Half Yearly Report

RNS Number : 2974C

Shires Income PLC

11 November 2009

 



SHIRES INCOME PLC

HALF YEARLY FINANCIAL REPORT 

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2009

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 2009	31 March 2009	% change
Equity shareholders' funds (£'000)	£51,526	£35,271	+46.1
Net asset value per share	173.50p	118.77p	+46.1
Share price (mid market)	162.50p	109.00p	+49.1
(Discount)/premium to adjusted NAV{A}	(4.7%)	1.1%
Dividend yield	7.4%	18.1%
{A} Based on IFRS NAV above reduced by dividend adjustment of 3.00p (31 March 2009 - 10.95p).

	6 months ended	1 year ended	3 years ended	5 years ended
	30 September	30 September	30 September	30 September
	2009	2009	2009	2009
Net asset value	+58.9%	+1.6%	-27.6%	+6.9%
Share price	+62.7%	+6.9%	-29.0%	+7.8%
FTSE All-Share Index	+35.7%	+10.8%	-3.4%	+38.4%
All figures are for total return and assume re-investment of net dividends excluding transaction costs.

For further information, please contact:-

Susan Anderson, 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 2009

Background

Since the beginning of our financial year, the massive remedial action taken by the UK government and the Bank of England in late 2008 and early 2009 has stabilised both the financial system and deteriorating economic trends. The key monetary measure introduced in early March 2009, by both the UK and US central banks, was quantitative easing. The announcement of QE was a crucial factor in the restoration of confidence in financial markets this year. In addition, improved economic trends and better corporate news have restored risk appetite and resulted in a sharp recovery in equities and equity related investments such as corporate bonds and preference shares. Increased liquidity and low interest rates have also played a part in the revival of equity investment.  

Investment Performance

In the half year to 30 September 2009, the Company's net assets per share increased by 46% from 118.8p to 173.5p. The total return on net assets, which includes dividends, increased by 58.9% and was materially ahead of our benchmark. In the same six month period, the FTSE All Share index reported a total return of 35.7%. The total return on the Company's share price was 62.7%.

The Company's outperformance versus benchmark was due to the positive impact of both good stock selection and gearing in a period of increasing share prices. The equity portfolio benefited from its exposure to Industrial and Consumer Services sectors and from smaller company investments including the holding in Shires Smaller Companies. Preference share holdings were also positive contributors, although not as much as equities.

Portfolio Profile

Over the six months under review, the Company's gearing declined from 55.2% to 37.3%, principally due to the appreciation in assets. At the portfolio level, a small number of new holdings were added to diversify the assets, funded by sales such as Legal & General and BT, reductions in the preference share holdings in Royal & Sun Alliance and Standard Chartered and some top slicing in Persimmon and BATs. A new holding was established in Pearson, the media and education business which has a solid balance sheet and opportunities to develop its content from textbooks to the internet. Another new addition was Weir Group, the global engineering company which serves the oil & gas, energy and mining industries. Finally, the sale of ATH Resources was completed during the period and a position introduced in BHP Billiton, the world's largest diversified miner. 

The value of the listed investments increased from £52.7m to £69m. At the end of September 2009, around two thirds of gross assets were invested in equities with the balance in preference and convertible shares. No new investments were made in preference or convertible shares in the period.

Dividends

At the full year stage, the Board explained that the UK dividend environment was weak and that dividend cuts were likely to continue. After careful consideration of the projected revenue from the portfolio, the Board anticipated that it should be able to pay 12.0p per share for the year to 31 March 2010. The Board's caution proved justified with further dividend cuts announced by UK companies during our first half. The Board declared a first interim dividend of 3p net per share on 1st October was paid on 30th October to shareholders on the register as at close of business on 9th October. Income generation is monitored closely by the Manager and the Board continues to anticipate that your Company should be able to pay 12.0p per share for the full year. As shareholders will appreciate this prospect depends on market conditions and a still fragile economic situation.

AIC/JPMorgan Claverhouse VAT Test Case

The Company has finalised the reclaim of VAT charged on management fees. In total, £486,000, inclusive of interest, has been received. Further details are given in Note 7. The Board, in common with other investment company boards, is considering its position in relation to the interest received which has been calculated on a simple rate of interest.

Outlook

From the lows of March 2009, equity markets have recovered strongly and recouped a substantial part of the last twelve month's declines. Indeed, equity prices have risen to a point where valuations are close to their historic averages again. Part of this optimism is based on better than expected company results but we would caution that progress has been based on cost cutting measures while growth remains elusive.

In 2009, the UK economy is forecast to decline by around 4-5% and recover to growth of only 1% in 2010. The Manager expects de-leveraging by both companies and consumers to remain a dominant long term theme with consequences for growth. The combination of de-leveraging and modest economic growth does not justify high valuations, especially in more cyclical sectors. For those reasons, we believe markets may falter before moving ahead again.

There are reasons for optimism in certain areas like exports where weak sterling and demand from the Far East should benefit UK manufacturers. Defensive sectors have also been left behind in the recent stock market recovery and present opportunities to long term investors. Company balance sheets are being restored and dividends will eventually increase again, so the longer term prospects for equities relative to cash and bonds are sound. The Manager's strategy is to reduce investments where the valuations appear expensive and re-invest at lower levels and on a long term basis.

Anthony. B. Davidson

Chairman

11 November 2009

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. It has in issue an Index-Linked Debenture on which the interest payable and the capital sum to be repaid on 6 March 2010 are linked to the Retail Prices Index. Borrowing from banking institutions is also used and bears interest at floating rates. The profile of financing costs is managed as part of overall investment strategy. At this stage the Company has not opened formal renewal negotiations with its bankers but if acceptable terms are available from them or any alternative the Company would expect to maintain its current geared structure. 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 2009.

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 to 30 September 2009 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

11 November 2009

DISTRIBUTION OF ASSETS AND LIABILITIES

	Valuation at		Movement during the period				Valuation at
	31 March					Gains/	30 September
	2009		Purchases	Sales	Other	(losses)	2009
	£'000	%	£'000	£'000	£'000	£'000	£'000	%
Listed investments
Ordinary shares	33,527	95.1	5,611	(6,737)	-	12,861	45,262	87.8
Convertibles	1,265	3.6	-	-	-	(47)	1,218	2.4
Preference shares	17,886	50.7	-	(407)	(62)	5,099	22,516	43.7
	_______	_______	_______	_______	_______	_______	_______	_______
	52,678	149.4	5,611	(7,144)	(62)	17,913	68,996	133.9
Unlisted investments	2,053	5.8	-	-	-	(310)	1,743	3.4
	_______	_______	_______	_______	_______	_______	_______	_______
	54,731	155.2	5,611	(7,144)	(62)	17,603	70,739	137.3
	_______	_______	_______	_______	_______	_______	_______	_______
Current assets	2,907	8.2					2,698	5.2
Current liabilities	(22,367)	(63.4)					(21,911)	(42.5)
	_______	_______					_______	_______
Net assets	35,271	100.0					51,526	100.0
	_______	_______					_______	_______
Net asset value per Ordinary share	118.8p						173.5p
	_______						_______

CONSOLIDATED INCOME STATEMENT

		Six months ended
		30 September 2009
		(unaudited)
		Revenue	Capital	Total
	Note	£'000	£'000	£'000
Gains/(Losses) on Investments at fair value		-	17,577	17,577
Investment income
Dividend income		1,709	-	1,709
Interest income from investments		408	(62)	346
Stock dividend		19	-	19
Traded option premiums		125	-	125
Deposit interest		-	-	-
Money Market interest		-	-	-
Other income		75	-	75
Loss of dealing subsidiary		-	-	-
		__________	__________	__________
		2,336	17,515	19,851
		__________	__________	__________
Expenses
Investment management fee		(72)	(72)	(144)
VAT recoverable on investment management fees		74	74	148
Other administrative expenses		(139)	-	(139)
Finance costs of borrowings		(100)	(109)	(209)
		__________	__________	__________
		(237)	(107)	(344)
		__________	__________	__________
Profit/(loss) before tax		2,099	17,408	19,507
Taxation	2	-	-	-
		__________	__________	__________
Profit/(loss) attributable to equity holders of the Company	3	2,099	17,408	19,507
		__________	__________	__________
Earnings/(loss) per Ordinary share (pence)	4	7.07	58.62	65.68
		__________	__________	__________

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 in the above statement derive from continuing operations.

  CONSOLIDATED INCOME STATEMENT (Cont'd)

		Six months ended
		30 September 2008
		(unaudited)
		Revenue	Capital	Total
	Note	£'000	£'000	£'000
Gains/(Losses) on Investments at fair value		-	(15,681)	(15,681)
Investment income
Dividend income		2,704	-	2,704
Interest income from investments		334	(71)	263
Stock dividend		81	-	81
Traded option premiums		639	-	639
Deposit interest		29	-	29
Money Market interest		108	-	108
Other income		8	25	33
Loss of dealing subsidiary		(33)	-	(33)
		__________	__________	__________
		3,870	(15,727)	(11,857)
		__________	__________	__________
Expenses
Investment management fee		(94)	(94)	(188)
VAT recoverable on investment management fees		-	-	-
Other administrative expenses		(228)	-	(228)
Finance costs of borrowings		(541)	(557)	(1,098)
		__________	__________	__________
		(863)	(651)	(1,514)
		__________	__________	__________
Profit/(loss) before tax		3,007	(16,378)	(13,371)
Taxation	2	10	-	10
		__________	__________	__________
Profit/(loss) attributable to equity holders of the Company	3	3,017	(16,378)	(13,361)
		__________	__________	__________
Earnings/(loss) per Ordinary share (pence)	4	10.16	(55.15)	(44.99)
		__________	__________	__________

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 in the above statement derive from continuing operations.

  CONSOLIDATED INCOME STATEMENT (Cont'd)

		Year ended
		31 March 2009
		(audited)
		Revenue	Capital	Total
	Note	£'000	£'000	£'000
Gains/(Losses) on Investments at fair value		-	(37,832)	(37,832)
Investment income
Dividend income		4,618	-	4,618
Interest income from investments		731	(143)	588
Stock dividend		81	-	81
Traded option premiums		1,338	-	1,338
Deposit interest		39	-	39
Money Market interest		129	-	129
Other income		26	16	42
Loss of dealing subsidiary		(33)	-	(33)
		__________	__________	__________
		6,929	(37,959)	(31,030)
		__________	__________	__________
Expenses
Investment management fee		(165)	(165)	(330)
VAT recoverable on investment management fees		142	142	284
Other administrative expenses		(308)	-	(308)
Finance costs of borrowings		(1,071)	(1,103)	(2,174)
		__________	__________	__________
		(1,402)	(1,126)	(2,528)
		__________	__________	__________
Profit/(loss) before tax		5,527	(39,085)	(33,558)
Taxation	2	9	-	9
		__________	__________	__________
Profit/(loss) attributable to equity holders of the Company	3	5,536	(39,085)	(33,549)
		__________	__________	__________
Earnings/(loss) per Ordinary share (pence)	4	18.64	(131.61)	(112.97)
		__________	__________	__________

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 in the above statement derive from continuing operations.

  CONSOLIDATED BALANCE SHEET 

		As at	As at	As at
		30 September	30 September	31 March
		2009	2008	2009
		(unaudited)	(unaudited)	(audited)
	Notes	£'000	£'000	£'000
Non-current assets
Ordinary shares		45,262	51,961	33,527
Convertibles		1,218	1,411	1,265
Other fixed interest		22,516	22,863	17,886
Unlisted investments		1,743	1,912	2,053
		__________	__________	__________
Securities at fair value		70,739	78,147	54,731
		__________	__________	__________
Current assets
Trade and other receivables		1,214	380	313
Accrued income and prepayments		732	1,140	1,099
Cash and cash equivalents		752	2,789	1,495
		__________	__________	__________
		2,698	4,309	2,907
		__________	__________	__________
Total assets		73,437	82,456	57,638
Current liabilities
Trade and other payables		(196)	(456)	(175)
Short-term borrowings		(12,000)	(4,500)	(12,250)
Index-Linked Debenture stock		(9,715)	(9,714)	(9,942)
		__________	__________	__________
		(21,911)	(14,670)	(22,367)
		__________	__________	__________
Non-current liabilities
Index-Linked Debenture stock		-	(9,713)	-
		__________	__________	__________
Net assets		51,526	58,073	35,271
		__________	__________	__________
Issued capital and reserves attributable to equity holders of the parent
Called up share capital		14,899	14,899	14,899
Share premium account		18,846	18,870	18,855
Capital reserve	5	11,266	16,541	(6,151)
Revenue reserve		6,515	7,763	7,668
		__________	__________	__________
		51,526	58,073	35,271
		__________	__________	__________
Net asset value per Ordinary share (pence):		173.50	195.55	118.77
		__________	__________	__________
The accompanying notes are an integral part of these financial statements.

  CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Six months ended 30 September 2009 (unaudited)
			Share		Retained
		Share	premium	Capital	revenue
		capital	account	reserve	reserve	Total
	Notes	£'000	£'000	£'000	£'000	£'000
As at 31 March 2009		14,899	18,855	(6,151)	7,668	35,271
Revenue profit for the period		-	-	-	2,099	2,099
Capital losses for the period		-	(9)	17,417	-	17,408
Equity dividends	3	-	-	-	(3,252)	(3,252)
		_______	_______	_______	_______	_______
As at 30 September 2009		14,899	18,846	11,266	6,515	51,526
		_______	_______	_______	_______	_______
Six months ended 30 September 2008 (unaudited)
			Share		Retained
		Share	premium	Capital	revenue
		capital	account	reserve	reserve	Total
		£'000	£'000	£'000	£'000	£'000
As at 31 March 2008		14,899	18,887	32,902	7,999	74,687
Revenue profit for the period		-	-	-	3,017	3,017
Capital losses for the period		-	(17)	(16,361)	-	(16,378)
Equity dividends	3	-	-	-	(3,253)	(3,253)
		_______	_______	_______	_______	_______
As at 30 September 2008		14,899	18,870	16,541	7,763	58,073
		_______	_______	_______	_______	_______
Year ended 31 March 2009 (audited)
			Share		Retained
		Share	premium	Capital	revenue
		capital	account	reserve	reserve	Total
		£'000	£'000	£'000	£'000	£'000
As at 31 March 2008		14,899	18,887	32,902	7,999	74,687
Revenue profit for the year		-	-	-	5,536	5,536
Capital losses for the year		-	(32)	(39,053)	-	(39,085)
Equity dividends	3	-	-	-	(5,867)	(5,867)
		_______	_______	_______	_______	_______
As at 31 March 2009		14,899	18,855	(6,151)	7,668	35,271
		_______	_______	_______	_______	_______

  CONSOLIDATED AND COMPANY CASHFLOW STATEMENT 

	Six months ended	Six months ended	Year  ended
	30 September 2009	30 September 2008	31 March 2009
	(unaudited)	(unaudited)	(audited)
	£'000	£'000	£'000
Cash flows from operating activities
Investment income received	2,496	4,048	6,368
Deposit interest received	2	35	51
Money market interest received	3	76	123
Investment management fee paid	(137)	(199)	(366)
Sales of dealing subsidiary	-	424	419
Other cash receipts	130	731	1,363
Other cash expenses	(149)	(230)	(376)
	__________	__________	__________
Cash generated from operations	2,345	4,885	7,582
	__________	__________	__________
Interest paid	(422)	(724)	(1,320)
Taxation	-	10	9
	__________	__________	__________
Net cash inflows from operating activities	1,923	4,171	6,271
	__________	__________	__________
Cash flows from investing activities
Purchases of investments	(5,611)	(19,812)	(31,549)
Sales of investments	6,447	21,100	34,304
Repayment of Index-Linked Debenture Stock	-	-	(9,997)
	__________	__________	__________
Net cash inflows/(outflows) from investing activities	836	1,288	(7,242)
	__________	__________	__________
Cash flows from financing activities
Equity dividends paid	(3,252)	(3,253)	(5,867)
	__________	__________	__________
Net cash outflow from financing activities	(3,252)	(3,253)	(5,867)
	__________	__________	__________
Net (decrease)/increase in cash and cash equivalents	(493)	2,206	(6,838)
Cash and cash equivalents at start of period	(10,755)	(3,917)	(3,917)
	__________	__________	__________
Cash and cash equivalents at end of period	(11,248)	(1,711)	(10,755)
	__________	__________	__________
Cash and cash equivalents comprise:
Cash and cash equivalents	752	2,789	1,495
Short-term borrowings	(12,000)	(4,500)	(12,250)
	__________	__________	__________
	(11,248)	(1,711)	(10,755)
	__________	__________	__________

Notes to the Financial Statements

For the six months ended 30 September 2009

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 2009 financial statements, which received an unqualified audit report.
	(b)	Dividends payable
		Dividends are recognised in the period in which they are paid.

2.	Taxation
	The taxation expense reflected in the Income Statement is based on management's best estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual tax rate used for the year to 31 March 2010 is 28%. However, no tax charge is anticipated due to excess deductible expenses.

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 2009	30 September 2008	31 March 2009
		£'000	£'000	£'000
	Revenue	2,099	3,017	5,536
	Dividends declared	(891){A}	(1,307){B}	(5,865){C}
		__________	__________	__________
		1,208	1,710	(329)
		__________	__________	__________
	{A} First interim dividend (3.00p) declared in respect of the financial year 2009/10.
	{B} First interim dividend (4.40p) declared in respect of the financial year 2008/09.
	{C} First three interim dividends (each 4.40p) and the final dividend (6.55p) declared in respect of the financial year 2008/09.

		Six months ended	Six months ended	Year  ended
4.	Return and net asset value per share	30 September 2009	30 September 2008	31 March 2009
	Returns are based on the following attributable assets:
		£'000	£'000	£'000
	Revenue return	2,099	3,017	5,536
	Capital return	17,408	(16,378)	(39,085)
		__________	__________	__________
	Total return	19,507	(13,361)	(33,549)
		__________	__________	__________
	Weighted average number of Ordinary shares in issue	29,697,580	29,697,580	29,697,580
		__________	__________	__________
	Net asset value per Ordinary share is based on net assets attributable to Ordinary Shareholders of £51,526,000 (30 September 2008 - £58,073,000; 31 March 2009 -£35,271,000) and on 29,697,580 (30 September 2008 and 31 March 2009 - 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 2009 includes losses of £4,667,000 (30 September 2008 - losses of £19,616,000; 31 March 2009 - losses of £25,951,000) 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 losses on investments at fair value in the Consolidated Income Statement. The total costs were as follows:
		Six months ended	Six months ended	Year ended
		30 September 2009	30 September 2008	31 March 2009
		£'000	£'000	£'000
	Purchases	31	111	168
	Sales	10	34	57
		__________	__________	__________
		41	145	225
		__________	__________	__________

7.	Commitments, contingencies and post Balance Sheet events
	At 30 September 2009 there were no contingent liabilities in respect of outstanding underwriting commitments or uncalled capital (30 September 2008 and 31 March 2009 - £nil).
	On 5 November 2007, the European Court of Justice ruled that management fees should be exempt from VAT. HMRC announced its intention not to appeal against this case to the UK VAT Tribunal and therefore protective claims which had been made in relation to the Company were enforced. After a period of negotiation between the Manager and HMRC it was agreed that the Company was due an amount of £486,000 (including simple interest) and this amount has been reflected as a debtor in these accounts and split between revenue and capital in accordance with the prevailing accounting policy. On 1 October 2009 the Company received the due amount in full from the Manager.

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 2009 and 30 September 2008 has not been audited.
	The information for the year ended 31 March 2009 has been extracted from the latest published audited financial statements which have been filed with the Registrar of Companies. The report of the auditors 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 auditors.

9.	This Interim Report was approved by the Board on 11 November 2009.

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 2009 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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