Final Results
REGULATORY ANNOUNCEMENT
Blue Planet Financials Growth & Income Investment Trusts No 1-10 plc
Preliminary Announcement
for year ended 31 March 2011
Registered Numbers
Blue Planet Financials Growth and Income Investment Trust No 1 plc
(Registered Number 162796)
Blue Planet Financials Growth and Income Investment Trust No 2 plc
(Registered Number 162797)
Blue Planet Financials Growth and Income Investment Trust No 3 plc
(Registered Number 162798)
Blue Planet Financials Growth and Income Investment Trust No 4 plc
(Registered Number 162799)
Blue Planet Financials Growth and Income Investment Trust No 5 plc
(Registered Number 162800)
Blue Planet Financials Growth and Income Investment Trust No 6 plc
(Registered Number 162801)
Blue Planet Financials Growth and Income Investment Trust No 7 plc
(Registered Number 162802)
Blue Planet Financials Growth and Income Investment Trust No 8 plc
(Registered Number 162803)
Blue Planet Financials Growth and Income Investment Trust No 9 plc
(Registered Number 162804)
Blue Planet Financials Growth and Income Investment Trust No 10 plc
(Registered Number 162805)
The unedited full text of those parts of the Report and Accounts for the year
ended 31 March 2011 which require to be published by DTR 4.1 is set out below.
Financial Record and Key Performance Indicators
As at 31 March 2011 2010 2009 2008 2007
Total assets less current liabilities 1,851 2,592 1,987 6,058 6,402
(excluding loans) (£'000)
Loans (£'000) (782) (811) (915) (2,569) (1,925)
Shareholders' funds (£'000) 1,070 1,781 1,072 3,490 4,477
Net asset value per share (p) 7.83 13.03 7.85 25.56 32.86
Share price (p) - (Bid) 4.80 8.70 4.20 15.60 23.00
Discount (%) 38.7 33.2 46.5 39.0 30.0
Gearing (%)* 47.2 - 6.5 - 28.9
Year to 31 March 2011 2010 2009 2008 2007
Return available for shareholders (£ (37) (53) 136 13 0
'000)****
Revenue return per share (p) (0.27) (0.38) 1.00 0.09 0.00
Proposed final dividend per share (net) - - 0.76 - -
(p)
Dividend yield on our shares (%) - - 18.1 - -
Dividend yield on Benchmark Index (%) 2.35 2.03 5.76 3.42 3.23
Expenses ratio - net basis (%) ** 5.83 4.99 2.57 3.51 3.38
Expenses ratio - gross basis (%) *** 2.91 3.07 1.44 2.53 2.29
The Board believes the above KPI's are of most interest to shareholders in
monitoring the performance of the Company
* Net debt as a percentage of Shareholders' Funds
** Net basis - Administrative expenses as a percentage of the average net asset
value of the Company
*** Gross basis - Administrative expenses as a percentage of the average gross
asset value of the Company
**** 2009 Includes VAT recovered of £27,000
Portfolio Information
At 31 March 2011 Country Valuation % of
Name Portfolio
(£)
2011
Equities
8,966 BP Global Financials-A Class Eire 305,954 16.4
49,659 Sberbank Russia 116,296 6.2
5,250 Direxion Daily Financial Bull 3X United 98,993 5.3
States
2,983 Capital One Financial Corporation United 96,450 5.2
States
21,408 Aviva plc United 92,611 5.0
Kingdom
10,471 Canara Bank Ltd India 91,573 4.9
27,256 LIC Housing Finance Ltd. India 86,064 4.6
202,600 PT Bank Rakyat Indonesia (Persero) Indonesia 83,240 4.5
2,833 JP Morgan Chase & Co United 81,389 4.4
States
4,940 Discover Financial Services United 74,112 4.0
States
947 Affiliated Managers Group, Inc United 64,446 3.4
States
36,710 Dena Bank - IPC India 53,559 2.9
5,165 KKR & Co. L.P. United 52,859 2.8
States
1,757 Lazard Ltd United 45,445 2.4
States
4,044 The Blackstone Group LP United 45,012 2.4
States
2,257 Wells Fargo & Co United 44,539 2.4
States
2,895 Bank of Baroda - IPC India 38,929 2.1
102,300 Krung Thai Bank Pcl (NVDR) Thailand 38,531 2.1
14,420 Aberdeen Asset Management plc United 30,397 1.6
Kingdom
69,550 Blue Planet Worldwide Financials United 29,211 1.6
Investment Trust plc Kingdom
5,630 Bank St. Petersburg Russia 18,171 1.0
933 SCOR SE France 15,832 0.8
39,393 Blue Planet European Financials United 14,575 0.8
Investment Trust plc Kingdom
Listed investments 1,618,188 86.8
Cash 245,084 13.2
Total 1,863,272 100.0
At 31 March 2011 the portfolio yield, as reported to the Association of
Investment Companies, was 2.29% (2010 - 1.35%).
Classification of Investments
At 31 March 2011 Banks Investment Other Cash Total Total
Finance
% Companies % 2011 2010
%
% % %
United States 9.2 8.6 14.5 2.6 34.9 -
United Kingdom - 4.0 5.0 10.6 19.6 38.7
Eire - 16.4 - - 16.4 14.8
India 9.9 - 4.6 - 14.5 -
Russia 7.2 - - - 7.2 -
Indonesia 4.5 - - - 4.5 6.7
Thailand 2.1 - - - 2.1 -
France - - 0.8 - 0.8 0.0
Australia - - - - - 15.3
Canada - - - - - 14.5
Turkey - - - - - 6.5
Switzerland - - - - - 3.5
Cyprus - - - - - 0.0
Brazil - - - - - 0.0
Poland - - - - - 0.0
Norway - - - - - 0.0
Totals 2011 39.7 29.0 18.1 13.2 100.0 -
Totals 2010 32.0 14.8 - 53.2 - 100.0
Benchmark* 63.8 6.2 30.0 - 100.0
*Our benchmark is the Bloomberg World Financial Index (sterling denominated).
Chairman's Statement
Performance
In the past year the net asset value ("NAV") of your Fund has fallen 39.9%,
ending the period at 7.83p per share or 78.3p per Share Unit and
disappointingly reversed the very strong gains it made in the Fund's year 2009/
10. The Fund's benchmark index, the Bloomberg World Financial Index has made a
0.5% return over the year to 31 March 2011 in sterling terms. The Share Unit
price has fallen 44.8% to end the financial year at a bid price of 48.0p.
As reported in the Interim accounts, lamentably our Fund fell more steeply than
its benchmark in its first six months of the year. It sharply underperformed
the market when global equities plunged in April and May 2010 due to the Greek
fiscal crisis and wider concerns over the more over-leveraged countries in
Europe, and then failed to gain ground in July 2010 when fears over the
dissolution of the single European currency receded, and a positive outcome
from the bank stress tests in Europe boosted financials. The Fund's more
consistent performance in the second half of the year was marred by a sharp
drop in emerging markets, especially Asia. Share prices of financials were
affected at the end of 2010 and into January 2011 as concerns over inflation
were coupled with sovereign risk concerns when political unrest broke out in
the Middle East and North Africa. In the past couple of months emerging market
share prices have been generally recovering, especially those in Indonesia and
Thailand.
By the end of 2010 it was possible to say that this was the year in which the
economic recovery put itself on a firmer footing. It was not clear at the start
of the year whether the global economy would remain on track, as fears remained
that major developed economies would stumble back into a double dip recession.
The concerns over the peripheral Euro countries and the separate bailouts of
both Greece and Ireland caused severe plunges in European and, to a lesser
extent, global stock markets. Concerns over the economic recovery in the US in
the Autumn led to the Federal Reserve announcing a second round of quantitative
easing, dubbed "QE2" in October 2010. However, by the end of 2010 the economic
recovery appeared stronger and broader-based, with the German and US economic
data readings, in particular, becoming increasingly positive. The more
optimistic market sentiment that had been gaining ground as 2010 turned into
2011 has subsequently been overshadowed to some extent by the ongoing Middle
East and North African political unrest, particularly that in Libya, and the
earthquake in Japan. However, it appears that confidence is becoming more
sustained in financials, and in equity markets.
Portfolio
The portfolio of investments has ended the financial year, very differently
from the way it started. The Fund went into 2010 in a very cautious mode and
held large amounts in cash at the start of the year, much of which was put into
very short-dated corporate bonds and higher yielding equities by the middle of
the year. At the year end the portfolio was largely in equities. The Fund has
focused on investing in the strengthening US economy, robust emerging market
economies and higher yielding financials. Figure 1 shows the movement in the
security types. Figure 2 shows the geographical movements in the portfolio over
the period.
Figure 1: Portfolio movements 2010 to 2011 - by security type
Security Type Mar-2011 Mar-2010
% %
Equities 86.8 46.8
Cash 13.2 53.2
Figure 2 Portfolio movements 2010 to 2011 - by geography
Country Mar-2011 Mar-2010
% %
USA 34.9 0.0
UK 19.6 38.7
Rep of Ireland 16.4 14.8
India 14.5 0.0
Russia 7.2 0.0
Indonesia 4.5 6.7
Thailand 2.1 0.0
France 0.8 0.0
Australia 0.0 15.3
Canada 0.0 14.5
Turkey 0.0 6.5
Switzerland 0.0 3.5
The Fund has been invested in the US throughout most of the financial year,
although when equity markets were very weak as a result of the Euro-area
sovereign concerns from May onwards, those investments were either reverse
financial index trackers or very short-dated bonds issued by US banks. Towards
the end of 2010, the US economy, which had been in recovery mode, showed signs
of rapid acceleration. In December 2010 unemployment fell from 9.8% to 9.4% and
private consumption and business confidence improved sharply. In the portfolio
the US equity investments were increased. The unemployment rate continues to
fall with the latest reading being 8.8%, a positive move away from over 10%
unemployment in October 2009. Personal spending power is increasing and initial
estimates for GDP growth in the first quarter of 2011 are a growth of 1.8%
year-on-year. House prices lag in these otherwise positive statistics.
Inflation is remaining very subdued in the US and is below the government
target, meaning the US is one of the few countries with no pressure to raise
interest rates. Companies earnings are increasing and financial results have
been strong up to both the 2010 year end and in the first quarter of 2011. In
March this year the US banks announced that they would start paying uncapped
dividends following authorisation from the Federal Reserve. Three of the Fund's
holdings, those in Capital One, JP Morgan and Wells Fargo were positively
affected by this change. At the Fund's year end a position was held in the
Direxion Daily Financial 3X Bull, which was a short-term holding used to tap
into the positive market sentiment over the US first quarter earnings results.
This position has subsequently been sold. The other US investments are in
Discover Financial Services, Affiliated Manager's Group, KKR & Co, and The
Blackstone Group.
Whilst remaining wary of all the problems facing the UK economy, in the second
half of 2010 we added primarily higher-yielding assets in the UK. The concerns
over the EU and potential sovereign debt defaults were weighing most heavily on
bank shares, the insurers and asset managers were less in the spotlight and
looked very attractive with their high dividend yields, relative to the banks,
in the low interest rate environment. The Fund ended the year with investments
in Aviva, Aberdeen Asset Management and small cross-holdings in two Blue Planet
Financials Trusts whose NAV values were at significant premiums to their share
prices. The remaining asset in the UK was cash held in sterling.
At the year end the Fund held one investment in the Republic of Ireland - a
long-term investment in Blue Planet's Global Financials Fund, listed in Dublin.
This has been invested in global, long-only equities over the last year and is
currently focused on opportunities in the strongest economies on a worldwide
basis.
At the start of the year the Fund held no investments in India, as the Indian
economy struggled with high inflation and a high budget deficit. The government
took steps to rein-in its previously accommodating fiscal stance, and whilst
inflation remains a concern, during 2010 we reinvested in Indian banks as their
financial results remained strong, and the country's under-penetrated banking
sector is still attractive. The investments performed very well in the
portfolio until November 2010, when India's inflation problems came to the fore
again and the banking stocks share prices fell sharply. We added to Indian
stocks in January and February 2011 as their prices began to recover again. At
the year end investments were held in Canara Bank, LIC Housing, Dena Bank and
Bank of Baroda. Since the year end, profits have been taken on the LIC Housing
holding.
The Russian economy and its financial companies are on a strong recovery path.
Our smaller holdings in Russian banks were sold just before the last year end.
The reason for selling them was to reduce exposure to illiquid stocks rather
than to remove exposure to Russia from the portfolio. As the economic recovery
in Russia deepened, we rebuilt positions in Russia, initially via its two main
banks Sberbank and VTB; now just Sberbank. A very modest investment was made in
a mid-sized Russian bank, Bank St Petersburg. The Russian economy reported GDP
growth of 5% in the last quarter of 2010, meaning an overall growth rate of 4%
in Russia in 2010. Profits at Russian banks have recovered well as this year
has progressed, with scope for increasing profitability in 2011 as loan growth
picks up further and loan losses continue to reduce. Our investments have
performed well in the portfolio, as Russia has avoided the steep sell-offs at
the end of 2010 experienced by many other emerging markets.
Your Fund first invested in Indonesian banks in July 2009 and has remained
invested in Indonesian banks throughout this past year. The Indonesian economy
has reported year-on-year GDP growth of 6.5% in the first quarter of 2011 and
core inflation remains below 5%. The country has low levels of banking
penetration and its banks are well-capitalised with prudent provisioning in
place and are highly profitable. Indonesian banks continued to increase their
profitability in 2010, aided by high margins and good volume growth in loans.
The share prices of Indonesian banks experienced a sharp pullback at the end of
2010 and into 2011 as their valuations had risen to rather high levels.
However, the solid economic backdrop in Indonesia and continuing excellent
financial results have seen Bank Rakyat, in which the Fund is invested, more
than recover from its from its share price falls. The Fund's investment in
Krung Thai Bank in Thailand had a similar pullback at the end of 2010 and into
2011 and has similarly more than recovered from this dip following excellent
first quarter results from the bank. The Fund invested in Thailand in October
2010. Thailand's economy returned to strong growth in 2010, GDP increased 7.8%
year-on-year. Growth in 2011 will revert to more normal levels of between 4%
and 5%. Domestic consumption is high in Thailand, the savings rate is high and
loans are growing in double digits. The country's banks are enjoying volume
growth and are increasing profitability. A concern does remain regarding the
Thai political landscape.
The exposure to European stocks is currently very low and we expect it to
remain that way whilst fiscal concerns persist in Europe and weigh on European
bank's share prices. Despite the economic strength in Germany, full year 2011
GDP growth will be modest in the EU. At the year end there was one investment
in a high dividend yielding, European reinsurer, Scor based in France.
The Fund held investments in Turkish banks throughout most of the last year as
the country's GDP returned to strong growth and Turkish banks saw a return to
33% year-on-year loan growth. As the Turkish government started to implement
its new monetary policy to stem its current account deficit, which included
sharply increasing reserve requirements for the banks, we sold our investments
before the Fund's year end.
Further details of the portfolio are provided in the Investment Manager's
Report.
Our Warrants
The warrants expired during the Fund's financial year. The final opportunity
when they could have been exercised was at the end of July 2010. This means the
warrants are no longer valid, and if they had not been exercised or sold, on or
prior to the end of July, they no longer have any value attached to them. On 31
July 2010 a total of 560 warrants were exercised and 5,600 ordinary shares were
issued.
This means that the Fund will no longer have a "fully diluted" and an
"undiluted" NAV reported for it, as there is no longer any dilution to be
accounted for.
Dividend
The Directors have not declared a dividend for this year. No interim dividend
was paid as, despite a higher level of income than the previous year, the
return per ordinary share was negative. The story has remained the same for the
full year accounts, despite income being higher than last year and
administrative expenses being lower, the net return per share has remained
negative.
The outlook going forward for revenue is moderate in the current low interest
rate environment, although the higher yielding stocks will help boost dividend
income. The Directors appreciate the importance of dividends to many
shareholders and plan to resume dividend payouts as soon as it is possible to
do so.
Borrowing,Gearingand Liquidity
The Fund ended the year with gearing of 47.2%. It started the year with no
gearing, but as levels of investments have increased the Fund had an average
gearing level of 46% from July 2010 to the year end. Generally, gearing
beneficially affects the Company's NAV when the value of its investments is
rising, but adversely affects it in periods when the value of investments is
falling. Since the year end the gearing levels have been reduced to below 30%
with the aim of reducing volatility in the Fund's NAV.
The Fund has access to a fixed £750,000, unsecured sterling loan and a
multi-currency unsecured, revolving loan facility of £150,000 per trust until
January 2012. Only the sterling loan, which is a fixed loan and would incur
breakage fees if repaid, was drawn down at the year end. The multi-currency
loan is available to be drawn as and when required.
Blue Planet Services and Price Information Sources
Shareholders can view the Company's share price and additional information
about the Fund on the website of Blue Planet Investment Management Ltd
(www.blueplanet.eu) and the London Stock Exchange (www.londonstockexchange.com
). To find the Company's share price on the London Stock Exchange website go to
the Home page and type "BPFU" in the "Price Search" field.
Blue Planet Investment Advisers Ltd offers a Blue Planet Savings Scheme via
Equiniti Financial Services Limited (on behalf of Lloyds TSB) to enable lump
sum investments, gifts or regular savings.
Board Changes
In September 2010 the Board was pleased to welcome Dean Bucknell as a new
Non-Executive Director. Dean Bucknell is Chief Executive of Blue Planet
Investment Management Ltd, the investment manager to the Company. He is also a
Director of Blue Planet European Financials Investment Trust plc, Blue Planet
Holdings Ltd, Blue Planet Global Financials Master Fund and Blue Planet Global
Financials Fund. He replaced Kenneth Murray who resigned due to a desire to
reduce his work commitments.
Outlook
The recovery in the World's largest economy, the US, is becoming firmer, as is
the recovery in core Europe, and confidence indicators in both areas are
increasing. The US economic recovery has been accelerating and is being led by
manufacturing, as demand for exports is strong. Many emerging market economies,
in particular in Asia, remain strong, although concerns have surfaced as
inflation rises. The International Monetary Fund is forecasting global growth
of 4.4% in 2011, with advanced economies growing 2.5% and emerging markets
averaging a 6.5% growth. Emerging Asia is expected to generate about half of
the global growth in GDP in 2011. Investment spending in emerging markets as
they industrialise and as living standards rise is a key driver. Investment
spending in emerging markets is likely to overtake investment spending by
developed markets this year. Many emerging market central banks have already
started raising interest rates, to normalise policy rates and curb inflation.
Within Europe fortunes are more mixed. The CIS countries, and in particular
Russia, are seeing a rapid bounce back from a sharp recession induced by the
global financial crisis. The Nordic economies are showing solid growth whilst
Germany is forging ahead, with its exports rebounding strongly. However, the
periphery EU countries remain a concern, with Portugal the latest country to
require a bailout of around €80bn in April 2011, and doubts linger over the
long-term willingness of the core EU countries to support its weaker members.
Domestic elections cloud this issue further.
The UK economic outlook remains concerning UK GDP slid back into negative
territory in the final three months of 2010 and the rebound in the first
quarter of 2011, only just reversed this slide. A double dip recession in 2011
remains a possibility, as public sector jobs are cut and austerity measures
reduce disposable income. High inflation readings have been pushing Sterling
stronger against the major other world currencies, as hikes in interest rates
are becoming more widely anticipated, but it seems to us that any increase in
interest rates will probably exacerbate the weakness in the UK economy far more
than it solves an inflation problem and we expect sterling to weaken again
going forward as the country's economic growth forecasts are revised down
further.
However the underlying trend currently is on a continuing economic recovery.
Added to this company profitability is increasing. Bloomberg data shows that
major, US companies increased profitability on average by 39% and European
companies increased profitability by an average of 15% year-on-year in the
final 3 months of 2010. The S&P500 Index in the US has seen return on equity
rising for the past six quarters to 23%.
Your company will continue to focus on countries and the financial companies
within them with the best prospects for profitable growth that should drive
their share prices higher as valuations remain modest. Bloomberg data shows
that the S&P500 is trading on 12.2 times analysts' earnings estimates for the
coming year. In the past two decades the average is 20.5 times in the past two
decades.
Whilst bouts of nervousness will not disappear, we believe that 2011 will be a
positive year for equity markets. The resolve of investors has already been
tested this year by the tensions in Africa and the Middle East and not
surprisingly by the earthquake in Japan and its terrible consequences for the
inhabitants of the country. However these concerns appear to have receded. We
would hope to move forward in the next few years to provide positive and more
stable returns, as we forsee good investment opportunities in Asia, Russia and
in the US in particular. We echo the broad sentiment of Warren Buffett's, that
now is the time to put money to work.
Your Fund has a strong record of outperformance in years of rising markets. The
Fund's benchmark has provided a positive return in 5 out of the last 10 years,
and the Fund has outperformed the benchmark for 4 of those years, in some years
significantly. It has also managed to provide positive returns in 2 years that
its benchmark did not. It is disappointing that the one time that your Fund has
significantly underperformed in a positive year for the benchmark is in the
year just ended, when, in a highly volatile year for the markets, the benchmark
made a marginally positive return and your Fund made very poor returns. At the
AGM there will be a special resolution to vote on the continuation of the Fund.
We would urge shareholders to vote in favour of this resolution, to capitalise
on the opportunities available from the economic recovery, strong corporate
profitability and cheap valuations to rebuild value in the Fund and allow the
Fund's Managers to show again their skill in extracting additional value as
markets rise again.
I thank you for your continuing support and look forward to welcoming you to
the Annual General Meeting on the 4 August 2011.
Victoria Killay
Chairman
20 May 2011
Investment Manager's Report
Portfolio Performance Analysis
As has already been highlighted in the Chairman's Statement, the Fund's NAV
fell 39.9% over the year, compared to a return of 0.5% by the Fund's benchmark
index in sterling terms. The Share Unit price fell 44.8%. Markets were very
weak in the first half of the Fund's financial year, but the Fund fell much
more sharply than its benchmark, in particular when global equities fell in
April and May 2010 due to the Euro-area sovereign crisis and was unable to
recover from these losses. The Fund's improved performance in the second half
of the Fund's year was halted in November 2010 when a sharp drop in emerging
market, and especially Asian, financials pulled-down the NAV again. The
emerging market share price falls were due to concerns over inflation and were
coupled with sovereign risk concerns as political unrest broke out in the
Middle East and North Africa. These concerns have lessened over the past couple
of months, aided by strong financial results in many emerging markets and share
prices have been generally recovering, especially those in Indonesia and
Thailand.
Asset Allocation
Blue Planet Investment Management's investment process is top down. Much of our
focus this year has been on analysing the economic situation and prospects for
the major economies, in particular the United States, as the strength of the
recovery in the US has a major impact on the rest of the world. We continue to
identify countries with the strongest economic prospects and acceptable levels
of political risk. The economic backdrops in these countries are assessed in
detail and ranked accordingly. The listed banks and other financial
institutions in the highest ranked countries are then investigated. When
appropriate, capital is allocated to those banks and other financial
institutions which we believe are likely to offer the best total returns over
the long term. Our stock selection process involves meeting with the senior
management of companies we are contemplating investing in. Where possible, we
also like to meet with local Central Banks to discuss the economic policies
being pursued in the countries concerned. Once we are invested in a company, we
aim to meet regularly with its senior management to monitor its progress. Since
the last year end we have visited financial institutions in the Czech Republic
and Turkey. In addition, we had meetings in the UK with the management of many
overseas financial institutions.
Geographically the US is our largest equity investment location. Earlier in
2010 when equity markets were very weak as a result of the Euro-area sovereign
concerns from May onwards, those investments were either reverse financial
index trackers or very short-dated bonds issued by US banks. In October 2010
the Federal Reserve announced a second round of quantative easing as it felt
the US economy required further stimulus. Whether this additional stimulus was
the catalyst or not, the US economy has shown a continued strengthening in its
recovery. This is being led by manufacturing as demand for exports from
emerging markets, in particular China, investment spending and inventory
restocking are causing a rebound in activity at factories. The Fed's Senior
Loan Officer survey suggests that banks have been loosening lending standards
for businesses for several quarters and that business loan demand is now
picking up. US companies are increasing earnings. Unemployment has now fallen
back to 8.8%. Household spending is continuing to expand and there are no signs
that US households are starting to increase their debt. As inflation is
remaining subdued the US is under no pressure to raise interest rates.
The US banks have been rebuilding their balance sheets and financial companies
are rapidly recovering profitability. During March 2011 the US banks announced
that they would start paying uncapped dividends following authorisation from
the Federal Reserve. This is positive for Capital One, JP Morgan and Wells
Fargo in the portfolio. At the Fund's year end a position was held in the
Direxion Daily Financial 3X Bull, which was a short-term holding used to tap
into the positive market sentiment over the US first quarter earnings results.
This position has subsequently been sold and exposure to banks has also been
reduced. The other US investments are in Discover Financial Services,
Affiliated Manager's Group, KKR & Co, and The Blackstone Group.
The UK has not been a significant area of investment for the Fund for quite
some time due to its weak economic positioning. We retain a negative view of
the UK economy going forward. The contraction of 0.5% in GDP in the final three
months of 2010 was disappointing and initial estimates are that GDP in the
first quarter of 2011 are for a very modest growth of 0.5%. The office for
Budget Responsibility has already started cutting its forecast for growth in
the UK in 2011. Its forecast is now for a growth rate of 1.7%, compared to its
previous estimate of 2.1%. We believe this is still optimistic. Despite this,
from the middle of 2010 onwards we have included a small number of positions in
the UK in higher-yielding stocks. Whilst the UK and continental European bank's
share prices were being buffeted by the concerns over the state of the Euro
area periphery countries, the insurers and other financial stocks were less
exposed to the turbulence. In the prevailing low interest rate environment the
higher yielding stocks looked very attractive. The Fund has holdings in Aviva
and a holding in Aberdeen Asset Management. Both have performed well in the
portfolio. The remaining holdings in the UK are sterling cash holdings.
The Fund's third largest geographic exposure is listed as Ireland. This is
because the Fund is invested in the Blue Planet's Global Financials Fund,
listed in Dublin. The Global Financials Fund has been invested in global, long
and short equities and fixed income over the last year. It is currently focused
on opportunities in the strongest economies on a worldwide basis. Shorts have
been held within Europe, whilst key areas for long investments are the US,
Asia, Russia and Latin America.
Investments in India were added back into the portfolio during the year. The
Indian government, like many other countries, had seen its fiscal deficit rise,
as it had provided stimulus measures to support the economy through a weak
patch in 2009. The investments in Indian banks had been sold before the end of
the last financial year as India's budget deficit reached a 16-year high and
the reserve bank of India started to tighten monetary policy and raise reserve
ratios for banks. It was feared that this would cause a sharp spike in bad
loans, as had been seen in Russia. However, although bad loans increased, they
remained at very manageable levels and Indian banks continued to grow their
profitability as loan demand remained robust. The Indian economy continues to
grow strongly. The latest GDP growth figure for the quarter to the end of
December 2010 was 8.2%. Investment spending in India is increasing, in 2010
investment spending in India was higher than that in Germany. Inflation remains
stubbornly high, and concerns over inflation led to a sharp pullback in the
Indian stock market at the end of 2010 and into 2011. However, loan growth
remains very robust in India, currently in 2011 loans are increasing 22%
year-on-year. The valuations of all but the largest Indian banks remain very
attractive, and the banks results to March 2011 have been very solid. At the
year end investments were held in Canara Bank, LIC Housing, Dena Bank and Bank
of Baroda. Subsequent to the year end profits have been taken on the LIC
Housing holding.
At the last year end we reported that investments in illiquid Russian banks had
been sold, after Russian banks share prices made a substantial recovery as
their outlook brightened considerably. The Fund is now focused on primarily the
larger Russian banks. In 2009 bad debts at the banks soared and profits were
largely eaten up by provisioning. The smaller banks in Russia suffered the most
and this has led to a shake-up in the Russian banking sector, with 100 less
banks in operation now compared to pre-crisis. The major banks in the country
have strengthened their positions and have seen profits picking up in 2010.
This recovery should accelerate in 2011, as demand for loans increases, margins
stabilise and provisions for bad loans are lower. High inflation in the country
remains a concern, inflation has risen to 9.6% in January 2011 and the Russian
Central Bank has raised interest rates and has made steps towards returning
bank's reserve requirement rates to pre-crisis levels. However banking
penetration in Russia is low and as disposable income increases, retail lending
should see strong growth. The Fund holds positions in Russia's largest banks,
Sberbank and also held a small position in Bank St Petersburg at the year end.
The Fund has held investments in Indonesia throughout the year. At the year end
the level of investment had been reduced slightly from the start of the year,
with a single investment in PT Bank Rakyat Indonesia. The Indonesian economy
remained strong through the global economic crisis and followed its 4.6% GDP
growth in 2009, with a further growth of 6.1% in 2010. Forecasts are for the
country to continue its growth momentum as private consumption and investment
spending remain strong, and first quarter 2011 GDP growth was 6.5%. Core
inflation has been creeping up to the 5% level and the bank has raised interest
rates this year to 6.75%. Indonesian banks are well capitalised and, with the
Asian crisis as part of the country's past, the banks hold high levels of
provisions. Like in India, loan growth of over 20% is expected in 2011,
particularly as the central bank is encouraging loan growth by making holding
excessive liquidity more costly for banks via reserve requirements. Consumer
loan penetration is even lower than in India at 8.9% of GDP at the end of 2010.
We anticipate another year of strong profitability for Indonesian banks in
2011.
In October 2010 the Fund invested in Thailand for the first time. Exports
account for more than 60% of Thailand's GDP, which means the global economic
slowdown created a tough time for Thailand's economy and its GDP contracted
2.3% in 2009. However the country bounced back strongly in 2010 as the
government used its years of fiscal prudence to provide a comprehensive
stimulus package. The country is predicted to continue to grow GDP in the 4% to
5% range in the next few years. Loan growth was 11.4% in the last quarter of
2010, and in this country where GDP per capita is increasing in double digits,
domestic consumption is high and consumer loans are modest at 22.3% of GDP, the
banks anticipate many years of profitable growth.
Investments in Europe have remained at low levels this year. This year the
viability of the single European currency, the Euro, has been a recurring
theme. The periphery Euro area countries have been experiencing economic
difficulties following the global economic recession. In early 2010 concerns
had centred on Greece, which had an unsustainable large fiscal deficit. Greece
was forced to accept a €110bn bailout package. In November it was Ireland that
was in the spotlight, as its banking sector continued to struggle with
increasing amounts of bad debt. By the end of the month Ireland had accepted an
€85bn aid package, including €10bn for immediate bank recapitalisations. The
most recent to accept a bailout was Portugal, who were offered an approximately
€80bn package at the start of April 2011. Concerns that one or more of these
countries will either default, or need to restructure, their sovereign debt
remains elevated. All of this has had a significant impact on mainland European
banks, which have a great deal of cross-border exposure in Europe. The only
European stock currently held is SCOR, a French-based reinsurer with a good
dividend yield.
The Fund has held investments in Turkish banks throughout most of the last year
and Turkish banks share prices performed strongly through into the autumn of
2010, as GDP growth continued to bounce back from its 2009 lows. However
towards the end of 2010 as inflation rose and the Turkish current account
deficit widened significantly, Turkish equities joined in a wider emerging
market equity sell-off. The Turkish government implemented an unorthodox
monetary policy of reducing interest rates to weaken the Turkish Lira in order
to stem its current account deficit, and sharply increasing reserve
requirements for the banks to put a break on loan growth and thereby subdue
inflation. These measures will adversely affect the profitability of Turkish
banks in 2011, and we sold our investments.
Currency
The Fund is exposed to a range of currencies. The table below shows the
percentage of the portfolio holdings in each currency and how those currencies
have performed against the pound over the period in which the investments have
been held in the Trust during the financial year.
Currency % of total Appreciation/
portfolio in depreciation
currency against £ for the
length of time the
currency has been
held in the
portfolio
US Dollar 34.9% -5.2%
Euro 17.2% -0.8%
Indian Rupee 14.5% +2.5%
Russian Rouble 7.2% +5.0%
Indonesian 4.5% -1.4%
Rupiah
Thai Baht 2.1% -1.9%
The positive currency movements had a beneficial impact on our performance. The
negative currency movements reduce the share price return when translated into
sterling. The Fund's largest exposure is to the US Dollar, which has recently
been weak against sterling. The Euro has had a very volatile year, but has
recently been strengthening again against sterling. Persistently high inflation
in the UK has led to speculation that the UK central bank will raise interest
rates soon, which has led to an appreciation in sterling against many other
currencies. However, we expect the weak macro economic data in the UK to
override the expectations of a modest rise in interest rates and would expect
to see sterling weakening again in 2011.
Risk
Market risk arises mainly from the uncertainty regarding the future price
performance of equities held by your Company. This risk is magnified when
gearing is used and due to the fact that the company is invested in a single
industry sector. Being invested in a single sector exposes the Fund to the risk
that the Financial Sector will underperform relative to other sectors of the
market, and this last year this sector did underperform several other sectors.
Gearing the Fund via loans also means that interest-rate risks arise. These
risk factors are beyond the control of the Company.
In mitigation of these risks the financials sector in which we are invested is
the largest sector within the Bloomberg Worldwide Index. Banks play a crucial
and central role in free market economies; a role that will underpin the
prosperity of the banking sector as a whole over time. The prices of the
individual securities invested in are monitored on a daily basis and the Board,
which meets quarterly, imposes borrowing limits to ensure gearing levels are
appropriate to market conditions. When gearing is employed the potential impact
of changes to interest rates is taken into consideration. The securities dealt
in are all listed on recognised exchanges and are readily realisable.
The Fund is exposed to currency risk, due to the range of currencies in which
investments are held. The largest risk is in the US dollar at the year end.
Currency risk is a risk that can partially be controlled by employing
appropriate hedging strategies. The Company currently has a multi-currency loan
facility and our borrowings can be used as a "natural" hedge against
investments in the matching currency. In addition hedging is considered on a
case-by-case basis. The fund manager has been tracking currency movements on a
daily basis in the current volatile environment.
Where investments are made in emerging markets there is a risk of higher
volatility in the price performance of these equities and their associated
currencies. Political risk and adverse economic circumstances are more likely
to arise, putting the value of the investment at a higher risk. The
registration and settlement arrangements in emerging markets may be less
developed than in more mature markets so operational risks of investing are
higher.
Credit risk arises from the exposure to non-delivery of an investment that has
been purchased. The Company only buys and sells investment through brokers
approved by Blue Planet Investment Management and so considers this risk is
adequately controlled.
A full analysis of all the risks is provided in Note 18 to the Accounts.
Factors Affecting the Company Going Forward
A number of momentous events in the first few months of 2011, two major natural
disasters due to earthquakes, in New Zealand and Japan, and political unrest in
the Middle East and North Africa region, caused an immediate reduction in the
risk appetite of investors. Longer lasting impacts of these events could affect
both the economies of the countries concerned and the wider economic outlook.
A continuation of the recovery from the global economic recession should have a
positive impact on equity markets, whereas a stalling or reversal of the
recovery will have a negative impact on equity markets. Both events could have
a significant impact on the Company. The balance is currently towards a
continuation of the recovery. The pace of the recovery, both globally, or in
the particular countries, or regions, in which we are invested, will affect the
stock markets and exchange rates within those countries.
The improvement in company profitability, in particular in major economies like
the US, providing it remains on course, is likely to be positive for the
performance of the financial sector, which will benefit the company.
Review of the Top 10 Investments at year end
1. Blue Planet Global Financials
The Blue Planet Global Financials Fund ("BP Global") is an open-ended Cayman
Islands exempted company. The Company is listed on the Irish Stock Exchange and
has been in existence for five years. Its objective is to achieve a high level
of capital growth by taking long and/or short positions in securities issued by
or relating to banks and other financial institutions on a worldwide basis.
Shares are available denominated in Euros and US dollars. Your Company is
invested in the Class A Euro shares.
BP Global's most recent published financial results are for the six months to
30 June 2010. In these results a 6.2% fall in the fund's NAV was reported.
Subsequently the NAV for the Class A shares has fallen 10.1% to its latest
published figure for 31 December 2010. The fund has been invested in long and
short financial equities and bonds on a global basis during 2010. It has
focused on both developed and emerging markets during the past year and key
themes this year have been stocks in the US, Asia-Pacific and Latin America.
Blue Planet Investment Management Ltd receives a fee of 0.125% of the monthly
NAV of the Blue Planet Global Financials Fund and the investment we hold
represents 43% of the total investments in the Blue Planet Global Financials
Fund.
Your Company has been invested in this fund since its launch. Its total return
in sterling over the 12 month period is -21%.
Key statistics relating to this investment are given below:
For the period: 6 months Year ended 31 Change
ended 30 Jun Dec 2009
2010
Total Assets € 9.5m € 10.1m -5.9%
Net Profit/Loss after Taxation € -0.6m € 1.4m N/A
Net Asset Value per Share € 45.597 €48.633 -6.2%
(Class A Euro shares)
2. Sberbank of Russia
Sberbank is the largest bank in Russia, with about 27% of the entire Russian
banking assets. It was established in 1841 and has grown to become the largest
deposit taker in the country with a market share of 48% in retail deposits. It
also accounts for over 30% of both retail and corporate loans. The Central Bank
of Russia owns just over 60% of Sberbank's share capital.
The bank is focusing on upgrading its processes and technology to increase
efficiency and profitability. It has made some expansion steps outside Russia,
notably in CIS and in China. With banking penetration in Russia remaining very
low, mortgages are only 3% of GDP in Russia, compared to around 40% in Europe,
the bank's dominant market share make it well positioned to capitalise on the
growth in banking services in Russia.
Sberbank have had a very strong final quarter of 2010, which has enabled the
company to report net profit for 2010 as a whole which is over seven times the
level of profits in 2009. Financial performance in 2009 was muted at Sberbank.
Net customer loans fell in 2009 and non-performing loans rose sharply, as
Russia suffered from high unemployment and weak corporate profitability,
following the global economic slowdown that hit Russia hard. In 2010 Sberbank
has increased its loan portfolio by nearly 13%, with deposits growing 22% in
the year. Non-performing loans have fallen and the bank has again reported a
return on equity of over 20%. In 2011 the bank should continue to see good loan
growth which will drive revenue growth. There are plans for the bank to issue
global depositary receipts so it will become listed on overseas exchanges,
making access to its shares easier for international investors, as well as
indications from the Russian Central Bank that it will reduce its stake in
Sberbank to just over 50%.
We bought this stock in September 2010 and since that time it has provided a
total return in sterling terms of 34%.
Key statistics relating to this investment are given below:
For the year ended 31 December: 2010 2009 Change
Total Assets Rub 8,629bn Rub 7,105bn +21.4%
Cost : Income Ratio 42.4% 35.4% +7.0pp
Net Profit after Taxation Rub 181.6bn Rub 24.4m +644.3%
Earnings per Share Rub 8.42 Rub 1.10 +665.5%
Dividends per Share Rub 0.92 Rub 0.08 +1050.0%
Dividend Cover 9.2x 13.8x -
Return on Equity 3.2 % 20.6% +17.4pp
3. Direxion Daily Financial Bull 3X
The Direxion Daily Financial Bull 3X ETF seeks daily investment results, before
fees and expenses, of 300% of the price performance of the Russell 1000
Financial Services Index. The Russell 1000 Financial Services Index is a subset
of the Russell 1000 Index that measures the performance of the securities
classified in the financial services sector of the large cap US equity market.
As of 31 March 2011, the index had an average market capitalisation of over
$13.12 billion dollars and a median market capitalisation of $4.60 billion
dollars. As one cannot directly invest in an index this, and similar products,
provide an alternative means of gaining exposure to the index performance as a
whole.
Direxion Funds and Direxion Shares are managed by the private company Rafferty
Asset Management, LLC. Direxion offer a range of leveraged index funds, ETFs
and alternative-class fund products for investment advisors and sophisticated
investors who seek to effectively manage risk and return in both bull and bear
markets. Founded in 1997, the company has approximately $7.5 billion in assets
under management as of the end of December 2010.
We bought and sold this stock in September 2010 at a profit. It was purchased
again in January 2011. The size of the holding was adjusted several times, but
the return from the initial purchase date was 1% at the year end, with the
return in sterling terms being muted by the strength of sterling versus the US
dollar.
4. Capital One Financial Corporation
Capital One Financial Corporation ("Capital One") is headquartered in McLean,
Virginia. It was founded in 1988 and had an initial public offering in 1994.
Capital One is one of the America's largest consumer franchises with
approximately 45 million customer accounts and offers a broad array of
financial products and services to consumers, small businesses and commercial
clients in the US, Canada and the UK, specialising in credit cards, personal
banking and loans. Over the year the company has been transforming into a bank
and now reports the results of its business through three operating segments:
Credit Card, Commercial Banking and Consumer Banking.
Following the recession the company had seen its loan book shrink as American's
reduced the balances on their credit cards and paid down their debts and as
Capital One tightened their underwriting standards. Charge offs and bad loans
increased, but the company remained profitable through 2009. In 2010 bad debts
were improving and the company saw a 7.5-fold increase in profits year-on-year.
The recovery in the US economy should result in a return to loan growth and the
company has already reported strong results for the first quarter of 2011. Net
income improved 60% from a year previously and 46% from the final quarter of
2010. The superior results were driven by positive credit trends and strong
revenues, both of which should continue through 2011.
We have held this investment since the start of September 2010 and in its seven
months in the portfolio it has made a return of 9% in sterling terms.
Key statistics relating to this investment are given below:
For the year ended 30 December 2010 2009 Change
Total Assets $ 198bn $ 170bn +16.5%
Cost: Income Ratio 49.1% 43.4% +5.7pp
Net Profit after Taxation $ 2,743m $ 320m +757.2%
Earnings per Share $ 6.01 $ 0.74 +712.2%
Dividends per Share $ 0.2 $ 0.53 -61.9%
Dividend Cover 30.1x 1.4x -
Return on Equity 12.2% 3.7% +8.5pp
5. Aviva Plc
The group has been known as Aviva since July 2002. It was created by the merger
of CGU and Norwich Union in May 2000. Through its founder companies, Aviva can
trace its history back for more than 300 years. Aviva is now the world's sixth
largest insurance group and the UK's largest insurer, with over 53 million
customers worldwide. Its major markets are Europe, the UK and North America
with a small presence in Asia Pacific. Aviva's main business is life insurance
and in terms of operating profits the split is almost 70/30 between life
insurance and general insurance. It also has an asset management division.
Aviva has been strengthening its capital position. In 2009 it cut its dividend,
made asset disposals and introduced new hybrid capital. The company rebounded
in 2009 from a loss in 2008. In 2010 it increased its IFRS profits further,
with an increase of 35% year-on-year. It raised its dividend by over 6% on the
basis of its 2010 financial results. The company's Net Asset Value grew 21%
under IFRS accounting rules, capital generation was very strong at £1.7bn in
the year and the company cut costs. It also put money into its pension fund and
closed the deficit that had previously existed. The company retains a positive
outlook for 2011 and intends to continue to generate high levels of operational
capital, continue to cut costs and increase levels of profitability within its
Life division.
The company has not made any recent comments on whether it is considering
further asset disposals. In 2010 RSA Insurance made a £5bn cash offer to Aviva
for its general insurance businesses in the UK, Canada & Ireland, leaving Aviva
to focus on life insurance. Aviva's directors have rejected it unanimously as
they say it is not in their shareholder interests.
We bought this investment in July 2010 and sold it in October 2010 at a profit.
We repurchased a holding in January 2011 and since this time the stock has
provided a total return of 6% in sterling terms.
Key statistics relating to this investment are given below:
For the year ended 31 December: 2010 2009 Change
Total Assets £ 370.1bn £ 354.4bn +4.4%
Net Profit after Taxation £ 1,463m £ 1,085m +34.8%
Earnings per Share 49.6p 37.5p +33.3%
Dividends per Share 25.5p 24.0p 6.25%
Dividend Cover 1.9x 1.6x -
Return on Equity 14.8% 10.9% +3.9pp
6. Canara Bank
Canara was founded in 1906 and was incorporated as Canara Bank in 1910. It was
nationalised in 1969 along with 14 other major banks in India and did not have
a public holding in its shares until 2002 when an initial IPO was launched. The
government now hold 67.7% of the bank's equity. The bank has its headquarters
in Bangalore and has over 3,000 branches following a major branch expansion
programme in 2010 which saw the bank opening 211 new domestic branches. Canara
Bank is one of the top five banks in India with a nearly 5% share of loans and
deposits.
Loan penetration is low in India. Business loans-to-GDP stood at 41.7% at the
end of 2010 and consumer loans-to-GDP were at 9.7%. This provides a great deal
of scope for sustained loan growth. In its full year results to March 2011
Canara Bank saw both loan and deposit growth of over 25%, with retail lending
growing at 32% and strong growth in the corporate sector. In the most recent
quarter business loans grew 21% quarter-on-quarter.
The bank plans a further 250 new branches over the next year to boost retail
deposits and loans and anticipates it will achieve loan growth of over 25%
again in its financial year to March 2012. Canara Bank has one of the highest
ROE ratios of the public sector banks in India and forsees further profitable
business growth over the next few years.
We purchased stock in P-note form in October 2010, and added to the holding
when the Fund was able to invest directly into Indian stocks in February 2010.
Due to the weakness of Indian stocks at the end of 2010, the total return for
the portion of the stock held since October is -17.5%. We would expect the
share price to continue to recover in 2011.
Key statistics relating to this investment are given below:
For the year ended 31 March: 2011 2010 Change
Total Assets Rs 3,361bn Rs 2,647bn +27.0%
Profits after Taxation Rs 40.3bn Rs 30.2bn +33.4%
Earnings per Share Rs 97.83 Rs 73.69 +32.8%
Dividends per Share TBD Rs 10 n/a
Dividend Cover TBD 7.4x -
Return on Equity 26.4% 26.8% -0.4pp
7. LIC Housing Finance Ltd
LIC Housing Finance Ltd. ("LIC") is the second largest Housing Finance Company
in India and was incorporated in 1989. It has over 1 million customers served
through its 180 plus marketing offices by nearly 14,000 agents. Loans to retail
customers make up around 90% of the loan book, with the remaining 10% of loans
being to large scale customers such as developers. The company is primarily a
wholesale funded institution. LIC can take deposits, but this currently
provides less than 1% of its funding.
Mortgage penetration in India is very low, which in itself supports demand.
However the population growth in India and urbanisation, along with an increase
in consumer's affordability levels provide an additional boost to housing
finance demand. LIC estimate that housing stock will grow by 17% over the next
5 years and that urbanisation will continue, with the urban population expected
to account for 32% of the population by 2015. LIC has been focusing on
increasing the average size of its loans, as larger loans have improved credit
performance. Now, 62% of the company's loans are originated in the larger
cities in India.
A bribery scandal involving the chairman of LIC Housing caused a sharp drop in
the company's share price in November 2010. The Chairman was quickly replaced,
and the last 2 financial quarter's results have not been adversely affected by
this incident. In the full year to March 2011 LIC increased margins, improved
credit quality and increased its loan book by 34%. This led to a 38% increase
in consolidated profits year-on-year.
The stock was purchased in January 2011 in anticipation of a recovery from the
stocks steep share price falls and more stock was added at the start if
February when it became possible for the Fund to hold the direct stock in the
Indian market. By the year end the stock had made a total return of 19% in
sterling terms since the initial purchase date. It has subsequently been sold
to lock in profits.
Key statistics relating to this investment are given below:
For the year ended 31 March: 2011 2010 Change
Total Assets Rs 494bn Rs 382bn +29.3%
Profits after Taxation Rs 9,519m Rs 6,888m +38.2%
Earnings per Share Rs 20.05 Rs 15.28 +31.2%
Dividends per Share Rs 3.50 Rs 3.00 +16.7%
Dividend Cover 5.9x 4.9x -
Return on Equity 25.8% 19.5% +6.3pp
8. PT Bank Rakyat Indonesia (Persero) Tbk
Bank Rakyat Indonesia (Persero) Tbk ("BRI") is the oldest bank in Indonesia and
was founded in 1895. It has served the micro finance segment for over 100 years
and now has around 25 million customers. The government is the majority
shareholder in Bank Rakyat Indonesia with a 57% stake in the bank. It is the
second largest bank in terms of loans and has a 12% market share in terms of
deposits. The bank has by far the most extensive network of branches,
sub-branches and units, with offices located in every province of Indonesia.
The bank was resilient through the 1997 Asian financial crisis, but suffered
through its large US dollar loan book and the government recapitalised the bank
in 2000 using government recapitalisation bonds. The management in the company
was changed. The Bank had a 3.8bn initial public offering in October 2003 and
much of the proceeds were spent on introducing the latest IT systems to the
bank.
BRI benefits from very high margins from its high proportion of micro finance
business (31% of its loan book at the end of 2010). Margins at the bank were
almost 10% in its most recent quarterly results. The bank reported a 57%
increase in profits in 2010, with loans growing 20% and deposits rising 29%. An
accounting change applied to the accrual of net interest income boosted what
were already very strong financial results for the year. In its most recent
results to the 31 March 2011 the bank reported a 52% year-on-year increase in
profits, as loans grew 21%, in-line with the bank's target for a 22% growth in
loans in 2011, and return on equity remained very high at nearly 38%.
This stock has been held in the portfolio throughout the Fund's financial year,
although the size of the holding has been adjusted several times. The portion
of the holding held for the full year has made a 40% return in sterling terms.
Key statistics relating to this investment are given below:
For the year ended 31 December: 2010 2009 Change
Total Assets IDR 398,393bn IDR 314,746bn +26.6%
Cost: Income Ratio 42.2% 46.8% -4.6%
Net Profit after Taxation IDR 11,472bn IDR 7,308bn +57.0%
Earnings per Share IDR 956.7 IDR 609.5 +57.0%
Dividends per Share IDR 141 IDR 89 +58.4%
Dividend Cover 6.8x 2.9x -
Return on Equity 43.8% 35.2% +8.6pp
9. JP Morgan Chase & Co
JP Morgan Chase & Co ("JP Morgan") is a global financial services firm,
headquartered in New York, with assets of $2 trillion. It operates in more than
60 countries and has over 200,000 employees. It has grown both organically and
by acquisition. JP Morgan weathered the financial turbulence in 2008 better
than many of its US banking counterparts and this led to it making two major
acquisitions in 2008. It bought Bear Stearns (The 5th largest US investment
bank at that time) and Washington Mutual after Washington Mutual's assets were
seized by the FDIC due to the bank's failure. JP Morgan issued $11.5bn of
common stock to support the purchase. The addition of the Washington Mutual
assets expanded the Chase consumer network to become the 2nd largest branch
network in the US, serving over 42% of the US population.
JP Morgan increased profits almost 50% year-on-year in 2010 as its level of
profitability begins to normalise. In 2010 its investment bank remained
resilient, both its commercial banking and asset management divisions reported
record revenues and card services volumes increased. Whilst its retail division
increased current accounts by more than 1.5 million and bad debts fell,
consumer lending remained weak.
JP Morgan's most recent results for the first quarter of 2011 confirmed a
continuation of its strengthening financial results. Its investment banking
division reported good profits and credit cards had positive revenue growth and
lower charge-offs. JP Morgan's shares remain modestly valued, despite its
recent financial results and strong capital position.
The stock was bought in January 2011 and in its short time in the portfolio to
the year end provided a total return of 1% in sterling terms. This stock was
sold after the Fund's year end as we sought to reduce the high level of
exposure to the US once the share price impetus from the first quarter results
had run its course.
Key statistics relating to this investment are given below:
For the year ended 31 December: 2010 2009 Change
Total Assets $ 2,118bn $ 2,032bn +4.2%
Net Profit after Taxation $ 17.4bn $ 11.7bn +48.7%
Earnings per Share $3.96 $ 2.26 +75.2%
Dividends per Share $ 0.20 $ 0.20 +0%
Dividend Cover 19.8x 11.3x -
Return on Equity 10.0% 6.0% +4.0pp
10. Discover Financial Services
Discover Financial Services ("DFS") is a direct banking and payment services
company formed in 1986. The company has become one of the largest card issuers
in the United States with $45bn in loans and owns the PULSE network which is
one of the US's leading ATM/debit networks. The company acquired The Student
Loan Corporation in December 2010. The company is primarily focused on the US
and has over 10,000 employees.
Credit card loans at the company remained stable in 2010, despite the
deleveraging of the US consumers, which meant the company gained market share.
In response to the difficulty of raising funding during the sub-prime mortgage
crisis, DFS has increased its direct banking deposits, making this their
largest single source of funding, meeting about 40% of their funding
requirements. The payment services business division performed well in 2010.
The 2010 net income was below that in 2009 as the 2009 results were boosted by
a $1.2bn payment after tax related to the Visa/Mastercard antitrust litigation
settlement.
The company plans to grow further its direct banking offerings, expand its US
card business and continue to build a global payments network, including
payments via mobiles. As with Capital One, the company expect that the
improving economic outlook in the US will drive a growth in credit card loans
in the second half of 2011. The company's results for the first quarter of 2011
were strong as charge-offs fell and the company booked a reserve release. Its
robust capital position allowed DFS to put its dividend per share back to
pre-crisis levels.
This stock was purchased in January 2011and in its short time in the portfolio
has provided a total return of 16% in sterling terms.
Key statistics relating to this investment are given below:
For the year ended 30 November: 2010 2009 Change
Total Assets $60.8bn $ 46.0bn +32.2%
Profits after Taxation $ 668bn $ 1,207bn -44.7%
Earnings per Share $ 1.22 $ 2.38 -48.7%
Dividends per Share $ 0.08 $0.12 -33.3%
Dividend Cover - - -
Return on Equity 12.0% 17.0% -4.0pp
Transactions
Over the year, sales of investments realised £9.6m and purchases totalled £
10.5m.
Blue Planet Investment Management Ltd
20 May 2011
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and the financial
statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have elected to prepare the
financial statements in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards and applicable law).
Under the Company law Directors must not approve the accounts unless they are
satisfied that they give a true and fair view of the state of affairs of the
Company and of the profit or loss of the Company for that period. In preparing
these financial statements, the Directors are required to:
* select suitable accounting policies and then apply them consistently;
* make judgments and 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.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
The Directors confirm that to the best of their knowledge that:
* The financial statements, prepared in accordance with applicable UK
accounting standards, give a true and fair view of the assets, liabilities,
financial position and return of the Company; and
* The Directors' and Investment managers' reports include a fair review of
the development, performance and position of the company together with a
description of the principal risks and uncertainties that the company
faces.
On behalf of the Board
Victoria Killay
Chairman
20 May 2011
Income Statement
(incorporating the Notes Revenue Capital 2011 Revenue Capital 2010
revenue account)
(£) (£) Total (£) (£) Total
for the year ending
31 March 2011 (£) (£)
Capital(losses)/
gainson investments
Net realised losses - (356,630) (356,630) - (436,453) (436,453)
Unrealised (losses)/ - (77,874) (77,874) - 1,262,350 1,262,350
gains
Exchange (losses)/ - (198,533) (198,533) - 86,059 86,059
gains
Net capital (losses) - (633,037) (633,037) - 911,956 911,956
/gainson investments
Income from 2 37,533 - 37,533 31,514 - 31,514
investments
Bank interest 1,224 - 1,224 2,623 - 2,623
receivable
Gross revenue and 38,757 (633,037) (594,280) 34,137 911,956 946,093
capital (losses)/
gains
Administrative (51,466) (17,763) (69,229) (60,436) (23,007) (83,443)
expenses
Net return before (12,709) (650,800) (663,509) (26,299) 888,949 862,650
interest payable
and taxation
Interest payable (24,385) (24,385) (48,770) (24,323) (24,323) (48,646)
Return on ordinary (37,094) (675,185) (712,279) (50,622) 864,626 814,004
activities
before taxation
Taxation on ordinary 579 - 579 (1,891) - (1,891)
activities
Return on ordinary (36,515) (675,185) (711,700) (52,513) 864,626 812,113
activities after
taxation
Return per ordinary 3 (0.27)p (4.94)p (5.21)p (0.38)p 6.33p 5.95p
share - basic
Return per ordinary 3 - - - (0.38)p 6.33p 5.95p
share - diluted
The total column of the income statement represents the profit & loss account
of the Company.
All revenue and capital items in the above statement derive from continuing
operations.
There were no recognised gains and losses other than those disclosed above.
Accordingly a statement of total recognised gains and losses is not required.
Balance Sheet
at 31 March 2011 Notes (£) 2011 (£) 2010
(£) (£)
Fixed assets
Listed equity investments 1,618,188 1,219,051
Current assets
Debtors 35,251 93,910
Cash at bank 245,084 1,385,259
280,335 1,479,169
Creditors: amounts falling due (828,989) (106,546)
within one year
Net current (liabilities)/ (548,654) 1,372,623
assets
Total assets less current 1,069,534 2,591,674
liabilities
Creditors: amounts falling due - (811,000)
after more than one year
Net assets 1,069,534 1,780,674
Capital and reserves
Called-up share capital 136,677 136,621
Share premium account 1,180,248 1,179,611
Other reserves
Capital reserve - realised 17,164 552,835
Capital reserve -investment (247,030) (167,229)
holding losses
Capital redemption 8,450 8,450
Warrant reserve - 59,846
Revenue reserve (25,975) 10,540
Shareholders' funds 1,069,534 1,780,674
Net asset value per ordinary 3 7.83p 13.03p
share - basic
Net asset value per ordinary 3 - 13.03p
share - diluted
Victoria W Killay
Chairman
20 May 2011
Reconciliation of Movements in Shareholders' Funds
For the year ended 31 Share Share Capital Capital Capital Warrant Revenue Total
March 2011 capital premium redemption reserve-realised reserve- reserve reserve shareholders'
reserve investment funds
£ £ £ holding £ £
£ losses £
£
Shareholders' funds 136,621 1,179,611 8,450 552,835 (167,229) 59,846 10,540 1,780,674
at 1 April 2010
Proceeds of share 56 504 - - - - - 560
issue
Transfer from /(to) - 133 - 59,713 - (59,846) - -
warrant reserve
Return on ordinary - - - (595,384) (79,801) - (36,515) (711,700)
activities after
taxation
Shareholders' funds 136,677 1,180,248 8,450 17,164 (247,030) - (25,975) 1,069,534
at 31 March 2011
For the year ended 31 Share Share Capital Capital Capital Warrant Revenue Total
March 2010 capital premium redemption reserve-realised reserve- reserve reserve shareholders'
reserve investment funds
£ £ £ holding £ £
£ losses £
£
Shareholders' funds 136,609 1,179,474 8,450 955,504 (1,434,524) 59,875 166,876 1,072,264
at 1 April 2009
Proceeds of share 12 108 - - - - - 120
issue
Transfer from /(to) - 29 - - - (29) - -
warrant reserve
Return on ordinary - - - (402,669) 1,267,295 - (52,513) 812,113
activities after
taxation
Dividend paid during - - - - - - (103,823) (103,823)
the period
Shareholders' funds 136,621 1,179,611 8,450 552,835 (167,229) 59,846 10,540 1,780,674
at 31 March 2010
Cash Flow Statement
For the year ended 31 (£) 2011 (£) 2010
March 2011
(£) (£)
Operating activities
Investment income 32,627 75,622
received
Interest received 1,224 2,623
Investment management (46,580) (54,937)
and administration fees
paid
Cash paid to and on (4,465) (4,237)
behalf of Directors
Other cash payments (20,092) (23,409)
Exchange differences on (198,533) 56,522
foreign currency cash
balances
Net cash(outflow)/inflow (235,819) 52,184
from operating
activities
Servicing of finance
Interest paid (48,640) (48,769)
Taxation
Taxation recovered 3,793 208
Capital expenditure and
financial investment
Purchase of investments (10,507,374) (16,117,880)
Sale of investments 9,647,305 16,892,844
(860,069) 774,964
Cash (outflow)/inflowb (1,140,735) 778,587
efore financing
Equity dividend paid - (103,823)
Management of liquid
resources
Cash placed on deposit (1,020,066) (3,437,442)
Cash withdrawn from 1,020,066 3,465,211
deposit
- 27,769
Financing
Proceeds from share 560 120
issue
Repayment of loan - (96,290)
560 (96,170)
(Decrease)/increase in (1,140,175) 606,363
cash
Notes on the Accounts
1.The financial information set out in this announcement does not constitute
the Company's statutory accounts for the years ended 31 March 2011 or 31 March
2010 but is derived from those accounts. Statutory accounts for 2010 have been
delivered to the Registrar of Companies and those for 2011 will be delivered
following the Company's Annual General Meeting. The auditors have reported on
those accounts; their reports were unqualified, did not draw attention to any
matters by way of emphasis and did not contain a statement under s498 (2) or
(3) Companies Act 2006.
The financial information set out in this announcement has been prepared on the
basis of the accounting policies as stated in the previous year's financials
statements, and are consistent with the current year's full financial
statements which are yet to be published.
The Directors consider that the Company has adequate financial resources in the
form of readily realisable listed securities, including cash of £245,000 and
loan facilities to continue in operational existence for the foreseeable
future. For this reason they continue to use the going concern basis in
preparing the accounts even though the loan facility is due to expire within 12
months.
2. Income from investments
Franked Unfranked 2011 Franked Unfranked 2010
(£) (£) Total (£) (£) Total
(£) (£)
Dividends
Listed investments - UK 10,185 - 10,185 2,347 - 2,347
- Overseas 19,966 - 19,966 - 26,865 26,865
Interest
Listed investments - UK - 1,236 1,236 - - -
- Overseas - 6,146 6,146 - 2,302 2,302
Total 30,151 7,382 37,533 2,347 29,167 31,514
3. Return and Net Assets per ordinary share
2011 2010
The return per ordinary share is based upon the
following figures:
Revenue return £(36,515) £(52,513)
Capital return £(675,185) £864,626
Weighted average number of ordinary shares in issue 13,665,844 13,661,701
during the year - basic
Weighted average number of ordinary shares in issue - 13,661,701
during the year - diluted
The difference between the basic and diluted number of ordinary shares is
derived from the total number of warrants in issue multiplied by a factor based
on the average price of the ordinary shares in the year and the exercise price
of the warrants, as required by FRS 14. No dilution occurred in the current
year as the warrant exercise price exceeded the average market price of one
share during the year. The net asset value per ordinary share is calculated on
13,667,700 (2010 - 13,662,100) being the number of ordinary shares in issue at
the year end. All warrants have now lapsed and dilution is no longer relevant.
4. Dividends
No interim dividend was declared in the year and no final dividend is proposed
(2010 - nil).
5. Related Party Transactions
Directors' remuneration consisted solely of fees of £1,600 for the Chairman, £
1,400 for Mr Cooper, £960 for Mr Murray and £440 for Mr Bucknell.
Blue Planet Investment Management Ltd is employed by the Company as its
Investment Manager under a management agreement which is terminable on two
years' notice. The investment management fee in respect of each month was
0.125% of the total assets of the Company attributable to the shareholders on
the last day of that month. The Company Secretary, Blue Planet Investment
Advisers Ltd, receives £10,000 p.a in respect of administration and secretarial
services.
6. Share Capital
At 1 April 2010 the Company had 251,540 warrants in issue. Each warrant confers
the right, exercisable on 31 July 2010 or, if later, 30 days after the
distribution of the annual Report and Accounts to subscribe for 10 new ordinary
shares at a price of £0.10 per share. On 31 July 2010, 560 warrants were
exercised and 5,600 ordinary shares were issued; the remaining warrants have
lapsed and can no longer be exercised.
At 31 March 2011 the Company had authority to purchase a further 2,049,000
shares. A resolution to renew this authority will be proposed at the Annual
General Meeting.
For more information, please visit www.blueplanet.eu
You can also contact the Company on 0845 527 7588 or by emailing info@blueplanet.eu
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