20th May 2011 15:51
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 InformationAt 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 StatementPerformanceIn 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 anddisappointingly 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 a0.5% return over the year to 31 March 2011 in sterling terms. The Share Unitprice 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 thanits benchmark in its first six months of the year. It sharply underperformedthe market when global equities plunged in April and May 2010 due to the Greekfiscal crisis and wider concerns over the more over-leveraged countries inEurope, and then failed to gain ground in July 2010 when fears over thedissolution of the single European currency receded, and a positive outcomefrom the bank stress tests in Europe boosted financials. The Fund's moreconsistent performance in the second half of the year was marred by a sharpdrop in emerging markets, especially Asia. Share prices of financials wereaffected at the end of 2010 and into January 2011 as concerns over inflationwere coupled with sovereign risk concerns when political unrest broke out inthe Middle East and North Africa. In the past couple of months emerging marketshare prices have been generally recovering, especially those in Indonesia andThailand.By the end of 2010 it was possible to say that this was the year in which theeconomic recovery put itself on a firmer footing. It was not clear at the startof the year whether the global economy would remain on track, as fears remainedthat major developed economies would stumble back into a double dip recession.The concerns over the peripheral Euro countries and the separate bailouts ofboth Greece and Ireland caused severe plunges in European and, to a lesserextent, global stock markets. Concerns over the economic recovery in the US inthe Autumn led to the Federal Reserve announcing a second round of quantitativeeasing, dubbed "QE2" in October 2010. However, by the end of 2010 the economicrecovery appeared stronger and broader-based, with the German and US economicdata readings, in particular, becoming increasingly positive. The moreoptimistic market sentiment that had been gaining ground as 2010 turned into2011 has subsequently been overshadowed to some extent by the ongoing MiddleEast and North African political unrest, particularly that in Libya, and theearthquake in Japan. However, it appears that confidence is becoming moresustained in financials, and in equity markets.
Portfolio
The portfolio of investments has ended the financial year, very differentlyfrom the way it started. The Fund went into 2010 in a very cautious mode andheld large amounts in cash at the start of the year, much of which was put intovery short-dated corporate bonds and higher yielding equities by the middle ofthe year. At the year end the portfolio was largely in equities. The Fund hasfocused on investing in the strengthening US economy, robust emerging marketeconomies and higher yielding financials. Figure 1 shows the movement in thesecurity types. Figure 2 shows the geographical movements in the portfolio overthe 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-areasovereign concerns from May onwards, those investments were either reversefinancial index trackers or very short-dated bonds issued by US banks. Towardsthe end of 2010, the US economy, which had been in recovery mode, showed signsof rapid acceleration. In December 2010 unemployment fell from 9.8% to 9.4% andprivate consumption and business confidence improved sharply. In the portfoliothe US equity investments were increased. The unemployment rate continues tofall with the latest reading being 8.8%, a positive move away from over 10%unemployment in October 2009. Personal spending power is increasing and initialestimates 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 governmenttarget, meaning the US is one of the few countries with no pressure to raiseinterest rates. Companies earnings are increasing and financial results havebeen strong up to both the 2010 year end and in the first quarter of 2011. InMarch this year the US banks announced that they would start paying uncappeddividends following authorisation from the Federal Reserve. Three of the Fund'sholdings, those in Capital One, JP Morgan and Wells Fargo were positivelyaffected by this change. At the Fund's year end a position was held in theDirexion Daily Financial 3X Bull, which was a short-term holding used to tapinto the positive market sentiment over the US first quarter earnings results.This position has subsequently been sold. The other US investments are inDiscover Financial Services, Affiliated Manager's Group, KKR & Co, and TheBlackstone Group.Whilst remaining wary of all the problems facing the UK economy, in the secondhalf of 2010 we added primarily higher-yielding assets in the UK. The concernsover the EU and potential sovereign debt defaults were weighing most heavily onbank shares, the insurers and asset managers were less in the spotlight andlooked very attractive with their high dividend yields, relative to the banks,in the low interest rate environment. The Fund ended the year with investmentsin Aviva, Aberdeen Asset Management and small cross-holdings in two Blue PlanetFinancials Trusts whose NAV values were at significant premiums to their shareprices. 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 - along-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 iscurrently focused on opportunities in the strongest economies on a worldwidebasis.At the start of the year the Fund held no investments in India, as the Indianeconomy struggled with high inflation and a high budget deficit. The governmenttook steps to rein-in its previously accommodating fiscal stance, and whilstinflation remains a concern, during 2010 we reinvested in Indian banks as theirfinancial results remained strong, and the country's under-penetrated bankingsector is still attractive. The investments performed very well in theportfolio until November 2010, when India's inflation problems came to the foreagain and the banking stocks share prices fell sharply. We added to Indianstocks in January and February 2011 as their prices began to recover again. Atthe year end investments were held in Canara Bank, LIC Housing, Dena Bank andBank of Baroda. Since the year end, profits have been taken on the LIC Housingholding.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 ratherthan to remove exposure to Russia from the portfolio. As the economic recoveryin Russia deepened, we rebuilt positions in Russia, initially via its two mainbanks Sberbank and VTB; now just Sberbank. A very modest investment was made ina mid-sized Russian bank, Bank St Petersburg. The Russian economy reported GDPgrowth 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 yearhas progressed, with scope for increasing profitability in 2011 as loan growthpicks up further and loan losses continue to reduce. Our investments haveperformed well in the portfolio, as Russia has avoided the steep sell-offs atthe end of 2010 experienced by many other emerging markets.Your Fund first invested in Indonesian banks in July 2009 and has remainedinvested in Indonesian banks throughout this past year. The Indonesian economyhas reported year-on-year GDP growth of 6.5% in the first quarter of 2011 andcore inflation remains below 5%. The country has low levels of bankingpenetration and its banks are well-capitalised with prudent provisioning inplace and are highly profitable. Indonesian banks continued to increase theirprofitability 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 of2010 and into 2011 as their valuations had risen to rather high levels.However, the solid economic backdrop in Indonesia and continuing excellentfinancial results have seen Bank Rakyat, in which the Fund is invested, morethan recover from its from its share price falls. The Fund's investment inKrung Thai Bank in Thailand had a similar pullback at the end of 2010 and into2011 and has similarly more than recovered from this dip following excellentfirst quarter results from the bank. The Fund invested in Thailand in October2010. 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 andloans are growing in double digits. The country's banks are enjoying volumegrowth and are increasing profitability. A concern does remain regarding theThai political landscape.The exposure to European stocks is currently very low and we expect it toremain that way whilst fiscal concerns persist in Europe and weigh on Europeanbank's share prices. Despite the economic strength in Germany, full year 2011GDP growth will be modest in the EU. At the year end there was one investmentin a high dividend yielding, European reinsurer, Scor based in France.The Fund held investments in Turkish banks throughout most of the last year asthe country's GDP returned to strong growth and Turkish banks saw a return to33% year-on-year loan growth. As the Turkish government started to implementits new monetary policy to stem its current account deficit, which includedsharply increasing reserve requirements for the banks, we sold our investmentsbefore 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 opportunitywhen they could have been exercised was at the end of July 2010. This means thewarrants are no longer valid, and if they had not been exercised or sold, on orprior to the end of July, they no longer have any value attached to them. On 31July 2010 a total of 560 warrants were exercised and 5,600 ordinary shares wereissued.
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 dividendwas paid as, despite a higher level of income than the previous year, thereturn per ordinary share was negative. The story has remained the same for thefull year accounts, despite income being higher than last year andadministrative expenses being lower, the net return per share has remainednegative.The outlook going forward for revenue is moderate in the current low interestrate environment, although the higher yielding stocks will help boost dividendincome. The Directors appreciate the importance of dividends to manyshareholders and plan to resume dividend payouts as soon as it is possible todo so.
Borrowing,Gearingand Liquidity
The Fund ended the year with gearing of 47.2%. It started the year with nogearing, but as levels of investments have increased the Fund had an averagegearing level of 46% from July 2010 to the year end. Generally, gearingbeneficially affects the Company's NAV when the value of its investments isrising, but adversely affects it in periods when the value of investments isfalling. 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 informationabout 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 tothe 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 newNon-Executive Director. Dean Bucknell is Chief Executive of Blue PlanetInvestment Management Ltd, the investment manager to the Company. He is also aDirector of Blue Planet European Financials Investment Trust plc, Blue PlanetHoldings Ltd, Blue Planet Global Financials Master Fund and Blue Planet GlobalFinancials Fund. He replaced Kenneth Murray who resigned due to a desire toreduce his work commitments.
Outlook
The recovery in the World's largest economy, the US, is becoming firmer, as isthe recovery in core Europe, and confidence indicators in both areas areincreasing. The US economic recovery has been accelerating and is being led bymanufacturing, as demand for exports is strong. Many emerging market economies,in particular in Asia, remain strong, although concerns have surfaced asinflation rises. The International Monetary Fund is forecasting global growthof 4.4% in 2011, with advanced economies growing 2.5% and emerging marketsaveraging a 6.5% growth. Emerging Asia is expected to generate about half ofthe global growth in GDP in 2011. Investment spending in emerging markets asthey industrialise and as living standards rise is a key driver. Investmentspending in emerging markets is likely to overtake investment spending bydeveloped markets this year. Many emerging market central banks have alreadystarted raising interest rates, to normalise policy rates and curb inflation.Within Europe fortunes are more mixed. The CIS countries, and in particularRussia, are seeing a rapid bounce back from a sharp recession induced by theglobal financial crisis. The Nordic economies are showing solid growth whilstGermany is forging ahead, with its exports rebounding strongly. However, theperiphery EU countries remain a concern, with Portugal the latest country torequire a bailout of around €80bn in April 2011, and doubts linger over thelong-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 negativeterritory in the final three months of 2010 and the rebound in the firstquarter of 2011, only just reversed this slide. A double dip recession in 2011remains a possibility, as public sector jobs are cut and austerity measuresreduce disposable income. High inflation readings have been pushing Sterlingstronger against the major other world currencies, as hikes in interest ratesare becoming more widely anticipated, but it seems to us that any increase ininterest rates will probably exacerbate the weakness in the UK economy far morethan it solves an inflation problem and we expect sterling to weaken againgoing forward as the country's economic growth forecasts are revised downfurther.However the underlying trend currently is on a continuing economic recovery.Added to this company profitability is increasing. Bloomberg data shows thatmajor, US companies increased profitability on average by 39% and Europeancompanies increased profitability by an average of 15% year-on-year in thefinal 3 months of 2010. The S&P500 Index in the US has seen return on equityrising for the past six quarters to 23%.Your company will continue to focus on countries and the financial companieswithin them with the best prospects for profitable growth that should drivetheir share prices higher as valuations remain modest. Bloomberg data showsthat the S&P500 is trading on 12.2 times analysts' earnings estimates for thecoming year. In the past two decades the average is 20.5 times in the past twodecades.Whilst bouts of nervousness will not disappear, we believe that 2011 will be apositive year for equity markets. The resolve of investors has already beentested this year by the tensions in Africa and the Middle East and notsurprisingly by the earthquake in Japan and its terrible consequences for theinhabitants of the country. However these concerns appear to have receded. Wewould hope to move forward in the next few years to provide positive and morestable returns, as we forsee good investment opportunities in Asia, Russia andin the US in particular. We echo the broad sentiment of Warren Buffett's, thatnow is the time to put money to work.Your Fund has a strong record of outperformance in years of rising markets. TheFund'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 yearssignificantly. It has also managed to provide positive returns in 2 years thatits benchmark did not. It is disappointing that the one time that your Fund hassignificantly underperformed in a positive year for the benchmark is in theyear just ended, when, in a highly volatile year for the markets, the benchmarkmade a marginally positive return and your Fund made very poor returns. At theAGM 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 capitaliseon the opportunities available from the economic recovery, strong corporateprofitability and cheap valuations to rebuild value in the Fund and allow theFund's Managers to show again their skill in extracting additional value asmarkets 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 KillayChairman20 May 2011Investment Manager's Report
Portfolio Performance Analysis
As has already been highlighted in the Chairman's Statement, the Fund's NAVfell 39.9% over the year, compared to a return of 0.5% by the Fund's benchmarkindex in sterling terms. The Share Unit price fell 44.8%. Markets were veryweak in the first half of the Fund's financial year, but the Fund fell muchmore sharply than its benchmark, in particular when global equities fell inApril and May 2010 due to the Euro-area sovereign crisis and was unable torecover from these losses. The Fund's improved performance in the second halfof the Fund's year was halted in November 2010 when a sharp drop in emergingmarket, and especially Asian, financials pulled-down the NAV again. Theemerging market share price falls were due to concerns over inflation and werecoupled with sovereign risk concerns as political unrest broke out in theMiddle East and North Africa. These concerns have lessened over the past coupleof months, aided by strong financial results in many emerging markets and shareprices have been generally recovering, especially those in Indonesia andThailand.
Asset Allocation
Blue Planet Investment Management's investment process is top down. Much of ourfocus this year has been on analysing the economic situation and prospects forthe major economies, in particular the United States, as the strength of therecovery in the US has a major impact on the rest of the world. We continue toidentify countries with the strongest economic prospects and acceptable levelsof political risk. The economic backdrops in these countries are assessed indetail and ranked accordingly. The listed banks and other financialinstitutions in the highest ranked countries are then investigated. Whenappropriate, capital is allocated to those banks and other financialinstitutions which we believe are likely to offer the best total returns overthe long term. Our stock selection process involves meeting with the seniormanagement of companies we are contemplating investing in. Where possible, wealso like to meet with local Central Banks to discuss the economic policiesbeing pursued in the countries concerned. Once we are invested in a company, weaim to meet regularly with its senior management to monitor its progress. Sincethe last year end we have visited financial institutions in the Czech Republicand Turkey. In addition, we had meetings in the UK with the management of manyoverseas financial institutions.Geographically the US is our largest equity investment location. Earlier in2010 when equity markets were very weak as a result of the Euro-area sovereignconcerns from May onwards, those investments were either reverse financialindex trackers or very short-dated bonds issued by US banks. In October 2010the Federal Reserve announced a second round of quantative easing as it feltthe US economy required further stimulus. Whether this additional stimulus wasthe catalyst or not, the US economy has shown a continued strengthening in itsrecovery. This is being led by manufacturing as demand for exports fromemerging markets, in particular China, investment spending and inventoryrestocking are causing a rebound in activity at factories. The Fed's SeniorLoan Officer survey suggests that banks have been loosening lending standardsfor businesses for several quarters and that business loan demand is nowpicking up. US companies are increasing earnings. Unemployment has now fallenback to 8.8%. Household spending is continuing to expand and there are no signsthat US households are starting to increase their debt. As inflation isremaining subdued the US is under no pressure to raise interest rates.The US banks have been rebuilding their balance sheets and financial companiesare rapidly recovering profitability. During March 2011 the US banks announcedthat they would start paying uncapped dividends following authorisation fromthe Federal Reserve. This is positive for Capital One, JP Morgan and WellsFargo in the portfolio. At the Fund's year end a position was held in theDirexion Daily Financial 3X Bull, which was a short-term holding used to tapinto the positive market sentiment over the US first quarter earnings results.This position has subsequently been sold and exposure to banks has also beenreduced. 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 quitesome time due to its weak economic positioning. We retain a negative view ofthe UK economy going forward. The contraction of 0.5% in GDP in the final threemonths of 2010 was disappointing and initial estimates are that GDP in thefirst quarter of 2011 are for a very modest growth of 0.5%. The office forBudget Responsibility has already started cutting its forecast for growth inthe UK in 2011. Its forecast is now for a growth rate of 1.7%, compared to itsprevious 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 inthe UK in higher-yielding stocks. Whilst the UK and continental European bank'sshare prices were being buffeted by the concerns over the state of the Euroarea periphery countries, the insurers and other financial stocks were lessexposed to the turbulence. In the prevailing low interest rate environment thehigher yielding stocks looked very attractive. The Fund has holdings in Avivaand a holding in Aberdeen Asset Management. Both have performed well in theportfolio. The remaining holdings in the UK are sterling cash holdings.The Fund's third largest geographic exposure is listed as Ireland. This isbecause the Fund is invested in the Blue Planet's Global Financials Fund,listed in Dublin. The Global Financials Fund has been invested in global, longand short equities and fixed income over the last year. It is currently focusedon opportunities in the strongest economies on a worldwide basis. Shorts havebeen 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. TheIndian government, like many other countries, had seen its fiscal deficit rise,as it had provided stimulus measures to support the economy through a weakpatch in 2009. The investments in Indian banks had been sold before the end ofthe last financial year as India's budget deficit reached a 16-year high andthe reserve bank of India started to tighten monetary policy and raise reserveratios for banks. It was feared that this would cause a sharp spike in badloans, as had been seen in Russia. However, although bad loans increased, theyremained at very manageable levels and Indian banks continued to grow theirprofitability as loan demand remained robust. The Indian economy continues togrow strongly. The latest GDP growth figure for the quarter to the end ofDecember 2010 was 8.2%. Investment spending in India is increasing, in 2010investment spending in India was higher than that in Germany. Inflation remainsstubbornly high, and concerns over inflation led to a sharp pullback in theIndian stock market at the end of 2010 and into 2011. However, loan growthremains very robust in India, currently in 2011 loans are increasing 22%year-on-year. The valuations of all but the largest Indian banks remain veryattractive, and the banks results to March 2011 have been very solid. At theyear end investments were held in Canara Bank, LIC Housing, Dena Bank and Bankof Baroda. Subsequent to the year end profits have been taken on the LICHousing holding.At the last year end we reported that investments in illiquid Russian banks hadbeen sold, after Russian banks share prices made a substantial recovery astheir outlook brightened considerably. The Fund is now focused on primarily thelarger Russian banks. In 2009 bad debts at the banks soared and profits werelargely eaten up by provisioning. The smaller banks in Russia suffered the mostand this has led to a shake-up in the Russian banking sector, with 100 lessbanks in operation now compared to pre-crisis. The major banks in the countryhave strengthened their positions and have seen profits picking up in 2010.This recovery should accelerate in 2011, as demand for loans increases, marginsstabilise and provisions for bad loans are lower. High inflation in the countryremains a concern, inflation has risen to 9.6% in January 2011 and the RussianCentral Bank has raised interest rates and has made steps towards returningbank's reserve requirement rates to pre-crisis levels. However bankingpenetration in Russia is low and as disposable income increases, retail lendingshould 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 endthe level of investment had been reduced slightly from the start of the year,with a single investment in PT Bank Rakyat Indonesia. The Indonesian economyremained strong through the global economic crisis and followed its 4.6% GDPgrowth in 2009, with a further growth of 6.1% in 2010. Forecasts are for thecountry to continue its growth momentum as private consumption and investmentspending remain strong, and first quarter 2011 GDP growth was 6.5%. Coreinflation has been creeping up to the 5% level and the bank has raised interestrates this year to 6.75%. Indonesian banks are well capitalised and, with theAsian crisis as part of the country's past, the banks hold high levels ofprovisions. Like in India, loan growth of over 20% is expected in 2011,particularly as the central bank is encouraging loan growth by making holdingexcessive liquidity more costly for banks via reserve requirements. Consumerloan 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 in2011.In October 2010 the Fund invested in Thailand for the first time. Exportsaccount for more than 60% of Thailand's GDP, which means the global economicslowdown created a tough time for Thailand's economy and its GDP contracted2.3% in 2009. However the country bounced back strongly in 2010 as thegovernment used its years of fiscal prudence to provide a comprehensivestimulus package. The country is predicted to continue to grow GDP in the 4% to5% range in the next few years. Loan growth was 11.4% in the last quarter of2010, 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, thebanks anticipate many years of profitable growth.Investments in Europe have remained at low levels this year. This year theviability of the single European currency, the Euro, has been a recurringtheme. The periphery Euro area countries have been experiencing economicdifficulties following the global economic recession. In early 2010 concernshad centred on Greece, which had an unsustainable large fiscal deficit. Greecewas forced to accept a €110bn bailout package. In November it was Ireland thatwas in the spotlight, as its banking sector continued to struggle withincreasing amounts of bad debt. By the end of the month Ireland had accepted an€85bn aid package, including €10bn for immediate bank recapitalisations. Themost 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 thesecountries will either default, or need to restructure, their sovereign debtremains elevated. All of this has had a significant impact on mainland Europeanbanks, which have a great deal of cross-border exposure in Europe. The onlyEuropean stock currently held is SCOR, a French-based reinsurer with a gooddividend yield.The Fund has held investments in Turkish banks throughout most of the last yearand Turkish banks share prices performed strongly through into the autumn of2010, as GDP growth continued to bounce back from its 2009 lows. Howevertowards the end of 2010 as inflation rose and the Turkish current accountdeficit widened significantly, Turkish equities joined in a wider emergingmarket equity sell-off. The Turkish government implemented an unorthodoxmonetary policy of reducing interest rates to weaken the Turkish Lira in orderto stem its current account deficit, and sharply increasing reserverequirements for the banks to put a break on loan growth and thereby subdueinflation. These measures will adversely affect the profitability of Turkishbanks in 2011, and we sold our investments.
Currency
The Fund is exposed to a range of currencies. The table below shows thepercentage of the portfolio holdings in each currency and how those currencieshave performed against the pound over the period in which the investments havebeen 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. Thenegative currency movements reduce the share price return when translated intosterling. The Fund's largest exposure is to the US Dollar, which has recentlybeen weak against sterling. The Euro has had a very volatile year, but hasrecently been strengthening again against sterling. Persistently high inflationin the UK has led to speculation that the UK central bank will raise interestrates soon, which has led to an appreciation in sterling against many othercurrencies. However, we expect the weak macro economic data in the UK tooverride the expectations of a modest rise in interest rates and would expectto see sterling weakening again in 2011.
Risk
Market risk arises mainly from the uncertainty regarding the future priceperformance of equities held by your Company. This risk is magnified whengearing is used and due to the fact that the company is invested in a singleindustry sector. Being invested in a single sector exposes the Fund to the riskthat the Financial Sector will underperform relative to other sectors of themarket, and this last year this sector did underperform several other sectors.Gearing the Fund via loans also means that interest-rate risks arise. Theserisk factors are beyond the control of the Company.In mitigation of these risks the financials sector in which we are invested isthe largest sector within the Bloomberg Worldwide Index. Banks play a crucialand central role in free market economies; a role that will underpin theprosperity of the banking sector as a whole over time. The prices of theindividual securities invested in are monitored on a daily basis and the Board,which meets quarterly, imposes borrowing limits to ensure gearing levels areappropriate to market conditions. When gearing is employed the potential impactof changes to interest rates is taken into consideration. The securities dealtin are all listed on recognised exchanges and are readily realisable.The Fund is exposed to currency risk, due to the range of currencies in whichinvestments 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 employingappropriate hedging strategies. The Company currently has a multi-currency loanfacility and our borrowings can be used as a "natural" hedge againstinvestments in the matching currency. In addition hedging is considered on acase-by-case basis. The fund manager has been tracking currency movements on adaily 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 naturaldisasters due to earthquakes, in New Zealand and Japan, and political unrest inthe Middle East and North Africa region, caused an immediate reduction in therisk appetite of investors. Longer lasting impacts of these events could affectboth the economies of the countries concerned and the wider economic outlook.A continuation of the recovery from the global economic recession should have apositive impact on equity markets, whereas a stalling or reversal of therecovery will have a negative impact on equity markets. Both events could havea significant impact on the Company. The balance is currently towards acontinuation of the recovery. The pace of the recovery, both globally, or inthe particular countries, or regions, in which we are invested, will affect thestock 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 CaymanIslands exempted company. The Company is listed on the Irish Stock Exchange andhas been in existence for five years. Its objective is to achieve a high levelof capital growth by taking long and/or short positions in securities issued byor relating to banks and other financial institutions on a worldwide basis.Shares are available denominated in Euros and US dollars. Your Company isinvested in the Class A Euro shares.BP Global's most recent published financial results are for the six months to30 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 latestpublished figure for 31 December 2010. The fund has been invested in long andshort financial equities and bonds on a global basis during 2010. It hasfocused on both developed and emerging markets during the past year and keythemes 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 monthlyNAV of the Blue Planet Global Financials Fund and the investment we holdrepresents 43% of the total investments in the Blue Planet Global FinancialsFund.
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 RussiaSberbank is the largest bank in Russia, with about 27% of the entire Russianbanking assets. It was established in 1841 and has grown to become the largestdeposit taker in the country with a market share of 48% in retail deposits. Italso accounts for over 30% of both retail and corporate loans. The Central Bankof Russia owns just over 60% of Sberbank's share capital.The bank is focusing on upgrading its processes and technology to increaseefficiency and profitability. It has made some expansion steps outside Russia,notably in CIS and in China. With banking penetration in Russia remaining verylow, 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 thegrowth in banking services in Russia.Sberbank have had a very strong final quarter of 2010, which has enabled thecompany to report net profit for 2010 as a whole which is over seven times thelevel of profits in 2009. Financial performance in 2009 was muted at Sberbank.Net customer loans fell in 2009 and non-performing loans rose sharply, asRussia suffered from high unemployment and weak corporate profitability,following the global economic slowdown that hit Russia hard. In 2010 Sberbankhas increased its loan portfolio by nearly 13%, with deposits growing 22% inthe year. Non-performing loans have fallen and the bank has again reported areturn on equity of over 20%. In 2011 the bank should continue to see good loangrowth which will drive revenue growth. There are plans for the bank to issueglobal depositary receipts so it will become listed on overseas exchanges,making access to its shares easier for international investors, as well asindications from the Russian Central Bank that it will reduce its stake inSberbank 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, beforefees and expenses, of 300% of the price performance of the Russell 1000Financial Services Index. The Russell 1000 Financial Services Index is a subsetof the Russell 1000 Index that measures the performance of the securitiesclassified 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 billiondollars. As one cannot directly invest in an index this, and similar products,provide an alternative means of gaining exposure to the index performance as awhole.Direxion Funds and Direxion Shares are managed by the private company RaffertyAsset Management, LLC. Direxion offer a range of leveraged index funds, ETFsand alternative-class fund products for investment advisors and sophisticatedinvestors who seek to effectively manage risk and return in both bull and bearmarkets. Founded in 1997, the company has approximately $7.5 billion in assetsunder management as of the end of December 2010.We bought and sold this stock in September 2010 at a profit. It was purchasedagain in January 2011. The size of the holding was adjusted several times, butthe return from the initial purchase date was 1% at the year end, with thereturn in sterling terms being muted by the strength of sterling versus the USdollar.
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 withapproximately 45 million customer accounts and offers a broad array offinancial products and services to consumers, small businesses and commercialclients in the US, Canada and the UK, specialising in credit cards, personalbanking and loans. Over the year the company has been transforming into a bankand 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'sreduced the balances on their credit cards and paid down their debts and asCapital One tightened their underwriting standards. Charge offs and bad loansincreased, but the company remained profitable through 2009. In 2010 bad debtswere 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 thecompany has already reported strong results for the first quarter of 2011. Netincome improved 60% from a year previously and 46% from the final quarter of2010. The superior results were driven by positive credit trends and strongrevenues, 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% +8.5pp5. Aviva PlcThe group has been known as Aviva since July 2002. It was created by the mergerof CGU and Norwich Union in May 2000. Through its founder companies, Aviva cantrace its history back for more than 300 years. Aviva is now the world's sixthlargest insurance group and the UK's largest insurer, with over 53 millioncustomers worldwide. Its major markets are Europe, the UK and North Americawith a small presence in Asia Pacific. Aviva's main business is life insuranceand in terms of operating profits the split is almost 70/30 between lifeinsurance 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 reboundedin 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 thebasis 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 inthe year and the company cut costs. It also put money into its pension fund andclosed the deficit that had previously existed. The company retains a positiveoutlook for 2011 and intends to continue to generate high levels of operationalcapital, continue to cut costs and increase levels of profitability within itsLife division.The company has not made any recent comments on whether it is consideringfurther asset disposals. In 2010 RSA Insurance made a £5bn cash offer to Avivafor its general insurance businesses in the UK, Canada & Ireland, leaving Avivato focus on life insurance. Aviva's directors have rejected it unanimously asthey 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% +3.9pp6. Canara Bank
Canara was founded in 1906 and was incorporated as Canara Bank in 1910. It wasnationalised in 1969 along with 14 other major banks in India and did not havea public holding in its shares until 2002 when an initial IPO was launched. Thegovernment now hold 67.7% of the bank's equity. The bank has its headquartersin Bangalore and has over 3,000 branches following a major branch expansionprogramme in 2010 which saw the bank opening 211 new domestic branches. CanaraBank is one of the top five banks in India with a nearly 5% share of loans anddeposits.Loan penetration is low in India. Business loans-to-GDP stood at 41.7% at theend of 2010 and consumer loans-to-GDP were at 9.7%. This provides a great dealof scope for sustained loan growth. In its full year results to March 2011Canara Bank saw both loan and deposit growth of over 25%, with retail lendinggrowing at 32% and strong growth in the corporate sector. In the most recentquarter business loans grew 21% quarter-on-quarter.The bank plans a further 250 new branches over the next year to boost retaildeposits 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 highestROE ratios of the public sector banks in India and forsees further profitablebusiness growth over the next few years.We purchased stock in P-note form in October 2010, and added to the holdingwhen 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 forthe portion of the stock held since October is -17.5%. We would expect theshare 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% -0.4pp7. LIC Housing Finance LtdLIC Housing Finance Ltd. ("LIC") is the second largest Housing Finance Companyin India and was incorporated in 1989. It has over 1 million customers servedthrough its 180 plus marketing offices by nearly 14,000 agents. Loans to retailcustomers make up around 90% of the loan book, with the remaining 10% of loansbeing to large scale customers such as developers. The company is primarily awholesale funded institution. LIC can take deposits, but this currentlyprovides 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 increasein consumer's affordability levels provide an additional boost to housingfinance demand. LIC estimate that housing stock will grow by 17% over the next5 years and that urbanisation will continue, with the urban population expectedto account for 32% of the population by 2015. LIC has been focusing onincreasing the average size of its loans, as larger loans have improved creditperformance. Now, 62% of the company's loans are originated in the largercities in India.A bribery scandal involving the chairman of LIC Housing caused a sharp drop inthe 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 bythis incident. In the full year to March 2011 LIC increased margins, improvedcredit quality and increased its loan book by 34%. This led to a 38% increasein consolidated profits year-on-year.The stock was purchased in January 2011 in anticipation of a recovery from thestocks steep share price falls and more stock was added at the start ifFebruary when it became possible for the Fund to hold the direct stock in theIndian market. By the year end the stock had made a total return of 19% insterling terms since the initial purchase date. It has subsequently been soldto 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 andwas founded in 1895. It has served the micro finance segment for over 100 yearsand now has around 25 million customers. The government is the majorityshareholder in Bank Rakyat Indonesia with a 57% stake in the bank. It is thesecond largest bank in terms of loans and has a 12% market share in terms ofdeposits. 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 sufferedthrough its large US dollar loan book and the government recapitalised the bankin 2000 using government recapitalisation bonds. The management in the companywas changed. The Bank had a 3.8bn initial public offering in October 2003 andmuch of the proceeds were spent on introducing the latest IT systems to thebank.BRI benefits from very high margins from its high proportion of micro financebusiness (31% of its loan book at the end of 2010). Margins at the bank werealmost 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%. Anaccounting change applied to the accrual of net interest income boosted whatwere already very strong financial results for the year. In its most recentresults to the 31 March 2011 the bank reported a 52% year-on-year increase inprofits, as loans grew 21%, in-line with the bank's target for a 22% growth inloans 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 portionof 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% +8.6pp9. JP Morgan Chase & CoJP Morgan Chase & Co ("JP Morgan") is a global financial services firm,headquartered in New York, with assets of $2 trillion. It operates in more than60 countries and has over 200,000 employees. It has grown both organically andby acquisition. JP Morgan weathered the financial turbulence in 2008 betterthan many of its US banking counterparts and this led to it making two majoracquisitions in 2008. It bought Bear Stearns (The 5th largest US investmentbank at that time) and Washington Mutual after Washington Mutual's assets wereseized by the FDIC due to the bank's failure. JP Morgan issued $11.5bn ofcommon stock to support the purchase. The addition of the Washington Mutualassets expanded the Chase consumer network to become the 2nd largest branchnetwork in the US, serving over 42% of the US population.JP Morgan increased profits almost 50% year-on-year in 2010 as its level ofprofitability begins to normalise. In 2010 its investment bank remainedresilient, both its commercial banking and asset management divisions reportedrecord revenues and card services volumes increased. Whilst its retail divisionincreased 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 tothe year end provided a total return of 1% in sterling terms. This stock wassold after the Fund's year end as we sought to reduce the high level ofexposure to the US once the share price impetus from the first quarter resultshad 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 servicescompany formed in 1986. The company has become one of the largest card issuersin the United States with $45bn in loans and owns the PULSE network which isone of the US's leading ATM/debit networks. The company acquired The StudentLoan Corporation in December 2010. The company is primarily focused on the USand has over 10,000 employees.Credit card loans at the company remained stable in 2010, despite thedeleveraging of the US consumers, which meant the company gained market share.In response to the difficulty of raising funding during the sub-prime mortgagecrisis, DFS has increased its direct banking deposits, making this theirlargest single source of funding, meeting about 40% of their fundingrequirements. The payment services business division performed well in 2010.The 2010 net income was below that in 2009 as the 2009 results were boosted bya $1.2bn payment after tax related to the Visa/Mastercard antitrust litigationsettlement.The company plans to grow further its direct banking offerings, expand its UScard business and continue to build a global payments network, includingpayments via mobiles. As with Capital One, the company expect that theimproving economic outlook in the US will drive a growth in credit card loansin the second half of 2011. The company's results for the first quarter of 2011were strong as charge-offs fell and the company booked a reserve release. Itsrobust capital position allowed DFS to put its dividend per share back topre-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% -4.0ppTransactions
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 eachfinancial year. Under that law the Directors have elected to prepare thefinancial statements in accordance with United Kingdom Generally AcceptedAccounting Practice (United Kingdom Accounting Standards and applicable law).Under the Company law Directors must not approve the accounts unless they aresatisfied that they give a true and fair view of the state of affairs of theCompany and of the profit or loss of the Company for that period. In preparingthese 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 aresufficient to show and explain the Company's transactions disclose withreasonable accuracy at any time the financial position of the Company andenable them to ensure that the financial statements comply with the CompaniesAct 2006. They are also responsible for safeguarding the assets of the Companyand hence for taking reasonable steps for the prevention and detection of fraudand 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 BoardVictoria KillayChairman20 May 2011Income Statement
(incorporating the Notes Revenue Capital 2011 Revenue Capital
2010revenue account) (£) (£) Total (£) (£) Totalfor 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 1,262,350gains Exchange (losses)/ - (198,533) (198,533) - 86,059 86,059gains Net capital (losses) - (633,037) (633,037) - 911,956 911,956/gainson investments Income from 2 37,533 - 37,533 31,514 - 31,514investments Bank interest 1,224 - 1,224 2,623 - 2,623receivable Gross revenue and 38,757 (633,037) (594,280) 34,137 911,956 946,093capital (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) 888,949 862,650interest 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) 864,626 814,004activities before taxation Taxation on ordinary 579 - 579 (1,891) - (1,891)activities Return on ordinary (36,515) (675,185) (711,700) (52,513) 864,626 812,113activities after taxation Return per ordinary 3 (0.27)p (4.94)p (5.21)p (0.38)p 6.33p 5.95pshare - basic Return per ordinary 3 - - - (0.38)p 6.33p 5.95pshare - 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 Sheetat 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) 1,372,623assets Total assets less current 1,069,534 2,591,674liabilities 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 13.03pshare - basic Net asset value per ordinary 3 - 13.03pshare - diluted Victoria W KillayChairman20 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 1,780,674at 1 April 2010 Proceeds of share 56 504 - - - - - 560issue 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) 1,069,534at 31 March 2011 For the year ended 31 Share Share Capital Capital Capital Warrant Revenue TotalMarch 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 1,072,264at 1 April 2009 Proceeds of share 12 108 - - - - - 120issue Transfer from /(to) - 29 - - - (29) - -warrant reserve Return on ordinary - - - (402,669) 1,267,295 - (52,513) 812,113activities 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 1,780,674at 31 March 2010 Cash Flow StatementFor the year ended 31 (£) 2011 (£) 2010March 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) 52,184from 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) 778,587efore 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) 606,363cash Notes on the Accounts1.The financial information set out in this announcement does not constitutethe Company's statutory accounts for the years ended 31 March 2011 or 31 March2010 but is derived from those accounts. Statutory accounts for 2010 have beendelivered to the Registrar of Companies and those for 2011 will be deliveredfollowing the Company's Annual General Meeting. The auditors have reported onthose accounts; their reports were unqualified, did not draw attention to anymatters 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 thebasis of the accounting policies as stated in the previous year's financialsstatements, and are consistent with the current year's full financialstatements which are yet to be published.The Directors consider that the Company has adequate financial resources in theform of readily realisable listed securities, including cash of £245,000 andloan facilities to continue in operational existence for the foreseeablefuture. For this reason they continue to use the going concern basis inpreparing the accounts even though the loan facility is due to expire within 12months.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 13,661,701during 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 isderived from the total number of warrants in issue multiplied by a factor basedon the average price of the ordinary shares in the year and the exercise priceof the warrants, as required by FRS 14. No dilution occurred in the currentyear as the warrant exercise price exceeded the average market price of oneshare during the year. The net asset value per ordinary share is calculated on13,667,700 (2010 - 13,662,100) being the number of ordinary shares in issue atthe 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 itsInvestment Manager under a management agreement which is terminable on twoyears' notice. The investment management fee in respect of each month was0.125% of the total assets of the Company attributable to the shareholders onthe last day of that month. The Company Secretary, Blue Planet InvestmentAdvisers Ltd, receives £10,000 p.a in respect of administration and secretarialservices.6. Share CapitalAt 1 April 2010 the Company had 251,540 warrants in issue. Each warrant confersthe right, exercisable on 31 July 2010 or, if later, 30 days after thedistribution of the annual Report and Accounts to subscribe for 10 new ordinaryshares at a price of £0.10 per share. On 31 July 2010, 560 warrants wereexercised and 5,600 ordinary shares were issued; the remaining warrants havelapsed 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 [email protected]
vendorRelated Shares:
Blue Plan.uts