Final Results
REGULATORY ANNOUNCEMENT
Blue Planet Financials Growth & Income Investment Trusts No 1-10 plc
Preliminary Announcement
for year ended 31 March 2010
Registered Numbers
Blue Planet Financials Growth and Income Investment Trust No 1 plc
(Registered Number 162796)
Blue Planet Financials Growth and Income Investment Trust No 2 plc
(Registered Number 162797)
Blue Planet Financials Growth and Income Investment Trust No 3 plc
(Registered Number 162798)
Blue Planet Financials Growth and Income Investment Trust No 4 plc
(Registered Number 162799)
Blue Planet Financials Growth and Income Investment Trust No 5 plc
(Registered Number 162800)
Blue Planet Financials Growth and Income Investment Trust No 6 plc
(Registered Number 162801)
Blue Planet Financials Growth and Income Investment Trust No 7 plc
(Registered Number 162802)
Blue Planet Financials Growth and Income Investment Trust No 8 plc
(Registered Number 162803)
Blue Planet Financials Growth and Income Investment Trust No 9 plc
(Registered Number 162804)
Blue Planet Financials Growth and Income Investment Trust No 10 plc
(Registered Number 162805)
The unedited full text of those parts of the Report and Accounts for the year
ended 31 March 2010 which require to be published by DTR 4.1 is set out below.
Financial Record and Key Performance Indicators
As at 31 March 2010 2009 2008 2007 2006
Total assets less current liabilities (£ 2,592 1,987 6,058 6,402 5,827
'000)
Creditors > 1 year (£'000) (811) (915) (2,569) (1,925) (1,923)
Shareholders' funds (£'000) 1,781 1,072 3,490 4,477 3,904
Net asset value per share (p) 13.03 7.85 25.56 32.86 28.76
Share price (p) - (Bid) 8.70 4.20 15.60 23.00 19.20
Discount (%) 33.2 46.5 39.0 30.0 33.2
Gearing (%)* - 6.5 - 28.9 46.5
Year to 31 March 2010 2009 2008 2007 2006
Revenue available for shareholders (£ (53) 136 13 0 1
'000)****
Revenue Return per share (p) (0.38) 1.00 0.09 0.00 0.01
Proposed final dividend per share (net) - 0.76 - - -
(p) (note 6)
Dividend yield on our shares (%) - 18.1 - - -
Dividend yield on Benchmark Index (%) 2.03 5.76 3.42 3.23 3.35
Expenses ratio - net basis (%) ** 4.99 2.57 3.51 3.38 2.95
Expenses ratio - gross basis (%) *** 3.07 1.44 2.53 2.29 1.72
The Board believes the above KPI's are of most interest to shareholders in
monitoring the performance of the Company
* Net debt as a percentage of Shareholders' Funds
** Net basis - Administrative expenses as a percentage of the average net asset
value of the Company
*** Gross basis - Administrative expenses as a percentage of the average gross
asset value of the Company
**** 2009 Includes VAT recovered of £27,000
Portfolio Information
At 31 March 2010 Country Valuation % of
Name
(£) Portfolio
2010
Equities
8,966 BP Global Financials-A Class Eire 386,287 14.8
9,152 Australia & New Zealand Banking Australia 140,183 5.4
Group Limited
7,802 Westpac Banking Corporation Australia 131,149 5.0
3,751 Commonwealth Bank of Australia Australia 127,489 4.9
535 Zurich Financial Services AG Switzerland 90,523 3.5
236,088 PT Bank Mandiri Indonesia 89,738 3.5
49,522 Asya Katilim Bankasi A.S. Turkey 86,662 3.3
17,658 Turkyie Halk Bankasi A.S. Turkey 83,372 3.2
138,806 PT Bank Rakyat Indonesia Indonesia 82,910 3.2
30 Bank of Cyprus Ltd Cyprus 125 0.0
57 Turkiye Is Bankasi Turkey 122 0.0
110 Allied Irish Banks Plc Eire 117 0.0
36 Turkiye Garanti Bankasi A.S. Turkey 110 0.0
3 Credit Suisse Switzerland 102 0.0
2 BNP Paribas France 101 0.0
5 Banco Bradesco SA ADR Brazil 61 0.0
Listed 1,219,051 46.8
Investments
Cash 1,385,259 53.2
Total 2,604,310 100.0
At 31 March 2010 the portfolio yield, as reported to the Association of
Investment Companies, was 1.35% (2009 - 12.09%).
Classification of Investments
At 31 March 2010 Banks Investment Other Cash Total Total
Finance
% Companies % 2010 2009
%
% % %
United Kingdom - - - 38.7 38.7 16.0
Australia 15.3 - - 0.0 15.3 -
Eire - 14.8 - - 14.8 18.4
Canada - - - 14.5 14.5 -
Indonesia 6.7 - - - 6.7 -
Turkey 6.5 - - - 6.5 -
Switzerland 3.5 - - - 3.5 0.0
Cyprus 0.0 - - - 0.0 -
France 0.0 - - - 0.0 0.0
Brazil 0.0 - - - 0.0 0.6
Poland - - - 0.0 0.0 -
Norway - - - 0.0 0.0 6.9
Russia - - - - - 22.6
Rest of Europe - - - - - 11.0
India - - - - - 8.6
United States - - - - - 7.0
Australia - - - - - 5.0
Ukraine - - - - - 2.8
Spain - - - - - 1.1
Italy - - - - - 0.0
Greece - - - - - 0.0
Totals 2010 32.0 14.8 - 53.2 100.0 100.0
Totals 2009 40.9 18.4 0.9 39.8 - 100.0
Benchmark* 66.3 5.6 28.1 - 100.0 -
*Our benchmark is the Bloomberg World Financial Index (sterling denominated).
Chairman's Statement
Performance
In the past year there has been a substantial recovery in the share price and
net asset value ("NAV") of your Fund. In the year to 31 March 2010 the
undiluted NAV of the Fund has made a total return of 75.4%, rising to a value
of 13.03p per share, or 130.3p per Share Unit. Our performance benchmark, the
Bloomberg Worldwide Financials Index in Sterling terms made a return of 60.1%.
The price of the Share Unit of your Fund has risen 107.1% over the year and
ended March 2009 at a bid price of 87.0p a Share Unit. Including the year's
dividend of 7.6p per Share Unit, the total return of the shares over the past
year is 129.6%. It is pleasing to be able to report a return to outperformance
of the Fund's benchmark, even though the share price remains at a very wide
discount to NAV of 33.2%.
As we said in the Interim Report in September 2009, we believed that the
turnaround in equity share prices that began in March 2009 was the start of a
sustained rally based on improving economic indicators and improving financial
results from banks. This has indeed been the case and since the nadir of the
equity bear market passed in March 2009 share prices have risen sharply for
many months. Bank share price rises have been boosted by financial results
which have improved dramatically in 2009 over 2008 and were well ahead of
analysts' expectations. In the financial numbers reported for the fourth
quarter of 2009, banks results beat analysts' estimates by 73% on average for
the financial sector of the Bloomberg World Index.
The rally has not been without its setbacks. Concerns regularly resurface
regarding the sustainability of the economic recovery, which has been fuelled
by many governments borrowing recklessly and pumping money into their
economies. For this reason we have been quick to cut back on equity exposures
when we see warning signs in the economic data that we are monitoring. The
volatility in the markets has meant that the fund has had several months of
very strong positive returns, counterbalanced by a couple of months with quite
sharp falls.
We believe that the sustainability of the global economy's recovery is a key
theme for 2010. There is a widening gap opening up between Europe, where
recovery is slow, and many emerging markets, Asia and the Americas which are
pulling strongly out of recession. Secondly, in the financial sector, there are
concerns over additional taxes and regulations on banks, and solvency
requirements for insurers. The proposed "investment banking" financial tax and
changes to banking rules announced by President Obama in January 2010 caused a
sharp pullback in financial share prices. The makeup of the investment
portfolio became more cautious in 2010, with a cut back in the equity holdings
and a reduction in illiquid holdings. There are a number of major economies
whose fiscal positions have become increasingly strained, and we expect some of
these economies to head into a further crisis. This could negatively impact the
share prices of global equities. Currently economists and market commentators
have been focusing on the Euro countries and on Greece in particular. The share
prices in the affected European countries have already fallen sharply. The
economy that causes us most concern is the UK, where we believe a double-dip
recession is a near certainty. The new government will need to administer some
strong fiscal medicine. For this reason we are very bearish on the prospects
for the UK economy, sterling and financial companies in the UK. Generally our
cash reserves are held in other currencies, in particular currencies of
commodity-rich countries.
Share Trading
From time to time we receive investor queries regarding the wide bid-offer
spread (the difference between the price at which shares may be sold or
bought), particularly for the Blue Planet Financials Growth and Income
Investment Trust Number 1. Although the Blue Planet Growth and Income
Investment Trusts numbers 1 through to 10 are each separate legal entities, to
all intents and purposes each is an identical company. The Blue Planet
Financials Growth and Income Share Unit was created to trade the shares in the
ten trusts as one unit. The volume of trading in the Financials Growth and
Income Share Unit (Ticker: BPFU) is considerably higher than for any of the
individual trusts and historically the spread on the Unit has been much
narrower than that of the No.1 Trust's shares. In other words, it has been
significantly easier to buy or sell the Share Unit and this has been
accomplished at keener prices.
Portfolio
We have ended this financial year with a similar level of equity investments to
that at the start of the year. The exposure is less than 50% of the portfolio.
At the year end the funds not in equities were being held in cash deposits.
These deposits have generally been in currencies other than sterling; ones we
expect to appreciate the most against sterling as it falls. However the cash
was moved back to sterling during March as sterling staged a temporary rebound.
For the majority of the year the Fund was substantially invested in equities.
At the end of the interim period the portfolio was invested 98% in equities.
However, as highlighted above, since the start of 2010 there has been a return
to a defensively positioned portfolio. Figure 1 shows the movement in security
types, figure 2 shows the geographical movements in the portfolio over the
period.
Figure 1: Portfolio movements 2009 to 2010 - by security type
Security Type Mar-2010 Mar-2009
% %
Cash 53.2 39.8
Equities 46.8 48.8
Bonds - 11.4
Figure 2 Portfolio movements 2009 to 2010 - by geography
Country Mar-2010 Mar-2009
% %
UK 38.7 16.0
Australia 15.3 5.0
Republic of Ireland 14.8 18.4
Canada 14.5 0.0
Indonesia 6.7 0.0
Turkey 6.5 0.0
Switzerland 3.5 0.0
Russia 0.0 22.6
Other Europe 0.0 19.0
India 0.0 8.6
USA 0.0 7.0
Ukraine 0.0 2.8
Brazil 0.0 0.6
The Fund had substantial cash deposits at the year end. With the UK's
precarious fiscal position and chronically weak economic recovery weighing on
sterling, the money had been placed on a short-term basis in currencies of
better managed countries. Just prior to the year end the cash that had been
held in Australian, Canadian and US dollars and Swiss francs was converted back
to sterling, some of the Canadian dollars that were in the process of being
converted to sterling remained in the portfolio. These currencies had been
selected on the basis that these economies have emerged from recession far
stronger than the UK, and the resource-rich economies of Australia and Canada
have been benefitting from strong commodity demand, especially from Asia. All
the currencies had strengthened against sterling during March and had therefore
positively impacted the NAV. Further investments in equities have been made
subsequent to the year end, particularly in the US, although cash holdings
remain.
The largest location for equity investments at the year end was Australia.
Australia has emerged strongly from the global financial crisis. It is a
resource rich economy and Australia benefits from strong demand from its Asian
neighbours. Australia had already increased interest rates six times as the
recovery in its economy gathers speed, and will continue to raise them further.
The Central Bank in Australia is forecasting GDP growth of 3.25% in 2010 and
3.5% in 2011. The Australian banks' profits before provisioning were robust
through 2009, although high levels of provisioning detracted from earnings. In
2010, as impairments recede and loan growth returns the banks' profitability
should increase again and they will maintain their circa five percent dividend
yields. The strength of the banks should be supported by the continued strength
of the Australian dollar, which is in demand as a high yielding currency
amongst its international peers. Your Fund has made investments in Australia
and New Zealand Banking Group, Westpac Banking Corporation and Commonwealth
Bank of Australia.
At the year end the Fund held one investment in the Republic of Ireland - a
long-term investment in Blue Planet's Global Financials Fund, listed in Dublin.
This has been invested in global, long-only equities over the last year and is
currently focused on opportunities in the strongest economies on a Worldwide
basis.
Your Fund first invested in Indonesian banks in July 2009. The Indonesian
economy had the third strongest GDP growth in Asia in 2009 of 4.6%, behind only
China and India. The country has low levels of banking penetration and its
banks are well-capitalised with strong provisioning in place and are highly
profitable. Political instability has been an issue in Indonesia in the past,
but the re-election of Susilo Bambang Yudhoyono for a second five year term as
president in 2009 has subsequently calmed political concerns. As many investors
turn to the stronger economies in Asia for investment opportunities the share
prices of the Indonesian banks have risen, which has benefitted your Fund's
NAV, however it does also mean that the valuations of the Indonesian banks have
risen quite sharply.
The Fund has been invested in Turkish banks throughout most of the past year.
The share prices of Turkish banks have been recovering well as Turkey has been
emerging strongly from the recession. Its country's banking sector has remained
resilient through the banking crisis and the rating agencies have upgraded
Turkey's debt rating on its strong economic position. The low level of
household debt relative to GDP in Turkey has meant good prospects for a
recovery in consumer spending, and since October 2009 industrial production has
been rising, although political instability remains an issue. The Fund was
invested in Asya Katilim Bankasi and Turkiye Halk Bankasi at the year end.
The Fund no longer has exposure to Russia or India. The Russian bonds were sold
early in 2009 and the long-term equity investments in Russia, MDM Bank
(formerly URSA bank) and Vozrozhdenie have been sold. The Russian economy has
been recovering well from its very sharp economic contraction, however, both of
these mid-sized Russian banks suffer from their stocks being illiquid. This had
a very detrimental effect on, in particular, MDM's share price in 2008 when
markets fell. In these volatile markets we prefer to hold more easily
realisable holdings and once the share prices of these holdings had largely
recovered they were sold. The fund has also sold out of all of its Indian bank
holdings in February 2010. The Fund has been invested in India since 2007 and
made good profits on Indian banks. However the Indian economy is currently
suffering from a high budget deficit, debt issuance will be high this year and,
inflation is rising sharply. The government is reining in its previous highly
accommodative fiscal stance to bring its economy back on track. India remains a
country in which we will potentially reinvest once we see it has a clear path
through its current difficulties, as it remains a strong economy. It reported
GDP growth of 6.0% year-on-year in the most recently reported quarter, to
December 2009, and has plenty of room for growth in its under-penetrated
banking market.
The exposure to European stocks is currently very low and we expect it to
remain that way whilst fiscal concerns remain at the fore in Europe. The
uncertainty over Greece's ability to work its way out from under its fiscal
deficit and the escalating level of support it is needing from both the
European Union and the International Monetary Fund is causing the euro currency
to weaken and the spotlight to turn on other EU countries with weak fiscal
positions, such as Portugal, Spain, Italy and Ireland.
The Fund began investing in US financial companies just before last year's
March 2009 year end and maintained profitable investments in the US through
most of 2009, selling down the holdings in November and December as we
refocused on our more familiar theme of emerging market banks. We made a brief,
and unsuccessful, reinvestment in US stocks during their full year 2009
reporting season in January 2010, expecting to capture a rally in the US stocks
as good financial results were posted. However regulatory concerns saw US
financial stocks fall in value rather than rise and the positions were sold.
Since the year end the fund has reinvested in US stocks, as first quarter 2010
results from US financial companies appear to show that the credit cycle has
turned and bad debts are waning, and as US employment seems set for a recovery
and the US economy continues to rebound in 2010.
Further details of the portfolio are provided in the Investment Manager's
Report.
Our Warrants
The price of our warrants fell by 20.0% over the year to a bid price of £1.60
for the Warrant Unit on the 31 March 2010. Shareholders can view the warrant
price on the website of Blue Planet Investment Management (www.blueplanet.eu).
The warrants are exercisable on 31 July or, if later, 30 days after the
distribution of the Annual Report and Accounts. 2010 is the final year in which
the warrants may be exercised. After the exercise period this year has expired
the warrants will no longer be valid and will no longer have any value attached
to them. Each warrant costs £1 to exercise and will entitle the holder to 10
shares in the corresponding Growth and Income Trust. In a similar fashion to
the shares, considering the warrant in terms of a Unit, where a Unit represents
one warrant in each of the trusts numbered 1 through to 10, then each Warrant
Unit confers the right to subscribe for 10 Financials Growth & Income Share
Units at a price of £10.
Dividend
The Directors have not declared a dividend for this year. No interim dividend
was paid as investment income was much lower in the first half of this
financial year compared to the previous year. This trend of very much reduced
income has continued throughout the remainder of the year. Last year a dividend
of 7.6p per Share Unit was paid, as income from high yielding bonds and the
one-off VAT refund boosted income. This year, in absence of both of these forms
of income, and as banks have, in many cases, suspended dividend payouts, income
from investments is only a fraction of what it was the previous year.
The outlook going forward for revenue from equities and cash is moderate in the
current low interest rate environment. The Company has made total share price
returns well above its benchmark for the past year, and it is on this total
return that the Company has been focusing. However the Directors appreciate the
importance of dividends to many shareholders and plan to resume dividend
payouts when it is possible to do so.
Borrowing,Gearingand Liquidity
The Fund ended the year with no gearing, after starting the year 6.5% geared.
During the year gearing net of cash deposits rose close to its maximum level of
50% as the Fund increased its exposure to equities and benefitted from the
strong rises in financial stocks. Generally, gearing beneficially affects the
Company's NAV when the value of its investments is rising, but adversely
affects it in periods when the value of investments is falling.
The Fund has access to a fixed £750,000, unsecured sterling loan and a
multi-currency unsecured, revolving loan facility of £1.75m, per trust until
2012. Only the sterling loan, which is a fixed loan and would incur breakage
fees if repaid, was drawn down at the year end. The multi-currency loan is
available to be drawn when market conditions are right to increase the levels
of gearing in the Fund once again.
Blue Planet Services and Price Information Sources
Shareholders can view the Company's share price and additional information
about the Fund on the website of Blue Planet Investment Management Ltd
(www.blueplanet.eu) and the London Stock Exchange (www.londonstockexchange.com
). To find the Company's share price on the London Stock Exchange website go to
the Home page and type "BPFU" in the "Price Search" field.
Blue Planet Investment Advisers Ltd offers a Blue Planet Savings Plan via
Equiniti Financial Services Limited (on behalf of Lloyds TSB) to enable lump
sum investments or regular savings. A request form for the savings plan
application pack is enclosed with these accounts.
Outlook
Recent economic data has become more mixed. Importantly, growth data is
remaining strong in the US and earnings are continuing to recover. The first
quarter 2010 reporting season, which is underway, has seen some very positive
results, especially from banks, where it appears the credit cycle has passed
its low point. However US housing and consumer confidence have been weak spots.
Worldwide GDP growth estimates for the next two years are being revised up. In
April 2010 the International Monetary Fund revised its global growth outlook
for 2010 to 4.25%, up from the 3.9% it forecast in January 2010, which was
already up three-quarters of a percent from their estimate published in October
2009. But a gap is widening between the emerging markets which are strongly
pulling out of recession and those developed markets which are hindered by high
levels of taxation and crippling levels of government debt, where the recovery
is slow. The improvement in economic indicators has stalled in Europe. The
state of balance sheets in these different economies is key. Emerging markets
were less leveraged, and their financial institutions did not come under the
same stresses in the financial crisis.
Governments and central banks need to start to implement exit strategies from
their emergency fiscal stimulus measures and ultra-low interest rate
environments to restore their countries' finances to an even keel. If the
emerging markets continue to grow and lead demand it will help support
deleveraging in the developed economies. However there are many major economies
that are very overstretched and the UK and EU, and even the US, are at risk of
a double-dip recession and could find themselves in a precarious fiscal
position. The danger of a country letting its fiscal position deteriorate too
far is highlighted by Greece, which has seen its country's credit rating cut to
junk level and has had to announce drastic cuts to its public expenditure,
raise taxes and pay significantly higher rates on its bonds to allow it to
continue to access foreign debt markets.
A major economy experiencing severe fiscal problems will destabilise markets
worldwide again. The UK is our top candidate and we currently find it difficult
to envisage how the UK will avoid a relapse into recession. The UK has a
structural budget deficit (one that won't dissipate as the economy grows) above
10% of GDP and over-leveraged consumers. By the end of its £200bn asset
purchase scheme the Bank of England will have bought gilts equal to more than
14% of GDP, all with newly printed money and its attached inflationary effects.
On top of this, the country's move out of recession is very tentative, with
fourth quarter 2009 GDP growing 0.4% and the first quarter 2010 GDP growth
being 0.2%. Credible plans for eliminating the deficit are delayed as the new
government takes over. This makes sterling and the country's credit rating look
very exposed.
Within the financial sector, there is a considerable amount of uncertainty
surrounding new regulations and taxes that will be imposed on banks and the new
capital requirements that financial institutions will have to adhere to. Ideas
coming from governments, central banks and regulators are currently in early
stages, and there is optimism that the consultation process will result in well
thought out rules that strengthen the financial system but do not place overly
onerous restrictions on the companies that must implement them. However,
burdensome legislation cannot be ruled out, and could have a negative impact on
the share prices of financial stocks.
Because of the very different economic scenarios in countries across the World,
from those with strong economic recoveries, to those in virtual bankruptcy, we
expect market volatility to be high over the next year. In your Fund we will
continue to focus on the better managed economies, in particular emerging
market countries that have under-leveraged banking sectors, as well as selected
recovery stocks. To address the issue of market volatility we will reduce our
exposure to equities when uncertainties build up, as has been the case since
the start of 2010 to the Fund's year end. We intend to reinvest when the strong
economies dominate sentiment, sparking market rallies. April saw an instance of
this, as US financial stocks were propelled higher by significant improvements
in first quarter 2010 results at these companies. We hold the majority of our
assets in currencies other than sterling, due to its vulnerability.
We were sad to announce the retirement from the Board of Directors of Dr
Michael Shea at last year's AGM. It is with even greater sadness that we have
to report that Dr Shea died on the 17 October 2009. We all feel his loss
keenly, but were pleased to make a donation on behalf of the Company to the
Michael Shea Bursary Schola Cantorum of Edinburgh, set up in his memory. A new
Director, Glenn Cooper, joined the board in October 2009. An experienced
corporate financier, Mr Cooper has sat on the boards of a number of listed
companies both in the UK and abroad.
I thank you for your continuing support and look forward to welcoming you to
the Annual General Meeting on the 3 August 2010.
Victoria Killay
Chairman
27 May 2010
Investment Manager's Report
Portfolio Performance Analysis
As has already been highlighted in the Chairman's Statement, the Fund's NAV
made a total return of 75.4% over the year, compared to a return of 60.1% by
the Fund's benchmark index in sterling terms. As the discount to NAV of the
Share Unit price narrowed from 46.5% to 33.2% the Trust's Share Unit price made
a return of 129.6%. This past year has been one of strong recovery in the
Fund's share price and NAV, and we are pleased that the Fund has returned to
outperforming its benchmark index over the past year, although that
outperformance was achieved in the first half of the Fund's financial year, and
performance has been rather weaker in the second half of the year. The
volatility of the market has made consistency of returns very difficult to
achieve, but it is our intention to anticipate market events using our economic
analysis and either position the portfolio defensively or increase investments
when we consider it appropriate to do so, in an attempt to hold onto, and
further extend the NAV gains of the past year.
Asset Allocation
Blue Planet Investment Management's investment process is top down. Much of our
focus this year has been on analysing the economic situation and prospects for
the major economies, and in particular the United States, as the strength of
the recovery in the US has a major impact on the rest of the world. We continue
to identify countries with the strongest economic prospects and acceptable
levels of political risk. The economic backdrops in these countries are
assessed in detail and ranked accordingly. The listed banks and other financial
institutions in the highest ranked countries are then investigated. When
appropriate, capital is allocated to those banks and other financial
institutions which we believe are likely to offer the best total returns over
the long term. This process involves meeting with the senior management of
companies we are contemplating investing in. Where possible, we also like to
meet with local Central Banks to discuss the economic policies being pursued in
the countries concerned. Once we are invested in a company, we aim to meet
regularly with its senior management to monitor its progress. Since the last
year end we have visited financial institutions in Austria, Cyprus, Greece,
Poland and Turkey. In addition, we had meetings in the UK with the management
of many overseas financial institutions.
The Fund had significant cash holdings at the year end. Fiscal policy
tightening to reduce inflated deficits in many developed markets will depress
growth. The spectre of a bond or currency crisis has become more pronounced as
sovereign risks rise in those countries that are slow to address their rising
debt burden. Greece has been bearing the brunt of investors concerns at the
moment. If a crisis occurs in a major developed economy, equity markets would
fall and, as last time, banks would be hit hardest. The recent choppy nature of
economic data has highlighted that the strength of the recovery can be
questioned in many developed nations. Our biggest concern remains the UK where
the move out of recession is tentative, inflation is accelerating, the fiscal
budget deficit is 12% of GDP and the change of government is delaying any
serious plans to tackle the deficit, which is largely structural in nature. For
this reason cash holdings generally have been held in currencies other than
sterling, although a switch back to sterling was made at the year end as
sterling rallied off its lows. The deposits held in other currencies
appreciated in value as sterling fell. The performance relative to sterling of
the currencies remaining in the portfolio at the year end is described in the
section on currency below.
Geographically, Australia is our largest equity investment location. In
February 2010 we made investments in three Australian banks. The Australian
economy has made a rapid turnaround from its downturn. The growth in its
neighbouring Asian markets, where high levels of infrastructure spending
consume a lot of commodities and energy, benefits Australia which is a
resource-rich country. Interest rates in Australia rose to 4.5% in May 2010.
They have been rising rapidly in 2010, and expectations are for rates to be at
least 4.75% by the year end. House prices have recovered in recent months,
rising 11.8% in the year through to January 2010, and unemployment has not
risen to the same levels it has in many other countries - the most recent
figure for unemployment in Australia was 5.4% in April 2010, almost half the
jobless rates in the US and the EU. The rising employment levels will help
boost tax revenue and lower welfare spending in Australia, which will help
return Australia's budget to surplus. The government project a return to a
surplus in six years time. GDP grew at 2.7% year on year in the three months to
end December 2009. The Central Bank in Australia is forecasting GDP growth of
3.25% in 2010 and 3.5% in 2011. Earnings fell in 2009 at Australian banks, as
strong revenue growth was more than offset by higher provisioning for potential
bad loans. For the banks we are invested in, profits reported in interim
statements are showing a return to growth in 2010, as margins increase,
provisioning levels fall and loan growth resumes. The Australian banks, due to
their solid capital base and profitability have maintained dividends throughout
the economic downturn. The banks each provide a dividend yield of around 5%.
The strength of the banks should be supported by the continued strength of the
Australian dollar, which is a high yielding currency amongst its international
peers which is fuelling demand and pushing the currency higher. Your Fund has
made investments in Australia and New Zealand Banking Group, Westpac Banking
Corporation and Commonwealth Bank of Australia.
The investment in the Republic of Ireland is in the Blue Planet's Global
Financials Fund, listed in Dublin. The Global Financials Fund has been invested
in global, long-only equities over the last year and is currently focused on
opportunities in the strongest economies on a worldwide basis.
Following the re-election of Susilo Bambang Yudhoyono for a second five year
term as president in your Fund invested in Indonesian banks in July 2009. The
country weathered the economic crisis well. Indonesia did not fall into
recession in 2009, but maintained a strong GDP growth rate of 4.6%, and most of
its banks, which are well capitalised and have high provisioning requirements
since the experiences of the Asian crisis, continued to grow in profitability
in 2009. The government is investing in infrastructure in Indonesia. Core
inflation in Indonesia is below 4% and since the country is not experiencing
inflationary pressures like India, or even Australia, it is expected to
maintain interest rates at a record low for the country of 6.5%. This will
further boost development in the country and increase demand for bank loans.
Loan growth of 15% to 20% is anticipated for 2010. There is plenty of scope for
loan growth, in a country where consumer debt to GDP ended 2008 at 7.4% and the
loan-to-GDP ratio was only 26%. We anticipate that 2010 will be another very
profitable year for Indonesian banks. At the year end we had investments in
Bank Mandiri and Bank Rakyat Indonesia.
The Fund has held investments in Turkish banks throughout most of the last
year. Turkish banks had a very good year in 2009 as Turkey emerged strongly
from a sharp recession. GDP contracted 13.8% in the first quarter of 2009.
However, since then economic indicators such as industrial production,
manufacturing and domestic demand have improved dramatically, boosted by
unprecedented interest rate cuts by the Turkish Central Bank. Interest rates
fell from 16.75% to 6.5% from November 2008 through to November 2009. GDP grew
6.0% year-on-year in the fourth quarter of 2009 and Turkey is now expected to
resume its robust GDP growth path of around 4.0% annual growth in 2010/2011.
Its country's banking sector has remained resilient through the banking crisis,
due to the banks strong balance sheets and low leverage. Profitability at the
largest six banks in Turkey increased on average 58% year-on-year in 2009,
despite limited demand for new loans. Political instability remains an issue,
but Turkish banks have strong prospects for the next few years as loan growth
of up to 20% per annum is anticipated and the banks remain on reasonable
valuations despite their share price rises in 2009. Your Fund was invested in
Asya Katilim Bankasi and Turkiye Halk Bankasi at the year end.
For much of the year the Company was fully invested in equities, but since the
start of 2010 the portfolio has been repositioned more defensively, as we cut
investment exposure in some of the countries in which we had held long-term
investments. The Fund is not currently invested in either Russia or India. The
Russian bond holdings were sold early in 2009. In equities, the fund had
long-term investment holdings in MDM Bank (formerly URSA bank) preference
shares and Vozrozhdenie ordinary shares in Russia. The profitability of Russian
banks held up very well in 2008, but both of these mid-sized Russian banks
suffer from their stock being illiquid and this exaggerated the share price
falls in these holdings as all banking stocks fell in 2008. In 2009 the Russian
economy sank sharply into recession, from which it is now recovering equally
sharply, however bad debts at the banks soared and profits were largely eaten
up by provisioning. The outlook for 2010 for the smaller banks remains muted as
loan growth is slow to return and the two large state banks, in particular
Sberbank, are aggressively competing for business and the smaller banks have to
fight harder for less profitable business. The illiquid nature of these stocks
amplifies their share price movements and we prefer to hold more easily
realisable holdings. The share prices in these two holdings made a substantial
recovery in 2009 as investors returned to the Russian market and we sold our
holdings.
Your Fund had been invested in banks in India for the past three years. The
country has been growing rapidly. Amongst the Asian economies its growth rate
is only second to China's. The Indian government, like many other countries,
has seen its fiscal deficit rise, as it has provided stimulus measures to
support the economy in 2009. Its budget deficit has now reached a 16-year high
and the Central Bank is currently tightening monetary policy and raising
interest rates to combat a sharp increase in inflation. In the shorter term
this is not good for the banks. They have seen their cash reserve requirements
rise from 5.0% to 5.75% in January 2010 and more is expected. The bonds held as
part of the banks overall statutory liquidity requirement are currently falling
in value as inflation in India rises rather rapidly to over 8% and it is
anticipated that this will lead to quite steep interest rate rises. As a
consequence of the drought in the monsoon season in June to September 2009
agricultural non-performing loans have also risen sharply. The Indian banking
market remains very under penetrated with ratios of consumer loans and
mortgages to GDP lower than most of the other Asian economies and as the
economic outlook stabilises it is a country we are likely to invest in again.
Investments in Europe have also been cutback. The fiscal crisis in Greece is
defying the EU's efforts to stem the problem and concern has spread rapidly to
other EU member states over which there are fiscal deficit concerns. Solving
the Greek issue is a tough problem for Greece and for the EU. The IMF has been
called in to support the bailout of Greece, but although the amount of money to
be extended to Greece has grown considerably, the market is clearly concerned
that these measures are inadequate. Although some European financial stocks are
now on very low valuations again, we have considered it too early to get
re-involved in any of the EU countries as yet.
The Fund was invested in US financial stocks through most of 2009 and
benefitted from their sharp appreciation in value. By December 2009 we had sold
all of our US stocks as we refocused on our more familiar theme of emerging
market banks. A trading position in some of the major US financial stocks was
put in place at the start of January 2009 to capture an anticipated rally
during the fourth quarter 2009 results reporting season starting in
mid-January. However, despite the majority of financial firms producing results
better than analysts had predicted, and a very positive 5.6% GDP growth rate in
the US in the final quarter of 2009, these positives were outweighed by
concerns over a proposed "investment banking" financial tax and changes to
banking rules proposed by President Obama. The positions were subsequently
sold. Since the year end the fund has reinvested in US stocks, as the US
economic recovery moves up a gear. Production is increasing and is providing a
pent-up demand for hiring and a jobs recovery is in sight. Household spending
in the US posted the strongest gains in 3 years in the GDP figure first quarter
of 2010, which at 3.2% was below the 5.6% for the fourth quarter of 2009, but
still shows a strong pull out of recession. US banks have been showing
encouraging signs of the credit cycle turning as credit pressures moderate and
revenues display strong resiliency in their first quarter of 2010 financial
results. This has led to significant upward revisions to profit estimates for
2010 as a whole.
Currency
The fund is exposed to a range of currencies. At the year end the portfolio had
large cash holdings, some in the Canadian dollar. The table below shows the
percentage of the portfolio holdings in each currency and how those currencies
have performed against the pound over the period in which the investments have
been held in the Trust during the financial year.
Currency % of total Appreciation/
portfolio in depreciation
currency against £ for the
length of time the
currency has been
held in the
portfolio
Australian 15.3% +5.1%
Dollar
Euro 14.8% +1.1%
Canadian Dollar 14.5% +1.0%
Indonesian 6.7% +5.0%
Rupiah
Turkish Lira 6.5% -1.0%
Swiss Franc 3.5% +0.6%
The positive currency movements had a beneficial impact on our performance. Any
negative currency movements would reduce the performance of the shares
denominated in that currency when translated into sterling. It can be seen that
only the Turkish lira currency movement was unfavourable to the Fund. The
holdings in all but the Euro currency were of quite short duration at the year
end, but had made a positive contribution to the Fund, as sterling fell sharply
at the end of February and into March. With the UK fiscal position and the
uncertainty over the effectiveness of the new government we expect sterling to
remain weak.
Risk
Market risk arises mainly from the uncertainty regarding the future price
performance of equities held by your Company. This risk is magnified when
gearing is used and due to the fact that the company is invested in a single
industry sector. Being invested in a single sector exposes the Fund to the risk
that the Financial Sector will underperform relative to other sectors of the
market. Gearing the Fund via loans also means that interest-rate risks arise.
These risk factors are beyond the control of the Company.
In mitigation of these risks the financials sector in which we are invested is
a large sector of the market and it was the second best performing sector in
the Bloomberg World Index over the past year. Banks play a crucial and central
role in free market economies; a role that will underpin the prosperity of the
banking sector as a whole over time. The prices of the individual securities
invested in are monitored on a daily basis and the Board, which meets
quarterly, imposes borrowing limits to ensure gearing levels are appropriate to
market conditions. When gearing is employed the potential impact of changes to
interest rates is taken into consideration. The securities dealt in are all
listed on recognised exchanges and are readily realisable.
The Fund is exposed to currency risk, due to the range of currencies in which
investments are held. The largest risk is in the Australian dollar currency at
the year end. Currency risk is a risk that can partially be controlled by
employing appropriate hedging strategies. The Company currently has a
multi-currency loan facility and our borrowings can be used as a "natural"
hedge against investments in the matching currency. In addition hedging is
considered on a case-by-case basis. However if cash is held in currencies other
than sterling it is normally in anticipation of those currencies appreciating
against sterling, and in this case clearly the currency position is run
unhedged. The fund manager has been tracking currency movements on a daily
basis in the current volatile environment.
Where investments are made in emerging markets there is a risk of higher
volatility in the price performance of these equities and their associated
currencies. Political risk and adverse economic circumstances are more likely
to arise, putting the value of the investment at a higher risk. The
registration and settlement arrangements in emerging markets may be less
developed than in more mature markets so operational risks of investing are
higher.
Credit risk arises from the exposure to non-delivery of an investment that has
been purchased. The Company only buys and sells investment through brokers
approved by Blue Planet Investment Management and so considers this risk is
adequately controlled.
A full analysis of all the risks is provided in Note 18 to the Accounts.
Factors Affecting the Company Going Forward
Clearly a continuation of the recovery from the global economic recession
should have a positive impact on equity markets, whereas a stalling or reversal
of the recovery will have a negative impact on equity markets, both of which
could have a significant impact on the Company. The pace of the recovery, both
globally, and in particular in the countries in which we are invested, will
affect the stock markets and exchange rates within those countries. If
sentiment turns negative then equities will weaken again. The introduction of
new regulations applying to financial companies and changes to capital
requirements for both banks and insurers will potentially impact the future
profitability and sentiment towards these stocks and may be a cause for either
outperformance or underperformance in the financial sector.
Review of the Top 10 Investments at year end
1. Cash
Our largest holding at the year end was in cash. As explained above, many of
the equity holdings were sold at the beginning of 2010. The proceeds were held
in cash in currencies of countries with stronger economic prospects that the
UK. In particular the Australian, Canadian and the US dollar were used for
depositing cash. This strategy was very successful in February and March, when
sterling depreciated sharply against these currencies. Towards the end of March
the cash was returned to sterling, and only a small amount of Canadian dollars
that were in the process of being returned to sterling were in another
currency. Subsequently additional equity investments have been made,
particularly in the US, for the reasons described above.
2. Blue Planet Global Financials
The Blue Planet Global Financials Fund ("BP Global") is an open-ended Cayman
Islands exempted company. The Company is listed on the Irish Stock Exchange and
has been in existence for four years. Its objective is to achieve a high level
of capital growth by taking long and/or short positions in securities issued by
or relating to banks and other financial institutions on a worldwide basis.
Shares are available denominated in Euros and US Dollars. Your Company is
invested in the Class A Euro shares.
The Blue Planet Global Financials Fund's most recent published financial
results are for the half-year to June 2009. In these results, a 5.3% rise in
the fund's NAV was reported. Subsequently the NAV for the Class A shares has
fallen 0.6% to end March 2010 with the NAV at €48.361. The fund has been
invested in long-only financial equities on a global basis during 2009. It has
focused on both developed and emerging markets during the past year and key
themes this year have been stocks in the US, India, Indonesia and Turkey.
Blue Planet Investment Management Ltd receives a fee of 0.125% of the monthly
NAV of the BP Global and the investment we hold across all ten of the Trusts
represents 43% of the total investments in the BP Global.
Your Company has been invested in this fund since its launch. Its total return
in sterling over the 12 month period is 12%.
Key statistics relating to this investment are given below:
For the year ended December June 2009 Dec 2008 Change
2008 & interim ended June 2009
:
Total Assets € 9.1m € 8.6m +5.8%
Net Gain(Loss) after Taxation € 0.5m € -5.2m N/A
Net Asset Value per Share € 43.913 € 41.683 +5.3%
(Class A Euro shares)
3. Australia & New Zealand Banking Group
Australia and New Zealand Banking Group ("ANZ") is a publicly listed company
and one of the top 4 banks in Australia by assets. It has its headquarters in
Melbourne. It has been in existence for over 170 years and provides banking
services to more than 5.7 million retail customers. The bank's loan portfolio
is 53% mortgages, 42% commercial loans and 5% cards and other loans as of the
end of its 2009 financial year. The bank has been restructuring its business
over the past few years to increase the contribution from its Asia Pacific
businesses, where it has been expanding both organically and through
acquisitions, to bring the contribution of this region up to around 20% of its
earnings by 2012. It aims for a further 20% of its profits to come from New
Zealand, where it is the largest bank, and 60% from Australia. Recently the
bank has bought Asian assets from the Royal Bank of Scotland.
ANZ is well capitalised following an institutional share placement in May 2009
and a share purchase plan for retail investors in July 2009. The bank has a
strong balance sheet and good provisioning. ANZ Bank reports full year results
at the end of September. In the financial year to 30 September 2009, the bank
reported an 11% fall in profits, which equated to a 23% fall in earnings per
share. Although net interest income increased 25%, it was more than offset by a
54% increase in provisioning. The bank has just released its half year results
to the end of March 2010. Earnings per share increased 15% year-on-year as
operating income increased and less money was put aside for provisions. The
bank sees opportunities for additional growth in its business in 2010 and has
plans to expand further in Asian economies where it expects to GDP to grow on
average by almost 8%, compared to Australia where it anticipates over 3% GDP
growth in 2010. It is currently interested in acquiring a 51% stake in Korea
Exchange Bank.
We have only held this stock in the portfolio since the middle of February, but
it has already made a 21% return in sterling terms. Its 15% return in
Australian dollar terms has been boosted by the strength of the Australian
currency relative to sterling. Continued strong financial performance should
see the bank's share price remain strong and the bank also provides an
attractive dividend yield.
Key statistics relating to this investment are given below:
For the year ended 30 September 2009 2008 Change
Total Assets A$ 477bn A$ 470bn +1.5%
Cost: Income Ratio 45.7% 46.8% -1.1pp
Net Profit after Taxation A$ 2,943m A$ 3,319m -11.3%
Earnings per Share A$ 1.31 A$ 1.70 -22.9%
Dividends per Share A$ 1.02 A$ 1.36 -25.0%
Dividend Cover 1.3x 1.25x -
Return on Equity 10.3% 14.5% -4.2pp
4. Westpac Banking Corporation
Westpac Banking Corporation ("Westpac") is Australia's oldest bank. It began
trading in 1817 as the Bank of New South Wales. After it merged with Commercial
Bank of Australia in 1982, it changed its name to Westpac Banking Corporation.
The bank has a strong presence in consumer, commercial, institutional and
wealth segments. In December 2008 it merged with St George's Bank, which had
its roots as a building society in New South Wales. This increased the number
of customers of the bank by 40% and led to it becoming the second largest bank
in Australia in terms of numbers of customers. It operates a leading banking
franchise in both Australia and New Zealand and operates in the near Pacific
region and serves around 10 million customers.
Westpac derived 94% of its profit from Australia in 2009. The bank is focusing
on growing its mortgage business, and now has 27% market share. House prices
are rising in Australia and the resurgence in building approvals in Australia,
which has brought the levels back to pre-crisis highs, looks positive for
demand for new mortgages.
Westpac reports full year results at the end of September. In the financial
year to 30 September 2009, the bank reported an 11% fall in profits and a 39%
fall in earnings per share due to the St George's merger and capital raising.
Revenues grew 13%, as deposits grew 17% and mortgages also grew 17%
year-on-year. However profits were curtailed by a significant growth in
provisions, as asset quality deteriorated. The bank has now issued half-yearly
results up to the 31 March 2010. In this period profits increased 32% compared
to the prior year. The banks higher funding costs and reductions in fees to
customers squeezed income, but the stabilisation in bad debts meant provisions
were lower and boosted profits.
We have held this investment since the middle of February 2010 and the bank has
made a very strong return of 15% in sterling terms, in its six weeks in the
portfolio. The share price strength has been compounded by the strength of
sterling relative to the Australian dollar. We anticipate continued strong
financial performance from this bank, which should support the stock, as should
its attractive dividend yield.
Key statistics relating to this investment are given below:
For the year ended 30 September 2009 2008 Change
Total Assets A$ 590bn A$ 440bn +34.1%
Cost: Income Ratio 43.4% 47.0% -3.6pp
Net Profit after Taxation A$ 3,446m A$ 3,859m -10.7%
Earnings per Share A$ 1.25 A$ 2.06 -39.3%
Dividends per Share A$ 1.16 A$ 1.42 -18.3%
Dividend Cover 1.1x 1.5x -
Return on Equity 10.8% 23.1% -12.3pp
5. Commonwealth Bank Australia
Commonwealth Bank of Australia ("CBA") has grown, since its inception in 1911,
to become Australia's largest retail bank. The bank became a public company in
1991, but remained partly government owned until it was fully privatised in
1996. The CBA's core businesses are retail, business and institutional banking
services and it is also a major participant in Australia's wealth management
sector. The bank raised capital to complete the acquisition of Bankwest and St
Andrews in October 2008, and raised further capital through an ordinary share
issue in December 2008.The bank has an International Financial Services
division which is developing the bank's Asia-Pacific business. The bank is
represented in 13 Asian countries, with key markets being Indonesia, China,
Vietnam and India.
Commonwealth Bank has reported resilient results through the global economic
downturn and has been focusing on improving market share in key product areas.
The bank is currently investing in new technology to upgrade its core banking
system to increase efficiency. Its annual reports are issued at the end of June
each year. In the financial year to 30 June 2009 the bank reported a 1% fall in
profits, as a 21% increase in net interest income, was offset by a significant
rise in provisioning costs. In its interim report to the 31 December 2009
profits increased 36% on the same period a year ago. This was driven by a 19%
increase in net interest income and a tight control of costs, which only
increased 1%. Loan provisions fell as the formation of new non-performing loans
slowed. The bank believes it is well-positioned to improve its financial
results further through 2010.
This investment has been in place since the middle of February 2010. In its six
weeks in the portfolio this stock has made a 12% return in sterling terms.
Key statistics relating to this investment are given below:
For the year ended 30 June 2009 2008 Change
Total Assets A$ 620bn A$ 488bn +27.0%
Cost: Income Ratio 45.4% 48.9% -3.4pp
Net Profit after Taxation A$ 4,723m A$4,791 m -1.4%
Earnings per Share A$ 3.285 A$ 3.630 -9.5%
Dividends per Share A$ 2.28 A$ 2.66 -14.3%
Dividend Cover 1.4x 1.4x -
Return on Equity 15.8% 20.4% -4.6pp
6. Zurich Financial Services Group AG
Zurich Financial Services Group ("Zurich") is an insurance-based financial
services provider. It was founded in 1872 and is headquartered in Zurich in
Switzerland. It has a global network and now serves customers in over 170
countries, with its core markets being Europe and North America, with
strengthening positions in Asia and the emerging markets. The company has three
principal divisions, General Insurance, Global Life Insurance and Farmers.
Farmers is the third-largest personal property and casualty insurer in the
United States.
Zurich is a well-capitalised insurer with a strong balance sheet. It is making
use of releases from prudent reserves built up over the last decade, which have
stood it in good stead in the last two, much tougher, years and the company
says that these reserve releases will remain stable going forward, i.e they
have not exhausted them to smooth over the bad times. The company increased
profits by 6% in 2009. It says that it has been able to increase pricing and
there should be more benefit from this through 2010. It also raised its
dividend significantly, as Zurich remain confident that it can maintain a high
level of solvency and build profitability going forward. This insurer is on a
modest valuation for a company that has very solid prospects and a very
attractive dividend yield of around 7%. Zurich have just reported quarterly
results to the 31 March 2010. Net income increased 76% from a year ago, as
total business volumes increased 11%.
The stock was only purchased the day prior to the Fund's year end. We hope that
the company's sound financial position will support the stock price going
forward and the high dividend yield is very attractive.
Key statistics relating to this investment are given below:
For the year ended 31 December: 2009 2008 Change
Total Assets $368.9bn $327.9bn +12.5%
Net Profit after Taxation $3,215m $3,039m +5.8%
Earnings per Share CHF 24.21 CHF 23.35 +3.7%
Dividends per Share CHF 16.0 CHF 11.0 +45.5%
Dividend Cover 1.5x 2.1x
Return on Equity 12.6% 12.1% +0.5pp
7. Bank Mandiri Persero
Bank Mandiri Persero ("Mandiri") was formed in 1998 in the midst of the Asian
financial crisis out of the merger of four smaller banks as part of the
government restructuring exercise. Mandiri is majority state-owned bank and is
the largest bank in Indonesia in terms of assets. 20% of the bank was
privatised in an initial public offering in 2003 and a further 10% in 2004. By
2005 the bank was struggling with spiraling bad loans. The government changed
the bank's management in 2005 and the bank has improved its financial
performance since that time and has a 5 year plan in place to turn the bank
around that runs until 2010. The bank is seeking to make its growth more
balanced - less dependent on the large corporates - and improving
non-performing loans. The bank has more than 1,000 branches and 22,000
employees. The bank bought a 51% stake in Tunas Finance at the end of 2008 to
enter into the high-growth vehicle finance market.
Mandiri has been successfully diversifying its business model into the higher
yielding consumer and micro-financing areas and has been increasing the quality
of its loan book. Indonesia is an under-leverage and under-banked economy and
has a great deal of potential for expansion. In 2008 loan growth was at 31%,
falling back to 10% in 2009. It is expected to accelerate again in 2010, and
the country has several years of 20% plus loan growth ahead of it before the
loans-to-GDP ratio catches up with that of some of its Asian neighbours.
The bank reported a 35% increase in profits in 2009. Loans grew 14% in 2009 and
deposits grew 11%. Non-performing loans fell sharply from 4.7% at the end of
2008 to 2.8% at the end of 2009. The bank has recently reported results for the
first quarter of 2010. Profits grew 43% year-on-year in this latest quarter, as
personnel costs increased, but provisioning fell. Non-performing loans improved
again to 2.4%. Loans were growing at 14% and deposits 15% year-on-year in the
first quarter. For the full year 2010 the bank anticipates loan growth of 15%
to 18%. Fee income is modest at Indonesian banks and Mandiri have a focus on
developing this. They expect fee income to outstrip loan growth. The bank is
planning a rights issue, probably in 2011, to increase its capacity to grow its
loan book.
We held this stock from July 2009 through into 2010. We sold the holding in
January 2010, at a profit, as we cut back on equity exposures. During February
2010 we reinvested in this stock due to the strength of the Indonesian economy.
In the stock's six weeks in the portfolio it has made an impressive 26% return
in sterling terms as the bank reported strong financial results for 2009.
Key statistics relating to this investment are given below:
For the year ended 31 December: 2009 2008 Change
Total Assets IDR 394,617bn IDR 358,439bn +10.1%
Cost: Income Ratio 40.2% 42.3% --2.1%
Net Profit after Taxation IDR 7,155bn IDR 5,313bn +34.7%
Earnings per Share IDR 341 IDR 254 +34.3%
Dividends per Share IDR 119 IDR 89 +33.7%
Dividend Cover 2.9x 2.9x -
Return on Equity 22.1% 18.1% +4.0pp
8. Asya Katilim Bankasi AS
Asya Katilim Bankasi ("Asya"), founded in 1996, is Turkey's largest
participation bank with 11.6 billion Turkish lira of assets as of the end of
2009. As a participation bank, Asya specialises in interest-free (Islamic)
banking and has a strategic focus on trade finance and small/medium
enterprises. Despite its relatively small size and niche positioning within the
Turkish banking sector, the bank is strategically well-placed for any macro
recovery in Turkey.
While not immune to the global financial crisis, Turkey weathered the storm
relatively well in 2009. Turkish economic indicators are recovering well and
the country has a relatively robust financial system, which has helped it
receive a series of sovereign rating upgrades by the major credit rating
agencies. Within the banking system, prudent credit policies and the income
generated from securities portfolios in line with the fall in interest rates
boosted banking sector profitability. In 2010 the recovery in economic activity
is expected to continue and loan volume growth is expected to return to strong
growth of circa 20% in this underleveraged market. From time-to-time political
tensions remain an issue and tensions resurfaced again in February 2010,
although for now the situation appears to be relatively well contained.
In 2009, Asya reported net income of 301m Turkish lira, up 22% year-on-year.
`Net profit-share income' which equates to net interest income rose 20%
year-on-year, driving impressive 23% total revenue growth in 2009, as operating
costs increased 18%, due to staffing costs increases. The return on equity
declined from 23% to 19% due to margin compression in 2009. In 2010 Asya expect
the margins to reverse this trend and improve as loan growth also increases.
We held this stock through the autumn of 2009 and into 2010 and sold the stock
in January 2010 at a profit as we cut back on investments and as political
uncertainty increased in Turkey. We re-purchased a holding in this stock
towards the end of March. In its few days in the portfolio the shares made a
return of -3%. We would hope to see this trend reverse as the Turkish banks
report strong financial numbers in 2010.
Key statistics relating to this investment are given below:
For the year ended 31 December: 2009 2008 Change
Total Assets TL 11.61bm TL 8.11bn +43.2%
Cost: Income Ratio 46.0% 45.0% +1.0pp
Profits after Taxation TL 301m TL 247m +21.9%
Earnings per Share TL 0.33 TL 0.33 0.0%
Dividends per Share - - -
Dividend Cover - - -
Return on Equity 19.0% 23.0% -4.0pp
9. Turkiye Halk Bankasi
Turkiye Halk Bankasi ("Halkbank") is Turkey's seventh largest bank by assets at
the end of 2009, and is majority owned by the state. The bank's operations
consist of banking, brokerage, and insurance services, with a strong focus on
small/medium enterprise banking, 38% of its loan book is dedicated to this
segment. The bank also has a very strong and stable deposit base, with a
growing branch network of 688 branches, and impressive new customer growth in
2009.
In 2010, while margins at larger banks, including Halkbank, are expected to
contract, the recovery in economic activity is expected to continue and loan
volume growth is expected to remain strong. In the first quarter 2010 results
just issued, the bank has reported a 28% year-on-year growth in loans and an
18% growth in deposits. Both of these figures are above the average in the
banking system. Halkbank have aggressive profit target goals for 2010 and
expect return on equity to remain well above 25% for the year.
In its 2009 results Halkbank reported net income of 1.63bn Turkish lira, up 60%
on 2008. Net interest income surged 46% to 3.11bn Turkish lira and total
revenue grew 44% in 2009. As operating costs increased just 19% there was a
59% improvement in operating profits. In the first quarter of 2010 this
impressive trend has continued, with profits increasing 41% year-on-year as a
fall in margins was counterbalanced by a fall in the amount set aside for
provisions, as the non-performing loan ratio showed continued improvement.
We have invested in this stock during the Fund's year and had sold the stock at
a profit. We re-purchased a holding in this stock towards the end of March. In
its few days in the portfolio the shares made a return of -5%. We would hope to
see this trend reverse as the Turkish banks report strong financial numbers in
2010.
Key statistics relating to this investment are given below:
For the year ended 31 December: 2009 2008 Change
Total Assets TL 60.65bn TL 51.10bn +18.7%
Cost: Income Ratio 31.0% 37.6% -6.6pp
Profits after Taxation TL 1.63bn TL 1.02bn +59.8%
Earnings per Share TL 1.23 TL 0.82 +50.0%
Dividends per Share TL 0.20 TL 0.70 -71.4%
Dividend Cover 6.2x 1.2x -
Return on Equity 32.5% 23.5% +9.0pp
10. Bank Rakyat Indonesia
Bank Rakyat Indonesia ("BRI") is the oldest bank in Indonesia and was founded
in 1895. It has served the micro finance segment for over 100 years. The
government is the majority shareholder in Bank Rakyat Indonesia with a 57%
stake in the bank. It is the second largest bank in terms of loans and the
third largest in terms of deposits. The bank has by far the most extensive
network of branches, sub-branches and units, with offices located in every
province of Indonesia.
The bank was resilient through the 1997 Asian financial crisis, but suffered
through its large US dollar loan book and the government recapitalised the bank
in 2000 using government recapitalisation bonds. The management in the company
was changed. The Bank had a 3.8bn initial public offering in October 2003 and
much of the proceeds were spent on introducing the latest IT systems to the
bank. The bank has a strong deposit franchise. This was boosted in 2007 when
the bank became the only bank selected to disburse the State Budget Fund for
the next 3 years.
BRI has become the second largest bank in Indonesia by assets as it has
successfully grown its business. The bank benefits from very high margins from
its high proportion of micro finance business (26% of its loan book at the end
of 2009). Margins at the bank were at 9.3% in its most recent quarterly
results. The bank reported a 23% increase in profits in 2009, with loans
growing 28% and deposits rising 26%. A growth in provisioning was offset by
high trading profits. In its most recent results to the 31 March 2010 the bank
reported a 25% increase in profits, as loans grew 28%, which is ahead of the
bank's target for a 20% to 25% growth in loans in 2010, with net interest
margins remaining around the 9% level.
We bought this stock in July 2009 and held it into 2010. We sold the holding in
January 2010, at a profit, as we cut back on equity exposures. During February
2010 we reinvested in this stock due to the strength of the Indonesian economy.
In the stocks six weeks in the portfolio it has made a 15% return in sterling
terms as the rise in the bank's share price was further supported by the
strength of the Indonesian currency relative to sterling.
Key statistics relating to this investment are given below:
For the year ended 31 December: 2009 2008 Change
Total Assets IDR 314,746bn IDR 246,026bn +27.9%
Cost: Income Ratio 46.8% 50.4% -3.6pp
Profits after Taxation IDR 7,308bn IDR 5,958bn +22.7%
Earnings per Share IDR 609.5 IDR 497.0 +22.6%
Dividends per Share IDR 213 IDR 169 +26.0%
Dividend Cover 2.9x 2.9x -
Return on Equity 35.2% 34.5% +0.7pp
Transactions
Over the year, sales of investments realised £16.9m and purchases totalled £
16.1m.
Blue Planet Investment Management Ltd
Edinburgh
27 May 2010
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and the financial
statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have elected to prepare the
financial statements in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards and applicable law).
Under the Company law Directors must not approve the accounts unless they are
satisfied that they give a true and fair view of the state of affairs of the
Company and of the profit or loss of the Company for that period. In preparing
these financial statements, the Directors are required to:
* select suitable accounting policies and then apply them consistently;
* make judgments and estimates that are reasonable and prudent;
* state whether applicable UK Accounting Standards have been followed,
subject to any material departures disclosed and explained in the financial
statements; and
* prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
The Directors confirm that to the best of their knowledge that:
* The financial statements, prepared in accordance with applicable UK
accounting standards, give a true and fair view of the assets, liabilities,
financial position and return of the Company; and
* The Directors' and Investment managers' reports include a fair review of
the development, performance and position of the company together with a
description of the principal risks and uncertainties that the company
faces.
On behalf of the Board
Victoria Killay
Chairman
27 May 2010
Income Statement
(incorporating the Notes Revenue Capital 2010 Revenue Capital 2009
revenue account)
(£) (£) Total (£) (£) Total
for the year ending
31 March 2010 (£) (£)
Capitalgains/(losses
)on investment
Net realised losses - (436,453) (436,453) - (1,377,681) (1,377,681)
Unrealised gains/ - 1,262,350 1,262,350 - (1,032,245) (1,032,245)
(losses)
Exchange gains/ - 86,059 86,059 - (97,123) (97,123)
(losses)
Net capitalgains/( - 911,956 911,956 - (2,507,049) (2,507,049)
losses)on
investments
Income from 2 31,514 - 31,514 221,505 - 221,505
investments
Bank interest 2,623 - 2,623 21,050 - 21,050
receivable
Gross revenue and 34,137 911,956 946,093 242,555 (2,507,049) (2,264,494)
capital gains/(
losses)
Administrative (60,436) (23,007) (83,443) (45,617) (5,738) (51,355)
expenses
Net return before (26,299) 888,949 862,650 196,938 (2,512,787) (2,315,849)
interest payable
and taxation
Interest payable (24,323) (24,323) (48,646) (41,384) (41,384) (82,768)
Return on ordinary (50,622) 864,626 814,004 155,554 (2,554,171) (2,398,617)
activities
before taxation
Taxation on ordinary (1,891) - (1,891) (19,534) - (19,534)
activities
Return on ordinary (52,513) 864,626 812,113 136,020 (2,554,171) (2,418,151)
activities after
taxation
Return per ordinary (0.38)p 6.33p 5.95p 1.00p (18.70)p (17.70)p
share -basic
Return per ordinary 3 (0.38)p 6.33p 5.95p 1.00p (18.70)p (17.70)p
share -diluted
The Total column of the income statement represents the profit & loss account
of the Company.
All revenue and capital items in the above statement derive from continuing
operations.
There were no recognised gains and losses other than those disclosed above.
Accordingly a statement of total recognised gains and losses is not required.
Balance Sheet
at 31 March 2010 Notes (£) 2010 (£) 2009
(£) (£)
Fixed assets
Listed equity investments 1,219,051 955,603
Listed non - equity investments - 221,250
1,219,051 1,176,853
Current assets
Debtors 93,910 47,214
Cash at bank 1,385,259 778,896
1,479,169 826,110
Creditors: amounts falling due (106,546) (15,641)
within one year
Net current assets 1,372,623 810,469
Total assets less current 2,591,674 1,987,322
liabilities
Creditors: amounts falling due (811,000) (915,058)
after more than one year
Net assets 1,780,674 1,072,264
Capital and reserves
Called-up share capital 136,621 136,609
Share premium account 1,179,611 1,179,474
Other reserves
Capital reserve - realised 552,835 955,504
Capital reserve -investment (167,229) (1,434,524)
holding losses
Capital redemption 8,450 8,450
Warrant reserve 59,846 59,875
Revenue reserve 10,540 166,876
Shareholders' funds 1,780,674 1,072,264
Net asset value per ordinary 3 13.03p 7.85p
share - basic
Net asset value per ordinary 3 12.56p 7.85p
share - diluted
Victoria W Killay
Chairman
27 May 2010
Reconciliation of Movements in Shareholders' Funds
For the year ended 31 Share Share Capital Capital Capital Warrant Revenue Total
March 2010 capital premium redemption reserve-realised reserve- reserve reserve shareholders'
reserve investment funds
£ £ £ holding £ £
£ losses £
£
Shareholders' funds 136,609 1,179,474 8,450 955,504 (1,434,524) 59,875 166,876 1,072,264
at 1 April 2009
Proceeds of share 12 108 - - - - - 120
issue
Transfer from /(to) - 29 - - - (29) - -
warrant reserve
Return on ordinary - - - (402,669) 1,267,295 - (52,513) 812,113
activities after
taxation
Dividend paid during - - - - - - (103,823) (103,823)
the period
Shareholders' funds 136,621 1,179,611 8,450 552,835 (167,229) 59,846 10,540 1,780,674
at 31 March 2010
For the year ended Share Share Capital Capital Capital Warrant Revenue Total
31 March 2009 capital premium redemption reserve-realised reserve- reserve reserve shareholders'
reserve investment funds
£ £ £ holding £ £
£ losses £
£
Shareholders' funds 136,542 1,178,688 8,450 2,525,661 (450,510) 60,058 30,756 3,489,645
at 1 April 2008
Proceeds of share 67 603 - - - - - 670
issue
Transfer from / (to) - 183 - - - (183) - -
warrant reserve
Return on ordinary - - - (1,570,157) (984,014) - 136,020 (2,418,151)
activities after
taxation
Purchase of treasury - - - - - - 100 100
shares
Shareholders' funds 136,609 1,179,474 8,450 955,504 (1,434,524) 59,875 166,876 1,072,264
at 31 March 2009
Cash Flow Statement
For the year ended 31 (£) 2010 (£) 2009
March 2010
(£) (£)
Operating activities
Investment income 75,622 175,155
received
Interest received 2,623 21,977
Investment management (54,937) (67,451)
and administration fees
paid
Cash paid to and on (4,237) (5,120)
behalf of Directors
VAT refund received - 48,000
Other cash payments (23,409) (32,333)
Exchange differences on 56,522 -
foreign currency cash
balances
Net cashinflow from 52,184 140,228
operating activities
Servicing of finance
Interest paid (48,769) (88,491)
Taxation
Taxation recovered 208 648
Capital expenditure and
financial investment
Purchase of investments (16,117,880) (11,723,399)
Sale of investments 16,892,844 13,125,947
774,964 1,402,548
Cash inflowbefore 778,587 1,454,933
financing
Equity dividend paid (103,823) -
Management of liquid
resources
Cash placed on deposit (3,437,442) (5,431,318)
Cash withdrawn from 3,465,211 5,636,844
deposit
27,769 205,526
Financing
Issue of treasury shares - 100
Proceeds from share 120 670
issue
Repayment of loan (96,290) (1,840,941)
(96,170) (1,840,171)
Increase/(decrease) in 606,363 (179,712)
cash
Notes on the Accounts
1. The financial information set out in this announcement does not constitute
the Company's statutory accounts for the years ended 31 March 2010 or 31 March
2009 but is derived from those accounts. Statutory accounts for 2009 have been
delivered to the Registrar of Companies and those for 2010 will be delivered
following the Company's Annual General Meeting. The auditors have reported on
those accounts; their reports were unqualified, did not draw attention to any
matters by way of emphasis and did not contain a statement under s498 (2) or
(3) Companies Act 2006.
The financial information set out in this announcement has been prepared on the
basis of the accounting policies as stated in the previous year's financials
statements, and are consistent with the current year's full financial
statements which are yet to be published.
The Directors consider that the Company has adequate financial resources in the
form of readily realisable listed securities, including cash of £1,385,000 and
loan facilities of £1.75m to continue in operational existence for the
foreseeable future. For this reason they continue to use the going concern
basis in preparing the accounts.
2. Income from investments
Franked Unfranked 2010 Franked Unfranked 2009
(£) (£) Total (£) (£) Total
(£) (£)
Dividends
Listed investments - UK 2,347 - 2,347 924 - 924
- Overseas - 26,865 26,865 - 151,400 151,400
Interest
Listed investments - - 2,302 2,302 - 69,181 69,181
Overseas
Total 2,347 29,167 31,514 924 220,581 221,505
3. Return and Net Assets per ordinary share
2010 2009
The return per ordinary share is based upon the
following figures:
Revenue return £(52,513) £136,020
Capital return £864,626 £
(2,554,171)
Weighted average number of ordinary shares in issue 13,661,701 13,658,319
during the year - basic
Weighted average number of ordinary shares in issue 13,661,701 13,658,319
during the year - diluted
The difference between the basic and diluted number of ordinary shares is
derived from the total number of warrants in issue multiplied by a factor based
on the average price of the ordinary shares in the year and the exercise price
of the warrants, as required by FRS 14. No dilution occurred in the current
year as the warrant exercise price exceeded the average market price of one
share during the year. The net asset value per ordinary share is calculated on
13,662,100 (2009 - 13,660,900) being the number of ordinary shares in issue.
Net asset dilution occurs from the potential exercise of the 251,540
outstanding warrants and is assumed only to take place if the net assets per
share exceed the exercise price of £0.10.
4. Dividends
No interim dividend was declared in the year and no final dividend is proposed
(2009 - 0.76p net).
5. Related Party Transactions
Directors' remuneration consisted solely of fees of £1,600 for the Chairman, £
1,400 for Mr Murray, £467 for Michael Shea and £700 for Mr. Cooper. Blue Planet
Investment Management Ltd is employed by the Company as its Investment Manager
under a management agreement which is terminable on two years' notice. The
investment management fee in respect of each month was 0.125% of the total
assets of the Company attributable to the shareholders on the last day of that
month. The Company Secretary, Blue Planet Investment Advisers Ltd receives £
100,000 p.a in respect of administration and secretarial services (increased
from £75,000 from 1 April 2009). The total amount of dividends received by
Directors of the Company during the year is £30,776. Newton Killay Associates
Ltd (100% owned by Victoria Killay) has received a fee of £140 in respect of
professional services to assist with the appointment of Mr. Glenn Cooper.
6. Share capital
At 1 April 2009 the Company had 251,660 warrants in issue. On 31 July 2009, 120
warrants were exercised leaving 251,540 warrants in issue. Each warrant confers
the right, exercisable on 31 July 2010 or, if later, 30 days after the
distribution of the annual Report and Accounts to subscribe for 10 new ordinary
shares at a price of £0.10 per share. After this date any unexercised warrants
will lapse. As a result of the exercise 1,200 new shares were issued. The
Company holds no shares in Treasury.
At 31 March 2010 the Company had authority to purchase a further 2,049,000
shares. A resolution to renew this authority will be proposed at the Annual
General Meeting.
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