TIDMBPW
BLUE PLANET WORLDWIDE FINANCIALS INVESTMENT TRUST PLC
REGULATORY ANNOUNCEMENT
Blue Planet Worldwide Financials Investment Trust plc
Preliminary Announcement
for year ended 31 July 2011
The unedited full text of those parts of the Report and Accounts for the year
ended 31 July 2011 which require to be published by DTR 4.1 is set out below.
Registered Number SC177928
Financial Record and Key Performance Indicators
As at 31 July 2011 2010 2009 2008 2007
Total assets less current 8,037 16,513 15,504 25,425 50,850
liabilities (GBP'000)
Loans (GBP'000) - (6,400) (4,366) (7,036) (19,884)
Shareholders' funds (GBP'000) 8,037 10,113 11,138 18,389 30,966
Net asset value per share (p) 57.10 71.84 79.13 129.52 216.76
Share price (p) - (Bid) 37.00 47.00 59.00 107.00 180.00
Discount (%) 35.2 34.6 25.4 17.4 17.0
Gearing (%)* - 48.5 4.9 26.3 63.8
Year to 31 July 2011 2010 2009 2008 2007
Return available for (246) (226) 287 600 (427)
shareholders (GBP'000)****
Revenue return per share (p) (1.75) (1.60) 2.03 4.20 (3.00)
Total return per share (p) (14.75) (6.09) (47.53) (87.45) 32.89
Total dividends per share (net) - - 1.20 3.22 -
(p)
Dividend yield on our shares - - 2.03 3.00 -
(%)
Dividend yield on Benchmark 2.74 2.48 2.93 4.00 2.65
Index (%)
Expenses ratio - net basis (%) 5.21 4.61 5.01 1.69 3.69
**
Expenses ratio - gross basis 3.47 2.66 3.35 1.08 2.19
(%) ***
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 2011 Country Valuation 2011
Name
(GBP) % of
Portfolio
Equities
1,164,600 PT Bank Rakyat Indonesia Indonesia 570,668 7.5
(Persero)
123,388 Aviva plc United 492,070 6.5
Kingdom
7,900 iShares Barclays Capital Emerging United 491,075 6.4
Market Bond Fund Kingdom
7,355 iShares JPMorgan $ Emerging United 489,064 6.4
Markets Bond Fund Kingdom
19,405 JP Morgan Chase & Co United 477,300 6.2
States
14,720 Capital One Financial Corporation United 428,441 5.6
States
313,700 RSA Insurance Group plc United 412,516 5.4
Kingdom
182,843 Sberbank Russia 409,037 5.4
1,134,000 PT Bank Negara Indonesia Indonesia 360,986 4.7
(Persero)
22,670 Discover Financial Services United 353,025 4.6
States
15,647 SCOR SE France 246,063 3.2
23,874 The Blackstone Group LP United 241,457 3.2
States
16,291 Direxion Daily Financial Bull 3X United 228,013 3.0
States
25,350 KKR & Co. LP United 226,149 3.0
States
696,420 Blue Planet International United 215,890 2.8
Financials Investment Trust plc Kingdom
487,900 Krung Thai Bank PCL (NVDR) Thailand 206,219 2.7
68,350 Siam Commercial Bank PCL (NVDR) Thailand 175,848 2.3
14,040 Itau Unibanco Holding SA Brazil 173,801 2.3
8,455 Sampo Oyj Finland 157,380 2.1
346,000 Blue Planet Financials Growth & United 138,400 1.8
Income Investment Trust No. Kingdom
(1-10) plc
12,737 Gjensidige Forsikring ASA Norway 91,596 1.2
19,546 Bank St. Petersburg Russia 59,044 0.8
350 Bank of America Corporation United 2,070 0.0
States
56 Societe Generale France 1,702 0.0
144 DNB NOR ASA Norway 1,276 0.0
300 Ashmore Group plc United 1,210 0.0
Kingdom
850 Legal & General Group plc United 954 0.0
Kingdom
Listed 6,651,254 87.1
Investments
Cash 985,802 12.9
Total 7,637,056 100.0
At 31 July 2011 the portfolio yield, as reported to the Association of
Investment Companies, was 2.78% (2010 - 2.03%). The yield represents the income
from investments as a percentage of the cost of the portfolio.
Classification of Investments
At 31 July 2011
Investment Other Total Total
Banks Insurance Companies Finance Cash 2011 2010
% % % % % % %
United Kingdom - 11.9 4.6 12.8 9.2 38.5 28.9
United States 16.4 - 6.2 3.0 1.5 27.1 8.9
Indonesia 12.2 - - - - 12.2 2.8
Russia 6.2 - - - - 6.2 -
Thailand 5.0 - - - - 5.0 -
France 0.0 3.2 - - - 3.2 15.0
Brazil 2.3 - - - - 2.3 -
Rest of Europe - - - - 2.2 2.2 -
Finland - 2.1 - - - 2.1 2.4
Norway - 1.2 - - - 1.2 3.1
Eire - - - - - - 17.4
Switzerland - - - - - - 4.9
Germany - - - - - - 4.7
Australia - - - - - - 2.7
United Arab - - - - - - 2.5
Emirates
Austria - - - - - - 1.8
Cayman Islands - - - - - - 1.3
Netherlands - - - - - - 1.2
Sweden - - - - - - 1.2
Spain - - - - - - 1.2
Totals 2011 42.1 18.4 10.8 15.8 12.9 100.0
Totals 2010 33.1 22.6 19.0 16.0 9.3 100.0
Benchmark* 63.9 16.7 6.4 13.0 - 100.0
* Our benchmark is the Bloomberg World Financial Index (sterling denominated).
Chairman's Statement
Performance
The last few years, since the onset of the global financial crisis, have been
very difficult markets in which to invest. Volatility has been extreme, as a
lack of sustained confidence pervades the market. Being the wrong side of a
sudden market plunge, or missing out on a rally, that is often snuffed out
within days, has a huge impact on performance. Movements for the entire index
can be more than 2% a day, and individual stocks can amplify that many-fold
with 10% rises or falls not uncommon. The peripheral European countries debt
crisis has been the main and continuing cause of volatility both in 2010 and
2011 and has impacted worldwide markets. When a series of natural disasters in
New Zealand and Japan, political unrest in the Middle East and North Africa,
and fluctuating views on the pace of economic recovery in the US and China are
added to this, it is not surprising this past year has been a bumpy ride.
Over the year the net asset value ("NAV") of your Fund has regrettably fallen
20.5%. 11.4% of this fall was in first half of the Fund's year, when the
benchmark rose 6.9%. In the second half of the year the Fund has fallen a
further 10.3%, as the benchmark has fallen 5.4%. The Trust's share price has
fallen 21.3% since the previous year end and the discount to NAV has widened to
35.2%. No dividend has been declared for this year. The reduction in the size
of the Fund, since its highs in 2007, mean that despite cost-cutting, the
percentage overheads charged to the Fund have increased, which is a drag on the
company's capital, as well as hindering its ability to pay dividends.
As a result of the continuing uncertainty in the global markets and the
fluctuation to the trading prices of many of the Company's investments, the
Board and Blue Planet Investment Management Ltd have been working in
conjunction to agree a strategy for the Company, and are actively pursuing
potential merger opportunities.
Regarding this year's performance, whilst the Fund's share price rose in the
first six months of the year, the net asset value of the Fund fell and
underperformed its benchmark. Some investment decisions, such as investing in
high yielding UK and European insurers and increasing US exposure towards the
end of 2010 were the right side of market moves. However in both November 2010
and January 2011 the Fund was caught on the wrong side of market moves. In
November 2010 performance was marred by a sharp fall in Indian bank share
prices due to a bribery scandal at a financial institution, which was entirely
unrelated to the investments we held and a plunge in Irish and Greek financials
share prices to which the Fund had a small exposure. In January 2011 the Fund's
Asian holdings fell steeply, just as the European Union appeared to be uniting
over a longer-term mechanism to support the periphery EU countries and European
financial stocks (to which the Fund had little exposure) posted very strong
gains.
In the second half of the Fund's year financials turned weaker. Whilst the
holdings in Indonesia and Thailand recovered well as profits at these companies
grew robustly, European stock indices have been on a downward trend since
mid-February 2011. Furthermore, despite continued profit growth at US
corporates, macro concerns in the Euro area, and more recently in the US
itself, have overshadowed the US equity markets. Standard & Poor's placed the
US on ratings watch negative in April 2011, and followed up by downgrading the
US from its AAA status in August 2011, after the protracted political
wranglings over the need to raise the US debt ceiling to save it from a
default.
The details of the current portfolio are described below. We intend to remain
cautious in the coming months. The global economic data has been weakening and
markets had a significant sell-off in August 2011 after the Fund's year end,
which is discussed further in the "Outlook" at the end of this section.
Portfolio
At the end of the preceding financial year the portfolio contained a number of
investments in short-dated, higher-yielding corporate bonds. These were either
sold or redeemed before the end of 2010 and equity investments were increased,
as this asset class enjoyed a strong end to 2010. During 2011, as we turned
more cautious on the outlook for equity markets, gearing in the fund was
reduced to zero and bonds were re-introduced to the portfolio. Since the year
end the proportion of the Fund invested in bonds has increased further. The
percentage of investments in equities is higher than a year ago, and consists
of investments in a number of well-capitalised financial companies with good
dividend yields and profitable banks in growing economies. The bond funds in
the portfolio are listed on the UK stock-exchange.
Figure 1: Portfolio movements by security type
Security Type July-2011 July-2010
% %
Equities 74.3 62.6
Cash 12.9 9.3
Bonds 12.8 28.1
Figure 2: Portfolio movements by geography
Country July-2011 July-2010
% %
UK 38.5 28.9
USA 27.1 8.9
Indonesia 12.2 2.8
Russia 6.2 0.0
Rest of Europe 5.4 23.9
Thailand 5.0 0.0
Nordics 3.3 7.9
Brazil 2.3 0.0
Eire 0.0 17.4
Switzerland 0.0 4.9
Australia 0.0 2.7
UAE 0.0 2.5
The largest geographic location for investments at the year end was the UK.
Whilst remaining wary of all the problems facing the UK economy, in the second
half of 2010 we added primarily higher-yielding assets in the UK. The concerns
over the EU and potential sovereign debt defaults were weighing most heavily on
bank shares, the insurers and asset managers were less in the spotlight and
looked very attractive with their high dividend yields, relative to the banks,
in the low interest rate environment. The Fund invested in a number of such
companies. Some, such as Legal & General and Aberdeen Asset Management, were
subsequently sold after making good returns. The Fund ended the year with
investments remaining in Aviva and RSA Insurance and small cross-holdings in
two Blue Planet Financials Trusts whose NAV values were at significant premiums
to their share prices. In July 2011 investments in two emerging market bond
funds, listed on the London stock-exchange, were added to the portfolio. These
both have good yields, with one investing in dollar-denominated emerging market
sovereign bonds, and the other investing in local currency sovereign bonds. The
remaining asset in the UK was cash held in sterling.
The Fund has been invested in the US throughout the financial year, although at
the start of the Fund's financial year those investments were very short-dated
bonds issued by US banks. As we moved towards the year end the fixed income
holdings were either sold or redeemed and investments were made in US equities
with a focus on the card services companies, as well as selected asset
managers, banks and insurers. These investments benefitted from the
acceleration of the economic recovery in the US seen at the end of 2010 and
investments were increased and concentrated further on the card servicers and
asset managers. However, despite profit growth continuing at those companies we
were invested in, macro concerns have dominated in recent months and share
prices have been weaker. US investments held at the year end were Capital One
Financial Corporation, Discover Financial Services, the Blackstone Group and
KKR & Co. There was also a position in the Direxion Daily Financial 3X Bull.
This latter position and those in the Blackstone Group and KKR have
subsequently been sold.
Ireland was a significant location for investment last year, with investments
in BP Global Financials hedge fund and in Bank of Ireland. Both investments
have subsequently been sold, with the investment in the hedge fund being exited
during July 2011.
Current emerging market focus is in Indonesia, Thailand, Russia & Brazil. Your
Fund first invested in Indonesian banks in July 2009 and has remained invested
in Indonesian banks throughout this past year. The country has low levels of
banking penetration and its banks are well-capitalised with prudent
provisioning in place and are highly profitable. Indonesian banks continued to
increase their profitability in 2010, aided by high margins and good volume
growth in loans. The share prices of Indonesian banks experienced a sharp
pullback at the end of 2010 and into 2011 as their valuations had risen to
rather high levels. However, the solid economic backdrop in Indonesia and
continuing excellent financial results have seen Bank Rakyat, in which the Fund
is invested, more than recover from its share price falls.
The Fund invested in Thailand in October 2010. The country's banks are enjoying
volume growth and are increasing profitability. The Fund's investment in Krung
Thai Bank in Thailand had a sharp fall in value at the end of 2010 and into
2011, in a similar manner to the Indonesian banks, and has similarly more than
recovered from this dip following excellent first quarter results from the bank
and a peaceful outcome after government elections. At the year end the Fund
also held a position in Siam Commercial Bank. Both positions have been sold
subsequent to the year end to realise profits.
In 2010 the Russian economy recovered from its steep drop into recession. Our
smaller holdings in Russian banks were sold before the last year end. The
reason for selling them was to reduce exposure to illiquid stocks rather than
to remove exposure to Russia from the portfolio. As the economic recovery in
Russia deepened, we rebuilt positions in Russia, initially via its two main
banks Sberbank and VTB; now just Sberbank. A very modest investment was also
made in a mid-sized Russian bank, Bank St Petersburg. Profits at Russian banks
recovered well as 2010 progressed, with profitability in 2011increasing further
as loan growth picks up again and loan losses continue to reduce.
The Fund has a small holding in Itau Unibanco, one of the three leading banks
in Brazil, which has a return on equity of over 20%.
The exposure to European equities is currently very low and we expect it to
remain that way whilst fiscal concerns persist in Europe and weigh on European
bank's share prices. Despite the strength of the German economy, full year 2011
GDP growth will be modest in the EU. At the year end there was one investment
in a high dividend yielding, European reinsurer, Scor based in France, as well
as some cash that was from proceeds of an investment that had been sold that
remained in Euros. There were a further two high yielding insurance stocks,
Sampo and Gjensidige Forsikring, based in the Nordics. The outlook for the
Nordic economies is far stronger than for most mainland European economies,
especially Norway, whose prudent public finances are the envy of most economies
worldwide.
Further details of the portfolio are provided in the Investment Manager's
Report.
Dividend
The Board has recommended that no dividend is paid this year. Last year no
dividend was paid, as the revenue return per share was negative. Despite
administrative costs and interest payments being lower this year than last, the
revenue return per share was further in the red this year, as the income from
investments fell by over 30%.
The outlook going forward for revenue is moderate in the current low interest
rate environment, although the many higher yielding stocks in the portfolio
will help boost dividend income. There is a continuing focus on cutting
administrative costs, however the small size of the Fund means that fixed costs
are a significant overhead on the Fund. The Directors appreciate the importance
of dividends to many shareholders and plan to resume dividend payouts as soon
as it is possible to do so.
Borrowings, Gearing and Liquidity
A year ago on the 31 July 2010 the Fund's gearing stood at 48.5%. The Fund
remained geared above 40% through most of its financial year, as the trend in
global financials remained up, although this was masked by very high volatility
at times. Gearing was reduced from April 2011 and the Fund ended the financial
year ungeared.
A GBP5m revolving loan facility was in place at the year end and provides the
capability for gearing the Fund. At the Fund's year end none of this loan was
drawn down and the facility was cancelled in August 2011 as the Investment
Manager does not foresee a requirement to re-gear the Fund in the short-term.
No early repayment penalties were incurred.
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.
Outlook
Financial markets in 2011 have to a large extent replicated the pattern of
2010. The start of both of these years saw an easing of concerns over the
Euro-area periphery countries debt issues and gathering strength in the US
economy. However both times these concerns have returned with a vengeance
mid-year. In 2010 the sharp falls came in April and May when the deterioration
in Greece's sovereign finances came to a head, culminating in the country
receiving a EUR110bn bailout package. This bailout, coupled with strength in
emerging economies, the extension of the US tax cuts and the start of QE2 all
boosted markets later in 2010. In 2011 the concerns have been more protracted,
as within the Euro-area, Portugal required a bailout of EUR80bn in April and
there was doubt over the ability of the Greek government to pass its planned
austerity measures in July to ensure it continued to receive the support of the
EU and the IMF. These have kept the Euro-debt crisis to the fore in 2011.
Subsequent to the year end the loss of the US's AAA debt rating from Standard &
Poors, the continuing problems in Greece and a sudden spotlight on the state of
Italy's public finances brought about a very steep fall in all sectors of the
markets, but especially financials, in August 2011. Whilst some Asian economies
currently seem pretty insulated from these events, a recovery from this plunge
is proving very difficult in Europe, and weaker economic data in Europe and the
US is not aiding sentiment, despite some hopes that the Japanese earthquake is
still affecting the data. The possibility of double-dip recession in major
economies is again being discussed by economists and commentators as the
austerity measures required by governments to reign in deficits will restrict
economic growth. Volatility remains very high, as the markets react strongly to
each new economic data-point and government or central bank announcement.
Despite all these issues, through this year, company balance sheets and profits
have remained strong. A large number of announced mergers and acquisitions have
highlighted an increased willingness for corporates to buy. Amongst financials,
Santander followed its purchase of a 70% stake in Bank Zachodni in Poland in
2010 with an offer for the remainder of the bank in 2011. Capital One, in which
the Fund is invested, has made two acquisitions this year and Warren Buffet has
recently bought into Bank of America. Financial companies' profitability is
increasing, but valuations are very low. In Europe bank multiples imply that
earnings in 2012 will be 50% below current forecasts. These valuations provide
great opportunities for long-term investment.
However, with the current volatility the Fund will continue to focus on
equities in the better managed economies, as well as high dividend yielding
stocks and fixed income. We intend to maintain a cautious stance, and are
watchful for economic data that could significantly affect market confidence
and may trigger either a significant rise, or significant fall in equities in
these volatile markets.
I thank you for your continuing support and look forward to welcoming you to
the Annual General Meeting on the 22 December 2011.
Philip Court
Chairman
21 November 2011
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 -20.5% over the year, compared to a rise of 1.2% by the
Fund's benchmark index in sterling terms. The Trust's share price made a total
return of -21.3% over the same period. In the first six months of the past year
the Fund was caught out by sharp falls in Indian banks in November 2010, due to
a scandal in an Indian financial institutions and a sharp drop in Asian share
prices in January 2011. Performance has been more consistent since then, but
financials have fallen, and the Fund has fallen more steeply than its benchmark
index. We believe that the volatility in the market is set to continue in the
short-term and consider we have the portfolio well positioned with corporate
bond holdings, high yielding equities and a modest number of equities
well-placed for future profitable growth.
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, in particular in the Euro-area and the United States, as
the strength of the recovery in these regions has a major impact on the rest of
the world. We continue to identify countries with the strongest 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. For fixed income and high yielding stocks the
balance sheet strength of the company we are assessing for investment takes
precedent over growth opportunities. Our stock selection 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 Czech Republic and Turkey. In addition, we had meetings in
the UK with the management of many overseas financial institutions.
The UK has not been a significant area of investment for the Fund for quite
some time due to its weak economic positioning. We retain a negative view of
the UK economy going forward. GDP grew a modest 0.2% in the second quarter of
2011 and further weakness is expected in the second half of the year. The
office for Budget Responsibility has cut its forecast for growth in the UK in
2011. Its forecast is now for a growth rate of 1.7%, compared to its initial
estimate of 2.1%. We, as many others, believe this is still very optimistic.
Despite this, from the middle of 2010 onwards we included a small number of
positions in the UK in higher-yielding stocks. Whilst the UK and continental
European bank's share prices were being buffeted by the concerns over the state
of the Euro area periphery countries, the insurers and other financial stocks
were less exposed to the turbulence. In the prevailing low interest rate
environment the higher yielding stocks looked very attractive. The Fund
invested in both UK insurers and asset managers. During the year good profits
were made on the likes of Aberdeen Asset Management, F&C Asset Management,
Legal & General Group and Standard Life. By the year end investments remained
in Aviva and RSA Insurance. The Fund also has two small cross-holdings in Blue
Planet Financials Trusts whose NAV values were at significant premiums to their
share prices. In July 2011 investments were made in two emerging market bond
funds. These invest in emerging market sovereign bonds. One invests in US
dollar denominated bonds, the other in local currency bonds. These are listed
on the London stock-exchange, but are priced in US dollars. Both have good
yields.
The Fund has maintained investments in the US throughout its financial year.
Initially those investments were very short-dated bonds issued by US banks. In
September 2010 investments in US equities began to be added to the portfolio,
and the bond positions were either sold or matured. In October 2010 the Federal
Reserve announced a second round of quantative easing as it felt the US economy
required further stimulus and the government extended the Bush tax cuts until
2012. Whether the additional stimulus measures were the catalyst or not, the US
economic recovery strengthened into the end of 2010 and our holdings did well.
Further investments were added and were concentrated on the card services
companies, as charge-offs fell sharply, and the asset managers as they saw
growth in their assets under management and fees increased. However, as we
moved into the second quarter of 2011, markets weakened as the US deficit was
brought into focus by Standard &Poors, who placed the US on ratings watch
negative in April 2011, and from this point macro concerns have dominated.
Political posturing, between the Republican and Democratic parties regarding
the debt ceiling and the means of reducing America's deficit, have exacerbated
matters and the last minute deal to raise the debt ceiling did little to
restore confidence. Standard & Poors proceeded to cut the US debt rating in
August 2011. Equity markets have continued to deteriorate. This is despite US
financials having gone through a process of rebuilding their balance sheets,
their profitability continuing to grow and valuations remaining very low.
Company earnings as a whole have been strong in the US, with earnings for S&
P500 companies increasing on average by 17% for the quarter ended 31 July 2011,
eclipsing the highs seen in mid-2007. At the Fund's year end a position was
held in the Direxion Daily Financial 3X Bull, which was a short-term holding
used to tap into the positive market sentiment over the US earnings results
season. This position has subsequently been sold. The other US investments are
in Capital One Financial Corporation, Discover Financial Services, Blackstone
Group and KKR & Co. The latter two positions have also been sold after the year
end.
Ireland was a significant location for investment last year, predominantly
through its investment in BP Global Financials hedge fund, which had a global
investment remit. This investment was redeemed during July 2011.
The Fund has held investments in Indonesia throughout the year. At the year end
the level of investment had been increased from the start of the year, and
consists of a single investment in PT Bank Rakyat Indonesia. The Indonesian
economy remained strong through the global economic crisis and followed its
4.6% GDP growth in 2009, with a growth of 6.1% in 2010. Forecasts are for the
country to continue its growth momentum as private consumption and investment
spending remain strong, and second quarter 2011 GDP growth was 6.5%. Core
inflation has been creeping up to the 5% level and the bank has raised interest
rates this year to 6.75%. Indonesian banks are well capitalised and, with the
Asian crisis as part of the country's past, the banks hold high levels of
provisions. Loan growth of over 20% is expected in 2011, particularly as the
central bank is encouraging loan growth by making holding excessive liquidity
more costly for banks via reserve requirements. Consumer loan penetration is
low, standing at 8.9% of GDP at the end of 2010. We anticipate another year of
strong profitability for Indonesian banks in 2011.
In October 2010 the Fund invested in Thailand for the first time. Exports
account for more than 60% of Thailand's GDP, which means the global economic
slowdown created a tough time for Thailand's economy and its GDP contracted
2.3% in 2009. However the country bounced back strongly in 2010 as the
government used its years of fiscal prudence to provide a comprehensive
stimulus package. The country is predicted to continue to grow GDP in the 4% to
5% range in the next few years. Loan growth was 16% in the first half of 2011,
and in this country where GDP per capita is increasing in double digits,
domestic consumption is high and consumer loans are modest at around 22% of
GDP, the banks anticipate many years of profitable growth.
At the last year end we reported that investments in illiquid Russian banks had
been sold, after Russian banks share prices made a substantial recovery as
their outlook brightened considerably. The Fund is now focused on primarily the
larger Russian banks. In 2009 bad debts at the banks soared and profits were
largely eaten up by provisioning. The smaller banks in Russia suffered the most
and this has led to a shake-up in the Russian banking sector, with 100 less
banks in operation now compared to pre-crisis. The major banks in the country
have strengthened their positions and have seen profits picking up in 2010.
This recovery has been accelerating in 2011, as demand for loans increases,
margins stabilise and provisions for bad loans are lower. High inflation in the
country has been a concern, but has moderated as the year progresses and the
Russian Central Bank has raised interest rates and has made steps towards
returning bank's reserve requirement rates to pre-crisis levels. However
banking penetration in Russia is low and as disposable income increases, retail
lending should see strong growth. The Fund holds positions in Russia's largest
banks, Sberbank and also held a small position in Bank St Petersburg at the
year end.
The Fund invested in Itau Unibanco, the largest private bank in Brazil by
market capitailisation, at the end of 2011. The two largest private banks in
Brazil are expected to increase profitability by 15% to 20% per annum for the
next three years. Itau Unibanco, in which the Fund is invested, has a return on
equity above 20% and grew loans by 22% in its most recently reported quarterly
results. Whilst there are concerns that a global economic slowdown will be
quite detrimental to Brazil, GDP was growing at a rate of 3.1% year-on-year at
the end of the second quarter of 2011 and the banking market has scope for
growth for many years to come.
Investments in Europe have remained at low levels this year. This year the
viability of the single European currency, the Euro, has been a recurring
theme. The periphery Euro-area countries have been experiencing economic
difficulties following the global economic crisis. In early 2010 concerns had
centred on Greece, which had an unsustainable large fiscal deficit. Greece was
forced to accept a EUR110bn bailout package. In November it was Ireland that was
in the spotlight, as its banking sector continued to struggle with increasing
amounts of bad debt. By the end of the month Ireland had accepted an EUR85bn aid
package, including EUR10bn for immediate bank recapitalisations. In April 2011
Portugal became the next country to be bailed out as they were offered an
approximately EUR80bn package. Concerns that one or more of these countries will
either default, or need to restructure, their sovereign debt remains elevated,
as do worries over contagion to further EU countries. All of this has had a
significant impact on mainland European banks, which have a great deal of
cross-border exposure in Europe. The only mainland European stock currently
held is SCOR, a French-based reinsurer with a good dividend yield. In addition
there are two high-yielding insurance stocks located in the Nordics in the
portfolio. The Nordic economies, in particular Norway, have sound economic and
fiscal bases to support them through the European economic woes.
Currency
The Fund is exposed to a range of currencies, with the most significant
exposure being to the US Dollar. The table below lists all currencies to which
we have a five percent or greater exposure. The percentage of the portfolio
held in each currency at the end of the Fund's financial year is given and the
table 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/
bond portfolio depreciation
in currency against GBP for the
length of time the
currency has been
held in the
portfolio
US Dollar 27.1% -4.7%
Indonesian 12.2% +0.5%
Rupiah
Russian Rouble 6.2% +5.5%
Euro 7.3% +5.0%
Thai Baht 5.0% -4.4%
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. Over half of the Company's
assets are held in securities denominated in foreign currencies. The US dollar
has been weak over the past year as it has been one of the few countries where
inflation has remained low and there has been no pressure on the US to raise
interest rates, as well as concerns over its deficit. The Thai currency
weakened at the start of 2011, but has shown signs of strengthening in July
2011.
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 underperform relative to other sectors of the market and
this has indeed been the case over the past year. 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
some other sectors of the market during this year. 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. The largest currency risk is in the US dollar at the year
end. Exchange rate movements are monitored on a daily basis alongside the
prices of the individual securities. Currency risk is a risk that can be
partially controlled by employing appropriate hedging strategies. Many 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. During the past year the Company made use of a multi-currency loan
facility and these 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 some of the main currencies in which we have been invested.
Where investments are made in emerging markets there is a risk of higher
volatility in the price performance of these equities and their associated
currencies. Political risk and adverse economic circumstances are more likely
to arise, putting the value of the investment at a higher risk. The
registration and settlement arrangements in emerging markets may be less
developed than in more mature markets so operational risks of investing are
higher.
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 Ltd 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
A number of momentous events in the first few months of 2011, two major natural
disasters due to earthquakes, in New Zealand and Japan, and political unrest in
the Middle East and North Africa region, caused an immediate reduction in the
risk appetite of investors. Longer lasting impacts of these events could affect
both the economies of the countries concerned and the wider economic outlook.
A stalling or reversal of the recovery from the global economic recession will
have a negative impact on equity markets, whereas a continuation of the
recovery should have a positive impact on equity markets. Both events could
have a significant impact on the Company. The balance for the Fund's financial
year in 2010/11 has been towards a continuation of the recovery. However
economic data and political deadlocks in August 2011 reignited concerns over
the sustainability of the economic recovery, in particular in the US. The pace
of the recovery, both globally, or in the particular countries, or regions, in
which we are invested, will affect the stock markets and exchange rates within
those countries.
The improvement in company profitability, in particular in major economies like
the US, if it can remain on course, is likely to be positive for the
performance of the financial sector, which will benefit the Company.
These factors highlighted above should be considered in the context of the
comments in the Chairman's statement on page 4 that as a result of the
continuing uncertainty in the global markets and the fluctuation to the trading
prices of many of the Company's investments, the Board and Blue Planet
Investment Management Ltd have been working in conjunction to agree a strategy
for the Company and are actively pursuing potential merger opportunities.
Top 10 Investments at year end
1. PT Bank Rakyat Indonesia (Persero) Tbk
Bank Rakyat Indonesia (Persero) Tbk ("BRI") is the oldest bank in Indonesia and
was founded in 1895. It has served the micro finance segment for over 100 years
and now has around 25 million customers. The government is the majority
shareholder in Bank Rakyat Indonesia with a 57% stake in the bank. It is the
second largest bank in terms of loans and has a 12% market share in terms of
deposits. The bank has by far the most extensive network of branches,
sub-branches and units, with offices located in every province of Indonesia.
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. The management in the company
was changed. The Bank had a 3.8bn initial public offering in October 2003 and
much of the proceeds were spent on introducing the latest IT systems to the
bank.
BRI benefits from very high margins from its high proportion of micro finance
business (31% of its loan book at the end of 2010). Margins at the bank were
9.4% in its most recent quarterly results. The bank reported a 57% increase in
profits in 2010, with loans growing 20% and deposits rising 29%. An accounting
change applied to the accrual of net interest income boosted what were already
very strong financial results for the year. In its most recent results to the
30 June 2011 the bank again reported a 57% year-on-year increase in profits, as
loans grew 17% and return on equity remained high at above 33%.
This stock has been held in the portfolio throughout the Fund's financial year,
although the size of the holding has been adjusted several times. The portion
of the holding held for the full year has made a 42% return in sterling terms.
Key statistics relating to this investment are given below:
For the year ended 31 December: 2010 2009 Change
Total Assets IDR 398,393bn IDR 314,746bn +26.6%
Cost: Income Ratio 42.2% 46.8% -4.6%
Net Profit after Taxation IDR 11,472bn IDR 7,308bn +57.0%
Earnings per Share IDR 956.7 IDR 609.5 +57.0%
Dividends per Share IDR 141 IDR 89 +58.4%
Dividend Cover 6.8x 2.9x -
Return on Equity 43.8% 35.2% +8.6pp
2. Aviva Plc
The group has been known as Aviva since July 2002. It was created by the merger
of CGU and Norwich Union in May 2000. Through its founder companies, Aviva can
trace its history back for more than 300 years. Aviva is now the world's sixth
largest insurance group and the UK's largest insurer, with over 53 million
customers worldwide. Its major markets are Europe, the UK and North America
with a small presence in Asia Pacific. Aviva's main business is life insurance
and in terms of operating profits the split is almost 70/30 between life
insurance and general insurance. It also has an asset management division.
Aviva has been strengthening its capital position. In 2009 it cut its dividend,
made asset disposals and introduced new hybrid capital. The company rebounded
in 2009 from a loss in 2008. In 2010 it increased its IFRS profits further,
with an increase of 35% year-on-year. It raised its dividend by over 6% on the
basis of its 2010 financial results. The company's Net Asset Value grew 21%
under IFRS accounting rules, capital generation was very strong at GBP1.7bn in
the year and the company cut costs. It also put money into its pension fund and
closed the deficit that had previously existed. The company retains a positive
outlook for 2011. In its interim results to the end of June 2011 it continued
to report the generation of significant levels of capital, increased total
operating profits modestly year-on-year and again increased its interim
dividend, by 5%. The company has sold its RAC division and sold a further 15%
stake in Delta Lloyds.
We held this investment at the last year end and sold the position at a profit.
We repurchased a holding in November 2010 and since this time the stock has
provided a total return of -2% in sterling terms, as markets have weakened in
2011. Its valuation and yield are both attractive and we hope these will
support the share price going forward.
Key statistics relating to this investment are given below:
For the year ended 31 December: 2010 2009 Change
Total Assets GBP 370.1bn GBP 354.4bn +4.4%
Net Profit after Taxation GBP 1,463m GBP 1,085m +34.8%
Earnings per Share 49.6p 37.5p +32.3%
Dividends per Share 25.5p 24.0p 6.25%
Dividend Cover 1.9x 1.6x -
Return on Equity 14.8% 10.9% +3.9pp
3. iShares Barclays Capital Emerging Market Bond Fund
The iShares Barclays Capital Emerging Market Bond is an exchange traded fund
(ETF) that aims to track the performance of the Barclays Capital Emerging
Markets Local Currency Core Government Index as closely as possible. The ETF
invests in physical index securities. The Barclays Capital Emerging Markets
Local Currency Core Government Index offers exposure to emerging markets
government debt from eight countries (Mexico, Poland, Brazil, South Africa,
Malaysia, Indonesia, Turkey & Hungary) in local currency. Only bonds with an
original term to maturity between 2 and 30 years and a minimum amount
outstanding equivalent to $750m for Latin America, EUR750m for Europe Middle East
& Africa and JPY 87.5bn for Asia-Pacific securities are included in the index.
The base currency for the ETF is US dollars and the Fund was launched in June
2011. At the end of July 2011 it had 74 holdings. This product is expected to
provide a good yield, and if, as anticipated, the emerging market currencies
are stronger than the US dollar, the currency gains will boost returns.
We purchased this bond fund in mid-July. In its two weeks in the portfolio the
stocks return has been 2% in sterling terms.
4. iShares JP Morgan $ Emerging Markets Bond Fund
The iShares JPMorgan $ Emerging Markets Bond Exchange Traded Fund invests in
emerging market, dollar-denominated sovereign bonds. It seeks investment
results that correspond generally to the price and yield performance, before
fees and expenses, of the JPMorgan EMBI Global Core Index. Only those
instruments which (i) are denominated in U.S. dollars, (ii) have a current face
amount outstanding of $1 billion or more, (iii) have at least two years until
maturity, (iv) are able to settle internationally through Euroclear or another
institution domiciled outside the issuing country, and (v) have bid and offer
prices that are available on a daily and timely basis are considered for
inclusion into this index. The fund is well diversified with 91 holdings at the
end of July 2011, with the top ten sector holdings including Russia, Brazil,
Mexico, Turkey, Philippines & Indonesia. Its current yield is attractive at
around 4.5%. Its share price and income are in US dollars and its annualised
return from inception to August 2011 is 8.4% per annum.
We purchased this bond fund in mid-July. In its two weeks in the portfolio the
stocks return has been 2% in sterling terms.
5. JP Morgan Chase
JP Morgan Chase & Co ("JP Morgan") is a global financial services firm,
headquartered in New York, with assets of $2 trillion. It operates in more than
60 countries and has over 200,000 employees. It has grown both organically and
by acquisition. JP Morgan weathered the financial turbulence in 2008 better
than many of its US banking counterparts and this led to it making two major
acquisitions in 2008. It bought Bear Stearns (The 5th largest US investment
bank at that time) and Washington Mutual after Washington Mutual's assets were
seized by the FDIC due to the bank's failure. JP Morgan issued $11.5bn of
common stock to support the purchase. The addition of the Washington Mutual
assets expanded the Chase consumer network to become the 2nd largest branch
network in the US, serving over 42% of the US population.
JP Morgan increased profits almost 50% year-on-year in 2010 as its level of
profitability begins to normalise. In 2010 its investment bank remained
resilient, both its commercial banking and asset management divisions reported
record revenues and card services volumes increased. Whilst its retail division
increased current accounts by more than 1.5 million and bad debts fell,
consumer lending remained weak.
JP Morgan's most recent results for the second quarter of 2011 confirmed a
continuation of its strengthening financial results. Its investment banking
division reported good profits and commercial banking reported record revenues.
Net profits increased 12.5% from a year earlier. JP Morgan's shares remain
modestly valued, despite its recent financial results and strong capital
position.
We held this stock for two fairly short periods during the year and made a
small loss both times the holding was sold. We re-purchased the stock towards
the end of June 2011. In just over a month its return in sterling terms was
-2%. It has subsequently been sold.
Key statistics relating to this investment are given below:
For the year ended 31 December: 2010 2009 Change
Total Assets $ 2,118bn $ 2,032bn +4.2%
Net Profit after Taxation $ 17.4bn $ 11.7bn +48.7%
Earnings per Share $ 3.96 $ 2.26 +75.2%
Dividends per Share $ 0.20 $ 0.20 +0%
Dividend Cover 19.8x 11.3x -
Return on Equity 10.0% 6.0% +4.0pp
6. Capital One Financial Corporation
Capital One Financial Corporation ("Capital One") is headquartered in McLean,
Virginia. It was founded in 1988 and had an initial public offering in 1994.
Capital One is one of the America's largest consumer franchises with
approximately 45 million customer accounts and offers a broad array of
financial products and services to consumers, small businesses and commercial
clients in the US, Canada and the UK, specialising in credit cards, personal
banking and loans. Over the year the company has been transforming into a bank
and now reports the results of its business through three operating segments:
Credit Card, Commercial Banking and Consumer Banking.
Following the recession the company had seen its loan book shrink as American's
reduced the balances on their credit cards and paid down their debts and as
Capital One tightened their underwriting standards. Charge offs and bad loans
increased, but the company remained profitable through 2009. In 2010 bad debts
were improving and the company saw a 7.5-fold increase in profits year-on-year.
The company reported strong results for the second quarter of 2011. Net income
improved 50% from a year previously. The superior results were driven by
positive credit trends and both loan and deposit growth, both of which should
continue through 2011. The company are acquiring ING Direct US online bank to
add 7 million new customers to its network, in a part-share, part-cash deal,
and the company raised $2bn of cash for this deal via a stock offering in July
2011. It has also announced its plan to acquire HSBC's US credit card business.
We have held this investment since the start of September 2010. Its size has
been adjusted several times. In its ten months in the portfolio it has made a
return of 14% in sterling terms.
Key statistics relating to this investment are given below:
For the year ended 31 December 2010 2009 Change
Total Assets $ 198bn $ 170bn +16.5%
Cost: Income Ratio 49.1% 43.4% +5.7pp
Net Profit after Taxation $ 2,743m $ 320m +757.2%
Earnings per Share $ 6.01 $ 0.74 +712.2%
Dividends per Share $ 0.2 $ 0.53 -61.9%
Dividend Cover 30.1x 1.4x -
Return on Equity 12.2% 3.7% +8.5pp
7. RSA Insurance Group plc
RSA Insurance Group plc ("RSA") has been writing insurance for almost 300
years. It is one of the UK's leading non-life insurers and around 39% of its
business is currently in the UK. A further 48% of its business is
international, which includes Codan that operates in the Nordics. Its emerging
market exposure, especially in Latin America, is the final 13% of its business.
The company employs around 21,000 people worldwide. RSA made 11 acquisitions in
2010, and says it will be focusing on integrating these new businesses in 2011.
RSA's financial position has remained robust in recent years and it is a
company that, not only maintained, but grew, its dividend throughout the
economic downturn. Despite contending with low bond yields and high catastrophe
claims, in particular from its Chilean earthquake exposure, its 2010 profits
were down only moderately on 2009 and new business growth was up in all regions
and was especially strong in the emerging markets. The company has been cutting
costs in its UK business and improved its expense ratio. Based on its full year
2010 results RSA increased its dividend per share by 7%, and has now increased
it a further 7% after its interim 2011 results.
The company intends to continue to grow its emerging market business and plans
to double the amount of net written premiums from this region by 2015. In its
interim 2011 results net written premiums in this region grew by 18%
year-on-year, compared to a growth of 11% in its International division and 7%
in the UK. This business growth helped the company report a 24% year-on-year
increase in profit after tax for the first six months of 2011, despite the high
level of catastrophe losses for the insurance business as a whole.
We held this stock at the start of the Fund's financial year and sold it at a
profit in October 2010. We re-purchased the stock in early March 2011 and in
its five month in the portfolio it has provided a total return in sterling
terms of -4%, as markets have been weaker. Its valuation and yield are both
attractive and we hope these will support the share price going forward.
Key statistics relating to this investment are given below:
For the year ended 31 December: 2010 2009 Change
Total Assets GBP23.1bn GBP21.4bn +7.9%
Net Profit after Taxation GBP355m GBP419m -15.3%
Earnings per Share 9.7p 12.1p -19.8%
Dividends per Share 8.82p 8.25p +6.9%
Dividend Cover 1.1x 1.5x -
Return on Equity 9.9% 13.4% -3.5pp
8. Sberbank of Russia
Sberbank is the largest bank in Russia, with about 27% of the entire Russian
banking assets. It was established in 1841 and has grown to become the largest
deposit taker in the country with a market share of 48% in retail deposits. It
also accounts for over 30% of both retail and corporate loans. The Central Bank
of Russia owns just over 60% of Sberbank's share capital.
The bank is focusing on upgrading its processes and technology to increase
efficiency and profitability. It has made some expansion steps outside Russia,
notably in CIS and in China. With banking penetration in Russia remaining very
low, mortgages are only 3% of GDP in Russia, compared to around 40% in Europe,
the bank's dominant market share make it well positioned to capitalise on the
growth in banking services in Russia.
Sberbank had a very strong final quarter of 2010, which enabled the company to
report net profit for 2010 as a whole of over seven times the level of profits
in 2009. Financial performance in 2009 was muted at Sberbank. Net customer
loans fell in 2009 and non-performing loans rose sharply, as Russia suffered
from high unemployment and weak corporate profitability, following the global
economic slowdown that hit Russia hard. In 2010 Sberbank increased its loan
portfolio by nearly 13%, with deposits growing 22% in the year. Non-performing
loans fell and the bank reported a return on equity of over 20% for 2010. For
the first half of 2011 its return on equity has exceeded 30%, as loans continue
to grow, non-performing loans continue to fall and margins improve again. This
year the bank has issued global depositary receipts so it is listed on overseas
exchanges, making access to its shares easier for international investors,
there are as well indications from the Russian Central Bank that it will reduce
its stake in Sberbank to just over 50%.
We bought this stock in September 2010. The size of the holding has been
reweighted several times. For the portion held since initial investment it has
provided a total return in sterling terms of 33%.
Key statistics relating to this investment are given below:
For the year ended 31 December: 2010 2009 Change
Total Assets Rub 8,629bn Rub 7,105bn +21.4%
Cost : Income Ratio 42.4% 35.4% +7.0pp
Net Profit after Taxation Rub 181.6bn Rub 24.4m +644.3%
Earnings per Share Rub 8.42 Rub 1.10 +665.5%
Dividends per Share Rub 0.92 Rub 0.08 +1050.0%
Dividend Cover 9.2x 13.8x -
Return on Equity 20.6% 3.2% +17.4pp
9. PT Bank Negara Indonesia (Persero)
PT Bank Negara Indonesia ("BNI") was formed in 1946. It was originally formed
and owned by the Indonesian government to circulate currency and act as the
central bank. This role ended in 1949 and the bank's legal status was formally
changed to that of a state-owned commercial bank in 1995 and the bank had an
initial public offering of shares in 1996. BNI has the second highest number of
bank branches in Indonesia at over 1,100, and its over 4,000 ATMs give it the
3rd largest ATM network in the country. The bank is focusing on growing both
its corporate and consumer segments. Over 80% of its loans are in the corporate
and SME segments, with the remaining 20% being consumer loans, over half of
which are mortgages.
The bank raised capital at the end of 2010 to boost its capital adequacy
resulting in a Tier 1 ratio of 17.5%, to support its planned loan growth of
around 20% growth per annum for the next three years. Its loan-to-deposit ratio
was 76% at the end of June 2011.
BNI grew profits by 65% in 2010 and has reported a 41% increase in net income
in its most recent financial results for the quarter ending 30 June 2011, as
margins widened to 6.1% and both net interest income and fee income rose.
We held this stock at the end of 2010 and sold at the start of 2011 at a loss.
We repurchased the stock in mid-July 2011. In its couple of weeks in the
portfolio it has provided a total return of 11% in sterling terms, as the stock
appreciated sharply following excellent mid-year financial results. The stock
has subsequently been sold.
Key statistics relating to this investment are given below:
For the year ended 31 December: 2010 2009 Change
Total Assets IDR 248,581bn IDR 227,497bn 9.3%
Net Profit after Taxation IDR 4,102bn IDR 2,484bn +65.1%
Earnings per Share IDR 266 IDR 163 +63.2%
Dividends per Share IDR 65.98 IDR 53.97 +22.3%
Dividend Cover 4.0x 3.0x -
Return on Equity 24.7% 16.4% +8.3pp
10. Discover Financial Services
Discover Financial Services ("DFS") is a direct banking and payment services
company formed in 1986. The company has become one of the largest card issuers
in the United States with $45bn in loans and owns the PULSE network which is
one of the US's leading ATM/debit networks. The company acquired The Student
Loan Corporation in December 2010. The company is primarily focused on the US
and has over 10,000 employees.
Credit card loans at the company remained stable in 2010, despite the
deleveraging of the US consumers, which meant the company gained market share.
In response to the difficulty of raising funding during the sub-prime mortgage
crisis, DFS has increased its direct banking deposits, making this their
largest single source of funding, meeting about 40% of their funding
requirements. The payment services business division performed well in 2010.
The 2010 net income was below that in 2009 as the 2009 results were boosted by
a $1.2bn payment after tax related to the Visa/Mastercard antitrust litigation
settlement.
The company plans to grow further its direct banking offerings, expand its US
card business and continue to build a global payments network, including
payments via mobiles. As with Capital One, the company expect that the
improving economic outlook in the US will drive a growth in credit card loans
in the second half of 2011. The company reported a record net income of $600m
in the second quarter of 2011, as card sales volumes increased, loans grew and
charge-offs fell further. Its robust capital position has allowed DFS to put
its dividend per share back to pre-crisis levels.
This stock was purchased in January 2011 and in its time in the portfolio has
provided a total return of 21% in sterling terms.
Key statistics relating to this investment are given below:
For the year ended 30 November: 2010 2009 Change
Total Assets $ 60.8bn $ 46.0bn +32.2%
Profits after Taxation $ 668m $ 1,207m -44.7%
Earnings per Share $ 1.22 $ 2.38 -48.7%
Dividends per Share $ 0.08 $ 0.12 -33.3%
Dividend Cover 15.3x 19.8x -
Return on Equity 12.0% 17.0% -4.0pp
Transactions
Over the year, sales of investments realised GBP57.5m and purchases totalled GBP
50.8m.
Blue Planet Investment Management Ltd
21 November 2011
Statement of Directors' Responsibilities
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 financial statements, 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
21 November 2011
Income Statement
(incorporating the Notes Revenue Capital 2011 Revenue Capital 2010
revenue account)
(GBP) (GBP) Total (GBP) (GBP) Total
for the year ended 31
July (GBP) (GBP)
Capital gains /
(losses) on
investments
Net realised losses - (2,617,659) (2,617,659) - (5,480,196) (5,480,196)
Unrealised gains - 1,439,132 1,439,132 - 4,911,355 4,911,355
Exchange (losses) / - (469,254) (469,254) - 233,135 233,135
gains
Net capital losses on - (1,647,781) (1,647,781) - (335,706) (335,706)
investments
Income from 2 212,159 - 212,159 304,274 - 304,274
investments
Bank interest 4,309 - 4,309 29,287 - 29,287
receivable
Gross revenue and 216,468 (1,647,781) (1,431,313) 333,561 (335,706) (2,145)
capital losses
Administrative (380,435) (102,833) (483,268) (427,205) (167,962) (595,167)
expenses
Net return before (163,967) (1,750,614) (1,914,581) (93,644) (503,668) (597,312)
interest payable and
taxation
Interest payable (78,746) (78,746) (157,492) (127,404) (127,404) (254,808)
Return on ordinary (242,713) (1,829,360) (2,072,073) (221,048) (631,072) (852,120)
activities
before taxation
Taxation on ordinary (3,629) - (3,629) (4,621) - (4,621)
activities
Return on ordinary 3 (246,342) (1,829,360) (2,075,702) (225,669) (631,072) (856,741)
activities
after taxation
Return per ordinary 3 (1.75)p (13.00)p (14.75)p (1.60)p (4.48)p (6.09)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 Notes (GBP) 2011 (GBP) 2010
(GBP) (GBP)
Fixed assets
Listed equity investments 6,651,254 10,104,605
Listed non-equity - 4,544,997
investments
6,651,254 14,649,602
Current assets
Debtors 719,804 1,738,396
Cash at bank 985,802 1,497,301
1,705,606 3,235,697
Creditors: amounts (319,821) (7,772,558)
falling due within one
year
Net current assets / ( 1,385,785 (4,536,861)
liabilities)
Net assets 8,037,039 10,112,741
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 - (4,396,290) (1,180,010)
realised
Capital reserve (386,653) (1,773,573)
-investment holding
losses
Revenue reserve (344,237) (97,895)
Shareholders' funds 8,037,039 10,112,741
Net asset value per 3 57.10p 71.84p
ordinary share
Philip Court
Chairman
21 November 2011
Reconciliation of Movements in Shareholders' Funds
For the year ended 31 Share Share Capital Capital Revenue Total
July 2011 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 (1,180,010) (1,773,573) (97,895) 10,112,741
1 August 2010
Return on ordinary - - (3,216,280) 1,386,920 (246,342) (2,075,702)
activities after
taxation
Shareholders' funds at 7,142,859 6,021,360 (4,396,290) (386,653) (344,237) 8,037,039
31 July 2011
For the year ended 31 Share Share Capital Capital Revenue Total
July 2010 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 4,422,077 (6,744,588) 296,689 11,138,397
1 August 2009
Dividend paid during - - - - (168,915) (168,915)
the period
Return on ordinary - - (5,602,087) 4,971,015 (225,669) (856,741)
activities after
taxation
Shareholders' funds at 7,142,859 6,021,360 (1,180,010) (1,773,573) (97,895) 10,112,741
31 July 2010
Cash Flow Statement
for the year ended 31 Notes (GBP) 2011 (GBP) 2010
July
(GBP) (GBP)
Operating activities
Investment income 280,273 272,533
received
Interest received 4,309 29,287
Investment management (317,952) (433,463)
and administration fees
paid
Cash paid to and on (44,000) (43,925)
behalf of Directors
Other cash payments (132,052) (119,375)
Exchange differences on (469,254) (363,620)
foreign currency cash
balances
Net cash outflow from (678,676) (658,563)
operating activities
Servicing of finance
Interest paid (169,388) (250,220)
Taxation
Taxation recovered 18,725 17,398
Capital expenditure and
financial investment
Purchase of investments (50,799,763) (118,660,547)
Sale of investments 57,517,603 114,820,454
6,717,840 (3,840,093)
Cash inflow / (outflow) 5,888,501 (4,731,478)
before financing
Equity dividend paid - (168,915)
Management of liquid
resources
Cash placed on deposit (2,845,052) (99,706,909)
Cash withdrawn from 4,295,052 100,121,489
deposit
1,450,000 414,580
Financing
(Repayment) / advance of (6,400,000) 2,033,663
loan
Increase / (decrease) in 938,501 (2,452,150)
cash
Notes on the Accounts
1.The financial information set out in this announcement does not constitute
the Company's statutory accounts for the years ended 31 July 2011 or 31 July
2010 but is derived from those accounts. Statutory accounts for 2009 have been
delivered to the Registrar of Companies and those for 2011 will be delivered
following the Company's Annual General Meeting. The auditors have reported on
those accounts; their reports were unqualified, did not contain a statement
under s498 (2) or (3) Companies Act 2006. Their report did draw attention to a
material uncertainty which may cast significant doubt about the Company's
ability to continue as a going concern by way of emphasis. This is because the
Board are actively pursuing potential merger opportunities. Should a merger be
approved by the Board and the shareholders of the Company, one alternative is
that the Company may be placed in members' voluntary liquidation and will not
continue as an investment company. The Directors have concluded that these
circumstances represent a material uncertainty that casts significant doubt
upon the Company's ability to continue as a going concern.
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.
2. Income from investments
Franked Unfranked 2011 Franked Unfranked 2010
(GBP) (GBP) Total (GBP) (GBP) Total
(GBP) (GBP)
Dividends
Listed investments - UK 69,846 - 69,846 41,240 - 41,240
- Overseas 95,684 - 95,684 234,154 12,893 247,047
Interest
Listed investments - UK - 8,146 8,146 - 2,102 2,102
- Overseas - 38,483 38,483 - 13,885 13,885
Total 165,530 46,629 212,159 275,394 28,880 304,274
3. Return and Net Assets per ordinary share
2011 2010
The return per ordinary share is based upon the following
figures:
Revenue return GBP(246,342) GBP(225,669)
Capital return GBP(1,829,360) GBP(631,072)
Weighted average number of ordinary shares in issue 14,076,218 14,076,218
during the year
The net asset value per ordinary share is calculated on 14,076,218 (2010 -
14,076,218) being the number of ordinary shares in issue at the year end after
deducting treasury shares.
4. Dividends
No interim dividend was declared in the year and no final dividend is proposed
(2010 - nil).
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 205,666 for the year (2010 - GBP335,924). The Company
Secretary, Blue Planet Investment Advisers Ltd receives GBP100,000 p.a in respect
of administration and secretarial services.
6. Share capital
The Company holds 209,500 shares in treasury, these shares do not rank for
dividend and are excluded from the calculation of net asset value and return
per share. As at 31 July 2011 the Company had the authority to purchase further
1,932,500 shares. A resolution to renew this authority will be proposed at the
Annual General Meeting
END
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