Interim Results

Shires Smaller Companies PLC
12 September 2000

 
 
SHIRES SMALLER COMPANIES PLC 
INTERIM RESULTS FOR THE 
SIX MONTHS TO 30 JUNE 2000 
 
 
Shires Smaller Companies plc aims to provide an overall return greater than
that of the FTSE All-Share Index from a portfolio invested principally in
high-yielding securities of UK smaller companies.
 

 
* Total return on net assets for the first half of 2000 was 5.6%, comfortably
ahead of the -5.5% return on the FTSE All-Share Index but behind the 11.3%
return on the FTSE SmallCap Index (excluding Investment Companies). 
 
* The Board has declared a second interim dividend of 1.5p per share,
bringing the total dividend paid to date to 3.0p, compared with 2.9p last
year. 
 
 
*  At the AGM in March 2000, shareholders passed an ordinary resolution
that the Company should continue as an investment trust for a further
five year period.  
 
 
* Since the period end, the Company has taken on additional borrowing and
intends to increase gearing to about 50% of net assets, so that the dividend
yield may be raised to encourage a reduction in the discount. It is intended
that the value of the ordinary share portfolio will continue to exceed net
assets, maintaining the growth characteristics of the trust. 
 
 
* The Board intends to pay total dividends of not less than 7.5p per share
(1999: 6.6p) in the year to 31 December 2000 and not less than 13.75p per
share in the year to 31 December 2001. 
 
 
* At the share price of 195p as at 31 August 2000 the minimum dividend
forecast for the year to 31 December 2001 represents a net yield of 7.1%. 
 
 
For further information, please contact:-
 
 
David Williams,     Managing Director,
                    Glasgow Investment Managers          0141 572 2700


SHIRES SMALLER COMPANIES PLC 
CHAIRMAN'S STATEMENT 

Background

 
The returns from UK Smaller Companies continued to exceed those from larger
market capitalisation stocks in the first half of 2000. Over the six months
to 30 June the FTSE SmallCap Index (excluding Investment Companies) returned
11.3%, well ahead of the -5.5% return from the FTSE All-Share Index.
 
Until mid-March low-yielding technology and service stocks made the running,
as they had in the second half of 1999. In the second quarter, however,
technology fell from favour while stocks representative of the more
sustainable sectors of the economy - and susceptible to more conventional
investment evaluation - began to make a greater contribution to the
performance of the equity market indices.
 

Investment Returns

 
The Company's total return on net assets, including net dividends reinvested,
was 5.6%. This was comfortably ahead of the return on the All-Share Index,
which it is the Company's stated objective to beat, but behind the return on
the SmallCap Index, which measures the performance of the smaller companies
sector of the stockmarket in which the Company invests.
 
Until the setback in March, the SmallCap indices were led by low-yielding
pharmaceutical and technology stocks. Because of the Company's dividend
objective the portfolio maintains only a very low exposure to these sectors.
In the second quarter, the portfolio's improving relative performance was
held back a little by disappointing profit forecasts for some of the
Company's larger shareholdings.
 
The return to a shareholder, at 10.2%, was higher than the return on net
assets, as the discount of share price to net asset value per share fell from
27.4% to 24.6% over the half year.
 

Investment Policy and Share Price Rating

 
At the Annual General Meeting on 24 March 2000 shareholders passed an
ordinary resolution that the Company should continue as an investment trust
for a further five year period. At that meeting the Managers outlined a
strategy designed to raise the yield on net assets to about 6%, by employing
an innovative form of gearing and increasing investment in fixed income
securities.
 
Since the end of the period under review £12.0 million of five year zero
coupon finance has been raised at a financing cost of 7.19% per annum, all of
which will be charged to capital. In addition, the Company has taken on a
£5.0 million variable rate borrowing facility with the effect that, including
the £10 million of 9% secured loan already in place, total gearing will
increase to 47.8% based on net assets as at 31 August 2000.
 
After introducing the new financing it is intended that investment in
ordinary shares will continue to exceed the value of net assets, thus
maintaining the Company's growth characteristics. The Directors believe that
the higher yield which will result from employment of the new strategy will
encourage a reduction in the discount to net asset value per share on which
the share price has stood recently.

Earnings & Dividends

 

The undiluted Revenue Return per share was 2.42p, significantly lower than
the 5.51p for the first half last year which was inflated by the receipt of
special dividends.

 
The Board has declared a second interim dividend of 1.5p per share, to be
paid on 29 September 2000 to shareholders on the Register at close of
business on 8 September 2000. A first interim dividend of 1.5p per share was
paid on 30 June 2000. Dividends paid in 2000 to date thus total 3.0p,
compared with 2.9p last year.
 
As a result of the adoption of the new strategy outlined above, the Board
intends to pay total dividends of not less than 7.5p in respect of the year
to 31 December 2000 (1999: 6.6p per share) and not less than 13.75p in
respect of the year to 31 December 2001. At the share price of 195p as at 31
August 2000 the dividend forecast for 2001 would represent a net annual yield
of 7.1%.
 

Warrants

 
On 1 June 2000, the final exercise date of the Company's warrants, holders
exercised their right to subscribe for 1,443,065 new ordinary shares at £1
per share.
 
The remaining 790,352 warrants, in respect of which holders did not exercise
their subscription rights, were exercised by the appointed trustee. The new
ordinary shares issued were then sold in the stockmarket and, after deduction
of the exercise price and expenses, the proceeds were remitted to the holders
on whose behalf the warrants had been exercised.
 
As there were no warrants outstanding at 30 June 2000 there is no separate
statement of fully diluted net asset per share as at that date.
 

Outlook

 
With UK gross domestic product growing more slowly, inflation in earnings and
house prices decelerating and consumer confidence weakening, inflation
appears under control and there seems little need for further rises in bank
base rates. Indeed, as Sterling has resumed its appreciation relative to the
Euro and monetary policy has effectively tightened as a result, the next move
in UK interest rates may well be downwards, unless financial markets take
fright at the Chancellor's burgeoning expenditure plans. The emerging
prospect of lower interest rates is likely to encourage investor interest in
the smaller market capitalisation stocks from which investments are selected
for Shires Smaller Companies' equity portfolio.
 
The Interim Report will be posted to shareholders on 15 September 2000.
Copies may be obtained from the managers, Glasgow Investment Managers
Limited, Sutherland House, 149 St. Vincent Street, Glasgow G2 5DR, after that
date.
 
 
John Stubbs
(Chairman)
 

                                                                              
                    Consolidated Statement Of Total Return                    
                      (incorporating the Revenue Account)                     
                      for the half year ended 30 June 2000                    
                Half year to 30 June 2000        Half year to 30 June 1999    
                       (unaudited)                        (unaudited)         
              Revenue     Capital    Total      Revenue    Capital     Total
                                                           
               £000       £000       £000       £000       £000        £000
                                                                            
  Gains on    -          2,673      2,673       -          7,198      7,198  
  investments                                                                 
 
  Dividends                                                                   
  and                                                                         
  interest                                                                    
  receivable                                                                  
  (note 2)      883         -         883       1,465         -       1,465  
  Foreign     
  income                                                                      
  dividends       -         -          -           70         -          70     
                                                               
  Profits     
  less                                                                        
  losses of                                                                   
  dealing                                                                     
  subsidiary     40         -         40           -          -          -      
                                                               
  Underwriting 
  commission      4         -          4           -          -          -      
                                                              
  Investment  
  management                                                                  
  fee          (122)     (122)      (244)        (102)      (102)      (204)    
                                                             
  Other       
  administrative                                           
  expenses      (89)        -        (89)         (91)        -         (91)    
                                                              
                                                                             
  Net return 
  before 
  finance                                                 
  costs and 
  taxation      716      2,551      3,267        1,342      7,096     8,438 

  Finance costs 
  of borrowings 232        232        464          260        260       520  

  Return on 
  ordinary 
  activities                                               
  before 
  taxation      484      2,319      2,803        1,082      6,836     7,918 
  Taxation        -          -          -            -          -         -   
 
                                                                              
  Return on 
  ordinary 
  activities                                               
  after 
  taxation for 
  the period    484      2,319      2,803        1,082      6,836     7,918 
  Dividends 
  on equity 
  shares      623             -         623         570           -       570 
 
                                                                              
  Transfer 
  (from)/to  ( 139  )     2,319        2,180        512         6,836   7,348
  reserves                                                                  
                                                                              
  Return                                                                      
  per                                                                         
  share                                                                       
  - undiluted   2.42p    11.58p       14.00p       5.51       34.80p   40.31p
                                                                              
  - fully
  diluted       2.33p    11.17p       13.50p       5.23p      33.06p   38.29p
                                                                    
  Dividends     3.00p                              2.90p                      
  per                            
  share                                                                       
 
Group Balance Sheet 
as at 30 June 2000

                                                                              
                                                                              
                    30 June 2000                31 December 1999              
                     (unaudited)                      (note 3)                
                    £000             %               £000            %        
  Fixed                                                                       
  assets                                                                      
  Investments                                                                 
  listed on                                                                   
  the London                                                                  
  Stock                                                                       
  Exchange                                                                    
  - ordinary        53,367           102.2           54,467          113.9    
                                                                              
                                                  
  - convertibles     4,569            8.7             4,649           9.7     

                                                                 
  Current           57,936           110.9           59,116          123.6    
  assets                                                                      
  Debtors           329              0.6             460             0.9      
  Cash at           4,526            8.7             -               -        
  bank                                                                        
                    4,855            9.3             460             0.9      
  Creditors:        593              (1.1)           1,793           (3.7)    
  amounts                                                              
  falling                                                                     
  due within                                                                  
  one year                                                                    
  Net               4,262            8.2             (1,333)         (2.8)    
  current                                                                 
  assets /                                                                    
  (liabilities)                                                                 
                                                                            
  Total             62,198           119.1           57,783          120.8    
  assets                                                                      
  less                                                                        
  current                                                                     
  liabilities                                                                 
                                                                              
  Long term         (9,970)           (19.1)          (9,968)          (20.8) 
  loan                      
  Equity            52,228           100.0           47,815          100.0    
  shareholder's                                                                 
  funds                                                                    
  Capital                                                                     
  and                                                                         
  reserves                                                                    
  Called up         10,943                           9,827                    
  share                                                                       
  capital                                                                     
  Share             11,490                           9,509                    
  premium                                                                     
  account                                                                     
  Capital           2,032                            2,032                    
  redemption                                                                  
  reserve                                                                     
  Warrants          -                                864                      
  reserve                                                                     
  Realised          15,183                           10,410                   
  capital                                                                     
  reserve                                                                     
  Unrealised        12,012                           14,466                   
  capital                                                                     
  reserve                                                                     
  Revenue           568                              707                      
  reserve                                                                     
                    52,228                           47,815                   
  Net asset                                                                   
  value per                                                                   
  ordinary                                                                    
  share                                                                       
  (note 1)                                                                    
  -                 238.6p                           243.3p                   
  undiluted                                                                   
  - fully           238.6p                           228.7p                   
  diluted                                                                     
 
 
 
     All of the 2,233,417 remaining warrants to subscribe for ordinary shares
were exercised on 1 June 2000, which was the final exercise date.
Consequently, there is no difference between the fully diluted and undiluted
net asset value as at 30 June 2000. 
     Dividends and interest receivable include special dividends totalling
£nil (1999 - £487,000). 
     These are not statutory accounts under section 240 of the Companies Act
1985 and are unaudited. The information as at 31 December 1999 is derived
from the audited company balance sheet as at that date contained in the
latest audited accounts which have been delivered to the Registrar of
Companies; the report of the auditors on these accounts was unqualified and
did not contain a statement under Section 237 (2) or (3) of the Companies Act
1985.

 

                                                                              
                  Summarised Consolidated Cash Flow Statement                 
                      for the half year ended 30 June 2000                    
              Half year to 30 June 2000     Half year to 30 June 1999         
                      (unaudited)                      (unaudited)            
                   £000            £000          £000                 £000    
  Net cash                         510                                1,173   
  inflow                                                                      
  from                                                                        
  operating                                                                   
  activities                                                                  
                                                                              
  Servicing                                                                   
  of                                                                          
  finance                                                                     
  Interest                           (477)                               (527)
  paid                                
  Investing                                                                   
  activities                                                                  
                                                                              
  Purchases        (9,444)                      (5,609)                 
  of                                                                  
  investments                                                                 
                                                                          
  Sales             13,523                        6,347                       
  of                                                                          
  investments                                                                 
                                                                          
                                   4,079                              738     
  Equity                           (737)                             (717)   
  dividends                                
  paid                                                                        
  Net cash                         3,375                              667     
  inflow                                                                      
  before                                                                      
  financing                                                                   
  Financing                                                                   
  Exercise                          2,233                              13     
  of                                                                      
  warrants                                                                    
  Purchase                         -                                  (407)  
  of                                                                  
  warrants                                                                    
  for                                                                         
  cancellation                                                                

                                                                        
  Increase                         5,608                              273     
  in cash                                                                     
  
                      Analysis of Changes in Net Debt                       
                   As at 31                  Other non -          As at   
                   December                  cash changes         30 June 2000
          
                                   Cash                             
                   1999            flows                          
                   £000            £000          £000                 £000    
  Debt due         (9,968)          -             (2)               (9,970)  
  after one                                                                
  year                                                                        
  Cash at          -               4,526         -                    4,526   
  bank                                                                        
  Bank             (1,082)         1,082         -                    -       
 loans and                                                                  
  overdrafts                                                                  
                   (11,050)        5,608          (2)               (5,444) 
                        
 
Analysis of Portfolio 
at 30 June 2000
 

                                                                              
                                 30 June 2000            31 December 1999     
                                      %                          %            
  ORDINARY SHARES AND                                                         
  CONVERTIBLES                                                                
  Basic industries                   6.9                        7.8           
          
  General industrials               13.4                       14.0           
         
  Cyclical consumer goods            2.6                        3.1           
          
  Non-cyclical consumer              8.8                       10.0           
   goods                                                                      
  Cyclical services                 34.0                       30.8           
  Non-cyclical services              4.8                        3.9           
          
  Financials                        19.8                       21.8           
         
  Information technology             9.7                        8.6           
          
  TOTAL PORTFOLIO                  100.0                      100.0 
  The portfolio is wholly invested in the United Kingdom.