Baillie Gifford Pacific Horizon Annual Results

RNS Announcement

Pacific Horizon Investment Trust PLC

Legal Entity Identifier: VLGEI9B8R0REWKB0LN95

Results for the year to 31 July 2024

Regulated Information Classification: Additional regulated information required to be disclosed under the applicable laws and regulations.

The following is the results announcement for the year to 31 July 2024 which was approved by the Board on 16 September 2024.

Over the year the Company's net asset value total return* was 4.8% and the share price total return was 5.1% compared with a total return of 6.8% for the MSCI All Country Asia ex Japan Index (in sterling terms)†.

Chairman's statement

Board Composition

Having been appointed to the Board on 13 March 2024 as Chairman, I would like to take this opportunity to thank, on behalf of the Company and its Directors, my predecessor, Angus Macpherson, for guiding the Company during a period of geopolitical uncertainty and market volatility. Subject to shareholders confirming my appointment, I look forward to working with the current Board and portfolio managers for the benefit of shareholders.

Performance

In the year to 31 July 2024, the Company's net asset value ('NAV') per share total return was 4.8 per cent., compared to a 6.8 per cent. increase in the total return of the MSCI All Country Asia ex Japan Index in sterling terms. The share price rose by 4.4 per cent. and the discount ended the period at 7.8 per cent.. The Company's annual ongoing charge was 0.74 per cent. compared to 0.72 per cent. for the year to 31 July 2023, due largely as a consequence of increased expenses. The reporting period was marked by volatility, with negative returns in the first six months followed by a period of positive portfolio and index returns.

The notable positive contributors to the portfolio's relative performance over the year were the holdings in Indian property developers Prestige Estates Project, Equinox India Development and Phoenix Mills. The notable detractors to relative performance were the holdings in Li-Ning, a Chinese sportswear and sporting equipment company, and Ping An Insurance, a Chinese financial services company. Having an underweight position in TSMC, a Taiwanese semiconductor company, was also a notable detractor. The Managers' Review, below, provides fuller comment on the drivers to returns, as well as thoughts on the investee companies and their prospects.

Over the five years to 31 July 2024, the Company's NAV and share price total return were 96.1 per cent. and 93.6 per cent. respectively, whereas the Company's comparative index returned 17.0 per cent. in sterling terms during the same period.

Gearing

The deployment of gearing was considered regularly, and continues to be so. The Company was ungeared throughout the course of the last financial year. The Board sets the gearing parameters within which the portfolio managers are permitted to operate. At present, the agreed range of equity gearing is minus 15 per cent. (holding net cash) to plus 15 per cent..

The Company has a multi-currency revolving credit facility with the Royal Bank of Scotland International Limited for up to £100 million. This facility expires in March 2025 and provides for potential gearing of 16.6 per cent. at present.

Earnings and Dividend

As highlighted in the reports of my predecessors, it remains the case that investors should not invest in this Company if they require steady or growing income from their investment as the Company invests in growth stocks that will typically have little or no yield.

Earnings per share this year were 3.82p, a decrease from the 4.56p per share reported last year. The Board is recommending that a final dividend of 2.65p per share be paid (3.25p per share paid in 2023), subject to shareholder approval at the Annual General Meeting ('AGM').

Issuance, Share Buybacks and Treasury

At the Company's AGM in November, the Board will be seeking to renew the existing 10 per cent. non-pre-emptive issuance authority. The authority will also permit the re-issue of any shares held in treasury, of which there are currently 1,418,210. Any issuance, be it of new shares or from treasury, will only be undertaken at a premium to the NAV per share, so avoiding dilution for existing investors. Issuance at a premium enhances NAV per share, improves liquidity in the Company's shares and spreads the operating expenses of the Company across a broader base.

The Board is also asking shareholders to renew the annual authority to repurchase up to 14.99 per cent. of the Company's outstanding shares on an ad hoc basis, either for cancellation or to be held in treasury. Over the course of the Company's financial year, 425,198 shares, 0.5 per cent. of the starting issued share capital, were bought back into treasury at a cost of £2.3 million. The buybacks were undertaken at a weighted average discount of 11.2 per cent..

The Board intends to use the authority opportunistically, considering not only the level of the discount relative to peers and in absolute terms, but also the underlying liquidity and trading volumes in the Company's shares. This approach to buybacks seeks to support liquidity whilst addressing, in part, any imbalance between the supply and demand for the Company's shares that results in a large discount to NAV.

Sustainable Disclosure Requirements ('SDR')

SDR is a package of measures that the Financial Conduct Authority ('FCA') finalised in November 2023. These measures include rules imposing conditions on the use of sustainability-related terms and labels in literature produced by FCA regulated entities, such as our Managers, Baillie Gifford & Co Limited, on behalf of 'products', such as investment trusts. SDR also establishes anti-greenwashing rules.

The Managers' view is that a precondition of a long term investment is that businesses in which they invest must be sustainable, although Pacific Horizon itself does not have an explicit sustainability objective. Therefore, under SDR the Company will not be taking a label. The Board agrees with the Managers' approach of engaging and working with companies towards achieving improved practices and outcomes while being cognisant of the risks of imposing developed market standards on emerging market companies indiscriminately.

Annual General Meeting

I look forward to meeting shareholders at this year's AGM. This will take place on Thursday 21 November 2024 at the offices of Baillie Gifford & Co, in Edinburgh, at 11.30am. If attending, please endeavour to arrive by 11.20am to allow time to register. There will be a presentation from the portfolio managers who, along with the Directors, will answer questions from shareholders.

Outlook

The past year saw weakness in the Chinese economy, the recent unwinding of the Yen carry trade (borrowing Yen at a low rate of interest to invest in higher-yielding assets) and regional tensions on Taiwan. Notwithstanding these challenges, there remain a wealth of opportunities for the patient investor. These are based on both superior long-term economic growth rates and the range of attractive companies in the region. Valuations are at multi-year lows relative to developed markets. The very diversity of opportunities should encourage investors, as demonstrated in the range of Asian/Indian market returns in the past year - from 30 per cent. plus in Taiwan and India to negative 12 per cent. in China. Within the markets, our portfolio managers continue to find companies with strong prospects trading at reasonable valuations. The Managers' report below provides examples.

Based on the encouraging macroeconomic trends and stock specific opportunities, there is every reason to be optimistic about the long‑term prospects for the portfolio. As always, it remains important that our portfolio managers (and shareholders) can see through the occasional and perhaps inevitable bouts of volatility in returns. Assuming that is the case then the outlook for the portfolio and the Company is a positive one.

Roger Yates

Chairman

16 September 2024

*For a definition of terms see Glossary of terms and Alternative Performance Measures at the end of this announcement.

† The MSCI All Country Asia ex Japan Index (in sterling terms) is the principal index against which performance is measured.

Past performance is not a guide to future performance.

Managers' Review

Overview

In the year to 31 July 2024, the Company's net asset value ('NAV') per share total return and the share price total return were 4.8% and 5.1% respectively. This compares to a 6.8% increase in the total return of the MSCI All Country Asia ex Japan Index in sterling terms.

Geographic returns across the region showed significant disparity. India and Taiwan were top performers, with gains of 36.4% and 34.6% respectively. In contrast, Hong Kong and China experienced declines of 19.8% and 12.0%.

Portfolio performance was primarily driven by substantial exposure to India, particularly in the real estate sector. Investments in Vietnam and limited exposure to Hong Kong also contributed to positive relative performance. However, stock selection in China and an underweight position in Taiwan's TSMC were the notable detractors.

Despite regional challenges, such as a strong US dollar, ongoing weakness in the Chinese economy, and the reversal of the Yen carry trade, most Asian economies demonstrated resilience. Our holdings generally performed well operationally, and an increasing number of new investment opportunities led to higher portfolio turnover.

The most notable changes involved increasing our holdings in 'rapid growth' companies, particularly within the technology sector. We significantly raised our exposure to online consumer businesses, including Kaspi.kz, a fintech and ecommerce super app from Kazakhstan; Pinduoduo Inc, a Chinese ecommerce platform; and Tencent Holdings, known for gaming and social media in China.

Additionally, we increased our investments in the semiconductor industry, adding to memory chip makers SK hynix and Samsung Electronics, semiconductor equipment manufacturers including ASMPT, and the foundry sector, where we made substantial additions to TSMC.

Funding predominantly came from a reduction in cyclical investments, including materials, shipbuilders and engineering businesses. By country, we continued to reduce our exposure to India and increased our positioning in Taiwan.

Despite global headwinds, we maintain a positive long-term outlook for the Asia ex Japan region. Most Asian economies boast favourable macroeconomic conditions and structurally faster growth rates compared to developed markets, yet their valuations are at multi-year lows on a relative basis. A potential catalyst for the region is the rate cutting cycle in most developed markets, which may lead to a weakening US dollar. This would serve as a significant tailwind for Asia and emerging markets more broadly. Perhaps most encouragingly, we are discovering an increasing number of investment-worthy companies, particularly ones with substantial growth opportunities.

Philosophy

We are growth investors endeavouring to invest in the top twenty percent of the fastest-growing companies in Asia. Across the region we have found the most persistent source of outperformance to be those companies which can grow their profits faster than the market, in hard currency terms, over the long term. This trend persists irrespective of starting valuations. Our research is singularly focused on finding those companies whose share prices can at least double, in sterling terms, on a five-year view and we expect most of this doubling to come from earnings growth.

We are particularly interested in three specific and persistent inefficiencies:

1)       Underappreciated growth duration

We believe one of the greatest investment inefficiencies is in companies with excellent long-term earnings growth where profits are volatile from one quarter to the next. The market typically shows an aversion to such companies, preferring the predictability of smooth profit generation even if the long-term growth rate turns out to be a fraction of that achieved by firms more willing to reinvest in their business and with greater ambition. This presents exciting investment opportunities, but it requires an approach that allows near-term volatility to be ignored.

2)       Underappreciated growth pace

The market consistently underestimates the likelihood of rapid growth. The evidence shows that most investors cluster around a narrow range of earnings growth predictions, which can in turn lead to significant mispricing of companies with the potential to grow very rapidly. Our process is focused on finding those companies. By looking further out and searching for low probability but high impact growth opportunities, we endeavour to outperform the broader market.

3)       Underappreciated growth surprise

The final significant inefficiency lies in the interaction between top-down and bottom-up investing. As investors in Asia, ex Japan, and the Indian Sub-continent, we do not have the luxury of ignoring macroeconomics. Purely bottom-up investment is a path to ruin in a universe where industrial and economic cycles can dominate investment returns over multi-year periods. The long-term earnings of many companies - notably in the financial, materials and industrial sectors - are determined by exogenous macro factors beyond their control. This also provides opportunities.

Our analysis shows that while it may pay to invest in companies that display consistently high levels of profitability, the strongest returns are to be found in those companies that transition from poor levels of profitability to high ones - a 'growth surprise'.

This may seem obvious - rising levels of profitability are normally accompanied by a re-rating, thereby providing a two-fold kicker to share price performance. But identifying the drivers behind this change is the key and has been a significant source of outperformance for Pacific Horizon. We accept that timing these inflection points perfectly is impossible, but when you have an investment horizon measured over many years, anticipating the future direction of travel is possible.

We are agnostic as to the type of growth inefficiency we are exploiting and will invest wherever we are finding the best opportunities. At times this will lead to a concentration in particular sectors or countries, and at others to a much broader, flatter portfolio, but growth will always be the common theme.

Data as at 31 July 2024, source: Baillie Gifford, UBS PAS, APT, MSCI (see disclaimer at the end of this announcement).

Review

Asian markets demonstrated resilience in the face of significant challenges over the past few years. Despite headwinds including the strongest US dollar in decades, rising geopolitical tensions, armed conflicts in Europe and the Middle East, and most recently the dramatic unwinding of the Yen carry trade, Asian economies not only avoided crisis, but most prospered, outpacing growth in many Western nations.

This resilience marks a significant shift from historical patterns, where such external pressures would likely have triggered economic turmoil in the region. Improved stability underscores the enhanced macroeconomic position of Asia today, particularly compared to many Western economies. Combining this favourable macroeconomic condition with Asia's structurally faster growth rates, and valuations at multi-year lows relative to developed markets, Asia ex Japan appears to be in a sweet spot.

Despite this, however, Asian markets have yet to fully reflect the advantages in market performance. Several external headwinds persist, most notably the strength of Western currencies, particularly the US dollar. However, the economic landscape appears to be shifting. With inflation peaking in Western economies, developed markets should be on the cusp of a rate cutting cycle. The European Central Bank and the Bank of England already initiated rate cuts, and the US Federal Reserve seems poised to follow suit. Coupled with rising government spending and mounting debt in the US and Europe, Asian economies are likely to become increasingly appealing to investors.

Within Asia, China remains a concern, with the MSCI China index still below half its early 2021 peak. As discussed in previous reports, many economic challenges persist. Of particular concern is the real estate sector, which accounts for roughly 30% of the economy and continues to struggle. Its ongoing weakness has further depressed consumer confidence, which combined with continued geopolitical pressures, created a challenging environment for investors.

Despite these issues, we believe there are compelling investment opportunities in China. Firstly, valuations have reached extreme levels with many world class companies trading at low single digit multiples and others even below the cash on their balance sheets.

Secondly, the macro situation is not as dire as valuations suggests. China remains a US$17 trillion economy growing at 5%, with considerable fiscal, monetary and policy room to support further growth. Throughout the year, the government shifted towards a more supportive approach, implementing interest rate cuts, fiscal stimulus and various measures to shore up the property market, including the easing of home purchase restrictions and the lowering of mortgage rates and down payment ratios.

Thirdly, many companies continue to perform strongly operationally. In the internet sector, despite the negative headlines, companies are generating record revenues and profits. Large-cap firms like Tencent Holdings and Pinduoduo Inc reported impressive earnings growth of 79% and 350% year-over-year, respectively. These businesses are highly cash-generative and committed to significant shareholder returns through buybacks and/or dividends, potentially establishing a floor for their low valuations.

We have been adding to the sector with new purchases of Tencent Holdings (3.8% holding at the end of the period), Pinduoduo Inc (2.6%) and Lufax Holdings (0.8%). We also increased our existing holdings in Baidu Inc and unlisted ByteDance, owner of Douyin and TikTok, the world's most popular short form video apps.

These purchases were mostly funded by sales of other Chinese companies, including slower growing, non-technology businesses Geely Automobile (automotive manufacturer), China Oilfield Services Ltd (oil services), and Ningbo Peacebird Fashion (fashion retailer). A smaller portion of sales involved internet companies with deteriorating competitive positions, such as Alibaba Group.

Despite the sales and purchases roughly matching, market movements in China took the portfolio's absolute China exposure down from 33.7% to 25.9% over the period.

At the other end of the performance spectrum is India, where the index gained 36.4% over the year. The country continues to thrive under the business-friendly reforms of the Modi government, resulting in robust economic growth (GDP growth exceeding 8%) and a surge in foreign investment. Notably, in June 2024, Modi and his BJP party faced a setback in national elections. Despite securing a third term, the BJP lost its overall majority in parliament's lower house (Lok Sabha) and will rely on coalition partners to govern.

While the new political landscape may pose challenges for future reforms, we believe it doesn't fundamentally alter India's growth trajectory. In fact, it may prove beneficial by tempering some of the BJP's more socially divisive policies.

We remain optimistic about India's long-term outlook and continue to see attractive investment opportunities. Our largest exposure is in Indian real estate, comprising 10.0% of our total assets. This sector benefits from the most affordable house prices in decades, coupled with significant industry consolidation over the past ten years.

Our other Indian holdings focus on new technology, either directly through investments in companies like Dailyhunt, one of the country's leading social media platforms, and PolicyBazaar, India's leading price comparison site, or indirectly through companies such as Delhivery, a dominant player in e-commerce logistics.

We have, however, found valuations increasingly difficult to justify in a number of other sectors in India, particularly consumer and industrial companies, and in many small and mid-cap businesses. Consequently, we made significant reductions to several of our holdings, including large reductions to India industrials, where we sold Skipper (power transmissions) and Tata Motors (automotive), both of which had appreciated over five-fold since our initial purchases. We also greatly reduced our holding in Ramkrishna Forgings (auto parts manufacturer).

Following their strong performance, we trimmed several Indian property holdings as well. These sales in India totalled roughly 15% of the portfolio. However, due to the robust performance of our remaining Indian holdings, the portfolio's overall position in India only decreased from 23.9% to 23.0% over the year.

By sector, our most significant additions to the portfolio were in high growth, technology companies, primarily in two areas.

Firstly, we increased our exposure to internet platforms. We already discussed the significant purchases of internet names in China, including Pinduoduo Inc and Tencent Holdings. Elsewhere, we initiated a new holding in Kaspi.kz, Kazakhstan's leading super app. Kaspi.kz is used by nearly the entire adult population of Kazakhstan and has a dominant market share of 70% or more in ecommerce, payments and fintech. The company became one of our top ten holdings, representing 2.8% of total assets. As a result of these changes, our exposure to information technology and communication services increased from 30.6% to 45.7% over the year.

The second main area of focus was semiconductor companies. We made significant additions to TSMC, the Taiwanese foundry, increasing our holding from 1.1% to 8.8% over the course of the year. TSMC has become an effective monopoly in advanced chip manufacturing, with increasing pricing power, and is central to many major technology advancements from AI to quantum computing. We also substantially increased our positions in Korean computer memory makers Samsung Electronics and SK hynix. We also purchased SG Micro, a leading Chinese analogue semiconductor company, and ASMPT, which provides semiconductor manufacturing solutions. Throughout the year, our exposure to companies with significant revenues from semiconductors rose from approximately 15% to 27%.

Overall, the number of names in the portfolio reduced to 59 from 72 in the year to 31 July 2024. Private companies, of which there were 5 in the portfolio as of 31 July 2024, accounted 7.1% of the portfolio, and gearing was nil.

Performance

India emerged as the portfolio's standout market, accounting for all eight of our top-performing companies. The Indian real estate sector was the primary driver of returns, contributing approximately 600 basis points. This was led by Prestige Estates Projects, Equinox India Developments (formerly IndiaBulls Real Estate), and Phoenix Mills, which ranked as our top three performing companies.

Performance was strong across the sector as the property cycle finally gained momentum after more than a decade of stagnation, with volumes and prices accelerating. The fundamentals look robust, characterised by good affordability, long-term structural demand, and a consolidated market that has translated into strong operational performance at the developers. Prestige Estates exemplified this trend, with annual sales bookings up over 60% and a record-breaking launch of 40 million square feet in new projects, representing a 52% year-over-year increase.

Equinox India Developments unfolded as a more intricate case, involving the Embassy Group's (an Indian developer base in Bengaluru) efforts to acquire control, enhance corporate governance and consolidate its assets within the company. This complex process, which we've consistently backed, saw the completion of a significant deal whereby the company secured new capital, Embassy contributed a substantial portion of its assets and Blackstone emerged as a major shareholder (we also participated in the capital raise). As a result, the shares underwent a notable re-rating.

Our Indian industrial holdings delivered strong performances as the country's investment cycle continued to accelerate. Ramkrishna Forgings increased by 52% and Skipper rose by 59%. Meanwhile, automotive company Tata Motors gained over 50%, buoyed by robust domestic sales of its cars and trucks. In the technology sector, PolicyBazaar emerged as our standout holding, climbing 94%. The company continues to capture market share in insurance product sales, benefiting from increased online searches which drove rapid sales growth of 60% year-over-year.

Hong Kong and Vietnam emerged as significant relative contributors. Hong Kong was the weakest market, falling 19.8%, and we benefitted from our significant underweight position in the country. In contrast, Vietnam is our second largest active country position in the portfolio (+7.8%) which, despite some political turbulence, performed well. Performance was led by HDBank, which continued to generate returns on equity in the mid-twenties and maintained good asset quality as concerns over various property exposures proved unfounded.

China emerged as the worst performing country, detracting 300bp from performance. The most significant detractors were our holdings in Li-Ning, Ping An Insurance and Dada Nexus. Li-Ning's share price fell nearly 70% following the company's announcement of inventory management issues. However, after consulting with the company and numerous distributors, we believe this setback is temporary and expect growth to resume within the next 12 months.

Ping An Insurance faced concerns over tightening financial regulations and its exposure to the property market. In response, we reduced our position in the company over the year.

Dada Nexus was negatively impacted by two factors: the sluggish performance of JD.com, for which it provides logistics services, and revelations of accounting irregularities. Consequently, we decided to divest our position entirely.

Taiwan detracted 280bp from performance, primarily due to our underweight position in TSMC whose share price rose nearly 60%. The company experienced robust growth as the semiconductor cycle rebounded. With its monopolistic position in leading-edge semiconductor manufacturing, TSMC emerged as the major beneficiary of demand driven by artificial intelligence, notably as the sole supplier for NVIDIA's leading AI chips.

By sector, our underweight exposure to TSMC led to information technology being our worst-performing sector, followed by financials. In contrast, real estate and materials were the top contributors to performance.

We remain excited by the prospects for companies across the region and the breadth and depth of investment opportunities in growth businesses that will reward long-term patient investors.

Baillie Gifford & Co

16 September 2024

Valuing private companies

We aim to hold our private company investments at 'fair value', i.e. the price that would be paid in an open-market transaction. Valuations are adjusted both during regular valuation cycles and on an ad hoc basis in response to 'trigger events'. Our valuation process ensures that private companies are valued in both a fair and timely manner.

The valuation process is overseen by a valuations group at Baillie Gifford, which takes advice from an independent third party (S&P Global). The valuations group is independent from the investment team with all voting members being from different operational areas of the firm, and the investment managers only receive final valuation notifications once they have been applied.

We revalue the private holdings on a three‑month rolling cycle, with one-third of the holdings reassessed each month. During stable market conditions, and assuming all else is equal, each investment would be valued four times in a twelve‑month period. For investment trusts, the prices are also reviewed twice per year by the respective boards.

Beyond the regular cycle, the valuations group also monitors the portfolio for certain 'trigger events'. These may include changes in fundamentals, a takeover approach, an intention to carry out an Initial Public Offering ('IPO'), company news which is identified by the valuation team or by the portfolio managers, or meaningful changes to the valuation of comparable public companies. Any ad hoc change to the fair valuation of any holding is implemented swiftly and reflected in the next published net asset value ('NAV'). There is no delay.

The valuations group also monitors relevant market benchmarks on a weekly basis and updates valuations in a manner consistent with our external valuer's (S&P Global) most recent valuation report where appropriate.

Generally speaking, public markets have continued to be less volatile in the 12 months to 31 July 2024, and overall, an improvement in market conditions has led to an increase in private market deal activity. The data below quantifies the revaluations carried out during the 12 months to 31 July 2024, however doesn't reflect the ongoing monitoring of the private investment portfolio which hasn't resulted in a change in valuation.

List of investments

as at 31 July 2024

Figures represent percentage of total assets.

*        For a definition of terms see Glossary of terms and Alternative Performance Measures at the end of this announcement.

†        Includes holdings in ordinary shares and preference shares.

§        Denotes listed investment previously held in the portfolio as an unlisted (private company) investment.

+        Denotes unlisted (private company) investment.

Distribution of total assets* and size splits

Geographical 2024

Sectoral 2024

*        For a definition of terms see Glossary of terms and Alternative Performance Measures at the end of this announcement.

Income statement

For the year ended 31 July

The total column of this Statement represents the profit and loss account of the Company. The supplementary revenue and capital columns are prepared under guidance published by the Association of Investment Companies.

All revenue and capital items in this Statement derive from continuing operations.

A Statement of Comprehensive Income is not required as the Company does not have any other comprehensive income and the net return after taxation is both the profit and comprehensive income for the year.

Balance sheet

As at 31 July

Statement of changes in equity

For the year ended 31 July 2024

For the year ended 31 July 2023

Cash flow statement

For the year ended 31 July

*        Cash from operations includes dividends received of £8,362,000 (2023 - £9,925,000 ) and interest received of £160,000 (2023 - £163,000).

Notes to the Financial Statements

1.       Principal accounting policies

The Financial Statements for the year to 31 July 2024 have been prepared in accordance with FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' on the basis of the accounting policies set out below which are unchanged from the prior year and have been applied consistently.

2.       Income

3.       Investment management fee

The Company has appointed Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, as its Alternative Investment Fund Managers ('AIFM') and Company Secretaries. Baillie Gifford & Co Limited has delegated portfolio management services to Baillie Gifford & Co. Dealing activity and transaction reporting have been further sub-delegated to Baillie Gifford Overseas Limited and Baillie Gifford Asia (Hong Kong) Limited. The Managers may terminate the Management Agreement on six months' notice and the Company may terminate on three months' notice.

The annual management fee is 0.75% on the first £50 million of net assets, 0.65% on the next £200 million of net assets and 0.55% on the remaining net assets. Management fees are calculated and payable on a quarterly basis.

4.       Net return per ordinary share

Revenue return per ordinary share is based on the net revenue profit after taxation of £3,464,000 (2023 - net revenue profit of £4,166,000) and on 90,804,045 (2023 - 91,364,427) ordinary shares, being the weighted average number of ordinary shares in issue (excluding treasury shares) during the year.

Capital return per ordinary share is based on the net capital gain for the financial year of £23,450,000 (2023 - net capital loss of £27,451,000) and on 90,804,045 (2023 - 91,364,427) ordinary shares, being the weighted average number of ordinary shares in issue (excluding treasury shares) during the year.

Total return per ordinary share is based on the total gain for the financial year of £26,914,000 (2023 - total loss of £23,285,000) and on 90,804,045 (2023 - 91,364,427) ordinary shares, being the weighted average number of ordinary shares in issue (excluding treasury shares) during the year.

There are no dilutive or potentially dilutive shares in issue.

5.       Ordinary dividends

We set out below the total dividends proposed in respect of the financial year, which is the basis on which the requirements of section 1158 of the Corporation Tax Act 2010 are considered. There is a revenue surplus for the year to 31 July 2024 of £3,464,000 which is available for distribution by way of a dividend payment (2023 - a revenue surplus of £4,166,000).

If approved, the final dividend of 2.65p will be paid on 28 November 2024 to all shareholders on the register at the close of business on 25 October 2024. The ex-dividend date is 24 October 2024.

6.       Fair Value Hierarchy

*           During the period, Brilliance China listed on the Hong Kong stock exchange having de-listed on 31 March 2021 and there was a demerger with Reliance Industries, where shares of Jio Financial Services were acquired but the company did not list until 21 August 2023.

#           The investments in preference shares include liquidation preference rights that determine the repayment (or multiple thereof) of the original investment in the event of a liquidation event such as a take-over.

During the year to 31 July 2024 no investments (31 July 2023 - nil) were transferred from Level 3 to Level 1 on becoming listed.

Investments in securities are financial assets held at fair value through profit or loss. In accordance with Financial Reporting Standard 102, the tables above provide an analysis of these investments based on the fair value hierarchy described below,
which reflects the reliability and significance of the information used to measure their fair value.

The fair value hierarchy used to analyse the fair values of financial assets is described below. The levels are determined by the lowest (that is the least reliable or least independently observable) level of input that is significant to the fair value measurement for the individual investment in its entirety as follows:

Level 1 - using unadjusted quoted prices for identical instruments in an active market;

Level 2 - using inputs, other than quoted prices included within Level 1, that are directly or indirectly observable (based on market data); and

Level 3 - using inputs that are unobservable (for which market data is unavailable).

The Company's unlisted ordinary share investments at 31 July 2023 were valued using a variety of techniques. These include using comparable company performance, comparable scenario analysis, and assessment of milestone achievement at investee companies. The determinations of fair value included assumptions that the comparable companies and scenarios chosen for the performance assessment provide a reasonable basis for the determination of fair value. In some cases the latest dealing price is considered to be the most appropriate valuation basis, but only following assessment using the techniques described above.

7.       Creditors - amounts falling due within one year

The Company has a multi-currency revolving credit facility with the Royal Bank of Scotland International Limited for up to £100 million, with a non-utilisation rate of 0.4%. This facility expires in March 2025. At 31 July 2024 there were no outstanding drawings (31 July 2023 - nil). The main covenants relating to the loan are that borrowings should not exceed 30% of the Company's adjusted net asset value and the Company's net asset value should be at least £300 million.

There were no breaches in the loan covenants during the year.

None of the above creditors at 31 July 2024 or 31 July 2023 are financial liabilities designated at fair value through profit or loss.

8.       Provision for tax liability

The tax liability provision at 31 July 2024 of £7,691,000 (31 July 2023 - £4,092,000) relates to a potential liability for Indian capital gains tax that may arise on the Company's Indian investments should they be sold in the future, based on the net unrealised taxable capital gain at the period end and on enacted Indian tax rates (long-term capital gains are taxed at 12.5% (2023 - 10%) and short term capital gains are taxed at 20% (2023 - 15%)). The amount of any future tax amounts payable may differ from this provision, depending on the value and timing of any future sales of such investments and future Indian tax rates.

9.       Share capital

In the year to 31 July 2024, the Company issued no ordinary shares from treasury (2023 - 200,000 ordinary shares with a nominal value of £20,000, representing 0.2% of the issued share capital, raising net proceeds of £1,376,000).

In the year to 31 July 2024, 425,198 ordinary shares, representing 0.5% of the issued share capital at 31 July 2023, were bought back at a total cost of £2,345,000 and are held in treasury (2023 - 979,012 shares, representing 1.1% of the issued share capital at 31 July 2022, were bought back during the year at a total cost of £5,541,000 and subsequently reissued from treasury). At 31 July 2024 the Company had authority to allot or sell from treasury 9,104,690 ordinary shares without application of pre-emption rights and to buy back 13,440,596 ordinary shares on an ad hoc basis. Under the provisions of the Company's Articles of Association share buy-backs are funded from the capital reserve.

Between 1 August 2024 and 12 September 2024, no further shares were issued and 39,875 shares were bought back.

10.     Transactions with related parties and the Managers and Secretaries

The Directors' fees for the year are detailed in the Directors' remuneration report on page 75. No Director has a contract of service with the Company. During the year no Director was interested in any contract or other matter requiring disclosure under section 412 of the Companies Act 2006.

Details of the management contract are set out in the Directors' report on page 58 of the Annual Report and Financial Statements. The management fee payable to the Manager by the Company for the year was £3,458,000 (2023 - £3,419,000) of which £903,000 (2023 - £873,000) was outstanding at the year end, as disclosed in note 7.

The Company is part of a marketing programme which includes all the investment trusts managed by the Manager. The Company's marketing contribution, recharged by the Manager, was £90,000 (2023 - £71,000).

11.     The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 July 2024 or 2023 but is derived from those accounts. Statutory accounts for 2023 have been delivered to the Registrar of Companies, and those for 2024 will be delivered in due course. The auditor has reported on these accounts; the reports were unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not contain a statement under sections 498 (2) or 498(3) of the Companies Act 2006.

The Annual Report and Financial Statements will be available on the Company's page on the Managers' website pacifichorizon.co.uk† on or around 25 September 2024.

Glossary of terms and Alternative Performance Measures ('APM')

Total assets

This is the Company's definition of adjusted total assets, being the total value of all assets held less all liabilities (other than liabilities in the form of borrowings).

Shareholders' funds and net asset value

Also described as shareholders' funds, net asset value ('NAV') is the value of all assets held less all liabilities (including borrowings). The NAV per share is calculated by dividing this amount by the number of ordinary shares (excluding treasury shares) in issue.

Net liquid assets

Net liquid assets comprise current assets less current liabilities (excluding borrowings) and provisions for deferred liabilities.

Discount/premium (APM)

As stock markets and share prices vary, an investment trust's share price is rarely the same as its NAV. When the share price is lower than the NAV per share it is said to be trading at a discount. The size of the discount is calculated by subtracting the share price from the NAV per share and is usually expressed as a percentage of the NAV per share. If the share price is higher than the NAV per share, this situation is called a premium.

Turnover

Turnover is calculated as the minimum of purchases and sales in a month, divided by the average market value of the portfolio, summed to get rolling 12 month turnover data.

Compound annual return (APM)

The compound annual return converts the return over a period of longer than one year to a constant annual rate of return applied to the compound value at the start of each year.

Ongoing charges (APM)

The total recurring expenses (excluding the Company's cost of dealing in investments and borrowing costs) incurred by the Company as a percentage of the daily average net asset value, as detailed below:

China 'A' shares

'A' Shares are shares of mainland China-based companies that trade on the Shanghai Stock Exchange and the Shenzhen Stock Exchange. Since 2003, select foreign institutions have been able to purchase them through the Qualified Foreign Institutional Investor system.

Treasury shares

The Company has the authority to make market purchases of its ordinary shares for retention as Treasury Shares for future reissue, resale, transfer, or for cancellation. Treasury Shares do not receive distributions and the Company is not entitled to exercise the voting rights attaching to them.

Unlisted (private) company

An unlisted or private company means a company whose shares are not available to the general public for trading and are not listed on a stock exchange.

Active share (APM)

Active share, a measure of how actively a portfolio is managed, is the percentage of the portfolio that differs from its comparative index. It is calculated by deducting from 100 the percentage of the portfolio that overlaps with the comparative index. An active share of 100 indicates no overlap with the index and an active share of zero indicates a portfolio that tracks the index.

Total return (APM)

The total return is the return to shareholders after reinvesting the net dividend on the date that the share price goes ex-dividend. In periods where no dividend is paid, the total return equates to the capital return.

*           The dividend adjustment factor is calculated on the assumption that the final dividend of 3.25p (31 July 2023 - 3.00p) paid by the Company during the period was reinvested into shares of the Company at the cum income NAV per share/share price, as appropriate, at the ex-dividend date.

Gearing (APM)

At its simplest, gearing is borrowing. Just like any other public company, an investment trust can borrow money to invest in additional investments for its portfolio. The effect of the borrowing on the shareholders' assets is called 'gearing'. If the Company's assets grow, the shareholders' assets grow proportionately more because the debt remains the same. But if the value of the Company's assets falls, the situation is reversed. Gearing can therefore enhance performance in rising markets but can adversely impact performance in falling markets.

Gearing is borrowings at book less cash and brokers' balances expressed as a percentage of shareholders' funds.

Gross gearing is the Company's borrowings expressed as a percentage of shareholders' funds.

Leverage (APM)

For the purposes of the Alternative Investment Fund Managers Regulations leverage is any method which increases the Company's exposure, including the borrowing of cash and the use of derivatives. It is expressed as a ratio between the Company's exposure and its net asset value and can be calculated on a gross and a commitment method. Under the gross method, exposure represents the sum of the Company's positions after the deduction of sterling cash balances, without taking into account any hedging and netting arrangements. Under the commitment method, exposure is calculated without the deduction of sterling cash balances and after certain hedging and netting positions are offset against each other.

Pacific Horizon Investment Trust PLC (Pacific Horizon) aims to achieve capital growth through investment in the Asia-Pacific region (excluding Japan) and in the Indian subcontinent. The Company has total assets of £602 million (before deduction of loans of nil) at 31 July 2024.

Pacific Horizon is managed by Baillie Gifford & Co Limited, the Edinburgh based fund management group.

Past performance is not a guide to future performance. Pacific Horizon is a public listed company and is not authorised or regulated by the Financial Conduct Authority. The value of its shares and any income from those shares can fall as well as rise and you may not get back the amount invested. Pacific Horizon invests in overseas securities, changes in the rates of exchange may also cause the value of your investment (and any income it may pay) to go down or up. Pacific Horizon invests in emerging markets where difficulties in dealing, settlement and custody could arise, resulting in a negative impact on the value of your investment. Shareholders in Pacific Horizon have the right to vote every five years, on whether to continue Pacific Horizon, or wind it up. If the shareholders decide to wind the Company up, the assets will be sold and you will receive a cash sum in relation to your shareholding. The next vote will be held at the Annual General Meeting in 2026. You can find up to date performance information about Pacific Horizon on the Pacific Horizon page of the Managers' website at pacifichorizon.co.uk.†

†        Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement.

16 September 2024

For further information please contact:

Anzelm Cydzik, Baillie Gifford & Co

Tel: 0131 275 2000

Jonathan Atkins, Four Communications

Tel: 0203 920 0555 or 07872 495396