Half Yearly Report

RNS Number : 0274S

Shires Income PLC

15 November 2011

 



SHIRES INCOME PLC

HALF YEARLY FINANCIAL REPORT

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2011

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.

	30 September 2011	31 March 2011	% change
Equity shareholders' funds (£'000)	51,731	58,733	-11.9
Net asset value per share	174.19p	197.77p	-11.9
Share price (mid market)	176.00p	190.00p	-7.4
Premium/(discount) to adjusted NAV¹	2.8%	(0.9%)
Dividend yield	6.82%	6.32%
¹Based on IFRS NAV above reduced by dividend adjustment of 3.00p (31 March 2011 - 6.00p).

	6 months ended	1 year ended	3 years ended	5 years ended
	30 September	30 September	30 September	30 September
	2011	2011	2011	2011
Net asset value	-9.2%	-1.6%	+16.0%	-17.4%
Share price	-4.5%	-1.0%	+31.8%	-12.5%
FTSE All-Share Index	-11.8%	-4.4%	+19.2%	+4.0%
All figures are for total return and assume re-investment of net dividends excluding transaction costs.

For further information, please contact:-

Ed Beal, Kenny Harper                                                                         0131 528 4000

Aberdeen Asset Managers Limited

William Hemmings                                                                                020 7463 6000

Aberdeen Asset Managers Limited

INTERIM BOARD REPORT

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2011

Background

Markets started the year in a positive manner as investors focussed more on the potential for ongoing recovery than on the growing macroeconomic threats.  This was evident in the performance of the FTSE 100 Index which crossed through the 6000 level for just the fourth time since September 2008.  However, by the start of May confidence had begun to wane as investors worried about the high oil price and the Japanese earthquake.  Equities began a decline that continued throughout the period. 

In Europe the Central Bank put further pressure on the struggling peripheral economies as it raised interest rates and indicated it may raise them further.  Growth in the UK was disappointing and inflation was well above target.  In the US there was a developing debt crisis as the politicians failed to agree a path for future reductions in indebtedness.  Although this dispute was eventually resolved it resulted in Standard & Poor's downgrading their rating.

As the Western economies struggled to deliver the growth necessary to allow them to reduce their debt burden it was hoped that the Asian countries would provide an engine for international growth.  Such expectations were dealt a blow when it became apparent that whilst still strongly positive, growth in China was beginning to slow.  This combined with a strengthening US$ resulted in a sharp fall in commodity prices.

By the second quarter of the financial year the risk of a double dip recession was vexing various international authorities.  In the US the Federal Reserve announced further measures to support the economy in the form of "Operation Twist" and also announced that interest rates would be held near to zero until 2013.  In the EU the European Central Bank hinted that recent interest rate increases may have to be reversed.  Meanwhile the UK Monetary Policy Committee raised the possibility of further stimulatory activity.

Clearly such an environment is not positive for equity markets.  However, the most significant issue affecting investors was the developing European debt crisis.  Whilst there has been a series of measures designed to provide reassurance that the members of the Euro would provide a bailout for Greece in the event of default, these have proven insufficient to calm investors.  They are focussing on the potential for contagion and the risk that this could spread not just through the peripheral Countries but into the core of the region.  Concern is mounting for Italy and Spain and in particular their reliance on sovereign debt.  It should be noted that the Company holds no direct investments in Euro denominated stocks. 

Investment Performance

In the half year ended 30 September 2011, the Company's net assets per share decreased by 11.9% from 197.8p to 174.2p.  The total return on net assets, which includes dividends, decreased by 9.2%, which during the period was ahead of our benchmark, (the FTSE All-Share Index) which reported a total return of -11.8%.  The total return of the Company's share price was -4.5% helped by the discount narrowing from 0.9% to a premium of 2.8% over the half year. 

Portfolio Profile

Two new companies were introduced during the period.  Experian is a provider of credit monitoring and related activities and Compass a global contract catering and food service business.  The portfolio benefitted from the acquisition of Chaucer by Hanover.

Profits were taken in a number of businesses that had performed well.  These included Weir Group, Provident Financial and British American Tobacco.  The holding in Millennium & Copthorne was sold.  The proceeds were re-invested into companies that had underperformed or had attractive yields.  Amongst these were BHP Billiton, Morrisons, Prudential and Royal Dutch Shell.

There has been no significant change to the overall allocations in the portfolio.  At the end of September 2011 approximately two thirds of the gross assets were invested in equities with the balance being in preference shares, convertibles and cash.  No new investments were made in preference or convertible shares during the period.

Dividends

At the time of the announcement of the full year results for the year to 31 March 2011, the Board indicated that in the absence of unforeseen events they anticipated being able to maintain the dividend at 12p per share during this financial year.  It remains the case that such a distribution is likely to require the utilisation of a modest amount of the Company's reserves.

The outlook for dividends has been improving.  During this half year there were 15 companies in the portfolio that raised their dividends by more than 10%.  It should be remembered though, that despite some very significant headline increases many of these were coming from very low bases.  In addition there were two companies, BP and Persimmon that returned to the dividend list.  The Company held no companies that found it necessary to cut their dividends.  It is worth noting however that despite the successes of the first half it is only prudent to anticipate a slower rate of dividend growth during the second half and into 2012.

Outlook

It seems probable that 2012 will be a more difficult year for many companies.  Growth is slowing and the benefits experienced in the initial stages of a recovery have largely been seen.  Those businesses that are exposed to consumer or more general discretionary expenditure or those that lack pricing power are likely to find that it is difficult to deliver sales growth.  At the same time margins may well come under pressure given they are typically already at peak levels.

There are though reasons to be optimistic.  Most UK based companies generate a significant proportion, in some cases a majority, of their sales from overseas thus reducing their reliance on UK public and private sector spending.  In aggregate corporate balance sheets are less leveraged than they have been for many years, therefore companies should be better able to cope with a more difficult environment.  Perhaps the most supportive factor for equities is their valuations.  In the UK equities appear attractively valued relative both to other asset classes, overseas equities and historical multiples.  Whilst it is true that analysts' forecasts have probably not yet factored in a material slowing of growth, equity prices increasingly seem to be doing so.

Regardless of the performance of the economy the markets will be impacted by the ongoing credit crisis on the Continent.  The impact of a disorderly default by Greece accompanied by cross border and institutional contagion would be materially more severe than a second slowdown or even recession.  For this reason it is imperative that the respective authorities deliver a credible resolution to the current situation.

In the meantime your Manager will continue to invest in companies that they believe have quality business models capable of delivering growth in profits and dividends over the medium term.

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 short-term borrowings from banking institutions and bears interest at floating rates.  The profile of financing costs is managed as part of overall investment strategy. The current loan expires in February 2013. 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 2011.

Going Concern

The Company's assets comprise mainly readily realisable securities which can be sold to meet funding commitments if necessary. The Board considers that the Group has adequate financial resources to continue in operational existence for the foreseeable future.

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 ended 30 September 2011 comprises the Interim Board Report, the Directors' Responsibility Statement and a condensed set of financial statements.

For and on behalf of the Board of Shires Income PLC

Anthony B. Davidson

Chairman

14 November 2011

DISTRIBUTION OF ASSETS AND LIABILITIES

	Valuation at		Movement during the period				Valuation at
	31 March					Gains/	30 September
	2011		Purchases	Sales	Other	(losses)	2011
	£'000	%	£'000	£'000	£'000	£'000	£'000	%
Listed investments
Ordinary shares	51,693	88.0	2,522	(2,215)	-	(5,346)	46,654	90.2
Convertibles	1,329	2.2	-	-	-	(34)	1,295	2.5
Preference shares	21,295	36.3	-	-	(65)	(1,540)	19,690	38.1
	_______	_______	_______	_______	_______	_______	_______	_______
	74,317	126.5	2,522	(2,215)	(65)	(6,920)	67,639	130.8
Current assets	3,120	5.3					2,799	5.4
Current liabilities	(18,704)	(31.8)					(18,707)	(36.2)
	_______	_______					_______	_______
Net assets	58,733	100.0					51,731	100.0
	_______	_______					_______	_______
Net asset value per Ordinary share	197.8p						174.2p
	_______						_______

STATEMENT OF COMPREHENSIVE INCOME

		Six months ended
		30 September 2011
		(unaudited)
		Revenue	Capital	Total
	Note	£'000	£'000	£'000
(Losses)/gains on investments at fair value		-	(6,921)	(6,921)
Net currency gain		-	-	-
Investment income
Dividend income		1,732	-	1,732
Interest income from investments		402	(63)	339
Stock dividend		19	-	19
Traded option premiums		121	-	121
Deposit interest		-	-	-
Money market interest		5	-	5
Other income		-	-	-
		__________	__________	__________
		2,279	(6,984)	(4,705)
		__________	__________	__________
Expenses
Investment management fees		(80)	(79)	(159)
VAT recoverable on investment management fees		-	-	-
Other administrative expenses		(142)	-	(142)
Finance costs of borrowings		(93)	(94)	(187)
		__________	__________	__________
		(315)	(173)	(488)
		__________	__________	__________
Profit/(loss) before tax		1,964	(7,157)	(5,193)
Taxation	2	(54)	54	-
		__________	__________	__________
Profit/(loss) attributable to equity holders of the Company	3	1,910	(7,103)	(5,193)
		__________	__________	__________
Earnings/(loss) per Ordinary share (pence)	4	6.43	(23.92)	(17.49)
		__________	__________	__________

The Company does not have any income or expense that is not included in profit/(loss) for the period, and therefore the profit/(loss) for the period is also the "Total comprehensive income for the period", as defined in IAS 1 (revised).

All of the profit/(loss) and total comprehensive income is attributable to the equity holders of the parent company. There are no minority interests.

The total column of this statement represents the Statement of Comprehensive Income of the Company, 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 Companies.

All items in the above statement derive from continuing operations.

During the period the Company's two subsidiary undertakings, Topshire Limited and Wiston investment Company Limited were formally dissolved.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Cont'd)

		Six months ended
		30 September 2010
		(unaudited)
		Revenue	Capital	Total
	Note	£'000	£'000	£'000
(Losses)/gains on investments at fair value		-	703	703
Net currency gain		-	-	-
Investment income
Dividend income		1,673	-	1,673
Interest income from investments		410	(136)	274
Stock dividend		18	-	18
Traded option premiums		55	-	55
Deposit interest		-	-	-
Money market interest		2	-	2
Other income		6	-	6
		__________	__________	__________
		2,164	567	2,731
		__________	__________	__________
Expenses
Investment management fees		(75)	(75)	(150)
VAT recoverable on investment management fees		-	-	-
Other administrative expenses		(155)	-	(155)
Finance costs of borrowings		(179)	(179)	(358)
		__________	__________	__________
		(409)	(254)	(663)
		__________	__________	__________
Profit/(loss) before tax		1,755	313	2,068
Taxation	2	(14)	14	-
		__________	__________	__________
Profit/(loss) attributable to equity holders of the Company	3	1,741	327	2,068
		__________	__________	__________
Earnings/(loss) per Ordinary share (pence)	4	5.86	1.10	6.96
		__________	__________	__________

 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Cont'd)

		Year ended
		31 March 2011
		(audited)
		Revenue	Capital	Total
	Note	£'000	£'000	£'000
(Losses)/gains on investments at fair value		-	4,012	4,012
Net currency gain		-	9	9
Investment income
Dividend income		3,176	-	3,176
Interest income from investments		761	(129)	632
Stock dividend		31	-	31
Traded option premiums		160	-	160
Deposit interest		1	-	1
Money market interest		6	-	6
Other income		18	-	18
		__________	__________	__________
		4,153	3,892	8,045
		__________	__________	__________
Expenses
Investment management fees		(156)	(155)	(311)
VAT recoverable on investment management fees		10	11	21
Other administrative expenses		(304)	-	(304)
Finance costs of borrowings		(363)	(363)	(726)
		__________	__________	__________
		(813)	(507)	(1,320)
		__________	__________	__________
Profit/(loss) before tax		3,340	3,385	6,725
Taxation	2	(48)	48	-
		__________	__________	__________
Profit/(loss) attributable to equity holders of the Company	3	3,292	3,433	6,725
		__________	__________	__________
Earnings/(loss) per Ordinary share (pence)	4	11.09	11.55	22.64
		__________	__________	__________

CONSOLIDATED BALANCE SHEET

		As at	As at	As at
		30 September	30 September	31 March
		2011	2010	2011
		(unaudited)	(unaudited)	(audited)
	Note	£'000	£'000	£'000
Non-current assets
Ordinary shares		46,654	47,993	51,693
Convertibles		1,295	1,328	1,329
Other fixed interest		19,690	21,686	21,295
Unlisted investments		-	283	-
		__________	__________	__________
Securities at fair value		67,639	71,290	74,317
		__________	__________	__________
Current assets
Trade and other receivables		-	-	53
Accrued income and prepayments		723	1,030	1,086
Cash and cash equivalents		2,076	1,718	1,981
		__________	__________	__________
		2,799	2,748	3,120
		__________	__________	__________
Total assets		70,438	74,038	77,437
Current liabilities
Trade and other payables		(207)	(180)	(204)
Short-term borrowings		(18,500)	(18,000)	(18,500)
		__________	__________	__________
		(18,707)	(18,180)	(18,704)
		__________	__________	__________
Net assets		51,731	55,858	58,733
		__________	__________	__________
Share capital and reserves attributable to equity holders of the parent
Called-up share capital		14,899	14,899	14,899
Share premium account		18,840	18,840	18,840
Capital reserve	5	12,070	16,010	19,116
Revenue reserve		5,922	6,109	5,878
		__________	__________	__________
		51,731	55,858	58,733
		__________	__________	__________
Net asset value per Ordinary share (pence)		174.19	188.09	197.77
		__________	__________	__________

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Six months ended 30 September 2011 (unaudited)
			Share		Retained
		Share	premium	Capital	revenue
		capital	account	reserve	reserve	Total
	Note	£'000	£'000	£'000	£'000	£'000
As at 31 March 2011		14,899	18,840	19,116	5,878	58,733
Dissolution of Subsidiary		-	-	57	(85)	(28)
Revenue profit for the period		-	-	-	1,910	1,910
Capital losses for the period		-	-	(7,103)	-	(7,103)
Equity dividends	3	-	-	-	(1,781)	(1,781)
		_______	_______	_______	_______	_______
As at 30 September 2011		14,899	18,840	12,070	5,922	51,731
		_______	_______	_______	_______	_______
Six months ended 30 September 2010 (unaudited)
			Share		Retained
		Share	premium	Capital	revenue
		capital	account	reserve	reserve	Total
		£'000	£'000	£'000	£'000	£'000
As at 31 March 2010		14,899	18,840	15,683	6,151	55,573
Revenue profit for the period		-	-	-	1,741	1,741
Capital gains for the period		-	-	327	-	327
Equity dividends	3	-	-	-	(1,783)	(1,783)
		_______	_______	_______	_______	_______
As at 30 September 2010		14,899	18,840	16,010	6,109	55,858
		_______	_______	_______	_______	_______
Year ended 31 March 2011 (audited)
			Share		Retained
		Share	premium	Capital	revenue
		capital	account	reserve	reserve	Total
		£'000	£'000	£'000	£'000	£'000
As at 31 March 2010		14,899	18,840	15,683	6,151	55,573
Revenue profit for the year		-	-	-	3,292	3,292
Capital gains for the year		-	-	3,433	-	3,433
Equity dividends	3	-	-	-	(3,565)	(3,565)
		_______	_______	_______	_______	_______
As at 31 March 2011		14,899	18,840	19,116	5,878	58,733
		_______	_______	_______	_______	_______

CONSOLIDATED CASHFLOW STATEMENT

	Six months ended	Six months ended	Year ended
	30 September 2011	30 September 2010	31 March 2011
	(unaudited)	(unaudited)	(audited)
	£'000	£'000	£'000
Cash flows from operating activities
Investment income received	2,514	2,228	3,871
Deposit interest received	-	-	1
Money market interest received	5	2	6
Investment management fee paid	(163)	(151)	(309)
Sales of dealing subsidiary	-	-	21
Other cash receipts	139	152	60
Other cash expenses	(182)	(160)	(276)
	__________	__________	__________
Cash generated from operations	2,313	2,071	3,374
Interest paid	(191)	(268)	(558)
Taxation	(1)	-	1
	__________	__________	__________
Net cash inflows from operating activities	2,121	1,803	2,817
	__________	__________	__________
Cash flows from investing activities
Purchases of investments	(2,480)	(2,008)	(4,295)
Sales of investments	2,235	4,556	7,365
	__________	__________	__________
Net cash (outflow)/inflow from investing activities	(245)	2,548	3,070
	__________	__________	__________
Cash flows from financing activities
Equity dividends paid	(1,781)	(1,783)	(3,565)
	__________	__________	__________
Net cash outflow from financing activities	(1,781)	(1,783)	(3,565)
	__________	__________	__________
Net increase in cash and cash equivalents	95	2,568	2,322
Cash and cash equivalents at start of period	(16,519)	(18,850)	(18,850)
Effect of currency gains	-	-	9
	__________	__________	__________
Cash and cash equivalents at end of period	(16,424)	(16,282)	(16,519)
	__________	__________	__________
Cash and cash equivalents comprise:
Cash and cash equivalents	2,076	1,718	1,981
Short-term borrowings	(18,500)	(18,000)	(18,500)
	__________	__________	__________
	(16,424)	(16,282)	(16,519)
	__________	__________	__________

Notes to the Financial Statements

For the six months ended 30 September 2011

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 2011 financial statements, which received an unqualified audit report.
	(b)	Dividends payable
		Dividends are recognised in the period in which they are paid.
	(c)	During the period the Company's two subsidiary undertakings, Topshire Limited and Wiston Investment Company Limited were formally dissolved.

2.	Taxation
	The taxation expense reflected in the Statement of Comprehensive Income is calculated at a rate of 26%, which is based on management's best estimate of the weighted average annual income tax rate expected for the full financial year.

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 2011	30 September 2010	31 March 2011
		£'000	£'000	£'000
	Revenue	1,910	1,741	3,292
	Dividends declared	(891)¹	(891)²	(3,564)³
		__________	__________	__________
		1,019	850	(272)
		__________	__________	__________
	¹First interim dividend (3.00p) declared in respect of the financial year 2011/12.
	²First interim dividend (3.00p) declared in respect of the financial year 2010/11.
	³ First three interim dividends (each 3.00p) and the final dividend (3.00p) declared in respect of the financial year 2010/11.

		Six months ended	Six months ended	Year ended
4.	Return and net asset value per share	30 September 2011	30 September 2010	31 March 2011
	Returns are based on the following attributable assets:
		£'000	£'000	£'000
	Revenue return	1,910	1,741	3,292
	Capital return	(7,103)	327	3,433
		__________	__________	__________
	Total return	(5,193)	2,068	6,725
		__________	__________	__________
	Weighted average number of Ordinary shares in issue	29,697,580	29,697,580	29,697,580
		__________	__________	__________
	The net asset value per Ordinary share is based on net assets attributable to Ordinary shareholders of £51,731,000 (30 September 2010 - £55,858,000; 31 March 2011 - £58,733,000) and on 29,697,580 (30 September 2010 and 31 March 2011 - 29,697,580) Ordinary shares in issue at the period end.

5.	Capital reserve
	The capital reserve reflected in the Balance Sheet at 30 September 2011 includes losses of £3,226,000 (30 September 2010 - gains of £966,000; 31 March 2011 - gains of £3,870,000) which relate to the revaluation of investments held at the reporting date.

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 gains on investments at fair value in the Statement of Comprehensive Income. The total costs were as follows:
		Six months ended	Six months ended	Year ended
		30 September 2011	30 September 2010	31 March 2011
		£'000	£'000	£'000
	Purchases	13	6	24
	Sales	2	12	8
		__________	__________	__________
		15	18	32
		__________	__________	__________

7.	Commitments, contingencies and post Balance Sheet events
	At 30 September 2011 there were no contingent liabilities in respect of outstanding underwriting commitments or uncalled capital (30 September 2010 and 31 March 2011 - £nil).

8.	The financial information contained in this Half-Yearly Financial Report does not constitute statutory accounts as defined in Sections 434 - 436 of the Companies Act 2006. The financial information for the six months ended 30 September 2011 and 30 September 2010 has not been audited.
	The information for the year ended 31 March 2011 has been extracted from the latest published audited financial statements which have been filed with the Registrar of Companies. The report of the auditor on those accounts contained no qualification or statement under Section 498 (2), (3) or (4) of the Companies Act 2006.
	This report has not been reviewed or audited by the Company's auditor.

9.	This Half-Yearly Financial Report was approved by the Board on 14 November 2011.

10.    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 2011 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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