Shires Income : Annual Report 2024

Shires Income PLC

Annual Report 31 March 2024

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shiresincome.co.uk

"The year to 31 March 2024 was good for equities globally, with growing expectations of interest rate reductions during the course of 2024 which provides a positive outlook for the year ahead."

Robert Talbut, Chairman

"The NAV total return for the year was 5.1%. The Company lagged a rising market as we would expect, given the defensive and income focused nature of the portfolio holdings."

Iain Pyle and Charles Luke, abrdn Investments Limited

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Shires Income PLC

1

Contents

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt about the action you should take, you are recommended to seek your own financial advice from your stockbroker, bank manager, solicitor, accountant or other financial adviser authorised under the Financial Services and Markets Act 2000 (as amended by the Financial Services Act 2012) if you are in the United Kingdom or, if not, from another appropriately authorised financial adviser.

If you have sold or otherwise transferred all your Ordinary shares in Shires Income PLC, please forward this document, together with the accompanying documents immediately to the purchaser or transferee, or to the stockbroker, bank or agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

Overview
Performance Highlights	3
Financial Calendar and Highlights	4
Strategic Report
Chairman's Statement	8
Overview of Strategy	12
Promoting the Success of the Company	20
Performance	24
Investment Manager's Review	28
Investment Case Studies	33
The Investment Manager's Approach to ESG	35
Portfolio
Ten Largest Investments	42
Investment Portfolio - Equities	43
Investment Portfolio - Other Investments	46
Distribution of Assets and Liabilities	47
Sector Analysis	48
Governance
Board of Directors	52
Directors' Report	55
Directors' Remuneration Report	64
Audit Committee's Report	68
Statement of Directors' Responsibilities	72
Independent Auditor's Report to the
Members of Shires Income PLC	73
Financial Statements
Statement of Comprehensive Income	82
Balance Sheet	83
Statement of Changes in Equity	84
Cash Flow Statement	85
Notes to the Financial Statements	86
Corporate Information
Information about the Investment Manager	108
Investor Information	111
Glossary of Terms	113
Alternative Performance Measures	116
AIFMD Disclosures (Unaudited)	119
General
Notice of Annual General Meeting	121
Appendix to Notice of Annual General Meeting	127
Contact Addresses	129

2	Shires Income PLC

Performance Highlights

Net asset value per Ordinary share total returnA

+5.1%

2023		-2.2%

Benchmark index total return

+8.4%

2023

+2.9%

Dividends per Ordinary share

14.40p

2023

14.20p

1. Alternative Performance Measure (see pages 116 to 118).

Share price total returnA

-5.7%

2023	-5.5%

Earnings per share (revenue)

14.75p

2023	14.83p

Dividend yieldA

6.5%

2023	5.7%

Overview

Strategic Report

Portfolio

Governance

	Net asset value per														Dividends per
	Ordinary share*							Ordinary share price*						Ordinary share
	At 31 March - pence								At 31 March - pence							Year ended 31 March - pence
																			14.20	14.40
	262.4	278.3	257.9	256.0	279.0	250.0	13.20	13.20	13.80
		248.0
	207.4						200.5		222.0

20	21	22	23	24	20	21	22	23	24
20	21	22	23	24

*excludes dividend reinvestment

General Corporate Information Financial Statements

Shires Income PLC

3

Financial Calendar and Highlights

Financial Calendar

Online Shareholder Presentation	25 June 2024
Annual General Meeting	5 July 2024

Expected payment dates of quarterly dividends

31 July 2024

31 October 2024

31 January 2025

30 April 2025

Half year end

30 September 2024

Expected announcement of results for the six months ending 30 September 2024

November 2024

Financial year end

31 March 2025

Expected announcement of results for year ending 31 March 2025

May 2025

4	Shires Income PLC

Highlights

	31 March 2024	31 March 2023
Total assets (as defined on page 115)	£124,920,000	£98,864,000
Shareholders' funds	£105,957,000	£79,913,000
Market capitalisationA	£91,840,000	£77,411,000
Net asset value per Ordinary share (as defined on page (114)B	256.00p	257.92p
Share price	222.00p	250.00p
Discount to NAV (cum-income)C	13.3%	3.1%
Net gearingC	16.4%	22.2%
Dividend and earnings
Revenue return per shareD	14.75p	14.83p
Dividend per shareE	14.40p	14.20p
Dividend coverC	1.02	1.04
Revenue reservesF	£7,388,000	£7,040,000
Dividend yieldC	6.5%	5.7%
Operating costs
Ongoing charges ratio (excluding look-through costs)C	1.09%	1.03%
Ongoing charges ratio (including look-through costs)C	1.10%	1.17%

1. Represents the number of Ordinary shares in issue in the Company multiplied by the Company's share price.
2. Net asset value per Ordinary share is calculated after the repayment of the capital paid up on Cumulative Preference shares (see note 16 on page 98).
3. Considered to be an Alternative Performance Measure, as defined on pages 116 and 117.
4. Measures the revenue earnings for the year divided by the weighted average number of Ordinary shares in issue (see Statement of Comprehensive Income).
5. The figures for dividend per share reflect the years in which they were earned (see note 9 on pages 92 and 93).
6. The revenue reserve figure does not take account of payment of the third interim or final dividend amounting to £3,310,000 (2023 - £2,415,000) combined.

Shires Income PLC

5

Overview

Strategic Report

Portfolio

General Corporate Information Financial Statements Governance

Strategic

Report

6	Shires Income PLC

The Company's investment objective is to provide shareholders with a high level of income, together with the potential for growth of both income and capital, from a diversified portfolio substantially invested in UK equities but also in preference shares, convertibles and other fixed income securities.

The Company has a largely retail investor shareholder base.

Regular updates are provided through the Company's website at www.shiresincome.co.uk

Shires Income PLC

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Chairman's Statement

Highlights

• Successful completion of the combination with abrdn Smaller Companies Income Trust plc ("aSCIT").
• Increased dividend of 14.40p per Ordinary share, providing a dividend yield of 6.5% based on the year end share price.
• Confidence that the dividend remains sustainable.
• NAV total return of 5.1%, compared to a total return of 8.4% from the FTSE All-Share Index.

Markets and Performance

The year to 31 March 2024 was good for equities globally, with growing expectations of interest rate reductions during the course of 2024. The UK market, as represented by the FTSE All-Share Index, delivered a total return of 8.4%. The Company's net asset value ("NAV") total return for the year was lower, at 5.1%. Although lagging the market return, the performance for the year is in line with what we would expect, given the defensive and income focused nature of the portfolio, and delivered the Company's objective of providing shareholders with a high level of income, together with the potential for growth of both income and capital.

Revenue earnings per share for the year were broadly similar to last year and the total dividends for the year have been increased to 14.40p per Ordinary share. This represents a dividend yield of 6.5% based on the year end share price.

The share price performance for the year was disappointing, with a negative total return of 5.7%, reflecting a significant widening of the discount, to 13.3% at the year end. Discount widening has been exhibited across much of the investment trust universe. The persistence of higher interest rates is a factor, as is decreased demand for collective funds generally, but, in the case of Shires, the decision of abrdn to transfer its in- house savings scheme to Interactive Investor certainly contributed to some short-term selling of our shares. The Board's view was that this unprecedented level of discount was unwarranted, and, to address this imbalance of supply and demand for the Company's shares, the Company made use of its share buy back authority during the year and will continue to make use of this authority going forward if considered appropriate.

More detailed information on performance for the year and investment activity within the portfolio are contained within the Investment Manager's Review.

Earnings and Dividends

The Company's revenue earnings per share for the year were 14.75p (2023 - 14.83p). Investment income was 13.7% higher than last year, due mainly to the impact of a larger portfolio following the aSCIT transaction, including a special dividend of £445,000 from aSCIT at the time of the transaction. The transaction also resulted in a larger share capital base meaning that the per share revenue earnings for the year were broadly unchanged.

The Company has paid three interim dividends of 3.20p per Ordinary share (2023: 3.20p). The Board is proposing a final dividend of 4.80p per Ordinary share (2023: 4.60p), which will be paid on 31 July 2024 to shareholders on the register on 5 July 2024. This final dividend brings total Ordinary share dividends for the year to 14.40p per share.

"The final dividend brings total Ordinary share dividends for the year to 14.40p per share, representing a dividend yield of 6.5%."

With the total dividends for the year covered by earnings, revenue reserves will stand at 0.69 times (2023 - 1.05 times) the current annual Ordinary share dividend cost. The reduction in reserve cover during the year is as a result of the larger capital base following the aSCIT transaction, but it should still allow the Company to support future dividend payments in times of reduced earnings. In addition, the Company also has the flexibility to pay dividends from its realised capital reserves, although the Board has no current intention of making use of this flexibility. As explained below, we propose to create greater flexibility through cancelling the amount standing to the credit of the Company's Share Premium Account.

Through the proposed changes to the investment policy described below and the cancellation of the Share Premium Account, together with the already healthy level of revenue reserves, shareholders should take comfort that maintaining and potentially growing the dividend remains realistic.

8	Shires Income PLC