Half Yearly Report

RNS Number : 3631R

Shires Income PLC

19 November 2012

 



SHIRES INCOME PLC

HALF YEARLY FINANCIAL REPORT

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2012

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 2012	31 March 2012	% change
Equity shareholders' funds (£'000)	59,766	57,285	+4.3
Net asset value per share	201.25p	192.89p	+4.3
Share price (mid-market)	208.88p	194.50p	+7.4
Premium to adjusted NAV¹	5.36%	4.07%
Dividend yield	5.74%	6.17%
¹ Based on IFRS NAV above reduced by dividend adjustment of 3.00p (31 March 2012 - 6.00p).

	6 months ended	1 year ended	3 years ended	5 years ended
	30 September	30 September	30 September	30 September
	2012	2012	2012	2012
Net asset value	+7.7%	+23.3%	+40.8%	-2.7%
Share price	+10.8%	+26.8%	+56.5%	+5.0%
FTSE All-Share Index	+1.9%	+17.2%	+26.1%	+8.7%
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 2012

Background

Volatility has again been a key feature of markets.  In April and May the FTSE 100 index fell by 10.5%.  It subsequently recovered all these losses and more, delivering a gain of 12.5% before finishing the six months to 30 September slightly below where it started. 

The European sovereign debt crisis remained at the forefront of investors' minds with a Greek exit from the Euro seeming as likely as not.  Meanwhile there were rising concerns about both the ability and commitment of other European countries to fund a bail-out package for the much larger economies of either or both of Spain and Italy.  Simultaneously, electorates across the region demonstrated rising resistance to austerity measures.

The macroeconomic news flow from the rest of the World also deteriorated.  The UK slipped back into recession. More worryingly growth has begun to slow in many emerging markets.  The US was one bright spot as it has continued its recovery though the disappointing employment statistics and slower than expected nature of the rebound has caused many investors to remain cautious.

Such a fragile environment led to authorities across the globe instigating further stimulus packages.  The most significant of these was the Outright Monetary Transactions facility announced by the European Central Bank.  There was also a further wave of quantitative easing in the UK and rate cuts and stimulus packages in some of the BRICs.  In late summer, Ben Bernanke announced that the US Federal Reserve would buy $40Bn of mortgage backed securities a month until they saw a stronger recovery, and that interest rates would be held at record lows for longer than originally anticipated.

These packages led to a pick-up in investor appetite for risk and hence prompted a recovery in markets.  From a fundamental corporate perspective, the news flow has deteriorated and there has been a clear acceleration in profits warnings especially from companies with weak customer relationships.

Investment Performance

In the half year ended 30 September 2012, the Company's net assets per share increased by 4.3% from 192.9p to 201.2p.  The total return on net assets, which includes dividends, increased by 7.7%, which during the period was ahead of our benchmark, the FTSE All-Share Index, which reported a total return of 1.9%.  The total return of the Company's share price was 10.8% and the share premium increased during the six months to a premium of 5.4%.

Following a sustained period of trading at a premium to net asset value and in response to demand from the market I am pleased to advise that shortly after the period end the Company was able to issue 300,000 new Ordinary shares at 206.5p, representing a 2.0% premium to net asset value.

Portfolio Profile

One new company was introduced during the period.  Sage is a provider of accounting, HR and payroll software for small and medium sized enterprises.  The company benefits from strong customer relationships, a high cost of switching and a low cost of ownership.  The holding in Mylan was sold.  This was a small historic investment and its disposal removes a legacy issue.

The difficult market conditions often resulted in higher quality and sometimes more defensive stocks performing well.  Shires Income benefited from owning a number of such companies.  The holdings in Whitbread, British American Tobacco, Rolls Royce, Provident Financial, Aviva and National Grid were all top sliced following good performance.  Market volatility provided the opportunity to top up investments that had underperformed.  These included BHP Billiton, Schroders and AstraZeneca.  Additionally the holding in the relatively recently introduced Compass Group was built up further. The investment in GKN was also increased when it had a rights issue to help fund the acquisition of Volvo's aerospace business.

Whilst gearing has decreased slightly from 23.9% to 23.6%, there has been no significant change to the overall allocations in the portfolio.  At the end of September 2012 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 shares nor convertibles during the period.

Investment Income

I commented in last year's annual report that Shires Income had benefited from owning a number of companies that had demonstrated good earnings progression and associated increases in their distributions.  Although economic conditions have been difficult this has largely continued.  Nine holdings have delivered double digit growth in their dividends during the period.  In the case of both BP and GKN this reflects their on-going recoveries, having previously been forced to cut their payouts to zero.  But for others it represents continuing strong trading and optimism about their prospects.  No companies in the portfolio have cut their dividends though occasionally movements in the US Dollar/Sterling exchange rate can impact the proceeds the Company actually receives.  Additionally, Unilever has made a slightly smaller distribution during this period but the expectation is that this will be recovered later in the year.

Given the uncertainties that companies are facing it is unlikely that the rate of dividend growth from our investments will be maintained during the second half.  However, good quality companies with sound balance sheets should be able to deliver continued progression.

Outlook

The economic conditions in which we are operating remain highly unusual, even extra ordinary.  Across the globe nations are engaging in remarkable levels of stimulus.  There has been a third wave of quantitative easing in the UK.  In the US the authorities have taken the decision to purchase very significant quantities of mortgage backed securities, whilst holding interest rates at unprecedented low levels for the foreseeable future.  In the emerging markets China and India have reduced interest rates and Brazil has gone further announcing a package of infrastructure spending designed to boost the economy.  Despite this the global recovery is stalling.  Most of Europe is experiencing contracting GDP, growth is slowing in the BRICs and it is becoming evident that China will not be able to act as an engine for global growth in the way that it did in 2010/11.  One positive is the US where there is an on-going recovery.  However, it seems highly likely that President Obama will have no choice but to begin to implement a programme of austerity.  This is unlikely to be supportive of a strengthening recovery.

Meanwhile the European sovereign debt crisis remains unresolved.  The announcement of the Outright Monetary Transactions facility has been welcomed by markets.  However, a number of issues remain outstanding.  These include the danger that the conditions associated with receiving aid are so stringent that countries are reluctant to apply for it.  Also if the European Central Bank is unable to "sterilise" the funding the programme may become inflationary.  It is also questionable as to whether it is realistic to believe that such support would indeed be withdrawn in the event that a recipient failed to keep to their side of the bargain.

Even if these issues can be overcome it needs to be remembered that such a package will do nothing to ease the underlying problems of imbalances, over indebtedness and low productivity in the peripheral nations.

As ever it is necessary to be selective when deciding which companies to invest in and it is the case that the valuations of some more defensive companies are beginning to look quite full.  However, when one considers the issues outlined above it draws attention to two of the more attractive features of equities.  Namely the high level of income that can be delivered from an appropriately constructed portfolio and the real nature of such investments which should provide some protection in the event that inflation picks up.

Your Manager will continue to invest in the kind of high quality companies that the Company currently owns.  These are businesses that should be able to deliver through the economic cycle with growth in earnings and hence dividends.  They are supported by strong balance sheets that give them flexibility in difficult times and the potential to engage in merger and acquisition activity at the correct time in the cycle.

Anthony B. Davidson

Chairman

16 November 2012

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 Company'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 2014. 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 2012.

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 Company 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 IAS 34;

-    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 2012 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

16 November 2012

DISTRIBUTION OF ASSETS AND LIABILITIES

	Valuation at		Movement during the period				Valuation at
	31 March					Gains/	30 September
	2012		Purchases	Sales	Other	(losses)	2012
	£'000	%	£'000	£'000	£'000	£'000	£'000	%
Listed investments
Ordinary shares	50,078	87.4	3,744	(3,345)	-	1,830	52,307	87.5
Convertibles	1,307	2.3	-	-	(5)	14	1,316	2.2
Preference shares	19,565	34.2	-	-	(41)	720	20,244	33.9
	_______	_______	_______	_______	_______	_______	_______	_______
	70,950	123.9	3,744	(3,345)	(46)	2,564	73,867	123.6
Current assets	4,534	7.9					4,126	6.9
Current liabilities	(18,199)	(31.8)					(18,227)	(30.5)
	_______	_______					_______	_______
Net assets	57,285	100.0					59,766	100.0
	_______	_______					_______	_______
Net asset value per Ordinary share	192.9p						201.2p
	_______						_______

STATEMENT OF COMPREHENSIVE INCOME

		Six months ended
		30 September 2012
		(unaudited)
		Revenue	Capital	Total
	Note	£'000	£'000	£'000
Gains/(losses) on investments at fair value		-	2,582	2,582
Gain on dissolution of subsidiaries		-	-	-
Investment income
Dividend income		1,737	-	1,737
Interest income from investments		290	(46)	244
Stock dividend		90	-	90
Traded option premiums		126	-	126
Money market interest		6	-	6
		_______	_______	_______
		2,249	2,536	4,785
		_______	_______	_______
Expenses
Investment management fees		(79)	(79)	(158)
Other administrative expenses		(181)	-	(181)
Finance costs of borrowings		(91)	(91)	(182)
		_______	_______	_______
		(351)	(170)	(521)
		_______	_______	_______
Profit/(loss) before tax		1,898	2,366	4,264
Taxation	2	(22)	22	-
		_______	_______	_______
Profit/(loss) attributable to equity holders of the Company	3	1,876	2,388	4,264
		_______	_______	_______
Earnings/(loss) per Ordinary share (pence)	4	6.32	8.04	14.36
		_______	_______	_______

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).

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.

STATEMENT OF COMPREHENSIVE INCOME (Cont'd)

		Six months ended
		30 September 2011
		(unaudited)
		Revenue	Capital	Total
	Note	£'000	£'000	£'000
Gains/(losses) on investments at fair value		-	(6,921)	(6,921)
Gain on dissolution of subsidiaries		-	-	-
Investment income
Dividend income		1,732	-	1,732
Interest income from investments		402	(63)	339
Stock dividend		19	-	19
Traded option premiums		121	-	121
Money market interest		5	-	5
		2,279	(6,984)	(4,705)
		_______	_______	_______
Expenses
Investment management fees		(80)	(79)	(159)
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)
		_______	_______	_______

STATEMENT OF COMPREHENSIVE INCOME (Cont'd)

		Year ended
		31 March 2012
		(audited)
		Revenue	Capital	Total
	Note	£'000	£'000	£'000
Gains/(losses) on investments at fair value		-	(1,308)	(1,308)
Gain on dissolution of subsidiaries		-	66	66
Investment income
Dividend income		3,337	-	3,337
Interest income from investments		670	99	769
Stock dividend		70	-	70
Traded option premiums		264	-	264
Money market interest		11	-	11
		_______	_______	_______
		4,352	(1,143)	3,209
		_______	_______	_______
Expenses
Investment management fees		(158)	(158)	(316)
Other administrative expenses		(293)	-	(293)
Finance costs of borrowings		(198)	(198)	(396)
		_______	_______	_______
		(649)	(356)	(1,005)
		_______	_______	_______
Profit/(loss) before tax		3,703	(1,499)	2,204
Taxation	2	(88)	88	-
		_______	_______	_______
Profit/(loss) attributable to equity holders of the Company	3	3,615	(1,411)	2,204
		_______	_______	_______
Earnings/(loss) per Ordinary share (pence)	4	12.17	(4.75)	7.42
		_______	_______	_______

BALANCE SHEET

		As at	As at	As at
		30 September	30 September	31 March
		2012	2011	2012
		(unaudited)	(unaudited)	(audited)
	Note	£'000	£'000	£'000
Non-current assets
Ordinary shares		52,307	46,654	50,078
Convertibles		1,316	1,295	1,307
Other fixed interest		20,244	19,690	19,565
		__________	__________	__________
Securities at fair value		73,867	67,639	70,950
		__________	__________	__________
Current assets
Trade and other receivables		-	-	18
Accrued income and prepayments		851	723	783
Cash and cash equivalents		3,275	2,076	3,733
		__________	__________	__________
		4,126	2,799	4,534
		__________	__________	__________
Total assets		77,993	70,438	75,484
Current liabilities
Trade and other payables		(227)	(207)	(199)
Short-term borrowings		(18,000)	(18,500)	(18,000)
		__________	__________	__________
		(18,227)	(18,707)	(18,199)
		__________	__________	__________
Net assets		59,766	51,731	57,285
		__________	__________	__________
Share capital and reserves attributable to equity holders
Called-up share capital		14,899	14,899	14,899
Share premium account		18,840	18,840	18,840
Capital reserve	5	20,084	12,070	17,696
Revenue reserve		5,943	5,922	5,850
		__________	__________	__________
		59,766	51,731	57,285
		__________	__________	__________
Net asset value per Ordinary share (pence)		201.25	174.19	192.89

STATEMENT OF CHANGES IN EQUITY

Six months ended 30 September 2012 (unaudited)
			Share		Retained
		Share	premium	Capital	revenue
		capital	account	reserve	reserve	Total
	Note	£'000	£'000	£'000	£'000	£'000
As at 31 March 2012		14,899	18,840	17,696	5,850	57,285
Revenue profit for the period		-	-	-	1,876	1,876
Capital gains for the period		-	-	2,388	-	2,388
Equity dividends	3	-	-	-	(1,783)	(1,783)
		_______	_______	_______	_______	_______
As at 30 September 2012		14,899	18,840	20,084	5,943	59,766
		_______	_______	_______	_______	_______
Six months ended 30 September 2011 (unaudited)
			Share		Retained
		Share	premium	Capital	revenue
		capital	account	reserve	reserve	Total
		£'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
		_______	_______	_______	_______	_______
Year ended 31 March 2012 (audited)
			Share		Retained
		Share	premium	Capital	revenue
		capital	account	reserve	reserve	Total
		£'000	£'000	£'000	£'000	£'000
As at 31 March 2011		14,899	18,840	19,107	5,793	58,639
Revenue profit for the year		-	-	-	3,615	3,615
Capital losses for the year		-	-	(1,411)	-	(1,411)
Equity dividends	3	-	-	-	(3,558)	(3,558)
		_______	_______	_______	_______	_______
As at 31 March 2012		14,899	18,840	17,696	5,850	57,285
		_______	_______	_______	_______	_______

CASHFLOW STATEMENT

	Six months ended	Six months ended	Year ended
	30 September 2012	30 September 2011	31 March 2012
	(unaudited)	(unaudited)	(audited)
	£'000	£'000	£'000
Cash flows from operating activities
Investment income received	1,990	2,514	4,310
Money market interest received	7	5	11
Investment management fee paid	(156)	(163)	(318)
Other cash receipts	-	139	-
Other cash expenses	(157)	(182)	(308)
	__________	__________	__________
Cash generated from operations	1,684	2,313	3,695
Interest paid	(182)	(191)	(397)
Taxation	-	(1)	-
	__________	__________	__________
Net cash inflows from operating activities	1,502	2,121	3,298
	__________	__________	__________
Cash flows from investing activities
Purchases of investments	(3,654)	(2,480)	(4,489)
Sales of investments	3,477	2,235	7,001
	__________	__________	__________
Net cash (outflow)/inflow from investing activities	(177)	(245)	2,512
	__________	__________	__________
Cash flows from financing activities
Equity dividends paid	(1,783)	(1,781)	(3,558)
	__________	__________	__________
Net cash outflow from financing activities	(1,783)	(1,781)	(3,558)
	__________	__________	__________
Net (decrease)/increase in cash and cash equivalents	(458)	95	2,252
Cash and cash equivalents at start of period	(14,267)	(16,519)	(16,519)
	__________	__________	__________
Cash and cash equivalents at end of period	(14,725)	(16,424)	(14,267)
	__________	__________	__________
Cash and cash equivalents comprise:
Cash and cash equivalents	3,275	2,076	3,733
Short-term borrowings	(18,000)	(18,500)	(18,000)
	__________	__________	__________
	(14,725)	(16,424)	(14,267)

Notes to the Financial Statements

For the six months ended 30 September 2012

1.	Accounting policies
	(a)	Basis of accounting
		The 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 2012 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 Statement of Comprehensive Income is calculated at a rate of 24%, which is based on management's best estimate of the weighted average annual corporation 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 2012	30 September 2011	31 March 2012
		£'000	£'000	£'000
	Revenue	1,876	1,910	3,615
	Dividends declared	(891) ¹	(891) ²	(3,558) ³
		__________	__________	__________
		985	1,019	57
		__________	__________	__________
	¹First interim dividend (3.00p) declared in respect of the financial year 2012/13.
	² First interim dividend (3.00p) declared in respect of the financial year 2011/12.
	³First three interim dividends (each 3.00p) and the final dividend (3.00p) declared in respect of the financial year 2011/12.

		Six months ended	Six months ended	Year ended
		30 September 2012	30 September 2011	31 March 2012
4.	Return and net asset value per share	£'000	£'000	£'000
	Returns are based on the following attributable assets:
	Revenue return	1,876	1,910	3,615
	Capital return	2,388	(7,103)	(1,411)
		__________	__________	__________
	Total return	4,264	(5,193)	2,204
		__________	__________	__________
	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 £59,766,000 (30 September 2011 - £51,731,000; 31 March 2012 - £57,285,000) and on 29,697,580 (30 September 2011 and 31 March 2012 - 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 2012 includes gains of £4,126,000 (30 September 2011 - losses of £3,226,000; 31 March 2012 - gains of £2,206,000) 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 2012	30 September 2011	31 March 2012
		£'000	£'000	£'000
	Purchases	21	13	25
	Sales	3	2	6
		__________	__________	__________
		24	15	31
		__________	__________	__________

7.	Related party disclosures
	There were no related party transactions during the period.

8.	Commitments, contingencies and post Balance Sheet events
	At 30 September 2012 there were no contingent liabilities in respect of outstanding underwriting commitments or uncalled capital (30 September 2011 and 31 March 2012 - £nil).

9.	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 2012 and 30 September 2011 has not been audited.
	The information for the year ended 31 March 2012 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.

10.	This Half-Yearly Financial Report was approved by the Board on 16 November 2012.

 11.      The half yearly financial report will shortly be available on the Company's website, www.shiresincome.co.uk, and the Interim Report will be posted to shareholders in November 2012 and copies will be available from the 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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