Final Results

Shires Income PLC
26 May 2006


News Release


26 May 2006


Shires Income plc

Preliminary Results for the year ended 31 March 2006


Shires Income plc aims to provide for shareholders a high level of income
together with growth of both income and capital from a portfolio substantially
invested in UK Equities.

                                                             2006        2005

Total Investments                                          £131.7m     £116.1m
Ordinary shareholders' funds                                £97.5m      £81.0m

Net asset value (NAV) per ordinary share                    328.4p      272.9p
Ordinary share price                                        313.5p      266.0p

(Discount)/Premium (ordinary share price to NAV)             (1.4%)       1.3%

Revenue return per ordinary share                           19.51p      19.58p
Dividends per ordinary share                                19.25p      19.25p

Gearing                                                      35.1%       42.5%


  • The total return on net assets was 29.9%, which compared with a return
    of 28.0% on the FTSE All-Share Index, the Company's benchmark.


  • The proposed final dividend of 6.05p per ordinary share brings total
    dividends for the year to 19.25p, the same level as paid last year.


  • Based upon the share price of 313.5p at 31 March 2006, the dividend yield
    was 6.1%, which compared with 2.9% on the FTSE All-Share Index.


  • Equity gearing was reduced from 14.4% at 31 March 2005 to 3.9% at 31
    March 2006, due principally to a rise in ordinary share prices.


  • Equity valuations, supported by rising corporate profits and, in the
    short term, the rising level of dividends, represents good value when
    compared to fixed interest securities.


International Financial Reporting Standards (IFRS)

The results for the year have been prepared in accordance with IFRS and the
prior period has been revised to reflect these changes in accordance with IFRS
1, First Time Adoption of IFRS. Details of the changes on the transition to IFRS
are included in note 21 to the financial statements.


For further information please contact:


Mike Balfour, Chief Executive

Glasgow Investment Managers

0141 572 2700


Kenneth Harper

Glasgow Investment Managers

0141 572 2700


Shires Income plc

Annual Report 31 March 2006

Chairman's Statement


Highlights


I am pleased to report continued growth in your Company in the year to 31 March
2006. The total return on net assets over the year was 29.9%, compared to the
FTSE All-Share Index total return of 28.0%. The share price total return was
26.5%. Subject to shareholder approval, total dividends will be maintained at
19.25p, producing a dividend yield of 6.1% based upon the share price as at 31
March 2006, considerably higher than the 2.9% yield on the FTSE All-Share Index,
the Company's benchmark.

The Revenue return per share was 19.51p, marginally down from 19.58p in the
previous year.


The Board is recommending a final dividend of 6.05p per ordinary share, bringing
total dividends for the year to 19.25p, the same level as paid last year. If
approved, the final dividend will be paid on 31 July 2006 to shareholders on the
register at close of business on 7 July 2006.


International Financial Reporting Standards


These are the Company's first annual financial statements under International
Financial Reporting Standards (IFRS) which came into effect on 1 January 2005.
As referred to in the Interim Report, the format of the financial statements
shows significant changes from previous reports. The main presentational
differences are two-fold. First, the Consolidated Statement of Total Return has
been replaced with a Consolidated Income Statement, although this continues to
follow the three columned approach showing the division between revenue and
capital. Secondly, dividends are now shown in a new statement called the
Consolidated Statement of Changes in Equity. Under the new IFRS requirements,
only dividends which are paid in the financial period are included in the
financial statements and shown in the Consolidated Statement of Changes in
Equity. As a result, the 19.25p included in these financial statements is
represented by the third interim dividend and final dividend in respect of the
2005 financial year totalling 10.45p plus the first two interims in respect of
the 2006 financial year totalling 8.80p. The third interim dividend and final
dividend of the 2006 financial year will be included in the financial statements
for the year ended 31 March 2007.


The net asset value of the Company at 328.4p is 9.4p higher than it would have
been under the old accounting rules. This is predominantly due to the exclusion,
as liabilities, of the third interim dividend and final dividend of 2005/06
totalling 10.45p. The remaining small differences are represented by the move
from mid to bid value for investments, a change in the method for accounting for
debt securities and a change in the basis of valuation for the securities held
in the dealing subsidiary. It should be noted that for calculating performance
figures and regular reporting to the stock market, the Association of Investment
Trust Companies has recommended the exclusion of the dividend adjustment above.


Investment Returns


The Company's total return on net assets was 29.9%, 1.9 percentage points ahead
of the benchmark. This outperformance was due mainly to gearing the equity
portfolio in a rising stockmarket and the positive contribution of the fixed
interest portfolio in the year.


Over the year, there was a small drop in the rating of the Company's shares in
the stockmarket. The share price moved from a premium of 1.3% to net asset value
per share at 31 March 2005 to a discount of 1.4% at 31 March 2006. As a result,
the share price total return at 26.5% was lower than the total return on net
assets.



Portfolio Profile


Total gearing decreased from 42.5% to 35.1% during the year. Equity gearing was
reduced from 14.4% to 3.9%, due principally to a rise in ordinary share prices
and purchases of preference securities. This means that of the Company's
gearing, only a small part is invested in equity instruments, resulting in the
Company being less sensitive to rises and falls in the equity market than at 31
March 2005. Gearing in preference shares rose from 28.1% to 31.2% which
reflected additional investment during the year in high-yielding fixed income
securities, which made a major contribution to the high level of income
distributed to shareholders.


Outlook


Global economic growth forecasts continue to be influenced by the rising levels
of demand from China and India. Western economies have benefited from the lower
labour costs in these areas, which have tended to keep wage rises subdued in the
OECD. This has had a positive effect on the level of global inflation. On the
other hand, rising demand in emerging regions and a lack of available new supply
has led to a sharp increase in commodity prices. This could have a lagged effect
on inflation statistics which may be reflected in a tendency for Central Banks
to raise interest rates over the next six months rather than reduce them.

Equity markets have reacted positively to this strong global growth but, after a
period of strong performance, bond markets have responded negatively to the
prospect of higher short-term interest rates. Equity valuations are supported by
rising corporate profits and, in the short-term, the rising level of dividends.
Equities remain good value compared to fixed interest but may be subject to
periods of profit taking after a healthy rise.

While not a forecast of earnings, the Board believes that, subject to any
unforeseen circumstances, the existing level of dividend will be maintained in
respect of the year ended 31 March 2007. The Board is hopeful that the Company
will be able to increase the dividend in the medium term.


Board


Hamish Buchan, after five years on the Board, is proposing to retire at the
conclusion of the Annual General Meeting in July. On behalf of shareholders I
would like to thank him for his valuable contribution to the Company.

As described in the Directors' Report on page 18, the Board has undertaken a
formal review of its own performance and that of individual Directors in the
year to 31 March 2006. The Board recommends to shareholders the re-election of
Joanna R. Davidson and myself at the Company's forthcoming Annual General
Meeting.


Annual Report and Annual General Meeting


The Annual Report will be mailed to shareholders on Wednesday 31 May 2006.
Copies may be obtained from the Managers, Glasgow Investment Managers Limited,
Sutherland House, 149 St Vincent Street, Glasgow G2 5DR after that date.


The Annual General Meeting will be held at Trinity House, Tower Hill, London
EC3N 4DH on 7 July 2006 at 12 noon.



Shires Income

Investment Managers Review

Background

The year to 31st March 2006 completed another strong period for UK equity
investors and represented the third consecutive year of positive returns. For
the year under review, the total return on the FTSE All Share Index was 28.0%
and the outcome was significantly ahead of returns in other asset classes such
as government debt and cash. Although the period included events such as the
London bombings, Hurricane Katrina and further oil price strength, equities
appreciated, with only a small correction in October 2005.

Equity investors benefited from strong company results, accompanied by profits
upgrades, and the general strengthening of corporate balance sheets. Merger and
acquisition activity gained momentum as the year progressed, fuelled by strong
demand from both the private equity and the corporate sectors. A number of well
known British companies including BOC, BPB and P&O were the subject of
successful bids. Cash was returned to investors through both bids and share buy
backs, some of which has been reinvested in equities helping to support the
stockmarket.

Continuing one of last year's trends, the Mid Cap area of the stock market
performed much better than the larger FTSE 100 companies. In the year to end
March 2006, the total return of the FTSE 250 Mid Cap index was 41.7% reflecting
the high incidence of takeovers in that part of the stock market. At the sector
level, Mining, General Financials, Aerospace and Electricity outperformed most
due to strong global economic conditions and high commodity prices. The
underperforming sectors included Food and General Retailers, Leisure and Media,
which were exposed to the slower UK domestic economy and lower retail spending.
Competition in the retail sector adversely affected the Food Producers who faced
higher input costs but were unable to reclaim those costs from price increases
to the end consumer.


Portfolio Strategy

During the year, the absolute amount of our liabilities changed very little but
the overall gearing level fell from 42.5% to 35.1%. The lower gearing was
principally due to strong growth in net assets which increased by 20.4 % to
£97.5m by the end of March 2006. During the year, £10.3m was disinvested from
equities and convertibles and reinvested into high yielding preference shares.
All these factors reduced equity gearing from 14.4% to 3.9 %.


Revenue Account

The table below sets out the main sources of the Company's income for the last
five years


Financial Year End                 2006    2005   2004    2003    2002
                                      %       %      %       %       %

Ordinary Dividends                 44.3    45.5   51.5    56.6    62.5*
    
Preference Dividends               25.6    26.9   16.4    13.4    13.3

Shires Smaller Companies plc       11.2    11.4   11.7    11.5    10.5

Fixed Interest and Bank Interest    1.9     1.5    2.7     5.0     3.2

Glasgow Dividends and Interest      0.0     0.0    0.3     0.8     3.8

Preference Share Switching          0.0     6.5    6.8     9.2     0.0

Dealing Subsidiary                  2.2   (1.5)    7.1     0.2   (0.2)

Traded Option Premiums             14.8     9.7    3.5     3.3     6.9


                                  100.0   100.0  100.0   100.0   100.0


Total Income (£000s)              7,741   7,611  7,392   7,542   8,246


* includes special dividends: 2002 - 3.6% of total income.


The Revenue Account Table identifies the sources of the portfolio's income and
the proportion generated from each area. In 2006, the largest source of income
was dividends from ordinary shares, including Shires Smaller Companies, followed
by dividends from preference shares. Together these investments generated 81.1%
of total income.


The balance of the income, at 18.9%, came from debt securities, bank interest,
traded option writing and a small amount from Wiston Investment Company, our
dealing subsidiary. Last year, the Chairman noted that the Company would be
increasing traded option writing to supplement income as preference share
switching would no longer be treated as income under the new accounting rules.


The total income generated by the portfolio increased from £7.61m to £7.74m
during the year.


Equities

The value of the listed equity portfolio increased from £81.9m to £ 90.5m, and
by the end of March 2006 accounted for 92.8% of net assets.

The portfolio's three largest sector exposures were to Financials, Consumer
Services and Industrials. The underweight positions continued to be in Oil &
Gas, Technology, Telecom and Health Care. Two of the portfolio's holdings were
taken over. BPB was bid for by the French construction group, St Gobain while P&
O was eventually acquired by Dubai Ports after an auction developed between them
and Singapore Ports, a rival operator. Both companies were acquired at
considerable premiums to their pre-bid share prices.

During the year, a number of changes were made to the portfolio, especially to
investments in the Financial sector. In the Banking sector, the holding in
Barclays was sold due to concerns about their overseas acquisition strategy. The
proceeds were re-invested in Alliance & Leicester which focuses on the UK
mortgage and savings markets.

The existing investment in Lloyds TSB was increased as the results and dividend
cover improved. In the Insurance sectors, the holdings in large companies such
as Aviva and Royal & Sun Alliance were sold and switched into smaller, higher
growth companies. New holdings were established in Highway Insurance which is a
motor insurer, Friends Provident and, latterly, Jardine Lloyd Thompson where new
management has been appointed. Real Estate forms part of the Financials exposure
and two new issues joined the portfolio. Dawnay Day Carpathian is a company
which specialises in retail developments in Eastern Europe while Bulgarian Land
Development is involved in residential property schemes. Both investments also
provide above average dividend yields.

Competition and cost price inflation took its toll on the Food Producers sector.
As the trading outlook deteriorated, the risk of downgrades at Northern Foods
increased and, despite the high dividend yield, the holding was sold. In its
place, a holding was established in Tate & Lyle where international earnings and
growth in Splenda, its branded sugar substitute, support the healthy yield.

The tough retail climate prompted the sale of the holding in Marks & Spencer
after a period of re-rating by the stock market.

In the Industrial sectors, the BBA holding was increased following conversion of
their convertible preference shares in May 2005. A new holding was established
in Titan Europe when the company announced a placing to acquire a wheel
manufacturer in Italy. Titan is a specialist manufacturer of wheels for
construction and mining vehicles. The holding in ATH Resources was increased
after the company had a placing during the year to acquire two new open cast
coal mines in Scotland.

Finally, a new investment was made in Rentokil Initial. The support services
company is undergoing a major re-organisation and re-focusing of its businesses.


Shires Smaller Companies plc

Smaller companies have performed strongly over recent years relative to larger
companies. There has been demand for shares in Shires Smaller Companies plc and
it was deemed prudent to take the opportunity to reduce our holding. On 31
January 2006 2,286,808 shares were sold at a small discount to market price
reducing the holding from 28.4% to 18.1% of Shires Smaller Companies plc issued
share capital.


MacKintosh High Income OEIC

In March 2006 Glasgow launched an OEIC which aims to provide a high yield. This
fund will invest primarily in FTSE 100 shares but will also have exposure to
corporate bonds. On 10 March 2006 Shires Income plc invested £1.2 million in the
fund, with a further £3.8 million invested after 31 March 2006.


Convertibles

During the year, around £1.05m was realised from convertibles and the value of
the portfolio declined from £7.5m to £6.9m. The main events were the redemption
of the BBA 6.75% convertible preference shares at the end of May 2005 and the
reconstruction of My Travel bonds in August.


Preference Shares

During the year, there was net investment of £5.8m in the preference share
portfolio. The holdings in R.E.A. 9% and Halifax 6.125% were sold and funds
invested across the other existing holdings including Aviva 8.75%, Standard
Chartered 8.25% and Royal & Sun Alliance 7.375%. The preference share portfolio
contributed 25.6% of the income to the revenue account during the year.


Investment Performance Analysis

                                                              2006
                                                          Contribution
                                                                %


FTSE All-Share Index, total return                            28.0

Equities (inc Shires Smaller Companies) relative to benchmark -0.1

Equity Gearing                                                 1.4

Fixed Income portfolio, total return                           7.2

Unlisted Investments, including Glasgow                        0.1

Option writing and hedging activity                           -1.9

Index Linked Debenture Stock                                  -2.9

Other Financing Costs and Expenses                            -1.9


Total Return on Net Assets                                    29.9


The total return of the company during the year outperformed the FTSE All-Share
Index. Equity stock selection was broadly in line with the Index, with positive
contributions coming from being geared to equities during the year and from the
fixed income portfolio. Option writing and the hedging arrangements were
negative influences during the year along with the cost of the Index Linked
Debenture Stock and the expenses associated with running the Company.


Prospects

The global economic background is encouraging for investors and supports further
growth in company profits. In the UK, consensus growth in corporate earnings is
forecast to be 7.4% in 2006 followed by 6.0% in 2007. Dividends are also
expected to grow by around 9% in the current year. Add merger and acquisition
activity to the positive earnings and dividend forecasts and equities remain
attractive compared to other asset classes. The main risk to the outlook comes
from higher than expected inflation and the consequent impact on interest rate
policy. The recent setback in equity markets reflects those concerns.
Macroeconomic events are likely to cause further short bouts of consolidation,
but the longer term outlook for UK equities remains positive.



Shires Income plc
Consolidated Income Statement
for the year ended 31 March 2006
                                   2006                         2005
                      Revenue   Capital   Total    Revenue   Capital   Total
                       £000      £000      £000     £000      £000      £000

Gains on
investments at
fair value                -    18,088    18,088        -    11,353    11,353
INVESTMENT INCOME
Dividend Income       6,282         -     6,282    6,754         -     6,754
Interest Income         123      (102)       21      157       (98)       59
Traded Option
Premiums              1,138         -     1,138      734         -       734
Deposit Interest         15         -        15        8         -         8
Other Revenue on
Financial Assets
held for trading         10         -        10        2         -         2
Income of dealing
subsidiary              173         -       173      (44)        -       (44)
                     --------  --------  --------   ------   -------   -------
                      7,741    17,986    25,727    7,611    11,255    18,866
                     --------  --------  --------   ------   -------   -------
EXPENSES
Investment
Management fee         (246)     (246)     (492)    (202)     (202)     (404)
Other
Administrative
expenses               (409)        -      (409)    (401)        -      (401)
Finance cost of
borrowings           (1,294)   (1,345)   (2,639)  (1,198)   (1,249)   (2,447)
                     --------  --------  --------   ------   -------   -------
                     (1,949)   (1,591)   (3,540)  (1,801)   (1,451)   (3,252)
                     --------  --------  --------   ------   -------   -------
PROFIT BEFORE TAX     5,792    16,395    22,187    5,810     9,804    15,614
Tax expense               -         -         -        -         -         -
                     --------  --------  --------   ------   -------   -------
PROFIT
ATTRIBUTABLE TO
EQUITY HOLDERS OF
THE COMPANY           5,792    16,395    22,187    5,810     9,804    15,614
                     --------  --------  --------   ------   -------   -------
Earnings per
ordinary share
(pence)               19.51p    55.24p    74.75p   19.58p    33.04p    52.62p


The total column of this statement represents the Group's Income Statement,
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 Trust Companies.


All items shown in the above statement derive from continuing operations.


Note: The financial information set out above and on the following pages does
not constitute the Company's statutory accounts for the years ended 31 March
2005 and 2006 but is derived from those accounts. Statutory accounts for 2005
have been delivered to the Registrar of Companies and those for 2006 will be
delivered following the Company's annual general meeting. The auditors have
reported on the 2005 accounts as originally stated and their reports were
unqualified in respect to both years and did not contain statements under
section 237(2) or (3) of the Companies Act 1985.


The following table shows the revenue for each year under IFRS less the
dividends declared in respect of the financial year to which they relate. This
table is not part of the Consolidated Income Statement.
                                                  Year to               Year to
                                            31 March 2006         31 March 2005
                                                   £000                  £000

Revenue for the period                            5,792                 5,810
Dividends for the period                         (5,715)*              (5,715)+
                                            -------------         -------------
                                                     77                    95
                                            -------------         -------------


*Relates to first three interim dividends (each 4.4p) and the final dividend
(6.05p) declared in respect of the financial year 2005/06.

+ Relates to first three interim dividends (each 4.4p) and the final dividend
(6.05p) declared in respect of the financial year 2004/05.


Shires Income plc

Group Balance Sheet
as at 31 March 2006
                                                           2006           2005
                                                           £000           £000
NON CURRENT Assets
Ordinary Shares                                          90,493         81,897
Convertibles                                              6,955          7,538
Other fixed interest                                     30,406         22,748
Hedge Instruments                                           362            716
Unlisted Investments                                      3,498          3,213
                                                    -------------  -------------
                                                        131,714        116,112
                                                    -------------  -------------
Current Assets
Trade and other receivables                                  30             30
Accrued income and prepayments                            1,614          1,770
Financial assets of dealing subsidiary                      501            995
Cash and cash equivalents                                 1,212              2
Hedge Instruments                                             -            126
                                                    -------------  -------------
                                                          3,357          2,923
                                                    -------------  -------------
Current Liabilities
Trade and other payables                                   (733)          (409)
Short-term borrowings                                   (10,315)       (11,105)
Hedge Instruments                                             -           (753)
                                                    -------------  -------------
                                                        (11,048)       (12,267)
                                                    -------------  -------------

non Current Liabilities
Index Linked Debenture Stock                            (26,499)       (25,716)
                                                    -------------  -------------
Net Assets                                               97,524         81,052
                                                    -------------  -------------

Issued capital and reserves attributable to equity
holders of the parent
Called up share capital                                  14,888         14,888
Share premium account                                    18,936         18,987
Retained Earnings
Realised capital reserve                                 32,667         27,714
Unrealised capital reserve                               23,615         12,122
Revenue reserves                                          7,418          7,341
                                                    -------------  -------------
SHAREHOLDERS' FUNDS                                      97,524         81,052
                                                    -------------  -------------

Net asset value per ordinary share (pence)                328.4p         272.9p






Shires Income plc

Consolidated Cash Flow Statement
for the year ended 31 March 2006


                                                              2006        2005
                                                              £000        £000

CASH FLOWS FROM Operating activities

Investment income received                                   6,550       7,062

Deposit interest received                                       12          10

Investment management fee paid                                (506)       (421)

Sales less purchases of current financial assets held for
trading                                                        667        (834)

Other cash receipts                                          1,099         722

Other cash expenses                                           (332)       (339)
                                                           ---------  ----------

CASH GENERATED FROM OPERATIONS                               7,490       6,200

Interest paid                                               (1,854)     (1,612)

Taxation                                                         -           -
                                                           ---------  ----------

NET CASH INFLOWS FROM OPERATING ACTIVITIES                   5,636       4,588
                                                           ---------  ----------

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of investments                                    (55,325)    (78,918)

Sale of investments                                         60,125      69,833

Purchase of hedge instruments                               (2,722)        (72)

Sale of hedge instruments                                        -         100
                                                           ---------  ----------

NET CASH INFLOW/(OUTFLOW) FROM INVESTING ACTIVITIES          2,078      (9,057)
                                                           ---------  ----------

CASH FLOWS FROM FINANCING ACTIVITIES

Equity dividends paid                                       (5,715)     (5,715)
                                                           ---------  ----------

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS         1,999     (10,184)

Cash and cash equivalents at start of period               (11,102)       (918)
                                                           ---------  ----------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                  (9,103)    (11,102)
                                                           ---------  ----------

CASH AND CASH EQUIVALENTS comprise:

Cash and cash equivalents                                    1,212        (102)

Short-term borrowings                                      (10,315)    (11,000)
                                                           ---------  ----------

                                                            (9,103)    (11,102)
                                                           ---------  ----------



Shires Income plc

Consolidated Statement of Changes in Equity
for the year ended 31 March 2006


                                       Realised  Unrealised Retained
                        Share    Share  Capital     Capital  Revenue
                      Capital  Premium  Reserve     Reserve  Reserve  Total
                       £000     £000     £000        £000     £000     £000


AS AT APRIL 2004     14,888   19,038   27,871       2,111    7,246   71,154
                     -------- -------- --------    -------- --------  -------
Revenue profit for
the year                  -        -        -           -    5,810    5,810

Capital profit for
the year                  -      (51)    (157)     10,011        -    9,803

Equity dividends          -        -        -           -   (5,715)  (5,715)
                     -------- -------- --------    -------- --------  -------

AS AT 31 MARCH 2005  14,888   18,987   27,714      12,122    7,341   81,052

Revenue profit for
the year                  -        -        -           -    5,792    5,792

Capital profit for
the year                  -      (51)   4,953      11,493        -   16,395

Equity dividends          -        -        -           -   (5,715)  (5,715)
                     -------- -------- --------    -------- --------  -------

AS AT 31 MARCH 2006  14,888   18,936   32,667      23,615    7,418   97,524
                     -------- -------- --------    -------- --------  -------




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