Annual Financial Report

RNS Number : 5654H

Shires Income PLC

01 June 2011

SHIRES INCOME PLC

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 MARCH 2011

Financial Summary	2011	2010
Net asset value total return	+12.7%	+77.4%
Share price total return	+10.1%	+90.9%
Dividend per share	12.00p	12.00p

1. CHAIRMAN'S STATEMENT

Results Review

Although not as strong as the gains experienced in 2010, it is pleasing to be able to report another year of good performance from equity markets. Companies continued to benefit from the actions taken by management teams to cut costs during the recession. This meant that they were well positioned to benefit from a pick up of sales which translated to a more marked improvement in profitability. The economy has recovered more slowly but with a sizable proportion of their earnings coming from overseas many companies have fared rather better. A particularly pleasing aspect of this corporate performance has been the desire shown by management teams to deliver tangible returns to shareholders in the form of rising dividends.

The outcome for the year to the end of March 2011 was an increase in the Company's net asset value per share of 12.7% on a total return basis. This compares to a rise in the FTSE All-Share Index, our benchmark, of 8.7% on a total return basis. The total return from the share price was 10.1%. With interest rates remaining at record lows, this rate of return was significantly ahead of that provided by cash or indeed many other asset classes.

The rise in the Company's net assets reflects the ongoing recovery and the good performance of many of the companies in the portfolio. Gearing had a less positive impact this year. It is deployed notionally in the preference shares and whilst they have contributed to the positive total return and comprise a very important element of the income stream they have delivered a lower capital return than equities.

In line with the Board's guidance given last year, your Company is proposing a full year dividend of 12.0p per share. This is 92% covered by the revenue generated by the portfolio. If approved at the AGM, a final dividend of 3.0p per share will be paid on 29 July 2011 to shareholders on the register on 8 July 2011.

Performance

Small companies delivered another year of good performance and the Company's holding in Aberdeen Smaller Companies High Income Trust meant that we were able to benefit from this. Stock selection was again important to performance and that was particularly the case in the Travel & Leisure and Industrial Engineering sectors. Banks represent a sizeable proportion of the index and the portfolio is underweight in this area. This has been a substantial positive factor over the year.

During the year, the Company's shares have traded at a tight discount or a small premium to their net asset value. This reflects the ongoing performance and a recognition of the attraction of the Company's yield.

Earnings and Dividends

From an earnings perspective, the most significant event of 2011 was the decision by BP to pass its dividend for the first three quarters of the year. Prior to this decision BP distributed almost £1 in every £7 across the UK market. Clearly this had a significant impact on the dividends earned by the portfolio over the year. However, as indicated above, many of the companies in the portfolio reported good earnings progression and accompanying growth in their dividend payments. Whilst this has not been sufficient wholly to offset the impact of the lost revenue from BP, it has meant that the Board is able to recommend a maintained dividend for the year with only a slight requirement to utilise revenue reserves.

The economy faces a number of difficulties over the coming months and its recovery remains fragile. Positively, the Company benefits from a high level of dividend reserve. The dividend is backed by adjusted revenue reserves of 13.8p per share, (i.e. after providing for the third and final dividends). Therefore, in the absence of unforeseen events the Board anticipates maintaining the dividend at 12.0p per share, though this will likely require the utilisation of a small amount of the reserves.

Portfolio Profile and Gearing

I am pleased to report that the Company secured a new bank facility in February 2011 for a total of £20 million. This replaces our previous arrangements and ensures our funding position again until 2013.

Given the geared structure of the Company, the Board remains determined to manage gearing in a prudent manner bearing in mind the objectives of the Company. Having protected the geared portion of the portfolio in the run-up to the re financing at the end of last year the decision was taken to reduce the quantum of gearing by £2 million and to enact protection over a further £3 million in April 2010. This took the form of modest cost put/call protection. The Board and the Manager regularly review the requirement for and options available to protect a portion of the portfolio from a sudden decline in markets. Given the current pricing of such protection and the fact that there are no short-term refinancing issues to consider, there is no protection in place at this time. During the year, the Company's gearing decreased from 31.4% to 26.5%.

Outlook

As we enter the new financial year the UK economic outlook remains a mixed picture with the consumer under pressure yet manufacturing experiencing a revival. The effects of rising taxes, slow wage growth and rapidly increasing energy prices have already started to hit discretionary spending on the high street where many retailers have announced disappointing results. On the other hand, the manufacturing sector continues to enjoy a good recovery helped by a weak pound and relatively robust growth in many of the UK core export markets.

Inflation is presently substantially above target and the Bank of England cannot perpetually ignore the price increases and maintain its highly accommodative monetary policy. Given that interest rates have started to rise in Europe and Asia to head off the price pressures, it would seem likely that interest rates may well start to increase before the end of the year.

Rising raw material prices attract much comment in the media and it will be interesting to observe if companies have the ability to defend margins by increasing prices. It is worth bearing in mind that the supply dynamics for metals are very different to those of agricultural commodities. It only takes one good harvest or increased planting to move agricultural prices sharply lower whereas the supply response in mining is much slower.

Political events across the Middle East have the potential significantly to impact the oil price and equity markets. So far it is only the minor producers of Tunisia, Egypt and Libya which have seen any disruption to supplies. It remains to be seen how markets would react if Kuwait, Saudi Arabia or Iran were impacted by significant political unrest. Additionally, the USA appears to be the only major western country which has not taken some sort of action to reduce its huge fiscal deficit. The question investors need to ask is will the politicians in the USA come to a sensible compromise and take real action to control the deficit rather than having proposals watered down by strong lobby groups.

While the economic environment in terms of increased interest rates, geopolitical risk and the possibility of defaults in the Euro Zone remains challenging, there are a number of positive factors. Many companies within the FTSE All-Share Index earn a large proportion of their earnings from outside the UK where prospects on the whole are much brighter. Also, corporate balance sheets are in good health in marked contrast to those of Government and the private individual. In addition, UK companies can demonstrate good quality management teams and comparatively robust levels of corporate governance compared to Global peers. Furthermore, valuations remain attractive on both an absolute and relative basis, corporate earnings should remain strong and finally merger and acquisition activity should help to underpin the market. All of the above gives us some confidence to remain cautiously optimistic.

Anthony B. Davidson

Chairman

31 May 2011

2. MANAGER'S REVIEW

Portfolio Strategy

Markets have delivered another year of positive returns. Whilst the gains were by no means as strong as in 2010, it was pleasing to see a continuing recovery in share prices and the economy. Early in the year the decision was taken to repay some of the bank facilities. This combined with an increase in the value of the Company's investments caused the gearing to decline from 31.4% to 26.5%. The short-term facilities with HSBC and Royal Bank of Scotland were replaced with a two year £20 million facility provided by Scotiabank Europe PLC. The geared element of the portfolio is invested in UK preference shares which provide a core level of high income.

The Company's assets are invested in equities, preference shares and convertible shares. At the year end, 68% of the assets were invested in equities, 30% in preference shares and the remainder in convertible shares and cash.

Revenue Account

The following table details the main sources of the Company's income over the last five years.

	2011	2010	2009	2008	2007
	%	%	%	%	%
Ordinary dividends	44.1	41.6	41.5	47.5	50.6
Preference dividends	44.4	44.7	28.1	29.0	28.6
Aberdeen Smaller Companies*	6.9	7.4	8.7	7.4	7.2
Fixed interest and bank interest	0.6	1.3	2.9	1.1	1.6
Dealing subsidiary	0.0	0.0	(0.5)	(7.0)	3.1
Traded option premiums	4.0	5.0	19.3	22.0	8.9
	________	________	________	________	________
	100.0	100.0	100.0	100.0	100.0
	________	________	________	________	________
Total income (£'000s)	4,153	4,201	6,929	8,117	8,062
	________	________	________	________	________

* formerly Shires Smaller Companies plc

In the year ended 31 March 2011, equities accounted for slightly over half the revenue generated, an improvement over 2010. Preference shares were the next most important contributor. The contribution from traded options was similar to the previous year as the Company continued its approach of reducing its reliance on what can be a volatile income stream. The dealing subsidiary was inactive over the year. We no longer believe that this is an appropriate method of generating revenue and it has now been closed down.

Equities

The year started strongly with equity markets hitting 18 month highs during April. One notable feature was an increase in merger and acquisition activity especially amongst medium sized companies. This was not surprising given the weakness of sterling and the need for management teams to buy sales in a low growth environment. An example was the portfolio's holding in Arriva which was acquired by Deutsche Bahn. Investors remained cautious though as events continued to remind them of the threats to global recovery. In the UK there was the growing prospect of a hung Parliament and the attendant possibility that the deficit would remain unshackled. Meanwhile, in Europe the prospect of sovereign debt default raised its head with the news that Greece looked ever more likely to need a bailout. By May the European Union and the International Monetary Fund had announced a €750 billion package designed to ensure that no member country would default.

One of the positive features of the recession was the approach taken by management teams. They acted quickly to reduce costs and to repair their balance sheets. Although the previous year had seen dividends cut across the market there was now a general feeling of rising confidence. This began to manifest itself in the form of rising dividend pay outs. Whilst the travails of BP dominated the headlines and had a severe impact on the dividend stream available in the UK, many other companies were able to increase their distributions.

By the middle of the year the optimism that had been so apparent in April had disappeared and markets had fallen by more than 10%. Macro economic news flow continued to be mixed but investors seemed to be more focussed on the negatives than the positives.

In the UK the coalition government released their emergency budget. Measures such as the curtailment of previously committed spending on education and the changes to child benefit payments, served to demonstrate how committed the government was to tackling the deficit. Investors welcomed this approach as evidenced by the strengthening of sterling and UK gilts.

As we approached the autumn reporting season, the pre close statements being released by companies suggested that results would largely be in line with expectations and that profit growth would continue. Whilst this was clearly positive, comments made by Ben Bernanke, the Chairman of the US Federal Reserve, that the outlook for the US was "unusually uncertain" served to remind investors that recovery in the US was far from a forgone conclusion. By November the US authorities had announced that they would purchase up to another $600 billion of Treasuries in what came to be known as Quantitative Easing 2, (QE2). Whilst this action was aimed at combating the threat of deflation it was in fact inflation that was proving to be the more difficult problem, especially in the UK. Indeed, these actions to increase liquidity in the US economy also served to weaken the dollar which in turn pushed up commodity prices creating additional inflationary pressures.

Despite this, merger and acquisition activity continued apace and also moved further up the market capitalisation scale. Intel bid for MacAfee, Royal Sun Alliance bid for parts of Aviva and BHP Billiton launched a $39 billion attempt to secure Potash Corporation.

The risk of Sovereign debt default in the European Union re-emerged. This time it was Ireland that was forced to accept a bailout package.

As we entered the New Year the impact of collapsing consumer confidence became increasingly evident. The fourth quarter GDP reading for the UK was particularly poor even accounting for the impact of the atrocious weather in the run-up to Christmas. Profit warnings began to accelerate. Broadly, these fell into two camps, those that were related to the reduction in disposable incomes amongst consumers and those that were related to ever rising input costs. This latter factor showed no signs of easing and was further exacerbated by news of the rising tensions in the Middle East which served to drive the oil price to levels not seen since the summer of 2008.

The portfolio is constructed on a company by company basis rather than by reference to the benchmark. In the UK, however, the index is dominated by a handful of sectors and very large companies. This can have the effect of creating significant divergences between the portfolio and the benchmark.

During the year we have remained underweight the oil and gas producers. In part this was a function of BP's decision to cut their dividend. The requirement to generate an above average income stream from the portfolio constrains the amount of the fund that we can invest in zero and low yielding equities. In the case of both the oil producers and the miners, where we also have an underweight position, we see attractive investment opportunities in the businesses that provide services to these companies. Consequently, our overweight position amongst the service providers has been increasing as we have built the position in Amec. Pleasingly, the performance from Weir Group has meant that we have been able to lock in profits from this holding over the course of the year.

Aerospace and Defence spending is the subject of much negative press coverage. It is true that total spending will have to be reduced as a part of the austerity drive, but there are businesses that occupy niches where expenditure is under less pressure. Some companies are also involved in long-term, in some cases very long-term, programmes that provide a base of revenues that stretches far into the future. Rolls Royce and Cobham are two such businesses and we have been adding to these positions over the year.

Pharmaceuticals is an area of the market where we believe valuations are failing to reflect future prospects as many investors focus on the threat from the "patent cliff" whilst ignoring the global demographics that support increasing drug usage. This is combined with innovations such as biologics that open new treatment spheres and a rising awareness on the part of the consumer that sees them demand the best available treatment. In general these companies possess strong balance sheets and offer attractive yields.

At the beginning of the year, the Travel & Leisure sector was an area where we had an overweight position. This has come down over the year as we have benefited from a number of notable successes. The most significant of these was the acquisition of Arriva by Deutsche Bahn. Additionally, the good performance from the likes of Millennium and Copthorne and Whitbread has allowed us to recycle capital from relatively low yielding businesses into higher yielding ones. Our positions in the Utility and Tobacco sectors have been broadly constant over the year. We believe that these companies provide a less cyclical and defensive earnings stream that provides some stability to the portfolio's dividend generating capability. Banks are an area where we remain significantly underweight. We believe that there is still too much uncertainty surrounding the future of those banks that have large elements of Government ownership. Our preferences include HSBC, Standard Chartered and Close Brothers. The first two companies navigated the credit crisis much more successfully than their peers and also bring exposure to emerging market growth to the portfolio. We added to the holding in Close Brothers because we view their banking business as being largely counter-cyclical and we believe that the market is not giving them enough credit for the resilience of the earnings in the market making business. Amongst other financial businesses we continue to have large positions in the Life Assurers. Having done much to improve the quality of their investment portfolios following the difficulties they experienced in the earlier part of the decade, these are now more stable businesses. They pay attractive dividends and in the case of Prudential they have large and growing Asian operations that bring them the potential to build a much larger business over the medium-term.

We have retained our holding in Shires Smaller Companies. This trust has recently changed its name to Aberdeen Smaller Companies High Income Trust ("Aberdeen Smaller Companies"). Whilst we are comfortable making direct investments in smaller companies, we believe that Aberdeen Smaller Companies brings the benefits of diversification at an attractive valuation given the discount at which it trades. This is allied with a very attractive yield that is notable in the context of the market in which it operates.

Lastly we are pleased to have secured an exit from the holding in Sierra Monitor. This was an historic investment, and a lack of liquidity had led to the Board taking the decision to write down its value in the 2010 Annual Report. Following a series of discussions with the management team of the company we received an offer from the company itself for the entire position. The offer was accepted and the sale generated a profit compared to the book value.

Investment Performance Analysis

In the year to the end of March 2011, the total return on net assets was 12.7% compared to our benchmark the FTSE All-Share Index which rose by 8.7%. The outperformance versus the benchmark was driven by a number of factors. Amongst these was the exposure to smaller companies through the holding in Aberdeen Smaller Companies. Stock selection was an important factor especially in the Travel & Leisure and Industrial Engineering sectors where the holdings in Arriva, which was acquired by Deutsche Bahn and Weir Group which enjoyed a very strong recovery in its end markets and was promoted into the FTSE 100 Index, were particularly noteworthy. Financials are an important area of the market especially for an income orientated Company. It is pleasing that the underweight position to the banks and the overweight exposure to the Life Assurers were both significant positive contributors. Having performed strongly last year, the fixed income and preference shares lagged the market in 2011 though they continued to be core contributors to the revenue account.

Prospects

The outlook for the UK economy is currently quite downbeat. The impact of the austerity packages are only just starting to be felt and the impending cuts are likely to be more severe than many people realise. The consumer is beginning to recognise this and has cut back on discretionary spending as evidenced by the increasing number of profit warnings emanating from consumer exposed businesses. Meanwhile inflation remains resolutely above target.

For some time now the Monetary Policy Committee's stance has been that a number of unrelated factors have impacted the rate of price rises, not least the increase in VAT to 20% and rising commodity prices. The Committee's view has been that these will be either transient or are beyond its control. That stance is looking increasingly difficult to defend and therefore there is a real possibility that interest rates will rise sooner and faster than expected. Indeed, it may be necessary for this to happen in order to assuage investors who, whilst content with the rhetoric surrounding the necessary cuts in expenditure, need to be comforted that the authorities are serious about controlling inflation. In the European Union interest rates have already started to increase. This will make life increasingly difficult for those peripheral economies that are facing likely or current default. Whilst this will be detrimental to demand from these regions for UK exports, the associated strength of the Euro should provide some counterbalance.

The impact of rising raw material prices are being felt by a wide range of companies. Having acted quickly to adjust their cost bases in the face of the recession many companies lack much scope to implement cost saving measures to offset these. Consequently, they will need to raise prices if they are to offset the impact on their gross margins.

There are also global events that have the potential to impact markets. These include the possibility that rising tensions in the Middle East could push the oil price materially higher. Also, although the US recovery is ongoing, it needs to be remembered just how much stimulus is being deployed and that this will have to be unwound at some point.

Nevertheless, whilst the economic environment will be difficult, there are some positive factors. It is easy to forget that there is a low correlation between economic expansion and equity market performance. In addition, a sizable proportion of the UK equity market's earnings is derived from overseas which serves to diminish the impact of a difficult domestic outlook. Meanwhile, corporate balance sheets are in much better health than they have been for many years. Therefore, providing management teams have confidence in the medium-term, there is the potential for capital expenditure to absorb some of the impact of falling public sector spending and a rising consumer savings ratio. Lastly, there are signs that having been the beneficiaries of large flows of investment, some emerging market economies, most notably China, are aware of the potential danger from the formation of bubbles and are consequently tightening monetary policy. UK equities have been an overlooked area of the market for some time. Any reduction in appetite for emerging market equities may serve to draw investors' attention to the fact that domestic equities are not expensive in absolute terms or relative to either history or other asset classes.

We will continue to invest in businesses that have sound balance sheets, positive medium-term prospects and that are attractively valued.

Aberdeen Asset Managers Limited

31 May 2011

3. RESULTS

	31 March 2011	31 March 2010	% change
Total investments	£74,317,000	£73,023,000	+1.8
Shareholders' funds	£58,733,000	£55,573,000	+5.7
Market capitalisation	£56,425,402	£54,643,547	+3.3
Net asset value per share	197.77p	187.13p	+5.7
Share price (mid market)	190.00p	184.00p	+3.3
(Discount)/premium to adjusted NAV ¹	(0.9%)	1.6%
Gearing	26.5%	31.4%
Total expense ratio	1.1%	1.1%

Dividends and earnings
Revenue return per share ²	11.09p	11.83p	-6.3
Dividends per share ³	12.00p	12.00p	-
Dividend cover	0.92	0.99
Revenue reserves 4	£5,878,000	£6,151,000

¹ Based on IFRS NAV above reduced by dividend adjustment of 6.0p (2010 - 6.0p).
² Measures the revenue earnings for the year divided by the weighted average number of Ordinary shares in issue (see Consolidated Statement of Comprehensive Income).
³ The figures for dividends per share reflect the years in which they were earned (see note 9).
4 The revenue reserve figure does not take account of the third or final interim dividend amounting to £1,781,855 (2010 - £1,781,855).

Performance (total return)

	1 year	3 year	5 year
	% return	% return	% return
Net asset value	+12.7	+4.3	-9.7
Share price (based on mid price)	+10.1	+16.1	-7.4
FTSE All-Share Index	+8.7	+17.0	+20.0

All figures are for total return and assume re-investment of net dividends excluding transaction costs.

	Rate per share	xd date	Record date	Payment date
First interim dividend	3.00p	6 October 2010	8 October 2010	29 October 2010
Second interim dividend	3.00p	5 January 2011	7 January 2011	31 January 2011
Third interim dividend	3.00p	6 April 2011	8 April 2011	28 April 2011
Proposed final dividend	3.00p	6 July 2011	8 July 2011	29 July 2011
	___________
2010/11	12.00p
	___________
First interim dividend	3.00p	7 October 2009	9 October 2009	30 October 2009
Second interim dividend	3.00p	6 January 2010	8 January 2010	29 January 2010
Third interim dividend	3.00p	7 April 2010	9 April 2010	30 April 2010
Final dividend	3.00p	7 July 2010	9 July 2010	30 July 2010
	___________
2009/10	12.00p
	___________

Ten Year Financial Record

Year to 31 March	2002	2003	2004 ¹	2005	2006	2007	2008	2009	2010	2011
Revenue available for ordinary dividends (£'000)	5,739	5,853	5,770	5,770	5,792	5,987	6,026	5,536	3,512	3,292
Per share (p)
Net revenue return	19.4	19.7	19.5	19.6	19.5	20.2	20.3	18.6	11.8	11.1
Net dividends paid/proposed	19.25	19.25	19.25	19.25	19.25	19.25	19.75	19.75	12.00	12.00
Total return	(38.9)	(175.0)	76.0	52.5	74.8	26.8	(65.4)	(113.0)	85.3	22.6
Net asset value	366.9	172.7	229.5	272.9	328.4	336.0	251.5	118.8	187.1	197.8
	_____	_____	_____	_____	_____	_____	_____	_____	_____	_____
Shareholders' funds (£m)	108.9	51.2	68.1	81.1	97.5	99.8	74.7	35.3	55.6	58.7
	_____	_____	_____	_____	_____	_____	_____	_____	_____	_____

¹ 2004 figures restated following the introduction of International Reporting Standards ('IFRS'). Figures for 2003 and earlier have not been restated.

Cumulative Performance (rebased to 100 at 31 March 2000)

As at 31 March	2001	2002	2003	2004 ¹	2005	2006	2007	2008	2009	2010	2011
NAV - diluted	100.0	86.3	40.6	54.0	61.8	74.4	76.1	56.9	26.9	42.4	44.8
NAV total return ²	100.0	90.7	45.9	66.8	82.8	106.8	116.2	92.5	48.3	85.6	96.5
Share price performance	100.0	80.5	34.3	54.2	64.4	75.9	75.2	53.3	26.4	44.6	46.0
Share price total return ²	100.0	84.5	38.7	67.6	87.4	110.3	116.3	87.9	48.6	92.7	102.1
Benchmark performance	100.0	94.3	64.0	81.0	90.6	112.4	121.1	108.0	73.2	107.3	113.1
Benchmark total return ²	100.0	96.8	68.0	89.0	102.9	131.7	146.4	135.1	95.4	145.4	158.0

¹ 2004 figures restated following the introduction if International Reporting Standards ('IFRS'). Figures for 2003 and earlier have not been restated.
² Total return figures are based on reinvestment of net income.

4. DISTRIBUTION OF ASSETS AND LIABILITIES

	Valuation at		Movement during the year				Valuation at
	31 March					Gains/	31 March
	2010		Purchases	Sales	Other	(losses)	2011
	£'000	%	£'000	£'000	£'000	£'000	£'000	%
Listed investments
Ordinary shares	49,190	88.5	4,295	(6,250)	-	4,458	51,693	88.0
Convertibles	1,313	2.4	-	-	-	16	1,329	2.2
Preference shares	22,048	39.7	-	-	(129)	(624)	21,295	36.3
	_______	_______	_______	_______	_______	_______	_______	_______
	72,551	130.6	4,295	(6,250)	(129)	3,850	74,317	126.5
"Restricted" investments	472	0.8	-	(633)	-	161	-	-
	_______	_______	_______	_______	_______	_______	_______	_______
Total investments	73,023	131.4	4,295	(6,883)	(129)	4,011	74,317	126.5
Current assets	2,713	4.9					3,120	5.3
Current liabilities	(20,163)	(36.3)					(18,704)	(31.8)
	_______	_______					_______	_______
Net assets	55,573	100.0					58,733	100.0
	_______	_______					_______	_______
Net asset value per Ordinary share	187.1p						197.8p
	_______						_______

5. BUSINESS REVIEW

Activities

The Company is an investment trust. The objective of the Company aims 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. As at 31 March 2011, the Company owned the whole of the issued ordinary share capital of its two subsidiary undertakings, Topshire Limited and Wiston Investment Company Limited, both of which were investment dealing companies registered in England. Having not traded in recent years, both companies made an application to the Registrar of Companies to be voluntarily struck off during the year and were formally dissolved after the year end with an effective date of 24 May 2011.

The Company has an18.1% interest in Aberdeen Smaller Companies High Income Trust PLC (formerly Shires Smaller Companies plc), a listed investment trust managed by Aberdeen.

6. STATEMENT OF DIRCTORS' RESPONSIBILITIES

The Directors are responsible for preparing the Report and Accounts and the Group and Parent Company financial statements (the 'financial statements') in accordance with applicable law and regulations.

Company law requires the Directors to prepare Group and Parent Company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the Parent Company financial statements on the same basis.

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Parent Company and of their profit or loss for that period. In preparing each of the Group and Parent Company financial statements, the Directors are required to:

- select suitable accounting policies and then apply them consistently;

- take judgements and estimates that are reasonable and prudent;

- state whether they have been prepared in accordance with IFRSs as adopted by the EU subject to any material
departures disclosed and explained in the notes to the financial statements; and

- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and
the Parent Company will continue in business.

The Directors confirm that the financial statements comply with these requirements.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors confirm to the best of their knowledge:

- the financial statements, prepared in accordance with the applicable accounting standards, give a true and fair view
of the assets, liabilities, financial position and the profit or loss of the Company; and

- the Directors' Report includes a fair review of the development and performance of the business and the position of
the Company, together with a description of the principal risks and uncertainties that the Company faces.

For and on behalf of Shires Income PLC

Andrew S. Robson

Audit Committee Chairman

31 May 2011

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

		Year ended			Year ended
		31 March 2011			31 March 2010
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments at fair value	11	-	4,012	4,012	-	22,416	22,416
Net currency gain		-	9	9	-	-	-
Investment income
Dividend income		3,176	-	3,176	3,080	-	3,080
Interest income from investments		761	(129)	632	803	(134)	669
Stock dividend		31	-	31	31	-	31
Traded option premiums		160	-	160	212	-	212
Deposit interest		1	-	1	-	-	-
Money market interest		6	-	6	-	-	-
Other income		18	-	18	75	-	75
		________	_______	______	________	_______	_______
	2	4,153	3,892	8,045	4,201	22,282	26,483
		________	_______	______	________	_______	_______

Expenses
Investment management fee	3	(156)	(155)	(311)	(149)	(149)	(298)
VAT recoverable on investment management fees	3	10	11	21	74	74	148
Other administrative expenses	4	(304)	-	(304)	(244)	(3)	(247)
Finance costs of borrowings	6	(363)	(363)	(726)	(370)	(385)	(755)
		________	_______	______	________	_______	_______
		(813)	(507)	(1,320)	(689)	(463)	(1,152)
		________	_______	______	________	_______	_______
Profit before taxation		3,340	3,385	6,725	3,512	21,819	25,331
Taxation	7	(48)	48	-	-	-	-
		________	_______	______	________	_______	_______
Profit attributable to equity holders of the Company		3,292	3,433	6,725	3,512	21,819	25,331


Earnings per Ordinary share (pence)	10	11.09	11.55	22.64	11.83	73.48	85.31
		________	_______	______	________	_______	_______

The Group does not have any income or expense that is not included in profit for the year, and therefore the "Profit for the year" is also the "Total comprehensive income for the year", as defined in IAS 1 (revised).
All of the profit 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 Group, 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.
The accompanying notes are an integral part of these financial statements.

The following table shows the revenue for each year under IFRS less the ordinary dividends declared in respect of the financial year to which they relate. This table is for information purposes only and does not form part of the above Statement of Comprehensive Income.
						Year to	Year to
						31 March	31 March
						2011 ¹	2010 ²
						£'000	£'000
Revenue						3,292	3,512
Dividends declared						(3,564)	(3,564)
						_______	_______
						(272)	(52)
						_______	_______

¹ Dividends declared relates to first three interim dividends (each 3.0p) and the proposed final dividend (3.0p) declared in respect of financial year 2010/11.
² Dividends declared relates to first three interim dividends (each 3.0p) and the final dividend (3.0p) declared in respect of financial year 2009/10.

BALANCE SHEETS

		Group		Company
		As at	As at	As at	As at
		31 March	31 March	31 March	31 March
		2011	2010	2011	2010
	Notes	£'000	£'000	£'000	£'000
Non-current assets
Ordinary shares		51,693	49,190	51,693	49,190
Convertibles		1,329	1,313	1,329	1,313
Other fixed interest		21,295	22,048	21,295	22,048
Restricted investments		-	472	-	472
		__________	__________	__________	__________
Securities at fair value	11	74,317	73,023	74,317	73,023
		__________	__________	__________	__________
Current assets
Trade and other receivables		53	357	53	357
Accrued income and prepayments		1,086	1,206	1,086	1,206
Cash and cash equivalents		1,981	1,150	1,981	1,150
		__________	__________	__________	__________
	13	3,120	2,713	3,120	2,713
		__________	__________	__________	__________
Total assets		77,437	75,736	77,437	75,736

Current liabilities
Trade and other payables		(204)	(163)	(298)	(257)
Short-term borrowings		(18,500)	(20,000)	(18,500)	(20,000)
		__________	__________	__________	__________
	14	(18,704)	(20,163)	(18,798)	(20,257)
		__________	__________	__________	__________
Net assets		58,733	55,573	58,639	55,479
		__________	__________	__________	__________
Issued capital and reserves attributable to equity holders of the parent
Called up share capital	15	14,899	14,899	14,899	14,899
Share premium account	16	18,840	18,840	18,840	18,840
Capital reserve	17	19,116	15,683	19,107	15,674
Revenue reserve	17	5,878	6,151	5,793	6,066
		__________	__________	__________	__________
		58,733	55,573	58,639	55,479
		__________	__________	__________	__________

Net asset value per Ordinary share (pence):	10	197.77	187.13	197.45	186.81
		__________	__________	__________	__________

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Year ended 31 March 2011
		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 (see note 9)	-	-		-	(3,565)	(3,565)
	__________	__________		__________	__________	_________
As at 31 March 2011	14,899	18,840		19,116	5,878	58,733
	__________	__________		__________	__________	_________

Year ended 31 March 2010
As at 31 March 2009	14,899	18,855		(6,151)	7,668	35,271
Revenue profit for the year	-	-		-	3,512	3,512
Capital gains for the year	-	(15)		21,834	-	21,819
Equity dividends (see note 9)	-	-		-	(5,029)	(5,029)
	__________	__________		__________	__________	_________
As at 31 March 2010	14,899	18,840		15,683	6,151	55,573
	__________	__________		__________	__________	_________

Company Statement of Changes in Equity

Year ended 31 March 2011
			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	15,674	6,066	55,479
Revenue profit for the year	-		-	-	3,292	3,292
Capital gains for the year	-		-	3,433	-	3,433
Equity dividends (see note 9)	-		-	-	(3,565)	(3,565)
	__________		__________	__________	__________	_________
As at 31 March 2011	14,899		18,840	19,107	5,793	58,639
	__________		__________	__________	__________	_________

Year ended 31 March 2010
As at 31 March 2009	14,899		18,855	(6,160)	7,583	35,177
Revenue profit for the year	-		-	-	3,512	3,512
Capital gains for the year	-		(15)	21,834	-	21,819
Equity dividends (see note 9)	-		-	-	(5,029)	(5,029)
	__________		__________	__________	__________	_________
As at 31 March 2010	14,899		18,840	15,674	6,066	55,479
	__________		__________	__________	__________	_________

The revenue reserve represents the amount of the Company's reserves distributable by way of dividend.
The accompanying notes are an integral part of these financial statements.

GROUP AND COMPANY CASH FLOW STATEMENT

	Year ended		Year ended
	31 March 2011		31 March 2010
	£'000	£'000	£'000	£'000
Cash flows from operating activities
Investment income received		3,871		3,987
Deposit interest received		1		-
Money market interest received		6		-
Investment management fee paid		(309)		(288)
VAT on investment management fees recovered		21		431
Other cash receipts		60		215
Other cash expenses		(276)		(269)
		_________		_________
Cash generated from operations		3,374		4,076
Interest paid		(558)		(905)
Tax recovered		1		7
		_________		_________
Net cash inflows from operating activities		2,817		3,178
		_________		_________
Cash flows from investing activities
Purchases of investments	(4,295)		(10,299)
Sales of investments	7,365		14,012
Repayment of Index-Linked Debenture Stock	-		(9,957)
	_________		_________
Net cash inflow/(outflow) from investing activities		3,070		(6,244)
		_________		_________
Cash flows from financing activities
Equity dividends paid	(3,565)		(5,029)
	_________		_________
Net cash outflow from financing activities		(3,565)		(5,029)
		_________		_________
Net increase/(decrease) in cash and cash equivalents		2,322		(8,095)
Cash and cash equivalents at start of period		(18,850)		(10,755)
Effect of currency gains		9		-
		_________		_________
Cash and cash equivalents at end of period		(16,519)		(18,850)
		_________		_________
Cash and cash equivalents comprise:
Cash and cash equivalents		1,981		1,150
Short-term borrowings		(18,500)		(20,000)
		_________		_________
		(16,519)		(18,850)
		_________		_________

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 March 2011

1.	Accounting policies
	(a)	Basis of accounting
		The financial statements of the Group and Company have been prepared in accordance with International Financial Reporting Standards (IFRSs) which comprise standards and interpretations approved by the International Accounting Standards Board ("IASB"), and International Accounting Standards and Standing Interpretations Committee interpretations approved by the International Accounting Standards Committee ("IASC") that remain in effect, and to the extent that they have been adopted by the European Union.

		The financial statements have been prepared under the historical cost convention, as modified to include the revaluation of investments and in line with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (issued in January 2009). The Directors have sought to prepare the financial statements on a basis consistent with the recommendations of the SORP except as referred to in paragraph (d) below. The financial statements have also been prepared on the assumption that approval as an investment trust will continue to be granted. The financial statements have been prepared on a going concern basis. The financial statements have been prepared on a going concern basis.

		In order better to reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the Statement of Comprehensive Income. In accordance with the Company's status as a UK investment company under Section 833 of the Companies Act 2006, net capital returns may not be distributed by way of dividend. Additionally, the net revenue of the Company is the measure the Directors believe appropriate in assessing the Group's compliance with certain requirements set out in Sections 1158-1159 of the Corporation Tax Act 2010.

		At the date of authorisation of these financial statements, various Standards, amendments to Standards and Interpretations which have not been applied to these financial statements, were in issue but were not yet effective (and in some cases, had not yet been adopted by the EU). These have not been applied to these financial statements.

		IFRS 7 - Financial instruments: Disclosures (effective for annual periods beginning on or after 1 July 2011)
		IFRS 9 - Financial Instruments: Classification and Measurement (effective for annual periods beginning on or after 1 January 2013)
		IAS 24 - Related Party Transactions (effective for annual periods beginning on or after 1 January 2011)

		The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group.

	(b)	Consolidation
		The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 March each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. All intra-group transactions, balances, income and expenses are eliminated on consolidation. The Company has availed itself of the relief from showing a Statement of Comprehensive Income for the parent company, granted under Section 408 of the Companies Act 2006.

	(c)	Investments
		All investments have been designated upon initial recognition at fair value through profit or loss. This is because all investments are considered to form part of a group of financial assets which is evaluated on a fair value basis. Investments are recognised or derecognised on the trade date where a purchase or sale is under a contract whose terms require delivery within the timeframe established by the market concerned. Proceeds are measured at fair value which is regarded as the proceeds of sales less any transaction costs.

		The fair value of the financial instruments is based on their quoted bid price at the Balance Sheet date, without deduction for any estimated future selling costs. Any unquoted investments would be held at fair value, as measured by the Directors using appropriate valuation methodologies such as earnings multiples, recent transactions and net assets. In the case of the Company's investment in the subsidiary, of which the Company owns 100% of its Ordinary share capital, this has been measured at fair value, which is deemed to be its net asset value.

		Changes in the value of investments held at fair value through profit or loss and gains and losses on disposal are recognised in the Group Statement of Comprehensive Income as "Gains/(losses) on investments". Also included within this caption are transaction costs in relation to the purchase or sale of investments, including the difference between the purchase price of an investment and its bid price at the date of purchase.

	(d)	Income
		Dividend income from equity investments which includes all Ordinary shares and also preference shares classified as equity instruments is accounted for when the shareholders' rights to receive payment have been established, normally the ex-dividend date.

		Interest from debt securities, which include preference shares classified as debt instruments, is accounted for on an effective interest rate basis. Any write-off of the premium or discount on acquisition as a result of using this basis is allocated against capital reserve. The SORP recommends that such a write-off should be allocated against revenue. The Directors believe this treatment is not appropriate for a high yielding investment trust which frequently buys and sells debt securities, and believe any premium or discount included in the price of such an investment is a capital item.

		Traded option contracts are restricted to writing out-of-the-money options with a view to generating income. Premiums received on traded option contracts are recognised as income evenly over the period from the date they are written to the date when they expire or are exercised or assigned. Gains and losses on the underlying shares acquired or disposed of as a result of options exercised are included in the capital account. Unexpired traded option contracts at the year end are accounted for at their fair value.

		Interest from deposits is dealt with on an effective interest basis.

		Underwriting commission is recognised when the underwriting services are provided and is taken to revenue, unless any shares underwritten are required to be taken up, in which case the proportionate commission received is deducted from the cost of the investment.

	(e)	Expenses
		All expenses are accounted for on an accruals basis. In respect of the analysis between revenue and capital items presented within the Statement of Comprehensive Income, all expenses have been presented as revenue items except those where a connection with the maintenance or enhancement of the value of the investments held can be demonstrated. Accordingly the investment management fee and finance costs have been allocated 50% to revenue and 50% to capital, in order to reflect the Directors expected long-term view of the nature of the investment returns of the Company.

	(f)	Short-term borrowings
		Short-term borrowings, which comprise interest bearing bank loans and overdrafts, are initially recognised at cost, being the fair value of the consideration received, net of any issue expenses. The finance costs, being the difference between the net proceeds of borrowings and the total amount of payments that require to be made in respect of those borrowings, accrue evenly over the life of the borrowings and are allocated 50% to revenue and 50% to capital.

	(g)	Taxation
		The tax payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the Statement of Comprehensive Income because it excludes items of income or expenditure that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group has no liability for current tax.

		Deferred tax is provided in full on temporary differences which result in an obligation at the Balance Sheet date to pay more tax, or a right to pay less tax, at a future date at rates expected to apply when they crystallise, based on current tax rates and law. Temporary differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in financial statements. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered.

	(h)	Foreign currencies
		Transactions involving foreign currencies are converted at the rate ruling at the time of the transaction. Assets and liabilities in foreign currencies are translated at the closing rates of exchange at the Balance Sheet date. Any gain or loss arising from a change in exchange rate subsequent to the date of the transaction is included as an exchange gain or loss in capital reserve or the revenue account as appropriate.

		2011	2010
2.	Income	£'000	£'000
	Income from listed investments
	Dividend income	3,176	3,080
	Interest income from investments	761	803
	Money Market Interest	6	-
	Stock dividend	31	31
		_________	_________
		3,974	3,914
		_________	_________
	Other income from investment activity
	Deposit interest	1	-
	Traded option premiums	160	212
	Interest on VAT recovered on investment management fees	1	55
	Other income	17	20
		_________	_________
		179	287
		_________	_________
	Total income	4,153	4,201
		_________	_________

		2011	2010
	Total income comprises:	£'000	£'000
	Dividends and interest from investments	3,974	3,914
	Deposit interest	1	-
	Interest on VAT recoverable on investment management fees	1	55
	Other income from investment activity	177	232
		_________	_________
	Total income	4,153	4,201
		_________	_________

	All dividend income was received from UK companies. The amount of £129,000 (2010 - £134,000) included in the capital column of Investment Income represents the write off of the premium or discount on acquisition of debt securities referred to in note 1(d).

		2011			2010
		Revenue	Capital	Total	Revenue	Capital	Total
3.	Investment Management fees	£'000	£'000	£'000	£'000	£'000	£'000
	Investment management fees	156	155	311	149	149	298
		______	______	______	______	______	______

	For the year ended 31 March 2011 management and secretarial services were provided by Aberdeen Asset Managers Limited. The fee is 0.45% for funds up to £100 million and 0.40% for funds over £100 million, calculated monthly and paid quarterly. The fee is allocated 50% to revenue and 50% to capital.

	On 5 November 2007, the European Court of Justice ruled that management fees on investment trusts should be exempt from VAT.

	The Manager has refunded £432,000 to the Company, representing all VAT charged on investment management fees for the period 1 January 2004 to 30 September 2007. This sum was included in the financial statements for the years ended 31 March 2009 and 2010. In addition a further £21,000, excluding interest thereon of £1,000 has been refunded by the Manager in the current year. The repayment relates to VAT charged on investment management fees for the period 1 January 2001 to 31 December 2003. This repayment has been allocated to revenue and capital in line with the accounting policy of the company for the period in which the VAT was charged.

	The Company has not been charged VAT on its investment management fees from 1 October 2007.

			2011	2010
4.	Administrative expenses		£'000	£'000
	Directors' remuneration		76	65
	Fees payable to auditors and associates
	-	fees payable to the Company's auditors for the audit of the annual accounts	22	21
	Marketing contribution paid to Aberdeen		50	10
	Professional fees		27	8
	Registrars fees		36	40
	Printing, postage and stationery		23	21
	Other administrative expenses		70	79
			________	________
			304	244
			________	________

5.	Directors' remuneration
	The Company had no employees during the year (2010 - nil). No pension contributions were paid for Directors (2010 - £nil).

		2011			2010
		Revenue	Capital	Total	Revenue	Capital	Total
6.	Finance costs and borrowings	£'000	£'000	£'000	£'000	£'000	£'000
	Bank loans and overdrafts repayable within five years	363	363	726	194	194	388
	5% Index-Linked Debenture Stock 2008/2010	-	-	-	176	176	352
	Amortisation of issue expenses on Debenture Stock	-	-	-	-	15	15
		_______	_______	_______	_______	_______	_______
		363	363	726	370	385	755
		_______	_______	_______	_______	_______	_______

7.	Taxation
	At 31 March 2011 the Company had surplus management expenses and loan relationship debits with a tax value of £6,396,000 (2010 - £6,298,000) in respect of which a deferred tax asset has not been recognised. This is because the Company is not expected to generate taxable income in a future period in excess of the deductible expenses of that future period and, accordingly, it is unlikely that the Company will be able to reduce future tax liabilities through the use of existing surplus expenses.

	The following table is a reconciliation of current taxation to the charges/credits which would arise if all ordinary activities were taxed at the standard UK corporation tax rate of 28% (2010 - 28%).

		2011			2010
		Revenue	Capital	Total	Revenue	Capital	Total
		£'000	£'000	£'000	£'000	£'000	£'000
	Profit before taxation	3,340	3,385	6,725	3,512	21,819	25,331
		_______	______	______	_______	______	______
	Taxation of return on ordinary activities at the standard rate of corporation tax	935	948	1,883	983	6,109	7,092
	Effects of:
	UK dividend income not liable to further tax	(874)	-	(874)	(862)	-	(862)
	Non taxable stock dividends	(9)	-	(9)	(9)	-	(9)
	Tax relief obtained by expenses capitalised	48	(48)	-	-	-	-
	Non taxable overseas dividends	(4)	-	(4)	-	-	-
	Non-taxable write off of debt security premium/discount	-	-	-	-	38	38
	Brought forward management expenses utilised	(142)	-	(142)	(125)	-	(125)
	Current year management expenses not utilised	94	178	272	13	130	143
	Non-taxable realisation gains	-	(1,126)	(1,126)	-	(6,277)	(6,277)
		_______	______	______	_______	______	______
	Taxation charge for the year	48	(48)	-	-	-	-
		_______	______	______	_______	______	______

8.	Revenue and capital gain attributable to equity holders of the Company
	The revenue and capital gain attributable to equity holders of the Group for the financial year includes £6,725,000 (2010 - £25,331,000) which has been dealt with in the Company's financial statements.

		2011	2010
9.	Dividends	£'000	£'000
	Amounts recognised as distributions to equity holders in the period:
	Third interim dividend for the year ended 31 March 2010 of 3.0p (2009 - 4.4p) per share	891	1,306
	Final dividend for the year ended 31 March 2010 of 3.0p (2009 - 6.55p) per share	891	1,946
	First two interim dividends for the year ended 31 March 2011 totalling 6.0p (2010 - 6.0p) per share	1,781	1,782
	Refund of unclaimed dividends from previous periods	-	(7)
		________	________
		3,563	5,027
		________	________
	3.5% Cumulative Preference shares	2	2
		________	________

	The third interim dividend of 3.0p for the year to 31 March 2011 paid on 28 April 2011 and the proposed final dividend for the year to 31 March 2011 payable on 29 July 2011 have not been included as liabilities in these financial statements.

	We also set out below the total ordinary dividends payable in respect of the financial year, which is the basis on which the requirements of Sections 1158-1159 of the Corporation Tax Act 2010 are considered:

		2011	2010
		£'000	£'000
	Three interim dividends for the year ended 31 March 2011 totalling 9.0p (2010 - 9.0p) per share	2,673	2,673
	Final proposed dividend for the year ended 31 March 2011 of 3.0p (2010 - 3.0p) per share	891	891
		________	________
		3,564	3,564
		________	________

10.	Return and net asset value per share
	The gains per share are based on the following figures:
		2011	2010
		£'000	£'000
	Revenue return	3,292	3,512
	Capital return	3,433	21,819
		________	________
	Net return	6,725	25,331
		________	________
	Weighted average number of Ordinary shares	29,697,580	29,697,580
		___________	___________

	Net asset value per Ordinary share is based on net assets attributable to Ordinary shareholders of £58,733,000 (2010 - £55,573,000) and on the 29,697,580 (2010 - 29,697,580) Ordinary shares in issue at 31 March 2011.

										Group & Company
										2011		2010
11.	Non current assets - Securities at fair value									£'000		£'000
	Listed on recognised stock exchanges:
	United Kingdom									74,317		72,547
	Overseas									-		4
										________		_______
										74,317		72,551
	Restricted - overseas									-		472
										________		_______
										74,317		73,023
										________		_______

	Group
			2011				2010
			Listed		Restricted		Listed			Restricted
			investments		investments	Total	investments			investments		Total
			£'000		£'000	£'000	£'000			£'000		£'000
	Cost at 31 March 2010		70,828		648	71,476	79,799			648		80,447
	Investment holdings gains/(losses) at 31 March 2010		1,723		(176)	1,547	(27,121)			1,405		(25,716)
			________		_______	_____	_______			_______		______
	Fair value at 31 March 2010		72,551		472	73,023	52,678			2,053		54,731
	Purchases		4,295		-	4,295	10,299			-		10,299
	Sales	- proceeds	(6,250)		(633)	(6,883)	(14,314)			-		(14,314)
		- net realised gains/(losses) on sales	1,562		126	1,688	(4,822)			-		(4,822)
	Amortised cost adjustments to debt securities ¹		(129)		-	(129)	(134)			-		(134)
	Fair value movement in the year		2,288		35	2,323	28,844			(1,581)		27,263
			________		_______	_____	_______			_______		______
	Fair value at 31 March 2011		74,317		-	74,317	72,551			472		73,023
			________		_______	_____	_______			_______		______
	¹ Charged to capital.

			2011				2010
			Listed		Restricted		Listed			Restricted
			investments		investments	Total	investments			investments		Total
			£'000		£'000	£'000	£'000			£'000		£'000
	Cost at 31 March 2011		70,306		141	70,447	70,828			648		71,476
	Investment holdings gains/(losses) at 31 March 2011		4,011		(141)	3,870	1,723			(176)		1,547
			________		_______	_____	_______			_______		______
	Fair value at 31 March 2011		74,317		-	74,317	72,551			472		73,023
			________		_______	_____	_______			_______		______

	Company
			2011				2010
			Listed		Restricted		Listed			Restricted
			investments		investments	Total	investments			investments		Total
			£'000		£'000	£'000	£'000			£'000		£'000
	Cost at 31 March 2010		70,828		648	71,476	79,799			648		80,447
	Investment holdings gains/(losses) at 31 March 2010		1,723		(176)	1,547	(27,121)			1,405		(25,716)
			________		_______	_____	_______			_______		______
	Fair value at 31 March 2010		72,551		472	73,023	52,678			2,053		54,731
	Purchases		4,295		-	4,295	10,299			-		10,299
	Sales	- proceeds	(6,250)		(633)	(6,883)	(14,314)			-		(14,314)
		- net realised gains/(losses) on sales	1,562		126	1,688	(4,822)			-		(4,822)
	Amortised cost adjustments to debt securities ¹		(129)		-	(129)	(134)			-		(134)
	Fair value movement in the year		2,288		35	2,323	28,844			(1,581)		27,263
			________		_______	_____	_______			_______		______
	Fair value at 31 March 2011		74,317		-	74,317	72,551			472		73,023
			________		_______	_____	_______			_______		______
	¹ Charged to capital.

			2011				2010
			Listed		Restricted		Listed			Restricted
			investments		investments	Total	investments			investments		Total
			£'000		£'000	£'000	£'000			£'000		£'000
	Cost at 31 March 2011		70,306		141	70,447	70,828			648		71,476
	Investment holdings gains/(losses) at 31 March 2011		4,011		(141)	3,870	1,723			(176)		1,547
			________		_______	_____	_______			_______		______
	Fair value at 31 March 2011		74,317		-	74,317	72,551			472		73,023
			________		_______	_____	_______			_______		______

									Group & Company
									2011		2010
	Gains/(losses) on investments								£'000		£'000
	Net realised gains/(losses) on sales of investments								1,695		(4,784)
	Call options exercised								(7)		(38)
									_______		______
	Net realised gains/(losses) on sales								1,688		(4,822)
	Movement in fair value of investments								2,433		27,253
	Put options assigned								(110)		10
	Movement in depreciation/(appreciation) of traded options held								1		(25)
									_______		______
									4,012		22,416
									_______		______

	The cost of the exercising of call options and the assigning of put options is the difference between the market price of the underlying shares and the strike price of the options. The premiums earned on options expired, exercised or assigned of £160,000 (2010 - £212,000) have been dealt with in the revenue account.

	The movement in the fair value of traded option contracts has been calculated in accordance with the accounting policy stated in note 1(d) and has been charged to the capital reserve.

	As at 31 March 2011, the Company had pledged collateral equal to 1215% of the market value of the traded options in accordance with standard commercial practice. The carrying amount of financial assets pledged equated to £1,944,000 all in the form of securities. The collateral position, which has not been adjusted down in line with the reduced traded option activity, is monitored on a daily basis, which then determines if further assets are required to be pledged over and above those already pledged.

	During the year expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains on investments in the Statement of Comprehensive Income. The total costs on the purchases and sales of investments in the year was £32,000 (2010 - £78,000).

	All investments are categorised as held at fair value through profit and loss and were designated as such upon initial recognition.

	At 31 March 2011 the Company held the following investments comprising more than 3% of the class of share capital held:

				Country of		Number of		Class of			Class held
	Company			incorporation		shares held		shares held			%
	Aberdeen Smaller Companies High Income Trust PLC			Scotland		4,000,000		ordinary			18.1%
	REA Holdings			England		996,720		9% cum pref			3.7%
	Ecclesiastical Insurance Office			England		4,240,000		7% cum pref			4.0%
	Royal Sun Alliance			England		4,350,000		7% cum pref			3.5%
	General Accident			Scotland		3,548,000		7% cum pref			3.2%

12.

Subsidiary undertakings and subsequent events

As at 31 March 2011, the Company owned the whole of the issued ordinary share capital of its two subsidiary undertakings, Topshire Limited and Wiston Investment Company Limited, both of which were investment dealing companies registered in England. Having not traded in recent years, both companies made an application to the Registrar of Companies to be voluntarily struck off during the year and were formally dissolved after the year end with an effective date of 24 May 2011.

		Group		Company
		2011	2010	2011	2010
13.	Current assets	£'000	£'000	£'000	£'000
	Investment sales	-	302	-	302
	Accrued income & prepayments	1,086	1,206	1,086	1,206
	Other debtors	53	55	53	55
	Cash at bank	1,981	1,150	1,981	1,150
		________	________	________	________
		3,120	2,713	3,120	2,713
		________	________	________	________
	None of the above amounts is overdue.

		Group		Company
		2011	2010	2011	2010
14.	Current liabilities	£'000	£'000	£'000	£'000
	Bank loans	18,500	20,000	18,500	20,000
	Due to subsidiary undertakings	-	-	-	94
	Other creditors	204	163	298	163
		________	________	________	________
		18,704	20,163	18,798	20,257
		________	________	________	________
	Included above are the following amounts owed to Aberdeen, the Manager and Secretary:
	Other creditors	81	79	81	79
		________	________	________	________

	In February 2011 the Company entered into a two year agreement with Scotiabank Europe PLC to provide a loan facility for up to £20,000,000. At the year end £18,500,000 had been drawn down at an all-in interest rate of 1.97384% which matured on 28 April 2011. At 31 May 2011 the principal amount was £18,500,000 at an all-in interest rate of 1.9801%.

	The terms of the Scotiabank Europe facility contain a covenant that gross borrowings may not exceed one-third of adjusted net assets. The Company met this covenant since inception of the agreement until the date of this Report.

		2011		2010
15.	Called up share capital	Number	£'000	Number	£'000
	Allotted, called up and fully paid
	Ordinary shares of 50 pence each	29,697,580	14,849	29,697,580	14,849
	3.5% Cumulative Preference shares of £1 each	50,000	50	50,000	50
			________		________
			14,899		14,899
			________		________

	The Group manages its capital to ensure that it will be able to continue as a going concern.

	The capital structure of the Company consists of debt, cash and cash equivalents and equity, comprising issued capital, reserves and retained earnings. Details of how the capital is managed are explained in the Director's Report.

	The Company does not have any externally imposed capital requirements.

		2011	2010
16.	Share premium account	£'000	£'000
	At 31 March 2010	18,840	18,855
	Amortisation of expenses and discounts on issue of Debenture Stock	-	(15)
		________	________
	At 31 March 2011	18,840	18,840
		________	________

		Group	Company	Group	Company
		2011	2011	2010	2010
17.	Retained earnings	£'000	£'000	£'000	£'000
	Capital reserve
	At 31 March 2010	15,683	15,674	(6,151)	(6,160)
	Net gains/(losses) on sales of investments during year	1,688	1,688	(4,822)	(4,822)
	Movement in fair value gains on investments	2,323	2,323	27,263	27,263
	Amortised cost adjustment charged to capital	(129)	(129)	(134)	(134)
	Investment management fees	(155)	(155)	(149)	(149)
	VAT recoverable on investment management fees	11	11	74	74
	Bank loans and overdrafts repayable within five years	(363)	(363)	(194)	(194)
	Net currency gain	9	9	-	-
	Tax relief obtained by expenses capitalised	48	48	-	-
	Index-Linked Debenture costs	-	-	(176)	(176)
	Traded options	1	1	(25)	(25)
	Other	-	-	(3)	(3)
		________	________	________	________
	At 31 March 2011	19,116	19,107	15,683	15,674
		________	________	________	________

		Group	Company	Group	Company
		2011	2011	2010	2010
	Revenue reserve	£'000	£'000	£'000	£'000
	At 31 March 2010	6,151	6,066	7,668	7,583
	Revenue	3,292	3,292	3,512	3,512
	Dividends paid	(3,565)	(3,565)	(5,029)	(5,029)
		________	________	________	________
	At 31 March 2011	5,878	5,793	6,151	6,066
		________	________	________	________

18.

Risk management, financial assets and liabilities

Risk management

The Company's objective of providing a high and growing dividend with capital growth is addressed by investing primarily in UK equities to provide growth in capital and income and in fixed income securities to provide a high level of income.

The impact of security price volatility is reduced by diversification. Diversification is by type of security - ordinary shares, preference shares, convertibles, corporate fixed interest and gilt-edged and by investment in the stocks and shares of companies in a range of industrial, commercial and financial sectors. The management of the portfolio is conducted according to investment guidelines, established by the Board after discussion with the Manager, which specify the limits within which the Manager is authorised to act.

The Manager has a dedicated investment management process which aims to ensure that the investment objective is achieved. Stock selection procedures are in place based on the active portfolio management and identification of stocks. The portfolio is reviewed on a periodic basis by a Senior Investment Manager and also by the Manager's Investment Committee.

The Company's Manager has an independent Investment Risk department for reviewing the investment risk parameters of all core equity, balanced, fixed income and alternative asset classes on a regular basis. The department reports to the Manager's Performance Review Committee which is chaired by the Manager's Chief Investment Officer. The department's responsibility is to review and monitor ex-ante (predicted) portfolio risk and style characteristics using best practice, industry standard multi-factor models.

Additionally, the Manager's Compliance department continually monitors the Company's investment and borrowing powers and reports to the Manager's Risk Management Committee.

Financial assets and liabilities

The Group's financial assets include investments, cash at bank and short-term debtors. Financial liabilities comprise a bank loan and other short-term creditors. The Group may from time to time use FTSE options for protection of the loss of value to the portfolio at modest cost.

Gearing

Short-term borrowing consisting of revolving credit facilities from banking institutions is also used and bears interest at floating rates. The gearing risk is actively managed and monitored as part of the overall investment strategy. The employment of gearing magnifies the impact on net assets of both positive and negative changes in the value of the Group's portfolio of investments.

The main risks the Company faces from its financial instruments are (i) market risk (comprising interest rate risk, currency risk and other price risk), (ii) liquidity risk and (iii) credit risk. 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.

The Company is subject to interest rate risk because bond yields are linked to underlying bank rates or equivalents, and its short-term borrowings and cash resources carry interest at floating rates. The interest rate profile is managed as part of the overall investment strategy of the Company.

(i)

Market risk

The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - interest rate risk, currency risk and other price risk.

Interest rate risk

Interest rate movements may affect:

the fair value of the investments in fixed interest rate securities;

the level of income receivable on cash deposits;

interest payable on the Company's variable rate borrowings.

The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment and borrowing decisions.

The Board reviews on a regular basis the values of the fixed interest rate securities.

Interest rate profile

The interest rate risk profile of the portfolio of financial assets and liabilities (excluding ordinary shares and convertibles) at the Balance Sheet date was as follows:

Weighted

average

period

Weighted

for which

average

Non-

rate is

interest

Fixed

Floating

interest

fixed

rate

bearing

As at 31 March 2011

Years

£'000

Assets

UK irredeemable preference shares

8.10

16,726

UK preference shares

28.90

11.71

4,569

Cash

0.43

1,981

________

_______

Total assets

21,295

1,981

________

_______

Weighted

average

period

Weighted

for which

average

Non-

rate is

interest

Fixed

Floating

interest

fixed

rate

bearing

Years

£'000

Liabilities

Short-term bank loan

0.08

1.97

(18,500)

________

_______

Total liabilities

(18,500)

________

_______

Weighted

average

period

Weighted

for which

average

Non-

rate is

interest

Fixed

Floating

interest

fixed

rate

Rate

bearing

As at 31 March 2010

Years

£'000

Assets

UK irredeemable preference shares

8.10

17,076

UK preference shares

29.90

11.61

4,972

Cash

0.30

1,150

________

_______

________

_______

Total assets

22,048

1,150

________

_______

________

_______

Liabilities

Short-term bank loan

0.04

2.68

(20,000)

________

_______

________

_______

Total liabilities

(20,000)

________

_______

________

_______

The weighted average interest rate is based on the current yield of each asset, weighted by its market value. The weighted average interest rate on bank loans is based on the interest rate payable, weighted by the total value of the loans.

The cash assets consist of cash deposits on call earning interest at prevailing market rates.

The UK irredeemable preference shares assets have no maturity date.

Short-term debtors and creditors (with the exception of loans) have been excluded from the above tables.

Maturity profile

The maturity profile of the Company's financial assets and financial liabilities (excluding convertibles) at the Balance Sheet date was as follows:

Within

More than

1 year

1-5 years

5 years

At 31 March 2011

£'000

Fixed rate

UK irredeemable preference shares

16,726

UK preference shares

4,569

Short-term bank loan

(18,500)

__________

(18,500)

21,295

__________

Floating rate

Cash

1,981

__________

Total

1,981

(18,500)

21,295

__________

Within

More than

1 year

1-5 years

5 years

At 31 March 2010

£'000

Fixed rate

UK irredeemable preference shares

17,076

UK preference shares

4,972

Short-term bank loan

(20,000)

__________

(20,000)

22,048

__________

Floating rate

Cash

1,150

__________

Total

(18,850)

22,048

__________

Interest rate sensitivity

The sensitivity analyses below have been determined based on the exposure to interest rates for both derivative and non-derivative instruments at the Balance Sheet date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have floating rates.

If interest rates had been 100 basis points higher or lower and all other variables were held constant, the Company's:

profit before tax for the year ended 31 March 2011 would increase/decrease by £20,000 (2010 - £12,000). This is mainly attributable to the Company's exposure to interest rates on its floating rate cash balances. These figures have been calculated based on cash positions at each year end.

profit before tax for the year ended 31 March 2011 would increase/decrease by £517,000 (2010 - increase/decrease by £536,000). This is also mainly attributable to the Company's exposure to interest rates on its fixed interest securities. This is based on a Value at Risk ('VaR') calculated at a 99% confidence level.

In the opinion of the Directors, the above sensitivity analyses are not representative of the year as a whole, since the level of exposure changes frequently as part of the interest rate risk management process used to meet the Company's objectives. The risk parameters used will also fluctuate depending on the current market perception.

Other price risk

Other price risks (ie changes in market prices other than those arising from interest rate or currency risk) may affect the value of the quoted investments.

It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular sector. The allocation of assets to specific sectors and the stock selection process both act to reduce market risk. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy. The investments held by the Company are listed on the London Stock Exchange.

Other price sensitivity

If market prices at the Balance Sheet date had been 10% higher or lower while all other variables remained constant, the profit before tax attributable to Ordinary shareholders for the year ended 31 March 2011 would have increased/decreased by £5,169,000 (2010 - increase/decrease of £4,919,000). This is based on the Company's equity portfolio held at each year end.

(ii)

Liquidity risk

This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.

Liquidity risk is not considered to be significant as the Company's assets comprise mainly readily realisable securities, which can be sold to meet funding commitments if necessary. Short-term flexibility is achieved through the use of a revolving credit facility (note 14).

(iii)

Credit risk

This is failure of the counter party to a transaction to discharge its obligations under that transaction that could result in the Company suffering a loss.

The risk is not considered to be significant as it is actively managed as follows:

where the Investment Manager makes an investment in a bond, corporate or otherwise, the credit rating of the issuer is taken into account so as to minimise the risk to the Company of default;

investments in quoted bonds are made across a variety of industry sectors so as to avoid concentrations of credit risk;

transactions involving derivatives are entered into only with investment banks, the credit rating of which is taken into account so as to minimise the risk to the Company of default;

investment transactions are carried out with a large number of brokers, whose credit-standing is reviewed periodically by the investment manager, and limits are set on the amount that may be due from any one broker;

the risk of counterparty exposure due to failed trades causing a loss to the Company is mitigated by the review of failed trade reports on a monthly basis. In addition, the Custodian carries out a stock reconciliation to third party administrators' records on a monthly basis to ensure discrepancies are picked up on a timely basis. The Manager's Compliance department carries out periodic reviews of the Custodian's operations and reports its finding to the Manager's Risk Management Committee.

transactions involving derivatives, structured notes and other arrangements wherein the creditworthiness of the entity acting as broker or counterparty to the transaction is likely to be of sustained interest are subject to rigorous assessment by the Investment Manager of the credit worthiness of that counterparty. The Company's aggregate exposure to each such counterparty is monitored regularly by the Board; and

cash is held only with reputable banks with high quality external credit enhancements.

It is the Manager's policy to trade only with A- and above (Long Term rated) and A-1/P-1 (Short Term rated) counterparties.

None of the Company's financial assets is secured by collateral or other credit enhancements.

Credit risk exposure

In summary, compared to the amounts in the Balance Sheet, the maximum exposure to credit risk at 31 March 2011 was as follows:

2011

2010

Balance

Maximum

Balance

Maximum

Sheet

exposure

Sheet

exposure

£'000

Non-current assets

Securities at fair value through profit or loss

74,317

73,023

Current assets

Trade and other receivables

357

Accrued income

1,086

1,206

Cash and cash equivalents

1,981

1,150

________

__________

_______

________

77,437

75,736

________

__________

_______

________

None of the Company's financial assets is past due or impaired.

Fair value of financial assets and liabilities

The book value of cash at bank and bank loans and overdrafts included in these financial statements approximate to fair value because of their short-term maturity. Investments held as dealing investments are valued at fair value. The carrying values of fixed asset investments are stated at their fair values, which have been determined with reference to quoted market prices. Traded options contracts are valued at fair value which have been determined with reference to quoted market values of the contracts. The contracts are tradeable on a recognised exchange. For all other short-term debtors and creditors, their book values approximate to fair values because of their short-term maturity.

19.	Fair value hierarchy
	The Group adopted the amendments to IFRS 7 'Financial Instruments: Disclosures' effective from 1 January 2009. These amendments require an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy shall have the following levels:

	- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
	- Level 2: inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (ie as prices) or indirectly (ie derived from prices); and
	- Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

	The financial assets and liabilities measured at fair value in the statement of financial position are grouped into the fair value hierarchy at 31 March 2011 as follows:

			Level 1	Level 2	Level 3	Total
		Note	£'000	£'000	£'000	£'000
	Financial assets at fair value through profit or loss
	Quoted equities	a)	74,317	-	-	74,317
	Unlisted equities	b)	-	-	-	-
			________	_________	_______	_______
	Total		74,317	-	-	74,317
			________	_________	_______	_______
	Financial liabilities at fair value through profit or loss
	Derivatives	c)	(36)	-	-	(36)
			________	_________	_______	_______
	Net fair value		74,281	-	-	74,281
			________	_________	_______	_______

	a) Quoted equities
	The fair value of the Group's investments in quoted equities has been determined by reference to their quoted bid prices at the reporting date. Quoted equities included in Fair Value Level 1 are actively traded on recognised stock exchanges.

	b) Unlisted equities
	The fair value of the Group's investments in unlisted equities has been determined by reference to valuation techniques using observable inputs other than quoted prices included within Level 1.

	c) Derivatives
	The fair value of the Group's investments in derivatives has been determined using observable market inputs on an exchange traded basis and therefore have been classed as Level 1.

20. The Directors recommend that a final dividend of 6.0p per Ordinary share be paid, making a total of 12p for the year ended 31 March 2011 (2010 - 12.0p). The final dividend will be paid on 29 July 2011 to Shareholders on the register at 8 July 2011. The ex-dividend date is 6 July 2011.

21. The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 March 2011 or 2010. The financial information for 2010 is derived from the statutory accounts for 2010 which have been delivered to the Registrar of Companies. The statutory accounts for 2011 will be delivered following the Company's Annual General Meeting. The auditor has reported on those accounts and their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006 or equivalent preceding legislation. The Company's Annual General Meeting will be held at Bow Bells House, 1 Bread Street, London EC4M 9HH on 5 July 2011 at 12 noon.

22. The Annual Report and Accounts will be posted to shareholders at the start of June 2011 and copies will be available from the registered office of the Manager. The accounts will be available on the Company's website, wwwshiresincome.co.uk

Please note that past performance is not necessarily a guide to the future and 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.

For Shires Income PLC

Aberdeen Asset Management PLC, Secretary

31 May 2011

This information is provided by RNS

The company news service from the London Stock Exchange

END

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