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JPMorganInc&CapTst (JPI)

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Wednesday 14 October, 2009

JPMorganInc&CapTst

Half Yearly Report

RNS Number : 7981A
JPMorgan Income & Capital Trust PLC
14 October 2009
 




LONDON STOCK EXCHANGE ANNOUNCEMENT


JPMORGAN INCOME & CAPITAL TRUST PLC


UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 31ST JULY 2009




Chairman's Statement


Introduction and Performance

The first half of this financial year witnessed extreme volatility in equity markets with a severe fall in March 2009 before recovering sharply.


During the six months ended 31st August 2009, the overall net asset value of the Company recovered significantly, increasing by 27.6%. By comparison, the composite benchmark (comprising 90% FTSE 350 Index and 10% Merrill Lynch 5-10 year UK Sterling Corporate Index for bonds) recorded a rise of 32.0% during the same period. The principal reason for underperforming the benchmark index was the desire by our investment management team to hold quality high-yielding stocks during a period of extreme market volatility. Although these stocks did recover sharply, they had in general not fallen as far as more risky, low yielding stocks which outperformed in the recovery phase.


The Investment Manager's report gives a detailed commentary on the markets during the first half of the financial year and how the current portfolio has been restructured and positioned in response to market conditions.


Share Price Performance

The prices of the Company's two classes of share and of its units comprising two Ordinary shares and one ZDP share were at a premium / (discount) to net asset value at the previous period end dates as follows:



31st August 2009

28th February 2009

31st August 2008

ZDP

Ordinary

Units

(8.7)%

5.0%

(8.6)%

(16.1)%

24.7%

(5.2)%

(5.6)%

(17.4)%

(17.8)%


Since the period end, share prices have been very volatile. At 13th October 2009, the price of the Ordinary shares was at a premium of 0.7%, whilst the ZDP share price and Unit price was at a premium of 1.5% and a discount of 5.3% respectively.


Revenue and Dividends

Revenue after tax and before dividends for the period was £2.02 million and revenue return per Ordinary share was 3.0 pence. The decline in income reflects dividend cuts from a number of portfolio companies as well as lower deposit interest income received from cash on deposit.


During the six months the Board has declared two quarterly interim dividends, each of 1.25p per ordinary share, payable to Ordinary shareholders and Unit holders on 31st July 2009 and 30th October 2009. The Board anticipates that, in the absence of unforeseen circumstances, the Company will be in a position to maintain the current level of quarterly dividends to Ordinary shareholders and Unit holders for the remainder of the current financial period to 28th February 2010.


The undistributed revenue reserves, after allowing for the payment of the second interim dividend, are approximately £0.92 million.


Hurdle Rate

The Hurdle Rate measures the amount by which the total assets of the Company have to grow each year in order to return the current share price to Ordinary shareholders when the Company winds up in February 2018. At 31st August 2009, the Hurdle Rate required to return the Ordinary share price of 64.5p was 4.3% per annum and the Hurdle rate to return the Final Capital Entitlement of 192.13p of the ZDP shares was -0.5%.


At 2nd October 2009, the Hurdle Rate required to return the current Ordinary share price of 66.75p was 5.1% per annum and to return the Final Capital Entitlement of the ZDP shares of 192.13p was 0%.


Outlook

Considerable uncertainty surrounds the strength and sustainability of the recent recovery in financial markets. The improvement derived from an extraordinary level of government support ranging from "quantitative easing," low interest rates and fiscal deficits may be offset by rising unemployment, continuing deleverage by companies and individuals and the prospect, at some stage, of fiscal and monetary tightening. The Board is confident that the Company's portfolio is reasonably positioned in the context of this uncertainty and its investment objectives.


Sir Laurence Magnus Bt

Chairman                                                                                                                                                    14th October 2009



Investment Managers' Report


Market Review

It was a strong six months for UK investors, with equities surging higher and corporate bond spreads narrowing significantly as the emergence of some encouraging economic "green shoots" allowed markets to move away from pricing in another Great Depression which had been the case in early March 2009. UK equities, as measured by the FTSE 350 Index, ended the six month review period +33.3% above the level of our Company's financial year end on the 28th February 2009. During this period the Merrill Lynch 5-10 Year Sterling Corporate Bond Index delivered a return of +19.9%, resulting in the Company's combined benchmark delivering a return of +32.0% for the period under review.


Following the challenging to start to calendar 2009 when equity markets worldwide came under severe pressure, governments and central banks around the world took drastic action to stave off a worsening of the financial and economic crises. In early March 2009 UK interest rates were reduced to a record low of just 0.5% and the Bank of England took the unprecedented step of announcing plans to buy £75 billion of government bonds. This programme is called quantitative easing and its aim is to bring down borrowing costs for businesses and individuals by forcing long-term government bond yields lower.


As the six months progressed, signs began to emerge that the unprecedented monetary policy action, combined with the various government stimulus packages may be working. Economic data began to suggest that the pace of economic contraction was slowing, with the services purchasing managers' index picking up and retail sales rising again. Even housing market reports have suggested that house prices may at last be stabilising after falling sharply since late 2007.


The result of this better economic news, and improving corporate sentiment, was a very sharp rebound in both equities and corporate bonds as investors, no longer concerned that the world was heading for economic meltdown, began to regain their appetite for risk.


Performance Review

The overall net asset value of the Company recovered markedly during the first half of this year, rising by +27.6%, in comparison with the composite benchmark's return of +32.0%.


In terms of contributors to performance over the half year, the Company's underweight position in the banking sector, particularly not owning Lloyds Banking Group or Royal Bank of Scotland, negatively impacted performance, although being overweight in HSBC was a positive contributor. By contrast, the Company benefited from being overweight in both general financials and life insurance, notably Tullett Prebon and Investec, two lowly valued financial stocks that outperformed the rising market. However, the fund's overweight positions in some of the high yielding, more defensive stocks and sectors, including British American Tobacco and GlaxoSmithKline were detrimental during such a strong market rally, where the very cyclical and often non-yielding stocks led the market higher.




Portfolio Review

At the beginning of the new financial year the Company had a modest overweight position in equities, with the balance held in cash. In April, as the general market outlook became more stable, we reduced the cash level and purchased a 5% position in a Global Corporate Bond Fund as a diversified approach to enhancing income yield whilst also benefiting from corporate recovery and reducing our underweight position in fixed income assets relative to the Company's benchmark. 


During the first half of the year we sold some stocks that no longer looked attractively valued or were at risk of delivering disappointing newsflow, such as Tui Travel, the tour operator, which after a period of strong performance was no longer attractively valued and whose trading outlook became less certain. We also reduced our positions in some of the more defensive stocks that had outperformed the falling market of early 2009, such British American Tobacco and Tesco. By contrast, we bought into stocks that were lowly valued and delivering improving newsflow, whilst also participating in the two major rights issues of HSBC and Rio Tinto, to increase our existing positions in these attractive stocks. We added to our position in Barclays, the UK bank which has not had to accept

government support, whilst introducing some slightly more cyclical names such as Next, Northern Foods and Restaurant Group. We are focusing on ensuring that the portfolio remains sensibly balanced to benefit from economic and corporate recovery whilst also holding stocks with resilient earnings and dividend prospects.


Economic and Market Outlook

UK equity valuations continue to look broadly attractive, both on an historic basis and relative to government bond yields. The UK economy, although still weak, is likely to benefit from the significant government stimulus measures and central bank easing, which in turn should help boost corporate earnings expectations.


However, with global credit conditions still tight and with household de-leveraging and rising unemployment likely to constrain the extent of the rebound in consumer spending, any economic recovery through the rest of 2009 is likely to be modest. Nevertheless, there are several factors that we think may continue to support equities for the time being. High unemployment will keep wage growth low, helping to support corporate earnings until companies can generate higher revenues. Meanwhile, central banks have indicated that they currently have no intention of increasing interest rates from the current very low levels. Much uncertainty still exists, especially given the challenging state of government, corporate and consumer finances. However, recent economic and corporate newsflow has become more encouraging, and provided this trend continues, current equity market levels should be supported.



John Baker

Sarah Emly

Investment Managers

JPMorgan Asset Management (UK) Limited                                                                                           14th October, 2009



Interim Management Report


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


Principal Risks and Uncertainties

The principal risks and uncertainties faced by the Company fall into five broad categories: investment and strategy;

accounting, legal and regulatory; corporate governance and shareholder relations; operational; and financial. Information on each of these areas is given in the Business Review within the Annual Report and Accounts for the period ended 28th February 2009.


During the recent period of market turmoil, JPMAM reacted with heightened management scrutiny of counterparty risk. In addition, reviews were initiated of exposures, policies, procedures and legal arrangements applicable to the major sources of counterparty exposure.


Related Parties Transactions

During the first six months of the current financial year, no transactions with related parties have taken place which

have materially affected the financial position or the performance of the Company during the period.


Directors' Responsibilities

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


(i) the condensed set of financial statements contained within the half yearly financial report has been prepared

in accordance with the Accounting Standards Board's Statement 'Half-Yearly Financial Reports; and


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


For and on behalf of the Board

Sir Laurence Magnus Bt

Chairman                                                                                                                                                  14th October 2009



For further information, please contact:


Divya Amin

For and on behalf of 

JPMorgan Asset Management (UK) Limited, Secretary

020 7742 6000


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.jpmincomeandcapital.co.uk



































Income Statement

for the six months ended 31st August 2009




(Unaudited)

Six months ended

31st August 2009

(Unaudited)

Period ended

31st August 2008

(note 2)

(Audited)

Period ended

28th February 2009

(note 2)


Revenue

Capital

Total

Revenue

Capital

Total

Revenue

Capital

Total

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Gains/(losses) on investments  

 held at fair value through 

 profit or loss


-

17,665

17,665

-

(3,602)

(3,602)

-

(37,134)

(37,134)

Income from investments

2,292

-

2,292

2,901

-

2,901

4,782

-

4,782

Other interest receivable and 

 similar income

57

-

57

678

-

678

864

-

864

Gross return/(loss)

2,349

17,665

20,014

3,579

(3,602)

(23)

5,646

(37,134)

(31,488)

Management fee

(131)

(196)

(327)

(178)

(267)

(445)

(328)

(493)

(821)

Other administrative expenses

(190)

-

(190)

(198)

-

(198)

(440)

-

(440)

Net return/(loss) on ordinary activities before finance costs and taxation


2,028

17,469

19,497

3,203

(3,869)

(666)

4,878

(37,627)

(32,749)

Finance costs - appropriations

-

(1,633)

(1,633)

-

(1,528)

(1,528)

-

(3,107)

(3,107)

Finance costs - other

(12)

(19)

(31)

(2)

(3)

(5)

(29)

(43)

(72)

Dividends on Ordinary shares

 (note 4)










(2,532)

-

(2,532)

(775)

-

(775)

(2,388)

-

(2,388)

Net (loss)/return on ordinary activities before taxation


(516)

15,817

15,301

2,426

(5,400)

(2,974)

2,461

(40,777)

(38,316)

Taxation

-

-

-

(190)

75

(115)

(179)

140

(39)

Net (loss)/return on ordinary activities after taxation


(516)

15,817

15,301

2,236

(5,325)

(3,089)

2,282

(40,637)

(38,355)

Return/(loss) per Ordinary 

 share (note 5)


3.0p

23.4p

26.4p

4.9p

(8.6)p

(3.7)p

7.3p

(63.4)p

(56.1)p

Return per Zero Dividend

Preference share


-

3.5p

3.5p

-

3.3p

3.3p

-

6.7p

6.7p


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

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















Balance Sheet

at 31st August 2009




(Unaudited)

31st August 2009

£'000

(Unaudited)

31st August 2008

£'000

(Audited)

28th February 2009

£'000

Fixed assets




Investments held at fair value through profit 




 or loss

91,067

103,162

70,317

Investment in liquidity funds held at fair value

 through profit or loss




413

500

5,980


91,480

103,662

76,297

Current assets




Debtors

584

885

665

Cash and short term deposits

558

1,663

205


1,142

2,548

870

Creditors: amounts falling due within one year

(275)

(520)

(1,858)

Derivative financial instruments held at fair

 value through profit or loss

(73)

(499)

-

Net current assets/(liabilities)

794

1,529

(988)

Total assets less current liabilities

92,274

105,191

75,309

Total net assets

92,274

105,191

75,309





Zero Dividend Preference shares

50,830

47,565

49,197

Ordinary shares

41,444

57,626

26,112


92,274

105,191

75,309

Net asset values (note 6)




Per Zero Dividend Preference share

110.3p

103.3p

106.7p

Per Ordinary share

61.4p

93.8p

38.7p



























Cash Flow Statement    

for the six months ended 31st August 2009




(Unaudited)

Six months ended

31st August 2009

£'000

(Unaudited)

Period ended

31st August 2008

(note 2)

£'000

(Audited)

Period ended

28th February 2009

(note 2)

£'000

Net cash inflow from operating activities 

 (note 7)




1,853

2,256

3,803

Net cash outflow from servicing of finance

(2,532)

(780)

(2,398)

Net cash inflow/(outflow) from capital  




 expenditure and financial investment

1,032

(3,483)

(8,305)

Net cash inflow from financing

-

3,670

7,105

Increase in cash for the period

353

1,663

205

Reconciliation of net cash flow to movement 

 in net funds




Net cash movement

353

1,663

205

Net funds at the beginning of the period

205

-

-

Net funds at the end of the period

558

1,663

205

Represented by:

Cash and short term deposits

558

1,663

205






































Notes to the Accounts

for the six months ended 31st August 2009



1.    Financial statements

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

The figures and financial information for the period ended 28th February 2009 are extracted from the latest published accounts of the Company and do not constitute statutory accounts for that period. Those accounts have been delivered to the Registrar of Companies and included the report of the auditors which was unqualified and did not contain a statement under either section 498(2) or 498(3) of the Companies Act 2006.


2.    Comparative accounting periods

The comparative accounts cover the periods from 13th December 2007 (the date of incorporation) to 31st August 2008 and 13th December 2007 to 28th February 2009. The Company began investing on 3rd March 2008.    


3.    Accounting policies

The accounts have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice ('UK GAAP') and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies' issued in January 2009.

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

The accounting policies applied to these half year accounts are consistent with those applied in the accounts for the period ended 28th February 2009.


4.    Dividends on Ordinary shares    

    


(Unaudited)

Six months ended

31st August 2009

£'000

(Unaudited)

Period ended

31st August 2008

(note 2)

£'000

(Audited)

Period ended

28th February 2009

(note 2)

£'000

Fourth quarterly dividend of 1.25p paid in April

844

N/a

N/a

Special dividend of 1.25p paid in April

844

N/a

N/a

First quarterly dividend of 1.25p (2008: 1.25p) paid in July

844

775

775

Second quarterly dividend of 1.25p paid in October

N/a

N/a

769

Third quarterly dividend of 1.25p paid in January

N/a

N/a

844

Total dividends paid in the period

2,532

775

2,388


A second quarterly dividend of 1.25p (2008: 1.25p) per Ordinary share amounting to £844,000 (2008: £769,000) has been declared payable in respect of the six months ended 31st August 2009. The increased cost of dividends payable is due to the 6,100,000 Ordinary shares issued in October and November 2008.    
























5.    Return/(loss) per Ordinary share

Return/(loss) per Ordinary share is based on the weighted average number of Ordinary shares in issue during the period of 67,506,782 (period ended 31st August 2008: 61,957,859 and period ended 28th February 2009: 64,084,669).




(Unaudited)

Six months ended

31st August 2009

£'000

(Unaudited)

Period ended

31st August 2008

(note 2)

£'000

(Audited)

Period ended

28th February 2009

(note 2)

£'000

Revenue return per Ordinary share




Net revenue (loss)/return on ordinary 

 activities after taxation




(516)

2,236

2,282

Add back dividends on Ordinary shares

2,532

775

2,388

Revenue return attributable to Ordinary 

 shareholders

2,016

3,011

4,670

Revenue return per Ordinary share (pence)

3.0p

4.9p

7.3p

Capital return/(loss) per Ordinary share




Capital return/(loss) attributable to Ordinary 

 shareholders

15,817

(5,325)

(40,637)

Capital return/(loss) per Ordinary share (pence)

23.4p

(8.6)p

(63.4)p

    


6.    Net asset values


Net asset values per share calculated in accordance with the Articles of Association are as follows:



    

Zero Dividend Preference shares

(Unaudited)

31st August 2009

(Unaudited)

31st August 2008

(Audited)

28th February 2009


Net assets attributable (£'000)

50,830

47,565

49,197

Shares in issue at the period end

46,087,200

46,037,200

46,087,200

Net asset value per share

110.3p

103.3p

106.7p



Ordinary shares

(Unaudited)

31st August 2009

(Unaudited)

31st August 2008

(Audited)

28th February 2009


Net assets attributable (£'000)

41,444

57,626

26,112

Shares in issue at the period end

67,506,782

61,406,782

67,506,782

Net asset value per share

61.4p

93.8p

38.7p























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


    


(Unaudited)

Six months ended

31st August 2009

£'000

(Unaudited)

Period ended

31st August 2008

(note 2)

£'000

(Audited)

Period ended

28th February 2009

(note 2)

£'000

Net return/(loss) on ordinary activities before 

 finance costs and taxation

19,497

(666)

(32,749)

Add back capital (return)/loss before finance costs 

 and taxation

(17,469)

3,869

37,627

Scrip dividends included in income

-

-

(64)

Decrease/(increase) in net debtors and accrued income 

21

(688)

(516)

Net premium on debt securities allocated to income

-

8

8

Management fee charged to capital

(196)

(267)

(493)

Overseas withholding tax and UK income tax

-

-

(10)

Net cash inflow from operating activities

1,853

2,256

3,803



JPMORGAN ASSET MANAGEMENT (UK) LIMITED


This information is provided by RNS
The company news service from the London Stock Exchange
 
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