Interim Results

Shires Smaller Companies PLC 20 September 2006 News Release 20 September 2006 Shires Smaller Companies plc Interim Results for the Six months to 30 June 2006 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. 30 June 2006 31 December 2005 Total investments Â£88.7m Â£89.9m Shareholders' funds Â£56.0m Â£56.3m Net asset value per share 253.4p 254.8p Share price 240.0p 252.5p (Discount)/Premium (share price to adjusted net asset value)* (3.6%) 1.0% Dividends per share 8.0p 7.75p+ Fourth Interim Dividend (2005) 4.75p 4.75p First Interim Dividend (2006) 3.25p 3.00p Second Interim Dividend (2006)^ 3.25p 3.00p + Half year to 30 June 2005 ^ The second Interim Dividend is not reflected in these accounts. * Based on IFRS NAV reduced by the dividend adjustment of 4.75p â€¢First and second interim dividends for 2006 totalled 6.5p compared to 6.0p in 2005 â€¢Based on the last four quarterly dividends the yield on the Company's shares at 30 June 2006 was 5.9% compared to 2.2% on FTSE SmallCap Index (excl. Investment Companies), the Company's benchmark â€¢The total return on net assets for the six month period was 3.4% against the benchmark return of 4.3% â€¢UK company balance sheets remain strong which should support further dividend growth and share buy backs from smaller quoted companies For further information, please contact:- Mike Balfour, Chief Executive, Glasgow Investment Managers, 0141 572 2700 K Harper Glasgow Investment Managers, 0141 572 2700 Chairman's Statement Highlights I am pleased to report that the dividends paid by the Company have increased over the last six months. The first and second interim dividends for 2006 have totalled 6.5p compared to 6.0p last year, giving a yield of 5.9% based upon a share price of 240.0p as at 30 June 2006. This dividend increase of 8.3% was facilitated by the reduction in interest payments on long term borrowings and the growth in underlying company dividend receipts. Subject to any unforeseen circumstances current estimates suggest that the dividend can be increased further in the current year. However this should not be taken as a forecast of profits. Investment Returns The total return on net assets over the six months was 3.4%, slightly lower than the 4.3% return on the FTSE SmallCap Index (excluding Investment Companies), the Company's benchmark. This underperformance was principally due to a fall in the value of the corporate bond portfolio as expectations of a downward movement in UK interest rates diminished. The total return to shareholders, or share price total return, was -1.9%. This reflects the fact that the discount at which the share price stood to the net asset value per share (NAV) was 3.6% compared to a premium of 1.0% at 31 December 2005. It should be noted that all net asset value returns, calculations of discounts and regular NAV reporting are calculated excluding the IFRS dividend adjustment detailed in the 2005 Annual Report. This treatment is in line with a recommendation from the Association of Investment Trust companies. Earnings and Dividends As shown in the financial highlights section the first and second interim dividends paid to date for the 2006 financial year amounted to 6.5p compared to 6.0p for the same period last year. This comprised two payments of 3.25p per share, made on 28 April 2006 and 31 July 2006 respectively. You will recall that a new Â£10 million loan was taken out following the repayment of the previous Â£10 million borrowings in December 2005. The interest rate on the new loan is fixed at 5.49% compared to 9% on the old loan, thereby reducing costs. Lower costs along with increased dividends received from investee companies have boosted the revenue account allowing increased dividend payments by the Company. Portfolio Profile The distribution of assets shows 105.6% of net assets was invested in ordinary shares at 30 June 2006. This compares to 101.3% at 31 December 2005. This rise was due to continued growth in the value of equities in the six month period, a net investment into equities of Â£584,000 and a fall in value of the corporate bond portfolio. Total gearing at 30 June 2006 was 58.4% of net assets, down from 59.6% at 31 December 2005. The majority of the company's gearing continues to be invested in high-yielding fixed interest securities which make a significant contribution to the high level of income distributed to shareholders. Outlook Recent economic trends suggest that the current global economic growth cycle has peaked. In the USA, the housing market and retail sales are starting to decelerate, indicating that increased interest rates may be inducing a consumer led slow down. It is therefore likely that US interest rates and inflation will peak in the foreseeable future. In the UK, second quarter GDP, retail sales and inflation were ahead of expectation. The increase in UK interest rates to 4.75% was a direct consequence of this, with further increases probable if inflation remains above target. Equity markets will remain highly sensitive to the peaking of the economic growth, inflation, and interest rate cycles. Despite this uncertain backdrop, the UK corporate profits environment remains positive. UK company balance sheets remain strong which will support further dividend growth and share buy backs. Dividend payments are well covered by earnings and are growing above the rate of inflation. Investors need to be prepared for continued volatility of share prices but dividend payments by portfolio companies should remain healthy and progress gradually. Given this, together with reasonable valuation levels, it suggests that the stockmarket should make further gains. The Interim Report will be mailed to shareholders on 22 September 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 half year ended 30 June 2006 Half year to 30 June 2006 (unaudited) Revenue Capital Total Gains Â£000 Â£000 Â£000 Gains on investments at fair value - 612 612 Zero coupon finance costs - (112) (112) Revenue Dividend income 1,286 - 1,286 Interest income from investments 740 (32) 708 Deposit Interest 4 - 4 Net (loss)/gain on financial assets held for trading (59) - (59) --------- -------- -------- 1,971 468 2,439 --------- -------- -------- Expenses Investment management fee (204) (204) (408) Other administrative expenses (147) - (147) Finance costs of borrowings (219) (219) (438) --------- -------- -------- (570) (423) (993) --------- -------- -------- Profit before tax 1,401 45 1,446 Tax expense - - - --------- -------- -------- Profit for the year 1,401 45 1,446 --------- -------- -------- Profit attributable to equity holders of the company 1,401 45 1,446 --------- -------- -------- Earnings per ordinary share (pence) 6.5p The Total column is the Income Statement of the Group There are no discontinued operations Consolidated Income Statement (Continued) Half year to 30 June 2005 Year to 31 December 2005 (unaudited) (audited) Revenue Capital Total Revenue Capital Total Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Gains Gains on investments at fair value - 4,143 4,143 - 9,903 9,903 Zero coupon finance costs - (639) (639) - (1,128) (1,128) Revenue Dividend income 1,048 - 1,048 2,794 - 2,794 Interest income from investments 988 (65) 923 1,674 (69) 1,605 Deposit Interest 5 - 5 18 - 18 Net (loss)/gain on financial assets held for trading (15) - (15) 58 - 58 ------- ------- ------- ------- ------- ------- 2,026 3,439 5,465 4,544 8,706 13,250 ------- ------- ------- ------- ------- ------- Expenses Investment management fee (178) (178) (356) (368) (368) (736) Other administrative expenses (128) - (128) (298) - (298) Finance costs of borrowings (302) (302) (604) (606) (606) (1,212) ------- ------- ------- ------- ------- ------- (608) (480) (1,088) (1,272) (974) (2,246) ------- ------- ------- ------- ------- ------- Profit before tax 1,418 2,959 4,377 3,272 7,732 11,004 Tax expense - - - - - - ------- ------- ------- ------- ------- ------- Profit for the year 1,418 2,959 4,377 3,272 7,732 11,004 ------- ------- ------- ------- ------- ------- Profit attributable to equity holders of the Company 1,418 2,959 4,377 3,272 7,732 11,004 ------- ------- ------- ------- ------- ------- Earnings per ordinary share (pence) 19.8p 49.8p Group Balance Sheet as at 30 June 2006 30 June 31 December 30 June 2006 2005 2005 (unaudited) (audited) (unaudited) Â£000 Â£000 Â£000 Non current assets Ordinary shares 59,149 57,086 51,853 Convertibles 2,186 2,029 2,354 Corporate bonds 21,264 22,738 22,784 Other fixed interest 6,117 8,065 6,285 Zero coupon finance call options 3,919 3,281 1,121 Zero coupon finance put options 819 1,385 313 ---------- ---------- ---------- 93,454 94,584 84,710 ---------- ---------- ---------- Current assets Trade and other receivables - 580 1,911 Accrued income and prepayments 947 1,148 1,066 Financial assets of dealing 306 365 319 subsidiary Cash and cash equivalents 719 1,140 1 Zero coupon finance put options - - 1,759 ---------- ---------- ---------- 1,972 3,233 5,056 ---------- ---------- ---------- Current liabilities Current portion of long-term loan - - (9,997) Trade and other payables (417) (1,505) (813) Short-term borrowings (5,720) (6,885) (6,803) Zero coupon finance put options - - (5,744) ---------- ---------- ---------- (6,137) (8,390) (23,357) ---------- ---------- ---------- Non current liabilities Long term loan (10,000) (10,000) - Zero coupon finance call options (17,712) (16,547) (10,862) Zero coupon finance put options (5,558) (6,539) (4,452) ---------- ---------- ---------- (33,270) (33,086) (15,314) ---------- ---------- ---------- Net assets 56,019 56,341 51,095 ---------- ---------- ---------- Issued capital and reserves attributable To equity holders of the parent Called up share capital 11,055 11,055 11,055 Share premium account 11,892 11,892 11,892 Capital premium reserve 2,032 2,032 2,032 Realised capital reserve 16,907 16,115 12,179 Unrealised capital reserve 12,227 12,974 12,298 Revenue reserve 1,906 2,273 1,639 ---------- ---------- ---------- Equity shareholders' funds 56,019 56,341 51,095 ---------- ---------- ---------- Net asset value per ordinary share (pence) 253.4p 254.8p 231.1p Note: These are not statutory accounts under section 240 of the Companies Act 1985 and are unaudited. The figures and financial information for the year ended 31 December 2005 have been extracted from the 2005 report and 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. Consolidated Cash Flow Statement for the half year ended 30 June 2006 Half year to Half year to Year to 30 June 30 June 31 December 2006 2005 2005 (unaudited) Â£000 Â£000 Â£000 Cash flows from operating activities Investment income received 2,233 2,005 4,204 Deposit interest received 6 5 17 Investment management fee paid (421) (350) (743) Sales less purchases of current financial assets held for trading - (334) (307) Other cash receipts - 350 350 Other cash expenses (186) (117) (229) ---------- ---------- ---------- Cash generated from operations 1,632 1,559 3,292 Interest paid (449) (594) (1,186) Taxation - - - ---------- ---------- ---------- Net cash inflows from operating activities 1,183 965 2,106 ---------- ---------- ---------- Cash flows from investing activities Purchases of investments (11,915) (14,551) (41,714) Sales of investments 13,245 13,456 41,796 ---------- ---------- ---------- Net cash inflow/(outflow) from investing activities 1,330 (1,095) 82 ---------- ---------- ---------- Cash flows from financing activities Proceeds of issue of shares - 514 514 Equity dividends paid (1,769) (1,703) (3,030) Redemption of zero coupon finance - - - Cost payable on maturity - (4,000) Zero coupon finance - proceeds from new investment - 4,066 ---------- ---------- ---------- Net increase/(decrease) in cash and Cash equivalents 744 (1,319) (262) ---------- ---------- ---------- Cash and cash equivalents at start of period (5,745) (5,483) (5,483) ---------- ---------- ---------- Cash and cash equivalents at end of period (5,001) (6,802) (5,745) ---------- ---------- ---------- Cash and cash equivalents comprise: Cash and cash equivalents 719 1 1,140 Short -term borrowings (5,720) (6,803) (6,885) ---------- ---------- ---------- (5,001) (6,802) (5,745) ---------- ---------- ---------- Consolidated Statement of Changes in Equity for the half year ended 30 June 2006 Share Share Capital Realised Unrealised Retained Capital Premium Redemption Capital Capital Revenue Reserve Reserve Reserve Reserve Total Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 As at 31 December 2005 11,055 11,892 2,032 16,115 12,974 2,273 56,341 ------- ------- --------- -------- -------- ------- ------- Revenue for the Period - - - - - 1,401 1,401 Capital profits for the - - - 792 (747) - 45 period Equity dividends - - - - - (1,768) (1,768) ------- ------- --------- -------- -------- ------- ------- As at 30 June 11,055 11,892 2,032 16,907 12,227 1,906 56,019 2006 ------- ------- --------- -------- -------- ------- ------- Distribution of Assets Valuation at Purchases Sales Appreciation/ Valuation at 31 December 2005 (Depreciation) 30 June 2006 (audited) (unaudited) Â£000 % Â£000 Â£000 Â£000 Â£000 % Listed investments Ordinary 57,086 101.3 9,087 (8,503) 1,479 59,149 105.6 shares Convertibles 2,029 3.6 - - 157 2,186 3.9 Corporate 22,738 40.4 1,552 (2,107) (919) 21,264 38.0 bonds Other fixed interest 8,065 14.3 244 (2,055) (137) 6,117 10.9 ------- ------- -------- ------- --------- ------- ------ 89,918 159.6 10,883 (12,665) 580 88,716 158.4 -------- ------- --------- Other non current 4,666 8.3 4,738 8.4 Assets Current 3,233 5.7 1,972 3.5 assets Current liabilities (8,390) (14.9) (6,137) (10.9) Non current liabilities (33,086) (58.7) (33,270) (59.4) ------- ------- ------- ------ Net assets 56,341 100.0 56,019 100.0 ------- ------- ------- ------ Net asset value per share 254.8p 253.4p This information is provided by RNS The company news service from the London Stock Exchange

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