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 Â£89.9m Â£78.9m Shareholders' funds Â£56.3m Â£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 â€¢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%. â€¢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%. â€¢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. â€¢The Â£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 Â£10 million, five year, unsecured loan at a fixed rate of interest of 5.49%. â€¢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 Â£4 million zero coupon finance that expired in August 2005 was replaced by a new tranche of Â£4.066 million that is due to expire in July 2010 with a maturity value of Â£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 Â£10 million loan taken out in 1995 was repaid on 22 December 2005 and replaced with a new Â£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 Â£351,000 a year. As the loan interest is split 50:50 between revenue and capital this will result in savings of Â£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 Â£000 Â£000 Â£000 Â£000 Â£000 Â£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) Â£000 Â£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) Â£000 Â£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 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£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 Â£000 % Â£000 Â£000 Â£000 Â£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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