Half Yearly Report

RNS Number : 1240W

Shires Income PLC

15 November 2010

 



SHIRES INCOME PLC

HALF YEARLY FINANCIAL REPORT

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2010

The objective of Shires Income is to provide shareholders with a high level of income, together with growth of both income and capital from a portfolio substantially invested in UK equities.

	30 September 2010	31 March 2010	% change
Equity shareholders' funds (£'000)	55,858	55,573	+0.5
Net asset value per share	188.09p	187.13p	+0.5
Share price (mid market)	189.00p	184.00p	+2.7
Premium to adjusted NAV¹	2.1%	1.6%
Dividend yield	6.35%	6.52%
¹ Based on IFRS NAV above reduced by dividend adjustment of 3.00p (31 March 2010 - 6.00p).

	6 months ended	1 year ended	3 years ended	5 years ended
	30 September	30 September	30 September	30 September
	2010	2010	2010	2010
Net asset value	+3.9%	+15.9%	-19.9%	-2.5%
Share price	+6.2%	+24.5%	-16.4%	+1.0%
FTSE All-Share Index	+0.2%	+12.5%	-3.1%	+24.7%
All figures are for total return and assume re-investment of net dividends excluding transaction costs.

For further information, please contact:-

Ed Beal, Kenny Harper                                                                         0131 528 4000

Aberdeen Asset Managers Limited

William Hemmings                                                                                020 7463 6000

Aberdeen Asset Managers Limited

INTERIM BOARD REPORT

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2010

Background

Market conditions during the first six months of the Company's financial year were extremely volatile.  The FTSE 100 reached an 18 month high in April before falling nearly 18%, reaching a trough in early July and then recovering over the last two months of the period.  Initially, markets were focussed on the risk of a sovereign default by Greece and the potential for contagion, especially given the weaknesses that were becoming apparent in Spain, Portugal and Ireland.  These concerns began to recede with the announcement that the EU and IMF had constructed a €750Bn bailout package that would prevent default. 

Investor attention was then directed to the possibility that the US would succumb to a double dip recession.  These fears were aggravated when Ben Bernanke, Chairman of the US Federal Reserve, described the economic outlook as unusually uncertain.

Macro economic data painted a mixed picture and markets were reacting on an almost daily basis to the latest release.  The performance of equities became as much about investor appetite for risk as about the fundamentals of a company's prospects.

Investment Performance

In the half year ended 30 September 2010, the Company's net asset per share increased by 0.5% from 187.1p to 188.1p.  The total return on net assets, which includes dividends, increased by 3.9% and was ahead of our benchmark.  In the same six month period, the FTSE All-Share index reported a total return of 0.2%.  The total return on the Company's share price was 6.2%.

Portfolio Profile

Merger and acquisition activity was a feature of the market.  The portfolio benefited when its holding in Arriva, the bus company, was acquired by Deutsche Bahn.  Gearing declined from 31.4% to 27.6%.  This was achieved by a £2m reduction in borrowings.  At the start of the year it was felt that volatility combined with the level of the markets could lead to a correction in equity prices.  Therefore, a modest amount of insurance was taken out over the equity portfolio using put and call options.  This expired in September.  The Board keeps the situation under review with the Manager.

Profits were taken in a number of holdings, especially those with less attractive yields.  These included Whitbread, Weir, DMGT and Millennium and Copthorne.  The proceeds were used to broaden the portfolio, being reinvested into companies that had either performed less strongly or had higher yields such as Close Brothers, GlaxoSmithKline, Cobham and Provident Financial.  The holding in Resolution was exited as it was felt that there were better opportunities elsewhere especially in light of the lack of a commitment to a dividend. 

As a result of the reduction in gearing, the value of the listed investments decreased from £72.5m to £71.0m.  At the end of September 2010, around two thirds of gross assets were invested in equities with the balance in preference and convertible shares.  No new investments were made in preference or convertible shares in the period.

Dividends

At the time of the announcement of the full year results for the year to 31 March 2010, the Board indicated that they anticipated being able to maintain a dividend of 12p per share in 2011, whilst noting that the prospects for dividends were dependent on market conditions and a still fragile economic recovery.  It was also acknowledged that based on the then forecasts such a distribution would have to be modestly supplemented from reserves.  This is still the case. 

The most significant event during the half was the announcement by BP that they were to suspend dividend payments following the oil leak in the Gulf of Mexico.  Prior to this suspension the BP dividend represented approximately 14% of the entire stream of dividends paid by UK quoted companies.  Therefore, the Board is pleased to have been able to announce a maintained first interim dividend of 3p.

Outlook

The Autumn reporting season is now largely complete.  In general, companies have reported results in line with or even ahead of expectations.  These results have reflected previous actions to cut costs combined with some recovery in sales.  The resultant operational gearing has led to some very significant improvements in profitability.  Dividend growth has lagged the recovery in earnings, though that is to be expected at this stage in the cycle.  Having done much to improve the state of their balance sheets companies are in a better position to increase their dividends. However, management teams remain cautious and there will be competing demands for the cash in the form of merger and acquisition activity and investment for growth if the recovery continues. 

There is still a great deal of uncertainty.  It is far from clear whether we will enjoy continued recovery or endure a double dip recession.  The US has initiated a second wave of quantitative easing.  Whilst markets may take relief from this additional stimulus it suggests that the authorities are far from confident about the recovery.  In the UK we have a new Government and they have adopted a very different approach, choosing instead to focus on reducing the deficit as quickly as possible.  Such action is likely to be supportive of growth in the medium term, especially when combined with measures such as the reduction in corporation tax. However it is also clear that such measures will be painful for both companies and consumers in the short term.   Interest rates are not expected to rise in the short term, though with inflation in the UK remaining stubbornly above the 2% target they are unlikely to remain at the current remarkably low levels into the medium term. 

Equities do not appear to be expensive on either an absolute basis or relative to other asset classes.  It should be remembered though that it will be difficult for companies to repeat the levels of profit growth witnessed in the last six months in the absence of a recovery driven improvement in sales.  The weakness of Sterling will aid exporters, but only if there is end market demand. The difficulties facing the US and some of the more indebted European nations and actions taken by the Chinese authorities to dampen growth in their economy mean it is unsurprising that expectations for 2011 are beginning to be reined in.  Therefore, care needs to be taken when looking at market valuations in aggregate.

The Manager will continue to focus on businesses that they regard as being of high quality, with a progressive dividend policy and that are expected to prosper over the medium term.

Anthony B. Davidson

Chairman

12 November 2010

Principal Risks and Uncertainties

The main risks the Company faces from its financial instruments are (i) market price risk (comprising interest rate risk, currency risk and other price risk), (ii) liquidity risk, and (iii) credit risk. The Group's gearing comprises short-term borrowings from banking institutions and bears interest at floating rates.  The profile of financing costs is managed as part of overall investment strategy. At this stage the Company has not opened formal renewal negotiations with its bankers but if acceptable terms are available from them or any alternative the Company would expect to maintain its current geared structure. The employment of gearing magnifies the impact on net assets of both negative and positive changes in the value of the Company's portfolio of investments. The Company has minimal exposure to foreign currency risk as it holds only a small amount of foreign currency assets and has no exposure to any foreign currency liabilities. Information on each of these areas is given in the Directors' Report within the Annual Report and Accounts for the year ended 31 March 2010.

Directors' Responsibility Statement

The Directors are responsible for preparing the Half-Yearly Financial Report, in accordance with applicable law and regulations. The Directors confirm that to the best of their knowledge:

-     the condensed set of interim financial statements within the Half-Yearly Financial Report have been prepared in accordance with IAS34;

-     the Chairman's Statement (constituting the interim management report) includes a fair review of the information required by rules 4.2.7R of the Disclosure and Transparency Rules (being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements and a description of the principal risks and uncertainties for the remaining six months of the financial year) and 4.2.8R (being related party transactions that have taken place during the first six months of the financial year and that have materially affected the financial position of the Company during that period; and any changes in the related party transactions described in the last annual report that could so do.)

The Half-Yearly Financial Report for the six months ended 30 September 2010 comprises the Interim Board Report, the Directors' Responsibility Statement and a condensed set of financial statements.

For and on behalf of the Board of Shires Income PLC

Anthony B. Davidson

Chairman

12 November 2010

DISTRIBUTION OF ASSETS AND LIABILITIES

	Valuation at		Movement during the period				Valuation at
	31 March					Gains/	30 September
	2010		Purchases	Sales	Other	(losses)	2010
	£'000	%	£'000	£'000	£'000	£'000	£'000	%
Listed investments
Ordinary shares	49,190	88.5	2,025	(4,254)	-	1,032	47,993	85.9
Convertibles	1,313	2.4	-	-	-	15	1,328	2.4
Preference shares	22,048	39.7	-	-	(64)	(298)	21,686	38.8
	_______	_______	_______	_______	_______	_______	_______	_______
	72,551	130.6	2,025	(4,254)	(64)	749	71,007	127.1
"Restricted" Securities	472	0.8	-	-	-	(189)	283	0.5
	_______	_______	_______	_______	_______	_______	_______	_______
	73,023	131.4	2,025	(4,254)	(64)	560	71,290	127.6
Current assets	2,713	4.9					2,748	4.9
Current liabilities	(20,163)	(36.3)					(18,180)	(32.5)
	_______	_______					_______	_______
Net assets	55,573	100.0					55,858	100.0
	_______	_______					_______	_______
Net asset value per Ordinary share	187.1p						188.1p
	_______						_______

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

		Six months ended
		30 September 2010
		(unaudited)
		Revenue	Capital	Total
	Note	£'000	£'000	£'000
Gains on investments at fair value		-	703	703
Investment income
Dividend income		1,673	-	1,673
Interest income from investments		410	(136)	274
Stock dividend		18	-	18
Traded option premiums		55	-	55
Money market interest		2	-	2
Other income		6	-	6
		__________	__________	__________
		2,164	567	2,731
		__________	__________	__________
Expenses
Investment management fee		(75)	(75)	(150)
VAT recoverable on investment management fees		-	-	-
Other administrative expenses		(155)	-	(155)
Finance costs of borrowings		(179)	(179)	(358)
		__________	__________	__________
		(409)	(254)	(663)
		__________	__________	__________
Profit before tax		1,755	313	2,068
Taxation	2	(14)	14	-
		__________	__________	__________
Profit attributable to equity holders of the Company	3	1,741	327	2,068
		__________	__________	__________
Earnings per Ordinary share (pence)	4	5.86	1.10	6.96
		__________	__________	__________
The Group does not have any income or expense that is not included in profit for the period, and therefore the profit for the period is also the "Total comprehensive income for the period", as defined in IAS 1 (revised).
All of the profit/(loss) and total comprehensive income is attributable to the equity holders of the parent company. There are no minority interests.
The total column of this statement represents the Statement of Comprehensive Income of the Group, 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 Companies.
All items in the above statement derive from continuing operations.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Cont'd)

		Six months ended
		30 September 2009
		(unaudited)
		Revenue	Capital	Total
	Note	£'000	£'000	£'000
Gains on investments at fair value		-	17,577	17,577
Investment income
Dividend income		1,709	-	1,709
Interest income from investments		408	(62)	346
Stock dividend		19	-	19
Traded option premiums		125	-	125
Money market interest		-	-	-
Other income		75	-	75
		__________	__________	__________
		2,336	17,515	19,851
		__________	__________	__________
Expenses
Investment management fee		(72)	(72)	(144)
VAT recoverable on investment management fees		74	74	148
Other administrative expenses		(139)	-	(139)
Finance costs of borrowings		(100)	(109)	(209)
		__________	__________	__________
		(237)	(107)	(344)
		__________	__________	__________
Profit before tax		2,099	17,408	19,507
Taxation	2	-	-	-
		__________	__________	__________
Profit attributable to equity holders of the Company	3	2,099	17,408	19,507
		__________	__________	__________
Earnings per Ordinary share (pence)	4	7.07	58.62	65.68
		__________	__________	__________
The Group does not have any income or expense that is not included in profit for the period, and therefore the profit for the period is also the "Total comprehensive income for the period", as defined in IAS 1 (revised).
All of the profit/(loss) and total comprehensive income is attributable to the equity holders of the parent company. There are no minority interests.
The total column of this statement represents the Statement of Comprehensive Income of the Group, 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 Companies.
All items in the above statement derive from continuing operations.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Cont'd)

		Year ended
		31 March 2010
		(audited)
		Revenue	Capital	Total
	Note	£'000	£'000	£'000
Gains on investments at fair value		-	22,416	22,416
Investment income
Dividend income		3,080	-	3,080
Interest income from investments		803	(134)	669
Stock dividend		31	-	31
Traded option premiums		212	-	212
Money market interest		-	-	-
Other income		75	-	75
		__________	__________	__________
		4,201	22,282	26,483
		__________	__________	__________
Expenses
Investment management fee		(149)	(149)	(298)
VAT recoverable on investment management fees		74	74	148
Other administrative expenses		(244)	(3)	(247)
Finance costs of borrowings		(370)	(385)	(755)
		__________	__________	__________
		(689)	(463)	(1,152)
		__________	__________	__________
Profit before tax		3,512	21,819	25,331
Taxation	2	-	-	-
		__________	__________	__________
Profit attributable to equity holders of the Company	3	3,512	21,819	25,331
		__________	__________	__________
Earnings per Ordinary share (pence)	4	11.83	73.48	85.31
		__________	__________	__________
The Group does not have any income or expense that is not included in profit for the period, and therefore the profit for the period is also the "Total comprehensive income for the period", as defined in IAS 1 (revised).
All of the profit/(loss) and total comprehensive income is attributable to the equity holders of the parent company. There are no minority interests.
The total column of this statement represents the Statement of Comprehensive Income of the Group, 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 Companies.
All items in the above statement derive from continuing operations.

CONSOLIDATED BALANCE SHEET

		As at	As at	As at
		30 September	30 September	31 March
		2010	2009	2010
		(unaudited)	(unaudited)	(audited)
	Notes	£'000	£'000	£'000
Non-current assets
Ordinary shares		47,993	45,262	49,190
Convertibles		1,328	1,218	1,313
Other fixed interest		21,686	22,516	22,048
Unlisted investments		283	1,743	472
		__________	__________	__________
Securities at fair value		71,290	70,739	73,023
		__________	__________	__________
Current assets
Trade and other receivables		-	1,214	357
Accrued income and prepayments		1,030	732	1,206
Cash and cash equivalents		1,718	752	1,150
		__________	__________	__________
		2,748	2,698	2,713
		__________	__________	__________
Total assets		74,038	73,437	75,736
Current liabilities
Trade and other payables		(180)	(196)	(163)
Short-term borrowings		(18,000)	(12,000)	(20,000)
Index-Linked Debenture stock		-	(9,715)	-
		__________	__________	__________
		(18,180)	(21,911)	(20,163)
		__________	__________	__________
Net assets		55,858	51,526	55,573
		__________	__________	__________
Share capital and reserves attributable to equity holders of the parent
Called-up share capital		14,899	14,899	14,899
Share premium account		18,840	18,846	18,840
Capital reserve	5	16,010	11,266	15,683
Revenue reserve		6,109	6,515	6,151
		__________	__________	__________
		55,858	51,526	55,573
		__________	__________	__________
Net asset value per Ordinary share (pence):		188.09	173.50	187.13
		__________	__________	__________

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Six months ended 30 September 2010 (unaudited)
			Share		Retained
		Share	premium	Capital	revenue
		capital	account	reserve	reserve	Total
	Notes	£'000	£'000	£'000	£'000	£'000
As at 31 March 2010		14,899	18,840	15,683	6,151	55,573
Revenue profit for the period		-	-	-	1,741	1,741
Capital gains for the period		-	-	327	-	327
Equity dividends	3	-	-	-	(1,783)	(1,783)
		_______	_______	_______	_______	_______
As at 30 September 2010		14,899	18,840	16,010	6,109	55,858
		_______	_______	_______	_______	_______
Six months ended 30 September 2009 (unaudited)
			Share		Retained
		Share	premium	Capital	revenue
		capital	account	reserve	reserve	Total
		£'000	£'000	£'000	£'000	£'000
As at 31 March 2009		14,899	18,855	(6,151)	7,668	35,271
Revenue profit for the period		-	-	-	2,099	2,099
Capital gains for the period		-	(9)	17,417	-	17,408
Equity dividends	3	-	-	-	(3,252)	(3,252)
		_______	_______	_______	_______	_______
As at 30 September 2009		14,899	18,846	11,266	6,515	51,526
		_______	_______	_______	_______	_______
Year ended 31 March 2010 (audited)
			Share		Retained
		Share	premium	Capital	revenue
		capital	account	reserve	reserve	Total
		£'000	£'000	£'000	£'000	£'000
As at 31 March 2009		14,899	18,855	(6,151)	7,668	35,271
Revenue profit for the year		-	-	-	3,512	3,512
Capital gains for the year		-	(15)	21,834	-	21,819
Equity dividends	3	-	-	-	(5,029)	(5,029)
		_______	_______	_______	_______	_______
As at 31 March 2010		14,899	18,840	15,683	6,151	55,573
		_______	_______	_______	_______	_______

CONSOLIDATED CASHFLOW STATEMENT

	Six months ended	Six months ended	Year ended
	30 September 2010	30 September 2009	31 March 2010
	(unaudited)	(unaudited)	(audited)
	£'000	£'000	£'000
Cash flows from operating activities
Investment income received	2,228	2,496	3,987
Deposit interest received	-	2	-
Money market interest received	2	3	-
Investment management fee paid	(151)	(137)	(288)
Sales of dealing subsidiary	-	-	431
Other cash receipts	152	130	215
Other cash expenses	(160)	(149)	(269)
	__________	__________	__________
Cash generated from operations	2,071	2,345	4,076
Interest paid	(268)	(422)	(905)
Taxation	-	-	7
	__________	__________	__________
Net cash inflows from operating activities	1,803	1,923	3,178
	__________	__________	__________
Cash flows from investing activities
Purchases of investments	(2,008)	(5,611)	(10,299)
Sales of investments	4,556	6,447	14,012
Repayment of Index-Linked Debenture Stock	-	-	(9,957)
	__________	__________	__________
Net cash inflow/(outflow) from investing activities	2,548	836	(6,244)
	__________	__________	__________
Cash flows from financing activities
Equity dividends paid	(1,783)	(3,252)	(5,029)
	__________	__________	__________
Net cash outflow from financing activities	(1,783)	(3,252)	(5,029)
	__________	__________	__________
Net increase/(decrease) in cash and cash equivalents	2,568	(493)	(8,095)
Cash and cash equivalents at start of period	(18,850)	(10,755)	(10,755)
	__________	__________	__________
Cash and cash equivalents at end of period	(16,282)	(11,248)	(18,850)
	__________	__________	__________
Cash and cash equivalents comprise:
Cash and cash equivalents	1,718	752	1,150
Short-term borrowings	(18,000)	(12,000)	(20,000)
	__________	__________	__________
	(16,282)	(11,248)	(18,850)
	__________	__________	__________

Notes to the Financial Statements

For the six months ended 30 September 2010

1.	Accounting policies
	(a)	Basis of accounting
		The Group's financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) 34 - 'Interim Financial Reporting', as adopted by the International Accounting Standards Board (IASB), and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB (IFRIC). They have also been prepared using the same accounting policies applied for the year ended 31 March 2010 financial statements, which received an unqualified audit report.
	(b)	Dividends payable
		Dividends are recognised in the period in which they are paid.

2.	Taxation
	The taxation expense reflected in the Consolidated Statement of Comprehensive Income is calculated at a rate of 28%, which is based on management's best estimate of the weighted average annual income tax rate expected for the full financial year.

3.	Dividends
	The following table shows the revenue for each period less the dividends declared in respect of the financial period to which they relate.
		Six months ended	Six months ended	Year ended
		30 September 2010	30 September 2009	31 March 2010
		£'000	£'000	£'000
	Revenue	1,741	2,099	3,512
	Dividends declared	(891)¹	(891)²	(3,564)³
		__________	__________	__________
		850	1,208	(52)
		__________	__________	__________
	¹         First interim dividend (3.00p) declared in respect of the financial year 2010/11.
	²         First interim dividend (3.00p) declared in respect of the financial year 2009/10.
	³         First three interim dividends (each 3.00p) and the final dividend (3.00p) declared in respect of the financial year 2009/10.

		Six months ended	Six months ended	Year ended
4.	Return and net asset value per share	30 September 2010	30 September 2009	31 March 2010
	Returns are based on the following attributable assets:
		£'000	£'000	£'000
	Revenue return	1,741	2,099	3,512
	Capital return	327	17,408	21,819
		__________	__________	__________
	Total return	2,068	19,507	25,331
		__________	__________	__________
	Weighted average number of Ordinary shares in issue	29,697,580	29,697,580	29,697,580
		__________	__________	__________
	The net asset value per Ordinary share is based on net assets attributable to Ordinary shareholders of £55,858,000 (30 September 2009 - £51,526,000; 31 March 2010 - £55,573,000) and on 29,697,580 (30 September 2009 and 31 March 2010 - 29,697,580) Ordinary shares in issue at the period end.

5.	Capital reserve
	The capital reserve reflected in the Balance Sheet at 30 September 2010 includes gains of £966,000 (30 September 2009 - losses of £4,667,000; 31 March 2010 - gains of £1,547,000) which relate to the revaluation of investments held at the reporting date.

6.	Transaction costs
	During the period expenses were incurred in acquiring or disposing of investments classified as fair value though profit or loss. These have been expensed through capital and are included within gains on investments at fair value in the Consolidated Statement of Comprehensive Income. The total costs were as follows:
		Six months ended	Six months ended	Year ended
		30 September 2010	30 September 2009	31 March 2010
		£'000	£'000	£'000
	Purchases	6	31	61
	Sales	12	10	17
		__________	__________	__________
		18	41	78
		__________	__________	__________

7.	Commitments, contingencies and post Balance Sheet events
	At 30 September 2010 there were no contingent liabilities in respect of outstanding underwriting commitments or uncalled capital (30 September 2009 and 31 March 2010 - £nil).

8.	The financial information contained in this Half-Yearly Financial Report does not constitute statutory accounts as defined in Sections 434 - 436 of the Companies Act 2006. The financial information for the six months ended 30 September 2010 and 30 September 2009 has not been audited.
	The information for the year ended 31 March 2010 has been extracted from the latest published audited financial statements which have been filed with the Registrar of Companies. The report of the auditors on those accounts contained no qualification or statement under Section 498 (2), (3) or (4) of the Companies Act 2006.
	This report has not been reviewed or audited by the Company's auditors.

9.	This Half-Yearly Financial Report was approved by the Board on 12 November 2010.

10.    The half yearly financial report is available on the Company's website, www.shiresincome.co.uk, and the Interim Report will be posted to shareholders in November 2010 and copies will be available from the investment manager.

Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise.  Investors may not get back the amount they originally invested

 

END

 

 

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