Annual Financial Report

RNS Number : 6168G

Shires Income PLC

31 May 2017

 

SHIRES INCOME PLC

ANNUAL FINANCIAL RPORT FOR THE YEAR ENDED 31 MARCH 2017

Legal Entity Identifier (LEI): 549300HVCIHNQNZAYA89

Information disclosed in accordance with Section 4.1.3 of the FCA's Disclosure Guidance and Transparency Rules ("DTR")

The Company

Shires Income PLC ("the Company") is an investment trust. Its Ordinary shares are listed on the premium segment of the London Stock Exchange.

Investment Objective

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

Benchmark

FTSE All-Share Index (Total Return).

Management

The investment management of the Company has been delegated by Aberdeen Fund Managers Limited ("AFML", the "AIFM" or the "Manager") to Aberdeen Asset Managers Limited ("AAML" or the "Investment Manager"). Both companies are wholly owned subsidiaries of Aberdeen Asset Management PLC (the "Aberdeen Group").

Website

Up to date information can be found on the Company's website: www.shiresincome.co.uk

COMPANY OVERVIEW - FINANCIAL HIGHLIGHTS

Net asset total return A			Share price total return A
2017	+24.5%		2017	+27.5%
2016	-7.0%		2016	-15.4%
A Total return represents capital return plus dividends reinvested			A Total return represents capital return plus dividends reinvested
Index total return A			Earnings per share (revenue)
2017	+22.0%		2017	13.08p
2016	-3.9%		2016	12.06p
A Total return represents capital return plus dividends reinvested
Dividend per Ordinary share			Dividend yield
2017	12.75p		2017	5.2%
2016	12.25p		2016	6.1%

For further information, please contact:

Colin Edge

Aberdeen Asset Managers Limited         0131 528 4000

COMPANY OVERVIEW - CHAIRMAN'S STATEMENT

Performance

In the year to 31 March 2017 the Company's net asset value per share increased by 24.5% on a total return basis, compared to a total return from our benchmark, the FTSE All-Share Index, of 22.0%.  This performance is pleasing, as is the good performance over the last three and five year periods in absolute terms and against the benchmark. The outperformance during the year was principally due to stock specific allocations which are covered in detail in the Investment Manager's Review.

The Board and Investment Manager remain focused on delivering performance and shareholder returns both in income and capital. 

It is notable the amount of time the Investment Manager spends not just on research but also in engaging with the businesses in which the Company invests. This ranges not only from meeting management but to engaging with businesses on risk management, balance sheet structure and governance issues such as remuneration of executive directors.

As we look back over the last year it is incredible to note the amount of change that has occurred, from the UK's decision to leave the EU to a new president in the USA, who is certainly unconventional in his approach. Political tensions have increased across the globe yet, despite this, global equity markets have performed strongly with returns well in excess of long-term averages.  

The majority of companies held within the Company's portfolio have performed well during this period of uncertainty. There is no doubt, however, that companies face many challenges ahead, particularly those with significant cross border trade in both manufacturing and services.

Earnings

The Company's revenue return for the year was 13.08p per share, compared to 12.06p per share for the previous year. The Company benefited from dividend increases within the portfolio but also from the weakening of Sterling following the EU referendum in June, which had the effect of increasing the value of non-Sterling denominated dividends.

Dividend

The Board is proposing a final dividend of 3.75p per share, which will be paid on 28 July 2017 to Shareholders on the register on 7 July 2017. This final dividend brings total dividends for the year to 12.75p per share, representing an increase of 4.1% and a dividend yield of 5.2% based on the year end share price of 243.25p per share. Subject to unforeseen circumstances it is proposed to continue to pay three quarterly interim dividends of 3.00p each and, as in previous years, the Board will decide on next year's final dividend having reviewed the full year results.

Discount

The share price increased by 27.5% on a total return basis during the year and the discount at which the Company's shares traded to their net asset value narrowed from 9.5% (on an ex-income basis) to 8.0% at the end of the year. The Board and Manager review the discount level on an ongoing basis.

Portfolio Profile and Gearing

The Company's gearing decreased during the year, from 24.9% to 21.1%, the decrease being attributable to the rise in the net asset value. The Board continually monitors the level of gearing and, although the absolute level looks high, I would remind shareholders that it is deployed notionally in fixed interest securities which bring an element of diversification to the Company's total revenue stream but with lower volatility than would be expected from an equity portfolio.

The Company has a £20 million loan facility, details of which are set out in note 13 to the financial statements. £19 million was drawn down at the year end. The facility matures in December 2017 and the Board is likely to seek to replace this with a new facility later in the year.

Board Composition

Following a review of the Board's composition during the year, we conducted a formal recruitment exercise and, since the end of the year, have announced the appointment of Robin Archibald as an independent non-executive Director with effect from 1 May 2017. Robin has a wide range of experience in advising and managing transactions in the UK closed-ended funds sector. He was a director of Winterflood Investment Trusts until May 2014, where he was formerly Head of Corporate Finance and Broking.  Robin will stand for election at the Annual General Meeting.

Having served as a Director since 2007 I will retire from the Board at the conclusion of the Annual General Meeting. As I mentioned in the Half-Yearly Report, Robert Talbut will succeed me as Chairman. I have thoroughly enjoyed my involvement with the Company and its shareholders over the past ten years and I should like to thank my Board colleagues for their unstinting support over this time and I wish the Company continued success in the future.

Aberdeen Asset Management

The Board notes the announcement of a proposed recommended merger between the parent company of the Company's Manager, Aberdeen Asset Management PLC, and Standard Life PLC. The transaction is subject to shareholder and regulatory approvals, but both companies have committed to set up a dedicated integration team which should ensure that the existing management team remains focused on looking after the interests of the Company. The Board will monitor developments closely to ensure that this remains the case and that excellent client service is maintained.

Annual General Meeting

The Company's Annual General Meeting will be held at 12 noon on Tuesday 11 July 2017 at the offices of Aberdeen Asset Management in London. The Investment Manager will make a presentation and lunch will be available following the Meeting. This is a good opportunity for shareholders to meet the Board and Investment Manager, and to ask questions formally or informally.

Outlook

The global economy continued to grow at a sluggish rate over the last year and more of the same is expected by most commentators. With government bond yields still near all-time lows there is an excess of global saving chasing too little demand for investment. This is one of the factors behind the performance of equity markets as investors have continued to search ever harder for those businesses or assets with good growth characteristics. The problem of near zero interest rates is good for borrowers; however it is bad for bank profits, pension funding ratios, rational capital allocation and the ability of central banks to stimulate the economy. The solution, perhaps, is large scale public infrastructure investment and encouraging more corporate investment.  This is certainly the plan in the US if President Trump's stimulus measures are still to be pursued, but much of this depends on Congress who will hold sway over the final enactment of the proposals into law.

Despite the prospect of complex and time consuming Brexit negotiations and a looming general election in the UK it would appear that, while growth may slow, it is still likely to be positive. The two year window granted by the Article 50 process is extremely tight to deal with both the exit terms and future trading relationships between the UK and the EU. The challenge for companies held within the portfolio with cross border operations is in not knowing what the future agreement, if any, will look like. Hence the mutual benefit in both sides agreeing transitional arrangements to avoid a UK crash landing out of the EU. 

As I have stated in previous reports, the portfolio continues to be well diversified both in terms of sector and geographic exposure. The Board believes that, despite the numerous potential risks facing the global economy, the Investment Manager's focus on investing in good quality companies at attractive valuations should see your investment in Shires Income PLC prosper over the long term.   

Anthony B. Davidson

Chairman

30 May 2017

STRATEGIC REPORT - OVERVIEW OF STRATEGY

Business Model

The business of the Company is that of an investment company which qualifies as an investment trust for tax purposes.  The Directors do not envisage any change in this activity in the foreseeable future.

Investment Objective

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

Investment Policy

In pursuit of its objective, the Company's policy is to invest principally in the ordinary shares of UK quoted companies, and in convertible and preference shares with above average yields.

The Company generates income primarily from ordinary shares, convertibles and preference shares. It also achieves income by writing call and put options on shares owned, or shares the Company would like to own. By doing so, the Company generates premium income.

Gearing

The Directors are responsible for determining the gearing strategy of the Company.  Gearing is used with the intention of enhancing long-term returns. Gearing is subject to a maximum equity gearing level of 35% of net assets at the time of draw down.  Any borrowing, except for short-term liquidity purposes, is used for investment purposes. 

Risk Diversification

In order to ensure adequate diversification, the Board sets absolute limits on maximum holdings and exposures in the portfolio from time to time. These limits do not form part of the investment policy and can be changed or over-ridden with Board approval. The current limits are disclosed under the heading "Board Investment Limits" below.   

Delivering the Investment Policy

The Directors are responsible for determining the investment objective and investment policy of the Company, although any significant changes are required to be approved by shareholders at a general meeting. Day-to-day management of the Company's assets has been delegated, via the AIFM, to the Investment Manager.

Investment Process

The Investment Manager believes that, over the long-term, share prices reflect the underlying business fundamentals of companies and hence investments are made based on research undertaken on individual companies. This is known as a "bottom up" investment process. This process involves a disciplined evaluation of potential investments through meeting investee companies. New investments are not made without the Investment Manager having first met the management of the investee company, undertaken further analysis and written detailed notes to outline the underlying investment merits. A company's value is estimated in two stages, quality then price. Quality is defined by reference to management, business focus, balance sheet and corporate governance. Price is assessed relative to key financial ratios and business prospects.  Top-down investment factors are secondary in the Investment Manager's portfolio construction, with diversification rather than formal controls guiding stock and sector weights.

The Investment Manager's portfolios are generally run conservatively, with an emphasis on traditional buy-and-hold and, when they see anomalous price movements within stock markets, to top-slice or top-up positions.  This approach usually results in low turnover within portfolios. 

Portfolios are managed by the Investment Manager on a team basis, with individual fund managers carrying out their own research and analysis.  All ideas are shared via formal committees and common databases, with desk heads ensuring consistency. 

Benchmark

In assessing its performance, the Company compares its returns with the returns of the FTSE All-Share Index (total return).

Key Performance Indicators ("KPIs")

The Board uses a number of financial performance measures to assess the Company's success in achieving its objective and determining the progress of the Company in pursuing its investment policy.  The main KPIs identified by the Board in relation to the Company, which are considered at each Board meeting, are shown in the following table:

KPI	Description
Performance of NAV	The Board considers the Company's NAV total return figures to be the best indicator of performance over time and this is therefore the main indicator of performance used by the Board.
Performance against benchmark index	The Board measures performance on a total return basis against the benchmark index - the FTSE All-Share Index.
Revenue return per Ordinary share	The Board monitors the Company's net revenue return (earnings per share).
Dividend per share	The Board monitors the Company's annual dividends per Ordinary share.
Share price performance	The Board monitors the performance of the Company's share price on a total return basis.
Discount/premium to NAV	The discount/premium relative to the NAV per share represented by the share price is closely monitored by the Board.
Ongoing charges	The Board monitors the Company's operating costs carefully.

Principal Risks and Uncertainties

There are a number of risks which, if realised, could have a material adverse effect on the Company and its financial condition, performance and prospects. The risks and uncertainties faced by the Company are reviewed by the Audit Committee in the form of a risk matrix and the principal risks and uncertainties facing the Company at the current time, together with a description of the mitigating actions the Board has taken, are set out in the table below.  The Board has carried out a robust assessment of these risks, which include those that would threaten its business model, future performance, solvency or liquidity. The principal risks associated with an investment in the Company's shares are published monthly in the Company's factsheet and they can be found in the pre-investment disclosure document ("PIDD") published by the Manager, both of which are available on the Company's website.

Description	Mitigating Action
Investment performance  - under-performance of the portfolio when measured against the benchmark.	The Board meets the Manager on a regular basis and keeps investment performance under close review. Representatives of the Investment Manager attend all Board meetings and a detailed formal appraisal of the Aberdeen Group is carried out annually by the Management Engagement Committee. The Board sets, and monitors, the investment restrictions and guidelines, and receives regular reports which include performance reporting on the implementation of the investment policy, the investment process, risk management and application of the guidelines. Investment risk within the portfolio is managed in three ways: -    Adherence by the Investment Manager to the investment process in order to minimise investments in poor quality companies and/or overpaying. -    Diversification of investment - seeking to invest in a wide variety of companies with strong balance sheets and the earnings power to pay increasing dividends. In addition, investments are diversified by sector in order to reduce the risk of a single large exposure. The Company invests mainly in equities, preference shares and convertibles. -    Adherence by the Investment Manager to the investment limits set by the Board (see below). Investment in smaller companies Rather than holding a number of smaller companies' shares, the Company invests indirectly in this part of the equity market through one holding in Aberdeen Smaller Companies Income Trust PLC, which is also managed by the Manager.  The Directors regularly review this holding (currently 6.7% of the Company's portfolio).  All of the directors of Aberdeen Smaller Companies Income Trust PLC are independent of Shires Income PLC. The Manager does not charge any management fee in respect of the amount of the Company's assets attributable to this holding.
Failure to maintain and grow the dividend over the longer term  - the level of the Company's dividends and future dividend growth will depend on the performance of the underlying portfolio.	The Directors review detailed income forecasts at each Board meeting. The Company has built up significant revenue reserves which can be drawn upon should there be a shortfall in revenue returns.
Widening of discount - a number of factors including the setting of an unattractive strategic proposition, changing investor demand and investment underperformance may lead to a decrease in demand for the Company's shares and a widening of the difference between the share price and the net asset value.	The Board monitors the Company's share price relative to the net asset value per share and keeps the level of discount at which the Company's shares trade under review. The Board also keeps the investment objective and policy under review and holds an annual strategy meeting where it reviews investor relations reports and updates from the Investment Manager and the Company's Broker. The Directors are updated at each Board meeting on the composition of, and any movements in, the shareholder register.
Financial and economic - the financial and economic risks associated with the portfolio could result in losses to the Company.	The financial and economic risks associated with the Company include market risk, liquidity risk and credit risk, all of which the Investment Manager seeks to mitigate. Further details of the steps taken to mitigate the financial risks associated with the portfolio are set out in note 16 to the financial statements.
Gearing - a fall in the value of the Company's investment portfolio could be exacerbated by the impact of gearing. It could   also result in a breach of loan covenants.	The Board sets the gearing limits within which the Investment Manager can operate. Gearing levels and compliance with loan covenants are monitored on an ongoing basis by the Manager and at regular Board meetings. In the event of a possible impending covenant breach, appropriate action would be taken to reduce borrowing levels. The financial covenants attached to the Company's borrowings currently provide for significant headroom. The maximum equity gearing level is 35% of net assets at the time of draw down, which constrains the amount of gearing that can be invested in equities which are more volatile than the fixed interest part of the portfolio. The Board and the Investment Manager keep under review options available to protect a portion of the portfolio from a sudden decline in markets.
Regulatory - failure to comply with relevant laws and regulations could result in fines, loss of reputation and potentially loss of an advantageous tax regime.	The Board and Manager monitor changes in government policy and legislation which may have an impact on the Company and the Audit Committee monitors compliance with regulations by reviewing internal control reports from the Manager. From time to time the Board employs external advisers to advise on specific matters.
Operational - the Company is dependent on third parties for the provision of all systems and services (in particular, those of the Aberdeen Group) and any control failures and gaps in their systems and  services could result in a loss or damage to the Company.	The Board receives reports from the Manager on its internal controls and risk management and receives assurances from all its other significant service providers on at least an annual basis, including on matters relating to cyber security. Written agreements are in place with all third party service providers. The Manager monitors closely the control environments and quality of services provided by third parties, including those of the Depositary and Custodian, through service level agreements, regular meetings and key performance indicators.

Board Investment Limits

In order to ensure adequate diversification, the Board has set absolute limits on maximum holdings and exposures in the portfolio at the time of acquisition. These can only be over-ridden with Board approval. The current limits include the following:

-      Maximum 7.5% of total assets invested in the securities of one company (excluding Aberdeen Smaller Companies Income Trust PLC);

-      Maximum 5% of quoted investee company's ordinary shares (excluding Aberdeen Smaller Companies Income Trust PLC).

Preference shares

The Company also invests in preference shares, primarily to enhance the income generation of the Company. The majority of these investments are in large financial institutions.  Issue sizes are normally relatively small and associated low volumes of trading could give rise to a lack of liquidity. The maximum holding in preference shares is managed by the first guideline referred to above. In addition, the Company cannot hold more than 10% of any investee company's preference shares.

Traded options contracts

The Company enters into traded option contracts, also primarily to enhance the income generation of the Company. The risks associated with these option contracts are managed through the principal guidelines below, which operated in the year under review:

-     Call options written to be covered by stock;

-     Put options written to be covered by net current   assets/borrowing facilities;

-     Call options not to be written on more than 100% of a holding of stock;

-     Call options not to be written on more than 30% of the UK equity portfolio;

-     Put options not to be written on more than 30% of the UK equity portfolio.

External Agencies

In addition to the services provided to the Company by the Aberdeen Group, the Board has contractually delegated to external agencies certain services, including: depositary services (which include the safekeeping of the Company's assets) (BNP Paribas Securities Services, London Branch) and share registration services (Equiniti Limited). Each of these services was entered into after full and proper consideration by the Board of the quality and cost of services offered. In addition, day-to-day accounting and administration services are provided, through delegation by the Manager, by BNP Paribas Securities Services.

Promoting the Company

The Board recognises the importance of promoting the Company to prospective investors both for improving liquidity and enhancing the value and rating of the Company's shares. The Board believes an effective way to achieve this is through subscription to, and participation in, the promotional programme run by the Aberdeen Group on behalf of a number of investment trusts under its management. The Company's financial contribution to the programme is matched by the Aberdeen Group.  The Aberdeen Group Head of Brand reports to the Board giving analysis of the promotional activities as well as updates on the shareholder register and any changes in the make-up of that register.

The purpose of the promotional programme is both to communicate effectively with existing shareholders and to gain new shareholders with the aim of improving liquidity and enhancing the value and rating of the Company's shares. Communicating the long-term attractions of the Company is key and therefore the Company also supports the Aberdeen Group's investor relations programme which involves regional roadshows, promotional and public relations campaigns. 

Board Diversity

The Board recognises the importance of having a range of skilled, experienced individuals with relevant knowledge in order to allow it to fulfill its obligations. The Board also recognises the benefits, and is supportive, of the principle of diversity in its recruitment of new Board members. However, in making new appointments, the Board's overriding priority is to appoint the most appropriate candidates, regardless of gender or other forms of diversity. The Board has not therefore set any measurable objectives in relation to its diversity.  At 31 March 2017, there were three male Directors and one female Director.

Environmental, Social and Human Rights Issues

The Company has no employees as the Board has delegated the day-to-day management and administrative functions to the Manager. There are therefore no disclosures to be made in respect of employees. The Company's socially responsible investment policy is set out below.

Socially Responsible Investment Policy

The Directors, through the Investment Manager, encourage companies in which investments are made to adhere to best practice in the area of corporate governance and socially responsible investing. They believe that this can best be achieved by entering into a dialogue with company management to encourage them, where necessary, to improve their policies in both areas.

The Manager's ultimate objective, however, is to deliver superior investment returns for the Company's shareholders. Accordingly, whilst the Manager will seek to favour companies which pursue best practice in these areas, this must not be to the detriment of the return on the investment portfolio.

UK Stewardship Code and Proxy Voting as an Institutional Shareholder

Responsibility for actively monitoring the activities of portfolio companies has been delegated by the Board to the Manager which has sub-delegated that authority to the Investment Manager.

The full text of the Company's response to the Stewardship

Code may be found on its website.

Modern Slavery Act

Due to the nature of the Company's business, being a company that does not offer goods and services to customers, the Board considers that it is not within the scope of the Modern Slavery Act 2015 because it has no turnover. The Company is therefore not required to make a slavery and human trafficking statement. In any event, the Board considers the Company's supply chains, dealing predominantly with professional advisers and service providers in the financial services industry, to be low risk in relation to this matter.

Global Greenhouse Gas Emissions

The Company has no greenhouse gas emissions to report from its operations, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013.

Viability Statement

The Board considers the Company, with no fixed life, to be a long term investment vehicle but, for the purposes of this viability statement, has decided that three years is an appropriate period over which to report. The Board considers that this period reflects a balance between a longer term investment horizon and the inherent uncertainties within equity markets. 

In assessing the viability of the Company over the review period, the Directors have focused upon the following factors:

-       The principal risks and uncertainties detailed above and the steps taken to mitigate these risks.

-       The ongoing relevance of the Company's investment objective.

-       The majority of the Company's portfolio is invested in readily realisable listed securities.

-       The level of gearing is closely monitored and the financial covenants attached to the Company's borrowings provide for significant headroom.

-       The ability of the Company to refinance or repay its £20 million loan facility on, or before, its maturity in December 2017.

In making its assessment, the Board has considered that there are other matters that could have an impact on the Company's prospects or viability in the future, including a large economic shock, significant stock market volatility, and changes in regulation or investor sentiment.

Taking into account the Company's current position and the potential impact of its principal risks and uncertainties, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due for a period of three years from the date of approval of this Report.

Future

Many of the non-performance related trends likely to affect the Company in the future are common across all closed ended investment companies, such as the attractiveness of investment companies as investment vehicles, the impact of regulatory changes (including MiFID II and the Packaged Retail Investment and Insurance Products regulations) and the recent changes to the pensions and savings market in the UK. These factors need to be viewed alongside the outlook for the Company, both generally and specifically, in relation to the portfolio. The Board's view on the general outlook for the Company can be found in the Chairman's Statement whilst the Investment Manager's views on the outlook for the portfolio are included in its statement.  

On behalf of the Board

Anthony B. Davidson

Chairman

30 May 2017

STRATEGIC REPORT - RESULTS

Financial Summary

	31 March 2017	31 March 2016	% change
Total investments	£97,826,000	£85,149,000	+14.9
Shareholders' funds	£81,477,000	£68,802,000	+18.4
Market capitalisation A	£72,969,000	£60,595,000	+20.4
Net asset value per share	271.61p	229.36p	+18.4
Net asset value per share (ex-income) B	264.50p	223.30p	+18.5
Share price (mid-market on London Stock Exchange)	243.25p	202.00p	+20.4
Discount to NAV	(10.4%)	(11.9%)
Discount to NAV (ex-income)	(8.0%)	(9.5%)
Gearing
Net gearing	21.1%	24.9%
Dividend and earnings
Revenue return per share C	13.08p	12.06p	+8.5
Dividend per share D	12.75p	12.25p	+4.1
Dividend cover	1.03	0.98
Revenue reserves E	£6,508,000	£6,253,000
Operating costs
Ongoing charges ratio F	1.04%	0.97%
A    Represents the number of Ordinary shares in issue in the Company multiplied by the Company's share price.
B    Based on capital only NAV
C    Measures the revenue earnings for the year divided by the weighted average number of Ordinary shares in issue (see Statement of Comprehensive Income).
D    The figures for dividend per share reflect the years in which they were earned
E    The revenue reserve figure does not take account of the third interim or final dividend amounting to £2,025,000 (2016 - £1,875,000) combined.
F    Ongoing charges ratio calculated in accordance with guidance issued by the AIC as the total of the management fee and administrative expenses divided by the average cum income net asset value throughout the year.

PERFORMANCE (TOTAL RETURN)

	1 year	3 year	5 year
	% return	% return	% return
Net asset value	+24.5	+27.0	+82.8
Share price (based on mid-market)	+27.5	+13.0	+63.9
FTSE All-Share Index	+22.0	+24.9	+58.7
All figures are for total return and assume re-investment of net dividends excluding transaction costs.
Source: Aberdeen Asset Management, Morningstar & Factset

DIVIDENDS

	Rate per share	xd date	Record date	Payment date
First interim dividend	3.00p	6 October 2016	7 October 2016	28 October 2016
Second interim dividend	3.00p	5 January 2017	6 January 2017	27 January 2017
Third interim dividend	3.00p	6 April 2017	7 April 2017	28 April 2017
Proposed final dividend	3.75p	6 July 2017	7 July 2017	28 July 2017
	_______
2016/17	12.75p
	_______
First interim dividend	3.00p	1 October 2015	2 October 2015	30 October 2015
Second interim dividend	3.00p	7 January 2016	8 January 2016	29 January 2016
Third interim dividend	3.00p	7 April 2016	8 April 2016	29 April 2016
Final dividend	3.25p	7 July 2016	8 July 2016	29 July 2016
	_______
2015/16	12.25p
	_______

TEN YEAR FINANCIAL RECORD

Year to 31 March	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017
Revenue available for ordinary dividends (£'000)	6,026	5,536	3,512	3,292	3,615	3,556	3,789	3,877	3,617	3,925
Per share (p)
Net revenue return	22.2	18.8	11.8	11.1	12.2	11.9	12.6	12.9	12.1	13.1
Net dividends paid/proposed	19.75	19.75	12.00	12.00	12.00	12.00	12.00	12.25	12.25	12.75
Total return	(63.4)	(112.9)	85.3	22.6	7.4	53.5	26.0	23.1	(17.8)	54.5
Net asset value	251.1	118.5	186.8	197.5	192.9	234.4	248.4	259.5	229.4	271.6
Share price (mid-market)	220.00	109.00	184.00	190.00	194.50	233.00	252.25	252.00	202.00	243.25
	____	_____	____	_____	____	____	____	____	____	_____
Shareholders' funds (£m)	74.6	35.2	55.5	58.6	57.3	70.3	78.7	77.8	68.8	81.5
	____	_____	____	_____	____	____	____	____	____	_____
The figures for 2011 to 2017 are for the Company only, following the dissolution of the subsidiaries in May 2011.

CUMULATIVE PERFORMANCE ^A

Rebased to 100 at 31 March 2006

As at 31 March	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017
NAV	100.0	74.8	35.3	55.6	58.8	57.4	69.8	73.9	77.2	68.3	80.8
NAV total return{A}	100.0	79.6	41.5	73.6	82.9	86.3	111.5	124.3	136.3	126.8	157.7
Share price performance	100.0	70.8	35.1	59.2	61.1	62.6	75.0	81.2	81.1	65.0	78.3
Share price total return{A}	100.0	75.6	41.8	79.7	87.8	95.9	122.0	139.1	145.9	123.4	157.3
Benchmark performance	100.0	89.2	60.4	88.6	93.4	91.5	103.0	108.3	111.6	103.4	121.5
Benchmark total return{A}	100.0	92.3	65.2	99.3	108.0	109.5	127.8	139.1	148.2	142.4	173.7
NAV figures are based on Company only values following the dissolution of the subsidiaries in May 2011.
A Total return figures are based on reinvestment of net income.

STRATEGIC REPORT - INVESTMENT MANAGER'S REVIEW

Highlights

-    Outperformance of the benchmark despite very strong markets.

-    NAV total return of 24.5% compared to a return from the benchmark of 22.0%.

-    8.5% growth in earnings per share.

-    Portfolio performed well in the aftermath of the EU referendum.

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 to our approach to the construction of the portfolio during the year under review. 

The Company's assets are invested in equities, preference shares and convertible shares.  At the year end, 72.4% of the assets were invested in equities, 25.2% in preference shares and the remainder in convertible shares and cash.

Gearing

Gearing decreased during the year from 24.9% to 21.1%.  This reduction has arisen as a result of the increase in net assets.  The gearing is notionally invested in the preference share portfolio.  At the year-end these securities had a value of £25.7 million, materially in excess of net indebtedness which stood at £17.2 million.  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.  These securities were impacted in the initial aftermath of the Brexit vote, however in keeping with their equity counterparts they staged a strong subsequent recovery.  The preference share element of the portfolio lagged equities this year but that is not surprising given the strength of the equity performance.  The near 15% total return delivered by these investments was a pleasing outcome in its own right and included an attractive and difficult to replicate income stream.

Revenue Account

Earnings per share increased by 8.5% over the year to 13.08p.  There have been a number of drivers behind this pleasing level of income growth.  The new introductions to the portfolio have all contributed, and because of the timing of their purchases they are expected make a similar additional contribution during the current financial year. A similar effect was seen this year as the 2016 introductions of Imperial Brands, Hansteen, Capita and Rotork were all in the portfolio for a full year.  Elementis and Croda, two speciality chemicals companies, both paid special dividends which in aggregate were worth approximately 0.2pps.  Neither is expected to recur in 2018.  Businesses including Provident Financial, Aveva, Prudential and both our tobacco holdings, British American Tobacco and Imperial Brands, delivered welcome double digit increases in the level of their distributions. 

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

	2017	2016	2015	2014	2013
	%	%	%	%	%
Ordinary dividends	55.3	53.0	54.6	52.5	49.8
Preference dividends	34.5	37.7	35.0	36.1	38.2
Aberdeen Smaller Companies	4.6	4.8	4.3	4.9	5.7
Fixed interest and bank interest	0.1	0.2	0.2	0.2	0.3
Traded option premiums	5.5	4.3	5.9	6.3	6.0
	_______	_______	_______	_______	_______
Total	100.0	100.0	100.0	100.0	100.0
	_______	_______	_______	_______	_______
Total income (£'000s)	4,695	4,361	4,665	4,534	4,275
	_______	_______	_______	_______	_______

It is clear that the most significant positive impact on earnings during the year was the effect that Sterling weakness had on dividends that were declared in overseas currencies.  Companies such as HSBC, BP and Royal Dutch Shell declared dividends that were flat on the prior year.  However once these were translated into Sterling the increases were significant, being, for instance, 14% in the case of the oil companies.  Typically these are high yielding investments and our holdings in the portfolio are often quite meaningful.  As such, the impact of this foreign exchange benefit on the Company's earnings stream has been material.

The news was not uniformly good however.  Rolls Royce halved its dividend, though we believe that the long term prospects for this company are becoming increasingly attractive.  BHP Billiton also reduced its payout as it moved away from a progressive dividend to a structure more suited to such a cyclical business.  Although the reduction in its final dividend was severe,  falling 77%, the move to distribute up to 50% of underlying profits meant that by the time the company reached its interim results the improvement in commodity prices facilitated a significant increase in the dividend.

As we look into the current financial year we would caution against any expectations of a similarly strong level of growth in earnings.  Whilst there is likely to be underlying growth from the portfolio, investors should remember that there will be some headwinds.  First, the foreign exchange boost discussed above is unlikely to be repeated. Second, the impact of holdings that were sold over the year will be fully felt during 2018.  Lastly, the timing of ex-dividend dates means that, although Pearson announced a dividend cut last year, its effects will be felt during 2018 and 2019.

The income generated by the preference shares decreased marginally over the year.  Two factors were at play here.  First, the small holding in the Premier Farnell convertible was redeemed by the company.  Second, the change to the regulations governing the taxation of dividends meant that some securities were now able to pay their income gross of withholding tax.  These two effects broadly offset each other.

Equities

Equities started the financial year well with a continuing improvement in oil and commodity prices leading the market higher.  Having troughed at less than $30 in the early weeks of 2016, the oil price had recovered to $50 by the end of May.  In China, the authorities were focusing more attention on fiscal stimulus as opposed to reform, and for the time being at least this was supporting growth.  In the US, the fundamentals were still positive with the economy overcoming the pressures caused by the strength of the Dollar, sluggish global demand, and subdued spending from the oil and gas sector. 

In the UK, the recovery was continuing.  Expectations for inflation were picking up, driven by a combination of the weakness of Sterling, rising commodity prices, wage growth and a decline in spare capacity.  The pressures on the profits of commodity producers meant that investors faced a fifth consecutive year of aggregate earnings declines.

The UK's referendum on EU membership was causing significant uncertainty for investors and company management teams alike.  The referendum provides a useful illustration of how we think about some aspects of risk and portfolio construction.  We were often asked what action we were taking to prepare for the vote.  The answer was, very little.  Our view was that the companies we invest in would remain the same businesses that they were prior to the vote.  The portfolio contains investments that have broad and often international exposures.  It is likely that over the long term these factors will be more meaningful in determining their success than the UK's membership of the European Union.

In June, markets suffered a significant negative reaction to the surprise news that the result was in fact in favour of leaving the EU.  However, many UK companies, particularly larger ones, derive the greater proportion of their revenues and profits from overseas and will therefore receive a boost to profitability.  This resulted in the FTSE 100 Index staging a remarkable recovery that meant it ended the month above its pre referendum level.

The portfolio is overweight overseas exposure relative to its benchmark.  In large part this is because we regard a geographically diverse revenue stream as more attractive than a more tightly focused one.  Consequently the portfolio was a beneficiary of the weakening of Sterling.

The Bank of England responded to signs of a slowdown in the UK economy.  Interest rates were reduced to 0.25%.  A Term Funding Scheme was created to encourage banks to lend, the existing asset purchase programme for gilts was increased by £60 billion to £435 billion and a small programme of corporate bond purchases was introduced.

The autumn brought variable news.  Global growth was set to improve, aided by an on-going recovery in the US, Russia and Brazil exiting recession, and a Chinese economy that increasingly looked to have stabilised, albeit at levels of expansion below those enjoyed previously.  OPEC announced that it intended to reduce the supply of oil for the first time since 2008.  The news was positive for both oil producers and those businesses with direct and indirect exposure to oil and gas production.  However, the risks posed by Brexit, the fragility of the European banking system, and US Presidential elections meant that there were significant uncertainties facing investors, companies and consumers.

This was clearly illustrated with the surprise victory for Donald Trump in the US Presidential elections.  This was the second significant electoral shock of the year and reminded investors that there was a rising public dissatisfaction with the political status quo.   Investors concluded that, despite the lack of clarity as to what his actual policies would be and how he would implement and pay for them, his administration was likely to be positive for the economy.  Indeed, the FTSE All Share Index finished 2016 at an all-time high.  By the end of the financial year the Federal Reserve had increased US interest rates twice, signaling that they also had increased confidence in the sustainability of the recovery.

By the start of 2017, forecasts for domestic growth had largely recovered and a combination of Sterling weakness and recovering profits in the oil and mining companies meant that aggregate profitability across the UK market had confounded initial expectations of decline and, for the first time in five years, UK corporate profitability had increased. 

The financial year finished with the Government triggering Article 50, formally notifying the European Union of the UK's intention to leave.  Equity markets finished the day higher, another surprising outcome in a year that has been peppered with surprises.

Portfolio Activity

As mentioned above, we take a long term approach to investing and that typically manifests itself in low levels of portfolio turnover.  However, when opportunities present themselves we are prepared to take them, particularly where we see potential to add dividend streams that diversify the portfolio's earnings and raise the potential for future growth in dividends.  That can mean that some years are busier than others in terms of portfolio activity.  This was such a year.

We introduced six new holdings.

BBA Aviation provides fixed base operations for private planes, mainly in the US.  The business has recently bought an additional portfolio of assets from Landmark, strengthening its market leading position in an industry where network density brings a competitive advantage.  Flight volumes are increasing as the US economy recovers.  The business generates solid cash flows that support an attractive 4% dividend yield that has grown at 7.4% annually for the last five years. 

Essentra manufactures and distributes healthcare and personal goods packaging and specialist cigarette filters, where it is the market leader.  It also manufactures a vast array of niche specialist components that are sold into a broad number of industries.  The business suffered a profits warning as a result of the loss of an expected filters contract and delays to the integration of an acquisition in pharmaceutical packaging.  We believe that the new Chief Executive has laid out a credible path to recovery in the packaging and components divisions.  Meanwhile the rest of the business is trading largely in line with expectations.  The shares de-rated quite markedly on the news and the dividend increased to 4%.  Therefore, we took the opportunity to build a small holding.

Manx Telecom is the leading provider of fixed line, mobile and broadband services on the Isle of Man.  This is a market characterised by low levels of competition, an investment friendly regulatory environment and a low propensity for competition to disrupt the market, in large part because of its small size.  These features have allowed the company to deliver very solid returns and an attractive and growing dividend yield.

Diageo's portfolio of spirit brands positions it well to benefit from the continuing trend that sees consumers moving up the value proposition from beer to spirits.  The barriers to entry are significant, especially in the case of whisky where the long cycle nature of the industry confers a significant advantage to the incumbents.  In the white spirit market the company has a portfolio of brands allowing it to cover the price spectrum from value to premium and even super premium.  As such, the company is able to benefit from market growth largely regardless of shifts in consumption patterns.  Having suffered from poor performance in its US vodka operations, these now look to be turning the corner.  The shares were weak during the autumn which provided an opportunity to initiate a holding as the dividend yield approached 3%.

Assura Group is a leading provider of doctors' surgeries in the UK.  This is a market that is benefitting from rising demand as government initiatives seek to ease pressures on hospitals by having more care occur in the primary environment.  Valuations in this area of the market have not progressed with the same vigour experienced by prime city offices and consequently they are at less risk of contraction as and when interest rates start to rise.  These are attractive assets because they provide long term, up to 25 year income streams that are often inflation linked.  The tenant base means that that the rental stream has an effective quasi-governmental guarantee which provides an additional level of security. The business operates with a lower level of leverage than its peers and with long-term, largely fixed-rate debt.  At almost 4%, the dividend yield is attractive.

Novo Nordisk is the global leader in the production of treatments for diabetes.  This is a disease with a rising rate of incidence and diagnosis and it is one of the most significant issues affecting both developed and developing healthcare markets.  The company has been at the forefront of innovation and development in this field and consequently has a powerful portfolio of treatments that position it well for the future.  The market has endured some disruption in the US as purchasers of some drugs have used their scale to exert pricing pressure.  However, given the innovation led pipeline of new products and the structural growth in the market, the company remains well set to deliver attractive levels of growth.  Indeed their investment in R+D means that they are positioned to take additional market share as well.  Having previously been quite highly rated this shift in the market has caused the valuation to fall to a level where it was attractive for this portfolio.  The business has a long track record of delivering attractive levels of growth in the dividend it distributes. 

This investment is notable because it is into a Danish company.  We see potential to make a small number of investments in high quality overseas companies.  Often these will bring an exposure to the portfolio that is difficult to replicate in the UK.  Importantly, they will create further diversification of the portfolio's dividend stream allowing us to reduce the dependence on some of the very significant dividend paying companies that dominate the UK market.

We sold three holdings during the year.

In the case of Cobham we had become increasingly concerned about the level of indebtedness and the company's likely ability to pay this down over the medium term.  Subsequent to our exit, the company has passed its dividend and announced two rights issues.

Tesco has seen an improvement in its performance under the guidance of Dave Lewis and the share price recovered somewhat from its lows.  However, we believe that although there is the potential for further improvement, especially if they can execute their ambitious cost saving programme, this remains a deeply competitive industry.  The inherent uncertainties allied to a still levered balance sheet meant that we couldn't see a path to the company paying a dividend in a reasonable timescale.  Having captured some of the upside from the price bounce we decided to exit.

Centrica, on the other hand, does pay an attractive dividend.  In this instance we were underwhelmed by the operational performance but more importantly we felt that the company was overly exposed to external influences that it couldn't control.  In short, the political risk has been rising and we believed that it was too great to justify continuing as investors.

In the cases of Tesco and Centrica we sold calls over our entire positions in an effort to maximise the income these holdings generated as we exited them.

We also began the process of selling two further holdings.

GKN has served us well as the business has both improved operationally and benefitted from a cyclical recovery in many of its end markets.  We thought that the valuation reflected its prospects and took the decision to redeploy the capital elsewhere.

Elementis was a relatively recent introduction.  The company has acquired a personal care speciality chemical business called Summit Reheis.  We regard the transaction as being in line with its strategy to grow the personal care division.  However, one of the attractions of Elementis for this portfolio was their habit of paying regular special dividends.  The transaction has taken the company from a net cash position to one of net gearing and the company has been clear that there will be no further special dividends until that situation reverses.  As such, we regard the yield as now being insufficiently attractive for Shires Income.

Both positions have been sold since the year end.

Elsewhere within the portfolio, Chesnara, a closed end life assurance company, is one of our smaller company holdings.  It conducted a placing to help fund the acquisition of Legal & General's Dutch closed life book.  The deal is in keeping with our expectations with the company having previously bought Waard to give it a platform in the country and this deal providing substantial assets that it can bolt onto this.  The company bought these assets at a 33% discount to embedded value and believes that around a third of the purchase price can be extracted in the form of surplus capital.  We were happy to participate and support it in the fundraising.

We have continued to build the recently introduced holding in Hansteen.  In addition, we increased our holdings in two companies that have had a difficult year, Inmarsat and Capita.  In the case of Inmarsat we believe that it is perception more than reality that has weighed on the share price and that whilst there remain unknowns, the company is broadly executing in line with expectations albeit at a time when some of its markets are quite tough. In respect of Capita, we initially regarded the weakness in the share price as undeserved, resulting from wariness towards domestically orientated companies post the Brexit decision.  It has subsequently become clear that it is experiencing issues in several areas of its business.  Whilst some problem contracts have been resolved, there remains much to do.

We took profits in National Grid which had performed strongly as the market viewed it as a bond proxy.  The yield, whilst still high was no longer as attractive as it had been and as the expected timing of interest rate increases drew nearer we reduced the position.

We also took some profits in British American Tobacco.  We continue to regard this as a very high quality company but a consequence of its strong share price performance was that the absolute weight in the portfolio was higher than we were comfortable with.

Stewardship

We believe that, as long term owners of the businesses in which we are invested, it is not sufficient merely to seek out assets that we believe to be undervalued, it is also incumbent upon us to take a proactive approach to our stewardship of these companies.  Therefore we engage extensively with our investee companies.  By their very nature, these discussions often take place with a broader constituency than just the executive management team.  They are frequently sensitive and it would be inappropriate to move beyond generalisations in this report.  However, we believe it is useful to seek to illustrate the depth of our activity in this area.  We have attended a range of meetings with chairmen, non-executive directors and other stakeholders.  Topics covered have included the composition of the board, environmental and social issues, and remuneration.  Risk is a very broad subject that is interpreted in varying manners by different companies.  However, by engaging on this subject we secure a deeper understanding of how the boards of our investee companies perceive and seek to manage these issues.  Such interactions also enable us to push for improved disclosure and better management practices and on occasion different decisions where appropriate.  We have had conversations regarding companies' financing choices.  We find that it is always worthwhile communicating our preference for conservatively structured balance sheets that place a company's long term fortunes ahead of possible short term share price gains.  Such activity is by its nature time-consuming but we regard it as an integral aspect of our role as long term investors.

Investment Performance Analysis

In the year to the end of March 2017, the total return on net assets was 24.5% compared to our benchmark, the FTSE All-Share Index, which returned 22.0%.

There were three unrelated significant themes evident in markets that affected the performance of the portfolio.

For much of the year, commodity prices and, in particular, oil were recovering from the dramatic falls of the prior year.  Whilst we may have lacked the courage to buy more of these businesses at what transpired to be the nadir, we had retained our positions and were able to benefit from the uplift to share prices.  Similarly, emerging market economies were performing more strongly with the likes of Brazil and Russia moving out of recession and China not only avoiding a hard landing but delivering growth that exceeded most investors' expectations.  As with the commodity producing investments we had retained our positions in businesses with exposures to emerging markets and were able to benefit from these improvements.  Lastly, there was the Brexit vote. The portfolio performed well following this event.  The initial dramatic falls in many share prices were largely absent in the portfolio as its more defensive and quality orientated characteristics came to the fore.  Then the portfolio was able to participate as markets began their remarkable progression upwards aided by its significant exposure to companies with sizable overseas operations.  We have long believed that geographic diversification is a positive aspect of many of our investments.  So whilst we had not taken specific steps in anticipation of the Brexit vote, we were well positioned to reap its initial rewards.

The most significant positive contributor to our outperformance was the investment in Aberdeen Small Companies Income Trust ("ASCIT").  Smaller companies had a strong year and delivered returns broadly in line with their larger brethren.  This is despite the relatively lower exposure to the three themes referenced above.  ASCIT was a beneficiary of these dynamics whilst also delivering a pleasing uplift in its dividend which was in excess of inflation. 

Other notable successes included Standard Chartered.  This has been a disappointing holding for a number of years, but under the guidance of Bill Winters the business has begun to turn a corner.  The long term prospects are still uncertain but this initial recovery allied with an improvement in sentiment towards emerging markets drove strong share price appreciation.

BBA Aviation has been a success in the short time that it has been in the portfolio.  The company has proved that it is integrating the Landmark assets whilst making disposals and paying down debt.

Unilever has been a long term holding for us.  Our view has been that it has an attractive portfolio of assets and deep expertise of operating in emerging markets.  These features have increasingly been recognised by investors and, during February, this culminated in a bid from Kraft Foods.  Although the bid has subsequently failed, the share price retained the gains it had made as the company has laid out a strategy to accelerate growth, dispose of the troublesome spreads business and increase returns to shareholders.

Chesnara, the life assurance company, had a successful year.  Its acquisition of Legal & General's Dutch business was well received by the market.

We were underweight direct exposure to the mining sector, and that impacted performance.  Despite this asset allocation effect, at the company level our investment in BHP Billiton increased in value by 63% and was the second most important contributor to performance.  A similar but less pronounced dynamic was evident in the oil and gas sector.  Here, it was pleasing that our investments in the sector did better than the benchmark. 

In addition, our investments in service companies such as Weir Group provide a level of secondary exposure that narrows this gap.  This could be seen in the industrial engineering sector which provided significant returns for the portfolio.

When we consider the companies that detracted from the performance relative to the benchmark, a clear theme emerges.  Of the ten most significant negative contributors, half of them are not held in the portfolio.  Typically these are companies that either fail to satisfy our quality criteria or they are businesses where we have other investments that broadly replicate the exposure.  In three of the remaining five, we have holdings in them but we are underweight the benchmark exposure.  Companies like Royal Dutch Shell and HSBC have very large weightings in the benchmark, therefore we are always likely to be underweight because we do not believe that it is sensible to allow an artificial construct like an index define the construction of our portfolio.

Capita is an example of a company that has experienced a significant slowing in many of its end markets as a result of the Brexit vote.  This has combined with rising leverage to cause a de-rating of the shares.  The company has indicated that it will sell its Asset Services division.  This will allow it to repair its balance sheet and concentrate on returning the rest of the company to growth.  We are under no illusion that turnarounds like this inevitably take longer than initially expected.  However, we believe that the potential for structural growth in outsourcing remains and that this company has deep expertise that will allow it to benefit from these dynamics.

Pearson has been struggling for some time.  Its US tertiary education business has been beset by problems as the market has transitioned to digital whilst student purchasing habits have changed with a marked increase in those choosing to rent rather than buy their text books.  It will take some time for these dynamics to settle down and the company needs to engage in significant restructuring in the meantime.  However, it is worth remembering that it has already built a digital business in this space that is significant in size.  In the meantime the company has announced a series of disposals and additional costs saving programmes that should allow it to achieve its medium term targets.

Outlook

The outlook is more uncertain than it has been for some time.  We don't yet know how the Brexit negotiations will progress.  It is too soon to really define what the impact will be for individual companies.  However, the currency effect is not solely beneficial.  It is likely to result in inflationary pressures in the UK as the costs of imported goods rise at a time when the potential to combat this through higher interest rates is limited.

Global growth and inflation look set to pick up over 2017, with global GDP perhaps reaching 3.3%.  Drivers for this include the strengthening labour markets in the US, UK and Europe and the improvements in the Brazilian and Russian economies. Meanwhile, wage growth and higher oil prices look set to push inflation upwards. 

The economic performance in Europe continues to improve and some commentators are now talking about when tapering will commence. 

In the UK, the economy is performing better than many observers had expected.  Although there have been minor revisions downwards in recent weeks, both the Organisation for Economic Co-operation and Development and the Bank of England have revised their forecasts for domestic GDP upwards in a shift from the very downbeat tone struck immediately following the Brexit vote.  However, with consumption rather than investment playing the key role in this growth, investors need to exercise some caution.  Consumption led growth is often debt financed or funded by other means that effectively borrow from the future.  Conversely, weak investment may signal a general lack of confidence in the future on the part of management teams.  Neither factor bodes particularly well for future prospects. 

Investors have been enthused by the prospect for significant economic stimulus arising from the election of President Trump. Whilst there are risks that his more protectionist and anti-immigration approach will be detrimental to the economy, there is a belief that a significant reduction to the tax burden alongside a very substantial infrastructure orientated stimulus programme will boost growth.   It remains to be seen how successful he will be in implementing his policies.  However, for the time being, markets seem inclined to continue to believe that he will be a positive for the US and, by implication, the global economy.

Emerging markets and China in particular have had a good start to 2017.  But for many of these economies their prospects are closely aligned with those of the US. 

Despite the stronger than expected growth in the UK, it still seems likely that any increase in interest rates is some way off, not least given the uncertainties of the Brexit negotiations and the impact that rising inflation is having on spending power.

Given the above, it would be natural to point to the uncertainty and the likelihood of volatility in markets.  However, it has been nearly a decade since the first signs of the financial crisis appeared and, since then, investors have operated in an environment where the abnormal is normal.  Whilst we do not wish to belittle the potential risks faced by the global economy, we note that, to date, a focus on investing in good quality companies at the right valuation and controlling the controllable has been the correct course of action.

We believe that our approach of investing in good quality businesses that have balance sheets that give the companies options during difficult times, allied with what are often sizable overseas revenue streams, means that the portfolio is well positioned to deal with uncertainties as they materialise.

Aberdeen Asset Managers Limited

30 May 2017

PORTFOLIO - ORDINARY SHARES

AS AT 31 MARCH 2017

	Valuation	Total	Valuation
	2017	portfolio	2016
Company	£'000	%	£'000
Aberdeen Smaller Companies Income Trust	6,522	6.7	5,866
British American Tobacco	3,562	3.6	3,395
Royal Dutch Shell 'B'	3,364	3.4	2,839
Unilever	3,171	3.2	2,869
GlaxoSmithKline	2,921	3.0	2,485
HSBC Holdings	2,881	3.0	2,129
AstraZeneca	2,874	2.9	2,556
Chesnara	2,772	2.8	2,152
Prudential	2,504	2.6	2,043
Vodafone	2,232	2.3	2,170
Ten largest investments	32,803	33.5
BHP Billiton	2,147	2.2	1,487
BP	1,995	2.0	1,520
Schroders	1,994	2.0	1,436
Close Brothers	1,984	2.0	1,628
Standard Chartered	1,954	2.0	1,210
Inmarsat	1,944	2.0	1,349
Compass	1,885	1.9	1,537
Provident Financial	1,828	1.9	993
BBA Aviation	1,632	1.7	-
Sage Group	1,601	1.6	1,912
Twenty largest investments	51,767	52.8
National Grid	1,510	1.6	1,757
Pearson	1,406	1.4	1,662
Imperial Brands	1,353	1.4	1,043
Experian	1,270	1.3	971
Wood Group (John)	1,205	1.2	1,175
Elementis	1,189	1.2	783
Weir Group	1,150	1.2	643
Croda International	1,136	1.2	1,003
Inchcape	1,069	1.1	919
Rolls Royce	1,041	1.1	941
Thirty largest investments	64,096	65.5
Rotork	998	1.0	749
Essentra	956	1.0	-
Aveva	872	0.9	583
Ultra Electronic Holdings	808	0.8	704
Diageo	781	0.8	-
Hansteen	735	0.8	292
Novo-Nordisk	699	0.7	-
Capita	581	0.6	531
Associated British Foods	495	0.5	636
GKN	396	0.4	904
Assura	375	0.4	-
Manx Telecom	326	0.3	-
Total Ordinary shares	72,118	73.7

INVESTMENT PORTFOLIO - OTHER INVESTMENTS

AS AT 31 MARCH 2016

	Valuation	Total	Valuation
	2017	portfolio	2016
Company	£'000	%	£'000
Convertibles
Balfour Beatty Cum Conv 10.75%	575	0.6	552
Total Convertibles	575	0.6
Preference shares
Ecclesiastical Insurance Office 8 5/8%	5,851	6.0	5,661
Royal & Sun Alliance 7 3/8%	5,481	5.6	5,003
General Accident 7.875%	4,683	4.8	4,364
Santander 10.375%	4,620	4.7	4,123
Standard Chartered 8.25%	3,531	3.6	3,099
R.E.A. Holdings 9%	967	1.0	852
Total Preference shares	25,133	25.7
Total other investments	25,708	26.3
Total investments	97,826	100.0
Purchases and/or sales effected during the year result in 2016 and 2017 values not being directly comparable.

DISTRIBUTION OF ASSETS AND LIABILITIES

	Valuation at		Movement during the year				Valuation at
	31 March 2016		Purchases	Sales	Other	Gains	31 March 2017
	£'000	%	£'000	£'000	£'000	£'000	£'000	%
Listed investments
Ordinary shares	60,717	88.2	9,092	(8,343)	-	10,652	72,118	88.5
Convertibles	1,330	1.9	-	(826)	(18)	89	575	0.7
Preference shares	23,102	33.6	-	-	(83)	2,114	25,133	30.9
	______	______	______	______	______	______	______	______
Total investments	85,149	123.7	9,092	(9,169)	(101)	12,855	97,826	120.1
Current assets	2,877	4.2					2,881	3.5
Current liabilities	(9,224)	(13.4)					(19,230)	(23.6)
Non current liabilities	(10,000)	(14.5)					-	-
	______	______					______	______
Net assets	68,802	100.0					81,477	100.0
	______	______					______	______
Net asset value per Ordinary share	229.4p						271.6p
	______						______

DIRECTORS' REPORT (EXTRACT)

The Directors present their report and audited financial statements for the year ended 31 March 2017.

Results and Dividends

The financial statements for the year ended 31 March 2017 are contained below. Dividends paid and proposed for the year amounted to 12.75p per Ordinary share.

First, second and third interim dividends for the year, each of 3.0p per Ordinary share, were paid on 28 October 2016, 27 January 2017 and 28 April 2017 respectively. The Directors recommend a final dividend of 3.75p per Ordinary share, payable on 28 July 2017 to shareholders on the register on 7 July 2017. The ex-dividend date is 6 July 2017. Under International Financial Reporting Standards ("IFRS") the third interim and final dividends will be accounted for in the financial year ended 31 March 2018. A resolution in respect of the final dividend will be proposed at the forthcoming Annual General Meeting.

Investment Trust Status

The Company is registered as a public limited company (registered in England and Wales No. 00386561) and is an investment company within the meaning of Section 833 of the Companies Act 2006. The Company has been approved by HM Revenue & Customs as an investment trust subject to it continuing to meet the relevant eligibility conditions of Section 1158 of the Corporation Tax Act 2010 and the ongoing requirements of Part 2 Chapter 3 Statutory Instrument 2011/2999 for all financial years commencing on or after 1 April 2012.  The Directors are of the opinion that the Company has conducted its affairs for the year ended 31 March 2017 so as to enable it to comply with the ongoing requirements for investment trust status.

Individual Savings Accounts

The Company has conducted its affairs in such a way as to satisfy the requirements as a qualifying security for Individual Savings Accounts. The Directors intend that the Company will continue to conduct its affairs in this manner.

Capital Structure

The issued Ordinary share capital at 31 March 2017 consisted of 29,997,580 Ordinary shares of 50p each and 50,000 3.5% Cumulative Preference Shares of £1 each. There have been no changes in the Company's issued share capital subsequent to the year end and up to the date of this Report.

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

The Cumulative Preference shares carry a right to receive a fixed rate of dividend and, on a winding up of the Company, to the payment of such fixed cumulative preferential dividends to the date of such winding up and to the repayment of the capital paid up on such shares in priority to any payment to the holders of the Ordinary shares.

The Ordinary shares, excluding any treasury shares, carry a right to receive dividends and, on a winding up or other return of capital, after meeting the liabilities of the Company, the surplus assets will be paid to Ordinary shareholders in proportion to their shareholdings.

There are no restrictions on the transfer of Ordinary or Cumulative Preference shares in the Company other than certain restrictions which may from time to time be imposed by law.

Management Agreement

The Company has appointed Aberdeen Fund Managers Limited ("AFML"), a wholly owned subsidiary of Aberdeen Asset Management PLC, as its alternative investment fund manager. AFML has been appointed to provide investment management, risk management, administration and company secretarial services as well as promotional activities.  The Company's portfolio is managed by Aberdeen Asset Managers Limited ("AAML") by way of a group delegation agreement in place between AFML and AAML. In addition, AFML has sub-delegated administrative and secretarial services to Aberdeen Asset Management PLC and promotional activities to AAML.

Details of the management fee and fees payable for promotional activities are shown in notes 4 and 5 to the financial statements. The management agreement is terminable on not less than six months' notice. In the event of termination by the Company on less than the agreed notice period, compensation is payable to the Manager in lieu of the unexpired notice period.

Substantial Interests

As at 31 March 2017, the following interests in the issued Ordinary share capital of the Company had been disclosed in accordance with the requirements of the FCA's Disclosure Guidance and Transparency Rules:

Shareholder	Number of Ordinary shares held	% of Ordinary shares held
Aberdeen Asset Managers Limited Retail PlansA	4,940,228	16.4

^A Non-beneficial interest

There have been no changes notified to the Company between the year end and the date of approval of this Report.

Directors

Throughout the year the Board comprised four non-executive Directors.

All Directors are considered by the Board to be independent of the Company and the Manager. Each Director has the requisite high level and range of business and financial experience which enables the Board to provide clear and effective leadership and proper governance of the Company.

Mr A. S. Robson is a non-executive director of Witan Pacific Investment Trust PLC ("WPC"). WPC's executive manager is Witan Investment Services Limited. WPC operates a multi-manager structure, and Aberdeen Asset Management Asia Limited, part of the Aberdeen Group, manages a part of WPC's assets. Despite his consequent involvement in two investment trusts (including this one) where Aberdeen has an investment management relationship, the remainder of the Board is unanimous in its opinion that Mr Robson remains independent in his role as a Director of the Company. 

The Directors attended scheduled Board and Committee meetings during the year ended 31 March 2017 as shown in the following table (with their eligibility to attend the relevant meetings in brackets):

Director	Board Meetings	Audit Committee Meetings	Management Engagement Committee Meetings	Nomination Committee Meetings
A. B. Davidson	5 (5)	2 (2)	1 (1)	1(1)
M. Glen	5 (5)	2 (2)	1 (1)	1(1)
A. S. Robson	5 (5)	2 (2)	1 (1)	1(1)
R. Talbut	5 (5)	2 (2)	1 (1)	1(1)

The Board meets more frequently when business needs require.

Having served for more than nine years, Mr A. S. Robson will retire at the Annual General Meeting and, being eligible, offers himself for re-appointment.

The Board believes that Mr Robson remains independent of the Manager and free from any relationship which could materially interfere with the exercise of his judgement on issues of strategy, performance, resources and standards of conduct and confirms that, following a formal performance evaluation, his performance continues to be effective and demonstrates commitment to the role. The Board therefore recommends the re-appointment of Mr Robson at the Annual General Meeting.

Since the year end, the Board has announced the appointment of an additional non-executive Director, Mr R. Archibald, who was appointed on 1 May 2017.  Mr Archibald has significant skills and experience which are complementary to the skills and experience of the other Directors and the Board therefore recommends his appointment at the Annual General Meeting.

Mr A. B. Davidson will retire at the Annual General Meeting and not seek re-election.

Directors' and Officers' Liability Insurance

The Company maintains insurance in respect of Directors' and Officers' liabilities in relation to their acts on behalf of the Company. In addition, the Company has entered into a separate deed of indemnity with each of the Directors reflecting the scope of the indemnity in the Articles of Association. Under the Articles of Association, each Director is entitled to be indemnified out of the assets of the Company to the extent permitted by law against any loss or liability incurred by him or her in the execution of his or her duties in relation to the affairs of the Company. 

Management of Conflicts of Interest

The Board has a procedure in place to deal with a situation where a Director has a conflict of interest. As part of this process, each Director prepares a list of other positions held and all other conflict situations that may need to be authorised either in relation to the Director concerned or his or her connected persons. The Board considers each Director's situation and decides whether to approve any conflict, taking into consideration what is in the best interests of the Company and whether the Director's ability to act in accordance with his or her wider duties is affected. Each Director is required to notify the Company Secretary of any potential, or actual, conflict situations that will need authorising by the Board. Authorisations given by the Board are reviewed at each Board meeting.

No Director has a service contract with the Company although all Directors are issued with letters of appointment. There were no contracts during, or at the end of the year, in which any Director was interested.

The Board takes a zero-tolerance approach to bribery and has adopted appropriate procedures designed to prevent bribery. The Manager also takes a zero-tolerance approach and has its own detailed policy and procedures in place to prevent bribery and corruption.

Corporate Governance

The Company is committed to high standards of corporate governance. The Board is accountable to the Company's shareholders for good governance and this statement describes how the Company has applied the principles identified in the UK Corporate Governance Code (the "UK Code"), as published in September 2014 and effective for financial years commencing on or after 1 October 2014,  which is available on the Financial Reporting Council's website: frc.org.uk. 

The Board has also considered the principles and recommendations of the AIC Code of Corporate Governance (the "AIC Code") by reference to the AIC Corporate Governance Guide for investment Companies (the "AIC Guide"). The AIC Code, as explained by the AIC Guide, addresses all the principles set out in the UK Code, as well as setting out additional principles and recommendations on issues that are of specific relevance to investment trusts. The AIC Code and AIC Guide are available on the AIC's website: theaic.co.uk.

The Board considers that reporting in accordance with the principles and recommendations of the AIC Code, and by reference to the AIC Guide (which incorporates the UK Code), will provide better information to shareholders.

The Board confirms that, during the year, the Company complied with the recommendations of the AIC Code and the relevant provisions of the UK Code, except as set out below.

The UK Code includes provisions relating to:

-     the role of the chief executive (A.1.2);

-     executive directors' remuneration (D.1.1 and D.1.2); and

-     the need for an internal audit function (C.3.6).

For the reasons set out in the AIC Guide, and as explained in the UK Code, the Board considers that these provisions are not relevant to the position of the Company, being an externally managed investment company. In particular, all of the Company's day-to-day management and administrative functions are outsourced to third parties. As a result, the Company has no executive directors, employees or internal operations. The Company has therefore not reported further in respect of these provisions. The Company is also non-compliant with Provision A.4.1 of the UK Code which states that the Board should appoint a Senior Independent Director. The Board has considered whether a Senior Independent Director should be appointed and has concluded that, given the size of the Board and the fact that it is comprised entirely of non-executive Directors, this is unnecessary at the present time. However the Chairman of the Audit Committee leads the evaluation of the Chairman and may be contacted by shareholders if they have any concerns that cannot be resolved through discussions with the Chairman.

The full text of the Company's Corporate Governance Statement can be found on its website.

Going Concern

The Company's assets comprise mainly readily realisable securities which can be sold to meet funding commitments if necessary. The Board has set limits for borrowing and regularly reviews actual exposures, cash flow projections and compliance with banking covenants. Borrowings of £20 million are committed to the Company until 19 December 2017 and the Board believes that the Company will be able to refinance or repay the borrowings at that time. The Directors believe that the Company has adequate resources to continue in operational existence for the foreseeable future and has the ability to meet its financial obligations as they fall due for a period of at least twelve months from the date of approval of this Report. For these reasons, they continue to adopt the going concern basis of accounting in preparing the financial statements.

Accountability and Audit

Each Director confirms that, so far as he or she is aware, there is no relevant audit information of which the Company's Auditor is unaware, and they have taken all the steps that they could reasonably be expected to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the Company's Auditor is aware of that information.

Independent Auditor

The Company's Auditor, Ernst & Young LLP, has indicated its willingness to remain in office. The Board will place resolutions before the Annual General Meeting to re-appoint Ernst & Young LLP as Auditor for the ensuing year and to authorise the Directors to determine its remuneration.

Relations with Shareholders

The Directors place a great deal of importance on communication with shareholders. Shareholders and investors may obtain up to date information on the Company through its website and the Manager's information service.

All shareholders have the opportunity to put questions to the Board at the Annual General Meeting and a presentation from the Investment Manager covers the investment performance and strategy during the financial year and the outlook for the year ahead. 

Representatives from the Board make themselves available to meet with institutional shareholders in order to gauge their views. The Board's policy is to communicate directly with shareholders and their representative bodies without the involvement of the management group (including the Company Secretary or the Manager) in situations where direct communication is required. In addition, the Company Secretary only acts on behalf of the Board, not the Manager, and there is no filtering of communication. At each Board meeting the Board receives full details of any communication from shareholders to which the Chairman responds personally as appropriate.

It is the Company's aim to give at least 20 working days' notice to shareholders of the Annual General Meeting. As recommended by the AIC Code, the Company makes available the proxy votes cast at general meetings.

Annual General Meeting

The Annual General Meeting will be held at the offices of Aberdeen Asset Management PLC, Bow Bells House, 1 Bread Street, London EC4M 9HH on Tuesday 11 July 2017 at 12 noon.

By order of the Board

Aberdeen Asset Management PLC

Company Secretary

40 Princes Street

Edinburgh EH2 2BY

30 May 2017

STATEMENT OF COMPREHENSIVE INCOME

		Year ended			Year ended
		31 March 2017			31 March 2016
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Gains/(losses) on investments at fair value	11	-	12,863	12,863	-	(8,533)	(8,533)
Income
Dividend income		3,603	-	3,603	3,422	-	3,422
Interest income/(expense)		569	(101)	468	588	(93)	495
Stock dividends		259	-	259	153	-	153
Traded option premiums		204	-	204	186	-	186
Other income		55	-	55	-	-	-
Money market interest		4	-	4	7	-	7
Underwriting commission		1	-	1	5	-	5
		_______	_______	______	_______	_______	_______
	3	4,695	12,762	17,457	4,361	(8,626)	(4,265)
		_______	_______	______	_______	_______	_______
Expenses
Management fee	4	(198)	(198)	(396)	(190)	(190)	(380)
Administrative expenses	5	(386)	-	(386)	(370)	-	(370)
Finance costs of borrowings	7	(164)	(164)	(328)	(169)	(169)	(338)
		_______	_______	______	_______	_______	_______
		(748)	(362)	(1,110)	(729)	(359)	(1,088)
		_______	_______	______	_______	_______	_______
Profit/(loss) before taxation		3,947	12,400	16,347	3,632	(8,985)	(5,353)
Taxation	8	(22)	20	(2)	(15)	15	-
		_______	_______	______	_______	_______	_______
Profit/(loss) attributable to equity holders of the Company		3,925	12,420	16,345	3,617	(8,970)	(5,353)
		_______	_______	______	_______	_______	_______
Earnings per Ordinary share (pence)	10	13.08	41.40	54.49	12.06	(29.90)	(17.84)
		_______	_______	______	_______	_______	_______
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.

BALANCE SHEET

		As at	As at
		31 March 2017	31 March 2016
	Notes	£'000	£'000
Non-current assets
Ordinary shares		72,118	60,717
Convertibles		575	1,330
Other fixed interest		25,133	23,102
		__________	__________
Securities at fair value	11	97,826	85,149
		__________	__________
Current assets
Other receivables	12	1,108	1,004
Cash and cash equivalents		1,773	1,873
		__________	__________
		2,881	2,877
		__________	__________
Creditors: amounts falling due within one year
Trade and other payables		(230)	(224)
Short-term borrowings		(19,000)	(9,000)
		__________	__________
	13	(19,230)	(9,224)
		__________	__________
Net current liabilities		(16,349)	(6,347)
		__________	__________
Total assets less current liabilities		81,477	78,802
Non-current liabilities
Long-term borrowings		-	(10,000)
		__________	__________
Net assets		81,477	68,802
		__________	__________
Issued capital and reserves attributable to equity holders
Called-up share capital	14	15,049	15,049
Share premium account		19,308	19,308
Capital reserve	15	40,612	28,192
Revenue reserve		6,508	6,253
		__________	__________
Equity shareholders' funds		81,477	68,802
		__________	__________
Net asset value per Ordinary share (pence)	10	271.61	229.36
		__________	__________

STATEMENT OF CHANGES IN EQUITY

Year ended 31 March 2017
		Share
	Share	premium	Capital	Revenue
	capital	account	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000
As at 31 March 2016	15,049	19,308	28,192	6,253	68,802
Revenue profit for the year	-	-	-	3,925	3,925
Capital profit for the year	-	-	12,420	-	12,420
Equity dividends (see note 9)	-	-	-	(3,670)	(3,670)
	_______	________	_______	_______	_______
As at 31 March 2017	15,049	19,308	40,612	6,508	81,477
	_______	________	_______	_______	_______
Year ended 31 March 2016
		Share
	Share	premium	Capital	Revenue
	capital	account	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000
As at 31 March 2015	15,049	19,308	37,162	6,313	77,832
Revenue profit for the year	-	-	-	3,617	3,617
Capital loss for the year	-	-	(8,970)	-	(8,970)
Equity dividends (see note 9)	-	-	-	(3,677)	(3,677)
	_______	________	_______	_______	_______
As at 31 March 2016	15,049	19,308	28,192	6,253	68,802
	_______	________	_______	_______	_______
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

		Restated*
	Year ended	Year ended
	31 March 2017	31 March 2016
	£'000	£'000
Net cash inflow from operating activities
Dividend income received	3,164	3,310
Interest income received	721	597
Stock dividends	259	153
Options premium received	207	194
Other income	55	-
Money market interest received	5	7
Underwriting commission	1	5
Management fee paid	(385)	(390)
Other cash expenses	(349)	(391)
	_________	__________
Cash generated from operations	3,678	3,485
Interest paid	(327)	(342)
Overseas tax recoverable	(2)	(1)
	_________	__________
Net cash inflows from operating activities	3,349	3,142
	_________	__________
Cash flows from investing activities
Purchases of investments	(9,092)	(6,526)
Sales of investments	9,313	5,032
	_________	__________
Net cash inflow/(outflow) from investing activities	221	(1,494)
	_________	__________
Cash flows from financing activities
Equity dividends paid	(3,670)	(3,677)
Loan drawn down	-	500
	_________	__________
Net cash outflow from financing activities	(3,670)	(3,177)
	_________	__________
Decrease in cash and cash equivalents	(100)	(1,529)
	_________	__________
Reconciliation of net cash flow to movements in cash and cash equivalents
Decrease in cash and cash equivalents as above	(100)	(1,529)
Net cash and cash equivalents at start of year	1,873	3,402
	_________	__________
Net cash and cash equivalents at end of year	1,773	1,873
	_________	__________
*Previously short term borrowings were disclosed within "net cash and cash equivalents", however, in accordance with IAS7 paragraph 8, bank borrowings should be classified as a financing activity. In order to amend the prior year Cash Flow Statement: "Net cash outflow from financing activities" and "Decrease in cash and cash equivalents" have been decreased by £0.5 million, being the movement in borrowings during the prior period; "Net cash and cash equivalents at the start of the year" has increased by £8.5 million, being the removal of short term borrowings from the disclosure; and "Net cash and cash equivalents at the end of the year" have increased by £9 million. This restatement has no impact on net assets and no impact on the Statement of Comprehensive Income or the Balance Sheet.

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 March 2017

1.	Principal activity
	The Company is a closed-end investment company, registered in England and Wales No 00386561, with its Ordinary shares listed on the London Stock Exchange.

2.	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.
		Where guidance set out in the Statement of Recommended Practice ("SORP") for investment trusts issued by the Association of Investment Companies ("AIC") is consistent with the requirement of IFRS, the Directors have sought to prepare the financial statements on a basis compliant 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.
		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.
		Standards issued but not yet effective
		At the date of authorisation of these financial statements, the following Standards and Interpretations were in issue but not yet effective:
		- IFRS 9 - Financial Instruments (effective 1 January 2018)
		- IAS 7 - Amendments to Statement of Cash Flows for the disclosure initiative (effective 1 January 2017)
	(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.
		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 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 amortisation or accretion of the premium or discount respectively on acquisition as a result of using this basis is allocated against capital reserve. The SORP recommends that such amortisation should be allocated against revenue. The Directors believe this treatment is not appropriate for a high yielding investment trust which buys and sells debt securities, and believe any premium or discount included in the price of such an investment is a capital item.
		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 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)	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.
		Long-term borrowings of the Company are stated at the amount of the net proceeds immediately after issue plus cumulative finance costs less cumulative payments made in respect of the debt. The finance costs of such borrowings are accounted for on an accruals basis using the effective interest rate method
		The finance costs borrowings are accounted for on an accruals basis and are charged 50% to revenue and 50% to capital in the Statement of Comprehensive Income to reflect the Company's investment policy and prospective income and capital growth.
	(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 recognised in respect of all temporary differences at the Balance Sheet date, where transactions or events that result in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the Balance Sheet date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the temporary differences can be deducted. Deferred tax assets and liabilities are measured at the rates applicable to the legal jurisdictions in which they arise, using tax rates that are expected to apply at the date the deferred tax position is unwound.
	(g)	Foreign currencies
		Transactions involving foreign currencies are converted at the rate ruling at the time of the transaction. Financial and monetary 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.
	(h)	Derivatives
		The Company may enter into certain derivatives (e.g. traded options). 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.
	(i)	Cash and cash equivalents
		Cash and cash equivalents comprises cash in hand and at banks and short-term deposits.
		In prior years the accounting policy also stated "Cash equivalents are short term bank borrowings that are subject to an insignificant risk of changes in value." However, in accordance with IAS7 paragraph 8, bank borrowings should be classified as a financing activity and not as a cash equivalent. The effect of this change and restatement is detailed in the Cash Flow Statement on page 56.
	(j)	Receivables and payables
		Other receivables and prepayments do not carry any interest and are short-term in nature, and are, accordingly, stated at their recoverable amount. Payables are non-interest bearing and are stated at their payable amount.
	(k)	Dividends payable
		Dividends are recognised from the date on which they are declared and approved by shareholders. Interim dividends are recognised when paid.

		2017	2016
3.	Income	£'000	£'000
	Income from listed investments
	UK dividend income	3,562	3,404
	Overseas dividend income	41	18
	Interest income from investments	568	587
	Money market interest	4	7
	Stock dividends	259	153
		_________	__________
		4,434	4,169
		_________	__________
	Other income from investment activity
	Deposit interest	1	1
	Traded option premiums	204	186
	Underwriting commission	1	5
	Other income	55	-
		_________	__________
		261	192
		_________	__________
	Total income	4,695	4,361
		_________	__________
	The amount of £(101,000) (2016 - £(93,000)) included in the capital column of Investment Income represents amortisation of premium on purchase of debt securities referred to in note 2(c).

		2017			2016
		Revenue	Capital	Total	Revenue	Capital	Total
4.	Management fees	£'000	£'000	£'000	£'000	£'000	£'000
	Management fees	198	198	396	190	190	380
		_______	________	_______	______	_______	_______
	The management fee is based on 0.45% per annum up to £100 million and 0.40% over £100 million, by reference to the net assets of the Company and any borrowings up to a maximum of £30 million, and excluding commonly managed funds, calculated monthly and paid quarterly. The fee is allocated 50% to revenue and 50% to capital. The agreement is terminable on six month's notice. The total of the fees paid and payable during the year to 31 March 2017 was £396,000 (2016 - £380,000) and the balance due to AFML at the year end was £102,000 (2016 - £91,000). The Company held an interest in a commonly managed investment trust, Aberdeen Smaller Companies Income Trust PLC, in the portfolio during the year to 31 March 2017 (2016 - same). The value attributable to this holding is excluded from the calculation of the management fee payable by the Company.

		2017	2016
5.	Administrative expenses	£'000	£'000
	Directors' remuneration	95	101
	Auditor's remuneration:
	fees payable to the Company's Auditor for the audit of the Company's annual accounts	21	19
	- non-audit services
	fees payable to the Company's Auditor and its associates for iXBRL tagging services	2	2
	Promotional activities	83	89
	Professional fees	14	-
	Directors & Officers' liability insurance	10	10
	Trade subscriptions	26	26
	Share plan costs	16	21
	Registrars fees	49	43
	Printing, postage and stationery	29	24
	Other administrative expenses	41	35
		_________	__________
		386	370
		_________	__________
	The management agreement with AFML also provides for the provision of promotional activities, which AFML has delegated to Aberdeen Asset Managers Limited. The total fees paid and payable under the management agreement in relation to promotional activities were £83,000 (2016 - £89,000). The Company's management agreement with AFML also provides for the provision of company secretarial and administration services to the Company; no separate fee is charged to the Company in respect of these services, which have been delegated to Aberdeen Asset Management PLC.
	With the exception of Auditor's remuneration for the statutory audit, all of the expenses above, including fees for non-audit services, include irrecoverable VAT where applicable.  For the Auditor's remuneration for the statutory audit irrecoverable VAT amounted to £4,000 (2016 - £4,000).

6.	Directors' remuneration
	The Company had no employees during the year (2016 - nil). No pension contributions were paid for Directors (2016 - £nil).

		2017			2016
		Revenue	Capital	Total	Revenue	Capital	Total
7.	Finance costs of borrowings	£'000	£'000	£'000	£'000	£'000	£'000
	Interest on bank loans	164	164	328	169	169	338
		_____	_____	_____	_____	_____	_____

				2017						2016
				Revenue		Capital		Total		Revenue		Capital		Total
8.	Taxation			£'000		£'000		£'000		£'000		£'000		£'000
	(a)	Analysis of the charge for the year
		UK corporation tax		20		(20)		-		15		(15)		-
		Overseas tax		2		-		2		-		-		-
		Total tax charge		22		(20)		2		15		(15)		-
				______		_______		______		______		______		_____
	(b)	Factors affecting the tax charge for the year
		The tax assessed for the year is lower than the effective rate of corporation tax in the UK. The differences are explained in the reconciliation below:
			2017						2016
			Revenue		Capital		Total		Revenue		Capital		Total
			£'000		£'000		£'000		£'000		£'000		£'000
		Profit before taxation	3,947		12,400		16,347		3,632		(8,985)		(5,353)
			______		_______		______		______		______		_____
		Corporation tax at an effective rate of 20% (2016 - 20%)	789		2,479		3,268		726		(1,797)		(1,071)
		Effects of:
		UK dividend income not liable to further tax	(708)		-		(708)		(676)		-		(676)
		Non-taxable stock dividends	(52)		-		(52)		(31)		-		(31)
		Expenses not utilised	-		52		52		-		56		56
		Overseas withholding tax	2		-		2		-		-		-
		Non-taxable overseas dividends	(9)		-		(9)		(4)		-		(4)
		Gains on investments not taxable	-		(2,571)		(2,571)		-		1,707		1,707
		Disallowed expenses	-		20		20		-		19		19
			_______		______		_____		________		_______		______
		Total tax charge	22		(20)		2		15		(15)		-
			________		_______		_____		________		_______		______
		At 31 March 2017 the Company had surplus management expenses and loan relationship debits with a tax value of £4,051,000 (2016 - £4,713,000) 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.

		2017	2016
9.	Dividends	£'000	£'000
	Amounts recognised as distributions to equity holders in the period:
	Third interim dividend for the year ended 31 March 2016 of 3.00p (2015 - 3.00p) per share	900	900
	Final dividend for the year ended 31 March 2016 of 3.25p (2015 - 3.25p) per share	975	975
	First two interim dividends for the year ended 31 March 2017 totalling 6.00p (2016 - 6.00p) per share	1,800	1,800
	Refund of unclaimed dividends from previous periods	(7)	-
		_________	_________
		3,668	3,675
		_________	_________
	3.5% Cumulative Preference shares	2	2
		_________	_________
	Total	3,670	3,677
		_________	_________
	The third interim dividend of 3.00p for the year to 31 March 2017 paid on 28 April 2017 and the proposed final dividend of 3.75p for the year to 31 March 2017 payable on 28 July 2017 have not been included as liabilities in these financial statements.
	Set out below are 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:
		2017	2016
		£'000	£'000
	Three interim dividends for the year ended 31 March 2017 totalling 9.00p (2016 - 9.00p) per share	2,700	2,700
	Proposed final dividend for the year ended 31 March 2017 of 3.75p (2016 - 3.25p) per share	1,125	975
		_________	_________
		3,825	3,675
		_________	_________

10.	Return and net asset value per share
	The gains per share are based on the following figures:
		2017	2016
		£'000	£'000
	Revenue return	3,925	3,617
	Capital return	12,420	(8,970)
		_________	__________
	Net return	16,345	(5,353)
		_________	__________
	Weighted average number of Ordinary shares	29,997,580	29,997,580
		_________	__________
	Net asset value per Ordinary share is based on net assets attributable to Ordinary shareholders of £81,477,000 (2016 - £68,802,000) and on the 29,997,580 (2016 - 29,997,580) Ordinary shares in issue at 31 March 2017.

				2017		2016
				Listed		Listed
				investments		investments
11.	Non-current assets - Securities at fair value			£'000		£'000
	Cost at 31 March 2016			76,648		74,095
	Investment holdings gains			8,501		18,086
				_________		__________
	Fair value at 31 March 2016			85,149		92,181
	Purchases			9,092		6,465
	Sales - proceeds			(9,169)		(4,879)
	Sales - net realised gains			62		1,060
	Amortised cost adjustments to debt securities{A}			(101)		(93)
	Fair value movement in the year			12,793		(9,585)
				_________		__________
	Fair value at 31 March 2017			97,826		85,149
	{A} Charged to capital.			_________		__________
				2017		2016
				Listed		Listed
				investments		investments
				£'000		£'000
	Cost at 31 March 2017			76,532		76,648
	Investment holdings gains			21,294		8,501
				_________		__________
	Fair value at 31 March 2017			97,826		85,149
				_________		__________
				2017		2016
	Gains/(losses) on investments			£'000		£'000
	Net realised gains on sales of investments			350		1,225
	Cost of call options exercised			(288)		(165)
				_________		__________
	Net realised gains on sales			62		1,060
	Movement in fair value of investments			12,806		(9,501)
	Cost of put options assigned			(13)		(84)
	Movement in appreciation of traded options held			8		(8)
				_________		__________
				12,863		(8,533)
				_________		__________
	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 £204,000 (2016 - £186,000) 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 2(c) and has been charged to the capital reserve.
	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 purchases of investments in the year was £41,000 (2016 - £26,000).  The total costs on sales of investments in the year was £5,000 (2016 - £4,000).
	All investments are categorised as held at fair value through profit and loss and were designated as such upon initial recognition.
	At 31 March 2017 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 Income Trust PLC	Scotland	3,120,476		Ordinary		14.1
	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

		2017	2016
12.	Other receivables	£'000	£'000
	Accrued income and prepayments	982	985
	Other debtors	115	-
	Option contract premium	11	19
		________	_________
		1,108	1,004
		________	_________
	None of the above amounts is overdue.

		2017	2016
13.	Current liabilities	£'000	£'000
	Short-term bank loans	19,000	9,000
	Option contracts	30	36
	Other creditors	200	188
		________	_________
		19,230	9,224
		________	_________
	Included above are the following amounts owed to Aberdeen, the Manager and Secretary, for management and secretarial services and for the promotion of the Company.
		2017	2016
		£'000	£'000
	Other creditors	128	113
		________	_________
		2017	2016
	Non-current liabilities	£'000	£'000
	Long-term bank loan	-	10,000
		________	_________
	The Company has an agreement with Scotiabank Europe PLC to provide a loan facility to 19 December 2017 for up to £20,000,000. A £10,000,000 fixed rate loan facility was drawn down on 19 December 2014 at a rate of 2.103%. This rate is fixed until maturity on 19 December 2017. In addition, at the year end £9,000,000 had been drawn down at an all-in interest rate of 1.16317%, maturing on 28 April 2017. At the date of signing this report the amount drawn down was unchanged at £9,000,000 with an all-in interest rate of 1.15842%, maturing on 26 June 2017.
	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.

		2017		2016
14.	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	29,997,580	14,999
	3.5% Cumulative Preference shares of £1 each	50,000	50	50,000	50
			________		________
			15,049		15,049
			________		________

		2017	2016
15.	Capital reserve	£'000	£'000
	At 31 March 2016	28,192	37,162
	Net gains on sales of investments during year	62	1,060
	Movement in fair value gains on investments	12,793	(9,585)
	Amortised cost adjustment charged to capital	(101)	(93)
	Management fees	(198)	(190)
	Interest on bank loans	(164)	(169)
	Tax relief obtained by expenses capitalised	20	15
	Traded options	8	(8)
		________	________
	At 31 March 2017	40,612	28,192
		________	________

16.	Financial instruments
	Risk management
	The Company's investment activities expose it to various types of financial risk associated with the financial instruments and markets in which it invests. The Company's financial instruments comprise securities and other investments, cash balances, loans and debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income. The Company may from time to time use FTSE options for protection of the loss of value to the portfolio at modest cost.
	Subject to Board approval, the Company also has the ability to enter into derivative transactions, in the form of traded options, for the purpose of enhancing income returns and portfolio management. During the year, the Company entered into certain derivative contracts. As disclosed in note 3, the premium received and fair value changes in respect of options written in the year were £204,000 (2016 - £186,000). Positions closed during the year realised a loss of £301,000 (2016 - £249,000). The largest position in derivative contracts held during the year at any given time was £166,000 (2016 - £85,000). The Company had open positions in derivative contracts at 31 March 2017 valued at a liability of £30,000 (2016 - £36,000) as disclosed in note 13.
	The Board has delegated the risk management function to AFML under the terms of its management agreement with AFML (further details of which are included under note 4). The Board regularly reviews and agrees policies for managing each of the key financial risks identified with the Manager. The types of risk and the Manager's approach to the management of each type of risk, are summarised below. Such approach has been applied throughout the year and has not changed since the previous accounting period. The numerical disclosures exclude short-term debtors and creditors given their relatively low value.
	Risk management framework
	The directors of Aberdeen Fund Managers Limited collectively assume responsibility for AFML's obligations under the AIFMD including reviewing investment performance and monitoring the Company's risk profile during the year.
	AFML is a fully integrated member of the Aberdeen Group, which provides a variety of services and support to AFML in the conduct of its business activities, including in the oversight of the risk management framework for the Company. The AIFM has delegated the day to day administration of the investment policy to Aberdeen Asset Managers Limited, which is responsible for ensuring that the Company is managed within the terms of its investment guidelines and the limits set out in its pre-investment disclosures to investors (details of which can be found on the Company's website). The AIFM has retained responsibility for monitoring and oversight of investment performance, product risk and regulatory and operational risk for the Company.
	The Group's Internal Audit Department is independent of the Risk Division and reports directly to the Group CEO and to the Audit Committee of the Group's Board of Directors. The Internal Audit Department is responsible for providing an independent assessment of the Group's control environment.
	The Manager conducts its risk oversight function through the operation of the Group's risk management processes and systems which are embedded within the Group's operations. The Group's Risk Division supports management in the identification and mitigation of risks and provides independent monitoring of the business. The Division includes Compliance, Business Risk, Market Risk, Risk Management and Legal. The team is headed up by the Group's Head of Risk, who reports to the Chief Executive Officer of the Group. The Risk Division achieves its objective through embedding the Risk Management Framework throughout the organisation using the Group's operational risk management system ("SWORD").
	The Group's corporate governance structure is supported by several committees to assist the board of directors of Aberdeen, its subsidiaries and the Company to fulfil their roles and responsibilities. The Group's Risk Division is represented on all committees, with the exception of those committees that deal with investment recommendations. The specific goals and guidelines on the functioning of those committees are described on the committees' terms of reference.
	Risk management
	The main risks the Company faces from its financial instruments are (i) market risk (comprising interest rate risk, currency risk and 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.
	(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.
		Management of the risk
		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 imposes borrowing limits to ensure gearing levels are appropriate to market conditions and reviews these on a regular basis. Borrowings comprise fixed rate, revolving, and uncommitted facilities. The fixed rate facilities are used to finance opportunities at low rates and, the revolving and uncommitted facilities to provide flexibility in the short-term. Current bank covenant guidelines state that the gross borrowings will not exceed one-third of adjusted net assets.
		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		rate		rate	bearing
		As at 31 March 2017	Years		%		£'000		£'000	£'000
		Assets
		UK irredeemable preference shares	-		8.50		25,133		-	-
		Cash and cash equivalents	-		0.29		-		1,773	-
			______		_______		_______		_______	______
		Total assets	-		-		25,133		1,773	-
			______		_______		_______		_______	______
		Liabilities
		Short-term bank loans	0.72		1.66		(19,000)		-	-
			______		_______		_______		_______	______
		Total liabilities	-		-		(19,000)		-	-
			______		_______		_______		_______	______
			Weighted
			average
			period		Weighted
			for which		average					Non-
			rate is		interest		Fixed		Floating	interest
			fixed		rate		rate		rate	bearing
		As at 31 March 2016	Years		%		£'000		£'000	£'000
		Assets
		UK irredeemable preference shares	-		8.49		23,102		-	-
		Cash and cash equivalents	-		0.32		-		1,873	-
			______		_______		_______		_______	______
		Total assets	-		-		23,102		1,873	-
			______		_______		_______		_______	______
		Liabilities
		Short-term bank loan	0.08		1.42		(9,000)		-	-
		Long-term bank loan	1.72		2.10		(10,000)
			______		_______		_______		_______	______
		Total liabilities	-		-		(19,000)		-	-
			______		_______		_______		_______	______
		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.
		Interest rate sensitivity
		The sensitivity analyses below have been determined based on the exposure to interest rates for 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 2017 would increase/decrease by £18,000 (2016 - £19,000). 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 2017 would increase/decrease by £2,139,000 (2016 - increase/decrease by £1,547,000). 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.
		Price risk
		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.
		Management of the risk
		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 recognised stock exchanges.
		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 2017 would have increased/decreased by £7,212,000 (2016 - increase/decrease of £6,072,000). 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.
		Management of the risk
		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 loan facilities, details of which can be found in note 13. Under the terms of the loan facility, the Manager provides the lender with loan covenant reports on a monthly basis, to provide the lender with assurance that the terms of the facility are not being breached. The Manager will also review the credit rating of a lender on a regular basis.
		The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions and reviews these on a regular basis. Borrowings comprise a revolving loan facility and a fixed term loan facility. The Board has imposed a maximum equity gearing of 35% which constrains the amount of gearing that can be invested in equities which are more volatile than the fixed interest part of the portfolio. Details of borrowings at 31 March 2017 are shown in note 13.
		Maturity profile
		The maturity profile of the Company's financial liabilities at the Balance Sheet date was as follows:
						Within		Within		More than
						1 year		1-5 years		5 years
		At 31 March 2017				£'000		£'000		£'000
		Trade and other payables				(230)		-		-
		Short-term bank loans				(19,000)		-		-
						______		_______		_______
						(19,230)		-		-
						______		_______		_______
						Within		Within		More than
						1 year		1-5 years		5 years
		At 31 March 2016				£'000		£'000		£'000
		Trade and other payables				(224)		-		-
		Short-term bank loan				(9,000)		-		-
		Long-term bank loan				-		(10,000)		-
						______		_______		_______
						(9,224)		(10,000)		-
						______		_______		_______
	(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.
		Management of the risk
		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 Aberdeen Group's Compliance department carries out periodic reviews of the Custodian's operations and reports its finding to the Aberdeen Group'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 Investment 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 2017 was as follows:
				2017					2016
				Balance			Maximum		Balance	Maximum
				Sheet			exposure		Sheet	exposure
				£'000			£'000		£'000	£'000
		Non-current assets
		Securities at fair value through profit or loss		97,826			97,826		85,149	85,149
		Current assets
		Trade and other receivables		126			126		19	19
		Accrued income		982			982		985	985
		Cash and cash equivalents		1,773			1,773		1,873	1,873
				______			_______		_______	_______
				100,707			100,707		88,026	88,026
				______			_______		_______	_______
		None of the Company's financial assets is past due or impaired.
		Fair value of financial assets and liabilities
		The book value of bank loans included in these financial statements approximates to fair value because of their short-term maturity. 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 approximates 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 2017 as follows:
				Level 1	Level 2	Level 3	Total
			Note	£'000	£'000	£'000	£'000
	Financial assets at fair value through profit or loss
	Quoted investments		a)	97,826	-	-	97,826
	Financial liabilities at fair value through profit or loss
	Derivatives		b)	-	(30)	-	(30)
				______	_______	_______	_______
	Net fair value			97,826	(30)	-	97,796
				______	_______	_______	_______
				Level 1	Level 2	Level 3	Total
	As at 31 March 2016		Note	£'000	£'000	£'000	£'000
	Financial assets at fair value through profit or loss
	Quoted investments		a)	85,149	-	-	85,149
	Financial liabilities at fair value through profit or loss
	Derivatives		b)	-	(36)	-	(36)
				______	_______	_______	_______
	Net fair value			85,149	(36)	-	85,113
				______	_______	_______	_______
	a)	Quoted investments
		The fair value of the Company's quoted investments has been determined by reference to their quoted bid prices at the reporting date. Quoted investments 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 although not actively traded and therefore has been classed as Level 2.
		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 2.

18.	Capital management policies and procedures
	The Company's capital management objectives are:
	to ensure that the Company will be able to continue as a going concern; and
	to maximise the return to its equity shareholders through an appropriate balance of equity capital and debt.
	The capital of the Company consists of equity, comprising issued capital, reserves and retained earnings.
	The Board monitors and reviews the broad structure of the Company's capital. This review includes the nature and planned level of gearing, which takes account of the Investment Manager's views on the market and the extent to which revenue in excess of that which is required to be distributed should be retained. The Company is not subject to any externally imposed capital requirements.

19.	Related party transactions
	Directors' fees and interests
	Fees payable during the year to the Directors and their interests in shares of the Company which will be  disclosed within the Directors' Remuneration Report.
	Transactions with the Manager
	The Company has an agreement with Aberdeen Fund Managers Limited for the provision of management, secretarial, accounting and administration services and for the carrying out of promotional activities in relation to the Company. Details of transactions during the year and balances outstanding at the year end disclosed in notes 4 and 5.

Additional Notes to Annual Financial Report

The Annual General Meeting will be held on 11 July 2017 at 12 noon at Bow Bells House, 1 Bread Street, London EC4M 9HH.

The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 31 March 2017 are an abridged version of the Company's full accounts, which have been approved and audited with an unqualified report. The 2016 and 2017 statutory accounts received unqualified reports from the Company's auditor and did not include any reference to matters to which the auditor drew attention by way of emphasis without qualifying the reports, and did not contain a statement under S.498 of the Companies Act 2006. The financial information for 2016 is derived from the statutory accounts for 2016 which have been delivered to the Registrar of Companies. The 2017 accounts will be filed with the Registrar of Companies in due course.

The Annual Report and Accounts will be posted to shareholders in June 2017 and copies will be available from the registered office of the Manager and on the Company's website, www.shiresincome.co.uk.*

Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise.  Investors may not get back the amount they originally invested.

By order of the Board

Aberdeen Asset Management PLC

Company Secretary

30 May 2017

* Neither the Company's website nor the content of any website accessible from hyperlinks on the Company's website (or any other website) is (or is deemed to be) incorporated into, or forms (or is deemed to form) part of this announcement.

 

END

 

 

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