Interim Results

RNS Number : 3306I

Shires Income PLC

17 November 2008

 



SHIRES INCOME PLC

HALF YEARLY FINANCIAL REPORT 

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2008

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.

Highlights	30 September 2008	31 March 2008	% change
Equity shareholders' funds (£'000)	£58,073	£74,687	-22.2
Net asset value per share	195.55p	251.49p	-22.2
Share price (mid market)	175.50p	220.00p	-20.2
Discount to adjusted NAV{A}	4.9%	8.5%
Dividend yield	11.3%	9.0%
{A} Based on IFRS NAV above reduced by dividend adjustment of 10.95p (31 March 2008 - 10.95p).

	6 months ended	1 year ended	3 years ended	5 years ended
	30 September	30 September	30 September	30 September
	2008	2008	2008	2008
Net asset value	-18.2%	-31.9%	-17.4%	+22.4%
Share price	-15.8%	-37.2%	-24.1%	+11.0%
FTSE All-Share Index	-13.5%	-22.3%	+0.0%	+44.5%
All figures are for total return and assume re-investment of net dividends excluding transaction costs.

For further information, please contact:-

Susan Anderson, Ed Beal    0131 528 4000

Aberdeen Asset Managers Limited

William Hemmings    020 7463 6000

Aberdeen Asset Managers Limited

  Chairman's Statement

Interim Report for the six months ended 30 September 2008

Background

The six months to 30 September 2008 covered a period of unprecedented financial turmoil. The problems that emerged in the US sub prime mortgage market just over a year ago have developed into a global financial crisis. The impact on stock markets has been severe, with investors experiencing high levels of volatility and negative returns. In the six months under review, the FTSE All Share index, the Company's benchmark, declined by 13.5% in total return terms. For medium and smaller sized companies, returns were weaker with the FTSE 250 index and the FTSE Small Cap (ex Investment Trusts) total returns down by 19.5% and 20.8% respectively.

Investment Performance

In the half year to 30 September 2008, the NAV per share fell by 22.2% from 251.49p to 195.55p per share. The total return on NAV over the same period was -18.2% compared to the FTSE All Share index which returned -13.5%. The underperformance arose from a combination of asset allocation and stock selection. The portfolio was underweight in Oil & Gas and Pharmaceuticals & Biotechnology which were the two strongest performing sectors over the period. The Trust was also overweight in smaller and medium sized companies compared to its benchmark and these companies were weaker performers than their large FTSE 100 peers. The underperformance from these areas offset the benefit of the portfolio being underweight in Mining companies and Banks. However, the share price performed better than the net asset value over the period and the total return to shareholders was -15.8%. The shares moved from a discount of 8.5% to 4.9% over the six months period.

Dividends

A maintained first interim dividend of 4.4p per share was paid on 31 October 2008. It is proposed that a second interim of 4.4p be paid on 31 January 2009. The Company pays a high dividend yield and the Manager monitors dividend generation carefully. To date, the portfolio has experienced a number of dividend cuts; however, it is also the case that some companies have continued to increase their payouts. Dividend cuts are likely to become more frequent next year as companies face harsher economic conditions. The Board will continue to monitor closely the revenue account and keep the dividend policy under review given the changing business environment.

Portfolio Profile

In the half year to 30 September 2008, the Company's total gearing increased from 27.5% to 34.6% principally due to the fall in equity prices over the period. In the equity portfolio, financial sector exposure was reduced with the sale of part of the Aviva, Legal & General and Prudential holdings. The proceeds were used to establish an initial position in the Oil & Gas sector with three new holdings in BP, Shell and Venture Production. The holding in the Mackintosh High Income Fund was redeemed when the fund was wound up at the end of June.

AIC/J P Morgan Claverhouse VAT Test Case

The Company is due a refund of VAT as a result of the successful Claverhouse / Association of Investment Companies case. Further details are given in note 7.

Outlook

Stock markets are currently in the eye of the financial storm but the historic measures introduced by central banks and governments to support the banking system should eventually restore confidence. In the UK, the government has announced a £400bn rescue package for the banks which was closely followed by a co-ordinated cut in interest rates by six of the world's central banks including the Bank of England.

However, the impact of the crisis is now hitting the real economy. Consumer spending is slowing, unemployment is rising and companies and consumers are finding it increasingly difficult to access credit. The consensus forecast for UK GDP has been reduced to a modest 0.5% for 2009 but the economy has probably already moved into recession. Consequently, in the next six months, there is likely to be an increasing number of company profits downgrades and disappointments. Although markets have fallen a long way and are discounting a downturn, it is unclear how much of a recession is factored into share prices. Amid the negative trends, there is some positive news in the form of falling commodity and energy prices which should feed through to lower inflation and increase the likelihood of more interest rate cuts.

We expect equity markets to remain highly volatile but where possible, the Manager will try to use these conditions to invest in good quality, undervalued companies. 

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 both long and short-term borrowings. It has in issue an Index-Linked Debenture on which the interest payable and the capital sum to be repaid on maturity are linked to the Retail Price Index. Short-term borrowing from banking institutions is also used and bears interest at floating rates. The profile of financing costs is managed as part of overall investment strategy. 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 2008.

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 to 30 September 2008 comprises the Interim Board Report, the Directors' Responsibility Statement and a condensed set of financial statements.

J. Martin Haldane

Chairman

17 November 2008

CONSOLIDATED INCOME STATEMENT

		Six months ended
		30 September 2008
		(unaudited)
		Revenue	Capital	Total
	Note	£'000	£'000	£'000
Losses on investments at fair value		-	(15,681)	(15,681)
Investment income
Dividend income		2,704	-	2,704
Interest income from investments		334	(71)	263
Scrip dividend		81	-	81
Traded option premiums		639	-	639
Deposit interest		29	-	29
Money Market interest		108	-	108
Other income		8	25	33
Loss of dealing subsidiary		(33)	-	(33)
		__________	__________	__________
		3,870	(15,727)	(11,857)
Expenses		__________	__________	__________
Investment management fee		(94)	(94)	(188)
Other administrative expenses		(228)	-	(228)
Finance costs of borrowings		(541)	(557)	(1,098)
		__________	__________	__________
		(863)	(651)	(1,514)
		__________	__________	__________
Profit/(loss) before tax		3,007	(16,378)	(13,371)
Taxation	2	10	-	10
		__________	__________	__________
Profit/(loss) attributable to equity holders of the Company	3	3,017	(16,378)	(13,361)
		__________	__________	__________
Earnings/(loss) per Ordinary share (pence)	4	10.16	(55.15)	(44.99)
		__________	__________	__________

  CONSOLIDATED INCOME STATEMENT

		Six months ended
		30 September 2007
		(unaudited)
		Revenue	Capital	Total
	Note	£'000	£'000	£'000
Losses on investments at fair value		-	(5,871)	(5,871)
Investment income
Dividend income		3,140	-	3,140
Interest income from investments		392	(195)	197
Scrip dividend		-	-	-
Traded option premiums		599	-	599
Deposit interest		20	-	20
Money Market interest		-	-	-
Other income		-	-	-
Loss of dealing subsidiary		(342)	-	(342)
		__________	__________	__________
		3,809	(6,066)	(2,257)
Expenses		__________	__________	__________
Investment management fee		(141)	(141)	(282)
Other administrative expenses		(195)	-	(195)
Finance costs of borrowings		(760)	(786)	(1,546)
		__________	__________	__________
		(1,096)	(927)	(2,023)
		__________	__________	__________
Profit/(loss) before tax		2,713	(6,993)	(4,280)
Taxation	2	-	-	-
		__________	__________	__________
Profit/(loss) attributable to equity holders of the Company	3	2,713	(6,993)	(4,280)
		__________	__________	__________
Earnings/(loss) per Ordinary share (pence)	4	9.14	(23.55)	(14.41)
		__________	__________	__________

  CONSOLIDATED INCOME STATEMENT

		Year ended
		31 March 2008
		(audited)
		Revenue	Capital	Total
	Note	£'000	£'000	£'000
Losses on investments at fair value		-	(23,445)	(23,445)
Investment income
Dividend income		6,106	-	6,106
Interest income from investments		728	(265)	463
Scrip dividend		-	-	-
Traded option premiums		1,785	-	1,785
Deposit interest		92	-	92
Money Market interest		-	-	-
Other income		2	-	2
Loss of dealing subsidiary		(595)	-	(595)
		__________	__________	__________
		8,118	(23,710)	(15,592)
Expenses		__________	__________	__________
Investment management fee		(253)	(253)	(506)
Other administrative expenses		(410)	-	(410)
Finance costs of borrowings		(1,429)	(1,479)	(2,908)
		__________	__________	__________
		(2,092)	(1,732)	(3,824)
		__________	__________	__________
Profit/(loss) before tax		6,026	(25,442)	(19,416)
Taxation	2	-	-	-
		__________	__________	__________
Profit/(loss) attributable to equity holders of the Company	3	6,026	(25,442)	(19,416)
		__________	__________	__________
Earnings/(loss) per Ordinary share (pence)	4	20.29	(85.67)	(65.38)
		__________	__________	__________

  CONSOLIDATED BALANCE SHEET 

		As at	As at	As at
		30 September	30 September	31 March
		2008	2007	2008
		(unaudited)	(unaudited)	(audited)
	Notes	£'000	£'000	£'000
Non-current assets
Ordinary shares		51,961	87,887	67,734
Convertibles		1,411	731	1,434
Other fixed interest		22,863	28,359	25,037
Unlisted investments		1,912	1,103	1,091
		__________	__________	__________
Securities at fair value		78,147	118,080	95,296
		__________	__________	__________
Current assets
Trade and other receivables		380	1,087	144
Accrued income and prepayments		1,140	1,617	2,082
Financial assets of dealing subsidiary		-	704	452
Cash and cash equivalents		2,789	876	3,283
		__________	__________	__________
		4,309	4,284	5,961
		__________	__________	__________
Total assets		82,456	122,364	101,257
Current liabilities
Trade and other payables		(456)	(654)	(337)
Short-term borrowings		(4,500)	(1,335)	(7,200)
Index-Linked Debenture stock		(9,714)	(9,328)	(9,517)
		__________	__________	__________
		(14,670)	(11,317)	(17,054)
		__________	__________	__________
Non-current liabilities
Index-Linked Debenture stock		(9,713)	(18,611)	(9,516)
		__________	__________	__________
Net assets		58,073	92,436	74,687
		__________	__________	__________
Issued capital and reserves attributable to equity holders of the parent
Called up share capital		14,899	14,899	14,899
Share premium account		18,870	18,911	18,887
Capital reserve	5	16,541	51,327	32,902
Revenue reserve		7,763	7,299	7,999
		__________	__________	__________
		58,073	92,436	74,687
		__________	__________	__________
Net asset value per Ordinary share (pence):		195.55	311.10	251.49
		__________	__________	__________
The accompanying notes are an integral part of these financial statements.

  CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Six months ended 30 September 2008 (unaudited)
			Share		Retained
		Share	Premium	Capital	Revenue
		Capital	Account	Reserve	Reserve	Total
	Notes	£'000	£'000	£'000	£'000	£'000
As at 31 March 2008		14,899	18,887	32,902	7,999	74,687
Revenue profit for the year		-	-	-	3,017	3,017
Capital losses for the period		-	(17)	(16,361)	-	(16,378)
Equity dividends	3	-	-	-	(3,253)	(3,253)
		_______	_______	_______	_______	_______
As at 30 September 2008		14,899	18,870	16,541	7,763	58,073
		_______	_______	_______	_______	_______
Six months ended 30 September 2007 (unaudited)
			Share		Retained
		Share	Premium	Capital	Revenue
		Capital	Account	Reserve	Reserve	Total
		£'000	£'000	£'000	£'000	£'000
As at 31 March 2007		14,899	18,937	58,294	7,690	99,820
Revenue profit for the year		-	-	-	2,713	2,713
Capital losses for the year		-	(26)	(6,967)	-	(6,993)
Equity dividends	3	-	-	-	(3,104)	(3,104)
		_______	_______	_______	_______	_______
As at 30 September 2007		14,899	18,911	51,327	7,299	92,436
		_______	_______	_______	_______	_______
Year ended 31 March 2008 (audited)
			Share		Retained
		Share	Premium	Capital	Revenue
		Capital	Account	Reserve	Reserve	Total
		£'000	£'000	£'000	£'000	£'000
As at 31 March 2007		14,899	18,937	58,294	7,690	99,820
Revenue profit for the year		-	-	-	6,026	6,026
Capital losses for the year		-	(50)	(25,392)	-	(25,442)
Equity dividends	3	-	-	-	(5,717)	(5,717)
		_______	_______	_______	_______	_______
As at 31 March 2008		14,899	18,887	32,902	7,999	74,687
		_______	_______	_______	_______	_______

  CONSOLIDATED AND COMPANY CASHFLOW STATEMENT 

	Six months ended	Six months ended	Year  ended
	30 September 2008	30 September 2007	31 March 2008
	(unaudited)	(unaudited)	(audited)
	£'000	£'000	£'000
Cash flows from operating activities
Investment income received	4,048	3,977	6,768
Deposit interest received	35	18	81
Money market interest received	76	-	-
Investment management fee paid	(199)	(282)	(551)
Sales of dealing subsidiary	424	-	-
Other cash receipts	731	746	1,616
Other cash expenses	(230)	(215)	(426)
	__________	__________	__________
Cash generated from operations	4,885	4,244	7,488
	__________	__________	__________
Interest paid	(724)	(1,090)	(1,850)
Taxation	10	-	-
	__________	__________	__________
Net cash inflows from operating activities	4,171	3,154	5,638
	__________	__________	__________
Cash flows from investing activities
Purchases of investments	(19,812)	(27,399)	(51,284)
Sales of investments	21,100	41,716	71,789
Repayment of Index-Linked Debenture Stock	-	-	(9,517)
	__________	__________	__________
Net cash inflows from investing activities	1,288	14,317	10,988
	__________	__________	__________
Cash flows from financing activities
Equity dividends paid	(3,253)	(3,104)	(5,717)
	__________	__________	__________
Net cash outflow from financing activities	(3,253)	(3,104)	(5,717)
	__________	__________	__________
Net increase in cash and cash equivalents	2,206	14,367	10,909
Cash and cash equivalents at start of period	(3,917)	(14,826)	(14,826)
	__________	__________	__________
Cash and cash equivalents at end of period	(1,711)	(459)	(3,917)
	__________	__________	__________
Cash and cash equivalents comprise:
Cash and cash equivalents	2,789	876	3,283
Short-term borrowings	(4,500)	(1,335)	(7,200)
	__________	__________	__________
	(1,711)	(459)	(3,917)
	__________	__________	__________

  Notes to the Financial Statements

For the six months ended 30 September 2008

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 2008 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 Income Statement is based on management's best estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual tax rate used for the year to 31 March 2009 is 28%. However, no tax charge is anticipated due to excess deductible expenses. The tax credit received relates to the financial year to 31 March 2007.

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 2008	30 September 2007	31 March 2008
		£'000	£'000	£'000
	Revenue	3,017	2,713	6,026
	Dividends declared	{A}(1,307)	{B}(1,307)	{C}(5,865)
		__________	__________	__________
		1,710	1,406	161
		__________	__________	__________
	{A}     Dividends declared relate to the first interim dividend (4.40p) declared in respect of the financial year 2008/09. {B}     Dividends declared relate to the first interim dividend (4.40p) declared in respect of the financial year 2007/08. {C}     Dividends declared relate to the first three interim dividends (each 4.40p) and the final dividend (6.55p) declared in respect of the financial year 2007/08.

		Six months ended	Six months ended	Year  ended
4.	Return and net asset value per share	30 September 2008	30 September 2007	31 March  2008
	The returns are based on the following attributable assets:
		£'000	£'000	£'000
	Revenue return	3,017	2,713	6,026
	Capital return	(16,378)	(6,993)	(25,442)
		__________	__________	__________
	Total return	(13,361)	(4,280)	(19,416)
		__________	__________	__________
	Weighted average number of Ordinary shares in issue	29,697,580	29,697,580	29,697,580
		__________	__________	__________
	Net asset value per Ordinary share is based on net assets attributable to Ordinary Shareholders of £58,073,000 (30 September 2007 - £92,436,000; 31 March 2008 -£74,687,000) and on 29,697,580 (30 September 2007 and 31 March 2008 - 29,697,580) Ordinary shares in issue at the period end.

		Six months ended	Six months ended	Year  ended
		30 September 2008	30 September 2007	31 March  2008
5.	Capital reserve	£'000	£'000	£'000
	Realised
	Opening balance	39,658	35,451	35,451
	Net (loss)/gain on sales of investments during year	(2,892)	5,831	6,222
	Management fee	(94)	(141)	(253)
	Bank loans and overdrafts repayable within five years	(110)	-	(217)
	Index-Linked Debenture costs	(430)	(981)	(1,212)
	Consent payment	25	-	-
	Transfer from unrealised capital reserve	-	-	(333)
		__________	__________	__________
	Closing balance	36,157	40,160	39,658
		__________	__________	__________
	Investment holding gains
	Opening balance	(6,756)	22,843	22,843
	Movement in fair value gains on investments	(12,766)	(11,481)	(29,533)
	Traded options	(23)	-	(134)
	Amortised cost adjustment charged to capital	(71)	(195)	(265)
	Transfer to realised capital reserve	-	-	333
		__________	__________	__________
	Closing balance	(19,616)	11,167	(6,756)
		__________	__________	__________
	Total capital reserve	16,541	51,327	32,902
		__________	__________	__________

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 losses on investments at fair value in the Consolidated Income Statement. The total costs were as follows:
		Six months ended	Six months ended	Year ended
		30 September 2008	30 September 2007	31 March 2008
		£'000	£'000	£'000
	Purchases	111	169	319
	Sales	34	100	140
		__________	__________	__________
		145	269	459
		__________	__________	__________

7.

Commitments, contingencies and post Balance Sheet events At 30 September 2008 there were no contingent liabilities in respect of outstanding underwriting commitments or uncalled capital (30 September 2007 and 31 March 2008 - £nil). On 5 November 2007, the European Court of Justice ruled that management fees should be exempt from VAT. HMRC has announced its intention not to appeal against this case to the UK VAT Tribunal and therefore protective claims which have been made in relation to the Company will be processed in due course. The Board is currently in the process of quantifying the potential repayment that should be due. However, the amount the Company will receive, the period to which it will refer, and the timescale for receipt are all uncertain and hence the Company has made no provision in these financial statements for any such repayment.

8.

The financial information in this report comprises non-statutory accounts as defined in Sections 434-436 of the Companies Act 2006. The financial information for the year ended 31 March 2008 has been extracted from published accounts that have been delivered to the Registrar of Companies and on which the report of the auditors was unqualified under Section 498 of the Companies Act 2006.

  9.         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 2008 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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