Final Results
Shires Smaller Companies PLC
25 March 2008
News Release
25 March 2008
Shires Smaller Companies plc
Annual Results for the
Year to 31 December 2007
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 2007 31 December 2006
Total investments £84.9m £96.6m
Shareholders' funds £50.8m £63.9m
Net asset value per share 229.9p 289.0p
Share price 185.50p 268.25p
Discount (share price to adjusted net asset 17.6% 5.6%
value)*
Revenue return per share 15.75p 14.90p
Dividends per share 14.95p 14.50p
* IFRS NAV excluding dividend adjustment of 4.90p (2006-4.75p)
• Dividends declared in respect of the year ended 31 December 2007 were
14.95p, compared to 14.50p in the year to 31 December 2006. This represents
an increase of 3.1%.
• The yield on the Company's ordinary shares was 8.1% at 31 December 2007.
This compares to a yield on FTSE Small Cap (excluding Investment Companies),
the Company's benchmark, of 2.7%.
• The Total return on net assets was -16.2%, better than the benchmark
return of -17.9%. The share price total return of -27.0% reflects the
widening of discounts across investment trusts as a whole and, more
markedly, in the smaller companies sector.
• Subject to unforeseen circumstances, initial estimates suggest there is
capacity for a further increase in the dividend in the year to 31 December
2008. However, this should not be taken as a forecast of profits.
For further information, please contact:-
Kenneth Harper
Aberdeen Asset Management plc,
0131-528-4000
Chairman's Statement
Financial Highlights
In the year to 31 December 2007, the Company maintained its progressive dividend
policy with dividends paid by the Company rising from 14.50p to 14.95p, an
increase of 3.1%. This increase in dividend also helped maintain the attractive
yield of the Company. As at 31 December 2007 the Company's shares yielded 8.1%,
compared to only 2.74% on the Company's benchmark, the FTSE SmallCap Index
(excluding Investment Companies) and 3.02% on the FTSE All-Share Index.
Subject to unforeseen circumstances, initial estimates suggest there is capacity
for a further increase in the dividend in the year to 31 December 2008. However,
this should not be taken as a forecast of profits.
Investment Returns
The total return on net assets over the year was -16.2% compared to the
benchmark return of -17.9%. This fall in NAV and in the SmallCap sector as a
whole was due to investor sentiment turning away from small cap stocks due to a
number of reasons including:
O As the global credit crisis hit markets in the summer investors started to
move into larger, more liquid stocks.
O Smaller Companies have more exposure to the domestic economy which was
viewed to be slowing due to interest rate rises and fears over the extent
of bank write downs caused by the credit crisis.
O A fear that smaller companies may find it difficult to obtain financing
from Banks as the credit crunch took hold
The total return to shareholders, or share price total return, was -27.0%. This
reflects the fact that the discount at which the share price stood to net asset
value per share was 17.6% at 31 December 2007 compared to 5.6% at 31 December
2006. This increase in the discount reflects the widening of discounts across
investment trusts as a whole and, more markedly, in the smaller companies
sector.
Earnings and Dividends
The revenue return per share is 15.75p for the year to 31 December 2007.
Dividends actually paid in the year and accounted for in this Annual report
amounted to 14.80p. This comprises the fourth interim dividend of 2006 amounting
to 4.75p and the first three interim dividends of 2007 totalling 10.05p (2006 -
9.75p). The fourth interim dividend for 2007 of 4.90p which was announced on 3
January 2008 and paid on 31 January 2008 will be included in the financial
statements for the year ended 31 December 2008.
Portfolio Profile and Gearing
At 31 December 2007 107.8% of net assets were invested in equities compared to
99.4% as at 31 December 2006. Total gearing also rose to 67.1% from 51.1% of net
assets. Both these rises were due to the overall fall in the value of the
Company's investments.
AIC/JP Morgan Claverhouse VAT Test Case
The European Court of Justice ('ECJ') ruled on the case brought by the AIC and
JP Morgan Claverhouse against Her Majesty's Revenue and Customs ('HMRC') on 28
June 2007. As a result of the ruling the Company will not be subject to VAT on
its management fees going forward and will recover at least some of the VAT
suffered in the past. Appropriate steps have been taken to protect the Company's
position in this respect. The Board is currently in discussion with the
Manager's on this issue and a number of legal and procedural matters still
require to be resolved. In addition a recent decision by the House of Lords to
potentially allow such claims to go back to 1990 has further added to the
complexity of calculating any repayment due. Given these uncertainties no asset
is yet being recognised in the financial statements. However it is estimated
that the repayment due to the Company, based on VAT paid from 2001 onwards,
could range from 1.75p-2.25p per share.
Investment Manager
As explained in the Interim Report, Aberdeen Asset Management plc ('Aberdeen')
acquired Glasgow Investment Managers Limited on 24 August 2007. As part of the
transition to Aberdeen the management contract and the secretarial function of
the Company were transferred to the Aberdeen group on 22 February 2008.
Outlook
The fall in equity values has discounted a slowdown in economic activity and has
particularly affected the smaller companies sector. In the shorter term equities
are unlikely to make upward progress until the full extent of the financial
write-offs is known. When sentiment begins to improve, smaller companies are
well placed to recover from their recent declines, as valuations are no longer
at a premium to larger companies.
The Annual Report will be mailed to shareholders on 31 March 2008. Copies may
be obtained from the Managers, Aberdeen Asset Managers Limited, 40 Princes
Street, Edinburgh, EH2 2BY after that date.
H.S. Cathcart
Chairman
25 March 2008
Consolidated Income Statement
for the Year ended 31 December 2007
2007 2006
(unaudited) (audited)
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Gains and losses on Investments
(Losses)/Gains on investments at fair - (11,168) (11,168) - 8,859 8,859
value
Fair value movement in Zero coupon
finance derivatives - (1,119) (1,119) - (455) (455)
Investment Income
Dividend income 3,278 - 3,278 2,985 - 2,985
Interest income from investments 1,536 (102) 1,434 1,472 (73) 1,399
Deposit interest 6 - 6 13 - 13
Net (loss)/gain of dealing subsidiary (162) - (162) 5 - 5
4,658 (12,389) (7,731) 4,475 8,331 12,806
Expenses
Investment management fee (409) (409) (818) (409) (409) (818)
Other administrative expenses (281) - (281) (325) - (325)
Finance cost of borrowings (484) (484) (968) (447) (447) (894)
Profit/(loss) before tax 3,484 (13,282) (9,798) 3,294 7,475 10,769
Tax expense - - - - - -
Profit/(loss) attributable to equity
holders of the Group 3,484 (13,282) (9,798) 3,294 7,475 10,769
Earnings per ordinary share 15.75p (60.07)p (44.32)p 14.90p 33.81p 48.71p
The total column of this statement represents the Group's Income Statement,
prepared in accordance with IFRS. The supplementary revenue return and capital
columns are both prepared under guidance published by the Association of
Investment Companies.
All items shown in the above statement derive from continuing operations.
All income is attributable to the equity holders of the parent company. There
are no minority interests.
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
2006 and 2007 but is derived from those accounts. Statutory accounts for 2006
have been delivered to the Registrar of Companies and those for 2007 will be
delivered following the Company's annual general meeting. The auditors have
issued an unqualified opinion for 2006. The audit for 2007 is not yet complete.
Group Balance Sheet
as at 31 December 2007
31 December 31 December
2007 2006
(unaudited) (audited)
£000 £000
Non current assets
Ordinary shares 54,792 63,537
Convertibles 1,410 1,548
Corporate bonds 20,636 21,220
Other fixed interest 8,097 10,270
Securities at fair value 84,935 96,575
Zero coupon finance derivatives at fair value 2,765 5,752
87,700 102,327
Current assets
Trade and other receivables - 1,456
Accrued income and prepayments 1,156 1,399
Investments of dealing subsidiary at fair value 455 617
Cash and cash equivalents 115 -
Zero Coupon Finance derivatives at fair value 4,644 -
6,370 3,472
Total assets 94,070 105,799
Current liabilities
Trade and other payables (281) (346)
Short-term borrowings (5,554) (6,922)
Zero Coupon Finance derivatives at fair value (20,028) -
(25,863) (7,268)
Non current liabilities
Long-term loan (10,000) (10,000)
Zero coupon finance derivatives at fair value (7,375) (24,627)
(17,375) (34,627)
Net assets 50,832 63,904
Issued capital and reserves attributable to
equity holders of the parent
Called up share capital 11,055 11,055
Share premium account 11,892 11,892
Capital redemption reserve 2,032 2,032
Retained earnings
Capital reserve - realised 23,282 21,090
Capital reserve - unrealised - 15,474
Revenue reserve 2,571 2,361
50,832 63,904
Net asset value per ordinary share 229.9p 289.0p
Consolidated Statement of Changes in Equity
For the year ended 31 December 2007 (Unaudited)
---------Retained Earnings------
Share Share Capital Capital Capital Retained Total
Capital Premium Redemption Reserve - Reserve- Revenue
Account Reserve Realised Unrealised Reserve
£000 £000 £000 £000 £000 £000 £000
As at 31 December 2006 11,055 11,892 2,032 21,090 15,474 2,361 63,904
Reclassification of - - - 15,474 (15,474) - -
Reserves*
Revenue profit for the - - - - - 3,484 3,484
year
Capital (losses) for the - - - (13,282) - - (13,282)
year
Equity dividends - - - - - (3,274) (3,274)
As at 31 December 2007 11,055 11,892 2,032 23,282 - 2,571 50,832
*With effect from 1 January 2007, changes in fair value of investments which are
readily convertible to cash, without accepting adverse terms, at the Balance
Sheet date are included in realised, rather than unrealised, capital reserves.
The balances on both reserves at 1 January 2007 have been amended by a reserve
transfer to reflect this change.
Group Cash Flow Statement
for the year ended 31 December 2007
Year to Year to
31 December 31 December
2007 2006
(unaudited) (audited)
£000 £000
Cash flows from operating activities
Investment income received 5,052 4,204
Deposit interest received 6 16
Investment management fee paid (864) (818)
Net purchases of dealing subsidiary - (247)
Other cash expenses (299) (324)
Cash generated from operations 3,895 2,831
Interest paid (966) (896)
Net cash inflows from operating activities 2,929 1,935
Cash flows from investing activities
Purchases of investments (32,004) (43,956)
Sales of investments 33,740 44,050
Special Dividends 90 -
Net cash inflows from investing activities 1,826 94
Cash flows from financing activities
Equity dividends paid (3,272) (3,206)
Net cash outflow from financing activities (3,272) (3,206)
Net increase/(decrease) in cash and cash equivalents 1,483 (1,177)
Cash and cash equivalents at start of period (6,922) (5,745)
Cash and cash equivalents at end of period (5,439) (6,922)
Cash and cash equivalents comprise:
Cash and cash equivalents 115 -
Short-term borrowings (5,554) (6,922)
(5,439) (6,922)
Distribution of Assets and Liabilities
Valuation at Gains/ Valuation at
31 December Purchases Sales Other* (losses) 31 December
2006 2007
£000 % £000 £000 £000 £000 £000 %
Listed investments
Ordinary shares 63,537 99.4 19,444 (19,403) (90) (8,696) 54,792 107.8
Convertibles 1,548 2.4 - - - (138) 1,410 2.8
Corporate bonds 21,220 33.2 2,197 (2,175) - (606) 20,636 40.6
Other fixed interest 10,270 16.1 10,363 (10,706) (102) (1,728) 8,097 15.9
96,575 151.1 32,004 (32,284) (192) (11,168) 84,935 167.1
Other non current
assets 5,752 9.0 2,765 5.4
Current assets 3,472 5.4 6,370 12.5
Current liabilities (7,268) (11.4) (25,863) (50.9)
Non current liabilities (34,627) (54.1) (17,375) (34.1)
Net assets 63,904 100.0 50,832 100.0
Net asset value
per share 289.0p 229.9p
* Includes capitalised dividend of £90,000 and amortisation costs of £102,000
This information is provided by RNS
The company news service from the London Stock Exchange
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