Half Year Results to 31 December 2014

RNS Number : 4774F

JPMorgan Overseas IT PLC

20 February 2015

 



LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN OVERSEAS INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS

ENDED 31ST DECEMBER 2014

Chairman's Statement

Performance

The first six months of the Company's financial year to 31st December 2014 saw equities advance further at the global level although growth was not harmonised across all economies. Developed markets in general performed better than the emerging economies where rising geopolitical concerns weighed on investors' sentiment. The most significant new development over the six months was the collapse in oil prices, which brought a mixture of challenges and opportunities to the investment landscape. Against this backdrop, the Company recorded an undiluted total return of +7.5%. The fully diluted total return on net assets (which assumes that all of the Company's Subscription shares outstanding at 31st December 2014 were all exercised at the price of 986 pence per share) was +7.3%. The total return to Ordinary shareholders during the reporting period was +8.7%. By comparison, the benchmark, the MSCI AC World Index (in sterling terms) returned +7.6%.

The Investment Manager's report gives a more detailed commentary about the markets and conditions experienced during this period and the outlook for the Company's portfolio.

Share Issuance and Buybacks

During the six months to 31st December 2014, the Company has issued a total of 91,613 Ordinary shares following the exercise of Subscription shares, amounting to proceeds of £864,000. Subscription shareholders are reminded that the next opportunity to exercise their Subscription share rights (at the exercise price of 986 pence per share) will take effect on 30th April 2015 and the final opportunity to exercise them will take effect on 31st October 2015 (again, at the exercise price of 986 pence per share). After this date, the rights on the Subscription shares will lapse. Further details of the Subscription shares can be found on page 18 of the half year report and on the Company's website at www.jpmoverseas.co.uk

In line with the Company's discount management policy, we repurchased 382,555 Ordinary shares at a cost of £3,748,000 during the six month period. These shares have been held in Treasury. The Board believes these actions have been successful in reducing the volatility of the share price relative to net asset value. The Board continues to keep the discount under review and will purchase shares, if appropriate, in accordance with the Company's discount management policy.

Gearing

The Board regularly discusses gearing with the Investment Manager and continues to believe that it serves as a valuable tool to enhance performance over time. The Company has a £25 million borrowing facility in place with National Australia Bank until July 2015, at which time it will be reviewed. This facility is flexible and gives the Investment Manager the ability to gear tactically as opportunities present themselves. At 31st December 2014, the Company was 6.2% geared, with £20 million of the £25 million facility drawn down.

The Board

As part of the Board's succession planning and in anticipation of my retirement at the conclusion of this year's AGM, the Nomination Committee carried out a recruitment process which led to Tristan Hillgarth joining the Board as a non-executive director with effect from 11th November 2014. Tristan's breadth of knowledge and experience of the asset management industry will be of great value to the Board.

Outlook

Despite a number of uncertain macro-economic variables, the Board takes comfort from the improving outlook for global growth. Attractive valuations and favourable monetary conditions continue to favour equities over the coming months. The Board continues to believe that the Investment Manager, supported by his highly experienced research team, is well placed to identify high quality companies around the world with strong fundamentals to further enhance returns for the Company in the longer term.

For and on behalf of the Board

Simon Davies

Chairman                                                                                                                                                                                                 

20 February 2015

Investment Manager's Report

Market review

Over the last six months, global equity markets continued to perform well. The MSCI All Country World Index-the benchmark index against which performance is measured-rose 7% in sterling terms.

For equity investors, the economic backdrop has been dominated by several important factors. First, oil prices have continued to collapse as OPEC announced it would no longer prop up the market by supporting oil prices. Second, long-term interest rates are still at exceptionally low levels in all major markets. Third, the US dollar has become much stronger, encouraged by economic growth and the end of quantitative easing-where a country's central bank creates new money in an attempt to stimulate private sector spending and bring back inflation to target levels.

The US economy has continued to go from strength to strength, with many US companies reporting record sales and earnings. The equity market reacted to this positive news with a rise of 15% in sterling terms.

On the other side of the Atlantic, European markets finished the period flat after a bumpy ride. However, investors were disappointed to see no real evidence that central bank policies designed to stimulate growth were having a noticeable impact on the European economy. This in turn raised hopes that the European Central Bank (ECB) would prove its commitment to support economic recovery by announcing extra monetary measures.

Japan performed strongly over the period, bouncing back from its poor performance at the beginning of the year. Following the election of Shinzo Abe as Prime Minister in December 2012, Japan has launched one of the most aggressive policy moves in the country's history, seeking to revive the economy which has been stagnant for two decades. In November, news that the government would delay a planned sales tax increase by 18 months allayed investors' concerns that this would hold back the country's recovery. The Japanese yen continued to weaken, particularly against the US dollar, providing a boost for exporters.

Emerging markets rose over the period, but still lagged their developed market counterparts, despite many continuing to see much higher growth. The region has seen money flowing in from external investors who want to reduce their underweight (when their exposure to a stock, sector or region is lower than that of the benchmark index) to the region following the sell-off at the beginning of the year. However, emerging markets were hurt by fresh fears over the Chinese economy and the impact of US monetary policy tightening, where the Fed tries to rein in spending when the economy is growing too fast, or to slow inflation when it is rising too quickly.

Portfolio Review

Over the six months to end December 2014, the Company has performed broadly in line with the index. Over the last six years that I have been managing the portfolio, it has delivered annualized performance of 15.3%, outperforming the benchmark by 3.4%, annualized.

Our choice of stocks had a mixed impact on the portfolio. Our holdings in energy and commodity-related stocks had a significant negative effect on returns, thanks to a steep decline in the oil price and other important commodities towards the end of the year. While our exposure to the energy sector is below that of the benchmark, we favour exploration and production companies. This is driven by our focus on identifying attractively valued companies with strong growth potential. One of our largest holdings is Interoil, which is developing a significant liquefied natural gas project in Papua New Guinea with French company Total. Because the share price is driven much more by the successful exploitation of existing wells and exploration upside, it is less sensitive to short-term changes in the oil price. We also have a position in BG Group, which we believe can generate significant free cash flow, even if the low oil price persists. Elsewhere, we have holdings in Schlumberger and Halliburton, both high-quality oil services companies with balance sheets that can cope with short-term pressures.

We hold a number of stocks that do well when the oil price falls, and these boosted performance. These include US retailers Lowe's and TJX Companies (the parent company of TK Maxx), as well as three airlines companies: Ryanair, Japan Airlines and United Continental.

United Continental made the biggest contribution to performance over the six months, with its shares rising 63%. The US airline operator has benefited from a lower oil price, as well as US economic growth, reduced capacity and stronger industry pricing. Unlike in 2008/2009, very little of the current drop in fuel prices is being passed on to consumers. This is because many carriers can still fill seats without resorting to discounts. We continue to hold these shares as we believe there is still good scope to improve profitability, which is still below that of its competitors.

We have been encouraged to see a turnaround in the performance of a number of our European holdings in cyclical sectors, which are more sensitive to changes in the economy. These included UPM, the Finnish paper company, which is exposed to a consolidating industry and an improving pulp market. We also hold Electrolux, the Swedish appliance maker. The company has spent a decade restructuring its business and is currently acquiring GE's appliance business, while a deal with Home Depot has helped expand its US presence. Our emerging market holdings also had a positive impact on performance, particularly ICICI, India's largest private sector bank, and Mr Price, a South African discounted-clothing retailer.

Portfolio positioning:

We have not made any significant changes to the portfolio. We have kept our overweight (when exposure to a stock, sector or region is higher than that of the benchmark index) exposure to a number of cyclical sectors, which are more sensitive to economic changes. These sectors include basic industries, industrial cyclicals and autos. Our focus remains on picking the right stocks, and this has been the main source of returns. At a geographic level, our investment process of identifying companies that are attractively valued relative to global peers continues to lead us towards Europe and the UK and away from North America. The difference in valuation between these two markets is striking. We have sold some US stocks such as retailer VF Corp, and biotech company Biogen. Meanwhile, we increased our position in Europe through auto parts company Valeo and manufacturer Henkel.

In addition to a holding in Continental, our purchase of Valeo reflects our positive view on the structural prospects for the larger auto component companies. Both companies do well when the euro is weaker and have made significant investment in key growth areas, for example, hybrid vehicles. Car manufacturers, such as BMW, are consolidating the number of suppliers they use and this is pushing more business towards the likes of Valeo and Continental. Additionally, the pipeline of new parts orders for these companies is reasonably predictable, and the long-term global autos sales potential is attractive. Our purchase of Henkel demonstrates all of the criteria we look for in an investment: valuation, strong earnings growth potential, catalysts and timeline. The stock is attractively valued relative to peers and has a very strong management team that has been in place for many years. Henkel has a significant opportunity to grow both organically and by acquisition in many of its areas, particularly in adhesives. Additionally, there is substantial scope to increase profitability over the long term.

We have increased our position in the emerging markets, bringing it broadly into line with that of the benchmark index. As valuations have continued to decline, these regions have started to look increasingly attractive in a global context. However, the short-term outlook for these economies is still very uncertain so we believe a selective approach is key. Specifically, we bought shares in Naspers, a South African pay-TV company and Magnit, which owns a chain of supermarkets in Russia. Oil price weakness and geopolitical issues have put great pressure on Russian stocks. This presented a great opportunity to buy a very good company which is growing at more than 25% and has a clear runway to double its market share in food retail from currently below 10%.

Market Outlook

The key drivers for positive equity performance remain in place: improving global growth, accommodative monetary policy, and still-supportive valuations. Some of this economic growth has fed through into company's earnings, the anticipation of which drove much of the valuation multiple expansion over the last year. This kind of environment would typically be positive for more economically sensitive areas of the market. Continued merger and acquisition activity would also be positive for equity markets. Corporate deals soared in 2014 thanks to renewed confidence from company management teams and strong cash flows generation. Looking forward, we will need to see ongoing economic growth and sensible policy guidance from central banks for this to continue.

However, the picture is very different from region to region, and a global recovery is unlikely to be synchronised. The US and UK are moving away from a reliance on monetary policy to a more self-sustaining phase of growth and attention has now shifted to the possibility of interest rate rises. In contrast, in Europe, the economic and company earnings outlook remains less certain. We believe that there are three key areas in Europe where the positive impact for companies is potentially underappreciated: 1) monetary conditions, 2) low energy prices and 3) a weaker euro. In a recent significant move, the ECB announced a quantitative easing programme worth more than EUR 1 trillion, which was cheered by world markets.

We have maintained a degree of gearing in the portfolio, driven by improving economic sentiment, corporate strength and attractive valuations across a number of holdings. Our focus remains on underlying company fundamentals and our dedicated team of highly experienced research analysts continues to identify attractive investment opportunities around the world.

Jeroen Huysinga

Investment Manager                                                                                                                                                                               

20 February 2015

Interim Management Report

The Company is required to make the following disclosures in its half year report.

Principal Risks and Uncertainties

The principal risks and uncertainties faced by the Company have not changed and fall into the following broad categories: investment and strategy; market; accounting, legal and regulatory; corporate governance and shareholder relations; operational; going concern; and financial. Information on each of these areas is given in the Business Review within the Annual Report and Accounts for the year ended 30th June 2014.

Related Parties Transactions

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

Going Concern

The Directors believe, having considered the Company's investment objectives, risk management policies, capital management policies and procedures, nature of the portfolio and expenditure projections, that the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future. For these reasons, they consider there is reasonable evidence to continue to adopt the going concern basis in preparing the accounts.

Directors' Responsibilities

The Board of Directors confirms that, to the best of its knowledge:

(i)   the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with the Accounting Standards Board's Statement 'Half Yearly Financial Reports' and gives a true and fair view of the state of affairs of the Company and of the assets, liabilities, financial position and net return of the Company, as at 31st December 2014, as required by the UK Listing Authority Disclosure and Transparency Rules 4.2.4R; and

(ii)  the interim management report includes a fair review of the information required by 4.2.7R and 4.2.8R of the UK Listing Authority Disclosure and Transparency Rules.

In order to provide these confirmations, and in preparing these financial statements, the Directors are required to:

•     select suitable accounting policies and then apply them consistently;

•     make judgements and accounting 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; and

•     prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business;

and the Directors confirm that they have done so.

For and on behalf of the Board

Simon Davies

Chairman                                                                                                                                                                                                 

20 February 2015

Income Statement

for the six months ended 31st December 2014

	(Unaudited)			(Unaudited)			(Audited)
	Six months ended			Six months ended			Year ended
	31st December 2014			31st December 2013			30th June 2014
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments held at
fair value through profit
or loss	-	14,242	14,242	-	23,737	23,737	-	31,243	31,243
Net foreign currency gains/(losses)	-	2,974	2,974	-	(2,092)	(2,092)	-	(1,609)	(1,609)
Income from investments	1,670	-	1,670	1,282	-	1,282	4,405	-	4,405
Other interest receivable and
similar income	16	-	16	4	-	4	73	-	73
Gross return	1,686	17,216	18,902	1,286	21,645	22,931	4,478	29,634	34,112
Management fee	(264)	(264)	(528)	(247)	(247)	(494)	(499)	(499)	(998)
Performance fee writeback/(charge)	-	104	104	-	(1,287)	(1,287)	-	(1,791)	(1,791)
Other administrative expenses	(260)	-	(260)	(201)	-	(201)	(497)	-	(497)
Net return on ordinary activities
before finance costs and
taxation	1,162	17,056	18,218	838	20,111	20,949	3,482	27,344	30,826
Finance costs	(110)	(110)	(220)	(108)	(108)	(216)	(212)	(212)	(424)
Net return on ordinary activities
before taxation	1,052	16,946	17,998	730	20,003	20,733	3,270	27,132	30,402
Taxation (note 3)	(133)	-	(133)	(95)	-	(95)	(355)	-	(355)
Net return on ordinary activities
after taxation	919	16,946	17,865	635	20,003	20,638	2,915	27,132	30,047
Return per share (note 4)
- undiluted	3.98p	73.37p	77.35p	2.70p	85.12p	87.82p	12.41p	115.55p	127.96p
- diluted	3.98p	73.27p	77.25p	2.69p	84.67p	87.36p	12.41p	115.55p	127.96p

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

The 'Total' column of this statement is the profit and loss account of the Company and the 'Revenue' and 'Capital' columns represent supplementary information prepared under guidance issued by The Association of Investment Companies. The Total column represents all the information that is required to be disclosed in a Statement of Total Recognised Gains and Losses ('STRGL'). For this reason a STRGL has not been presented.

Reconciliation of Movements in Shareholders' Funds

	Called up		Capital
Six months ended	share	Share	redemption	Capital	Revenue
31st December 2014	capital	premium	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000
At 30th June 2014	6,660	3,213	27,401	190,534	17,827	245,635
Repurchase of shares into Treasury	-	-	-	(3,764)	-	(3,764)
Exercise of Subscription shares into
Ordinary shares	(1)	1	-	-	-	-
Issue of Ordinary shares on exercise of
Subscription shares	23	841	-	-	-	864
Net return on ordinary activities	-	-	-	16,946	919	17,865
Dividend appropriated in the period	-	-	-	-	(3,467)	(3,467)
At 31st December 2014	6,682	4,055	27,401	203,716	15,279	257,133
	Called up		Capital
Six months ended	share	Share	redemption	Capital	Revenue
31st December 2013	capital	premium	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000
At 30th June 2013	6,592	734	27,401	167,955	18,463	221,145
Repurchase of shares into Treasury	-	-	-	(1,302)	-	(1,302)
Exercise of Subscription shares into
Ordinary shares	(3)	3	-	-	-	-
Issue of Ordinary shares on exercise of
Subscription shares	69	2,426	-	-	-	2,495
Net return on ordinary activities	-	-	-	20,003	635	20,638
Dividend appropriated in the period	-	-	-	-	(3,556)	(3,556)
At 31st December 2013	6,658	3,163	27,401	186,656	15,542	239,420
	Called up		Capital
Year ended	share	Share	redemption	Capital	Revenue
30th June 2014	capital	premium	reserve	reserves	reserve	Total
(Audited)	£'000	£'000	£'000	£'000	£'000	£'000
At 30th June 2013	6,592	734	27,401	167,955	18,463	221,145
Repurchase of shares into Treasury	-	-	-	(4,553)	-	(4,553)
Exercise of Subscription shares into
Ordinary shares	(3)	3	-	-	-	-
Issue of Ordinary shares on exercise of
Subscription shares	71	2,476	-	-	-	2,547
Net return on ordinary activities	-	-	-	27,132	2,915	30,047
Dividend appropriated in the year	-	-	-	-	(3,551)	(3,551)
At 30th June 2014	6,660	3,213	27,401	190,534	17,827	245,635

Balance Sheet

at 31st December 2014

	(Unaudited)	(Unaudited)	(Audited)
	31st December 2014	31st December 2013	30th June 2014
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through
profit or loss	272,526	259,520	265,685
Investments in liquidity funds held at fair value
through profit or loss	4,719	1,500	-
Total investments	277,245	261,020	265,685
Current assets
Financial assets: derivative financial instruments	1,350	1,955	1,361
Debtors	375	372	1,639
Cash and short term deposits	503	230	2,568
	2,228	2,557	5,568
Creditors: amounts falling due within one year	(20,551)	(20,591)	(23,340)
Financial liabilities: derivative financial instruments	(694)	(2,401)	(735)
Net current liabilities	(19,017)	(20,435)	(18,507)
Total assets less current liabilities	258,228	240,585	247,178
Creditors: amounts falling due after more than one year	(200)	(200)	(200)
Provisions for liabilities and charges
Performance fee payable	(895)	(965)	(1,343)
Net assets	257,133	239,420	245,635
Capital and reserves
Called up share capital	6,682	6,658	6,660
Share premium	4,055	3,163	3,213
Capital redemption reserve	27,401	27,401	27,401
Capital reserves	203,716	186,656	190,534
Revenue reserve	15,279	15,542	17,827
Total equity shareholders' funds	257,133	239,420	245,635
Net asset value per share (note 5)
- undiluted	1,118.3p	1,013.3p	1,054.9p
- diluted	1,096.9p	1,002.0p	1,036.7p

Company registration number: 24299.

Cash Flow Statement

for the six months ended 31st December 2014

	(Unaudited)		(Unaudited)	(Audited)
	Six months ended		Six months ended	Year ended
	31st December 2014		31st December 2013	30th June 2014
	£'000		£'000	£'000
Net cash inflow from operating activities (note 6)	134		460	2,545
Net cash outflow from returns on investments
and servicing of finance	(145)		(214)	(422)
Taxation recovered	23		46	115
Net cash inflow from capital expenditure
and financial investment	1,347		3,013	7,187
Dividend paid	(3,467)		(3,556)	(3,551)
Net cash (outflow)/inflow from financing	(2,900)		678	(2,521)
(Decrease)/increase in cash for the period	(5,008)		427	3,353
Reconciliation of net cash flow to movement in
net debt
Net cash movement	(5,008)		427	3,353
Exchange movements	2,943		(2,163)	(2,751)
Movement in net debt in the period	(2,065)		(1,736)	602
Net debt at beginning of the period	(17,632)		(18,234)	(18,234)
Net debt at the end of the period	(19,697)		(19,970)	(17,632)
Represented by:
Cash and short term deposits	503		230	2,568
Debt falling due within one year	(20,000)		(20,000)	(20,000)
Debt falling due after more than five years	(200)		(200)	(200)
Total	(19,697)		(19,970)	(17,632)

Notes to the Accounts

for the six months ended 31st December 2014

1.   Financial statements

      The information contained within the accounts in this half year report has not been audited or reviewed by the Company's auditors.

      The figures and financial information for the year ended 30th June 2014 are extracted from the latest published accounts of the Company and do not constitute statutory accounts for that year. Those accounts have been delivered to the Registrar of Companies and included the report of the auditors which was unqualified and did not contain a statement under either section 498(2) or 498(3) of the Companies Act 2006.

2.   Accounting policies

      The accounts have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' dated January 2009.

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

      The accounting policies applied to these half year accounts are consistent with those applied in the accounts for the year ended 30th June 2014.

3.   Taxation

      The taxation charge of £133,000 (31st December 2013: £95,000 and 30th June 2014: £355,000) comprises irrecoverable overseas withholding tax.

4.   Return per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st December 2014	31st December 2013	30th June 2014
	£'000	£'000	£'000
Return per share is based on the following:
Revenue return	919	635	2,915
Capital return	16,946	20,003	27,132
Total return	17,865	20,638	30,047
Weighted average number of Ordinary shares in issue
during the period used for the purpose of the
undiluted calculation	23,096,037	23,499,110	23,480,245
Weighted average number of Ordinary shares in issue
during the period used for the purpose of the
diluted calculation	23,128,019	23,623,703	23,480,245
Undiluted
Revenue return per share	3.98p	2.70p	12.41p
Capital return per share	73.37p	85.12p	115.55p
Total return per share	77.35p	87.82p	127.96p
Diluted
Revenue return per share	3.98p	2.69p	12.41p
Capital return per share	73.27p	84.67p	115.55p
Total return per share	77.25p	87.36p	127.96p

5.   Net asset value per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st December 2014	31st December 2013	30th June 2014
Undiluted:
Ordinary shareholders' funds (£'000)	257,133	239,420	245,635
Number of Ordinary shares in issue	22,993,660	23,628,792	23,284,602
Net asset value per Ordinary share (pence)	1,118.3	1,013.3	1,054.9
Diluted:
Ordinary shareholders' funds assuming exercise of
Subscription shares (£'000)	300,834	282,130	288,293
Number of potential Ordinary shares in issue	27,425,742	28,157,984	27,808,297
Net asset value per Ordinary share (pence)	1,096.9	1,002.0	1,036.7

6.   Reconciliation of total return on ordinary activities before finance costs and taxation to net cash inflow from operating activities

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st December 2014	31st December 2013	30th June 2014
	£'000	£'000	£'000
Net return on ordinary activities before finance
costs and taxation	18,218	20,949	30,826
Less capital return on ordinary activities before finance
costs and taxation	(17,056)	(20,111)	(27,344)
Scrip dividends received as income	-	(28)	(28)
Net movement in debtors and accruals	(82)	17	26
Overseas withholding tax	(175)	(120)	(436)
Management fee charged to capital	(264)	(247)	(499)
Performance fee paid	(507)	-	-
Net cash inflow from operating activities	134	460	2,545

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

JPMORGAN FUNDS LIMITED

ENDS

A copy of the half year will be submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/NSM

The half year will also shortly be available on the Company's website at www.jpmoverseas.co.uk where up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.

 

END

 

 

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