Final Results

Shires Smaller Companies PLC 01 March 2007 News Release 1 March 2007 Shires Smaller Companies plc Annual Results for the Year to 31 December 2006 Shires Smaller Companies plc aims to provide a high and growing dividend and capital growth from a portfolio invested principally in the ordinary shares of smaller UK companies and UK fixed income securities. 31 December 31 December 2006 2005 Total investments £96.6m £89.9m Shareholders' funds £63.9m £56.3m Net asset value per share 289.0p 254.8p Share price 268.25p 252.5p (Discount)/Premium (share price to adjusted net asset value)* (5.6)% 1.0% Revenue return per share 14.90p 14.81p Dividends per share 14.50p 13.75p * IFRS NAV excluding dividend adjustment of 4.75p (2005-4.75p) •Dividends declared in respect of the year ended 31 December 2006 were 14.50p, compared to 13.75p in the year to 31 December 2005. This represents an increase of 5.5%. •The yield on the company's ordinary shares was 5.4% at 31 December 2006. This compares to a yield on FTSE Small Cap (excluding Investment Companies), the Company's benchmark, of 1.9%. •Total return on net assets was 20.1%, slightly lower than the total return of 22.9% on the Company's benchmark, and greater than the FTSE All-Share Index which returned 16.8%. •At 31 December 2006 total gearing was 51.1% of net assets, down from 59.6% at 31 December 2005. The gearing is principally invested in fixed income securities. •Subject to unforeseen circumstances, initial estimates suggest there is capacity for a further increase in the dividend in the year to 31 December 2007. However, this should not be taken as a forecast of profits. For further information, please contact:- Mike Balfour, Chief Executive, Glasgow Investment Managers, 0141 572 2700 Kenneth Harper Glasgow Investment Managers, 0141 572 2700 Chairman's Statement Shires Smaller Companies plc Chairman's Statement Financial Highlights I am pleased to report that in the year to 31 December 2006, the dividends paid by the Company have increased from 13.75p to 14.50p. This increase of 5.5% has mainly been financed by lower interest costs. This arose from the new £10 million loan taken out in December 2005 at a fixed rate of 5.49%, currently an extremely competitive rate given recent rises in interest rates. The increase in dividend also maintained the attractive yield of the Company. As at 31 December 2006 the Company's share yielded 5.4%, compared to 1.9% on the Company's benchmark, the FTSE SmallCap Index (excluding Investment Companies) and 2.9% on the FTSE All-Share Index. Subject to unforeseen circumstances, initial estimates suggest there is capacity for a further increase in the dividend in the year to 31 December 2007. However, this should not be taken as a forecast of profits. Investment Returns The net asset total return with dividends re-invested was 20.1%, slightly lower than the 22.9% total return on the benchmark. While the equity part of the portfolio performed well, the underperformance in the portfolio as a whole was mainly due to a fall in the value of the fixed interest investments as interest rates in the UK increased. The share price total return was 12.5%. This return, being lower than the total return on net assets, reflects a widening of the discount of the share price to net assets from a premium of 1.0% at 31 December 2005 to a discount of 5.6% at the year end. Earnings and Dividends The revenue return per share is 14.90p for the year to 31 December 2006. As noted in the financial highlights section actual dividends paid during the calendar year amounted to 14.50p. This comprises the fourth interim dividend of 2005 of 4.75p and the first three interim dividends of 2006 totalling 9.75p (2005 - 9.0p). The fourth interim dividend for 2006 of 4.75p which was announced on 4 January 2007 and paid on 31 January 2007 will be included in the financial statements for the year ended 31 December 2007. Portfolio Profile and Gearing At 31 December 2006, 99.4% of shareholders' funds was invested in equities compared to 101.3% as at 31 December 2005. A net £4.3 million of equities was sold in the year, the majority of which was reinvested into higher yielding preference shares. Total gearing fell from 59.6% to 51.1% of net assets, due to the overall rise in the capital value of the Company's portfolio. Investment Outlook Equity investors have experienced four years of positive returns since the low point of March 2003.The key factors behind this include buoyant global economic growth, strong corporate results and high levels of takeover activity, in part sponsored by private equity. Smaller companies have performed even better than larger companies over the period and achieved higher valuations. Looking at the prospects for 2007, one of the likely changes is a slowdown in global economic growth which will feed through to the profitability of UK companies. An additional headwind is the outlook for UK interest rates with further increases expected due to higher inflation. UK smaller companies, however, are expected to grow at a faster pace than companies in the FTSE 100 due to their greater dependence on domestic demand and they may also continue to benefit from takeover activity. Risks and rewards are more finely balanced in 2007 but the wide choice of smaller companies should allow stock pickers to continue to make gains. Corporate Matters The Board has appointed G&N Collective Funds Services Limited to undertake additional marketing on behalf of the Company. This has been done in an endeavour to enhance the Company's profile by highlighting its key attributes to a wider audience. In so doing, there is a potential to broaden the shareholder base and provide more liquidity in the Company's shares. The Annual Report will be mailed to shareholders on 5 March 2007. Copies may be obtained from the Managers, Glasgow Investment Managers Limited, Sutherland House, 149 St Vincent Street, Glasgow G2 5DR after that date. H S Cathcart (Chairman) Consolidated Income Statement for the Year ended 31 December 2006 2006 2005 (audited) (audited) Revenue Capital Total Revenue Capital Total £000 £000 £000 £000 £000 £000 Gains and losses on Investments Gains on investments at fair value - 8,859 8,859 - 9,903 9,903 Fair value movement in Zero coupon finance derivatives (455) (455) - (1,128) (1,128) Investment Income Dividend income 2,985 - 2,985 2,794 - 2,794 Interest income from investments 1,472 (73) 1,399 1,674 (69) 1,605 Deposit interest 13 - 13 18 - 18 Net gain of dealing subsidiary 5 - 5 58 - 58 ------- ------- ------- ------- ------- ------- 4,475 8,331 12,806 4,544 8,706 13,250 ------- ------- ------- ------- ------- ------- Expenses Investment management fee (409) (409) (818) (368) (368) (736) Other administrative expenses (325) - (325) (298) - (298) Finance cost of borrowings (447) (447) (894) (606) (606) (1,212) ------- ------- ------- ------- ------- ------- (1,181) (856) (2,037) (1,272) (974) (2,246) ------- ------- ------- ------- ------- ------- Profit before tax 3,294 7,475 10,769 3,272 7,732 11,004 Tax expense - - - - - - ------- ------- ------- ------- ------- ------- Profit attributable to equity holders of the Company 3,294 7,475 10,769 3,272 7,732 11,004 ------- ------- ------- ------- ------- ------- Earnings per ordinary share (pence) 14.90p 33.81p 48.71p 14.81p 34.99p 49.80p The total column of this statement represents the Group's Income Statement, prepared in accordance with IFRS. The supplementary revenue return and capital columns are both prepared under guidance published by the Association of Investment Companies. All items shown in the above statement derive from continuing operations. All income is attributable to the equity holders of the parent company. There are no minority interests. Note: The financial information set out above and on the following pages does not constitute the Company's statutory accounts for the years ended 31 December 2005 and 2006 but is derived from those accounts. Statutory accounts for 2005 have been delivered to the Registrar of Companies and those for 2006 will be delivered following the Company's annual general meeting. The auditors have reported on those accounts as originally stated; their reports were unqualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985. Group Balance Sheet as at 31 December 2006 31 December 31 December 2006 2005 (audited) (audited) £000 £000 Non current assets Ordinary shares 63,537 57,086 Convertibles 1,548 2,029 Corporate bonds 21,220 22,738 Other fixed interest 10,270 8,065 ---------- ---------- Securities at fair value 96,575 89,918 Zero coupon finance derivatives at fair value 5,752 4,666 ---------- ---------- 102,327 94,584 ---------- ---------- Current assets Trade and other receivables 1,456 580 Accrued income and prepayments 1,399 1,148 Investments of dealing subsidiary at fair value 617 365 Cash and cash equivalents - 1,140 ---------- ---------- 3,472 3,233 ---------- ---------- Total assets 105,799 97,817 Current liabilities Trade and other payables (346) (1,505) Short-term borrowings (6,922) (6,885) ---------- ---------- (7,268) (8,390) ---------- ---------- Non current liabilities Long-term loan (10,000) (10,000) Zero coupon finance derivatives at fair value (24,627) (23,086) ---------- ---------- (34,627) (33,086) ---------- ---------- ---------- ---------- Net assets 63,904 56,341 ---------- ---------- Issued capital and reserves attributable to equity holders of the parent Called up share capital 11,055 11,055 Share premium account 11,892 11,892 Capital redemption reserve 2,032 2,032 Retained earnings Realised capital reserve 21,090 16,115 Unrealised capital reserve 15,474 12,974 Revenue reserve 2,361 2,273 ---------- ---------- 63,904 56,341 ---------- ---------- Net asset value per ordinary share (pence) 289.0p 254.8p Consolidated Cash Flow Statement for the year ended 31 December 2006 Year to Year to 31 December 31 December 2006 2005 (audited) (audited) £000 £000 Cash flows from operating activities Investment income received 4,204 4,204 Deposit interest received 16 17 Investment management fee paid (818) (743) Sales less purchases of dealing subsidiary (247) (307) Other cash receipts - 350 Other cash payments (324) (229) ---------- ---------- Cash generated from operations 2,831 3,292 Interest paid (896) (1,186) ---------- ---------- Net cash inflows from operating activities 1,935 2,106 ---------- ---------- Cash flows from investing activities Purchases of investments (43,956) (41,714) Sales of investments 44,050 41,796 ---------- ---------- 94 82 ---------- ---------- Cash flows from financing activities Proceeds of issue of shares - 514 Equity dividends paid (3,206) (3,030) Zero coupon finance - Cost payable on Maturity - (4,000) Zero coupon finance - Proceeds from new investment - 4,066 ---------- ---------- Net cash outflow from financing activities (3,206) (2,450) ---------- ---------- Net decrease in cash and cash equivalents (1,177) (262) Cash and cash equivalents at start of period (5,745) (5,483) ---------- ---------- Cash and cash equivalents at end of period (6,922) (5,745) ---------- ---------- Cash and cash equivalents comprise: Cash and cash equivalents - 1,140 Short-term borrowings (6,922) (6,885) ---------- ---------- (6,922) (5,745) ---------- ---------- Consolidated Statement of Changes in Equity For the year ended 31 December 2006 ----------Retained Earnings------- Share Share Capital Realised Unrealised Retained Total Capital Premium Redemption Capital Capital Revenue Reserve Reserve Reserve Reserve £000 £000 £000 £000 £000 £000 £000 ------- -------- --------- -------- -------- -------- ------- As at 31 December 2005 11,055 11,892 2,032 16,115 12,974 2,273 56,341 Revenue for the period - - - - - 3,294 3,294 Capital profits - - - 4,975 2,500 - 7,475 Equity dividends - - - - - (3,206) (3,206) ------- -------- --------- -------- -------- -------- ------- As at 31 December 11,055 11,892 2,032 21,090 15,474 2,361 63,904 2006 ------- -------- --------- -------- -------- -------- ------- Distribution of Assets and Liabilities Valuation at Purchases Sales Appreciation/ Valuation at 31 December (Depreciation) 31 December 2006 2005 £000 % £000 £000 £000 £000 % Listed investments Ordinary shares 57,086 101.3 23,323 (27,623) 10,751 63,537 99.4 Convertibles 2,029 3.6 - - (481) 1,548 2.4 Corporate bonds 22,738 40.4 3,427 (3,953) (992) 21,220 33.2 Other fixed interest 8,065 14.3 16,047 (13,350) (492) 10,270 16.1 ------- ------- -------- ------- --------- ------- ------ 89,918 159.6 42,797 (44,926) 8,786 96,575 151.1 -------- ------- --------- Other non current assets 4,666 8.3 5,752 9.0 Current assets 3,233 5.7 3,472 5.4 Current liabilities (8,390) (14.9) (7,268) (11.4) Non current liabilities (33,086) (58.7) (34,627) (54.1) ------- ------- ------- ------ Net assets 56,341 100.0 63,904 100.0 ------- ------- ------- ------ Net asset value per share 254.8p 289.0p This information is provided by RNS The company news service from the London Stock Exchange

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