Final Results
Shires Smaller Companies PLC
23 March 2006
News Release
23 March 2006
Shires Smaller Companies plc
Annual Results for the
Year to 31 December 2005
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
2005 2004
(Restated under
IFRS)
Total investments £89.9m £78.9m
Shareholders' funds £56.3m £47.9m
Net asset value per share 254.8p 218.6p
Share price 252.5p 225.5p
(Discount)/Premium (share price to net
asset value) (0.9)% 3.2%
Revenue return per share 14.81p 13.64p
Dividends per share 13.75p 13.75p
•Total return on net assets was +22.8%, higher than the return of +19.0%
on the FTSE SmallCap Index (excluding Investment Companies), the Company's
benchmark, and greater than the FTSE All-Share Index which returned +22.0%.
•The yield on the company's ordinary shares was 5.4% at the closing price
of 252.5p on 31 December 2005. This compares to a yield on the Company's
benchmark of 2.1%.
•At 31 December 2005 total gearing was 59.6% of net assets, down from
64.9% at 31 December 2004, principally invested in fixed income securities.
•The £10 million secured loan taken out ten years ago with a fixed
interest rate of 9% was refinanced at the end of the year. The loan was
replaced with a £10 million, five year, unsecured loan at a fixed rate of
interest of 5.49%.
•Due to the refinancing of the Company and subject to any unforeseen
circumstances, initial estimates suggest an increase in the dividend in the
year to 31 December 2006 may be possible. This should not be taken as a
forecast of profits.
International Financial Reporting Standards (IFRS)
The results for the period have been prepared in accordance with IFRS and the
prior period has been restated to reflect these changes in accordance with IFRS
1, First Time Adoption of IFRS. Details of the changes on the transition to IFRS
are included in note 22 to the financial statements.
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 2005, your Company has
continued the good performance of recent years. The Company's total return on
net assets for the year based on the NAV calculated under IFRS was 22.8%. This
return is higher than the total return on the Company's benchmark which had a
total return of 19.0% and the FTSE All-Share Index which returned 22.0%. This
out performance was mainly due to continued good stock selection.
Over the same period the share price has risen from 225.5p to 252.5p, a rise of
12.0%. The shares slipped to a small discount to net asset value of 0.9%
compared to a premium of 3.2% as at 31 December 2004 and as a result the total
return to a shareholder of 18.1% was lower than the net asset value total
return. The premium/discount varies throughout the year and has ranged from a
premium of 6.6% to a discount of 2.5% in the year to 31 December 2005.
Dividends paid and declared during the year have been maintained at 13.75p,
producing a dividend yield of 5.4% based upon the share price at 31 December
2005 considerably higher than the 2.1% yield on the FTSE SmallCap Index
(excluding Investment Companies), the Company's benchmark. Due to the
refinancing of the Company, which is explained in more detail in the Portfolio
Profile and Gearing section below and subject to any unforeseen circumstances
initial estimates suggest an increase in the dividend in the year to 31 December
2006 may be possible. However, this should not be taken as a forecast of
profits.
International Financial Reporting Standards
These are the Company's first annual financial statements under the new
International Financial Reporting Standards (IFRS) which came into effect on 1
January 2005. As explained in the Interim Report the financial statements look
quite different from previous reports. The main presentational differences are
the replacement of the Consolidated Statement of Total Return with a
Consolidated Income Statement, and dividends paid now being shown in the
Statement of Changes in Equity as opposed to the Consolidated Statement of Total
Return. There is a further change to the incorporation of dividends which is
discussed in more detail below under Earnings and Dividends.
The NAV of the Company at 254.8p at 31 December 2005 is 2.1p higher than it
would have been under the old accounting rules. The move to valuing the zero
coupon finance arrangement at market value (-2.6p) has been more than offset by
the exclusion of the fourth interim dividend in respect of 2005 (+4.75p). The
remaining small difference is represented by the move from mid to bid method of
valuing for investments and a change in the method for accounting for income on
fixed interest securities. It should be noted that for performance figures the
Association of Investment Trust Companies has recommended the exclusion of the
dividend adjustment above.
Earnings and Dividends
As shown in the financial highlights the revenue return per share is 14.81p for
the year to 31 December 2005. Actual dividends paid in the year amounted to
13.75p. However it should be noted that under IFRS only dividends which are
declared in the year are included in the financial statements and shown in the
Consolidated Statement of Changes in Equity. As a result the 13.75p included in
the financial statements is represented by the fourth interim dividend from 2004
of 4.75p, and the first three interim dividends of 2005 totalling 9.0p. The
fourth interim dividend for 2005 of 4.75p which was announced on 5 January 2006
and paid on 31 January 2006 will be included in the financial statements for the
year ended 31 December 2006.
Portfolio Profile and Gearing
At 31 December 2005, 101.3% of net assets were invested in equities compared to
101.6% as at 31 December 2004. Total gearing fell from 64.9% to 59.6% of net
assets, due to the rise in the capital value of the Company's portfolio.
The vast majority of the gearing at 31 December 2005 was invested in
high-yielding fixed income securities, principally investment grade corporate
bonds, which make a major contribution to the high level of income distributed
to shareholders.
In the year to 31 December 2005, a significant proportion of the Company's
gearing was refinanced and this will result in significant savings to the
Company. The £4 million zero coupon finance that expired in August 2005 was
replaced by a new tranche of £4.066 million that is due to expire in July 2010
with a maturity value of £5.3 million. This equates to a finance cost of 5.5%
per annum compared to a finance cost of 7.2% per annum for the tranche that
expired. The £10 million loan taken out in 1995 was repaid on 22 December 2005
and replaced with a new £10 million loan which is unsecured. The interest on
this new loan is at a fixed rate of 5.49% compared to the 9% rate on the old
loan. This will give rise to interest savings of £351,000 a year. As the loan
interest is split 50:50 between revenue and capital this will result in savings
of £175,500 a year in revenue expenses.
Outlook
The economy is forecast to improve in 2006 with the rate of growth in GDP
expected to be around 2% to 2.5%.Government expenditure on health and education
remains high and consumer spending should recover somewhat from last year's
weakness.
The corporate sector is in good health due to strong balance sheets and cash
flow. The prospects for dividend growth, share buy backs and takeover activity
are all positive. However, the stock market and smaller quoted companies in
particular have enjoyed three years of healthy returns. The undervaluation of
smaller companies versus large companies has closed and investors should perhaps
expect more modest returns going forward. However the yield of the Company
remains attractive at the year end and it is anticipated will remain so going
forward.
The Annual Report will be mailed to shareholders on 27 March 2006. 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 2005
Year to 31 December 2005 Year to 31 December 2004
(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 - 9,903 9,903 - 10,291 10,291
Fair value movement in
Zero coupon
finance derivatives (1,128) (1,128) - (479) (479)
Investment Income
Dividend income 2,794 - 2,794 2,168 - 2,168
Interest income from
investments 1,674 (69) 1,605 1,841 (24) 1,817
Deposit interest 18 - 18 6 - 6
Other income - - - 2 - 2
Net gain of dealing
subsidiary 58 - 58 64 - 64
---------------------------------------------------------
4,544 8,706 13,250 4,081 9,788 13,869
---------------------------------------------------------
Expenses
Investment management
fee (368) (368) (736) (302) (302) (604)
Other administrative
expenses (298) - (298) (279) - (279)
Finance cost of
borrowings (606) (606) (1,212) (514) (514) (1,028)
---------------------------------------------------------
(1,272) (974) (2,246) (1,095) (816) (1,911)
---------------------------------------------------------
Profit before tax 3,272 7,732 11,004 2,986 8,972 11,958
Tax expense - - - - - -
---------------------------------------------------------
Profit attributable to
equity holders of the
Company 3,272 7,732 11,004 2,986 8,972 11,958
---------------------------------------------------------
Earnings per ordinary
share (pence) 14.81p 34.99p 49.80p 13.64p 40.99p 54.63p
The total column of this statement represents the Group's Income Statement,
prepared in accordance with IFRS. The revenue and capital columns are
supplementary to this and are prepared under guidance published by the
Association of Investment Trust Companies.
All items shown in the above statement derive from continuing operations.
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
2004 and 2005 but is derived from those accounts. Statutory accounts for 2004
have been delivered to the Registrar of Companies and those for 2005 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 2005
31 December 31 December
2005 2004
(audited) (audited)
£000 £000
Non current assets
Ordinary shares 57,086 48,605
Convertibles 2,029 2,354
Corporate bonds 22,738 23,790
Other fixed interest 8,065 4,147
----------------------------
Securities at fair value 89,918 78,896
Zero coupon finance derivatives at fair value 4,666 1,445
----------------------------
94,584 80,341
----------------------------
Current assets
Zero coupon finance derivatives at fair value - 2,294
Trade and other receivables 580 1,038
Accrued income and prepayments 1,148 872
Investments of dealing subsidiary at fair value 365 -
Cash and cash equivalents 1,140 -
----------------------------
3,233 4,204
----------------------------
Total assets 97,817 84,545
Current liabilities
Current portion of long-term loan - (9,994)
Zero coupon finance derivatives at fair value - (6,183)
Trade and other payables (1,505) (250)
Short-term borrowings (6,885) (5,483)
----------------------------
(8,390) (21,910)
----------------------------
Non current liabilities
Long-term loan (10,000) -
Zero coupon finance derivatives at fair value (23,086) (14,782)
----------------------------
(33,086) (14,782)
----------------------------
----------------------------
Net assets 56,341 47,853
----------------------------
Issued capital and reserves attributable to
equity holders of the parent
Called up share capital 11,055 10,943
Share premium account 11,892 11,490
Capital redemption reserve 2,032 2,032
Retained earnings
Realised capital reserve 16,115 11,494
Unrealised capital reserve 12,974 9,863
Revenue reserve 2,273 2,031
----------------------------
56,341 47,853
----------------------------
Net asset value per ordinary share (pence) 254.8p 218.6p
Consolidated Cash Flow Statement
for the year ended 31 December 2005
Year to Year to
31 December 31 December
2005 2004
(audited) (audited)
£000 £000
Cash flows from operating activities
Investment income received 4,204 3,935
Deposit interest received 17 6
Investment management fee paid (743) (606)
Sales less purchases of dealing subsidiary (307) 211
Other cash receipts 350 2
Other cash payments (229) (588)
----------------------------
Cash generated from operations 3,292 2,960
Interest paid (1,186) (1,472)
Taxation - 4
----------------------------
Net cash inflows from operating activities 2,106 1,492
----------------------------
Cash flows from investing activities
Purchases of investments (41,714) (26,557)
Sales of investments 41,796 24,076
----------------------------
82 (2,481)
----------------------------
Cash flows from financing activities
Proceeds of issue of shares 514 -
Equity dividends paid (3,030) (3,009)
Redemption of Zero coupon finance - Cost payable
on Maturity (4,000) -
Zero coupon finance - Proceeds from new investment 4,066 -
----------------------------
Net cash outflow from financing activities (2,450) (3,009)
----------------------------
Net decrease in cash and cash equivalents (262) (3,998)
Cash and cash equivalents at start of period (5,483) (1,485)
----------------------------
Cash and cash equivalents at end of period (5,745) (5,483)
----------------------------
Cash and cash equivalents comprise:
Cash and cash equivalents 1,140 -
Short-term borrowings (6,885) (5,483)
----------------------------
(5,745) (5,483)
----------------------------
Consolidated Statement of Changes in Equity
For the year ended 31 December 2005
----------- Retained Earnings -----------
Capital Realised Unrealised Retained
Share Share Redemption Capital Capital Revenue
Capital Premium Reserve Reserve Reserve Reserve Total
£000 £000 £000 £000 £000 £000 £000
As at 1
January
2004
(restated) 10,943 11,490 2,032 9,846 2,539 2,054 38,904
Revenue
for
the period - - - - - 2,986 2,986
Capital
profits - - - 1,648 7,324 - 8,972
Equity
dividends - - - - - (3,009) (3,009)
----------------------------------------------------------------------------------------------------
As at 31
December
2004 10,943 11,490 2,032 11,494 9,863 2,031 47,853
Revenue
for
the period - - - - - 3,272 3,272
Capital
profits - - - 4,621 3,111 - 7,732
Equity
dividends - - - - - (3,030) (3,030)
Issues of
share
capital 112 402 - - - - 514
----------------------------------------------------------------------------------------------------
As at 31
December
2005 11,055 11,892 2,032 16,115 12,974 2,273 56,341
----------------------------------------------------------------------------------------------------
Distribution of Assets and Liabilities
Valuation at Purchases Sales Appreciation/ Valuation at
31 December (Depreciation) 31 December
2004 2005
£000 % £000 £000 £000 £000 %
Listed investments
Ordinary shares 48,605 101.6 30,091 (30,980) 9,370 57,086 101.3
Convertibles 2,354 4.9 - (552) 227 2,029 3.6
Corporate bonds 23,790 49.7 6,766 (7,759) (59) 22,738 40.4
Other fixed interest 4,147 8.7 6,016 (2,396) 298 8,065 14.3
----------------------------------------------------------------------------
78,896 164.9 42,873 (41,687) 9,836 89,918 159.6
-----------------------------------
Other non current 1,445 3.0 4,666 8.3
assets
Current assets 4,204 8.8 3,233 5.7
Current liabilities (21,910) (45.8) (8,390) (14.9)
Non current
liabilities (14,782) (30.9) (33,086) (58.7)
--------------------- ------------------
Net assets 47,853 100.0 56,341 100.0
--------------------- ------------------
Net asset value
per share 218.6p 254.8p
This information is provided by RNS
The company news service from the London Stock Exchange
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