RNS Number:1446K
F&C Pacific Inv Tst
17 April 2003
EMBAROGOED UNTIL 07.00AM ON 17 APRIL 2003
Contact: Charles Brock, F&C Management Limited, 070 7628 8000/Emma Chilvers,
Lansons Communications, 020 7294 3606
F&C PACIFIC INVESTMENT TRUST PLC
Unaudited Preliminary Statement of Results
for the year ended 31 January 2003
SUMMARY OF CONSOLIDATED RESULTS
Attributable to equity shareholders
31 January 2003 31 January 2002 % Change
Consolidated net assets #176.9m #252.4m -29.9
Consolidated net assets per share 93.33p 119.65p -22.0
Dividend per share 1.05p 1.05p -
Share price 81.25p 98.25p -17.3
Commenting on these results, Christopher Purvis the Chairman said:
Objective
Your Company provides its shareholders with a broad-based exposure to equity
markets across the Pacific region. Many investors, who consider that this region
is important and attractive and would like it represented in their portfolios,
choose to invest in the region through a trust which gives coverage of all of
the major markets and whose managers make the asset allocation decisions between
the various markets, as well as selecting stocks for the portfolio. Your Company
is one of a small number of trusts that provides this service.
Your Board measures the successes and failures of the Manager by comparing its
performance against an index. The market capitalisation of Japan, because of the
high level of cross-shareholdings between companies, is commonly regarded as
over-stated. Never-theless, the Japanese market is directly reflected in the
indices which measure the whole Pacific region and as a result Japan forms a
very high proportion of such indices. An index based purely on market
capitalisation, such as MSCI AC Asia Pacific Free, would currently be made up of
some 60% Japan and 40% the rest of the region. We believe that our shareholders
wish to see a diversified portfolio rather than one so concentrated on Japan.
Your Board has therefore agreed a composite index which comprises 50% Japan and
50% the rest of the region (the "benchmark"). It is the Company's goal to
outperform the benchmark.
Risk
Investing in Pacific markets over recent years has not been a rewarding
experience. Falls in all the markets in which we invest have translated into
negative returns to shareholders of F&C Pacific.
In addition to this market risk, there is the risk that the Manager
underperforms the benchmark. Details about the manner in which your Board seeks
to control this and other risks are set out in the Directors' Report in the
Report and Accounts. Investment performance relative to the benchmark has been
poor over recent years and a number of steps have been taken to address this.
During the course of the year under review changes have been made in personnel
involved in the management of the portfolio and stricter guidelines about
volatility around the benchmark have been introduced.
Market environment
% change
31 Jan 02 to 31 Jan 03
Pacific Markets
F&C Pacific share price (total return) -16.2
FTSE Japan -18.7
F&C Pacific Benchmark -19.3
MSCI AC Asia Pacific Free ex Japan -19.9
F&C Pacific NAV (total return) -21.1
Other Markets
FTSE Europe ex UK -28.7
FTSE All Share (UK) -28.9
FTSE North America -33.5
Source: F&C Management Limited. Total return indices used.
Stockmarkets around the world have been weak over the last year. A combination
of high valuations at the end of the 1990s' bull market, economic weakness and
geo-political uncertainty has resulted in the severest bear market in many
years. Pacific markets, whilst also providing negative returns over the period,
have performed less badly than the rest of the world, as can be seen from the
Market Environment table above. Our composite benchmark fell by 19.3% over the
period.
This reflects the fact that Japan had already fallen so far over the last decade
and that there have been positive economic and corporate fundamentals in much of
the rest of the region.
The Japanese market is now trading at twenty year lows. The economy remained
weak in 2002 and progress on reform remains slow due to the continued lack of a
political consensus for change. Corporate profitability improved during the year
as companies reaped the benefit of cost cutting; but valuations fell.
Markets in the rest of Asia have been unable to de-couple themselves entirely
from the downward trend of global markets, although, as with Japan, they have
fallen less than markets in the rest of the world. Asian economies performed
well with China's export industries and domestic consumer demand becoming
increasingly important drivers.
Performance
During the financial year, the share price outperformed the benchmark. The
discount to net asset value at which your shares trade narrowed during the year.
The net asset value underperformed the benchmark. This underperformance occurred
during the first half of the financial year. The main reason was an underweight
position in Japan at a time when Japan outperformed other regional markets. At
the start of the financial year the level of gearing was 10.1%, which had a
negative impact on performance at a time of extreme weakness in equity markets.
Your Manager did not expect a quick recovery in markets and subsequently reduced
gearing to zero.
Share selection in Japan was not good during the year, whilst the portfolio in
the rest of Asia performed broadly in line with the benchmark. In the Manager's
Review in the Report and Accounts, your Manager talks in more detail about the
market environment, outlines the changes to the portfolio over the year and
highlights some key aspects of the current portfolio.
Management Agreement - Fee Arrangements
When the Company published its interim report in October last year, I referred
in my statement to the Board's focus on the performance of the Manager, and on
bringing the management fee more in line with the objectives of the Company.
With effect from 1 February 2003 we introduced a two way performance fee. The
base management fee, which is already highly competitive, remains at 0.6% per
annum, but now it will be calculated on the basis of net assets, rather than of
funds under management. The performance fee, calculated annually, will allow for
the payment to the Manager of an additional 0.15% for each 1% of outperformance
of the index and the repayment to the Company of 0.15% for each 1% of
underperformance. The minimum total fee payable in any one year to the Manager
will be 0.25% of net assets and the maximum total fee payable will be 1.15% of
net assets.
In the past, the base management fee has been calculated quarterly in advance on
the basis of the average of funds under management over a three year historic
average. Calculation will now be made quarterly in advance on the basis of the
net assets at the start of the quarter in question.
The performance fee will not be affected by the impact on net asset value per
share from any share buy backs that may have taken place during the year.
Management Agreement - Notice Period
Your Board has also agreed a change to the notice period. With effect from 1
February 2003 the management agreement may be terminated upon six months'
notice, given by either party, rather than the twelve months that was previously
the position.
Share Buy Backs and Marketing
During the year, 21,351,000 shares (10.1% of the shares in issue at the
beginning of the period) were repurchased for cancellation at an average
discount to net asset value of 17.5%. Buying back shares at a discount has
raised net asset value per share by approximately 1.9%. The Board will propose
to the Annual General Meeting that powers for further purchases should be taken.
Your Board continues to monitor the discount to net asset value at which your
shares trade and believes that share buy backs, coupled with the marketing
activities of the management company, are important factors in addressing the
supply/demand imbalances that can widen the discount.
During the year the proportion of shares owned by private investors and private
client stockbrokers continued to rise. Your Board believes that the Company,
providing as it does a broad exposure to markets in the Pacific region, is
particularly suited to the requirements of the private investor.
Revenue, Expenses and Dividend
Revenue for the year was lower. This was the first full year since the sale of
our property interests in Australia, on which I reported last year, which had
provided a significant level of income. Total expenses fell slightly thanks to a
fall in the management fee. The Board is recommending an unchanged dividend of
1.05 pence per share, which will be paid from revenue reserves.
While the Company will continue to focus on growth in capital, in future, we
expect the Company's revenue position to improve. Companies in Asia are paying
higher dividends, which will be reflected in our dividend income. In addition,
the change in the method of calculating the management fee will have a positive
impact on our revenue position after a period of falling markets. The base fee
will be charged to the revenue account. Relative performance is likely to arise
from the capital performance of the investments and therefore the performance
fee, whether positive or negative, will be applied to the capital account.
It is your Board's intention that F&C Pacific should be a low cost means of
investing in the Pacific region. Due to the three year method of calculating the
management fee, expenses have not fallen as fast as asset value in recent years,
and the cost of running the Company, expressed as a percentage of net assets,
has risen from 1.36 to 1.46. This remains lower than unit trusts specialising in
the region, but the increase has been of concern to the Board, particularly in a
period of poor performance. The new basis of calculating the management fee will
result in the total expense ratio rising or falling in line with performance
against the benchmark and in addition the total expense ratio will compare
favourably with the current expense levels of the Company's competitors.
Annual General Meeting
The Annual General Meeting will be held at Stationers' Hall, Ave Maria Lane,
London EC4, at 12 noon on Friday 30 May 2003.
Outlook
The outlook for global stockmarkets and economies remains uncertain and
volatility in equity markets is likely to continue. Although structural issues
in Japan have yet to be seriously tackled by policy makers, many globally
competitive Japanese companies are now trading at attractive valuation levels.
When structural issues are addressed and the economic outlook improves, many of
these companies have the potential to perform well. We are now optimistic about
the non-Japan Asian economy. Major factors supporting this view include China's
growing importance as a driver of intra-regional trade, the recovery in many
countries' domestic demand, important progress in economic management since the
1997-98 crisis, and reducing dependence on exports to the West as the regional
economy develops a stronger momentum of its own. There is also evidence that
companies are improving the returns that they earn and are more prepared than
previously to pay those returns to shareholders in the form of dividends or
share buy backs. Your Manager believes that these positive structural changes
have not been reflected in valuations.
Your Board believes that the changes that have been made in the management of
the Company mean that it is now well placed to benefit from any recovery in
markets.
Christopher Purvis
April 2003
Consolidated Balance Sheet
at 31 January
2003 2002
#'000s #'000s
Fixed assets
Investments
Listed outside Great Britain 175,470 272,629
Unlisted at Directors' valuation 1,629 5,417
177,099 278,046
Current assets
Debtors 4,902 3,855
Taxation recoverable 1,221 -
Cash at bank and short-term deposits 3,584 14,180
9,707 18,035
Current liabilities
Creditors: amounts falling due within one year
Foreign currency loans (5,072) -
Other (4,824) (4,060)
(9,896) (4,060)
Net current (liabilities)/assets (189) 13,975
Creditors: amounts falling due after more than one year
Foreign currency loans - (39,670)
Net assets 176,910 252,351
Capital and Reserves
Called up share capital 47,387 52,725
Capital redemption reserve 10,184 4,846
Share premium 5 5
Capital reserves 111,826 186,202
Revenue reserve 7,508 8,573
Total equity shareholders' funds 176,910 252,351
Net asset value per ordinary share - pence 93.33 119.65
The geographical distribution of investments at 31 January 2003 was: Japan -
45.7%, Australia - 21.0%, South Korea - 8.5%, Hong Kong - 6.7%, China - 4.4%,
Taiwan - 3.0%, Malaysia - 3.0%, Thailand - 2.8%, India - 1.8%, Singapore - 1.7%,
Indonesia - 0.8%, New Zealand - 0.5%, Vietnam - 0.1%.
Consolidated Statement of Total Return (incorporating the Revenue Account*)
for the year ended 31 January
2003 2002
Revenue Capital Total Revenue Capital Total
#'000s #'000s #'000s #'000s #'000s #'000s
Gains on
tangible fixed assets - - - - 77 77
Losses on
investments - (56,431) (56,431) - (82,266) (82,266)
Exchange gains and losses (10) (431) (441) - 2,614 2,614
Income 5,222 - 5,222 6,032 - 6,032
Management fee (2,459) - (2,459) (2,782) - (2,782)
Other expenses (763) (66) (829) (1,839) (51) (1,890)
Net return before finance costs
and taxation 1,990 (56,928) (54,938) 1,411 (79,626) (78,215)
Interest payable and similar
charges (1,563) - (1,563) (1,479) - (1,479)
Return on ordinary activities
before taxation 427 (56,928) (56,501) (68) (79,626) (79,694)
Taxation on ordinary activities 484 346 830 (10) 211 201
Return attributable to equity
shareholders 911 (56,582) (55,671) (78) (79,415) (79,493)
Dividends on ordinary shares
Proposed final of 1.05p (2002:
1.05p) (1,976) - (1,976) (2,214) - (2,214)
Amount transferred
from reserves (1,065) (56,582) (57,647) (2,292) (79,415) (81,707)
Return per ordinary share -
pence 0.45 (27.70) (27.25) (0.03) (36.57) (36.60)
* The revenue column of this statement is the profit and loss account of the
Group.
All revenue and capital items in the above statement derive from continuing
operations.
Consolidated Cash Flow Statement
for the year ended 31 January
2003 2002
#'000s #'000s
Net cash inflow from operating activities 1,473 966
Interest paid (1,704) (1,542)
Taxation paid (448) (494)
Net cash inflow from capital expenditure and financial
investment 44,444 35,643
Equity dividends paid (2,200) (2,309)
Net cash inflow before use of liquid resources and
financing 41,565 32,264
Decrease in short-term deposits 3,077 9,819
Net cash outflow from financing (54,713) (46,351)
Decrease in cash for the year (10,071) (4,268)
Notes
The Directors propose a final dividend of 1.05p (2002 - 1.05p) per share payable
on 3 June 2003 to shareholders on the register at close of business on 9 May
2003.
The above financial information comprises non-statutory accounts within the
meaning of section 240 of the Companies Act 1985. The financial information for
the year ended 31 January 2002 has been extracted from published accounts for
the year ended 31 January 2002 that have been delivered to the Registrar of
Companies and on which the report of the auditors has been unqualified.
The Annual General Meeting will be held at Stationers' Hall, Ave Maria Lane,
London EC4 on Friday 30 May 2003 at 12 noon.
The Report and Accounts will be posted to shareholders in late April 2003.
Copies may be obtained during normal business hours from the Company's
Registered Office,Exchange House, Primrose Street, London EC2A 2NY.
By order of the Board
F&C Management Limited, Secretary
16 April 2003
This information is provided by RNS
The company news service from the London Stock Exchange
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