Half Yearly Report

RNS Number : 2089P

Witan Pacific Investment Trust PLC

29 September 2011

 

WITAN PACIFIC INVESTMENT TRUST PLC

Half Yearly Report of the unaudited results for the six months ended 31 July 2011

Financial Highlights

Summary of Results attributable to equity shareholders

	31 July 2011	31 January 2011	% change
Share price	216.50p	212.00p	2.12
Net asset value per share	248.01p	247.99p	0.01
Discount	-12.7%	-14.5%
Gearing#	4.1%	2.7%

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

	Half year ended	Half year ended
	31 July 2011	31 July 2010
Total expense ratio (excluding performance fee)	0.37	0.38
Total expense ratio (including performance fee)	1.14	0.92

Cumulative Performance (Total Returns) to 31 July 2011

	6 months	1 year	3 years	5 years
	%	%	%	%
Total shareholder return†	3.5	22.2	47.9	51.8
Net asset value total return†	1.3	15.4	46.8	55.7
MSCI AC Asia Pacific Free Index (£)* total return	- 0.8	12.5	34.9	39.1

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

* Source: Datastream. Gross dividends reinvested.

Chairman's Statement

Market Background

Global equity markets were relatively calm during the period under review making little or no progress. This was in marked contrast to the events since the end of July when the concerns over the many disturbing factors in the world economy really began to affect market sentiment, whereas earlier in the year these worries were offset by encouraging news on corporate profits and earnings. Strong economic growth early in the year had the side-effect of boosting commodity prices, which had a negative impact on inflation rates and living standards. This factor gained additional momentum from the political ferment in the Middle East, resulting in interruptions in oil supplies and rising fuel prices. Many Asian governments, where growth was relatively strong, feared that their economies would overheat and opted to raise interest rates to bring growth and inflation back to lower levels.

In March, the Japanese earthquake, in addition to the immediate human tragedy, caused significant damage to local factories, spreading problems throughout the Pacific region and beyond, owing to the integration of global supply chains in many industries.

More recently, markets have been unsettled by the failure of the Euro zone countries to address excessive levels of government debt. This has turned a problem of solvency in one or two economies into a continent-wide liquidity squeeze, which threatens to damage the financial system in ways uncomfortably reminiscent of 2008. Across the Atlantic the failure to address similar problems related to government debt with a Congress divided over how to tackle the problem has diminished the country's reputation and culminated in Standard & Poor's downgrading the country's credit rating from AAA to AA+.

The two sovereign debt factors created sufficient concern that, taken with some softer economic data for June and July, a sharp sell-off in global equity markets occurred in early August, shortly after the Company's period end.

Performance

During the first half of the Company's financial year, a time when markets made little overall progress, the Company achieved a modest positive NAV total return of 1.3%, ahead of the benchmark's total return of

-0.8%. The share price total return, assisted by a narrowing of the discount, was 3.5%.

Both of our appointed investment managers outperformed during the period. Aberdeen achieved a gross portfolio total return (before fees) of 3.0% and Nomura a total return of 1.5%, in each case well ahead of the benchmark's -0.8%. Earlier in the year, the portfolio underperformed its benchmark during the winter, since the Japanese market (in which both managers held underweight positions) performed relatively well at a time when other markets in the region were held back by the tightening of monetary policy in many Asian economies. They were experiencing rapid rates of economic growth (in contrast to the problems of western economies) and needed to act to counter the inflationary impact of strong growth combined with rising commodity prices.

This period of Japanese market outperformance was brought tragically to an end by the effects of the Tohoku earthquake and the subsequent tsunami which devastated Japan's east coast. Thereafter, the portfolios of both managers resumed their outperformance of the previous year, helped by a relatively low weighting in the Japanese market and by good stock selection both in Japan and the broader Pacific region.

During the six months to 31 July 2011, the Company's discount remained in a stable range in line with its peer group. Accordingly, no shares were bought back during this period. Your board believes that it is in shareholders' interests to buy back the company's shares when they are standing at a substantial and anomalous discount to their NAV, with the objective that the discount should be comparable to that of our peers, taking account of the prevailing market conditions.

Gearing

The Company believes that the medium term growth prospects for the region are attractive and, as previewed in the 2011 Annual Report, it has gradually increased gearing with the aim of enhancing returns. At the end of July, net gearing was 4.1%. Although gearing will have increased the trust's exposure to weak markets since mid year, the level of borrowings was intentionally set at a low level, with a view to the longer-term attractions of the region's equity markets, rather than with short-term market timing in mind.

Dividend income

At the time of the 2011 results, the Company announced a revised policy, aiming to grow its dividend in real terms, subject to market conditions. It is pleasing to note that revenue in the current financial year is running well ahead of last year's level, although caution should be exercised about extrapolating this trend in the present climate. This will be taken into account, along with other factors, at the time of the consideration of the results for the year to January 2012.

Expenses

The strong relative performance by both managers contributed to an increase in performance fees accrued and paid during the period. In order to take full account of outperformance as it arises, the Company has decided to amend its basis of estimation for performance fees.

In the past, only those performance fees due for the rolling 3-year performance period up to the following 31 May were accrued, since these are contractual obligations of the Company. In future, fees for all future rolling 3-year performance periods will be accrued where part of the applicable performance is already known, even if the fees have not legally become liabilities of the Company. This is because it is a reasonable assumption that in the course of time those fees will become payable to the Company's investment managers, assuming continuation of the investment management contract and the managers' future performance being in line with the benchmark.

The revised basis of estimation (which does not alter the contractual position) is believed to be more prudent, in providing fully for such contingent liabilities. During the first half, this had an impact of -0.3% on returns. Further details on the performance-related management fees are set out in Notes 2 and 5.

The TER for the first half of the year excluding performance fees was 0.37% and including performance fees was 1.14%, reflecting recent good performance.

As in previous years, the Company will continue to control tightly the other operational expenses of the Company which have remained broadly unchanged from the same period last year.

Outlook

Against the background of unresolved issues surrounding the high levels of debt in certain European countries and the USA, concerns grew that private sector confidence would be eroded and result in weakness in the wider economy or, at worst, a prolonged recession.

Global economic data since the summer, although weak, has been consistent with stagnation rather than recession in developed economies. This appears to be fully discounted by recent market falls. By contrast growth in developing economies has remained relatively resilient. The "wild card" remains the risk of a credit crunch in Europe. If there is widespread disruption to government bond markets in Europe, this could severely damage the banking system, requiring extra capital raising or leading to cutbacks in lending, with global ramifications for economic growth.

In the Asia-Pacific region, the economic picture is somewhat brighter. Following a tightening of money supply in many countries this year there is the potential for a somewhat more favourable economic  environment in 2012. Japan is recovering from the aftermath of the earthquake, with growth rising ,albeit from depressed levels, during the summer. If the Euro crisis is resolved, or credibly deferred for a period, global economic confidence might take time to rebound but the downside risks would be significantly reduced. If such a revival of market confidence coincided with the removal of the interest rate headwinds in Asia, 2012 could provide an antidote to the disappointments seen so far in 2011.

Gillian Nott

Chairman

29 September 2011

Income Statement

for the half year ended 31 July 2011

	(Unaudited) Half year ended 31 July 2011			(Unaudited) Half year ended 31 July 2010			(Audited) Year ended 31 January 2011
	Revenue return	Capital return	Total	Revenue return	Capital return	Total	Revenue Return	Capital Return	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments held at fair value through profit or loss	-	1,601	1,601	-	13,038	13,038	-	32,119	32,119
Exchange (losses)/gains	-	(92)	(92)	-	64	64	-	167	167
Income	2,507	-	2,507	2,166	-	2,166	3,927	-	3,927
Management fees (Note 2)	(238)	-	(238)	(202)	-	(202)	(421)	-	(421)
Performance fees (Note 2)	-	(1,260)	(1,260)	-	(796)	(796)	-	(828)	(828)
Other expenses	(368)	(29)	(397)	(368)	(21)	(389)	(661)	(44)	(705)
Net return before finance charges and taxation	1,901	220	2,121	1,596	12,285	13,881	2,845	31,414	34,259
Finance charges	(93)	-	(93)	(80)	-	(80)	(163)	-	(163)
Net return on ordinary activities before taxation	1,808	220	2,028	1,516	12,285	13,801	2,682	31,414	34,096
Taxation on ordinary activities	(162)	-	(162)	(164)	-	(164)	(261)	-	(261)
Net return on ordinary activities after taxation	1,646	220	1,866	1,352	12,285	13,637	2,421	31,414	33,835
Return per ordinary share - pence (Note 4)	2.48	0.33	2.81	2.04	18.53	20.57	3.65	47.40	51.05

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

The total columns of this statement represent the Income Statement 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 and Reconciliation of Movements in Shareholders' Funds.

Reconciliation of Movements in Shareholders' Funds

for the half year ended 31 July 2011

	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 2011 (unaudited)
At 31 January 2011	16,561	5	41,010	95,762	10,944	164,282
Net return on ordinary activities after taxation	-	-	-	220	1,646	1,866
Dividends paid in respect of year ended 31 January 2011	-	-	-	-	(1,855)	(1,855)
At 31 July 2011	16,561	5	41,010	95,982	10,735	164,293
Half year ended 31 July 2010 (unaudited)
At 31 January 2010	16,577	5	40,994	64,475	9,915	131,966
Net return on ordinary activities after taxation	-	-	-	12,285	1,352	13,637
Dividends paid in respect of year ended 31 January 2010	-	-	-	-	(1,392)	(1,392)
Purchase of own shares	(9)	-	9	(65)	-	(65)
At 31 July 2010	16,568	5	41,003	76,695	9,875	144,146
Year ended 31 January 2011 (audited)
At 31 January 2010	16,577	5	40,994	64,475	9,915	131,966
Net return on ordinary activities after taxation	-	-	-	31,414	2,421	33,835
Dividends paid in respect of year ended 31 January 2010	-	-	-	-	(1,392)	(1,392)
Purchase of own shares	(16)	-	16	(127)	-	(127)
At 31 January 2011	16,561	5	41,010	95,762	10,944	164,282

Purchase transaction costs for the half year ended 31 July 2011 were £40,000 (half year ended 31 July 2010: £38,000; year ended 31 January 2011: £105,000). Sale transaction costs for the half year ended 31 July 2011 were £44,000 (half year ended 31 July 2010: £41,000; year ended 31 January 2011: £107,000).

Balance Sheet

at 31 July 2011

	(Unaudited) 31 July 2011 £'000	(Unaudited) 31 July 2010 £'000	(Audited) 31 January 2011  £'000
Fixed assets
Investments held at fair value through profit or loss	171,094	147,670	168,757
Current assets
Debtors	635	1,636	799
Cash at bank and short term deposits	4,784	4,319	2,059
	5,419	5,955	2,858
Creditors: amounts falling due within one year
Loans	(8,950)	(5,900)	(5,900)
Other	(2,748)	(3,579)	(1,433)
	(11,698)	(9,479)	(7,333)
Net current liabilities	(6,279)	(3,524)	(4,475)
Total assets less current liabilities	164,815	144,146	164,282
Provision for liabilities and charges (Note 5)	(522)	-	-
Net assets	164,293	144,146	164,282
Capital and reserves
Called up share capital	16,561	16,568	16,561
Share premium account	5	5	5
Capital redemption reserve	41,010	41,003	41,010
Capital reserves	95,982	76,695	95,762
Revenue reserve	10,735	9,875	10,944
Equity shareholders' funds	164,293	144,146	164,282
Net asset value per ordinary share - pence (Note 6)	248.01	217.50	247.99

Cash Flow Statement

for the half year ended 31 July 2011

	(Unaudited) Half year ended 31 July 2011 £'000	(Unaudited) Half year ended 31 July 2010 £'000	(Audited) Year ended 31 January 2011  £'000
Net cash inflow from operating activities	1,521	1,015	541
Servicing of finance
Bank and loan interest paid	(138)	(60)	(149)
Net cash outflow from servicing of finance	(138)	(60)	(149)
Capital expenditure and financial investment
Purchases of investments	(19,750)	(19,322)	(46,406)
Sales of investments	20,019	18,108	43,474
Capital expenses paid	(30)	(21)	(41)
Net cash inflow/(outflow) from financial investment	239	(1,235)	(2,973)
Equity dividends paid	(1,855)	(1,392)	(1,392)
Net cash outflow before financing	(233)	(1,672)	(3,973)
Financing
Repurchase of own shares	-	(65)	(127)
Drawdown of bank loan	3,050	-	-
Net cash inflow/(outflow) from financing	3,050	(65)	(127)
Increase/(decrease) in cash	2,817	(1,737)	(4,100)
Reconciliation of net cash flow to movements in net funds/(debt)
Increase/(decrease) in cash as above	2,817	(1,737)	(4,100)
Exchange movements	(92)	64	167
Increase in bank loan	(3,050)	-	-
Movement in net debt in the period	(325)	(1,673)	(3,933)
Net (debt)/funds at start of period	(3,841)	92	92
Net debt at end of period	(4,166)	(1,581)	(3,841)

Notes to the Accounts

for the half year ended 31 July 2011

1. Accounting policies

The Accounts 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 2011 have been applied.

2. 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. Each of the Investment Managers is entitled to a base management fee, calculated according to the value of the assets under their management, and 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 subject to a cap. Each Management Agreement can be terminated at one month's notice. The base management fees range from 0.2% to 0.25% per annum and the performance fees range from 10% to 15% per annum of the relevant outperformance.

The provisions included in the Income Statement at 31 July 2011, are calculated on the actual performance of each Investment Manager relative to the benchmark index. The provision for the rest of the year assumes that both the benchmark index remains unchanged and each Investment Manager's assets under management perform in line with the benchmark index to 31 May 2012, being the date the performance period ends. In addition, provisions have been made for the performance periods ending 31 May 2013 and 31 May 2014, on the assumption that both managers perform in line with the benchmark to each period end. The total of these provisions amounts to £522,000.

3. Dividends per Ordinary Share

No interim dividend payment will be proposed for the half year ended 31 July 2011 (half year ended 31 July 2010: nil; year ended 31 January 2011: final of 2.80p per share).

4. Return per Ordinary Share

The return per ordinary share is based on the net return attributable to the ordinary shares of £1,866,000 (half year ended 31 July 2010: net return £13,637,000; year ended 31 January 2011: net return £33,835,000) and on 66,244,868 ordinary shares (half year ended 31 July 2010: 66,281,646; year ended 31 January 2011: 66,274,098) being the weighted average number of ordinary shares in issue during the period.

	(Unaudited) Half year ended 31 July 2011	(Unaudited) Half year ended 31 July 2010	(Audited) Year ended 31 January 2011
Revenue return (£'000)	1,646	1,352	2,421
Capital return (£'000)	220	12,285	31,414
Total return (£'000)	1,866	13,637	33,835
Weighted average number of ordinary shares in issue during the period	66,244,868	66,281,646	66,274,098
Revenue return per ordinary share - pence	2.48	2.04	3.65
Capital return per ordinary share - pence	0.33	18.53	47.40
Total return per ordinary share - pence	2.81	20.57	51.05

5. Provision for liabilities and charges

The Company has amended the basis on which it provides for performance fees. As a result, £522,000 has been accrued at 31 July 2011. This represents the estimated performance fees payable for the 3 year performance fee periods ending 31 May 2013 and 31 May 2014. This accrual is based on actual performance to 31 July 2011 and the assumption that each manager performs in line with the benchmark from 31 July 2011 to the end of each fee period. Changes in the level of accrual for future performance periods could arise for one of three principal reasons: a change in the degree of relative performance, the elapse of time (since this would increase the proportion of the rolling three-year performance period to which the performance calculation would be applied) or the termination of an investment manager's contract.

6. Net Asset Value per Ordinary Share

Net asset value per ordinary share is based on 66,244,868 ordinary shares of 25p each in issue as 31 July 2011 (31 July 2010: 66,273,868 and 31 January 2011: 66,244,868).

7. Results

The results for the half year ended 31 July 2011 and 31 July 2010, 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 2011, 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 2011 have been extracted from those accounts.

Regulatory Disclosures

Related Party Transactions

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

Principal Risk and Uncertainties

The principal risks faced by the Company for the remaining six months of the financial year include financial risks relating to markets, liquidity and credit. Market risk includes market price risk, currency risk and interest rate risk. Other risk categories include those relating to investment strategy, investment management resources, regulatory requirements, operational structure and the external economic and financial environment. These risks and the way in which they are managed, are described in more detail in the Annual Report for the year ended 31 January 2011 in the Business Review and in the Notes to the Accounts. The Report is available on the Company's website at www.witanpacific.com.

Responsibility Statement of Directors

in respect of the Half Year Report for the six months ended 31 July 2011

The Directors confirm to the best of their knowledge that:

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

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

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

This Half Year Report was approved by the Board on 29 September 2011 and the above responsibility statement was signed on its behalf by:

Gillian Nott

Chairman

29 September 2011

 

END

 

 

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