Half Yearly Report

RNS Number : 4141Y

JPMorgan Overseas IT PLC

29 February 2012

 



LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN OVERSEAS INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS

ENDED 31ST DECEMBER 2011

Chairman's Statement

Following the Company's strong outperformance in the previous two financial years, global stock markets suffered a tumultuous latter half in 2011 as the eurozone financial crisis reverberated across the world, coupled with a slow-down in economic growth around the world. During the six months reporting period to 31st December 2011, the Company recorded a total return on net assets of -12.6% compared with -8.6% total return of the benchmark, the MSCI All Country World Index (in sterling terms). It is pleasing to note that markets have recovered somewhat in 2012 and the Company's net asset value and share price have increased by 10.8% and 11.8% respectively since the period end.

Although the Company gave back some of the outperformance over the six months reporting period, the long-term performance record against our benchmark at 31st December 2011 remains strong as shown below:

Total Return	3 years	5 years
Net Asset Value	+53.6%	+26.2%
Share Price	+59.3%	+28.0%
Benchmark	+30.0%	+11.7%

The return to shareholders was -15.8% over the reporting period. This lower return reflects the widening of the Company's share price discount to net asset value from 1.5% at 30th June 2011 to 4.7% at 31st December 2011. During the six months, the Company sold 40,000 shares from Treasury at modest premiums to net asset value. In line with the Company's discount management policy, we also repurchased 175,304 shares for holding into Treasury. The Board believes these actions have been successful in reducing the volatility of the share price discount to net asset value.

Reflecting the Investment Manager's increasing concerns, gearing was reduced to zero in mid-July 2011 and our facility has remained undrawn since. The Investment Manager provides a detailed commentary on markets and the portfolio performance in his Report.

In accordance with corporate governance practice, the Board has continued to refresh the Board. I am pleased to welcome Gay Collins who joined the Board on 21st February 2012. Her breadth of knowledge and experience will prove valuable in Board discussion. John Rennocks, who has served on the Board since 2001, intends to retire as a Director immediately after the 2012 Annual General Meeting later this year.

The Board has confidence in the Investment Manager's high conviction approach of identifying companies with strong valuation signals and significant growth potential to deliver superior returns over a longer-term horizon to our shareholders. This strategy relies on JPMAM's highly experienced global research team and the skills of the Investment Manager to select stocks which are well placed to trade through periods of challenging circumstances and to benefit when markets improve. As global central banks continue to provide a measure of support for global growth, the outlook for the second half of the Company's financial year appears encouraging.

for and on behalf of the Board

Simon Davies

Chairman,  29th February 2012

Investment Manager's Report

Market review

During the second half of 2011 global equity markets were dominated by investors' anxiety over a slow-down in economic growth around the world, with a particular focus on the Eurozone. These factors overwhelmed corporate fundamentals and the MSCI All Country World index declined 8.6% in sterling terms with considerable dispersion across regions and sectors. For example, US equities outperformed Continental Europe by around 10 percentage points and financial sectors declined more than broader indices by a similar margin. Towards the end of 2011 investors' fears escalated over a disorderly default in Europe and the potential consequences of deteriorating growth prospects and a collapse of the European banking system.

Portfolio review

We mentioned in our report of September 2011 that such spells of uncertainty are seldom a fruitful environment for our investment process. During such times our portfolios suffer on a relative basis as investors flock to short term safety at the expense of companies with attractive valuations and long-term earnings prospects. This creates significant dislocations in stock valuations across sectors and regions.

It is noteworthy that the small clutch of stocks which performed very well in the portfolio such as Royal Dutch Shell, ACE and Japan Tobacco shared many of the 'safety' attributes while still being reasonably attractively valued with good long‑term earnings potential relative to their peers. This combination of quality and value was becoming increasingly hard to find as 2011 progressed. Our observation is that it seldom pays to change dramatically the nature of a portfolio in an environment such as this. Provided that our original analysis and insight is correct, a contrarian stance is often more rewarding. We continue to invest with a long term view and we believe that there are many positive fundamental factors today that support the case for a disciplined valuation based investment approach.

Portfolio positioning

We have increased our position in a number of stocks where we have high conviction and which have performed poorly over the last six months. Schneider Electric, for example, which is listed in France and is a global leader in electrical components saw its shares hit by concerns over a short-term slow-down in European operations. Schneider's valuation largely ignored the company's strong growth in emerging markets (around 30% of revenues) and its expansion into faster growing businesses such as energy efficiency and services. We have also added to our, perhaps controversial, holding in Citigroup as we believe its exposure to an improving US economy, a very impressive global emerging market operation (around 30% of revenues) and a much improved balance sheet deserves a higher valuation relative to many of its peers.

As above, many of the companies which we have added to in recent months have considerable exposure to emerging markets, which remain an important source of long-term growth potential. While our direct emerging market exposure has inched up through new holdings in companies such as Novatek Microelectronics (Taiwan listed electronic components manufacturer) and Ping An (Chinese listed provider of life insurance), relative valuations still lead us towards those companies with exposure to emerging markets which are listed in developed markets. Bayer, for example, is a European health care company which has made significant investments in China over many decades. Bayer stands poised to benefit from growth in that market as it is far ahead of the local competition as well as having a vastly superior valuation.

Market volatility has presented a number of opportunities to add new names to the portfolio, such as Petrofac, a UK listed company which builds and operates oil and gas plants around the world, as well as APR Energy, listed in the UK but based in Florida, which is well positioned in the high growth market for emergency electrical power across developing economies. We also bought a new position in Henkel, the German company which has grown to become a global leader in industrial adhesives and consumer products.

Valuation concerns still lead the portfolio to be underweight in US equities. An ever decreasing proportion of US stocks appear cheap in a global context according to our valuation framework. Although this stance has damaged our performance in the near-term, now is not the time to change tack.

Investment Outlook

The political challenges of austerity in southern Europe are considerable, but many investors have been hesitant to see that some progress has been made, for example through the proposed structural reforms in Italy. Furthermore, the European Central Bank (ECB) has recently demonstrated through its three year funding of the banking system that it is prepared to take exceptional measures to deal with exceptional circumstances. The outlook for the major European economies is perhaps not as bleak as is often imagined by the more febrile strategists that have recently come to dominate the airwaves.

In addition to the more proactive stance from the ECB, the continuation of the US Federal Reserve's loose monetary policy and a wider global trend towards lower interest rates, economic data has, broadly, come through better than feared. US economic forecasts have risen and surveys suggest that, at this stage, Europe is not collapsing. In China, too, data has been stronger than many expected and fears of a hard landing have faded somewhat. However, it is far too early to claim victory. Fiscal tightening will likely remain a major headwind to growth, both in Europe and, from 2013, the US. While activity may have improved from a cyclical perspective, growth is likely to remain below trend for some time to come. Risks of policy errors are elevated in these situations.

While much still lies in the balance, we are reassured by some visible progress towards containing the fiendishly complex European sovereign debt issues. This creates the possibility that individual companies' fundamentals will become relatively more important again, stocks with attractive valuations will outperform and the environment for active management becomes less hostile. As always, our ability to perform is determined by the quality of our research analysts and the interaction between them and the portfolio management team. Despite recent headwinds we remain committed to delivering strong long-term returns for our investors.

Jeroen Huysinga

Investment Manager,  29th February 2012

Interim Management Report

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

Principal Risks and Uncertainties

The principal risks and uncertainties faced by the Company have not changed and fall into the following broad categories: investment and strategy; market; accounting, legal and regulatory; corporate governance and shareholder relations; operational; and financial. Information on each of these areas is given in the Business Review within the Annual Report and Accounts for the year ended 30th June 2011.

Related Parties Transactions

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

Directors' Responsibilities

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

(i)   the condensed set of financial statements contained within this half year report has been prepared in accordance with the Accounting Standards Board's Statement 'Half-Yearly Financial Reports'; and

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

For and on behalf of the Board

Simon Davies
Chairman,  29th February 2012-

Income Statement

for the six months ended 31st December 2011

	(Unaudited) Six months ended 31st December 2011			(Unaudited) Six months ended 31st December 2010			(Audited) Year ended 30th June 2011
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
(Losses)/gains on investments held at fair value through profit or loss	-	(37,887)	(37,887)	-	44,611	44,611	-	45,596	45,596
Net foreign currency gains/(losses)	-	2,661	2,661	-	(1,158)	(1,158)	-	(3,243)	(3,243)
Income from investments	1,623	-	1,623	2,320	-	2,320	5,232	-	5,232
Other interest receivable and similar income	37	-	37	17	-	17	70	-	70
Gross return/(loss)	1,660	(35,226)	(33,566)	2,337	43,453	45,790	5,302	42,353	47,655
Management fee	(204)	(204)	(408)	(215)	(215)	(430)	(455)	(455)	(910)
Performance fee writeback/(charge)	-	1,884	1,884	-	(1,377)	(1,377)	-	(262)	(262)
Other administrative expenses	(210)	-	(210)	(187)	-	(187)	(472)	-	(472)
Net return/(loss) on ordinary activities before finance costs and taxation	1,246	(33,546)	(32,300)	1,935	41,861	43,796	4,375	41,636	46,011
Finance costs	(37)	(37)	(74)	(111)	(111)	(222)	(223)	(223)	(446)
Net return/(loss) on ordinary activities before taxation	1,209	(33,583)	(32,374)	1,824	41,750	43,574	4,152	41,413	45,565
Taxation (note 3)	(118)	-	(118)	(165)	-	(165)	(408)	-	(408)
Net return/(loss) on ordinary activities after taxation	1,091	(33,583)	(32,492)	1,659	41,750	43,409	3,744	41,413	45,157
Return/(loss) per share (note 4)	4.18p	(128.72)p	(124.54)p	6.45p	162.28p	168.73p	14.51p	160.52p	175.03p

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

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

Reconciliation of Movements in Shareholders' Funds

	Called up		Capital
Six months ended	share	Share	redemption	Capital	Revenue
31st December 2011	capital	premium	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000
At 30th June 2011	6,544	970	27,401	178,926	17,986	231,827
Repurchase of shares into Treasury	-	-	-	(1,230)	-	(1,230)
Re-issue of shares from Treasury	-	45	-	243	-	288
Net (loss)/return on ordinary activities	-	-	-	(33,583)	1,091	(32,492)
Dividend appropriated in the period	-	-	-	-	(3,526)	(3,526)
At 31st December 2011	6,544	1,015	27,401	144,356	15,551	194,867
	Called up		Capital
Six months ended	share	Share	redemption	Capital	Revenue
31st December 2010	capital	premium	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000
At 30th June 2010	6,544	-	27,401	135,383	17,585	186,913
Net return on ordinary activities	-	-	-	41,750	1,659	43,409
Dividend appropriated in the period	-	-	-	-	(3,345)	(3,345)
At 31st December 2010	6,544	-	27,401	177,133	15,899	226,977
	Called up		Capital
Year ended	share	Share	redemption	Capital	Revenue
30th June 2011	capital	premium	reserve	reserves	reserve	Total
(Audited)	£'000	£'000	£'000	£'000	£'000	£'000
At 30th June 2010	6,544	-	27,401	135,383	17,585	186,913
Re-issue of shares from Treasury	-	970	-	2,130	-	3,100
Net return on ordinary activities	-	-	-	41,413	3,744	45,157
Dividend appropriated in the year	-	-	-	-	(3,343)	(3,343)
At 30th June 2011	6,544	970	27,401	178,926	17,986	231,827

Balance Sheet

at 31st December 2011

	(Unaudited)	(Unaudited)	(Audited)
	31st December 2011	31st December 2010	30th June 2011
	£'000	£'000	£'000
Fixed assets
Equity investments held at fair value through profit or loss	189,777	242,410	248,913
Investments in liquidity funds held at fair value through profit or loss	3,250	4,740	3,430
Total investments	193,027	247,150	252,343
Current assets
Financial assets: derivative financial instruments	2,384	3,590	3,027
Debtors	283	397	1,501
Cash and short term deposits	168	74	875
	2,835	4,061	5,403
Creditors: amounts falling due within one year	(269)	(19,515)	(21,989)
Financial liabilities: derivative financial instruments	(526)	(1,799)	(1,846)
Net current assets/(liabilities)	2,040	(17,253)	(18,432)
Total assets less current liabilities	195,067	229,897	233,911
Creditors: amounts falling due after more than one year	(200)	(200)	(200)
Provisions for liabilities and charges
Performance fee	-	(2,720)	(1,884)
Net assets	194,867	226,977	231,827
Capital and reserves
Called up share capital	6,544	6,544	6,544
Share premium	1,015	-	970
Capital redemption reserve	27,401	27,401	27,401
Capital reserves	144,356	177,133	178,926
Revenue reserve	15,551	15,899	17,986
Total equity shareholders' funds	194,867	226,977	231,827
Net asset value per share (note 5)	751.2p	882.3p	889.0p

Company registration number: 24299.

Cash Flow Statement

for the six months ended 31st December 2011

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st December 2011	31st December 2010	30th June 2011
	£'000	£'000	£'000
Net cash (outflow)/inflow from operating activities (note 6)	(367)	647	2,684
Net cash outflow from returns on investments and servicing of finance	(170)	(136)	(351)
Taxation recovered	24	44	82
Net cash inflow/(outflow) from capital expenditure and financial investment	19,934	(4,180)	(6,864)
Dividend paid	(3,526)	(3,345)	(3,343)
Net cash (outflow)/inflow from financing	(18,587)	7,800	10,900
(Decrease)/increase in cash for the period	(2,692)	830	3,108
Reconciliation of net cash flow to movement in net debt
Net cash movement	(2,692)	830	3,108
Loans repaid/(drawn down) in the period	17,800	(7,800)	(7,800)
Exchange movements	1,985	(1,393)	(2,870)
Movement in net debt in the period	17,093	(8,363)	(7,562)
Net debt at the beginning of the period	(17,125)	(9,563)	(9,563)
Net debt at the end of the period	(32)	(17,926)	(17,125)
Represented by:
Cash and short term deposits	168	74	875
Debt falling due within one year	-	(17,800)	(17,800)
Debt falling due after more than five years	(200)	(200)	(200)
Total	(32)	(17,926)	(17,125)

Notes to the Accounts

for the six months ended 31st December 2011

1.   Financial statements

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

      The figures and financial information for the year ended 30th June 2011 are extracted from the latest published accounts of the Company and do not constitute statutory accounts for that year. Those accounts have been delivered to the Registrar of Companies and included the report of the auditors which was unqualified and did not contain a statement under either section 498(2) or 498(3) of the Companies Act 2006.

2.   Accounting policies

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

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

      The accounting policies applied to these half year accounts are consistent with those applied in the accounts for the year ended 30th June 2011.

3.   Taxation

      The taxation charge of £118,000 (31st December 2010: £165,000 and 30th June 2011: £408,000) comprises irrecoverable overseas withholding tax.

4.   Return/(loss) per share

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended	Six months ended	Year ended
		31st December 2011	31st December 2010	30th June 2011
		£'000	£'000	£'000
	Return/(loss) per share is based on the following:
	Revenue return	1,091	1,659	3,744
	Capital (loss)/return	(33,583)	41,750	41,413
	Total (loss)/return	(32,492)	43,409	45,157
	Weighted average number of shares in issue	26,089,914	25,726,732	25,799,741
	Revenue return per share	4.18p	6.45p	14.51p
	Capital (loss)/return per share	(128.72)p	162.28p	160.52p
	Total (loss)/return per share	(124.54)p	168.73p	175.03p

5.   Net asset value per share

      Net asset value per share is calculated by dividing the funds attributable to ordinary shareholders by the number of ordinary shares in issue at 31st December 2011 of 25,942,428 (31st December 2010: 25,726,732 and 30th June 2011: 26,077,732), excluding shares held in Treasury.

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

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended	Six months ended	Year ended
		31st December 2011	31st December 2010	30th June 2011
		£'000	£'000	£'000
	Total (loss)/return on ordinary activities before finance costs and taxation	(32,300)	43,796	46,011
	Add back capital loss/(return) before finance costs and taxation	33,546	(41,861)	(41,636)
	Scrip dividends received as income	(29)	(24)	(24)
	Net movement in debtors and accruals	(41)	340	425
	Overseas withholding tax	(114)	(229)	(477)
	Management fee charged to capital	(204)	(215)	(455)
	Performance fee paid	(1,225)	(1,160)	(1,160)
	Net cash (outflow)/inflow from operating activities	(367)	647	2,684

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

JPMORGAN ASSET MANAGEMENT (UK) LIMITED

ENDS

A copy of the half year report will be submitted to the National Storage Mechanism and will shortly be available for inspection at www.hemscott.com/nsm.do 

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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