Preliminary Results

RNS Number : 5310W

Polar Capital Technology Trust PLC

12 June 2008

 



POLAR CAPITAL TECHNOLOGY TRUST PLC

Unaudited Preliminary Group Results for the year ended 30 April 2008

12 June 2008  

Key Points

• Recessionary fears following the credit crisis reversed the strength seen in technology shares during the first half of the financial year 

• NAV, down 5.4% over the year, held back both by weakness in Asia and the lagging performance of small and mid cap technology shares

• Changes to the portfolio structure last Autumn, in particular the reduced Japanese and US small cap exposure, led to materially better second half relative returns

• With many technology companies beneficiaries of a weak dollar, cash rich and delivering material productivity enhancement to their customers, we are positive about their relative earnings outlook 

• Our optimism about the sector remains undimmed despite the challenging equity markets that may lie ahead 

Financial Highlights
	(Unaudited)	Audited	Movement
	Year ended	Year ended	%
	30 April 2008	30 April 2007
Net assets per ordinary share	226.72p	239.66p	-5.4%
Price per ordinary share	190.75p	228.00p	-16.3%
Total net assets	£300,425,000	£335,498,000	-10.5%
Shares in issue	132,508,914	139,990,821	-5.3%

For further information on Polar Capital Technology Trust please contact:
Ben Rogoff  [phone]
OR
Financial Dynamics
Ed Gascoigne-Pees [phone]
Felicity Murdoch  [phone]

Chairman's Report

 The last year has been an exceptionally challenging period for investors, one which although disappointingly short of returns proved to be packed with drama. 

In recent years financial markets have been permeated by excessive greed and risk-taking. The most damaging manifestation of this has been the extraordinary levels of leverage assumed by apparently respectable financial organisations and the degree of speculation evident in the real estate markets in certain countries. What began as a basic credit shock in the US sub-prime lending market became greatly amplified by heavy balance sheet leverage in the asset securitisation markets, and then developed into a global liquidity crisis due to these markets' dependence on short-dated funding.

The ensuing debacle has generated losses on a scale not seen since the US savings and loan crisis of the early 1990s. Hundreds of billions of dollars have been written off, greatly eroding the capital base of the banking system and forcing unprecedented action by the US Federal Reserve to stave off a catastrophic failure of confidence. There is now some evidence that this action has been successful, at least in the shorter term, but the longer term consequences of these policies are yet to be realised.

The credit crisis unfolded against the backdrop of 1970s-style commodity price inflation. This has resurrected fears of accelerating inflation while also risking a deflationary shock through the impact of high oil prices on consumers' disposable income. In view of the sheer scale of these issues, it is perhaps surprising that the FTSE World Index, which is a general market index, managed to close April 2008 just 1.0% higher than a year earlier. At its worst the index had fallen 15.3% from its October high but, over the last six weeks, a recovery has accompanied a diminution in the very palpable sense of fear evident in the first quarter of 2008.

Technology investing

Over the year, the technology sector was subject to a number of cross currents. Early in the financial year, robust demand (particularly from the emerging economies), a number of strong product cycles and evidence of much improved management had reignited investor interest and lent support to our belief in the emergence of a new technology cycle. However, fears of a slowdown in the global economy and of a recession in the USA overwhelmed these positive influences once the credit crisis broke. As a result, the Dow Jones Global Technology Index gave up the vast majority of its earlier outperformance and ended the year ahead by just 1.5% in Sterling terms.

Your company's net assets per share lagged behind the Dow Jones Global Technology Index, falling by 5.4% over the year. This underperformance resulted from a number of factors. First, we experienced a very weak first half as a consequence of a poorly timed commitment to the semiconductor production equipment sector in Asia. This sector suffered both from recessionary fears and from component manufacturers' success in reducing the capital intensity of their operations. Secondly, the diversification of our US portfolio restricted performance in a year of exceptionally narrow leadership by very large cap technology companies. Finally, European technology stocks and in particular smaller companies struggled. As agreed with the Board a number of changes were made by our manager to the management of the portfolio last Autumn, including tighter risk controls on the Asian and European portfolios and a greater emphasis on larger US companies. The second half year saw a material improvement in relative performance even though absolute performance suffered from the recessionary fears prompted by the credit crisis. Nevertheless much remains to be done to restore our historic record of outperformance.

Following the recent recovery in markets, better than expected first quarter corporate earnings and some signs of improving confidence, it is pertinent to consider whether the worst of the crisis is behind us. The market at mid March 2008 had a number of the characteristics of an important low, in particular the degree of fear evident amongst investors. It is not unusual for the lows in a bear market to be seen relatively early and to be followed by an extended period of volatile, sideways movement. The Federal Reserve's rescue of Bear Stearns has removed the likelihood of systemic failure while the dramatic cuts in interest rates and the Federal Reserve's extension of the discount window has resulted in a significant injection of liquidity into markets. This was followed by substantial tax rebates to US consumers. China, India and many other developing economies continue to grow rapidly while renewed corporate activity suggests that technology insiders see value in today's equity markets. However, sceptics would rightly point out that crises of such magnitude are rarely resolved so quickly, particularly so if one of the primary factors behind the crisis - falling real estate prices - remains in force.  Moreover, commodity price inflation is running at very elevated levels at the very time that the disinflationary impact of cheap Chinese production is beginning to fade. 

Outlook

Our instinct is to believe that many of the secondary effects of the credit crisis have yet to be felt and recovery is likely to be slow. Although some developing economies may be able to ride out the recent shocks with only a limited impact on growth, many Western consumers have sustained spending levels only with the assistance of a huge reduction in savings, heavy borrowing and a buoyant property market. With none of these factors likely to be supportive for many years to come, consumption has to slow. The credit multiplier is likely to shrink and the ensuing process of deleveraging will take time and will inevitably result in slowing economic and corporate earnings growth. 

Against such a backdrop, equity markets may, for a time, stagnate. However, it is important to remember that stock markets are not homogeneous. Just as the period from 2000 witnessed the collapse of the 'Technology, Media and Telecoms' stocks at the same time as emerging markets flourished and financial shares soared, so the next five years will probably see a significant divergence in returns. Although technology spending will certainly be impacted by macroeconomic weakness, the sector is coming off a muted spending cycle with low inventories. Moreover, many technology companies are beneficiaries of a weak dollar, are cash rich and sell products that materially enhance productivity. In an environment where corporate earnings growth is muted, such products are likely to be in demand. The earnings growth that many companies in the technology industry can offer should stand out over the years ahead and may help to lift the sector's relative valuation. While a recession in the USA might delay a new technology cycle, it will not derail it. Consequently, our enthusiasm for the sector remains undimmed notwithstanding the challenging equity markets that may lie ahead. 

Share Buy Backs

Volatility in equity markets was accompanied by a general widening in investment trust discounts over the period. We decided to take advantage of this development by increasing our share repurchases. Over the financial year, we bought back for cancellation 7,481,907 shares at a median discount of approximately 12.5%. This had the effect of increasing our net asset value per share by 0.7%. We are seeking to renew our authority to repurchase shares at the annual general meeting.

AGM

We will be holding the AGM this year at the Royal Automobile Club on 31 July 2008 at 12.30pm. The formal notice of meeting is in a separate document which provides further information on each of the resolutions being proposed. The implementation of the Companies Act 2006 requires us to adopt new Articles of Association which are fully explained in the Notice of Meeting document. Unfortunately the method of implementing the new Companies Act means that the Articles will again need amendment at next year's AGM. I look forward to welcoming shareholders to the meeting and would draw the attention of any shareholder planning to attend to the dress code for the RAC club which is set out on the front of the Notice of Meeting.

Richard Wakeling

11 June 2008

Consolidated Income Statement for the year ended 30 April 2008
	(Unaudited) Year ended 30 April 2008			(Audited) Year ended 30 April 2007
	Revenue  Return £'000	Capital Return £'000	Total Return  £'000	Revenue Return  £'000	Capital Return  £'000	Total Return £'000
Investment income	2,644	-	2,644	2,495	-	2,495
Other operating income	1,171	-	1,171	694	-	694
Losses on investments held at fair value	-	(13,397)	(13,397)	-	(21,940)	(21,940)
Other (losses)/gains	-	(5,041)	(5,041)	-	1,294	1,294
Total income	3,815	(18,438)	(14,623)	3,189	(20,646)	(17,457)
Expenses
Investment management fee	(3,730)	-	(3,730)	(3,793)	-	(3,793)
Other administrative expenses	(626)	-	(626)	(747)	-	(747)
Loss before finance costs and tax	(541)	(18,438)	(18,979)	(1,351)	(20,646)	(21,997)
Finance costs	(480)	-	(480)	(485)	-	(485)
Loss before tax	(1,021)	(18,438)	(19,459)	(1,836)	(20,646)	(22,482)
Tax	(333)	-	(333)	(222)	-	(222)
Net loss for the year	(1,354)	(18,438)	(19,792)	(2,058)	(20,646)	(22,704)
Earnings per ordinary share (pence)			(14.45)			(16.22)

The total column of this statement represents the Group's Income Statement, prepared in accordance with IFRS as adopted by the European Union. 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 and Company Statements of Changes in Equity for the year ended 30 April 2008
	Ordinary share capital £'000	Capital redemption reserve £'000	Share premium £'000	Warrant exercise reserve  £'000	Retained earnings  £'000	Total  £'000
Group and Company Total equity at 30 April 2006	34,998	9,214	117,902	7,536	188,552	358,202
Loss for the year to 30 April 2007	-	-	-	-	(22,704)	(22,704)
Total equity at 30 April 2007	34,998	9,214	117,902	7,536	165,848	335,498
Loss for the year to 30 April 2008	-	-	-	-	(19,792)	(19,792)
Shares bought back for cancellation	(1,871)	1,871	-	-	(15,281)	(15,281)
Total equity at 30 April 2008	33,127	11,085	117,902	7,536	130,775	300,425

Consolidated and Company Balance Sheets at 30 April 2008
	(Unaudited)		(Audited)
	Group	Company	Group	Company
	30 April 2008	30 April 2008	30 April 2007	30 April 2007
	£'000	£'000	£'000	£'000
Non current assets
Investments held at fair value	285,569	287,603	352,205	352,463
Current assets
Other receivables	11,933	15,244	5,829	9,056
Cash and cash equivalents	38,843	33,498	22,059	18,574
	50,776	48,742	27,888	27,630
Total assets	336,345	336,345	380,093	380,093
Current liabilities
Other payables	(11,716)	(11,716)	(6,895)	(6,895)
Bank loans	(4,831)	(4,831)	(37,700)	(37,700)
	(16,547)	(16,547)	(44,595)	(44,595)
Total assets less current liabilities	319,798	319,798	335,498	335,498
Non current liabilities
Bank loans	(19,373)	(19,373)	-	-
Net assets	300,425	300,425	335,498	335,498
Equity attributable to equity shareholders
Ordinary share capital	33,127	33,127	34,998	34,998
Capital redemption reserve	11,085	11,085	9,214	9,214
Share premium	117,902	117,902	117,902	117,902
Warrant exercise reserve	7,536	7,536	7,536	7,536
Retained earnings
Capital reserve	191,185	193,219	224,904	226,928
Revenue reserve	(60,410)	(62,444)	(59,056)	(61,080)
Total equity	300,425	300,425	335,498	335,498

Consolidated and Company Cash Flow Statements for the year ended 30 April 2008
	(Unaudited) 30 April 2008			(Audited) 30 April 2007 (Restated - see below)
	Group		Company	Group	Company
	£'000		£'000	£'000	£'000
Cash flows from operating activities
Loss before finance costs and tax	(18,979)		(18,979)	(21,997)	(21,997)
Adjustment for non-cash items:
Foreign exchanges losses/(gains)*	5,041		5,041	(1,294)	(1,298)
Adjusted loss before finance costs and tax	(13,938)		(13,938)	(23,291)	(23,295)
Adjustments for:
Decrease in investments*	66,636		64,860	10,496	10,650
Increase in receivables	(6,063)		(6,147)	(1,489)	(1,566)
Increase/(decrease) in payables*	4,774		4,774	(608)	(608)
	65,347		63,487	8,399	8,476
Net cash from operating activities before tax	51,409		49,549	(14,892)	(14,819)
Overseas tax deducted at source	(374)		(374)	(212)	(212)
Net cash from / (used by) operating activities	51,035		49,175	(15,104)	(15,031)
Cash flows used in  financing activities
Cost of shares repurchased	(15,281)		(15,281)	-	-
Loans matured	(38,530)		(38,530)	(40,652)	(40,652)
Loans taken out	21,340		21,340	40,652	40,652
Finance costs	(433)		(433)	(475)	(475)
Net cash used in financing activities	(32,904)		(32,904)	(475)	(475)
Net increase/(decrease) in cash and cash equivalents	18,131		16,271	(15,579)	(15,506)
Cash and cash equivalents at the beginning of the year	22,059		18,574	42,050	38,488
Effect of foreign exchange rate changes*	(1,347)		(1,347)	(4,412)	(4,408)
Cash and cash equivalents at the end of the year	38,843		33,498	22,059	18,574

* The format of the cash flow statement has been modified to improve the presentation of the effect of foreign exchange movements. Comparative figures have been restated accordingly.  NOTES

General Information

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), which comprise standards and interpretations approved by the International Accounting Standards Board (IASB) and the International Accounting Standards Committee (IASC), as adopted by the European Union.

The Group's presentational currency is pounds sterling. Pounds sterling is also the functional currency because it is the currency which is most relevant to the majority of the Company's shareholders and creditors and the currency in which the majority of the Group's operating expenses are paid. 

Status of preliminary announcement

The financial information set out in this preliminary announcement does not constitute the Company's statutory accounts for the years ended 30 April 2008 or 2007. The statutory accounts for the year ended 30 April 2008 have not been delivered to the Registrar of Companies, nor have the auditors yet reported on them. The statutory accounts for the year ended 30 April 2008 will be finalised on the basis of the information presented by the Directors in this preliminary announcement and will be delivered to the Registrar of Companies. 

The statutory accounts for the year ended 30 April 2007 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 section 237(3) of the Companies Act 1985.

Basis of consolidation

The Group accounts consolidate the accounts of the Company and its wholly owned subsidiary undertaking, PCT Finance Limited.

Copies of Report and Accounts

The full annual report and accounts will be posted to shareholders in late June 2008 and copies will be available thereafter from the Company Secretary at the Company's Registered Office, 4 Matthew Parker Street, London SW1H 9NP (020 7227 2700) or from the company's website at

 www.polarcapitaltechnologytrust.co.uk 

Annual General Meeting 

The Annual General Meeting will be held at 12:30 pm on Thursday 31 July 2008 at the Royal Automobile Club, 89 Pall Mall, London SW1Y 5HS.

Portfolio Review - Investments over 0.75% of net assets at 30 April 2008
North America
£'000	Stock	Activity	% of net assets
11,719	Google	Internet	3.9%
9,178	Oracle	Enterprise software	3.1%
9,115	Apple	Computing	3.0%
8,404	Research In Motion	Wireless data	2.8%
8,251	Cisco	Data networking	2.7%
8,047	Qualcomm	Wireless IP	2.7%
6,900	Microsoft	Software	2.3%
6,488	Intel	Semiconductor manufacturing	2.2%
6,074	Hewlett-Packard	Hardware	2.0%
5,127	Corning	Telecom equipment	1.7%
4,885	Salesforce.com	Software	1.6%
4,716	IBM	IT services	1.6%
4,555	Applied Materials	Semiconductor capital equipment	1.5%
4,314	iShares Nasdaq Biotechnology	Biotechnology	1.4%
4,162	Adobe Systems	Software	1.4%
4,059	EMC	Computing	1.4%
3,956	Altera	Semiconductors	1.3%
3,724	American Tower	Telecom infrastructure	1.2%
3,684	First Solar	Alternative energy	1.2%
3,503	Cognizant	IT services	1.2%
2,914	Verisign	Internet infrastructure	1.0%
2,713	Foundry Networks	Networking equipment	0.9%
2,650	Juniper Networks	Networking infrastructure	0.9%
2,605	Ariba	Enterprise software	0.9%
2,522	Vmware	Virtualisation software	0.8%
2,518	McAfee	Security software	0.8%
2,450	Network Appliance	Storage hardware	0.8%
2,437	Phase Forward	Healthcare software	0.8%
£141,670	Total investments over 0.75%		47.1%
£49,596	Other investments		16.5%
£191,266	Total North American investments		63.6%
Europe
£'000	Stock	Activity	% of net assets
6,204	Nokia	Telecom equipment	2.1%
3,899	Wirecard	Internet services	1.3%
3,675	Gamesa	Wind turbines	1.2%
3,469	Aveva	Software	1.2%
3,432	SAP	Software	1.1%
3,384	Fresenius Medical Care	Renal care products and services	1.1%
3,105	NDS	Encryption software	1.0%
2,876	ASML Holdings	Semiconductor capital equipment	1.0%
2,757	Q-cells	Alternative energy	0.9%
2,376	Sword	IT services	0.8%
£35,177	Total investments over 0.75%		11.7%
£16,069	Other investments		5.3%
£51,246	Total European investments		17.0%
Asia
£'000	Stock	Activity	% of net assets
7,151	Samsung Electronics	Electricals	2.4%
6,029	Canon	Office automation	2.0%
4,203	Taiwan Semiconductor	Semiconductors	1.4%
4,102	High Tech Computer	Wireless data	1.4%
2,936	Suntech Power	Alternative energy	1.0%
2,274	Renesola	Alternative energy	0.8%
£26,695	Total investments over 0.75%		9.0%
£16,362	Other investments		5.4%
£43,057	Total Asian investments		14.4%

Portfolio Review - Classification of Group Investments at 30 April 2008
							TOTAL		TOTAL
	North America		Europe		Asia		30 April 2008		30 April 2007
	%		%		%		%		%
Computing	18.2		0.6		4.5		23.3		14.6
Components	9.5		2.2		4.3		16.0		31.1
Software	17.3		2.3		-		19.6		17.4
Services	1.2		2.1		-		3.3		5.8
Communications	6.8		2.6		1.9		11.3		6.9
Life Sciences	3.7		1.8		-		5.5		8.4
Consumer, Media and Internet	4.6		1.3		-		5.9		3.4
Other Technology	1.8		3.8		3.7		9.3		15.4
Unquoted Investments	0.5		0.3		-		0.8		0.9
Money Market Funds	-		-		-		-		1.0
Total Investments	63.6		17.0		14.4		95.0		104.9
Other net assets (excluding loans)	3.4		3.0		6.7		13.1		6.3
Loans	-		-		(8.1)		(8.1)		(11.2)
Grand total  (net assets of £300,425,000)	67.0		20.0		13.0		100.0
At 30 April 2007  (net assets of £335,498,000)	61.3		24.8		13.9		-		100.0

Fund  Distribution by Market Capitalisation  as at 30 April 2008
Market Capitalisation	% of invested assets
< $2bn	22.7%
$2bn-$10bn	16.2%
> $10bn	61.1%

Index Changes (total return) over the year to 30 April 2008
	Local Currency	Sterling Adjusted
	%	%
Benchmark
Dow Jones World Technology	0.5	1.5
Technology Indices:
NYSE Arca Technology 100	(5.6)	(4.7)
MS Eurotec (based in US dollars)	(17.3)	(16.5)
FTSE Techmark 100	-	(2.6)
Tecdax	(4.6)	9.8
Tokyo SE Electronics	(18.7)	(6.1)
MSCI AC Asia Pacific ex Japan IT	7.9	9.0
Market Indices:
FTSE World	-	1.0
S&P 500 Composite	(4.7)	(3.8)
FTSE All-Share	-	(4.3)
FTSE World Europe (ex UK)	-	1.5
Tokyo SE (Topix)	(18.8)	(6.3)
FTSE World Pacific Basin (ex Japan)	-	17.3
Exchange Rates
	30 April 2008	30 April 2007
US$ to £	1.9806	1.9999
Japanese Yen to £	206.99	238.99
Euro to £	1.2721	1.4653

 

END

 

 

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