Final Results

RNS Number : 6068Z

JPMorgan Overseas IT PLC

24 September 2009

 



STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN OVERSEAS INVESTMENT TRUST PLC

ANNOUNCEMENT OF FINAL RESULTS

The Directors of JPMorgan Overseas Investment Trust plc announce the Company's results for the year ended 30th June 2009.

Chairman's Statement

During the year ended 30th June 2009, the turmoil in financial markets continued to dominate global equity markets. Severe declines were experienced in the first nine months of the reporting period before markets bottomed in early March 2009 and started to recover. This recovery was not sufficient to offset the significant declines of the earlier period. Against this unprecedented volatility and challenging markets, the Company produced a negative return of 6.6% for shareholders and a portfolio return on net assets of -7.6%. The Company's benchmark, the MSCI AC World Index (expressed in sterling terms) recorded a negative total return of 14.6% over the reporting period.

The Investment Manager's report provides a detailed commentary on the Company's investment strategy, the challenges faced during the financial year and how the portfolio has been changed. The Board is pleased with the Investment Manager's performance over the past twelve months and fully supports the high conviction approach which he adopts to manage the Company's assets.

Dividends

The Directors are proposing, subject to shareholders' approval at the Annual General Meeting ('AGM'), to pay a final dividend of 11.5 pence per share (2008: 11.5 pence) on 27th November 2009 to shareholders on the register at the close of business on 6th November 2009. The Company's principal aim is to maximise capital growth so as to give shareholders the advantage of the more benign tax rate on capital gains. Nevertheless, it is encouraging to note that, despite economic pressures, stocks within the portfolio managed to achieve sufficient earnings to maintain steady dividend payouts during the year.

Share Buybacks

The Board remains committed to maintaining the discount at which the share price trades relative to its net asset value at around 5% by means of repurchases of the Company's shares in the market. On 30th April 2009, the Board agreed that any shares repurchased under this policy should be held in Treasury, rather than immediately cancelled. Any shares held in Treasury will only be re-issued at a premium to net asset value.

During the year, the Company had repurchased 766,250 shares for cancellation and a further 26,000 shares for holding in Treasury, representing 2.8% of the shares outstanding at the beginning of the year. The total cost of these repurchases was £3.8 million. A resolution to renew the authority to permit the Company to continue to repurchase shares will be submitted to the AGM.

Total Expense Ratio

The Board maintains a close watch on the costs of operating your Company to ensure that they are kept to a minimum. The Company's total expense ratio, (management and other operating expenses expressed as a percentage of the average of the opening and closing net assets) was 0.63% for the year ended 30th June 2009. While some of the Company's expenses will vary with its size, there are, nevertheless, other expenses that are fixed. High levels of share buybacks could, over time, have a detrimental effect on the total expense ratio and your Board will continue to monitor this figure to ensure that it remains within acceptable parameters.

Gearing

Gearing and surrounding issues are regularly discussed between the Board and the Investment Manager. A £10 million borrowing facility is currently in place with Lloyds TSB. This facility is highly flexible and can be used tactically as investment opportunities present themselves, with the aim of enhancing returns. As investment opportunities arose in rising markets during the fourth quarter, the full £10 million had been drawn on the facility by the year end to enhance the potential gains. This represented a gearing level of 7.8% of net assets at 30th June 2009.

Currency Hedging

In late November 2009, the Company implemented a passive currency hedging strategy that aims to make stock selection the predominant driver of overall portfolio performance relative to the benchmark, the MSCI AC World Index. This is a risk reduction measure, designed to eliminate most of the differences between the portfolio's currency exposure and that of the Company's benchmark. As a result, the returns derived from, and the portfolio's exposure to currencies may materially differ from that of the Company's competitors in the AIC Global Growth sector who generally do not undertake such a strategy.

The Board

I plan to retire from the Board after the Annual General Meeting in 2010 and so too does Richard Barfield. The Nomination Committee has carried out a recruitment process which has lead to the appointment of Jonathan Carey as a non-executive director. Jonathan is currently Group Executive Deputy Chairman of Jupiter Investment Management Holdings Limited. Shareholders will be asked to elect him at the forthcoming AGM. The plan is to appoint another new non-executive director during 2010.

Annual General Meeting

My fellow Directors and I invite you to attend the Company's Annual General Meeting which will be held at Trinity House, Tower Hill, London EC3N 4DH on Tuesday, 27th October 2009 at 12 noon. An investment presentation will be made at the meeting by Jeroen Huysinga. If you have any detailed or technical questions, please raise these in advance with the Secretary whose contact details are shown below. Shareholders who are unable to attend the AGM in person are encouraged to use their proxy votes.

The AGM will be followed by refreshments and there will be an opportunity for shareholders to meet the Directors and the investment manager. I hope to have the pleasure of meeting you then.

Outlook

Whilst some signs of a recovery are apparent, the outlook still remains uncertain. Your Board believes that, at times like these, it is important to exercise extreme vigilance and react swiftly to changes in markets. We are confident that the Company's Investment Manager will continue to be proactive in his management of the portfolio.

George Paul

Chairman                                            

23 September 2009

Investment Manager's Report

Global equity markets continued to suffer in the 12 month period ended 30 June 2009 with the MSCI All Country World Index falling 14.6%, measured in Sterling terms. The period from September 2008 to early March 2009 witnessed declines of unprecedented severity across all global equity markets. The subsequent recovery has been led by stocks with cyclicality, financial and emerging market exposure and, following very acute underperformance, by stocks with smaller market capitalisation.

The financial crisis which had created much instability and volatility in equity markets arguably began in July 2007. Its culmination was the failure of Lehman Brothers in September 2008. That event triggered a virtual cessation of credit market activity. Collateral and counterparty confidence evaporated. This sparked a near vertical drop in new orders, production and business confidence which left no significant economy unscathed. Mechanisms which are central to the healthy functioning of capitalist activity, such as the issue of letters of credit between companies in order to finance trade, ceased and impacted every point of the global supply chain. In an environment of sharp uncertainty companies across the world acted very aggressively to close capacity, minimise inventory levels and cut labour costs. Exporters such as Germany and Japan suffered disproportionately amid the panic. 

In response to the fear of systemic breakdown, governments stepped in to bolster the banking system and to guarantee deposit holders. Central banks dropped interest rates - in some instances - virtually to zero. Spurred on by the experience of the 1930s and by Japan in the 1990s, they initiated unprecedentedly aggressive, alternative forms of monetary easing. Led by China and the US in the 4th quarter of 2008, vast fiscal stimuli have been applied to the global economy. One innovative yet effective measure has been the introduction of car purchase incentives commonly known in the US as the 'cash for clunkers' scheme. 

From October 2008, extreme dislocation and volatility within equity markets has provided us with an excellent opportunity to reposition the portfolio towards a collection of high conviction stocks which, in aggregate, had never looked cheaper relative to broader indices. The dispersion of valuation between stocks across most global sectors had widened to a degree which was unprecedented. Where valuation is determined principally by what a company is capable of earning in a normalised environment, the potential efficacy of this investment approach is at its most potent when the gap between the normalised and the present is at its greatest.

A combination of valuation and strong stock specific insight gleaned from our analysts around the world resulted in the portfolio tilting further away from those characteristics which define the broader benchmark. For example, exposure to Continental Europe and the United Kingdom has increased meaningfully during the review period while that to the US has declined. Exposure to sectors such as Capital Markets and Consumer Cyclicals has been high while our presence in sectors such as Utilities and Telecoms (where valuation dispersion has been more modest) has been much lower than the benchmark. Perhaps the most significant structural development in the portfolio since October 2008 has been the reduction in the average market capitalisation of stocks held.

The performance of the Company's portfolio of investments during the year was negative in absolute terms, but significantly better than the decline in the MSCI AC World Index, the Company's performance comparator. Stock selection in Continental Europe added more than 2% to performance, in particular companies such as Anheuser-Busch InBev, Banco Santander and Intercell. Stock selection in North America added more than 3% to performance. Morgan Stanley, Corning and Abbott Laboratories were strong contributors. Also, stock selection in the Pacific region ex Japan was boosted by strong performance in stocks such as HengAn International, China Shenhua Energy and Hon Hai Precision Industry. Gearing increased during the 4th quarter as individual opportunities presented themselves. At the end of the review period gearing stood at 7.8%.

Although the crisis was deep and worldwide in scope, the response to it has been decisive and huge. Risk premia across the capital markets, as exemplified by  highly-rated corporate bonds and junk bond yields relative to Treasuries, are suggesting that the crisis has passed and that conventional cyclical recovery patterns are now apparent. The response of corporate managements to the crisis has also been rapid and exceptionally large across many markets. Management teams have been swift and decisive in retrenching, pushing leverage and capital spending ratios toward the lower end of prior ranges. We have observed, for example, that many Japanese companies are now implementing restructuring strategies which are more aggressive and far reaching than ever. Self help has generally lent surprising resilience to earnings and cashflow in areas outside the financial and commodities sectors. Our impression is that continued discipline should drive a pleasing degree of operational gearing as economic recovery becomes more established.

Your Company retains a portfolio with a strong bias to stocks that in aggregate are expected to grow faster than the markets as economies recover. Valuation signals which are based on normalised earnings potential continue to justify a number of aggressive strategies within the portfolio relative to a passive benchmark and returns are therefore very likely to be different from the index. We continue to believe that, over time, this offers the opportunity for the Company to achieve its objectives and offer attractive returns for you as shareholders.

Jeroen Huysinga

Investment Manager                                        

23 September 2009

Principal Risks

With the assistance of the Manager, the Board has drawn up a risk matrix, which identifies the key risks to the Company. These key risks fall broadly under the following categories:

These key risks fall broadly under the following categories:

• Investment and Strategy: An inappropriate investment strategy, for example asset allocation or the level of gearing, may lead to under-performance against the Company's benchmark index and peer companies, resulting in the Company's shares trading on a wider discount. The Board manages these risks by diversification of investments through its investment restrictions and guidelines which are monitored and reported by the Manager. JPMAM provides the Directors with timely and accurate management information, including performance data and attribution analyses, revenue estimates, liquidity reports and shareholder analyses. The Board monitors the implementation and results of the investment process with the Investment Manager, who attends all Board meetings, and reviews data which show statistical measures of the Company's risk profile. The Investment Manager employs the Company's gearing within a strategic range set by the Board. The Board holds a separate meeting devoted to strategy each year.

• Market: Market risk arises from uncertainty about the future prices of the Company's investments. It represents the potential loss that the Company might suffer through holding investments in the face of negative market movements. The Board considers asset allocation, stock selection and levels of gearing on a regular basis and has set investment restrictions and guidelines, which are

monitored and reported on by JPMAM. The Board monitors the implementation and results of the investment process with the Manager.

• Accounting, Legal and Regulatory: In order to qualify as an investment trust, the Company must comply with Section 842 of the Income and Corporation Taxes Act 1988 ('Section 842'). Details of the Company's approval are given under 'Business of the Company' above. Where the Company to breach Section 842, it might lose investment trust status and, as a consequence, gains within the Company's portfolio could be subject to Capital Gains Tax. The Section 842 qualification criteria are continually

monitored by JPMAM and the results reported to the Board each month. The Company must also comply with the provisions of The Companies Act 2006 and, since its shares are listed on the London Stock Exchange, the UKLA Listing Rules. A breach of the Companies Act 2006 could result in the Company and/or the Directors being fined or the subject of criminal proceedings. Breach of the UKLA Listing Rules could result in the Company's shares being suspended from listing, which in turn would breach Section 842. The Board relies on the services of its Company Secretary, JPMAM to ensure compliance with the Companies Acts and The UKLA Listing Rules.

• Corporate Governance and Shareholder Relations: Details of the Company's compliance with Corporate Governance best practice, including information on relations with shareholders, are set out in the Corporate Governance section in the annual report.

• Operational: Loss of key staff by JPMAM, such as the Investment Manager, could affect the performance of the Company. Disruption to, or failure of, JPMAM's accounting, dealing or payments systems or the custodian's records could prevent accurate reporting and monitoring of the Company's financial position. Details of how the Board monitors the services provided by JPMAM and its associates and the key elements designed to provide effective internal control are included with the Internal Control section of the Corporate Governance section in the annual report.

• Financial: The financial risks faced by the Company include market price risk, interest rate risk, liability risk and credit risk. Further details are disclosed in note 22 of the Notes to the Accounts in the annual report.

Related Parties Transactions

During the 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 Directors each confirm to the best of their knowledge that: 

a) the accounts have been prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

b) the Annual Report, to be published shortly, includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that they face.

For and on behalf of the Board

George Paul

Chairman

23 September 2009

Please note that up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can be found at www.jpmoverseas.co.uk

For further information please contact:

Divya Amin

For and on behalf of

JPMorgan Asset Management (UK) Limited, Secretary                                                                      020 7742 6000

23 September 2009

Income Statement

for the year ended 30th June

		Revenue £'000	2009 Capital £'000	Total £'000	Revenue £'000	2008 Capital £'000	Total £'000
Losses on investments held at    fair value through profit or loss
		-	(14,936)	(14,936)	-	(20,552)	(20,552)
Net foreign currency losses		-	(257)	(257)	-	(19)	(19)
Income from investments		4,153	_	4,153	4,453	-	4,453
Other interest receivable and similar income		687	-	687	131	-	131
Gross return/(loss)		4,840	(15,193)	(10,353)	4,584	(20,571)	(15,987)
Management fee		(271)	(271)	(542)	(374)	(374)	(748)
Performance fee		-	(1,668)	(1,668)	-	(401)	(401)
VAT recoverable		126	141	267	713	794	1,507
Other administrative expenses		(439)	-	(439)	(389)	-	(389)
Net return/(loss) on ordinary activities before    finance costs and taxation
		4,256	(16,991)	(12,735)	4,534	(20,552)	(16,018)
Finance costs		(155)	(155)	(310)	(156)	(156)	(312)
Net return/(loss) on ordinary activities    before taxation
		4,101	(17,146)	(13,045)	4,378	(20,708)	(16,330)
Taxation		(860)	520	(340)	(779)	371	(408)
Net return/(loss) on ordinary activities    after taxation		3,241	(16,626)	(13,385)	3,599	(20,337)	(16,738)
Return/(loss) per share (note 3)		12.26p	(62.88)p	(50.62)p	12.62p	(71.32)p	(58.70)p

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

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 published 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 share capital £'000	Capital redemption reserve £'000	Capital reserves £'000	Revenue reserve £'000	Total £'000
At 30th June 2007	7,622	26,323	156,838	16,960	207,743
Repurchase and cancellation of the Company's own shares	(887)	887	(22,250)	-	(22,250)
Net (loss)/return on ordinary activities	-	-	(20,337)	3,599	(16,738)
Dividends appropriated in the year	-	-	-	(2,949)	(2,949)
At 30th June 2008	6,735	27,210	114,251	17,610	165,806
Repurchase and cancellation of the Company's own shares	(191)	191	(3,772)	-	(3,772)
Repurchase of shares into Treasury	-	(132)	(132)	-	(132)
Net (loss)/return on ordinary activities	-	-	(16,626)	3,241	(13,385)
Dividends appropriated in the year	-	-	-	(3,047)	(3,047)
At 30th June 2009	6,544	27,401	93,721	17,804	145,470

Balance Sheet

at 30th June

		2009 £'000	2008 £'000
Fixed assets
Investments held at fair value through profit or loss		156,739	167,565
Investment in liquidity fund held at fair value through profit or loss		1,027	3,470
Total investments		157,766	171,035
Current assets
Debtors		1,375	2,224
Cash and short term deposits		708	304
		2,083	2,528
Creditors: amounts falling due within one year		(12,712)	(6,740)
Net current liabilities		(10,629)	(4,212)
Total assets less current liabilities		147,137	166,823
Creditors: amounts falling due after more than one year		(200)	(200)
Provisions for liabilities and charges		(1,467)	(817)
Total net assets		145,470	165,806
Capital and reserves
Called up share capital		6,544	6,735
Capital redemption reserve		27,401	27,210
Capital reserves		93,721	114,251
Revenue reserve		17,804	17,610
Shareholders' funds		145,470	165,806
Net asset value per share (note 4)		556.3p	615.4p

Cash Flow Statement

for the year ended 30th June

		2009 £'000	2008 £'000
Net cash inflow from operating activities		5,190	2,713
Returns on investments and servicing of finance
Interest paid		(328)	(295)
Net cash outflow from returns on investments and servicing of finance		(328)	(295)
Taxation
Taxation recovered		147	34
Capital expenditure and financial investment
Purchases of investments		(304,622)	(111,780)
Sales of investments		302,603	129,184
Other capital charges		(19)	(22)
Net cash (outflow)/inflow from capital expenditure and financial investment		(2,038)	17,382
Dividends paid		(3,047)	(2,949)
Net cash (outflow)/inflow before financing		(76)	16,885
Financing
Net drawdown of loans		4,000	6,000
Repurchase of the Company's own shares		(4,032)	(22,644)
Repurchase of shares into Treasury		(132)	-
Net cash outflow from financing		(164)	(16,644)
(Decrease)/increase in cash for the year		(240)	241

Notes to the Accounts

for the year ended 30th June 2009

1.     Accounting policies

        The accounts are prepared in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ('UK GAAP')
        and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies' (the 'SORP') issued by the AIC in January
        2009.
        All of the Company's operations are of a continuing nature.

2.    Dividends

	2009 £'000	2008 £'000
(a) Dividend paid
2008 final dividend of 11.5p (2007: 10.0p)1	3,047	2,949
Total dividends paid in the year	3,047	2,949
Dividend proposed
2009 final dividend proposed of 11.5p (2008: 11.5p)	3,007	3,098

        1The final dividend declared in respect of the year ended 30th June 2008 amounted to £3,098,000. However, the actual amount paid was £3,047,000,
        due to share repurchases after the balance sheet date but prior to the share register record date. 
        The final dividend proposed in respect of the year ended 30th June 2009 is subject to approval at the forthcoming Annual General Meeting. In
        accordance with the accounting policy of the Company, this dividend will be reflected in the accounts for the year ended 30th June 2010.

3.     Return/(loss) per share
        The revenue return per share is based on the earnings attributable to the ordinary shares of £3,241,000 (2008: £3,599,000) and on the weighted
        average number of shares in issue during the year of 26,441,114 (2008: 28,515,890).

        The capital loss per share is based on the capital losses attributable to the ordinary shares of £16,626,000 (2008: £20,337,000 loss) and on the 
        weighted average number of shares in issue during the year of 26,441,114 (2008: 28,515,890).

        The total loss per share is based on the total losses attributable to the ordinary shares of £13,385,000 (2008: £16,738,000 loss) and on the weighted 
        average number of shares in issue during the year of 26,441,114 (2008: 28,515,890).

4.    Net asset value per share
        The net asset value per share is based on funds attributable to ordinary shareholders and on 26,148,698 (2008: 26,940,948) shares in issue at the
        year end, excluding shares held in Treasury.

Status of announcement

2008 Financial Information

The figures and financial information for 2008 are extracted from the published Annual Report and Accounts for the year ended 30 June 2008 and do not constitute the statutory accounts for that year.  The Annual Report and Accounts has been delivered to the Registrar of Companies and included the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 237(2) or section 237(3) of the Companies Act 1985.

2009 Financial Information

The figures and financial information for 2009 are extracted from the Annual Report and Accounts for the year ended 30 June 2009 and do not constitute the statutory accounts for the year.  The Annual Report and Financial Statements includes the Report of the Independent Auditors which is unqualified and does not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The Annual Report and Accounts will be delivered to the Register of Companies in due course.

Annual Report and Accounts

The Annual Report and Accounts will be posted to shareholders on 25 September 2009 and will shortly be available on the Company's website (www.jpmoverseas.co.uk ) or in hard copy format from the Company's Registered Office, Finsbury Dials, 20 Finsbury Street, London EC2Y 9AQ. 

JPMORGAN ASSET MANAGEMENT (UK) LIMITED

 

END

 

 

FR USSRRKARKUAR