TIDMLWI
RNS Number : 7519R
Lowland Investment Co PLC
13 December 2016
LOWLAND INVESTMENT COMPANY PLC
Annual Report for the year ended 30 September 2016
This announcement contains regulated information
-- Net Asset Value Total Return 12.2%(1)
-- Benchmark Total Return 16.8%
-- Growth in Dividend 9.8%
-- Dividend for the year 45.0p
Year ended Year ended
30 September 30 September
Key Data 2016 2015
------------------------------------ -------------- --------------
NAV per share at year end 1,432p 1,318p
Share Price at year end 1,337p 1,287p
Market Capitalisation GBP361m GBP346m
Dividend per share 45.0p 41.0p
Ongoing Charge
- including the performance fee 0.63% 0.85%
- excluding the performance fee 0.63% 0.60%
Dividend Yield (2) 3.4% 3.2%
Gearing at year end 6.2% 16.8%
Discount at year end(3) (6.6)% (2.4)%
(1) Net asset value per share total return (including dividends
reinvested)
(2) Based on the dividends paid in respect of the previous
twelve months
(3) Calculated using year end audited NAVs including current
year revenue
Sources: Morningstar for the AIC, Henderson, Datastream
MANAGEMENT REPORT
Commenting on the results Chairman, Peter Troughton, said:
Performance
The net asset value ('NAV') total return for the year was
+12.2%, while the FTSE All-Share Index delivered a total return of
+16.8%. It was year of handsome absolute returns, but our
performance was clearly disappointing relative to the index. The
main cause of this underperformance is Lowland's exposure to medium
and smaller companies in the index. They underperformed large
companies as they benefited less from Sterling depreciation.
Total return for the financial year %
------------------------------------- -----
FTSE 100 18.4
FTSE 250 10.2
Numis Smaller Companies 8.6
Whilst 2016 was not the best year for medium and smaller
companies, it is our exposure to these that has been an important
driver of the Company's longer-term outperformance of the
benchmark.
5 years 10 years 25 years
Total return to September 2016 % % %
-------------------------------- -------- --------- ---------
NAV 105.6 115.8 1367.9
Share Price 104.9 109.5 1319.9
FTSE All-Share Index 68.9 75.6 605.2
Dividends
The revenue earnings per share for the year are 47.7p, against
46.4p last year. This understates the underlying growth in
dividends from the portfolio, because last year we received a
materially higher level of special dividends. If we ignore these
special dividends, the earnings grew 4.6% which compares favourably
with dividend growth from the benchmark of 3.6% over the period.
This has allowed us to pay an increased dividend to shareholders.
Subject to shareholders approving the final dividend, the total
dividend for the year will be 45p, which as an increase of 9.8%
over last year's 41p. We will also be transferring GBP735,000 to
the revenue reserve. Over the past five years dividends have grown
at a compound rate of 10%. Over the last ten years, Lowland's
dividend growth has substantially outperformed the FTSE All-Share
Index dividend growth.
Review
We had thought interest rates might rise at the start of the
year. In fact they fell from 0.5% to 0.25% in the aftermath of the
UK's referendum on the European Union ('EU') in June. The Manager
believed that the outcome of the referendum would usher in a period
of uncertainty while Britain's new relationship with the EU is
established, so we reduced the gearing from 16% to 6%. This was a
decision to reduce portfolio risk, to protect shareholders' capital
and to have more firepower ready to invest when new opportunities
arise.
As it happens, we acted too soon. The market has performed well
in the immediate aftermath of the Brexit vote. The economy has
beaten expectations. But the prospect of leaving the EU has focused
attention on the UK's large current account deficit. The pound's
depreciation will assist the necessary correction, but this will
inevitably require a period of lower growth in domestic
consumption. The valuation of companies totally exposed to the UK
has fallen, despite the overall rally in the market. Once the level
of disruption to the economy can be gauged, there may be recovery
situations in the UK which will be worth investing in.
Gearing
As a Board we have in the past refrained from fixing our
borrowings with long-term debt, though it has been a recurring
subject of Board discussions during recent years. We have been
right to prefer the flexibility of short-term bank borrowing: this
has been to the advantage of shareholders while rates have stayed
low. However, rates on long-term debt have now fallen to attractive
levels; and the combined prospect of higher inflation in the UK and
a shift towards fiscal expansion in the US suggests that rates are
now turning. We have therefore issued a 20 year long loan note with
a coupon of 3.15% for GBP30m.
Share Issuance
We will issue shares if it helps produce an orderly market in
the stock and it enhances the NAV. During the year 126,138 shares
were issued at a premium of 3.9%. There were no share buybacks.
Ongoing Charge
The ongoing charge to the Company for the year ended 30
September 2016 as calculated in accordance with the Association of
Investment Companies (the 'AIC') methodology is 0.63% (2015: 0.60%
excluding the performance fee and 0.85% including the performance
fee). There was no performance fee payable this year.
The Board
I am very pleased that Gaynor Coley has agreed to join the
Board. She is a qualified Chartered Accountant and chairs the
Institute of Chartered Accountants in England and Wales Corporate
Responsibility Advisory Group. Gaynor was most recently the
Director of Public Programmes for The Royal Botanic Gardens at Kew.
Following a successful career in industry both as an internal
auditor at Bank of Nova Scotia and also as Finance Director at
Horizon Farms and Plymouth University, Gaynor joined The Eden
Project in its early days in 1997, taking it to the UK Visitor
Attraction of the Year for three successive years. She therefore
brings broad, relevant and unusual experience to the Board. She
will succeed Robbie Robertson as Chairman of the Audit Committee
following the AGM in 2017.
As announced with the half-year results, I will be standing down
at the Annual General Meeting having served on the Board for 26
years. During this period the dividend has grown from 7.75p in 1990
to 45p this year, an increase of 5.8 times; while the NAV per share
has risen from 165p to 1,432p an increase of 8.7 times. I have
every confidence that my successor, Robbie Robertson, who has
chaired the Audit Committee admirably, will enjoy the same
stimulating and supportive relationship with the Manager, which it
has been my privilege to have had all these years.
Portfolio Management
James Henderson has been the manager since 1990. He has for the
last three years been working with Laura Foll on the portfolio. The
Board is delighted that with effect from 1 November 2016 Laura has
been formally appointed as Joint Fund Manager. James and Laura will
continue to share investment decisions. The investment approach
will not be changed but it will be refreshed by Laura's added
responsibility for the performance.
Annual General Meeting ('AGM')
The AGM of the Company will be held at the offices of Henderson
on Tuesday 24 January 2017 at 12.30 pm. Full details of the
business to be conducted at the meeting are set out in the Notice
of Meeting which has been sent to shareholders with the Annual
Report. As usual our Fund Managers will be making a
presentation.
Outlook
Next year, inflation may rise as the lower level of Sterling
pushes up the cost of imported goods. If higher inflation becomes
established and fiscal policy is loosened, then short-term interest
rates will need to rise. After thirty years of falling interest
rates, and nearly ten years of 'emergency' rates, stock markets may
react badly to a higher rate environment. We certainly expect a
period of volatility for all stock markets, exacerbated in the UK
by the inevitable drip of Brexit negotiation stories.
The Fund Managers will continue to judge each investment
prospect on its own specific merits rather than taking a
macroeconomic view. The successful companies will be those that
have unique strengths in the quality of their products or the
excellence of the service they give. Companies with a competitive
advantage will ultimately prosper regardless of the economic
backdrop. These will be the companies that are able to grow their
dividends in coming years and perform during a period of marked
economic uncertainty.
Peter Troughton CBE
Chairman
13 December 2016
Principal Risks and Uncertainties and Viability Statement
The Board, with the assistance of the Manager, has carried out a
robust assessment of the principal risks facing the Company
including those that would threaten its business model, future
performance, solvency or liquidity. In carrying out this
assessment, the Board has considered the
market uncertainty arising from the result of the UK referendum
to leave the European Union. The Board has drawn up a matrix of
risks facing the Company and 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 as
far as possible, and whether the Board considers the impact of such
risks has changed over the past year, are as follows:
Risk Controls and Mitigation
---------------------------------------- --------------------------------------------
Investment Activity and Strategy
Risk The Board manages these risks by
An inappropriate investment strategy ensuring a diversification of investments
or poor execution, for example, and a regular review of the extent
in terms of asset allocation or of borrowings. Henderson operates
level of gearing, may result in in accordance with investment limits
underperformance against the Company's and restrictions and policy determined
benchmark index and the companies by the Board, which includes limits
in its peer group, and also in on the extent to which borrowings
the Company's shares may be employed.
trading on a wider discount to
the net asset value per share. The Board reviews the investment
limits and restrictions on a regular
basis and Henderson confirms adherence
to them every month. Henderson provides
the Board with management information,
including performance data and reports
and shareholder analyses.
The Directors monitor the implementation
and results of the investment process
with the Fund Managers at each Board
meeting and monitor risk factors
in respect of the portfolio. Investment
strategy is reviewed at each meeting.
---------------------------------------- --------------------------------------------
Portfolio and Market Price Risk
Market risk arises from uncertainty The Fund Managers seek to maintain
about the future prices of the a diversified portfolio to mitigate
Company's investments. Although against this risk. The Board regularly
the Company invests almost entirely reviews the portfolio, activities
in securities that are listed and performance. An analysis of
on recognised markets, share prices the Company's portfolio is shown
may move rapidly. The companies in the Annual Report.
in which investments are made
may operate unsuccessfully, or
fail entirely.
---------------------------------------- --------------------------------------------
Financial Risk
The financial risks faced by the The Company minimises the risk of
Company include market price risk, a counterparty failing to deliver
interest rate risk, liquidity securities or cash by dealing through
risk, currency risk and credit organisations that have undergone
and counterparty risk. rigorous due diligence by 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 companies mitigates
the Company's exposure to
liquidity risk. Currency risk is
mitigated by the low exposure to
overseas stocks.
Risk Controls and Mitigation
---------------------------------------- ----------------------------------------------------
Gearing Risk
The Company has the ability under The Company minimises the risk by
existing covenants to gear up the regular monitoring of the levels
to 29.99% of the equity shareholder's of the Company's borrowings in accordance
funds other than in exceptional with the agreed limits. The Company
circumstances. In the event of confirms adherence to the covenants
a significant or prolonged fall of the loan facilities on a monthly
in equity markets gearing would basis.
exacerbate the effect of the falling
market on the Company's NAV per
share and, consequently its share
price.
---------------------------------------- ----------------------------------------------------
Operational Risk
Disruption to, or the failure Details of how the Board monitors
of, Henderson's accounting, dealing the services provided by Henderson
or payment systems or the Custodian's and its other suppliers, and the
records could prevent the accurate key elements designed to provide
reporting or monitoring of the effective internal control, are
Company's financial position. explained further in the Internal
Henderson contracts some of the Controls section of the Annual Report.
operational functions (principally
those relating to trade processing,
investment administration and
accounting), to BNP Paribas Securities
Services.
---------------------------------------- ----------------------------------------------------
Accounting, Legal and Regulatory
Risk The Board relies on its Company
In order to qualify as an investment Secretary and its professional advisers
trust, the Company must comply to ensure compliance with the Companies
with Section 1158 of the Corporation Act 2006 and UKLA Rules.
Tax Act 2010. A breach of
Section 1158 could result in the The Board receives internal control
Company losing investment trust reports produced by Henderson on
status and, as a consequence, a quarterly basis, which confirm
capital gains realised within regulatory compliance.
the
Company's portfolio would be subject
to Corporation Tax. Compliance
with the requirements of Section
1158 are monitored
by Henderson and the results are
reported at each Board meeting.
The Company must comply with the
provisions of the Companies
Act 2006 and, since its shares
are listed on the London Stock
Exchange, the UKLA's Listing and
Disclosure Guidance and
Transparency Rules and the Prospectus
Rules ('UKLA Rules'). A breach
of the Companies Act 2006 could
result in the Company and/or
the Directors being fined or the
subject of criminal proceedings.
A breach of the UKLA Rules could
result in the suspension of the
Company's shares; which in turn
would breach Section 1158.
The Board considers these risks to have remained unchanged
throughout the year under review.
Viability Statement
The Company is a long-term investor; the Board believe 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 risks and
uncertainties as documented above.
The assessment has considered the impact of the likelihood of
the principal 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.
Where there is current uncertainty in the markets following the
UK referendum results to leave the European Union, the Board does
not believe that this will have a long-term impact on the viability
of the Company and its ability to continue in operation.
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 under Disclosure Guidance and Transparency Rule
4.1.12
Each of the Directors confirms that, to the best of his/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 profit 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
Peter Troughton CBE
Chairman
13 December 2016
Fund Managers' Report
Investment Background
The Central Banks in the major economies, have created a real
dilemma for investors. Their policy has driven down the return on
'risk free assets'. For the policy to work capital needs to flow to
riskier assets attracted by their relative return and therefore
stimulate activity. However, to use the long gilt yield as a
valuation metric would be using an artificially manipulated gauge.
The yield on long-dated government bonds probably does not give any
insight into the likely levels of future inflation. Therefore
companies should not reduce the return hurdles they apply before
making long-term investments in the real economy. Too often this
year promoters of deals have claimed that an acquisition is good
because it will boost a company's earnings as the cost of money is
so low. This is dangerous ground. An acquisition by a company needs
to make operational sense and the financial disciplines around what
is a desirable deal, such as the required return on capital, should
not be altered. The longer interest rates stay at very low levels
the more investment discipline will become lax. Valuations on UK
equities moved into more expensive territory during the year. We
have reduced gearing as a result of this increased risk.
Performance Attribution
The largest positive contributor to performance this year was
Hill & Smith, a galvaniser and manufacturer of crash barriers.
It has been a long-held position for the Company, initially
purchased for GBP1.01 per share in 2004. In recent years it has
been an excellent performer, benefitting from a good management
team. They have successfully expanded their presence in the US and
maintained a strong balance sheet. In particular they have been a
beneficiary of the 'Road Investment Strategy' in the UK which spans
to the early 2020s, increasing demand for their crash barriers and
road signs. For the overall balance of the portfolio we have sold
part of the holding with the intention of reinvesting in good value
growing smaller companies.
At the sector level the Company benefited during the year from
its relatively low weighting in the banking sector. We continue to
be sceptical of the ability of domestic retail banks such as Lloyds
to grow earnings. Due to their high cost base and desire to protect
margins they are steadily losing market share to challenger banks
in key areas such as mortgages. Over time this downward pressure on
earnings will constrain their ability to pay high dividends and
therefore we currently hold no position. Within financials our
preference continues to be for insurers (such as Hiscox) which
generate strong returns across the underwriting cycle and provide
diversification for our high weight in the industrials sector.
The largest individual detractor from performance was industrial
chain manufacturer Renold, which has seen earnings come under
pressure as a result of difficult end markets in agriculture and
energy. What we find encouraging (and why we have added to the
shares on weakness) is that management have made real progress in
taking costs out of the business. This meant that despite the tough
environment margins grew year on year. We remain confident that in
a more buoyant sales environment they can achieve their target of
mid-teens margins which would leave the shares looking attractive
at this level.
We sold British American Tobacco too early. Our investment
process is valuation driven and we were concerned by the high
valuation.
Investment Activity
A substantial part of the investment process has historically
been recovery investing, where we feel the market has become overly
negative on a particular company or sector. In the Annual Report
last year we wrote about commodity companies. This year our
recovery plan included Standard Chartered and Rolls-Royce. Both
were existing positions that we added to following the appointment
of new management teams that are rigorously addressing legacy
problems. In the case of Standard Chartered, Bill Winters, the
Chief Executive Officer addressed questions over their balance
sheet via a rights issue and a dividend cut, and is now focused on
returning the business to revenue growth across emerging markets.
After recent meetings with management, we are confident they can
return the business to a strong growth path that will also lead to
substantial dividend payments. In the case of Rolls-Royce it has
been profitability rather than sales that have been problematic.
The technology and skills in the company already make it one of the
world leaders in large aerospace engines, but it has historically
been overly complex. The new Chief Executive Officer, Warren East,
has instilled a focus on cost and transparency.
In the smaller companies area we have added a new position,
Numis, a corporate broker and equity research firm. Numis' focus on
the UK, specifically small and medium sized companies means it is
winning share off larger competitors for both corporate brokerships
as well as fund raisings such as IPOs. This leaves it well placed
to deliver substantial earnings growth while already paying an
attractive dividend yield to shareholders.
For a number of years we have been selectively investing in
early-stage companies. These remain a small portion of the overall
Company (4% net assets), but provide an attractive level of
diversification and have so far added value. A new addition this
year was Atlantis Resources. Atlantis is aiming to commercialise
tidal power, with its first project in offshore Scotland. Tidal
power has advantages versus existing renewable energy because it is
both predictable and, as the turbines are below the water, not
unsightly. Given its early stage of commercial development it is
also currently subject to favourable environmental subsidies.
The largest sales during the year were the holdings in miners
Anglo American and Glencore. We aim to be mildly contrarian in
style and we had added to these positions when they were trading at
substantial discounts to book value in late 2015. While we have a
long time horizon in these cases the share prices moved further and
faster than we anticipated and we felt that market expectations
were beginning to look stretched. The investment style means that
we have a tendency to buy shares early on share price falls and
sell shares early when sentiment towards stocks changes. In
hindsight we sold our positions in miners too early, and we will
continue to review our position. For the time being we feel market
expectations are not reflecting the risks that remain.
Additional sales during the year were primarily where we saw
companies approaching fair value. Examples of this include tape
manufacturer Scapa, semiconductor manufacturer Infineon and
packaging producer DS Smith. In many cases we have held these
positions for a number of years and have seen them transition from
low rated recovery positions towards growth companies. Scapa, for
example, was originally purchased in 2001 for 66p per share. At the
time it was an industrial tape manufacturer that had legacy
asbestos and pension issues. It is now a well-managed health care
tape company making excellent margins. We are reducing the holding
at around GBP3 per share. Scapa illustrates well the importance in
smaller and medium sized company investing, of both being patient
and investing, behind excellent management teams.
The Board
Peter Troughton is retiring from the Board after 26 years. I
know it is considered best practice for directors to serve shorter
terms. Peter's contribution, however, demonstrates that there is
benefit in continuity. That Peter had already served during two
periods of real market weakness was of great benefit to the Manager
in helping position the portfolio for the recovery after the 2008
crash. We are grateful to him.
Portfolio Management
From 1 November 2016 we have been managing the portfolio as
joint managers. We do not intend the investment approach to alter
but it will allow us to follow more deeply UK companies. We both
know what we are looking for in the individual companies and are
mindful of the blend of the overall portfolio.
Outlook
Next year it is likely inflation will rise and output growth
will slow. There may be long term benefits from Brexit for the UK
economy. For companies the near term brings planning uncertainty
and higher costs of imported goods at a time of slowing economic
growth. Either company margins will come under pressure or
inflation will rise faster than expected. The benefits to exporters
of currency depreciation are not as large as in the past. The
companies held in the portfolio are further up the value chain than
they were twenty years ago. They sell on service and product
superiority rather than just price. This allows them to achieve
higher margins but it also means that the depreciation of Sterling
is less important. Inflation will become a medium-term problem if
wages rise to compensate for inflation and the reduced purchasing
power of Sterling outside the UK.
We will be on the lookout for companies whose valuation does not
reflect their ability to grow. Some of these will be recovery
situations where a business has faced up to its problems and
reinvented itself by focusing on its core strengths. Others will be
younger companies that are moving forwards into larger markets for
the first time. The success or failure of these companies will not
be determined by the economic background but rather by the quality
of their product and by the management's ability to capitalise on
it. There will be disappointments but the diversity of the list
does offer some protection. We are not investing on the basis of an
investment theme, but rather in individual businesses that have
some unique strengths. These businesses can be found in many
different areas. The successful portfolio blends different end
market exposures with choosing the successful operators in these
areas. This can be done by paying attention to what the companies
are saying and reporting.
James Henderson and Laura Foll
Fund Managers
13 December 2016
Twenty Largest Holdings
Approximate Valuation
Rank % of Market 2016
2016 (2015) Company portfolio Capitalisation GBP'000
-------------- ---------------------------------------- ------------ ----------------- ------------
Royal Dutch Shell
The company explores produces
and refines oil; it produces
fuels, chemical and lubricants
as well as operating filling
stations worldwide. They have
attacked their cost base and
have very high class assets which
1(3) positions them well for the future. 4.9 GBP170bn 20,137
-------------- ---------------------------------------- ------------ ----------------- ------------
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 growing economies
2(6) make it well placed. 3.0 GBP120bn 12,471
-------------- ---------------------------------------- ------------ ----------------- ------------
Hiscox
The international insurance company
manages underwriting syndicates
and underwrites a range of personal
and commercial insurance. They
are very disciplined and have
over the long term have achieved
3 (2) a high return on capital. 3.0 GBP3bn 12,414
-------------- ---------------------------------------- ------------ ----------------- ------------
Senior
The company manufactures specialist
engineering products for the
automotive and aerospace sectors.
The share price has recently
been weak but the civil aerospace
business is set to return to
high single digit growth for
the foreseeable future with good
4(1) margins. 2.8 GBP800m 11,455
-------------- ---------------------------------------- ------------ ----------------- ------------
Phoenix
The company is a UK based specialist
closed life and pension fund
consolidator. The dividend and
asset value are growing and the
5(5) equity yields over 6%. 2.6 GBP2bn 10,537
-------------- ---------------------------------------- ------------ ----------------- ------------
Standard Chartered
The international banking group
operates principally in Asia,
Africa and the Middle East. The
new management team has focused
the bank back to areas of relative
6* strength in its growing markets. 2.4 GBP20bn 9,920
-------------- ---------------------------------------- ------------ ----------------- ------------
Scapa(1)
The company manufactures and
supplies technical tape and adhesive
film to various markets worldwide
including the medical, automotive,
construction and sports industries.
It has been a very successful
small company investment growing
its sales and margins over many
7(8) years 2.2 GBP400m 9,020
-------------- ---------------------------------------- ------------ ----------------- ------------
Prudential
The company provides an assortment
of insurance and investment products
around the world. The business
in the Far East has grown impressively
8* in recent years. 2.1 GBP35bn 8,882
-------------- ---------------------------------------- ------------ ----------------- ------------
GKN
The manufacturer produces automotive
components and aerospace parts.
The operating margins have improved
during a testing period for end
markets and further progress
9(13) is expected. 2.0 GBP5bn 8,136
-------------- ---------------------------------------- ------------ ----------------- ------------
Rio Tinto
The miner has interests in aluminium,
coal, copper, gold, iron ore,
uranium, zinc and diamonds. It
operates good quality assets
from a relatively low cost base
10(14) which puts it in a strong position. 1.9 GBP52bn 7,723
-------------- ---------------------------------------- ------------ -----------------
Hill & Smith
The manufacturer produces products
for the infrastructure, galvanizing,
building and construction industries.
The products include traffic
barriers, fencing, lighting columns,
storage tanks and variable message
signs. It has been a successful
small company investment over
11 (7) many years. 1.9 GBP800m 7,671
-------------- ---------------------------------------- ------------ ----------------- ------------
Irish Continental(2)
The group markets holiday packages
and provides passenger transport,
roll-on and roll-off freight
transport and container services
between Ireland, the United Kingdom
and continental Europe. It is
a very cash generative well-run
12(10) company. 1.8 GBP600m 7,526
-------------- ---------------------------------------- ------------ ----------------- ------------
Headlam
The company distributes floor
titles and carpeting. The price
of their products is being increased
their national coverage positions
13* them well to continue growing. 1.7 GBP400m 7,039
-------------- ---------------------------------------- ------------ ----------------- ------------
Croda
The company produces a diverse
range of products to go into
personal care, pharmaceuticals,
plastics, nutrition, fire prevention
and engineering. The value added
nature of their work means strong
14(20) margins are achieved. 1.6 GBP4bn 6,728
-------------- ---------------------------------------- ------------ ----------------- ------------
Relx
The company publishes information
for the scientific, medical,
legal and business sectors serving
customers worldwide. It is consistent
15* high quality growth business. 1.6 GBP30bn 6,583
-------------- ---------------------------------------- ------------ ----------------- ------------
Johnson Service(1)
A textile rental company that
provides linens for use across
workwear, hotels and restaurants.
In recent years the management
team have successfully de-geared
the balance sheet and grown operating
16(16) margins. 1.6 GBP400m 6,533
-------------- ---------------------------------------- ------------ ----------------- ------------
BP
A producer and refiner of oil.
Following the fall in the oil
price they have successfully
focussed on cost reduction in
order to bring down their breakeven
17(9) cost per barrel of oil produced. 1.6 GBP86bn 6,525
-------------- ---------------------------------------- ------------ ----------------- ------------
GlaxoSmithKline
Among the world's largest healthcare
companies that operates across
pharmaceuticals, vaccines and
consumer health. Following several
years of earnings pressure from
drugs going off patent they have
now returned to earnings growth
driven by success in areas such
18* as HIV. 1.5 GBP74bn 6,161
-------------- ---------------------------------------- ------------ ----------------- ------------
Rolls-Royce
The company designs and manufactures
engines as well as providing
aftermarket
services for use across aerospace
and industry. They have successfully
won market share across many
of the large new civil aerospace
programmes and under a new management
team have a renewed focus on
19* removing duplicate costs. 1.5 GBP12bn 5,940
-------------- ---------------------------------------- ------------ ----------------- ------------
Novae
The company is a Lloyd's underwriter,
writing insurance in areas such
as aviation and property. In
recent years they have hired
specialist underwriters across
a range of areas and have successfully
grown their premiums while remaining
20* disciplined. 1.4 GBP500m 5,911
-------------- ---------------------------------------- ------------ ----------------- ------------
43.1 177,312
-------------- ---------------------------------------- ------------ ----------------- ------------
At 30 September 2016 these investments totalled GBP177,312,000
or 43.1% of the portfolio.
* Not in the top 20 largest investments last year
1 AIM stocks
2 Overseas listed stocks (Canada, France, Germany, Ireland and
USA)
Audited Income Statement
Year ended 30 September Year ended 30 September
2016 2015
Revenue Capital Revenue Capital
return return Total return return Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ --------- --------- --------- --------- --------- ---------
Gains/(losses) on investments
held at fair value through
profit or loss - 29,331 29,331 - (8,387) (8,387)
Income from investments
(note 2) 15,944 - 15,944 15,542 - 15,542
Other interest receivable
and similar income (note
4) 108 - 108 105 - 105
--------- --------- --------- --------- --------- ---------
Gross revenue and capital
gains/(losses) 16,052 29,331 45,383 15,647 (8,387) 7,260
Management fee (1,806) - (1,806) (1,819) - (1,819)
Performance fee - - - - (908) (908)
Other expenses (472) - (472) (484) - (484)
--------- --------- --------- --------- --------- ---------
Net return/(loss) on ordinary
activities before finance
costs and taxation 13,774 29,331 43,105 13,344 (9,295) 4,049
Finance costs (764) - (764) (806) - (806)
--------- --------- --------- --------- --------- ---------
Net return/(loss) on ordinary
activities before taxation 13,010 29,331 42,341 12,538 (9,295) 3,243
Taxation on net return
on ordinary activities (117) - (117) (48) - (48)
--------- --------- --------- --------- --------- ---------
Net return/(loss) on ordinary
activities after taxation 12,893 29,331 42,224 12,490 (9,295) 3,195
===== ===== ===== ===== ===== =====
Return/(loss) per ordinary
share
- basic and diluted (note
5) 47.7p 108.7p 156.4p 46.4p (34.6)p 11.8p
===== ===== ===== ===== ===== =====
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 recognised gains or losses other
than those disclosed in the Income Statement.
Audited 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 2016 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- ---------- ----------- ------------ ------------ ----------- ------------
At 1 October 2015 6,723 59,923 1,007 275,268 11,642 354,563
Net return on ordinary activities
after taxation - - - 29,331 12,893 42,224
Ordinary shares issued 32 1,696 - - - 1,728
Third interim dividend (10.0p)
for the year ended 30 September
2015 paid 30 October 2015 - - - - (2,689) (2,689)
Final dividend (11.0p) for
the year ended
30 September 2015 paid 29
January 2016 - - - - (2,972) (2,972)
First interim dividend (11.0p)
for the year ended 30 September
2015 paid 29 April 2016 - - - - (2,972) (2,972)
Second interim dividend (11.0p)
for the year ended 30 September
2016 paid 29 July 2016 - - - - (2,972) (2,972)
--------- ---------- ---------- ----------- ---------- -----------
At 30 September 2016 6,755 61,619 1,007 304,599 12,930 386,910
===== ===== ===== ====== ===== ======
Called Share Capital Other
up share premium redemption capital Revenue
Year ended capital account reserve reserves reserve Total
30 September 2015 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- ---------- ----------- ------------ ------------ ----------- ------------
At 1 October 2014 6,723 59,923 1,007 284,563 9,640 361,856
Net (loss)/return on ordinary
activities after taxation - - - (9,295) 12,490 3,195
Third interim dividend (9.0p)
for the year ended 30 September
2014 paid 31 October 2014 - - - - (2,421) (2,421)
Final dividend (10.0p) for
the year ended
30 September 2014 paid 30
January 2015 - - - - (2,689) (2,689)
First interim dividend (10.0p)
for the year ended 30 September
2015 paid 30 April 2015 - - - - (2,689) (2,689)
Second interim dividend (10.0p)
for the year ended 30 September
2015 paid 31 July 2015 - - - - (2,689) (2,689)
--------- ---------- ---------- ----------- ---------- -----------
At 30 September 2015 6,723 59,923 1,007 275,268 11,642 354,563
===== ===== ===== ====== ===== ======
Audited Statement of Financial Position
As at 30 As at 30
September September
2016 2015
GBP'000 GBP'000
----------------------------------------------- ------------ ------------
Investments held at fair value through profit
or loss
Listed at market value in the United Kingdom 326,129 328,949
Listed at market value on AIM 58,403 56,011
Listed at market value overseas 24,384 26,993
Unlisted 2,101 2,179
----------- -----------
411,017 414,132
----------- -----------
Current assets
Debtors 2,129 3,589
Cash at bank 2,178 669
----------- -----------
4,307 4,258
----------- -----------
Creditors: amounts falling due within one
year (28,414) (63,827)
----------- -----------
Net current liabilities (24,107) (59,569)
----------- -----------
Total assets less current liabilities 386,910 354,563
----------- -----------
Net assets 386,910 354,563
======= =======
Capital and reserves
Called up share capital 6,755 6,723
Share premium account 61,619 59,923
Capital redemption reserve 1,007 1,007
Other capital reserves 304,599 275,268
Revenue reserve 12,930 11,642
----------- -----------
Total shareholders' funds 386,910 354,563
======= =======
Net asset value per ordinary share - basic
and diluted (note 8) 1,432.0p 1,318.4p
======= =======
Audited Statement of Cash Flows
Year ended Year ended
30 September 30 September
2016 2015*
GBP'000 GBP'000
------------------------------------------- -------------- --------------
Cash flows from operating activities
Net return on ordinary activities before
taxation 42,341 3,243
Add back: finance costs 764 806
(Less)/add: (gains)/losses on investments
held at fair value through profit or
loss (29,331) 8,387
Withholding tax on dividends deducted
at source (136) (44)
(Increase)/decrease in debtors (374) 99
Decrease in creditors (827) (160)
----------- -----------
Net cash inflow from operating activities 12,437 12,331
Cash flows from investing activities
Purchase of investments (67,620) (68,100)
Sale of investments 102,719 53,569
----------- -----------
Net cash inflow/(outflow) from investing
activities 35,099 (14,531)
Cash flows from financing activities
Equity dividends paid (net of refund
of unclaimed distributions and reclaimed
distributions) (11,605) (10,488)
Proceeds from issue of ordinary shares 1,728 -
Net loans (repaid)/drawndown (35,418) 12,408
Interest paid (832) (809)
----------- -----------
Net cash (outflow)/inflow from financing
activities (46,127) 1,111
Net increase/(decrease) in cash and cash
equivalents 1,409 (1,089)
Cash and cash equivalents at start of
year 669 1,756
Effect of foreign exchange rates 100 2
----------- -----------
Cash and cash equivalents at end of year 2,178 669
======= =======
Comprising:
Cash at bank 2,178 669
----------- -----------
2,178 669
======= =======
* Restated see 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 (which is effective
for periods commencing on or after 1 January 2015) and with the
Statement of Recommended Practice: Financial Statements of Investment
Trust Companies and Venture Capital Trusts ("the SORP") issued
in November 2014. The date of transition to FRS 102 was
1 October 2014.
The Company has early adopted the amendments to FRS 102 in respect
of fair value hierarchy disclosures as published in March 2016.
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. Following
the application of the revised reporting standards there have
been no significant changes to the accounting policies compared
to those set out in the Company's Annual Report for the year
ended 30 September 2015.
There has been no impact on the Company's Income Statement, Statement
of Financial Position (previously called the Balance Sheet) or
Statement of Changes in Equity (previously called the Reconciliation
of Movements in Shareholders' Funds) for periods previously reported.
The Cash Flow Statement previously reported has been restated
to comply with the new disclosure requirements of the revised
reporting standard.
The Financial Statements have been prepared under the historical
cost basis except for the measurement of fair value of investments.
In applying FRS 102, 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.
b) Going concern
The assets of the Company consist of securities that are readily
realisable and, accordingly, the Directors believe that the Company
has adequate resources to continue in operational existence 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 connections with the viability
statement, the Directors considered it appropriate to adopt the
going concern basis of accounting in preparing the financial
statements.
Gains/(losses) on investments held at fair 2016 2015
2. value through profit or loss GBP'000 GBP'000
---- ------------------------------------------------ ------------ ------------
Gains on the sale of investments based on
historical cost 23,452 16,617
Less: revaluation gains recognised in previous
years (14,374) (12,912)
----------- -----------
Gains on investments sold in the year based
on carrying value at previous Statement of
Financial Position date 9,078 3,705
Revaluation gains/(losses) on investments
held at 30 September 20,153 (12,094)
Exchange gains 100 2
---------- ---------
29,331 (8,387)
===== =====
2016 2015
3 Income from investments GBP'000 GBP'000
--- ---------------------------- ---------- ----------
UK dividends:
Listed investments 12,767 11,814
Unlisted 48 53
Property income dividends 228 210
--------- ---------
13,043 12,077
--------- ---------
Non UK dividends:
Overseas dividend income 2,901 3,465
--------- ---------
2,901 3,465
--------- ---------
15,944 15,542
===== =====
2016 2015
4. Other interest receivable and similar income GBP'000 GBP'000
------ ------------------------------------------------ ---------- ----------
Stock lending commission 44 61
Income from underwriting 64 44
--------- ---------
108 105
===== =====
At 30 September 2016 the total value of securities on loan by
the Company for stock lending purposes was GBP2,830,000 (2015:
GBP5,024,000). The maximum aggregate value of securities on loan at
any time during the year ended 30 September 2016 was GBP25,560,000
(2015: GBP20,742,000). The Company's agent holds collateral
comprising FTSE 100 stocks, Gilts and a French government bond with
a collateral value of GBP2,979,000 (2015: GBP5,821,000) amounting
to a minimum of 105% (2015: minimum 116%) of the market value of
any securities on loan. Stock lending commission has been shown net
of brokerage fees of GBP37,000 (2015: GBP66,000).
5. Return per ordinary share - basic and diluted
The return per ordinary share is based on the net return attributable
to the ordinary shares of GBP42,224,000 (2015: GBP3,195,000) and
on 26,992,028 ordinary shares (2015: 26,892,427) being the weighted
average number of ordinary shares in issue during the year. The
return per ordinary share can be further analysed between revenue
and capital, as below.
2016 2015
GBP'000 GBP'000
---- ----------------------------------------------- ------------ ------------
Net revenue return 12,893 12,490
Net capital return/(loss) 29,331 (9,295)
--------- ---------
Net total return 42,224 3,195
===== =====
Weighted average number of ordinary shares in
issue during the year 26,992,028 26,892,427
Revenue return per ordinary share 47.7p 46.4p
Capital return/(loss) per ordinary share 108.7p (34.6)p
----------- -----------
Total return per ordinary share 156.4p 11.8p
====== ======
The Company does not have any dilutive securities; therefore the
basic and diluted returns per share are the same.
6. Dividends paid and payable on the ordinary shares
2016 2015
Dividends on ordinary shares Record date Payment date GBP'000 GBP'000
---------------------------------- --------------- ---------------- --------------------- ----------
Third interim dividend (9.0p)
for the year ended 30 September 10 October 31 October
2014 2014 2014 - 2,421
Final dividend (10.0p) for the
year ended 9 January 30 January
30 September 2014 2015 2015 - 2,689
First interim dividend (10.0p)
for the year ended 30 September
2015 7 April 2015 30 April 2015 - 2,689
Second interim dividend (10.0p)
for the year ended 30 September
2015 3 July 2015 31 July 2015 - 2,689
Third interim dividend (10.0p)
for the year ended 30 September 9 October 30 October
2015 2015 2015 2,689 -
Final dividend (11.0p) for the
year ended 8 January 29 January
30 September 2015 2016 2016 2,972 -
First interim dividend (11.0p)
for the year ended 30 September
2016 8 April 2016 29 April 2016 2,972 -
Second interim dividend (11.0p)
for the year ended 30 September
2016 1 July 2016 29 July 2016 2,972 -
---------- ---------
11,605 10,488
===== =====
The third interim dividend and the final dividend for the year ended
30 September 2016 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.
2016
GBP'000
------------------------------------------------------------- ------------------------------------------------------
Revenue available for distribution by way of dividend for
the year 12,893
First interim dividend (11.0p) for the year ended 30
September
2016 (2,972)
Second interim dividend (11.0p) for the year ended 30
September
2016 (2,972)
Third interim dividend (11.0p) for the year ended 30
September
2016 (2,972)
Final dividend (12.0p) for the year ended 30 September
2016 (based on 27,018,565 ordinary shares in issue at 13
December 2016) (3,242)
----------
Revenue surplus 735
=====
For section 1158 purposes the Company's undistributed revenue represents
4.6% of the income from investments.
7 Called up share capital
Number of Nominal value
shares entitled Total number of shares
to dividend of shares GBP'000
-------------------- --------------------------- ------------------------ ----------------------------------
At 30 September
2015 26,892,427 26,892,427 6,723
Shares issued in
the
year 126,138 126,138 32
----------- ----------- -----------
At 30 September
2016 27,018,565 27,018,565 6,755
During the year, the Company issued 126,138 ordinary shares for total
proceeds of GBP1,728,000 (2015: GBPnil).
8. Net asset value per ordinary share
The net asset value per ordinary share of 1,432.0p (2015: 1,318.4p)
is based on the net assets attributable to the ordinary shares
of GBP386,910,000 (2015: GBP354,563,000) and on 27,018,565 (2015:
26,892,427) shares in issue on 30 September 2016.
The movements during the year of the assets attributable to the
ordinary shares were as follows:
2016 2015
GBP'000 GBP'000
------------------------------------------------ ------------- -------------
Total net assets at 1 October 354,563 361,856
Total net return on ordinary activities after
taxation 42,224 3,195
Share issue proceeds 1,728 -
Net dividends paid in the year:
Ordinary shares (11,605) (10,488)
------------ ------------
Net assets attributable to the ordinary shares
at 30 September 386,910 354,563
====== ======
9. 2015 Financial Information
The figures and financial information for the year ended 30 September
2015 are compiled from an extract of the published financial statements
for that year and do not constitute statutory accounts. Those financial
statements have been delivered to the Registrar of Companies and
included the report of the Auditors which was unqualified, did
not include a reference to any matter to which the auditors 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. Dividend
The final dividend, if approved by the shareholders at the Annual
General Meeting, of 12.0p per ordinary share will be paid on 31
January 2017 to shareholders on the register of members at the
close of business on 6 January 2017. This will take the total dividends
for the year to 45.0p (2015: 41.0p). The Company's shares will
be traded ex-dividend on 5 January 2017.
11. Annual Report
The Annual Report will be posted to shareholders in December 2016
and will be available on the Company's website (www.lowlandinvestment.com)
or in hard copy format from the Company's Registered Office, 201
Bishopsgate, London, EC2M 3AE.
12. Annual General Meeting
The Annual General Meeting will be held on Wednesday, 24 January
2017 at 12.30 pm 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 H Henderson Laura Foll
Fund Manager Fund Manager
Lowland Investment Company plc Lowland Investment Company plc
Telephone: 020 7818 4370 Telephone: 020 7818 6364
Sarah Gibbons-Cook James de Sausmarez
Investor Relations and PR Manager Head of Investment Trusts
Henderson Global Investors Limited Henderson Investment Funds Limited
Telephone: 020 7818 3198 Telephone: 020 7818 3349
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) is incorporated into, or forms part of, this
announcement.
_______________________
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR EASADFDAKFFF
(END) Dow Jones Newswires
December 13, 2016 10:38 ET (15:38 GMT)
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