REG - Pacific Horizon - Half-year Report
RNS Announcement
Pacific Horizon Investment Trust PLC
Legal Entity Identifier: VLGEI9B8R0REWKB0LN95
Regulated Information Classification: Half Yearly Financial Report
Results for the six months to 31 January 2021
The following is the unaudited Interim Financial Report for the six months to 31 January 2021.
Responsibility Statement
We confirm that to the best of our knowledge:
a) the condensed set of Financial Statements has been prepared in accordance with FRS 104 'Interim Financial Reporting';
b) the Interim Management Report includes a fair review of the information required by Disclosure Guidance and Transparency Rule 4.2.7R (indication of important events during the first six months, their impact on the Financial Statements and a description of the principal risks and uncertainties for the remaining six months of the year); and
c) the Interim Financial Report includes a fair review of the information required by Disclosure Guidance and Transparency Rule 4.2.8R (disclosure of related party transactions and changes therein).
On behalf of the Board
Angus Macpherson
Chairman
3 March 2021
Summary of Unaudited Results*
31 January
2021
31 July
2020
(audited)
% change
Total assets
£621.0m
£329.0m
Borrowings
£59.3m
£24.6m
Shareholders' funds
£561.7m
£304.4m
Net asset value per ordinary share
699.01p
481.92p
45.0
Share price
770.00p
504.00p
52.8
MSCI All Country Asia ex Japan Index (in sterling terms)†#
638.3
534.0
19.5
Premium‡
10.2%
4.6%
Active share‡
90%
85%
Six Months to
31 January
2021
Six Months to
31 January
2020
Revenue earnings per ordinary share
(0.11p)
0.75p
Six Months to
31 January
2021
Year to
31 July
2020
Total return (%)#‡
Net asset value per ordinary share
45.1%
39.9%
Share price
52.8%
57.5%
MSCI All Country Asia ex Japan Index (in sterling terms)†
20.5%
5.1%
Six months to 31 January 2021
Year to 31 July 2020
Period's high and low
High
Low
High
Low
Net asset value per ordinary share
756.22p
481.92p
500.24p
284.09p
Share price
830.00p
504.00p
530.00p
235.00p
Premium/(discount) ‡
19.85%
0.89%
9.3%
(17.7%)
* For a definition of terms see Glossary of Terms and Alternative Performance Measures at the end of this announcement.
† The MSCI all Country Asia ex Japan Index (in sterling terms) is the principal index against which performance is measured.
# Source: Baillie Gifford/Refinitiv and relevant underlying index providers. See disclaimer at the end of this announcement.
‡ Alternative performance measure. See Glossary of Terms and Alternative Performance Measures at the end of this announcement.
Past performance is not a guide to future performance.
Interim Management Report
Results
In the six months to 31 January 2021, Pacific Horizon's net asset value (NAV) per share total return was 45.1%. The share price total return was 52.8% as the premium increased from 4.6% to 10.2%. Over the same period the MSCI All Country Asia ex Japan Index's total return was 20.5% in sterling terms. The Company issued 17.2 million shares over the six months, raising £116 million. Although recent absolute and relative performance has been exceptionally strong, shareholders should expect there to be periods when the Company's NAV per share and share price underperform notably relative to the comparative index and also in total return terms. We intentionally do not replicate the comparative index and we are not a proxy for it. Markets have been very strong and large corrections should be expected.
The notable outperformance in the six months to 31 January 2021 was driven by a number of factors: firstly our overweight in North Asian markets which outperformed markets in South Asia, mainly due to their superior handling of the Covid-19 situation; secondly, our holdings in internet, online and biotech businesses and enablers, whose sales were given a significant boost as a consequence of Covid-19; thirdly, we added to risk across the portfolio from the March lows onwards; fourthly, we were able to participate in a number of IPOs which generated significant returns; and lastly, we meaningfully increased our exposure to cyclicals throughout the second half of the year, which performed strongly on expectations of a rapid post-Covid-19 recovery.
The largest contributors to both absolute and relative portfolio returns were the holdings in Hong Kong/China, India and Singapore, respectively the portfolio's first, third and fourth largest market exposures. These markets rose 17.0%, 17.9%, and 13.4% respectively. Our highest absolute gains came from our holdings in Indonesia, up 9.4%. South Korea was the only market that detracted from relative performance. With the exception of Vietnam and Indonesia, the portfolio has had little exposure to ASEAN markets, and these were amongst the worst performing markets in the period, with Malaysia falling by 4.4%, the Philippines rising by 7.9% and Thailand by 6.3%.
Our holdings outperformed in most regions. At the index level, Materials was the best performing sector, up 70.0%, followed by Consumer Discretionary up 49.5% and Communications Services up 48.7%. The worst were Information Technology, up 34.6%, Industrials up 22.6% and Energy up 5.7%.
During the six months, some of the portfolio's smaller and nontechnology holdings had significant share price moves, for example:
Holding
Price move
Ramkrishna Holdings
+243%
PT Aneka Tambang
+202%
Tata Motors
+150%
Nexteer
+145%
Enzymes
-30%
Genius Electric
-29%
Shennan Circuits
-28%
TCI
-28%
Of the larger positions, Sea Limited (+69%), Li Ning (+86%) and Accton Technologies (+17%) all performed strongly. Sea Limited was the largest contributor to relative returns followed by Tata Motors and Nickel Mines. Our underweights in Samsung Electronics and TSMC were our biggest detractors to relative returns.
Outlook
In many ways, the world is becoming a better place. On average, people are richer and healthier, with more choice than ever in how they live their lives. This trend is particularly pronounced within the emerging world and in Asia ex Japan, home to 50% of the world's population. Incomes in many Asian countries are reaching a tipping point at which large segments of the population are elevated from a subsistence to a middle-class lifestyle. As their savings and their appetite for consumption soar, they demand new goods and services. Despite all the media and political noise to the contrary and the disruptive effect of the Covid-19 pandemic, these trends will probably continue for decades to come.
The pace of technological innovation is increasing rapidly. As more people, economies and businesses connect, ideas spread and multiply, new businesses are created and old ones are lost at an accelerating rate. The adoption of the new is as rapid, and sometimes faster, in Asia ex Japan than in the West. Huge fortunes are, and will continue to be, made and lost as new technologies cause the existing order to become outdated and irrelevant.
We live in the age of information. Alongside matter and energy, information is now seen as a fundamental economic building block. Unlike matter and energy, it cannot exist on its own and takes huge resources to create and maintain. Companies wishing to succeed over the next decade need to either create and manipulate information in ever more complex ways or to make the devices that gather the data that enables these transformations.
In the technology and information revolution, it is our belief that we are closer to the beginning than to the end. The world in 2030 will be dramatically different from today's world, in ways we cannot yet fathom. For example, we have only just entered the era of machine learning. The future growth trajectory of electric and autonomous vehicle demand, as another example, is only now becoming visible.
So how will the millennials (under-40s) and Generation Z (20-somethings) transform the world? How will their tastes, social habits and consumption patterns differ from those of their parents? The current millennial generation, much of it based in Asia, could become the world's first truly globalised citizenry, connected 24/7. In this new world, fashions and trends will be set in the East as much as in the West.
This growth in the Asian middle class will make new calls on the world's resources. Despite technological change, demand for commodities is likely to keep rising. We believe that a shift towards the real economy is under way. Certain sectors will benefit from converging trends, as when increasing availability of electric vehicles meets a growing Asian middle class.
We believe it is a great time to be a business owner (if you've survived). Covid-19 and governments' responses to it have caused business costs - for example labour and rent - to be reduced. Competition has been clipped or bankrupted, and customers are desperately waiting to spend again. In the light of this, we expect that many businesses will have greater revenue and margins post-Covid than pre-Covid, industries will consolidate with the winners taking more, and profits will be higher. This is true for technology-related investment, but we think it is especially true for some of the old economy companies, where this crisis ended a multi-year bear market. Calling the tops and bottoms of long-bear markets is difficult. Bull markets tend to end in mass euphoria and bear markets with a whimper. Low interest rates have kept many zombie companies alive and allowed difficult decisions to be postponed for many years. Covid-19 has been the final nail resulting in many companies ceasing to exist, or using the situation for significant cost-cutting and structural shifts in their business models. The automotive space is the best example of this. Within five years every auto original equipment manufacturer ('OEM') will also be an EV OEM, as the industry recognises the societal change. For example, Tata Motors used the crisis to cut billions from its cost base and has just announced that it is turning Jaguar into a 100% EV luxury brand by 2025. We expect it to be much more profitable at lower levels of sales than in the past. We have been tilting the portfolio to more cyclical sectors of the economy throughout this period.
We remain optimistic. Change is happening rapidly, though not evenly. There will be periods of rapid growth, followed by periods of stress and retrenchment where the painful effects of change come to the fore. The best way to invest in this rapidly altering growth market is to find the best long-term growth companies. Investing in the fastest growing companies in the fastest growing region is something we call 'growth squared'.
We continue to look for evidence of change and its impact on society. We seek asymmetric opportunities where the prospect of superior long-term returns vastly outweighs the risks of failure. In so doing, we take risks and intentionally look for investment opportunities in smaller companies and those with new business models. The resulting portfolio can be volatile and look very different from the index, but we believe this strategy provides us with the opportunity to deliver significant long-term outperformance against the comparative index.
Stock Highlights
The majority of the portfolio's outperformance in the period under review came from its holdings in China, India, Singapore and Indonesia. However, there was a very broad level of outperformance across our holdings with the exception of South Korea (which had performed very well in the prior six months). Sea Limited, up 69% and Li Ning, up 86% continued to perform well and were our first and fourth highest contributors to relative returns.
Tata Motors
Tata motors (up 150%) is the owner of the Jaguar Land Rover franchise and is also a leading commercial vehicle player in India. This is a company whose sales, earnings and share price have fallen significantly since 2014 and the Covid-19 crisis forced management's hand. A significant cost-cutting exercise across the business was announced. At the same time, the firm launched new products in the passenger vehicle business which should improve sales. Our exposure was increased incrementally over 2020 and it is now a top 10 holding. We expect that the company will be significantly more profitable in the next few years at much lower volumes of sales compared to its last peak in 2014.
Nickel Mines
We bought Nickel Mines in 2018 when it was purchasing a stake in Tsingshan's nickel pig iron plant in Indonesia, one of the largest integrated steel and nickel sites in the world. This was an attractive opportunity to buy into a Cyclic Electrowinning/Precipitation ('CEP') source of nickel at the point that management was attempting to grow the business through buying new nickel pig iron kilns for the site. Revenues have grown from A$14m in 2018 to A$520m in 2020 and the business has a strong pathway for future growth. We are very positive on the long-term outlook for nickel and other base metals given limited supply and rising demand caused by the electric vehicle revolution.
Alibaba Technology
Unusually, Alibaba was a big contributor to our positive relative return due to our increasing underweight holding in the stock. It fell 3% (in sterling terms) during the period and added 100bps to our attribution. We reduced our holding significantly for a few reasons: First, competition is increasing. Second, regulatory risk is increasing. Third, slower growth is inevitable given the scale of the business and there are more exciting stories elsewhere. On competition, the rise of Pinduoduo the success of JD.com and most importantly the rise of social buying, live-streaming and key influencer-led ecommerce, especially among GenZ consumers, are all reducing the potential market size for ecommerce. In terms of regulatory action, we have seen Ant Group's IPO blocked and the imposition of anti-monopoly rules. We are also unsure whether Alipay and TenPay will have a place in China once the country launches its digital currency. Although a lot has played out in the period and we would expect positive returns from the stock from here, we are not minded to increase the position size.
Positioning
The portfolio continues to be positioned to benefit from the growth of the Asian middle class and its adoption of new technologies. Over the period there has been a significant shift in the portfolio by both country, sector and stock weights, partly due to market movements but also deliberately shifting the portfolio towards more cyclical and 'growthier' stocks, sectors and countries.
India has moved from 6.8% of the portfolio, an underweight, to 14.0% and our largest country overweight position as our view is that the government and the people have accepted Covid-19 as part of their lives and the economy is moving back to normal, supporting the growth outlook for many firms. This, coupled with a renewed growth push by the Modi government, is likely to lead to many years of high and sustained growth. Our holding in Tata Motors has, following additions and good performance, become our largest Indian holding. We expect that, given a slew of new IPOs, our aggregate Indian exposure will increase. South Korea has moved back to a neutral weight and our Taiwan underweight has increased.
Healthcare moved from 10.8% of the portfolio to 6.0% and has been replaced by the Materials sector as our largest sector overweight, at 14.6% of the portfolio and a 13-percentage point overweight. We expect that this long-forgotten sector will enjoy a new lease of life as economic growth returns to the region and to the world.
In terms of concentration, the top 10 holdings account for 30.9% of the portfolio and the top 30 account for 55.9%. The portfolio has a bias towards mid-sized and smaller companies when measured against the comparative index, and our most immediate peers. At present, the Company has potential to borrow for investment purposes up to 10.6% of assets (gearing). We ended the period 2.3% geared.
We have 3.0% in unlisted equities, in three stocks: ByteDance, Zomato and Chime/Eden Biologics. We expect to invest in a couple more private companies in the coming period.
Although sentiment and market noise will continue to be driven by geopolitical volatility, we remain steadfastly focused on finding the best growth companies with the best potential for long-term returns for the portfolio. Accelerating technological change and the increasing wealth of a growing Asian middle class are just two of the factors underpinning our enthusiasm for the region, one which continues to produce many truly great growth businesses. We believe these firms will generate superior returns for investors over the coming years.
We would like to thank investors for their tremendous support over this period.
The principal risks and uncertainties facing the Company are set out in note 13.
Baillie Gifford & Co Limited
Managers & Secretaries
For a definition of terms see Glossary of Terms and Alternative Performance Measures at the end of this announcement.
Total return information is sourced from Baillie Gifford/Refinitiv and relevant underlying index providers. See disclaimer at the end of this announcement.
Past performance is not a guide to future performance.
Baillie Gifford Statement on Stewardship
Reclaiming Activism for Long-Term Investors
Baillie Gifford's over-arching ethos is that we are 'actual' investors. We have a responsibility to behave as supportive and constructively engaged long-term investors. We invest in companies at different stages in their evolution, across vastly different industries and geographies and we celebrate their uniqueness. Consequently, we are wary of prescriptive policies and rules, believing that these often run counter to thoughtful and beneficial corporate stewardship. Our approach favours a small number of simple principles which help shape our interactions with companies.
Our Stewardship Principles
Prioritisation of long-term value creation
We encourage company management and their boards to be ambitious and focus their investments on long-term value creation. We understand that it is easy for businesses to be influenced by short-sighted demands for profit maximisation but believe these often lead to sub-optimal long-term outcomes. We regard it as our responsibility to steer businesses
away from destructive financial engineering towards activities that create genuine economic value over the long run. We are happy that our value will often be in supporting management when others don't.
A constructive and purposeful board
We believe that boards play a key role in supporting corporate success and representing the interests of minority shareholders. There is no fixed formula, but it is our expectation that boards have the resources, cognitive diversity and information they need to fulfil these responsibilities. We believe that a board works best when there is strong independent representation
able to assist, advise and constructively test the thinking of management.
Long-term focused remuneration with stretching targets
We look for remuneration policies that are simple, transparent and reward superior strategic and operational endeavour. We believe incentive schemes can be important in driving behaviour, and we encourage policies which create alignment with genuine long-term shareholders. We are accepting of significant pay-outs to executives if these are commensurate with outstanding long-run value creation, but plans should not reward mediocre outcomes. We think that performance hurdles
should be skewed towards long-term results and that remuneration plans should be subject to shareholder approval.
Fair treatment of stakeholders
We believe it is in the long-term interests of companies to maintain strong relationships with all stakeholders, treating employees, customers, suppliers, governments and regulators in a fair and transparent manner. We do not believe in one-size-fits-all governance and we recognise that different shareholder structures are appropriate for different businesses. However, regardless of structure, companies must always respect the rights of all equity owners.
Sustainable business practices
We look for companies to act as responsible corporate citizens, working within the spirit and not just the letter of the laws and regulations that govern them. We believe that corporate success will only be sustained if a business's long-run impact on society and the environment is taken into account. Management and boards should therefore understand and regularly review this aspect of their activities, disclosing such information publicly alongside plans for ongoing improvement.
Thirty Largest Holdings at 31 January 2021 (unaudited)
Name
Geography
Business
Value
£'000
% of
total
assets*
Sea Limited ADR
Singapore
Internet gaming and ecommerce
44,756
7.2
Tata Motors Ltd ADR
India
Indian automobile manufacturer
22,062
3.6
Samsung SDI
Korea
Electrical equipment manufacturer
20,045
3.2
JD.com ADR
HK/China
Online mobile commerce
18,855
3.0
Nickel Mines
Indonesia
Base metals miner
16,941
2.7
Dada Nexus Ltd ADR
HK/China
Chinese ecommerce distributor of online
consumer products
15,016
2.4
Kingsoft Cloud Holdings Ltd ADR
HK/China
Chinese cloud computing provider
14,335
2.3
Kingdee International Software
HK/China
Enterprise management software distributor
13,790
2.2
Li Ning
HK/China
Sportswear apparel supplier
13,449
2.2
MMG
HK/China
Chinese copper miner
12,929
2.1
Zai Lab ADR
HK/China
Biopharmaceutical company
11,583
1.9
Merdeka Copper Gold
Indonesia
Indonesian miner
10,425
1.7
Zomato Media u
India
Online restaurant search, ordering and discovery
platform
9,506
1.5
Lufax Holdings
HK/China
Online internet finance marketplace
9,324
1.5
ByteDance u
HK/China
Social media
8,739
1.4
Koh Young Technology
Korea
3D inspection machine manufacturer
8,569
1.4
MediaTek
Taiwan
Taiwanese electronic component manufacturer
8,146
1.3
Tencent Holdings
HK/China
Online gaming and social networking
7,732
1.2
PT Aneka Tambang
Indonesia
Nickel miner
7,465
1.2
Dragon Capital Vietnam Enterprise
Investments
Vietnam
Vietnam investment fund
7,220
1.2
iClick Interactive Asia Group
HK/China
Online marketing technology platform
7,100
1.1
Zijin Mining Group Co Ltd H Shares
HK/China
Gold and copper miner
6,923
1.1
Jadestone
Singapore
Oil and gas explorer and producer
6,916
1.1
Meituan Dianping
HK/China
Chinese online services platform
6,777
1.1
Quess Corp
India
Human resources company
6,732
1.1
PT Vale Indonesia
Indonesia
Nickel miner
6,618
1.1
HDBank
Vietnam
Consumer bank
6,577
1.1
EO Technics
Korea
Manufacturer and distributor of semiconductor
laser markers
6,338
1.0
Accton Technology
Taiwan
Server network equipment manufacturer
6,317
1.0
Geely Automobile
HK/China
Automobile manufacturer
6,252
1.0
347,437
55.9
HK/China denotes Hong Kong and China (China 'A' denotes China 'A' Shares*)
* For a definition of terms see Glossary of Terms and Alternative Performance Measures at the end of this announcement.
u Denotes unlisted investment
Distribution of Total Assets* (unaudited)
Geographical Analysis
At
31 January
2021
%
At
31 July
2020
%
Investments:
Hong Kong and China
Including 2.8% (2020: 2.6%) 'A' Shares*
38.3
41.1
Korea
14.2
19.5
India
14.0
6.8
Singapore
8.3
10.3
Indonesia
7.1
5.2
Taiwan
4.8
7.9
Vietnam
4.8
5.0
Other
0.9
-
Philippines
0.2
0.4
Mongolia
0.1
0.1
Total investments
92.7
96.3
Net liquid assets*
7.3
3.7
Total assets
100.0
100.0
Sectoral Analysis
At
31 January
2021
%
At
31 July
2020
%
Investments:
Information Technology
19.6
22.9
Consumer Discretionary
18.0
18.6
Materials
14.6
8.5
Communication Services
14.3
16.6
Financials
8.0
7.2
Industrials
7.3
6.9
Healthcare
6.0
10.8
Energy
2.7
3.5
Real Estate
1.9
0.6
Consumer Staples
0.3
0.7
Total investments
92.7
96.3
Net liquid assets*
7.3
3.7
Total assets
100.0
100.0
* For a definition of terms see Glossary of Terms and Alternative Performance Measures at the end
of this announcement.
Income Statement (unaudited)
For the six months ended
31 January 2021
For the six months ended
31 January 2020
For the year ended
31 July 2020
(audited)
Revenue
£'000
Capital
£'000
Total
£'000
Revenue
£'000
Capital
£'000
Total
£'000
Revenue
£'000
Capital
£'000
Total
£'000
Gains on Investments
-
143,558
143,558
-
1,665
1,665
-
79,433
79,433
Currency gains
-
46
46
-
632
632
-
731
731
Income from investments
and interest receivable
977
-
977
1,645
-
1,645
3,128
-
3,128
Investment management
fee (note 3)
(1,478)
-
(1,478)
(687)
-
(687)
(1,533)
-
(1,533)
Other administrative
expenses
(320)
-
(320)
(222)
-
(222)
(479)
-
(479)
Net return before finance
costs and taxation
(821)
143,604
142,783
736
2,297
3,033
1,116
80,164
81,280
Finance costs of borrowings
(151)
-
(151)
(197)
-
(197)
(337)
-
(337)
Net return on ordinary activities before taxation
(972)
143,604
142,632
539
2,297
2,836
779
80,164
80,943
Tax on ordinary activities (note 4)
896
(2,105)
(1,209)
(95)
(142)
(237)
(215)
(74)
(289)
Net return on ordinary activities after taxation
(76)
141,499
141,423
444
2,155
2,599
564
80,090
80,654
Net return per ordinary share (note 5)
(0.11p)
200.60p
200.49p
0.75p
3.65p
4.40p
0.95p
134.99p
135.94p
The total column of this statement represents the profit and loss account of the Company. The supplementary revenue and capital columns are prepared under guidance issued by the Association of Investment Companies.
All revenue and capital items in this statement derive from continuing operations.
A Statement of Comprehensive Income is not required as the Company does not have any other comprehensive income and the net return on ordinary activities after taxation is both the profit and total comprehensive income for the period.
Balance Sheet (unaudited)
At 31 January 2021
£'000
At 31 July 2020
(audited)
£'000
Fixed assets
Investments held at fair value through profit or loss (note 7)
575,546
316,952
Current assets
Debtors
2,501
885
Cash and cash equivalents
46,320
12,146
48,821
13,031
Creditors
Amounts falling due within one year:
Bank loan (note 8)
(59,338)
(24,641)
Other creditors
(1,186)
(863)
(60,524)
(25,504)
Net current liabilities
(11,703)
(12,473)
Total assets less current liabilities
563,843
304,479
Creditors
Amounts falling due after more than one year:
Provision for deferred tax liability (note 9)
(2,181)
(76)
Net Assets
561,662
304,403
Capital and reserves
Share capital (note 10)
8,035
6,317
Share premium account
154,337
40,048
Capital redemption reserve
20,367
20,367
Capital reserve
374,971
233,472
Revenue reserve
3,952
4,199
Shareholders' funds
561,662
304,403
Net asset value per ordinary share*
699.01p
481.92p
* For a definition of terms see Glossary of Terms and Alternative Performance Measures at the end of this announcement.
Statement of Changes in Equity (unaudited)
For the six months ended 31 January 2021
Share
capital£'000
Share premium
account
£'000
Capital redemption reserve
£'000
Capital reserve*
£'000
Revenue reserve
£'000
Shareholders'
funds£'000
Shareholders' funds at 1 August 2020
6,317
40,048
20,367
233,472
4,199
304,403
Net return on ordinary activities after taxation
-
-
-
141,499
(76)
141,423
Ordinary shares issued (note 10)
1,718
114,289
-
-
-
116,007
Dividends paid during the period (note 6)
-
-
-
-
(171)
(171)
Shareholders' funds at 31 January 2021
8,035
154,337
20,367
374,971
3,952
561,662
For the six months ended 31 January 2020
Share
capital£'000
Share premium
account
£'000
Capital redemption reserve
£'000
Capital reserve*
£'000
Revenue reserve
£'000
Shareholders'
funds£'000
Shareholders' funds at 1 August 2019
5,903
20,063
20,367
153,382
3,635
203,350
Net return on ordinary activities after taxation
-
-
-
2,155
444
2,599
Shares bought back into Treasury (note 10)
-
-
-
(114)
-
(114)
Shareholders' funds at 31 January 2020
5,903
20,063
20,367
155,423
4,079
205,835
* The Capital Reserve balance at 31 January 2021 includes investment holding gains on investments of £243,107,000 (31 January 2020 - gains of £65,938,000).
Condensed Cash Flow Statement (unaudited)
Six months to
31 January 2021
£'000
Six months to
31 January 2020
£'000
Cash flows from operating activities
Net return on ordinary activities before taxation
142,632
2,836
Net gains on investments
(143,558)
(1,665)
Currency gains
(46)
(632)
Finance costs of borrowings
151
197
Overseas tax incurred
(86)
(97)
Corporation tax refunded
992
-
Changes in debtors and creditors
641
161
Cash from operations*
726
800
Interest paid
(128)
(203)
Net cash inflow from operating activities
598
597
Net cash outflow from investing activities
(114,899)
(1,274)
Equity dividends paid (note 6)
(171)
-
Shares issued
113,903
-
Shares bought back into Treasury
-
(114)
Net cash inflow from bank loans
35,484
249
Net cash inflow from financing activities
149,216
135
Increase/(decrease) in cash and cash equivalents
34,915
(542)
Exchange movements
(741)
(53)
Cash and cash equivalents at start of period
12,146
3,627
Cash and cash equivalents at end of period
46,320
3,032
* Cash from operations includes dividends received of £1,225,000 (31 January 2020 - £1,626,000) and interest received of £66,000 (31 January 2020 - £201,000).
Notes to the Condensed Financial Statements (unaudited)
1.
The condensed Financial Statements for the six months to 31 January 2021 comprise the statements set out above together with the related notes below. They have been prepared in accordance with FRS 104 'Interim Financial Reporting' and the AIC's Statement of Recommended Practice issued in October 2019. They have not been audited or reviewed by the Auditor pursuant to the Auditing Practices Board Guidance on 'Review of Interim Financial Information'. The Financial Statements for the six months to 31 January 2021 have been prepared on the basis of the same accounting policies as set out in the Company's Annual Report and Financial Statements at 31 July 2020.
Going Concern
The Directors have considered the Company's principal risks and uncertainties, as set out below, together with the Company's current position, investment objective and policy, the level of demand for the Company's shares, the nature of its assets, its liabilities and projected income and expenditure. The Board has, in particular, considered the impact of heightened market volatility since the coronavirus (Covid-19) outbreak. It is the Directors' opinion that the Company has adequate resources to continue in operational existence for the foreseeable future. The Company's assets, the majority of which are investments in quoted securities which are readily realisable, exceed its liabilities significantly. All borrowings require the prior approval of the Board. The Board approves borrowing and gearing limits and reviews regularly the amounts of any borrowing and the level of gearing as well as compliance with borrowing covenants. The Company has continued to comply with the investment trust status requirements of section 1158 of the Corporation Tax Act 2010 and the Investment Trust (Approved Company) regulations 2011. In accordance with the Company's Articles of Association, the shareholders have the right to vote on the continuation of the Company every five years, the next vote being at the Annual General Meeting to be held in November 2021. The Directors have no reason to believe that the continuation resolution will not be passed at that Annual General Meeting. Accordingly, the Directors consider it appropriate to adopt the going concern basis of accounting in preparing these Financial Statements and confirm that they are not aware of any material uncertainties which may affect the Company's ability to continue to do so over a period of at least twelve months from the date of approval of these Financial Statements.
2.
The financial information contained within this Interim Financial Report does not constitute statutory accounts as defined in sections 434 to 436 of the Companies Act 2006. The financial information for the year ended 31 July 2020 has been extracted from the statutory accounts which have been filed with the Registrar of Companies. The Auditor's Report on those accounts was not qualified, did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying its report, and did not contain statements under sections 498(2) or (3) of the Companies Act 2006.
3.
Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, has been appointed by the Company as its Alternative Investment Fund Manager and Company Secretary. Baillie Gifford & Co Limited has delegated the investment management services to Baillie Gifford & Co. The Managers may terminate the Management Agreement on six months' notice and the Company may terminate on three months' notice. With effect from 1 January 2019 the annual management fee is 0.75% on the first £50 million of net assets, 0.65% on the next £200 million of net assets and 0.55% on the remaining net assets. Management fees are calculated and payable on a quarterly basis.
4.
Tax on Ordinary Activities
The revenue tax charge for the period to 31 January 2021 includes £992,000 UK corporation tax repaid in respect of the Company's financial years to 2008 and 2009, following successful legal action regarding the tax treatment of overseas dividend income. This amount had not previously been provided for, as recovery was not considered sufficiently probable. It has therefore been recognised on receipt. As it exceeds the overseas withholding tax suffered in the period, this has resulted in a positive revenue tax charge.
Interest on the corporation tax repayment is included within interest income.
The capital tax charge results from the Provision for Deferred Tax Liability in respect of Indian capital gains tax as detailed in note 9.
5.
Net return per ordinary share
Six months to
31 January 2021
£'000
Six months to
31 January 2020
£'000
Year to
31 July 2020
(audited)
£'000
Revenue return on ordinary activities after taxation (76)
444
564
Capital return on ordinary activities after taxation 141,499
2,155
80,090
Total net return 141,423
2,599
80,654
Weighted average number of ordinary shares in issue 70,537,252
59,008,380
59,331,304
Notes to the Condensed Financial Statements (unaudited) (ctd)
5.
(ctd)
The net return per ordinary share figures are based on the above totals of revenue and capital and the weighted average number of ordinary shares in issue (excluding Treasury shares) during each period.
There are no dilutive or potentially dilutive shares in issue.
6.
Dividends
Six months to
31 January 2021
£'000
Six months to
31 January 2020
£'000
Year to
31 July 2020
(audited)
£'000
Amounts recognised as distributions in the period:
Previous year's final dividend of 0.25p (2019-nil), paid 13 November 2020 171
-
-
Amounts paid and payable in respect of the period:
Final dividend (2020-0.25p) -
-
171
No interim dividend has been declared in respect of the current period.
7.
Fair Value Hierarchy
The Company's investments are financial assets held at fair value through profit or loss. The fair value hierarchy used to analyse the basis on which the fair values of financial instruments held at fair value through the profit and loss account are measured is described below. The levels are determined by the lowest (that is the least reliable or least independently observable) level of input that is significant to the fair value measurement for the individual investment in its entirety.
Level 1 - using unadjusted quoted prices for identical instruments in an active market;
Level 2 - using inputs, other than quoted prices included within Level 1, that are directly or indirectly observable (based
on market data); and
Level 3 - using inputs that are unobservable (for which market data is unavailable).
An analysis of the Company's financial asset investments based on the fair value hierarchy described above is shown below.
Investments held at fair value through profit or loss
As at 31 January 2021
Level 1
£'000
Level 2
£'000
Level 3
£'000
Total
£'000
Listed equities 557,006
-
-
557,006
Unlisted equities
-
-
18,540
18,540
Total financial asset investments
557,006
-
18,540
575,546
As at 31 July 2020 (audited)
Level 1
£'000
Level 2
£'000
Level 3
£'000
Total
£'000
Listed equities 312,835
-
-
312,835
Unlisted equities
-
-
4,117
4,117
Total financial asset investments
312,835
-
4,117
316,952
Notes to the Condensed Financial Statements (unaudited) (ctd)
7.
(Ctd)
The fair value of listed security investments is bid price or, in the case of FTSE 100 constituents and holdings on certain recognised overseas exchanges, last traded price. Listed Investments are categorised as Level 1 if they are valued using unadjusted quoted prices for identical instruments in an active market and as Level 2 if they do not meet all these criteria but are, nonetheless, valued using market data. Unlisted investments are valued at fair value by the Directors following a detailed review and appropriate challenge of the valuations proposed by the Managers. The Managers' unlisted investment policy applies methodologies consistent with the International Private Equity and Venture Capital
Valuation guidelines ('IPEV'). These methodologies can be categorised as follows: (a) market approach (multiples, industry valuation benchmarks and available market prices); (b) income approach (discounted cash flows); and (c) replacement cost approach (net assets). The Company's holdings in unlisted investments are categorised as Level 3 as unobservable data is a significant input to their fair value measurements.
8.
The Company has a one year multi-currency revolving credit facility of up to £60 million with The Royal Bank of Scotland International Limited. At 31 January 2021 there were outstanding drawings of £20 million and US$54 million (31 July 2020 - £12.5 million and US$15.9 million).
9.
Provision for Deferred Tax Liability
The deferred tax liability provision at 31 January 2021 of £2,181,000 (31 July 2020 - £76,000) relates to a potential liability for Indian capital gains tax that may arise on the Company's Indian investments should they be sold in the future, based on the net unrealised taxable capital gain at the period end and on enacted Indian tax rates. The amount of any future tax amounts payable may differ from this provision, depending on the value and timing of any future sales of such investments and future Indian tax rates.
10.
Share Capital: allotted, called up and fully paid
At 31 January 2021
At 31 July 2020 (audited)
Number
£'000
Number
£'000
Ordinary shares of 10p each in issue
80,351,338
8,035
63,165,282
6,317
In the six months to 31 January 2021, the Company issued 17,186,056 ordinary shares (nominal value £1,718,000, representing 27.2% of the issued share capital as at 31 July 2020) at a premium to net asset value, raising net proceeds of £116,007,000 (six months to 31 January 2020 - nil). No shares were bought back into treasury (six months to 31 January 2020 - 37,000 at a total cost of £114,000).
At 31 January 2021 the Company had authority to buy back 10,086,063 ordinary shares on an ad hoc basis as well as a general authority to issue shares and an authority to issue shares or sell shares from Treasury on a non pre-emptive basis up to an aggregate nominal amount of £1,229,089.60. In accordance with authorities granted at the last Annual General Meeting in November 2020, buy-backs will only be made at a discount to net asset value and the Board has authorised use of the issuance authorities to issue new shares or sell shares from Treasury at a premium to net asset value in order to enhance the net asset value per share for existing shareholders and improve the liquidity of the Company's shares.
11.
During the period, transaction costs on purchases amounted to £133,000 (31 January 2020 - £31,000; 31 July 2020 - £116,000) and transaction costs on sales amounted to £39,000 (31 January 2020 - £99,000; 31 July 2020 - £133,000).
12.
Related party transactions
There have been no transactions with related parties during the first six months of the current financial year that have materially affected the financial position or the performance of the Company during that period and there have been no changes in the related party transactions described in the last Annual Report and Financial Statements that could have had such an effect on the Company during that period.
13.
Principal risks and uncertainties
The principal risks facing the Company are financial risk, investment strategy risk, discount risk, regulatory risk, custody and depositary risk, operational risk, leverage risk and political and associated economic risk. An explanation of these risks and how they are managed is set out on pages 8 and 9 of the Company's Annual Report and Financial Statements for the year to 31 July 2020 which is available on the Company's website: www.pacifichorizon.co.uk.‡ The principal risks and uncertainties have not changed since the date of that report.
None of the views expressed in this document should be construed as advice to buy or sell a particular investment.
The printed version of the Interim Financial Report will be sent to shareholders and will be available on the Company's page on the Managers' website www.pacifichorizon.co.uk‡ on or around 15 March 2021.
‡ Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement.
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MSCI Index Data
Source: MSCI. The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indices. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. The MSCI information is provided on an 'as is' basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the 'MSCI Parties') expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages. (www.msci.com).
Glossary of Terms and Alternative Performance Measures (APM)
Total Assets
The total value of all assets held less all liabilities (other than liabilities in the form of borrowings).
Net Asset Value
Also described as shareholders' funds, Net Asset Value (NAV) is the value of all assets held less all liabilities (including borrowings). The NAV per share is calculated by dividing this amount by the number of ordinary shares in issue (excluding shares held in Treasury). (See note 10 above and calculation below)
Net Liquid Assets
Net liquid assets comprise current assets less current liabilities (excluding borrowings) and provisions for deferred liabilities.
Discount/Premium (APM)
As stockmarkets and share prices vary, an investment trust's share price is rarely the same as its NAV. When the share price is lower than the NAV per share it is said to be trading at a discount. The size of the discount is calculated by subtracting the share price from the NAV per share and is usually expressed as a percentage of the NAV per share. If the share price is higher than the NAV per share, this situation is called a premium.
China 'A' Shares
'A' Shares are shares of mainland China-based companies that trade on the Shanghai Stock Exchange and the Shenzhen Stock Exchange. Since 2003, select foreign institutions have been able to purchase them through the Qualified Foreign Institutional Investor system.
Net Asset Value Per Share (NAV) (APM)
Net Asset Value (NAV) is the value of all assets held less all liabilities. Per share amounts are calculated by dividing the relevant figure by the number of ordinary shares in issue as described below.
Net Asset Value Per Share
At 31 January 2021
At 31 July 2020
(audited)
Shareholders' funds (Net Asset Value)
a
£561,662,000
£304,403,000
Ordinary shares in issue (excluding treasury shares)
b
80,351,338
63,165,282
Net asset value per share
(a ÷ b x 100)
699.01p
481.92p
Total Return (APM)
The total return is the return to shareholders after reinvesting the net dividend on the date that the share price goes ex-dividend. In periods where no dividend is paid, the total return equates to the capital return.
Net Asset Value Total Return
31 January 2021
NAV (par)
31 January 2021
Share price
Closing NAV/price per share
a
699.01p
770.00p
Dividend adjustment factor*
b
1.0004
1.0004
Adjusted closing NAV/price per share
c=a x b
699.29p
770.31p
Opening NAV/price per share
d
481.92p
504.00p
Total return
(c ÷ d) - 1
45.1%
52.8%
* The dividend adjustment factor is calculated on the assumption that the dividend of 0.25p paid by the Company during the period was reinvested into shares of the Company at the cum income NAV/share price at the ex-dividend date.
Gearing (APM)
At its simplest, gearing is borrowing. Just like any other public company, an investment trust can borrow money to invest in additional investments for its portfolio. The effect of the borrowing on the shareholders' assets is called 'gearing'. If the Company's assets grow, the shareholders' assets grow proportionately more because the debt remains the same. But if the value of the Company's assets falls, the situation is reversed. Gearing can therefore enhance performance in rising markets but can adversely impact performance in falling markets.
Potential gearing is the Company's borrowings expressed as a percentage of shareholders' funds.
Invested gearing/net cash represents borrowings at par less cash and cash equivalents (as adjusted for investment and share buy-back/issuance transactions awaiting settlement) expressed as a percentage of shareholders' funds.
Glossary of Terms and Alternative Performance Measures (APM) (Ctd)
Active Share (APM)
Active share, a measure of how actively a portfolio is managed, is the percentage of the portfolio that differs from its comparative index. It is calculated by deducting from 100 the percentage of the portfolio that overlaps with the comparative index. An active share of 100 indicates no overlap with the index and an active share of zero indicates a portfolio that tracks the index.
Treasury Shares
The Company has the authority to make market purchases of its ordinary shares for retention as Treasury Shares for future reissue, resale, transfer, or for cancellation. Treasury Shares do not receive distributions and the Company is not entitled to exercise the voting rights attaching to them.
Pacific Horizon Investment Trust PLC (Pacific Horizon) aims to achieve capital growth through investment in the Asia-Pacific region (excluding Japan) and in the Indian Sub-continent. At 31 January 2021 the Company had total assets of £621.0 million (before deduction of loans of £59.3 million).
Pacific Horizon is managed by Baillie Gifford & Co Limited, the Edinburgh based fund management group.
Past performance is not a guide to future performance. Pacific Horizon is a listed UK Company and is not authorised or regulated by the Financial Conduct Authority. The value of its shares and any income from those shares can fall as well as rise and you may not get back the amount invested. Pacific Horizon invests in overseas securities. Changes in the rates of exchange may also cause the value of your investment (and any income it may pay) to go down or up. Pacific Horizon invests in emerging markets (including Chinese 'A' shares) where difficulties in dealing, settlement and custody could arise, resulting in a negative impact on the value of your investment. Shareholders in Pacific Horizon have the right to vote every five years, on whether to continue Pacific Horizon, or wind it up. If the shareholders decide to wind the Company up, the assets will be sold and you will receive a cash sum in relation to your shareholding. The next vote will be held at the Annual General Meeting in 2021. You can find up to date performance information about Pacific Horizon on the Pacific Horizon page of the Managers' website at www.pacifichorizon.co.uk. Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement
3 March 2021
- ends -
For further information please contact:
Anzelm Cydzik, Baillie Gifford & Co
Tel: 0131 275 2000
Mark Knight, Four Communications
Tel: 0203 697 4200 or 07803 758810
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