Preliminary Group Results
Polar Capital Technology Trust PLC
14 June 2007
POLAR CAPITAL TECHNOLOGY TRUST PLC
Unaudited Preliminary Group Results for the year ended 30 April 2007
14 June 2007
Key Points
• Technology shares underperform with the Dow Jones World Technology Index
falling 2% in sterling terms against a rise of 7.1% in the FTSE World Index
• Net Assets fall by 6.3% to £335.5m with currency a major negative
• Despite improving fundamentals, technology shares suffer from neglect
given strong earnings growth elsewhere
• Huge M&A activity outside the sector both distracts investors and
limits capital expenditure growth on which the technology sector thrives
• Positive outlook based on improving supply side and some evidence of an
upturn in demand
• Performance fee arrangements moved more in line with current market
practice
Financial Highlights
(Unaudited) Audited Movement
Year ended Year ended %
30 April 2007 30 April 2006
Net assets per ordinary share 239.66p 255.88p -6.3%
Price per ordinary share 228.00p 245.00p -6.9%
Total net assets £335,498,000 £358,202,000 -6.3%
Shares in issue 139,990,821 139,990,821 0%
For further information on Polar Capital Technology Trust please contact:
Ben Rogoff +44 (0)20 7227 2700
OR
Financial Dynamics
Ed Gascoigne-Pees +44 (0)20 7269 7132
Felicity Murdoch +44 (0)20 7269 7243
Chairman's Report
Review of the year
After the outstanding returns of the previous year, the twelve months to 30
April 2007 proved somewhat disappointing. Sterling's strength against both the
dollar and the yen had a damaging effect on returns and, notwithstanding a
notable improvement in fundamentals, technology shares underperformed the
general market which was more interested in identifying the next takeover target
for private equity groups.
Over the year, the FTSE World Index rose by 7.1% in sterling terms while the Dow
Jones World Technology Index fell by 2.0%. Your Company's net assets fell by
6.3% to £335.5m as a stronger second half of the year only partially
counterbalanced a weaker first half. An increase in volatility in 2006-7 was
marked by two sharp corrections and a distinct increase in the nervousness of
investors. The 'wall of worry' that bull markets are supposed to climb has
certainly not been short of hazards. Over the last year, investor concerns have
focused on the potential recessionary consequences of a collapse in the US
housing market, renewed inflationary pressures from rising unit labour costs,
the potential reduction in global liquidity resulting from an end to the
Japanese Yen 'carry trade' and distinct signs of a bubble in the Chinese stock
market. These concerns have triggered sharp reactions in the equity market but
they have generally proved only short-term interruptions to the underlying bull
trend. Instead, investors have focused on continuing robust global economic
growth driven by the remarkable expansion of the lesser developed economies and
by signs of European growth beginning to accelerate after many years of
underperformance. Liquidity has been abundant especially in the private equity
industry which has been driving a wave of corporate activity. As the year
progressed, both the pace and the size of deals have expanded and the consequent
retirement of equity from the stock market has been a significant contributor to
rising share prices.
For technology investors, however, the year has been frustrating. Although the
sector's fundamentals have shown the expected improvement, relative earnings
momentum has failed to attract generalist investors who have been distracted by
better than expected earnings growth elsewhere. Moreover, although there are
encouraging signs that the technology industry is at last re-evaluating its
highly inefficient and cash rich asset base, the resulting corporate activity is
still on a far more modest scale than in many other industries. Generalist
investors have therefore taken the view that, while the technology sector may
have indeed reached a fundamental inflection point, this has been overshadowed
by the dramatic developments elsewhere in the market.
Our own portfolio had a disappointing year following the strong relative
performance achieved in the last four months of the previous year. The major
contributors to this disappointment were the weakness of the US dollar, our
material weighting in Asia (the worst performing region for technology shares)
and modest exposure to Continental European smaller companies which turned out
to be surprisingly strong performers. This positioning particularly impacted
our performance in the first half of the year and, although we enjoyed a better
second half, we were unable to make up the relative performance deficit.
Corporate matters
Over the last year the Board has renegotiated our management agreement. After
consulting our Corporate Advisor, Cenkos Securities, and carrying out an
extensive review we decided to abandon the old performance fee arrangements in
favour of something more in line with current market practice. Our objective in
establishing a new fee basis has been to provide a real incentive to the new
management team to outperform the benchmark while limiting the potential cost
for shareholders. Consequently, the old high water mark set at the equivalent
of 395.8p near the peak of the technology cycle in 2000 will no longer apply and
a new high water mark will be established as at 30 April 2006, the date when the
new management team took over. This new high water mark is 255.9p per share.
Although this change will increase the likelihood of a performance fee becoming
payable, we have taken steps to limit the potential amount payable in any one
year. This has been achieved by introducing a cap for the first time which will
limit the amount of the performance fee payable to 2% of net assets in any one
year. Furthermore, we have removed both the absolute element of the old
performance fee and also the potential to carry forward any fees from one year
to the next. As part of the changeover to the new fee arrangements, the
managers have agreed to the cancellation of all performance fee entitlements
under the old arrangements as a result of the Company's relative outperformance
since 2000. These new fee arrangements will take effect from 1 May 2007.
Outlook
Looking ahead, we are cautiously optimistic about the outlook for markets. Our
optimism is based on continuing strong corporate earnings growth, exceptional
cash flows, valuations that are reasonable relative to bond yields and the
relentless shrinkage in equity supply resulting from the boom in private equity
activity. While the risk of contagion from the weakness in US house-building
remains a concern, we are encouraged by developments in Europe and by the pace
of growth in Asia. Although the interest rate cycle is clearly not over in
either of those areas, US rates may have reached a plateau.
The industry's supply side is in good shape and demand is improving at a time
when the roll out of new technologies is broadening the industry's reach.
Earnings growth is robust and should, later this year, be reinforced by a
recovery in the semiconductor industry. Private equity activity is increasing
and the industry has considerable potential to shrink its equity base.
Consequently, an investment approach that combines modestly valued, high free
cash flow generators with generally smaller, faster growing companies seems
appropriate. We remain fully invested with a modest amount of leverage. Having
reached what we believe to be an inflection point for the industry's
fundamentals, the portfolio has been positioned some distance away from both
indices and benchmarks, a stance that we believe will generate positive returns
over the medium term.
Richard Wakeling
13 June 2007
Consolidated Income Statement for the year ended 30 April 2007
(Unaudited) (Audited)
Year ended 30 April 2007 Year ended 30 April 2006
Revenue Capital Total Revenue Capital Total
Return Return Return Return Return Return
£'000 £'000 £'000 £'000 £'000 £'000
Investment income 2,495 - 2,495 2,629 - 2,629
Other operating income 694 - 694 692 - 692
(Losses)/gains on investments
held at fair value - (21,940) (21,940) - 89,751 89,751
Other gains - 1,294 1,294 - 213 213
Total income 3,189 (20,646) (17,457) 3,321 89,964 93,285
Expenses
Investment management fee (3,793) - (3,793) (3,465) - (3,465)
Other administrative expenses (747) - (747) (671) - (671)
(Loss)/profit before (1,351) (20,646) (21,997) (815) 89,964 89,149
finance costs and tax
Finance costs (485) - (485) (454) - (454)
(Loss)/profit before tax (1,836) (20,646) (22,482) (1,269) 89,964 88,695
(222) - (222) (193) - (193)
Tax
Net (loss)/profit for the year (2,058) (20,646) (22,704) (1,462) 89,964 88,502
Earnings per ordinary share (pence)
Basic (16.22) 69.58
Diluted (16.22) 67.17
The total column of this statement represents the Group's Income Statement,
prepared in accordance with IFRS. The revenue return and capital return columns
are supplementary to this and are prepared under guidance published by the
Association of Investment Companies. All items in the above statement derive
from continuing operations.
All income is attributable to the equity holders of Polar Capital Technology
Trust Plc. There are no minority interests.
Consolidated and Company Statements of Changes in Equity for the year ended 30 April 2007
(unaudited)
Ordinary Capital Share Warrant Warrant Retained Total
share redemption premium reserve exercise earnings
capital reserve reserve
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Group and Company 28,830 9,145 90,134 6,179 1,483 100,668 236,439
Total equity at 30 April 2005
Profit for the year to 30 April 2006 - - - - - 88,502 88,502
4,799 - 14,397 (6,053) 6,053 - 19,196
Exercise of warrants for
ordinary shares
Repurchase of warrants - - - (126) - (150) (276)
Shares bought back for
cancellation (69) 69 - - - (468) (468)
Issue of ordinary share capital 1,438 - 13,371 - - - 14,809
Total equity at 30 April 2006 34,998 9,214 117,902 - 7,536 188,552 358,202
Loss for the year to 30 April
2007 - - - - - (22,704) (22,704)
Total equity at 30 April 2007 34,998 9,214 117,902 - 7,536 165,848 335,498
Consolidated and Company Balance Sheets at 30 April 2007
(Unaudited) (Audited)
Group Company Group Company
30 April 2007 30 April 2007 30 April 2006 30 April 2006
£'000 £'000 £'000 £'000
Non current assets
Investments held at fair value 352,205 352,463 362,701 363,113
Current assets
Other receivables 5,829 9,056 4,350 7,500
Cash and cash equivalents 22,059 18,574 42,050 38,488
27,888 27,630 46,400 45,988
Total assets 380,093 380,093 409,101 409,101
Current liabilities
Other payables (6,895) (6,895) (7,493) (7,493)
Bank loans (37,700) (37,700) (19,318) (19,318)
(44,595) (44,595) (26,811) (26,811)
Total assets less current
liabilities 335,498 335,498 382,290 382,290
Non current liabilities
Bank loans - - (24,088) (24,088)
Net assets 335,498 335,498 358,202 358,202
Equity attributable to equity
shareholders
Ordinary share capital 34,998 34,998 34,998 34,998
Capital redemption reserve 9,214 9,214 9,214 9,214
Share premium 117,902 117,902 117,902 117,902
Warrant exercise reserve 7,536 7,536 7,536 7,536
Retained earnings 165,848 165,848 188,552 188,552
Total equity 335,498 335,498 358,202 358,202
Consolidated and Company Cash Flow Statements for the year ended 30 April 2007
(Unaudited) (Audited)
30 April 2007 30 April 2006
Group Company Group Company
£'000 £'000 £'000 £'000
Cash flows from operating activities
(Loss)/profit before finance costs and tax (21,997) (21,997) 89,149 89,149
Adjustments for:
Decrease/(increase) in investments 9,202 9,352 (143,941) (142,567)
(Increase)/decrease in receivables (1,489) (1,566) 25,072 24,978
(Decrease) in payables (6,314) (6,314) (17,742) (17,742)
1,399 1,472 (136,611) (135,331)
Net cash used by operating
activities before tax (20,598) (20,525) (47,462) (46,182)
Taxation paid (212) (212) (207) (207)
Net cash used by operating activities (20,810) (20,737) (47,669) (46,389)
Cash flows from financing activities
Exercise of warrants - - 19,196 19,196
Repurchase of warrants - - (405) (405)
Cost of shares repurchased - - (1,574) (1,574)
Issue of share capital - - 14,809 14,809
Loans matured (40,652) (40,652) (25,102) (25,102)
Loans taken out 40,652 40,652 24,399 24,399
Finance costs (475) (475) (452) (452)
Net cash (used by)/from financing
activities (475) (475) (30,871) (30,871)
Net decrease in cash and cash equivalents (21,285) (21,212) (16,798) (15,518)
Cash and cash equivalents at the
beginning of the year 42,050 38,488 58,222 53,379
Effect of foreign exchange rate changes 1,294 1,298 626 627
Cash and cash equivalents at the
end of the year 22,059 18,574 42,050 38,488
NOTES
General Information
The consolidated financial statements have been prepared in accordance
with International Financial Reporting Standards (IFRS), which comprise
standards and interpretations approved by the International Accounting Standards
Board (IASB) and the International Financial Reporting Interpretations Committee
(IFRIC), as adopted by the European Union.
The Group's functional currency and the currency used for presentation of these
financial statements is pounds sterling because that is the currency which is
most relevant to the majority of the Company's shareholders and creditors and
the currency in which the majority of the Group's operating expenses are paid.
Status of preliminary announcement
The financial information set out in this preliminary announcement does not
constitute the Company's statutory accounts for the years ended 30 April 2007 or
2006. The statutory accounts for the year ended 30 April 2007 have not been
delivered to the Registrar of Companies, nor have the auditors yet reported on
them. The statutory accounts for the year ended 30 April 2007 will be finalised
on the basis of the information presented by the directors in this preliminary
announcement and will be delivered to the Registrar of Companies.
The statutory accounts for the year ended 30 April 2006 have been delivered to
the Registrar of Companies and included the report of the auditors which was
unqualified and did not contain a statement under either section 237(2) or
section 237(3) of the Companies Act 1985.
Basis of consolidation
The Group accounts consolidate the accounts of the Company and its wholly owned
subsidiary undertaking, PCT Finance Limited.
Copies of Report and Accounts
The full annual report and accounts will be posted to shareholders in late June
2007 and copies will be available thereafter from the Company Secretary at the
Company's Registered Office, 4 Matthew Parker Street, London SW1H 9NP (020 7227
2700) or from the company's website at www.polarcapitaltechnologytrust.co.uk
Annual General Meeting
The Annual General Meeting will be held at 12:30 pm on Tuesday, 31 July 2007 at
the Chartered Accountants Hall, One Mooregate Place, London, EC2R 6EA.
Portfolio Review - Investments over 0.75% of net assets at 30 April 2007
North America
£'000 Stock Activity % of net assets
5,790 Network Appliance Storage hardware 1.7%
5,374 Apple Computers Computing 1.6%
5,233 Google Internet 1.6%
5,096 Adobe Systems Software 1.5%
5,083 Cisco Systems Data Networking 1.5%
4,969 KLA Tencor Semiconductor capital equipment 1.5%
4,878 DST Systems IT services 1.5%
4,777 ATMI Semiconductor capital equipment 1.4%
4,757 Qualcomm Wireless IP 1.4%
4,675 Applied Materials Semiconductor capital equipment 1.4%
4,636 Lam Research Semiconductor capital equipment 1.4%
4,349 National Semiconductor Semiconductors 1.3%
4,160 Analog Devices Semiconductors 1.2%
4,061 Sonus Networks Telecom equipment 1.2%
3,959 Itron Instruments 1.2%
3,906 Broadcom Semiconductors 1.2%
3,814 Nuance Communications Software 1.1%
3,614 Altera Semiconductors 1.1%
3,563 Salesforce.com Software 1.1%
3,448 Hewlett-Packard Hardware 1.0%
3,325 Avid Technologies Software 1.0%
3,289 Harris Telecom equipment 1.0%
3,271 IBM IT services 1.0%
3,260 Comtech Telecommunications Telecom equipment 1.0%
3,182 Millipore Life sciences 0.9%
3,173 Thermo Electron Instruments 0.9%
3,158 McAfee Software 0.9%
3,151 Daktronics Electronic Components 0.9%
3,127 Corning Telecom equipment 0.9%
3,108 Genentech Biotechnology 0.9%
3,071 Citrix Systems Software 0.9%
2,949 NCR Hardware 0.9%
2,872 Standard Microsystems Semiconductors 0.9%
2,871 F5 Networks Software 0.9%
2,841 Electronic Arts Software 0.8%
2,826 Amgen Biotechnology 0.8%
2,756 Genzyme Transgenics Biotechnology 0.8%
2,710 Medtronic Medical Instruments 0.8%
2,641 Lockheed Martin Aerospace/Defence 0.8%
2,618 OYO Geospace Seismic services 0.8%
2,567 St Jude Medical Medical Instruments 0.8%
2,555 BF Goodrich Aerospace/Defence 0.8%
£155,463 Total investments over 0.75% 46.3%
£47,975 Other investments 14.3%
£203,438 Total North American investments 60.6%
Europe
£'000 Stock Activity % of net assets
4,715 Aveva Software 1.4%
4,466 Petroleum Geo-Services Seismic services 1.3%
4,389 Sword IT Services 1.3%
4,296 ARM Semiconductor IP 1.3%
3,897 SOITEC Semiconductors 1.2%
3,730 Philips Electronics Diversified 1.1%
3,330 Exact Software 1.0%
3,164 Fresenius Medical Care Renal care products & services 0.9%
3,162 EDB Business Partner IT Services 0.9%
3,087 NDS Encryption software 0.9%
2,937 Psion Mobile computing 0.9%
2,619 SAP Enterprise software 0.8%
2,608 STMicroelectronics Semiconductors 0.8%
£46,400 Total investments over 0.75% 13.8%
£33,286 Other investments 10.0%
£79,686 Total European investments 23.8%
Asia
£'000 Stock Activity % of net assets
10,184 Renesola Solar Wafers 3.0%
7,956 Tokyo Seimitsu Semiconductors 2.4%
7,656 Advantest Semiconductors 2.3%
6,974 Motech Solar cells 2.1%
5,470 Nidec Electronic Components 1.6%
5,409 Nitto Denko Electronic Components 1.6%
5,335 Zeon Electronic Components 1.6%
3,144 Mitac Computing 0.9%
2,987 ST Shine Optical Medical Instruments 0.9%
2,776 Taiwan Semiconductor Semiconductors 0.8%
Manufacturing
2,638 Asustek Computing 0.8%
£60,529 Total investments over 0.75% 18.0%
£8,552 Other investments 2.5%
£69,081 Total Asian investments 20.5%
Portfolio Review - Classification of Group Investments at 30 April 2007
TOTAL TOTAL
North Europe Asia 30 April 30 April
America 2007 2006
% % % % %
Computing 10.3 1.6 2.7 14.6 13.5
Components 16.6 4.7 9.8 31.1 19.1
Software 12.7 4.7 - 17.4 15.8
Services 1.4 3.2 1.2 5.8 8.7
Communications 5.9 1.0 - 6.9 7.3
Life Sciences 6.2 1.3 0.9 8.4 12.1
Consumer, Media and Internet 1.6 1.5 0.3 3.4 8.0
Other Technology 5.3 4.5 5.6 15.4 11.2
Unquoted Investments 0.6 0.3 - 0.9 1.0
Money Market Funds - 1.0 - 1.0 4.5
Total Investments 60.6 23.8 20.5 104.9 101.2
Other net assets (excluding loans) 0.7 1.0 4.6 6.3 10.9
Loans - - (11.2) (11.2) (12.1)
Grand total
(net assets of £335,498,000) 61.3 24.8 13.9 100.0 -
At 30 April 2006
(net assets of £ 358,202,000) 49.9 32.7 17.4 - 100.0
Fund Distribution by Market Capitalisation
as at 30 April 2007
Market Capitalisation % of invested assets
< $2bn 40.4%
$2bn-$10bn 28.3%
> $10bn 31.3%
Index Changes (total return) over the year to 30 April 2007
Local Currency Sterling Adjusted
% %
Benchmark
Dow Jones World Technology 7.8 (2.0)
Technology Indices:
NYSE Arca Technology 100 6.9 (2.9)
MS Eurotec (based in US dollars) 12.8 2.6
FTSE Techmark 100 - 17.3
Tecdax 21.3 19.5
Tokyo SE Electronics 2.8 (10.8)
DS Asia Ex Japan Electronics 3.3 (6.1)
Market Indices:
FTSE World - 7.1
S&P 500 Composite 15.2 4.7
FTSE All-Share - 12.7
FTSE World Europe (ex UK) - 18.8
Tokyo SE (Topix) 0.2 (12.9)
FTSE World Pacific Basin (ex Japan) - 11.1
Exchange Rates
30 April 2007 30 April 2006
US$ to £ 1.9999 1.8177
Japanese Yen to £ 238.99 207.58
Euro to £ 1.4653 1.4430
This information is provided by RNS
The company news service from the London Stock Exchange
Tuesday, 16th July 2024
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