Half Yearly Report

RNS Number : 0872T

Shires Income PLC

15 November 2013

 



SHIRES INCOME PLC

HALF YEARLY FINANCIAL REPORT

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2013

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 2013	31 March 2013	% change
Equity shareholders' funds (£'000)	70,883	70,306	+0.8
Net asset value per share	236.30p	234.37p	+0.8
Share price (mid-market)	232.00p	233.00p	-0.4
(Discount)/premium to adjusted NAV ¹	(0.56)%	2.0%
Dividend yield	5.17%	5.15%
¹ Based on IFRS NAV above reduced by dividend adjustment of 3.00p (31 March 2013 - 6.00p).

Performance (total return)
	Six months ended	1 year ended	3 years ended	5 years ended
	30 September 2013	30 September 2013	30 September 2013	30 September 2013
Net asset value	+3.5%	+24.1%	+50.7%	+77.5%
Share price (based on mid price)	+2.2%	+17.3%	+47.4%	+96.1%
FTSE All-Share Index	+3.8%	+18.9%	+33.4%	+66.2%
All figures are for total return and assume re-investment of net dividends excluding transaction costs.
Source: Aberdeen Asset Management, Morningstar & Factset

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 2013

Background

The year started well with markets continuing to rise and by May they had posted 12 consecutive months of positive returns.  Indeed the FTSE All-Share surpassed the peak achieved in 2007 just prior to the onset of the financial crisis. 

Three themes had become evident by the tail end of the Spring.  First, growth in emerging markets was beginning to slow leading to sizable declines in commodity prices and the shares of mining companies.  Secondly, investors were increasingly focussing on the relative price discrepancy between fixed income and equities.  This led to much discussion about the possible onset of a "great rotation" from one asset class to the other.  Thirdly, capital markets had returned to life and there was a marked acceleration in both IPO and secondary market activity.

Economic news flow continued to follow a well-established path.  Europe remained in recession and the ECB has twice cut interest rates reducing them to 0.25%, their lowest ever level.  The US enjoyed an ongoing recovery as evidenced by employment and housing data and the UK was bumping along, avoiding recession but delivering minimal growth.

Appetite for risk was increasing as investors' attention was diverted from the European sovereign debt crisis and towards the potential for recovery.  Consequently, share prices were advancing more rapidly than expectations for earnings growth as valuation multiples expanded. 

June witnessed an abrupt volte face in equity market performance, as a new word, tapering, entered the investment vocabulary.  Ben Bernanke commented that if the US economy were to continue to improve he could envisage a situation whereby the Federal Reserve might be able to reduce some of the current stimulus packages.  Such a statement should have been taken as good news, but instead investors worried about the removal of such stimulus.  Treasury and gilt yields began to rise and emerging market currencies fell steeply.  This allied with the ongoing slowdown in these countries led to weakness in the share prices of businesses with emerging market exposures.  The FTSE 100 fell by 11% peak to trough over the second quarter.

July was a much stronger month.  The most notable event was the installation of Mark Carney as Governor of the Bank of England.  He was clear that he did not believe an increase in interest rates was necessary.  In an effort to demonstrate to markets that rates would remain low for the foreseeable future he changed the existing Government mandated target and explicitly tied them to the level of unemployment as well as inflation expectations.

The half year finished with markets broadly flat relative to where they had started the period.  The US recovery continued, albeit a reduction in growth expectations led investors to conclude that tapering would be delayed.  The economy in the UK picked up and Europe delivered growth of 0.3% during the second quarter.

Investment Performance

In the half year ended 30 September 2013, the Company's net assets per share increased by 0.8% from 234.37p to 236.30p.  The total return on net assets, which includes dividends, increased by 3.5%, which during the period was slightly behind our benchmark, the FTSE All-Share Index, which reported a total return of 3.8%.  The total return of the Company's share price was 2.2% and the share premium decreased during the six months to a discount of 0.56%.

Portfolio Profile

One new company was introduced during the period.  Inmarsat operates a global communications satellite array, and is benefitting from the growth in demand for both voice and high speed data services.  The finite supply of orbital slots provides a significant barrier to entry.

Two holdings were exited over the period.  Aviva was sold as your Manager increased the focus on the holding in Prudential where the emerging market operations provide a greater growth opportunity.  Whitbread was sold as the very strong appreciation in the share price reduced the attractions of the dividend yield.  In both cases the sale was conducted through the writing and subsequent exercise of call options.  Such activity allowed the Company to increase both the price it secured for the holdings and the revenue it generated.

The weakness in markets during the middle of the half year saw a number of companies experience share price declines; this was particularly the case for businesses with emerging market operations.  This provided an opportunity to top up a range of holdings, including HSBC, BHP Billiton and Standard Chartered. 

Net gearing has declined slightly from 22.8% to 22.0%; there has been no significant change to the overall allocations in the portfolio.  Equities represent approximately 72% of gross assets with the remainder comprised of preference shares, convertibles and cash.  No new investments were made in preference shares or convertibles during the period.

Investment Income

At the time of the annual results I commented that following a period of strong growth in dividends received by the Company it was likely that such progression would slow.  It remains the case that dividend growth should be expected to reflect more closely earnings growth in the future.  However, during the half year the Company has benefited from some sizable dividend increases; indeed 16 holdings have increased their payouts by more than 10%.  No companies cut their distributions and just three made no increase.  It should be remembered though that dividends are one component of total return and it is reasonable to expect that the largest increases in percentage terms will come from lower yielding holdings.

Outlook

There are some positive factors with a recovery coming through in the US and UK.  Indeed, some of the data for the UK is as positive as it has been since 2006 and growth expectations have recently been revised upwards.  There are signs that construction activity is picking up and that would normally presage a broader recovery.  In Europe there has been a pick-up in growth and sentiment is improving as some of the peripheral nations, such as Spain, appear to be stabilising. This is manifesting itself in the rising share prices of many more cyclical and arguably lower quality companies.  The slowdown in emerging markets is clearly unhelpful.  However, attention needs to be paid to the volatility of the data as deteriorating statistics can quickly swing to become positive.  Recovery in the developed markets might be expected to generate an export-led pick-up for these countries as well.

However, there are three significant factors that need to be overcome.  The European debt crisis remains unresolved.  Investors may not be currently focussing on it, but the imbalances remain and Germany is potentially less able to lead the region to a solution.  Greece is expected to require a third bailout next year.  It will not take much to remind investors of the risks.  Secondly, there is the dichotomy between an improving outlook especially for the US and the associated reduction in stimulatory activity.  We saw in June how fragile investor sentiment was when tapering was first mooted, before seeing the reverse in September when poorer than expected data led to the continuation of asset purchases and equity markets rose. Thirdly, the US debt crisis has not been resolved but merely postponed.  The huge amount of dollar-denominated debt held by China and a number of other countries remains of concern.

Confidence plays a key role in any recovery.  There are signs that this is increasing as evidenced by the pick-up in capital market activity.  Given corporate balance sheets are in aggregate in good health we may begin to see signs of rising confidence from management teams.  Indeed, businesses like Sage and Centrica both of which are held in the portfolio have been returning cash to investors.  A further improvement in sentiment may see capital deployed for organic expansion or acquisitions.  Subject to the generation of adequate returns, both would be expected to be positive for growth in profits and hence equity markets.

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 growth in earnings and hence dividends through the economic cycle.  They are supported by strong balance sheets that give them flexibility in difficult times and options when conditions are more favourable.

Anthony B. Davidson

Chairman

14 November 2013

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 May 2015. 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 2013.

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 2013 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 2013

DISTRIBUTION OF ASSETS AND LIABILITIES

	Valuation at		Movement during the period				Valuation at
	31 March					Gains/	30 September
	2013		Purchases	Sales	Other	(losses)	2013
	£'000	%	£'000	£'000	£'000	£'000	£'000	%
Listed investments
Ordinary shares	62,308	88.6	2,338	(2,575)	-	1,944	64,015	90.3
Convertibles	1,354	1.9	-	-	(5)	(27)	1,322	1.9
Preference shares	21,962	31.3	-	-	(42)	(1,364)	20,556	29.0
	_______	_______	_______	_______	_______	_______	_______	_______
	85,624	121.8	2,338	(2,575)	(47)	553	85,893	121.2
Current assets	2,927	4.2					3,237	4.6
Current liabilities	(18,245)	(26.0)					(18,247)	(25.8)
	_______	_______					_______	_______
Net assets	70,306	100.0					70,883	100.0
	_______	_______					_______	_______
Net asset value per Ordinary share	234.4p						236.3p
	_______						_______

STATEMENT OF COMPREHENSIVE INCOME

		Six months ended
		30 September 2013
		(unaudited)
		Revenue	Capital	Total
	Note	£'000	£'000	£'000
Gains on investments at fair value		-	553	553
Investment income
Dividend income		1,876	-	1,876
Interest income from investments		286	(47)	239
Stock dividend		98	-	98
Traded option premiums		141	-	141
Money market interest		5	-	5
		_______	_______	_______
		2,406	506	2,912
		_______	_______	_______
Expenses
Investment management fees		(90)	(90)	(180)
Other administrative expenses		(186)	-	(186)
Finance costs of borrowings		(84)	(84)	(168)
		_______	_______	_______
		(360)	(174)	(534)
		_______	_______	_______
Profit before tax		2,046	332	2,378
Taxation	2	(22)	22	-
		_______	_______	_______
Profit attributable to equity holders of the Company	3	2,024	354	2,378
		_______	_______	_______
Earnings per Ordinary share (pence)	4	6.75	1.18	7.93
		_______	_______	_______
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 2012
		(unaudited)
		Revenue	Capital	Total
	Note	£'000	£'000	£'000
Gains on investments at fair value		-	2,582	2,582
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 before tax		1,898	2,366	4,264
Taxation	2	(22)	22	-
		_______	_______	_______
Profit attributable to equity holders of the Company	3	1,876	2,388	4,264
		_______	_______	_______
Earnings per Ordinary share (pence)	4	6.32	8.04	14.36
		_______	_______	_______

STATEMENT OF COMPREHENSIVE INCOME (Cont'd)

		Year ended
		31 March 2013
		(audited)
		Revenue	Capital	Total
	Note	£'000	£'000	£'000
Gains on investments at fair value		-	12,795	12,795
Investment income
Dividend income		3,248	-	3,248
Interest income from investments		578	(93)	485
Stock dividend		177	-	177
Traded option premiums		260	-	260
Money market interest		12	-	12
		_______	_______	_______
		4,275	12,702	16,977
		_______	_______	_______
Expenses
Investment management fees		(165)	(165)	(330)
Other administrative expenses		(323)	-	(323)
Finance costs of borrowings		(176)	(176)	(352)
		_______	_______	_______
		(664)	(341)	(1,005)
		_______	_______	_______
Profit before tax		3,611	12,361	15,972
Taxation	2	(55)	55	-
		_______	_______	_______
Profit attributable to equity holders of the Company	3	3,556	12,416	15,972
		_______	_______	_______
Earnings per Ordinary share (pence)	4	11.92	41.60	53.52
		_______	_______	_______

BALANCE SHEET

		As at	As at	As at
		30 September	30 September	31 March
		2013	2012	2013
		(unaudited)	(unaudited)	(audited)
	Note	£'000	£'000	£'000
Non-current assets
Ordinary shares		64,015	52,307	62,308
Convertibles		1,322	1,316	1,354
Other fixed interest		20,556	20,244	21,962
		__________	__________	__________
Securities at fair value		85,893	73,867	85,624
		__________	__________	__________
Current assets
Trade and other receivables		23	-	16
Accrued income and prepayments		797	851	937
Cash and cash equivalents		2,417	3,275	1,974
		__________	__________	__________
		3,237	4,126	2,927
		__________	__________	__________
Total assets		89,130	77,993	88,551
Current liabilities
Trade and other payables		(247)	(227)	(245)
Short-term borrowings		(18,000)	(18,000)	(18,000)
		__________	__________	__________
		(18,247)	(18,227)	(18,245)
		__________	__________	__________
Net assets		70,883	59,766	70,306
		__________	__________	__________
Share capital and reserves attributable to equity holders
Called-up share capital		15,049	14,899	15,049
Share premium account		19,308	18,840	19,308
Capital reserve	5	30,466	20,084	30,112
Revenue reserve		6,060	5,943	5,837
		__________	__________	__________
Equity shareholders' funds		70,883	59,766	70,306
		__________	__________	__________
Net asset value per Ordinary share (pence)		236.30	201.25	234.37
		__________	__________	__________

STATEMENT OF CHANGES IN EQUITY

Six months ended 30 September 2013 (unaudited)
			Share		Retained
		Share	premium	Capital	revenue
		capital	account	reserve	reserve	Total
	Note	£'000	£'000	£'000	£'000	£'000
As at 31 March 2013		15,049	19,308	30,112	5,837	70,306
Revenue profit for the period		-	-	-	2,024	2,024
Capital profit for the period		-	-	354	-	354
Equity dividends	3	-	-	-	(1,801)	(1,801)
		_______	_______	_______	_______	_______
As at 30 September 2013		15,049	19,308	30,466	6,060	70,883
		_______	_______	_______	_______	_______
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 profit 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
		_______	_______	_______	_______	_______
Year ended 31 March 2013 (audited)
			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
Issue of own shares		150	468	-	-	618
Revenue profit for the year		-	-	-	3,556	3,556
Capital profit for the year		-	-	12,416	-	12,416
Equity dividends	3	-	-	-	(3,569)	(3,569)
		_______	_______	_______	_______	_______
As at 31 March 2013		15,049	19,308	30,112	5,837	70,306
		_______	_______	_______	_______	_______

CASHFLOW STATEMENT

	Six months ended	Six months ended	Year ended
	30 September 2013	30 September 2012	31 March 2013
	(unaudited)	(unaudited)	(audited)
	£'000	£'000	£'000
Cash flows from operating activities
Investment income received	2,328	1,990	3,676
Money market interest received	5	7	12
Investment management fee paid	(180)	(156)	(320)
Other cash receipts	-	-	-
Other cash expenses	(201)	(157)	(278)
	__________	__________	__________
Cash generated from operations	1,952	1,684	3,090
Interest paid	(169)	(182)	(352)
	__________	__________	__________
Taxation	-	-	-
	__________	__________	__________
Net cash inflows from operating activities	1,783	1,502	2,738
	__________	__________	__________
Cash flows from investing activities
Purchases of investments	(2,241)	(3,654)	(7,067)
Sales of investments	2,702	3,477	5,521
	__________	__________	__________
Net cash inflow/(outflow) from investing activities	461	(177)	(1,546)
	__________	__________	__________
Cash flows from financing activities
Equity dividends paid	(1,801)	(1,783)	(3,569)
	__________	__________	__________
Net cash outflow from financing activities	(1,801)	(1,783)	(3,569)
	__________	__________	__________
Financing
Share issue	-	-	618
	__________	__________	__________
Net cash inflow from financing	-	-	618
	__________	__________	__________
Net increase/(decrease) in cash and cash equivalents	443	(458)	(1,759)
Cash and cash equivalents at start of period	(16,026)	(14,267)	(14,267)
	__________	__________	__________
Cash and cash equivalents at end of period	(15,583)	(14,725)	(16,026)
	__________	__________	__________
Cash and cash equivalents comprise:
Cash and cash equivalents	2,417	3,275	1,974
Short-term borrowings	(18,000)	(18,000)	(18,000)
	__________	__________	__________
	(15,583)	(14,725)	(16,026)
	__________	__________	__________

Notes to the Financial Statements

For the six months ended 30 September 2013

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 2013 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 23%, 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 2013	30 September 2012	31 March 2013
		£'000	£'000	£'000
	Revenue	2,024	1,876	3,556
	Dividends declared	(900) ¹	(891) 2	(3,569) 3
		__________	__________	__________
		1,124	985	(13)
		__________	__________	__________
	¹ First interim dividend (3.00p) declared in respect of the financial year 2013/14.
	2 First interim dividend (3.00p) declared in respect of the financial year 2012/13.
	3 First three interim dividends (each 3.00p) and the final dividend (3.00p) declared in respect of the financial year 2012/13.

		Six months ended	Six months ended	Year ended
		30 September 2013	30 September 2012	31 March 2013
4.	Return and net asset value per share	£'000	£'000	£'000
	Returns are based on the following attributable assets:
	Revenue return	2,024	1,876	3,556
	Capital return	354	2,388	12,416
		__________	__________	__________
	Total return	2,378	4,264	15,972
		__________	__________	__________
	Weighted average number of Ordinary shares in issue	29,997,580	29,697,580	29,843,881
		__________	__________	__________
	The net asset value per Ordinary share is based on net assets attributable to Ordinary shareholders of £70,883,000 (30 September 2012 - £59,766,000; 31 March 2013 - £70,306,000) and on 29,997,580 (30 September 2012 - 29,697,580; 31 March 2013 - 29,997,580) Ordinary shares in issue at the period end.

5.	Capital reserve
	The capital reserve reflected in the Balance Sheet at 30 September 2013 includes gains of £14,001,000 (30 September 2012 - gains of £4,126,000; 31 March 2013 - gains of £14,068,000) 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 2013	30 September 2012	31 March 2013
		£'000	£'000	£'000
	Purchases	12	21	39
	Sales	4	3	5
		__________	__________	__________
		16	24	44
		__________	__________	__________

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

8.	Commitments, contingencies and post Balance Sheet events
	At 30 September 2013 there were no contingent liabilities in respect of outstanding underwriting commitments or uncalled capital (30 September 2012 and 31 March 2013 - £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 2013 and 30 September 2012 has not been audited.
	The information for the year ended 31 March 2013 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 14 November 2013.

 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 2013 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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