TIDMBPW
REGULATORY ANNOUNCEMENT
Blue Planet Worldwide Financials Investment Trust plc
Preliminary Announcement
for year ended 31 July 2009
The unedited full text of those parts of the Report and Accounts for the year
ended 31 July 2009 which require to be published by DTR 4.1 is set out below.
Financial Record and Key Performance Indicators
As at 31 July 2009 2008 2007 2006 2005
Total assets less other current 15,504 25,425 50,850 40,382 23,759
liabilities (GBP'000)
Loans (GBP'000) (4,366) (7,036) (19,884) (13,897) (7,000)
Shareholders' funds (GBP'000) 11,138 18,389 30,966 26,485 16,759
Net asset value per share (p) 79.13 129.52 216.76 185.79 117.56
Share price (p) - (Bid) 59.00 107.00 180.00 162.00 86.00
Discount (%) 25.4 17.4 17.0 12.8 26.8
Gearing (%)* 4.9 26.3 63.8 40.7 41.4
Year to 31 July 2009 2008 2007 2006 2005
Revenue available for 287 600 (427) 385 202
shareholders (GBP'000)****
Revenue return per share (p) 2.03 4.20 (3.00) 2.70 1.42
Total return per share (p) (47.53) (87.45) 32.89 69.33 41.56
Total dividends per share (net) 1.20 3.22 - 2.10 1.40
(p)
Dividend yield on our shares 2.03 3.00 - 1.30 1.63
(%)
Dividend yield on Benchmark 2.93 4.00 2.65 2.51 2.49
Index (%)
Expenses ratio - net basis (%) 5.01 1.69 3.69 3.79 3.82
**
Expenses ratio - gross basis 3.35 1.08 2.19 2.21 2.52
(%) ***
The Board believes the above KPI's are of most interest to shareholders in
monitoring the performance of the Company
* Net debt as a percentage of shareholders' funds
** Net basis - Administrative expenses as a percentage of the average net asset
value of the Company
*** Gross basis - Administrative expenses as a percentage of the average gross
asset value of the Company
**** 2008 Includes VAT recovered of GBP202,500
Portfolio Information
As at 31 July 2009 Valuation 2009
(GBP) % of
Portfolio
Equities
61,696 BP Global Financials-A Class Eire GBP2,396,647 15.2%
6,099,000 URSA Bank Russia GBP1,478,507 9.4%
81,285 Bank Vozrozhdenie Russia GBP1,060,203 6.7%
80,003 Hartford Financial Services United GBP788,398 5.0%
States
224,927 Union Bank Of India India GBP654,872 4.1%
75,770 LIC Housing Finance India GBP580,746 3.7%
359,327 Allied Irish Banks Plc Eire GBP542,558 3.4%
345,160 South Indian Bank (P-Notes) India GBP514,735 3.3%
42,200 Axis Bank Limited India GBP481,767 3.1%
1,019,350 Bank Rakyat Indonesia Indonesia GBP445,543 2.8%
141,820 Federal Bank Ltd India GBP424,117 2.7%
42,320 Banco Santander SA Spain GBP366,794 2.3%
368,000 Bank of Communications Co Ltd Hong Kong GBP271,020 1.7%
516,500 China Construction Bank Corp Hong Kong GBP248,805 1.6%
28,628 Punjab National Bank Ltd India GBP246,166 1.6%
582,500 China CITIC Bank Hong Kong GBP242,376 1.5%
779,500 Bank of China Ltd Hong Kong GBP231,676 1.5%
705,050 Bank Mandiri Indonesia GBP177,462 1.1%
615,100 Bank Central Asia Indonesia GBP139,061 0.9%
5,635,213 Raiffeisen Bank Aval Ukraine GBP132,693 0.8%
89,760 Yapi Ve Kredi Bankasi Turkey GBP111,759 0.7%
34,300 Turkyie Halk Bankasi Turkey GBP108,859 0.7%
51,450 Turkiye Garanti Bankasi AS Turkey GBP107,813 0.7%
4,200 Lincoln National Corporation United GBP53,251 0.4%
States
1,890 Prudential Financial Inc United GBP49,995 0.3%
States
2,451 MetLife Inc. United GBP49,774 0.3%
States
510 Goldman Sachs Group Inc. United GBP49,761 0.3%
States
122 Bank of America Corp United GBP1,075 0.0%
States
171 HSBC Holdings Plc United GBP1,035 0.0%
Kingdom
59 National Bank of Greece S.A. Greece GBP1,022 0.0%
36 Credit Suisse Switzerland GBP1,017 0.0%
44 JP Morgan Chase & Co United GBP1,012 0.0%
States
2,261 Royal Bank of Scotland Group United GBP1,012 0.0%
Kingdom
23 BNP Paribas France GBP1,002 0.0%
Listed 11,962,533 75.8%
Investments
Cash 3,821,813 24.2%
Total 15,784,346 100.0%
At 31 July 2009 the portfolio yield, as reported to the Association of
Investment Companies, was 5.53% (2008 - 3.85%). The yield represents the income
from investments as a percentage of the cost of the portfolio.
Classification of Portfolio
At 31 July 2009
Investment Other Total Total
Banks Companies Finance Cash 2009 2008
% % % % % %
India 14.8 - 3.7 0.1 18.6 27.1
Eire 3.4 15.2 - - 18.6 9.0
Russia 16.1 - - - 16.1 34.6
Hong Kong 6.3 - - 6.2 12.5 -
United States 0.3 - 6.0 - 6.3 7.3
Europe - - - 5.3 5.3 -
Indonesia 4.8 - - - 4.8 -
Australia - - - 3.1 3.1 -
Norway - - - 3.1 3.1 -
Switzerland 0.0 - - 3.1 3.1 -
Canada - - - 3.1 3.1 -
Spain 2.3 - - - 2.3 -
Turkey 2.1 - - 0.0 2.1 -
Ukraine 0.8 - - - 0.8 1.4
United Kingdom 0.0 - - 0.2 0.2 4.2
Greece 0.0 - - - 0.0 4.6
France 0.0 - - - 0.0 -
Poland - - - - - 8.1
Austria - - - - - 2.1
Kazakhstan - - - - - 0.8
Georgia - - - - - 0.8
Totals 2009 50.9 15.2 9.7 24.2 100.0
Totals 2008 72.4 14.0 5.7 7.9 100.0
Benchmark* 64.9 5.6 29.6 - 100.0
* Our benchmark is the Bloomberg World Financial index.
Chairman's Statement
Performance
The performance of your Fund in the last year has been disappointing. This is
perhaps not surprising in a year when unprecedented events have rocked the
banking industry worldwide. It will be remembered as probably the greatest
banking crisis of modern times. Nevertheless, we are unhappy with the Fund's
performance. In the year to 31 July 2009 the total return of the net asset
value per share ("NAV") of the Fund has been -35.9% ending the period at a NAV
of 79.13p. Our benchmark index, the Bloomberg World Financial Index fell 20.7%
over the same period in its base currency of US Dollars, but only 5.9% in
Sterling terms, due to the weakness of Sterling relative to the Dollar. The
share price of your Fund has made a total return of -42.3% over the year, and
ended July 2009 at a bid price of 59.0p. The larger fall in the share price,
relative to the NAV, widened the discount to NAV to 25.4% by the end of the
year. In recent months the NAV and share price of the Fund have been
recovering. At the end of August the Fund's share price had risen further to a
bid price of 70.0p per share, a rise of almost 19%.
The last year can be split into two distinct phases. In the period from the end
of July 2008 through to the end of February 2009 the financial crisis reached
its peak. When Lehman Brothers was allowed to fail in September 2008, it
started a renewed wave of panic and risk aversion. In the US, UK and Western
Europe, within weeks, governments were rushing to shore up banks with huge
loans. These unprecedented circumstances quickly led to the partial
nationalisation of many banks. Unfortunately during this period your Fund
significantly underperformed the market, despite the fact we foresaw the
problems and reduced the Fund's exposure to equity markets. This was due to
some specific problems within the portfolio. URSA Bank, our largest equity
holding at the start of the reporting period, suffered from rumours regarding
its financial position. This drove the share price down, until it announced a
merger with MDM Bank in Russia in December 2008. In addition, the general
corporate bond sell-off in October 2008 adversely affected the prices of the
bonds we held, and this was compounded by a specific problem with the Fund's
holding in Eurokommerz. The company failed to pay its bond coupons on time, or
meet a redemption option on one of its bonds. Bonds from this company were also
held by the Blue Planet Global Financials Fund. Finally, the rapid depreciation
of the Russian rouble against Sterling at the start of 2009, negatively
impacted the NAV of the Fund, despite some hedging that was in place.
In March a rally began in the heavily battered bank share prices, prompted by
Citigroup, which let it be known through a publicised internal memo that it was
profitable through the first 2 months of 2009. This was then reinforced by the
results of the US bank stress test results, which provided some reassurance
that none of the major US banks were facing the risk of insolvency, and the
reporting of far more resilient results by banks than many had anticipated. In
the first quarter of 2009 the actual profits of the top ten US and European
banks in the Bloomberg World Financial Index exceeded profit estimates by
almost 200%. Government support continued to be extended, including the use of
quantative easing. At the same time the tone of the economic data took a turn
for the better. There were signs of stabilisation in the housing market, in
both the US and the UK and the outlook for production and manufacturing began
to improve. We believed that the economic indicators and bank results would
herald the start of a sustained rally in share prices and quickly moved to
increase equity investments. The period from the end of March 2009 to the end
of July 2009 has seen a 31% rally in the Bloomberg World Financial Index (in
GBP), with the NAV of your Fund rising 36% and its share price rising 51%.
During the first half of the year the Fund purchased 121,500 of its own shares
to hold as treasury shares. This amounts to 0.9% of the total ordinary shares
in issue. The total number of shares held in Treasury is 209,500. The Directors
have the ability to repurchase shares in the market where they believe it would
result in an increase in the net asset value per share for the remaining
shareholders.
Portfolio
The portfolio had almost 18% of its investments in high-yielding corporate
bonds a year ago. The level of bond holdings was increased further during 2008
as very weak and volatile equity market conditions continued. During the first
quarter of 2009 these bonds were sold and the portfolio was moved fully into
equities. However, since market volatility persists, exposure to equities is
reduced when it appears advisable to do so and the proceeds held as cash.
Table 1: Portfolio movements 2008 to 2009 - by geography
Country 2009 2008
% %
India 18.7 27.1
Eire 18.6 9.0
Russia 16.1 34.6
Hong Kong 12.5 -
USA 6.2 7.3
Other Europe 5.5 6.3
Indonesia 4.8 -
Australia 3.1 -
Norway 3.1 -
Switzerland 3.1 -
Canada 3.1 -
Spain 2.3 -
Turkey 2.1 -
Ukraine 0.8 1.4
Poland - 8.1
Greece - 4.6
Other CIS - 1.6
Table 2: Portfolio movements 2008 to 2009 - by security type
Security Type 2008 2008
% %
Equities 75.8 72.5
Bonds - 17.5
Cash 24.2 7.9
Liquidity funds - 2.1
Equity investments in India were held throughout the year. India's economy is
driven by domestic demand. It has suffered in the global slowdown, but to a
lesser degree than many other of the world economies, especially those that
have a high dependence on strong commodity prices. The Indian economy is
expected to grow around 6% in the fiscal year to March 2010, last quarter's
growth was reported as 6.1%. Banks in India have remained in good financial
shape throughout 2008/9. Average quarterly profits increased 48% year-on-year
in the results issued up to 30 June 2009 for the banks that we track. Indian
banks remain on modest valuations compared to many other emerging market banks,
and the return of the existing government coalition with a stronger mandate
following elections in May 2009 increases the likelihood of bank privatisation.
The Fund is invested in Union Bank of India, LIC Housing Finance, South Indian
Bank, Axis Bank, Federal Bank & Punjab National Bank.
The investments in the Republic of Ireland consist of a holding in the Blue
Planet Global Financials Fund, listed in Dublin. The remaining Irish investment
is a holding in Allied Irish Bank. Ireland has been one of the worst hit
European economies from the global economic slowdown, exacerbated by a deep
housing slump in the country. However since Allied Irish Bank's EUR3.5bn
recapitalisation in February 2009 there has been a turnaround in confidence in
the bank, which has led to a turnaround in its share price performance.
The exposure to the Commonwealth of Independent States (CIS) has been reduced.
The Fund has retained its two main long-term equity holdings in Russia, in URSA
(MDM) Bank and Bank Vozrozhdenie. All the Russian corporate bond holdings have
been redeemed or sold as the Fund returned to equity investments. Russia is
experiencing a sharp recession. GDP fell 10.9% in the second quarter of 2009.
Month-on-month positive growth has been seen in June and July 2009 and this
growth is expected to accelerate through the final quarter of 2009 as
encouraging signs are emerging that the macro economic picture is improving. As
a consequence of the liquidity squeeze in Russia in 2008, banks have been
reluctant to lend and this deleveraging combined with the building of large
provisioning cushions has meant poor financial results for Russian banks so far
in 2009. However, the worst of the downturn appears to be past, as banks report
a slowdown in the formation of new bad debts. The banks that we are invested in
are very well capitalised. Bank Vozrozhdenie, with its low loan-to-deposit
ratio, allowing deposit-funded growth, high margins and strong management team
is well placed for future growth. It also remains a potential takeover target.
URSA is well-placed through its merger with MDM Bank that has now been
finalised.
Initial investments were made in Chinese banks through their Hong Kong listed
H-shares in June 2009. China is a country with a strong long-term growth
potential and a vast underleveraged consumer population. The government has had
the resources available to provide a boost to the economy with a Rmb 4 trillion
stimulus package to overcome the global economic slowdown. However, as concerns
arose about government interference in the banks to curtail loan growth, which
had exceeded 30% year-on-year growth in May 2009, we decided that our timing
was wrong and took profits on the investments in August.
In the US there are extensive support measures in place from the government and
central bank for its financial institutions and the US economy is now showing
indications of making quite a sharp turnaround from recession. We feel some US
stocks represent very good value. We believe that the insurers, in the US and
elsewhere, will be beneficiaries of the rising economic sentiment and rising
asset prices and have invested in both insurers and banks in the US. At the end
of the Company's financial year the primary investment in the US was in
Hartford Financial Services, with small holdings in a further three US insurers
and three US banks. Holdings in the US have subsequently been increased
further.
Your Fund invested in three of the major banks in Indonesia in July 2009. The
Indonesian macro-economy is forecast to have the third strongest GDP growth in
Asia in 2009, behind China and India, with forecast growth of between 4% and
4.5%. The country has very low levels of banking penetration and its banks are
well capitalised with strong provisioning in place and highly profitable. The
Fund invested in Bank Rakyat Indonesia, Bank Mandiri and Bank Central Asia.
Elsewhere in Europe the Company sold its investments in Poland during 2008 when
the Fund's exposure to equities was reduced. In general your Company has been
reinvesting in European banks, including in Spain, Turkey, Greece, Switzerland,
Norway and France amongst others. However after steep equity rises during July,
some holdings were sold at the end of July to lock in profits as a pullback in
share prices was anticipated. The proceeds from these investments were retained
or converted into "commodity currencies" which would be expected to hold or
increase their value against Sterling. Equity investments have been increased
in August as the macro-economic picture continues to strengthen.
Further details of the portfolio are provided in the Investment Manager's
Report.
Dividend
The board has recommended that a dividend of 1.20p per share is paid this year.
Despite the revenue per share return of the Fund being negative in the interim
accounts, the Directors were hopeful that sufficient income would be received
to support paying a dividend. This has indeed been the case. This year's
dividend is lower than the 3.22p paid last year. The dividend last year was
boosted by the VAT refund received by the trust. In addition revenue income
this year was lower than in 2008 and interest payable was higher due to an
increased use of gearing. At the closing bid price for the shares on the 31
July 2009 of 59p the dividend equates to a dividend yield of 2%.
Borrowings, gearing and Liquidity
A year ago on the 31 July 2008 the Fund's gearing stood at 26.3%. Gearing was
maintained around this level through the remainder of 2008, but all gearing was
eliminated during January 2009 when stock markets fell sharply. Gearing was
reintroduced again in May 2009. Gearing levels are closely monitored as market
conditions remain volatile. The gearing level stood at 4.9% at the end of July
2009 and has subsequently been raised further in August 2009 to 42.7%.
A GBP7.5m revolving loan facility, in place until June 2010, provides the
capability for gearing the Fund.
Generally, gearing beneficially affects the Company's NAV when the value of its
investments is rising, but adversely affects it in periods when the value of
investments is falling.
Blue Planet Services and Price Information Sources
Shareholders can view the Company's share price and additional information
about the Fund on the website of Blue Planet Investment Management Ltd
(www.blueplanet.eu) and the London Stock Exchange (www.londonstockexchange.com
). To find the Company's share price on the London Stock Exchange website go to
the Home page and type "BPW" in the "Price Search" field.
Blue Planet Investment Advisers offers a Blue Planet Savings Plan via Equiniti
Financial Services Limited (on behalf of Lloyds TSB) to enable lump sum
investments or regular savings. A request form for the savings plan application
pack is enclosed with these accounts.
Outlook
In March equity markets began to rally. The question was whether the nadir has
been reached, or whether this was a relief rally that would not be sustained.
We took the view that this was the start of a prolonged rally in equity share
prices, supported by improving economic indicators, bank results that
outstripped their very modest expectations and the continued strong support
from governments and central banks, and we moved quickly to reinvest the
portfolio into equities.
We are confident that the worst of the economic downturn is behind us and the
outlook for financial stocks is much improved. Equity markets have remained
highly volatile, but the trend is in a very positive direction. The share
prices of many banks had fallen to such low levels that some very sharp
rebounds in prices have been experienced. We have positioned ourselves into the
banks and other financial companies that we feel represent the best value and
whose share prices have the greatest scope for high returns. Since the end of
March 2009 to the Fund's year end this has led our Fund's NAV to outperform its
benchmark, a trend that has continued through August 2009. It is our goal to
maintain this momentum and rebuild the value in the portfolio.
I thank you for your continuing support and look forward to welcoming you to
the Annual General Meeting on the 12 November 2009.
Philip Court
Chairman
24 September 2009
Investment Manager's Report
Portfolio Performance Analysis
As has already been highlighted in the Chairman's Statement, the Fund's NAV
made a total return of -35.9% over the year, compared to a fall of 5.9% by the
Fund's benchmark index in Sterling terms. The Trust's share price fell 44.8%
over the same period. The first nine months of the past year have been ones of
disappointing performance by the Fund. The start of a recovery and relative
outperformance of the Fund compared to its benchmark has been resumed in the
final three months of the Fund's financial year. It is our aim to capitalise on
the start we have made. We believe the more positive market sentiment and the
improving macro-economic picture make the financial sector a very attractive
one as we believe careful stock selection will add long-term value to our
portfolio.
Asset Allocation
Blue Planet Investment Management's investment process is top down. Much of our
focus this year has been on analysing the economic situation and prospects for
the major economies, and in particular the United States, as the problems it is
experiencing have such a major impact on the rest of the world. We continue to
identify countries with good economic prospects and acceptable levels of
political risk. The economic backdrops in these countries are assessed in
detail and ranked accordingly. The listed banks and other financial
institutions in the highest ranked countries are then investigated. When
appropriate, capital is allocated to those banks and other financial
institutions which we believe are likely to offer the best total returns over
the long term. This process involves meeting with the senior management of
companies we are contemplating investing in. Where possible, we also like to
meet with local Central Banks to discuss the economic policies being pursued in
the countries concerned. Once we are invested in a company, we aim to meet
regularly with its senior management to monitor its progress. Since the last
year end we have visited financial institutions in the India and Russia. In
addition, we had meetings in the UK with the management of many overseas
financial institutions.
Your Fund began investing in Indian banks in 2007. The Indian economy has been
growing fast, with an average expansion rate of 8.6% over the past five years.
Growth in the fiscal year to March 2010 is projected to slow, but to hold up
well. In the quarter to 30 June 2009 GDP grew at a rate of 6.1%, although this
may moderate in the coming quarters if the monsoon rainfall remains below
average levels. India elected a new government in May 2009. The Congress United
Progressive Alliance were re-elected in a landslide victory that created a
strong coalition government. This has increased the mandate for pro-business
reforms in the country, although the government has a growing budget deficit to
address, and it has also made it more likely that bank privatisation will
commence. The Indian banking market is very under penetrated with ratios of
consumer loans and mortgages to GDP lower than most of the other Asian
economies. Banks in India have about 20% of their balance sheets in government
bonds due to statutory liquidity requirements. This means that as interest
rates have fallen the banks have generated significant profits on treasuries.
At the same time, loan growth, whilst slowing, has remained strong at 16%
growth year-on-year at the end of July 2009, boosting income from banking
operations. Banks in India remain in very good shape and with their low
valuations offer a very good long-term investment opportunity. Your Company is
invested in Union Bank of India, LIC Housing Finance, South Indian Bank, Axis
Bank, Federal Bank and Punjab National Bank.
The Republic of Ireland is our second largest investment location. This
consists of two investments. The first is a holding in Blue Planet's Global
Financials Fund, listed in Dublin. The size of this holding was increased in
September 2008. In 2008 this fund was largely invested in bonds, but has
reinvested in equities in 2009 and its NAV has been rising. Your Company is
also invested in Allied Irish Banks. The global economic crisis has had a
tremendous impact on Ireland, which has seen a house price collapse after many
years of boom, rising unemployment, as well as a downgrade in its long-term
sovereign credit rating. As a result, Irish banks saw their share prices drop
to record lows, as investors questioned their solvency and feared the banks
would be nationalised. Since then, the Irish Government has taken major
positive steps towards restructuring and recapitalising the banks in
Ireland. In February 2009, AIB accepted EUR3.5bn from the Irish Government as
part of the Bank Recapitalisation scheme, and in April 2009, the government
announced the new National Asset Management Agency (NAMA), which is set to play
an important role in bolstering the financial health of the Irish financial
system. NAMA is expected to transfer up to EUR90bn of impaired property-related
loans from the balance sheets of the Irish banks to NAMA, with the aim that the
banks will be in a position to once again resume lending, and more importantly,
avoid further steps towards nationalisation. These measures, combined with
attractive valuations, have seen Allied Irish Banks' share price rise almost
800% since mid-March 2009.
Russia has remained a significant geographic holding this year and like most
other economies, it has experienced problems. The fall in commodity prices, and
in particular oil, in 2008, along with the paralysis of global financial
markets due to the credit crunch weakened the Russian economy and the Russian
currency, and have pushed up unemployment, which peaked at 10.2% of the
workforce in April 2009. The Russian economy contracted by 10.9% in the second
quarter of 2009. June and July 2009 have seen small positive steps in GDP
growth and this positive growth will be supported by recovering commodity
prices, increasing industrial production, falling unemployment (down to 8.3% by
the end of June), money supply growth and a deceleration in inflation, leading
to potential interest rate cuts. In the current environment banks are
curtailing credit growth. The Central Bank figures show that in the first half
of 2009 banking sector assets contracted by 1% and loans were flat over the six
months. However levels of indebtedness in Russia remain low. Corporate debt is
50% of GDP in Russia, compared to 120% in the UK. Household sector debt is 9%
of GDP in Russia, compared to almost 110% in the UK, so as the macroeconomic
picture recovers, credit growth will return. Bad debts have been rising fast in
the Russian banking system. The Central Bank reported that overdue bank loans
reached 5% of all lending in June 2009. This has led to large provisioning
charges at the banks. Russian banks start from a very highly capitalised
position and the State has considerable reserves to enable it to support the
sector. Indeed the State controls 47% of total banking sector assets. The
excessive number of very small banks in Russia has meant casualties, and there
will likely be more to come, but the larger banks are confident that they can
weather the current economic climate and feel that they have now come through
the worst. The banks will profit from renewed growth opportunities and
increased efficiency going forward.
The Trust's Russian investments are now solely in equities. Your Fund is
invested in URSA Bank and Bank Vozrozhdenie. URSA bank has grown rapidly and
has undertaken a number of key mergers in the past. It has itself now merged
with MDM Bank to create the second largest private bank in Russia. It will be
known as MDM Bank going forward. Bank Vozrozhdenie is a well-managed,
conservatively run bank that is also is a likely takeover candidate. The share
prices of both these banks were very weak in 2008 however a solid recovery is
being shown by both as 2009 progresses. A small holding in Raiffeisen Bank Aval
in the Ukraine has also been retained.
In 2009 the Investment Manager has focused additional research effort into
Asia. The three fastest growing economies in Asia are China, India and
Indonesia. Investments were made in China in June 2009 via the banks Hong Kong
listed H-shares. However concerns over the governments' interference in the
banks led us to take profits on these investments at the start of August. The
long term potential of the banks is strong, but we will look for a better time
to invest in China. Investments were also made in Indonesia. These remain in
the portfolio. Like India, Indonesia has weathered the economic downturn well
being a largely domestic-demand driven economy and the target for its GDP
growth is between 4% and 4.5% in 2009. First quarter 2009 GDP growth was
reported as 4.4%. Indonesia re-elected its pro-business reforming government in
July 2009 providing political stability. Indonesian banks underwent a major
transformation following the Asian Crisis in 1998 and are now well-capitalised,
with strict regulatory supervision. Loans grew 20% in 2008 in this
under-penetrated banking market, and in 2009 a growth rate of between 15% and
20% is anticipated, which will assist banks in continuing to increase their
profitability. Your Company is invested in Bank Rakyat Indonesia, Bank Mandiri
and Bank Central Asia.
In the last few months key leading economic indicators in the US related to
housing, retail sales, order backlogs and manufacturing have been improving or
stabilising. In particular the speed of the rebound in the housing market is
pushing up expectations for a rebound in the US economy. GDP is expected to
turn back into growth in the coming quarter in the US and in 2010 the Federal
Reserve anticipates that GDP will grow between 2.1% and 3.3%. This economic
recovery, in conjunction with the extensive support packages in place in the US
for financial institutions, provides a positive outlook for continued
improvement in the performance of the countries financial institutions. We see
good investment opportunities in a number of US financial stocks. The insurers,
in the US and elsewhere, will be beneficiaries of the rising economic sentiment
and rising asset prices and we have invested in both insurers and banks in the
US. Your Fund was invested in Hartford Financial Services and a further three
US insurers and three US banks at the end of July 2009. The size of the US
holdings has subsequently been increased further, including investing in the
government sponsored mortgage entities.
The Company exited many of its investments in Europe through the second half of
2008 to reduce the Fund's exposure to equities. As economies and markets
recover your Company has been reinvesting in European banks. At the Company's
financial year end at the end of July 2009 these European holding had been
reduced as concerns were raised over financials overshooting their valuations
following steep equity rises during July. The proceeds from these investments
were retained or converted into the "commodity currencies" which would be
expected to hold or increase their value against Sterling. Most of the equity
investments have been reinstated as equity markets continued to rise in August
as the economic indicators turned progressively more positive.
Currency
The fund is exposed to a range of currencies, with the greatest exposure being
to the Euro, primarily through the Irish holdings. The table below lists the
percentage of the portfolio holdings in each currency at the end of the fund's
financial year for the main currencies in the portfolio. It shows how those
currencies have performed against the British pound over the period of the year
in which the investments have been held in the Trust.
Currency % of equity Appreciation/
portfolio in (depreciation)
currency against GBP for the
length of time the
currency has been
held in the
portfolio
Euro 26.4% +7.8%
Indian Rupee 18.7% +4.7%
Russian Rouble 16.1% -13.1%
Hong Kong Dollar 12.5% -2.4%
US Dollar 6.2% +15.8%
Indonesian 4.8% +0.1%
Rupiah
The positive currency movements had a beneficial impact on our performance. The
negative currency movements reduced the performance of the shares denominated
in that currency when translated into sterling. The Company's assets are almost
exclusively held in securities denominated in foreign currencies. The US Dollar
and the Euro have been strong against Sterling over the past year, as has the
Indian Rupee. The Russian Rouble has been weak, however as commodity prices, in
particular oil prices, rise and the Russian economy gets back on track we
anticipate the Rouble will strengthen again.
Risk
Market risk arises mainly from the uncertainty regarding the future price
performance of the equities held by your Company. This risk is magnified when
gearing is used and because the Company is invested in a single industry
sector. Being invested in a single sector exposes the Fund to the risk that the
Financial Sector will under perform relative to other sectors of the market.
Gearing the Fund via loans also means that interest-rate risks arise. These
risk factors are beyond the control of the Company.
In mitigation of these risks the financials sector in which we are invested is
a large sector of the market. This sector has indeed underperformed relative to
other sectors of the market for much of this year, but at those times we held
substantial amounts of the Fund's assets in cash or near-cash entities to
reduce our exposure to the sector and removed gearing from the Fund. Banks play
a crucial and central role in free market economies; a role that will underpin
the prosperity of the banking sector as a whole over time. The prices of the
individual securities in the portfolio are monitored on a daily basis and the
Board, that meets quarterly, imposes borrowing limits to ensure gearing levels
are appropriate to market conditions. When gearing is employed the potential
impact of changes to interest rates is taken into consideration. The securities
dealt in are all listed on recognised exchanges and are readily realisable.
The Fund is exposed to currency risk, due to the range of currencies in which
investments are held. Exchange rate movements are monitored on a daily basis
alongside the prices of the individual securities. The largest risks at the
year end were to the Euro, Indian Rupee and Russian Rouble currencies. Currency
risk is a risk that can be partially controlled by employing appropriate
hedging strategies. The majority of the Company's assets are held in securities
denominated in foreign currencies and movements in these currencies can
significantly affect the total return and net assets. The Company currently has
a multi-currency loan facility and our borrowings can be used as a "natural"
hedge against investments in the matching currency. In addition hedging is
considered on a case-by-case basis. Over the past year hedging has been used at
times against our exposure to the Euro, US Dollar and Russian Rouble.
Credit risk arises from the exposure to non-delivery of an investment that has
been purchased. The Company only buys and sells investments through brokers
approved by Blue Planet Investment Management and so considers this risk is
adequately controlled.
A full analysis of all the risks is provided in Note 17 to the Accounts.
Factors Affecting the Company Going Forward
Clearly the stabilisation of the banking system, the revitalisation of credit
markets and progress in resolving the worldwide financial crisis will have a
significant impact on the Company going forward. As will the pace of recovery
from recession, both globally, and in particular in the countries in which we
are invested. The way these matters are addressed will also impact sentiment.
The more effectively these issues are seen to be addressed, the more rapidly
sentiment will turn positive and the faster stock prices are likely to recover.
Top 10 Holdings at year end (Excl. Cash)
1. Blue Planet Global Financials
The Blue Planet Global Financials Fund ("BP Global") is an open-ended Cayman
Islands exempted company. The Company is listed on the Irish Stock Exchange and
has been in existence for three years. Its objective is to achieve a high level
of capital growth by taking long and/or short positions in securities issued by
or relating to banks and other financial institutions on a worldwide basis.
Shares are available denominated in Euros and US Dollars. Your Company is
invested in the Class A Euro shares.
The Blue Planet Global Financials Fund most recent financial results are for
the year to December 2008 results. In 2008 the NAV of the fund fell 40.2% to EUR
41.683 for the class A shares, whilst the Bloomberg World Financial Index fell
51.4% in Euro terms in the same period. The Fund was invested predominantly in
bonds in 2008, which helped keep the NAV relatively stable. However the general
weakening in bond prices in October 2008 had an adverse impact on the NAV. Then
in December two of its bond holdings depreciated sharply when the bond issuer,
Eurokommerz in Russia, failed to pay its bond coupons on time, or meet a
redemption option on one of its bonds. The fund manager is pursuing the
collection of monies owed to the fund.
In 2009 BP Global has returned to equity investments. At its last reported NAV
release at the end of June 2009 the NAV for the Class A shares has risen 5.3%
at EUR43.913.
Blue Planet Investment Management Ltd receives a fee of 0.125% of the monthly
NAV of the Blue Planet Global Financials Fund and the investment held
represents 30% of the total shares in issue of the Blue Planet Global
Financials Fund.
Your Company has been invested in this fund since its launch. The size of the
holding was increased in September 2008. Its total return in Sterling over the
12 month period is -20%.
Key statistics relating to this investment are given below:
For the year ended 31 December: 2008 2007 Change
Total Assets EUR 8.6m EUR 9.2m -6.5%
Net Loss after Taxation EUR -5.3m EUR -10.8m N/A
Net Asset Value per Share EUR 41.683 EUR 69.705 -40.2%
(Class A Euro shares)
2. URSA (MDM) Bank OJSC.
URSA Bank ("URSA") was established in 1990 as Sibacadembank and rapidly
expanded through organic growth and acquisition to become one of the top 15
banks in Russia. It adopted a universal bank model and its loan book was split
evenly between retail and corporate loans. It had become the strongest regional
bank in Siberia and the Urals which comprises 40% of Russian territory and has
34 million inhabitants. URSA announced at the end of 2008 that it would merge
with MDM Bank, the 13th largest bank in Russia. This process was completed in
August 2009. The joint entity is the second largest private bank in Russia by
assets and possesses the fifth largest banking network in the country. It is
now named MDM Bank.
The Russian banking sector remains very fragmented and some of the small
Russian banks have encountered problems in the sharp economic downturn. URSA,
due to its rapid loan growth, had a very high loan-to-deposit ratio at around
200% and was highly dependant on wholesale funding. In the economic downturn
this was a difficult model to sustain and URSA took the opportunity to merge
with MDM Bank. MDM has predominantly been a corporate bank with a strong
presence in Central and Western Russia. The merger between the two banks
combines URSA's retail banking strength with MDM's strength in the corporate
sector to provide a stronger more diversified bank, with significant scope for
cost savings. The banks have very little geographic overlap. Igor Kim, the
largest single shareholder in URSA, who has overseen the series of bank mergers
that have created URSA, will be managing the merger of the two banks.
URSA's most recent financial results were its standalone accounts for the first
quarter of 2009. These results were weak, as impairment charges pushed the bank
into making a quarterly loss of 639m Roubles. Non-performing loans are expected
to continue to rise further in Russia in 2009. URSA's capital position is
strong and provisioning levels stand at 100% of 90-day overdue loans, however
URSA have curtailed lending and are maintaining a significant liquidity cushion
to see it through this tough period.
We have held this stock in the portfolio throughout the Fund's financial year
and the shares total return was -37% in sterling terms. The share price of this
stock has been extremely weak in 2008, but the price has made a degree of
recovery in 2009 since the announcement of the merger. The 20% dividend yield
on these preferred shares as of the 31 July 2009 is very attractive.
Key statistics relating to this investment are given below:
For the year ended 31 December: 2008 2007 Change
Total Assets RUB 208.9bn RUB 165.8bn +26.0%
Cost:Income Ratio 45.4% 45.1% +0.3pp
Net Profit after Taxation RUB 1,594 m RUB 3,771m -57.7%
Earnings per Share RUB 1.50 RUB 3.56 -57.9%
Dividends per Preferred Share RUB 2.455 $0.081 N/A
Dividend Cover N/A N/A -
Return on Equity 7.0% 26.9% -19.9pp
3. Vozrozhdenie Bank
Vozrozhdenie Bank is one of the top 25 banks in Russia in terms of assets. It
has approximately 1.35 million clients, the vast majority of which are retail
customers, and 170 branches. It is a privately owned business based primarily
in the Moscow region. The bank's initial focus was on corporate banking;
however it has developed into a strong niche player in the SME and retail
segments. The bank has issued shares 20 times since its inception in 1991, a
considerable portion of which are controlled by the bank's management.
Vozrozhdenie is a well-managed bank, which successfully negotiated its way
through the 1998 Russian banking crisis and is now showing the same resilience
through the global financial crisis that began in 2007. In 2008 the bank grew
profits by a highly impressive 65%. The first half of 2009 has been a greater
challenge and in the first half of 2009 profits fell 59% compared to the first
half of 2008. Operating income increased as the bank managed modest growth in
deposits and cut costs. However a rise in bad debts led to a corresponding rise
in provisions, which reduced overall profitability. The bank's capital adequacy
ratio is very strong at 18.3% and the bank is maintaining 28% of its assets as
liquid assets to maintain a large liquidity cushion. The bank says that the
creation of non performing loans is now slowing and it is targeting further
efficiency gains. It expects to be able to grow its loan book in the second
half of 2009 and anticipates stronger profitability in the second half of the
year.
The stock has been held for the entire period, although additional stock has
been added a couple of times. The portion of the stock held for the full year
has returned -45% to the portfolio in Sterling terms. Currently the bank's
share price is making a steady recovery off its lows and we hope that the
bank's strengths will support the stock price rising further going forward.
Key statistics relating to this investment are given below:
For the year ended 31 December: 2008 2007 Change
Total Assets RUB 141.2bn RUB 111.4bn +26.8%
Cost : Income Ratio 52.7% 62.7% -10pp
Net Profit after Taxation RUB 3.1bn RUB 1.9bn +64.8%
Earnings per Share RUB 125 RUB 80 +56.3%
Dividends per Share 0.5 0.5 +0.0%
Dividend Cover 285x 190x -
Return on Equity 23.3% 21.0% +2.3pp
4. Hartford Financial Services Group
Hartford Financial Services Group ("Hartford") is one of the leading insurance
companies in the U.S, and was founded in 1810. Hartford employs approximately
30,000 people worldwide, and operates via 2 distinct organisations -life
insurance, and property-casualty insurance.
Hartford's capital challenges have been well documented and weighed heavily on
its share price in 2008. Since the final quarter of last year, the company has
taken major steps to address this issue and raised a total of $6.8 billion in
fresh capital to stabilise its balance sheet, comprising of a $2.5 billion
capital infusion by the German insurer Allianz, $3.4 billion of funding from
the US Treasury's TARP programme (which the benefits were extended to include
life-insurance companies in April 2009), and $0.9 billion raised in a recent
common equity offering. Such measures have greatly improved the capital
situation at Hartford and its shares have recovered significantly since March
of this year.
Hartford reported a net loss of $15m in its most recent results for the quarter
to June 2009, compared with net income of $543m in the same period a year ago.
This latest result was negatively impacted by impairment and other one-off
charges. Despite this, the company's underlying operating profitability
remains strong, especially in its property and casualty operations, where it
has been gaining market share. We believe that Hartford's now
more-than-adequate capital cushion, continued strong performance in its
property-casualty insurance business, restructuring and cost-cutting efforts
and low valuation makes it a compelling long-term investment which offers
significant upside as economic and market conditions continue to improve.
We initially purchased this stock in April 2009, but have subsequently sold and
the reinvested in the stock. To the end of July our total return in the stock
in Sterling including realised and unrealised gains was slightly negative,
however the stock has risen further in August 2009 and is now showing a gain in
the portfolio.
Key statistics relating to this investment are given below:
For the year ended 31 December: 2008 2007 Change
Total Assets $ 287.6bn $ 360.4bn 20.2%
Net Profit after Taxation $ (2.7)m $ 2.9m N/A
Earnings per Share $(8.99) $9.24 N/A
Dividends per Share $1.91 $2.03 -5.9%
Dividend Cover N/A 4.6x -
Return on Equity 4.4% 18.2% -13.8pp
5. Union Bank of India
Union Bank of India has been in existence for 88 years and is a Public Sector
Bank. It is now owned 55.43% by the Indian Government following 2 share issues
that brought in private investors to the bank in 2002 and 2006. It is India's
seventh largest bank, with over 2,500 branches and an extensive ATM network. It
geographic coverage is across the whole of India.
The bank has been one of the pioneering public sector banks in utilising modern
technology and is ahead of its peer group. It currently plans to expand its
advanced technology solutions through providing point of sale terminal
solutions for the "merchant" sector and by growing its mobile banking services
launched towards the end of 2008.
In the bank's most recent financial results to the 30 June 2009 the bank
increased net profit by 94% year-on-year. Operating profit grew by 28%
year-on-year, as loans grew by 27% compared to a year ago. This operating
profit was then boosted by significant gains on bond holdings. The bank expects
loans to continue to grow at a rate of about 25% per annum in 2009 and targets
deposit growth of 23%.
We have held this bank in the portfolio at the start of the Fund's year, but
sold it to reduce equity exposure in the portfolio. The stock has been
repurchased in 2009. A gain was made when the stock was sold, but due to price
weakness in July 2009, the current holding was not showing a gain at the Fund's
year end.
Key statistics relating to this investment are given below:
For the year ended 31 March: 2009 2008 Change
Total Assets INR 1,593bn INR 1,223bn +30.3%
Cost : Income Ratio 41.8% 38.2% +3.6pp
Net Profit after Taxation INR 17.3bn INR 13.9bn +24.5%
Earnings per Share INR 34.2 INR 27.5 +24.4%
Dividends per Share INR 5.0 INR 4.0 +%
Dividend Cover 6.8x 6.9x -
Return on Equity 24.8% 24.7% +0.1pp
6. LIC Housing Finance Ltd.
LIC Housing Finance Ltd. ("LIC") is the second largest Housing Finance Company
in India and was incorporated in 1989. It has over 1 million customers served
through its 150 plus marketing offices by over 10,000 agents. Loans to retail
customers make up 91% of the loan book, with the remaining 9% of loans being to
large scale customers such as developers. The company is primarily a wholesale
funded institution. LIC can take deposits, but this currently provides less
than 1% of its funding.
In India, the Housing Development Finance Corporation, ICICI Bank, State Bank
of India and LIC between them account for about 75% of all mortgages in India,
with LIC having about an 8% market share. Mortgage penetration in India is at
6% of GDP. This low penetration in itself supports housing finance demand.
Added to this, LIC estimate that housing stock will grow by 17% over the next 5
years and that urbanisation will continue, with the urban population expected
to account for 32% of the population by 2015. The population itself will grow
to 1,200 million by 2012. In the last 2 years LIC has been gaining market
share. The company has been focusing on increasing the average size of its
loans, as larger loans have improved credit performance. Now, 60% of the
company's loans are originated in the larger cities in India.
LIC's loan book has grown at a compound annual growth rate of 23% for the past
5 years. At the same time it has managed to keep a very strong grasp on
non-performing loans, which have continued to decline, despite the economic
slowdown. In its most recent financial results to the 30 June 2009 the company
reported an 18% growth in profits year-on-year, as loans grew 29% year-on-year.
The company is well placed to continue its rapid and profitable pace of growth
and anticipates that it will need to raise a modest additional amount of
capital in the coming year to support this growth.
We held this investment in the portfolio through the autumn 2008 and sold it at
a loss in February 2009. Since reinvesting in the stock at the end of March
2009 the stock has made a total return of 157% in Sterling terms, more than
cancelling out the earlier loss.
Key statistics relating to this investment are given below:
For the year ended 31 March: 2009 2008 Change
Total Assets INR 276.8bn INR 222.0bn +24.7%
Cost : Income Ratio N/A N/A -
Net Profit after Taxation INR 5,296m INR 3,862m +37.1%
Earnings per Share INR 62.6 INR 45.6 +37.3%
Dividends per Share INR 13 INR 10 +30.0%
Dividend Cover 4.8x 4.6x
Return on Equity 23.4% 20.8% +2.6pp
7. Allied Irish Banks Plc
Allied Irish Banks Plc ("AIB") was originally incorporated in Ireland in 1966,
as a result of the amalgamation of 3 long established Irish banks, and has
since grown to become the largest Irish-based banking group based on market
capitalisation at 31 December 2008. AIB and its subsidiaries conduct broad
retail and commercial banking business in Ireland, Northern Ireland, and the
UK, as well as a capital markets division, which comprises of Investment
Banking, Asset Management, Corporate Banking, and Global Treasury Activities.
AIB has established an international presence, with a 23.5% stake in M&T Bank,
one of the top regional banks in the US, and also a 70.5% interest in Bank
Zachodni WBK S.A, a Polish bank with more than 400 branches.
Tough economic conditions persist in Ireland, but the Irish Government has been
proactive in addressing both the economic and banking problems in the country.
In February 2009, AIB accepted EUR3.5bn from the government as part of the Bank
Recapitalisation scheme, and will participate in the Irish Government's new
National Asset Management Agency (NAMA), scheme, the details of which are due
to be completed in October 2009, which will allow it to transfer impaired
property-related loans to NAMA.
In the first half of 2009, AIB reported a pre-tax loss of EUR872m, compared with
pre-tax profits of EUR1.16bn in the first half of 2008. Weakness in net interest
income from its banking operations was offset by treasury and bond gains. Total
revenues grew 12% year-on-year, while operating costs declined 13%
year-on-year. This led to a 35% year-on-year improvement in operating
profits. Good operational performance was masked by a surge in provisions,
increasing from just EUR137m in the first half of 2008, to EUR2.37bn in the first
half of 2009. AIB aim to deal comprehensively with their credit issues, and
NAMA will be a vital part of the solution, and they expect their diversified
business portfolio and increased competitive position to boost profitability
going forward.
We have held this investment in the portfolio since the start of April 2009.
The weighting of the stock has been adjusted several times, but for the portion
of the holding retained in the portfolio from the start of April it has
provided a total return in Sterling terms of 129%.
Key statistics relating to this investment are given below:
For the year ended 31 December: 2008 2007 Change
Total Assets EUR 182.1bn EUR 177.9bn +2.4%
Cost : Income Ratio N/A N/A -
Net Profit after Taxation EUR 729m EUR 1,911m -61.9%
Earnings per Share EUR0.828 EUR2.164 -61.7%
Dividends per Share EUR0.818 EUR0.743 +10.1%
Dividend Cover 1.0x 2.9x -
Return on Equity 8.2% 21.8% -13.6pp
8. South Indian Bank
South Indian Bank is one of the "old" privately-owned banks that began
operations in the southern state of Kerala in 1946 and now has nearly 550
branches. Kerala has a strong non-resident Indian community. More than half of
the bank's branches are in Kerala, but it is growing fast in other regions.
South Indian Bank is emerging from a major restructuring exercise that began
when a new Chairman took over in 2005. The bank has invested in an advanced
technology platform which has resulted in the bank having a better operating
efficiency than many other Indian banks. It has a strong deposit franchise,
with around 45% of its deposits being low-cost current account, savings account
and non-resident external deposits. The bank is operating in a strongly
growing, under-penetrated banking market and is a prime acquisition target,
with its attractive deposit base, modernised processing capabilities and
private ownership structure.
In the banks most recent results to 30 June 2009 the bank grew profits by 56%
year-on-year as loans grew, margins remained stable and it made investment
gains. The bank increased its loan book by 18% year-on-year and grew deposits
by 21% year-on-year. The bank's capital adequacy remains very strong,
supporting future loan growth and its asset quality improved in the last
quarter, as gross non-performing loans fell to 1.9% of the loan book. Profits
are forecast to grow between 15% and 20% in the year to April 2010.
This stock has been held through the Fund's financial year. The weighting in
the stock was reduced substantially during the year. For the portion of the
stock held for the entire year its total return in Sterling terms has been 54%.
Key statistics relating to this investment are given below:
For the year ended 31 March: 2009 2008 Change
Total Assets INR 203.8bn INR 170.9bn +19.3%
Cost : Income Ratio 47.5% 46.1% +1.4pp
Net Profit after Taxation INR 1,948m INR 1,516m +28.5%
Earnings per Share INR 17.23 INR 15.02 +14.7%
Dividends per Share INR 3.0 INR 3.0 +0%
Dividend Cover 5.7x 5.0x -
Return on Equity 16.0% 16.2% -0.2pp
9. Axis Bank Limited
Axis Bank Limited ("Axis") was the first of the new private banks to begin
operations in 1994, after the Government of India allowed new private banks to
be established and is now the third largest private sector bank in the country
after ICICI Bank and HDFC Bank. Private sector banks account for just over 20%
of Indian's banking system. Axis has its headquarters in Mumbai, and has a
network of more than 850 branches and one of the largest ATM networks in the
country as of the 30 June 2009.
Axis is a rapidly growing, profitable and competitive private-sector bank. Axis
Bank's lending mix at the end of June 2009 is 50% corporate, 19% SMEs, 21%
retail and 10% agriculture. In retail the bank focuses on mortgages and secured
lending. 83% of retail loans have some form of security backing them. This has
led to Axis having a high quality asset book, and significant asset quality
pressures are not expected providing the economic situation continues to
improve in India. Axis have announced that they will be increasing the bank's
equity capital by about 20% through a capital raising to allow it the capacity
to keep growing lending ahead of the market rate.
In Axis' most recent financial results to the 30 June 2009 the bank reported a
70% increase in net profit year-on-year, as loans grew 28% year-on-year,
deposits by 24% and, as was the case for most banks in India, the bank made
profits on its bond holdings. Axis has good prospects for continued profitable
growth in the years ahead, although in the shorter term the capital raising
will push up the valuation of the bank and reduce its return ratios.
We bought and sold this stock during the year, unfortunately at a loss. We
repurchased the stock during July 2009. In the two weeks in the portfolio until
the Fund year end the share price made a return of 19% in Sterling terms.
Key statistics relating to this investment are given below:
For the year ended 31 March: 2009 2008 Change
Total Assets INR 1,477bn INR 1,096bn +34.8%
Cost : Income Ratio 43.4% 49.2% -5.8pp
Net Profit after Taxation INR 18.2bn INR 10.7bn +70.1%
Earnings per Share INR 50.3 INR 31.3 +60.7%
Dividends per Share INR 10 INR 6 66.7%
Dividend Cover 5.0x 5.2x -
Return on Equity 19.9% 16.1% +3.8pp
10. Bank Rakyat Indonesia
Bank Rakyat Indonesia ("Rakyat") is the oldest bank in Indonesia and was
founded in 1895. It is the second largest bank in terms of loans and the third
largest in terms of deposits in Indonesia. The government is the majority
shareholder in Rakyat with a 57% stake in the bank. The bank has by far the
most extensive network of branches, sub-branches and units, with offices
located in every province of Indonesia. It has specialised in serving the micro
finance segment for over 100 years and 27% of its loans are to this segment.
The bank was resilient through the 1997 Asian financial crisis, but suffered
through its large US Dollar loan book and the government recapitalised the bank
in 2000 using government recapitalisation bonds. At that time the management of
the company was changed. Rakyat had an IDR 3.8bn Initial Public Offering in
October 2003 and much of the proceeds were spent on introducing the latest IT
systems to the bank, which have improved the bank's efficiency. The bank has a
strong deposit franchise and its loan to deposit ratio was at 85% at the end of
June 2009. In addition the microfinance segment, that Rakyat is the leading
bank in the country at servicing, is high margin business. Both of these
factors have increased the banks earnings resilience through the global
economic slowdown.
Rakyat has recently published its financial results for the three months to the
30 June 2009. Profits increased 26% year-on-year as loans grew by 36% and
deposits by 23% year-on-year. The bank forecasts that for the full year loans
will grow by 30% and it will continue to gain market share. Non performing
loans have been rising, and reached 3.7% in June 2009 and are expected to rise
again in the next quarter. But the bank has increased provisioning and has a
very comfortable coverage ratio of 152%.
We have held this stock since mid-July 2009 and in the two weeks until the
Fund's year end it has made a return of 8% in Sterling terms.
Key statistics relating to this investment are given below:
For the year ended 30 April: 2008 2007 Change
Total Assets IDR 246,026bn IDR 203,604bn +20.8%
Cost : Income Ratio 50.4% 49.0% +1.4pp
Net Profit after Taxation IDR 5,958bn IDR 4,838bn +23.2%
Earnings per Share IDR 487 IDR 404 +20.5%
Dividends per Share IDR 169.16 IDR 196.34 -13.8%
Dividend Cover 2.9x 2.1x -
Return on Equity 29.2% 26.5% +2.7pp
Transactions
Over the year, sales of investments realised GBP84.2m and purchases totalled GBP
79.2m.
Blue Planet Investment Management Ltd
24 September 2009
Statement of Directors' Responsibilities in respect of the Annual Report and
the Financial Statements
The Directors are responsible for preparing the Annual Report and the financial
statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have elected to prepare the
financial statements in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards and applicable law).
Under Company law the directors must not approve the accounts unless they are
satisfied that they give a true and fair view of the state of affairs of the
Company and of the profit or loss of the Company for that period. In preparing
these financial statements, the Directors are required to:
* select suitable accounting policies and then apply them consistently;
* make judgments and estimates that are reasonable and prudent;
* state whether applicable UK Accounting Standards have been followed,
subject to any material departures disclosed and explained in the financial
statements;
* prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
The Directors confirm that to the best of their knowledge that:
* The accounts, prepared in accordance with applicable UK accounting
standards, give a true and fair view of the assets, liabilities, financial
position and return of the Company; and
* The Directors and Investment Managers' reports include a fair review of the
development, performance and position of the company together with a
description of the principal risks and uncertainties that the Company
faces.
On behalf of the Board
Philip Court
Chairman
24 September 2009
Income Statement
(incorporating the notes Revenue Capital 2009 Revenue Capital 2008
revenue account)
(GBP) (GBP) Total (GBP) (GBP) Total
for the year ended 31
July 2009 (GBP) (GBP)
Capital (losses) /
gains on investments
Net realised losses - (6,316,149) (6,316,149) - (4,174,546) (4,174,546)
Unrealised gains/ - 50,909 50,909 - (8,888,559) (8,888,559)
(losses)
Exchange (losses)/ - (513,686) (513,686) - 36,487 36,487
gains
Net capital losses on - (6,778,926) (6,778,926) - (13,026,618) (13,026,618)
investments
Income from 2 841,603 - 841,603 956,405 - 956,405
investments
Bank interest 16,102 - 16,102 63,585 - 63,585
receivable
Gross revenue and 857,705 (6,778,926) (5,921,221) 1,019,990 (13,026,618) (12,006,628)
capital (losses) /
gains
Administrative (417,811) (120,667) (538,478) (302,198) (2,926) (305,124)
expenses
Net return before 439,894 (6,899,593) (6,459,699) 717,792 (13,029,544) (12,311,752)
interest payable and
taxation
Interest payable (96,886) (96,886) (193,772) (58,133) (58,133) (116,266)
Return on ordinary 343,008 (6,996,479) (6,653,471) 659,659 (13,087,677) (12,428,018)
activities
before taxation
Taxation on ordinary (56,484) - (56,484) (59,418) - (59,418)
activities
Return on ordinary 286,524 (6,996,479) (6,709,955) 600,241 (13,087,677) (12,487,436)
activities
after taxation
Return per ordinary 3 2.03p (49.56)p (47.53)p 4.20p (91.65)p (87.45)p
share
The total columns of the statement represent the profit & loss accounts of the
Company. All revenue and capital items in the above statement derive from
continuing operations. No operations were acquired or discontinued in the year.
There were no recognised gains and losses other than those disclosed above.
Accordingly a statement of total recognised gains and losses is not required.
Balance Sheet
As at 31 July 2009 notes (GBP) 2009 (GBP) 2008
(GBP) (GBP)
Fixed assets
Listed equity investments 11,962,533 20,927,120
Listed non-equity - 4,874,363
investments
11,962,533 25,801,483
Current assets
Debtors 78,216 644,043
Cash at bank 3,821,813 2,199,519
3,900,029 2,843,562
Creditors: amounts (4,724,165) (10,255,579)
falling due within one
year
Net current liabilities (824,136) (7,412,017)
Net assets 11,138,397 18,389,466
Capital and reserves
Called-up share capital 7,142,859 7,142,859
Share premium account 6,021,360 6,021,360
Other reserves
Capital reserve - 4,422,077 11,496,847
realised
Capital reserve (6,744,588) (6,822,879)
-investment holding
losses
Revenue reserve 296,689 551,279
Shareholders' funds 11,138,397 18,389,466
Net asset value per 3 79.13p 129.52p
ordinary share
Reconciliation of Movements in Shareholders' Funds
for the year ended 31 Share Share Capital Capital Revenue Total
July 2009 capital premium reserve-realised reserve- reserve shareholders'
investment funds
(GBP) (GBP) (GBP) holding (GBP)
losses (GBP)
(GBP)
Shareholders' funds at 7,142,859 6,021,360 11,496,847 (6,822,879) 551,279 18,389,466
1 August 2008
Purchase of treasury - - - - (83,948) (83,948)
shares
Dividend paid during - - - - (457,166) (457,166)
the period
Return on ordinary - - (7,074,770) 78,291 286,524 (6,709,955)
activities after
taxation
Shareholders' funds at 7,142,859 6,021,360 4,422,077 (6,744,588) 296,689 11,138,397
31 July 2009
for the year ended 31 Share Share Capital Capital Revenue Total
July 2008 capital premium reserve-realised reserve- reserve shareholders'
investment funds
(GBP) (GBP) (GBP) holding (GBP)
losses (GBP)
(GBP)
Shareholders' funds at 7,142,859 6,021,360 15,732,209 2,029,436 39,998 30,965,862
1 August 2007
Purchase of treasury - - - - (88,960) (88,960)
shares
Return on ordinary - - (4,235,362) (8,852,315) 600,241 (12,487,436)
activities after
taxation
Shareholders' funds at 7,142,859 6,021,360 11,496,847 (6,822,879) 551,279 18,389,466
31 July 2008
Cash Flow Statement
for the year ended 31 (GBP) 2009 (GBP) 2008
July 2009
(GBP) (GBP)
Operating activities
Investment income 897,342 930,582
received
Interest received 16,102 63,585
Investment management (337,810) (502,665)
and administration fees
paid
Cash paid to and on (43,900) (44,000)
behalf of directors
Other cash payments (162,878) (200,968)
VAT refund received 405,000 -
Net cash inflow from 773,856 246,534
operating activities
Servicing of finance
Interest paid (206,757) (127,102)
Taxation
Taxation recovered 6,516 4,858
Capital expenditure and
financial investment
Purchase of investments (79,475,462) (81,537,951)
Sale of investments 84,248,767 96,382,659
4,773,305 14,844,708
Cash inflow before 5,346,920 14,968,998
financing
Equity dividend paid (457,167) -
Management of liquid
resources
Cash placed on deposits (13,625,245) (5,829,537)
Cash withdrawn from 13,318,374 4,836,925
deposit
(306,871) (992,612)
Financing
Net repayment of loan (3,266,640) (12,999,832)
Purchase of treasury (83,948) (88,960)
shares
(3,350,588) (13,088,792)
Increase in cash 1,232,294 887,594
Notes
1. The financial information set out in this announcement does not constitute
the Company's statutory accounts for the years ended 31 July 2009 or 31 July
2008 but is derived from those accounts. Statutory accounts for 2008 have been
delivered to the Registrar of Companies and those for 2009 will be delivered
following the Company's Annual General Meeting. The auditors have reported on
those accounts; their reports were unqualified, did not draw attention to any
matters by way of emphasis and did not contain a statement under s498 (2) or
(3) Companies Act 2006.
The financial information set out in this announcement has been prepared on the
basis of the accounting policies as stated in the previous year's financials
statements, and are consistent with the current year's full financial
statements which are yet to be published.
The Directors consider that the Company has adequate financial resources in the
form of readily realisable listed securities, including cash of GBP3,822,000 and
loan facilities to continue in operational existence for the foreseeable
future. For this reason they continue to use the going concern basis in
preparing the accounts.
2. Income from investments
Franked Unfranked 2009 Franked Unfranked 2008
(GBP) (GBP) Total (GBP) (GBP) Total
(GBP) (GBP)
Dividends
Listed investments - UK 2,689 - 2,689 3,643 - 3,643
Overseas - 435,983 435,983 - 762,532 762,532
Interest
Listed investments - - 402,931 402,931 - 190,230 190,230
Overseas
Total 2,689 838,914 841,603 3,643 952,762 956,405
3. Return and Net Assets per ordinary share
2009 2008
The return per ordinary share is based upon the
following figures:
Revenue return GBP286,524 GBP600,241
Capital return GBP GBP
(6,996,479) (13,087,677)
Weighted average number of ordinary shares in issue 14,117,055 14,280,756
during the year
The net asset value per ordinary share is calculated on 14,076,218 (2008 -
14,197,718) being the number of ordinary shares in issue at the year end after
deducting treasury shares.
4. Dividends
The Board have proposed the final dividend of 1.20p (2008 - 3.22p) per ordinary
share, payable on 18 November 2009 to shareholders on the register on 23
October 2009. The Company's shares will be quoted ex dividend on 21 October
2009. The total cost of the dividend is GBP168,915 (2008-GBP457,166)
5. Related Party Transactions
Directors' remuneration consisted solely of fees of GBP16,000 for the Chairman
and GBP14,000 for each of the other two Directors serving during the year. Blue
Planet Investment Management Ltd is employed by the Company as its Investment
Manager under a management agreement which is terminable on two years' notice.
The investment management fee in respect of each month was 0.125% of the total
assets of the Company attributable to the shareholders on the last day of that
month and totalled GBP 241,218 for the year (2008 - GBP399,082). The Company
Secretary, Blue Planet Investment Advisers Ltd receives GBP100,000 p.a in respect
of administration and secretarial services (increased from GBP75,000 from 1 April
2009). Total GBP83,333 for the year. Mr K C Murray is a director of both
Companies.
6. Share capital
During the year the Company purchased 121,500 of its own shares with a nominal
value of GBP60,750 for a consideration of GBP83,948 and holds these as treasury
shares in accordance with the resolution passed at the Annual General Meeting
in November 2008. These shares have no voting rights, do not rank for dividend
and are excluded from the calculation of net asset value and return per
ordinary share. The total number of shares held in Treasury is 209,500. At 31
July 2009 the Company had authority to purchase a further 1,932,500 shares. A
resolution to renew this authority will be proposed at the 2009 Annual General
Meeting.
For more information, please visit www.blueplanet.eu
You can also contact the Company on 0845 527 7588 or by emailing info@blueplanet.eu
END
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