SHIRES INCOME PLC

HALF YEARLY FINANCIAL REPORT

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2025

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.

BENCHMARK

The Company's benchmark is the FTSE All-Share Index (total return).

Performance Highlights

Financial Calendar and Financial Highlights

Financial Calendar

Financial Highlights

Performance (total return)

For further information, please contact:

Ben Heatley

Aberdeen

[email protected]

Chairman's Statement

Highlights

-       Net Asset Value ("NAV") total return of 15.0%.

-       Share price total return of 12.7%.

-       Dividend yield of 5.6%. 

Review of the Period

I am pleased to report a period of strong performance, with the Company continuing to deliver on its objective of providing a high level of income and capital growth.

The Net Asset Value ("NAV") total return for the six month period to 30 September 2025 was 15.0%. This compares favourably to a wider market return of 11.6% as measured by the FTSE All-Share Index. The share price total return was 12.7%. It is pleasing that we have seen a five year share price total return of 73.5%, with some growth in dividends paid to shareholders, as well as more stability in the share price over the last two years, partly achieved by using share buyback powers.

At the start of the period, trade tariffs introduced by the US government caused equity markets to fall but they recovered as tariffs were negotiated and revised. However, the net result remains one of additional cost for businesses that export to the US. Markets recovered with the prospect of interest rate reductions and strong earnings growth globally. The UK market performed well despite an economic backdrop that continues to be challenging, not helped by uncertainty on UK fiscal circumstances.

The total return from the equity holdings within the portfolio was 15.6%. This return was driven by good stock selection, with positive contributions from several of the holdings. The total return from the distinct portfolio of preference shares was lower, at 5.1%, but in line with expectations as these investments have the performance attributes of fixed interest instruments. The preference share holdings represented 17.1% of the portfolio at the end of the period and are a differentiating factor of the Company, providing a reliable source of income at a yield above that of the benchmark index. 

A detailed review of performance and investment activity is contained in the Investment Manager's Review.

Earnings and Dividends

The revenue earnings per share for the period were 9.56p, an increase of 17.3% compared to the equivalent period last year. Companies within the portfolio have continued to generate solid earnings and dividend growth. The Company also benefited from the receipt of a special dividend relating to the tender of one of its preference share holdings.

A first interim dividend of 3.40p per Ordinary share in respect of the year ending 31 March 2026 was paid on 31 October 2025 (2025: first interim dividend 3.20p).  The Board is declaring a second interim dividend of 3.45p per Ordinary share, payable on 30 January 2026 to shareholders on the register at close of business on 5 January 2026. Subject to unforeseen circumstances, it is proposed to pay a further interim dividend of 3.45p per Ordinary share and a final dividend of at least 5.20p per share, being the level of final dividend paid last year. This would result in a total dividend for the year of at least 15.50p per share which represents a dividend yield of 5.6% based on the share price of 279p at the end of September. The aim was to pay three interim dividends of 3.45p per share but due to an administrative oversight the first interim dividend was announced and paid at a rate of 3.40p per share rather than at a rate of 3.45p per share, which will be rectified in the payment made in the final dividend.

The Board considers the Company's high level of dividend to be one of its key attractions and recognises that, in the current economic environment, there is likely to be a continuing demand for an attractive and reliable level of income. We have a very high proportion of our investors invested through retail platforms and many of those will be 'tax protected' in ISAs or SIPPs.  Some will have elected for periodic saving into the shares of the Company and some for reinvestment of dividends, both historically good ways of obtaining a long-term return on investments made in income funds, especially if held through ISAs.

Discount and Share Buy Backs

At the end of the period, the discount of the share price to the NAV was 5.7%, slightly wider than the discount of 3.7% at the start of the period reflecting an average discount of 4.4% over the period.

In accordance with the share buy-back authority provided by shareholders, the Company bought back 569,354 Ordinary shares during the period (1.4% of the issued share capital) at a cost of £1.5 million and this provided a small enhancement to NAV for continuing shareholders. All shares bought back are held in treasury.  Since commencing share buy backs in March 2024, at the date of this Report the Company has bought back an aggregate of 2.1 million shares (5.0% of the issued share capital) and the implementation of buy backs has had positive effect on the share price rating which had drifted at one point to a double digit discount.

Corporate

In the last few years, the Board has worked hard with Aberdeen to try and find ways of reducing operating costs, finding fresh demand for the Company's shares and providing for secondary market liquidity.  As a result, the Company combined successfully with abrdn Smaller Companies Investment Trust in December 2023, has applied share buy backs where necessary and continues to have a largely retail held register.  The market and demand background for closed-ended funds with listed equity mandates has not been propitious. The Board firmly believes that high income from UK listed equities can best be provided by a closed-ended vehicle that uses gearing effectively, allocates expenses to capital, and uses reserves to sustain and grow income, and can avoid volatility in its share price - which is what the Board and Manager will continue to try and provide through Shires Income.    

Gearing

The Company has a £20 million loan facility of which £19 million was drawn down at the period end. Net of cash, this represented gearing of 15.1% on 30 September, compared to 16.5% at the start of the period. The weighted average borrowing cost at the period-end was 4.7% (31 March 2025: 4.9%) and the gearing provided a positive contribution to performance during the period.

The Board monitors the level of gearing regularly. Strategically, we take the view that the borrowings are notionally invested in the less volatile fixed income part of the portfolio which generates a higher and more secure level of income, giving the Investment Manager greater scope to invest in a range of equity shares with lower yields and higher growth prospects. The Board believes that this combination puts the Company in the best position to achieve a high and potentially growing level of dividend and to deliver some capital appreciation for shareholders - as has been the case in the past.  The Board and Manager continue to review borrowing facilities and the cost thereof to ensure that the Company can benefit from a positive geared return for its shareholders.

Outlook

The UK economic picture remains a challenging one, with growth limiting factors such as the cost of servicing public debt and increasing welfare costs. However, with the prospect of interest rates falling, there is the potential for economic conditions to improve. As always, there is uncertainty regarding the measures that will be introduced in the Budget on 26 November and the impact that these will have on companies and individuals.

Notwithstanding these uncertainties and the strong portfolio returns generated during the first half of the financial year, the Investment Manager considers that the UK equity market continues to be attractively valued compared to other global markets. When combined with the good earnings and dividend potential from the companies in the portfolio, the Board is confident that the Company is well placed to continue to deliver its investment objective in terms of both income and capital growth.

Robin Archibald
Chairman
21 November 2025

Investment Manager's Review

Market Background

Financial markets had a positive six-month period, with equities continuing to deliver high returns. Those returns have come despite elevated levels of geopolitical uncertainty. At the start of the period, the US administration introduced much higher tariffs on imports in the so called 'Liberation Day' announcement. This rattled markets in the short term, sending global equities down by 12% in two weeks.  Since that point, there has been continued negotiation and revision of tariff proposals, and, while the direction of travel has been positive, the costs for importers to the US remain significantly higher than previously with an average tariff rate of 15%. The subsequent strength of global equities has surprised many, but the prospect of falling interest rates globally, combined with resilient earnings growth and lower taxation in the US, has propelled stocks to new highs. While the large-cap US listed technology companies have continued to be strong performers, we have seen value names globally pulled higher in the rally, and European and UK markets have performed well.  

Despite the initial expectation that tariffs would prove to be inflationary for the US consumer, we are yet to see that impact. This has allowed the Federal Reserve (the "Fed") to decrease interest rates modestly, with a quarter point cut to 4.25% in September and to 4.0% in October. There is still potential for the inflationary effect to come through, however, given the lag before imported orders reach the consumer. Despite that, we expect continued cuts to the Fed rate in the next year. The Bank of England has also been able to reduce rates, with the official bank rate at 4.0%, down from 4.5% at the end of March. Central banks in both countries continue to balance inflation against the signs of a weakening labour market. Although unemployment has not risen significantly, vacancies are reducing and there are signs of the market being looser than we have seen for some time.

For the UK specifically, economic growth remains lacklustre and the current account deficit a concern. Policies introduced in late 2024, raising employer National Insurance contributions and the living wage, have placed a cost burden on companies. At the same time, higher costs of debt and a failure to reform social spending have limited headroom for the government. That has created pressure on the Chancellor's budget in November, and the long lead into this event has created an overhang on UK domestically focused companies. In Europe, markets have been boosted by the relaxation of debt limits in Germany. This has allowed a re-investment into European defence capability and we expect fiscal policy to feed through into better corporate earnings growth. Offsetting this, France has undergone a period of continued political instability and a budgetary deficit even worse than that of the US or UK.

Commodities have been mixed, with a weaker oil price but strength in mined commodities. Precious metals, most notably gold, have been strong as investors search for stores of value. Other metals such as copper, have also moved higher on continued demand growth and downward supply revisions. 

Investment Performance

It was a strong period for the portfolio, with a NAV total return of 15.0%. This is a strong absolute return for the six month period and compares positively with the FTSE All-Share Index benchmark return of 11.6%. Relative performance was driven by stock selection, most notably in the energy and industrial sectors. The Company's exposure to preference shares and fixed income securities detracted from returns on a relative basis, but this is as we would expect in a strongly rising market and was more than compensated for by the outperformance of the equity portfolio. By sector, industrials (+35%), financials (+18%) and utilities (+13%) were notable sources of strength. Energy (+3%), consumer discretionary (+3%) and healthcare (+2%) were relatively weak, although no sector produced a negative return over the period.

On an individual stock basis, there were good returns from our conviction position in the UK construction contractors. Kier returned 79%, Balfour Beatty 52% and Morgan Sindall 38%. These companies have performed well for several years now but remain well valued and have a robust outlook as the UK invests in power, water and infrastructure.

The financials sector also delivered continued share price performance as banks benefited from volume growth and yield curves which remain supportive. OSB's shares returned 35% and Close Brothers returned 78% after the company benefitted from a better-than-expected outcome from the FCA inquiry into historic motor finance. Insurance companies Chesnara (+28%) and Aviva (+32%) also performed well, as did asset manager M&G (+31%).

We had few disappointments during the period. In some cases, we have bought into companies after a period of weakness and perhaps been a little early. Greggs fell 11% after purchase, Victrex 11%, Midwich 10% and Pets at Home 21%. All are companies we have added after a period of significant share price weakness and where we see potential for a turnaround over the next three-to-five-year period. Timing the bottom is difficult, but our view on these companies remains that expectations are low and there is more upside risk than downside. One benefit of a closed end structure is that we can be patient for the turnaround.

The one genuine disappointment was Wood Group, which saw debt increase, the announcement of an inquiry into historic accounting and the departure of its CFO. As it stands, the company is the subject of a bid from a private peer, so could yet deliver a positive outcome, but its shares are currently not trading and we have prudently marked the value of the holding to zero.

Portfolio Activity

April was a quiet month for trading. The market volatility through the month was extremely high, and changes to US policy on a daily basis caused a high degree of variability in share prices. In this environment it is sometimes better not to do too much - what looks like the right trade one day may turn out to be the wrong one the next and we try and hold positions we are happy to retain for the long term. At the start of May we sold out of Convatec. This is a very well-run company which has performed well, but with the yield compressed to below 2% we see other positions more suited to the goals of the Company. The proceeds were reinvested in Informa, which is a commercial information and exhibition business and has been a long-term compounder with a track record of dividend growth.

Following a bid for Assura, we sold out of the position and switched into other high conviction UK real estate holdings; SafeStore, Sirius Real Estate and London Metric. We also sold the position in Engie after a few weeks of holding the shares. In that time the share price had risen and we had collected the annual dividend, so this was a chance to reallocate capital to other ideas.

We bought back into Greggs, having sold out in June last year. Since that time, the shares had underperformed the benchmark by approximately 40%, creating a chance to buy back into what remains a high-quality retailer at a more reasonable price. To fund the purchase, we sold out of Dunelm. This was another short holding period, as its shares had delivered a 30% return since purchase three months beforehand, and had hit our target price.  We also bought into audio-visual supplier Midwich, which has struggled cyclically but has long term recovery potential. It is a founder-led business with a great track record which we think will get back to growth once the cycle improves.

We sold out of the holding in 4Imprint. The shares had bounced post tariff introduction, but it remains a cyclical business. Given the weaker outlook for the US Dollar, the appeal of overseas earnings is also lower for now. We used the proceeds to buy into UK retailer Pets at Home which we consider is valued attractively given the strength of its vet business and with potential for the retail business to improve after a more difficult period.

The tender process for the General Accident preference shares held in the portfolio completed in June. We saw the tender price as fair, giving a 5.6% yield at the sale price. The proceeds were primarily used to add to the position in the Nationwide 10.25% perpetual debt, which had a yield of 7.8% at purchase, a nice uplift to income.

Also in June, we took the decision to exit ASML for now. There is no debate that this is one of the highest quality companies in the market, with seemingly insurmountable barriers to competition in a structurally growing end market. However, we saw some risk to earnings estimates in 2026/27, and with a low dividend yield we saw other opportunities that fit the objectives of the Company more closely. The proceeds were used to introduce Victrex, a specialist chemical manufacturer which has faced a cyclical downturn for some time but is starting to see signs of improvement in its higher margin healthcare end market and recently signed a material order to supply material for subsea piping.

At the end of July we bought back into IT distributor Bytes Technology, having sold the position in November. The shares pulled back recently on a weaker trading update, but we saw this as backward looking and reflecting historic changes to partner incentive structures. The business remains well positioned as one of the largest software sellers in the UK, with a growth end market and strong client relations. The valuation, with a 5%+ dividend yield, offers decent upside and it acts as a genuine diversifier in the portfolio.

Finally, we added one new holding in September, starting a position in Hilton Food. The company supplies meat and fish to UK and international supermarkets and has built a track record of compound growth over time as it grows in scale, with a contract structure that protects it from pricing fluctuations. At the start of September, the shares fell by around 20% following a profit warning for this year, as it has had to build fish inventory due to supply shortages. We see this as a short-term impact and a chance to acquire a position in a good quality company with a dividend yield now over 5%. Hilton is a company we've been watching for a while and it is a useful diversifier in the portfolio, adding to consumer staples where it is hard to find businesses of sufficient quality and yield to fit our requirements.

Investment Income

The revenue earnings per share for the period were 9.56p, which compares to 8.15p for the equivalent period last year. Over the period, the portfolio continued to deliver income growth and the Company also benefited from the receipt of a special dividend relating to the tender of the General Accident preference shares. Although there has been a continued trend for companies to allocate more capital to share buybacks over dividend growth in recent years, there is still strong dividend growth available from companies with growing cashflows. A mild headwind to income generation over the period was the weaker US Dollar, given a number of companies pay dividends denominated in Dollars.

Outlook

On a global basis, our outlook is for a continued 'late-cycle' macro environment, in which the US economy is slowing but avoids recession, policy rates are cut and the Federal Reserve resumes easing, a slowing nominal growth environment in China but with ongoing policy support and the increasing emergence of 'AI winners' in its corporate sector, and an ongoing interest rate cutting cycle across many emerging markets as the focus shifts from containing inflation to supporting growth.

Certainly, there are considerable economic and geopolitical risks around these expectations. The deterioration in the US labour market could morph into a broader downturn and recession amid 'stall speed' dynamics,  although a mini-cyclical pickup now that peak tariff uncertainty appears to have passed is also possible. Political interference at the Fed could de-anchor inflation expectations and eventually trigger a bond market rout. Alternatively, AI-driven productivity growth could see a sustained supply-side expansion in coming years. This creates a supportive environment for continued strength in equities, but the risk-reward is more balanced than for some time. High valuations and an extreme level of concentration, most notably in the US equity market, mean that any downturn could be meaningful.

In the UK, government finances remain a concern, with low productivity and increasing fiscal burden limiting growth. The increased cost of debt and lack of reform to social spending means the ability of the government to change the path is limited. However, this picture can change quickly in our view. Slowing inflation into the year-end would give the Bank of England clearance to reduce interest rates more rapidly than expected. This would have the double impact of both stimulating growth but also reducing government borrowing costs. We should not rule out an economic picture that looks more optimistic in six months' time.

We see significant sources of value in the UK equity market. It remains well valued compared to other global markets, and although it lacks a significant technology sector that does not mean there is no growth from a wide range of high quality companies. Distribution yields are also highly attractive, with the combination of dividends and buybacks at the highest level amongst all major markets. Those distributions also look safe, with payout ratios still well below pre-Covid levels.

Our aim is to identify those companies with long term potential which are currently undervalued by the market. The current degree of scepticism of UK mid-cap and domestically focussed companies means that this is a particularly rich hunting ground and we retain a high level of optimism for future returns.

Iain Pyle
Aberdeen
21 November 2025

Interim Management Statement

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 and Emerging Risks and Uncertainties

The Board regularly reviews the principal and emerging 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 2025 and comprise the following risk headings:

-        Strategic objectives and investment policy

-        Investment performance

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

-        Share price and shareholder relations

-        Gearing

-        Accounting and financial reporting

-        Regulatory

-        Operational

-        The Board

-        Exogenous risks such as health, social, financial, economic, climate and geo-political

In addition to these risks, various global conflicts and other geo-political tensions continue to present exogenous risks as does the recent introduction of trade tariffs and the impact that has on global trade and financial markets. The impending UK Budget, fiscal constraints and elevated global market valuations, with high levels of concentration, also provide uncertainties for a UK equity investment company.

In all other respects, the Company's principal and emerging 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 consist mainly of equity shares in companies listed on the London Stock Exchange. The Board has performed stress testing and liquidity analysis on the portfolio and considers that, in the absence of unforeseen circumstances, the majority of the Company's investments are realisable within a relatively short timescale.

The Board has set limits for borrowing and regularly reviews actual exposures, cash flow projections and compliance with banking covenants, including the headroom available. The Company has a £20 million loan facility which is due to mature in April 2027. £9 million of this amount is drawn down on a short-term basis through a revolving credit facility and can be repaid without incurring any financial penalties.

Having taken these factors into account, 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 the period to 30 November 2026, which is 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
Robin Archibald
Chairman
21 November 2025

Investment Portfolio - Equities

Investment Portfolio - Other Investments

Distribution of Assets and Liabilities

Condensed Statement of Comprehensive Income

Condensed Balance Sheet

Condensed Statement of Changes in Equity

Condensed Cash Flow Statement

Notes to the Financial Statements

For the six months ended 30 September 2025

Alternative Performance Measures

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

abrdn Holdings Limited

Company Secretary

21 November 2025

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