Interim Results
Shires Income PLC
21 November 2007
News Release
21 November 2007
Shires Income plc
Half Yearly Financial Results for the
Six months to 30 September 2007
Shires Income plc aims to provide a high level of income together with growth of
both income and capital from a portfolio substantially invested in UK Equities.
30 September 2007 31 March 2007
Total investments £118.1m £138.6m
Ordinary Shareholders' funds £92.4m £99.8m
Net asset value per share 311.1p 336.0p
Share price 304.25p 310.75p
Premium/(Discount) (share price to adjusted 1.2% (4.5%)
net asset value)^
Revenue return per ordinary share 9.1p 10.3p*
Dividends per ordinary share 10.45p 10.45p*
^ Excluding IFRS Dividend adjustment of 10.45p
* Half year to 30 September 2006
• The yield on the company's ordinary shares was 6.3% at the closing price
of 304.25p on 30 September 2007. This compared to a yield on the FTSE
All-Share Index of 2.9%.
• The rating of the Company's shares improved in the six month period,
moving from a discount of 4.5% to a premium of 1.2% at 30 September 2007.
• The Total return on net assets for the period was -4.6%. The total return
to shareholders was higher at 1.3%. The total return on the FTSE All-Share
Index, the Company's benchmark, was 2.7%.
• A second interim dividend of 4.4p has been declared for payment on 31
January 2008 to shareholders on the Register at close on 4 January 2008.
Dividends paid and declared to date total 8.8p, the same level as last year.
• While volatility in financial markets has risen sharply due to concerns in
credit markets, confidence within the corporate sector remains at a
relatively high level. With healthy dividend growth forecast in the UK,
equities should offer good value in the second half of the financial year.
For further information, please contact:-
Graeme McDonald
Chief Accountant,
Glasgow Investment Managers,
0141 572 2700
Chairman's Statement
Background
In the six months to 30 September 2007 the FTSE All-Share Index, the Company's
benchmark, returned 2.2% on a total return basis, as the fear of higher interest
rates and continued uncertainty over the sub-prime mortgage crisis in the United
States were outweighed by continued growth in corporate earnings and dividends.
Investment Returns
The total return on net assets of your Company over the six months was -4.6%.
The underperformance was due to a number of factors. Around 33% of total assets
are invested in preference shares which provide an above average yield compared
with government securities and are more tax efficient for revenue purposes. The
majority of these preference shares is in financial sector holdings. During the
recent period of uncertainty within credit markets following the concerns over
the financial stability of Northern Rock, the performance of preference shares
relative to more conventional fixed interest securities was weak which, in the
short term, had a negative impact on performance. Secondly, the performance of
small cap stocks relative to larger cap stocks in the period was poor. The
Company's exposure to smaller companies is held principally through the holding
in Shires Smaller Companies plc whose share price, including a widening of its
discount, fell in the six months. The increasing cost of the Index-Linked
Debenture Stock and short term borrowings also contributed to the
underperformance.
The share price performed better than the net asset value over the six months.
The total return to shareholders, or share price total return was 1.3%,
reflecting the fact that the discount of 4.5%, at which the share price stood to
the net asset value per share at 31 March 2007, moved to a premium of 1.2% at 30
September 2007.
Earnings and Dividends
The revenue return per share was 9.1p for the six months to 30 September 2007.
Actual dividends paid to date for the 2007/08 financial year amounted to 4.4p,
being the first interim dividend paid on 31 October 2007. A second interim
dividend of 4.4p has been declared for payment on 31 January 2008 to
shareholders on the Register at close of business on 4 January 2008. As
explained in previous reports, under IFRS only dividends paid in the period are
included in the financial statements. As a result, the total dividend reflected
in these accounts and shown in the financial highlights is 10.45p, comprising
the third interim dividend from the 2006/2007 financial year of 4.4p paid on 30
April 2007 and the final dividend in respect of 2006/2007 of 6.05p paid on 31
July 2007.
The Company continues to maintain a relatively high dividend yield in comparison
to the benchmark. The yield on the Company's shares as at 30 September 2007 was
6.3% compared to 2.9% on the Company's benchmark.
Portfolio Profile
The distribution of assets shows that total gearing fell in the six months to
September 2007 from 38.8% to 27.7%. Equity gearing also fell with equities and
convertibles totalling 97% as a proportion of the net assets compared to 108% at
31 March 2007. This fall was due to a net disinvestment of £15.2 million from
equities in the six month period. All of the gearing is invested in fixed
interest investments, mainly preference shares, which helps maintain the high
level of income distributed to shareholders.
Outlook
Volatility in financial markets has risen sharply due to concerns in credit
markets arising from US sub-prime lending. The crisis at Northern Rock currently
appears to have had a limited effect on the UK housing market, which is vitally
important to the UK economy, although the banking sector is only now beginning
to quantify the losses from recent events. Economic growth forecasts have been
revised down reflecting the tighter monetary backcloth; however inflation is
forecast to continue to stay within government guidelines. This may allow the
Bank of England scope to reduce short-term interest rates over the next six
months.
Confidence within the corporate sector remains at a relatively high level.
Takeover activity by corporate buyers has recently picked up, which reflects the
healthy financial position currently experienced by corporates. Consensus
forecasts indicate dividends are expected to grow in the order of 8.3% in 2008.
Set against this background, UK equities appear to offer good value and the
prospect of further capital appreciation in the second half of the financial
year.
AIC/JP Morgan Claverhouse VAT Test Case
On 28 June 2007 the European Court of Justice ('ECJ') opined on the case brought
by the AIC and JP Morgan Claverhouse against Her Majesty's Revenue and Customs
('HMRC') on whether Value Added Tax ('VAT') should be applied to the management
fees of investment trusts. The ECJ decided that management fees should be VAT
exempt. HMRC have now decided not to appeal this case to the UK VAT Tribunal and
therefore protective claims which have been made in relation to the Company
should begin to be processed in due course. The Board is currently quantifying
the potential repayment that should be due. No provision has been made in these
financial statements for any such repayment.
Glasgow Investment Managers Limited ('GIM')
On 24th August 2007 Glasgow Investment Managers Limited, the Company's Managers,
was acquired by Aberdeen Asset Managers plc ('Aberdeen'). As part of this
transaction the Company sold its holding in GIM for £3,118,750 in cash plus an
additional amount in cash equal to 49.9% of the net asset value of GIM Holdings
Limited and its subsidiaries, realising £4,196,500 in total. This compares with
a carrying value at 31st March 2007 of £3,239,000, and represents a profit of
approximately £4.1million on the Company's original investment.
Your Board was very encouraged by the progress being made by GIM under the
leadership of Michael Balfour, and was not seeking a sale at the time. The
majority shareholders, however, wished to dispose of their holding, and your
Board, having reviewed the sale process, considered that the offer made by
Aberdeen was in the circumstances attractive to Shires, both as to price and to
the arrangements for the ongoing management of the business. Aberdeen is a
global investment manager with wide experience of the investment trust sector,
and the resource which Aberdeen can bring, combined with the expertise of the
Glasgow investment team, who are joining the Aberdeen Group, makes your Board
confident that management is in place to take your Company forward on a sound
basis.
The Interim Report will be mailed to shareholders on 23 November 2007. Copies
may be obtained from the Managers, Glasgow Investment Managers Limited,
Sutherland House, 149 St Vincent Street, Glasgow G2 5DR or Aberdeen Asset
Managers plc, Donaldson House, 97 Haymarket Terrace, EH12 5HD after that date.
J Martin Haldane
Chairman
21 November 2007
Consolidated Income Statement
for the half year ended 30 September 2007
Half year to 30 September 2007
(unaudited)
Revenue Capital Total
£000 £000 £000
Gains
(Loss)/Gains on investments at fair value - (5,871) (5,871)
Revenue
Dividend income 3,140 - 3,140
Interest income 392 (195) 197
Traded Option premiums 599 - 599
Deposit interest 20 - 20
Other revenue - - -
Net loss/ (gain) of dealing subsidiary (342) - (342)
3,809 (6,066) (2,257)
Expenses
Investment management fee (141) (141) (282)
Other administrative expenses (195) - (195)
Finance cost of borrowings (760) (786) (1,546)
(1,096) (927) (2,023)
Profit before tax 2,713 (6,993) (4,280)
Tax expense - - -
Profit for the period 2,713 (6,993) (4,280)
Profit attributable to equity holders of the Company 2,713 (6,993) (4,280)
Minority Interest - - -
2,713 (6,993) (4,280)
Earnings per ordinary share excluding Minority Interest (pence) (14.4p)
Including Minority Interest -
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 Companies.
All items shown in the above statement derive from continuing operations.
Consolidated Income Statement
(Continued)
Half year to 30 September 2006 Year to 31 March 2007
(unaudited) (audited)
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Gains
Gains on investments at fair value - (414) (414) - 3,843 3,843
Revenue
Dividend income 3,502 - 3,502 6,962 - 6,962
Interest income 140 (51) 89 115 (96) 19
Traded Option premiums 434 - 434 715 - 715
Deposit interest 19 - 19 16 - 16
Other revenue 2 - 2 4 - 4
Net loss of dealing subsidiary (43) - (43) 250 - 250
4,054 (465) 3,589 8,062 3,747 11,809
Expenses
Investment management fee (131) (131) (262) (268) (268) (536)
Other administrative expenses (150) - (150) (340) - (340)
Finance cost of borrowings (602) (628) (1,230) (1,467) (1,518) (2,985)
(883) (759) (1,642) (2,075) (1,786) (3,861)
Profit before tax 3,171 (1,224) 1,947 5,987 1,961 7,948
Tax expense - - - - - -
Profit for the period 3,171 (1,224) 1,947 5,987 1,961 7,948
Profit attributable to equity holders of
the Company 3,064 (3,995) (931) 5,987 1,961 7,948
Minority Interest 107 2,771 2,878 - - -
3,171 (1,224) 1,947 5,987 1,961 7,948
Earnings per ordinary share excluding
Minority Interest (pence) (3.1)p 26.77p
Including Minority Interest 6.6p -
Group Balance Sheet
as at 30 September 2007
30 September 31 March 2007 30 September 2006
2007
(unaudited)
£000 £000 £000
Non current assets
Ordinary shares 87,887 101,651 84,418
Convertibles 731 1,731 4,278
Other fixed interest 28,359 30,727 29,508
Hedge Instruments - - 442
Unlisted Investments 1,103 4,463 3,550
118,080 138,572 122,196
Current assets
Trade and other receivables 1,087 904 959
Accrued income and prepayments 1,617 2,038 1,538
Financial assets of dealing subsidiary 704 1,047 348
Cash and cash equivalents 876 30 99
Assets Held for Sale - - 12,615
4,284 4,019 15,559
Current liabilities
Trade and other payables (654) (456) (1,431)
Short-term borrowings (1,335) (14,856) (8,263)
Index-Linked Debenture Stock (9,328) (9,153) -
Liabilities held for Sale - - (4,889)
(11,317) (24,465) (14,583)
Non current liabilities
Index-Linked Debenture Stock (18,611) (18,306) (26,762)
(18,611) (18,306) (26,762)
Net assets 92,436 99,820 96,410
Issued capital and reserves attributable to
equity holders of the parent
Called up share capital 14,899 14,899 14,895
Share premium account 18,911 18,937 18,944
Realised capital reserve 40,160 35,451 35,658
Unrealised capital reserve 11,167 22,843 16,655
Revenue reserve 7,299 7,690 7,380
Shareholders Equity (excl. Minority Interests) 92,436 99,820 93,532
Minority Interests - - 2,878
Total Shareholders Equity 92,436 99,820 96,410
Net asset value per ordinary share (pence) 311.1p 336.0p 324.7p
Note:. The financial information contained within this interim report does not
constitute statutory accounts as defined in section 240 of the Companies Act
1985. The financial information for the year ended 31 March 2007 has been
extracted from the statutory accounts. Those accounts have been filed with the
Registrar of Companies and contain an unqualified Auditors' and do not contain a
statement under Section 237(2) or (3) of the Companies Act 1985.
Consolidated Cash Flow Statement
for the half year ended 30 September 2007
Half year to Half year to Year to
30 September 30 September 31 March
2007 2006 2007
(unaudited)
£000 £000 £000
Cash flows from operating activities
Investment income received 3,977 3,631 6,689
Deposit interest received 18 - 19
Investment management fee paid (282) (268) (534)
Sales less purchases of current financial assets held
for trading - 110 (296)
Other cash receipts 746 528 884
Other cash expenses (215) (240) (392)
Cash generated from operations 4,244 3,761 6,370
Interest paid (1,090) (955) (2,015)
Taxation - - -
Net cash inflows from operating activities 3,154 2,806 4,355
Cash flows from investing activities
Purchases of investments (27,399) (15,076) (55,781)
Sales of investments 41,716 16,269 51,272
Net cash inflow for hedge instruments - - 83
14,317 1,193 (4,426)
Cash flows from financing activities
Proceeds of Share Issues - 41 63
Equity dividends paid (3,104) (3,101) (5,715)
Net cash outflow from financing activities (3,104) (3,060) (5,652)
Net increase /(decrease) in cash and cash equivalents 14,367 939 (5,723)
Cash and cash equivalents at start of period (14,826) (9,103) (9,103)
Cash and cash equivalents at end of period (459) (8,164) (14,826)
Cash and cash equivalents comprise:
Cash and cash equivalents 876 99 30
Short-term borrowings (1,335) (8,263) (14,856)
(459) (8,164) (14,826)
Consolidated Statement of Changes in Equity
For the half year ended 30 September 2007
Share Share Realised Unrealised Retained Total
Premium Capital Capital Revenue
Capital Reserve Reserve Reserve
£000 £000 £000 £000 £000 £000
As at 31 March 2007 14,899 18,937 35,451 22,843 7,690 99,820
Revenue for the period - - - - 2,713 2,713
Capital profits for the period - (26) 4,709 (11,676) - (6,993)
Equity dividends (3,104) (3,104)
As at 30 September 2007 14,899 18,911 40,160 11,167 7,299 92,436
Distribution of Assets
Valuation at Valuation at
31 March 2007 Purchases Sales Appreciation/ 30 September 2007
(Depreciation) (unaudited)
£000 % £000 £000 £000 £000 %
Listed investments
Ordinary shares 101,651 101.8 19,290 (29,767) (3,287) 87,887 95.1
Convertibles 1,731 1.7 - (598) (402) 731 0.8
Other fixed interest 30,727 30.8 8,707 (7,950) (3,125) 28,359 30.7
134,109 134.3 27,997 (38,315) (6,814) 116,977 126.6
Unlisted Investments 4,463 4.5 - (4,158) 798 1,103 1.1
138,572 138.8 27,997 (42,473) (6,016) 118,080 127.7
Other Current assets 4,019 4.0 4,284 4.6
Other Current liabilities (24,465) (24.5) (11,317) (12.2)
Non current liabilities (18,306) (18.3) (18,611) (20.1)
Net assets (excl Minority
Interest) 99,820 100.0 92,436 100.0
Net asset value 336.0p 311.1p
per ordinary share
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