TIDMLWI
RNS Number : 4390J
Lowland Investment Co PLC
12 December 2022
LOWLAND INVESTMENT COMPANY PLC
ANNUAL FINANCIAL RESULTS FOR THE YEARED 30 SEPTEMBER 2022
This announcement contains regulated information.
INVESTMENT OBJECTIVE
The Company aims to give shareholders a higher than average
return with growth of both capital and income over the medium to
long-term, by investing in a broad spread of predominantly UK
Companies. The Company measures its performance against the FTSE
All-Share Index Total Return.
INVESTMENT POLICY
Asset Allocation
The Company will invest in a combination of large, medium and
smaller companies listed in the UK. We are not constrained by the
weightings of any index; we focus instead on controlling absolute
risk by diversifying on the basis of underlying company
characteristics such as size, industry, economic sensitivity,
clients and management. In normal circumstances up to half the
portfolio will be invested in FTSE 100 companies; the remainder
will be divided between small and medium-sized companies. On
occasions the Manager will buy shares listed overseas. The Manager
may also invest a maximum of 15% in other listed trusts.
Dividend
The Company aims to provide shareholders with
better-than-average dividend growth.
Gearing
The Board believes that debt in a closed-end fund is a valuable
source of long-term outperformance, and therefore the Company will
usually be geared. At the point of drawing down debt, gearing will
never exceed 29.99% of the portfolio valuation. Borrowing will be a
mixture of short and long-dated debt, depending on relative
attractiveness of rates.
Key Data as at 30 September 2022
-- Net Asset Value ('NAV') Total Return(1) of -14.8%
-- Benchmark Total Return(2) of -4.0%
-- Dividend growth of 1.2%
-- Dividend for the Year(3) of 6.10p
Year ended Year ended
30 September 30 September
2022 2021
---------------------------------------------- -------------- --------------
NAV per share at year end (debt at par)
(4) 115.9p 145.9p
NAV per share at year end (debt at fair
value) (4) 118.1p 144.6p
Share price at year end (5) 104.5p 131.5p
Market capitalisation GBP282m GBP355m
Dividend per share 6.10p (3) 6.025p
Ongoing charge 0.6% 0.6%
Dividend yield (6) 5.8% 4.6%
Gearing at year end 12.5% 13.8%
Discount at year end (7) 11.5% 9.1%
AIC UK Equity Income Sector Average Discount 3.9% 3.9%
Comparative numbers for 2021 have been restated to reflect the
ten for one share split which took place on 7 February 2022.
(1) NAV per share total return (including dividends reinvested)
with debt at fair value
(2) FTSE All-Share Index (including dividends reinvested)
(3) Includes the final dividend of 1.525p per ordinary share for
the year ended 30 September 2022 that will be put to shareholders
for approval at the Annual General Meeting on Wednesday 25 January
2023
(4) NAV per share for both figures is before deduction of the
third interim dividend paid in October of each year
(5) Mid-market closing price
(6) Based on dividends paid and payable in respect of the
financial year and the share price at the year end
(7) Calculated using year end fair value NAVs including current
year revenue
Sources: Morningstar Direct, Janus Henderson, Refinitiv
Datastream
Historical Performance
1 year 3 years 5 years 10 years 25 years
Net asset value -14.8 -3.3 -10.0 68.1 572.1
------- -------- -------- --------- ---------
Share price -16.4 -3.3 -11.3 56.5 679.3
------- -------- -------- --------- ---------
FTSE All-Share -4.0 2.4 11.3 79.5 252.1
------- -------- -------- --------- ---------
Net revenue Net asset
Dividend Total return/(loss) return per value per Share price
per ordinary per ordinary ordinary Total ordinary per ordinary
Year ended share (pence) share (pence) share (pence) net assets share (pence) share (pence)
30 September (1) (1) (1) (GBP'000) (1) (1)
2012 3.050 22.99 3.11 266,401 100.8 99.2
--------------- -------------------- --------------- --------------- ---------------
2013 3.400 33.01 3.67 347,202 130.7 132.5
--------------- -------------------- --------------- --------------- ---------------
2014 3.700 7.33 3.94 361,856 134.6 135.5
--------------- -------------------- --------------- --------------- ---------------
2015 4.100 1.18 4.64 354,563 131.8 128.7
--------------- -------------------- --------------- --------------- ---------------
2016 4.500 15.64 4.77 386,910 143.2 133.7
--------------- -------------------- --------------- --------------- ---------------
2017 4.900 24.32 4.91 439,896 162.8 150.4
--------------- -------------------- --------------- --------------- ---------------
2018 5.400 4.74 5.86 438,934 162.5 151.5
--------------- -------------------- --------------- --------------- ---------------
2019 5.950 (13.87) 6.80 385,904 142.8 128.0
--------------- -------------------- --------------- --------------- ---------------
2020 6.000 (33.69) 3.38 278,653 103.1 91.4
--------------- -------------------- --------------- --------------- ---------------
2021 6.025 48.79 4.27 394,285 145.9 131.5
--------------- -------------------- --------------- --------------- ---------------
2022 6.100 (2) (24.00) 6.10 313,036 115.9 104.5
--------------- -------------------- --------------- ------------ --------------- ---------------
(1) Comparative numbers for 2012 to 2021 have been restated to
reflect the ten for one share split which took place on 7 February
2022.
(2) Includes the final dividend of 1.525p per ordinary share for
the year ended 30 September 2022 that will be put to shareholders
for approval at the Annual General Meeting on Wednesday 25 January
2023
CHAIRMAN'S STATEMENT
Performance
Progress on Lowland's twin objectives of capital and income
growth contrasted markedly in the year ended 30 September. The
highlight of Lowland's financial performance is unquestionably the
recovery in earnings and with it the return to payment of a fully
covered dividend. Your Company has maintained a progressive
dividend policy since its inception more than 50 years ago. Since
2013 the policy has been progressive on a quarterly basis, meaning
that each quarterly dividend has been equal to, or greater than,
the dividend declared for the previous corresponding quarter.
Earnings per share increased by 43% to 6.10p, and, assuming
shareholder approval of the final dividend, dividends paid will
increase very modestly from 6.025p to 6.10p. Dividend yield amounts
to a historically very high 5.8%. There is satisfaction to be had
that the dividend policy survived Brexit, COVID and, so far at
least, war in the Ukraine. We feel that the income side of the
Company's objective has been satisfactorily served.
The other half of our objective, capital growth, has been
contrastingly disappointing. While capital growth over the very
long term has been good, in the last ten years, our Net Asset Value
('NAV') has underperformed the benchmark, being the FTSE All-Share
Index. In the year just ended our NAV declined by 14.8%, compared
with a decline of 4.0% in the benchmark.
Your Board is of the view that it is generally paramount to
stick to an investment approach and it is almost inevitable, in the
prevailing markets, that a determinedly multi-cap trust should
under-perform an index with a pronounced large cap bias.
Nevertheless, when faced with a prolonged period of disappointing
performance, our approach has been firstly to examine whether
changes in the world have rendered our investment philosophy
obsolete. The second examination is to question why this approach
has resulted in underperformance, and the final step is to look at
whether execution of the policy has been poor and has exacerbated
the fact that policy has faced major headwinds.
The Fund Managers explain why, over the long term, they believe
opportunities at the lower end of the market cap spectrum are
superior, and these are well rehearsed by commentators in the
investment community. The Fund Managers and your Board are of the
view that there is unrecognised value in the mid- and small-cap
areas of the UK market. We therefore conclude that investing on a
multi-cap, mildly contrarian basis, with a UK bias, is not an
obsolete approach.
Lowland's investment policy stipulates that in normal
circumstances, up to half the portfolio will be invested in FTSE
100 companies. Generally, exposure to large companies has been
materially below 50%, with about a third being invested in this
area five years ago. In anticipation of the rough waters smaller
companies were likely to face, exposure to the larger end of the
market has been increased over the last few years and this increase
has lessened the underperformance. Nevertheless, the multi-cap
approach is the predominant reason for our underperformance against
the FTSE All-Share benchmark.
At the end of the year under review Lowland had 47.8% of NAV
invested in FTSE 100 constituent companies, compared with 83.3% in
the index. Investment in the next layer down, FTSE 250 companies,
was approximately in line with the index at 15.9%. Inasmuch as
Lowland is underweight the higher end of the market, so it is
overweight the lower end, with FTSE SmallCap and AIM companies
comprising 28.9% compared with an immaterial 2.7% in the index.
This is the territory which has historically given Lowland
significant outperformance.
There are a host of factors which have combined to render this
part of the UK market out of favour. That it is out of favour is
clearly demonstrated by the historic PE of 8.7 times on the
aggregate portfolio, compared with a historic average of 12.7
times. Reasons for this include:
- The revenue of companies of this size is far more weighted to
the UK than in the case of larger companies, as demonstrated by the
51% domestic sales exposure for the Lowland portfolio against 23%
for the FTSE All-Share.
- The UK market as a whole is trading at a significant discount
to other developed equity markets (for example, UK equities were
trading at a near 40% discount to the MSCI World Index). The UK's
near pariah status has pertained since before Brexit, and has been
confirmed by a succession of 'events', the most recent being what
can fairly be characterised as political chaos.
- The best performers on the UK market have been broadly among
the twenty largest companies, often in commodities businesses which
have benefitted from the consequences of Putin's war.
- In times of nervousness smaller companies are often perceived
to be inherently risky and sold off indiscriminately.
The Board monitors Lowland's performance against that of a
composite index, being 50% FTSE All-Share/50% Numis Smaller
Companies ex Investment Trusts, which is more representative of the
universe in which we invest. This index declined by 16.2% during
the period, Lowland outperforming it by 1.4%, representing the
effect of our overweight position in AIM constituent companies.
Share split
Following approval at the AGM, our shares underwent a ten for
one share split. We hope that investors will find this more
convenient, particularly those who invest relatively small amounts
on a regular basis.
Dividends
A final dividend of 1.525p is proposed. Assuming this is
approved, total dividends for the year will amount to 6.10p
compared with last year's 6.025p, all numbers adjusted for the
share split.
Gearing
The ability to gear the portfolio is a key advantage of an
investment trust. The Board is cautious in moving levels of
gearing, being of the view that timing major movements is difficult
to get right. Lowland has a mixture of medium-term facilities - up
to GBP40m - and long-term notes, amounting to GBP30m at a rate of
3.15% maturing in 2037. We believe this balance will serve us well
over the long term.
At the year end net gearing amounted to GBP38.9m (12.5%)
compared with GBP54.9m (13.8%) at the start of the year. Gearing
levels were fairly steady during the year.
Ongoing charge
Ongoing Charges amounted to 0.6% which is in line with last year
and which we feel to be competitive.
Discount
The Company's shares have traded at a discount of between 7.4%
and 13%, ending the year at 11.5%. The policy with regard to
discount is set out on page 33 of the annual report.
The Board
As previously notified to you, Karl Sternberg resigned on 8
December 2021. There were no other changes to the Board during the
year. We intend to begin the process of recruiting a new member in
the next year. Our policy on board tenure and diversity is set out
in the annual report.
Contact
I am always keen to hear from shareholders. Please contact me
with comments or questions on ITSecretariat@janushenderson.com
.
Annual General Meeting ('AGM')
The AGM will be held at the Janus Henderson office on 25 January
2023. Full details of the business to be conducted at the meeting
are set out in the Notice accompanying this report. Laura Foll will
be on maternity leave, so James Henderson will be making the usual
presentation on his own. The Board and Fund Managers welcome the
opportunity to hear from shareholders each year and we encourage as
many as possible to attend.
Outlook
Three years ago, on the eve of Covid, we drew shareholders'
attention to the fact that our shares had only offered a dividend
yield of 4.6% once before, and that had been followed by a
significant capital uplift. COVID clearly had its say. Absent
something comparable, or another unpredictable catastrophe, the
same logic holds at least as true, with our shares on a 5.8%
yield.
Despite the UK and other developed economies being blighted by
recession and high inflation, we see value in the areas in which we
are invested. Investee companies do not generally see downturns in
their prospects which would justify their low valuations. While
some companies will be hit by unpleasant surprises, by and large we
believe that earnings and dividend prospects are not properly
priced into the market. It is therefore reasonable, in our view, to
look to a recovery in UK valuations and a return to dividend
growth. As to dividends, we have successfully maintained the
quarterly progressive dividend policy. The challenge now will be to
generate dividend growth that mitigates, at least to some extent,
the corrosive effect of high inflation.
We are pleased to report that since financial year end, the
Company's NAV and share price have recovered somewhat, rising 10.5%
and 12.4% respectively. Over the same time period the FTSE
All-Share Index rose 9.0%. Medium-sized companies have led this
recovery, with the FTSE 250 gaining 10.3% compared to a rise in the
FTSE 100 of 8.9%. This modest outperformance of medium-sized
companies is yet to filter down to smaller companies, with the FTSE
AIM All-Share index up 3.9% and FTSE SmallCap up 5.6%. Smaller
company share prices often react with a lag. We are encouraged to
see signs of improving sentiment in the mid-cap area, and hopeful
that this will permeate down to small-caps.
Robert Robertson
Chairman
12 December 2022
FUND MANAGER'S REPORT
Background
It has been a very difficult year for Lowland with the Company
underperforming the benchmark and falling in absolute terms, as
shown in the table below.
1 year (%) 3 years (%) 5 years (%) 10 years
(%)
Lowland NAV -14.8 -3.3 -10.0 68.1
----------- ------------ ------------ ---------
Lowland Share
Price -16.4 -3.3 -11.3 56.5
----------- ------------ ------------ ---------
FTSE All-Share -4.0 2.4 11.3 79.5
----------- ------------ ------------ ---------
This is the result of the Company's strategic long-term
position, namely a bias to higher yielding shares and smaller
companies. This bias gives the Company a preference for UK based
businesses and it is these that have seen their value fall more
than companies operating overseas. The reason for this must be that
investors believe that many UK based companies will perform
relatively poorly in the coming years. The selling of UK companies
by investors has been pronounced during the year, as can be seen in
the chart below. This follows several years of outflows since
Brexit, leaving investor weightings in the area low versus where
they have been historically.
Please see the PDF attached for the chart.
The reasons for the concerns about the earnings outlook for UK
companies include the issues over Brexit, the supply disruptions
surrounding COVID and the fallout from the war in Ukraine. These
general concerns became mixed in with a cost-of-living crisis and
political turmoil which called into question the government's
economic competence. However, through all this, many of the
companies held in the portfolio were doing what they do and doing
it well. This is to supply goods and services of a high standard
for which they are rewarded through obtaining reasonable operating
margins. This can be evidenced by strong cash flows and dividends.
The result of this is that Lowland's earnings have recovered and
now cover the modestly growing dividend.
Performance Attribution
Against a backdrop of slowing economic growth and rising
commodity prices, the best performing sectors in the FTSE All-Share
were those with earnings positively exposed to higher commodity
prices (energy and basic materials) or sectors less exposed to the
broader economic cycle (such as healthcare, utilities and consumer
staples). In contrast the worst performing sectors included
consumer discretionary, where stocks such as retailers fell
materially as a result of pressure on household real disposable
income. The industrials sector was also a poor performer as a
result of concerns that input costs were rising at a time when the
order backdrop may weaken (although on the latter concern there is
currently little evidence). For Lowland, there was a clear trend of
cyclical sectors detracting from relative performance. The largest
detractor at the sector level from relative performance was
industrials, followed by financials and consumer discretionary.
This sector backdrop had a marked impact on what size of company
performed well. The FTSE 100 has a significantly higher weight in
natural resources and defensive sectors than the FTSE 250 and
below. This meant that the FTSE 100 generated a modest positive
total return during the year while small and medium-sized company
share prices fell substantially (see the final column of the table
below). Lowland at the financial year end held a near 50% weight in
the FTSE 100. While this is higher than its historic average
weighting of approximately 1/3, this remained significantly below
the benchmark weight in the FTSE 100 of over 80% (see the first and
third columns of the table below for weight comparisons). The
Company's higher weighting in small and medium-sized companies was
of severe detriment to the Company's relative performance during
the year. On our estimates the size allocation of the portfolio
drove the majority of the Company's underperformance relative to
the benchmark, and within this it was specifically the underweight
position in the FTSE 100 and overweight on AIM that were the among
main drivers of relative underperformance.
From the table below it is worth noting that while the Company's
holdings in FTSE 100 companies performed roughly in line with that
index (comparing the second and fourth columns of the table below),
and encouragingly the Company's holdings within the AIM index
outperformed, within the FTSE 250 and SmallCap indices the
Company's holdings underperformed. Examining in more detail why
this is the case, a number of the Company's most cyclical holdings
fall within the 250 and SmallCap indices. Industrial holdings such
as Morgan Advanced Materials, Hill & Smith and IMI, for
example, sit within the 250 index and were underperformers during
the year. Similarly, a number of the Company's financial and
consumer discretionary holdings also sit within these indices (for
example IP Group and Reach). We go into more details of the
stock-specific drivers of performance below.
Lowland weighting Lowland total FTSE All-Share Index total
(%) return (%) weighting return (%)
(%)
FTSE 100 47.8 0.3 83.3 0.9
------------------ -------------- --------------- ------------
FTSE 250 15.9 -32.0 14.0 -23.5
------------------ -------------- --------------- ------------
FTSE SmallCap 12.1 -32.2 2.7 -18.7
------------------ -------------- --------------- ------------
FTSE AIM
All-Share 16.8 -19.1 N/A -34.3
------------------ -------------- --------------- ------------
Weights for Lowland and FTSE All-Share shown as at financial
year end. Note the weights for Lowland do not add up to 100 as
there is a small % of the portfolio held overseas and in the FTSE
Fledgling Index.
Lowland has always been deliberately multi-cap in its approach,
investing across all sizes of UK companies and as per its
investment objective in 'normal circumstances' up to half the
portfolio will be invested in FTSE 100 companies. The reason for
this breadth in its investment universe is twofold. Firstly it
brings exposure to faster growing smaller companies at an earlier
stage of their lifecycle, and therefore with the potential for a
longer pathway of earnings growth ahead of them. Secondly it
diversifies the Company's source of income beyond the large FTSE
100 dividend payers. This approach has worked well for the Company
over the very long term, however we must acknowledge that over the
last five years the Company's performance has (on average) been
disappointing. For the purposes of clarity we have kept the
discussion in this section on the Company's one year performance -
we go into the drivers of longer-term performance in the next
section below.
At the stock level the impact of the concentration within the
benchmark can be clearly seen, with a number of the largest
detractors from relative performance being underweights in areas
such as natural resources. Shell, for example, which was the
Company's largest holding at year end and the largest contributor
to absolute performance, was (despite this) the second largest
detractor from relative performance (see second table below) as on
average over the year it made up 5.6% of the benchmark compared to
only 2.9% for Lowland. This demonstrates the difficulties in
managing a multi-cap portfolio relative to a concentrated
benchmark. If the circumstances are such (as they were this
financial year) that the largest benchmark constituents perform
very well, it is challenging for a broader, multi-cap fund to hold
weights level with the index. This can act as a material detractor
from relative returns.
While the different size allocation of the portfolio in
comparison to the benchmark was the key determinant of relative
performance this year, we have included below a brief summary of
the main contributors and detractors from performance at the stock
level.
The top ten contributors to relative returns were:
Company Name Contribution Share price
to relative return total return
(%) (%)
1. Serica Energy 0.7 66.9
-------------------- --------------
2. FBD Holdings 0.6 44.4
-------------------- --------------
3. Aviva 0.5 5.7
-------------------- --------------
4. H&T 0.4 56.9
-------------------- --------------
5. Scottish Mortgage (not held) 0.3 (45.0)
-------------------- --------------
6. Shoe Zone (no longer held) 0.3 157.9
-------------------- --------------
7. Standard Chartered 0.3 32.4
-------------------- --------------
8. Flutter Entertainment (not held) 0.3 (32.3)
-------------------- --------------
9. Centrica (no longer held) 0.3 25.0
-------------------- --------------
10. Euromoney Institutional Investor
(no longer held) 0.3 44.5
-------------------- --------------
In examining these best performers there are a number of themes
that can be drawn out:
-- Rising energy prices - the rise in the price of natural gas
and subsequent rise in UK power prices drove earnings upgrades in
Serica Energy and Centrica.
-- Rising interest rates - global bank Standard Chartered
performed well on the expectation that a rising interest rate
environment will be positive for future lending margins.
-- Returns to shareholders - Insurers FBD and Aviva performed
well following material distributions to shareholders. In FBD's
case they returned to paying ordinary dividends following a
resolution to their COVID-19 business interruption claims, while
Aviva returned one-off proceeds from business sales.
-- Takeover activity - Euromoney Institutional Investor received
a takeover approach from private equity. This has been a recurring
theme in recent years given the valuation discount on the UK equity
market relative to overseas.
The largest ten detractors from relative return were:
Company Name Contribution Share price
to relative return total return
(%) (%)
1. Studio Retail -1.0 -
-------------------- --------------
2. Shell (underweight) -0.9 40.9
-------------------- --------------
3. Glencore (not held) -0.9 45.2
-------------------- --------------
4. British American Tobacco (not
held) -0.9 32.7
-------------------- --------------
5. Reach -0.9 (78.8)
-------------------- --------------
6. Ilika -0.8 (61.1)
-------------------- --------------
7. AstraZeneca (underweight) -0.8 13.7
-------------------- --------------
8. IP Group -0.6 (57.0)
-------------------- --------------
9. Headlam Group -0.6 (48.7)
-------------------- --------------
10. Morgan Advanced Materials -0.6 (35.1)
-------------------- --------------
Examining each of these largest detractors:
-- Studio Retail was written down to zero in very disappointing
circumstances. We discussed the reasons within the half year
report, however to summarise, the company incurred supply chain
disruption, which led to a working capital outflow and the company
reaching the limits of its lending facilities.
-- Shell and Glencore saw substantial earnings upgrades as a
result of higher commodity prices.
-- British American Tobacco and AstraZeneca rose due to their
defensive qualities at a time of market uncertainty.
-- Reach (formerly Trinity Mirror) fell materially from its
highs due to rising costs of print as well as pressure on digital
advertising yields following the Russia/Ukraine war.
-- Ilika fell following lower than expected demand from
industrial customers for its next generation battery technology.
There was also a broader de-rating in the market of early stage,
loss making businesses, which led to the share price fall in IP
Group (which saw the share price of its key portfolio holding,
Oxford Nanopore, fall substantially).
-- Headlam Group (a flooring distributor) fell due to concerns
that pressure on household real disposable income would impact
people's willingness and ability to spend on new flooring.
-- Morgan Advanced Materials (a specialist materials company
serving end markets such as industrial, healthcare and
semiconductors) fell due to concerns surrounding a slowdown in the
global economy.
Addressing longer-term performance
Lowland has always had a multi-cap approach to seeking out
capital and income opportunities in the UK, and over the very long
term this approach has worked well for our shareholders - the 25
year NAV CAGR is 7.9% relative to a FTSE All-Share CAGR of 5.2%.
This structural overweight in small and medium-sized companies
brings with it an overweight to UK sales and earnings, as small and
medium- sized companies are, on average, more exposed to their home
market. This can be seen in the revenue breakdown of Lowland where,
as at the year end, approximately 51% of portfolio sales were
derived in the UK compared to only 23% for the benchmark.
This overweight position of Lowland in the UK has been
challenging for relative performance at a time when domestic
businesses have materially de-rated relative to international
earners. As seen from the chart below, in the approximately 15
years leading up to Brexit, domestic and international earners
performed roughly in line. In the six years since Brexit, however,
the difference in relative performance has been over 50%, with
international earners (seen in green below) materially
outperforming.
Please see the PDF attached for the chart.
This de-rating of domestic earners has led to many market
leading, well managed businesses with conservative balance sheets
trading on material valuation discounts to their history. This is
visible at the portfolio level, where the table below shows that
the portfolio is trading on an approximately 30% valuation discount
to its long-term average.
12m historic P/E 10 year average 12m
as at historic P/E
30 September 2022
Lowland Portfolio 8.7x 12.7x
------------------- --------------------
Source: Factset. Weighted harmonic average.
Portfolio Activity
Returning our discussion to the current financial year, new
purchases and additions focused predominantly on domestically
exposed smaller companies.
A new position, for example, was established in UK pork and
poultry producer Cranswick. Cranswick already has a dominant
position in the UK pork market and has, in recent years,
successfully moved into chicken with a state-of-the-art facility in
Eye in Suffolk. The group has significant ambitions for further
expansion in chicken and this provides the potential for a long
pathway of future sales and earnings growth. In our view this is
not reflected in its valuation (see table below). Other new
positions established during the year included building materials
company Marshalls, which was first purchased in August after the
shares had approximately halved this calendar year. Marshalls
supply predominantly paving stones and roof tiles into the repair
and maintenance market, new housing and infrastructure projects.
The shares have fallen on the view that repair and maintenance
spend will decline due to broader pressures on consumer spending.
There is already some evidence of this with the company having to
move earnings forecasts lower for the current financial year. It is
our view, however, that infrastructure spending will prove more
resilient and that the current share price already reflects
significant weakness in consumer spending.
We also continued to add to existing positions including textile
rental company Johnson Service Group, baked goods producer Finsbury
Food and retailer Kingfisher. In order to demonstrate the scale of
valuation opportunity we are seeing, the below table illustrates
where valuations currently stand relative to history for these
purchases.
Discount to
12m historic 5 year average 5 year average
Company name P/E P/E (%)
---------------------- ------------ -------------- ---------------
Cranswick 12.8 20.0 -36
Marshalls 9.8 25.9 -62
Johnson Service Group 15.5 19.4 -20
Finsbury Food 7.3 9.1 -20
Kingfisher 7.7 9.8 -22
Source: Refinitiv Datastream, as at 30 September 2022.
These additions were funded through full sales of positions
including housebuilder Bellway (sold in January on concerns that
interest rate rises may pressure already stretched house valuations
relative to average earnings), energy supplier Centrica (sold in
September following good relative performance), Euromoney
Institutional Investor (sold following the private equity takeover
approach) and information services and analytics provider Relx
(sold in May on valuation grounds following good relative
performance).
Dividends
2022 saw a significant recovery in investment income, with the
Company generating 6.10p in revenue earnings per share compared to
4.27p the previous year. It is encouraging to note that the Company
has therefore returned to covering its dividend (which totalled
6.10p for the financial year) following two years of using historic
reserves.
Among the key drivers of dividend growth in 2022 was the
financial sector and in particular the domestic banks, all of which
more than doubled their final dividends year on year. There was
also a sizable special dividend received from Natwest, which
returned a portion of their excess capital to shareholders.
A further driver of the dividend recovery was the return of some
companies to the dividend list following the pandemic. We mentioned
in last year's annual report that 17% of the portfolio did not pay
a dividend in the 2021 financial year. The equivalent number for
the current financial year was only 5% of the portfolio, with many
previous zero dividend payers (such as BT, FBD, Irish Continental
and Finsbury Food) returning to payments.
As we look ahead to the next financial year, while the earnings
outlook has a higher than usual degree of uncertainty there are a
number of factors that make us more optimistic when forecasting the
path for investment income. For example the dividend payout ratio
of the portfolio is currently 40%, which allows scope for companies
to flex payout ratios upwards were earnings to decline. The average
indebtedness of companies in the portfolio is also modest (the
average ND/EBITDA was 1.8x at year end), meaning in our view the
need for companies to reduce debt is not likely to force many
companies to reduce or suspend dividends. Both of these factors (a
low payout ratio and modest net debt) have come about because the
current economic downturn has come shortly after COVID-19, when
many companies reduced dividends to zero and raised equity. This
meant balance sheets had in many cases been de-risked and dividend
payout ratios had not yet recovered to their long-run average.
ESG
Our approach to environmental, social and governance (ESG)
matters is laid out in more detail in the annual report. We hold
the view that seeking better to understand how companies are
managing material ESG factors and engaging with them is a route
more conducive to long-term progress than sector exclusions. It
continues to be our view that companies with good processes for
managing ESG risk factors outperform. We have seen stock-specific
evidence of this in the current year with the largest stock
detractor, Studio Retail. Studio would not have flagged on
quantitative metrics for governance issues (it was broadly run
in-line with good governance practices). In hindsight, however,
there had been recent senior management change and the Board did
not have the sufficient depth of experience or relationship with
institutional shareholders to arrange an emergency rights issue
within the necessarily short time horizon. The lesson for us has
been the importance of Board composition, most importantly the
breadth of experience and a mixture of short and long tenures (so
as to maintain both independence and in-depth knowledge of the
company).
Outlook
Valuations of companies are guided by the cash flows they are
expected to achieve over time. When expectations change, share
prices will alter. The movement in the share price can then feed on
itself - when a stock price falls, sentiment towards the company
can deteriorate leading to a downward spiral of pessimism. This may
be happening in the UK with the macroeconomic concerns drowning out
an appraisal of individual companies' prospects, leading investors
to question the strengths of even the best. The companies held in
Lowland's portfolio are not a proxy for the UK economy but
individual businesses that have management teams that will respond
to the circumstances they are in. Downturns will create
opportunities for the better ones to position themselves to prosper
in the next upturn.
During this phase of despondency about the UK it is important to
remember it is a place to find innovation, world leading companies
and strong management teams. The portfolio holdings tap into these
strengths. It is the many sound companies that operate in the UK
that are the fundamental block from which the economy is built. It
is their strengths that will be behind a recovery in the fortunes
of the overall economy.
The companies with real strengths can be found across many
different sectors, therefore the Company holds a relatively long
and broadly based list of stocks. The diversification this brings
in uncertain times is important for long term capital preservation
and growth. Companies are dealing with changes in consumer
behaviour and advances in technology. Some will not keep pace but
the belief is many will prosper and grow. We believe there will be
substantial share price appreciation when these strengths come to
be more recognised.
James Henderson and Laura Foll
Fund Managers
12 December 2022
Twenty Largest Holdings as at 30 September 2022
The stocks in the portfolio are a diverse mix of businesses
operating in a wide range of end markets.
Rank Company % of Approx. Valuation
2022 portfolio market 2022
(2021) cap GBP'000
Shell
A vertically integrated oil & gas company.
At the current oil price the company
is capable of generating substantial
amounts of free cash flow. This cash
is being allocated partly to shareholders
(via a growing dividend and share buyback)
and partly to investing in the necessary
1 (1) transition away from fossil fuels. 3.5 GBP163.0bn 12,356
-------------------------------------------------- ----------- ----------- ----------
2 (9) BP 3.0 GBP85.8 10,611
A vertically integrated oil and gas bn
business. The company has announced
ambitious plans to reach net zero carbon
emissions by 2050 and gradually transition
away from fossil fuels towards renewable
energy. The cash generation from their
oil & gas business should enable this
transition to take place, while also
continuing to fund cash returns to shareholders
via dividends and share buybacks.
-------------------------------------------------- ----------- ----------- ----------
HSBC
The global bank provides international
banking and financial services. The
diversity of the countries it operates
in as well as its exposure to faster
3 (13) growing economies make it well placed. 2.2 GBP88.4bn 7,850
-------------------------------------------------- ----------- ----------- ----------
4 (2) GSK 2.2 GBP56.3bn 7,626
A global pharmaceutical and vaccine
company, which spun-off its consumer
healthcare business (Haleon) in July
2022. The remaining pharmaceutical company
has leading franchises in areas such
as HIV, however has had a mixed R&D
track record in recent years. Under
a new leadership team and with increased
R&D spending it has the potential to
reinvigorate its pharmaceutical pipeline.
-------------------------------------------------- ----------- ----------- ----------
National Grid
A regulated utility (electricity and
gas distribution) operating in the US
and UK. The regulated asset base has
good scope to grow in both the US and
the UK. The shares pay an attractive
5 (16) dividend yield. 2.2 GBP34.4bn 7,602
-------------------------------------------------- ----------- ----------- ----------
6 (*) Standard Chartered 2.2 GBP16.0bn 7,529
A global bank providing international
banking and financial services, with
a particular focus on emerging markets.
The position provides geographic diversification
for the portfolio as well as being positively
exposed to rising global interest rates.
-------------------------------------------------- ----------- ----------- ----------
7 (10) Direct Line 2.1 GBP2.6bn 7,511
A UK provider of car, home and small
business insurance. The company has
well-known brands which will allow it
to grow policies well, while maintaining
underwriting discipline. A strong balance
sheet allows it to pay an attractive
dividend yield to shareholders .
-------------------------------------------------- ----------- ----------- ----------
8 (3) Phoenix 2.1 GBP5.5bn 7,490
The company operates primarily in the
UK and specialises in taking over and
managing closed life insurance and pension
funds.
-------------------------------------------------- ----------- ----------- ----------
9 (17) Anglo American 2.1 GBP35.6bn 7,386
A diversified mining company with exposure
to commodities including copper, iron
ore, diamonds and platinum. Its mix
of commodity production means it could
be well positioned to benefit from the
need to decarbonise the global economy.
For example, it is significantly exposed
to copper where demand is likely to
grow driven by its use in electric vehicles
as well as renewable energy.
-------------------------------------------------- ----------- ----------- ----------
10 (12) Vodafone 1.9 GBP27.2bn 6,793
The company provides fixed line and
mobile telecommunication services across
much of the globe. It pays an attractive
dividend yield to shareholders with
scope to modestly grow earnings.
-------------------------------------------------- ----------- ----------- ----------
11 (*) FBD 1.9 GBP305.4m 6,757
The company is an Irish insurer with
a focus on insurance coverage for the
agricultural sector. It is a disciplined
underwriter with a history of good returns
generation and pays an attractive dividend
yield.
-------------------------------------------------- ----------- ----------- ----------
12 (*) Serica Energy 1.9 GBP894.8m 6,705
The company is a large producer of natural
gas in the North Sea. Its portfolio
was built via acquisitions at attractive
valuations from larger oil & gas companies.
At current gas prices the company is
generating substantial amounts of cash
with a strong (net cash) balance sheet.
-------------------------------------------------- ----------- ----------- ----------
13 (18) Irish Continental 1.8 GBP608.4m 6,366
The group provides passenger transport,
roll-on and roll-off freight transport
and container services between Ireland,
the United Kingdom and Continental Europe.
The shares have been impacted by reduced
passenger demand during the pandemic,
however, it continues to be a well managed
business operating in a duopolistic
industry.
-------------------------------------------------- ----------- ----------- ----------
14 (*) Rio Tinto 1.8 GBP58.9bn 6,120
The company is one of the world's largest
mining businesses with a particular
focus on iron ore, aluminium and copper.
Its mines are well positioned on the
cost curve, often at the lowest cost
quartile globally, meaning that it can
continue to be highly cash generative
despite volatile commodity prices. This
cash generation combined with a strong
balance sheet has resulted in an attractive
ordinary dividend payment combined with
some special dividends in recent years.
-------------------------------------------------- ----------- ----------- ----------
15 (6) K3 Capital 1.7 GBP185.6m 6,095
The company provides a range of corporate
services to UK small and medium sized
businesses, including M&A advisory,
restructuring and tax services. The
company has grown well in recent years,
both organically and via acquisitions.
-------------------------------------------------- ----------- ----------- ----------
16 (20) NatWest 1.7 GBP23.6bn 6,080
The company is one of the leading retail
and commercial lenders in the UK. Since
the financial crisis the balance sheet
has materially improved and the business
has largely returned to its original
focus on domestic lending. The company's
earnings are well placed to benefit
from further rises in UK interest rates.
-------------------------------------------------- ----------- ----------- ----------
17 (11) Aviva 1.7 GBP11.7bn 5,901
This company provides a wide range of
insurance and financial services. Under
a new CEO there is heightened focus
on simplifying the business.
-------------------------------------------------- ----------- ----------- ----------
18 (*) Barclays 1.7 GBP23.8bn 5,772
The company has a strong retail lending
franchise combined with an investment
bank. Over time its strong retail franchise
should allow it to generate good returns
on capital, however in the past these
have not consistently come through because
of persistently low interest rates and
volatile returns from its investment
bank. Rising interest rates and market
share gains in its investment bank could
allow a period of better returns generation
that in our view is not reflected in
the current valuation.
-------------------------------------------------- ----------- ----------- ----------
19 (*) BAE Systems 1.6 GBP25.0bn 5,726
The company is a global defence contractor.
In recent years it has improved its
cash generation and balance sheet
position, allowing it to return cash
to shareholders via both a dividend
and share buyback. It would be a beneficiary
of rising defence spending in regions
such as Europe and this has led to recent
strong share price performance.
-------------------------------------------------- ----------- ----------- ----------
20 (19) M&G 1.6 GBP4.2bn 5,661
The company is a financial services
provider that was spun out of Prudential
in 2019, providing insurance and asset
management services. The capital generation
of the group allows sizeable returns
to shareholders via dividends and share
buybacks.
-------------------------------------------------- ----------- ----------- ----------
143,937
-------------------------------------------------- ----------- ----------- ----------
At 30 September 2022 these investments totalled GBP143,937,000
or 40.9% of portfolio.
* Not in the top twenty largest investments last year
MANAGING RISKS
The Board, with the assistance of the Manager, has carried out a
robust assessment of the principal risks and uncertainties,
including emerging risks, facing the Company including those that
would threaten its business model, future performance, solvency,
liquidity and reputation. The Board regularly considers the
principal risks facing the Company and has drawn up a matrix of
risks. The Board has put in place a schedule of investment limits
and restrictions, appropriate to the Company's investment objective
and policy, in order to mitigate these risks as far as practicable.
The principal risks which have been identified and the steps taken
by the Board to mitigate these are set out in the table below. The
principal financial risks are detailed in note 14 to the financial
statements.
At the half year stage, the Board completed a thorough review of
the principal risks and uncertainties facing the Company. As a
result of this, they were updated to include geopolitical risks,
due to the Russian invasion of Ukraine which has increased the
volatility in European markets.
Principal risks Mitigating measure
Market, geopolitical, macroeconomic The Fund Managers maintain close
or environmental conditions oversight of the Company's portfolio,
cause a material fall in market and in particular its gearing
value levels, and the performance
The war in Ukraine has heightened of investee companies. Regular
tensions across the world, and stress testing of the revenue
significantly increased volatility account under different scenarios
in equity markets. for dividends is carried out.
The Board monitors volatility,
Macroeconomic conditions in and holds a regular dialogue
the UK, including political with the Fund Managers to understand
uncertainty and rising inflation the impact on the Company's
have led to increased volatility portfolio.
in the UK equity market.
----------------------------------------
Global pandemic The Fund Managers maintain close
The residual impact of the coronavirus oversight of the Company's portfolio,
pandemic on the Company's investments and in particular its gearing
and its direct and indirect levels, and the performance
effects, including the effect of investee companies. Regular
on the global economy. stress testing of the revenue
account under different scenarios
for dividends is carried out.
The Board monitors the effects
of the pandemic on the operations
of the Company and its service
providers to ensure that they
continue to be appropriate,
effective and properly resourced.
----------------------------------------
Investment activity and strategy The Board manages these risks
risk by ensuring a diversification
An inappropriate investment of investments and a regular
strategy or poor execution, review of the extent of borrowings.
for example, in terms of asset Janus Henderson operates in
allocation or level of gearing, accordance with investment limits
may result in underperformance and restrictions and policy
against the Company's benchmark determined by the Board, which
index and the companies in its includes limits on the extent
peer group, and also in the to which borrowings may be employed.
Company's shares trading on
a wider discount to the net The Board reviews the investment
asset value per share. limits and restrictions on a
regular basis and the Manager
confirms adherence to them every
month. Janus Henderson provides
the Board with management information,
including performance data and
reports and shareholder analyses.
The Board monitors the implementation
and results of the investment
process with the Fund Managers
at each Board meeting and monitors
risk factors in respect of the
portfolio. Investment strategy
is reviewed at each meeting.
----------------------------------------
Portfolio and market price The Board reviews the portfolio
Although the Company invests at the five Board meetings held
almost entirely in securities each year and receives regular
that are listed on recognised reports from the Company's brokers.
markets, share prices may move A detailed liquidity report
rapidly. The companies in which is considered on a regular basis.
investments are made may operate
unsuccessfully, or fail entirely. The Fund Managers closely monitor
A fall in the market value of the portfolio between meetings
the Company's portfolio would and mitigate this risk through
have an adverse effect on equity diversification of investments.
shareholders' funds. The Fund Managers periodically
present the Company's investment
strategy in respect of current
market conditions. Performance
relative to the FTSE All-Share
Index, and other UK equity income
trusts is also monitored.
----------------------------------------
Dividend income The Board reviews income forecasts
A reduction in dividend income at each meeting. The Company
could adversely affect the Company's has revenue reserves of GBP8.3
dividend record. million (before payment of the
third interim and final dividend)
and distributable capital reserves
of GBP235.4 million.
----------------------------------------
Financial risk The Company minimises the risk
The financial risks faced by of a counterparty failing to
the Company include market price deliver securities or cash by
risk, interest rate risk, liquidity dealing through organisations
risk, currency risk and credit that have undergone rigorous
and counterparty risk. due diligence by Janus Henderson.
The Company holds its liquid
funds almost entirely in interest
bearing bank accounts in the
UK or on short-term deposit.
This, together with a diversified
portfolio which comprises mainly
investments in large and medium-sized
listed companies mitigates the
Company's exposure to liquidity
risk. Currency risk is mitigated
by the low exposure to overseas
stocks. Please see note 14 in
the Annual Report.
----------------------------------------
Gearing risk At the point of drawing down
In the event of a significant debt, gearing will never exceed
or prolonged fall in equity 29.99% of the portfolio valuation.
markets gearing would exacerbate
the effect of the falling market The Company minimises the risk
on the Company's NAV per share by the regular monitoring of
and, consequently, its share the levels of the Company's
price. borrowings in accordance with
the agreed limits. The Company
confirms adherence to the covenants
of the loan facilities on a
monthly basis.
----------------------------------------
Tax and regulatory The Manager provides its services,
Changes in the tax and regulatory inter alia, through suitably
environment could adversely qualified professionals and
affect the Company's financial the Board receives internal
performance, including the return control reports produced by
on equity. the Manager on a quarterly basis,
which confirm legal and regulatory
A breach of s.1158/9 could lead compliance. The Fund Managers
to a loss of investment trust also consider tax and regulatory
status, resulting in capital change in their monitoring of
gains realised within the portfolio the Company's underlying investments.
being subject to corporation
tax. A breach of the Listing
Rules could result in suspension
of the Company's shares, while
a breach of the Companies Act
2006 could lead to criminal
proceedings, or financial or
reputational damage.
----------------------------------------
Operational The Board monitors the services
Disruption to, or failure of, provided by the Manager and
the Manager's or its administrator's its other suppliers and receives
(BNP Paribas Securities Services) reports on the key elements
accounting, dealing or payment in place to provide effective
systems or the Depositary's internal control.
records could prevent the accurate
reporting and monitoring of Cyber security is closely monitored
the Company's financial position. and the Audit Committee receives
Cyber crime could lead to loss an annual presentation from
of confidential data. The Company Janus Henderson's Head of Information
is also exposed to the operational Security.
risk that one or more of its
suppliers may not provide the Details of how the Board monitors
required level of service. the services provided by Janus
Henderson and its other suppliers
and the key elements designed
to provide effective internal
control are explained further
in the Internal Controls section
of the Corporate Governance
Statement in the Annual Report.
----------------------------------------
Emerging risks
In addition to the principal risks facing the Company, the Board
also regularly considers potential emerging risks, which are
defined as potential trends, sudden events or changing risks which
are characterised by a high degree of uncertainty in terms of the
probability of them happening and the possible effects on the
Company. Should an emerging risk become sufficiently clear, it may
be moved to a principal risk.
VIABILITY STATEMENT
RELATED PARTY TRANSACTIONS
The Company is a long-term investor; the Board believes it is
appropriate to assess the Company's viability over a five-year
period in recognition of our long-term horizon and what we believe
to be investors' horizons, taking account of the Company's current
position and the potential impact of the principal and emerging
risks and uncertainties as documented above in this Strategic
Report.
The assessment has considered the impact of the likelihood of
the principal and emerging risks and uncertainties facing the
Company, in particular investment strategy and performance against
benchmark, whether from asset allocation or the level of gearing,
and market risk, in severe but plausible scenarios, and the
effectiveness of any mitigating controls in place.
The Board has taken into account the liquidity of the portfolio
and the gearing in place when considering the viability of the
Company over the next five years and its ability to meet
liabilities as they fall due. This included consideration of the
duration of the Company's loan facilities and how a breach of the
loan facility covenants could impact on the Company's liquidity,
net asset value and share price.
The Board does not expect there to be any significant change in
the current principal risks and adequacy of the mitigating controls
in place. Also the Directors do not envisage any change in strategy
or objectives or any events that would prevent the Company from
continuing to operate over that period as the Company's assets are
liquid, its commitments are limited and the Company intends to
continue to operate as an investment trust. Only a substantial
financial crisis affecting the global economy could have an impact
on this assessment.
In coming to this conclusion, the Directors have considered the
ongoing impact of the war in Ukraine and the COVID-19 pandemic, in
particular the impact on income and the Company's ability to meet
its investment objective. The Board does not believe that they will
have a long-term impact on the viability of the Company and its
ability to continue in operation, notwithstanding the short-term
uncertainty they have caused in the markets.
Based on this assessment, the Directors have a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the next five-year
period.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
In accordance with Disclosure Guidance and Transparency Rule
4.1.12, each of the Directors confirms that, to the best of his or
her knowledge:
-- the Company's financial statements, which have been prepared
in accordance with UK Accounting Standards and applicable law give
a true and fair view of the assets, liabilities, financial position
and return of the Company; and
-- the Strategic Report, Report of the Directors and financial
statements include a fair review of the development and performance
of the business and the position of the Company, together with a
description of the principal risks and uncertainties that it
faces.
For and on behalf of the Board
Robert Robertson
Chairman
12 December 2022
INCOME STATEMENT
Year ended 30 September Year ended 30 September
2022 2021
Revenue Capital Revenue Capital
return return Total return return Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- -------- -------- --------- -------- -------- ---------
(Losses)/gains on investments
held at fair value through
profit or loss (note 2) - (79,801) (79,801) - 121,353 121,353
Income from investments
(note 3) 18,666 - 18,666 13,591 319 13,910
Other interest receivable
and similar income (note
4) 70 - 70 93 - 93
Gross revenue and capital
(losses)/gains 18,736 (79,801) (61,065) 13,684 121,672 135,356
Management fee (862) (861) (1,723) (811) (811) (1,622)
Administrative expenses (645) - (645) (658) - (658)
Net return/(loss) before
finance costs and taxation 17,229 (80,662) (63,433) 12,215 120,861 133,076
Finance costs (657) (657) (1,314) (584) (585) (1,169)
Net return/(loss) before
taxation 16,572 (81,319) (64,747) 11,631 120,276 131,907
Taxation on net return (81) - (81) (93) - (93)
Net return/(loss) after
taxation 16,491 (81,319) (64,828) 11,538 120,276 131,814
Return/(loss) per ordinary
share
- basic and diluted(1)
(note 5) 6.10p (30.10p) (24.00p) 4.27p 44.52p 48.79p
===== ===== ===== ===== ===== =====
(1) Comparative figures for the year ended 30 September 2021
have been restated due to the sub-division of each ordinary share
of 25p into ten ordinary shares of 2.5p each on 7 February 2022
The total columns of this statement represent the Profit and
Loss Account of the Company. The revenue return and capital return
columns are supplementary to this and are prepared under guidance
published by the Association of Investment Companies. All revenue
and capital items in the above statement derive from continuing
operations. The Company had no other comprehensive income other
than those disclosed in the Income Statement. The net return is
both the profit for the year and the total comprehensive
income.
STATEMENT OF CHANGES IN EQUITY
Called Share Capital Other
up share premium redemption capital Revenue
Year ended capital account reserve reserves reserve Total
30 September 2022 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- ---------- ----------- ------------ ------------------- ----------- -----------
At 1 October 2021 6,755 61,619 1,007 318,244 6,660 394,285
Net (loss)/return after
taxation - - - (81,319) 16,491 (64,828)
Costs relating to the
sub-division of shares (23) - (23)
Third interim dividend
(1.5p (1) ) for the
year ended 30 September
2021 paid 29 October
2021 - - - - (4,053) (4,053)
Final dividend (1.525p
(1) ) for the year ended
30 September 2021 paid
31 January 2022 - - - (1,513) (2,607) (4,120)
First interim dividend
(1.525p) for the year
ended 30 September 2022
paid 29 April 2022 - - - - (4,120) (4,120)
Second interim dividend
(1.525p) for the year
ended 30 September 2022
paid 29 July 2022 - - - - (4,120) (4,120)
Return of unclaimed
dividends - - - - 15 15
--------- ---------- ---------- ----------- ---------- ----------
At 30 September 2022 6,755 61,619 1,007 235,389 8,266 313,036
===== ===== ===== ====== ===== ======
(1) Comparative figures have been restated due to the
sub-division of each ordinary share of 25p each into ten ordinary
shares of 2.5p on 7 February 2022
Called Share Capital
up share premium redemption Other capital Revenue
Year ended capital account reserve reserves reserve Total
30 September 2021 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- ---------- ----------- ------------ ------------------ ----------- -----------
At 1 October 2020 6,755 61,619 1,007 197,968 11,304 278,653
Net return after taxation - - - 120,276 11,538 131,814
Third interim dividend
(1.5p (1) ) for the
year ended 30 September
2020 paid 30 October
2020 - - - - (4,053) (4,053)
Final dividend (1.5p
(1) ) for the year ended
30 September 2020 paid
29 January 2021 - - - - (4,053) (4,053)
First interim dividend
(1.5p (1) ) for the
year ended 30 September
2021 paid 30 April 2021 - - - - (4,053) (4,053)
Second interim dividend
(1.5p (1) ) for the
year ended 30 September
2021 paid 31 July 2021 - - - - (4,053) (4,053)
Return of unclaimed
dividends - - - - 30 30
--------- ---------- ---------- ----------- ---------- ----------
At 30 September 2021 6,755 61,619 1,007 318,244 6,660 394,285
===== ===== ===== ====== ===== ======
(1) Comparative figures have been restated due to the
sub-division of each ordinary share of 25p each into ten ordinary
shares of 2.5p on 7 February 2022
STATEMENT OF FINANCIAL POSITION
As at 30 September As at 30 September
2022 2021
GBP'000 GBP'000
Fixed assets
Investments held at fair value through
profit or loss:
Listed at market value in the United
Kingdom 247,017 335,416
Listed at market value on AIM 58,664 73,997
Listed at market value overseas 15,503 15,830
Unlisted 2,908 2,868
Investments on loan(1) 27,989 20,721
----------- -----------
352,081 448,832
----------- -----------
Current assets
Debtors 1,228 1,625
Cash at bank 9,395 7,976
----------- -----------
10,623 9,601
----------- -----------
Creditors : amounts falling due within
one year (19,866) (34,357)
----------- -----------
Net current liabilities (9,243) (24,756)
----------- -----------
Total assets less current liabilities 342,838 424,076
Creditors: amounts falling due after
one year (29,802) (29,791)
----------- -----------
Net assets 313,036 394,285
======= =======
Capital and reserves
Called up share capital 6,755 6,755
Share premium account 61,619 61,619
Capital redemption reserve 1,007 1,007
Other capital reserves 235,389 318,244
Revenue reserve 8,266 6,660
----------- -----------
Total shareholders' funds 313,036 394,285
======= =======
Net asset value per ordinary share
- basic and diluted (2) 115.9p 145.9p
======= =======
(1) Prior year comparatives have been restated as explained
further in note 1a)
(2) Comparative figures for the year ended 30 September 2021
have been restated to the sub-division of each ordinary share of
25p into ten ordinary shares of 2.5p each on 7 February 2022.
STATEMENT OF CASH FLOWS
Year ended Year ended
30 September 30 September
2022 2021
GBP'000 GBP'000
Cash flows from operating activities
Net (loss)/return before taxation (64,747) 131,907
Add back: finance costs 1,314 1,169
Add: losses/(gains) on investments
held at fair value through profit
or loss 79,801 (121,353)
Withholding tax on dividends deducted
at source (59) (96)
Decrease/(increase) in other debtors 41 (359)
Increase/(decrease) in other creditors 98 (42)
----------- -----------
Net cash inflow from operating activities 16,448 11,226
Cash flows from investing activities
Purchase of investments (40,491) (72,746)
Sale of investments 57,726 66,553
----------- -----------
Net cash inflow/(outflow) from investing
activities 17,235 (6,193)
Cash flows from financing activities
Equity dividends paid (net of refund
of unclaimed distributions and reclaimed
distributions) (16,398) (16,182)
Costs relating to sub-division of
shares (23) -
Loans drawn down(1) 9,149 45,121
Loans repaid(1) (23,726) (28,078)
Interest paid (1,294) (1,132)
----------- -----------
Net cash outflow from financing
activities (32,292) (271)
----------- -----------
Net increase in cash and cash equivalents 1,391 4,762
Cash and cash equivalents at start
of year 7,976 3,232
Effect of foreign exchange rates 28 (18)
----------- -----------
Cash and cash equivalents at end
of year 9,395 7,976
======= =======
Comprising:
Cash at bank 9,395 7,976
----------- -----------
9,395 7,976
======= =======
Cash inflow from dividends net of taxation was GBP18,835,000
(2021: GBP13,445,000) and Interest received was GBP4,000 (2021:
GBPnil).
(1) Prior year comparatives have been restated as explained
further in note 1a)
NOTES TO THE FINANCIAL STATEMENTS)
1. Accounting Policies
a) Basis of Preparation
The Company is a registered investment company as defined in section
833 of the Companies Act 2006 and is incorporated in the United
Kingdom. It operates in the United Kingdom and is registered at
201 Bishopsgate, London, EC2M 3AE.
The financial statements have been prepared in accordance with the
Companies Act 2006, FRS 102 - The Financial Reporting Standard applicable
in the UK and Republic of Ireland and with the Statement of Recommended
Practice: Financial Statements of Investment Trust Companies and
Venture Capital Trusts (the 'SORP') issued in April 2021.
The principal accounting policies applied in the presentation of
these financial statements are set out below. These policies have
been consistently applied to all the years presented.
The financial statements have been prepared under the historical
cost basis except for the measurement of fair value of investments.
In applying FRS102, financial instruments have been accounted for
in accordance with Section 11 and 12 of the standard. All of the
Company's operations are of a continuing nature.
The preparation of the Company's financial statements on occasion
requires the Directors to make judgements, estimates and assumptions
that affect the reported amounts in the primary financial statements
and the accompanying disclosures.
These assumptions and estimates could result in outcomes that require
a material adjustment to the carrying amount of assets or liabilities
affected in the financial year.
The Directors do not believe that any accounting judgements or estimates
have been applied to this set of financial statements that have
a significant risk of causing a material adjustment to the carrying
amount of assets and liabilities within the next financial year.
In line with UK GAAP investments are valued at fair value which
are quoted prices of the investments in active markets and therefore
reflect participant' views of climate change risk.
Loan draw downs and repayments have previously been shown as a net
amount in the Statement of Cash Flows. In the current year, the
disclosure has been corrected and the Statement of Cash Flows now
shows the gross value of loans drawn down and loans repaid, with
the prior year comparatives restated to be on the same basis.
The investment disclosures in the Statement of Financial Position
previously included the value of investments on loan within the
values of investments listed at market value in the United Kingdom,
listed at market value on AIM and listed at market value overseas.
In the current year, the value of investments on loan has been disclosed
separately and the prior year comparatives corrected to be restated
to be on the same basis.
These changes in presentation have no impact on the Company's net
assets, Income Statement or total cash flows.
b) Going Concern
The Directors have considered the liquidity of the portfolio and
concluded that the assets of the Company consist of securities that
are readily realisable. They have also considered the impact of
the war in Ukraine and of COVID-19, including cash flow forecasting,
and a review of covenant compliance including the headroom above
the most restrictive covenants. They have concluded that they are
able to meet their financial obligations as they fall due for at
least twelve months from the date of approval of the financial statements.
Having assessed these factors, the principal risks and other matters
discussed in connection with the viability statement, the Directors
considered it appropriate to adopt the going concern basis of accounting
in preparing the financial statements.
(Losses)/gains on investments held at fair value 2022 2021
2. through profit or loss GBP'000 GBP'000
------------ ------------
Gains on the sale of investments based on historical
cost 12,602 6,700
Less: revaluation losses recognised in previous
years (7,450) (1,599)
----------- -----------
Gains on investments sold in the year based on
carrying value at previous Statement of Financial
Position date 5,152 5,101
Revaluation (losses)/gains on investments held
at 30 September (84,981) 116,270
Exchange gains/(losses) 28 (18)
---------- ----------
(79,801) 121,353
====== ======
2022 2021
3. Income from Investments GBP'000 GBP'000
---------- ----------
UK dividends:
Listed investments 16,180 11,954
Unlisted 13 34
Property income dividends 460 444
--------- ---------
16,653 12,432
--------- ---------
Non UK dividends:
Overseas dividend income 2,013 1,159
--------- ---------
2,013 1,159
--------- ---------
18,666 13,591
===== =====
2022 2021
4. Other Interest Receivable and Similar Income GBP'000 GBP'000
-------------------------- --------------------------
Stock lending commission 62 89
Income from underwriting - 4
Bank interest 8 -
--------- ---------
70 93
===== =====
Stock lending commission has been shown net of brokerage fees of
GBP16,000 (2021: GBP22,000).
5. Return per Ordinary Share - Basic and Diluted
The return/(loss) per ordinary share is based on the net loss attributable
to the ordinary shares of GBP64,828,000 (2021: net return of GBP131,814,000)
and on 270,185,650 ordinary shares (2021: 270,185,650(1) ) being
the weighted average number of ordinary shares in issue during
the year. The (loss)/return per ordinary share can be further analysed
between revenue and capital, as below.
2022 2021
GBP'000 GBP'000
Net revenue return 16,491 11,538
Net capital (loss)/return (81,319) 120,276
--------- ---------
Net total (loss)/return (64,828) 131,814
===== =====
Weighted average number of ordinary 270,185,650 270,185,650
shares in issue during the year (1) (1)
2022 2021
Pence Pence (1)
Revenue return per ordinary share 6.10 4.27
Capital (loss)/return per ordinary share (30.10) 44.52
---------- ----------
Total (loss)/return per ordinary share (24.00) 48.79
====== ======
The Company does not have any dilutive securities, therefore the
basic and diluted returns per share are the same.
(1) Comparative figures for the year ended 30 September 2021 have
been restated due to the sub-division of each ordinary share of
25p into ten ordinary shares of 2.5p each on 7 February 2022
6. Dividends Paid and Payable on the Ordinary Shares
2022 2021
Dividends on ordinary shares Record date Payment date GBP'000 GBP'000
Third interim dividend (1.5p(1)
) for the year ended 30 September 30 October
2020 2 October 2020 2020 - 4,053
Final dividend (1.5p(1) )
for the year ended 29 December 29 January
30 September 2020 2020 2021 - 4,053
First interim dividend (1.5p(1)
) for the year ended 30 September
2021 6 April 2021 30 April 2021 - 4,053
Second interim dividend (1.5p(1)
) for the year ended 30 September
2021 2 July 2021 31 July 2021 - 4,053
Third interim dividend (1.5p(1)
) for the year ended 30 September 30 September 29 October
2021 2021 2021 4,053 -
Final dividend (1.525p(1)
) for the year ended 30 September 30 December 31 January
2021 2021 2022 4,120 -
First interim dividend (1.525p)
for the year ended 30 September
2022 31 March 2022 29 April 2022 4,120 -
Second interim dividend (1.525p)
for the year ended 30 September 4,120 -
2022 30 June 2022 29 July 2022
Return of unclaimed dividends (15) -
--------- ---------
16,398 16,182
===== =====
(1) Comparative figures for the year ended 30 September 2021 have been
restated due to the sub-division of each ordinary share of 25p into
ten ordinary shares of 2.5p each on 7 February 2022
The third interim dividend and the final dividend for the year ended
30 September 2022 have not been included as a liability in these financial
statements. The total dividends payable in respect of the financial
year, which form the basis of the retention test under Section 1158
of the Corporation Tax Act 2010, are set out below.
2022
GBP'000
Revenue available for distribution by way of dividend for
the year 16,491
First interim dividend (1.525p) for the year ended 30 September
2022 (4,120)
Second interim dividend (1.525p) for the year ended 30 September
2022 (4,120)
Third interim dividend (1.525.0p) for the year ended 30 September
2022 (4,120)
Final dividend (1.525p) for the year ended 30 September 2022
(based on 270,185,650 ordinary shares in issue at 9 December
2022) ( 4,120)
Return of unclaimed dividends 15
---------
Transfer to reserves 26 (1)
=====
(1) The residual will be transferred to the revenue reserve
(2021: transfer from revenue reserve GBP3,198,000 and from the
capital reserve GBP1,513,000)
7. Called up Share Capital
Nominal
Number of value of
shares entitled Total number shares
to dividend of shares GBP'000
------------------------------- ------------------- -------------- -------------
At 30 September 2021 27,018,565 27,018,565 6,755
Issue of ordinary shares
following 10:1 share
split 243,167,085 243,167,085 -
----------- ----------- -----------
At 30 September 2022 270,185,650 270,185,650 6,755
During the year, the Company's shares in issue increased as a result
of the sub-division of the existing ordinary shares. No shares were allotted
or bought back during the year (2021: nil).
8. Net Asset Value per Ordinary Share
The net asset value per ordinary share of 115.9p (2021: 145.9p(1)
is based on the net assets attributable to the ordinary shares of
GBP313,036,000 (2021: GBP394,285,000) and on 270,185,650 (2021: 270,185,650(1)
) shares in issue on 30 September 2022.
(1) Comparative numbers for the year ended 30 September 2022 have
been restated due to the sub-division of each ordinary share of 25p
into ten ordinary shares of 2.5p each on 7 February 2022.
The movements during the year of the assets attributable to the ordinary
shares were as follows:
2022 2021
GBP'000 GBP'000
------------------------------------------------------ -------------- -------------
Total net assets at start of year 394,285 278,653
Total net (loss)/return after taxation (64,828) 131,814
Costs relating to sub-division of shares (23) -
Net dividends paid in the year:
Ordinary shares (16,398) (16,182)
----------- -----------
Net assets attributable to the ordinary shares
at 30 September 313,036 394,285
====== ======
9. 2022 Financial Information
The figures and financial information for the year ended 30 September
2022 are extracted from the Company's annual financial statements
for that period and do not constitute statutory accounts. The Company's
annual financial statements for the year to 30 September 2022 have
been audited but have not yet been delivered to the Registrar of Companies.
The Independent Auditor's Report on the 2022 annual financial statements
was unqualified, did not include reference to any matter to which
the Auditor drew attention without qualifying the report, and did
not contain any statements under sections 498(2) or 498(3) of the
Companies Act 2006.
10. 2021 Financial Information
The figures and financial information for the year ended 30 September
2021 are extracted from the Company's annual financial statements
for that period and do not constitute statutory accounts. The Company's
annual financial statements for the year to 30 September 2021 have
been audited and filed with the Registrar of Companies. The Independent
Auditor's Report on the 2021 annual financial statements was unqualified,
did not include reference to any matter to which the Auditor drew
attention without qualifying the report, and did not contain any statements
under sections 498(2) or 498(3) of the Companies Act 2006.
11. Dividend
The final dividend, if approved by the shareholders at the Annual
General Meeting, of 1.525p per ordinary share will be paid on 31 January
2023 to shareholders on the register of members at the close of business
on 30 December 2022. This will take the total dividends for the year
to 6.10p (2021: 6.025p(1) ). The Company's shares will be traded ex-dividend
on 29 December 2022.
(1) Comparative numbers for the year ended 30 September 2022 have
been restated due to the sub-division of each ordinary share of 25p
into ten ordinary shares of 2.5p each on 7 February 2022.
12. Annual Report
The Annual Report will be posted to shareholders in December 2022
and will be available on the Company's website ( www.lowlandinvestment.com
).
13. Annual General Meeting
The Annual General Meeting will be held on 25 January 2023 at 12.30pm
at 201 Bishopsgate, London EC2M 3AE. The Notice of Meeting will be
sent to shareholders with the Annual Report.
For further information please
contact:
James Henderson Laura Foll
Fund Manager Fund Manager
Lowland Investment Company plc Lowland Investment Company plc
Telephone: 020 7818 4370 Telephone: 020 7818 6364
Dan Howe
Head of Investment Trusts
Janus Henderson Investors
Telephone: 020 7818 4458
Neither the contents of the Company's website nor the contents
of any website accessible from hyperlinks on the Company's website
(or any other website) are incorporated into, or form part of, this
announcement.
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END
FR EAKAAFSSAFFA
(END) Dow Jones Newswires
December 12, 2022 11:59 ET (16:59 GMT)
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