Final Results
Polar Capital Technology Trust PLC
14 June 2005
POLAR CAPITAL TECHNOLOGY TRUST PLC
Unaudited Preliminary Results
for the year ended 30 April 2005
14 JUNE 2005
HIGHLIGHTS
• NAV per share fall of 1.2% contrasts favourably with a 9.9% drop in the
Dow Jones World Technology Index
• Heavy redemptions of specialist technology funds suggest a technology
bear market that is close to a bottom
• Share buy-backs materially enhance NAV by more than 10p per share
• Continuing consolidation in the sector, corporate management and the
emergence of strong growth areas (such as LCDs and broadband applications)
represent very encouraging developments
• Evidence from past cycles suggest the approach of a longer term positive
turning point for the sector
Financial Highlights 30 April 2005 30 April 2004 Change %
---------------------- ---------------- ------------ ------------
Net assets per share
Undiluted 205.72p 208.13p (1.2)
Diluted 190.36p 193.71p (1.7)
Price
per ordinary share 165.50p 164.75p 0.5
per warrant 65.00p 64.75p 0.4
Total net assets £237,237,000 £306,636,000 (22.6)
Shares in issue at year end 115,320,162 147,328,288
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 7227 2700 E.mail: Jacqui@binnspr.co.uk
www.polarcapitaltechnologytrust.co.uk Peter.Binns@binnspr.co.uk
Chairman's Statement:
Good returns proved elusive for most investors over the past year with most of
the rich pickings to be found in Asia and the natural resource markets, both of
which benefited from China's growth. In contrast, the technology sector failed
to generate any really positive momentum and gave up about half of the relative
outperformance enjoyed the previous year. Your Company's net assets per share
fell by 1.2% over the twelve months to 30 April 2005. While this figure
contrasts favourably with a fall in the Dow Jones World Technology Index of 9.9%
(in sterling terms) over the same period, the absolute result was disappointing.
For most of the year, the bulls and bears struggled to gain the upper hand with
the US economy alternating between periods of robust growth and patches of
softness. Both interest rates and oil prices acted as dampeners on domestic
demand while the same factors operating in reverse helped to prevent downside
economic momentum becoming too established. Asian growth and the robust
performance of real estate markets have been two of the major props to the
global economy supported by the continuation - until recently - of very
accommodative monetary policies. Growth in the USA has defied but not
necessarily converted the sceptics while there have been grounds for greater
optimism in Japan if not in much of Europe.
While the macroeconomic picture has been mixed, the microeconomic environment
has been very supportive for equity markets. Corporate earnings growth has been
strongly positive, cash flows outstanding and balance sheets a picture of
health. Even in those countries where macroeconomic change has been most
hesitant, developments at a corporate level have suggested the possibility of
positive change being driven from below. Japan is an obvious case in point but
there have also been encouraging signs in both Germany and France.
On balance, developments in the technology industry have also been favourable.
Companies continue to trim their costs and improve their capital efficiency
while most have been restrained in adding capacity. Earnings growth for the
industry has been good but it has been insufficient to attract the attention of
generalist investors. Consequently, the relative valuations of technology shares
have shrunk. European and Asian technology shares were particularly poor
relative performers while, in the USA, smaller technology companies and
semiconductor shares were hardest hit.
Your Company's relative outperformance was generated by a number of factors. The
positive impact of share buy backs accounted for half the outperformance. We
also benefited from adopting a relatively cautious stance ahead of the sharp
sell-off in technology shares last summer and from our partial hedging of both
the dollar and the yen. Finally, we materially outperformed our benchmark in
Europe.
To date, our share and warrant buy backs have resulted in the repurchase and
cancellation of 33,730,000 shares and 1,345,000 warrants over the financial
year, equivalent to 22.9% of our shares and 5.9% of our warrants in issue at 30
April 2004. The board intends to continue with such purchases thus removing
excess shares and unwanted warrants especially as there may be an over supply of
shares when the warrants reach their final exercise date of 30 September 2005.
Undoubtedly, our ability to buy back shares has been made easier by the
understandable frustration and even disillusionment felt by many investors whose
only experience of our investment specialisation has been during an
exceptionally difficult bear market over the last five years. Such frustration
is only too evident across the entire technology investment space and has been
reflected in heavy redemptions of technology mutual funds in both Europe and in
the USA. Selling of this magnitude is almost always the sign of a mature bear
market and a lead indicator of an impending directional change in that market.
To the extent that this is so, we are encouraged by this development and we will
continue to be buyers of our stock.
As we enter our new financial year, many of the issues confronting investors are
the same as those encountered a year ago. The Federal Reserve continues its move
towards a more neutral monetary policy, trying to balance the need for greater
monetary discipline with the risks inherent in America's massive fiscal and
trade deficits and the still ebullient US housing market. Consumer spending has
thus far proved remarkably resilient but, with some evidence of greater
inflationary pressure, together with the recessionary impact of oil prices,
there is a risk that the Fed may fail to sustain its delicate balancing act.
Recent signs of a slowdown in retail sales not just in the USA, but also in
other countries such as the UK and Australia which were early to raise interest
rates, suggest caution. Hopefully, the recent data simply reflects a soft patch
which may give way to a reacceleration in the economy later this year. However,
it seems important to reflect in our investment stance the possibility of a
recession.
Recession risks aside, the outlook for markets is for more of the same - modest
returns from immodest effort. The health of the corporate sector is an
encouragement but margins must be at or very close to a peak. Earnings growth is
however still reasonable and, relative to bonds, equities look cheap and
liquidity is still plentiful. Our secular preference remains for Asian markets
although they are unlikely in the event of any economic weakness to decouple
from the USA. In both Japan and in Europe there have been positive microeconomic
developments which should ensure plenty of opportunities at a corporate level.
In the technology industry, spending growth continues at a similar pace to last
year which should allow solid rather than spectacular earnings growth. However,
there have been a number of encouraging developments over the last year, in
particular the continuing consolidation in the sector, the emergence of a number
of strong growth areas, the accelerating roll out of new applications to take
advantage of broadband communications and the general improvement in corporate
management. These developments together with the level of investor
disenchantment with the sector provide increasing support for our view that we
are within 18 months of a turning point for the industry, one which we believe
will see the technology bear market being replaced by an extended period of
technology sector outperformance.
Over the eight and a half years since your Company was launched as a successor
to TR Technology, net assets per share have grown by 111%. This compares with
the Company's original benchmark (the FTSE World Index) rising by 44.2%. In
November 1998, the first of a number of global technology indices was launched
and since then, our net assets have risen by 41% against a decline of 18% in the
Dow Jones World Technology Index. Relative to the vast majority of our peer
group, performance has been highly satisfactory and has fully vindicated the
Board's decision to move the management contract to Polar in 2001. Over the last
twenty years, Polar's technology management team have built an outstanding
record first at TR, then at Henderson and more recently at Polar. Clearly the
technology investing environment has been very difficult over the last five
years and the inevitable result has been absolute losses despite sound relative
performance. However, we believe that we are within sight of an important
turning point for the sector and that our management team are well resourced to
exploit the opportunities ahead. Consequently, the Board strongly recommends to
shareholders to vote in favour of resolution 7. This resolution, if passed, will
remove the requirement for a winding-up resolution to be put at our annual
general meeting in 2006, a point when we think investors ought to be overweight
in an industry which should be due for an extended upturn in its cycle. The
Directors intent to vote their shares in favour of the resolution and are
encouraged by the indications of support from a significant number of our
shareholders.
Richard Wakeling
13 June 2005
Extracts from the Manager's Report:
Technology Cycles and Performance
The last five years have been a truly horrible experience for technology
investors and particularly so for those who only first invested in the industry
in the latter part of 1999 or in 2000. In absolute terms, the damage done to
investors' portfolios by the bursting of the technology bubble in March 2000 and
the subsequent collapse bears comparison with that which followed the technology
boom in the late 1960s and greatly exceeds that experienced in the aftermath of
the PC boom in the early 1980s. In relative terms, however, the pattern followed
by the sector during this cycle has been very similar to that of previous 'booms
and busts' both in the technology sector and other areas of the financial
markets over the last forty years.
Evidence suggests that sectors that experience a boom rarely provide a sustained
period of outperformance for at least five years following the peak of that
boom. The current cycle in technology fits the pattern remarkably neatly. Given
that the NASDAQ market peaked on 10 March 2000, just over five years ago, it is
appropriate to consider what previous cycles would suggest about the likely
behavior of the technology sector over the next 5-10 years.
There appears to be a pattern of technology cycles with peaks separated by
periods of 12-15 years and normally associated with major product cycles such as
reprographics (late 1960s), PCs (early 1980s) and the internet (late 1990s).
Looking at the last two cycles and using an unweighted technology index from
Piper Jaffray, a US securities firm, suggests that the sector's relative low
normally occurs 6 - 6.5 years after the previous boom. This would point to a
bottom on this cycle sometime in the second or third quarter of 2006. Further
analysis of the PJ index suggested very strong relative performance over both
three and five year periods following the fifth anniversary of the previous
boom's peak. This implies that, even from the point that we have reached today,
technology investors should now be able to look forward to a period of good
medium term performance relative to the overall stock market.
We have also noticed a pattern of four year cycles in technology shares,
possibly the consequence of a broader capital spending cycle. This 'medium term'
cycle shows a pattern of alternating 'larger' and 'smaller' cycles. If this four
year pattern were to repeat itself going forward then this also would point to a
turning point in the second half of 2006 and imply a strong period for
technology shares in 2006-7.
While one needs to be cautious about history repeating itself too exactly, we
take some comfort from both the evidence of earlier cycles and also from the way
in which the excesses of the late 1990s technology boom have been largely
expunged over the last 5 years. These factors, together with a number of other
normally late cycle developments such as heavy technology mutual fund
redemptions, suggest the end of the downturn may not be too far away and a new
upturn is likely to follow close behind. Against that backdrop, we will be
looking at the best way in which to position the Company's portfolio for the
better times that we think lie ahead.
Notwithstanding the pain that we have all experienced over the period since
March 2000, we believe that the technology industry's proven ability to grow
considerably faster than global economic growth and to reinvent itself with each
new cycle will continue to allow it to generate significant excess returns over
the long term. Over the last 20 years, a period which encompasses 11 years of
technology bear markets and 9 years of bull markets, the Polar Capital
management team have delivered appreciation of 1,918%* which compares to an
appreciation in the MSCI World Index of 451.9%. With what we believe is the
greatest part of the current technology bear market now behind us, we are
hopeful that returns over the next 5-7 years can return to the levels delivered
historically and that your Company can resume its historic position in the upper
reaches of the investment performance tables.
Brian Ashford-Russell
*Source Polar Capital Partners based on figures from 30 April 1985 to 30 April
2005 and using Henderson Global Technology Unit Trust for the period prior to
the Company's launch on 16 December 1996 and based on the undiluted NAV for the
Company.
GROUP STATEMENT OF TOTAL RETURN for the year ended 30 April 2005 (INCORPORATING
THE REVENUE ACCOUNT)
Unaudited Audited
Year ended 30 April 2005 Year ended 30 April 2004
Revenue Capital Total Revenue Capital* Total*
£'000 £'000 £'000 £'000 £'000 £'000
Total capital
(losses)/ gains
from investments - (13,778) (13,778) - 90,434 90,434
Income from fixed
asset investments 2,501 - 2,501 1,828 - 1,828
Other interest
receivable and
similar income 793 - 793 888 - 888
Gross revenue and
gains/(losses) on
investments 3,294 (13,778) (10,484) 2,716 90,434 93,150
Investment
management fee (3,224) - (3,224) (2,098) - (2,098)
Other
administrative
expenses (609) - (609) (586) - (586)
Net (loss)/return
on ordinary
activities before
interest payable,
cost of warrant
repurchases and
taxation (539) (13,778) (14,317) 32 90,434 90,466
Repurchase of
warrants - (438) (438) - (8) (8)
Interest payable
and similar
charges (501) - (501) (569) - (569)
Net (loss)/return
on ordinary
activities before
taxation (1,040) (14,216) (15,256) (537) 90,426 89,889
Taxation on
ordinary
activities (154) - (154) (143) - (143)
Net (loss)/return
on ordinary
activities after
taxation (1,194) (14,216) (15,410) (680) 90,426 89,746
(Loss)/return per
ordinary share (p)
Basic (0.91p) (10.84p) (11.75p) (0.45)p 60.44p 59.99p
Diluted (0.85p) (10.13p) (10.98p) (0.43)p 57.14p 56.71p
The revenue columns of this statement represent the Profit and Loss account of
the Group.
* Restated - see note 1
GROUP BALANCE SHEET at 30 April 2005
Unaudited Audited
30 April 2005 30 April 2004
£'000 £'000
Fixed asset investments
Listed at market value:
United Kingdom 27,248 36,280
Overseas 190,560 235,562
217,808 271,842
Unlisted at Directors' valuation:
United Kingdom 930 842
218,738 272,684
Current assets
Investments 1,603 1,563
Debtors 29,408 34,569
Cash 58,222 74,254
89,233 110,386
Creditors: amounts falling due within one year (40,242) (41,840)
Net current assets 48,991 68,546
Total assets less current liabilities 267,729 341,230
Creditors: amounts falling due after more than
one year (30,492) (34,594)
Total net assets 237,237 306,636
Capital and reserves
Called up share capital 28,830 36,832
Capital redemption reserve 9,145 713
Share premium 90,134 88,842
Warrant reserve 6,179 7,147
Warrant exercise reserve 1,483 940
Other capital reserves 157,002 226,504
Revenue reserve (55,536) (54,342)
Equity shareholders' funds 237,237 306,636
Net asset value per ordinary share
Undiluted 205.72p 208.13p
Diluted 190.36p 193.71p
GROUP CASH FLOW STATEMENT for the year ended 30 April 2005
Unaudited Unaudited Audited Audited
2005 2005 2004 2004
£'000 £'000 £'000 £'000
Net cash outflow from operating
activities (1,507) (2,521)
Servicing of finance
Bank and loan interest paid (506) (634)
Net cash outflow from servicing of
finance (506) (634)
Taxation
Overseas withholding tax recovered 42 -
Net tax recovered 42 -
Financial investment
Purchase of investments (271,719) (306,715)
Sale of investments 308,327 332,899
Settlement of forward foreign
currency contracts 4,555 6,879
Settlement of spot FX contracts 3 -
Settlement of derivative
contracts 420 -
Liquidation proceeds 66 -
Net cash inflow from financial
investment 41,652 33,063
Net cash inflow before financing 39,681 29,908
Financing
Proceeds from exercise of warrants 1,722 1,178
Repurchase of warrants (734) (559)
Repurchase of shares (55,269) (4,759)
Loans taken out 10,396 45,410
Loans matured (10,396) (31,196)
Net cash (outflow)/inflow from
financing (54,281) 10,074
(Decrease)/increase in cash (14,600) 39,982
Reconciliation of net cash flow to movement in net funds
(Decrease)/increase in cash as above (14,600) 39,982
Movement in long term loans - (14,214)
Change in net funds resulting from cash flows (14,600) 25,768
Exchange movements (373) (1,544)
Net movement in the year (14,973) 24,224
Net funds at 1 May 28,929 4,705
Net funds at 30 April 13,956 28,929
Notes:
1. (Loss)/return per ordinary
share Basic revenue loss per ordinary share is based on the net loss after
taxation attributable to the ordinary shares of £1,194,000 (2004:£680,000) and
on 131,110,198 (2004:149,607,557) ordinary shares, being the weighted average
number of shares in issue during the year. Basic capital (loss)/return per
ordinary share is based on net capital losses of £14,216,000 (2004:gains
of:£90,426,000) and the weighted average number of shares in issue during the
year as shown above.
The calculations of the 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
9,208,806 (2004:8,636,006) resulting in a total weighted average number of
shares of 140,319,004 (2004:158,243,563).
The total capital gains/(losses) from investments figure for the year ended 30
April 2004 has been restated from £85,675,000 to £90,434,000. This restatement
was necessary as the cost of the company purchasing its own shares had been
included in the Statement of Total Return for the year ended 30 April 2004.
These costs are now shown in the Group reconciliation of movements in equity
shareholders funds. This restatement has no impact on the net asset value of the
company.
2. 2004 Accounts
Other than the restatement referred to above, the figures and financial
information for the period ended 30 April 2004 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. 2005 Accounts
The preliminary figures for the year ended 30 April 2005 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
from operating activities
Unaudited Audited
30 April 2005 30 April 2004
£'000 £'000
Net (loss)/gain before interest payable and
taxation (539) 32
Increase in current asset investments (40) (1,563)
Decrease/(increase) in accrued income 75 (90)
Decrease/(increase) in other debtors 43 (33)
Decrease in other creditors (123) (335)
Capital dividends - 19
Overseas withholding tax suffered (187) (145)
Script dividends included in investment income (71) (133)
Interest accumulations included in investment
income (665) (273)
Net cash outflow from operating activities (1,507) (2,521)
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
2005 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)
7. Annual General Meeting
The Annual General Meeting will be held at 12.30 pm on Friday 22 July 2005 at
the offices of UBS Investment Bank, Finsbury Avenue, London EC2M 2PP.
Portfolio Review
Equity Investments over 0.75% of net assets at 30 April 2005
North America
_________________________
£'000 Stock Activity % of net assets
_______________________________________________________________________
3,250 Genentech Biotechnology 1.4%
3,096 Medtronic Medical technology 1.3%
2,804 Amgen Biotechnology 1.2%
2,797 Dell Computer Computing 1.2%
2,650 Yahoo Internet advertising 1.1%
2,484 Analog Devices Analog IC's 1.0%
2,476 Linear Technologies Analog IC's 1.0%
2,437 KLA Tencor Semiconductor capital 1.0%
equipment
2,432 Lockheed Martin Aerospace/Defence 1.0%
2,403 International Business IT services 1.0%
Machines
2,172 Electronic Arts Gaming software 0.9%
2,077 Juniper Networks Telecom equipment 0.9%
2,044 DST Systems IT services 0.9%
2,004 Genzyme Transgenics Biotechnology 0.8%
1,985 Applied Materials Semiconductor capital 0.8%
equipment
1,911 Corning Telecom equipment 0.8%
1,862 Apple Computers Computing 0.8%
1,837 CMP Sciences Services 0.8%
1,825 Microsoft Software 0.8%
1,802 Network Appliance Storage hardware 0.8%
1,781 Maxim Integrated Products Analog IC's 0.8%
_______________________________________________________________________
48,129 Total investments over 20.3%
0.75%
57,917 Other investments 24.4%
_________ _________
_________
106,046 Total North American investments 44.7%
_________________________________________ _________
Europe
_________________________________________
£'000 Stock Activity % of net assets
_______________________________________________________________________________
3,054 Wincor Nixdorf ATM/Pos hardware 1.3%
2,687 Atos Origin IT services 1.1%
2,498 Synthes Medical technology 1.1%
2,364 SES Global Satellite 1.0%
communications
2,269 Aveva Group Software 1.0%
2,221 SAP Enterprise software 0.9%
2,092 Sage Payroll software 0.9%
2,050 Austriamicrosystems Semiconductors 0.8%
_______________________________________________________________________________
19,235 Total investments over 0.75% 8.1%
32,445 Other investments 13.7%
_______ __________
51,680 Total European investments 21.8%
_______________________________________________________________________________
Asia
_________________________________
£'000 Stock Activity % of net assets
_______________________________________________________________________________
4,304 Motech Solar cells 1.8%
3,711 Kumho Electric LCD components 1.6%
3,477 Aplix Mobile phone 1.5%
software
3,460 Nitto Denko Polarisers 1.5%
3,401 CKD Factory automation 1.4%
3,174 JSR LCD materials 1.3%
2,907 Zeon LCD materials 1.2%
2,635 Kiryung Electronics Satellite radio 1.1%
2,527 Kuroda Components 1.1%
2,219 Aruze Gaming equipment 0.9%
2,109 LG Philips LCD panels 0.9%
2,079 Connect Technologies Software/services 0.9%
_______________________________________________________________________________
36,003 Total investments over 0.75% 15.2%
4,695 Other investments 2.0%
_______ ________
40,698 Total Asian investments 17.2%
________________________________________________________________________________
Portfolio
Review
Classification of Investments -
at 30 April 2005
TOTAL TOTAL
North America Europe Asia 30 April 2005 30 April 2004
% % % % %
______________________________________________________________________
Computing 9.5 1.3 - 10.8 8.4
Components 10.5 2.9 8.9 22.3 27.8
Software 7.7 8.5 2.3 18.5 19.0
Services 1.2 1.3 - 2.5 5.5
Communications 1.9 1.0 1.1 4.0 5.5
Life 9.5 3.1 - 12.6 13.2
Sciences
Consumer,
Media and
Internet 2.0 2.8 1.8 6.6 4.2
Other
Technology 2.4 0.5 3.1 6.0 5.2
Unquoted
Investments - 0.4 - 0.4 0.3
_______________________________________________________________________
EQUITY
INVESTMENTS 44.7 21.8 17.2 83.7 89.1
_______________________________________________________________________
Money Market
Funds - 7.9 - 7.9 -
Corporate
Bonds - - 0.6 0.6 -
Forward
Currency
Contracts (8.3) 8.3 - - 0.4
Net Current
Assets 5.4 6.5 14.6 26.5 25.3
Loans - - (18.7) (18.7) (14.8)
_______________________________________________________________________
OTHER NET
ASSETS (2.9) 22.7 (3.5) 16.3 10.9
_______________________________________________________________________
GRAND TOTAL 41.8 44.5 13.7 100.0 -
(net assets of
£237,237,000) _______________________________________________________________________
At 30 April
2004 34.3 58.0 7.7 - 100.0
(net assets of
£ 306,636,000) _______________________________________________________________________
INDEX CHANGES (total return) over the year to 30 April 2005
Local Currency Sterling
Adjusted
% %
Benchmark - (7.8)
Technology Indices:
Dow Jones World (3.0) (9.9)
Technology
Pacific SE (USA) 2.2 (5.1)
Technology
MS Eurotec (based in US (4.7) (11.5)
dollars)
FTSE Techmark 100 - (6.2)
Tecdax (14.5) (14.5)
Tokyo SE Electronics (13.5) (15.5)
DS Asia ex Japan 9.7 1.8
Electronics
Market Indices:
FTSE World - 3.6
S&P 500 Composite 6.3 (1.3)
FTSE All-Share - 10.7
FTSE World Europe (ex - 10.4
UK)
Tokyo SE (Topix) (3.6) (5.9)
FTSE World Pacific Basin - 13.6
(ex Japan)
EXCHANGE RATES 30 April 2005 30 April 2004
US$ to £ 1.9099 1.7733
Japanese Yen to £ 200.38 195.70
Euro to £ 1.4794 1.4792
Fund Distribution by Market Capitalisation as at 30 April 2005
Market Capitalisation % of invested
assets
< $2bn 38.3%
$2bn-$10bn 25.4%
> $10bn 36.3%
This information is provided by RNS
The company news service from the London Stock Exchange
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