Half Yearly Report

RNS Number : 7637Z

Pacific Assets Trust PLC

28 September 2009

 



To:             RNS

From:        Pacific Assets Trust plc

Date:         28 September 2009

HALF YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 31 JULY 2009 (unaudited)

Financial Highlights

• Share price total return of 44.2 per cent

• Net asset value total return of 42.4 per cent

Chairman's Statement

Asian Pacific stockmarkets rebounded strongly over the six months to 31 July 2009. The Company's net asset value total return for the period was 42.4 per cent, outperforming the 40.1 per cent total return from the MSCI All Country Far East ex Japan Index. The share price total return for the period was 44.2 per cent, reflecting a narrowing of the discount which was 6.1 per cent as at 31 July 2009. 

Investor confidence has returned in recent months as governments and central banks have stabilised financial systems and introduced packages to stimulate economic growth. These measures, along with quantitative easing, have boosted global liquidity and stockmarkets have become more buoyant. Asia has been a particularly strong beneficiary of this phenomenon, as China is seen as an important driver of economic growth in the future.  

Whilst there is evidence of economic recovery, governments have effectively assumed huge debts from the private sector, and it is still too early to determine whether this is the beginning of a sustained period of economic growth. It will take some time for the substantial fiscal deficits to be reduced to more prudent levels. In the meantime, a genuine economic recovery is dependent on the return of a normal functioning global financial system.  

As discussed in the last Annual Report, the Company's strategy was reappraised towards the end of 2008 in light of the sharp deterioration in economic conditions at that time and the significant concerns which existed over the health of the global financial system. This led to the Manager adopting a more defensive strategy with a clear bias towards visible growth companies. As a consequence, the Company underperformed its peer group of investment trusts with similar objectives, resulting in it being placed sixth out of eight during the period. 

Gearing

As a result of the Manager's continuing cautious view of markets, the Company did not employ any of its borrowing facilities during the period. The Company has a flexible US dollar denominated facility which will provide it with the ability to increase its gearing when it is considered appropriate to do so.

Outlook

At current levels, the region's stockmarkets are anticipating a faultless recovery in economic activity and corporate profits. Whilst there are early signs that the worst of the recession may be behind us, there remain significant uncertainties over the timing of a sustainable economic recovery. As structural deleveraging continues across the western world there is a risk that corporate earnings fail to match recently heightened expectations. However, the Asia Pacific region is underpinned by a stable financial sector and the prospects for a recovery in domestic demand appear good.  The Board believes that this area continues to offer significant investor opportunities over the longer term.

David Nichol

Chairman

Manager's Report

The Company's net asset value total return for the six month period ended 31 July 2009 was 42.4 per cent, which compares favourably with a return of 40.1 per cent from the MSCI All Country Far East ex Japan Index. 

The aggressive coordinated monetary easing of late 2008 adopted by central banks to soften the dramatic impacts stemming from the global financial crisis moved to new heights in the first half of 2009, with quantitative easing strategies being adopted extensively. This unconventional injection of liquidity helped to lower yields, allow international trade to resume and investor sentiment to stabilise. It was, however, not until the end of February that, as companies started to replenish their very low inventories, global equity markets started to recover. In accordance with history, as the OECD leading indicators began to improve over the first half of 2009 so the Asian markets started to outperform. 

China was the standout recovery story of the period as its fiscal and monetary stimulus programmes led to a dramatic revival in quarterly GDP growth. Recognising the difficulties the western world was going through, the Chinese authorities targeted those sectors which they could directly influence, such as real estate and infrastructure, in order to regenerate domestic demand. Their success was astounding to the extent that within nine months of policy implementation, nationwide real estate inventories had fallen from 14 months to eight months, GDP growth was back close to 8 per cent, and investor attention had shifted to fears over policy tightening. Insurer Ping An was added to the portfolio in anticipation of rising yields with additional financial exposure achieved through purchases of Bank of China and China Construction Bank.

During the period, we remained circumspect on the sustainability of the recovery in the western world, leading to a greater focus on those markets where the domestic story appeared strongest. Indonesia was one such market, where improving political stability was raising the prospect of higher sustainable growth as the cost of capital contracted. With inflation tumbling, the central bank cut rates meaningfully allowing quarterly GDP growth to surprise on the upside. Cement company PT Indocement Tunggal Prakarsa and noodle producer PT Indofood Sukses Makmur were bought to add to the Indonesian holdings in telecommunications company PT Telekomunikasi Indonesia and gas supplier PT Perusahaan Gas Negara.

Political developments in various countries across Asia created significant equity market reactions over the period. A better than expected election outcome in India raised the prospect of accelerated reform programmes and greater financial prudence. This led to an instantaneous multiple re-rating for the market and consequently Union Bank of India was purchased in anticipation of an improvement in asset quality, in contrast to consensus expectations. In Taiwan, closer political relations with China led to a marked repatriation of offshore savings, driving a recovery in domestic asset prices. Fubon Financial Holding was purchased given its strategy to leverage into the closer Sino-Taiwan relations as well as to gain exposure to the current trend of rising demand in wealth management services. 

The Company's overweight exposure to defensive growth sectors weighed on performance as the markets rallied. Telecoms, healthcare and consumer staples offered solid growth prospects with attractive valuations, however their low beta status meant that they underperformed as the markets climbed higher. The defensive exposure was reduced by cutting positions in telecoms and healthcare, rotating proceeds into cyclical industrial and technology sectors via names such as Asia Cement in Taiwan and Samsung Electronics in Korea. 

Outlook

With valuations no longer cheap and investor expectations high, the risk of a pull back in the region has increased. Furthermore, as markets contend with the prospect of exit strategies by global central banks, easing risk spreads are unlikely to sustain their recent downward trends, challenging the lofty level of investor risk appetite. Consequently, with tighter liquidity, softening in re-stocking demand and persistent unemployment, this is all expected to continue to weigh on markets. However, if final demand, specifically in the West, exceeds expectations then leading indicators will remain buoyant, helping to support equity market valuations. As a result, we are adopting a balanced portfolio structure with a bias towards domestic defensive growth stocks coupled with selective cyclical overweights in industrial and technology companies where we believe the valuations are attractive. For the longer term, the structural appeal of Asia remains compelling, suggesting that a retracement might offer an opportunity to re-introduce some leverage into the portfolio.

Peter Dalgliesh

Fund Manager

F&C Investment Business Limited

PACIFIC ASSETS TRUST PLC
Unaudited Income Statement
		Six months to 31 July 2009
		Revenue	Capital	Total
		£'000	£'000	£'000
Gains on investments		-	35,912	35,912
Exchange differences		-	(238)	(238)
Income		1,293	-	1,293
Investment management fee		(121)	(363)	(484)
Other expenses		(425)	-	(425)
Net return before finance
costs and taxation		747	35,311	36,058
Interest payable		-	-	-
Return on ordinary activities
before tax		747	35,311	36,058
Tax on ordinary activities		(219)	140	(79)
Return attributable to
equity shareholders		528	35,451	35,979
Return per Ordinary Share		0.45p	29.95p	30.40p

The total column of this statement is the profit and loss account of the Company. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies.

PACIFIC ASSETS TRUST PLC
Unaudited Income Statement
		Six months to 31 July 2008
		Revenue	Capital	Total
		£'000	£'000	£'000
Losses on investments		-	(20,872)	(20,872)
Exchange differences		-	(69)	(69)
Income		2,250	-	2,250
Investment management fee		(198)	(594)	(792)
Other expenses		(358)	-	(358)
Net return before finance		1,694	(21,535)	(19,841)
costs and taxation
Interest payable		(48)	(145)	(193)
Return on ordinary activities
before tax		1,646	(21,680)	(20,034)
Tax on ordinary activities		(475)	327	(148)
Return attributable to
equity shareholders		1,171	(21,353)	(20,182)
Return per Ordinary Share		0.99p	(18.04)p	(17.05)p

PACIFIC ASSETS TRUST PLC

Audited Income Statement

		Year to 31 January 2009
		Revenue		Capital	Total
		£'000		£'000	£'000
Losses on investments		-		(61,943)	(61,943)
Exchange differences		-		(2,498)	(2,498)
Income		4,026		-	4,026
Investment management fee		(314)		(942)	(1,256)
Other expenses		(673)		-	(673)
Net return before finance
costs and taxation		3,039		(65,383)	(62,344)
Interest payable		(90)		(271)	(361)
Return on ordinary activities
before tax		2,949	(65,654)		(62,705)
Tax on ordinary activities		(846)	532		(314)
Return attributable to
equity shareholders		2,103	(65,122)		(63,019)
Return per Ordinary Share		1.78p	(55.03)p		(53.25)p

PACIFIC ASSETS TRUST PLC
Balance Sheet (unaudited)
	As at	As at	As at
	31 July	31 July	31 January
	2009	2008	2009
			(audited)
	£'000	£'000	£'000
Fixed assets
Investments	121,169	140,325	83,487
Current assets
Debtors	1,331	933	1,299
Cash at bank and on deposit	969	-	3,879
	2,300	933	5,178
Creditors: amounts falling due within one year	(1,257)	(10,661)	(905)
Net current assets/(liabilities)	1,043	(9,728)	4,273
Net assets	122,212	130,597	87,760
Capital and reserves
Called-up share capital	14,794	14,794	14,794
Share premium account	4	4	4
Capital redemption reserve	1,460	1,460	1,460
Special reserve	16,222	16,222	16,222
Capital reserve	86,403	94,721	50,952
Revenue reserve	3,329	3,396	4,328
Equity shareholders' funds	122,212	130,597	87,760
Net asset value per Ordinary Share	103.26p	110.35p	74.15p

PACIFIC ASSETS TRUST PLC

Unaudited Reconciliation of Movements in Shareholders' Funds

	Six months to	Six months to	Year ended
	31 July	31 July	31 January
	2009	2008	2009
			(audited)
	£'000	£'000	£'000
Opening shareholders' funds	87,760	152,105	152,105
Return for the period	35,979	(20,182)	(63,019)
Dividends paid	(1,527)	(1,326)	(1,326)
Closing shareholders' funds	122,212	130,597	87,760

PACIFIC ASSETS TRUST PLC

Summarised Unaudited Statement of Cash Flows

						Six months to	Six months to	Year ended
						31 July	31 July	31 January
						2009	2008	2009
								(audited)
						£'000	£'000	£'000
Net cash inflow from operating activities						581	977	1,779
Servicing of finance						-	(175)	(381)
Capital expenditure and financial investment						(1,726)	188	16,376
Equity dividends paid						(1,527)	(1,326)	(1,326)
Net cash (outflow)/inflow before financing						(2,672)	(336)	16,448
Financing						-	(9)	(13,208)
(Decrease)/increase in cash						(2,672)	(345)	3,240

Reconciliation of net cash flow to movement in net funds/(debt)

(Decrease)/increase in cash				(2,672)	(345)	3,240
Loans drawn down				-	(2,515)	(10,508)
Loans repaid				-	2,524	23,716
Changes in net debt resulting from cash flows				(2,672)	(336)	16,448
Exchange differences				(238)	(69)	(2,498)
Movement in net funds/(debt)				(2,910)	(405)	13,950
Net funds/(debt) at 1 February				3,879	(10,071)	(10,071)
Net funds/(debt) at 31 July/31 January				969	(10,476)	3,879

Reconciliation of net return before finance costs and taxation to net 

cash inflow from operating activities

Net return before finance costs and taxation					36,058	(19,841)	(62,344)
(Gains)/losses on investments					(35,912)	20,872	61,943
Exchange differences					238	69	2,498
Irrecoverable withholding tax on investment income					(89)	(148)	(314)
Changes in working capital and other non-cash items					286	25	(4)
Net cash inflow from operating activities					581	977	1,779

Notes to the Accounts

1.    The unaudited interim results have been prepared on the basis of the accounting policies set out in the statutory accounts of the Company for the year ended 31 January 2009.

2.    Earnings for the first six months should not be taken as a guide to the results for the full year.

3.    There were 118,348,386 Ordinary Shares in issue at 31 July 2009 (31 January 2009 - 118,348,386, 31 July 2008 - 118,348,386). The weighted average number of Ordinary Shares in issue during the period, used in calculating the return per share, was 118,348,386 (year ended 31 January 2009 - 118,348,386, six months ended 31 July 2008 - 118,348,386).

4.    These accounts have not been audited or reviewed by the Company's auditors pursuant to the Auditing Practices Board guidance on the review of interim financial information.

5.    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 2009, 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 2009 have been reported on by the Company's auditors or delivered to the Registrar of Companies. The Half Yearly Financial Report will be available on the Company's website: www.pacific-assets.co.uk.

Statement of Principal Risks and Uncertainties

The Company's assets consist principally 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 2009. 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.

Statement of Directors' Responsibilities in Respect of the Half Yearly Financial Report

We confirm that to the best of our knowledge:

• the financial statements have been prepared in accordance with the Statement 'Half-yearly Financial Reports' issued by the UK Accounting Standards Board and give a true and fair view of the assets, liabilities, financial position and return of the Company;

• the Chairman's Statement and Manager's Report (together constituting the Interim Management Report) include a fair review of the information required by the Disclosure and Transparency Rules ('DTR') 4.2.7R, being an indication of important events that have occurred during the first six months of the financial year and their impact on the financial statements;

• the Statement of Principal Risks and Uncertainties shown above is a fair review of the information required by DTR 4.2.7R; and

• the financial statements include a fair review of the information required by DTR 4.2.8R, being related party transactions that have taken place in the first six months of the financial year and that have materially affected the financial position or performance of the Company during the period, and any changes in the related party transactions described in the last Annual Report that could do so.

On behalf of the Board,

D B Nichol

Director 

For further information contact:

Peter Dalgliesh             ) F&C Investment Business Limited 0207 628 8000

Gordon Hay Smith        )

 

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