TIDMPHI
RNS Number : 9840O
Pacific Horizon Investment Tst PLC
06 October 2023
Replacement RNS Announcement
Pacific Horizon Investment Trust PLC
GENERAL TEXT AMMENT
The following amendments has been made to the 'Pacific Horizon
Investmnt Trst Full year results' announcement released on
06/10/2023 at 7:00am under RNS No 8970o.
Typo in the index name in the sentence above the Chairman's
statement; it references 'MSCI China' and should read 'MSCI All
Country Asia ex Japan'.
All other details remain unchanged.
The full amended text is shown below.
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 All Country Asia ex Japan 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 GBP100
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 GBP139 million
on my joining to GBP580 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' ('Growth(2)').
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
Pacific Japan
Horizon Index
------------------------------------- ---------- ---------
Historic earnings growth (5 years
trailing compound annual growth to
31 July 2023 9.8% 7.3%
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 GBP'000 assets
------------------------------------ ------------ ----------------------------------- --------- --------
Memory, phones and electronic
Samsung Electronics Korea 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
Logistics and courier services
Delhivery (p) India 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
Manufacturer and distributor
EO Technics Korea 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
Domestic and commercial
Indiabulls Real Estate India 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
Owner and operator of a
chain of Indian hotels and
Lemon Tree Hotels India 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
Server network equipment
Accton Technology Taiwan manufacturer 8,531 1.5
Dragon Capital Vietnam Enterprise
Investments Vietnam Vietnam investment fund 8,232 1.4
Steel and related products
Hoa Phat Group Vietnam 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
Owner and operator of residential
Prestige Estate Projects India real estate properties 7,611 1.3
Transmission and distribution
Skipper India structures provider 7,610 1.3
Meituan China Local services aggregator 7,560 1.3
Chinese ecommerce distributor
Dada Nexus ADR China of online consumer products 7,315 1.3
TSMC Taiwan Semiconductor manufacturer 6,458 1.1
Chinese manufacturer of
cookware and home appliance
Zhejiang Supor Co A Shares China products 6,243 1.1
Taiwanese electronic component
MediaTek Taiwan manufacturer 6,100 1.1
Oil and gas explorer and
Jadestone Singapore 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
Electronic component and
KH Vatec Company Korea device manufacturer 4,331 0.7
Geely Automobile China Automobile manufacturer 4,271 0.7
Enterprise management software
Kingdee International Software China distributor 4,172 0.7
Manufacturer of trailers
CIMC Vehicles H Shares China and trucks 4,154 0.7
Stationary and lead frames
SDI Corporation Taiwan for semiconductors manufacturer 4,148 0.7
Ping An Bank A Shares China Consumer bank 3,767 0.6
Online financial services
Policybazaar India 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
Manufacturer of electronic
Wuxi Lead Intelligent Equipment capacitors, solar energy
Co A Shares China and lithium battery equipment 2,421 0.4
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
Minibus and automotive components
Brilliance China Automotive China 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 Private company Net Total
equities Investments* liquid assets
% % 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
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
and taxation 5,399 (26,195) (20,796) 5,938 (117,302) (111,364)
------------------------ -------- -------- -------- -------- ---------- ----------
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
GBP'000 GBP'000 GBP'000 GBP'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 Share Capital Capital Revenue Shareholder's
capital premium redemption reserve reserve funds
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 Capital Capital Revenue Shareholder's
capital premium redemption reserve reserve funds
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
GBP'000 GBP'000 GBP'000 GBP'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
GBP9,925,000 (2022 - GBP10,279,000) and interest received of
GBP163,000 (2022 - GBP6,000).
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
GBP'000 GBP'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 loss 9,417 11,060
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 GBP50 million of
net assets, 0.65% on the next GBP200 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 GBP4,166,000 (2022 - net revenue profit of
GBP3,830,000) 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 GBP27,451,000 (2022 - net capital
loss of GBP112,014,000) 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 GBP23,285,000 (2022 - total loss of
GBP108,184,000) 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 GBP'000 GBP'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 GBP4,166,000
which is available for distribution by way of a dividend payment
(2022- a revenue surplus of GBP3,830,000).
2023 2022
2023 2022 GBP'000 GBP'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 GBP'000 GBP'000 GBP'000 GBP'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 GBP'000 GBP'000 GBP'000 GBP'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 -
GBP23,341,000) 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
GBP'000 GBP'000
------------------------------------------------------------------------------------------------------ ----------- -----------
Royal Bank of Scotland International Limited multi-currency revolving credit facility non-utilisation
fee 52 52
Investment purchases awaiting settlement
Investment management fee - 446
Other creditors and accruals 873 915
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 GBP100
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
GBP300 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 GBP4,092,000 (31
July 2022 - GBP3,016,000) 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 GBP20,000,
representing 0.2% of the issued share capital at 31 July 2022, at a
premium to net asset value, raising net proceeds of GBP1,376,000
(2022 - 3,645,257 ordinary shares with a nominal value of
GBP365,000, raising net proceeds of GBP32,957,000).
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 GBP5,541,000 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 GBP3,419,000 (2022 - GBP4,036,000) of which GBP873,000
(2022 - GBP915,000) 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 GBP71,000
(GBP85,000) .
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 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
GBP'000 GBP'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 2022
2023 Share 2022 Share
NAV price NAV 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 (c) = (a)
price 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
------------------------------------- ----------- ------- ------- ------- -------
(c) ÷
Total return (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
GBP'000 GBP'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
GBP'000 GBP'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.
Third Party Data Provider Disclaimer
No third party data provider ('Provider') makes any warranty,
express or implied, as to the accuracy, completeness or timeliness
of the data contained herewith nor as to the results to be obtained
by recipients of the data. No 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 otherwise notify a recipient thereof in the event that
any matter stated herein changes or subsequently becomes
inaccurate.
Without limiting the foregoing, no Provider shall have any
liability 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 information is provided on an 'as
is' basis and the user of this information assumes the entire risk
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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. (msci.com).
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 GBP580.4 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 .
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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END
FR NKABQFBDKPKK
(END) Dow Jones Newswires
October 06, 2023 04:50 ET (08:50 GMT)
Pacific Horizon Investment (LSE:PHI)
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De Abr 2024 a May 2024
Pacific Horizon Investment (LSE:PHI)
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