Half-yearly Report

Pacific Assets Trust plc Unaudited Half Year Results For The Six Months Ended 31 July 2012 Company Summary Key Statistics As at As at 31 31 July January 2012 2012 % change Share price 126.8p 115.3p +10.0 Net asset value per share 141.5p 131.7p +7.4 Discount of share price to net asset value per share 10.4% 12.5% n/a Shareholders' funds £165.3m £153.9m +7.4 Market capitalisation £148.1m £134.7m +10.0 Six One year months to to 31 31 July January 2012 2012 Share price (total return)* +12.5% -11.5% Net asset value per share (total return)* +9.5% -3.0% MSCI All Country Asia ex Japan Index (total return, sterling adjusted)* -0.9% -5.9% *Source: Morningstar and Frostrow Capital LLP Year Year ended ended 31 31 January January Dividends 2012 2011 Final dividend per share 2.60p 1.29p +101.6 Half Year's Highs/Lows High Low Net asset value per share 141.5p 131.4p Share price 126.8p 113.4p Discount of share price to net asset value per share† 8.9% 14.0% †Discount high - Narrowest discount in period Discount low - Widest discount in period Chairman's Statement "...during the six month period under review, the Company's net asset value total return was +9.5%, making your Company the best performing investment trust by some margin in our peer group..." Performance I am particularly pleased to report that during the six month period under review, the Company's net asset value total return was +9.5%, making your Company the best performing investment trust by some margin in our peer group in terms of investment performance. This compares to a total return from the sterling adjusted MSCI All Country Asia ex Japan Index of -0.9%. The share price total return for the period was +12.5%, reflecting a decrease in the share price discount to net asset value per share from 12.5% as at 31 January 2012 to 10.4% as at 31 July 2012. Further information on the Company's investment strategy can be found in our Investment Manager's review beginning on page 4. Share Capital and Discount Policy The Company renewed the authority to repurchase its own shares at the Annual General Meeting. As the Board has previously indicated, through this authority it is intended, when necessary, to ensure that the discount between the Company's share price and the net asset value per share is not out of line with the share price discount of similar peer group investment companies. During the past six months and to the date of this report there have been no repurchases of shares. Revenue Account and Dividend As mentioned at the year-end, the investments selected by First State Stewart have given rise to an investment portfolio which generates a good level of income. This, together with the Board's continued determination to control costs, has resulted in another strong level of net income for the period of £2.1m (six months ended 31 July 2011: £2.3m). The Board reminds shareholders that it remains the Company's policy to pursue capital growth for shareholders with income being a secondary consideration. Outlook Recent gloomy economic reports from Asian nations show that Europe's debt crisis and the broader global downturn are taking a growing toll on the region even as governments respond with extra spending and lower interest rates. Difficult economic conditions and a slowdown across the region generally has adversely affected Asian currencies and is expected to reduce the outlook for exports that are needed to drive the region's growth in the short term. Attempts to stimulate growth have yet to take effect and the short term economic outlook remains uncertain despite relatively robust domestic consumer demand. Notwithstanding short term economic concerns, your Board continues to believe that the overall prospects for the region remain healthy and that the Company's investment portfolio is well positioned to provide superior investment returns over the longer term. David Nichol Chairman 24 September 2012 Investment Manager's Review "Engagement remains a core part of our investment process." Political Risk Rising The greatest threat to long-term returns in Asia remains political risk. On the night of 16 January, two large army units advanced on Delhi, stopped at the city gates and then turned around. While it seems unlikely that this was a genuine attempt at a coup, it is plausible that the Indian army wished to display its dissatisfaction with politicians in Delhi. The recent power cuts which affected more than 600 million residents, is just the latest reminder of how India's politicians are failing their voters in spectacular fashion. Effective demand to purchase electricity exists, despite low income levels. Many Indian families pay extortionate rates for intermittent electricity generated by fuming diesel generators and poor quality water from the back of trucks. The capital to build the power stations and lay the water pipes is also ready and willing, as evidenced by the queues of international and domestic investors lined up to invest in those projects which do get off the ground. In China, the events surrounding Bo Xi Lai are well known, and despite the recent conclusion of his wife's trial, it is unlikely that political tensions in China have peaked. Meanwhile the rise of China is also creating new border tensions with its neighbours. As bottom-up investors, such political risks often provide opportunities to increase our positions in our favourite companies. However, it also creates serious risks for companies whose franchises have been built with the help of favourable government treatment. Old versus New Corporate Asia? We are increasingly wondering whether Asian companies fall into two distinct categories; "Old" and "New". This is undoubtedly too simplistic but there does seem to be a noticeable gap opening up between those Asian companies who continue to believe in "business as usual" and those who believe they need to change significantly in order to stay relevant and fit for purpose. "Old Asia" companies seem reluctant to change. Instead they are reverting to type by striving to hold onto the insurance of patronage and power. Many Asian companies continue to cite as a key competitive advantage their "good government relationships." Last month we met a water utility and a telecoms company who both made that claim. Such companies fall cleanly into the "Old Asia" category. By contrast, "New Asia" companies recognise their future lies in their ability to secure a license to operate from their customers and broader society. The two approaches could not be further apart. From telecoms to water provision to banking, Asian companies failing to deliver good quality, affordable services are likely to get found out sooner rather than later, regardless of how strong their government relationships are. A second key factor driving change is the growing realisation that Asia's development path needs to shift away from the resource and consumption intensive route followed historically by Western economies. Here too, there is a gap opening up between companies who are positioning for this change and companies who are not. Perhaps this difference is most noticeable amongst Asia's consumer companies. Companies such as portfolio holdings Dabur and Marico of India, Amorepacific of South Korea and Uni-President of Taiwan are all focused on developing healthier, more environmentally friendly, less resource intensive products for changing Asian consumer preferences. This is not an easy process and often involves a recognition that the current product range will struggle to remain fit for purpose. Taken together, these changes leave Asian companies with a difficult decision to make. Either they take a leap into unchartered waters in an attempt to make themselves relevant in the twenty first century, or they take an even greater risk and do nothing. "New Asia" companies brave enough to do the former are much more likely to be rewarded over time than "Old Asia" companies who choose to carry on as before. China and India Slowing Dramatically The rise in political risk goes hand in hand with slowing economic growth. China and India are both slowing quickly, but for different reasons. China's economy is suffering from a dramatic slowdown in end demand from Europe and the US, coupled with the structural challenges posed by a unique economic development model that is testing the limits of its current design. The result is a slowdown in economic activity across most parts of the economy - cement demand is Investment Manager's Review Continued negative, traffic on the toll roads is contracting, electricity consumption growth is dwindling to a standstill and manufacturing order books are drying up. India's problems, on the other hand are largely home grown, resulting from an astonishing, even by Indian standards, implosion of the political and governance framework needed to enable private investment in the country. The accompanying lack of confidence has thrown into the limelight India's longstanding twin deficit problem. It seems unlikely that the economic fortunes of either China or India are likely to reverse in the short-term, although a collapse in the oil price would give India a little more breathing room. Outside Asia's large "BRIC" markets, the economic outlook is not so bleak. The Philippines is finally reaping the reward of a long period of structural reforms, whilst Thailand, Malaysia and to a lesser extent Singapore are all well positioned to benefit from the renaissance of Burma and the ongoing developments in the greater Mekong region. It is easy to forget that Rangoon used to have Asia's busiest airport! Significant New Investments It is rare to find Asian companies these days whose businesses remain confined to their home markets. For example, we have recently increased the Company's position in Marico, an Indian company which started life as a single product consumer company, providing edible grade coconut oil. It has now expanded into a fully fledged consumer staple company, with products ranging from haircare to skincare to healthy foods such as premium, low cholesterol edible oil and healthy breakfast cereals. In addition, the company has expanded geographically, from South Africa and the Middle East to Bangladesh, Burma and Malaysia. Overseas sales now account for 25% of the business and are the fastest growing part of the business. Crucially, the company has a strong license to operate in its chosen markets, providing good quality, affordable consumer products set to benefit from trends towards health and wellbeing. The other significant recent addition is very similar in spirit. Amorepacific is a Korean cosmetics company with a strong focus on positioning the business to benefit from shifting consumer preferences towards natural ingredients, more environmentally sensitive packaging and a general sense of LOHAS (LOHAS is a home grown Asian concept for "sustainable living"). A major long-term investment theme for us is the growing trend towards Asian culture and LOHAS amongst Asian consumers. This may well be nothing but wishful thinking, but there seems to be enough evidence to suggest the trend is real - witness the size and influence of K-Pop and J-Pop today in Asia. Neither Amorepacific nor Marico is cheap, but we have taken the opportunity of mild share price and currency weakness to build up our positions further. Significant Disposals The majority of the Company's disposals over the period are related to corporate governance concerns, ranging from the sale of Henderson Land (allegations of corruption in China) to the sale of Chunghwa Telecom (use of minorities' cashflows to buy an airline). Engagement Engagement remains a core part of our investment process. Sometimes we engage on environmental, social and governance (ESG) issues to gather information. More often we spend time trying to build up a better understanding of the quality of management by focusing on how they seek to manage specific risks. We also spend time trying to encourage companies to alter their approach to specific ESG issues where appropriate. For example, over recent months we engaged the management of Dabur on allegations that antibiotics have been found in their honey. As a company with a valuable brand heritage based on healthy, natural ingredients, this represented an important risk to the company's franchise if not addressed. Fortunately the company appears to be responding well and we are hopeful that processes are now in place to stop this from happening in the future. Elsewhere, we had an interesting discussion with GlaxoSmithKline (GSK) following its US$3billion fine from the US Food and Drug Administration. Although your portfolio does not currently contain any GSK related companies, there are three Asian listed GSK-linked companies which are high up our list of potential investments for the Company. As long-term investors in the region, we also believe there is a strong investment case to be made for engaging with other industry participants where appropriate. Over the past few months we have engaged with stock exchange regulators and treasury officials on the topic of market fairness, the head of an Asian broking firm on the topics of client entertainment and conflicts of interest, and regional stock exchanges on the topic of high frequency trading. Many of these discussions are long-term in nature, but we believe that over time they play an important role in helping to generate attractive risk-adjusted returns for investors in the Company. David Gait Senior Investment Manager First State Investment Management (UK) Limited 24 September 2012 Portfolio as at 31 July 2012 % of total Market assets less valuation current Country of Investment Sector* £'000 liabilities incorporation Manila Water Utilities 9,429 5.7 Philippines Taiwan Semiconductor Information Manufacturing Company Technology 9,324 5.6 Taiwan Consumer Marico Staples 8,372 5.1 India Consumer Amorepacific Staples 8,232 5.0 South Korea DBS Group Financials 7,783 4.7 Singapore Kasikornbank Financials 7,190 4.4 Thailand Singapore Telecom Telecommunications Services 6,437 3.9 Singapore Cayman Towngas China Utilities 6,320 3.8 Islands Samsung Fire & Marine Insurance Financials 5,129 3.1 South Korea Telecom Axiata Services 4,865 2.9 Malaysia Ten largest investments 73,081 44.2 SMRT Industrials 4,309 2.6 Singapore Public Bank Financials 4,198 2.5 Malaysia Philippine Long Telecom Distance Telephone Services 4,047 2.4 Philippines DGB Financial Financials 3,938 2.4 South Korea Satyam Computer Information Services Technology 3,710 2.3 India Hongkong & China Gas Utilities 3,629 2.2 Hong Kong SembCorp Industries Industrials 3,591 2.2 Singapore E.Sun Financial Holdings Financials 3,287 2.0 Taiwan Consumer Dabur India Staples 3,175 1.9 India Uni-President Consumer Enterprises Staples 3,098 1.9 Taiwan Twenty largest investments 110,063 66.6 Swire Pacific Financials 2,989 1.8 Hong Kong Delta Electronics Information (Thailand) Technology 2,961 1.8 Thailand Consumer Giant Manufacturing Discretionary 2,823 1.7 Taiwan Vitasoy International Consumer Holdings Staples 2,696 1.6 Hong Kong Information Chroma ATE Technology 2,512 1.5 Taiwan Singapore Post Industrials 2,483 1.5 Singapore Information Infosys Technology 2,277 1.4 India MTR Corporation Industrials 2,183 1.3 Hong Kong Consumer E-Mart Staples 2,157 1.3 South Korea Telecom KT Corporation ADR Services 2,136 1.3 South Korea Thirty largest investments 135,280 81.8 Consumer Hindustan Unilever Staples 1,982 1.2 India Delta Electronics Information (Taiwan) Technology 1,980 1.2 Taiwan Sabana Shari'ah Compliant REIT Financials 1,961 1.2 Singapore Ayala Corporation Financials 1,884 1.1 Philippines Cayman Mindray Medical Health Care 1,552 0.9 Islands Telecom XL Axiata Services 1,173 0.7 Indonesia Information Wipro Technology 1,094 0.7 India EID Parry India Materials 927 0.6 India Information Simplo Technology Technology 910 0.6 Taiwan Consumer Sheng Siong Staples 876 0.5 Singapore Forty largest investments 149,619 90.5 *MSCI sector classifications Portfolio as at 31 July 2012 Continued % of total Market assets less valuation current Country of Investment Sector* £'000 liabilities incorporation Kotak Mahindra Bank Financials 824 0.5 India Globe Telecom Telecom Services 802 0.5 Philippines Ayala Land Financials 790 0.5 Philippines Chugoku Marine Paints Materials 770 0.5 Japan Tube Investments of India Industrials 737 0.4 India Taiflex Scientific Industrials 595 0.4 Taiwan Information ITEQ Technology 571 0.3 Taiwan Transport International Holdings Industrials 546 0.3 Bermuda Swire Properties Financials 520 0.3 Hong Kong China Mengniu Cayman Dairy Consumer Staples 474 0.3 Islands Fifty largest investments 156,248 94.5 Godrej Consumer Staples 393 0.2 India Hemas Holdings Industrials 324 0.2 Sri Lanka Marico Bangladesh Consumer Staples 273 0.2 Bangladesh Idea Cellular Telecom Services 263 0.1 India Dialog Axiata Telecom Services 171 0.1 Sri Lanka Information Simplo Technology Technology 91 0.1 Taiwan Total portfolio 157,763 95.4 Net current assets 7,541 4.6 Total assets less current liabilities 165,304 100.0 *MSCI sector classifications Income Statement for the six months ended 31 July 2012 (Unaudited) (Unaudited) (Audited) Six months Six months ended ended Year ended 31 July 2012 31 July 2011 31 January 2012 Revenue Capital Total Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Gains/(losses) on investments held at fair value through profit or loss - 13,489 13,489 - 2,273 2,273 - (7,333) (7,333) Exchange differences on currency balances - (8) (8) - (31) (31) - (1) (1) Income (note 2) 2,703 - 2,703 3,043 - 3,043 4,923 - 4,923 Investment management, management and performance fees (note 3) (187) (1,121) (1,308) (186) (558) (744) (358) (1,074) (1,432) Other expenses (246) (3) (249) (336) (2) (338) (629) (9) (638) Return on ordinary 2,270 12,357 14,627 2,521 1,682 4,203 3,936 (8,417) (4,481) activities before taxation Taxation on ordinary activities (155) - (155) (246) - (246) (256) - (256) Return attributable to 2,115 12,357 14,472 2,275 1,682 3,957 3,680 (8,417) (4,737) equity shareholders Return per ordinary share (p) (note 4) 1.8 10.6 12.4 2.0 1.4 3.4 3.2 (7.2) (4.0) The Total column of this statement represents the Company's Income Statement. The Revenue and Capital columns are supplementary to this and are both prepared under guidance published by the Association of Investment Companies (AIC). All revenue and capital items in the Income Statement derive from continuing operations. The Company had no recognised gains or losses other than those declared in the Income Statement. Reconciliation of Movements in Shareholders' Funds for the six months ended 31 July 2012 (Unaudited) (Unaudited) (Audited) Year Six months Six months ended 31 ended ended January 31 July 31 July 2012 2011 2012 £'000 £'000 £'000 Opening shareholders' funds 153,870 160,086 160,086 Return for the period 14,472 3,957 (4,737) Dividends paid (3,038) (1,507) (1,507) Return of unclaimed dividends - 28 28 Closing shareholders' funds 165,304 162,564 153,870 Balance Sheet as at 31 July 2012 (Unaudited) (Unaudited) (Audited) As at As at As at 31 31 July 31 July January 2012 2011 2012 £'000 £'000 £'000 Fixed assets Investments held at fair value through profit or loss 157,763 152,135 146,882 Current assets Debtors 894 853 359 Cash at bank 7,658 10,216 7,108 8,552 11,069 7,467 Creditors (amounts falling due within one year) (1,011) (640) (479) Net current assets 7,541 10,429 6,988 Net assets 165,304 162,564 153,870 Capital and reserves Share capital 14,606 14,606 14,606 Share premium account 4 4 4 Capital redemption reserve 1,648 1,648 1,648 Special reserve 14,572 14,572 14,572 Capital reserve 129,048 126,790 116,691 Revenue reserve 5,426 4,944 6,349 Equity shareholders' funds 165,304 162,564 153,870 Net asset value per ordinary share (p) (note 5) 141.5 139.1 131.7 Cash Flow Statement for the six months ended 31 July 2012 (Unaudited) (Unaudited) (Audited) Six months Six months Year ended ended ended 31 31 July 31 July January 2012 2011 2012 £'000 £'000 £'000 Net cash inflow from operating activities 1,290 1,175 1,899 Servicing of finance - - - Financial investment Purchases of investments (25,791) (27,633) (48,945) Sales of investments 28,097 27,993 45,443 Net cash inflow/(outflow) from financial investment 2,306 360 (3,502) Equity dividends paid (3,038) (1,507) (1,507) Return of unclaimed dividends - 28 28 Equity dividends (3,038) (1,479) (1,479) Increase/(decrease) in cash 558 56 (3,082) Reconciliation of net cash flow to movement in net funds Increase/(decrease) in cash resulting from cash flows 558 56 (3,082) Exchange differences on currency balances (8) (31) (1) Movement in net funds 550 25 (3,083) Net funds at beginning of period 7,108 10,191 10,191 Net funds at period end 7,658 10,216 7,108 Reconciliation of net return before finance costs and taxation to net cash flow from operating activities Net return/(loss) before finance costs and taxation 14,627 4,203 (4,481) (Gains)/losses on investments (13,489) (2,273) 7,333 Exchange differences on currency balances 8 31 1 Irrecoverable withholding tax on investment income (174) (135) (242) Changes in working capital and other non-cash items 318 (651) (712) Net cash inflow from operating activities 1,290 1,175 1,899 Notes to the Accounts 1. Basis of preparation The condensed financial statements have been prepared under the historical cost convention, except for the measurement of investments which are valued at fair value, and in accordance with applicable accounting standards, the Statement of Recommended Practice `Financial Statements of Investment Trust Companies and Venture Capital Trusts' dated January 2009 and the UK Accounting Standards Board's Statement `Half Yearly Financial Reports'. The same accounting policies that were used for the year ended 31 January 2012 have been applied in these financial statements. 2. Income (Unaudited) (Unaudited) (Audited) Six months Six months Year ended ended ended 31 31 July 31 July January 2012 2011 2012 £'000 £'000 £'000 Investment income 2,703 3,041 4,921 Interest receivable - 2 2 Total income 2,703 3,043 4,923 3. Investment Management fee, Management and Performance fees (Unaudited) (Unaudited) (Audited) Six months ended Six months ended Year ended 31 July 2012 31 July 2011 31 January 2012 Revenue Capital Total Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Investment management fee 151 452 603 150 449 599 288 864 1,152 Management fee 36 109 145 36 109 145 70 210 280 Performance fee accrued* - 560 560 - - - - - - 187 1,121 1,308 186 558 744 358 1,074 1,432 *Details of the performance fee basis can be found in the Report of the Directors on page 17 of the Annual Report for the year ended 31 January 2012. 4. Return per ordinary share The total return per ordinary share price is based on the total return attributable to Shareholders of £14,472,000 (six months ended 31 July 2011: £3,957,000; year ended 31 January 2012: loss £4,737,000) and on 116,848,386 shares (six months ended 31 July 2011: 116,848,386; year ended 31 January 2012: 116,848,386), being the weighted average number of shares in issue. The revenue return per ordinary share price is calculated by dividing the net revenue return attributable to Shareholders of £2,115,000 (six months ended 31 July 2011: £2,275,000; year ended 31 January 2012: £3,680,000) by the weighted average number of shares in issue as above. The capital return per ordinary share price is calculated by dividing the net capital return attributable to Shareholders of £12,357,000 (six months ended 31 July 2011: £1,682,000; year ended 31 January 2012: loss £8,417,000) by the weighted average number of shares in issue as above. 5. Net asset value per ordinary share The net asset value per ordinary share is based on the net assets attributable to Shareholders of £165,304,000 (31 July 2011: £162,564,000; 31 January 2012: £153,870,000) and on 116,848,386 shares in issue (31 July 2011: 116,848,386; 31 January 2012: 116,848,386). Notes to the Accounts Continued 6. 2012 accounts These are not statutory accounts in terms of Section 434 of the Companies Act 2006 and are unaudited. Statutory accounts for the year to 31 January 2012, which received an unqualified audit report, have been lodged with the Registrar of Companies. No statutory accounts in respect of any period after 31 January 2012 have been reported on by the Company's auditors or delivered to the Registrar of Companies. Earnings for the first six months should not be taken as a guide to the results for the full year. Interim Management Report Principal Risks and Uncertainties The Company's assets consist of listed securities and its main risks are therefore market related. The Company is also exposed to currency risk in respect of the markets in which it invests. Other risks faced by the Company include external, investment and strategic, regulatory, operational, and financial risks. These risks, and the way in which they are managed, are described in more detail under the heading Principal Risks and Risk Management within the Business Review in the Company's Annual Report for the year ended 31 January 2012. The Company's principal risks and uncertainties have not changed materially since the date of that report and are not expected to change materially for the remaining six months of the Company's financial year. Related Party Transactions During the first six months of the current financial year no material transactions with related parties have taken place which have affected the financial position or the performance of the Company during the period. Directors' Responsibilities The Board of Directors confirms that, to the best of its knowledge: (i) the condensed set of financial statements contained within the Half Year Report has been prepared in accordance with applicable accounting standards; and (ii) the interim management report includes a fair review of the information required by 4.2.7R and 4.2.8R of the UK Listing Authority and Transparency Rules. The Half Year Report has not been reviewed or audited by the Company's auditors. The Half Year Report was approved by the Board on 24 September 2012 and the above responsibility statement was signed on its behalf by: David Nichol Chairman Frostrow Capital LLP Company Secretary 25 September 2012 0203 008 4913 www.frostrow.com A copy of the interim report has been submitted to the National Storage Mechanism and will shortly be available for inspection at www.hemscott.com/nsm.do The interim report will also shortly be available on the Company's website at www.pacific-assets.co.uk where up to date information on the Company, including daily NAV, share prices and fact sheets, can also be found. END

Companies

Pacific Assets Trust (PAC)
UK 100
FTSE quotes by TradingView

Latest directors dealings

All directors dealings today