Half Yearly Report

RNS Number : 0733Q

JPMorgan Overseas IT PLC

24 February 2016

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN OVERSEAS INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS

ENDED 31ST DECEMBER 2015

Chairman's Statement

This is my first report to you as Chairman following the retirement of Simon Davies after our Annual General Meeting held in November last year.

Global stock markets had a volatile six months to 31st December 2015, with sentiment dominated by uncertainty over the timing and pace of interest rate rises in the US and concern over the impact of a possible slowdown in the growth of the Chinese economy on global growth. Equity markets rose modestly during the six months to 31st December 2015. The total return on the Company's net assets was +1.2% and the return to shareholders was +2.5% compared with the return on our benchmark, the MSCI AC World Index (in sterling terms) of +1.5%.

Our Investment Manager, Jeroen Huysinga, provides a detailed commentary on markets and the portfolio performance in his Report which also shows the performance attribution.

During the six month period, 3,885,042 Ordinary shares were issued upon final exercise of Subscription shares, amounting to proceeds of £38,306,000. The Company repurchased 1,196,422 Ordinary shares at a cost of £11,908,000 for holding into Treasury.

Gearing levels increased during the period from 7.0% at the start of the period to 8.7% at 31st December 2015 with Company's £25 million borrowing facility with National Australia Bank fully drawn.

Following approval at the Company's Annual General Meeting, the Company's shares were sub-divided into five new ordinary shares for every one share held. That means for every one share you held previously, you now hold five. This sub-division took effect on 8th January 2015. We hope and expect that this sub-division will reduce dealing costs slightly, hence increasing the attractiveness of the shares to new investors and increasing the liquidity of the market for the Company's shares. The share split did not affect the overall value of your holding in the Company as the reduction in the price per share was offset by a commensurate increase in the number of shares you hold in the Company.

In the first few weeks of 2016 financial markets have been very volatile with equity markets generally falling. The tumbling oil price has led to concerns about the stability of the financial system and as a consequence bank shares have been weak, as have prices of many of the (mainly technology) stocks that were strong last year. The Board does not expect an early end to this volatility but notes that economic growth continues in most parts of the developed and developing world. In this environment the Board has confidence that the Manager will be able to use its robust investment process and extensive research resources to identify attractively priced companies in which to invest on behalf of the Company.

For and on behalf of the Board

Nigel Wightman

Chairman                                                                                                                                                                                                  24 February 2016

Investment manager's report

Market environment

The MSCI All Countries World Index gained 1.5% in sterling terms over the six months to the end of December. While this performance could have been worse, minimal returns and markedly higher volatility made for an unwelcome contrast with previous years. Over the last six months, investors have been torn between the positive influence of a gradual recovery in US consumer spending and supportive policy measures in Europe and Japan on the one hand, and the increasingly negative influence of weaker global economic growth and tumbling commodity prices on the other. Markets fell sharply in August as the surprise decision by the People's Bank of China to devalue the Chinese currency (the renminbi) caused investors to reduce their expectations for global growth. Stock prices recovered strongly towards the end of the year, although markets suffered renewed volatility in the closing weeks of December and into 2016, driven by similar concerns to those that weighed on sentiment in August.

The divergence in performance across sectors was stark over the six months, with investors showing a strong preference for the fastest-growing companies. The winners were the US mega cap internet companies Facebook, Amazon, Netflix and Google (now renamed Alphabet), which became known collectively as 'FANG'. Investors also continued to seek shelter in 'safe-haven' assets, such as consumer giants Unilever, Coca-Cola and Nestle, which outperformed companies that are more sensitive to global growth. The energy and commodity-related sectors were the worst performers as commodity prices plummeted, with oil falling below USD 30.

Portfolio review

In the six months to December 2015 your Company marginally underperformed the benchmark. Positions in a number of high growth companies performed strongly. Here we would include the aforementioned Alphabet (+44%) as well as AutoTrader (+45%), the UK's leading online marketplace and classified advertising company for used vehicles, and Ryanair (20%), the leading low-cost airline operator in Europe. Our weakest areas of stock selection were focused on energy and basic industries. In energy we have a preference for exploration and production (E&P) companies, which lagged the more defensive oil majors. In basic industries our holding in First Quantum, the copper producer, saw its shares fall 68%. Originally, we had thought that a strong management team would be able to unlock value for shareholders, but the ongoing drop in commodity prices has caused the company's balance sheet to weaken, severely limiting management options. We recently exited the position.

Portfolio positioning and outlook

Many markets are today pricing in a significant probability of recession, and in our view - too high a probability. The difference between undervalued and overpriced stocks is wide by historical standards and widening further, for example in the US the gap is larger than has been the case about 80% of the time over the last thirty years. This valuation gap is one measure that informs our decisions around gearing, with levels in the portfolio around 7%. Our focus remains on company-specific valuation signals derived from intensive company research and long term cash flow models. While we have not made any significant changes to the overall shape of the portfolio, we are finding a number of exciting investment opportunities and we have been very active in trading around this market environment. In particular, we have been adding to positions in stocks that are more sensitive to the economy, such as in technology-semi conductors, basic industries, banks and transport.

Regionally, our fundamental research process continues to result in large positions in Europe and the UK, while we are underweight in North America compared to the benchmark. In North America, excessive valuations still prevent us from investing in defensive stocks and in many mega cap names. A key challenge that investors continue to face is the ongoing uncertainty around China. Although official figures suggest the economy is still growing by around 7%, other factors-such as the weakness of commodity prices and the drop in industrial activity across the rest of emerging Asia-seem consistent with much weaker growth. Against this backdrop, company valuations are increasingly interesting and we have selectively added to our exposure to China, initiating new holdings in CNOOC, the major national oil company, and Ping An, the Chinese insurer. Our focus remains, as ever, on evaluating underlying company fundamentals and our dedicated team of highly experienced research analysts continue to identify attractive investment opportunities around the world.

Jeroen Huysinga

Investment Manager                                                                                                                                                                                 24 February 2016

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 2015.

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 and, more specifically, that there are no material uncertainties pertaining to the Company that would prevent its ability to continue in such operation existence for at least twelve months from the date of the approval of this half yearly financial report. 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 FRS 104 'Interim Financial Reporting' 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 2015, 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

Nigel Wightman

Chairman                                                                                                                                                                                                  24 February 2016

Statement of Comprehensive Income for the six months ended 31st December 2015

	(Unaudited)			(Unaudited)			(Audited)
	Six months ended			Six months ended			Year ended
	31st December 2015			31st December 2014			30th June 2015
	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	-	723	723	-	14,242	14,242	-	22,974	22,974
Net foreign currency gains	-	272	272	-	2,974	2,974	-	4,579	4,579
Income from investments	1,721	-	1,721	1,670	-	1,670	4,675	-	4,675
Other interest receivable and
similar income	19	-	19	16	-	16	29	-	29
Gross return	1,740	995	2,735	1,686	17,216	18,902	4,704	27,553	32,257
Management fee	(289)	(289)	(578)	(264)	(264)	(528)	(553)	(553)	(1,106)
Performance fee writeback/(charge)	-	551	551	-	104	104	-	(1,036)	(1,036)
Other administrative expenses	(262)	-	(262)	(260)	-	(260)	(584)	-	(584)
Net return on ordinary activities
before finance costs and
taxation	1,189	1,257	2,446	1,162	17,056	18,218	3,567	25,964	29,531
Finance costs	(92)	(92)	(184)	(110)	(110)	(220)	(149)	(149)	(298)
Net return on ordinary activities
before taxation	1,097	1,165	2,262	1,052	16,946	17,998	3,418	25,815	29,233
Taxation (note 4)	(139)	-	(139)	(133)	-	(133)	(380)	-	(380)
Net return on ordinary
activities after taxation	958	1,165	2,123	919	16,946	17,865	3,038	25,815	28,853
Return per share (note 5)
- undiluted	3.97p	4.84p	8.81p	3.98p	73.37p	77.35p	13.19p	112.10p	125.29p
- diluted	3.97p	4.84p	8.81p	3.98p	73.27p	77.25p	13.08p	111.16p	124.24p

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.

Statement of Changes in Equity

	Called up		Capital
	share	Share	redemption	Capital	Revenue
	capital	premium	reserve	reserves	reserve1	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Six months ended 31st December 2015 (Unaudited)
At 30th June 2015	6,814	9,317	27,401	208,191	17,402	269,125
Repurchase of shares into Treasury	-	-	-	(12,339)	-	(12,339)
Exercise of Subscription shares into
Ordinary shares	(39)	39	-	-	-	-
Issue of Ordinary shares on exercise of
Subscription shares	970	37,336	-	-	-	38,306
Net return on ordinary activities	-	-	-	1,165	958	2,123
Dividend appropriated in the period	-	-	-	-	(4,240)	(4,240)
At 31st December 2015	7,745	46,692	27,401	197,017	14,120	292,975
Six months ended 31st December 2014 (Unaudited)
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
Year ended 30th June 2015 (Audited)
At 30th June 2014	6,660	3,213	27,401	190,534	17,827	245,635
Repurchase of shares into Treasury	-	-	-	(8,158)	-	(8,158)
Exercise of Subscription shares into
Ordinary shares	(6)	6	-	-	-	-
Issue of Ordinary shares on exercise
of Subscription shares	160	6,098	-	-	-	6,258
Net return on ordinary activities	-	-	-	25,815	3,038	28,853
Dividend appropriated in the year	-	-	-	-	(3,463)	(3,463)
At 30th June 2015	6,814	9,317	27,401	208,191	17,402	269,125

¹     This reserve forms the distributable reserve of the Company and may be used to fund distribution of profits to investors via dividend payments.

Statement of Financial Position at 31st December 2015

	(Unaudited)	(Unaudited)	(Audited)
	31st December 2015	31st December 2014	30th June 2015
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	318,075	272,526	289,301
Investment in liquidity fund held at
fair value through profit or loss	-	4,719	6,792
	318,075	277,245	296,093
Current assets
Derivative financial assets	3,521	1,350	1,120
Debtors	525	375	1,256
Cash and short term deposits	577	503	1,169
	4,623	2,228	3,545
Creditors: amounts falling due within one year	(731)	(20,551)	(26,799)
Derivative financial liabilities	(2,826)	(694)	(1,842)
Net current assets/(liabilities)	1,066	(19,017)	(25,096)
Total assets less current liabilities	319,141	258,228	270,997
Creditors: amounts falling due after more than one year	(25,200)	(200)	(200)
Provisions for liabilities and charges
Performance fee payable	(966)	(895)	(1,672)
Net assets	292,975	257,133	269,125
Capital and reserves
Called up share capital	7,745	6,682	6,814
Share premium	46,692	4,055	9,317
Capital redemption reserve	27,401	27,401	27,401
Capital reserves	197,017	203,716	208,191
Revenue reserve	14,120	15,279	17,402
Total equity shareholders' funds	292,975	257,133	269,125
Net asset value per share (note 6)
- undiluted	1,134.3p	1,118.3p	1,163.0p
- diluted	1,134.3p	1,096.9p	1,137.6p

Company registration number: 24299

Notes to the financial statements for the six months ended 31st December 2015

1.    Financial statements

The information contained within the financial statements 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 2015 are extracted from the latest published financial statements of the Company and do not constitute statutory accounts for that year. These financial statements have been delivered to the Registrar of Companies and included the report of the auditors which are unqualified and did not contain a statement under either Section 498(2) or 498(3) of the Companies Act 2006.

2.   Accounting policies

The financial statements have been prepared in accordance with the Companies Act 2006, FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' of the 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 revised 'SORP') issued by the Association of Investment Companies in November 2014.

FRS 104 'Interim Financial Reporting', issued by the Financial Reporting Council ('FRC') in March 2015 has been applied in preparing this condensed set of financial statements for the six months ended 31st December 2015.

As a result of the first time adoption of FRS 102 and the revised SORP, comparative numbers and presentational formats have been restated where required. The Company has elected to not prepare a Statement of Cash Flows for the current period on the basis that substantially all of its investments are liquid and carried at market value.

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

The accounting policies applied to this condensed set of financial statements are consistent with those applied in the financial statements for the year ended 30th June 2015 with the following exceptions and amendments:

Finance costs

Finance costs are accounted for on an accruals basis using the effective interest method in accordance with the provisions of FRS 102.

Financial instruments

Cash and cash equivalents may comprise cash (including demand deposits which are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value) as well as cash equivalents.

Derivative financial instruments, including short term forward currency contracts, are valued at fair value, which is the net unrealised gain or loss, and are included in current assets or current liabilities in the statement of financial position in accordance with FRS 102.

Foreign currency

In accordance with FRS 102 the Company is required to identify its functional currency, being the currency of the primary economic environment in which the Company operates. The Board, having regard to the currency of the Company's share capital and the predominant currency in which its shareholders operate, has determined that sterling is the functional currency. Sterling is also the currency in which the financial statements are presented.

Dividends payable

In accordance with FRS 102 the final dividend is included in the financial statements in the year in which it is approved by shareholders.

Accounting for shares held in Treasury

The cost of repurchasing shares into Treasury, including the related stamp duty and transaction costs is charged to capital reserves and dealt with in the Statement of Changes in Equity. Share repurchase transactions are accounted for on a trade date basis. Where shares held in Treasury are subsequently cancelled, the nominal value of those shares is transferred out of called up share capital and into the capital redemption reserve

Only the relevant section of the applicable policies from the last year end financial statements which have changed as a result of the application of the 2014 AIC SORP and FRS 102 have been reproduced above - all other aspects of those policies remain the same. The impact of the changes is substantially in relation to presentation and disclosure.

3.   Dividends paid¹

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st December 2015	31st December 2014	30th June 2015
	£'000	£'000	£'000
Unclaimed dividends refunded to the Company	-	-	(4)
2015 Final dividend of 16.0p (2014: 15.0p)	4,240	3,467	3,467
Total dividends paid in the period/year	4,240	3,467	3,463

¹     All dividends paid and declared in the period have been funded from the Revenue Reserve.

4.   Taxation

The taxation charge of £139,000 (31st December 2014: £133,000 and 30th June 2015: £380,000) comprises irrecoverable overseas withholding tax.

5.   Return per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st December 2015	31st December 2014	30th June 2015
	£'000	£'000	£'000
Return per share is based on the following:
Revenue return	958	919	3,038
Capital return	1,165	16,946	25,815
Total return	2,123	17,865	28,853
Weighted average number of Ordinary shares in issue
during the period used for the purpose of the
undiluted calculation	24,081,102	23,096,037	23,027,715
Weighted average number of Ordinary shares in issue
during the period used for the purpose of the
diluted calculation	24,081,102	23,128,019	23,222,638
Undiluted
Revenue return per share	3.97p	3.98p	13.19p
Capital return per share	4.84p	73.37p	112.10p
Total return per share	8.81p	77.35p	125.29p
Diluted1
Revenue return per share	3.97p	3.98p	13.08p
Capital return per share	4.84p	73.27p	111.16p
Total return per share	8.81p	77.25p	124.24p

¹     The Company's subscription shares expired and their rights lapsed on 30th October 2015.

6.   Net asset value per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st December 2015	31st December 2014	30th June 2015
Undiluted
Ordinary shareholders' funds (£'000)	292,975	257,133	269,125
Number of Ordinary shares in issue	25,829,137	22,993,660	23,140,517
Net asset value per Ordinary share (pence)	1,134.3	1,118.3	1,163.0
Diluted1
Ordinary shareholders' funds assuming exercise of
Subscription shares (£'000)	292,975	300,834	307,431
Number of potential Ordinary shares in issue	25,829,137	27,425,742	27,025,559
Net asset value per Ordinary share (pence)	1,134.3	1,096.9	1,137.6

¹     The Company's subscription shares expired and their rights lapsed on 30th October 2015.

7.   Fair valuation of investments

The fair value hierarchy analysis for investments held at fair value at the period end is as follows:

	(Unaudited)		(Unaudited)		(Audited)
	Six months ended		Six months ended		Year ended
	31st December 2015		31st December 2014		30th June 2015
	Assets	Liabilities	Assets	Liabilities	Assets	Liabilities
	£'000	£'000	£'000	£'000	£'000	£'000
Quoted prices for identical instruments in
active markets1	318,075	-	277,245	-	296,093	-
Valuation techniques using observable
market value2	3,521	(2,826)	1,350	(694)	1,120	(1,842)
Total value of investments	321,596	(2,826)	278,595	(694)	297,213	(1,842)

¹     Includes liquidity funds.

²     Includes forward foreign currency contracts.

8.   Subsequent event

On 8th January 2016 the Company completed a sub-division of each of its ordinary shares of 25 pence each into five new ordinary shares of 5 pence each.

JPMORGAN FUNDS LIMITED

24th February 2016

For further information, please contact:

Divya Amin

For and on behalf of

JPMorgan Funds Limited

020 7742 4000

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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