Interim Results
Shires Income PLC
24 November 2005
News Release
24 November 2005
Shires Income plc
Interim Results for the
Six months to 30 September 2005
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 2005 31 March 2005
(Restated under
IFRS)
Total investments £119.5m £115.5m
Shareholders' funds £85.8m £81.2m
Net asset value per share 289.1p 273.5p
Share price 285.5p 266.0p
Discount (share price to net asset value) (1.2%) (2.7%)
Revenue return per share 9.2p 10.9p*
Dividends per share 10.45p 10.45p*
* Half year to 30 September 2004
•The net asset value per share rose by 5.7% to 289.1p at 30 September 2005
from 273.5p at 31 March 2005.
•Total return on net assets was 9.5%, with shareholders total return
higher at 11.3%. The total return on the FTSE All-Share Index, the Company's
benchmark, was 13.6%.
•The yield on the company's ordinary shares was 6.7% at the closing price
of 285.5p on 30 September 2005.
•At 30 September 2005 total gearing was 39.3% of net assets, down from
42.3% at 31 March 2005, principally invested in fixed income securities.
•A second interim dividend of 4.4p has been declared for payment on 31
January 2006. Dividends paid and declared to date total 8.8p, the same level
as last year.
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 2 to the financial statements.
These preliminary financial statements may require adjustment before their
inclusion in the final IFRS financial statements for the year ended 31 March
2006 because of subsequent revisions or changes to IFRS, or guidance and
consensus on the application or interpretation of IFRS.
For further information, please contact:-
Mike Balfour,
Chief Executive,
Glasgow Investment Managers,
0141 572 2700
Chairman's Statement
Background
The UK stockmarket performed well in the six months to 30 September 2005.
Improving corporate earnings coupled with a belief that UK interest rates may be
on a downward trend outweighed fears about continued high oil prices. This
resulted in a total return of 13.6% on the FTSE All-Share Index, the Company's
benchmark.
International Financial Reporting Standards
These are the Company's first financial statements under the new International
Financial Reporting Standards (IFRS), which came into effect on 1 January 2005.
As a result of these new standards, the layout of the financial statements has
been altered from those contained in previous reports with the Consolidated
Statement of Total Return being replaced by the Consolidated Income Statement.
However, while the total column is the primary statement combining elements of
both a revenue and capital nature, a three columned approach is retained showing
the division between revenue and capital as previously. The main purpose of this
is to maintain a statement which identifies the revenue available for
distribution. There is also a significant presentational change in respect of
dividends payable by the Company. Previously these were shown in the revenue
column of the Statement of Total Return. These are now shown in a new statement,
called the Statement of Changes in Equity. There is a further change to the
incorporation of dividends which I discuss in more detail below under Earnings
and Dividends.
The NAV of the Company at 289.1p at 30 September 2005 is 8.7p higher than it
would have been under the old accounting rules. The major change is the
exclusion of the first and second interim dividend in respect of 2005/06
(+8.8p), expanded upon in the Earnings and Dividends section below. The
remaining small differences are represented by the move from mid to bid value
for investments, a change in the method for accounting for income on fixed
interest securities and a change in the valuation of the securities held by the
dealing subsidiary. A detailed note on the effects of the transition to IFRS is
contained in note 2 to the financial statements.
Investment Returns
The total return on net assets over the six months to 30 September 2005 was
9.5%, which was below the return on the Company's benchmark. This was partially
due to the maintenance of the hedging structure and to having an underweight
position in the mining and oil and gas sectors, the two best performing sectors
during the period.
The total return to shareholders, or share price total return, at 11.3%, was
higher than the return on net assets, reflecting the fact that the discount of
2.7% at which the share price stood to the restated net asset value per share at
31 March 2005 closed to 1.2% at 30 September 2005.
Earnings and Dividends
The revenue return per share was 9.2p for the six months to 30 September 2005.
Actual dividends paid to date for the 2005/06 financial year amount to 4.4p,
comprising the first interim dividend payment, made on 31 October 2005. A second
interim dividend has been declared, to be paid on 31 January 2006 to
shareholders on the Register at close of business on 6 January 2006.
Under the new IFRS requirements, only dividends which are irrevocably declared
in the financial period (in effect paid in that period) are included in the
financial statements and shown in the Consolidated Statement of Changes in
Equity. 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 2004/2005 financial year of 4.4p and the final dividend in respect of 2004/
2005 of 6.05p declared on 20 May 2005. The first and second interim dividends in
respect of 2005/2006 are excluded from this reporting period to the end of 30
September 2005. This gives rise to the distorted comparison in the financial
highlights section between a revenue return per share of 9.2p for the first six
months of 2005/06 with a dividend payment of 10.45p which comprises solely
dividend distributions from the 2004/2005 financial year.
The Board believes that the portfolio, barring any unforeseen circumstances or
further changes to International Financial Reporting Standards in addition to
those already advised, should enable the dividends declared for the current year
to be kept at a similar level to last year.
Portfolio Profile
The distribution of assets shows that total gearing fell in the six months to
September 2005 from 142.3% to 139.3% reflecting the rise in ordinary share
prices. Equity gearing fell as a result in the six months from 114.3% to 110.7%.
The majority of the gearing is invested in fixed interest investments which help
maintain the high level of income distributed to shareholders.
Hedging
In light of the continued strength of ordinary share prices half the FTSE 100
Call option was closed in September as further rises in the market would have
resulted in the liability of this option rising. The Call option was closed at a
cost of £950,000. The Board, in consultation with the Managers, will continue to
monitor the hedging structure with a view to possibly closing out the remainder
of the Call option before its expiry in December 2005.
Outlook
The global economy is showing signs of slowing from growth of 4.0% this year to
around 3.5% in 2006. The economic tone in the UK is relatively weaker due to the
impact of higher interest rates on consumer spending. The interest rate cycle
however could be at or near its peak and the recent 0.25% cut to 4.5% should
hopefully signal a change in trend. Elsewhere the resilience of economies has
led to tighter monetary policy.
Increased earnings and dividends this year have resulted in UK equities
remaining undervalued versus fixed interest securities. Investors should
continue to benefit from share buy-backs, higher dividend payments and increased
takeover activity. Concerns about rising inflation in the United States recently
caused a setback in equity markets. In the UK, where inflation is well
controlled, this presents an opportunity to invest selectively in shares with an
attractive yield and prospects of good dividend growth.
The Interim Report will be mailed to shareholders on 28 November 2005. Copies
may be obtained from the Managers, Glasgow Investment Managers Limited,
Sutherland House, 149 St Vincent Street, Glasgow G2 5DR after that date.
J Martin Haldane
Chairman
Consolidated Income Statement
for the half year ended 30 September 2005
Half year to 30 September 2005
(unaudited)
Revenue Capital Total
£000 £000 £000
Gains
Gains on investments at fair value - 5,992 5,992
Revenue
Dividend income 3,178 - 3,178
Interest income 37 - 37
Traded Option premiums 518 - 518
Deposit interest 4 - 4
Other revenue 2 - 2
Net loss of dealing subsidiary (89) - (89)
--------- -------- --------
3,650 5,992 9,642
--------- -------- --------
Expenses
Investment management fee (116) (116) (232)
Other administrative expenses (198) - (198)
Finance cost of borrowings (618) (644) (1,262)
Cost of investment transactions - (204) (204)
--------- -------- --------
(932) (964) (1,896)
--------- -------- --------
Profit before tax 2,718 5,028 7,746
Tax expense - - -
--------- -------- --------
Profit for the period 2,718 5,028 7,746
--------- -------- --------
Profit attributable to equity holders of the
Company 2,718 5,028 7,746
--------- -------- --------
Earnings per ordinary share (pence) 26.1p
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.
Consolidated Income Statement
(Continued)
Half year to 30 September 2004 Year to 31 March 2005
Restated Restated
(unaudited) (unaudited)
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Gains
Gains on
investments
at fair value - 2,289 2,289 - 12,259 12,259
Revenue
Dividend income 3,375 - 3,375 6,425 - 6,425
Interest income 79 - 79 107 - 107
Traded Option
premiums 578 - 578 734 - 734
Deposit interest 5 - 5 8 - 8
Other revenue - - - 2 - 2
Net loss of
dealing
subsidiary (14) - (14) (44) - (44)
------- ------- ------- ------- ------- -------
4,023 2,289 6,312 7,232 12,259 19,491
------- ------- ------- ------- ------- -------
Expenses
Investment
management
fee (96) (96) (192) (201) (201) (402)
Other
administrative
expenses (180) - (180) (399) - (399)
Finance cost of
borrowings (514) (540) (1,054) (1,198) (1,250) (2,448)
Cost of investment
transactions - (299) (299) - (551) (551)
------- ------- ------- ------- ------- -------
(790) (935) (1,725) (1,798) (2,002) (3,800)
------- ------- ------- ------- ------- -------
Profit before tax 3,233 1,354 4,587 5,434 10,257 15,691
Tax expense - - - - - -
------- ------- ------- ------- ------- -------
Profit for the
period (3,233) 1,354 4,587 5,434 10,257 15,691
------- ------- ------- ------- ------- -------
Earnings per
ordinary
share (pence) 15.5p 52.9p
Group Balance Sheet
as at 30 September 2005
30 September 31 March 30 September
2005 2005 2004
(unaudited) (unaudited) (unaudited)
£000 £000 £000
Non current assets
Ordinary shares 86,666 81,897 80,647
Convertibles 6,262 7,538 7,038
Other fixed interest 24,526 22,748 12,170
Hedge Instruments 505 716 1,139
Unlisted Investments 2,910 3,213 3,278
---------- ---------- ----------
120,869 116,112 104,272
---------- ---------- ----------
Current assets
Trade and other receivables 98 - 192
Accrued income and
prepayments 1,298 1,963 1,284
Financial assets of dealing
subsidiary 371 995 190
Cash and cash equivalents 50 2 123
Hedge Instruments - 126 481
---------- ---------- ----------
1,817 3,086 2,270
---------- ---------- ----------
Current liabilities
Trade and other payables (442) (421) (1,611)
Short-term borrowings (9,060) (11,105) (6,300)
Hedge Instruments (1,323) (753) (714)
---------- ---------- ----------
(10,825) (12,279) (8,625)
---------- ---------- ----------
Non current liabilities
Index Linked Debenture
Stock (26,012) (25,716) (25,206)
---------- ---------- ----------
(26,012) (25,716) (25,206)
---------- ---------- ----------
---------- ---------- ----------
Net assets 85,849 81,203 72,711
---------- ---------- ----------
Issued capital and reserves
attributable to
equity holders of the
parent
Called up share capital 14,888 14,888 14,888
Share premium account 18,961 18,987 19,013
Realised capital reserve 24,485 27,477 25,202
Unrealised capital reserve 20,861 12,814 6,160
Revenue reserve 6,654 7,037 7,448
---------- ---------- ----------
85,849 81,203 72,711
---------- ---------- ----------
Net asset value per
ordinary share (pence) 289.1p 273.5p 244.8p
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 2005 has been
extracted from the statutory accounts and restated as disclosed in note 2 in the
financial statements. 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 2005
Half year to Half year to Year to
30 September 30 September 31 March
2005 2004 2005
Restated Restated
(unaudited) (unaudited) (unaudited)
£000 £000 £000
Cash flows from operating
activities
Investment income received 4,303 4,998 7,783
Deposit interest received 3 4 10
Investment management fee paid (241) (208) (421)
Sales less purchases of current
financial assets held for trading 535 - (834)
Other cash receipts - - -
Other cash expenses (211) (202) (340)
---------- ---------- ----------
Cash generated from operations 4,389 4,592 6,198
Interest paid (962) (746) (1,612)
Taxation - - -
---------- ---------- ----------
Net cash inflows from operating
activities 3,427 3,846 4,586
---------- ---------- ----------
Cash flows from investing
activities
Purchases of investments (21,265) (47,266) (78,467)
Sales of investments 24,507 41,531 69,931
Net cash (outflow) / inflow for
hedge instruments (1,271) 29 29
Transaction costs (204) (298) (549)
---------- ---------- ----------
1,767 (6,004) (9,056)
---------- ---------- ----------
Cash flows from financing
activities
Equity dividends paid (3,101) (3,101) (5,715)
---------- ---------- ----------
Net increase /(decrease) in cash and
cash equivalents 2,093 (5,259) (10,185)
---------- ---------- ----------
Cash and cash equivalents at start
of period (11,103) (918) (918)
---------- ---------- ----------
Cash and cash equivalents at end of
period (9,010) (6,177) (11,103)
---------- ---------- ----------
Cash and cash equivalents comprise:
Cash and cash equivalents 50 123 2
Short-term borrowings (9,060) (6,300) (11,105)
---------- ---------- ----------
(9,010) (6,177) (11,103)
---------- ---------- ----------
Consolidated Statement of Changes in Equity (Unaudited)
Share Share Realised Unrealised Retained Total
Capital Premium Capital Capital Revenue
Reserve Reserve Reserve
£000 £000 £000 £000 £000 £000
As at 1
April
2004
(restated) 14,888 19,039 27,872 2,110 7,316 71,225
Revenue
for
the period - - - - 3,233 3,233
Transfer
of
Capital
profits - (26) (2,670) 4,050 - 1,354
Equity
dividends - - - - (3,101) (3,101)
------- -------- -------- -------- -------- -------
As at 30
September
2004
(restated) 14,888 19,013 25,202 6,160 7,448 72,711
Revenue
for
the period - - - - 2,201 2,201
Transfer
of
Capital
profits - (26) 2,275 6,654 - 8,903
Equity
dividends - - - - (2,612) (2,612)
------- -------- -------- -------- -------- -------
As at 31
March
2005
(restated) 14,888 18,987 27,477 12,814 7,037 81,203
Revenue
for
the period - - - - 2,718 2,718
Transfer
of
capital
profits - (26) (2,992) 8,047 - 5,029
Equity
dividends - - - - (3,101) (3,101)
------- -------- -------- -------- -------- -------
As at 30
September 14,888 18,961 24,485 20,861 6,654 85,849
2005 ------- -------- -------- -------- -------- -------
Distribution of Assets
Valuation at Purchases Sales Appreciation/ Valuation at
31 March 2005 (Depreciation) 30 September 2005
Restated (unaudited)
(audited)
£000 % £000 £000 £000 £000 %
Listed
investments
Ordinary
shares 81,897 100.9 20,592 (22,560) 6,737 86,666 101.0
Convertibles 7,538 9.3 - (1,947) 671 6,262 7.3
Other fixed
interest 22,748 28.0 674 - 1,104 24,526 28.6
Hedging
Instruments 89 0.1 1,271 - (2,178) (818) (1.0)
------- ------ -------- ------- --------- ------- ------
112,272 138.3 22,537 (24,507) 6,334 116,636 135.9
Unlisted
Investments 3,213 4.0 - - (303) 2,910 3.4
------- ------ -------- ------- --------- ------- ------
115,485 142.3 22,537 (24,507) 6,031 119,546 139.3
Other Current
assets 2,960 3.6 1,817 2.1
Other Current
liabilities (11,526) (14.2) (9,502) (11.1)
Non current
liabilities (25,716) (31.7) (26,012) (30.3)
------- ------ ------- ------
Net assets 81,203 100.0 85,849 100.0
------- ------ ------- ------
Net asset
value 273.5p 289.1p
per share
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