Interim Results
Polar Capital Technology Trust PLC
11 December 2006
POLAR CAPITAL TECHNOLOGY TRUST PLC
Unaudited Interim Results for the Six Months ended 31 October 2006
11 December 2006
• NAV per share falls 9.1% against a backdrop of technology underperformance
across all major markets
• Economic views remain polarized but we tend towards optimism about the
prospect of a 'soft landing' for the US economy
• The technology sector appears to have now passed an important turning point
following its long bear market and we remain optimistic about an improved
spending environment over the next few years
• Portfolio now fully invested with an increasing bias towards the USA
• Two new directors appointed to the Board:- Michael Moule (ex-Henderson
Global Investors) and Rupert Montagu (co-founder of Montagu Newhall
Associates)
FINANCIAL HIGHLIGHTS
(Unaudited) (Audited) Movement
Half year ended Year ended %
31 October 2006 30 April 2006
Net assets per ordinary share 232.57p 255.88p (9.1)
Price per ordinary share 231.75p 245.00p (5.4)
Total net assets £325,573,000 £358,202,000 (9.1)
Shares in issue 139,990,821 139,990,821 -
Sterling
Adjusted
%
New performance fee benchmark (used from 1 May 2006)
Dow Jones World Technology (total return sterling adjusted) (4.1)%
Old performance fee benchmark (used up to 30 April 2006)
Composite of technology indices (6.8)%
For further information please contact:
Ben Rogoff Ed Gascoigne-Pees
Polar Capital Technology Trust PLC Financial Dynamics
Tel: 020 7227 2700 Tel: 020 7269 7132
CHAIRMAN'S REVIEW
Stock markets proved challenging over the half year with volatility at times
quite pronounced and the FTSE World Index experiencing its largest correction
for some years. However, notwithstanding the sharp falls seen in May and June,
markets recovered their poise to the extent that, by the end of our half year,
many had regained and exceeded the levels recorded at 30 April. Unfortunately
for UK based investors, sterling's exceptional strength against the dollar and
the yen over this period had a significant negative impact on performance over
the half year.
Technology shares have, with certain notable exceptions, been disappointing and
in every major region have lagged their local markets. The notable exceptions to
this lacklustre performance were the largest capitalisation US technology
companies such as Microsoft, Cisco, Oracle and IBM. Although most of these
companies are what we would describe as 'last generation' technology companies,
they have recently found favour with generalist investors and, as a consequence,
saw sharp rises over the period. Those companies' dominance of the Dow Jones
Global Technology Index accounted for that index ending the half year down just
4.1% in sterling terms while our previous benchmark, a composite of technology
indices, fell by 6.8%.
Your own company's net asset value per share fell by 9.1% which was
disappointing. However, both absolute and relative performance have recovered
well since the half year end. In large part, the half year's underperformance
simply reflects a reversal of the very strong relative outperformance achieved
in the first four months of 2006. However, it also reflects some indifferent
stock selection and a poorly timed increase in our Japanese smaller company
exposure. The latter proved costly as small growth stocks in Japan significantly
lagged the recovery in technology shares enjoyed elsewhere during the autumn.
Much of the volatility in both markets and in the technology sector has
reflected investor uncertainty about the macro economic outlook. May's sell-off
was sparked by an increase in inflation that led to a sharp rise in bond yields
and speculation that the new Federal Reserve Governor would have to tighten
monetary policy beyond previous expectations. In contrast, the recent market
recovery has reflected greater optimism that slowing growth, combined with a
steep decline in energy prices, should mean that the peak of inflationary
pressures was behind us. However, views remain polarised with great attention
focussed on the course of the US real estate market which is generally seen as
key to whether the US economy achieves a hard or soft landing. The evidence so
far is mixed but our base assumption is that a relatively soft landing will be
achieved although inflationary fears may persist for some while and even
re-intensify at some point in the spring or summer of 2007. If we are correct,
then once the market has digested recent gains - a process that may take some
weeks or even months - share prices should move further ahead given continuing
strong liquidity, robust earnings growth, strong merger and acquisition activity
and reasonable valuations.
This market view clearly influences our portfolio positioning. We have, over the
last few months, moved to a fully invested position and expect, on any setback,
to add some modest leverage to the fund. Not only are we relatively positive
about the prospects for the broad equity market over the next half year but we
are also increasingly optimistic about the outlook for technology companies.
Over the last eighteen months, we have suggested that the technology sector
would, provided that the global economy avoids recession, reach a turning point
during the fourth quarter of 2006. We remain of this view. July's low point had
most of the characteristics that would normally mark an intermediate low and,
although share prices have subsequently recovered, our indicators are a long way
away from levels that would suggest an imminent top.
Our medium term optimism is also based on our belief that there are now multiple
new drivers for technology spending, many of which depend on the proliferation
of broadband infrastructure. After many years in which technology spending has
been unusually subdued, we believe demand for servers, storage, software and
networking infrastructure is gaining ground and that a robust spending cycle
will unfold over the next few years. This, together with a growing number of
emerging technologies both inside and outside the conventional IT industry,
reinforces an optimism that is further supported by the sector's relatively
undemanding valuation and the apparent indifference of most investors.
Consequently, we expect to buy into any weakness and gradually increase our
exposure to the USA which we see as the main source of much of this new
technology and also one of its primary beneficiaries.
I am delighted to welcome Mr Michael Moule and Mr Rupert Montagu who will join
the board with effect from 1 January 2007. Michael has an outstanding long term
record as an investment trust manager during his career at Henderson Global
Investors. Rupert is the co-founder of Montagu Newhall a specialist investor in
the technology and healthcare venture capital industries.
Richard Wakeling
11 December 2006
Consolidated Income Statement for the half year ended 31 October 2006
(Unaudited) (Unaudited) (Audited)
Half year ended Half year ended Year ended
31 October 2006 31 October 2005 30 April 2006
Revenue Capital Total Revenue Capital Total Revenue Capital Total
return return return return return return return return return
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Investment income 1,469 - 1,469 1,298 - 1,298 2,629 - 2,629
Other operating 345 - 345 400 - 400 692 - 692
income
Exchange gain on - 723 723 - 160 160 - 626 626
foreign currency
(Loss)/gain on - (32,561) (32,561) - 38,052 38,052 - 89,338 89,338
investments held
at fair value
Total income 1,814 (31,838) (30,024) 1,698 38,212 39,910 3,321 89,964 93,285
Expenses
Investment (1,829) - (1,829) (1,692) - (1,692) (3,465) - (3,465)
management fee
Other (422) - (422) (433) - (433) (671) - (671)
administrative
expenses
(Loss)/profit (437) (31,838) (32,275) (427) 38,212 37,785 (815) 89,964 89,149
before finance
costs and tax
Finance costs (244) - (244) (215) - (215) (454) - (454)
(Loss)/profit (681) (31,838) (32,519) (642) 38,212 37,570 (1,269) 89,964 88,695
before tax
Tax (110) - (110) (113) - (113) (193) - (193)
Net (loss)/profit (791) (31,838) (32,629) (755) 38,212 37,457 (1,462) 89,964 88,502
for the period
Earnings per ordinary share
(pence)
Basic (23.31p) 31.83p 69.58p
Diluted (23.31p) 31.83p 67.17p
The total column of this statement represents the Group's Income Statement,
prepared in accordance with IFRS. The revenue return and capital return columns
are supplementary to this and are prepared under guidance published by the
Association of Investment Companies.
All items in the above statement derive from continuing operations.
All income is attributable to the equity holders of Polar Capital Technology
Trust Plc. There are no minority interests.
Consolidated Statement of Changes in Equity for the half year ended 31 October 2006
(Unaudited) Half year ended 31 October 2006
Ordinary Capital Warrant
share redemption Share Warrant exercise Retained
capital reserve premium reserve reserve earnings Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Group and Company 34,998 9,214 117,902 - 7,536 188,552 358,202
Total equity at 30 April 2006
Loss for the period - - - - - (32,629) (32,629)
Total equity at 31 October 2006 34,998 9,214 117,902 - 7,536 155,923 325,573
(Unaudited) Half year ended 31 October 2005
Ordinary Capital Warrant
share redemption Share Warrant exercise Retained
capital reserve premium reserve reserve earnings Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Total equity at 30 April 2005 28,830 9,145 90,134 6,179 1,483 101,466 237,237
as previously reported
Adjustment to revalue portfolio - - - - - (798) (798)
to bid at 30 April 2005
Opening balance at 1 May 2005 28,830 9,145 90,134 6,179 1,483 100,668 236,439
to comply with IFRS
Profit for the period - - - - - 37,457 37,457
Exercise of warrants for 4,799 - 14,397 (6,053) 6,053 - 19,196
ordinary shares
Repurchase of warrants - - - (126) - (150) (276)
Shares bought back for (69) 69 - - - (472) (472)
cancellation
Total equity at 31 October 2005 33,560 9,214 104,531 - 7,536 137,503 292,344
(Audited) Year ended 30 April 2006
Ordinary Capital Warrant
share redemption Share Warrant exercise Retained
capital reserve premium reserve reserve earnings Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Total equity at 30 April 2005 28,830 9,145 90,134 6,179 1,483 101,466 237,237
as previously reported
Adjustment to revalue portfolio - - - - - (798) (798)
to bid at 30 April 2005
Opening balance at 1 May 2005 28,830 9,145 90,134 6,179 1,483 100,668 236,439
to comply with IFRS
Profit for the year to 30 April - - - - - 88,502 88,502
2006
Exercise of warrants for 4,799 - 14,397 (6,053) 6,053 - 19,196
ordinary shares
Repurchase of warrants - - - (126) - (150) (276)
Shares bought back for (69) 69 - - - (468) (468)
cancellation
Issue of ordinary share capital 1,438 - 13,371 - - - 14,809
Total equity at 30 April 2006 34,998 9,214 117,902 - 7,536 188,552 358,202
Consolidated and Company Balance Sheets at 31 October 2006
(Unaudited) (Unaudited) (Audited)
Group Company Group Company Group Company
Interim Interim Interim Interim Year End Year End
31 October 31 October 31 October 31 October 30 April 30 April
2006 2006 2005 2005 2006 2006
£'000 £'000 £'000 £'000 £'000 £'000
Non current assets
Investments held at fair 348,128 348,585 288,931 290,778 362,701 363,113
value
Current assets
Other receivables 9,956 13,145 24,297 27,404 4,350 7,500
Cash and cash equivalents 19,537 15,891 51,558 46,604 42,050 38,488
29,493 29,036 75,855 74,008 46,400 45,988
Total assets 377,621 377,621 364,786 364,786 409,101 409,101
Current liabilities
Other payables (11,725) (11,725) (28,718) (28,718) (7,493) (7,493)
Bank loans (17,946) (17,946) (19,460) (19,460) (19,318) (19,318)
(29,671) (29,671) (48,178) (48,178) (26,811) (26,811)
Total assets less current 347,950 347,950 316,608 316,608 382,290 382,290
liabilities
Non current liabilities
Bank loans (22,377) (22,377) (24,264) (24,264) (24,088) (24,088)
Net assets 325,573 325,573 292,344 292,344 358,202 358,202
Equity attributable to equity
shareholders
Ordinary share capital 34,998 34,998 33,560 33,560 34,998 34,998
Capital redemption reserve 9,214 9,214 9,214 9,214 9,214 9,214
Share premium 117,902 117,902 104,531 104,531 117,902 117,902
Warrant exercise reserve 7,536 7,536 7,536 7,536 7,536 7,536
Retained earnings 155,923 155,923 137,503 137,503 188,552 188,552
Total equity 325,573 325,573 292,344 292,344 358,202 358,202
Basic and diluted net asset 232.57p 232.57p 217.78p 217.78p 255.88p 255.88p
value per ordinary share
Consolidated and Company Cash Flow Statement for the half year ended 31 October 2006
(Unaudited) (Unaudited)
Half year ended 31 October 2006 Half year ended 31 October 2006
Group Company Group Company
£'000 £'000 £'000 £'000
Cash flows from operating activities
(Loss)/profit before finance costs (32,275) (32,275) 37,785 37,785
and tax
Adjustments for:
Decrease/(increase) in investments 10,767 10,722 (70,793) (70,853)
(Increase)/decrease in receivables (5,609) (5,648) 5,111 5,060
Increase in payables 4,214 4,214 3,444 3,444
9,372 9,288 (62,238) (62,349)
Net cash from operating activities (22,903) (22,987) (24,453) (24,564)
before tax
Taxation paid (107) (107) (117) (117)
Net cash from operating activities (23,010) (23,094) (24,570) (24,681)
Cash flows from/(used in)
financing activities
Exercise of warrants - - 19,196 19,196
Repurchase of warrants - - (405) (405)
Cost of shares repurchased - - (1,533) (1,533)
Loans taken out 19,049 19,049 25,102 25,102
Loans matured (19,049) (19,049) (24,399) (24,399)
Finance costs (226) (226) (215) (215)
Net cash from financing activities (226) (226) 17,746 17,746
Net decrease in cash and cash (23,236) (23,320) (6,824) (6,935)
equivalents
Cash and cash equivalents at the 42,050 38,488 58,222 53,379
beginning of the period
Effect of foreign exchange rate 723 723 160 160
changes
Cash and cash equivalents at the end 19,537 15,891 51,558 46,604
of the period
NOTES TO THE ACCOUNTS
1. GENERAL INFORMATION
The consolidated accounts comprise the unaudited results for Polar Capital
Technology Trust Plc and its subsidiary PCT Finance Limited for the six
months to 31 October 2006.
The unaudited accounts to 31 October 2006 have been prepared using the
accounting policies used in the Group's annual accounts to 30 April 2006.
These accounting policies are based on International Financial Reporting
Standards ('IFRS') and comprise standards and interpretations approved by
the International Accounting Standards Board ('IASB') together with
interpretations of the International Accounting Standards and Standing
Interpretations Committee approved by the International Accounting
Standards Committee ('IASC') that remain in effect, to the extent that IFRS
has been adopted by the European Union.
The results contained in this interim report for the six months ended 31
October 2006 do not constitute statutory accounts as defined in section 240
of the Companies Act 1985. The financial information for the half years
ended 31 October 2005 and 2006 have not been audited. The financial
information for the year ended 30 April 2006 has been extracted from the
full statutory accounts for that year ended, prepared under IFRS. The
report of the auditors on those accounts contained no qualification or
statement under either section 237(2) or 237(3) of the Companies Act 1985
and they have been delivered to the Registrar of Companies.
2. EARNINGS PER ORDINARY SHARE
Earnings per ordinary share is based on the net loss after taxation
attributable to the ordinary shares of £32,629,000 (31October 2005 - profit
of £37,457,000; 30 April 2006 - profit of £88,502,000) and on 139,990,821
(31 October 2005 - 117,669,333; 30 April 2006 - 127,193,972) ordinary
shares, being the weighted average number of shares in issue during the
period.
3. NET ASSET VALUE PER ORDINARY SHARE
Net asset value per ordinary share is based on net assets attributable to
the ordinary shares of £325,573,000 (31 October 2005 - £292,344,000; 30
April 2006 - £358,202,000) and on 139,990,821 (31 October 2005 -
134,238,821; 30 April 2006 - 139,990,821) ordinary shares, being the number
of ordinary shares in issue at the end of the period.
4. DAILY NAV
The NAV released to the London Stock Exchange is calculated in accordance
with the AIC recommendations and is not on the same basis as the numbers
reported in these accounts. The daily NAV does not reflect retained
earnings or losses.
5. DIVIDEND
In accordance with stated policy, no interim dividend has been declared for
the period (31 October 2005 and 30 April 2006 - nil).
6. INTERIM REPORT
The interim report will be posted to shareholders in January 2007. Copies
will be available from the Secretary at the Registered Office, 4 Matthew
Parker Street, London, SW1H 9NP
Portfolio Review - Equity Investments over 0.75% of net assets at 31 October 2006
North America
% of
£'000 Stock Activity net assets
4,633 Amgen Biotechnology 1.4%
4,582 Broadcom Semiconductors 1.4%
4,563 KLA Tencor Semiconductor capital equipment 1.4%
4,303 National Semiconductor Semiconductors 1.3%
4,219 Network Appliance Storage hardware 1.3%
4,169 Lam Research Semiconductor capital equipment 1.3%
4,014 Apple Computers Computing 1.2%
3,859 iShares Nasdaq Biotechnology Biotechnology 1.2%
3,623 Genetech Biotechnology 1.1%
3,566 Adobe Software 1.1%
3,512 Google Internet 1.1%
3,367 Qualcomm Wireless IP 1.0%
3,305 CMP Sciences IT services 1.0%
3,249 ATMI Semiconductors 1.0%
3,205 Citrix Software 1.0%
3,100 Cisco Telecom equipment 1.0%
3,096 Lockheed Martin Aerospace/Defence 1.0%
3,037 Electronic Arts Software 0.9%
2,977 Hewlett-Packard Computing 0.9%
2,872 Xilinx Semiconductor manufacturer 0.9%
2,859 Jabil Electronic manufacturing services 0.9%
2,808 BEA Systems Software 0.9%
2,788 Applied Materials Semiconductor capital equipment 0.9%
2,762 Thermo Electron Instrumentation 0.8%
2,699 Automatic Data Processing IT services 0.8%
2,678 Harris Telecom equipment 0.8%
2,657 IBM IT services 0.8%
2,591 DST Systems IT services 0.8%
2,547 Genzyme Transgenics Biotechnology 0.8%
2,526 Microsoft Software 0.8%
2,516 NCR Computing 0.8%
102,682 Total investments over 0.75% 31.6%
76,892 Other investments 23.6%
179,574 Total North American investments 55.2%
Europe
% of
£'000s Stock Activity net assets
4,025 Aveva Software 1.2%
3,132 SAP Enterprise software 1.0%
3,006 NDS Encryption software 0.9%
3,005 Phonak Hearing aids 0.9%
2,911 Sword IT Services 0.9%
2,839 EDB IT services 0.9%
2,824 Wincor Nixdorf ATM POS hardware 0.9%
2,820 ARM Semiconductors 0.9%
2,582 SES Global Satellite operator 0.8%
2,518 Fresenius MedicalCare Renal care 0.8%
29,662 Total investments over 0.75% 9.2%
41,506 Other investments 12.7%
71,168 Total European investments 21.9%
Asia
% of
£'000s Stock Activity net assets
9,353 Renesola Alternative energy 2.9%
5,458 Zeon LCD materials 1.7%
4,486 Nidec Components 1.4%
4,347 Keyence Components 1.3%
4,020 Dena Internet/Mobile commerce 1.2%
3,929 Yokogawa Electric Components 1.2%
3,846 Taiwan Semiconductor Semiconductors 1.2%
3,772 Neomax Components 1.2%
3,495 Cdnetworks Content delivery 1.1%
3,373 Nitto Denko LCD materials 1.0%
3,301 Aruze Gaming equipment 1.0%
3,276 JSR LCD materials 1.0%
2,970 Aiphone Entryphone systems 0.9%
2,816 ST Shine Medical technology 0.9%
2,753 Sysmex Medical Technology 0.8%
2,707 Cheng Uei precision Components 0.8%
63,902 Total investments over 0.75% 19.6%
16,973 Other investments 5.2%
80,875 Total Asian investments 24.8%
Portfolio Analysis - Classification of Investments
at 31 October 2006
TOTAL TOTAL
North Europe Asia 31 October 30 April
America 2006 2006
% % % % %
Computing 9.7 1.5 1.2 12.4 13.5
Components 13.5 4.4 11.1 29.0 19.1
Software 11.4 5.1 2.3 18.8 15.8
Services 2.7 2.9 0.6 6.2 8.7
Communications 3.6 1.1 - 4.7 7.3
Life Sciences 8.5 2.2 1.7 12.4 12.1
Consumer, Media and Internet 1.7 1.2 2.4 5.3 8.0
Other Technology 3.5 3.2 5.5 12.2 11.2
Unquoted Investments 0.6 0.3 - 0.9 1.0
Equity Investments 55.2 21.9 24.8 101.9 96.7
Money Market Funds - 4.5 - 4.5 4.0
Net Current Assets 0.5 4.1 1.5 6.1 11.4
Loans - - (12.5) (12.5) (12.1)
Other net assets/(liabilities) 0.5 8.6 (11.0) (1.9) 3.3
Grand total 55.7 30.5 13.8 100.0 -
(net assets of £325,573,000)
At 30 April 2006 49.9 32.7 17.4 - 100.0
(net assets of £ 358,202,000)
INDEX CHANGES
(total return)
over the half year to 31 October 2006
Local Sterling
Currency % Adjusted %
Technology Indices:
NYSE ARCA Technology 100 (1.8) (6.4)
MS Eurotec (based in US dollars) (2.6) (7.2)
FTSE Techmark 100 - 1.6
Tecdax (5.5) (8.7)
Tokyo SE Electronics (5.7) (12.4)
DS Asia Ex Japan Electronics (2.0) (6.6)
Market Indices:
FTSE World - (0.2)
S&P 500 Composite 6.1 1.1
FTSE All-Share - 3.7
FTSE World Europe (ex UK) - 2.8
Tokyo SE (Topix) (5.3) (12.0)
FTSE World Pacific Basin (ex Japan) - (2.1)
EXCHANGE RATES
31 October 2006 30 April 2006
US$ to £ 1.9072 1.8177
Japanese Yen to £ 223.44 207.58
Euro to £ 1.4943 1.4430
FUND DISTRIBUTION BY MARKET CAPITALISATION
as at 31 October 2006
Market Capitalisation % of invested
assets
< $2bn 36.5%
$2bn-$10bn 30.5%
> $10bn 33.0%
This information is provided by RNS
The company news service from the London Stock Exchange
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