Interim Results
Polar Capital Technology Trust PLC
14 December 2001
14 December 2001
* Technology shares fell more than 30% over half year to 31 October.
* Economic weakness and international political uncertainty wreak havoc
with corporate profits.
* Company moved from 20% liquidity to fully invested in late September
/ early October reflecting attractive valuations and optimism regarding
cyclical recovery in 2002.
* Net assets recover to £342m at 12 December.
Financial Highlights Half year ended Year ended Movement
31-October-2001 30-April-2001 %
Total net assets £280,948,000 £401,337,000 -30.0%
Net assets
per ordinary share 188.6p 270.2p -30.2%
(undiluted)
per ordinary share 174.9p 243.7p -28.2%
(diluted)
Price
per ordinary share 185.5p 281.5p -34.1%
per warrant 93.5p 182.5p -48.8%
For further information please contact:
Brian Ashford-Russell
Polar Capital Technology Trust PLC
Tel: 020 7592 1500.
Peter Binns / Simon Ellis
Binns & Co
Tel: 020 7786 9600
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Chairman's Statement
The Company's half year witnessed a continuation of the unhappy trend
established during the previous six months. Technology shares around the
world maintained their disorderly retreat. Over the period, total net assets
fell by 30%. This compares with sterling adjusted falls of 31.8% in the Dow
Jones World Technology Index and of 18.4% in the FT World Index.
In our last two reports, we expressed our hope that the global economy might
bottom in the last quarter of 2001 and that the technology sector would make
its lows towards the end of the third quarter. The horrific events of 11
September may perversely have guaranteed this outcome and if so, they have
undoubtedly established the bottom at a markedly lower level than we had
foreseen.
For most of the half year, it seemed as if only the resilience of the US
consumer stood between the global economy and recession. A sharp decline in
global trade together with a collapse in capital spending has left the world
economy looking punch drunk. In spite of repeated cuts in interest rates and
growing fiscal stimulation, the US economy has found it hard to make progress,
unsurprisingly in view of the sluggishness in Europe and the continuing
decline of the Japanese economy.
Weakness in the global economy, greatly accentuated as it has been by the
consequences of the terrorist actions, has encountered a corporate sector
ill-prepared for anything other than buoyant demand conditions. The result
has been the destruction of profits in many industries. The multiplier
effects on capital spending and employment are only now beginning to be felt
but the consequences for share prices have been dramatic. Indeed, the third
quarter of 2001 represented the worst quarter for global equities in many
years.
Developments in the technology industry have reinforced our belief in the
structural rather than simply cyclical nature of the current downturn. Demand
throughout the industry has remained weak and companies have struggled to slash
their inventories and reduce break-even levels fast enough. The weakest area
remains wireline communications and it is disappointing to see the snail-like
pace of the rationalisation and consolidation underway in this industry.
Without progress on this front, a sustained recovery will not be viable.
Although a few areas of the technology industry, notably the wireless handset
and PC supply chains, appear to be stabilising, they are doing so at levels far
below those the consensus expected even six months ago.
Both outside and inside the technology industry, it has been hard to get a
feel for the level of sustainable earnings. Operational leverage has clearly
had catastrophic consequences for the profitability of many businesses but now
the key question is the extent to which that leverage may operate in reverse
as the global economy picks up momentum.
For all these reasons we maintained a cautious stance allowing liquidity to
rise above 20% by late August and maintaining a substantial 'defensive'
weighting in healthcare. The bulk of the liquidity was drawn from Europe
where, for most of the period, we held by a substantial margin our lowest ever
percentage weighting. This worked well (in relative terms) given the poor
performance of European technology stocks. However, it was partially
counter-balanced by the disappointing relative performance of our US
portfolio.
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By early September, we had begun tentatively to put money back into the
market. Although this strategy was put on hold following 11 September, we
initiated a buying programme on 19 September and, over the subsequent three
weeks reduced our liquidity from 20% to around 3%. It remains at this level
today. The rationale for this move lies in our belief that the aggressive
policy response seen from both governments and monetary authorities around the
world following 11 September should be sufficient to restore the global, and
in particular the US, economy to a cyclical growth mode by the second half of
2002. With good value evident in the technology sector and investor sentiment
as bearish as we could remember, late September seemed to be a suitable moment
to reverse our previously defensive stance.
We do not believe that the fourth quarter of 2001 represents the start of a
new secular uptrend for the technology sector. For such an event to take
place, we need to see substantive structural change within the industry as a
whole and the communications sector in particular. Instead, we anticipate a
cyclical uptrend for the sector in advance of a pick up in the global economy
in the second half of 2002 and the end of the dramatic inventory depletion
cycle that the industry has endured over the past twelve months. Such an
uptrend has already delivered attractive returns for investors from the lows
of September. However, the lack of short-term earnings visibility and
justifiably greater sensitivity to valuations on the part of investors
precludes the uptrend being either smooth or predictable.
Richard Wakeling
13 December 2001
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Group Statement of Total Return (incorporating the Revenue Account)
for the half year ended 31 October 2001
(Unaudited) (Unaudited) (Audited)
Half year ended Half year ended Year ended 30
31 October 31October April 2001
2001 2000
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Total
capital - (120,747)(120,747) - (11,908)(11,908) - (261,400)(261,400)
(losses)
/gains
on
investments
Income
from 1,520 - 1,520 1,057 - 1,057 2,972 - 2,972
fixed
asset
investments
Other
interest 520 - 520 1,205 - 1,205 2,667 - 2,667
receivable
and
similar
income
Gross
revenue 2,040 (120,747)(118,707) 2,262(11,908)(9,646) 5,639 (261,400)(255,761)
from
capital
gains/
(losses)
Manage-
ment (1,457) - (1,457)(5,807) - (5,807)(11,116) - (11,116)
fees
Other (407) - (407) (451) - (451) (890) - (890)
administrative
expenses
Net (loss)
/return
on ordinary
activities
before
interest 176(120,747)(120,571)(3,996)(11,908)(15,904)(6,367)(261,400)(267,767)
payable and
taxation
Interest
payable (235) - (235) (221) - (221) (393) - (393)
and similar
charges
Net (loss) on
ordinary
activities
before (59)(120,747)(120,806)(4,217)(11,908)(16,125)(6,760)(261,400)(268,160)
taxation
Taxation on
net returns on
ordinary (59) - (59) (55) - (55) (47) - (47)
activities
Net (loss)/
return
on
ordinary
activities
after (118)(120,747)(120,865)(4,272)(11,908)(16,180)(6,807)(261,400)(268,207)
taxation
(Loss)/
return (0.08p)(81.28p)(81.36p) (2.89p)(8.06p)(10.95p)(4.59p)(176.41p)(181.00p)
per ordinary
share
Note:
No diluted Earnings per Share has been disclosed as under FRS 14 the warrants
are at present anti-dilutive.
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Balance Sheets
as at 31 October (Unaudited) (Unaudited) (Audited)
2001
Group Company Group Company Group Company
Interim Interim Interim Interim Year End Year End
October October October October April April
2001 2001 2000 2000 2001 2001
£ 000 £ 000 £ 000 £ 000 £ 000 £ 000
Fixed assets
Investments at 278,416 278,416 646,675 646,675 386,201 386,201
market value
Investment in TR - - 91 91 - -
Technology PLC
(liquidated)
278,416 278,416 646,766 646,766 386,201 386,201
Unlisted at
directors'
valuation:
Subsidiary - 4,234 - 4,802 - 4,120
undertaking
Other United Kingdom 430 430 228 228 328 328
Overseas 296 296 315 315 298 298
279,142 283,376 647,309 652,111 386,827 390,947
Current assets
Investments - - 226 -
Debtors 5,575 8,347 2,933 5,114 4,718 7,435
Cash 29,408 22,402 26,900 20,143 39,471 32,634
34,983 30,749 30,059 25,257 44,189 40,069
Creditors: amounts (10,651) (10,651) (8,236) (8,236) (29,679) (29,679)
falling due within
one year
Net current assets 24,332 20,098 21,823 17,021 14,510 10,390
Total assets less 303,474 303,474 669,132 669,132 401,337 401,337
current liabilities
Creditors: amounts (22,526) (22,526) (15,768) (15,768) - -
falling due after
more than one year
Total net assets 280,948 280,948 653,364 653,364 401,337 401,337
Capital and reserves
Called up share 37,249 37,249 37,130 37,130 37,130 37,130
capital
Share premium 87,955 87,955 88,016 88,016 87,599 87,599
Warrant Exercise 567 567 - - 8,709 8,709
reserve
Warrant reserve 8,560 8,560 8,710 8,710 417 417
Other Capital 199,858 204,092 570,097 574,899 320,606 324,726
reserves
Revenue reserve (53,241) (57,475) (50,589) (55,391) (53,124) (57,244)
Equity shareholders' 280,948 280,948 653,364 653,364 401,337 401,337
funds
Net asset value per
ordinary
Share - undiluted 188.56p 188.56p 439.92p 439.92p 270.22p 270.22p
- diluted 174.91p 174.91p 386.61p 386.61p 243.72p 243.72p
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Group Cash Flow Statement
for the half year to 31
October 2001
(Unaudited) (Unaudited) (Audited and
restated)
Half year Half year Year ended
ended ended
31 October 31 October 30 April
2001 2000 2001
£'000 £'000 £'000
Net cash inflow/outflow from 253 (47,289) (53,149)
operating activities
Net cash outflow from (158) (189) (331)
servicing of finance
Net tax recovered/ (paid) 7 (42) 27
Net cash inflow from financial (9,790) 20,967 28,999
investment
Net cash outflow before (9,688) (26,553) (24,454)
financing
Net cash (outflow)/inflow from (439) 818 15,772
financing
Decrease in cash (10,127) (25,735) (8,682)
Reconciliation of operating revenue to net cash inflow
from operating activities
Net return/(loss) before 176 (3,996) (6,367)
interest payable and taxation
Net purchases of trading stock - (225) -
Decrease in accrued income 45 154 91
Decrease/(Increase) in debtors 126 (782) (1,066)
Decrease in creditors (29) (42,438) (45,748)
UK income tax deducted at - - 6
source
Overseas withholding tax (65) - (53)
suffered
Scrip dividends included in - (2) (12)
investment income
253 (47,289) (53,149)
Reconciliation of net cash flow to movement
in net funds/(debt)
Decrease in cash (10,127) (25,735) (8,682)
Movement in long term loans (21) - (14,955)
Change in net debt resulting (10,148) (25,735) (23,637)
from cash flows
Exchange movements 375 34 2,090
Movement in net debt in the (9,773) (25,701) (21,547)
year
Net funds at the beginning of 10,467 32,023 32,023
the period
Net funds at end of the 703 6,322 10,476
period
Represented By:
Bank balances and short term 29,408 22,090 39,471
deposits
Debt falling due within one (6,179) - (28,995)
year
Debt falling due after more (22,526) (15,768) -
than one year
703 6,322 10,476
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Notes
1.
Management fees Half Half year ended Year
year ended
ended 31 October 2000
30
31 April
October 2001
2001
£'000 £'000 £'000
Management fee paid to 7,012
Henderson for the period up to
9 February 2001 - 3,650
Compensation paid to Henderson - - 3,318
Management fee paid to Polar 1,457 - 1,886
Capital Partners for the period
from 10 February 2001
From 10 February 2001, Polar Capital Partners Ltd. ('Polar Capital') were
appointed investment managers. As part of the investment management
contract with Polar Capital the Company has contractually agreed for the full
amount of compensation paid to Henderson plus legal and other professional
advisers fees and costs together with extra fees paid to the directors for
work incurred in the change of investment manager to be recovered from Polar
Capital. These costs amounted to £3,466,000 and will be offset against the
management and any performance fees payable to Polar Capital over the 10
quarters from February 2001. The period of reduced fees can be altered
upwards so ensuring the minimum fee paid to Polar Capital in any one quarter
does not fall beneath £500,000.
2. (Loss)/return per share
Revenue loss per ordinary share is based on the net loss after taxation
attributable to the ordinary shares of £118,000
(31 October 2000 - losses of £4,272,000; 30 April 2001 losses of £6,807,000)
and on 148,553,562 (31 October 2000 - 147,800,332; 30 April 2001 -
148,179,591) ordinary shares, being the weighted average number of shares in
issue during the period.
Basic capital loss per ordinary share is based on net capital
losses of £ 120,747,000 (31 October 2000 - losses of £11,908,000; 30 April
2001 losses of £261,400,000) and on the weighted average number of ordinary
shares in issue for the period as shown above.
3. Net asset value per share
Undiluted net asset value per ordinary share is based on net assets
attributable to ordinary shares of £280,948,000 (31 October 2000 - £
653,364,000; 30 April 2001 - £401,337,000) and on 148,995,344 (31 October 2000
and 30 April 2001 - 148,519,976) ordinary shares, being the number of ordinary
shares in issue at the end of the period.
Diluted net asset value per ordinary share is calculated on the assumption
that the 27,145,477 warrants in issue at 31 October 2001 (31 October 2000 and
30 April 2000 - 27,620,845) were converted into ordinary shares at the
exercise price of 100p. Dilution is assumed to occur only if the undiluted net
asset value is greater than the conversion price of 100p.
4. Dividend
In accordance with stated policy no interim dividend has been declared for the
period (31 October 2000 and 30 April 2000 - nil).
5. Accounts for the period ended 30 April 2001
The financial information contained in this interim statement does not
constitute statutory accounts as defined by section 240 of the Companies Act
1985 The figures and financial information for the period ended 30 April 2001
are extracted from the latest published accounts of the Group and do not
constitute statutory accounts for that year. These accounts have been
delivered to the Registrar of Companies and included the report of the
auditors which was unqualified and did not contain a statement under either
section 237(2) or 237(3) of the Companies Act 1985. The financial information
for the six months ended 31 October 2000 and 31 October 2001 have not been
audited.
6. Accounting Policies
The figures and financial information contained in this interim statement has
been prepared using the same accounting policies as adopted at 30 April 2001.
7. Comparative Information
In the company's financial statements for the year ended 30 April 2001, the
movement in short term loans was not reflected in the reconciliation of net
cash flow to movements in net funds. The impact was to increase net funds
from £10,476,000 to £39,417,000. This miscalculation has been corrected in
the prior year comparative figures shown for 30 April 2001. This
reclassification has no impact on the total return , net assets or decrease in
cash, as stated in the last annual report.
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8. Interim Report
The interim accounts have been approved by the directors on 13 December and
will be posted to shareholders in January 2002. Copies will be available from
the Secretary at the Registered Office: Cayzer House, 30 Buckingham Gate,
London SW1E 6NN.
Portfolio Review - Classification of Investments
at 31 October 2001
North Europe Asia Total Total
America 31 October 30 April
2001 2001
% % % % %
Computing 8.8 0.7 - 9.5 9.7
Components 10.4 6.0 5.8 22.2 18.1
Software 15.7 4.5 - 20.2 18.0
Services 5.7 6.3 1.1 13.1 9.9
Communications 2.7 3.3 0.2 6.2 7.7
Media & Internet 2.1 - - 2.1 2.7
Healthcare 10.5 1.2 0.6 12.3 9.7
Consumer 2.6 1.3 1.1 5.0 6.5
Other technology 2.7 1.9 1.3 5.9 7.9
Unquoted investments - 0.1 0.1 0.2 0.1
EQUITY INVESTMENTS 61.2 25.3 10.2 96.7 90.3
Fixed Interest - 2.6 - 2.6 6.1
Net Current Assets - 10.9 0.1 11.0 10.8
Loans - - (10.3) (10.3) (7.2)
OTHER NET ASSETS - 13.5 (10.2) 3.3 9.7
GRAND TOTAL (net assets of £ 61.2 38.8 - 100.0 100.0
280,948,000)
At 30 April 2001 ( net assets of 60.4 34.3 5.3 100.0 100.0
£401,337,000)
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Portfolio Review- Equity Investments over 1%
at 31 October 2001
North America
£'000 Stock Activity % of net assets
8,797 Microsoft PC software 3.2%
8,546 International Business Machines Computer hardware 3.1%
and services
7,217 Texas Instruments Semiconductors 2.6%
6,925 Dell PCs 2.5%
6,096 Medtronic Medical devices 2.2%
5,697 Bristol Myers Squibb Pharmaceuticals 2.0%
5,495 Johnson & Johnson Medical products 2.0%
5,444 Electronic Data Systems Outsourcing 1.9%
services
5,399 Micron Technology DRAMs 1.9%
5,131 Electronic Arts Gaming software 1.8%
5,072 Teradyne Semiconductor 1.8%
production
equipment
5,061 Cisco Networking 1.8%
equipment
4,956 Pfizer Pharmaceuticals 1.8%
4,933 Applied Materials Semiconductor 1.8%
production
equipment
4,839 Netiq Systems software 1.7%
4,615 Oracle Database software 1.6%
4,285 Kla-Tencor Semiconductor 1.5%
production
equipment
4,076 Liberate Technologies Interactive TV 1.5%
software
3,973 First Data Payments 1.4%
processing
3,972 Jabil Circuit Electronic 1.4%
manufacturing
services
3,907 Amgen Biotechnology 1.4%
3,508 Computer Associates Systems software 1.3%
3,276 Qualcomm Wireless equipment 1.2%
3,268 Xilinx Programmable logic 1.2%
devices
3,221 AOL Time Warner Online services 1.2%
3,159 Veritas Storage software 1.1%
3,026 Biogen Biotechnology 1.1%
2,931 Sun Microsystems Servers 1.1%
2,913 Automatic Data Processing Payroll processing 1.0%
2,861 Verisign Internet security 1.0%
2,856 Vitesse Specialist 1.0%
communications
components
145,455 Total investments over 1% 52.1%
27,033 Other investments 9.2%
172,488 Total North American investments 61.3%
Europe
£'000 Stock Activity % of net assets
5,017 ST Microelectronics Semiconductors 1.8%
4,484 ASM Lithography Semiconductor 1.6%
production
equipment
4,100 Nokia Mobile telephony 1.5%
3,474 Logitech Computer 1.2%
peripherials
3,047 XANSA IT consultancy 1.1%
3,034 Galen Pharmaceuticals 1.1%
3,028 Sage Software & 1.1%
computer technology
3,017 Abacus Polar Component 1.1%
distribution
2,876 Ordina IT consultancy 1.0%
2,820 Guardian IT IT services 1.0%
34,897 Total investments over 1% 12.5%
35,824 Other investments 12.7%
70,721 Total European investments 25.2%
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Asia
£'000 Stock Activity % of net assets
3,761 Sumitomo Electric Communications 1.4%
components
3,722 Fuji Photo Film Photographic technology 1.3%
3,058 Sharp Consumer electronics 1.1%
3,003 Nippon System IT services 1.1%
Development
13,544 Total investments 4.9%
over 1%
15,050 Other investments 5.3%
28,594 Total Asian 10.2%
investments
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