Annual Financial Report

RNS Number : 7913E

Shires Income PLC

07 June 2012

SHIRES INCOME PLC

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 MARCH 2012

Financial Summary	2012	2011
Net asset value total return	+4.2%	+12.7%
Share price total return	+9.3%	+10.1%
Benchmark total return	+1.4%	+8.7%
Dividend per share	12.00p	12.00p
Dividend yield	+6.2%	+6.3%
Total return assumes the re-investment of net dividends paid during the year.

1. CHAIRMAN'S STATEMENT

Results Review

After enjoying two positive years of market gains, it is perhaps not surprising that we saw a small decline in the UK equity market in the period under review, although if one takes account of dividends that have been received total returns have been positive. Companies have in general performed quite satisfactorily due in part to the tough actions that many management teams have taken in preceding years and also as a result of a modest improvement in the business environment.

However, while corporate performance has been broadly robust, the movements in share prices over the course of the year at the individual company level have often been rather dramatic. Political and macroeconomic concerns particularly in Europe have been the key factors behind the instability at the index level. This has resulted in traders switching back and forth from seeking additional risk to becoming very cautious and returning once again to lower risk assets.

The outcome for the year to the end of March 2012 was an increase in the Company's net asset value per share of 4.2% on a total return basis. This compares to a rise in the FTSE All-Share Index, our benchmark, of 1.4% on a total return basis. The total return from the share price was 9.3%.

The decline in the Company's net assets does not reflect the robust performance of many of the companies within the portfolio which broadly continue to prosper. Business leaders are beginning to indicate increased confidence in the future if dividend increases and capital investment programs are any guide.

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 100% 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 31 July 2012 to shareholders on the register on 6 July 2012.

Performance

There have been a number of areas that have driven this year's outperformance. Our underweight position in the Banking sector was important to last year's performance and this has again been the case. The Company has no equity exposure to UK or European orientated banks. Additionally, the Aerospace and Defence sectors and the Food Producers have aided performance. Other areas deserving of comment have been the Oil and Gas Producers and the continuing overweight to Tobacco which has been a substantial benefit.

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 on-going performance and recognition of the attraction of the Company's yield.

Earnings and Dividends

From an earnings perspective, this year there was nothing as significant at the portfolio level as when the BP dividend was cut to zero following the Macondo oil spill in the Gulf of Mexico. In fact BP has now resumed payments, although at a reduced level, and is gradually settling its outstanding legal issues although final settlement may take years. However, as discussed above, many of the companies within the portfolio have reported another good year of earnings progression and this has resulted in some reasonable growth in equity dividends.

The scale of the austerity and debt problems in the mature economies means the economic environment is likely to remain challenging for some time to come. Deleveraging by governments and consumers in economies which are growing very slowly will take some considerable period of time.

Helpfully, the Company benefits from a respectable dividend reserve which was utilised last year in order to maintain a slightly uncovered dividend. However, following the progress the Company's investments have made over the last year with several companies reporting more than 10% dividend growth we are pleased to report that this year's payment is fully covered by earnings.

Portfolio Profile and Gearing

The Company's gearing decreased slightly during the year from 26.5% to 23.9%. 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

In my outlook statement last year I mentioned the dangers of rising US government debt levels. Sadly the authorities have decided again to defer taking the necessary decisions with regards to spending and taxation to correct this dangerous situation and are instead focused on the elections later this year. Fortunately for whoever wins, it appears that the US is experiencing a steady if slow recovery and many developing markets continue to grow robustly. Eventually though the issue of US indebtedness will have to be addressed and the American public will have to recognise that they too will need to endure some form of austerity.

Another potential threat to the recovery in real incomes remains a sharp increase in oil prices, and therefore tensions in the Middle East are a risk to the general global recovery. However, we are still some way below the $150 price which many commentators believe must be sustained before any major impact is felt on economic growth. Meanwhile, the rejuvenation of American oil production through increasing shale oil and gas production may well over time alter global energy markets, lessen US imports of oil and significantly improve the balance of payments.

While the potential for sovereign defaults remains within the Eurozone, the actions of the European Central Bank, particularly in the area of banking liquidity, and the Long Term Refinancing Operation, have been extremely robust. Nonetheless, politicians within the European Union will need to maintain strict austerity measures despite rising political resistance if they are to avoid the debt markets taking fright and making funding extremely expensive.

It remains to be seen what impact the recent changes in political leadership in France, Spain, Italy and Greece have directly on European economic and monetary policy and indirectly on the UK. I suspect the UK government may need to adopt a slightly more flexible economic stance in the wake of the threat of increasing unemployment and apparent loss of public support for austerity measures on their own without an agenda for growth.

More encouragingly, at the corporate level, balance sheets which were already in good shape continue to strengthen. This is important as it helps secure dividend pay-outs and provides management with the ability to carry out mergers and acquisitions at a time when company valuations are attractive both on a relative and absolute basis. Additionally, rather than growing through acquisitions they can choose to invest organically.

Given the macroeconomic uncertainties discussed above the immediate outlook for equities is uncertain. However, the portfolio's investments are positioned to give exposure to some reasonable growth opportunities available in both developed and emerging markets across a broad array of attractive industries. A high level of income, together with the potential of both income and capital growth remain the core to the management philosophy for the Company's portfolio. The investment strategy will continue to focus on holding high quality, UK listed companies that offer solid growth prospects over the medium term.

Anthony B. Davidson

Chairman

6 June 2012

2. MANAGER'S REVIEW

Portfolio Strategy

Markets have declined over the year, although if one takes account of the dividends that have been received returns have been positive. There has been no material change to our strategy regarding the construction of the portfolio. We have continued to invest in companies that we believe have sound business models and appropriate financial structures. Our thesis is that over the medium term these companies will deliver an attractive mix of income and capital growth. Gearing has declined slightly to 23.9%. This does not reflect a tactical decision to decrease our exposure to the markets. Rather, it has been a function of the movements in the asset base. The gearing remains invested notionally in a selection of 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, 67% of the assets were invested in equities, 26% 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.

	2012	2011	2010	2009	2008
	%	%	%	%	%
Ordinary dividends	48.5	44.1	41.6	41.5	47.5
Preference dividends	39.6	44.4	44.7	28.1	29.0
Aberdeen Smaller Companies	5.5	6.9	7.4	8.7	7.4
Fixed interest and bank interest	0.3	0.6	1.3	2.9	1.1
Dealing subsidiary	0.0	0.0	0.0	(0.5)	(7.0)
Traded option premiums	6.1	4.0	5.0	19.3	22.0
	_______	_______	_______	_______	_______
	100.0	100.0	100.0	100.0	100.0
	_______	_______	_______	_______	_______
Total income (£'000s)	4,352	4,153	4,201	6,929	8,117
	_______	_______	_______	_______	_______

In the year ended 31 March 2012 there was a further improvement in the revenue generated by the equity portfolio. Consequently, equities accounted for 54% of the total. Preference shares remain an important contributor and this year they delivered just less than 40% of the Company's income. The contribution from traded options was greater than in 2011. This was a result of the higher than normal levels of volatility which typically allowed us to generate a slightly higher level of revenue from the options that we sold. The dealing subsidiaries were formally dissolved in May 2011. Consequently, there will be no further activity from this part of the Company.

Equities

This has been a rather unusual year for equities. Movements in share prices have often been dramatic. But rather than being driven by the fundamental performance of the companies themselves they have often been influenced by political and macroeconomic concerns. At times it has felt as though investors were behaving in an almost schizophrenic manner as they flipped between seeking risk and then being highly averse to it.

Looking at the small moves in the indices over the course of the year it would be easy to conclude that not much had happened. However, this conceals some periods of dramatic volatility. The FTSE 100 peaked during April, reaching a level of 6082. With the exception of February 2011 the market had not reached that level since the first half of 2008. July witnessed the start of a precipitous decline that saw the index breach the 5000 level, falling to 4944, a decline of more than 18%. During the late summer and autumn there were frequent moves of more than 1% in a day. October was a quite remarkable period. Equities delivered an 8% return but they started the month in decline. Therefore, over the course of the month there was a 15% swing between the peak and the trough. Such a move was repeated between early November and December when the FTSE 100 fell from 5567 to 5127 before recovering all its losses. In such an environment good quality companies were regularly impacted every bit as much as lower quality ones. We were able to take advantage of these conditions to continue to improve the quality of the portfolio and to introduce new companies when the opportunity arose. Clearly, these were not normal market conditions and there were two aspects of a normal market that were noticeable by their absence: IPO and merger and acquisition activity were almost non-existent over the year.

As we entered the Company's financial year investors continued to focus on the European Sovereign debt crisis and the anaemic recovery affecting much of the developed world. We started with some brighter news as the UK economy grew by more than expected in the first quarter; although it needed to be recognised that it had not actually grown at all over a six month period. In the European Union the Central Bank raised interest rates by 0.25% to 1.25%. This was surprising given the pressure that it put on already struggling peripheral nations. Volatility was not confined to equity markets. By May there were signs of slowing Chinese demand. This resulted in significant declines in commodity prices, best exemplified by the 7% fall in the oil price. In the UK inflation remained stubbornly high at 4.5%. The Governor of the Bank of England was maintaining his hypothesis that this would be transient. Other members of the Monetary Policy Committee were demonstrating just how concerned they were about the weakness of the recovery in the UK with their suggestion that there may need to be further economic stimulus. July witnessed a pronounced change in sentiment. Investors had two primary concerns. There was a rising danger that Greece would default and across the region yields began to rise especially for Spain and Italy. It was all the more remarkable then that the ECB increased interest rates by a further 0.25%. Simultaneously, the US was undergoing its own debt crisis but this was not related to liquidity or solvency per se. Rather, it was the inability of the politicians to reach agreement as to the pathway for future debt reduction. Although agreement was eventually reached, it was insufficient to prevent Standard & Poor's from downgrading the country's credit rating.

At the company level, cost inflation remained the most pressing issue and there was increasing clarity as to which businesses truly possessed pricing power. Many industrial companies, especially those with high levels of overseas earnings, were reporting very solid results often accompanied by record margins. However, they were also beginning to experience slowing sales growth. This slowing was very evident in the US where second quarter GDP was revised down to a disappointing 1% and the Federal Open Market Committee indicated that interest rates would be kept at near zero levels until the middle of 2013.

In Europe the ECB was forced to intervene after the yields on Spanish and Italian debt rose to levels not seen since the establishment of monetary union.

As autumn started the situation was deteriorating on both sides of the Atlantic. The Federal Open Market Committee said that it saw "significant downside risks to the economic outlook" and extended the current stimulus package via Operation Twist. In the UK the Monetary Policy Committee suggested that further economic stimulus may be required and in Europe the ECB altered its focus from inflation to the danger that there would be further deterioration in the region's economy.

October brought some good news. First, there were signs that the US was improving, most notably in terms of job creation. In Europe it was announced that there would be a three pronged approach to the debt crisis. There would be a re-capitalisation of the banking system. This was to be accompanied by a significant increase in the firepower of the European Financial Stability Fund ("EFSF"). Of equal importance, private holders of Greek debt would be forced to endure a 50% loss on their investments.

The market welcomed this plan but the rally was short lived as the Greek Prime Minister announced there would be a referendum on the associated additional austerity measures. It also became very clear that there was no appetite from either private or sovereign sources to provide the additional funding required to enlarge the EFSF.

There was some good news though: both Greece and Italy changed their Prime Ministers. The world's major central banks took co-ordinated action to ease the dollar funding requirements of European banks. The ECB engaged in a volte face and reduced interest rates and the Chinese authorities reduced their reserve ratio for the first time in three years indicating that they recognised the risks to growth that were being faced by their economy.

2011 ended quietly, though the ECB did reduce interest rates by a further 0.25% and more importantly announced the implementation of the Long Term Refinancing Operation. Markets were barely moved.

2012 brought an abrupt change to investor perception and appetite for risk. The problems in Europe remained unresolved but the focus was much more on the positives. Policy makers in the US were now talking about holding interest rates at extremely low levels until 2014. There were signs that the European Central Bank's Long Term Refinancing Operation ("LTRO") was working as desired. €489Bn was deployed and both Spain and Italy were able to issue new bonds. Investors had accepted that Greece would default. Meanwhile the news that Standard & Poor's had downgraded the credit ratings of nine members of the European Union, including France and Austria, was greeted with little more than a collective shrug of the shoulders.

February witnessed two more bouts of economic stimulus. The ECB engaged in the second wave of the LTRO and experienced a take up of €529Bn. Meanwhile in the UK the MPC released a further £50Bn of quantitative easing. It was illustrative of the mood of investors that many had constructed arguments as to why both a large and a small take up in the LTRO would be good for equities. The largest positive though was the on-going recovery in the US where initial jobless claims fell to a four year low and Q4 GDP was revised upwards to a very solid 3%.

As we entered reporting season many companies were producing results that were in line with expectations. The exceptions being those that are exposed to the UK consumer, who were in aggregate having a torrid time. However, management teams were, unsurprisingly, very cautious about the outlook for the remainder of the year. Some, especially those exposed to certain capital goods, semi-conductors and the US natural gas markets cautioned that they were beginning to experience a slowdown.

The financial year ended with more of the same. The US continued its recovery, it was confirmed that the EU had contracted over the final quarter of 2011 and that recession now looked more likely than not. The UK budget was something of a non-event for the markets. Perhaps the most concerning data was that although still high in absolute terms, growth in China is moderating. This may be no bad thing, however news that officials had revised their growth target to 7.5%, the first reduction since 2005 was taken negatively by investors. This was evident in the share price reactions of many companies that have significant Chinese exposure and in particular the miners.

Shires Income's 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 Company's portfolio and the benchmark.

Many of the themes that we have commented on in previous years have remained features of the portfolio during this financial year. We continue to be underweight in respect of the oil and gas majors. We regard the likes of Shell and BP as attractive investments. However, we believe that a sensibly constructed portfolio will have limited exposure to any given company and therefore we will naturally be underweight the very large positions in the index. Our belief is that the oil service companies have more attractive long term prospects. They bear less geopolitical risk, are able to grow their earnings more rapidly, are not constrained by the constant need to replace their reserves and are less exposed to the vagaries of the oil price. This year we have exited our holding in Rio Tinto and built up our holding in BHP Billiton. We regard BHP Billiton as being the most diversified of the miners with the best quality asset base. Mining companies are difficult to value, a classic case of a low price earnings multiple not necessarily signifying that a company is cheap. A number of companies in the mining sector do not satisfy our quality criteria. This might be due to geopolitical risk, a lack of asset diversification or inadequate corporate governance. Consequently we are less exposed to this sector than the benchmark. Two industries where we are overweight relative to the benchmark are Aerospace and Defence and Food Producers. In the Aerospace and Defence markets we have investments in Rolls Royce and Cobham. Both companies benefit from long product life cycles, sizable aftermarket sales, structural growth and high barriers to entry. Among the Food Producers we hold Unilever and Associated British Foods. These businesses experience defensive demand profiles allied with some pricing power and exposure to emerging market growth opportunities.

At the industry level it appears as though we are heavily skewed towards the financial sector. However, a number of factors need to be considered. Firstly this is a broad and diverse sector encompassing companies that range from the domestic banks through the insurers to the likes of the Aberdeen Smaller Companies High Income Trust ("Aberdeen Smaller Companies"). We are underweight the domestic banks, as we do not believe that it is possible to appraise their future prospects whilst they remain under effective government ownership. Our banking exposure is primarily via HSBC and Standard Chartered both of which have significant overseas earnings streams. We also own the Santander 10.375% preference share. This was originally issued by Abbey National and forms part of the Santander UK capital structure. In the Life and General Insurance sector our holdings include Prudential and Chesnara. The former delivers substantial Asian exposure and the latter is primarily a closed book of UK business that is being run off with the aim of producing an attractive dividend stream. Lastly many of the preference share holdings are also classified in the financial sector. However, as fixed interest instruments we would expect the preference shares to show a reduced level of correlation with equities during times of market volatility. Therefore we believe that we have broadly diversified exposure to the financial industries.

One of the most pleasing themes of the year has been the growth in dividends. The portfolio has benefited from holding 13 companies who have grown their dividends by more than 10%, three companies who have returned to the dividend paying list and just one that has cut its distribution. Some companies that stand out include Amec who increased their pay-out by 55%, BHP by 20%, Weir and Whitbread by 27% each and Morrison who grew their dividend by 38%, though there was an element of rebalancing in this. One feature that stands out is that many of these companies pay below market yields. This is important because we are sometimes asked why we own businesses that pay low yields. It is often assumed it is because these are the businesses that we expect to deliver the most capital appreciation. This is true in part, but every bit as important is the fact that it will be these companies who ultimately deliver to us the ability to increase the dividend on your shareholding.

We have retained our holding in 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 that it trades on. This is allied with a very attractive yield that is notable in the context of the market in which it operates.

Investment Performance Analysis

In the year to the end of March 2012, the total return on net assets was 4.2% compared to our benchmark, the FTSE All-Share Index, which returned 1.4%. The outperformance versus the benchmark was driven by a number of factors. Our underweight position relative to the domestic banks has again been important. In particular the Company has benefitted from not investing in Lloyds Bank. Aerospace and Defence has been a positive contributor. We are overweight the sector and this has helped but so has our holding in Rolls Royce which has been a very strong performer over the year. We have remained cautious with respect to the valuations of the miners, maintaining an underweight position. This has served us well and performance has been aided by not owning either Anglo American or Xstrata. We continue to regard the defensive nature of Food Producers and Tobacco companies as attractive and this year the holdings in Associated British Foods and British American Tobacco have contributed substantially to the outperformance. It is also worth noting the contribution from Provident Financial. The company's share price has risen strongly over the year as investors have recognised the solidity of the business model combined with a very attractive yield. Of course not every investment has evolved as we originally expected. Mothercare has been a disappointment for us. Although the International division has continued to perform strongly the deterioration in the UK division has been more severe than we forecast and this has been reflected in a poor share price performance. Having re-appraised our view we concluded that it was no longer an appropriate investment for the Company and we have exited the holding.

Prospects

The immediate outlook for equities remains as difficult to determine as it has been since the financial crisis began. Although the near €1 trillion that the European Central Bank has deployed though its LTRO facility has eased funding pressures it has not provided a resolution. The economies of Spain and Italy are vast in comparison to Greece and whilst each country faces different challenges there is still the potential that either country could need a bail out. How this would be funded is far from clear.

Meanwhile there is a rising resistance to austerity measures across the European Union. A recession looks very probable this year and further austerity measures will likely be necessary. But voters are clearly unhappy already, therefore there is a danger that politicians will fail to take the necessary steps. Investors need to be confident that troubled nations will achieve their debt reduction targets if there is to be any prospect of more normal debt markets. The likelihood of recession also illustrates another aspect of the economic conundrum, namely that austerity may prevent countries from growing their way out of their indebtedness.

Even with more serious problems averted, it seems that no-one has yet considered how we will begin to unwind the extraordinary measures that are currently being used to stimulate the global economy.

There are though some brighter prospects. The US is showing signs of ongoing recovery and many developing markets are growing rapidly. At the company level there is also some good news. Many are benefitting from the growth that is occurring outwith the EU. Also, in aggregate, corporate balance sheets are in a good state of repair. This is important for two reasons. First, it gives us some confidence that they will be able to weather the tribulations that will arise as a result of Europe's sovereign debt problems. Secondly, it gives them options. Whilst management teams can be expected to remain cautious they are operating with balance sheets that provide the potential for future dividend growth. They also have the capacity to engage in merger and acquisition activity at a time when many companies are trading at what can be regarded as attractive valuations. Alternatively, they have the scope now to invest in organic growth opportunities. Whilst it may take time for the benefits to flow through, such investment should position them well for the future.

Valuations are attractive relative to both history and other asset classes. Whilst it is unwise to rely on any one single measure, some metrics would seem to be quite stretched in favour of equities. A good example would be the difference between the yield available on equities and that on government bonds. Equities now yield more than gilts. Historically, this has represented a good opportunity for the long term equity investor.

Faced with the above, we expect volatility to remain a feature of equity markets over the coming year. However, we believe that we have an appropriately diversified portfolio that has exposure to some of the growth opportunities presented by the emerging markets. This is allied with sound business models that are coupled to balance sheets that give us comfort in their ability to deliver over the medium term.

Aberdeen Asset Managers Limited

6 June 2012

3. RESULTS

	31 March 2012	31 March 2011	% change
Total investments	£70,950,000	£74,317,000	-4.5
Shareholders' funds	£57,285,000	£58,639,000	-2.3
Market capitalisation	£57,762,000	£56,425,000	+2.4
Net asset value per share	192.89p	197.45p	-2.3
Share price (mid market)	194.50p	190.00p	+2.4
Premium/(discount) to adjusted NAV ¹	4.1%	(0.8%)
Gearing	23.9%	26.5%
Total expense ratio	1.1%	1.1%

Dividends and earnings
Revenue return per share ²	12.17p	11.09p	+9.8
Dividends per share ³	12.00p	12.00p	-
Dividend cover	1.01	0.92
Revenue reserves 4	£5,850,000	£5,793,000

Both current and prior year figures are for the Company only following the dissolution of the subsidiaries in May 2011.
¹ Based on IFRS NAV above reduced by dividend adjustment of 6.0p (2011 - 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 on page 39).
4 The revenue reserve figure does not take account of the third or final interim dividend amounting to £1,781,855 (2011 - £1,781,855).

Performance (total return)

	1 year	3 year	5 year
	% return	% return	% return
Net asset value (Company only)	+4.2	+107.8	-13.7
Share price (based on mid price)	+9.3	+129.8	-4.1
FTSE All-Share Index	+1.4	+67.9	+9.5
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	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
Proposed final dividend	3.00p	4 July 2012	6 July 2012	31 July 2012
	___________
2011/12	12.00p
	___________
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
Final dividend	3.00p	6 July 2011	8 July 2011	29 July 2011
	___________
2010/11	12.00p
	___________

Year to 31 March	2003	2004¹	2005	2006	2007	2008	2009	2010	2011	2012
Revenue available for ordinary dividends (£'000)	5,853	5,770	5,770	5,792	5,987	6,026	5,536	3,512	3,292	3,615
	_____	_____	_____	____	____	_____	_____	_____	____	____
Per share (p)
Net revenue return	19.6	17.6	19.7	18.9	19.3	22.2	18.8	11.8	11.1	12.2
Net dividends paid/proposed	19.25	19.25	19.25	19.25	19.25	19.75	19.75	12.00	12.00	12.00
Total return	(175.1)	74.2	52.8	74.2	25.9	(63.4)	(112.9)	85.3	22.6	7.4
Net asset value	173.6	228.6	272.2	327.1	334.0	251.1	118.5	186.8	197.5	192.9
	_____	_____	_____	____	____	_____	_____	_____	____	____
Shareholders' funds (£m)	51.2	67.8	80.8	97.1	99.1	74.6	35.2	55.5	58.6	57.3
	_____	_____	_____	____	____	_____	_____	_____	____	____

Both current and prior year figures are for the Company only following the dissolution of the subsidiaries in May 2011.
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 2002)

Cumulative Performance ¹

As at 31 March	2002	2003	2004 ¹	2005	2006	2007	2008	2009	2010	2011	2012
NAV	100.0	47.1	62.6	71.6	86.2	88.2	66.0	31.2	49.0	51.8	50.6
NAV total return ²	100.0	50.6	73.7	91.4	117.8	128.2	102.0	53.2	94.3	106.2	110.6
Share price performance	100.0	42.6	67.4	80.0	94.3	93.5	66.2	32.8	55.3	57.1	58.5
Share price total return ²	100.0	45.7	80.0	103.4	130.5	137.6	104.0	57.5	109.7	120.8	132.0
Benchmark performance	100.0	67.9	85.9	96.1	119.2	128.4	114.5	77.6	113.8	120.0	117.4
Benchmark total return ²	100.0	70.2	91.9	106.2	136.0	151.2	139.5	98.6	150.1	163.2	165.5
	____	____	____	____	____	____	____	____	____	____	_____

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 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

			Movement during the year
	Valuation at					Gains/	Valuation at
	31 March 2011		Purchases	Sales	Other	(losses)	31 March 2012
	£'000	%	£'000	£'000	£'000	£'000	£'000	%
Listed investments
Ordinary shares	51,693	88.1	4,559	(5,416)	-	(758)	50,078	87.4
Convertibles	1,329	2.3	-	-	185	(207)	1,307	2.3
Preference shares	21,295	36.3	-	(1,320)	(86)	(324)	19,565	34.2
	_______	_______	_______	_______	_______	_______	_______	_______
Total investments	74,317	126.7	4,559	(6,736)	99	(1,289)	70,950	123.9
Current assets	3,120	5.3					4,534	7.9
Current liabilities	(18,798)	(32.0)					(18,199)	(31.8)
	_______	_______					_______	_______
Net assets	58,639	100.0					57,285	100.0
	_______	_______					_______	_______
Net asset value per Ordinary share	197.5p						192.9p
	_______						_______

Both current and prior year figures are for the Company only following the dissolution of the subsidiaries in May 2011.

5. BUSINESS REVIEW

Activities

The Company is an investment trust. The Company's 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, made an application to the Registrar of Companies to be voluntarily struck off during the financial year 2011 and were formally dissolved with an effective date of 24 May 2011.

The Company has an 18.1% 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 2012 are attached. Dividends accounted for in the year amounted to 12.0p.

A third interim dividend of 3.0p per Ordinary share was declared on 28 March 2012 payable on 30 April 2012. A final dividend of 3.0p per Ordinary share is proposed, payable 31 July 2012. Under International Financial Reporting Standards (IFRS) both these dividends will be accounted for in the financial year ended 31 March 2013.

Share Capital and Voting Rights

There have been no changes to the Company's issued share capital during the year. The issued Ordinary share capital at 31 March 2012 consisted of 29,697,580 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 share of the Company carries one vote at general meetings of the Company.

Current and Future Development

A review of the business is given in the Chairman's Statement and the Manager's Review. Key performance indicators ("KPIs") and historical performance are attached. These KPIs include net asset value total return, share price total return, and the premium/discount at which the shares trade. 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 17 to the financial statements.

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 matures on 25 February 2014. 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 Accounts 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 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

6 June 2012

STATEMENT OF COMPREHENSIVE INCOME

		Year ended			Year ended
		31 March 2012			31 March 2011
		Revenue	Capital	Total	Revenue	Capital		Total
	Notes	£'000	£'000	£'000	£'000	£'000		£'000
(Losses)/gains on investments at fair value	10	-	(1,308)	(1,308)	-	4,012		4,012
Gain on dissolution of subsidiaries		-	66	66	-	-		-
Net currency gain		-	-	-	-	9		9

Investment income
Dividend income		3,337	-	3,337	3,176	-		3,176
Interest income from investments		670	99	769	761	(129)		632
Stock dividend		70	-	70	31	-		31
Traded option premiums		264	-	264	160	-		160
Deposit interest		-	-	-	1	-		1
Money market interest		11	-	11	6	-		6
Other income		-	-	-	18	-		18
		_______	_______	______	_______	_______		_______
	2	4,352	(1,143)	3,209	4,153	3,892		8,045
		_______	_______	______	_______	_______		_______

Expenses
Investment management fee	3	(158)	(158)	(316)	(156)	(155)		(311)
VAT recoverable on investment management fees	3	-	-	-	10	11		21
Other administrative expenses	4	(293)	-	(293)	(304)	-		(304)
Finance costs of borrowings	6	(198)	(198)	(396)	(363)	(363)		(726)
		_______	_______	______	_______	_______		_______
		(649)	(356)	(1,005)	(813)	(507)		(1,320)
		_______	_______	______	_______	_______		_______
Profit before taxation		3,703	(1,499)	2,204	3,340	3,385		6,725
Taxation	7	(88)	88	-	(48)	48		-
		_______	_______	______	_______	_______		_______
Profit attributable to equity holders of the Company		3,615	(1,411)	2,204	3,292	3,433		6,725
		_______	_______	______	_______	_______		_______

Earnings per Ordinary share (pence)	9	12.17	(4.75)	7.42	11.09	11.55		22.64
		_______	_______	______	_______	_______		_______

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.
During the year the Company's two subsidiary undertakings, Topshire Limited and Winston Investment Company limited were formally dissolved.

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
					2012 ¹		2011 ²
					£'000		£'000
Revenue					3,615		3,292
Dividends declared					(3,564)		(3,564)
					________		_______
					51		(272)
					________		_______

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 2011/12.
² Dividends declared relates to first three interim dividends (each 3.0p) and the final dividend (3.0p) declared in respect of financial year 2010/11.

BALANCE SHEET

		As at	As at
		31 March	31 March
		2012	2011
	Notes	£'000	£'000
Non-current assets
Ordinary shares		50,078	51,693
Convertibles		1,307	1,329
Other fixed interest		19,565	21,295
		__________	__________
Securities at fair value	10	70,950	74,317
		__________	__________
Current assets
Trade and other receivables		18	53
Accrued income and prepayments		783	1,086
Cash and cash equivalents		3,733	1,981
		__________	__________
	12	4,534	3,120
		__________	__________
Total assets		75,484	77,437

Current liabilities
Trade and other payables		(199)	(298)
Short-term borrowings		(18,000)	(18,500)
		__________	__________
	13	(18,199)	(18,798)
		__________	__________
Net assets		57,285	58,639
		__________	__________

Issued capital and reserves attributable to equity holders
Called up share capital	14	14,899	14,899
Share premium account	15	18,840	18,840
Capital reserve	16	17,696	19,107
Revenue reserve	16	5,850	5,793
		__________	__________
		57,285	58,639
		__________	__________
Net asset value per Ordinary share (pence)	9	192.89	197.45
		__________	__________

STATEMENT OF CHANGES IN EQUITY

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
	_________	__________	_________	_________	_________

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 8)	-	-	-	(3,565)	(3,565)
	_________	__________	_________	_________	_________
As at 31 March 2011	14,899	18,840	19,107	5,793	58,639
	_________	__________	_________	_________	_________

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 2012		31 March 2011
	£'000	£'000	£'000	£'000
Cash flows from operating activities
Investment income received		4,310		3,871
Deposit interest received		-		1
Money market interest received		11		6
Investment management fee paid		(318)		(309)
VAT on investment management fees recovered		-		21
Other cash receipts		-		60
Other cash expenses		(308)		(276)
		________		_________
Cash generated from operations		3,695		3,374
Interest paid		(397)		(558)
Tax recovered		-		1
		________		_________
Net cash inflows from operating activities		3,298		2,817
		________		_________
Cash flows from investing activities
Purchases of investments	(4,489)		(4,295)
Sales of investments	7,001		7,365
	________		________
Net cash inflow from investing activities		2,512		3,070
Cash flows from financing activities		________		_________
Equity dividends paid	(3,558)		(3,565)
	________		________
Net cash outflow from financing activities		(3,558)		(3,565)
		________		_________
Net increase in cash and cash equivalents		2,252		2,322
Cash and cash equivalents at start of period		(16,519)		(18,850)
Effect of currency gains		-		9
		________		_________
Cash and cash equivalents at end of period		(14,267)		(16,519)
		________		_________
Cash and cash equivalents comprise:
Cash and cash equivalents		3,733		1,981
Short-term borrowings		(18,000)		(18,500)
		________		_________
		(14,267)		(16,519)
		________		_________

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 March 2012

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 (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 subsidiary companies were wound up during the year and therefore consolidated accounts are no longer required to be prepared. Further information can be found in note 11.

		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 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.

		Amendments to IFRS 1 - Severe Hyperinflation and Removal of Fixed Dates for First Time Adopters (effective for annual periods beginning on or after 1 July 2011).
		Amendments to IFRS 7 - Financial Instruments: Transfers of Financial Assets 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 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 12 - Income Taxes - Deferred Tax Amendment (effective for annual periods beginning on or after 1 January 2012).
		Amendments to IAS 19 - Employee Benefits (effective for annual periods on or after 1 January 2013).
		IAS 27 - Separate Financial Statements (early adoption permitted) (effective for annual periods beginning on or after 1 January 2013).
		IAS 28 - Investments in Associates and Joint Ventures (early adoption permitted) (effective 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.

		2012	2011
2.	Income	£'000	£'000
	Income from listed investments
	Dividend income	3,337	3,176
	Interest income from investments	670	761
	Money market interest	11	6
	Stock dividend	70	31
		_________	_________
		4,088	3,974
		_________	_________
	Other income from investment activity
	Deposit interest	-	1
	Traded option premiums	264	160
	Interest on VAT recovered on investment management fees	-	1
	Other income	-	17
		_________	_________
		264	179
		_________	_________
	Total income	4,352	4,153
		_________	_________

		2012	2011
	Total income comprises:	£'000	£'000
	Dividends and interest from investments	4,088	3,974
	Deposit interest	-	1
	Interest on VAT recoverable on investment management fees	-	1
	Other income from investment activity	264	177
		_________	_________
	Total income	4,352	4,153
		_________	_________

	All dividend income was received from UK companies. The amount of £99,000 (2011 - (£129,000)) 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).

		2012			2011
		Revenue	Capital	Total	Revenue	Capital	Total
3.	Investment management fees	£'000	£'000	£'000	£'000	£'000	£'000
	Investment management fees	158	158	316	156	155	311
		_______	_______	_______	_______	_______	_______

	For the year ended 31 March 2012 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 and included in the previous year's financial statements. This repayment related to VAT charged on investment management fees for the period 1 January 2001 to 31 December 2003 and was 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.

		2012	2011
4.	Administrative expenses	£'000	£'000
	Directors' remuneration	81	73
	Fees payable to auditors and associates (net of VAT):
	fees payable to the Company's auditors for the audit of the annual accounts	18	17
	Marketing contribution paid to Aberdeen	66	50
	Professional fees	13	27
	Registrars fees	36	36
	Printing, postage and stationery	20	23
	Other administrative expenses	59	78
		_________	_________
		293	304
		_________	_________

5.	Directors' remuneration
	The Company had no employees during the year (2011 - nil). No pension contributions were paid for Directors (2011 - £nil).

		2012			2011
		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	198	198	396	363	363	726
		_____	_____	_____	_____	_____	_____

7.	Taxation
	At 31 March 2012 the Company had surplus management expenses and loan relationship debits with a tax value of £5,487,000 (2011 - £6,396,000) 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 26% (2011 - 28%).

		2012			2011
		Revenue	Capital	Total	Revenue	Capital	Total
		£'000	£'000	£'000	£'000	£'000	£'000
	Profit before taxation	3,703	(1,499)	2,204	3,340	3,385	6,725

	Taxation of return on ordinary activities at the standard rate of corporation tax	962	(390)	572	935	948	1,883
	Effects of:
	UK dividend income not liable to further tax	(854)	-	(854)	(874)	-	(874)
	Non taxable stock dividends	(18)	-	(18)	(9)	-	(9)
	Tax relief obtained by expenses capitalised	88	(88)	-	48	(48)	-
	Non taxable overseas dividends	(2)	-	(2)	(4)	-	(4)
	Brought forward management expenses utilised	(92)	-	(92)	(142)	-	(142)
	Current year management expenses not utilised	4	67	71	94	178	272
	Capital losses/(gains) disallowed for the purposes of corporation tax	-	323	323	-	(1,126)	(1,126)
		______	______	_____	_______	_____	_____
	Taxation charge for the year	88	(88)	-	48	(48)	-
		______	______	_____	_______	_____	_____

		2012	2011
8.	Dividends	£'000	£'000
	Amounts recognised as distributions to equity holders in the period:
	Third interim dividend for the year ended 31 March 2011 of 3.0p (2010 - 3.0p) per share	891	891
	Final dividend for the year ended 31 March 2011 of 3.0p (2010 - 3.00p) per share	891	891
	First two interim dividends for the year ended 31 March 2012 totalling 6.0p (2011 - 6.0p) per share	1,782	1,781
	Refund of unclaimed dividends from previous periods	(8)	-
		__________	__________
		3,556	3,563
		__________	__________
	3.5% Cumulative Preference shares	2	2
		__________	__________

	The third interim dividend of 3.0p for the year to 31 March 2012 paid on 30 April 2012 and the proposed final dividend for the year to 31 March 2012 payable on 31 July 2012 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:

		2012	2011
		£'000	£'000
	Three interim dividends for the year ended 31 March 2012 totalling 9.0p (2011 - 9.0p) per share	2,673	2,673
	Final proposed dividend for the year ended 31 March 2012 of 3.0p (2011 - 3.0p) per share	891	891
		__________	__________
		3,564	3,564
		__________	__________

9.	Return and net asset value per share
	The gains per share are based on the following figures:
		2012	2011
		£'000	£'000
	Revenue return	3,615	3,292
	Capital return	(1,411)	3,433
		__________	__________
	Net return	2,204	6,725
		__________	__________
	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 £57,285,000 (2011 - £58,639,000) and on the 29,697,580 (2011 - 29,697,580) Ordinary shares in issue at 31 March 2012.

											2012		2011
10.	Non current assets - Securities at fair value										£'000		£'000
	Listed on recognised stock exchanges:
	United Kingdom										70,950		74,317
											__________		__________

		2012							2011
		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
	Purchases	4,559	-			4,559			4,295			-			4,295
	Sales - proceeds	(6,736)	-			(6,736)			(6,250)			(633)			(6,883)
	Sales - net realised gains/(losses)	377	(2)			375			1,562			126			1,688
	Amortised cost adjustments to debt securities ¹	99	-			99			(129)			-			(129)
	Fair value movement in the year	(1,666)	2			(1,664)			2,288			35			2,323
		__________	__________			_______			__________			__________			______
	Fair value at 31 March 2012	70,950	-			70,950			74,317			-			74,317
	¹ Charged to capital.	__________	__________			_______			__________			__________			______

		2012							2011
		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
		__________		__________			_______		__________			__________			______

										2012				2011
	Gains/(losses) on investments									£'000				£'000
	Net realised gains on sales of investments									465				1,695
	Call options exercised									(90)				(7)
										__________				________
	Net realised gains on sales									375				1,688
	Movement in fair value of investments									(1,568)				2,433
	Put options assigned									(96)				(110)
	Movement in (depreciation)/appreciation of traded options held									(19)				1
										(1,308)				4,012

	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 £264,000 (2011 - £160,000) 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 2012, the Company had pledged collateral equal to (708)% of the market value of the traded options in accordance with standard commercial practice. The carrying amount of financial assets pledged equated to £(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 £19,000 (2011 - £32,000).

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

	At 31 March 2012 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				18.1%
	REA Holdings				England			996,720			9% cum pref				3.7%
	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%

11.

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 to 31 March 2011 and were formally dissolved with an effective date of 24 May 2011.

		2012	2011
12.	Current assets	£'000	£'000
	Investment sales	8	-
	Accrued income & prepayments	783	1,086
	Other debtors	10	53
	Cash and cash equivalents	3,733	1,981
		__________	__________
		4,534	3,120
		__________	__________
	None of the above amounts is overdue.

		2012	2011
13.	Current liabilities	£'000	£'000
	Bank loans	18,000	18,500
	Other creditors	199	298
		__________	__________
		18,199	18,798
		__________	__________

	Included above are the following amounts owed to Aberdeen, the Manager and Secretary:

		2012	2011
		£'000	£'000
	Other creditors	79	81
		__________	__________

	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. Subsequent to this agreement, the facility has been extended to February 2014. At the year end £18,000,000 had been drawn down at an all-in interest rate of 2.05245% which matured on 30 April 2012. At 31 May 2012 the principal amount drawn down was £18,000,000 at an all-in interest rate of 2.02767% maturing on 29 June 2012.

	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.

		2012		2011
14.	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 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.

		2012	2011
15.	Share premium account	£'000	£'000
	At 31 March 2012 and 2011	18,840	18,840
		________	________

		2012	2011
16.	Retained earnings	£'000	£'000
	Capital reserve
	At 31 March 2011	19,107	15,674
	Net gains on sales of investments during year	375	1,688
	Movement in fair value (losses)/gains on investments	(1,664)	2,323
	Amortised cost adjustment charged to capital	99	(129)
	Investment management fees	(158)	(155)
	VAT recoverable on investment management fees	-	11
	Interest on bank loans and overdrafts repayable within five years	(198)	(363)
	Net currency gain	-	9
	Tax relief obtained by expenses capitalised	88	48
	Dissolution of subsidiary	66	-
	Traded options	(19)	1
		________	________
	At 31 March 2012	17,696	19,107
		________	________

		2012	2011
	Revenue reserve	£'000	£'000
	At 31 March 2011	5,793	6,066
	Revenue	3,615	3,292
	Dividends paid	(3,558)	(3,565)
		________	________
	At 31 March 2012	5,850	5,793
		________	________

17.

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 2012

Years

£'000

Assets

UK irredeemable preference shares

7.01

19,565

Cash

0.38

3,733

________

Total assets

19,565

3,733

________

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

2.05

(18,000)

________

Total liabilities

(18,000)

________

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

6.91

19,610

UK preference shares

38.69

14.00

1,685

Cash

0.43

1,981

________

Total assets

21,295

1,981

________

Liabilities

Short-term bank loan

0.08

1.97

(18,500)

________

Total liabilities

(18,500)

________

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 2012

£'000

Fixed rate

UK irredeemable preference shares

19,565

Short-term bank loan

(18,000)

________

(18,000)

19,565

________

Floating rate

Cash

3,733

________

Total

3,733

(18,000)

19,565

________

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

________

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 2012 would increase/decrease by £37,000 (2011 - £20,000). 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 2012 would increase/decrease by £1,076,000 (2011 - increase/decrease by £517,000). 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, as detailed on page 18, 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 2012 would have increased/decreased by £5,008,000 (2011 - increase/decrease of £5,169,000). 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 13).

(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 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 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 are 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 2012 was as follows:

2012

2011

Balance

Maximum

Balance

Maximum

Sheet

exposure

Sheet

exposure

£'000

Non-current assets

Securities at fair value through profit or loss

70,950

74,317

Current assets

Trade and other receivables

Accrued income

783

1,086

Cash and cash equivalents

3,733

1,981

________

75,484

77,437

________

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.

18.	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 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 2012 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)	70,950	-	-	70,950

	Financial liabilities at fair value through profit or loss
	Derivatives	b)	(59)	-	-	(59)
			_______	_______	_______	________
	Net fair value		70,891	-	-	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 derivatives has been determined using observable market inputs on an exchange traded basis and therefore have been classed as Level 1.

19. The Directors recommend that a final dividend of 3.0p per Ordinary share be paid, making a total of 12p for the year ended 31 March 2012 (2011 - 12.0p). The final dividend will be paid on 31 July 2012 to Shareholders on the register at 6 July 2012. The ex-dividend date is 4 July 2012.

20. The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 March 2012 or 2011. The financial information for 2011 is derived from the statutory accounts for 2011 which have been delivered to the Registrar of Companies. The statutory accounts for 2012 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 19 July 2012 at 12 noon.

21. The Annual Report and Accounts will be posted to shareholders in June 2012 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

6 June 2012

This information is provided by RNS

The company news service from the London Stock Exchange

END

ACSFFMMTMBTMBLT