TIDMLWI
RNS Number : 2592W
Lowland Investment Co PLC
09 December 2019
HERSON INVESTMENT FUNDS LIMITED
LOWLAND INVESTMENT COMPANY PLC
LEGAL ENTITY IDENTIFIER: 2138008RHG5363FEHV19
LOWLAND INVESTMENT COMPANY PLC
ANNUAL FINANCIAL RESULTS FOR THE YEARED 30 SEPTEMBER 2019
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, 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 2019
-- Net Asset Value ('NAV') Total Return(1) of -9.6%
-- Benchmark Total Return of 2.7%(2)
-- Dividend growth of 10.2%
-- Dividend for the Year(3) of 59.5p
Year ended Year ended
30 September 30 September
2019 2018
---------------------------------------------- -------------- --------------
NAV per share at year end 1,428p 1,625p
Share price at year end(4) 1,280p 1,515p
Market capitalisation GBP346m GBP409m
Dividend per share 59.5p(3) 54.0p
Ongoing charge including performance fee 0.63% 0.57%
Ongoing charge excluding performance fee 0.63% 0.57%
Dividend yield(5) 4.6% 3.6%
Gearing at year end 12.8% 12.2%
Discount at year end(6) 9.1% 6.5%
AIC UK Equity Income sector average discount 4.5% 1.4%
(1) NAV per share total return (including dividends reinvested)
in the prior year was 2.7%
(2) The benchmark is the FTSE All-Share Index. The amount
includes dividends reinvested
(3) Includes the final dividend of 15.0p per ordinary share for
the year ended 30 September 2019 that will be put to shareholders
for approval at the Annual General Meeting on Tuesday 28 January
2020
(4) Mid-market closing price
(5) Based on dividends paid in respect of the previous 12 months
and the share price at the year-end
(6) Calculated using year-end audited NAVs including current
year revenue
Sources: Morningstar for the AIC, Janus Henderson, Refinitiv
Datastream
Historical Performance
Share
Net revenue Net asset price
Dividend Total return/(loss) return Total value per per ordinary
Year ended per ordinary per ordinary per ordinary net assets ordinary share
30 September share (pence) share (pence) share (pence) (GBP'000) share (pence) (pence)
2009 26.5 8.4 22.7 173,633 657.3 610.0
--------------- -------------------- --------------- ------------ --------------- --------------
2010 27.0 139.5 22.5 203,484 770.3 699.5
--------------- -------------------- --------------- ------------ --------------- --------------
2011 28.0 68.3 28.8 214,251 811.0 762.5
--------------- -------------------- --------------- ------------ --------------- --------------
2012 30.5 229.9 31.1 266,401 1,008.4 991.5
--------------- -------------------- --------------- ------------ --------------- --------------
2013 34.0 330.1 36.7 347,202 1,306.9 1,325.0
--------------- -------------------- --------------- ------------ --------------- --------------
2014 37.0 73.3 39.4 361,856 1,345.6 1,355.0
--------------- -------------------- --------------- ------------ --------------- --------------
2015 41.0 11.8 46.4 354,563 1,318.4 1,287.0
--------------- -------------------- --------------- ------------ --------------- --------------
2016 45.0 156.4 47.7 386,910 1,432.0 1,336.5
--------------- -------------------- --------------- ------------ --------------- --------------
2017 49.0 243.2 49.1 439,896 1,628.1 1,504.0
--------------- -------------------- --------------- ------------ --------------- --------------
2018 54.0 47.4 58.6 438,934 1,624.6 1,515.0
--------------- -------------------- --------------- ------------ --------------- --------------
2019 59.5(1) (138.7) 68.0 385,904 1,428.3 1,280.0
--------------- -------------------- --------------- ------------ --------------- --------------
(1) Includes the final dividend of 15.0p per ordinary share for
the year ended 30 September 2019 that will be put to the
shareholders for approval at the Annual General Meeting on Tuesday
28 January 2020
CHAIRMAN'S STATEMENT
Performance
Lowland has two objectives: to grow capital and to grow income
over the medium to long term. In recent years it has fallen short
on the first and overshot on the second. In terms of capital, this
was a disappointing year for Lowland. Not only did NAV underperform
the FTSE All-Share Index, which rose 2.7%, but it declined in
absolute terms, by 9.6%. The reasons for the underperformance are
set out clearly in the Fund Managers' Report. They are
predominantly three-fold. Firstly, Lowland runs a multi-cap
portfolio. Its relatively high weighting in small and medium-sized
companies, which has served it well over the long-term, has not
done so recently, these companies being more exposed to the
uncertainties of the UK. Secondly, Lowland's sectoral bias towards
Industrials served it poorly. Finally, the focus on investment in
shares perceived to be undervalued, as opposed to growth stocks,
has been out of favour.
Lowland has now underperformed the benchmark over five years,
whilst over ten and twenty years, performance remains robust. The
strategy and positioning of the portfolio is always subject to
Board discussion and review, but it is fair to say that this
discussion is more robust during a period of prolonged difficulty.
The Board is firmly of the view that it is important to stick to
the investment style which has served shareholders well over the
long term. We believe that inconsistency of approach is the enemy
of long-term value creation. We also note that the growth in income
which the Company has experienced points to fundamental value in
the portfolio.
Dividends
The growth in our earnings is in marked contrast with the
capital performance. Earnings grew by 16.0% (9.4 pence) to 68
pence, including special dividends received, and by 11.6% (or 6.3
pence) to 61.8 pence excluding them. It should be noted that 6.1
pence of the increase is as a result of the decision to capitalise
50% of management fees and finance costs, in line with our
competitors, from the beginning of the financial year.
If shareholders vote at the AGM in favour of the proposed final
dividend of 15p, total dividends for the year will amount to 59.5p,
10.2% above the previous year. Dividends will have grown at a
compound rate of 10% over seven years. In 2013 we responded to
shareholder feedback by introducing a progressive quarterly
dividend policy. So far it has been possible to declare dividends
exceeding those for the corresponding quarter in the previous
year.
Shareholders have benefited from a regular, and thus far,
growing source of income. The dividend is well covered by earnings,
with GBP2.3m being transferred to the Revenue Reserve, which at the
year end stood at GBP18.4m.
Barring really adverse circumstances, we are committed to a
progressive dividend policy, with each quarterly declaration being
no less than the previous equivalent. We aspire to each quarterly
dividend exceeding the previous equivalent.
It is noteworthy that our dividend yield, 4.6% based on this
year's dividend, has now risen to a level only seen on one previous
occasion over the 29 years of James Henderson's involvement with
the Company. There may be some comfort in the fact that, on the
previous occasion, the spike in yield was followed by significant
outperformance in Lowland's share price. Whether or not that
history will be repeated, we conclude from the revenue position
that there is real value in the portfolio.
Investment Review and Gearing
The level of gearing averaged around 12% during the year, ending
at 12.8%. The Board has regarded this a reasonable level as the
Fund Managers see considerable value in the underlying portfolio.
Gearing has enhanced earnings, the underlying dividend yield of the
portfolio being 4.7% compared with a blended cost of borrowing of
2.6%. This year gearing has detracted from capital performance; we
expect gearing to enhance capital performance over the
long-term.
The weighting of the portfolio in the FTSE 100 component stocks
has continued to rise modestly, and was 44% as at the year end
(versus 39% at the end of 2018). This has come about predominantly
due to purchases that the Fund Managers judge to be good value, the
largest of which are RBS and GlaxoSmithKline. There is more detail
on both purchases in the Fund Managers' report.
The sector positioning of the portfolio has remained relatively
constant; Industrials and Financials are the two largest sectors.
In an environment where global economic growth is slowing and bond
yields have fallen, the large position in both sectors has
detracted from performance this year. If economic conditions
stabilise, for example on a resolution to Brexit or to the US/China
trade war, the Fund Managers consider the valuation of both sectors
to be low and the shares well poised to recover.
Our Fund Managers have long acted as responsible managers,
paying attention to environmental, social and governance issues in
performing their duties. Reflecting the growing prominence of these
issues, our Fund Managers have increased their focus on them as set
out for the first time in their report.
Ongoing Charge
The ongoing charge was 0.63% compared with the previous year's
0.57%. The Management Fee amounts to 0.5% on Net Chargeable assets
up to GBP375m and 0.4% thereafter. No performance fee was paid in
the year under review.
Share Price Discount
During the year the discount to NAV fluctuated between 1.7% and
9.2% ending the year at 9.1%. The policy on discount is set out in
the Annual Report.
Corporate Governance
'Overboarding' is a term and concern which has achieved
prominence in the last year or two, and has influenced voting
patterns at AGMs. It has long been our practice to ensure that we
only recruit directors who are able to devote sufficient time to
the job. Directors who have a breadth of activity can bring more to
the table than those who do not, but they clearly must have the
time to do so.
While there is welcome evidence of some movement in the right
direction, I believe that some of the approaches to the
'overboarding' issue are still over-simplistic. Some shareholders
and agencies measure commitments to investment companies as if they
were operating companies, while at the same time ignoring
commitments to private companies and charities, either of which can
be very onerous. Ours is a more pragmatic approach. Each Director,
actual or prospective, is required to provide to the Nominations
Committee an account of time commitments to all his or her
professional activities. This procedure is repeated if a Director
seeks the Chairman's approval to take up an additional post.
I am quite sure that all Directors have the capacity and
inclination to devote such time as may be necessary to Lowland,
whether in normal or exceptional circumstances. Equally, the broad
range of other activities undertaken by your Directors enriches the
contributions each makes.
Tenure of office is also a matter of some concern to
shareholders. Lowland has always valued a mix of continuity and
refreshment. Over the last few years we have brought more
discipline to the process of succession planning. Clearly
individual circumstances change and flexibility is required, but we
now have a framework within which Directors have an expectation of
their likely retirement dates, and when we expect new Directors to
be recruited. This aims to provide for one Director to be replaced
on average every three years. This brings the benefit of, on the
one hand, experience of past vicissitudes and, on the other, fresh
thought. It should also facilitate a pool of internal candidates
from which the Chair may be chosen. I would add that it would be
abundantly clear to anyone who attended one of our board meetings
that all Directors are entirely independent.
The Board
As mentioned at the half year stage, we were delighted to
welcome Tom Walker to the Board on 1 July. He stands for election
at the AGM.
Contact with Shareholders
We are always keen to hear shareholders' views and so I would
invite anyone who wishes to contact me to do so at:
itsecretariat@janushenderson.com
Annual General Meeting
The AGM of the Company will be held at the offices of Janus
Henderson on 28 January 2020 at 12.30 pm. Full details of the
business to be conducted at the meeting are set out in the Notice
of Meeting.
As usual our Fund Managers will be making a presentation. This
is an important opportunity for shareholders to meet the Board and
Fund Managers and to ask them questions. We would encourage as many
shareholders as possible to attend; we welcome your questions and
observations. The AGM will be broadcast live on the internet, so if
you are unable to attend the AGM in person you will be able to log
on to watch as it happens, by visiting
http://www.janushenderson.com/en-gb/investor/investment-trusts-live/.
Outlook
It seems likely that political uncertainty will prevail in the
UK for some time to come, whatever the outcome of the General
Election. None of the foreseeable results is likely to result in a
speedy resolution of the relationship between the UK and the EU.
However UK companies continue to show resilience, and are modestly
valued by most yardsticks. We see potential for capital growth,
with the current level of yield on the UK market unlikely to
prevail for long. On balance we feel it will be an increase in
valuations rather than reduction in dividends which brings yields
towards historic norms.
Robert Robertson
Chairman
9 December 2019
FUND MANAGER'S REPORT
Background
Economic growth slowed during the period, just managing to avoid
a quarter of contraction. This happened in spite of very low
interest rates and weak sterling. The stimulus of low rates and
cheap currency would normally cause growth to accelerate. The
domestic impact was offset by the global economy: world growth
slowed down as the trade war between the US and China intensified.
At home, the looming possibility of a disorderly Brexit and
political uncertainty compounded the scarcity of global growth.
These factors combined to make companies more risk-averse: they
have cut costs, and reduced capital expenditure, which in turn led
to a stagnation in productivity growth.
It has been a difficult economic backdrop for many companies
with predominantly UK operations. However, company results have
been generally satisfactory. This is a testament to those companies
who have excellent, differentiated products, a solid business model
and good management discipline. When the UK economy picks up, we
believe that the companies we hold in the portfolio will be well
placed to benefit.
In particular, the cash generation of many of our portfolio
companies has been strong despite the economic headwinds. This is
evidenced by the decent level of dividend growth our companies have
delivered, with investment income growing 4.5% year on year.
Performance Attribution
It was a disappointing year for performance. There are a number
of factors which contributed to this underperformance: the
positioning of the portfolio in different sizes of companies; our
bias in sector exposures; the investment approach; and some
company-specific challenges.
The portfolio has always been a blend of large, medium and small
companies. Over the long term the best performers have often been
small and medium-sized companies. Even in a bad year, as last year
was for smaller companies, all of the top five performers at the
stock level are listed outside the FTSE 100. While there have been
small and medium-sized companies that have performed well this
year, in aggregate there has been a pronounced underperformance of
small companies relative to large companies and, to a lesser
degree, medium-sized companies relative to large companies. Over
the financial year to the end of September, the FTSE 100 rose 3.2%
while the FTSE Small Cap fell 7.8% and the AIM All-Share Index fell
19.4%. The FTSE Small Cap Index made up 13% of the portfolio, and
the AIM All-Share 15% of the portfolio as at the year end. Our
weighting to these smaller companies is more than 8x greater than
the exposure in the index.
There are two main reasons for the underperformance of smaller
companies. Firstly, smaller companies are on average more exposed
to the domestic economy. They are at an earlier stage in their
lifecycle and tend to address their home market before expanding
overseas. For Lowland's portfolio as a whole, approximately 47% of
sales derive from the UK versus 27% of the benchmark. Over the long
term, companies more exposed to the domestic economy have traded at
approximately the same valuation as those more exposed to overseas
earnings. This is not currently the case; those more exposed to the
UK are trading at a material valuation discount. This 'domestic
discount' has therefore damaged smaller companies' share prices
more than larger companies' valuations.
Secondly, there is an increasing desire for liquidity when
positions are held within open-ended funds; this is particularly
pronounced for companies below a market valuation of GBP250m. This
is causing pressure on share prices where some fund managers are,
in effect, becoming forced sellers. While this technical factor
will gradually pass and shares will find appropriate long-term
holders, in the interim stage there is dislocation in share
prices.
The portfolio's sector allocation was also a detractor from
performance. Our portfolio is particularly overweight in
Industrials. It is industrial companies that have suffered most
from the trade war between the USA and China, and it makes
forecasting even more perilous than usual.
The resulting reduction in visibility in industrial company
earnings has led to a de-rating of industrial company valuations.
Eventually clarity on sales and earnings growth will emerge, from a
low valuation base.
It is important at times of an economic slowdown to reassess the
Industrials weighting in the portfolio and decide whether it is
appropriate against the current backdrop. The Industrials we own
are not producing commoditised components; they are specialist
engineers, producing components that are often exported globally,
and that would be difficult to substitute for another supplier. The
clearest examples would be the aerospace components suppliers we
hold, such as Rolls-Royce and Senior, but this would equally apply
to companies such as XP Power, which makes components designed for
medical equipment, or Avon Rubber, which is producing specialist
equipment for use by the US Department of Defense. Industrials are
not a homogeneous block of companies that move with the broad
economic cycle. They are exposed to a wide variety of end-markets
all at different stages in their cycles. For example Somero
Enterprises is predominantly exposed to the US construction cycle,
while XP Power is exposed to the semiconductor cycle. We have to
assess the overall Industrials exposure by considering the
exposures to multiple end-markets.
In addition to concerns over a broad economic slowdown, there
was also a one-off factor for aerospace components supplier Senior,
which is the largest industrial position and made up 2.2% of the
portfolio as at the end of September. Senior's largest individual
aerospace programme is the Boeing 737 Max where they make, for
example, structures for the wing. Their components are unrelated to
the two crashes and subsequent grounding of the aircraft but until
the aircraft is re-certified, earnings forecasts have been reduced
in the short term. Longer term, Senior remains well positioned on
new aerospace programmes for both Airbus and Boeing. If the Boeing
aircraft were to remain grounded, while it would be temporarily
disruptive, over time orders would shift to Airbus where Senior is
also well positioned. We have maintained our holding, as the
valuation is low relative to the company's potential to grow sales
and earnings.
The final factor contributing to underperformance has been our
preference for companies with a low valuation (relative to peers or
relative to history) where we can see a clear path to earnings
recovery. This moderately 'contrarian' or 'value' approach has
worked well for the Company historically. However, in recent years
the best performers in the market have been more highly valued
companies that have delivered consistent earnings growth. As this
trend has persisted, valuation levels have become increasingly
polarised. This can be seen clearly in the performance of the FTSE
All-Share split by valuation bands, with the high valuation
sections of the market materially outperforming over the past year.
This has been detrimental to portfolio performance, where the
average valuation of the portfolio at year end was 11.4x forward
earnings.
The top five active contributors to performance (relative to the
benchmark), that we own, were:
1. Greene King (a pub and brewer). Cash bid from CK Asset
Holdings at a substantial premium to the undisturbed share
price.
2. Anexo Group (credit hire and legal services). Encouraging
results and strong cash collections coming through.
3. Johnson Service Group (laundry services across hotels,
restaurants and workwear). Excellent organic growth being delivered
and substantial new hotel linen capacity soon to come on stream in
Leeds.
4. Churchill China (crockery for the restaurant industry).
Strong organic growth coming from sales to the restaurant industry
globally.
5. Avon Rubber (defence and dairy equipment). Excellent
acquisition of a division from 3M to expand their defence
division.
An encouraging theme this year has been the re-emergence of
corporate activity in the portfolio: Greene King has agreed a cash
bid from Hong Kong conglomerate CK Asset Holdings, while earlier in
the year Manx Telecom agreed a cash bid from private equity and
A&J Mucklow agreed to a bid from listed peer LondonMetric.
The top five active detractors from performance (relative to the
benchmark), that we own, were:
1. Senior (engineer predominantly for the aerospace industry).
Grounding of the Boeing 737 Max has reduced earnings forecasts.
2. Carclo (specialist plastics for medical devices and LED
lighting for premium cars). Manufacturing issues in their car
lighting division has caused an already stretched balance sheet to
become very difficult. The holding has been written down to
zero.
3. International Personal Finance (door to door and digital
lending in emerging markets). Changing regulatory environment in
Poland means there is a lack of earnings visibility.
4. Royal Mail (UK and European letter and parcel delivery).
Difficulty reducing costs against a challenging UK backdrop for
letters.
5. Stobart Group (a conglomerate; the majority of their earnings
are Southend airport and biomass delivery). Corporate governance
has been poor and has been discussed with the company and the
balance sheet has been highly indebted.
Were there to be a common theme among the detractors from
performance, it would be that they have become too highly indebted.
This would be the case for Carclo and Stobart, and is to a lesser
degree the case for International Personal Finance. There is an
increasing aversion to high levels of debt among equity investors
given the current uncertain economic outlook. This is causing
substantial valuation discounts among those companies that have a
high level of debt versus peers. In our view this aversion to debt
in the market is a valuation opportunity, as the potential for debt
reduction is not being fully appreciated in cash generative
companies. However, there is of course a need to be selective and
to recognise that we have made mistakes in the past in not fully
appreciating the scale of additional debt such as pension
deficits.
We have adjusted our investment process to take account of these
past mistakes; we shall never stop taking lessons from the judge
and jury of share prices.
Portfolio Positioning
The largest sector within the portfolio remains Financials. It
is worth noting that while the weighting in the financial sector is
high, it is to a degree a 'catch-all' sector. For example real
estate investments (such as Land Securities, Hammerson and Helical)
fall within financials, as do other investment trusts held (such as
Herald).
Within Financials the largest sub-sector remains insurance
(13.0% of the portfolio versus 15.0% of the portfolio as at the
previous year end). While the overall portfolio weight in insurance
has remained broadly flat, the holdings in Sabre Insurance, Direct
Line and FBD Holdings have been increased, all of which pay an
attractive dividend to shareholders and look good value relative to
the returns they are generating. In contrast, the position in
Hiscox was modestly reduced on valuation grounds. It continues to
grow its retail business successfully and generate strong returns;
therefore, we remain happy with the position on a long-term
basis.
The portfolio remains more heavily weighted in large companies
than the long-term average positioning, which is approximately
one-third in large companies, one-third in medium-sized companies
and one-third in small companies. This bias in the portfolio has
come about primarily from stock-level decisions, as there are
valuation opportunities in companies such as RBS and
GlaxoSmithKline (both described in more detail in the portfolio
activity section). As stated above, many investors have short-term
concerns around smaller companies, and we felt it prudent to reduce
exposure slightly.
Portfolio Activity
The largest purchase during the year was RBS, which was 1.0% of
the portfolio at the year end. As an income portfolio manager, RBS
had for a number of years been a relatively easy share to ignore as
a result of its historic conduct issues (such as PPI) and lack of
dividend. However, PPI claims have this year come to an end and a
regular dividend to shareholders has been reinstated, backed by a
strong balance sheet versus peers. The key remaining overhang is
the government stake, which is still a majority holding. In our
view this is more than factored into the current valuation, which
at just over half book value implies low returns being generated
into perpetuity. Even absent a re-valuation of the shares on the
back of, for example, the government reducing their stake or better
sentiment towards the domestic UK economy, the shares pay an
attractive high-single-digit dividend yield (including recurring
special dividends).
We added to the existing position in GlaxoSmithKline following
an encouraging meeting with the relatively new Head of
Pharmaceuticals, who has joined from AstraZeneca. Back in 2012
under the leadership of the then-new CEO, Pascal Soriot,
AstraZeneca dramatically improved its pipeline of drugs with a
renewed focus on innovative medicines. It is our view that under a
new management team (new CEO, new Head of R&D and new Head of
Pharmaceuticals), a similar process is currently underway at
GlaxoSmithKline. This will, in all likelihood, be a slow process of
reinvigorating research and development at such a large company,
but it is not in our view factored into the valuation.
Another sizeable purchase included a new position in XP Power.
XP Power makes power converters across a range of industries, the
most material of which are healthcare and semiconductors. As the
power converters are 'designed in' at an early stage in the product
life cycle, and form a very small part of the overall product cost,
the margins that XP Power generates are good (over 20% operating
margin). Recently the valuation had come down considerably as a
result of severe weakness in the semiconductor market and concerns
that as a result, XP Power earnings would need to be re-based (a
concern that has, at the time of writing, not come to fruition and
orders have continued to grow). We purchased the position on the
view that it is rare to see a company with good margins, a
respected management team and a strong balance sheet trading on a
low teens earnings multiple (as at the time of purchase). On any
further weakness we will look to add to the position.
Our largest sale was Royal Dutch Shell, which we reduced to 5.6%
as at the year end primarily for portfolio balance reasons
following a period of strong performance. As at the beginning of
December 2018 the position in Shell was 8% of the portfolio before
it was reduced.
The largest sale outside of the FTSE 100 was paving stone
company Marshalls, which has been sold in its entirety. This had
been in the portfolio since 2008, when we purchased the shares
between GBP0.96 and GBP1.66. The final sales this year were between
GBP4.20 and GBP6.32. The management have done an excellent job, and
the performance of the shares has been driven by both good organic
growth and sensible bolt-on acquisitions. The sale of the position
was not as a result of concerns around the fundamentals of the
business but rather a concern regarding valuation, versus both the
building materials peer group and its history.
Also among the largest divestments during the year were the
positions in industrial property company A&J Mucklow and Isle
of Man telecoms operator Manx Telecom, in both cases following a
takeover offer. During the year there has been a notable uptick in
bid activity, including Greene King (see performance attribution
section), a failed takeover of Provident Financial and two
approaches (but deemed by the board to be at an insufficient
premium) for office property company, Helical. In our view, this
increase in takeover interest shows that UK companies (and it is
notable that all the companies mentioned are domestically focused
UK companies) are valued too low relative to global peers.
Therefore, while there is uncertainty regarding the domestic
outlook, the valuation opportunity is such that some companies
(whether operating or private equity) are willing to take the risk
on exposure to the UK economy.
Lowland responsible investment strategy
Responsible Investment is the term used at Janus Henderson to
cover the Manager's work on environmental, social and corporate
governance ('ESG') issues in the Company's investee companies.
These issues are important not only as a standalone objective in
order to allocate the capital of the Company to the companies with
the most responsible practices, but are also an integral part of
the investment process.
As data quality and availability on ESG is in some cases poor,
potential or current investments are not rigidly excluded on
quantitative metrics. However, each new position in the portfolio
is reviewed for ESG issues and any concerns that the Managers view
as material are discussed with company management. In addition the
existing portfolio is screened for 'red flags', which are then
discussed with management and monitored.
Substantial progress has been made in the governance area in
recent years, where information is more easily accessible. As the
data on environmental and social issues improves we will expand our
engagement in these areas. Engagement takes place at both the Fund
Manager level and at the level of the Governance and Responsible
Investing team (an independent team within Janus Henderson who work
closely alongside the Fund Managers).
For Lowland, responsible investing incorporates:
1. A focus on companies' long-term plans. We are a long-term
investor and therefore we should invest in companies that are
cognisant of changing standards with regards to, for example,
single-use plastic or renewable energy (even before these changing
societal standards are fully recognised in legislation). These
changing expectations need to be viewed within the context of the
investment proposition - for example what valuation multiple should
be given to a plastic packaging company?
2. Reacting to evidence of poor corporate governance where
identified (whether by screening, external research or internal
meetings), engaging with the company involved, and monitoring
improvement.
3. Engaging thoughtfully on corporate remuneration. A company's
board and senior executive remuneration policy needs to be
appropriate relative to both its peers and (increasingly) relative
to its broader employee base. There needs to be a defensible logic
to how corporate remuneration levels have been set.
We always vote at company AGMs. Where possible, we will seek to
engage with companies beforehand, but if agreement cannot be
reasonably reached, we will vote against resolutions. The approach
to voting is pragmatic - we subscribe to proxy voting agencies such
as ISS (Institutional Shareholder Services) and we will carefully
study their recommendations; however we do not necessarily follow
all recommendations.
Outlook
Companies in aggregate, are reporting results in line with
modestly reduced expectations. This suggests the current slowdown
in global economic activity is, at least to a degree, reflected in
earnings forecasts. The low valuation for much of the portfolio
means that where companies are only meeting expectations (rather
than surpassing them), shares are broadly responding positively.
This backdrop of modest valuations and realistic earnings
expectations within the portfolio is encouraging for the year
ahead.
The last year has been strong for dividend growth but
disappointing for capital growth. This means the dividend yield on
the underlying portfolio has reached levels not seen in many years.
This dividend yield (currently just under 5%) is particularly stark
when viewed in the context of low government bond yields (at the
time of writing the UK 10 year gilt yield is 0.75%). This would
suggest one of two things is likely to occur: either the dividends
being paid by companies are unsustainable and need to be reduced,
or there will be a period of valuation 'catch up' (in other words
yield compression) in the portfolio. We have begun forecasting
dividends for the current financial year ending 30 September 2020
and based on current expectations think a healthy level of dividend
growth will be achieved. There will always be isolated dividend
cuts, but in aggregate dividend pay-out ratios are modest and
balance sheets are conservative. This attractive, and in our view
sustainable, dividend yield, in combination with the level of bid
interest seen this year, are the clearest indicators to us of the
underlying value within the portfolio.
James Henderson and Laura Foll
Fund Managers
9 December 2019
Twenty Largest Holdings as at 30 September 2019
The stocks in the portfolio are a diverse mix of businesses
operating in a wide range of end markets.
Rank Company % of Approx. Valuation
2019 (2018) portfolio market 2019
cap GBP'000
Royal Dutch Shell
The company explores, produces and refines
oil; it produces fuels, chemicals and
lubricants as well as operating filling
stations worldwide. The company has
attacked its cost base and has very
high-class assets, which positions it
1 (1) well for the future. 5.6 GBP186bn 24,475
------------------------------------------------- ----------- ---------- ----------
2 (7) GlaxoSmithKline 3.5 GBP85bn 15,265
A global pharmaceutical, vaccine and
consumer healthcare company. The consumer
healthcare and vaccine businesses should
be steady growers over time, while the
pharmaceutical division under a new
leadership team could turn around what
has been a mixed R&D track record.
------------------------------------------------- ----------- ---------- ----------
3 (6) Phoenix 2.7 GBP5.2bn 11,561
The company operates primarily in the
UK and specialises in taking over and
managing closed life insurance and pension
funds.
------------------------------------------------- ----------- ---------- ----------
4 (3) Hiscox 2.6 GBP4.1bn 11,311
The international insurance company
manages underwriting syndicates and
underwrites a range of personal and
commercial insurance. The company is
very disciplined and has over the long-term
achieved a high return on capital.
------------------------------------------------- ----------- ---------- ----------
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
5 (4) growing economies make it well placed. 2.5 GBP121bn 11,117
------------------------------------------------- ----------- ---------- ----------
6 (5) Prudential 2.2 GBP36bn 9,588
The company provides an assortment of
insurance and investment products around
the world. The business in the Far East
has grown impressively in recent years.
------------------------------------------------- ----------- ---------- ----------
7 (2) Senior 2.2 GBP800m 9,380
The company manufactures specialist
engineering products for the automotive
and aerospace sectors. Having come under
margin pressure in recent years, the
company is well positioned to grow margins
as end markets recover and new aerospace
programs ramp up production.
------------------------------------------------- ----------- ---------- ----------
8 (16) Severn Trent 2.1 GBP5.3bn 9,201
A UK water utility. Due to concerns
regarding possible renationalisation
under Labour and an upcoming regulatory
review, shares have performed poorly
and are trading at a lower discount
to regulated asset base than in recent
years. There is also a good dividend
yield with scope to grow.
------------------------------------------------- ----------- ---------- ----------
9 (11) Standard Chartered 2.1 GBP24bn 9,092
The international banking group operates
principally in Asia, Africa and the
Middle East. The new management team
has focussed the bank back to areas
of relative strength in its growing
markets.
------------------------------------------------- ----------- ---------- ----------
10 (13) Relx 1.8 GBP36bn 7,730
The company publishes information for
the scientific, medical, legal and business
sectors, serving customers worldwide.
The company is a consistent, high quality
growth business.
------------------------------------------------- ----------- ---------- ----------
Greene King
A UK pub and brewer. Since financial
year end it has been acquired by Hong
Kong based investment company CK Asset
11 (*) Holdings. 1.7 GBP2.6bn 7,623
------------------------------------------------- ----------- ---------- ----------
12 (9) BP 1.7 GBP105bn 7,479
A producer and refiner of oil. Following
the fall in the oil price they have
successfully focused on cost reduction.
------------------------------------------------- ----------- ---------- ----------
13 (17) Johnson Service(1) 1.7 GBP650m 7,289
A textile rental company that provides
linens for use across workwear, hotels
and restaurants. In recent years the
management team has successfully de-geared
the balance sheet and grown operating
margins.
------------------------------------------------- ----------- ---------- ----------
14 (*) National Grid 1.7 GBP31bn 7,202
A regulated utility (electricity and
gas distribution) operating in the US
and UK. Due to concerns regarding possible
renationalisation under Labour, shares
are trading at an attractive valuation
relative to global regulated utility
peers. There is also an attractive dividend
yield.
------------------------------------------------- ----------- ---------- ----------
15 (*) Avon Rubber 1.6 GBP570m 7,147
A supplier of defence equipment for
predominantly the US Department of Defense
as well as law enforcement. Their revenues
and earnings are forecast to grow substantially
following an acquisition of a personal
protection business from 3M.
------------------------------------------------- ----------- ---------- ----------
16 (8) Irish Continental(2) 1.6 GBP720m 6,967
The group 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
company.
------------------------------------------------- ----------- ---------- ----------
17 (18) Vodafone 1.5 GBP44bn 6,591
A global telecoms company. The company
has invested in their network quality
and are now better placed to grow revenue
per customer as people use more mobile
data.
------------------------------------------------- ----------- ---------- ----------
18 (10) Rolls-Royce 1.5 GBP15.2bn 6,537
The company designs and manufactures
engines as well as providing aftermarket
services for use across aerospace and
industry. The company has successfully
won market share across many of the
large new civil aerospace programmes
and under a new management team has
a renewed focus on removing duplicate
costs.
------------------------------------------------- ----------- ---------- ----------
19 (19) Direct Line 1.5 GBP3.8bn 6,454
A UK provider of car and home insurance.
The company has well-known brands which
will allow them to grow policies well,
while maintaining underwriting discipline.
A strong balance sheet allows them to
pay an attractive dividend yield to
shareholders.
------------------------------------------------- ----------- ---------- ----------
Aviva
This company provides a wide range of
insurance and financial services. The
management team has done a good job
of simplifying the business, exiting
peripheral and low return areas. The
company pays an attractive yield that
20 (12) has good scope to grow. 1.4 GBP16.9bn 6,189
------------------------------------------------- ----------- ---------- ----------
188,198
------------------------------------------------- ----------- ---------- ----------
At 30 September 2019 these investments totalled GBP188,198,000,
or 43.2% of the portfolio.
* Not in the twenty largest investments last year
1 AIM stocks
2 Overseas listed stocks (Ireland)
PRINCIPAL RISKS AND UNCERTAINTIES
The Board, with the assistance of the Manager, has carried out a
robust assessment of the principal risks, and uncertainties, facing
the Company that would threaten its business model, future
performance, solvency and liquidity. A matrix of these risks has
been drawn up and steps taken to mitigate these. The principal
risks and mitigating actions are as follows:
Investment Activity and Strategy Risk
An inappropriate investment strategy or poor execution, for
example, in terms of asset allocation or level of gearing, may
result in underperformance against the Company's benchmark index
and the companies in its peer group, and also in the Company's
shares trading on a wider discount to the net asset value per
share.
The Board manages these risks by ensuring a diversification of
investments and a regular review of the extent of borrowings. Janus
Henderson operates in accordance with investment limits and
restrictions and policy determined by the Board, which includes
limits on the extent to which borrowings may be employed.
The Board reviews the investment 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
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 about the future prices of
the Company's investments. Although the Company invests almost
entirely in securities that are listed on recognised markets, share
prices may move rapidly. The companies in which investments are
made may operate unsuccessfully, or fail entirely.
The Fund Managers seek to maintain a diversified portfolio to
mitigate against this risk. The Board regularly reviews the
portfolio, activities and performance.
Financial Risk
The financial risks faced by the Company include market price
risk, interest rate risk, liquidity risk, currency risk and credit
and counterparty risk.
The Company minimises the risk of a counterparty failing to
deliver securities or cash by dealing through organisations that
have undergone rigorous 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 companies mitigates the Company's exposure
to liquidity risk. Currency risk is mitigated by the low exposure
to overseas stocks.
Gearing Risk
At the point of drawing down debt, gearing will never exceed
29.99% of the portfolio valuation. In the event of a significant or
prolonged fall in equity markets gearing would exacerbate the
effect of the falling market on the Company's NAV per share and,
consequently, its share price.
The Company minimises the risk by the regular monitoring of the
levels of the Company's borrowings in accordance with the agreed
limits. The Company confirms adherence to the covenants of the loan
facilities on a monthly basis.
Operational Risk
Disruption to, or the failure of, Janus Henderson's accounting,
dealing or payment systems or the custodian's records could prevent
the accurate reporting or monitoring of the Company's financial
position.
Janus Henderson contracts some of the operational functions
(principally those relating to trade processing, investment
administration and accounting), to BNP Paribas Securities
Services.
Details of how the Board monitors the services provided by Janus
Henderson and its other suppliers, including cyber risk, 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.
Accounting, Legal and Regulatory Risk
In order to qualify as an investment trust, the Company must
comply with Section 1158 of the Corporation Tax Act 2010. A breach
of Section 1158 could result in the Company losing investment trust
status and, as a consequence, capital gains realised within the
Company's portfolio would be subject to corporation tax.
Compliance with the requirements of Section 1158 is monitored by
Janus 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 FCA's Listing and Disclosure Guidance and Transparency Rules
and the Prospectus Rules ('FCA 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 Listing Rules could result in the
suspension of the Company's shares; which in turn would breach
Section 1158.
The Board relies on its Company Secretary and its professional
advisers to ensure compliance with the Companies Act 2006 and FCA
Rules.
The Board receives internal control reports produced by Janus
Henderson on a quarterly basis, which confirm regulatory
compliance.
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 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 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, materialising 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. 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.
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.
RELATED PARTY TRANSACTIONS
The Company's current related parties are its Directors and
Janus Henderson. There have been no material transactions between
the Company and its Directors during the year. The fees and
expenses paid to Directors are set in the Annual Report. There were
no outstanding amounts payable at the year end.
In relation to the provision of services by Janus Henderson,
other than fees payable by the Company in the ordinary course of
business and the provision of sales and marketing services, there
have been no material transactions with Janus Henderson affecting
the financial position of the Company during the year under review.
More details on transactions with Janus Henderson, including
amounts outstanding at the year end, are given in the Annual
Report.
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 loss 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.
The directors consider that the Annual Report, taken as a whole,
is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company's position and
performance, business model and strategy.
For and on behalf of the Board
Robert Robertson
Chairman
9 December 2019
INCOME STATEMENT
Year ended 30 September Year ended 30 September
2019 2018
Revenue Capital Revenue Capital
return return Total return return Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- -------- -------- --------- -------- -------- ---------
Losses on investments
held at fair value through
profit or loss - (54,206) (54,206) - (3,032) (3,032)
Income from investments
(note 2) 20,640 - 20,640 19,757 - 19,757
Other interest receivable
and similar income (note
4) 121 - 121 190 - 190
Gross revenue and capital
losses 20,761 (54,206) (33,445) 19,947 (3,032) 16,915
Management fee (983) (983) (1,966) (2,048) - (2,048)
Administrative expenses (539) - (539) (520) - (520)
Net return/(loss) before
finance costs and taxation 19,239 (55,189) (35,950) 17,379 (3,032) 14,347
Finance costs (669) (670) (1,339) (1,347) - (1,347)
Net return/(loss) before
taxation 18,570 (55,589) (37,289) 16,032 (3,032) 13,000
Taxation on net return (205) - (205) (183) - (183)
Net return/(loss) after
taxation 18,365 (55,859) (37,494) 15,849 (3,032) 12,817
Return/(loss) per ordinary
share
- basic and diluted (note
5) 68.0p (206.7p) (138.7p) 58.6p (11.2p) 47.4p
===== ===== ===== ===== ===== =====
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 2019 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ---------- ----------- ------------ ------------ ----------- ------------
At 1 October 2018 6,755 61,619 1,007 353,998 15,555 438,934
Net (loss)/return after
taxation - - - (55,859) 18,365 (37,494)
Third interim dividend
(14.0p) for the year
ended 30 September 2018
paid 31 October 2018 - - - - (3,783) (3,783)
Final dividend (14.0p)
for the year ended
30 September 2018 paid
31 January 2019 - - - - (3,782) (3,782)
First interim dividend
(14.5p) for the year
ended 30 September 2019
paid 30 April 2019 - - - - (3,918) (3,918)
Second interim dividend
(15.0p) for the year
ended 30 September 2019
paid 31 July 2019 - - - - (4,053) (4,053)
--------- ---------- ---------- ----------- ---------- -----------
At 30 September 2019 6,755 61,619 1,007 298,139 18,384 385,904
===== ===== ===== ====== ===== ======
Called Share Capital Other
up share premium redemption capital Revenue
Year ended capital account reserve reserves reserve Total
30 September 2018 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------ ---------- ----------- ------------ ------------ ----------- ------------
At 1 October 2017 6,755 61,619 1,007 357,030 13,485 439,896
Net (loss)/return after
taxation - - - (3,032) 15,849 12,817
Third interim dividend
(12.0p) for the year
ended 30 September 2017
paid 31 October 2017 - - - - (3,242) (3,242)
Final dividend (13.0p)
for the year ended 30
September 2017 paid 31
January 2018 - - - - (3,512) (3,512)
First interim dividend
(13.0p) for the year
ended 30 September 2018
paid 30 April 2018 - - - - (3,512) (3,512)
Second interim dividend
(13.0p) for the year
ended 30 September 2018
paid 31 July 2018 - - - - (3,513) (3,513)
--------- ---------- ---------- ----------- ---------- -----------
At 30 September 2018 6,755 61,619 1,007 353,998 15,555 438,934
===== ===== ===== ====== ===== ======
STATEMENT OF FINANCIAL POSITION
As at 30 September As at 30 September
2019 2018
GBP'000 GBP'000
---------------------------------------- ------------------- -------------------
Fixed assets
Investments held at fair value through
profit or loss:
Listed at market value in the United
Kingdom (main market) 351,431 390,951
Listed at market value on AIM 65,428 73,811
Listed at market value overseas 15,906 25,641
Unlisted 2,422 2,256
----------- -----------
435,187 492,659
----------- -----------
Current assets
Debtors 1,710 2,018
Cash at bank 2,008 1,445
----------- -----------
3,718 3,463
----------- -----------
Creditors: amounts falling due within
one year (23,222) (27,421)
----------- -----------
Net current liabilities (19,504) (23,958)
----------- -----------
Total assets less current liabilities 415,683 468,701
Creditors: amounts falling due after
one year (29,779) (29,767)
----------- -----------
Net assets 385,904 438,934
======= =======
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 298,139 353,998
Revenue reserve 18,384 15,555
----------- -----------
Total shareholders' funds 385,904 438,934
======= =======
Net asset value per ordinary share
- basic and diluted 1,428.3p 1,624.6p
======= =======
STATEMENT OF CASH FLOWS
Year ended Year ended
30 September 30 September
2019 2018
GBP'000 GBP'000
------------------------------------------- -------------- --------------
Cash flows from operating activities
Net (loss)/return before taxation (37,289) 13,000
Add back: finance costs 1,339 1,347
Add: losses on investments held at
fair value through profit or loss 54,206 3,032
Withholding tax on dividends deducted
at source (282) (228)
Decrease in other debtors 386 89
Increase/(decrease) in other creditors 1,159 (371)
----------- -----------
Net cash inflow from operating activities 19,519 16,869
Cash flows from investing activities
Purchase of investments (51,677) (76,383)
Sale of investments 54,923 48,182
----------- -----------
Net cash inflow/(outflow) from investing
activities 3,246 (28,201)
Cash flows from financing activities
Equity dividends paid (net of refund
of unclaimed distributions and reclaimed
distributions) (15,536) (13,779)
Net loans (repaid)/drawn down (5,342) 16,507
Interest paid (1,344) (1,310)
----------- -----------
Net cash (outflow)/inflow from financing
activities (22,222) 1,418
Net increase/(decrease) in cash and
cash equivalents 543 (9,914)
Cash and cash equivalents at start
of year 1,445 11,362
Effect of foreign exchange rates 20 (3)
----------- -----------
Cash and cash equivalents at end
of year 2,008 1,445
======= =======
Comprising:
Cash at bank 2,008 1,445
----------- -----------
2,008 1,445
======= =======
Cash inflow from dividends net of taxation was GBP20,564,000
(2018: GBP19,665,000).
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 November 2014 and
updated in February 2018 with consequential amendments.
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 current
and future periods, depending on circumstance.
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.
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 connection with the viability statement,
the Directors considered it appropriate to adopt the going concern
basis of accounting in the financial statements.
Losses on Investments held at fair value through 2019 2018
2. profit or loss GBP'000 GBP'000
---- -------------------------------------------------------- ------------ ------------
Gains on the sale of investments based on historical
cost 13,452 18,056
Less: revaluation gains recognised in previous
years (11,057) (16,524)
----------- -----------
Gains on investments sold in the year based on
carrying value at previous Statement of Financial
Position date 2,395 1,532
Revaluation losses on investments held at 30 September (56,621) (4,561)
Exchange gains/(losses) 20 (3)
---------- ----------
(54,206) (3,032)
====== ======
2019 2018
3. Income from Investments GBP'000 GBP'000
---- --------------------------- ---------- ----------
UK dividends:
Listed investments 16,682 15,205
Unlisted 69 50
Property income dividends 442 391
--------- ---------
17,193 15,646
--------- ---------
Non-UK dividends:
Overseas dividend income 3,447 4,111
--------- ---------
3,447 4,111
--------- ---------
20,640 19,757
===== =====
2019 2018
4. Other Interest Receivable and Similar Income GBP'000 GBP'000
-------- -------------------------------------------------------- ----------- -----------
Stock lending commission 112 112
Income from underwriting 5 76
Bank interest 4 2
--------- ---------
121 190
===== =====
At 30 September 2019 the total value of securities on loan by the
Company for stock lending purposes was GBP74,715,000 (2018: GBP50,426,000).
The maximum aggregate value of securities on loan at any time during
the year ended 30 September 2019 was GBP118,213,000 (2018: GBP53,415,000).
The Company's agent holds collateral comprising FTSE 100 stocks,
gilts, overseas equities and overseas government bonds with a collateral
value of GBP78,772,000 (2018: GBP54,285,000) amounting to a minimum
of 105% (2018: minimum 105%) of the market value of any securities
on loan. Stock lending commission has been shown net of brokerage
fees of GBP28,000 (2018: GBP28,000).
5. Return per Ordinary Share - Basic and Diluted
The (loss)/return per ordinary share is based on the net loss attributable
to the ordinary shares of GBP37,494,000 (2018: GBP12,817,000) and
on 27,018,565 ordinary shares (2018: 27,018,565) 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.
2019 2018
GBP'000 GBP'000
---- ----------------------------------------------------------- ------------------ ---------------------------
Net revenue return 18,365 15,849
Net capital loss) (55,859) (3,032)
--------- ---------
Net total (loss)/return (37,494) 12,817
===== =====
Weighted average number of ordinary shares
in issue during the year 27,018,565 27,018,565
2019 2018
Pence Pence
Revenue return per ordinary share 68.0 58.6
Capital loss per ordinary share (206.7) (11.2)
---------- ----------
Total (loss)/return per ordinary share (138.7) 47.4
====== ======
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
2019 2018
Dividends on ordinary shares Record date Payment date GBP'000 GBP'000
----------------------------------- --------------------- ------------------- ---------- -------------
Third interim dividend (12.0p)
for the year ended 30 September 6 October 31 October
2017 2017 2017 - 3,242
Final dividend (13.0p) for the
year ended 5 January 31 January
30 September 2017 2018 2018 - 3,512
First interim dividend (13.0p)
for the year ended 30 September 30 April
2018 6 April 2018 2018 - 3,512
Second interim dividend (13.0p)
for the year ended 30 September
2018 6 July 2018 31 July 2018 - 3,513
Third interim dividend (14.0p)
for the year ended 30 September 5 October 31 October
2018 2018 2018 3,783 -
Final dividend (14.0p) for the
year ended 4 January 31 January
30 September 2018 2019 2019 3,782 -
First interim dividend (14.5p)
for the year ended 30 September 30 April
2019 5 April 2019 2019 3,918 -
Second interim dividend (15.0p)
for the year ended 30 September 4,053 -
2019 5 July 2019 31 July 2019
--------- ---------
15,536 13,779
===== =====
The third interim dividend and the final dividend for the year ended 30
September 2019 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.
2019
GBP'000
------------------------------------------------------------------------ -----------
Revenue available for distribution by way of dividend for
the year 18,365
First interim dividend (14.5p) for the year ended 30 September
2019 (3,918)
Second interim dividend (15.0p) for the year ended 30 September
2019 (4,053)
Third interim dividend (15.0p) for the year ended 30 September
2019 (4,053)
Final dividend (15.0p) for the year ended 30 September 2019
(based on 27,018,565 ordinary shares in issue at 9 December
2019) (4,053)
---------
Revenue surplus 2,288
=====
For Section 1158 purposes, the Company's undistributed revenue represents
11.1% 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 2018 27,018,565 27,018,565 6,755
----------- ----------- -----------
At 30 September 2019 27,018,565 27,018,565 6,755
The Company issued no ordinary shares during the year (2018: nil).
8. Net Asset Value per Ordinary Share
The net asset value per ordinary share of 1,428.3p (2018: 1,624.6p)
is based on the net assets attributable to the ordinary shares of
GBP385,904,000 (2018: GBP438,934,000) and on 27,018,565 (2018: 27,018,565)
shares in issue on 30 September 2019.
The movements during the year of the assets attributable to the ordinary
shares were as follows:
2019 2018
GBP'000 GBP'000
---- ---------------------------------------------------- ------------- ------------
Total net assets at 1 October 438,934 439,896
Total net return after taxation (37,494) 12,817
Net dividends paid in the year:
Ordinary shares (15,536) (13,779)
----------- -----------
Net assets attributable to the ordinary shares
at 30 September 385,904 438,934
====== ======
9. 2019 Financial Information
The figures and financial information for the year ended 30 September
2019 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 2019 have
been audited but have not yet been delivered to the Registrar of Companies.
The Independent Auditor's Report on the 2019 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. 2018 Financial Information
The figures and financial information for the year ended 30 September
2018 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 Independent Auditor's Report, which 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 15.0p per ordinary share will be paid on 31 January
2020 to shareholders on the register of members at the close of business
on 3 January 2020. This will take the total dividends for the year
to 59.5p (2018: 54.0p). The Company's shares will be traded ex-dividend
on 2 January 2020.
12. Annual Report
The Annual Report will be posted to shareholders in December 2019
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.
13. Annual General Meeting
The Annual General Meeting will be held on Tuesday, 28 January 2020
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 Henderson Laura Foll
Fund Manager Fund Manager
Lowland Investment Company plc Lowland Investment Company plc
Telephone: 020 7818 4370 Telephone: 020 7818 6364
Laura Thomas James de Sausmarez
Investment Trust PR Manager Head of Investment Trusts
Janus Henderson Investors Janus Henderson Investors
Telephone: 020 7818 2636 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) are incorporated into, or form part of, this
announcement.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR TLBFTMBBMBBL
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December 09, 2019 11:15 ET (16:15 GMT)
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