed by Singapore. However, this analysis hides significant falls towards the end of 2008 and subsequent strong performance. Taking the Hong Kong market as an example, the market fell 38.6% in the first 3 months of the Company's year only to recover 75.4% of this fall over the next nine months - a truly remarkable turnaround. Sterling weakness boosted returns in almost all markets, the exception being Korea. A geographical review can be found under the 'Managers' Portfolio Review' below. 

In terms of the distribution of assets by geography and industrial sector there were some notable changes. In particular, the weighting in stocks in Hong Kong and China has risen from 30.4% to 43.6%, which has been funded in the main through a decrease in stocks in Singapore and South Korea. By industrial sector there has been a significant fall in the weighting in industrial stocks, driven partly by poor performance but also some reductions over the year. The majority of this money has been reinvested in the Information Technology sector, but sizeable increases to the Consumer Services, Telecommunications and Financials sectors are also apparent. As ever, these changes are driven by the merits of individual stocks and not an overarching top down view.

At the start of the financial year, the Company held large positions in stocks likely to benefit from continued strong economic growth. Our assessment of the outlook transpired to be overly optimistic and a number of stocks tied to this view performed poorly. Investments in areas such as shipping, shipbuilding and offshore oil & gas exploration were particularly harmful, as were, for stock specific reasons, some other holdings such as Bakrie and Brothers, an Indonesian conglomerate. Given our strong belief that the companies we owned were well positioned to deliver strong performances over the medium to long term, we made limited changes to the portfolio during the worst of the falls. One tactical change we did make was to purchase a number of convertible bonds where valuations had been pushed to what we judged to be distressed levels following apparent forced selling. In addition to these convertible bonds we also maintained a higher than usual cash balance over this period, reflecting our cautious attitude.

After the severe market correction, the most prominent feature of markets was the tremendous volatility. Also noteworthy was that some of the strongest performances in the second half of the Company's year were posted by those stocks that fell the most in the first half. Outstanding performances from individual stocks were also very helpful, including the Company's largest holding CNPC Hong Kong which increased 206.9% in sterling terms over the period. We took advantage of the increased levels of volatility by making select investments in those companies with strong growth prospects and sustainable competitive advantages whilst trading at low valuations. These investments were funded mainly out of cash, but we also, after strong performance, decided to take profits progressively from the positions held in convertible bonds to fund the purchases. At the year end the Company held no convertible bonds and the cash balance was 1.9%.

PACIFIC HORIZON INVESTMENT TRUST PLC

MANAGERS' PORTFOLIO REVIEW

Hong Kong and China

At the start of the Company's year, investor confidence in the market, as with almost all markets in the region, was suffering, with the mainland Chinese stockmarket falling 38% to its low point for the year at the start of November. However, a combination of a proactive government, ample liquidity and low valuations resulted in the mainland Chinese stockmarket being one of the best performing markets globally from the start of 2009 to the end of July, up 87.4% in local currency terms. In record time the Chinese government turned from trying to restrict growth to being aggressively expansionary, with easy monetary policy and strong fiscal support. The four trillion Renminbi stimulus package amounting to 13% of GDP was a ringing endorsement of government will. Following close behind was aggressive bank lending, providing sizeable liquidity. As a result of these measures, economic growth appears to have already troughed - growth in the second quarter of 2009 was 7.9% against the rate of growth in the first quarter of 6.1%. Currently it is the export sector that continues to struggle, with domestic demand appearing robust and investment spending firmly underpinned. 

In Hong Kong, the stockmarket resembles ever more a Chinese listing centre, rather than a true reflection of Hong Kong itself, with almost 60% of the market capitalisation accounted for by mainland enterprises. This is perhaps unsurprising given Hong Kong's position as arguably the premier financial hub for China. If anything this position has been further strengthened over the year with initial attempts to internationalise the Renminbi taking a notable step forward. The domestic market in Hong Kong is, however, looking interesting in its own right - ample liquidity and very low interest rates are a potent combination should consumer confidence continue to rebound.

We have made a number of transactions during the Company's year in Hong Kong & China. Before the drastic sell off in markets we had decided to reduce our position in property stocks given a less favourable outlook. We also made select reductions at this time to some of those companies likely to fare worse in a world where capital was less freely available. New positions taken included a basket of Chinese Internet names - well capitalised businesses with the prospects of many years of strong growth - and some of the telecommunications businesses in China, such as China Unicom, China Mobile and ZTE. Over the course of the year purchases of several convertible bonds were made, which, after strong performance, were then sold to fund new positions. These new purchases were across a variety of names, including technology company, Ju Teng and consumer stocks such as Gome and Bosideng. We have also started to buy some of the Hong Kong property names again following the large falls and a much better outlook driven by the ample liquidity and low interest rates noted above.

  PACIFIC HORIZON INVESTMENT TRUST PLC

MANAGERS' PORTFOLIO REVIEW (continued)

Taiwan 

Possibly the most significant news in the region over the course of the Company's year was in Taiwan. In late April China Mobile announced a proposed investment in FarEasTone, a Taiwanese mobile phone operator, and UMC announced its plans to increase its investment in He Jian, a Chinese subsidiary. These landmark deals coincided with Taiwan allowing direct investment in money market instruments by Chinese residents and China agreeing to Taiwan's representation at some UN bodies - something unthinkable only a few years ago. Subsequent to these changes, the number of 'cross-strait' deals announced has been encouraging. The change of government we noted at this time last year appears to be delivering on its mandate, albeit more slowly than expected. As a result of these changes, we decided to purchase a new holding in MediaTek, the integrated circuit design house specialising in mobile phone chipsets for the Chinese market. Other new purchases over the year have included the purchase of Asustek, the company behind the first netbook, and Prime View, the company behind the screen technology of the highly successful Kindle book reader from Amazon.

Korea

In sterling terms, Korea was the worst performing market. A combination of export reliance and a banking industry struggling against a backdrop of deteriorating asset quality were key issues. The currency was also under pressure over the course of the year, with a 'dollar shortage' causing ripples in financial markets. We decided to reduce a number of our Korean holdings at this time given our negative outlook for the Won. A notable new buy in the portfolio has been Samsung Electronics, the technology company with leading positions in memory, LCD panels and mobile phones, and it is currently the second largest holding in the portfolio. More recent activity has included the purchase of Hyundai Development, a leading house builder.

Singapore

In local currency terms the Singaporean market posted one of the worst returns in the region, however Singaporean dollar strength helped sterling returns. With the economy heavily reliant on exports and financial markets, it is perhaps unsurprising that Singapore has been one of the hardest hit, with GDP growth falling at an annualised rate of 20% in the first quarter of 2009. However, with negative real rates and improving financial markets there are reasons for optimism. On stock news, an offer for Singapore Petroleum was made by PetroChina during the year which has been accepted. 

Indonesia

Indonesia was a very strong performer from the start of 2009 to the end of the Company's year, as investors realised that Indonesia, along with China and India, will be one of few economies to post growth this year. As inflationary concerns have abated, falling interest rates have fed through to higher expectations for consumption and several stocks exposed to that theme have performed strongly. Political worries have also subsided with the incumbent President being re- elected with a larger share of the vote. Over the course of the year we made additions to PT

PACIFIC HORIZON INVESTMENT TRUST PLC

MANAGERS' PORTFOLIO REVIEW (continued)

Indonesia (continued)

Telekomuniksi, the leading telecoms company, and have taken new holdings in Perusahaan Gas, a growth utility, and Bank Mandiri and Bank Rakyat, two of the leading commercial banks.

Malaysia

Despite the economy's heavy reliance on exports, the Malaysian market was one of the better performers, with strong outperformance when regional markets were falling. Subsequent performance has, however, been less impressive. Changes to the portfolio have been limited with reductions to Digi and Sime Darby to fund better opportunities elsewhere.

Thailand

Towards the start of the Company's year Thailand once again descended into political shambles with the airport seized by activists and three of the coalition parties eventually found guilty of election fraud. Further rumblings continued throughout the year and politics will remain a key area of risk in the future. Valuations continue to appear cheap, although many investors have shied away given the political issues. The main change to the portfolio has been the purchase of two of the banks - Siam Commercial Bank, a leader in retail lending, and Bank of Ayudhya, on expectations of operational improvements.

India

The election result was the big news in India over the year. Whilst the Congress-led United Progressive Alliance won as expected, the scale of victory took the market by surprise. Expectations now are for easier enactment of reforms, and likely sales of stakes in government owned companies - a process that has already begun. These positives are, perhaps, still offset by the difficult fiscal position the country struggles with and higher valuations of companies. However, we are finding opportunities to make select investments - HDFC, the mortgage provider, and Mahindra & Mahindra, the industrial conglomerate, are two such examples.

Philippines

The Philippines was the strongest performer over the year in sterling terms. This is despite continued concerns surrounding overseas remittances (a substantial source of capital inflow) and the fiscal position. During the year one of our holdings, e-Telecare, was bought by another of our holdings, Ayala Corp.

Vietnam

The Vietnamese market was one of the stronger performers over the financial year, with sterling weakness contributing significantly. The emerging bubble from excess credit growth seems to have dissipated satisfactorily and economic growth is expected to remain resilient despite the situation in the rest of the world. The long term prospects for the country remain attractive and valuations, once high, now look more appropriate. We made a small addition to one of the closed ended funds we hold, allowing us access to the market at a healthy discount.

  PACIFIC HORIZON INVESTMENT TRUST PLC  

THIRTY LARGEST EQUITY HOLDINGS at 31 July 2009

Name	Country	Business	Value £'000	% of total assets‡
CNPC Hong Kong	HK/China	Oil and gas exploration and production	6,746	6.4
Samsung Electronics	Korea	Semiconductor manufacturer	4,900	4.6
Taiwan Semiconductor Manufacturing	Taiwan	Semiconductor manufacturer	3,591	3.4
Singapore Exchange	Singapore	Stock exchange	3,068	2.9
ASM Pacific Technology	HK/China	Semiconductor equipment manufacturer	3,018	2.8
ZTE	HK/China	Telecommunications equipment provider	2,833	2.7
PT Telekomunikasi	Indonesia	Diversified telecommunications provider	2,763	2.6
Parkson Holdings	Malaysia	Department store owner and operator	2,619	2.5
China Unicom	HK/China	Diversified telecommunications provider	2,499	2.4
Hon Hai Precision Industries	Taiwan	Electronic manufacturing services company	2,338	2.2
Li & Fung	HK/China	Supply chain management	2,178	2.1
Hang Seng Bank	HK/China	Banking services	2,090	2.0
CNOOC	HK/China	Oil and gas exploration and production	2,039	1.9
China Resources Enterprise	HK/China	Consumer conglomerate	1,839	1.7
Dongfang Electric	HK/China	Power equipment manufacturer	1,795	1.7
China National Building Material	HK/China	Building materials manufacturer	1,765	1.7
CapitaMall Trust	Singapore	Real estate investment trust	1,655	1.6
Pacific Basin Shipping	HK/China	Shipping company	1,619	1.5
Hidili Industry International    Development	HK/China	Coal producer	1,567	1.5
Samsung Fire & Marine	Korea	Non-life insurance provider	1,480	1.4
Hong Kong Exchanges and Clearing	HK/China	Stock exchange	1,411	1.3
China Mobile	HK/China	Wireless telecommunications provider	1,401	1.3
Yuanta Financial	Taiwan	Financial holding company	1,393	1.3
Ayala Corp	Philippines	Investment holding company	1,355	1.3
China Shenhua Energy	HK/China	Coal producer	1,334	1.3
Kuala Lumpur Kepong	Malaysia	Palm oil producer and refiner	1,307	1.2
MobileOne	Singapore	Wireless telecommunications provider	1,290	1.2
Prime View International	Taiwan	Electronic components	1,262	1.2
Wumart Stores	HK/China	Supermarket	1,238	1.2
Mermaid Maritime	Thailand	Oil services	1,204	1.1
			65,597	62.0

HK/China denotes Hong Kong and China

All stocks are listed overseas.

‡ Total assets less current liabilities and deferred tax.

PACIFIC HORIZON INVESTMENT TRUST PLC

DISTRIBUTION OF ASSETS

		At 31 July  2009 %		At 31 July 2008 %
Equities:	Hong Kong and China	43.6		30.4
	Taiwan	11.4		9.0
	Korea	11.3		16.1
	Singapore	10.2		14.3
	Indonesia	5.6		4.7
	Malaysia	5.5		7.9
	Thailand	5.0		5.7
	India	3.2		3.6
	Philippines	1.3		1.7
	Vietnam	1.0		1.4
Total equities		98.1		94.8
Net liquid assets		1.9		5.2
Total assets at fair value‡		100.0		100.0

‡ Total assets less current liabilities and deferred tax.

  PACIFIC HORIZON INVESTMENT TRUST PLC

RELATED PARTY TRANSACTIONS

The Directors' fees for the year are detailed in the Directors' Remuneration Report. No Director has a contract of service with the Company. During the year no Director was interested in any contract or other matter requiring disclosure under section 412 of the Companies Act 2006 other than Mr GTE Smith, who was appointed as a Director of the Company on 1 February 2009, is a partner of Baillie Gifford & Co. Baillie Gifford & Co are employed by the Company as Managers and Secretaries under a management agreement which is terminable on not less than twelve months' notice, or on shorter notice in certain circumstances. The fee in respect of each quarter is 0.25% of the total assets less current liabilities. The details of the management fee are as follows:

	2009 £'000		2008 £'000
Investment management fee	814		1,249

PRINCIPAL RISKS AND UNCERTAINTIES

As an Investment Trust, the Company invests in equities and makes other investments so as to achieve its investment objective of maximising capital appreciation, from a focused and actively managed portfolio of investments from the Asia-Pacific region including the Indian Sub-continent. In pursuing its investment objective, the Company is exposed to various types of risk that are associated with the financial instruments and markets in which it invests.

These risks are categorised here as market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. The Board monitors closely the Company's exposures to these risks but does so in order to reduce the likelihood of a permanent loss of capital rather than to minimise short term volatility. Risk provides the potential for both losses and gains. In assessing risk, the Board encourages the Managers to exploit the opportunities that risk affords.

The risk management policies and procedures outlined in this note have not changed substantially from the previous accounting period.

Market Risk

The fair value or future cash flows of a financial instrument or other investment held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - currency risk, interest rate risk and other price risk. The Board of Directors reviews and agrees policies for managing these risks and the Company's Investment Managers both assess the exposure to market risk when making individual investment decisions and monitor the overall level of market risk across the investment portfolio.

The Company may, from time to time, enter into derivative transactions to hedge specific market, currency or interest rate risk. During the year to 31 July 2009 no such transactions were entered into.

The Company's Managers may not enter into derivative transactions without the prior approval of the Board.

PACIFIC HORIZON INVESTMENT TRUST PLC

PRINCIPAL RISKS AND UNCERTAINTIES (continued)

Currency Risk

The majority of the Company's assets, liabilities and income are denominated in currencies other than sterling (the Company's functional currency and that in which it reports its results). Consequently, movements in exchange rates may affect the sterling value of those items.

The Investment Managers monitor the Company's exposure to foreign currencies and report to the Board on a regular basis. The Investment Managers assess the risk to the Company of the foreign currency exposure by considering the effect on the Company's net asset value and income of a movement in the rates of exchange to which the Company's assets, liabilities, income and expenses are exposed. However, the country in which a company is listed is not necessarily where it earns its profits. The movement in exchange rates on overseas earnings may have a more significant impact upon a company's valuation than a simple translation of the currency in which the company is quoted.

Foreign currency borrowings can limit the Company's exposure to anticipated future changes in exchange rates which might otherwise adversely affect the value of the portfolio of investments.

Exposure to currency risk through asset allocation, which is calculated by reference to the currency in which the asset or liability is quoted, is shown below.

At 31 July 2009	Investments £'000		Cash and deposits £'000	Other debtors and creditors* £'000		Net exposure £'000
Hong Kong dollar	43,009		1,053	-		44,062
Taiwan dollar	12,020		-	232		12,252
Korean won	12,006		-	6		12,012
Singapore dollar	11,831		926	83		12,840
Indonesian rupiah	5,927		-	7		5,934
Malaysian dollar	5,781		-	8		5,789
Other overseas currencies	13,257		11	1		13,269
Total exposure to currency risk	103,831		1,990	337		106,158
Sterling	-		129	(436)		(307)
	103,831		2,119	(99)		105,851

• Includes net non-monetary assets of £10,000.

  At 31 July 2008	Investments £'000		Cash and deposits £'000	Other debtors and creditors* £'000		Net exposure £'000
  Hong Kong dollar	31,956		-	-		31,956
  Taiwan dollar	9,442		684	318		10,444
  Korean won	16,979		-	-		16,979
  Singapore dollar	16,521		-	33		16,554
  Indonesian rupiah	4,890		-	-		4,890
  Malaysian dollar	8,291		-	11		8,302
  Other overseas currencies	11,617		-	7		11,624
  Total exposure to currency risk	99,696		684	369		100,749
  Sterling	-		5,025	(606)		4,419
  	99,696		5,709	(237)		105,168

* Includes net non-monetary assets of £11,000.

PACIFIC HORIZON INVESTMENT TRUST PLC

PRINCIPAL RISKS AND UNCERTAINTIES (continued)

Currency Risk Sensitivity 

At 31 July 2009, if sterling had strengthened by 5% in relation to all currencies, with all other variables held constant, total net assets and total return on ordinary activities would have decreased by the amounts shown below. A 5% weakening of sterling against all currencies, with all other variables held constant, would have had an equal but opposite effect on the financial statement amounts. The analysis is performed on the same basis for 2008.

	2009 £'000		2008 £'000
Hong Kong dollar	2,203		1,598
Taiwan dollar	613		522
Korean won	601		849
Singapore dollar	642		827
Indonesian rupiah	297		245
Malaysian dollar	289		415
Other overseas currencies	663		581
	5,308		5,037

Interest Rate Risk

Interest rate movements may affect directly:

• the fair value of any investments in fixed interest rate securities;

• the level of income receivable on cash deposits;

• the fair value of any fixed-rate borrowings; and

• the interest payable on any variable rate borrowings.

Interest rate movements may also impact upon the market value of investments outwith fixed income securities. The effect of interest rate movements upon the earnings of a company may have a significant impact upon the valuation of that company's equity.

The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment decisions and when entering borrowing agreements.

The Board reviews on a regular basis the amount of investments in cash and fixed income securities and the income receivable on cash deposits, floating rate notes and other similar investments.

The Company may finance part of its activities through borrowings at approved levels. The amount of any such borrowings and the approved levels are monitored and reviewed regularly by the Board. Movements in interest rates, to the extent that they affect the market value of the Company's fixed rate borrowings, may also affect the amount by which the Company's share price is at a discount or a premium to the net asset value, on the assumption that the share price is unaffected by movements in interest rates.

The cash deposits generally comprise call or short term money market deposits of less than one month which are repayable on demand. The benchmark rate which determines the interest payments received on cash balances is the bank base rate.

PACIFIC HORIZON INVESTMENT TRUST PLC

PRINCIPAL RISKS AND UNCERTAINTIES (continued)

Interest Rate Risk Sensitivity

The sensitivity analyses below have been determined based on the exposure to interest rates at the balance sheet date and with the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have floating rates. If interest rates had been 100 basis points higher or lower and all other variables were held constant, the Company's profit for the year ended 31 July 2009 would increase/decrease by £21,000 (2008 - increase/decrease by £57,000). This is mainly due to the Company's exposure to interest rates on its floating rate cash balances.

Other Price Risk

Changes in market prices other than those arising from interest rate risk or currency risk may also affect the value of the Company's net assets. The Board manages the market price risks inherent in the investment portfolio by ensuring full and timely access to relevant information from the Investment Managers. The Board meets regularly and at each meeting reviews investment performance, the investment portfolio and the rationale for the current investment positioning to ensure consistency with the Company's objectives and investment policies. The portfolio does not seek to reproduce the index. Investments are selected based upon the merit of individual companies and therefore performance may well diverge from the comparative index.

Other Price Risk Sensitivity

Fixed asset investments are valued at bid prices which equate to their fair value. A full list of the Company's investments is given on pages 14 and 15 of the Annual Report. In addition, a geographical analysis of the portfolio, an analysis of the investment portfolio by broad industrial or commercial sector and a list of the 30 largest equity investments by their aggregate market value are contained in the Managers' Portfolio Review Section in the Annual Report.

98.1% of the Company's net assets are invested in equities. A 5% increase in quoted equity valuations at 31 July 2009 would have increased total assets and total return on ordinary activities by £5,192,000 (2008 - £4,985,000). A decrease of 5% would have had an equal but opposite effect.

Liquidity Risk

This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.

Liquidity risk is not significant as the majority of the Company's assets are investments in quoted securities that are readily realisable. The Board provides guidance to the Investment Managers as to the maximum exposure to any one holding and to the maximum aggregate exposure to substantial holdings. The Company has the power to take out borrowings, which give it access to additional funding when required.

PACIFIC HORIZON INVESTMENT TRUST PLC

PRINCIPAL RISKS AND UNCERTAINTIES (continued)

Credit Risk

This is the risk that a failure of counterparty to a transaction to discharge its obligations under that transaction could result in the Company suffering a loss.

This risk is managed as follows:

• Where the Investment Managers make an investment in a bond or other security with credit risk, that credit risk is assessed and then compared to the prospective investment return of the security in question.

• The Company's listed investments are held on its behalf by The Bank of New York Mellon acting as agent, the Company's custodian. Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to securities held by the custodian to be delayed. The Investment Managers monitor the Company's risk by reviewing the custodian's internal control reports and reporting its findings to the Board.

• Investment transactions are carried out with a large number of brokers whose creditworthiness is reviewed by the Investment Managers. Transactions are ordinarily undertaken on a delivery versus payment basis whereby the Company's custodian bank ensures that the counterparty to any transaction entered into by the Company has delivered on its obligations before any transfer of cash or securities away from the Company is completed.

• The creditworthiness of the counterparty to transactions involving derivatives, structured notes and other arrangements, wherein the creditworthiness of the entity acting as broker or counterparty to the transaction is likely to be of sustained interest, are subject to rigorous assessment by the Investment Manager.

• Cash is only held at banks that have been identified by the Managers as reputable and of high credit quality.

Credit Risk Exposure

The exposure to credit risk at 31 July was:

	2009 £'000	2008 £'000
Cash and short term deposits	2,119	5,709
Debtors and prepayments	350	382
	2,469	6,091

The maximum exposure in cash during the year was £7,630,000 (2008 - £8,170,000) and the minimum £728,000 (2008 - £664,000).

None of the Company's financial assets are past due or impaired.

Fair Value of Financial Assets and Financial Liabilities

The Directors are of the opinion that the financial assets and liabilities of the Company are stated at fair value in the balance sheet.

PACIFIC HORIZON INVESTMENT TRUST PLC

PRINCIPAL RISKS AND UNCERTAINTIES (continued)

Capital Management

The Company does not have any externally imposed capital requirements. The capital of the Company is the ordinary share capital as detailed in note 13 in the Annual Report. It is managed in accordance with its investment policy in pursuit of its investment objective, both of which are detailed on page 19 of the Annual Report. Shares may be issued and/or repurchased as explained on pages 25 and 26 of the Annual Report. 

Other Risks

Other risks faced by the Company include the following:

Regulatory Risk - failure to comply with applicable legal and regulatory requirements could lead to suspension of the Company's Stock Exchange Listing, financial penalties or a qualified audit report. Breach of section 842 of the Income and Corporation Taxes Act 1988 could lead to the Company being subject to tax on capital gains. The Managers monitor investment movements and the level of forecast income and expenditure to ensure the provisions of section 842 are not breached. Baillie Gifford's Heads of Business Risk & Internal Audit and Regulatory Risk provide regular reports to the Audit Committee on Baillie Gifford's monitoring programmes.

Operational/Financial Risk - failure of the Managers' accounting systems or those of other third party service providers could lead to an inability to provide accurate reporting and monitoring or a misappropriation of assets. The Board reviews the Managers' Report on Internal Controls and the reports by other key third party providers are reviewed by the Managers on behalf of the Board.

Discount Volatility - the discount at which the Company's shares trade can widen. The Board monitors the level of discount and the Company has authority to buyback its own shares.

PACIFIC HORIZON INVESTMENT TRUST PLC

STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND THE FINANCIAL STATEMENTS

The Directors are responsible for preparing the Annual Report and Accounts 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 the 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 profit or loss 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; and

• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements respectively. 

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 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. 

Under applicable law and regulations the Directors are also responsible for preparing a Directors' Report (including a Business Review), Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations. 

The Directors have delegated responsibility to the Managers for the maintenance and integrity of the Company's page of the Managers' website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the Directors, whose names and functions are listed within the Directors and Managers section 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 profit of the Company; and

• the Directors' 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 uncertainties that it faces.

By order of the Board

PETER MACKAY

14 September 2009

PACIFIC HORIZON INVESTMENT TRUST PLC

INCOME STATEMENT

	For the year ended 31 July 2009				For the year ended 31 July 2008
	Revenue £'000	Capital £'000	Total £'000		Revenue £'000	Capital £'000	Total £'000
Losses on investments	-	(1,017)	(1,017)		-	(26,078)	(26,078)
Currency gains/(losses)	-	803	803		-	(51)	(51)
Income from investments and interest receivable	3,579	-	3,579		3,602	-	3,602
Investment management fee	(814)	-	(814)		(1,249)	-	(1,249)
Recovered VAT (note 2)	-	-	-		9	-	9
Other administrative expenses	(249)	-	(249)		(263)	-	(263)
Net return on ordinary activities before taxation	2,516	(214)	2,302		2,099	(26,129)	(24,030)
Tax on ordinary activities	(601)	-	(601)		(608)	-	(608)
Net return on ordinary activities after taxation	1,915	(214)	1,701		1,491	(26,129)	(24,638)
Net return per ordinary share (note 3)	2.44p	(0.27p)	2.17p		1.91p	(33.49p)	(31.58p)

The total column of the Income Statement is the profit and loss account of the Company.

All revenue and capital items in this statement derive from continuing operations. No operations were acquired or discontinued during the year.

A Statement of Total Recognised Gains and Losses is not required as all gains and losses of the Company have been reflected in the above statement.

  PACIFIC HORIZON INVESTMENT TRUST PLC

BALANCE SHEET

	At 31 July 2009		At 31 July 2008
	£'000	£'000	£'000	£'000
FIXED ASSETS Investments held at fair value through profit or loss		103,831		99,696
CURRENT ASSETS
Debtors	350		382
Cash and short term deposits	2,119		5,709
	2,469		6,091
CREDITORS Amounts falling due within one year	(449)		(541)
NET CURRENT ASSETS		2,020		5,550
TOTAL ASSETS LESS CURRENT LIABILITIES		105,851		105,246
PROVISIONS FOR LIABILITIES AND CHARGES
Deferred taxation		-		(78)
		105,851		105,168
CAPITAL AND RESERVES
Called-up share capital		7,829		7,829
Share premium		3,166		3,166
Special distributable reserve		13,233		13,233
Capital redemption reserve		17,964		17,964
Capital reserve		58,923		59,137
Revenue reserve		4,736		3,839
SHAREHOLDERS' FUNDS		105,851		105,168

NET ASSET VALUE PER ORDINARY SHARE		135.21p		134.34p
ORDINARY SHARES IN ISSUE  (note 6)		78,287,002		78,287,002

PACIFIC HORIZON INVESTMENT TRUST PLC

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

For the year ended 31 July 2009 

	Note	Called-up share capital £'000	Share premium  £'000	Special distributable reserve £'000	Capital redemption reserve £'000	Capital reserve  £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 August 2008		7,829	3,166	13,233	17,964	59,137	3,839	105,168
Net return on ordinary activities after taxation		-	-	-	-	(214)	1,915	1,701
Dividends paid during the year	4	-	-	-	-	-	(1,018)	(1,018)
Shareholders' funds at 31 July 2009		7,829	3,166	13,233	17,964	58,923	4,736	105,851

For the year ended 31 July 2008 

	Note	Called-up share capital £'000	Share premium  £'000	Special distributable reserve £'000	Capital redemption reserve £'000	Capital reserve £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 August 2007		7,794	2,615	13,233	17,964	85,266	3,205	130,077
Net return on ordinary activities after taxation		-	-	-	-	(26,129)	1,491		(24,638)
Shares issued in the year	6	35	551	-	-	-	-		586
Dividends paid during the year	4	-	-	-	-	-	(857)		(857)
Shareholders' funds at 31 July 2008		7,829	3,166	13,233	17,964	59,137	3,839		105,168

PACIFIC HORIZON INVESTMENT TRUST PLC

CASH FLOW STATEMENT
		For the year ended 31 July 2009			For the year ended 31 July 2008
	Note	£'000	£'000		£'000		£'000
NET CASH INFLOW FROM OPERATING ACTIVITIES				2,886			1,740
TAXATION
Corporation tax paid		(632)				(549)
TOTAL TAX PAID				(632)			(549)
FINANCIAL INVESTMENT
Acquisitions of investments		(39,589)				(67,549)
Disposals of investments		34,763				70,620
NET CASH (OUTFLOW)/INFLOW FROM FINANCIAL INVESTMENT				(4,826)			3,071
EQUITY DIVIDEND PAID	4			(1,018)			(857)
NET CASH (OUTFLOW)/ INFLOW BEFORE FINANCING				(3,590)			3,405
FINANCING
Shares issued	6	-				586
NET CASH INFLOW FROM FINANCING				-			586
(DECREASE)/INCREASE IN CASH				(3,590)			3,991
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
(Decrease)/increase in cash in the year				(3,590)			3,991
MOVEMENT IN NET FUNDS IN THE YEAR				(3,590)			3,991
NET FUNDS AT 1 AUGUST				5,709			1,718
NET FUNDS AT 31 JULY				2,119			5,709
RECONCILIATION OF NET RETURN BEFORE FINANCE COSTS AND TAXATION TO NET CASH INFLOW FROM OPERATING ACTIVITIES
Net return on ordinary activities before finance costs and taxation				2,302			(24,030)
Losses on investments - securities				1,017			26,078
Currency (gains)/losses				(803)			51
Amortisation of fixed interest book cost				(326)			-
Decrease/(increase) in accrued income				39			(151)
Increase in debtors				-			46
Decrease in creditors				(6)			(77)
Realised currency gain/(loss)				803			(51)
Overseas tax suffered				(140)			(126)
NET CASH INFLOW FROM OPERATING ACTIVITIES				2,886			1,740

PACIFIC HORIZON INVESTMENT TRUST PLC

NOTES
1.	The financial statements for the year to 31 July 2009 have been prepared on the basis of the accounting policies set out in the Company's Annual Financial Statements at 31 July 2009, which are unchanged from the prior year and have been applied consistently.
2.	Recovered VAT In 2007 the European Court of Justice ruled that investment trust management fees should be exempt from VAT. Since then HMRC has accepted the Managers' repayment claims for the periods from 1990 to 1996 and from 2000 to 2007. £9,000 of VAT together with £6,000 of interest was received by the Managers on behalf of the Company in respect of these periods. These amounts have been paid to the Company and were recognised in the year to 31 July 2008.
			2009 £'000					2008 £'000
3.	Net return per ordinary share
	Revenue return		1,915					1,491
	Capital return		(214)					(26,129)
	Total return		1,701					(24,638)
	Weighted average number of ordinary shares in issue		78,287,002					78,025,936
	Net return per ordinary share figures are based on the above totals for revenue and capital and the weighted average number of ordinary shares in issue each period. There are no dilutive or potentially dilutive shares in issue.
			2009	2008			2009		2008
							£'000		£'000
4.	Ordinary Dividends
	Amounts recognised as distributions in the period:
	Previous year's final (paid 31 October 2008)		1.30p	1.10p			1,018		857
	We also set out below the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of section 842 of the Income and Corporation Taxes Act 1988 are considered. The revenue available for distribution by way of dividend for the year is £1,915,000 (2008 - £1,491,000).
			2009	2008			2009		2008
							£'000		£'000
	Dividends paid and proposed in respect of the financial year:
	Proposed final dividend per ordinary share (payable 4 November 2009)		1.80p	1.30p			1,409		1,018
	If approved, the proposed final dividend of 1.80p per ordinary share for the year ended 31 July 2009 will be paid on 4 November 2009 to shareholders on the register at the close of business on 9 October 2009. The ex-dividend date is 7 October 2009.
5.	The Company had no borrowings at 31 July 2009 or 31 July 2008.

PACIFIC HORIZON INVESTMENT TRUST PLC

NOTES (Continued)
6.	The Company has authority to allot shares under section 80 of the Companies Act 1985. The Board has authorised the use of this authority to issue new shares at a premium of not less than 5% in order to enhance the net asset value per share for existing shareholders and improve the liquidity of the Company's shares. In the year to 31 July 2009 no shares were issued. In the year to 31 July 2008 a total of 350,000 ordinary shares of 10p each fully paid were issued for cash amounting to £586,000 of which £35,000 has been applied in increasing the share capital and £551,000 in increasing the share premium account. The Company has authority to buy back its ordinary shares. The authority was last renewed at the Annual General Meeting on 29 October 2008 in respect of 11,735,221 shares (equivalent to 14.99% of its issued share capital at that date). In the year to 31 July 2009 no ordinary shares were bought back. As a result at 31 July 2009 the Company's authority to buy back shares remains unchanged at 11,735,221 ordinary shares.
7.	The Company incurred transaction costs on purchases of £84,000 (2008 - £129,000) and on sales of £79,000 (2008 - £173,000).
8.	The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 July 2009. The financial information for 2008 is derived from the Financial Statements for 2008. Those accounts have been delivered to the Registrar of Companies. The Auditors have reported on the 2008 and 2009 accounts, their reports for both years were unqualified and, for the 2008 Accounts, did not contain a statement under section 237(2) or (3) of the Companies Act 1985 and, for the 2009 Accounts, did not contain a statement under sections 495 to 497 of the Companies Act 2006. The statutory accounts for 2009 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.
9.	None of the views expressed in this document should be construed as advice to buy or sell a particular investment.
10.	The Annual Report and Financial Statements including the Notice of Annual General Meeting will be available on the Managers' website www.pacifichorizon.co.uk on or around 23 September 2009.

 

END

 

 

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