Half Yearly Report

RNS Number : 8963N

JPMorgan Overseas IT PLC

26 February 2009

 



LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN OVERSEAS INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE PERIOD ENDED 31ST DECEMBER 2008

Chairman's Statement

During the six months period to 31st December 2008, investors experienced the worst half year that most can remember, with the global economy sliding into recession and the world financial system collapsing. Against this background, your Company produced a negative return of 14.6% for shareholders in the six months period. The total return on net assets was negative 13.2% compared with the MSCI All Country World Index (in sterling terms) return of negative 10.4%. The Investment Manager's report gives a more detailed commentary about the unprecedented market conditions experienced during this period.  

Despite the uncertainty faced by markets and economies worldwide, we have controlled the discount at which the Company's shares trade to their net asset value ('NAV') during the period. Whilst this policy worked well during most of the review period, it was a little disappointing that at the half year end, the closing discount was 6.8%. This was due to an unusual combination of factors at that time, and the discount since, has reverted to its more usual narrow range. 

Towards the end of November, the Company implemented a passive currency hedging strategy to neutralise the impact of the currency movements over the investment manager's active stock positions against our benchmark index.

As Governments worldwide take drastic measures to counter the global recession, the Board remains cautious in its outlook and expects 2009 to be a difficult year for investors. That said, there will come a point when these initiatives start to become effective and investors' confidence is regained, with recognition of the long-term fundamental value of many stocks. As highlighted in his report, the Investment Manager continues to take advantage of the excellent opportunity in these markets to reposition the portfolio towards a collection of high conviction stocks. Despite failing to beat our benchmark during the second half of 2008, it is of some consolation to note that your Company's relative performance against other actively managed global growth investment trusts has improved significantly since Jeroen Huysinga assumed responsibility for the management of the portfolio.

The Board is confident that the Company's portfolio is well positioned to ride out the storm and benefit strongly from any upturn in the market when it happens.

for and on behalf of the Board

George Paul

Chairman 

26th February 2009

Investment Managers' Report

Market Review

The second half of 2008 witnessed declines of unprecedented severity across all global equities markets. In local currency terms the MSCI All Country World Index fell by 30.7%. Areas and themes which had been at the vanguard of recent market advances declined the most. Emerging Markets and the Basic Industries sector, for example, fell by 38.1% and 49.2% respectively, in local currency terms. Falls were, however, mitigated to some degree by the weakness in sterling.

The deputy governor of the Bank of England has characterised this period as 'the largest financial crisis of its kind in human history'. Following the failure of Lehman Brothers in September 2008, the concept of de-leveraging has become an overwhelming force. It has destroyed trillions of dollars of asset value, freezing credit markets as collateral and counterparty confidence evaporated. It sparked a near vertical drop in new orders, production and business confidence which left no significant economy unscathed. Mechanisms which are central to the healthy functioning of capitalist activity, such as the issue of letters of credit between companies in order to finance trade, ceased and impacted every point in the global supply chain. 

In response to the fear of systemic breakdown, governments have stepped in to bolster the banking system and to guarantee deposit holders. Central banks have dropped interest rates - in some instances - virtually to zero. They have initiated unprecedentedly aggressive, alternative forms of monetary easing. Led by China and the US in the 4th quarter, it is abundantly clear that enormous fiscal stimulus will be forthcoming.

Portfolio

The dislocation and volatility of recent months has provided us with an excellent opportunity to reposition the portfolio towards a collection of high conviction stocks. We have observed that the dispersion of valuation between stocks across most global sectors has widened to a significant degree. Where valuation is determined, at least partially, by what a company is capable of earning in a normalised environment, the potential efficacy of an investment approach which is based on valuation is at its most potent when the gap between normalised and the present is at its greatest. 

While we are cognizant of the relative significance of sectors and regions within the benchmark, we are primarily led by stock specific insight and conviction. We have established large holdings in stocks such as Intercell (Austrian vaccine manufacturer), Tui Travel (UK travel operator), Hengan International (Chinese manufacturer of consumer hygene products) and Sysco (US food services). Each of these opportunities reconciles strong valuation potential with an ability to thrive competitively through the current downturn and beyond. The portfolio has started to move away from a number of larger names which have represented safety and solidity but had become retively very expensive in the process. Average capitalisation of the companies held in the portfolio has therefore declined. The fund is utilizing a modest level of gearing which has the potential to be increased as individual opportunities present themselves.

Market Outlook

The scale of the policy response has been vast but it is by no means complete. The principal conundrum remains the resolution of the banking crisis and in particular the identification, the valuation and the separation of bad assets from good. Simple economics suggests that fiscal and monetary initiatives will have an impact but there will be some time lag. While the publication of many statistics and company results currently bear granular witness to the decline of economic activity in 2008, we are nevertheless in a period of gestation. Although current news is uniformly bad, the likely nature and the character of the growth patterns which will re-emerge are the most important determinants of portfolio positioning.

Jeroen Huysinga

Investment Manager

26th February 2009

                Interim Management Report 

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

Principal Risks and Uncertainites

The principal risks and uncertainties faced by the Company fall into six 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 2008. 

During the market turmoil in the second half of 2008, JPMAM reacted with heightened management scrutiny of counterparty risk. In addition, reviews were initiated of exposures, policies, procedures and legal arrangements applicable to the major sources of counterparty exposure.

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 during the period.

Directors' Reponsibilities

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

(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.

For and on behalf of the Board

George Paul

Chairman

26th February 2009

For further information, please contact:

Divya Amin

For and on behalf of

JPMorgan Asset Management (UK) Limited, Secretary

020 7742 6000

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.

JPMorgan Overseas Investment Trust plc

Half Year Report & Accounts for the six months ended 31st December 2008 

Income Statement

For the six months ended 31st December 2008

	(Unaudited)			(Unaudited)			(Audited)
	Six months ended  31st December 2008			Six months ended 31st December 2007			Year ended 30th June 2008
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£’000	£’000	£’000	£’000	£’000	£’000	£’000	£’000	£’000
(Losses)/gains from investments held at fair value through profit or loss	—	(26,564)	(26,564)	—	5,468	5,468	—	(20,552)	(20,552)
Net foreign currency (losses)/gains	—	(816)	(816)	—	78	78	—	(19)	(19)
Income from investments	1,542	—	1,542	1,424	—	1,424	4,453	—	4,453
Other interest receivable and similar income	682	—	682	39	—	39	131	—	131
Gross return/(loss)	2,224	(27,380)	(25,156)	1,463	5,546	7,009	4,584	(20,571)	(15,987)
Management fee	(142)	(142)	(284)	(201)	(201)	(402)	(374)	(374)	(748)
Performance fee write back /(provision)	—	817	817	—	(1,166)	(1,166)	—	(401)	(401)
VAT recoverable (note 3)	126	141	267	—	—	—	713	794	1,507
Other administrative expenses	(206)	—	(206)	(214)	—	(214)	(389)	—	(389)
Net return/(loss) on ordinary activities before finance costs and taxation	2,002	(26,564)	(24,562)	1,048	4,179	5,227	4,534	(20,552)	(16,018)
Finance costs	(116)	(116)	(232)	(55)	(55)	(110)	(156)	(156)	(312)
Net return/(loss) on ordinary activities before taxation	1,886	(26,680)	(24,794)	993	4,124	5,117	4,378	(20,708)	(16,330)
Taxation (note 4)	(418)	315	(103)	(122)	—	(122)	(779)	371	(408)
Net return/(loss) on ordinary activities after taxation	1,468	(26,365)	(24,897)	871	4,124	4,995	3,599	(20,337)	(16,738)
Return/(loss) per share (note 5)	5.51p	(98.95)p	(93.44)p	2.96p	14.00p	16.96p	12.62p	(71.32)p	(58.70)p

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

JPMorgan Overseas Investment Trust plc

	Called up Share Capital £’000	Capital redemption reserve £’000	Capital reserve £’000	Revenue reserve £’000	Total £’000
Six months ended 31st December 2008 (unaudited)
At 30th June 2008	6,735	27,210	114,251	17,610	165,806
Shares bought back and cancelled	(133)	133	(2,699)	—	(2,699)
Net (loss)/return from ordinary activities	—	—	(26,365)	1,468	(24,897)
Dividends appropriated in the period	—	—	—	(3,047)	(3,047)
At 31st December 2008	6,602	27,343	85,187	16,031	135,163
	Called up Share Capital	Capital redemption reserve	Capital reserve	Revenue reserve	Total
Six months ended 31st December 2007 (unaudited)	£’000	£’000	£’000	£’000	£’000
At 30th June 2007	7,622	26,323	156,838	16,960	207,743
Shares bought back and cancelled	(587)	587	(14,831)	—	(14,831)
Net return from ordinary activities	—	—	4,124	871	4,995
Dividends appropriated in the period	—	—	—	(2,949)	(2,949)
At 31st December 2007	7,035	26,910	146,131	14,882	194,958
	Called up Share Capital	Capital redemption reserve	Capital reserve	Revenue reserve	Total
Year ended 30th June 2008 (audited)	£’000	£’000	£’000	£’000	£’000
At 30th June 2007	7,622	26,323	156,838	16,960	207,743
Shares bought back and cancelled	(887)	887	(22,250)	—	(22,250)
Net (loss)/return on ordinary activities	—	—	(20,337)	3,599	(16,738)
Dividends appropriated in the year	—	—	—	(2,949)	(2,949)
At 30th June 2008	6,735	27,210	114,251	17,610	165,806

Balance Sheet

as at 31st December 2008

	(Unaudited) 31st December 2008 £’000	(Unaudited) 31st December 2007 £’000	(Audited) 30th June  2008 £’000
Fixed assets
Equity investments at fair value through profit or loss	144,000	203,162	167,565
Investments in liquidity funds at fair value through  profit or loss	2,180	350	3,470
Total investments	146,180	203,512	171,035
Current assets
Debtors	430	418	2,224
Cash and short term deposits	160	111	304
	590	529	2,528
Creditors: amounts falling due within one year	(10,387)	(7,481)	(6,740)
Derivative financial instruments: forward currency  contract at fair value through profit or loss	(1,020)	—	—
Net current liabilities	(10,817)	(6,952)	(4,212)
Total assets less current liabilities	135,363	196,560	166,823
Creditors: amounts falling due after more than one year	(200)	(200)	(200)
Provision for liabilities and charges	—	(1,402)	(817)
Total net assets	135,163	194,958	165,806
Capital and reserves
Called up share capital	6,602	7,035	6,735
Capital redemption reserve	27,343	26,910	27,210
Capital reserves	85,187	146,131	114,251
Revenue reserve	16,031	14,882	17,610
Shareholders’ funds	135,163	194,958	165,806
Net asset value per share (note 6)	511.8p	692.8p	615.4p

Cash Flow Statement
for the six months ended 31st December 2008 

	(Unaudited) Six months ended 31st December 2008 £’000	(Unaudited) Six months ended 31st December 2007 £’000	(Audited) Year ended 30th June 2008 £’000
Net cash inflow from operating activities (note 7)	3,544	682	2,713
Net cash outflow from returns on investments and servicing of finance	(248)	(69)	(295)
Taxation recovered	120	1	34
Net cash (outflow)/inflow from capital expenditure and financial investment	(2,030)	10,603	17,382
Dividends paid	(3,047)	(2,949)	(2,949)
Net cash inflow/(outflow) from financing	1,312	(8,316)	(16,644)
(Decrease)/increase in cash for the period	(349)	(48)	241
Reconcilliation of net cash flow to movement in net funds/debt
Net cash movement	(349)	(48)	241
Loans drawn down in the period	(4,000)	(7,000)	(6,000)
Exchange movements	205	75	(21)
Movement in net debt in the period	(4,144)	(6,973)	(5,780)
Net debt at the beginning of the period	(5,896)	(116)	(116)
Net debt at the end of the period	(10,040)	(7,089)	(5,896)
Represented by:
Cash at bank and in hand	160	111	304
Debt falling due within one year	(10,000)	(7,000)	(6,000)
Debt falling due after more than 5 years	(200)	(200)	(200)
Total	(10,040)	(7,089)	(5,896)

Notes to the Accounts
for the six months ended 31st December 2008 

   1. Financial statements

The information contained within this preliminary announcement has not been audited or reviewed by the Company's auditors. 

The figures and financial information for the year ended 30th June 2008 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 ('UK GAAP') and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies' dated January 2009. 

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

The accounting policies applied to these interim accounts are consistent with those applied in the accounts for the year ended 30th June 2008. 

3. VAT recoverable

No VAT has been charged on management fees since November 2007 when HM Revenue and Customs announced acceptance that VAT was not chargeable on investment trust management fees. The Company has since recovered VAT amounting to £1,774,000 in respect of VAT paid in the past. Of this amount, £1,507,000 was included in the accounts for the year ended 30th June 2008. The balance of £267,000 is included in these accounts and has been allocated between income and capital in the proportions in which it was originally expensed to income and capital. Interest amounting to £627,000 has also been received and is included in these accounts within 'Other interest receivable and similar income' and allocated wholly to income.

4. Taxation

The taxation charge of £103,000 (31st December 2007: £122,000 and 30th June 2008: £408,000) relates to irrecoverable overseas taxation. 

5. Return/(loss) per share

	(Unaudited) Six months ended 31st December 2008 £’000	(Unaudited) Six months ended 31st December 2007 £’000	(Audited) Year ended 30th June 2008 £’000
Return/(loss) per share is based on the following:
Revenue return	1,468	871	3,599
Capital (loss)/return	(26,365)	4,124	(20,337)
Total (loss)/return	(24,897)	4,995	(16,738)
Weighted average number of shares in issue:	26,644,266	29,443,813	28,515,890
Revenue return per share	5.51p	2.96p	12.62p
Capital (loss)/return per share	(98.95)p	14.00p	(71.32)p
Total (loss)/return per share	(93.44)p	16.96p	(58.70)p

6. Net asset value per share 

Net asset value per share is calculated by dividing the funds attributable to ordinary shareholders by the number of ordinary shares in issue at 31st December 2008 of 26,408,348 (31st December 2007: 28,140,948 and 30th June 2008: 26,940,948).

7. Reconciliation of total (loss)/return on ordinary activities before finance costs and taxation to net cash inflow from operating activities

	(Unaudited) Six months ended 31st December 2008 £'000	(Unaudited) Six months ended 31st December 2007 £'000	(Audited) Year ended 30th June 2008 £'000
Total (loss)/return on ordinary activities before finance costs and taxation	(24,562)	5,227	(16,018)
Add back capital loss/(return) before finance costs and taxation	26,564	(4,179)	20,552
Net movement in debtors and accruals	1,685	(32)	(1,736)
VAT recoverable included in capital	141	-	794
Tax on unfranked investment income	(142)	(133)	(505)
Management fee charged to capital	(142)	(201)	(374)
Net cash inflow from operating activities	3,544	682	2,713

 

END

 

 

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