Final Results
Polar Capital Technology Trust PLC
15 June 2004
POLAR CAPITAL TECHNOLOGY TRUST PLC
Unaudited Preliminary Results for the year ended 30 April 2004
15 JUNE 2004
HIGHLIGHTS
• Net assets per share rose by 40.3%
• Technology shares outperformed in all markets reflecting a very rapid
recovery in profits
• Corporate fundamentals in the technology industry continue to improve
• Recovering capital spending should drive strong technology earnings
growth throughout 2004
• We believe that the technology sector remains unique in its longer term
ability to deliver creativity and profitable growth
FINANCIAL 30 April 2004 30 April 2003 Change %
Total net assets £306,636,000 £221,022,000 38.7
Net assets per share
Undiluted 208.1p 148.3p 40.3
Fully diluted 193.7p 141.3p 37.1
Price
per ordinary share 164.75p 120.5p 36.7
per warrant 64.75p 27.25p 137.6
For further information please contact:
Brian Ashford-Russell Jacqui Graves / Peter Binns
Polar Capital Technology Trust PLC Binns & Co. PR Ltd.
Director and fund manager Tel: 020 7786 9600
Tel: 020 7592 1500 E.mail: Jacqui@binnspr.co.uk
www.polarcapitaltechnologytrust.co.uk Peter.Binns@binnspr.co.uk
Chairman's Statement:
Following the three years of relentless downward pressure on share prices, the
year ending 30 April 2004 provided welcome relief. Stock markets around the
world have enjoyed a synchronised recovery and technology shares have been to
the fore of a pronounced cyclical upturn. Over the year, the FTSE World Index
rose by 17.9%, the Dow Jones World Technology Index by 19.4% and our benchmark
by 37.5%. Our undiluted net assets per share rose by 40.3%, making the year a
reasonably satisfactory one.
The Company's performance benefited from a timely increase in our Asian exposure
last May and from good relative performance in that region. Elsewhere, our
returns were closer to the benchmarks - slightly behind in North America but
usefully ahead in Europe. Partial currency hedging both of the dollar and the
yen helped to reduce the impact of sterling's strength over the period.
The global economic recovery that we have enjoyed over the last year has been
supported by an interest rate environment designed with the fear of deflation in
mind. Monetary policy has been loose and liquidity abundant, particularly so in
Asia. Fiscal restraint has not been evident and both government and consumer
debt has continued to mount. In the USA, the speed of the cyclical upturn has
surprised many. However, the combination of a Federal Reserve determined not to
repeat the mistakes of its Japanese counterpart in the early 1990s and a
President intent on ensuring an economy conducive to his re-election has
resulted in a period of growth more akin to that of the late 1990s. Europe has
not benefited from the same reflationary focus and this, in combination with the
continuing structural issues facing many of its larger economies, has produced
an economic performance that would be kindly described as sluggish. In contrast,
Asian growth has been little short of dramatic with Chinese expansion
breath-taking and Japan finally showing signs of emerging from its long economic
torpor.
An improving demand environment has been greeted by a corporate sector, almost
emaciated after three years of constant cost-cutting. The result has been a
period of outstanding profits growth which has enabled a remarkable recovery in
corporate cash flows and a dramatic improvement in balance sheets. In many of
the major economies, corporate profits as a share of GDP have risen to levels
unsurpassed in the last three decades.
Against such a background and with both cash and bonds offering relatively
unexciting returns, it is not surprising that money has flowed back into
equities. The last year has been notable for the re-emergence of investors'
appetite for risk, a development that has favoured asset classes such as Asian
equities and technology shares. The latter have also benefited from a cyclical
upturn. Indeed, expenditure on technology as a percentage of US nominal capital
expenditure rose to 54.7% in fourth quarter of 2003, well above the level of
2000. The fact that this trend has been accompanied by a remarkable and almost
unprecedented growth in US productivity suggests a causal relationship that is
at the very heart of the long term bull case for technology investment.
Technology shares out-performed in all markets and benefited from their
exceptionally rapid recovery in profitability. Much of the earnings growth that
the sector has delivered over the last year has derived from cost cutting and it
is only in the last few quarters that much has been contributed by top-line
growth. Within the technology sector, the most prominent recovery has been in
the telecommunications industry, the source of a good deal of the industry's
woes over the last few years. However, other areas such as semiconductors,
medical technology and the internet all produced outstanding returns. By region,
Asia and the UK topped the performance table while, in every market, smaller
companies markedly outperformed.
Throughout most of the year, the Company remained fully invested but our growing
concern that shares prices were moving ahead of fundamentals led us to raise
some liquidity in the first quarter of 2004. Although economic recovery has
gathered momentum in recent months, the corollary of this development is a
tightening of the credit cycle. As yet, it is unclear just how rapidly interest
rates will need to be raised in the USA but memories of 1994 remain fresh in our
minds and are likely to act as a dampener on investors' appetite for risk. There
are also growing concerns about the consequences of a slowdown in China which
has been such a critical driver of growth in both the Asian and the global
economies. Together with continuing geopolitical issues, the recessionary impact
of record oil prices and uncertainty ahead of the US Presidential election later
this year, there is plenty to keep investors on their toes. Against these
potential negatives can be balanced continuing strong profits growth, an
acceleration in capital spending and valuations which, although high in absolute
terms, appear inexpensive relative to bonds. With share prices now some way back
from their recent highs, the arguments have become more finely balanced.
From a technology investor's perspective, the issues are similar. The industry
has enjoyed a strong cyclical recovery but is likely to see diminishing earnings
momentum in the second half of this year. However, capital spending can be
expected to show positive trends as we move through 2004 and earnings growth
remains well above that of the market as a whole. We continue to believe that a
secular bull market of the sort that characterised the 1990s is still some years
away but, as we wrote last year, the deflation of the bubble that marked the end
of that decade has been completed. We expect a volatile market over the next
year but one in which individual technology shares can do well. We intend to use
any further pronounced weaknesses to reduce our liquidity. Over the medium term,
we intend to continue the reorientation of our portfolio eastwards and, once the
credit tightening cycle is more mature, extend our exposure to the lower
capitalisation tiers of the market from where we expect many of the major
winners of the next secular wave in technology to emerge.
With the deflation of the technology bubble and the consequent diminution in the
popularity of technology investment, there has been a widening in the discount
to net asset value at which our shares trade. Such cyclical fluctuations in the
discounts of specialist investment trusts are not unusual and can create
opportunity. We have begun a share buy-back programme which enhances the net
asset value of each outstanding share. As at 30 April, 2,850,000 shares had been
purchased and cancellation and a further 2,382,000 shares have been purchased
and cancelled since then. The total number of shares purchased to date is
5,232,000 representing 3.5% of the shares in issue at our last half year end.
It is now four years on from the unbridled optimism that accompanied the
technology sector's peak in early 2000. Although the period since then has been
difficult for investors, there can be little doubt that the industry is now a
good deal leaner and fitter than it was back then. Over the long term we believe
that the technology sector remains unique in its ability to deliver creativity
and profitable growth.
R K A Wakeling,
Chairman
14 June 2004
GROUP STATEMENT OF TOTAL RETURN for the year ended 30 April 2004
(INCORPORATING THE REVENUE ACCOUNT)
Unaudited Audited
Year ended 30 April 2004 Year ended 30 April 2003
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Total capital
gains/(losses) from
investments - 85,675 85,675 - (65,865) (65,865)
Repurchase of
warrants - (8) (8) - 71 71
Income from fixed
asset investments 1,828 - 1,828 2,092 - 2,092
Other interest
receivable and
similar income 888 - 888 891 - 891
Gross revenue and
capital gains/ 2,716 85,667 88,383 2,983 (65,794) (62,811)
(losses)
Management fee (2,098) - (2,098) (1,611) - (1,611)
Other administrative
expenses (586) - (586) (601) - (601)
Net return on
ordinary activities
before interest
payable and taxation 32 85,667 85,699 771 (65,794) (65,023)
Interest payable and
similar charges (569) - (569) (567) - (567)
Net (loss)/returnon
ordinary activities
before taxation (537) 85,667 85,130 204 (65,794) (65,590)
Taxation on ordinary
activities (143) - (143) (134) - (134)
Net (loss)/return
on ordinary
activities after
taxation (680) 85,667 84,987 70 (65,794) (65,724)
(Loss)/return per
ordinary share (p)
Basic (0.45)p 57.26p 56.81p 0.05p (44.16p) (44.11p)
Fully diluted (0.43)p 54.14p 53.71p 0.05p (42.71p) (42.66p)
The revenue columns of this statement represent the revenue accounts of the
Group.
GROUP BALANCE SHEET at 30 April 2004
Unaudited Audited
30 April 2004 30 April 2003
£'000 £'000
Fixed asset investments
Listed at market value:
United Kingdom 36,280 21,738
Overseas 235,562 194,672
271,842 216,410
Unlisted at directors' valuation:
United Kingdom 842 444
Overseas - -
272,684 216,854
Current assets
Investments 1,563 -
Debtors 34,569 51,761
Cash 74,254 36,760
110,386 88,521
Creditors: amounts falling due within one year (41,840) (73,336)
Net current assets 68,546 15,185
Total assets less current liabilities 341,230 232,039
Creditors: amounts falling due after more than
one year (34,594) (11,017)
Total net assets 306,636 221,022
Capital and reserves
Called up share capital 36,832 37,250
Capital redemption reserve 713 -
Share premium 88,842 87,959
Warrant reserve 7,147 8,070
Warrant exercise reserve 940 568
Other capital reserves 226,504 140,837
Revenue reserve (54,342) (53,662)
Equity shareholders' funds 306,636 221,022
Net asset value per ordinary share
Undiluted 208.13p 148.34p
Diluted 193.71p 141.25p
GROUP CASH FLOW STATEMENT for the year ended 30 April 2004
Unaudited Unaudited Audited Audited
2004 2004 2003 2003
£'000 £'000 £'000 £'000
Net cash (outflow)/inflow from
operating activities (2,521) 32
Servicing of finance
Bank and loan interest paid (634) (478)
Net cash outflow from servicing of
finance (634) (478)
Taxation
UK tax recovered - -
Overseas withholding tax recovered - 10
Net tax recovered - 10
Financial investment
Purchase of investments (306,715) (267,145)
Sale of investments 332,899 265,702
Gain from forward foreign currency
contracts 6,879 2,333
Net cash inflow from financial
investment 33,063 890
Net cash inflow before financing 29,908 454
Financing
Proceeds from exercise of warrants 1,178 5
Repurchase of warrants (559) (418)
Repurchase of shares (4,759) -
Loans taken out 45,410 -
Loan matured (31,196) -
Net cash inflow/(outflow) from
financing 10,074 (413)
Increase in cash 39,982 41
Reconciliation of net cash flow to movement in net funds
Increase in cash as above 39,982 41
Movement in long term loans (14,214) -
Change in net funds resulting from cash flows 25,768 41
Exchange movements (1,544) (372)
Net movement in the year 24,224 (331)
Net funds at 1 May 4,705 5,036
Net funds at 30 April 28,929 4,705
Notes:
1. Loss)/Return per ordinary share
Revenue (loss)/return per ordinary share is based on the net loss after taxation
attributable to the ordinary shares of £680,000 (2003:return:£70,000) and on
149,607,557 (2002:148,998,143) ordinary shares, being the weighted average
number of shares in issue during the year.
Basic capital return/(loss) per ordinary share is based on net capital gains of
£85,667,000 (2003:net capital loss:£65,794,000) and the weighted average number
of shares in issue during the year as shown above.
The calculations of the fully diluted revenue and capital returns per ordinary
share are carried out in accordance with Financial Reporting Standard No.14
Earnings per Share (FRS 14). For the purposes of calculating diluted revenue and
capital returns per share, the number of shares is the weighted average used in
the basic calculation plus a number of shares deemed to be issued for no
consideration on exercise of all warrants, by reference to the average price of
the ordinary shares during the year. The calculations indicate that the exercise
of warrants would result in an additional weighted average number of shares of
8,636,006 (2003: 5,032,510) resulting in a total weighted average number of
shares of 158,243,563 (2003: 154,030,653).
2. 2003 Accounts
The figures and financial information for the period ended 30 April 2002 are an
extract of the latest published accounts of the Group and do not constitute the
statutory accounts for that year. Those accounts 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.
3. 2004 Accounts
The preliminary figures for the year ended 30 April 2004 are an extract from the
Group's accounts for that period and do not constitute the statutory accounts
for that year. These accounts have not yet been delivered to the Registrar of
Companies, nor have the Auditors yet reported on them.
4. Reconciliation of operating revenue to net cash (outflow)/inflow from
operating activities
Unaudited Audited
30 April 2004 30 April 2003
£'000 £'000
Net result before interest payable and
taxation 32 771
Increase in current asset investments (1,563) -
(Increase)/decrease in accrued income (90) 101
Increase in other debtors (33) (48)
Decrease/(increase) in other creditors (335) 158
Capital dividends 19 -
Overseas withholding tax suffered (145) (129)
Script dividends included in investment income (133) (59)
Interest accumulations included in investment
income (273) (762)
Net cash (outflow)/inflow from operating
activities (2,521) 32
5. Basis of consolidation
The Group accounts consolidate the accounts of the Company and its wholly owned
subsidiary undertaking, PCT Finance Limited.
6. Copies of Report and Accounts
The full annual report and accounts will be posted to shareholders in late June
2004 and copies will be available thereafter from the Company Secretary at the
Company's Registered Office, Cayzer House, 30 Buckingham Gate, London SW1E 6NN
(020 7592 1500).
7. Annual General Meeting
The Annual General Meeting will be held at 12.30 pm on Friday 23 July 2003 at
The Offices of UBS Investment Bank, Finsbury Avenue, London EC2M 2PP.
This information is provided by RNS
The company news service from the London Stock Exchange