Half-year Report

RNS Number : 7629W

Shires Income PLC

17 November 2017

 

SHIRES INCOME PLC

HALF YEARLY FINANCIAL REPORT

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2017

Legal Entity Identifier (LEI): 549300HVCIHNQNZAYA89

INVESTMENT OBJECTIVE

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 fixed income securities.

HIGHLIGHTS

	30 September 2017	31 March 2017	% change
Equity shareholders' funds (£'000)	84,805	81,477	+4.1
Net asset value per share	282.71p	271.61p	+4.1
Share price (mid-market)	267.00p	243.25p	+9.8
Discount to net asset value	5.56%	10.44%
Dividend yield	4.78%	5.20%
Net gearingA	18.4%	21.1%
Ongoing charges ratioB	0.97%	1.04%
A              Calculated in accordance with AIC guidance "Gearing Disclosures post RDR".
B                Ongoing charges ratio calculated in accordance with guidance issued by the AIC as the total of the investment management fee and administrative expenses (annualised) divided by the average cum income net asset value throughout the year. The ratio for 30 September 2017 is based on forecast ongoing charges for the year ending 31 March 2018.

PERFORMANCE (TOTAL RETURN)

	6 months ended	1 year ended	3 years ended	5 years ended
	30 September	30 September	30 September	30 September
	2017	2017	2017	2017
Net asset value	+6.7%	+14.6%	+33.3%	+81.1%
Share price	+12.8%	+23.5%	+29.8%	+66.9%
FTSE All-Share Index	+3.6%	+11.9%	+27.8%	+61.2%
All figures are for total return and assume re-investment of net dividends excluding transaction costs.

For further information, please contact:

Colin Edge                                                                                                                             020 7463 6000

Aberdeen Asset Managers Limited

INTERIM  BOARD REPORT - CHAIRMAN'S STATEMENT

This is my first Chairman's Statement following the retirement of Tony Davidson at the Company's Annual General Meeting on 11 July 2017. I would like to thank Tony for his excellent stewardship of your Company during the period of nearly nine years that he was Chairman.

Background

Compared to the strong gains that characterised the start of 2017, market returns were more muted during the period under review. They have, however, been positive and reflective of a more normalised level of return. Smaller companies have, on average, performed approximately twice as strongly as the broader market.

Politics has dominated sentiment surrounding the domestic economy.  Brexit has been at the forefront of investors' minds and the associated uncertainty was increased by Theresa May's decision to call a snap general election and the ensuing result that saw her party lose its majority.  Markets reacted quite calmly, and as Sterling weakened further this provided additional support for businesses with significant levels of overseas earnings.

Inflation remained at a relatively high level during the period and, although the initial impact of Sterling weakness is beginning to moderate on an annual basis, the elevated level of inflation combined with the low level of unemployment led the Bank of England to suggest that interest rates were likely to rise sooner rather than later.  Equity markets took the news in their stride given expectations of limited tightening, although recognising that any increase would further squeeze the consumer who was already suffering from the effects of higher inflation and low wage growth. Since the end of the period, the Bank of England has increased interest rates by 0.25%, the first such move since 2007.

The first quarter's reporting season for corporate earnings was characterised by solid aggregate results.  One theme was the clear sign of improvement in the health of European economies as the region as whole made progress.  A number of potentially troublesome elections were navigated without the feared populist and anti-EU agenda making significant progress.  In Italy, the government was able to recapitalise some of the more distressed banks without re-igniting a debt crisis. And, although the Brexit negotiations have seen the expected political positioning taking place, there have been occasional signs that there is a growing realisation that an agreeable resolution is in all parties' interests.  However a more abrupt exit remains a risk for the UK domestic economy.

The US economy has also prospered over the period.  Despite the sabre rattling over North Korea, the political tensions relating to the 2018 budget and the need to extend the debt ceiling, growth has been sufficiently strong to allow the Federal Reserve to increase interest rates for a second time this year.

The oil price has continued to be volatile and, indeed, it declined by almost 20% between April and June before rebounding to finish the period ahead of where it started. The portfolio remains underweight to the oil and gas producers but such significant swings in the commodity's price can have a marked effect on relative performance.

Both the main political parties in the UK have been indicating a rising preparedness to intervene in various industries and this could inject some added uncertainty.  With specific regard to the challenges being posed to the power providers, the portfolio's only direct exposure is to National Grid, and therefore the impact of this action has been limited.

Investment Performance

During the six month period ended 30 September 2017, the Company's net asset value per share increased by 4.1% from 271.61p to 282.71p.  The total return on net assets, which includes dividends paid, was 6.7%, representing an outperformance of our benchmark, the FTSE All-Share Index, which reported a total return of 3.6%.  The total return of the Company's share price was 12.8% and there was a pleasing reduction in the discount from 10.4% to 5.6%.

Portfolio Profile

Seven new holdings were introduced into the equity portfolio during the period. The Manager has continued to take advantage of opportunities to invest in a small number of high quality overseas companies, bringing an exposure to the portfolio that is difficult to replicate in the UK.  Importantly, these investments create further diversification of the portfolio's dividend stream, thereby reducing the Company's dependency on some of the very significant dividend paying companies that dominate the UK market.  No new investments were made in preference shares or convertible securities during the period.

Unibail-Rodamco, a French company, is Europe's largest listed commercial property company active in the development, investment and operations of shopping centres, offices and convention and exhibition venues.  The business benefits from a portfolio of high quality assets and a strong balance sheet.  The rental streams provide a high level of earnings visibility which manifest themselves in an attractive dividend that has been growing ahead of inflation. 

As the largest food and beverage company in the world, Nestle, which is listed in Switzerland, has an unmatched product and brand portfolio and genuine global reach.  This includes 34 brands that generate sales in excess of CHF 1 billion each.  The small value, everyday purchase consumable nature of what they sell results in an attractive and relatively predictable earnings stream. Although the dividend yield is only 2.8% it is regarded as a safer investment and, additionally, there is the potential for a marked increase in the rate of dividend growth.

Euromoney is a UK-based provider of high value data and analytics to the banking, asset management and commodity sectors. With 90% of their content being proprietary they have no direct competitors.  Approximately one third of revenues are derived from emerging markets.  The business has been through a transition that has seen them shed traditional print and advertising based assets and replace them with digital content, sponsorship and events. 

Nordea is a Swedish company and the largest bank in the Nordic region, with over 10 million retail customers. Additionally it is the largest private bank, asset manager and life and pensions provider in the region. Nordea management is highly regarded, with a strong reputation for shareholder value creation. The company has one of the strongest credit ratings of any international bank and successfully navigated the financial crisis without any government support.

GIMA, an Italian company, produces packaging machines for tobacco companies.  A key opportunity for the business lies in the field of next generation products ('NGPs').  They have a 65% share in this market.  The tobacco companies are directing increasing proportions of their capital expenditure budgets towards NGPs and it is anticipated that these products could become significant revenue generators for them in the medium term. 

Big Yellow is the UK's leading provider of self-storage facilities.  Although this is a very fragmented market, new supply is constrained by the difficulty of finding suitable sites.  There is significant potential for growth in demand as product awareness rises.  Demand is correlated with housing transactions as customers use storage when they move house.  There is, however, no obvious correlation with house prices.  Around 1/3 of their space is occupied by businesses, with this market being driven by the rise of small scale e-commerce. 

LondonMetric Property is a UK-based company which specialises in owning distribution centres for omni-channel retailing.  The growth of e-commerce drives an increasing need for logistics space because of the requirement to carry deeper stock levels and, importantly, to be able to handle returns.  Supply remains constrained because the sites with the most favourable transport logistics are largely already occupied.

During the period, two companies in the portfolio conducted fundraisings in which the Company participated.

Assura Group is seeing increasing opportunities to both purchase and develop General Practitioner facilities.  The fundraising will allow them to accelerate their progress whilst retaining a suitably conservative balance sheet. 

Ultra Electronics conducted a fundraising to help fund its acquisition of Sparton Corporation.  Ultra has a joint venture with Sparton for the production of sonobouys for the US market.  The deal will strengthen the company in an area of core competency, move them closer to an important customer and increase their exposure to an area of defence expenditure that is well set for long term growth.

Three holdings were exited during the period.

Provident Financial issued a series profit warnings as they have sought to transition their Home Collected Credit business from one that largely utilises self-employed agents to one where the staff are employees of the company.  This has caused significant disruption to both collections and new lending.  In addition it has emerged that the company has agreed with the Financial Conduct Authority that the Vanquis Bank business will stop selling a very profitable supplementary product.  With the uncertainty caused by the associated investigation, the possibility of regulatory redress, and the potential that these events could impact the business's liquidity profile it was decided to sell the holding.

Pearson needs to make significant changes to its US Higher Education business model.  Whilst there may be a sizable opportunity, it is currently difficult to determine the likelihood of success. In light of this and, despite the fact that it has already been cut, it is difficult to be confident about the future growth prospects for the dividend. Therefore the holding was exited.

Elementis have acquired the personal care business Summit Reheisis.  Although this is in line with their strategy, the scale of the acquisition will limit the company's dividend paying capability for some time, so it was decided to sell the holding.

Investment Income

There have been welcome increases in the dividends paid by some of the holdings in the portfolio.  British American Tobacco, Hansteen, Imperial Brands, Prudential, Unilever and Schroders were among the companies that announced increases of 10% or more.  BHP Billiton delivered a trebling of its final dividend as its earnings began to recover from the declines that had led to the prior year's reduced distribution.  In line with the Company's objective, we pay careful attention both to the absolute level of dividends from investee companies but also the potential for them to grow.

For many holdings, the weakness of Sterling played a role in the early part of the period.  Some of the dividends received from companies such as Royal Dutch Shell, Vodafone and BP increased by in excess of 10% despite the fact that the actual US Dollar or Euro-based dividends that they declared were unchanged.  This effect had largely annualised by the end of the period under review and, absent further changes in foreign currency rates, it is not expected to repeat during the second half. 

Although Pearson's decision to cut the dividend was announced in the previous financial year the negative impact from the reduction has been felt this year.  However, and despite the travails experienced by Provident Financial as described above, the level of investment income received by the Company during the period actually increased, contributing to revenue earnings per share of 7.44p, an increase of 6.0% compared to the equivalent period last year. 

Dividends

A first interim dividend of 3.0p per share in respect of the year ending 31 March 2018 was paid on 27 October 2017. The Board declares a second interim dividend of 3.0p per share, payable on 26 January 2018 to shareholders on the register at close of business on 5 January 2018. Subject to unforeseen circumstances, it is proposed to pay a further interim dividend of 3.0p per share prior to the Board deciding on the rate of final dividend at the time of reviewing the full year results.

The current annual rate of dividend is 12.75p per share, representing a dividend yield of 4.8% based on the share price of 267.0p at 30 September 2017. The Board considers that one of the key attractions of the Company is its high level of income and recognises that, in the current economic environment, there is likely to be a continuing demand for an attractive and reliable level of income. Whilst the Company aims to cover its annual dividend cost with net income, the Board is conscious of the significant revenue reserves, which amounted to 1.3 times the annual dividend cost as at 30 September 2017.

Gearing

Gearing decreased during the period from 21.1% to 18.4%.  The primary cause of this was the increase in net assets since the previous year-end. There has been no significant change to the overall allocations in the portfolio. Fixed interest securities represented 27.1% of total assets at the end of the period, the increase compared to the prior year-end being due to the strength of their performance. Equities dipped below 70% of total assets in large part because Pearson was exited very close to the period end and the proceeds were held as cash.

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 should prove less volatile than equities and do bring a further element of diversification to the Company's total revenue stream. At the period-end, these fixed interest securities had a value of £28.2 million, materially in excess of borrowings of £19 million.

Since the end of the period, the Company has announced that it has entered into a new £20 million loan facility agreement with Scotiabank Europe PLC (the "New Facility"). The New Facility is for a three year period to 30 October 2020 and replaces the Company's previous £20 million loan facility agreement with Scotiabank Europe PLC which was due to mature on 19 December 2017.

Under the terms of the New Facility, a £10 million fixed rate loan has been drawn down at an all-in interest rate of 1.956% per annum. This rate of interest is fixed until the maturity of the facility on 30 October 2020 and the proceeds have been used to repay the Company's previous £10 million fixed rate loan which had an all-in interest rate of 2.103% per annum. In repaying the previous fixed rate loan early, the Company has incurred a small break cost.

In addition, £9 million has been drawn down on a revolving basis, at an initial all-in interest rate of 1.3782% per annum, with first maturity on 1 December 2017, and the proceeds have been used to repay the Company's previous drawings under the old facility.

Following the drawdowns under the New Facility, the Company's borrowings are unchanged at £19 million.

Investment Objective

Shareholders may have noticed that we have made minor changes to the wording of the Company's investment objective, which is included above. The changes are not significant and do not therefore require shareholder approval, and are designed to align the wording of the objective more closely to the investment policy, which has not changed. However the Board believes that the wording makes clearer the diversified sources of income generation.

Manager

The Board notes the recent completion of the merger between Aberdeen Asset Management PLC, which is the parent company of the Manager, and Standard Life PLC. The Board will continue to monitor developments closely to ensure that satisfactory arrangements are in place for the continued effective management of the Company.

Outlook

Any debate regarding the prospects for the domestic economy is dominated by the Brexit process.  Currently there is little clarity regarding the outcome which will materialise, how long it will take to reach or how much it will cost.  Such an environment creates material uncertainty for investors.  However, companies and fund managers alike need to work with the information that they have.  The Board has reviewed the portfolio with the Manager who believes that, although the companies in the portfolio will be impacted to indeterminate and varying degrees, they typically have sound balance sheets and management teams with significant international expertise.  These two characteristics confer a level of optionality that will allow them to address the challenges that arise.  The complexities and indeed costs of doing business may increase but these should not be insurmountable.  More tangibly, the portfolio remains overweight to overseas earnings and by consequence it is underweight in its direct exposure to the more consumer orientated cyclical domestic companies.  Although economic prospects are not a direct proxy for the performance of stock markets, this positioning might be expected to provide some protection in the event of a deterioration in the performance of the UK economy.

In the meantime, the domestic economic fundamentals show rising inflation, with the CPI reading reaching 3% in September.  The upward pressure arose principally from food and transport costs which have been pushed higher by the weakness in Sterling.  At the time of the increase in interest rates following the period-end, the Governor of the Bank of England, Mark Carney, also expressed a view that no further increases are expected in the near term.  The Manager believes that the companies in the portfolio have sufficient funding and liquidity to allow them to cope with any tightening of credit conditions. 

Although the major central banks are at different points in the interest rate cycle, they are generally pointing towards a tightening of monetary conditions and a reduction in either the rate of or absolute size of their stimulus packages.  This all suggests that policy makers have a broadly favourable view of the outlook for their economies.  Indeed when one considers the outlook for the global economy the prognosis is quite positive.  Although there is the potential for additional political disruption, investors have so far looked through this and focussed on the fundamentals. 

The US economy is continuing to grow strongly and, whilst this will inevitably slow at some point, Europe is recovering well and growth is picking up across the region.  Elsewhere, the increasingly significant Chinese and Indian economies also appear on good growth trajectories. In the former, the recent Communist Party Congress seemed to re-emphasise the importance of further developing domestic demand while the reform agenda in the latter still appears intact.

Valuations, and in particular those of good quality companies, remain elevated, and any disappointment in the levels of growth achieved has the potential to result in a de-rating of equities.  For the time being, and despite the fact that we are entering a rising interest rate cycle, markets are in an optimistic frame of mind.  However, the number of potential political and geopolitical flashpoints that could materialise, together with the uncertainty generated by the likely scaling back of central bank support to global financial markets, should make investors vigilant to the possibility of more volatile  market returns than have been enjoyed over the last few years.

Robert Talbut

Chairman

17 November 2017

INTERIM BOARD REPORT - OTHER MATTERS

Directors' Responsibility Statement

The Directors are responsible for preparing the Half Yearly Financial Report in accordance with applicable law and regulations. The Directors confirm that to the best of their knowledge:

-       the condensed set of financial statements within the Half Yearly Financial Report has been prepared in accordance with IAS 34 'Interim Financial Reporting'; and

-       the Interim Board Report (constituting the Interim Management Report) includes a fair review of the information required by rules 4.2.7R of the Disclosure Guidance and Transparency Rules (being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements and a description of the principal risks and uncertainties for the remaining six months of the financial year) and 4.2.8R (being related party transactions that have taken place during the first six months of the financial year and that have materially affected the financial position of the Company during that period; and any changes in the related party transactions described in the last Annual Report that could so do).

Principal Risks and Uncertainties

The Board regularly reviews the principal risks and uncertainties faced by the Company together with the mitigating actions it has established to manage the risks. These are set out within the Strategic Report contained within the Annual Report for the year ended 31 March 2017 and comprise the following risk headings:

-       Investment performance

-       Failure to maintain and grow the dividend over the longer term

-       Widening of discount

-       Financial and economic

-       Gearing

-       Regulatory

-       Operational

In addition to these risks, the Board considers that there may be an increase in economic risk should satisfactory progress not be made in the UK Government's negotiations with the European Union in respect of the UK's decision in the 2016 referendum to leave the European Union. In all other respects, the Company's principal risks and uncertainties have not changed materially since the date of the Annual Report and are not expected to change materially for the remaining six months of the Company's financial year.

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 30 October 2020. 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.

On behalf of the Board

Robert Talbut

Chairman

17 November 2017

DISTRIBUTION OF ASSETS AND LIABILITIES

	Valuation at		Movement during the period				Valuation at
	31 March 2017		Purchases	Sales	Other	Gains	30 September 2017
	£'000	%	£'000	£'000	£'000	£'000	£'000	%
Listed investments
Equities	72,118	88.5	4,158	(6,295)	-	1,742	71,723	84.6
Convertibles	575	0.7	-	-	(20)	(2)	553	0.7
Other Fixed Interest	25,133	30.9	-	-	(28)	2,563	27,668	32.6
	______	______	______	______	______	______	______	______
Total investments	97,826	120.1	4,158	(6,295)	(48)	4,303	99,944	117.9
Current assets	2,881	3.5					4,236	5.0
Current liabilities	(19,230)	(23.6)					(19,375)	(22.9)
	______	______					______	______
Net assets	81,477	100.0					84,805	100.0
	______	______					______	______
Net asset value per Ordinary share	271.61p						282.71p
	______						______

CONDENSED STATEMENT OF COMPREHENSIVE INCOME

		30 September 2017
		(unaudited)
		Revenue	Capital	Total
	Note	£'000	£'000	£'000
Gains on investments at fair value		-	3,352	3,352
Currency losses		-	(21)	(21)
Investment income
Dividend income		2,265	-	2,265
Interest income/(expense)		284	(52)	232
Stock dividends		17	-	17
Traded option premiums		81	-	81
Other income		-	-	-
Money market interest		1	-	1
Underwriting commission		-	-	-
		_______	_______	_______
		2,648	3,279	5,927
		_______	_______	_______
Expenses
Management fee		(108)	(108)	(216)
Administrative expenses		(203)	-	(203)
Finance costs		(79)	(79)	(158)
		_______	_______	_______
		(390)	(187)	(577)
		_______	_______	_______
Profit before taxation		2,258	3,092	5,350
Taxation	2	_______	_______	_______
Profit attributable to equity holders	4	2,232	3,114	5,346
		_______	_______	_______
Earnings per Ordinary share (pence)	4	7.44	10.38	17.82
		_______	_______	_______
The Company does not have any income or expense that is not included in the profit for the period, and therefore the profit for the period is also the "Total comprehensive income for the period", as defined in IAS 1 (revised).
The total column of this statement represents the Condensed 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 the financial statements.

CONDENSED STATEMENT OF COMPREHENSIVE INCOME (Cont'd)

		30 September 2016
		(unaudited)
		Revenue	Capital	Total
	Note	£'000	£'000	£'000
Gains on investments at fair value		-	8,822	8,822
Currency gains		-	2	2
Investment income
Dividend income		1,928	-	1,928
Interest income/(expense)		287	(49)	238
Stock dividends		171	-	171
Traded option premiums		91	-	91
Other income		-	-	-
Money market interest		3	-	3
Underwriting commission		-	-	-
		_______	_______	_______
		2,480	8,775	11,255
		_______	_______	_______
Expenses
Management fee		(97)	(97)	(194)
Administrative expenses		(189)	-	(189)
Finance costs		(84)	(84)	(168)
		_______	_______	_______
		(370)	(181)	(551)
		_______	_______	_______
Profit before taxation		2,110	8,594	10,704
Taxation	2	(3)	3	-
		_______	_______	_______
Profit attributable to equity holders	4	2,107	8,597	10,704
		_______	_______	_______
Earnings per Ordinary share (pence)	4	7.02	28.66	35.68
		_______	_______	_______

CONDENSED STATEMENT OF COMPREHENSIVE INCOME (Cont'd)

		31 March 2017
		(audited)
		Revenue	Capital	Total
	Note	£'000	£'000	£'000
Gains on investments at fair value		-	12,856	12,856
Currency gains		-	7	7
Investment income
Dividend income		3,603	-	3,603
Interest income/(expense)		569	(101)	468
Stock dividends		259	-	259
Traded option premiums		204	-	204
Other income		55	-	55
Money market interest		4	-	4
Underwriting commission		1	-	1
		_______	_______	_______
		4,695	12,762	17,457
		_______	_______	_______
Expenses
Management fee		(198)	(198)	(396)
Administrative expenses		(386)	-	(386)
Finance costs		(164)	(164)	(328)
		_______	_______	_______
		(748)	(362)	(1,110)
		_______	_______	_______
Profit before taxation		3,947	12,400	16,347
Taxation	2	(22)	20	(2)
		_______	_______	_______
Profit attributable to equity holders	4	3,925	12,420	16,345
		_______	_______	_______
Earnings per Ordinary share (pence)	4	13.08	41.41	54.49
		_______	_______	_______

CONDENSED BALANCE SHEET

		As at	As at	As at
		30 September	30 September	31 March
		2017	2016	2017
		(unaudited)	(unaudited)	(audited)
	Note	£'000	£'000	£'000
Non-current assets
Equities		71,723	68,298	72,118
Convertibles		553	560	575
Other fixed interest		27,668	25,396	25,133
		_______	_______	_______
Securities at fair value		99,944	94,254	97,826
		_______	_______	_______
Current assets
Trade and other receivables		30	20	126
Accrued income and prepayments		844	765	982
Cash and cash equivalents		3,362	1,821	1,773
		_______	_______	_______
		4,236	2,606	2,881
		_______	_______	_______
Total assets		104,180	96,860	100,707
Creditors: amounts falling due within one year
Trade and other payables		(375)	(223)	(230)
Short-term borrowings		(19,000)	(9,000)	(19,000)
		_______	_______	_______
		(19,375)	(9,223)	(19,230)
		_______	_______	_______
Net current liabilities		(15,139)	(6,617)	(16,349)
		_______	_______	_______
Total assets less current liabilities		84,805	87,637	81,477
Non-current liabilities
Long-term borrowings		-	(10,000)	-
		_______	_______	_______
Net assets		84,805	77,637	81,477
		_______	_______	_______
Share capital and reserves
Called-up share capital		15,049	15,049	15,049
Share premium account		19,308	19,308	19,308
Capital reserve	6	43,726	36,789	40,612
Revenue reserve		6,722	6,491	6,508
		_______	_______	_______
Equity shareholders' funds		84,805	77,637	81,477
		_______	_______	_______
Net asset value per Ordinary share (pence)	5	282.71	258.81	271.61
		_______	_______	_______
The accompanying notes are an integral part of the financial statements.

CONDENSED STATEMENT OF CHANGES IN EQUITY

Six months ended 30 September 2017 (unaudited)
		Share		Retained
	Share	premium	Capital	revenue
	capital	account	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000
As at 31 March 2017	15,049	19,308	40,612	6,508	81,477
Revenue profit for the period	-	-	-	2,232	2,232
Capital profit for the period	-	-	3,114	-	3,114
Equity dividends	-	-	-	(2,018)	(2,018)
	_______	_______	_______	_______	_______
As at 30 September 2017	15,049	19,308	43,726	6,722	84,805
	_______	_______	_______	_______	_______
Six months ended 30 September 2016 (unaudited)
		Share		Retained
	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 period	-	-	-	2,107	2,107
Capital profit for the period	-	-	8,597	-	8,597
Equity dividends	-	-	-	(1,869)	(1,869)
	_______	_______	_______	_______	_______
As at 30 September 2016	15,049	19,308	36,789	6,491	77,637
	_______	_______	_______	_______	_______
Year ended 31 March 2017 (audited)
		Share		Retained
	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	-	-	-	(3,670)	(3,670)
	_______	_______	_______	_______	_______
As at 31 March 2017	15,049	19,308	40,612	6,508	81,477
	_______	_______	_______	_______	_______

CONDENSED CASH FLOW STATEMENT

	Six months ended	Six months ended	Year ended
	30 September 2017	30 September 2016	31 March 2017
	(unaudited)	(unaudited)	(audited)
	£'000	£'000	£'000
Net cash inflow from operating activities
Dividend income received	2,409	2,098	3,423
Interest income received	283	295	721
Options premium received	76	80	204
Other income	-	-	55
Money market interest received	1	3	4
Management fee paid	(211)	(185)	(385)
Other cash expenses	(222)	(153)	(349)
	__________	__________	__________
Cash generated from operations	2,336	2,138	3,673
Interest paid	(158)	(168)	(327)
Overseas taxation	(8)	-	(4)
	__________	__________	__________
Net cash inflows from operating activities	2,170	1,970	3,342
	__________	__________	__________
Cash flows from investing activities
Purchases of investments	(4,011)	(5,468)	(9,092)
Sales of investments	5,469	5,313	9,313
	__________	__________	__________
Net cash inflow/(outflow) from investing activities	1,458	(155)	221
	__________	__________	__________
Cash flows from financing activities
Equity dividends paid	(2,018)	(1,869)	(3,670)
	__________	__________	__________
Net cash outflow from financing activities	(2,018)	(1,869)	(3,670)
	__________	__________	__________
Net increase/(decrease) in cash and cash equivalents	1,610	(54)	(107)
	__________	__________	__________
Reconciliation of net cash flow to movements in cash and cash equivalents
Increase/(decrease) in cash and cash equivalents as above	1,610	(54)	(107)
Net cash and cash equivalents at start of period	1,773	1,873	1,873
Effect of foreign exchange rate changes	(21)	2	7
	__________	__________	__________
Cash and cash equivalents at end of period	3,362	1,821	1,773
	__________	__________	__________

Notes to the Financial Statements

For the six months ended 30 September 2017

1.	Accounting policies
	Basis of accounting
	The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) 34 'Interim Financial Reporting', as adopted by the International Accounting Standards Board (IASB), and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB (IFRIC). They have also been prepared using the same accounting policies applied for the year ended 31 March 2017 financial statements, which received an unqualified audit report.
	The financial statements have been prepared on a going concern basis. In accordance with the Financial Reporting Council's guidance on 'Going Concern and Liquidity Risk' the Directors have undertaken a review of the Company's assets which primarily consist of a diverse portfolio of listed equity shares which, in most circumstances, are realisable within a very short timescale.

2.	Taxation
	The taxation expense reflected in the Condensed Statement of Comprehensive Income is based on the estimated annual tax rate expected for the full financial year. The estimated annual corporation tax rate used for the year to 31 March 2018 is a rate of 19%.
	Detailed below is an analysis of the tax charge for each period.
		Six months ended 30 September 2017			Six months ended 30 September 2016			Year ended  31 March 2017
		Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	Taxation	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
	UK Corporation tax	22	(22)	-	3	(3)	-	20	(20)	-
	Overseas tax suffered	4	-	4	-	-	-	2	-	2
		______	______	_____	______	______	_____	______	______	______
	Total tax charge	26	(22)	4	3	(3)	-	22	(20)	2
		______	______	_____	______	______	_____	______	______	______

3.	Dividends
	The following table shows the revenue for each period less the dividends declared in respect of the financial period to which they relate.
		Six months ended	Six months ended	Year ended
		30 September 2017	30 September 2016	31 March 2017
		£'000	£'000	£'000
	Revenue	2,232	2,107	3,925
	Dividends declared	(1,800)A	(1,800)B	(3,825)C
		__________	__________	__________
		432	307	100
		__________	__________	__________
	A               Dividends declared relate to first two interim dividends (both 3.00p each) in respect of the financial year 2017/18.
	B               Dividends declared relate to first two interim dividends (both 3.00p each) in respect of the financial year 2016/17.
	C                       First three interim dividends (each 3.00p) and the final dividend (3.75p) declared in respect of the financial year 2016/17.

		Six months ended	Six months ended	Year ended
		30 September 2017	30 September 2016	31 March 2017
4.	Return per share	£'000	£'000	£'000
	Returns are based on the following figures:
	Revenue return	2,232	2,107	3,925
	Capital return	3,114	8,597	12,420
		__________	__________	__________
	Total return	5,346	10,704	16,345
		__________	__________	__________
	Weighted average number of Ordinary shares in issue	29,997,580	29,997,580	29,997,580
		__________	__________	__________

5.	Net asset value per share
	The net asset value per Ordinary share and the net asset values attributable to Ordinary shareholders at the period end were as follows:
		As at	As at	As at
		30 September 2017	30 September 2016	31 March 2017
		(unaudited)	(unaudited)	(audited)
	Attributable net assets (£'000) per Balance Sheet	84,805	77,637	81,477
	Number of Ordinary shares in issue	29,997,580	29,997,580	29,997,580
	Net asset value per Ordinary share (p)	282.71	258.81	271.61

6.	Capital reserve
	The capital reserve reflected in the Balance Sheet at 30 September 2017 includes unrealised gains of £25,597,000 (30 September 2016 - gains of £16,409,000; 31 March 2017 - gains of £21,294,000) which relate to the revaluation of investments held at the reporting date.

7.	Transaction costs
	During the period expenses were incurred in acquiring or disposing of investments classified as fair value though profit or loss. These have been expensed through capital and are included within gains on investments at fair value in the Condensed Statement of Comprehensive Income. The total costs were as follows:
		Six months ended	Six months ended	Year ended
		30 September 2017	30 September 2016	31 March 2017
		£'000	£'000	£'000
	Purchases	16	29	41
	Sales	2	3	5
		__________	__________	__________
		18	32	46
		__________	__________	__________

		Six months ended	Six months ended	Year ended
		30 September 2017	30 September 2016	31 March 2017
8.	Movement in net debt	£'000	£'000	£'000
	Increase/(decrease) in cash and cash equivalents	1,610	(54)	(107)
	Effect of foreign exchange rate changes	(21)	2	7
		__________	__________	__________
	Change in net debt in the year	1,589	(52)	(100)
	Opening net debt	(17,227)	(17,127)	(17,127)
		__________	__________	__________
	Closing net debt	(15,638)	(17,179)	(17,227)
		__________	__________	__________

9.	Transactions with the Manager
	The Company has an agreement with Aberdeen Fund Managers Limited ("AFML") for the provision of management, secretarial, accounting and administration services and for the carrying out of promotional activities in relation to the Company.
	The management fee is based on 0.45% per annum up to £100 million and 0.40% per annum 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 not less than six months' notice. The total of the fees paid and payable during the period to 30 September 2017 was £216,000 (30 September 2016 - £194,000; 31 March 2017 - £396,000) and the balance due to AFML at the period end was £107,000 (30 September 2016 - £100,000; 31 March 2017 - £102,000). The Company held an interest in a commonly managed fund, Aberdeen Smaller Companies Income Trust PLC, in the portfolio during the period to 30 September 2017 (30 September 2016 and 31 March 2017  - same). The value attributable to this holding is excluded from the calculation of the management fee payable by the Company.
	The total fees paid and payable under the management agreement in relation to promotional activities were £39,000 (30 September 2016 - £43,000; 31 March 2017 - £83,000) and the balance due to AFML at the period end was £19,000 (30 September 2016 - £20,000; 31 March 2017 - £20,000). 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.

10.

Segmental information

For management purposes, the Company is organised into one main operating segment, which invests in equity securities and debt instruments. All of the Company's activities are interrelated, and each activity is dependent on the others. Accordingly, all significant operating decisions are based upon analysis of the Company as one segment. The financial results from this segment are equivalent to the financial statements of the Company as a whole.

11.	Fair value hierarchy
	IFRS 13 'Fair Value Measurement' requires 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 Condensed Balance Sheet are grouped into the fair value hierarchy as follows:
				Level 1	Level 2	Level 3	Total
	At 30 September 2017		Note	£'000	£'000	£'000	£'000
	Financial assets at fair value through profit or loss
	Quoted investments		a)	99,944	-	-	99,944
	Financial liabilities at fair value through profit or loss
	Derivatives		b)	-	(39)	-	(39)
				______	______	______	______
	Net fair value			99,944	(39)	-	99,905
				______	______	______	______
				Level 1	Level 2	Level 3	Total
	At 30 September 2016		Note	£'000	£'000	£'000	£'000
	Financial assets at fair value through profit or loss
	Quoted investments		a)	94,254	-	-	94,254
	Financial liabilities at fair value through profit or loss
	Derivatives		b)	-	(22)	-	(22)
				______	______	______	______
	Net fair value			94,254	(22)	-	94,232
				______	______	______	______
				Level 1	Level 2	Level 3	Total
	As at 31 March 2017		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
				______	______	______	______
	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 have 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.

12.	The financial information contained in this Half Yearly Financial Report does not constitute statutory accounts as defined in Sections 434 - 436 of the Companies Act 2006. The financial information for the six months ended 30 September 2017 and 30 September 2016 has not been reviewed or audited by the Company's independent auditor.
	The information for the year ended 31 March 2017 has been extracted from the latest published audited financial statements which have been filed with the Registrar of Companies. The report of the independent auditor on those accounts contained no qualification or statement under Section 498 (2), (3) or (4) of the Companies Act 2006.

13.	This Half Yearly Financial Report was approved by the Board on 17 November 2017.
14.	The Half Yearly Financial Report will shortly be available on the Company's website, www.shiresincome.co.uk* and will be posted to shareholders in November 2017.

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

17 November 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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