Interim Results
JUPITER SECOND ENHANCED INCOME TRUST PLC
Preliminary announcement of the unaudited results for the half year to 30th April 2006.
CHAIRMAN'S STATEMENT
I am pleased to confirm that the net asset value of your Company's Geared Income shares rose by 28.1 per cent. from
their restated opening net asset value of 47.58p on 31st October 2005 to 60.97p at 30th April 2006. This compares
favourably with the performance of the Company's benchmark, the FTSE All-Share Index, which increased by 15.4 per cent.
(in capital terms) over the same period. After taking into account the dividends paid to Geared Income shares in
respect of the period, their total return has been 31.0 per cent., which compares with a total return on the FTSE
All-Share Index of 17.5 per cent. over the same period.
The Company's Packaged Units (each comprising one Geared Income share and one Zero Dividend Preference share) produced a
net asset value return of 14.2 per cent. over the same period (and a total return of 15.4 per cent. after taking into
account dividends declared in respect of the period).
Revenues
Revenues after tax for the period amounted to £1,241,000. Quarterly interim dividends of 0.60p (net) and two of 0.75p
(net) have been declared in respect of the period under review. During 2006 we anticipate that the Company will be in a
position to pay an aggregate dividend of the same order as last year (2005: 3.05p).
Market Review
The UK stock market continued to make excellent progress during the six months under review. Mid-cap stocks
out-performed their larger counterparts whilst smaller companies under-performed in relative terms. At the sector level,
industrials, general financials and mining were among the best performers with only the healthcare and fixed line
telephony sectors losing ground over the period.
Equities made steady progress, helped by healthy corporate earnings along with increasing merger and acquisition
activity by large companies and private equity operators. The latter being particularly vigorous in taking advantage of
low borrowing costs when set against the strong cash flows of target companies.
Notable purchases made during the period were: Legal & General, one of the stronger life assurance companies offering
value and good yield potential; Davenham, a specialist lender to the UK SME sector operating a progressive dividend
policy; F&C Asset Management, a European asset management company offering a high dividend yield; and Ladbrokes, which
following the sale of the Hilton hotel chain, has become a pure betting operation with good prospects offering
double-digit growth potential.
Principal sales during the period were: Antofagasta - profit taking in this copper miner after a strong run; Mowlem a
building services engineer was successfully bid for; Raymarine - profit taking in this marine navigation equipment
maker; and Brit Insurance - following a change in the company's strategic intention.
Outlook
In May the FTSE 100 Index fell 573 points (9.4%) over nine trading days and, as at 30th June 2006 the growth in your
Company's total assets since the last financial year end (on 31st October 2005) had reduced to 11.0 per cent, which
compares with a return of 11.4 per cent. on the Company's benchmark index over the same period.
There were no discernable trends behind this market fall other than that indices were led down by disposals in mining
and natural resources stocks. These sectors appeared to have reached their peak for now but we expect better buying
opportunities to present themselves later in the year.
The market falls appear to have been triggered by two main factors. Firstly, the US bond market weakened on fears that
Federal Reserve Chairman, Bernanke, would raise interest rates higher (and for longer) than expected in response to
rising inflationary pressures. Secondly, the Bank of Japan has been progressively draining surplus liquidity from the
global monetary system as the Japanese economy finally emerges from years of deflation. Those investors who had used
borrowed money to take risky bets (e.g. in commodities and emerging market plays) started to cut their positions and
markets sold off.
The Manager regards this period of market consolidation to have been long overdue and expects it to last for the best
part of 2006. But a volatile market should also offer some value opportunities as recessionary conditions are not
expected. Indeed, the UK economy is still enjoying its longest period of sustained growth since the second world war
and, unless inflation becomes a significant threat, we would expect the UK economy to continue to grow at around its
long-term trend rate. But, given that the housing market appears satisfactorily active, policymakers are expected to
continue to constrain consumer spending.
There are a number of domestic and geopolitical uncertainties currently facing UK businesses, interest rates and Middle
Eastern issues which could adversely affect markets. However, with lower equity valuations, following recent market
setbacks, there is scope for UK companies to produce dividend growth in high single digits during 2006. Despite some
uncertainties, the UK market has the potential to make reasonable progress from here as P/E multiples should keep track
with earnings growth.
Jimmy West
Chairman
28th July 2006
INCOME STATEMENT
for the six months to 30th April 2006
(Unaudited)
30th April 2006 30th April 2005
(Restated)
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Realised gains on investments - 3,472 3,472 - 716 716
Unrealised appreciation of investments - 6,754 6,754 - 1,628 1,628
______ ______ _____ _____ _____ _____
Total capital gains on investments - 10,226 10,226 - 2,344 2,344
Income from fixed asset investments 1,768 - 1,768 1,290 - 1,290
Bank interest 28 - 28 125 - 125
Other income 11 - 11 - - -
Investment management fee (392) - (392) (293) - (293)
Investment performance fee - (797) (797) - - -
Other expenses (174) - (174) (161) - (161)
_______ ______ _____ _____ _____ _____
Net return before finance costs
and taxation 1,241 9,429 10,670 961 2,344 3,305
Interest payable - - - (6) - (6)
Appropriations in respect of
Zero Dividend Preference shares - (1,444)(1,444) - (1,180) (1,180)
_______ ______ _____ _____ _____ _____
Return on ordinary activities
before taxation 1,241 7,985 9,226 955 1,164 2,119
Tax on ordinary activities - - - (1) - (1)
_______ ______ _____ _____ _____ _____
Return on ordinary activities
after taxation 1,241 7,985 9,226 954 1,164 2,118
_______ ______ _____ _____ _____ _____
Return per Geared Income share 1.98p 12.71p 14.69p 1.70p 2.07p 3.77p
The total column of this statement is the profit and loss account of the Company.
All revenue and capital items in the above statement derive from continuing operations.
No operations were acquired or discontinued in the period.
A Statement of Total Recognised Gains and Losses is not required as all gains and losses of the Company have been
reflected in the above statement.
The financial information does not constitute `accounts' as defined in section 240 of the Companies Act 1985.
Dividends paid on Geared Income shares 2006 2005
1st Interim dividend 0.6p 0.45p
BALANCE SHEET
at 30th April 2006
(Unaudited)
30th April 2006 31st October 2005
(Restated)
£'000 £'000
Fixed assets
Investments held at fair value through profit or loss 77,978 69,184
_______ _______
Current assets
Cash at bank 1,438 1,544
Debtors 967 133
_______ _______
2,405 1,677
Creditors: amounts falling due within one year (1,042) (1,374)
_______ _______
Net current assets 1,363 303
_______ _______
Total assets less current liabilities 79,341 69,487
Creditors: amounts falling due after more than one year
Zero Dividend Preference shares (41,040) (39,596)
_______ _______
Net assets 38,301 29,891
_______ _______
Capital and reserves
Called up share capital 628 628
Share premium 7,180 7,180
Special reserve 17,642 17,642
Capital reserve - realised 291 (940)
Capital reserve - unrealised 11,585 4,831
Revenue reserve 975 550
_______ _______
Total shareholders' funds 38,301 29,891
------- -------
Net Asset Value per Geared Income share 60.97p 47.58p
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the six months to 30th April 2006
(Unaudited)
Share Share Special Capital Capital Revenue Total
Capital Premium Reserve Reserve Reserve Reserve
Realised Unrealised
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Six months to 30th April 2006
Balance at 1st November
2005 (restated) 628 7,180 17,642 (940) 4,831 550 29,891
Net profit for the period - - - 1,231 6,754 1,241 9,226
Dividends paid and declared
4th interim dividend for
period ended 31/10/05 - - - - - (440) (440)
1st interim dividend for
period ended 31/10/06 - - - - - (376) (376)
_____ _____ _______ ______ ______ ______ ______
Balance at 30th April 2006 628 7,180 17,642 291 11,585 975 38,301
____ _____ ______ _____ ______ _____ ______
Period ended 31st
October 2005
1st November 2004 1,256 54,082 - - - - 55,338
Shares issued - 7,180 - - - - 7,180
Reserve transfer - (54,082) 54,082 - - - -
Reclassification of ZDP shares (628) - (36,440) - - - (37,068)
Net profit for the period - - - (940) 4,831 1,899 5,790
Dividends paid and declared
1st interim dividend for
period ended 31/10/05 - - - - - (252) (252)
2nd interim dividend for
period ended 31/10/05 - - - - - (562) (562)
Special dividend for
period ended 31/10/05 - - - - - (252) (252)
3rd interim dividend for
period ended 31/10/05 - - - - - (283) (283)
_____ _____ _______ ______ ______ _____ ______
Balance at 31st October 2005 628 7,180 17,642 (940) 4,831 550 29,891
_____ _____ _______ ______ ______ _____ ______
CASH FLOW STATEMENT
for the six months to 30th April 2006
(Unaudited)
2006 2005
£'000 £'000
Operating activities
Net cash (outflow)/inflow from operating activities (121) 487
_______ _______
Servicing of finance
Interest paid - (3)
_______ _______
Net cash outflow from servicing of finance - (3)
_______ _______
Taxation
Net tax paid - (3)
_______ _______
Capital expenditure and financial investment
Purchase of fixed asset investments (16,432) (61,985)
Sale of fixed asset investments 17,300 6,693
_______ _______
Net cash inflow/(outflow) from capital expenditure
and financial investments 868 (55,292)
_______ _______
Equity dividends paid (816) (252)
_______ _______
Net cash outflow before financing (69) (55,063)
_______ _______
Financing
Share issue - 56,157
Cost of share issue (37) (941)
_______ _______
Net cash (outflow)/inflow from financing (37) 55,216
_______ _______
(Decrease)/increase in cash (106) 153
------- -------
Restatement of the Financial Statements
The Financial Statements for the six months to 30th April 2006 have been prepared in accordance with Revised UK
Generally Accepted Accounting Principles ("UK GAAP") and with the Statement of Recommended Practice ("SORP") for
investment trust companies issued by the Association of Investment Trust Companies ("AITC") in January 2003 and revised
in December 2005.
The Company adopted Revised UK GAAP on 1st November 2005 and a reconciliation showing the effect of the transition to
Revised UK GAAP on the opening balances is shown on the next page.
The Financial Statements have been prepared on the basis of the accounting policies set out in the Company's Annual
Financial Statements at 31st October 2005 except for the following accounting and valuation methods which have been
amended to comply with Revised UK GAAP:
In accordance with FRS 26 `Financial Instruments: Measurement', quoted investments previously reported at mid-market
value are now shown at bid price and classified as `investments held at fair value through profit or loss". The effect
of this change is recorded in the Income Statement.
In accordance with FRS 21 `Events After the Balance Sheet Date', dividends declared or proposed after the balance sheet
date are no longer recognised as a liability in the accounts in the period to which they relate, but are carried forward
and expensed in the following period's accounts. Therefore the second interim dividend of 0.75p per share, declared on
17th May 2006, has not been recorded as a liability of the Company as at 30th April 2006. This change in accounting
policy has increased Shareholders funds by £471,166 as at 30th April 2006.
In accordance with FRS 25 `Financial Instruments: Disclosure and Presentation', the Zero Dividend Preference shares are
now classed as a liability in the accounts to reflect more appropriately the rights and obligations attributable to the
Zero Dividend Preference and Geared Income shareholders. Accordingly the redemption reserve, share capital, special
reserve and share premium accounts are reduced and long term creditors increased. These changes are presentational and
have no impact on the Company's net assets per share or returns per share.
Restatement of Balances as at and for the period ended 31st October 2005
At 1st November 2005 the Company adopted Revised UK GAAP. In accordance with Revised UK GAAP, the following is a
reconciliation of the results as at and for the year ended 31st October 2005, previously reported under the applicable
UK Accounting Standards and the SORP, to the restated UK GAAP results.
Note Previously Effect of
reported transition to Restated
31st October 2005 revised UK 31st October
Audited GAAP 2005
£'000 £'000 £'000
Investments 1 69,220 (36) 69,184
Current assets 1,677 1,677
Creditors: amounts falling due
within one year 2 (1,814) 440 (1,374)
_________ _________
Total assets less current
liabilities 69,083 69,487
Creditors: amounts falling due
after more than one year 3 - (39,596) (39,596)
_________ _________
69,083 29,891
======== ========
Capital and reserves
Called up share capital 3 1,256 (628) 628
Share premium 7,180 7,180
Special reserve 3 54,082 (36,440) 17,642
Redemption reserve 3 2,528 (2,528) -
Capital reserve - realised (940) (940)
Capital reserve - unrealised 1 4,867 (36) 4,831
Revenue reserve 2 110 440 550
_________ _________
69,083 29,891
======== ========
Notes to the reconciliation
1. Investments (excluding derivatives) are designated as held at fair value under revised UK GAAP and are carried at bid
prices which total their fair value of £69,184,000. Previously, under UK Accounting Standards they were carried at mid
prices. The aggregate differences, being a revaluation downwards of £36,000 also decrease the unrealised capital
reserve.
2. No provision has been made for the fourth interim dividend on the Geared Income shares for the period ended 31st
October 2005 of £440,000. Under revised UK GAAP, dividends payable by the Company are now only recorded as a liability
following a dividend declaration by the Board and therefore the fourth interim dividend of 0.7p per share, declared on
10th November 2005, is not recognised as a liability of the Company as at 31st October 2005.
This change has the effect of reducing creditors falling due within one year and increasing retained revenue of
£440,000.
3. Under revised UK GAAP the Zero Dividend Preference shares are now classed as a liability and accordingly the
redemption reserve, share capital and share premium accounts are reduced as illustrated to transfer the ZDP entitlement
accruing at 31st October 2005 to creditors and being recognised as a long term liability.
Reconciliation of the Statement of Total Return to the Income Statement for the period to 31st October 2005
Under revised UK GAAP the Income Statement is the equivalent of the Statement of Total Return reported previously.
31st October 2005
£'000
Total transfer to reserves per the Statement of Total
Return 4,037
Add back dividends paid and proposed 1,789
Investments held at fair value changed from mid to
bid basis at 31st October 2005 (36)
_______
Net profit per the Income Statement 5,790
=======
The portfolio valuation at 31st October 2005 is required to be valued at fair value under revised UK GAAP. The value
differs from the previous valuation by £36,000.
The interim report will be sent to all registered shareholders and copies may be obtained from the registered office of
the Company at 1 Grosvenor Place, London, SW1X 7JJ
By order of the Board
Jupiter Asset Management Limited
Secretaries
Enquiries:
Richard Pavry
Jupiter Asset Management Limited
020 7412 0703