Half Year Results

RNS Number : 5459A

JPMorgan Overseas IT PLC

20 February 2014

 



LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN OVERSEAS INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED
31ST DECEMBER 2013

Chairman's Statement

As global equity markets continued to recover strongly during the first six months of the Company's financial year against an improving economic backdrop and falling uncertainty, the Company recorded an undiluted total return of +9.2%. The fully diluted total return on net assets (which assumes that all of the Company's Subscription shares outstanding at 31st December 2013 were all exercised at the price of 943 pence per share) was +8.8%. The total return to Ordinary shareholders during the reporting period was +9.7%. All of these performance figures represent an outperformance against the benchmark, the MSCI AC World Index (in sterling terms), which returned +6.0%.

The Investment Manager provides further comments on performance, market developments and the Company's portfolio in his report.

During the six months to 31st December 2013, the Company has issued a total of 277,210 Ordinary shares following the exercise of Subscription shares, amounting to proceeds of £2,495,000. Subscription shareholders are reminded that the next opportunities to exercise their Subscription share rights will take effect on 30th April 2014 and 31st October 2014. Further details of the Subscription shares can be found on page 16 of this 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 139,528 Ordinary shares at a cost of £1,298,000 during the six months period for holding into Treasury. The Board believes these actions have been successful in reducing the volatility of the share price discount 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.

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 Scotiabank until July 2014, 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 2013, the Company was 8.1% geared with £20 million of the £25 million facility drawn down, a slight increase over the six month period.

Forecasts for global economic growth are being revised upwards and this should support equity markets in the second half of the Company's financial year, although such growth may eventually lead to some tightening in monetary conditions. The Board continues to have confidence in our Investment Manager's investment process and ability to enhance returns.

For and on behalf of the Board

Simon Davies

Chairman

19th February 2014

Investment Manager's Report

Market Environment

Global equity markets continued to perform strongly in the second half of 2013 with the MSCI All Country World index rising 6% in sterling terms. Continental Europe was the best-performing market as the region broke out of its longest ever recession, early in the period. Improving economic data points and continued supportive policy from the European Central Bank helped to sustain the recovery. In the US, the Federal Reserve announced a reduction in its pace of asset purchases by USD 10 billion per month in December, further suggesting to investors that the world's largest economy continues to recover. In addition, economic data in Japan showed signs of improvement, while the latest consumer price index report confirmed the end of deflation. A weak yen, however, meant that returns in sterling terms for the Japanese market were more subdued. Emerging markets recorded positive returns, but continued to lag developed markets. Investors have become increasingly concerned over the growth outlook for emerging countries, despite many continuing to see much higher growth than in the developed world. This uncertainty, coupled with currency weakness and concerns over the banking system in China, led to further poor relative performance.

The period under review saw a reversal in investor sentiment versus the first half of 2013, which was marked by risk-aversion and therefore an outperformance of defensive sectors. This had proved to be a challenging environment for our strategy, given our focus on company fundamentals and the portfolio's bias towards cyclicals. Moving into the second half of the year, investor attention turned back towards company fundamentals and relative valuations. As such, cyclical stocks (which had reached extreme discounts relative to defensives) started to recover. This was a much more positive environment for our investment strategy.

Portfolio Review

In the second half of 2013, the portfolio outperformed the index by approximately 4.1%. Stock selection was the key driver of outperformance. It was encouraging to see a turnaround in the performance of some of the cyclical sectors that had detracted earlier in the year, such as basic industries, autos and industrial cyclicals. These included holdings in Continental (German tyre and auto parts manufacturer), Fluor (US-listed plant engineering and construction) and UPM (Finnish paper company exposed to a consolidating industry and an improving pulp market). Stock selection in healthcare and retail also contributed positively, while energy and technology stocks detracted from returns. On a regional basis, stock selection was strong across most regions, including Europe ex UK, North America and Pacific ex Japan. Our underweight exposure to emerging markets contributed positively as the region significantly lagged developed markets.

At the stock level, our holding in Sands China, the Hong Kong-listed operator of casinos and resorts in Macau, contributed positively to performance. The company is benefiting from increasing sales at Macau casinos as operators continue to add rooms and entertainment in order to draw a growing number of affluent and middle class customers. Sands China, along with several of its competitors, has been aggressively expanding on the Cotai Strip - a piece of reclaimed land that in time is expected to challenge Las Vegas as an international gaming and entertainment destination. Our holding in Airbus also performed well as the company is seeing strong demand in an environment where air passenger traffic has remained robust, yet the supply of new aircraft has been limited. Associated British Foods benefited from the continued expansion of the Primark store chain in Germany and Spain, where there remains scope to more than double the number of stores. The stock has been a core holding in the portfolio for over a year and we recently took the opportunity to trim our position. Finally, our position in Onyx Pharmaceuticals, a firm specialising in the development of oncology drugs, was positive as the share price rallied by around 45% after Amgen announced a takeover bid. We subsequently closed our position.

Our holding in InterOil, a company with Liquefied Natural Gas (LNG) assets in Papua New Guinea, was the largest detractor from performance. InterOil announced details around a deal with Total to sell a 61.3% stake of its assets in Papua New Guinea (PNG), including the Elk/Antelope field. While a deal had been widely expected, the sale price was below expectations but only at lower levels of LNG resources. The deal is structured to reward higher certified volumes in a manner that is uncapped. At lower volumes the price is undoubtedly low, but as volumes rise, so will the price. Having recently met with the company management team, we remain very positive about the outlook for InterOil. We believe that the stock is significantly undervalued based on existing resource estimates for Elk/Antelope and further exploration potential in PNG, a region that is both geologically and geographically advantaged with regard to gas resources and proximity to key markets such as Japan. Given our high conviction and the de-risking that the deal with Total entails, we remain comfortable with a significant position in this stock.

Portfolio positioning

We have not made any significant changes to the overall shape of the portfolio, and maintain our overweight exposure to cyclicals. Geographically, our focus on companies that are attractively valued relative to global peers continues to lead us towards Europe and the UK and away from North America. The valuation disparity between these two markets remains compelling. A large proportion of our underweight position in the US is due to our lack of exposure to certain extremely large consumer staple companies, which we believe are simply too expensive in their global context. Holdings in companies such as SABMiller, Henkel and Japan Tobacco provide us with exposure to interesting themes in this sector at valuations that are much lower than those of their US peers.

Earlier in the year we reduced our position in emerging markets to approximately 7% underweight at the end of June 2013. More recently, as valuations have continued to decline, these regions have started to look increasingly attractive in a global context. There remains, however, much uncertainty over the near-term outlook for these economies and as such we believe that selectivity is key. We have increased our position, although we remain around 5% underweight relative to the index. Specifically, we initiated a position in Mr. Price, a South African low-cost retailer that is winning market share in its domestic market with the potential for overseas expansion through its online business. We also took a position in ICICI, the Indian bank. Banking penetration in India is amongst the lowest in the world, at a third of that of China and a fifth of the US, which presents a significant opportunity over the long term. The presence of low-quality competitors in the form of the state banks, whose market share is being steadily eroded, creates a strong advantage for private sector banks such as ICICI and Yes Bank, both of which are held in the portfolio.

Investment Outlook

While we are unlikely to see the dramatic outperformance in equity markets that was experienced in 2013, we remain positive in our outlook for equities. The key drivers remain in place, namely improving global growth with quiescent inflation, accommodative monetary policy and still-supportive valuations. However, some new fragilities are emerging, with the resilience of the global economy in the face of rising interest rates a concern.

Fundamentals remain supportive for equities. Valuations are attractive relative to bonds. At worst they are neutral versus their own history, whilst certain parts of Europe and emerging markets look attractive. Looking ahead, corporate earnings growth will be closely watched as a potential driver of further market expansion. There are encouraging signs that earnings expectations seem close to bottoming across regions, although we are not there yet. An environment such as this would typically be positive for more economically sensitive, cyclical areas of the market.

As the macro concerns subside, the emphasis on individual companies' fundamentals relative to their competitors is becoming more prominent. We are very well positioned to benefit from this shift and our dedicated team of highly experienced research analysts continues to identify attractive investment opportunities around the world.

Jeroen Huysinga

Investment Manager

19th February 2014

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 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 2013.

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 2013, 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

19th February 2014

Income Statement

for the six months ended 31st December 2013

	(Unaudited)			(Unaudited)			(Audited)
	Six months ended			Six months ended			Year ended
	31st December 2013			31st December 2012			30th June 2013
	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	-	23,737	23,737	-	12,784	12,784	-	37,692	37,692
Net foreign currency losses	-	(2,092)	(2,092)	-	(904)	(904)	-	(1,421)	(1,421)
Income from investments	1,282	-	1,282	2,042	-	2,042	5,329	-	5,329
Other interest receivable and similar income	4	-	4	79	-	79	179	-	179
Gross return	1,286	21,645	22,931	2,121	11,880	14,001	5,508	36,271	41,779
Management fee	(247)	(247)	(494)	(207)	(207)	(414)	(440)	(440)	(880)
Performance fee (charge)/writeback	-	(1,287)	(1,287)	-	(785)	(785)	-	26	26
Other administrative expenses	(201)	-	(201)	(209)	-	(209)	(491)	-	(491)
Net return on ordinary activities before finance costs and taxation	838	20,111	20,949	1,705	10,888	12,593	4,577	35,857	40,434
Finance costs	(108)	(108)	(216)	(68)	(68)	(136)	(169)	(169)	(338)
Net return on ordinary activities before taxation	730	20,003	20,733	1,637	10,820	12,457	4,408	35,688	40,096
Taxation (note 3)	(95)	-	(95)	(154)	-	(154)	(398)	-	(398)
Net return on ordinary activities after taxation	635	20,003	20,638	1,483	10,820	12,303	4,010	35,688	39,698
Return per share (note 4)
- undiluted	2.70p	85.12p	87.82p	6.02p	43.95p	49.97p	16.56p	147.39p	163.95p
- diluted	2.69p	84.67p	87.36p	n/a	n/a	n/a	16.56p	147.39p	163.95p

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 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
Six months ended	share	Share	redemption	Capital	Revenue
31st December 2012	capital	premium	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000
At 30th June 2012	6,544	1,015	27,401	147,241	17,738	199,939
Repurchase of shares into Treasury	-	-	-	(10,084)	-	(10,084)
Net return on ordinary activities	-	-	-	10,820	1,483	12,303
Dividend appropriated in the period	-	-	-	-	(3,288)	(3,288)
At 31st December 2012	6,544	1,015	27,401	147,977	15,933	198,870

	Called up		Capital
Year ended	share	Share	redemption	Capital	Revenue
30th June 2013	capital	premium	reserve	reserves	reserve	Total
(Audited)	£'000	£'000	£'000	£'000	£'000	£'000
At 30th June 2012	6,544	1,015	27,401	147,241	17,738	199,939
Repurchase of shares into Treasury	-	-	-	(14,974)	-	(14,974)
Bonus issue of Subscription shares	48	(48)	-	-	-	-
Subscription shares issue costs	-	(233)	-	-	-	(233)
Net return on ordinary activities	-	-	-	35,688	4,010	39,698
Dividend appropriated in the year	-	-	-	-	(3,285)	(3,285)
At 30th June 2013	6,592	734	27,401	167,955	18,463	221,145

Balance Sheet

at 31st December 2013

	(Unaudited)	(Unaudited)	(Audited)
	31st December 2013	31st December 2012	30th June 2013
	£'000	£'000	£'000
Fixed assets
Equity investments held at fair value through profit or loss	259,520	220,403	240,016
Investments in liquidity funds held at fair value through profit or loss	1,500	-	3,000
Total investments	261,020	220,403	243,016
Current assets
Financial assets: derivative financial instruments	1,955	568	938
Debtors	372	659	2,443
Cash and short term deposits	230	45	1,966
	2,557	1,272	5,347
Creditors: amounts falling due within one year	(20,591)	(581)	(5,504)
Financial liabilities: derivative financial instruments	(2,401)	(1,153)	(1,455)
Net current liabilities	(20,435)	(462)	(1,612)
Total assets less current liabilities	240,585	219,941	241,404
Creditors: amounts falling due after more than one year	(200)	(20,200)	(20,200)
Provisions for liabilities and charges
Performance fee	(965)	(871)	(59)
Net assets	239,420	198,870	221,145
Capital and reserves
Called up share capital	6,658	6,544	6,592
Share premium	3,163	1,015	734
Capital redemption reserve	27,401	27,401	27,401
Capital reserves	186,656	147,977	167,955
Revenue reserve	15,542	15,933	18,463
Total equity shareholders' funds	239,420	198,870	221,145
Net asset value per share (note 5)
- undiluted	1,013.3p	826.9p	941.4p
- diluted	1,002.0p	n/a	934.4p

Company registration number: 24299.

Cash Flow Statement

for the six months ended 31st December 2013

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st December 2013	31st December 2012	30th June 2013
	£'000	£'000	£'000
Net cash inflow from operating activities (note 6)	460	1,224	3,510
Net cash outflow from returns on investments and servicing of finance	(214)	(149)	(352)
Taxation recovered	46	3	40
Net cash inflow/(outflow) from capital expenditure and financial investment	3,013	(9,327)	(4,212)
Dividend paid	(3,556)	(3,288)	(3,285)
Net cash inflow from financing	678	9,545	4,813
Increase/(decrease) in cash for the period	427	(1,992)	514
Reconciliation of net cash flow to movement in net debt
Net cash movement	427	(1,992)	514
Loans drawn down in the period	-	(20,000)	(20,000)
Exchange movements	(2,163)	690	105
Movement in net debt in the period	(1,736)	(21,302)	(19,381)
Net (debt)/funds at beginning of the period	(18,234)	1,147	1,147
Net debt at the end of the period	(19,970)	(20,155)	(18,234)
Represented by:
Cash and short term deposits	230	45	1,966
Debt falling due within one year	(20,000)	-	-
Debt falling due in more than one year but not more than five years	-	(20,000)	(20,000)
Debt falling due after more than five years	(200)	(200)	(200)
Total	(19,970)	(20,155)	(18,234)

Notes to the Accounts

for the six months ended 31st December 2013

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 2013 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 2013.

3.   Taxation

      The taxation charge of £95,000 (31st December 2012: £154,000 and 30th June 2013: £398,000) comprises irrecoverable overseas withholding tax.

4.   Return per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st December 2013	31st December 2012	30th June 2013
	£'000	£'000	£'000
Return per share is based on the following:
Revenue return	635	1,483	4,010
Capital return	20,003	10,820	35,688
Total return	20,638	12,303	39,698
Weighted average number of Ordinary shares in issue
during the period used for the purpose of the
undiluted calculation	23,499,110	24,622,969	24,212,969
Weighted average number of Ordinary shares in issue
during the period used for the purpose of the
diluted calculation	23,623,703	n/a	24,212,969
Undiluted
Revenue return per share	2.70p	6.02p	16.56p
Capital return per share	85.12p	43.95p	147.39p
Total return per share	87.82p	49.97p	163.95p
Diluted
Revenue return per share	2.69p	n/a	16.56p
Capital return per share	84.67p	n/a	147.39p
Total return per share	87.36p	n/a	163.95p

5.   Net asset value per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st December 2013	31st December 2012	30th June 2013
Undiluted:
Ordinary shareholders' funds (£'000)	239,420	198,870	221,145
Number of Ordinary shares in issue	23,628,792	24,051,044	23,491,110
Net asset value per Ordinary share (pence)	1,013.3	826.9	941.4
Diluted:
Ordinary shareholders' funds assuming exercise of
Subscription shares (£'000)	282,130	n/a	264,402
Number of potential Ordinary shares in issue	28,157,984	n/a	28,297,512
Net asset value per Ordinary share (pence)	1,001.9	n/a	934.4

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 2013	31st December 2012	30th June 2013
	£'000	£'000	£'000
Net return on ordinary activities before finance costs and taxation	20,949	12,593	40,434
Less capital return before finance costs and taxation	(20,111)	(10,888)	(35,857)
Scrip dividends received as income	(28)	(32)	(51)
Net movement in debtors and accruals	17	3	(15)
Overseas withholding tax	(120)	(141)	(457)
Management fee charged to capital	(247)	(207)	(440)
Performance fee paid	-	(104)	(104)
Net cash inflow from operating activities	460	1,224	3,510

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 ASSET MANAGEMENT (UK) 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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