REG - Pacific Horizon - Pacific Horizon Invstmnt Trst Full year results
06/10/2023 07:00
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RNS Number : 8970O Pacific Horizon Investment Tst PLC 06 October 2023
RNS Announcement
Pacific Horizon Investment Trust PLC
Legal Entity Identifier: VLGEI9B8R0REWKB0LN95
Results for the year to 31 July 2023
Regulated Information Classification: Additional regulated information
required to be disclosed under the applicable laws and regulations.
The following is the results announcement for the year to 31 July 2023 which
was approved by the Board on 5 October 2023.
Over the year the Company's net asset value total return* was -8.9% and the
share price total return(†) was -3.6%, compared with a total return of 0.8%
for the MSCI China All Shares Index (in sterling terms)(†).
Chairman's statement
The portfolio managers aim to invest in high growth companies in Asia, one of
the fastest growing regions in the world. In the last year these markets have
been influenced by weaker than expected post-Covid consumption recovery in
China, ongoing geopolitical tension between the US and China and rising US
interest rates and the consequent US dollar strength.
These have all challenged growth expectations and share price returns across
the region, making for a challenging environment for growth investors. It is
to be expected that there will be periods during which growth investment will
not be rewarded. We are in such a phase now. As the portfolio managers present
in their report however, over the longer terms excess returns have been
considerable and the premium currently paid for growth is modest. While it is
too early to forecast an immediate improvement in relative or absolute
performance, it certainly looks as if growth share valuations are at
attractive levels across the region.
Performance
In the year to 31 July 2023, the total return for the Company's net asset
value per share (NAV) was a negative 3.6%* and for the share price a negative
8.9%*. This compared to a positive total return of 0.8%* for the MSCI All
Country Asia ex Japan Index in sterling terms over the same period. The shares
ended the period at an 8.0% discount to the NAV per share having been at a
2.7% discount a year earlier.
The notable positive stock contributors to the portfolio's relative
performance over the year were Ramkrishna Forgings, Samsung Engineering and EO
Technics and the notable detractors were Jadestone, Delhivery and JD.com.
Fuller comment on the drivers to returns, and thoughts on companies and their
prospects can be found within the Managers' review below.
Over the five years to 31 July 2023, the Company's NAV and share price total
return were 82.4% and 62.4% respectively whereas the Company's comparative
index returned 14.1% in sterling terms during the same period.
Environmental, Social and Governance ('ESG')
Your Board is committed to responsible investment. It agrees with the managers
that a thoughtful approach is required when looking at ESG factors in emerging
markets. It is not appropriate to impose a developed market standard on
emerging markets companies indiscriminately. The economic miracle of the last
forty years has resulted in over 800 million people in Asia being lifted out
of poverty through economic reform and globalisation. This wealth is resulting
in increased consumption and carbon emissions in Asia, but still far below the
per capita levels seen in developed markets. Growth in carbon emissions has
also been stimulated by the West moving carbon emitting industries to Asia,
flattering developed markets' progress towards net zero.
The managers' view is that a precondition of a long-term investment is that
the businesses they invest in must be sustainable. Asian countries need to
transition to net zero and companies in Asia must play their part. The
timescales for this will however be longer than in developed markets,
reflecting their different starting points on their paths to prosperity.
We agree with the managers' approach of engaging and working with companies
towards achieving positive change. We further endorse the view that the
absolute levels of emissions are not the basis on which to judge a company but
rather its approach to all aspects of ESG. For example, nickel mining is an
activity that generates significant emissions, but nickel is a critical
component in manufacturing electric vehicles.
Gearing
The Board continues to set the gearing parameters within which the portfolio
managers are permitted to operate. These parameters are reviewed regularly and
at present the agreed range of equity gearing is minus 15% (holding net cash)
to plus 15%. As at 31 July 2023, gearing was nil, a position that has not
changed since the start of the Company's financial year. However, the
deployment of gearing is under active consideration at present.
The Company has a multi-currency revolving credit facility with The Royal Bank
of Scotland International Limited for up to £100 million. This facility
expires in March 2025 and provides for potential gearing of 17.2% at present.
Earnings and Dividend
Earnings per share this year were 4.56p per share, an increase from the 4.21p
per share reported last year. After the deduction of the management fee and
expenses, the Company is in a position to pay a final dividend. The Board is
therefore recommending that a final dividend of 3.25p per share should be paid
(3.00p per share paid in 2022), subject to shareholder approval at the Annual
General Meeting ('AGM').
As highlighted in past reports, investors should not consider investing in
this Company if they require income from their investment as the Company
typically invests in high growth stocks with little or no yield.
Issuance, Share Buybacks and Treasury
During the financial year to 31 July 2023, 200,000 shares were issued from
treasury at a premium to the Company's NAV per share and 979,012 shares were
bought back at a discount, resulting in a year-on-year net 0.85% reduction in
the amount of shares in issue. The issuance occurred early in 2023, following
the announcement that the Company was being promoted into the FTSE 250 index,
whereas the buybacks were undertaken over the course of the Company's
financial year. Since the financial year end, a further 35,000 shares have
been bought back.
At the forthcoming AGM in November, the Board will be seeking 10%
non-preemptive issuance authority. Issuance will continue to be undertaken
only at a premium to the NAV per share, thereby avoiding dilution for existing
investors. When this authority is utilised in this manner, it enhances NAV per
share, improves liquidity in the Company's shares and spreads the operating
expenses of the Company across a wider base, thus reducing costs to each
shareholder. Despite the net repurchase this year, ongoing charges for the
year were 0.72% compared to 0.74% for the prior year.
As part of this year's AGM business, the Board will be asking shareholders to
renew the authority to repurchase up to 14.99% of the outstanding shares on an
ad hoc basis, either for cancellation or to be held in treasury, and also to
permit the re-issuance of any shares held in treasury at a premium to the NAV
per share; the Company has 993,012 shares held in treasury at present. The
Board intends to use the buyback authority opportunistically, considering not
only the level of the discount but also the underlying liquidity and trading
volumes in the Company's shares. This approach allows the Board to seek to
address any imbalance between the supply and demand for the Company's shares
that results in a large discount to NAV whilst being cognisant that current
and potential shareholders have expressed a desire for continuing liquidity.
Private Company Investments
In 2021, shareholders approved an increase in the maximum permissible
investment in unlisted securities from 10% to 15% (such percentage being
measured at the point of initial investment). As at 31 July 2023, the Company
had 5.1% of its total assets invested in 5 private companies compared to 6.1%
in 5 private companies a year earlier.
Rightly, there has been a lot of market focus on the reasonableness of private
company valuations in the light of the share price volatility of listed
companies. Baillie Gifford believes it takes a pro-active, robust approach to
private company valuations, including using the services of Markit Valuation
Services (now S&P Global) for external advice. The Board is comfortable
that marked-to-market values are kept as current as possible for the purpose
of calculating the Company's daily net asset value. Investors should be
mindful however that such valuations, although based on many external (market)
and internal (company specific) comparators and having considered a number of
methodologies in line with International Private Equity and Venture Capital
Guidelines, are necessarily subjective.
We are fortunate on the Board to have specific expertise in this area and we
are comfortable with the strategy adopted by the managers to invest in later
stage private companies. This is very different to being a venture capital
investor which often involves taking seats on company boards and providing
specific advice on managing aspects of the business. While private company
investing has added risk, there appears to be the potential for commensurate
reward.
Taking as an example one of our private company holdings, ByteDance, according
to publicly sourced data, the company's full year EBITDA was US$25 billion. At
our holding equity valuation of US$225 billion that implies an EBITDA multiple
of 8x. This is a conservative valuation for a company which is achieving
revenue and profit growth of more than 30% and 80% respectively year on year.
It is the Board's view that exposure to companies like ByteDance is attractive
and justifies the additional risks of investing in private companies. The
Board is supportive of the managers continuing to invest in them.
Details on the process and quantum of private company valuations undertaken
over the year can be found on page 36 of the annual report and financial
statements, immediately after the Managers' review.
Changes to the Board
I joined the Board in 2017, becoming Chair at the conclusion of the Company's
Annual General Meeting in 2019. Thanks to my predecessors, fellow Board
members and the Managers, I have presided over a period where the Company has
made considerable progress. The NAV of the Company has increased from £139
million on my joining to £580 million as at 31 July 2023, it has become a
constituent of the FTSE 250 and provided a total return over the period of
150%, outperforming its comparative index by 115%. Whilst recent performance
has reflected challenging market conditions and growth investing being
seemingly out of favour, this is to be expected for an actively managed growth
focussed long term investment strategy such as that used by the portfolio
manager. I have every confidence that the approach will continue to reward
patient long term shareholders in the future.
After considerable thought, I have decided I should stand down as Chair and a
member of the Board. Someone new should have the opportunity of chairing this
Company and it is time for me to pursue other roles. I will leave the Board
once a suitable successor has been appointed, which is expected to be around
the end of the first quarter of next year.
In the meantime, I would like to thank shareholders for giving me the
opportunity to Chair the Company and wish the Managers, the Board and
investors the best for the future.
The Company's portfolio managers
As announced in January, following consultation with the Board, Mr Ben Durrant
was appointed as deputy portfolio manager of the Company, filling the role
vacated by Mr Roderick Snell when he was promoted to become the Company's lead
portfolio manager in June 2021.
Mr Durrant is an investment manager in Baillie Gifford's Emerging Markets
Equity Team and joined Baillie Gifford in 2017 having previously worked for
RBS in its Group Strategy and Corporate Finance Team. He is also the
co-portfolio manager on the Baillie Gifford Pacific Fund alongside Mr Snell.
TCFD and Consumer Duty
Recently introduced regulations by the FCA require managers of UK based
investment vehicles, such as Pacific Horizon Investment Trust, to produce
product-level reports on the climate-related risks and opportunities in the
respective investment vehicle. These are known as TCFD (Task Force on
Climate-related Financial Disclosures) reports and they are based on historic
data at a single point in time. The report produced by Baillie Gifford for our
Company, as at the end of December 2022 and which will be updated annually,
can be found at pacifichorizon.co.uk.
The FCA also introduced a new set of rules labelled as 'Consumer Duty'.
Investment Trusts, like Pacific Horizon, are not directly in scope but Baillie
Gifford, as the Company's Manager, is. The Duty raises the standard of care
that FCA regulated firms, like Baillie Gifford, are expected to provide to
retail consumers and includes a number of obligations that will need to be
met. One of these obligations is to undertake an Assessment of Value on the
'products' managed. The relevant report on Pacific Horizon has concluded that
it does provide value, meaning that distributors will be able to undertake
their assessments and continue to make shares in Pacific Horizon available to
current and potential shareholders. It should be noted that in addition to
this new assessment, over the course of each and every financial year, the
Company's Committees and Board assess various costs levied by third-party
service providers as well as the Managers and Secretaries, the quality of
service received along with performance; this will continue to be the case.
Annual General Meeting
This year's AGM will take place on 23 November 2023 at the offices of Baillie
Gifford & Co in Edinburgh at 11.30am and shareholders are encouraged to
attend. If doing so, please endeavour to arrive by 11.20am to allow time to
register. There will be a presentation from the portfolio managers who, along
with the Directors, will answer questions from shareholders. I hope to see
many of you there.
Should the situation change, further information will be made available
through the Company's website at pacifichorizon.co.uk and the London Stock
Exchange regulatory news service.
Outlook
The invasion of Ukraine ended the geopolitical consensus that prevailed since
the fall of the Berlin Wall. This consensus was an impetus for globalisation
and a key component of growth in Asia. Today, we live in a much less certain
time. It was perhaps inevitable that, as economic power shifted to the East,
tensions with the hitherto economically dominant West were likely to grow.
US and Western sanctions on a seemingly increasing number of Chinese companies
have made some of them uninvestible. There is little doubt that foreign
disinvestment from China is impacting asset prices, at least in the short
term. Should these sanctions be materially extended, in response for example
to military action, there is a risk this could even render the market as a
whole uninvestible.
Domestic considerations in China are also of concern. The Chinese Government
is developing its own economic system, the success of which remains to be
seen. Coupled with escalating tensions with the US, we recognise that in the
future there is likely to be greater complexity and risk in securing
investment exposure to the 'Asian economic miracle'.
Excess investment return is generated by judging and managing risks. On the
basis of the information currently available, the Manager and your Board
believe that the risks of investment in China and the broader Asian region are
justified by the potential rewards. China is a critical trading partner of the
West and only the most extreme geopolitical confrontation would justify the
economic disruption of severing economic ties entirely.
More broadly, the economies of Asia including the Indian Sub-continent are, as
outlined in the Managers' review, unencumbered by some of the issues affecting
more developed markets, such as high levels of debt and elevated levels of
inflation. The region is fostering competitive companies that are well placed
to benefit from key drivers of long- term growth such as the rising wealth of
the Asian consumer, the transition to renewable energy and an AI led digital
age of innovation. However, it remains incumbent on our portfolio managers to
unearth the right investments. This requires patience and fortitude, an
approach that has served investors well in the past.
The region remains one of the fastest growing globally and company valuations,
particularly when set against western peers, are undemanding; the Board is of
the view that investing in the fastest growing companies in the fastest
growing region still offers attractive long-term investment opportunities for
patient growth investors. The portfolio managers call this 'growth squared'.
Angus Macpherson
Chairman
5 October 2023
(*)Baillie Gifford/Refinitiv and relevant underlying index providers. See
disclaimer 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.
For a definition of terms see Glossary of Terms and Alternative Performance
Measures at the end of this announcement.
Past performance is not a guide to future performance.
Managers' review
Overview
What defines us is growth. We believe Asia, ex Japan, including the Indian
Sub-continent, will be one of the fastest growing regions over the coming
decades and we strive to be invested in its fastest growing companies. It is
growth multiplied by growth or, as we like to call it, 'Growth Squared'
('Growth²').
Such an investment style has been well rewarded over the longer term, with the
Company's NAV outperforming the comparative index, the MSCI All Country Asia
ex Japan Index (in sterling terms) by 68.3 percentage points ('pp') over the
past five years, and 28.8pp over the past three years, while the share price
outperformed by 48.3pp and 12.7pp over these time periods.
5 year 3 year
NAV total return* 82.4% 32.9%
Share price total return* 62.4% 17.0%
MSCI All Country C Asia ex Japan total return (in sterling terms)* 14.1% 4.3%
By running a differentiated, high-conviction portfolio, there will inevitably
be periods of time when our growth style of investing will be out of favour
with the market, as has been the case recently. Over the year to 31 July 2023,
the Company's NAV decreased by 3.6%, while the share price decreased by 8.9%,
compared to the comparative index which rose 0.8% in sterling terms (all
figures total return).
The period was characterised by significant volatility, primarily emanating
from events in China. In aggregate, markets in the region fell nearly 20% to
reach their nadir as President Xi cemented his grip on power during the 20th
Chinese Communist Party Congress in October. Subsequently, Asian markets
rallied hard as China abandoned its zero Covid policy, before retreating once
again as the Chinese economy disappointed and concerns over the Chinese
property sector intensified.
Markets will likely remain volatile as investors continue to grapple with an
uncertain global economic outlook, heightened geopolitical risks, and
perceived fragility in China. We, however, remain optimistic. Whilst many
Western economies have experimented with money printing and ultra low interest
rates, Asian economies are generally in superior health, will grow
significantly faster and trade at a significant discount.
Events in China will continue to play an important role for investors, and
whilst acknowledging the country faces several headwinds including increasing
geopolitical tensions, we believe fears of an imminent collapse of the economy
are misplaced. The government has moved to support the domestic economy, the
regulatory crackdown on the technology sector has receded, and fears over the
domestic property market appear overly pessimistic.
The broad exposure of the portfolio remains similar to last year, with
significant positions in both cyclical growth, particularly materials and
industrials, and secular growth, including technology and consumer companies.
Geographically, notable additions were made to China and Vietnam. It is
noteworthy that, over the next year, our holdings on average are valued at
nearly the same price-to-earnings multiple as that of the comparative index
(13.7x vs. 12.9x), yet they are expected to grow their earnings at nearly
triple the rate (+14.8% vs. +5.7%).
Overall, we remain extremely positive on the long-term outlook for the region.
Asia already cemented itself as the lead contributor to global demand growth,
with China alone having contributed more to global growth in US dollar terms
than the US over the past decade, while India is overtaking Japan. Asia is now
better positioned financially than much of the developed world and, with a
renewed investment cycle unfolding, Asian growth is likely to significantly
outperform.
Philosophy
We are growth investors endeavouring to invest in the top twenty percent of
the fastest growing companies in Asia. Across the region we have found the
most persistent source of outperformance to be those companies that can grow
their profits faster than the market, in hard currency terms, over the long
term. This trend persists irrespective of starting valuations. Consequently,
our research is singularly focused on finding those companies whose share
prices can at least double, in sterling terms, on a five year view and we
expect most of this doubling to come from earnings growth.
We are particularly interested in three specific and persistent
inefficiencies:
01. Underappreciated growth duration
We believe one of the greatest investment inefficiencies is to be found in
companies with excellent long-term earnings growth where profits are volatile
from one quarter to the next. The market typically shows an aversion to such
companies, preferring the predictability of smooth profit generation even if
the long-term growth rate turns out to be a fraction of that achieved by firms
more willing to reinvest in their business and with greater ambition. This
presents us with exciting investment opportunities, but it requires an
approach that allows near term volatility to be ignored.
02. Underappreciated growth pace
The market consistently underestimates the likelihood of rapid growth. The
evidence shows that most investors cluster around a narrow range of earnings
growth predictions, which can in turn lead to significant mispricing of those
companies with the potential to grow very rapidly. Our process is focused on
finding these companies. By looking further out and searching for low
probability but high impact growth opportunities, we endeavour to outperform
the broader market.
03. Underappreciated growth surprise
The final significant inefficiency lies in the interaction between top-down
and bottom-up investing. As investors in Asia, ex Japan, and the Indian
Sub-continent, we do not have the luxury of ignoring macroeconomics. Purely
bottom-up investment is a path to ruin in a universe where industrial and
economic cycles can dominate investment returns over multi-year periods. The
long-term earnings for a vast number of companies - notably in the financial,
materials and industrial sectors - are determined by exogenous macro factors
beyond their control. This also provides opportunities.
Our analysis shows that while it may pay to invest in those companies that
display consistently high levels of profitability, the strongest returns are
to be found in those companies that transition from poor levels of
profitability to high - a 'growth surprise'.
This may seem obvious - rising levels of profitability are normally
accompanied by a re-rating, thereby providing a two-fold kicker to share price
performance - but identifying the drivers behind this change is the key and
has been a significant source of outperformance for Pacific Horizon. We accept
that timing these inflection points perfectly is impossible, but when you have
an investment horizon measured over many years, successfully anticipating the
future direction of travel is hugely valuable.
Importantly, we are agnostic as to the type of growth inefficiency we are
exploiting and will invest wherever we are finding the best opportunities. At
times this will lead to a concentration in particular sectors or countries,
and at others to a much broader, flatter portfolio, but growth will always be
the common theme.
MSCI AC
Asia ex Japan
Pacific Index
Horizon
Historic earnings growth (5 years trailing compound annual growth to 31 July 9.8% 7.3%
2023
One year forecast earnings growth to 31 July 2024 14.8% 5.7%
Estimated p/e ratio for the year to 31 July 2024 13.7x 12.9x
Active share 82% n/a
Portfolio turnover 11.9% n/a
Data as at 31 July 2023, source: Baillie Gifford, UBS PAS, APT, MSCI (see
disclaimer at the end of this announcement)
Review
In the last Interim management statement we articulated three key reasons why
Asian economies are generally far better positioned than in the past,
especially when compared to developed markets.
They are:
• Asian balance sheets are in superior shape having lacked the profligate
monetary and fiscal stimulus of the West. For example, China's Covid stimulus
equated to c.10% of GDP compared to c.70% for many major European countries.
• Most of Asia maintained positive interest rates for many years, while
Western markets operated with ultra-low or even negative rates. Arguably, it
is Asian countries that behaved like orthodox developed countries while much
of the developed world behaved like the emerging markets of old. (Perhaps we
are seeing the beginning of 'converging markets').
• Capital flows into Asia have been negative for a decade and the region
is therefore far less vulnerable to money outflows than in the past.
The result is that today Asia's financial position is superior to much of the
developed world. Combine this with Asia's structurally faster growth rates and
valuations at multi-year lows relative to developed markets, and the long-term
outlook for Asian investors is very encouraging. This, however, has not been
reflected in the recent performance of Asian markets, with China a significant
concern amongst investors. China certainly faces a number of challenges, and
there is no doubt that the country's lockdowns and regulatory crackdowns have
inhibited consumer and entrepreneurial spirit, subduing the domestic economy.
But the extreme pessimism over the economy is too one-sided.
There are a number of signs that household consumption in China is gaining
momentum, with restaurant and bar sales up 12% and 17% in May and June
compared to the same pre-lockdown months in 2019, while air passenger numbers
are rapidly returning to pre-pandemic levels. Our consumer related holdings in
China have posted impressive recent quarterly numbers: Alibaba's ecommerce
business grew +14% year-on-year ('YoY'), Baidu's core advertising division
grew +15% YoY and Kuaishou's short-form video sales grew +28%.
Improving consumer confidence will be key to accelerating economic growth and
mobilising the c.US$7tn of additional household savings built up over the past
couple of years. Time and patience is needed; after all China's serious Covid
trauma only ended at the start of the year.
Increasing policy support is also likely to be a significant catalyst.
Moderate financial easing is underway, but perhaps more importantly the
government has clearly and very publicly stated its support for the private
sector. Notably in July the CCP Central Committee and the State Council issued
a joint statement on 'promoting the development and growth of the private
economy'. It described the private sector as 'a driving force behind promoting
the Chinese path to modernisation' and stated that the party wants to 'promote
a bigger, better and stronger private sector'.
Combined with a less zealous regulatory approach in many other sectors, it
seems clear that support is shifting behind the private sector, and the
regulatory clampdown that particularly impacted technology and platform
businesses for the past couple of years - and where we have significant
holdings - is receding.
Despite these positive tailwinds, valuations remain extremely depressed.
Stripping out cash and subsidiaries, Alibaba Group's core ecommerce business
and Baidu's core online search business both trade on low single digit p/e
multiples, while Ping An Insurance, China's leading private life insurance
company, trades significantly below its book value.
We believe this presents us with a number of excellent long term investment
opportunities and we increased our listed equity exposure to China by adding
c.600 basis points ('bp') to Chinese companies. Most additions were made to
internet firms, including Alibaba Group, JD.com (ecommerce), KE holdings
(online property portal) and Baidu. We also added to two financial companies,
the aforementioned Ping An Insurance and its subsidiary Ping An Bank. One new
purchase was also made in Silergy, a leading designer of analogue chips in
China (listed in Taiwan). Silergy has the largest market share among domestic
designers and is likely to be a key beneficiary of Chinese attempts to become
self-reliant in semiconductor chips.
Combined, these Chinese purchases took the portfolio's exposure to China to
34% compared to 17% eighteen months ago.
Just after period end, we also acquired a new holding in a private (unlisted)
company, Micro Connect. The business makes loans to small and medium sized
Chinese businesses which typically don't have access to formal credit in
exchange for a daily percentage of the borrower's revenues (collected daily
from the borrower's account) which are then packaged and sold on the Micro
Connect exchange. The company was founded by the former long-time Hong Kong
exchange CEO Charles Li, has a strong balance sheet and is already profitable.
Outside of China, we continue to believe Vietnam remains the best structural
growth story of any Asian economy, driven by its successful export
manufacturing base. After a period of significant market weakness, driven by a
corruption clampdown and funding issues in the property sector, we took
advantage of share price weakness by adding to our existing holding in Vinh
Hoan (food processer) and making two new purchases: Mobile World, one of the
country's leading electronics and grocery retailers; and FPT, Vietnam's
largest information technology outsourcing company. This takes Vietnam to a 7%
absolute position, and our second largest country overweight.
Funding came from three main sources. The most significant was a reduction to
a number of smaller (<60bp) holdings in South Korea. These were across a
range of sectors including green energy businesses (LG Energy Solutions, SK IE
Technology and S-Fuelcell), cloud computing (Douzone Bizon) and speech
recognition software (Flitto). However, due to some small additions to other
names in South Korea, and the very strong performance of some of our holdings,
notably EO Technics (laser manufacturer for semiconductors) and Samsung
Engineering (engineering), our South Korea weighting increased modestly over
the period to 18% absolute.
Towards the end of our financial year, we also exited our direct nickel
exposures in Indonesia, selling both Nickel Industries and Vale Indonesia. We
have become concerned by the huge capital investments into the nickel market,
predominantly by the Chinese. In particular, it appears that the Chinese have
successfully made the difficult process of High-Pressure Acid Leaching (which
is used to convert non-battery grade nickel into battery grade nickel)
commercially viable and this is likely to bring significantly more battery
grade nickel to the market than expected.
We also reduced our exposure to India. Notable transactions included the sales
of Zomato, the online food delivery businesses, as the company's unit
economics are not as favourable as we hoped, and Star Health & Allied
Insurance Co (health insurance). India, however, remains our second largest
absolute (24%) and largest relative (+7.6pp) country position.
We are keeping our eye on several interesting developments in India. In
particular, there are early signs that the country might finally be building
up a successful export manufacturing industry. For years this has
disappointed, with countries like Vietnam leading the way, but thanks to a
number of government reforms and the establishment of several special economic
zones, there are signs that manufacturing is starting to move to India. For
example, Foxconn, Apple's iPhone manufacturer, is expanding in India with
iPhone exports quadrupling to US$5bn for the fiscal year 2022-23. It is early
days, but should India succeed in building up a strong export manufacturing
base it has the potential to transform the economy over the coming years.
By sector, there have been limited changes, with the portfolio continuing to
look different to many of our growth-focused peer funds. In absolute terms,
our largest exposures remain focused on the themes of the rising middle class,
technology and innovation. However, we have significant exposures to more
cyclical industries including materials and industrials which make up the two
largest relative positions within the portfolio.
Overall, the number of names in the portfolio reduced to 72 from 85 in the
year to 31 July 2023. Private companies, of which there were five in the
portfolio as at 31 July 2023, accounted for 5% of the portfolio, and invested
gearing was nil.
Performance
As long-term growth investors, it is pleasing that over the past three and
five years our portfolio generated significant value for shareholders. Recent
periods have been more challenging as our growth style faced numerous
headwinds, including soaring inflation and interest rates. This has been
combined with generally poor Asian markets held back by increasing
geopolitical tensions, weakness in China and a surging US Dollar syphoning
liquidity from the region. Our portfolio maintains a strong growth bias; we
have faith in the long-term growth prospects of the region and believe we are
well placed to add significant value for shareholders when Asian markets turn.
As mentioned, over the year to 31 July 2023, the Company's NAV decreased by
3.6%, while the share price decreased by 8.9%, compared to the comparative
index which rose by 0.8% in sterling terms - all figures total return. The
majority of underperformance came from weakness in three significant holdings,
all of which were among the top five absolute holdings at the start of the
period: Jadestone (-ve 300bp to performance), Delhivery (-ve 230bp) and JD.com
(-ve 110bp).
Jadestone is an oil exploration and production company, specialising in
turning around small and medium sized assets, usually from larger companies
looking to divest. Unfortunately, the company experienced a significant
operational issue at its main cash producing asset, Montara in Australia,
resulting in production halting for several months. The lack of cash strained
the balance sheet at a time when the company was gearing up for a major
investment phase to bring several new assets on stream, forcing it to
undertake a rights issue. The next 12 months are critical with Jadestone's
Akatara gas field due to come on stream in 2024 - the success of the company
very much rests on this asset coming on stream in a timely manner.
Delhivery, India's largest private logistics company with a core focus on
ecommerce logistics, was, until listing in May 2022, held in the portfolio as
a private company. Due to strong share price performance, the company was a
5.5% holding at the start of the period. Unfortunately, Delhivery's quarterly
results at the end of 2022 were weak. M&A integration challenges and a
slowdown in broader ecommerce growth in India pushed the share price down by
52%. We are hopeful these issues are short term and with key private
competitors finding funding far more difficult and Delhivery the clear number
one player, we continue to have faith in the company (encouragingly, the
shares have risen c.40% from their lows).
Like much of the technology space in China, JD.com was weak despite reasonable
operational performance. Revenue growth was slower and competition increased
at the margin, with ByteDance taking some low-end market share as it leveraged
its large user base to enter the ecommerce market. Nevertheless, JD.com has
focused on cost efficiencies resulting in improving profitability and is
clearly demonstrating the benefits of its scale and in-house logistics
capabilities.
By country, Singapore was the largest detractor due to the issues at
Jadestone, followed by China.
More positively, a number of our companies performed strongly. Our top
contributor to performance was Ramkrishna Forgings which rose 189% over the
period. The company is one of the leading forging companies in India, focused
on automotive and commercial vehicles. After completing a major capacity
expansion over the past few years the company is seeing rapid sales growth
amid a number of significant new order wins.
Other industrial companies in India also performed well, including Skipper,
one of the leading manufacturers of telecom and power transmission towers,
which rose +213% amid India's increasing demand for power infrastructure. Tata
Motors was also strong as the domestic commercial vehicle and auto business
continued to see buoyant demand while the company's electric vehicle
investments impressed.
India was our second best performing market, but stock selection in South
Korea was the most significant contributor. Samsung Engineering contributed
110bp thanks to continued strong order wins, especially from the Middle East
and Mexico. EO Technics, which produces advanced lasers for semiconductor
manufacturing, also contributed 110bp as the semiconductor cycle appears to
have bottomed, and orders began to accelerate. We are excited for EO Technic's
longer-term prospects; demand for its laser products is likely to hit an
inflection point as semiconductors become smaller and more complex, at which
point ceramic blades and drills will need to be replaced by lasers in the
manufacturing process. We added significantly to this holding towards the end
of the period.
By sector, Materials was the best performing mainly from strength in our
copper companies MMG and Zijin Mining. This was followed by Real Estate,
predominantly from strength in India, and Utilities where we had no holdings
while the sector was down 18.5%. Our worst performing sectors were Energy due
to the issues at Jadestone, followed by Communication Services and Consumer
Discretionary due to the weakness in our Chinese names.
Environmental, social and governance ('ESG') considerations
Our long-term, active approach to investment is based on identifying and
holding high quality growth businesses that enjoy sustainable competitive
advantages in their marketplace.
To identify these kinds of businesses, we often look beyond current financial
performance, undertaking proprietary research to build up our in-depth
knowledge of an individual company and form a view of its long-term prospects.
Material Environmental, Social and Governance matters which affect the
financial condition or operating performance of a company, can positively or
negatively influence long-term investment returns. Such issues are considered
throughout the investment process through research, engagement and voting.
Our approach is guided by our ESG principles:
• Investment process founded on long-term ownership of growing businesses:
we want to help these companies fulfil their potential and encourage them to
ignore the short-term pressures of the market.
• Sustainability is central to our analytical task: businesses engaging in
practices that are harmful to society may be capable of generating attractive
returns in the short term but are unlikely to do so over the periods we seek
to invest.
• We do not believe 'one size fits all': ESG practices need to be assessed
on a case-by-case basis, not reliant on formulaic and backward-looking
screens.
• Not seeking 'perfect' companies: we prefer to consider the likely
direction of change in otherwise promising investments and engage accordingly.
Company engagement is key to our process. We encourage steps to maximise
opportunities and minimise risks where we believe it is material to the
success of the company. Engagement priorities are set through a combination of
a subjective assessment of the materiality of an issue and our ability to
influence, as well as use of more qualitative inputs to provide direction. We
vote wherever possible and will vote against management if we believe that its
actions are not in the interests of shareholders.
We are supported by a dedicated emerging markets ESG analyst and a further 40
analysts who are part of Baillie Gifford's wider ESG resource.
*Source: Baillie Gifford/Refinitiv and relevant underlying index providers.
See disclaimer at the end of this announcement.
For a definition of terms see Glossary of Terms and Alternative Performance
Measures at the end of this announcement.
Past performance is not a guide to future performance.
Valuing Private Companies
We aim to hold our private company investments at 'fair value' i.e. the price
that would be paid in an open-market transaction. Valuations are adjusted both
during regular valuation cycles and on an ad hoc basis in response to 'trigger
events'. Our valuation process ensures that private companies are valued in
both a fair and timely manner.
The valuation process is overseen by a valuations group at Baillie Gifford,
which takes advice from an independent third party (S&P Global). The
valuations group is independent from the investment team with all voting
members being from different operational areas of the firm, and the investment
managers only receive final notifications once they have been applied.
We revalue the private holdings on a three month rolling cycle, with one third
of the holdings reassessed each month. During stable market conditions, and
assuming all else is equal, each investment would be valued two times in a six
month period. For investment trusts, the prices are also reviewed twice per
year by the respective investment trust boards and are subject to the scrutiny
of external auditors in the annual audit process.
Beyond the regular cycle, the valuations team also monitors the portfolio for
certain 'trigger events'. These may include: changes in fundamentals; a
takeover approach; an intention to carry out an Initial Public Offering (IPO);
company news which is identified by the valuation team or by the portfolio
managers, or meaningful changes to the valuation of comparable public
companies. Any ad hoc change to the fair valuation of any holding is
implemented swiftly and reflected in the next published net asset value. There
is no delay.
The valuations team also monitors relevant market indices on a weekly basis
and updates valuations in a manner consistent with our external valuer's
(S&P Global) most recent valuation report where appropriate.
Continued market volatility has meant that recent pricing has moved much more
frequently than would have been the case with the quarterly valuations cycle.
Pacific Horizon Investment Trust
Instruments (lines of stock reviewed) 6
Revaluations performed 39
Percentage of portfolio revalued 2+ times 89%
Percentage of portfolio revalued 5+ times 33%
In the year to 31 July 2023, most revaluations have been decreases. A handful
of companies have raised capital at an increased valuation. The average
movement in both valuation and share price for those which have decreased in
value is shown below.
Average
Movement Average
in company Movement
valuation In share price
Pacific Horizon* (29.7%) (28.8%)
* Data reflecting period 1 August 2022-31 July 2023 to align with the Trust's
reporting period end.
Share prices have decreased less than headline valuations, which is a result
of holding classes of stock with preferential liquidation rights and therefore
provides down side protection.
The share price movement reflects a probability weighted average of both the
regular valuation, which would be realised in an IPO, and the downside
protected valuation, which would normally be triggered in the event of a
corporate sale or liquidation
List of Investments at 31 July 2023
2023 2023
Value % of total
Name Geography Business £'000 assets
Samsung Electronics Korea Memory, phones and electronic components manufacturer 36,937 6.4
Ping An Insurance H Shares China Life insurance provider 21,418 3.7
Ramkrishna Forgings India Auto parts manufacturer 19,091 3.3
Delhivery (p) India Logistics and courier services provider 18,399 3.2
Dailyhunt (VerSe Innovation) Series I Preferred (u) India Indian news aggregator application 13,428 2.3
Dailyhunt (VerSe Innovation) Series Equity (u) India Indian news aggregator application 2,462 0.4
Dailyhunt (VerSe Innovation) Series J Preferred (u) India Indian news aggregator application 2,031 0.3
17,921 3.0
Zijin Mining Group Co H Shares China Gold and copper miner 16,602 2.9
Tata Motors India Automobile manufacturer 16,420 2.8
EO Technics Korea Manufacturer and distributor of semiconductor laser markers 15,526 2.7
Samsung Engineering Korea Korean construction 14,926 2.6
JD.com China Online and mobile commerce 14,910 2.6
Alibaba Group China Online and mobile commerce 14,237 2.5
MMG China Chinese copper miner 14,237 2.5
Bank Rakyat Indonesia Consumer bank 13,684 2.4
Samsung SDI Korea Electrical equipment manufacturer 13,422 2.3
Reliance Industries India Indian petrochemical company 12,397 2.1
Indiabulls Real Estate India Domestic and commercial real estate provider 11,988 2.1
Li Ning China Sportswear apparel supplier 11,503 2.0
Sea Limited ADR Singapore Internet gaming and ecommerce 11,414 2.0
ByteDance Series E-1 Preferred (u) China Social media 11,413 2.0
Merdeka Copper Gold Indonesia Indonesian miner 10,170 1.8
Lemon Tree Hotels India Owner and operator of a chain of Indian hotels and resorts 9,559 1.6
HDBank Vietnam Consumer bank 9,521 1.6
Phoenix Mills India Commercial property manager 9,448 1.6
Baidu.com China Internet provider 9,272 1.6
PT Astra International Indonesia Automobile distributor 8,782 1.5
Accton Technology Taiwan Server network equipment manufacturer 8,531 1.5
Dragon Capital Vietnam Enterprise Investments Vietnam Vietnam investment fund 8,232 1.4
Hoa Phat Group Vietnam Steel and related products manufacturer 8,150 1.4
KE Holdings China Real-estate platform 7,303 1.3
KE Holdings ADR China Real-estate platform 655 0.1
7,958 1.4
Midea A Shares China Household appliance manufacturer 7,941 1.4
Prestige Estate Projects India Owner and operator of residential real estate properties 7,611 1.3
Skipper India Transmission and distribution structures provider 7,610 1.3
Meituan China Local services aggregator 7,560 1.3
Dada Nexus ADR China Chinese ecommerce distributor of online consumer products 7,315 1.3
TSMC Taiwan Semiconductor manufacturer 6,458 1.1
Zhejiang Supor Co A Shares China Chinese manufacturer of cookware and home appliance products 6,243 1.1
MediaTek Taiwan Taiwanese electronic component manufacturer 6,100 1.1
Jadestone Singapore Oil and gas explorer and producer 5,932 1.0
China Oilfield Services H Shares China Oilfield services 5,893 1.0
Hyundai Mipo Dockyard Korea Korean shipbuilder 5,536 1.0
Coupang Korea Ecommerce business 5,490 0.9
Military Commercial Joint Stock Bank Vietnam Retail and corporate bank 5,448 0.9
TISCO Thailand Retail and corporate bank 5,447 0.9
Koh Young Technology Korea 3D inspection machine manufacturer 5,169 0.9
Silergy Taiwan Semiconductor manufacturer 4,979 0.9
Ningbo Peacebird Fashion A Shares China Chinese fashion 4,961 0.9
HDFC India Indian mortgage provider 4,872 0.8
LONGi Green Energy A Shares China Chinese semiconductor manufacturer 4,855 0.8
SK hynix Korea Semiconductor manufacturer 4,565 0.8
KH Vatec Company Korea Electronic component and device manufacturer 4,331 0.7
Geely Automobile China Automobile manufacturer 4,271 0.7
Kingdee International Software China Enterprise management software distributor 4,172 0.7
CIMC Vehicles H Shares China Manufacturer of trailers and trucks 4,154 0.7
SDI Corporation Taiwan Stationary and lead frames for semiconductors manufacturer 4,148 0.7
Ping An Bank A Shares China Consumer bank 3,767 0.6
Policybazaar India Online financial services platform 3,725 0.6
Mobile World Investment Corporation Vietnam Electronic and grocery retailer 3,400 0.6
Chalice Mining China Miner 3,311 0.6
Property Guru Singapore Real-estate platform 3,148 0.5
Vinh Hoan Corporation Vietnam Food producer 2,907 0.5
Tsugami Precision China Industrial machinery manufacturer 2,877 0.5
Wuxi Lead Intelligent Equipment Co A Shares China Manufacturer of electronic capacitors, solar energy and lithium battery 2,421 0.4
equipment
AirTac International Group Taiwan Pneumatic components manufacturer 2,243 0.4
Techtronic Industries Hong Kong Power tool manufacturer 2,088 0.3
Jio Financial Services India Financial service business 1,273 0.2
Binh Minh Plastics Joint Stock Company Vietnam Plastic piping manufacturer 1,235 0.2
Nexteer Automotive China Producer of automotive components 1,111 0.2
Brilliance China Automotive China Minibus and automotive components manufacturer 1,076 0.2
FPT Vietnam IT service provider 944 0.1
Chime Biologics (u) China Biopharmaceutical company 76 0.1
Eden Biologics (u) Taiwan Biopharmaceutical company 17 <0.1
Philtown Properties (u) Philippines Property developer - -
Total Investments 572,748 98.7
Net Liquid Assets* 7,607 1.3
Total Assets 580,355 100.0
Details of the ten largest investments are given on pages 28 to 31 of the
Annual Report and Financial Statements along with comparative valuations.
* For a definition of terms see Glossary of Terms and Alternative Performance
Measures at the end of this announcement.
(u) Denotes private company investment.
(p) Denotes listed security previously held in the portfolio as a private
company investment.
Listed equities Private company Investments* Net liquid assets(†) Total
% % % assets
%
31 July 2023 93.6 5.1 1.3 100.0
31 July 2022 93.6 6.1 0.3 100.0
Figures represent percentage of total assets.
*Includes holdings in ordinary shares and preference shares.
† For a definition of terms see Glossary of Terms and Alternative
Performance Measures at the end of this announcement.
Distribution of Total Assets†
Geographical Analysis
At 31 July At 31 July
2023 2022
% %
Equities: China 28.5 20.4
India 23.9 24.2
Korea 18.3 17.4
Vietnam 6.7 5.4
Taiwan 5.7 4.5
Indonesia 5.7 8.9
China 'A' shares 5.2 7.1
Singapore 3.5 6.5
Hong Kong 0.3 4.9
Other 0.9 0.4
Total equities 98.7 99.7
Net Liquid Assets 1.3 0.3
Total assets 100.0 100.0
Sectoral Analysis
At 31 July At 31 July
2023 2022
% %
Equities: Information Technology 22.0 19.5
Consumer Discretionary 20.3 20.2
Financials 12.9 9.9
Materials 12.5 14.6
Industrials 10.6 13.5
Communication Services 8.6 9.6
Real Estate 6.9 4.6
Energy 4.3 6.9
Consumer Staples 0.5 0.3
Healthcare 0.1 0.6
Total equities 98.7 99.7
Net liquid assets 1.3 0.3
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
The following is the preliminary statement for the year to 31 July 2023 which
was approved by the Board on 5 October 2023.
2023 2023 2023 2022 2022 2022
Revenue Capital Total Revenue Capital Revenue
£'000 £'000 £'000 £'000 £'000 £'000
Losses on investments - (25,404) (25,404) - (118,594) (118,594)
Currency (losses)/gains - (791) (791) - 1,292 1,292
Income (note 2) 9,580 - 9,580 11,067 - 11,067
Investment management fee (note 3) (3,419) - (3,419) (4,036) - (4,036)
Other administrative expenses (762) - (762) (1,093) - (1,093)
Net return before finance costs 5,399 (26,195) (20,796) 5,938 (117,302) (111,364)
and taxation
Finance costs of borrowings (403) - (403) (756) - (756)
Net return before taxation 4,996 (26,195) (21,199) 5,182 (117,302) (112,120)
Tax (830) (1,256) (2,086) (1,352) 5,288 3,936
Net return after taxation 4,166 (27,451) (23,285) 3,830 (112,014) (108,184)
Net return per ordinary share (note 4) 4.56p (30.05p) (25.49p) 4.21p (123.01p) (118.80p)
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 published 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 after taxation is both
the profit and comprehensive income for the year.
Balance Sheet
As at 31 July
2023 2023 2023 2023
£'000 £'000 £'000 £'000
Fixed assets
Investments held at fair value through profit or loss (note 6) 572,748 608,539
Current assets
Debtors 420 1,248
Cash and cash equivalents 12,442 5,399
12,862 6,647
Creditors
Amounts falling due within one year (note 7):
Other creditors and accruals (1,163) (1,620)
Net current assets 11,699 5,027
Total assets less current liabilities 584,447 613,566
Creditors
Amounts falling due after more than one year:
Provision for tax liability (note 8) (4,092) (3,016)
Net assets 580,355 610,550
Capital and reserves
Share capital 9,208 9,208
Share premium account 254,120 253,946
Capital redemption reserve 20,367 20,367
Capital reserve 287,783 319,573
Revenue reserve 8,877 7,456
Shareholders' funds 580,355 610,550
Net asset value per ordinary share 637.18p 664.65p
Ordinary share in issue (note 9) 92,074,961 92,074,961
Statement of Changes in Equity
For the year ended 31 July 2023
Share capital Share premium Capital redemption Capital reserve Revenue reserve Shareholder's funds
£'000 £'000 £'000 £'000 £'000 £'000
Shareholders' funds at 1 August 2022 9,208 253,946 20,367 319,573 7,456 610,550
Net return after taxation - - - (27,451) 4,166 (23,285)
Ordinary shares bought back into treasury (note 9) - - - (5,541) - (5,541)
Ordinary shares sold from treasury (note 9) - 174 - 1,202 - 1,376
Ordinary shares issued (note 9) - - - - - -
Dividends paid during the year (note 5) - - - - (2,745) (2,745)
Shareholders' funds at 31 July 2023 9,208 254,120 20,367 287,783 8,877 580,355
For the year ended 31 July 2022
Share Share premium Capital redemption Capital reserve Revenue reserve Shareholder's funds
capital £'000 £'000 £'000 £'000 £'000
£'000
Shareholders' funds at 1 August 2021 8,843 221,354 20,367 433,041 3,626 687,231
Net return after taxation - - - (112,014) 3,830 (108,184)
Ordinary shares bought back into treasury (note 9) - - - (1,454) - (1,454)
Ordinary shares sold from treasury (note 9) - - - - - -
Ordinary shares issued (note 9) 365 32,592 - - - 32,957
Dividends paid during the year (note 5) - - - - - -
Shareholders' funds at 31 July 2022 9,208 253,946 20,367 319,573 7,456 610,550
Cash Flow Statement
For the year ended 31 July
2023 2023 2022 2022
£'000 £'000 £'000 £'000
Cash flows from operating activities
Net return before taxation (21,199) (112,120)
Net losses on investments 25,404 118,594
Currency losses/(gains) 791 (1,292)
Finance costs of borrowings 403 756
Overseas withholding tax incurred (881) (1,288)
Indian tax paid on transactions (180) (774)
Changes in debtors 523 (580)
Change in creditors (11) (9)
Cash from operations* 4,850 3,287
Interest paid (403) (765)
Net cash inflow from operating activities 4,447 2,522
Cash flows from investing activities
Acquisitions of investments (89,277) (197,017)
Disposals of investments 99,574 196,116
Net cash inflow/(outflow) from investing activities 10,297 (901)
Cash flows from financing activities
Ordinary shares bought back into treasury (note 9) (5,541) (1,454)
Ordinary shares sold from treasury (note 9) 1,376 -
Proceeds from ordinary shares issued (note 9) - 32,957
Borrowings drawn down - 119,372
Borrowings repaid - (182,957)
Equity dividends paid (2,745) -
Net cash outflow from financing activities (6,910) (32,082)
Increase/(decrease) in cash and cash equivalents 7,834 (30,461)
Exchange movements (791) 4,094
Cash and cash equivalents at 1 August 5,399 31,766
Cash and cash equivalents at 31 July 12,442 5,399
‡Cash from operations includes dividends received of £9,925,000 (2022 -
£10,279,000) and interest received of £163,000 (2022 - £6,000).
Notes to the Financial Statements
1. Principal Accounting Policies
The Financial Statements for the year to 31 July 2023 have been prepared in
accordance with FRS 102 'The Financial Reporting Standard applicable in the UK
and Republic of Ireland' on the basis of the accounting policies set out below
which are unchanged from the prior year and have been applied consistently.
2. Income
2023 2022
£'000 £'000
Income from investments
Overseas dividends 9,417 11,060
Other income
Deposit interest 163 7
Total income 9,580 11,067
Total income comprises:
Dividends from financial assets designated at fair value through profit or 9,417 11,060
loss
Interest from financial assets not at fair value through profit or loss 163 7
9,580 11,067
3. Investment Management Fee
The Company has appointed Baillie Gifford & Co Limited, a wholly owned
subsidiary of Baillie Gifford & Co, as its Alternative Investment Fund
Managers ('AIFM') and Company Secretaries. Baillie Gifford & Co Limited
has delegated portfolio management services to Baillie Gifford & Co.
Dealing activity and transaction reporting have been further sub-delegated to
Baillie Gifford Overseas Limited and Baillie Gifford Asia (Hong Kong) Limited.
The Managers may terminate the Management Agreement on six months' notice and
the Company may terminate on three months' notice.
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. Net Return Per Ordinary Share
2023 2023 2023 2022 2022 2022
Revenue Capital Total Revenue Capital Total
Net return after taxation 4.56p (30.05p) (25.49p) 4.21p (123.01p) (118.80p)
Revenue return per ordinary share is based on the net revenue profit after
taxation of £4,166,000 (2022 - net revenue profit of £3,830,000) and on
91,364,427 (2022 - 91,063,205) ordinary shares, being the weighted average
number of ordinary shares in issue (excluding treasury shares) during the
year.
Capital return per ordinary share is based on the net capital loss for the
financial year of £27,451,000 (2022 - net capital loss of £112,014,000) and
on 91,364,427 (2022 - 91,063,205) ordinary shares, being the weighted average
number of ordinary shares in issue (excluding treasury shares) during the
year.
Total return per ordinary share is based on the total loss for the financial
year of £23,285,000 (2022 - total loss of £108,184,000) and on 91,364,427
(2022 - 91,063,205) ordinary shares, being the weighted average number of
ordinary shares in issue (excluding treasury shares) during the year.
There are no dilutive or potentially dilutive shares in issue.
5. Ordinary Dividends
2023 2022 2023 2022
£'000 £'000
Amounts recognised as distributions in the year:
Previous year's final dividend (paid 29 November 2022) 3.00p - 2,745 -
We set out below the total dividends proposed in respect of the financial
year, which is the basis on which the requirements of section 1158 of the
Corporation Tax Act 2010 are considered. There is a revenue surplus for the
year to 31 July 2023 of £4,166,000 which is available for distribution by way
of a dividend payment (2022- a revenue surplus of £3,830,000).
2023 2022 2023 2022
£'000 £'000
Amounts paid and payable in respect of the financial year:
Proposed final dividend per ordinary share (payable - 30 November 2023) 3.25p 3.00p 2,959 2,745
If approved, the recommended final dividend on the ordinary shares will be
paid on 30 November 2023 to shareholders on the register at the close of
business on 27 October 2023. The ex-dividend date is 26 October 2023. The
Company's Registrars offer a Dividend Reinvestment Plan and the final date for
elections for this dividend is 9 November 2023.
6. Fair Value Hierarchy
As at Level 1 Level 2 Level 3 Total
31 July 2023 £'000 £'000 £'000 £'000
Listed equities* 542,048 1,273 - 543,321
Unlisted company equities - - 2,555 2,555
Unlisted company preference shares# - - 26,872 26,872
Total financial asset investments 542,048 1,273 29,427 572,748
As at Level 1 Level 2 Level 3 Total
31 July 2022 £'000 £'000 £'000 £'000
Listed equities 570,801 495 - 571,296
Unlisted company equities - - 4,051 4,051
Unlisted company preference shares# - - 33,192 33,192
Total financial asset investments 570,801 495 37,243 608,539
* During the period, Brilliance China listed on the Hong Kong stock exchange
having de-listed on 31 March 2021 and there was a demerger with Reliance
Industries, where shares of Jio Financial Services were acquired but the
company did not list until 21 August 2023.
# The investments in preference shares include liquidation preference rights
that determine the repayment (or multiple thereof) of the original investment
in the event of a liquidation event such as a take-over.
During the year to 31 July 2023 no investments (31 July 2022 - £23,341,000)
were transferred from Level 3 to Level 1 on becoming listed.
Investments in securities are financial assets held at fair value through
profit or loss. In accordance with Financial Reporting Standard 102, the
tables above provide an analysis of these investments based on the fair value
hierarchy described below, which reflects the reliability and significance of
the information used to measure their fair value.
The fair value hierarchy used to analyse the fair values of financial assets
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 as
follows:
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).
The Company's unlisted ordinary share investments at 31 July 2023 were valued
using a variety of techniques. These include using comparable company
performance, comparable scenario analysis, and assessment of milestone
achievement at investee companies. The determinations of fair value included
assumptions that the comparable companies and scenarios chosen for the
performance assessment provide a reasonable basis for the determination of
fair value. In some cases the latest dealing price is considered to be the
most appropriate valuation basis, but only following assessment using the
techniques described above.
7. Creditors - Amounts falling due within one year
2023 2022
£'000 £'000
Royal Bank of Scotland International Limited multi-currency revolving credit 52 52
facility non-utilisation fee
Investment purchases awaiting settlement
- 446
Investment management fee
873 915
Other creditors and accruals
238 207
1,163 1,620
The Company has a multi-currency revolving credit facility with The Royal Bank
of Scotland International Limited for up to £100 million, with a
non-utilisation rate of 0.4%. This facility expires in March 2025. At 31 July
2023 there were no outstanding drawings (31 July 2022 - nil). The main
covenants relating to the loan are that borrowings should not exceed 30% of
the Company's adjusted net asset value and the Company's net asset value
should be at least £300 million.
There were no breaches in the loan covenants during the year.
None of the above creditors at 31 July 2023 or 31 July 2022 are financial
liabilities designated at fair value through profit or loss.
8. Provision for Tax Liability
The tax liability provision at 31 July 2023 of £4,092,000 (31 July 2022 -
£3,016,000) 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 (long term capital gains are taxed at 10% and
short term capital gains are taxed at 15%). 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.
9. Share capital
2023 2022
Number of Number of
shares shares
Allotted, called up and fully paid ordinary shares of 10p each 91,081,949 91,860,961
Treasury shares of 10p each 993,012 214,000
92,074,961 92,074,961
In the year to 31 July 2023, the Company issued 200,000 ordinary shares from
treasury with a nominal value of £20,000, representing 0.2% of the issued
share capital at 31 July 2022, at a premium to net asset value, raising net
proceeds of £1,376,000 (2022 - 3,645,257 ordinary shares with a nominal value
of £365,000, raising net proceeds of £32,957,000).
In the year to 31 July 2023, 979,012 ordinary shares, representing 1.1% of the
issued share capital at 31 July 2022, were bought back at a total cost of
£5,541,000 and are held in treasury (2022 - 214,000 shares, representing 0.2%
of the issued share capital at 31 July 2021, were bought back during the year
and subsequently reissued from treasury). At 31 July 2023 the Company had
authority to allot or sell from treasury 8,964,320 ordinary shares without
application of pre-emption rights and to buy back 13,374,618 ordinary shares
on an ad hoc basis. Under the provisions of the Company's Articles of
Association share buy-backs are funded from the capital reserve.
Between 1 August 2023 and 3 October 2023, no further shares were issued and
35,000 shares were bought back.
10. Transactions with related parties and the managers and secretaries
The Directors' fees for the year are detailed in the Directors' remuneration
report in the annual report and financial statements. No Director has a
contract of service with the Company. During the year no Director was
interested in any contract or other matter requiring disclosure under section
412 of the Companies Act 2006.
Details of the management contract are set out in the Directors' report on
page 61 of the annual report and financial statements. The management fee
payable to the Manager by the Company for the year was £3,419,000 (2022 -
£4,036,000) of which £873,000 (2022 - £915,000) was outstanding at the year
end.
The Company is part of a marketing programme which includes all the investment
trusts managed by the Manager. The Company's marketing contribution, recharged
by the Manager, was £71,000 (£85,000).
11. The financial information set out above does not constitute the
Company's statutory accounts for the year ended 31 July 2023 or 2022 but is
derived from those accounts. Statutory accounts for 2022 have been delivered
to the Registrar of Companies, and those for 2023 will be delivered in due
course. The auditor has reported on these accounts; the reports were
unqualified, did not include a reference to any matters to which the auditors
drew attention by way of emphasis without qualifying the report and did not
contain a statement under sections 498 (2) or 498(3) of the Companies Act
2006.
The Annual Report and Financial Statements will be available on the Company's
page on the Managers' website pacifichorizon.co.uk
(http://www.pacifichorizon.co.uk) † on or around 17 October 2023.
Glossary of Terms and Alternative Performance Measures ('APM')
Total Assets
This is the Company's definition of Adjusted Total Assets, being the total
value of all assets held less all liabilities (other than liabilities in the
form of borrowings).
Shareholders' Funds and 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
(excluding treasury shares) in issue.
Net Liquid Assets
Net liquid assets comprise current assets less current liabilities, (excluding
borrowings) and provisions for deferred liabilities.
Discount/Premium (APM)
As stock markets 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.
2023 2022
Net asset value per share (a) 637.18p 664.65p
Share price (b) 586.00p 647.00p
(Discount)/premium ((b) - (a)) ÷ (a) (8.0%) (2.7%)
Turnover
Turnover is calculated as the minimum of purchases and sales in a month,
divided by the average market value of the portfolio, summed to get rolling 12
month turnover data.
Ongoing Charges (APM)
The total recurring expenses (excluding the Company's cost of dealing in
investments and borrowing costs) incurred by the Company as a percentage of
the daily average net asset value, as detailed below:
2023 2022
£'000 £'000
Investment management fee 3,419 4,036
Other administrative expenses 762 1,093
Total Expenses (a) 4,181 5,129
Average net asset value (b) 578,071 691,596
Ongoing charges ((a) ÷(b)- expressed as a percentage 0.72% 0.74%
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.
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.
Unlisted (private) company
An unlisted or private company means a company whose shares are not available
to the general public for trading and are not listed on a stock exchange.
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.
2023 2023 2022 2022
NAV Share price NAV Share price
Closing NAV per share/share price (a) 637.18p 586.00p 664.65p 647.00p
Dividend adjustment factor* (b) 1.0056 1.0057 1.0000 1.0000
Adjusted closing NAV per share/share price (c) = (a) x (b) 640.75p 589.34p 664.65p 647.00p
Opening NAV per share/share price (d) 664.65p 647.00p 777.15p 802.00p
Total return (c) ÷ (d) -1 (3.6%) (8.9%) (14.5%) (19.3%)
* The dividend adjustment factor is calculated on the assumption that the
final dividend of 3.00p (31 July 2022 - nil) paid by the Company during the
period was reinvested into shares of the Company at the cum income NAV per
share/share price, as appropriate, 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.
Gearing is borrowings at book less cash and brokers' balances expressed as a
percentage of shareholders' funds.
2023 2022
£'000 £'000
Borrowings (at book cost) (a) - -
Less: cash and cash equivalents (12,442) (5,399)
Less: sales for subsequent settlement - (402)
Add: purchases for subsequent settlement - 466
Adusted borrowings (b) (12,422) (5,355)
Shareholders' funds (c) 580,355 610,550
Gearing: (b) as a percentage of (c) (2%) (1%)
Gross gearing is the Company's borrowings expressed as a percentage of
shareholders' funds.
2023 2022
£'000 £'000
Borrowings (at book cost) (a) - -
Shareholders' funds (b) 580,355 610,550
Potential gearing (a) as a percentage of (b) - -
Leverage (APM)
For the purposes of the Alternative Investment Fund Managers Regulations
leverage is any method which increases the Company's exposure, including the
borrowing of cash and the use of derivatives. It is expressed as a ratio
between the Company's exposure and its net asset value and can be calculated
on a gross and a commitment method. Under the gross method, exposure
represents the sum of the Company's positions after the deduction of sterling
cash balances, without taking into account any hedging and netting
arrangements. Under the commitment method, exposure is calculated without the
deduction of sterling cash balances and after certain hedging and netting
positions are offset against each other.
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.
Compound annual return (APM)
The compound annual return converts the return over a period of longer than
one year to a constant annual rate of return applied to the compound value at
the start of each year.
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Provider shall in any way be liable
to any recipient of the data for any inaccuracies, errors or omissions in the
index data included in this document, regardless of cause, or for any damages
(whether direct or indirect) resulting therefrom.
No Provider has any obligation to update, modify or amend the data or to
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herein changes or subsequently becomes inaccurate.
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whatsoever to you, whether in contract (including under an indemnity), in tort
(including negligence), under a warranty, under statute or otherwise, in
respect of any loss or damage suffered by you as a result of or in connection
with any opinions, recommendations, forecasts, judgements, or any other
conclusions, or any course of action determined, by you or any third party,
whether or not based on the content, information or materials contained
herein.
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
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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 subcontinent. The Company has total assets of £580.4 million
(before deduction of loans of nil) at 31 July 2023.
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
public listed 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 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 2026. You can find up to
date performance information about Pacific Horizon on the Pacific Horizon page
of the Managers' website at pacifichorizon.co.uk
(http://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.
5 October 2023
For further information please contact:
Anzelm Cydzik, Baillie Gifford & Co
Tel: 0131 275 2000
Jonathan Atkins, Four Communications
Tel: 0203 920 0555 or 07872 495396
- ends -
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