Annual Financial Report

RNS Number : 3842G

Shires Income PLC

06 June 2013

SHIRES INCOME PLC

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 MARCH 2013

Financial Summary	2013	2012
Net asset value total return	+29.1%	+4.2%
Share price total return	+27.2%	+9.3%
Benchmark total return	+16.8%	+1.4%
Dividend per share	12.0p	12.0p
Dividend yield	5.2%	6.2%
Total return assumes the re-investment of net dividends paid during the year.

1. CHAIRMAN'S STATEMENT

Results Review

After last year's small decline in the equity market it was pleasing to see a strong positive gain for the year. Indeed, since June 2012 the market has enjoyed 12 months of consecutive positive returns.

Companies have enjoyed another reasonable year although it is becoming increasingly difficult for them to strip costs out after the improvements achieved in the first three years of the financial crisis beginning in 2008. Management teams are becoming slightly more optimistic as a result of a continuing slow improvement in the business environment. While corporate performance has generally been sound, share price reactions to both good and bad news have often been more exaggerated than one would normally expect. Interestingly, the market has been prepared to overlook both political and macroeconomic concerns, focusing instead on the significant liquidity flows provided by many central banks.

The outcome for the year to the end of March 2013 was an increase in the Company's net asset value per share of 29.1% on a total return basis. This compares to a rise in our benchmark, the FTSE All-Share Index, of 16.8%; the total return from the share price was 27.2%. With interest rates across Europe and the USA remaining at record lows this rate of return is significantly ahead of that provided by most other asset classes.

The rise in the Company's net assets reflects the attractive attributes of many of the companies held in the portfolio. This has resulted in a number of them being re-rated. Simultaneously, good operational performance has seen most of our holdings deliver growth in their profits. These two factors have combined to deliver some sharply rising share prices. Gearing has also been a positive factor this year. The debt is notionally deployed in the preference share portfolio. The purpose of these investments is to deliver a solid revenue stream but with lower volatility than would be expected from an equity portfolio. This year they did indeed deliver returns below those provided by the equity portfolio. However total returns of almost 20% for this part of the portfolio also exceeded those from the benchmark.

The Board is proposing a full year dividend of 12.0p per share. This is 99% covered by the net revenue generated by the portfolio and well supported by the substantial revenue reserves. If approved at the AGM, a final dividend of 3.0p per share will be paid on 31 July 2013 to shareholders on the register on 11 July 2013.

Performance

There have been a number of areas that have driven this year's outperformance. Our underweight to the Mining sector has again been beneficial. Additionally, our overweight positions in Life Insurance combined with good individual performances from Prudential and Chesnara have further enhanced performance. Other notable areas have been the Oil and Gas Producers and the continuing overweight position to Food Producers which has been a substantial benefit. However, while last year our structural underweight position in Banks helped performance, the short-term outcome this year was negative.

During the year, the Company's shares have generally traded at a premium to their net asset value. This reflects the ongoing outperformance and the attractions of the dividend yield. It is pleasing to be able to report that your Company has been able to issue shares this year. During October, 300,000 shares were issued at a price of 206.5p. This represented a premium of 2.1% to the cum income net asset value of 202.3p. This premium adequately covered the costs associated with the issue. The ability to grow the net assets of the Company in a non-dilutive manner is of benefit to existing shareholders as it improves liquidity and spreads the operational costs over a greater number of shares.

Earnings and Dividends

Many of the companies within the portfolio had another good year and delivered further earnings progression. This has resulted in some reasonable growth in equity dividends. Dividends across the market have grown faster than earnings in the last few years supported by strong balance sheets and relatively low pay-out ratios. However, while it is expected that dividend growth will remain progressive, it will, in all likelihood, be at levels more consistent with the growth of corporate profits.

Helpfully, the Company benefits from a respectable dividend reserve. A small portion of this has been utilised this year to make up the shortfall between earnings and the proposed dividend. The ability of the Company to put a proportion of its earnings into reserves during good years in order to smooth distributions to investors during more difficult periods is a distinct advantage. After accruing for the costs of the third interim and the final dividends the Company's reserves amount to in excess of £4 million. The £35,000 shortfall this year should be seen in that context.

Portfolio Profile and Gearing

The Company's gearing decreased slightly during the year from 23.9% to 21.8%. The Board continually monitors the level of gearing in the Company. Although the absolute level of gearing looks high, we remind shareholders that it is deployed notionally in fixed interest securities which bring an element of diversification to the Company's total revenue stream. The Board and the Manager regularly review the opportunities available to protect an element of the portfolio in the event of a precipitous fall in markets. However, given the cost of such insurance we have not regarded this as a cost effective proposition this year.

Outlook

This will be the third report in which I have mentioned the dangers of rising US government debt levels.

The Republican and Democratic parties remain divided on the long-term solutions although it is hoped that eventually a compromise will be reached between spending cuts and increased taxation. Despite the lack of leadership from Washington, the US economy continues to strengthen. Unemployment has fallen to its lowest level in four years, new housing sales continue to increase and the consumer is confident. The improvement in the economy has occurred despite the enactment of sequestration and the ending of certain tax cuts. However it is worth being aware that despite the reductions in spending of around $85 billion (with similar cuts for 2014 through to 2021) actual government spending continues to increase during the next decade albeit at a lesser rate than prior to the sequester.

I wrote last year about the continuing potential for sovereign defaults and this remains a risk. Cyprus has been a case in point and the EU has forced the government there to take the unprecedented action of effectively making depositors bear a portion of the losses in their accounts and imposing capital controls. Euros are no longer worth the same everywhere and this action to penalise deposits must surely tempt other governments in similar difficulties. Spain remains very troubled with unemployment over 25%, and government debt to GDP now above 85% and rising. Markets for the moment believe that the government will not need a bail out. However it remains to be seen if the political will and financial capacity exists to stabilise Europe's fifth largest economy if it deteriorates further.

Closer to home, the domestic economy faces a number of difficulties over the coming years and the recovery remains more protracted and weaker than in many previous recessions. The UK government continues to pursue its policy of budgetary control yet debt continues to climb which has resulted in the loss of our triple A credit rating for the first time since the 1970s.

Given the macroeconomic and geo-political concerns which I have raised above the immediate outlook for equities as ever is uncertain. It remains difficult to reconcile the strength in equities with the economic outlook. Some of the performance in equities can be explained by their attractive comparative and absolute valuations. This is particularly the case in the UK equity market where relative valuations look appealing compared to other markets and the market's significant non domestic exposure is focused on faster growing developing economies.

The portfolio continues to be well positioned with a broad spread of companies with attractive growth prospects across many different industries. The investment strategy remains the same with a focus on ownership of businesses with sustainable competitive advantages and reliable management teams. All the above gives us the confidence to remain cautiously optimistic.

The Board

The Directors have discussed succession planning for the Board and, following a process which used an external search consultant, we welcome Marian Glen who joined the Board on 1 January 2013. Marian is a qualified lawyer with experience in the investment trust industry. She will stand for appointment at the Annual General Meeting in July.

At the same time, Mervyn Couve, who has served on this Board for nine years, is retiring from the Board and is therefore not offering himself for re-appointment at the Annual General Meeting. I would like to take this opportunity to thank Mervyn for his considerable and wide-ranging contributions over the years.

Annual General Meeting

The Company's Annual General Meeting takes place in London, on 11 July 2013, and I look forward to seeing as many of you there as possible.

Anthony B. Davidson

Chairman

5 June 2013

2. MANAGER'S REVIEW

Portfolio Strategy

We take a long term approach to investing, believing that whilst there might be volatility in the short and even medium term, share prices will ultimately reflect the fundamental value of a company. Consequently, there has been no change in our approach to the construction of the portfolio. We seek to identify the best quality companies and buy them at attractive valuations. Investment decisions are based on detailed internal due diligence and we endeavour to insulate ourselves from the noise that constantly permeates markets. Such a strategy is likely, by definition, to lead to low levels of turnover in the portfolio and we have experienced that again this year.

Gearing has declined further, falling from 23.9% to 21.8%, a function of the growth in shareholders' funds. The gearing is notionally invested in the preference share portfolio. This part of the portfolio provides a core level of high income and would, in normal conditions, be expected to be more resilient than equities in the event of a fall in the market.

The Company's assets are invested in equities, preference shares and convertible shares. At the year end, 72.8% of the assets were invested in equities, 25.6% in preference shares and the remainder in convertible shares and cash.

Revenue Account

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

	2013	2012	2011	2010	2009
	%	%	%	%	%
Ordinary dividends	49.8	48.5	44.1	41.6	41.5
Preference dividends	38.2	39.6	44.4	44.7	28.1
Aberdeen Smaller Companies	5.7	5.5	6.9	7.4	8.7
Fixed interest and bank interest	0.3	0.3	0.6	1.3	2.9
Dealing subsidiary	0.0	0.0	0.0	0.0	(0.5)
Traded option premiums	6.0	6.1	4.0	5.0	19.3
	________	________	________	________	________
	100.0	100.0	100.0	100.0	100.0
	________	________	________	________	________
Total income (£'000s)	4,275	4,352	4,153	4,201	6,929
	________	________	________	________	________

Earnings per share declined by 2.0% over the year. There were two primary factors at play here. The first was a slight reduction in the dividends earned by the preference share portfolio. This was caused by the decision in the prior year to exit the holding in the Barclays RCI. The second reason was the increase in the number of shares caused by the issuance of new shares at a premium to the net asset value in October 2012. The proceeds have been invested and consequently the dilutive impact of the new shares will be materially reduced in the current year.

Equities

As we entered the new financial year it is doubtful many investors anticipated what was shortly to happen in the equity markets. The European sovereign debt problems were at the forefront of most investors' minds. China and Brazil were experiencing slowing growth, the UK seemed unable to drag itself out of recession and the main bright spot, namely the recovery in the US, still appeared fragile. And yet the year finished with the FTSE All-Share having risen by 16.8%, smaller companies performing even more strongly and domestic equity markets completing their tenth consecutive month of gains.

The year started with rising investor risk aversion. The previously unthinkable, namely a Greek exit from the Euro, was now regarded as being as likely as not.

India joined Brazil and China as its growth slowed to its lowest level for nine years. One positive that resulted from this was a reduction in the oil price which in turn eased inflationary pressures in many western economies. Indeed, by the middle of the year inflation in the UK would have fallen from 5.2% to 2.8% over just 12 months.

As the summer ended we had what was the defining moment of the year. Mario Draghi, the President of the ECB, announced that "we will do whatever it takes to keep the Euro together." This led to the establishment of the Outright Monetary Transactions facility (OMT). In essence this promised unlimited liquidity for any country that required it. The fact that the facility remained untested and also that it was unclear whether recipients would be prepared to accept the associated austerity packages or whether the ECB would indeed be able to ensure any bailout was funded by deposits, did little to dampen investors' enthusiasm. One feature that was beginning to become apparent was that investors were becoming more discerning about the companies they wanted to hold. Businesses that we would regard as being of a higher quality began to experience a re-rating.

Companies from a wide range of sectors were beginning to find life tough. There were profit warnings from well known names like Cookson and Aggreko. Aggregate earnings expectations were being further downgraded with Europe now expected to deliver a second year of earnings contraction. Mulberry reminded investors that luxury goods are not in fact recession proof as they issued a profits warning. One of the largest potential deals of the year, the merger between BAE and EADS was called off amid political interference.

As we came to the end of 2012 Barack Obama was re-elected as President of the United States. This served to remove one uncertainty that had been overhanging markets, though it did not reduce the requirement for the US to cut its cloth more accordingly. The UK returned to growth, Greece received a €31.5 billion tranche of aid, China elected a new leadership and Mark Carney was appointed as the incoming Governor of the Bank of England. The most positive feature though was the impact of the OMT. Although it had not actually been deployed its effects were clearly being felt as borrowing costs for Spain, Greece and Italy all fell.

2013 started well with the strongest January since 1989 and the FTSE 100 reaching levels not seen for almost five years. Unsurprisingly such conditions reignited the interest of a range of vendors and we saw a marked pick up in IPO activity and secondary placings of significant holdings. In the US Warren Buffet announced the acquisition of Heinz and Michael Dell launched an MBO for the company bearing his name. The combined value of these deals was $47 billion.

February saw falling demand for commodities from emerging markets cause weakness in the share prices of the miners. Meanwhile the credit rating agency Moody's downgraded the UK's AAA rating.

As the Company's year ended the most significant event was Cyprus. In the end a bailout package was agreed. This may mark a watershed moment in the evolution of the crisis as the burden of losses begins to be borne by both creditors as well as debtors. In the UK the budget provided little relief as growth expectations were again reduced to a disappointing 0.6%, though the house building industry was to receive a boost. Whilst this has been positive in the short term it seems unlikely that the pervading problem of over indebtedness will be resolved with more debt.

Our long term approach to investing means that the core features of the portfolio tend to be in place for a number of years and change tends to be evolutionary. Consequently, many of the aspects that we have discussed in previous reports have remained in place over the course of the year.

We are underweight the sectors that have very large index weightings because we believe that the benchmark is an inappropriate tool on which to base our portfolio construction. Specifically this refers to the oil and gas majors. The individual companies are attractive investments but a sensibly diversified portfolio will have limits on the size of individual positions. We remain underweight the mining sector where we find a combination of geopolitical and commodity risk together with difficulties in establishing a fundamental valuation. Similarly with the domestic banks we struggle to understand fully the risks of political interference and hence to evaluate the companies' prospects.

Areas where we are overweight include Aerospace and Defence. We believe that companies like Rolls Royce with its very long term order book and Cobham with an extensive technology portfolio are well placed to prosper over the long term despite the current short term uncertainties relating to defence expenditure. The Food Producers benefit from defensive growth prospects and exposure to emerging market opportunities.

We are overweight Financials but this is skewed by the inclusion of our holding in Aberdeen Smaller Companies High Income Trust ("Aberdeen Smaller Companies"). If this were excluded our equity portfolio would be underweight this sector. Within this we do have exposure to Life Assurance and Financial Services. In the case of Life Assurance this is primarily the investment in Prudential where we believe the company has the opportunity to deliver significant long term growth from its Asian operations. In Financial Services our holdings cover a diverse array of end markets and include Close Brothers the countercyclical bank, Provident Financial the non conventional lender and Schroders the blue chip asset manager.

Three new companies were added to the portfolio over the year. BG Group is a company we have wanted to include in the portfolio for some time. In October they announced that they were experiencing a series of production delays. Problems had arisen in Brazil, Egypt, the US and the North Sea. We believe that whilst their growth will be below expectations for the next two years or so the long term prospects remain intact. This will be determined by their ability to develop their very significant exploration successes offshore Brazil. Therefore the sizable share price decline presented us with an opportunity to initiate a holding and to write some puts. Sage Group is a provider of accounting, HR and payroll software for SMEs. This is a company that benefits from strong customer relationships, a high cost of switching and a low cost of ownership. This allied to the requirement to localise their products has meant that the software giants have typically found this to be a difficult or unattractive niche to try to enter. Wood Group is an international energy services company. The company designs and manufactures submersible pumping systems, well head systems and pressure controls. They also provide aftermarket services for heavy industrial turbines. This company is a good example of our preference for the companies that service the oil majors rather than the majors themselves.

We participated in the fundraising held by GKN to finance the acquisition of Volvo's aerospace business. We were happy to support the deal as it broadened their product portfolio, customer base and exposure to the civil aerospace market. It also complimented their existing capabilities and was available at an attractive price. It was pleasing to be able to provide financing for the expansion of a business rather than to repair a balance sheet as has been the case more often than not in recent years.

We took advantage of share price strength to top slice a number of holdings. The most notable being reductions in British American Tobacco, Aviva, National Grid, Provident Financial, Rolls Royce and Whitbread. The proceeds were reinvested into companies whose shares had performed less well or which we were trying to build into larger positions. These included BHP Billiton, Cobham, Compass Group, Tesco, Pearson, Schroders and Standard Chartered.

In many cases the transactions were enacted via the assignment or exercise of put and call options.

Investment Performance Analysis

In the year to the end of March 2013, the total return on net assets was 29.1% compared to our benchmark, the FTSE All-Share Index which returned 16.8%. It is good to be able to report that the majority of the outperformance was a function of stock selection.

There were some notable successes over the year. Comfortably the most significant contributor to our outperformance was the holding in Aberdeen Smaller Companies. Smaller companies have had a very strong year delivering returns of 28.0%, materially ahead of those from their larger counterparts. Aberdeen Smaller Companies has benefitted from this whilst also delivering outperformance of its benchmark. Other highlights have included Prudential which is capitalising on its strong position in a number of Asian markets, Close Brothers where earnings from their SME focussed countercyclical bank have grown strongly and Associated British Foods whose Primark brand goes from strength to strength. At the sectoral level, being underweight both the oil and gas producers and the miners has served us well. Conversely the underweight position relative to the banks has detracted from performance. There have of course been negatives but company specific problems have thankfully been relatively rare. The largest detractor from performance in the portfolio has been Wm Morrisons. The company is operating in an industry that is experiencing structural change and having previously decided to stay out of the convenience and online sectors they now find themselves losing market share.

The portfolio is constructed to deliver growth in both capital and earnings over time. The success of this strategy can be seen in the performance which at the year end had exceeded that delivered by its benchmark over each of one, three and five years. Capital and earnings growth are unlikely to progress either smoothly or in line with each other. We are however very aware of the desirability of growth in earnings. It is pleasing therefore to be able to report that 13 holdings increased their final dividends by double digit amounts during the year. Amongst these Cobham with a 41.8% increase, Prudential with 20.6%, Weir with 22.9% and HSBC with 28.5% are deserving of special mention.

Prospects

Much has been written this year about the "great rotation", that is the idea that asset allocators will increasingly recognise the attractions of equities relative to fixed interest valuations. It is the case that many fixed interest instruments appear very fully valued and that as a consequence equities appear to offer good relative value. However it is worth remembering that many institutions are effectively forced to hold what are regarded as low or even zero risk assets and hence lack the option to allocate to equities. Additionally, many equities have re-rated, in some cases significantly and therefore it is more difficult to argue that equities represent good value from an absolute perspective.

However, there are reasons to be positive. Amongst these is the continuing recovery in the US. Unemployment is now at its lowest level for four years and consumer confidence is increasing despite the impact of sequestration and the removal of certain income tax cuts. Companies are in aggregate in good shape. This is particularly true of their balance sheets. Healthy balance sheets give management teams options; they also give us confidence that our investments will be able to weather more difficult conditions should they arise. If management confidence was to pick up we could expect to see an increase in investment which would drive future earnings expectations or a pick up in merger and acquisition activity. When one considers how quickly the capital markets returned to life at the start of the year it does not seem unreasonable to think that M&A activity could return at some level. The European debt crisis may not be resolved but it is no longer on the front pages of the newspapers and hence investors seem able to some extent to almost put it to one side. Good quality companies are generally trading reasonably well. Naturally, some are finding life more difficult than others but as we look through the portfolio most holdings have announced that they are trading in line with expectations. There are though other less positive factors that also need to be borne in mind. Taking the companies first, margins are at or around peak levels. That means earnings growth will in the main, have to come from sales growth. The global macro-economic environment means that there is therefore a heightened risk of earnings disappointment; this is particularly the case for companies with a second half bias to their profit expectations. Any disappointment could be harshly treated when one considers the re-rating that many companies have experienced. Recovery in the US would be expected to become more difficult as sequestration really bites and further austerity measures seem likely if there is to be agreement on the debt ceiling negotiations.

Around the globe countries are trying to boost their competitiveness. Some have opted to attempt to devalue their currencies. Leaving aside the domestic wealth destruction and longer term inflationary impact of such activity it is the case that not everyone can devalue simultaneously. Such actions could therefore lead to future international tensions.

Lastly, the European debt crisis is unresolved. Investors are subject to the effects of waxing and waning confidence just as management teams are. The OMT remains untested, indeed its real strength lies in that fact. If bond investors begin to lose confidence in the authorities' ability to protect the Euro we could find ourselves back in the midst of a crisis. Notwithstanding the above, we believe that the best way to navigate through this difficult background is to continue to invest in good quality companies with the potential to deliver growth over the medium and long term, allied with sound balance sheets that provide protection throughout the economic cycle.

Aberdeen Asset Managers Limited

5 June 2013

3. RESULTS

	31 March 2013	31 March 2012	% change
Total investments	£85,624,000	£70,950,000	+20.7
Shareholders' funds	£70,306,000	£57,285,000	+22.7
Market capitalisation	£69,894,000	£57,762,000	+21.0
Net asset value per share	234.37p	192.89p	+21.5
Share price (mid-market)	233.00p	194.50p	+19.8
Premium to adjusted NAV ¹	2.0%	4.1%

Gearing
Net gearing	22.8%	24.9%
Equity gearing	21.8%	23.9%

Dividends and earnings
Revenue return per share ²	11.92p	12.17p	-2.1
Dividends per share ³	12.00p	12.00p
Dividend cover	0.99	1.01
Revenue reserves 4	£5,837,000	£5,850,000

Operating costs
Ongoing charges ratio 5	1.08%	1.09%

¹ Based on IFRS NAV above reduced by dividend adjustment of 6.0p (2012 - 6.0p).
² Measures the revenue earnings for the year divided by the weighted average number of Ordinary shares in issue (see Statement of Comprehensive Income).
³ The figures for dividends per share reflect the years in which they were earned (see note 8).
4 The revenue reserve figure does not take account of the third interim or final dividend amounting to £1,799,855 (2012 - £1,781,855) combined.
5 Ongoing charges ratio calculated in accordance with guidance issued by the AIC as the total of the investment management fee and administrative expenses divided by the average cum income net asset value throughout the year. The figures in 2012 have been restated.

Performance (total return)	1 year	3 year	5 year
	% return	% return	% return
Net asset value (Company only)	+29.1	+51.5	+40.0
Share price (based on mid-market)	+27.2	+53.1	+61.4
FTSE All-Share Index	+16.8	+28.7	+38.5
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	3 October 2012	5 October 2012	31 October 2012
Second interim dividend	3.00p	2 January 2013	4 January 2013	31 January 2013
Third interim dividend	3.00p	3 April 2013	5 April 2013	30 April 2013
Proposed final dividend	3.00p	3 July 2013	5 July 2013	31 July 2013
	___________
2012/13	12.00p
	___________

First interim dividend	3.00p	5 October 2011	7 October 2011	31 October 2011
Second interim dividend	3.00p	4 January 2012	6 January 2012	31 January 2012
Third interim dividend	3.00p	4 April 2012	10 April 2012	30 April 2012
Final dividend	3.00p	4 July 2012	6 July 2012	31 July 2012
	___________
2011/12	12.00p
	___________

Year to 31 March	2004 ¹	2005	2006	2007	2008	2009	2010	2011	2012	2013
Revenue available for ordinary dividends (£'000)	5,770	5,770	5,792	5,987	6,026	5,536	3,512	3,292	3,615	3,556
Per share (p)
Net revenue return	17.6	19.7	18.9	19.3	22.2	18.8	11.8	11.1	12.2	11.9
Net dividends paid/proposed	19.25	19.25	19.25	19.25	19.75	19.75	12.00	12.00	12.00	12.00
Total return	74.2	52.8	74.2	25.9	(63.4)	(112.9)	85.3	22.6	7.4	53.5
Net asset value	228.6	272.2	327.1	334.0	251.1	118.5	186.8	197.5	192.9	234.4
	________	______	______	______	______	______	______	_______	______	_____
Shareholders' funds (£m)	67.8	80.8	97.1	99.1	74.6	35.2	55.5	58.6	57.3	70.3
	_______	______	______	______	______	______	______	_______	______	_____

The figures for 2011 to 2013 are for the Company only, following the dissolution of the subsidiaries in May 2011.
¹ 2004 figures restated following the introduction of International Financial Reporting Standards ('IFRS').

Cumulative Performance ¹

As at 31 March	2003	2004{A}	2005	2006	2007	2008	2009	2010	2011	2012	2013
NAV	100.0	132.9	152.1	183.0	187.3	140.2	66.2	104.1	110.1	107.5	130.6
NAV total return{B}	100.0	145.6	180.5	232.7	253.2	201.6	105.2	186.2	209.9	218.6	282.2
Share price performance	100.0	158.3	188.0	221.6	219.6	155.5	77.0	130.0	134.3	137.5	164.7
Share price total return{B}	100.0	174.9	226.1	285.3	300.8	227.3	125.6	239.8	264.0	288.6	367.0
Benchmark performance	100.0	126.6	141.6	175.6	189.2	168.6	114.3	167.7	176.7	173.0	194.8
Benchmark total return{B}	100.0	131.0	151.4	193.8	215.4	198.7	140.4	213.9	232.5	235.8	275.3

NAV figures are based on Company only values following the dissolution of the subsidiaries in May 2011.
¹ 2004 figures restated following the introduction if International Financial Reporting Standards ('IFRS'). Figures for 2003 have not been restated.
² Total return figures are based on reinvestment of net income.

4. DISTRIBUTION OF ASSETS AND LIABILITIES

			Movement during the year
	Valuation at					Gains/	Valuation at
	31 March 2012		Purchases	Sales	Other	(losses)	31 March 2013
	£'000	%	£'000	£'000	£'000	£'000	£'000	%
Listed investments
Ordinary shares	50,078	87.4	7,244	(5,247)	-	10,233	62,308	88.6
Convertibles	1,307	2.3	-	-	(10)	57	1,354	1.9
Preference shares	19,565	34.2	-	-	(83)	2,480	21,962	31.3
	_______	______	_______	_______	_______	_______	_______	_______
Total investments	70,950	123.9	7,244	(5,247)	(93)	12,770	85,624	121.8
Current assets	4,534	7.9					2,927	4.2
Current liabilities	(18,199)	(31.8)					(18,245)	(26.0)
	_______	______					_______	_______
Net assets	57,285	100.0					70,306	100.0
	_______	______					_______	_______
Net asset value per Ordinary share	192.9p						234.4p
	_______						_______

5. BUSINESS REVIEW

Activities

The Company is an investment trust.

The Company has a 17.9% interest in Aberdeen Smaller Companies High Income Trust PLC, a listed investment trust managed by Aberdeen.

Results and Dividends

The financial statements for the year ended 31 March 2013 follow. Dividends accounted for in the year amounted to 12.0p.

A third interim dividend of 3.0p per Ordinary share was declared on 22 March 2013 payable on 30 April 2013. A final dividend of 3.0p per Ordinary share is proposed, payable on 31 July 2013. Under International Financial Reporting Standards (IFRS) both these dividends will be accounted for in the financial year ended 31 March 2014.

Share Capital and Voting Rights

During the year 300,000 new Ordinary shares were issued for cash at a premium to the prevailing net asset value. The issued Ordinary share capital at 31 March 2013 consisted of 29,997,580 Ordinary shares of 50p and 50,000 3.5% Cumulative Preference Shares of £1 each. At the date of this report, these numbers were unchanged.

Each Ordinary and Preference share of the Company carries one vote at general meetings of the Company.

Current and Future Development

A review of the Company's business is given in the Chairman's Statement and the Manager's Review. Key performance indicators ("KPIs") are attached. These KPIs include net asset value total return, share price total return, and the premium/discount at which the shares traded. The Board also considers the marketing and promotion of the Company including effective communications with shareholders. The Board considers the future direction of the Company at an annual strategy meeting where a wide discussion takes place on development and strategic direction. The Company's brokers, J.P. Morgan Cazenove, present to the Board during the course of the year and cover the topics of sector development, perception of the Company and relevant strategic issues.

Principal Risks and Uncertainties

The principal risks facing the Company relate to the Company's investment activities and gearing and include market risk, liquidity risk and credit risk. An explanation of these risks and how they are managed is contained in note 16 to the financial statements.

Regulatory

The Alternative Investment Fund Managers Directive will begin to be implemented from July with it being fully implemented in the UK by July 2014. The Directive may have significant consequences for the Company (and all similar investment companies) which will increase compliance and regulatory costs. The Directive is subject to further implementation guidance, and the Board will continue to monitor the progress and likely implications of the Directive.

Going Concern

The Company's assets comprise mainly readily realisable securities which can be sold to meet funding commitments if necessary. The Company's revolving credit facility has been extended and now matures on 9 May 2015. The Board considers that the Company has adequate financial resources to continue in operational existence for the foreseeable future.

6. STATEMENT OF DIRCTORS' RESPONSIBILITIES

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

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

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 Company and of its profit or loss for that period. In preparing these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make 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 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 Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the 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 Company 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 comply 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

5 June 2013

STATEMENT OF COMPREHENSIVE INCOME

		Year ended			Year ended
		31 March 2013			31 March 2012
		Revenue	Capital	Total	Revenue	Capital		Total
	Notes	£'000	£'000	£'000	£'000	£'000		£'000
Gains/(losses) on investments at fair value	10	-	12,795	12,795	-	(1,308)		(1,308)
Gain on dissolution of subsidiaries		-	-	-	-	66		66

Investment income
Dividend income		3,248	-	3,248	3,337	-		3,337
Interest income/(expense) from investments		578	(93)	485	670	99		769
Stock dividends		177	-	177	70	-		70
Traded option premiums		260	-	260	264	-		264
Money market interest		12	-	12	11	-		11
		_______	_______	______	_______	_______		_______
	2	4,275	12,702	16,977	4,352	(1,143)		3,209
		_______	_______	______	_______	_______		_______

Expenses
Investment management fee	3	(165)	(165)	(330)	(158)	(158)		(316)
Other administrative expenses	4	(323)	-	(323)	(293)	-		(293)
Finance costs of borrowings	6	(176)	(176)	(352)	(198)	(198)		(396)
		_______	_______	______	_______	_______		_______
		(664)	(341)	(1,005)	(649)	(356)		(1,005)
		_______	_______	______	_______	_______		_______
Profit/(loss) before taxation		3,611	12,361	15,972	3,703	(1,499)		2,204

Taxation	7	(55)	55	-	(88)	88		-
		_______	_______	______	_______	_______		_______
Profit/(loss) attributable to equity holders of the Company		3,556	12,416	15,972	3,615	(1,411)		2,204
		_______	_______	______	_______	_______		_______
Earnings per Ordinary share (pence)	9	11.92	41.60	53.52	12.17	(4.75)		7.42
		_______	_______	______	_______	_______		_______

The Company 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).
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.
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
					2013 ¹		2012 ²
					£'000		£'000
Revenue					3,556		3,615
Dividends declared					(3,591)		(3,564)
					(35)		51
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 2012/13.
² Dividends declared relates to first three interim dividends (each 3.0p) and the final dividend (3.0p) declared in respect of financial year 2011/12.

BALANCE SHEET

		As at	As at
		31 March 2013	31 March 2012
	Notes	£'000	£'000
Non-current assets
Ordinary shares		62,308	50,078
Convertibles		1,354	1,307
Other fixed interest		21,962	19,565
		__________	__________
Securities at fair value	10	85,624	70,950
		__________	__________
Current assets
Trade and other receivables		16	18
Accrued income and prepayments		937	783
Cash and cash equivalents		1,974	3,733
		__________	__________
	11	2,927	4,534
		__________	__________
Total assets		88,551	75,484

Current liabilities
Trade and other payables		(245)	(199)
Short-term borrowings		(18,000)	(18,000)
		__________	__________
	12	(18,245)	(18,199)
		__________	__________
Net assets		70,306	57,285
		__________	__________

Issued capital and reserves attributable to equity holders
Called-up share capital	13	15,049	14,899
Share premium account	14	19,308	18,840
Capital reserve	15	30,112	17,696
Revenue reserve	15	5,837	5,850
		__________	__________
Equity shareholders' funds		70,306	57,285
		__________	__________
Net asset value per Ordinary share (pence)	9	234.37	192.89
		__________	__________

STATEMENT OF CHANGES IN EQUITY

Year ended 31 March 2013
		Share		Retained
	Share	premium	Capital	revenue
	capital	account	reserve	reserve	Total
	£'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 (see note 8)	-	-	-	(3,569)	(3,569)
	_________	__________	_________	________	_________
As at 31 March 2013	15,049	19,308	30,112	5,837	70,306
	_________	__________	_________	________	_________

Year ended 31 March 2012
		Share		Retained
	Share	premium	Capital	revenue
	capital	account	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000
As at 31 March 2011	14,899	18,840	19,107	5,793	58,639
Revenue profit for the year	-	-	-	3,615	3,615
Capital losses for the year	-	-	(1,411)	-	(1,411)
Equity dividends (see note 8)	-	-	-	(3,558)	(3,558)
	_________	__________	_________	________	_________
As at 31 March 2012	14,899	18,840	17,696	5,850	57,285
	_________	__________	_________	________	_________

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.

CASH FLOW STATEMENT

	Year ended		Year ended
	31 March 2013		31 March 2012
	£'000	£'000	£'000	£'000
Cash flows from operating activities
Investment income received		3,676		4,310
Money market interest received		12		11
Investment management fee paid		(320)		(318)
Other cash expenses		(278)		(308)
		________		________
Cash generated from operations		3,090		3,695

Interest paid		(352)		(397)
		________		________
Net cash inflows from operating activities		2,738		3,298

		________		________
Cash flows from investing activities
Purchases of investments	(7,067)		(4,489)
Sales of investments	5,521		7,001
	________		________
Net cash (outflow)/inflow from investing activities		(1,546)		2,512
		________		________
Cash flows from financing activities
Equity dividends paid	(3,569)		(3,558)
	________		_______
Net cash outflow from financing activities		(3,569)		(3,558)
		________		_______
Financing
Share issue	618		-
	________		_______
Net cash inflow from financing		618		-
		________		_______
Net (decrease)/increase in cash and cash equivalents		(1,759)		2,252
		________		________
Reconciliation of net cash flow to movements in cash and cash equivalents
(Decrease)/increase in cash and cash equivalents as above		(1,759)		2,252
Net cash and cash equivalents at start of period		(14,267)		(16,519)
		________		_________
Net cash and cash equivalents at end of period		(16,026)		(14,267)
		________		________
Net cash and cash equivalents comprise:
Cash and cash equivalents		1,974		3,733
Short-term borrowings		(18,000)		(18,000)
		________		_________
		(16,026)		(14,267)
		________		________

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 March 2013

1.	Accounting policies
	(a)	Basis of accounting
		The financial statements 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'. 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 (c) 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.

		In order to better 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. Additionally, the net revenue of the Company is the measure the Directors believe appropriate in assessing the Company'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 9 - Financial Instruments: Classification and Measurement (effective for annual periods beginning on or after 1 January 2015);
		-IFRS 10 - Consolidated Financial Statements (early adoption permitted) (effective for annual periods beginning on or after 1 January 2013);
		-IFRS 11 - Joint Arrangements (early adoption permitted) (effective for annual periods beginning on or after 1 January 2013);
		-IFRS 12 - Disclosure of Interests in Other Entities (early adoption permitted) (effective for annual periods beginning on or after 1 January 2013);
		-IFRS 13 - Fair Value Measurement (effective for annual periods beginning on or after 1 January 2013);
		-Amendments to IAS 1 - Presentation of Items of Other Comprehensive Income (effective for annual periods beginning on or after 1 July 2012);
		-Amendments to IAS 19 - Employee Benefits (effective for annual periods on or after 1 January 2013);
		-Amendments to IFRS 7 - Disclosures: Offsetting Financial Assets and Financial Liabilities (effective for Interim financial statements at 30 June 2013 and annual periods beginning on or after 1 January 2013);
		-Amendments to IFRS 10, IFRS 12 & IAS27 - Investment Entities (early adoption permitted) (effective for annual periods beginning on or after 1 January 2014;
		-Amendments to IAS 32 - Offsetting Financial Assets and Financial Liabilities (effective for annual periods beginning on or after 1 January 2014);
		-IAS 27 - Separate Financial Statements (early adoption permitted) (effective for annual periods beginning on or after 1 January 2013); and
		-IAS 28 - Investments in Associates and Joint Ventures (early adoption permitted) (effective for annual periods beginning on or after 1 January 2013).

		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 Company.

	(b)	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.

		Changes in the value of investments held at fair value through profit or loss and gains and losses on disposal are recognised in the 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.

	(c)	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.

	(d)	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.

	(e)	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.

	(f)	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 Company 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.

	(g)	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.

		2013	2012
2.	Income	£'000	£'000
	Income from listed investments
	Dividend income	3,248	3,337
	Interest income from investments	578	670
	Money market interest	12	11
	Stock dividend	177	70
		________	________
		4,015	4,088
		________	________

	Other income from investment activity
	Traded option premiums	260	264
		________	________
	Total income	4,275	4,352
		________	________

		2013	2012
	Total income comprises:	£'000	£'000
	Dividends and interest from investments	4,015	4,088
	Other income from investment activity	260	264
		________	________
	Total income	4,275	4,352
		________	________

	All dividend income was received from UK companies. The amount of £(93,000) (2012 - £99,000) 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(c).

		2013			2012
		Revenue	Capital	Total	Revenue	Capital	Total
3.	Investment management fees	£'000	£'000	£'000	£'000	£'000	£'000
	Investment management fees	165	165	330	158	158	316
		_______	_______	______	_______	_______	_______

	For the year ended 31 March 2013 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.

		2013	2012
4.	Administrative expenses	£'000	£'000
	Directors' remuneration	91	81
	Fees payable to auditors and associates (net of VAT):
	- fees payable to Company's auditors for the audit of annual accounts	18	18
	Marketing contribution paid to Aberdeen	64	66
	Professional fees	20	13
	Directors & Officers' liability insurance	9	9
	Trade subscriptions	32	24
	Share Plan costs	15	11
	Registrars fees	29	36
	Printing, postage and stationery	20	20
	Other administrative expenses	25	15
		________	________
		323	293
		________	________

	Marketing expenses of £64,000 (2012 - £66,000) were paid to the Manager in respect of marketing and promotion of the Company.

5.	Directors' remuneration
	The Company had no employees during the year (2012 - nil). No pension contributions were paid for Directors (2012 - £nil).

		2013			2012
		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	176	176	352	198	198	396
		________	______	_____	_______	_______	______

7.	Taxation
	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 24% (2012 - 26%).

		2013			2012
		Revenue	Capital	Total	Revenue	Capital	Total
		£'000	£'000	£'000	£'000	£'000	£'000
	Profit/(loss) before taxation	3,611	12,361	15,972	3,703	(1,499)	2,204
		________	______	_______	_______	_______	_______
	Taxation of return on ordinary activities at the standard rate of corporation tax	867	2,967	3,834	962	(390)	572
	Effects of:
	UK dividend income not liable to further tax	(766)	-	(766)	(854)	-	(854)
	Non taxable stock dividends	(43)	-	(43)	(18)	-	(18)
	Tax relief obtained by expenses capitalised	-	(55)	(55)	-	(88)	(88)
	Non taxable overseas dividends	(3)	-	(3)	(2)	-	(2)
	Expenses charged to capital available to be utilised	-	82	82	-	-	-
	Realised (gains)/losses not taxable	-	(3,071)	(3,071)	-	323	323
	Capital income not allowed	-	22	22	-	67	67
		________	______	_______	_______	_______	_______
		55	(55)	-	88	(88)	-
		________	______	_______	_______	_______	_______

	At 31 March 2013 the Company had surplus management expenses and loan relationship debits with a tax value of £5,283,000 (2012 - £5,487,000) 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.

		2013	2012
8.	Dividends	£'000	£'000
	Amounts recognised as distributions to equity holders in the period:
	Third interim dividend for the year ended 31 March 2012 of 3.0p (2011 - 3.0p) per share	891	891
	Final dividend for the year ended 31 March 2012 of 3.0p (2011 - 3.0p) per share	891	891
	First two interim dividends for the year ended 31 March 2013 totalling 6.0p (2012 - 6.0p) per share	1,791	1,782
	Refund of unclaimed dividends from previous periods	(6)	(8)
		________	_______
		3,567	3,556
		________	_______
	3.5% Cumulative Preference shares	2	2
		________	_______

	The third interim dividend of 3.0p for the year to 31 March 2013 paid on 30 April 2013 and the proposed final dividend for the year to 31 March 2013 payable on 31 July 2013 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:

		2013	2012
		£'000	£'000
	Three interim dividends for the year ended 31 March 2013 totalling 9.0p (2012 - 9.0p) per share	2,691	2,673
	Proposed final dividend for the year ended 31 March 2013 of 3.0p (2012 - 3.0p) per share	900	891
		________	_______
		3,591	3,564
		________	_______

9.	Return and net asset value per share
	The gains per share are based on the following figures:
		2013	2012
		£'000	£'000
	Revenue return	3,556	3,615
	Capital return	12,416	(1,411)
		________	_______
	Net return	15,972	2,204
		________	_______
	Weighted average number of Ordinary shares	29,843,881	29,697,580
		___________	__________

	Net asset value per Ordinary share is based on net assets attributable to Ordinary shareholders of £70,306,000 (2012 - £57,285,000) and on the 29,997,580 (2012 - 29,697,580) Ordinary shares in issue at 31 March 2013.

								2013		2012
10.	Non-current assets - Securities at fair value							£'000		£'000
	Listed on recognised stock exchanges:
	United Kingdom							85,624		70,950
								________		_______

		2013					2012
		Listed	Restricted				Listed		Restricted
		investments	investments		Total		investments		investments		Total
		£'000	£'000		£'000		£'000		£'000		£'000
	Cost at 31 March 2012	68,605	139		68,744		70,306		141		70,447
	Investment holdings gains/(losses) at 31 March 2012	2,345	(139)		2,206		4,011		(141)		3,870
		________	_______		_______		_______		________		_______

	Fair value at 31 March 2012	70,950	-		70,950		74,317		-		74,317
	Purchases	7,244	-		7,244		4,559		-		4,559
	Sales - proceeds	(5,247)	-		(5,247)		(6,736)		-		(6,736)
	Sales - net realised gains/(losses)	908	-		908		377		(2)		375
	Amortised cost adjustments to debt securities¹	(93)	-		(93)		99		-		99
	Fair value movement in the year	11,862	-		11,862		(1,666)		2		(1,664)
		________	_______		_______		_______		________		_______
	Fair value at 31 March 2013	85,624	-		85,624		70,950		-		70,950
		________	_______		_______		_______		________		_______

	¹Charged to capital.

		2013					2012
		Listed	Restricted				Listed		Restricted
		investments	investments		Total		investments		investments		Total
		£'000	£'000		£'000		£'000		£'000		£'000
	Cost at 31 March 2013	71,417	139		71,556		68,605		139		68,744
	Investment holdings gains/(losses) at 31 March 2013	14,207	(139)		14,068		2,345		(139)		2,206
		________	_______		_______		_______		________		_______
	Fair value at 31 March 2013	85,624	-		85,624		70,950		-		70,950
		________	_______		_______		_______		________		_______

									2013		2012
	Gains/(losses) on investments								£'000		£'000
	Net realised gains on sales of investments								1,115		465
	Call options exercised								(207)		(90)
									________		_______
	Net realised gains on sales								908		375
	Movement in fair value of investments								11,935		(1,568)
	Put options assigned								(73)		(96)
	Movement in appreciation/(depreciation) of traded options held								25		(19)
									________		_______
									12,795		(1,308)
									________		_______

	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 £260,000 (2012 - £264,000) 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(c) and has been charged to the capital reserve.

	As at 31 March 2013, the Company had pledged collateral equal to 288% (2012 - 708%) of the market value of the traded options in accordance with standard commercial practice. The carrying amount of financial assets pledged equated to £750,000 (2012 - £1,870,000) 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.

	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 £44,000 (2012 - £31,000).

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

	At 31 March 2013 the Company held the following investments comprising more than 3% of the class of share capital held:

											Class
				Country of		Number of		Class of			held
	Company			incorporation		shares held		shares held			%
	Aberdeen Smaller Companies High Income Trust PLC			Scotland		4,000,000		ordinary			17.9
	Ecclesiastical Insurance Office			England		4,240,000		8 5/8% cum pref			4.0
	Royal & Sun Alliance			England		4,350,000		7 3/8% cum pref			3.5
	General Accident			Scotland		3,548,000		7.875% cum pref			3.2

		2013	2012
11.	Current assets	£'000	£'000
	Investment sales	-	8
	Accrued income and prepayments	937	783
	Other debtors	16	10
	Cash and cash equivalents	1,974	3,733
		________	_______
		2,927	4,534
		________	_______
	None of the above amounts is overdue.

		2013	2012
12.	Current liabilities	£'000	£'000
	Bank loans	18,000	18,000
	Option contracts	47	59
	Other creditors	198	140
		________	_______
		18,245	18,199
		________	_______

	Included above are the following amounts owed to Aberdeen, the Manager and Secretary, for management and secretarial services and for marketing expenses in respect of marketing and promotion of the Company.

		2013	2012
		£'000	£'000
	Other creditors	105	79
		________	_______

	The Company currently has an agreement with Scotiabank Europe PLC to provide a loan facility to May 2015 for up to £20,000,000. At the year end £18,000,000 had been drawn down at an all-in interest rate of 1.8524%, which matured on 30 April 2013. At the date of signing this report the principal amount drawn down was £18,000,000 at an all-in interest rate of 1.64865%, maturing on 28 June 2013.

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

		2013		2012
13.	Called up share capital	Number	£'000	Number	£'000
	Allotted, called up and fully paid
	Ordinary shares of 50 pence each	29,997,580	14,999	29,697,580	14,849
	3.5% Cumulative Preference shares of £1 each	50,000	50	50,000	50

			15,049		14,899

	During the year 300,000 (2012 - nil) Ordinary shares were issued by the Company at a total consideration received, including transaction costs of £618,000 (2012 - £nil).

	The Company 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 Directors' Report.

	The Company does not have any externally imposed capital requirements.

		2013	2012
14.	Share premium account	£'000	£'000
	At 31 March 2012	18,840	18,840
	Issue of own shares	468	-
		________	_______
	At 31 March 2013	19,308	18,840
		________	_______

		2013	2012
15.	Retained earnings	£'000	£'000
	Capital reserve
	At 31 March 2012	17,696	19,107
	Net gains on sales of investments during year	908	375
	Movement in fair value gains/(losses) on investments	11,862	(1,664)
	Amortised cost adjustment charged to capital	(93)	99
	Investment management fees	(165)	(158)
	Interest on bank loans and overdrafts repayable within five years	(176)	(198)
	Tax relief obtained by expenses capitalised	55	88
	Dissolution of subsidiary	-	66
	Traded options	25	(19)
		________	_______
	At 31 March 2013	30,112	17,696
		________	_______

		2013	2012
	Revenue reserve	£'000	£'000
	At 31 March 2012	5,850	5,793
	Revenue	3,556	3,615
	Dividends paid	(3,569)	(3,558)
		________	_______
	At 31 March 2013	5,837	5,850
		________	_______

16.

Risk management, financial assets and liabilities

Risk management

The Company's objective is to provide for shareholders a high level of income, together with growth of both income and capital from a portfolio substantially invested in UK equities.

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 & Investment Risk 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 Company's financial assets include investments, cash at bank and short-term debtors. Financial liabilities comprise a bank loan and other short-term creditors. The Company 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. 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 Company'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; and

-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 2013

Years

£'000

Assets

UK irredeemable preference shares

8.44

21,962

Cash and cash equivalents

0.59

1,974

________

_______

________

Total assets

21,962

1,974

________

_______

________

Liabilities

Short-term bank loan

0.08

1.85

(18,000)

________

_______

________

Total liabilities

(18,000)

________

_______

________

Weighted

average

period

Weighted

for which

Average

Non-

rate is

Interest

Fixed

Floating

interest

fixed

Rate

rate

bearing

As at 31 March 2012

Years

£'000

Assets

UK irredeemable preference shares

8.40

19,565

Cash and cash equivalents

0.38

3,733

________

_______

________

Total assets

19,565

3,733

________

_______

________

Liabilities

Short-term bank loan

0.08

2.05

(18,000)

________

_______

________

Total liabilities

(18,000)

________

_______

________

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 bank 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 2013

£'000

Fixed rate

UK irredeemable preference shares

21,962

Short-term bank loan

(18,000)

________

_______

(18,000)

21,962

________

_______

Floating rate

Cash and cash equivalents

1,974

________

_______

Total

1,974

(18,000)

21,962

________

_______

Within

More than

1 year

1-5 years

5 years

At 31 March 2012

£'000

Fixed rate

UK irredeemable preference shares

19,565

Short-term bank loan

(18,000)

________

_______

(18,000)

19,565

________

_______

Floating rate

Cash and cash equivalents

3,733

________

_______

Total

3,733

(18,000)

19,565

________

_______

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 2013 would increase/decrease by £20,000 (2012 - £37,000). 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 2013 would increase/decrease by £1,282,000 (2012 - increase/decrease by £1,076,000). This is 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 2013 would have increased/decreased by £6,231,000 (2012 - increase/decrease of £5,008,000). 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 12).

(iii)

Credit risk

This is the risk of failure of the counterparty 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 daily basis. In addition, both stock and cash reconciliations to Custodian's records are performed on a daily basis to ensure discrepancies are investigated 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 and to the Board of the Company. This review will also include checks on the maintenance and security of investments held;

-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 2013 was as follows:

2013

2012

Balance

Maximum

Balance

Maximum

Sheet

exposure

Sheet

exposure

£'000

Non-current assets

Securities at fair value through profit or loss

85,624

70,950

Current assets

Trade and other receivables

Accrued income

937

783

Cash and cash equivalents

1,974

3,733

________

_______

88,551

75,484

________

_______

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.

17.	Fair value hierarchy
	IFRS 7 'Financial Instruments: Disclosures' 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 has 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 2013 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)	85,624	-	-	85,624

	Financial liabilities at fair value through profit or loss
	Derivatives		b)	(44)	(3)	-	(47)
				_______	_______	_______	_______
	Net fair value			85,580	(3)	-	85,577
				_______	_______	_______	_______

				Level 1	Level 2	Level 3	Total
	As at 31 March 2012		Note	£'000	£'000	£'000	£'000
	Financial assets at fair value through profit or loss
	Quoted equities		a)	70,950	-	-	70,950

	Financial liabilities at fair value through profit or loss
	Derivatives		b)	(57)	(2)	-	(59)
				_______	_______	_______	_______
	Net fair value			70,893	(2)	-	70,891
				_______	_______	_______	_______

	a)	Quoted equities
		The fair value of the Company'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)	Derivatives
		The fair value of the Company's investments in Exchange Traded Options has been determined using observable market inputs on an exchange traded basis and therefore has been classed as Level 1.

		The fair value of the Company's investments in Over the Counter Options has been determined using observable market inputs other than quoted prices included within Level 1.

19. The Directors recommend that a final dividend of 3.0p per Ordinary share be paid, making a total of 12.0p for the year ended 31 March 2013 (2012 - 12.0p). The final dividend will be paid on 31 July 2013 to Shareholders on the register at 5 July 2013. The ex-dividend date is 3 July 2013.

20. The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 March 2013 or 2012. The financial information for 2012 is derived from the statutory accounts for 2012 which have been delivered to the Registrar of Companies. The statutory accounts for 2013 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 11 July 2013 at 12 noon.

21. The Annual Report and Accounts will be posted to shareholders in June 2013 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

5 June 2013

This information is provided by RNS

The company news service from the London Stock Exchange

END

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