Half Yearly Report

RNS Number : 5197B

Pacific Horizon Investment Tst PLC

05 March 2014

 



RNS Announcement

Pacific Horizon Investment Trust PLC

The following is the unaudited Half-Yearly Financial Report for the six months to 31 January 2014.

Responsibility statement

We confirm that to the best of our knowledge:

a)   the condensed set of financial statements has been prepared in accordance with the Accounting Standards Board's statement 'Half-Yearly Financial Reports';

b)   the Half-Yearly Management Report includes a fair review of the information required by Disclosure and Transparency Rules 4.2.7R (indication of important events during the first six months, their impact on the financial statements and a description of the principal risks and uncertainties for the remaining six months of the year); and

c)   the Half-Yearly Financial Report includes a fair review of the information required by Disclosure and Transparency Rules 4.2.8R (disclosure of related party transactions and changes therein).

By order of the Board

Jean Matterson

Chairman

4 March 2014

Half-yearly management report

In the six months to 31 January 2014, Pacific Horizon's net asset value per share rose 0.2% to 182.37p. The share price rose 4.3% and the discount narrowed from 13.9% to 10.3%.  Over the same period the MSCI All Country Asia ex Japan Index fell 6.6% in sterling terms.  The relative outperformance was as a result of both stock selection and limited exposure to the worst performing markets in the region.  Many of our highest conviction holdings outperformed the comparative index by a healthy margin.

The global investment climate has not changed significantly over the last six months.  Economic performance has been resilient in many of the countries in which we invest.  Despite this, investor sentiment remains inconsistent and is a notable factor behind much of the volatility in the markets in which we specialise.  The recovery in developed economies, in particular the USA, is accelerating, with companies exposed to this tending to perform well.  The prospect is of further 'tapering' from the Federal Reserve, with any withdrawal of liquidity likely to be met, in aggregate, by some weakness in equity markets and particularly in those deemed higher risk.

During the period the performance of stock markets in the region was poor, with significant falls in ASEAN markets.  Indonesia was the worst performing market, down 25.6% in sterling terms, followed by Thailand down 21.7% and the Philippines down 19.6%.  The only ASEAN market to post a positive return in sterling terms was Vietnam, a market to which we maintain a small exposure.  We have low exposures to these markets where we feel there is likely to be a withdrawal of capital, and higher exposure to the businesses likely to benefit from strong economic prospects in the West.

Technology companies account for the largest proportion of the stocks held by Pacific Horizon, at 39.1%, up from 34.5% at the start of the period.  A number of these technology companies have great potential to benefit from economic improvements expected in developed markets.  Good examples are global technology leaders Taiwan Semiconductor Manufacturing, Hon Hai Precision Industries and two Indian information technology service companies, HCL Technologies and Tech Mahindra.  Information technology service companies now make up 4.7% of the portfolio following strong results and share price performance.  Internet businesses are another focus.  Here we have increased the number of holdings, buying Youku, Sohu and Interpark to complement our existing holdings in Baidu, Tencent and Naver (formerly called NHN).  Companies such as these are capable of growing at well above market rates whilst consuming little capital.  The attractions of these businesses have become more apparent in the last six months following a large amount of corporate activity as the largest internet companies look to consolidate their leading positions.  Such corporate activity has also affected logistics businesses, including our holding Haier Electronics; these have been targeted in an attempt to establish commercial advantage from one of the most difficult challenges of global e-commerce: that of fulfilment.  By sector, the increase in technology companies has been funded through further reductions in the financials sector, particularly in the ASEAN banking stocks. 

We are very aware of the potential impact that Chinese economic and political reform may have on our portfolio.  The Third Plenum of the Chinese Communist Party held in November underlined the authorities' desire to work with market orientated models and continue the country's transition towards more sustainable growth.  This is in line with our expectations and the portfolio is already positioned accordingly.  The holding in Chinese gas companies is a prime example of the emerging commercial benefits of these reforms, with good results overall during the period.  Another area which has benefited from this re-emphasis of policy is the automation sector, where the portfolio includes holdings in Airtac International Group, Hiwin Technologies and Advantech.  As China's labour force shrinks and its manufacturing base moves up the value chain, the automation industry is positioned to benefit strongly from the drive to remain competitive.

If there is an area in China where we are more concerned, it is the excessive increase in lending in both the formal and informal banking sectors, often in respect of projects that are unlikely to ever be commercially viable.  We do not consider this to be a systemic risk to the Chinese economy, but we believe that there are likely to be significant issues in the banking, property and construction industries - areas where the Company has minimal exposure.

Given that the Company's Managers are long term investors, it should be no surprise that turnover levels for the portfolio remain low, as does the overlap with the comparative index.  The overall shape of the portfolio has changed little over the 6 month period.  A number of new investments made in Korea have increased the weighting to 24.6%, which is still less than Hong Kong and China at 35.6%.  These new investments have been made in a number of attractive businesses including Hyundai Mipo Dockyard, SK Telecom and SK Hynix.  The top ten holdings account for 34.5% of the portfolio; the total number of companies in which we invest is now 64.

Little has changed to alter our view on future developments.  We advocate caution towards some of the smaller ASEAN markets; political and macroeconomic risks are rising at a time when company valuations are, in aggregate, high.  We much prefer those companies operating in North Asia or India where valuations remain attractive and growth prospects are linked to the ongoing recovery in developed economies.  Above all, we believe that we invest in an attractive set of companies with prospects both to create future value and to generate superior returns for shareholders.

Tender Offer

At the AGM held on 29 October 2013, the Company obtained shareholder approval to implement, at the Board's discretion, a bi-annual tender offer for up to 5% of the Company's shares at 2% discount to NAV, less costs, in the event that the discount averaged more than 9% during the six month periods to 31 January and 31 July 2014. Over the first six month period to 31 January 2014, the Company's average discount was 11.3% and the Board has recently announced that it has decided to exercise its discretion to implement a tender offer in respect of this six month period, applicable to shareholders on the register on 12 February 2014.

Details of how to tender your shares in respect of this 5% tender offer will be contained within the Circular accompanying the Half-Yearly Financial Report.

The principal risks and uncertainties facing the Company are set out in note 9.

Past performance is not a guide to future performance.

Income statement (unaudited)

	For the six months ended 31 January 2014			For the six months ended 31 January 2013			For the year ended 31 July 2013
								(audited)
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
(Losses)/gains on sales of investments	-	(882)	(882)	-	2,567	2,567	-	4,378	4,378
Changes in investment holding gains and losses	-	2,054	2,054	-	9,062	9,062	-	2,851	2,851
Currency losses	-	(256)	(256)	-	(98)	(98)	-	(51)	(51)
Income from investments and interest receivable	1,187	-	1,187	972	-	972	2,967	-	2,967
Investment management fee (note 3)	(518)	-	(518)	(672)	-	(672)	(1,246)	-	(1,246)
Other administrative expenses	(163)	-	(163)	(153)	-	(153)	(314)	-	(314)
Net return on ordinary activities before taxation	506	916	1,422	147	11,531	11,678	1,407	7,178	8,585
Tax on ordinary activities	(78)	-	(78)	(44)	-	(44)	(165)	-	(165)
Net return on ordinary activities after taxation	428	916	1,344	103	11,531	11,634	1,242	7,178	8,420
Net return per ordinary share (note 4)	0.58p	1.24p	1.82p	0.14p	15.39p	15.53p	1.66p	9.62p	11.28p
Note: Dividends paid and proposed per ordinary share (note 5)	-			-			1.50p

The total column of this 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.

Balance sheet (unaudited)

	At 31 January 2014 £'000	At 31 January 2013 £'000	At 31 July 2013 (audited) £'000
Fixed assets
Investments held at fair value through profit or loss	134,324	138,537	132,831
Current assets
Debtors	292	137	554
Cash and short term deposits	288	872	1,573
	580	1,009	2,127
Creditors
Amounts falling due within one year (note 6)	(286)	(417)	(320)
Net current assets	294	592	1,807
Total net assets	134,618	139,129	134,638
Capital and reserves
Called up share capital	7,382	7,474	7,397
Share premium	3,166	3,166	3,166
Special distributable reserve	6,244	7,776	6,499
Capital redemption reserve	18,411	18,319	18,396
Capital reserve	94,485	97,922	93,569
Revenue reserve	4,930	4,472	5,611
Shareholders' funds	134,618	139,129	134,638
Net asset value per ordinary share	182.37p	186.15p	182.01p
Ordinary shares in issue (note 7)	73,817,002	74,742,002	73,972,002

Reconciliation of movements in shareholders' funds (unaudited)

For the six months ended 31 January 2014

	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 2013	7,397	3,166	6,499	18,396	93,569	5,611	134,638
Net return on ordinary activities after taxation	-	-	-	-	916	428	1,344
Shares purchased for cancellation (note 7)	(15)	-	(255)	15	-	-	(255)
Dividends paid during the period (note 5)	-	-	-	-	-	(1,109)	(1,109)
Shareholders' funds at 31January 2014	7,382	3,166	6,244	18,411	94,485	4,930	134,618

For the six months ended 31 January 2013

	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 2012	7,505	3,166	8,252	18,288	86,391	5,495	129,097
Net return on ordinary activities after taxation	-	-	-	-	11,531	103	11,634
Shares purchased for cancellation (note 7)	(31)	-	(476)	31	-	-	(476)
Dividends paid during the period (note 5)	-	-	-	-	-	(1,126)	(1,126)
Shareholders' funds at 31January 2013	7,474	3,166	7,776	18,319	97,922	4,472	139,129

For the year ended 31 July 2013 (audited)

	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 2012	7,505	3,166	8,252	18,288	86,391	5,495	129,097
Net return on ordinary activities after taxation	-	-	-	-	7,178	1,242	8,420
Shares purchased for cancellation (note 7)	(108)	-	(1,753)	108	-	-	(1,753)
Dividends paid during the period (note 5)	-	-	-	-	-	(1,126)	(1,126)
Shareholders' funds at 31July 2013	7,397	3,166	6,499	18,396	93,569	5,611	134,638

*    The Capital Reserve balance at 31 January 2014 includes investment holding gains on fixed asset investments of £41,876,000 (31 January 2013 - gains of £46,033,000; 31 July 2013 - gains of £39,822,000).

Condensed cash flow statement (unaudited)

	Six months to 31 January 2014 £'000	Six months to  31 January 2013 £'000	Year to  31 July 2013 (audited) £'000
Net cash inflow from operating activities	415	329	1,218
Net cash (outflow)/inflow from financial investment	(336)	84	1,173
Equity dividends paid (note 5)	(1,109)	(1,126)	(1,126)
Net cash (outflow)/inflow before financing	(1,030)	(713)	1,265
Shares bought back (note 7)	(255)	(476)	(1,753)
Decrease in cash	(1,285)	(1,189)	(488)
Reconciliation of net cash flow to movement in net funds
Decrease in cash in the period	(1,285)	(1,189)	(488)
Movement in net funds in the period	(1,285)	(1,189)	(488)
Net funds at start of the period	1,573	2,061	2,061
Net funds at end of the period	288	872	1,573
Reconciliation of net return before taxation to net cash inflow from operating activities
Net return on ordinary activities before taxation	1,422	11,678	8,585
Gains on investments	(1,172)	(11,629)	(7,229)
Currency losses	256	98	51
Changes in debtors and creditors	(36)	230	(26)
Overseas tax suffered	(55)	(48)	(163)
Net cash inflow from operating activities	415	329	1,218

Thirty largest equity holdings at 31 January 2014 (unaudited)

Name	Country	Business	Value £'000	% of total assets*
Samsung Electronics	Korea	Electronics company	8,295	6.2
Taiwan Semiconductor Manufacturing	Taiwan	Semiconductor manufacturer	6,446	4.8
Tencent Holdings	Hong Kong/China	Internet business	5,612	4.2
Kunlun Energy Company	Hong Kong/China	Energy business	4,955	3.7
Tech Mahindra	India	IT Services provider	3,995	3.0
MediaTek	Taiwan	Integrated circuit design house	3,572	2.7
Baidu	Hong Kong/China	Internet search provider	3,523	2.6
Towngas China	Hong Kong/China	Gas distributor	3,433	2.6
Hyundai Glovis	Korea	Logistics company	3,363	2.5
China Petroleum & Chemical Corporation	Hong Kong/China	Integrated oil and gas producer	2,946	2.2
Galaxy Entertainment Group	Hong Kong/China	Casino operator	2,928	2.2
China Life Insurance (Taiwan)	Taiwan	Life insurance provider	2,798	2.1
Airtac International Group	Taiwan	Automation equipment manufacturer	2,748	2.0
Hyundai Marine and Fire Insurance	Korea	Non-life insurance provider	2,677	2.0
China Mobile	Hong Kong/China	Wireless telecommunications provider	2,673	2.0
Haier Electronics	Hong Kong/China	Appliance manufacturer and distributor	2,625	1.9
CNOOC	Hong Kong/China	Oil and gas exploration and production	2,578	1.9
Hyundai Mobis	Korea	Automotive parts producer	2,498	1.9
Hiwin Technologies	Taiwan	Automation equipment manufacturer	2,495	1.9
Samsung Fire & Marine	Korea	Non-life insurance provider	2,443	1.8
Reliance Industries	India	Oil and gas exploration and production	2,339	1.7
Naver	Korea	Internet business	2,313	1.7
SK Hynix	Korea	Semiconductor manufacturer	2,280	1.7
HCL Technologies	India	IT services provider	2,268	1.7
Hon Hai Precision Industries	Taiwan	Electronic manufacturing services company	2,164	1.6
BOC Hong Kong (Holdings)	Hong Kong/China	Commercial bank	2,150	1.6
ASM Pacific Technology	Hong Kong/China	Semiconductor equipment manufacturer	2,069	1.5
GCL-Poly Energy Holdings	Hong Kong/China	Renewable energy equipment	2,062	1.5
Ping An Insurance	Hong Kong/China	Life insurance provider	2,056	1.5
Avantech	Taiwan	Embedded computer manufacturer	2,000	1.5
			94,304	70.2

*      Total assets less current liabilities.

Distribution of assets (unaudited)

		At 31 January 2014 %	At 31 January 2013 %	At 31 July 2013 %
Equities:	Hong Kong and China	35.6	33.3	33.7
	Korea	24.6	20.2	19.5
	Taiwan	18.0	16.6	16.6
	India	8.9	5.3	9.1
	Singapore	7.3	9.9	8.7
	Thailand	1.4	4.7	3.0
	Vietnam	1.3	2.0	2.2
	Malaysia	0.9	4.0	2.5
	Indonesia	0.9	1.7	1.9
	Philippines	0.9	1.9	1.5
Total equities		99.8	99.6	98.7
Net current assets		0.2	0.4	1.3
Total assets†		100.0	100.0	100.0

  †      Total assets less current liabilities.

Notes to the condensed financial statements (unaudited)

1.	The condensed financial statements for the six months to 31 January 2014 comprise the statements set out in the previous pages together with the related notes below. They have been prepared on the basis of the same accounting policies as set out in the Company's Annual Report and Financial Statements at 31 July 2013 and in accordance with the ASB's Statement 'Half-Yearly Financial Reports' and have not been audited or reviewed by the Auditors pursuant to the Auditing Practices Board Guidance on 'Review of Interim Financial Information'. The Company's assets, the majority of which are investments in quoted securities which are readily realisable, exceed its liabilities significantly. The Company has no loans. In accordance with the Company's Articles of Association, the shareholders have the right to vote on the continuation of the Company every five years, the next vote being in 2016. The Directors have no reason to believe that the continuation resolution will not be passed at that Annual General Meeting. Accordingly, the Half-Yearly Financial Report has been prepared on the going concern basis as it is the Directors' opinion that the Company will continue in operational existence for the foreseeable future.
2.	The financial information contained within this Half-Yearly Financial Report does not constitute statutory accounts as defined in sections 434 to 436 of the Companies Act 2006. The financial information for the year ended 31 July 2013 has been extracted from the statutory accounts which have been filed with the Registrar of Companies. The Auditor's Report on those accounts was not qualified and did not contain statements under sections 498(2) or (3) of the Companies Act 2006.
3.	Baillie Gifford & Co are appointed as investment managers and secretaries to the Company. The Managers may terminate the management agreement on six months' notice and the Company may terminate on three months' notice. With effect from 1 April 2013, the annual management fee was reduced from a flat rate of 1% of net assets to a rate of 0.95% on the first £50m of net assets and 0.65% on the balance. Management fees are calculated on a quarterly basis.
4.	Net return per ordinary share	Six months to  31 January 2014 £'000	Six months to 31 January 2013 £'000	Year to 31 July 2013 (audited) £'000
	Revenue return on ordinary activities after taxation	428	103	1,242
	Capital return on ordinary activities after taxation	916	11,531	7,178
	Total net return	1,344	11,634	8,420
	Weighted average number of ordinary shares in issue	73,881,486	74,929,828	74,625,072
	Net return per ordinary share figures are based on the above totals of revenue and capital and the weighted average number of ordinary shares in issue during each period. There are no dilutive or potentially dilutive shares in issue.
5.	Dividends	Six months to  31 January 2014 £'000	Six months to 31 January 2013 £'000	Year to 31 July 2013 (audited) £'000
	Amounts recognised as distributions in the period:
	Previous year's final dividend of 1.50p (2012 - 1.50p), paid 4 November 2013	1,109	1,126	1,126
	No interim dividend has been declared.

Notes to the condensed financial statements (unaudited) (ctd)

6.	The Company had no borrowings at 31 January 2014, 31 January 2013 or 31 July 2013.
7.	The Company has authority to buy back its ordinary shares. The authority was last renewed at the Annual General Meeting in October 2013 in respect of 11,065,168 shares (equivalent to 14.99% of its issued share capital at that date). In the six months to 31 January 2014 a total of 155,000 (31 January 2013 - 310,000; 31 July 2013 - 1,080,000) ordinary shares with a nominal value of £15,500 were bought back at a total cost of £255,000 (31 January 2013 - £476,000; 31 July 2013 - £1,753,000). At 31 January 2014 the Company had authority to buy back a further 11,065,168 ordinary shares. The Company has authority to allot shares under section 551 of the Companies Act 2006. 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 six months to 31 January 2014, six months to 31 January 2013 and the year to 31 July 2013 no shares were issued. The Company obtained shareholder authority at the 2013 AGM to implement, at the Board's discretion, a bi-annual tender offer for up to 5% of the Company's shares at a 2% discount to NAV, less costs, in the event that the discount averaged more than 9% during the six month periods to 31 January and 31 July 2014. Over the first six month period to 31 January 2014, the Company's average discount was 11.3%. The Board has recently announced that it has decided to exercise its discretion to implement a tender offer in respect of this six month period, applicable to shareholders on the register on 12 February 2014. Details of how to tender your shares in respect of this 5% tender offer are contained within the Circular accompanying this Report.
8.	During the period, transaction costs on purchases amounted to £35,000 (31 January 2013 - £23,000; 31 July 2013 - £69,000) and transaction costs on sales amounted to £43,000 (31 January 2013 - £27,000; 31 July 2013 - £71,000).
9.	Principal risks and uncertainties The principal risks facing the Company relate to the Company's investment activities. These risks are market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. An explanation of these risks and how they are managed is contained in note 17 of the Company's Annual Report and Financial Statements for the year to 31 July 2013. The principal risks and uncertainties have not changed since the publication of the Annual Report and Financial Statements which can be obtained free of charge from Baillie Gifford & Co and is available on the Pacific Horizon page of the Managers' website: www.pacifichorizon.co.uk‡. Other risks facing the Company include the following: regulatory risk (that the loss of investment trust status or a breach of the applicable legal and regulatory requirements could have adverse financial consequences and cause reputational damage); operational/financial risk (failure of service providers' accounting systems could lead to inaccurate reporting or financial loss); and the risk to shareholders that the discount can widen. Further information can be found on pages 14 and 15 of the Annual Report and Financial Statements.
10.	The Half-Yearly Financial Report will be available on the Company's page on the Managers' website www.pacifichorizon.co.uk‡ on or around 13 March 2014.

‡    Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement.

None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

Pacific Horizon Investment Trust PLC (Pacific Horizon) aims to achieve capital growth through investment in the Asia-Pacific region (excluding Japan) and in the Indian Sub-continent. The Company has total assets of £135 million.

Pacific Horizon is managed by Baillie Gifford & Co, the Edinburgh based fund management group.

Past performance is not a guide to future performance. Pacific Horizon is a listed UK company. As a result, the value of its shares and any income from those shares can fall as well as rise and you may not get back the amount invested. As Pacific Horizon invests in overseas securities, changes in the rates of exchange may also cause the value of your investment (and any income it may pay) to go down or up. Pacific Horizon invests in emerging markets where difficulties in dealing, settlement and custody could arise, resulting in a negative impact on the value of your investment. Shareholders in Pacific Horizon have the right to vote every five years, on whether to continue Pacific Horizon, or wind it up. If the shareholders decide to wind the Company up, the assets will be sold and you will receive a cash sum in relation to your shareholding. The next vote will be held at the Annual General Meeting in 2016. You can find up to date performance information about Pacific Horizon on the Pacific Horizon page of the Managers' website at www.pacifichorizon.co.uk. Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement

5 March 2014

For further information please contact:

Anzelm Cydzik,

Baillie Gifford & Co                                                                              0131 275 2000

Roland Cross, Account Director,

Broadgate Mainland                                                                              020 7726 6111

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