Annual Financial Report

RNS Number : 8489S

JPMorgan Overseas IT PLC

16 September 2010

 



STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN OVERSEAS INVESTMENT TRUST PLC

ANNOUNCEMENT OF FINAL RESULTS

 

The Directors of JPMorgan Overseas Investment Trust plc announce the Company's results for the year ended 30^th June 2010.

 

Chairman's Statement

During the year ended 30th June 2010 global equity market conditions improved steadily following the severe declines experienced in the previous two years. The Company produced an impressive return of 49.0% for shareholders and a portfolio return on net assets of 33.3%. In comparison the Company's benchmark, the MSCI AC World Index (expressed in sterling terms) recorded a total return of 23.0% over the reporting period. This exceptional performance relative to the benchmark was mainly attributable to stock selection.

The Investment Manager's report provides a detailed commentary on the Company's investment strategy. The Board is pleased with the Investment Manager's performance over the past twelve months and continues to support his high conviction approach of selecting stocks based on their strong financial position, quality of management and growth potential as identified by the JPMorgan worldwide research organisation.

Dividends

The Directors are proposing, subject to shareholders' approval at the Annual General Meeting ('AGM'), to pay an increased final dividend of 13.0 pence per share (2009: 11.5 pence) on 26th November 2010 to shareholders on the register at the close of business on 5th November 2010. The Company's principal aim is to maximise capital growth so as to give shareholders the advantage of the more benign tax rate on capital gains. The Board does however appreciate that many shareholders do like to receive a dividend rather than have to sell shares to obtain income.

Share Buybacks

During the year, the Company repurchased 421,966 shares for holding in Treasury, representing 1.6% of the shares outstanding at the beginning of the year. The total cost of these repurchases was £2.6 million. It is encouraging to note that due to improved performance the share price discount to net asset value narrowed significantly over the reporting period moving from a discount of 5.0% at 30th June 2009 to a premium of 5.9% at 30th June 2010. A resolution to renew the authority to permit the Company to continue to repurchase shares will be submitted to the AGM. Any shares held in Treasury will only be re-issued at a premium to net asset value.

The Board will continue to manage the discount at which the share price trades relative to its net asset value at around 5% if it should become necessary by means of repurchases of the Company's shares in the market.

Total Expense Ratio

The Board maintains a close watch on the costs of operating your Company to ensure that they are kept to a minimum. The Company's total expense ratio (management expenses expressed as a percentage of the average of the month end net assets during the year) was 0.65% for the year ended 30th June 2010. While some of the Company's expenses will vary with its size there are, nevertheless, other expenses that are fixed. High levels of share buybacks could, over time, have a detrimental effect on the total expense ratio and your Board will continue to monitor this figure to ensure that it remains within acceptable parameters.

Gearing

Gearing is regularly discussed between the Board and the Investment Manager. A new increased borrowing facility of £20 million was negotiated with ING Bank in July this year upon expiry of the previous £10 million facility with Lloyds TSB. This facility is highly flexible and can be used tactically as investment opportunities present themselves, with the aim of enhancing returns. As sufficient investment opportunities arose in rising markets during the year, £10 million had been drawn throughout the year to enhance the potential gains. This represented a gearing level of 6.1% of net assets at 30th June 2010.

Currency Hedging

The Company continues its passive currency hedging strategy (implemented in late 2008) that aims to make stock selection the predominant driver of overall portfolio performance relative to the benchmark, the MSCI Word AC Index. This is a risk reduction measure, designed to eliminate most of the differences between the portfolio's currency exposure and that of the Company's benchmark. As a result the returns derived from, and the portfolio's exposure to currencies may differ materially from that of the Company's competitors in the AIC Global Growth sector, who generally do not undertake such a strategy.

The Board

As previously reported, I plan to retire from the Board immediately after the forthcoming AGM and so too does Dick Barfield. Accordingly, neither of us will stand for re-election at that meeting. Dick has served the Company since 2001, and I should like to thank him for his invaluable contribution to the Board over that period. Simon Davies will succeed Dick in his role as Chairman of the Nomination Committee and will also succeed me as Chairman of the Board. I am confident that Simon will serve the Company and its shareholders very well.

The Nomination Committee has carried out a recruitment process which has lead to the appointment of Nigel Wightman as a further non-executive director since the appointment of Jonathan Carey last year. Nigel brings with him over 30 years experience of the international asset management industry, having held senior positions at a number of major firms in London and Hong Kong including State Street and NM Rothschild. Most recently he was the Chairman and Chief Executive of Titanium Asset Management. Shareholders will be asked to elect him at the forthcoming AGM.

Annual General Meeting

My fellow Directors and I invite you to attend the Company's AGM which will be held at Trinity House, Tower Hill, London EC3N 4DH on Tuesday, 26th October 2010 at 12 noon. An investment presentation will be made at the meeting by Jeroen Huysinga. If you have any detailed or technical questions, please raise these in advance with the Secretary whose contact details are shown on page 61 of the Annual Report. Shareholders who are unable to attend the AGM in person are encouraged to use their proxy votes.

The AGM will be followed by refreshments and there will be an opportunity for shareholders to meet the Directors and the Investment Manager. I hope to have the pleasure of meeting you then.

Outlook

Despite the recovery this year, the investment climate remains volatile. Given the continuing global concerns and fragile markets, the short term outlook continues to remain uncertain. Nevertheless, the Board is confident that the Company's Investment Manager is well positioned to identify appropriate investment opportunities in this difficult environment.

It has been a great pleasure and a privilege to have been a Director of the Company since 1998 and Chairman since 2001. I would like to thank my Board colleagues for all their help and support over these years. Good investment performance is the vital ingredient to ensure the success of the Company and I am delighted that Jeroen Huysinga has proved to be such an able stock picker. JPMorgan Asset Management continues to manage the Company most efficiently and I have enjoyed working with the managers concerned.

I should like to thank all shareholders for supporting the Board over the period during which I have been involved. The Board's top priority is to deliver the best possible returns for shareholders. I wish my colleagues every success in the future.

George Paul

Chairman                                                                                                                    

16th September 2010

Investment Managers' Report

After two years of sharp decline, the year under review saw recovery in global equities. The MSCI AC World Index rose 23%, measured in sterling terms. As discussed in previous reports, fiscal and monetary stimulus of enormous magnitude provided a foundation for economic stabilisation. This, coupled with increased leanness in the corporate sector, drove a significant re-rating of risk assets.

The recovery in equities during the first part of the review period was dominated by sectors which are largely cyclical in character. Subsequently a more questioning and less unconditional environment resulted in significant shifts in leadership. Over the 12 month period we therefore observed a mixture of different sectors leading and lagging overall markets. In the former category we saw Consumer Staples, Industrial Cyclicals and Media. In the latter: Capital Market Banks, Utilities and Energy. If ever there was a year to focus on stock selection within sectors as opposed to picking sectors themselves then this was it.

Although the Chairman has already referred to performance in his report we would emphasise that the portfolio continued to outperform across a wide range of sectors. Within cyclicals, stocks such as Rhodia, Lanxess and Dow Chemical were strong on a combination of demand recovery, industry restocking, corporate cost reduction and exceptionally strong cashflow. In commodities, Petropavlosk (gold in Russia) and InterOil (energy in Papua New Guinea) rose significantly as increased economic stability and company specific developments facilitated a new and more positive assessment of normalised value.

Despite our objective of building superior long term capital appreciation through stock selection across global sectors and irrespective of domicile, it is pleasing to note that performance was well balanced across regions. Five out of six regions showed positive returns from stock selection. In North America, Johnson Controls and McDonald's contributed to strong returns. In Japan we would highlight Mitsubishi Electric and Nidec. In the UK and Europe performance was driven by stocks such as InterContinental Hotels, Cairn Energy, Lloyds Banking Group, Nokian Renkaat, Banco Santander and Schoeller-Bleckmann Oilfield Services.

Earlier this year we mentioned that recovering equity markets had led to a narrowing of valuation spreads within large areas of our research coverage. This instigated a number of important changes in the portfolio. For example, the average market capitalisation of stocks held has risen relative to that of the broader benchmark. Some very large companies with excellent management, balance sheets and global franchises became exceptionally cheap. A number of our Emerging Market holdings appreciated to levels which we considered high enough to switch into cheaper stocks within similar sectors and frequently with similar economic exposure but domiciled in North America and Europe. Exposure in a number of sectors has changed significantly during the review period. Banks, Health Care and Technology have declined whereas Telecoms, Retail and Energy have increased in response to some very compelling stock specific insight.

Although we are reporting on a buoyant financial year, an array of global concerns including sovereign debt in Europe, bank regulation, fiscal austerity and slowdown concerns in the US and China have resulted in sluggish markets in recent months. Global risk appetite has fallen sharply and the correlations between equity returns have been among the highest ever as macro concerns predominate. After a very sharp recovery from the crisis of 2008/09, rates of change across a number of different macroeconomic and corporate indicators are clearly flattening. For many investors this has acted as a negative development. For others, the system appears more robust than what is being discounted in equity markets. We would highlight two factors in particular. First, whereas the most recent economic collapse was triggered by the inability of banks to fund economic activity, the propensity for banks to lend is currently very high. Moreover, central banks, led by the US Federal Reserve, are in proactive mode. Second, the profitability of the corporate sector is unprecedented for a post-crisis period such as this. In the US, corporate profits as a share of GDP are in excess of 10% which is significantly higher than a frequently discussed parallel which is Japan in the 1990s. Corporate balance sheets are strong with the highest cash to assets ratio, again in the US, on record. With bid activity accelerating there is growing evidence that corporates are willing to take advantage of valuation levels which the public markets are currently unwilling to recognise. These issues highlight the possibility that economies have recovered sufficiently and have developed more resilience to shocks such as the European sovereign debt crisis than many believe.

Normally we would avoid broad and general comments about markets and economies because we are bottom up and stock specific. But in many instances where our valuation signals (based on normalised earnings potential) are currently strongest, we need a firm macro view. Where valuation signals have become more compressed we are spending more time than ever on quality of management, quality of franchise and reinvestment potential. Given the impressive research team which we have at our disposal we are very confident in our continued ability to locate appropriate investments in this environment.

Jeroen Huysinga

Investment Manager                                                                                                   

16th September 2010

Principal Risks

With the assistance of the Manager, the Board has drawn up a risk matrix, which identifies the key risks to the Company.

These key risks fall broadly under the following categories:

•          Investment and Strategy: An inappropriate investment strategy, for example asset allocation or the level of gearing, may lead to under-performance against the Company's benchmark index and peer companies, resulting in the Company's shares trading on a wider discount. The Board manages these risks by diversification of investments through its investment restrictions and guidelines which are monitored and reported by the Manager. JPMAM provides the Directors with timely and accurate management information, including performance data and attribution analyses, revenue estimates, liquidity reports and shareholder analyses. The Board monitors the implementation and results of the investment process with the Investment Manager, who attends all Board meetings, and reviews data which show statistical measures of the Company's risk profile. The Investment Manager employs the Company's gearing within a strategic range set by the Board. The Board holds a separate meeting devoted to strategy each year.

•          Market: Market risk arises from uncertainty about the future prices of the Company's investments. It represents the potential loss that the Company might suffer through holding investments in the face of negative market movements. The Board considers asset allocation, stock selection and levels of gearing on a regular basis and has set investment restrictions and guidelines, which are monitored and reported on by JPMAM. The Board monitors the implementation and results of the investment process with the Manager.

•          Accounting, Legal and Regulatory: In order to qualify as an investment trust, the Company must comply with Section 1158 of the Income and Corporation Tax Act 2010 ('Section 1158'). Details of the Company's approval are given under "Business of the Company" above. Were the Company to breach Section 1158, it might lose investment trust status and, as a consequence, gains within the Company's portfolio could be subject to Capital Gains Tax. The Section 1158 qualification criteria are continually monitored by JPMAM and the results reported to the Board each month. The Company must also comply with the provisions of The Companies Act 2006 and, since its shares are listed on the London Stock Exchange, the UKLA Listing Rules. A breach of the Companies Act 2006 could result in the Company and/or the Directors being fined or the subject of criminal proceedings. Breach of the UKLA Listing Rules could result in the Company's shares being suspended from listing, which in turn would breach Section 1158. The Board relies on the services of its Company Secretary, JPMAM to ensure compliance with the Companies Acts and The UKLA Listing Rules.

•          Corporate Governance and Shareholder Relations: Details of the Company's compliance with Corporate Governance best practice, including information on relations with shareholders, are set out in the Corporate Governance report on pages 22 to 26 of the Annual Report.

•          Operational: Loss of key staff by JPMAM, such as the Investment Manager, could affect the performance of the Company. Disruption to, or failure of, JPMAM's accounting, dealing or payments systems or the custodian's records could prevent accurate reporting and monitoring of the Company's financial position. Details of how the Board monitors the services provided by JPMAM and its associates and the key elements designed to provide effective internal control are included with the Internal Control section of the Corporate Governance report on page 25 of the Annual Report.

•          Financial: The financial risks faced by the Company include market price risk, interest rate risk, liability risk and credit risk. Further details are disclosed in note 26 on pages 46 to 52 of the Annual Report.

Related Parties Transactions

During the financial year, no transactions with related parties have taken place which have materially affected the financial position or the performance of the Company during the year.

Statement under the Disclosure & Transparency Rules 4.1.12

The Directors each confirm to the best of their knowledge that:

(a)        the accounts, prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and Applicable Law), give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

(b)       the Annual Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

For and on behalf of the Board

Simon Davies

Director  

16^th September 2010

Income Statement

for the year ended 30th June 2010

		2010			2009
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Gains/(losses) on investments held at fair value through profit or loss
	-	41,974	41,974	-	(14,936)	(14,936)
Net foreign currency gains/(losses)	-	5,282	5,282	-	(257)	(257)
Income from investments	3,927	-	3,927	4,153	-	4,153
Other interest receivable and similar income	35	-	35	687	-	687
Gross return/(loss)	3,962	47,256	51,218	4,840	(15,193)	(10,353)
Management fee	(362)	(362)	(724)	(271)	(271)	(542)
Performance fee	-	(2,540)	(2,540)	-	(1,668)	(1,668)
VAT recoverable	-	-	-	126	141	267
Other administrative expenses	(458)	-	(458)	(439)	-	(439)
Net return/(loss) on ordinary activities
before  finance costs and taxation	3,142	44,354	47,496	4,256	(16,991)	(12,735)
Finance costs	(93)	(93)	(186)	(155)	(155)	(310)
Net return/(loss) on ordinary activities
before  taxation	3,049	44,261	47,310	4,101	(17,146)	(13,045)
Taxation	(298)	-	(298)	(860)	520	(340)
Net return/(loss) on ordinary activities
after taxation	2,751	44,261	47,012	3,241	(16,626)	(13,385)
Return/(loss) per share (note 3)	10.65p	171.28p	181.93p	12.26p	(62.88)p	(50.62)p

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year.

Reconciliation of Movements in Shareholders' Funds

	Called up	Capital
	share	redemption	Capital	Revenue
	capital	reserve	reserves	reserve	Total
	£'000	£'000	£'000	£'000	£'000
At 30th June 2008	6,735	27,210	114,251	17,610	165,806
Repurchase and cancellation of the Company's own shares	(191)	191	(3,772)	-	(3,772)
Repurchase of shares into Treasury	-	-	(132)	-	(132)
Net (loss)/return on ordinary activities	-	-	(16,626)	3,241	(13,385)
Dividends appropriated in the year	-	-	-	(3,047)	(3,047)
At 30th June 2009	6,544	27,401	93,721	17,804	145,470
Repurchase of shares into Treasury	-	-	(2,599)	-	(2,599)
Net return on ordinary activities	-	-	44,261	2,751	47,012
Dividends appropriated in the year	-	-	-	(2,970)	(2,970)
At 30th June 2010	6,544	27,401	135,383	17,585	186,913

Balance Sheet

at 30th June 2010

	2010	2009
	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	198,288	156,739
Investment in liquidity fund held at fair value through profit or loss	1,100	1,027
Total investments	199,388	157,766
Current assets
Financial assets: Derivative financial instruments	4,126	2,238
Debtors	1,204	1,375
Cash and short term deposits	637	708
	5,967	4,321
Creditors: amounts falling due within one year	(12,824)	(11,811)
Financial liabilities: Derivative financial instruments	(2,571)	(3,139)
Net current liabilities	(9,428)	(10,629)
Total assets less current liabilities	189,960	147,137
Creditors: amounts falling due after more than one year	(200)	(200)
Provisions for liabilities and charges
Performance fees	(2,847)	(1,467)
Total net assets	186,913	145,470
Capital and reserves
Called up share capital	6,544	6,544
Capital redemption reserve	27,401	27,401
Capital reserves	135,383	93,721
Revenue reserve	17,585	17,804
Shareholders' funds	186,913	145,470
Net asset value per share (note 4)	726.5p	556.3p

The accounts were approved and authorised for issue by the Directors on 16th September 2010 and were signed on their behalf by:

Simon Davies

Director

Company registration number: 24299.

Cash Flow Statement

for the year ended 30th June 2010

	2010	2009
	£'000	£'000
Net cash inflow from operating activities	1,215	5,190
Returns on investments and servicing of finance
Interest paid	(113)	(328)
Net cash outflow from returns on investments and servicing
of finance	(113)	(328)
Taxation
Taxation recovered	83	147
Capital expenditure and financial investment
Purchases of investments	(302,085)	(304,622)
Sales of investments	303,595	302,603
Other capital charges	(23)	(19)
Net cash inflow/(outflow) from capital expenditure and
financial investment	1,487	(2,038)
Dividend paid	(2,970)	(3,047)
Net cash outflow before financing	(298)	(76)
Financing
Repurchase of shares into Treasury	(2,599)	(132)
Repurchase and cancellation of the Company's own shares	-	(4,032)
Net drawdown of loans	-	4,000
Net cash outflow from financing	(2,599)	(164)
Decrease in cash for the year	(2,897)	(240)

Notes to the Accounts

for the year ended 30th June 2010

1.          Accounting policies

(a)        Basis of accounting

 The accounts are prepared in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ('UK GAAP') and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the AIC in January 2009.

            All of the Company's operations are of a continuing nature.

The accounts have been prepared on a going concern basis under the historical cost convention, as modified by the revaluation of investments and derivative financial instruments held at fair value.

            The policies applied in these accounts are consistent with those applied in the preceding year. There has been an amendment to FRS 29 in respect of fair value disclosures and the details of this are given in note 25 on page 45 of the Annual Report.

2.         Dividends

            Dividends paid and proposed

	2010	2009
	£'000	£'000
Dividend paid
Unclaimed dividends refunded to the Company	(9)	-
2009 final dividend of 11.5p (2008: 11.5p)	2,979	3,047
Total dividends paid in the year	2,970	3,047
Dividend proposed
2010 final dividend proposed of 13.0p (2009: 11.5p)	3,344	3,007

The final dividend proposed in respect of the year ended 30th June 2010 is subject to approval at the forthcoming Annual General Meeting. In accordance with the accounting policy of the Company, this dividend will be reflected in the accounts for the year ending 30th June 2011.

3.         Return/(loss) per share

The revenue return per share is based on the earnings attributable to the ordinary shares of £2,751,000 (2009: £3,241,000) and on the weighted average number of ordinary shares in issue during the year of 25,840,791 (2009: 26,441,114).

The capital return per share is based on the capital return attributable to the ordinary shares of £44,261,000 (2009: £16,626,000 loss) and on the weighted average number of ordinary shares in issue during the year of 25,840,791 (2009: 26,441,114).

The total return per share is based on the total return attributable to the ordinary shares of £47,012,000 (2009: £13,385,000 loss) and on the weighted average number of ordinary shares in issue during the year of 25,840,791 (2009: 26,441,114).

4.         Net asset value per share

            The net asset value per share is based on funds attributable to ordinary shareholders and on 25,726,732 (2009: 26,148,698) shares in issue at the year end, excluding shares held in Treasury.

5.         Status of Announcement

Financial Information

The financial information set out in this announcement does not constitute the Company's statutory accounts for the years ended 30^th June 2009 or 2010. The statutory accounts for the years ended 30^th June 2009 and 2010 have been reported on by the Company's auditors. The auditor's reports for both years were unqualified and contained no statement under section 498(2) or 498(3) of the Companies Act 2006. The statutory accounts for the year ended 30^th June 2009 have been delivered to the Registrar of Companies and the statutory accounts for the year ended 30^th June 2010 will be delivered in due course.

Annual Report and Accounts

The Annual Report and Accounts will be posted to shareholders on or around 23^rd September 2010 and will shortly be available on the Company's website (www.jpmoverseas.co.uk) or in hard copy format from the Company's Registered Office, Finsbury Dials, 20 Finsbury Street, London EC2Y 9AQ. 

JPMORGAN ASSET MANAGEMENT (UK) LIMITED

Please note that up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can be found at www.jpmoverseas.co.uk

For further information please contact:

Divya Amin

For and on behalf of

JPMorgan Asset Management (UK) Limited, Secretary - 020 7742 6000

16^th September 2010

 

END

 

 

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