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. 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%.

Total return; NAV cum income, with net income reinvested, GBP. Share price total return is on a mid-to-mid basis. Dividend calculations are to reinvest as at the ex-dividend date. NAV returns based on NAVs with debt valued at fair value. Source: abrdn Investments Limited, Lipper and Morningstar. Past performance is not a guide to future results.

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 inhouse 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.

Allocation of Costs

The Company has historically allocated management fees and finance costs 50% to Revenue and 50% to Capital in the Statement of Comprehensive Income. Following a review of this allocation after the completion of the aSCIT transaction, the Board has decided that, with effect from 1 April 2024, these costs will be charged 40% to Revenue and 60% to Capital. The Board considers that this allocation better reflects the expected long-term view of the nature of the future investment returns of the enlarged portfolio and is consistent with the treatment adopted by other UK Equity Income investment trusts.  

Discount and Share Buy Backs

The discount at which the price of the Company’s Ordinary shares traded relative to the NAV widened during the period, to 13.3% as at 31 March 2024 compared to 3.1% at the start of the year. While it is disappointing to see the Company’s discount widen, this is consistent with what we have seen in the investment trust sector more generally. It is important to note that Shires, as a high yield, relatively risk averse, company is seen by some as in more direct competition with cash deposits than many of its peers. Recent interest rate rises have made cash investments more attractive and we suspect that this  has had a detrimental effect on demand for the Company’s shares.  Market forecasts of reductions in interest rates later this year should make Shires relatively more attractive to investors. In the meantime, we believe that what the Board sees as the quite secure dividend and the potential for capital growth and inflation protection provided by the Company, makes it a much more compelling option compared to cash. The Board has recently used share buybacks for the first time in the Company’s history to address the liquidity of the Company’s shares - excess supply being one of the factors which can impact the discount level. The extent of buybacks is somewhat limited by the size of the Company and its gearing. It is in all interests to grow the Company over time in order to spread fixed costs and increase liquidity. Buying back shares acts against this and so has been used with caution. The Company bought back 863,532 Ordinary shares during the year at a cost of £1.9 million and an average discount of 9.3%, thereby providing a modest enhancement to the NAV. All shares bought back are  held in treasury for potential future resale at a premium  to the NAV. The Board will seek the renewal of the share buy back authority at the AGM and will make use of this authority if it considers it in the best interests of shareholders to do so. It is encouraging to see that the discount has started to narrow since the year end.

Proposed Changes

to Investment Policy Following a review by the Board and Manager of the Company’s investment policy we propose to seek shareholder approval at the AGM, principally to increase the limit on exposure to overseas companies from 10% of total assets to 20% of total assets. At the year end, 9.2% of the Company’s total assets were invested in the equity securities of overseas companies. The Board considers that this change will provide the Investment Manager with greater flexibility to achieve the Company’s investment objective. The Company will remain in the AIC’s UK Equity Income Sector following the change. The full text of the proposed amendments may be found in the Appendix to the Notice of Annual General Meeting on page 127.

Proposed Cancellation of Share Premium Account

Following the issue of new Ordinary shares to shareholders of aSCIT, the value of the Company’s Share Premium Account now amounts to £50.0 million. This reserve cannot be used for distributions, including share buy backs or the payment of dividends, although the Company is permitted to use its realised capital reserve, which amounted to £27.5 million at the year end, for  these purposes.  The Board will propose a special resolution at the AGM to cancel the amount standing to the credit of the Share Premium Account. The cancellation will also require court approval which will be sought following the AGM. Once this exercise is complete, the newly created distributable reserve will be available to fund the cost of share buy backs and dividend payments. The Board considers that it is in shareholders’ interests for the Company to have this flexibility, although it has no current intention of making use of it for dividend payments which will continue to be resourced through net revenue and revenue reserves.

Gearing

The Company has a £20 million loan facility of which £19 million was drawn down at the year end. Net of cash, this represented gearing of 16.4%, compared to 22.2% at the start of the year. The reduction is due mainly to the impact of the aSCIT transaction, with the Company having the same value of borrowings but a larger asset base. The weighted average borrowing cost at the year end was 5.3% (31 March 2023 - 4.7%).  The Board continually monitors the level of gearing and takes the view that the borrowings are notionally invested in the less volatile fixed income part of the portfolio which generates a high level of income, giving the Investment Manager greater ability to invest in a range of equity stocks with lower yields and higher growth prospects. The Board believes that this combination should enable the Company to achieve a high and potentially growing level of dividend, and also deliver some capital appreciation for shareholders.

Manager’s Fee Re-Investment Programme

The Board notes the announcement by abrdn plc in December 2023 of the initiation of a programme to invest up to six months’ worth of the management fees received from the UK investment trusts it manages, in the underlying companies’ shares. We welcome this proposal as it demonstrates commitment by abrdn to the Company and the investment trust sector.  

aSCIT Transaction

On 26 July 2023, the Company announced that it had agreed terms with the Board of aSCIT for a proposed combination of the assets of the Company with those of aSCIT (the “aSCIT transaction”). This was achieved by a scheme of reconstruction and winding up of aSCIT, where assets were transferred to the Company in exchange for the issue of new Ordinary shares to aSCIT shareholders. A cash exit was also available under the scheme. aSCIT and Shires shareholders approved the scheme on 20 November 2023 and it completed on 1 December. Shires issued 11,268,494 new Ordinary shares to aSCIT shareholders, with the new shares admitted to trading on 4 December 2023. The terms of the scheme were such that Shires shareholders did not suffer any dilution in their interests from the costs of the scheme, and an important component of the scheme offsetting these costs was the elimination of the discount to net asset value on the Company’s holding in aSCIT via the switch to directly held smaller companies, which are now valued at their  market price.  The transaction increased the size of Shires by more than 35%, to net assets of £101 million at the point when aSCIT’s assets transferred. Other than as highlighted above, the Company will continue with its existing investment policy and management arrangements, and now has a focused and direct exposure to UK smaller companies rather than obtaining its exposure through investing in aSCIT. This provides an additional benefit of allowing the Investment Manager to spread risk amongst a number of investments rather than all risk being concentrated in one vehicle. In addition, as a result of the transaction, the Company’s gearing ratio has fallen as explained above.  

Board Composition

The Board is pleased to welcome Simon White as an independent non-executive Director of the Company with effect from 1 January 2024. Simon has a background in UK equity fund management and significant experience in the investment trust sector. He was, until June 2022, CoHead of Investment Trusts at BlackRock where he was responsible for overseeing the company secretarial, sales, marketing and third-party administration services. Simon has an excellent understanding of the investment trust sector and we believe he will make a significant contribution to the Board going forward. As previously announced, I shall be stepping down from the Board at the AGM in July, having served for nine years. Robin Archibald, who is the current Chair of the Audit Committee and Senior Independent Director, will replace me as Chairman, Jane Pearce will become the new Chair of the Audit Committee and Helen Sinclair will become the new Senior Independent Director.  I would like to thank my colleagues on the Board for their support during my time as Chairman. I am confident that the Board has the appropriate collective skills and experience to take the Company forward and I wish the Company every success in the future

Online Shareholder Presentation and Annual General Meeting (“AGM”)

Given the popularity of our Online Shareholder Presentation in previous years, we have decided to hold another online presentation this year, in addition to the AGM. This will be held at 10.00am on Tuesday 25 June 2024. A presentation will be given by the Investment Manager, and those in attendance will be given the opportunity to ask questions of the Chairman and Investment Manager both during the presentation and in advance. Full details on how to register for the event can be found at: https://bit.ly/Shires-Income. Details are also contained on the Company’s website. Should you be unable to attend the online event, it will be made available on the Company’s website shortly afterwards. For those wishing to submit questions in advance, you can do this at the following email address: shires.income@abrdn.com The Company’s AGM will take place at 12 noon on Friday 5 July 2024 at the offices of abrdn plc, 18 Bishops Square, London E1 6EG, and will be followed by lunch. As well as the formal business of the meeting, the Investment Manager will provide a short presentation on the Company and there will be an opportunity for shareholders to ask questions of the Manager and the Board. Irrespective of whether you are able to attend, we do encourage all shareholders to complete and return the Proxy Form enclosed with the Annual Report to ensure that your votes are represented at the meeting. If you hold your shares in the Company via a share plan or a platform and would like to attend and / or vote at the AGM, then you will need to make arrangements with the administrator of your share plan or platform.  The Notice of the Meeting is contained on pages  121 to 127. 

Outlook

There remain a number of geo-political uncertainties that could impact stock markets over the months ahead, including the continuing impact of the conflicts in Ukraine and the Middle East, as well as the outcomes of the elections in the US and the UK. It seems likely that interest rates in the UK and globally have peaked and will be reduced later in the year, which should be a positive for equity market valuations. The Board also believes that this will be beneficial for the rating of the Company’s shares, which is something that we will continue to monitor  very carefully.  “The Investment Manager has a strong long term track record of delivering the Company’s income and capital growth objective.”  In this environment, good stock selection will continue to be key. The Investment Manager has a strong long term track record of delivering the Company’s income and capital growth objective.  Despite the various macro uncertainties, the Board remains confident in the Company’s ability, to continue to achieve its objective going forward.

Important Information

Risk information you should consider prior to investing:

Issued by abrdn Fund Managers Limited, registered in England and Wales (740118) at 280 Bishopsgate, London, EC2M 4AG, authorised and regulated by the Financial Conduct Authority in the UK.