REG - Lowland Inv. Co. - Annual Financial Report
12/12/2022 17:00
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RNS Number : 4390J Lowland Investment Co PLC 12 December 2022
LOWLAND INVESTMENT COMPANY PLC
ANNUAL FINANCIAL RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2022
This announcement contains regulated information.
INVESTMENT OBJECTIVE
The Company aims to give shareholders a higher than average return with growth
of both capital and income over the medium to long-term, by investing in a
broad spread of predominantly UK Companies. The Company measures its
performance against the FTSE All-Share Index Total Return.
INVESTMENT POLICY
Asset Allocation
The Company will invest in a combination of large, medium and smaller
companies listed in the UK. We are not constrained by the weightings of any
index; we focus instead on controlling absolute risk by diversifying on the
basis of underlying company characteristics such as size, industry, economic
sensitivity, clients and management. In normal circumstances up to half the
portfolio will be invested in FTSE 100 companies; the remainder will be
divided between small and medium-sized companies. On occasions the Manager
will buy shares listed overseas. The Manager may also invest a maximum of 15%
in other listed trusts.
Dividend
The Company aims to provide shareholders with better-than-average dividend
growth.
Gearing
The Board believes that debt in a closed-end fund is a valuable source of
long-term outperformance, and therefore the Company will usually be geared.
At the point of drawing down debt, gearing will never exceed 29.99% of the
portfolio valuation. Borrowing will be a mixture of short and long-dated debt,
depending on relative attractiveness of rates.
Key Data as at 30 September 2022
· Net Asset Value ('NAV') Total Return(1) of -14.8%
· Benchmark Total Return(2) of -4.0%
· Dividend growth of 1.2%
· Dividend for the Year(3) of 6.10p
Year ended Year ended
30 September 30 September
2022 2021
NAV per share at year end (debt at par)(4) 115.9p 145.9p
NAV per share at year end (debt at fair value)(4) 118.1p 144.6p
Share price at year end(5) 104.5p 131.5p
Market capitalisation £282m £355m
Dividend per share 6.10p(3) 6.025p
Ongoing charge 0.6% 0.6%
Dividend yield(6) 5.8% 4.6%
Gearing at year end 12.5% 13.8%
Discount at year end(7) 11.5% 9.1%
AIC UK Equity Income Sector Average Discount 3.9% 3.9%
Comparative numbers for 2021 have been restated to reflect the ten for one
share split which took place on 7 February 2022.
(1 ) NAV per share total return (including dividends reinvested) with debt
at fair value
(2 ) FTSE All-Share Index (including dividends reinvested)
(3 )Includes the final dividend of 1.525p per ordinary share for the year
ended 30 September 2022 that will be put to shareholders for approval at the
Annual General Meeting on Wednesday 25 January 2023
(4 ) NAV per share for both figures is before deduction of the third
interim dividend paid in October of each year
(5 ) Mid-market closing price
(6 ) Based on dividends paid and payable in respect of the financial year
and the share price at the year end
(7 ) Calculated using year end fair value NAVs including current year
revenue
Sources: Morningstar Direct, Janus Henderson, Refinitiv Datastream
Historical Performance
1 year 3 years 5 years 10 years 25 years
Net asset value -14.8 -3.3 -10.0 68.1 572.1
Share price -16.4 -3.3 -11.3 56.5 679.3
FTSE All-Share -4.0 2.4 11.3 79.5 252.1
Year ended Dividend per ordinary share (pence)(1) Total return/(loss) per ordinary share (pence)(1) Net revenue return per ordinary share (pence)(1) Total net assets (£'000) Net asset value per ordinary share (pence)(1) Share price per ordinary share (pence)(1)
30 September
2012 3.050 22.99 3.11 266,401 100.8 99.2
2013 3.400 33.01 3.67 347,202 130.7 132.5
2014 3.700 7.33 3.94 361,856 134.6 135.5
2015 4.100 1.18 4.64 354,563 131.8 128.7
2016 4.500 15.64 4.77 386,910 143.2 133.7
2017 4.900 24.32 4.91 439,896 162.8 150.4
2018 5.400 4.74 5.86 438,934 162.5 151.5
2019 5.950 (13.87) 6.80 385,904 142.8 128.0
2020 6.000 (33.69) 3.38 278,653 103.1 91.4
2021 6.025 48.79 4.27 394,285 145.9 131.5
2022 6.100(2) (24.00) 6.10 313,036 115.9 104.5
(1) Comparative numbers for 2012 to 2021 have been restated to reflect the ten
for one share split which took place on 7 February 2022.
(2) Includes the final dividend of 1.525p per ordinary share for the year
ended 30 September 2022 that will be put to shareholders for approval at the
Annual General Meeting on Wednesday 25 January 2023
CHAIRMAN'S STATEMENT
Performance
Progress on Lowland's twin objectives of capital and income growth contrasted
markedly in the year ended 30 September. The highlight of Lowland's financial
performance is unquestionably the recovery in earnings and with it the return
to payment of a fully covered dividend. Your Company has maintained a
progressive dividend policy since its inception more than 50 years ago. Since
2013 the policy has been progressive on a quarterly basis, meaning that each
quarterly dividend has been equal to, or greater than, the dividend declared
for the previous corresponding quarter.
Earnings per share increased by 43% to 6.10p, and, assuming shareholder
approval of the final dividend, dividends paid will increase very modestly
from 6.025p to 6.10p. Dividend yield amounts to a historically very high 5.8%.
There is satisfaction to be had that the dividend policy survived Brexit,
COVID and, so far at least, war in the Ukraine. We feel that the income side
of the Company's objective has been satisfactorily served.
The other half of our objective, capital growth, has been contrastingly
disappointing. While capital growth over the very long term has been good, in
the last ten years, our Net Asset Value ('NAV') has underperformed the
benchmark, being the FTSE All-Share Index. In the year just ended our NAV
declined by 14.8%, compared with a decline of 4.0% in the benchmark.
Your Board is of the view that it is generally paramount to stick to an
investment approach and it is almost inevitable, in the prevailing markets,
that a determinedly multi-cap trust should under-perform an index with a
pronounced large cap bias. Nevertheless, when faced with a prolonged period of
disappointing performance, our approach has been firstly to examine whether
changes in the world have rendered our investment philosophy obsolete. The
second examination is to question why this approach has resulted in
underperformance, and the final step is to look at whether execution of the
policy has been poor and has exacerbated the fact that policy has faced major
headwinds.
The Fund Managers explain why, over the long term, they believe opportunities
at the lower end of the market cap spectrum are superior, and these are well
rehearsed by commentators in the investment community. The Fund Managers and
your Board are of the view that there is unrecognised value in the mid- and
small-cap areas of the UK market. We therefore conclude that investing on a
multi-cap, mildly contrarian basis, with a UK bias, is not an obsolete
approach.
Lowland's investment policy stipulates that in normal circumstances, up to
half the portfolio will be invested in FTSE 100 companies. Generally, exposure
to large companies has been materially below 50%, with about a third being
invested in this area five years ago. In anticipation of the rough waters
smaller companies were likely to face, exposure to the larger end of the
market has been increased over the last few years and this increase has
lessened the underperformance. Nevertheless, the multi-cap approach is the
predominant reason for our underperformance against the FTSE All-Share
benchmark.
At the end of the year under review Lowland had 47.8% of NAV invested in FTSE
100 constituent companies, compared with 83.3% in the index. Investment in the
next layer down, FTSE 250 companies, was approximately in line with the index
at 15.9%. Inasmuch as Lowland is underweight the higher end of the market, so
it is overweight the lower end, with FTSE SmallCap and AIM companies
comprising 28.9% compared with an immaterial 2.7% in the index. This is the
territory which has historically given Lowland significant outperformance.
There are a host of factors which have combined to render this part of the UK
market out of favour. That it is out of favour is clearly demonstrated by the
historic PE of 8.7 times on the aggregate portfolio, compared with a historic
average of 12.7 times. Reasons for this include:
- The revenue of companies of this size is far more weighted to the UK
than in the case of larger companies, as demonstrated by the 51% domestic
sales exposure for the Lowland portfolio against 23% for the FTSE All-Share.
- The UK market as a whole is trading at a significant discount to
other developed equity markets (for example, UK equities were trading at a
near 40% discount to the MSCI World Index). The UK's near pariah status has
pertained since before Brexit, and has been confirmed by a succession of
'events', the most recent being what can fairly be characterised as political
chaos.
- The best performers on the UK market have been broadly among the
twenty largest companies, often in commodities businesses which have
benefitted from the consequences of Putin's war.
- In times of nervousness smaller companies are often perceived to be
inherently risky and sold off indiscriminately.
The Board monitors Lowland's performance against that of a composite index,
being 50% FTSE All-Share/50% Numis Smaller Companies ex Investment Trusts,
which is more representative of the universe in which we invest. This index
declined by 16.2% during the period, Lowland outperforming it by 1.4%,
representing the effect of our overweight position in AIM constituent
companies.
Share split
Following approval at the AGM, our shares underwent a ten for one share split.
We hope that investors will find this more convenient, particularly those who
invest relatively small amounts on a regular basis.
Dividends
A final dividend of 1.525p is proposed. Assuming this is approved, total
dividends for the year will amount to 6.10p compared with last year's 6.025p,
all numbers adjusted for the share split.
Gearing
The ability to gear the portfolio is a key advantage of an investment trust.
The Board is cautious in moving levels of gearing, being of the view that
timing major movements is difficult to get right. Lowland has a mixture of
medium-term facilities - up to £40m - and long-term notes, amounting to £30m
at a rate of 3.15% maturing in 2037. We believe this balance will serve us
well over the long term.
At the year end net gearing amounted to £38.9m (12.5%) compared with £54.9m
(13.8%) at the start of the year. Gearing levels were fairly steady during the
year.
Ongoing charge
Ongoing Charges amounted to 0.6% which is in line with last year and which we
feel to be competitive.
Discount
The Company's shares have traded at a discount of between 7.4% and 13%, ending
the year at 11.5%. The policy with regard to discount is set out on page 33 of
the annual report.
The Board
As previously notified to you, Karl Sternberg resigned on 8 December 2021.
There were no other changes to the Board during the year. We intend to begin
the process of recruiting a new member in the next year. Our policy on board
tenure and diversity is set out in the annual report.
Contact
I am always keen to hear from shareholders. Please contact me with comments or
questions on ITSecretariat@janushenderson.com
(mailto:ITSecretariat@janushenderson.com) .
Annual General Meeting ('AGM')
The AGM will be held at the Janus Henderson office on 25 January 2023. Full
details of the business to be conducted at the meeting are set out in the
Notice accompanying this report. Laura Foll will be on maternity leave, so
James Henderson will be making the usual presentation on his own. The Board
and Fund Managers welcome the opportunity to hear from shareholders each year
and we encourage as many as possible to attend.
Outlook
Three years ago, on the eve of Covid, we drew shareholders' attention to the
fact that our shares had only offered a dividend yield of 4.6% once before,
and that had been followed by a significant capital uplift. COVID clearly had
its say. Absent something comparable, or another unpredictable catastrophe,
the same logic holds at least as true, with our shares on a 5.8% yield.
Despite the UK and other developed economies being blighted by recession and
high inflation, we see value in the areas in which we are invested. Investee
companies do not generally see downturns in their prospects which would
justify their low valuations. While some companies will be hit by unpleasant
surprises, by and large we believe that earnings and dividend prospects are
not properly priced into the market. It is therefore reasonable, in our view,
to look to a recovery in UK valuations and a return to dividend growth. As to
dividends, we have successfully maintained the quarterly progressive dividend
policy. The challenge now will be to generate dividend growth that mitigates,
at least to some extent, the corrosive effect of high inflation.
We are pleased to report that since financial year end, the Company's NAV and
share price have recovered somewhat, rising 10.5% and 12.4% respectively. Over
the same time period the FTSE All-Share Index rose 9.0%. Medium-sized
companies have led this recovery, with the FTSE 250 gaining 10.3% compared to
a rise in the FTSE 100 of 8.9%. This modest outperformance of medium-sized
companies is yet to filter down to smaller companies, with the FTSE AIM
All-Share index up 3.9% and FTSE SmallCap up 5.6%. Smaller company share
prices often react with a lag. We are encouraged to see signs of improving
sentiment in the mid-cap area, and hopeful that this will permeate down to
small-caps.
Robert Robertson
Chairman
12 December 2022
FUND MANAGER'S REPORT
Background
It has been a very difficult year for Lowland with the Company underperforming
the benchmark and falling in absolute terms, as shown in the table below.
1 year (%) 3 years (%) 5 years (%) 10 years (%)
Lowland NAV -14.8 -3.3 -10.0 68.1
Lowland Share Price -16.4 -3.3 -11.3 56.5
FTSE All-Share -4.0 2.4 11.3 79.5
This is the result of the Company's strategic long-term position, namely a
bias to higher yielding shares and smaller companies. This bias gives the
Company a preference for UK based businesses and it is these that have seen
their value fall more than companies operating overseas. The reason for this
must be that investors believe that many UK based companies will perform
relatively poorly in the coming years. The selling of UK companies by
investors has been pronounced during the year, as can be seen in the chart
below. This follows several years of outflows since Brexit, leaving investor
weightings in the area low versus where they have been historically.
Please see the PDF attached for the chart.
The reasons for the concerns about the earnings outlook for UK companies
include the issues over Brexit, the supply disruptions surrounding COVID and
the fallout from the war in Ukraine. These general concerns became mixed in
with a cost-of-living crisis and political turmoil which called into question
the government's economic competence. However, through all this, many of the
companies held in the portfolio were doing what they do and doing it well.
This is to supply goods and services of a high standard for which they are
rewarded through obtaining reasonable operating margins. This can be evidenced
by strong cash flows and dividends. The result of this is that Lowland's
earnings have recovered and now cover the modestly growing dividend.
Performance Attribution
Against a backdrop of slowing economic growth and rising commodity prices, the
best performing sectors in the FTSE All-Share were those with earnings
positively exposed to higher commodity prices (energy and basic materials) or
sectors less exposed to the broader economic cycle (such as healthcare,
utilities and consumer staples). In contrast the worst performing sectors
included consumer discretionary, where stocks such as retailers fell
materially as a result of pressure on household real disposable income. The
industrials sector was also a poor performer as a result of concerns that
input costs were rising at a time when the order backdrop may weaken (although
on the latter concern there is currently little evidence). For Lowland, there
was a clear trend of cyclical sectors detracting from relative performance.
The largest detractor at the sector level from relative performance was
industrials, followed by financials and consumer discretionary.
This sector backdrop had a marked impact on what size of company performed
well. The FTSE 100 has a significantly higher weight in natural resources and
defensive sectors than the FTSE 250 and below. This meant that the FTSE 100
generated a modest positive total return during the year while small and
medium-sized company share prices fell substantially (see the final column of
the table below).Lowland at the financial year end held a near 50% weight in
the FTSE 100. While this is higher than its historic average weighting of
approximately 1/3, this remained significantly below the benchmark weight in
the FTSE 100 of over 80% (see the first and third columns of the table below
for weight comparisons). The Company's higher weighting in small and
medium-sized companies was of severe detriment to the Company's relative
performance during the year. On our estimates the size allocation of the
portfolio drove the majority of the Company's underperformance relative to the
benchmark, and within this it was specifically the underweight position in the
FTSE 100 and overweight on AIM that were the among main drivers of relative
underperformance.
From the table below it is worth noting that while the Company's holdings in
FTSE 100 companies performed roughly in line with that index (comparing the
second and fourth columns of the table below), and encouragingly the Company's
holdings within the AIM index outperformed, within the FTSE 250 and SmallCap
indices the Company's holdings underperformed. Examining in more detail why
this is the case, a number of the Company's most cyclical holdings fall within
the 250 and SmallCap indices. Industrial holdings such as Morgan Advanced
Materials, Hill & Smith and IMI, for example, sit within the 250 index and
were underperformers during the year. Similarly, a number of the Company's
financial and consumer discretionary holdings also sit within these indices
(for example IP Group and Reach). We go into more details of the
stock-specific drivers of performance below.
Lowland weighting (%) Lowland total return (%) FTSE All-Share weighting (%) Index total return (%)
FTSE 100 47.8 0.3 83.3 0.9
FTSE 250 15.9 -32.0 14.0 -23.5
FTSE SmallCap 12.1 -32.2 2.7 -18.7
FTSE AIM All-Share 16.8 -19.1 N/A -34.3
Weights for Lowland and FTSE All-Share shown as at financial year end. Note
the weights for Lowland do not add up to 100 as there is a small % of the
portfolio held overseas and in the FTSE Fledgling Index.
Lowland has always been deliberately multi-cap in its approach, investing
across all sizes of UK companies and as per its investment objective in
'normal circumstances' up to half the portfolio will be invested in FTSE 100
companies. The reason for this breadth in its investment universe is twofold.
Firstly it brings exposure to faster growing smaller companies at an earlier
stage of their lifecycle, and therefore with the potential for a longer
pathway of earnings growth ahead of them. Secondly it diversifies the
Company's source of income beyond the large FTSE 100 dividend payers. This
approach has worked well for the Company over the very long term, however we
must acknowledge that over the last five years the Company's performance has
(on average) been disappointing. For the purposes of clarity we have kept the
discussion in this section on the Company's one year performance - we go into
the drivers of longer-term performance in the next section below.
At the stock level the impact of the concentration within the benchmark can be
clearly seen, with a number of the largest detractors from relative
performance being underweights in areas such as natural resources. Shell, for
example, which was the Company's largest holding at year end and the largest
contributor to absolute performance, was (despite this) the second largest
detractor from relative performance (see second table below) as on average
over the year it made up 5.6% of the benchmark compared to only 2.9% for
Lowland. This demonstrates the difficulties in managing a multi-cap portfolio
relative to a concentrated benchmark. If the circumstances are such (as they
were this financial year) that the largest benchmark constituents perform very
well, it is challenging for a broader, multi-cap fund to hold weights level
with the index. This can act as a material detractor from relative returns.
While the different size allocation of the portfolio in comparison to the
benchmark was the key determinant of relative performance this year, we have
included below a brief summary of the main contributors and detractors from
performance at the stock level.
The top ten contributors to relative returns were:
Company Name Contribution to relative return (%) Share price total return (%)
1. Serica Energy 0.7 66.9
2. FBD Holdings 0.6 44.4
3. Aviva 0.5 5.7
4. H&T 0.4 56.9
5. Scottish Mortgage (not held) 0.3 (45.0)
6. Shoe Zone (no longer held) 0.3 157.9
7. Standard Chartered 0.3 32.4
8. Flutter Entertainment (not held) 0.3 (32.3)
9. Centrica (no longer held) 0.3 25.0
10. Euromoney Institutional Investor (no longer held) 0.3 44.5
In examining these best performers there are a number of themes that can be
drawn out:
· Rising energy prices - the rise in the price of natural gas and
subsequent rise in UK power prices drove earnings upgrades in Serica Energy
and Centrica.
· Rising interest rates - global bank Standard Chartered performed
well on the expectation that a rising interest rate environment will be
positive for future lending margins.
· Returns to shareholders - Insurers FBD and Aviva performed well
following material distributions to shareholders. In FBD's case they returned
to paying ordinary dividends following a resolution to their COVID-19 business
interruption claims, while Aviva returned one-off proceeds from business
sales.
· Takeover activity - Euromoney Institutional Investor received a
takeover approach from private equity. This has been a recurring theme in
recent years given the valuation discount on the UK equity market relative to
overseas.
The largest ten detractors from relative return were:
Company Name Contribution to relative return (%) Share price total return (%)
1. Studio Retail -1.0 -
2. Shell (underweight) -0.9 40.9
3. Glencore (not held) -0.9 45.2
4. British American Tobacco (not held) -0.9 32.7
5. Reach -0.9 (78.8)
6. Ilika -0.8 (61.1)
7. AstraZeneca (underweight) -0.8 13.7
8. IP Group -0.6 (57.0)
9. Headlam Group -0.6 (48.7)
10. Morgan Advanced Materials -0.6 (35.1)
Examining each of these largest detractors:
· Studio Retail was written down to zero in very disappointing
circumstances. We discussed the reasons within the half year report, however
to summarise, the company incurred supply chain disruption, which led to a
working capital outflow and the company reaching the limits of its lending
facilities.
· Shell and Glencore saw substantial earnings upgrades as a result
of higher commodity prices.
· British American Tobacco and AstraZeneca rose due to their
defensive qualities at a time of market uncertainty.
· Reach (formerly Trinity Mirror) fell materially from its highs
due to rising costs of print as well as pressure on digital advertising yields
following the Russia/Ukraine war.
· Ilika fell following lower than expected demand from industrial
customers for its next generation battery technology. There was also a broader
de-rating in the market of early stage, loss making businesses, which led to
the share price fall in IP Group (which saw the share price of its key
portfolio holding, Oxford Nanopore, fall substantially).
· Headlam Group (a flooring distributor) fell due to concerns that
pressure on household real disposable income would impact people's willingness
and ability to spend on new flooring.
· Morgan Advanced Materials (a specialist materials company serving
end markets such as industrial, healthcare and semiconductors) fell due to
concerns surrounding a slowdown in the global economy.
Addressing longer-term performance
Lowland has always had a multi-cap approach to seeking out capital and income
opportunities in the UK, and over the very long term this approach has worked
well for our shareholders - the 25 year NAV CAGR is 7.9% relative to a FTSE
All-Share CAGR of 5.2%. This structural overweight in small and medium-sized
companies brings with it an overweight to UK sales and earnings, as small and
medium- sized companies are, on average, more exposed to their home market.
This can be seen in the revenue breakdown of Lowland where, as at the year
end, approximately 51% of portfolio sales were derived in the UK compared to
only 23% for the benchmark.
This overweight position of Lowland in the UK has been challenging for
relative performance at a time when domestic businesses have materially
de-rated relative to international earners. As seen from the chart below, in
the approximately 15 years leading up to Brexit, domestic and international
earners performed roughly in line. In the six years since Brexit, however, the
difference in relative performance has been over 50%, with international
earners (seen in green below) materially outperforming.
Please see the PDF attached for the chart.
This de-rating of domestic earners has led to many market leading, well
managed businesses with conservative balance sheets trading on material
valuation discounts to their history. This is visible at the portfolio level,
where the table below shows that the portfolio is trading on an approximately
30% valuation discount to its long-term average.
12m historic P/E as at 10 year average 12m
30 September 2022 historic P/E
Lowland Portfolio 8.7x 12.7x
Source: Factset. Weighted harmonic average.
Portfolio Activity
Returning our discussion to the current financial year, new purchases and
additions focused predominantly on domestically exposed smaller companies.
A new position, for example, was established in UK pork and poultry producer
Cranswick. Cranswick already has a dominant position in the UK pork market and
has, in recent years, successfully moved into chicken with a state-of-the-art
facility in Eye in Suffolk. The group has significant ambitions for further
expansion in chicken and this provides the potential for a long pathway of
future sales and earnings growth. In our view this is not reflected in its
valuation (see table below). Other new positions established during the year
included building materials company Marshalls, which was first purchased in
August after the shares had approximately halved this calendar year. Marshalls
supply predominantly paving stones and roof tiles into the repair and
maintenance market, new housing and infrastructure projects. The shares have
fallen on the view that repair and maintenance spend will decline due to
broader pressures on consumer spending. There is already some evidence of this
with the company having to move earnings forecasts lower for the current
financial year. It is our view, however, that infrastructure spending will
prove more resilient and that the current share price already reflects
significant weakness in consumer spending.
We also continued to add to existing positions including textile rental
company Johnson Service Group, baked goods producer Finsbury Food and retailer
Kingfisher. In order to demonstrate the scale of valuation opportunity we are
seeing, the below table illustrates where valuations currently stand relative
to history for these purchases.
Company name 12m historic P/E 5 year average P/E Discount to 5 year average (%)
Cranswick 12.8 20.0 -36
Marshalls 9.8 25.9 -62
Johnson Service Group 15.5 19.4 -20
Finsbury Food 7.3 9.1 -20
Kingfisher 7.7 9.8 -22
Source: Refinitiv Datastream, as at 30 September 2022.
These additions were funded through full sales of positions including
housebuilder Bellway (sold in January on concerns that interest rate rises may
pressure already stretched house valuations relative to average earnings),
energy supplier Centrica (sold in September following good relative
performance), Euromoney Institutional Investor (sold following the private
equity takeover approach) and information services and analytics provider Relx
(sold in May on valuation grounds following good relative performance).
Dividends
2022 saw a significant recovery in investment income, with the Company
generating 6.10p in revenue earnings per share compared to 4.27p the previous
year. It is encouraging to note that the Company has therefore returned to
covering its dividend (which totalled 6.10p for the financial year) following
two years of using historic reserves.
Among the key drivers of dividend growth in 2022 was the financial sector and
in particular the domestic banks, all of which more than doubled their final
dividends year on year. There was also a sizable special dividend received
from Natwest, which returned a portion of their excess capital to
shareholders.
A further driver of the dividend recovery was the return of some companies to
the dividend list following the pandemic. We mentioned in last year's annual
report that 17% of the portfolio did not pay a dividend in the 2021 financial
year. The equivalent number for the current financial year was only 5% of the
portfolio, with many previous zero dividend payers (such as BT, FBD, Irish
Continental and Finsbury Food) returning to payments.
As we look ahead to the next financial year, while the earnings outlook has a
higher than usual degree of uncertainty there are a number of factors that
make us more optimistic when forecasting the path for investment income. For
example the dividend payout ratio of the portfolio is currently 40%, which
allows scope for companies to flex payout ratios upwards were earnings to
decline. The average indebtedness of companies in the portfolio is also modest
(the average ND/EBITDA was 1.8x at year end), meaning in our view the need for
companies to reduce debt is not likely to force many companies to reduce or
suspend dividends. Both of these factors (a low payout ratio and modest net
debt) have come about because the current economic downturn has come shortly
after COVID-19, when many companies reduced dividends to zero and raised
equity. This meant balance sheets had in many cases been de-risked and
dividend payout ratios had not yet recovered to their long-run average.
ESG
Our approach to environmental, social and governance (ESG) matters is laid out
in more detail in the annual report. We hold the view that seeking better to
understand how companies are managing material ESG factors and engaging with
them is a route more conducive to long-term progress than sector exclusions.
It continues to be our view that companies with good processes for managing
ESG risk factors outperform. We have seen stock-specific evidence of this in
the current year with the largest stock detractor, Studio Retail. Studio would
not have flagged on quantitative metrics for governance issues (it was broadly
run in-line with good governance practices). In hindsight, however, there had
been recent senior management change and the Board did not have the sufficient
depth of experience or relationship with institutional shareholders to arrange
an emergency rights issue within the necessarily short time horizon. The
lesson for us has been the importance of Board composition, most importantly
the breadth of experience and a mixture of short and long tenures (so as to
maintain both independence and in-depth knowledge of the company).
Outlook
Valuations of companies are guided by the cash flows they are expected to
achieve over time. When expectations change, share prices will alter. The
movement in the share price can then feed on itself - when a stock price
falls, sentiment towards the company can deteriorate leading to a downward
spiral of pessimism. This may be happening in the UK with the macroeconomic
concerns drowning out an appraisal of individual companies' prospects, leading
investors to question the strengths of even the best. The companies held in
Lowland's portfolio are not a proxy for the UK economy but individual
businesses that have management teams that will respond to the circumstances
they are in. Downturns will create opportunities for the better ones to
position themselves to prosper in the next upturn.
During this phase of despondency about the UK it is important to remember it
is a place to find innovation, world leading companies and strong management
teams. The portfolio holdings tap into these strengths. It is the many sound
companies that operate in the UK that are the fundamental block from which the
economy is built. It is their strengths that will be behind a recovery in the
fortunes of the overall economy.
The companies with real strengths can be found across many different sectors,
therefore the Company holds a relatively long and broadly based list of
stocks. The diversification this brings in uncertain times is important for
long term capital preservation and growth. Companies are dealing with changes
in consumer behaviour and advances in technology. Some will not keep pace but
the belief is many will prosper and grow. We believe there will be substantial
share price appreciation when these strengths come to be more recognised.
James Henderson and Laura Foll
Fund Managers
12 December 2022
Twenty Largest Holdings as at 30 September 2022
The stocks in the portfolio are a diverse mix of businesses operating in a
wide range of end markets.
Rank Company % of Approx. market cap Valuation 2022
2022 (2021) portfolio £'000
1 (1) Shell 3.5 £163.0bn 12,356
A vertically integrated oil & gas company. At the current oil price the
company is capable of generating substantial amounts of free cash flow. This
cash is being allocated partly to shareholders (via a growing dividend and
share buyback) and partly to investing in the necessary transition away from
fossil fuels.
2 (9) BP 3.0 £85.8 bn 10,611
A vertically integrated oil and gas business. The company has announced
ambitious plans to reach net zero carbon emissions by 2050 and gradually
transition away from fossil fuels towards renewable energy. The cash
generation from their oil & gas business should enable this transition to
take place, while also continuing to fund cash returns to shareholders via
dividends and share buybacks.
3 (13) HSBC 2.2 £88.4bn 7,850
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 make it well placed.
4 (2) GSK 2.2 £56.3bn 7,626
A global pharmaceutical and vaccine company, which spun-off its consumer
healthcare business (Haleon) in July 2022. The remaining pharmaceutical
company has leading franchises in areas such as HIV, however has had a mixed
R&D track record in recent years. Under a new leadership team and with
increased R&D spending it has the potential to reinvigorate its
pharmaceutical pipeline.
5 (16) National Grid 2.2 £34.4bn 7,602
A regulated utility (electricity and gas distribution) operating in the US and
UK. The regulated asset base has good scope to grow in both the US and the UK.
The shares pay an attractive dividend yield.
6 (*) Standard Chartered 2.2 £16.0bn 7,529
A global bank providing international banking and financial services, with a
particular focus on emerging markets. The position provides geographic
diversification for the portfolio as well as being positively exposed to
rising global interest rates.
7 (10) Direct Line 2.1 £2.6bn 7,511
A UK provider of car, home and small business insurance. The company has
well-known brands which will allow it to grow policies well, while maintaining
underwriting discipline. A strong balance sheet allows it to pay an attractive
dividend yield to shareholders.
8 (3) Phoenix 2.1 £5.5bn 7,490
The company operates primarily in the UK and specialises in taking over and
managing closed life insurance and pension funds.
9 (17) Anglo American 2.1 £35.6bn 7,386
A diversified mining company with exposure to commodities including copper,
iron ore, diamonds and platinum. Its mix of commodity production means it
could be well positioned to benefit from the need to decarbonise the global
economy. For example, it is significantly exposed to copper where demand is
likely to grow driven by its use in electric vehicles as well as renewable
energy.
10 (12) Vodafone 1.9 £27.2bn 6,793
The company provides fixed line and mobile telecommunication services across
much of the globe. It pays an attractive dividend yield to shareholders with
scope to modestly grow earnings.
11 (*) FBD 1.9 £305.4m 6,757
The company is an Irish insurer with a focus on insurance coverage for the
agricultural sector. It is a disciplined underwriter with a history of good
returns generation and pays an attractive dividend yield.
12 (*) Serica Energy 1.9 £894.8m 6,705
The company is a large producer of natural gas in the North Sea. Its portfolio
was built via acquisitions at attractive valuations from larger oil & gas
companies. At current gas prices the company is generating substantial amounts
of cash with a strong (net cash) balance sheet.
13 (18) Irish Continental 1.8 £608.4m 6,366
The group provides passenger transport, roll-on and roll-off freight transport
and container services between Ireland, the United Kingdom and Continental
Europe. The shares have been impacted by reduced passenger demand during the
pandemic, however, it continues to be a well managed business operating in a
duopolistic industry.
14 (*) Rio Tinto 1.8 £58.9bn 6,120
The company is one of the world's largest mining businesses with a particular
focus on iron ore, aluminium and copper. Its mines are well positioned on the
cost curve, often at the lowest cost quartile globally, meaning that it can
continue to be highly cash generative despite volatile commodity prices. This
cash generation combined with a strong balance sheet has resulted in an
attractive ordinary dividend payment combined with some special dividends in
recent years.
15 (6) K3 Capital 1.7 £185.6m 6,095
The company provides a range of corporate services to UK small and medium
sized businesses, including M&A advisory, restructuring and tax services.
The company has grown well in recent years, both organically and via
acquisitions.
16 (20) NatWest 1.7 £23.6bn 6,080
The company is one of the leading retail and commercial lenders in the UK.
Since the financial crisis the balance sheet has materially improved and the
business has largely returned to its original focus on domestic lending. The
company's earnings are well placed to benefit from further rises in UK
interest rates.
17 (11) Aviva 1.7 £11.7bn 5,901
This company provides a wide range of insurance and financial services. Under
a new CEO there is heightened focus on simplifying the business.
18 (*) Barclays 1.7 £23.8bn 5,772
The company has a strong retail lending franchise combined with an investment
bank. Over time its strong retail franchise should allow it to generate good
returns on capital, however in the past these have not consistently come
through because of persistently low interest rates and volatile returns from
its investment bank. Rising interest rates and market share gains in its
investment bank could allow a period of better returns generation that in our
view is not reflected in the current valuation.
19 (*) BAE Systems 1.6 £25.0bn 5,726
The company is a global defence contractor. In recent years it has improved
its cash generation and balance sheet
position, allowing it to return cash to shareholders via both a dividend and
share buyback. It would be a beneficiary
of rising defence spending in regions such as Europe and this has led to
recent strong share price performance.
20 (19) M&G 1.6 £4.2bn 5,661
The company is a financial services provider that was spun out of Prudential
in 2019, providing insurance and asset
management services. The capital generation of the group allows sizeable
returns to shareholders via dividends and share buybacks.
143,937
At 30 September 2022 these investments totalled £143,937,000 or 40.9% of
portfolio.
* Not in the top twenty largest investments last year
MANAGING RISKS
The Board, with the assistance of the Manager, has carried out a robust
assessment of the principal risks and uncertainties, including emerging risks,
facing the Company including those that would threaten its business model,
future performance, solvency, liquidity and reputation. The Board regularly
considers the principal risks facing the Company and has drawn up a matrix of
risks. The Board has put in place a schedule of investment limits and
restrictions, appropriate to the Company's investment objective and policy, in
order to mitigate these risks as far as practicable. The principal risks which
have been identified and the steps taken by the Board to mitigate these are
set out in the table below. The principal financial risks are detailed in note
14 to the financial statements.
At the half year stage, the Board completed a thorough review of the principal
risks and uncertainties facing the Company. As a result of this, they were
updated to include geopolitical risks, due to the Russian invasion of Ukraine
which has increased the volatility in European markets.
Principal risks Mitigating measure
Market, geopolitical, macroeconomic or environmental conditions cause a The Fund Managers maintain close oversight of the Company's portfolio, and in
material fall in market value particular its gearing levels, and the performance of investee companies.
Regular stress testing of the revenue account under different scenarios for
The war in Ukraine has heightened tensions across the world, and significantly dividends is carried out. The Board monitors volatility, and holds a regular
increased volatility in equity markets. dialogue with the Fund Managers to understand the impact on the Company's
portfolio.
Macroeconomic conditions in the UK, including political uncertainty and rising
inflation have led to increased volatility in the UK equity market.
Global pandemic The Fund Managers maintain close oversight of the Company's portfolio, and in
particular its gearing levels, and the performance of investee companies.
The residual impact of the coronavirus pandemic on the Company's investments Regular stress testing of the revenue account under different scenarios for
and its direct and indirect effects, including the effect on the global dividends is carried out. The Board monitors the effects of the pandemic on
economy. the operations of the Company and its service providers to ensure that they
continue to be appropriate, effective and properly resourced.
Investment activity and strategy risk The Board manages these risks by ensuring a diversification of investments and
a regular review of the extent of borrowings. Janus Henderson operates in
An inappropriate investment strategy or poor execution, for example, in terms accordance with investment limits and restrictions and policy determined by
of asset allocation or level of gearing, may result in underperformance the Board, which includes limits on the extent to which borrowings may be
against the Company's benchmark index and the companies in its peer group, and employed.
also in the Company's shares 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 the Manager confirms adherence to them every month. Janus Henderson
provides the Board with management information, including performance data and
reports and shareholder analyses.
The Board monitors the implementation and results of the investment process
with the Fund Managers at each Board meeting and monitors risk factors in
respect of the portfolio. Investment strategy is reviewed at each meeting.
Portfolio and market price The Board reviews the portfolio at the five Board meetings held each year and
receives regular reports from the Company's brokers. A detailed liquidity
Although the Company invests almost entirely in securities that are listed on report is considered on a regular basis.
recognised markets, share prices may move rapidly. The companies in which
investments are made may operate unsuccessfully, or fail entirely. A fall in
the market value of the Company's portfolio would have an adverse effect on
equity shareholders' funds. The Fund Managers closely monitor the portfolio between meetings and mitigate
this risk through diversification of investments. The Fund Managers
periodically present the Company's investment strategy in respect of current
market conditions. Performance relative to the FTSE All-Share Index, and other
UK equity income trusts is also monitored.
Dividend income The Board reviews income forecasts at each meeting. The Company has revenue
reserves of £8.3 million (before payment of the third interim and final
A reduction in dividend income could adversely affect the Company's dividend dividend) and distributable capital reserves of £235.4 million.
record.
Financial risk The Company minimises the risk of a counterparty failing to deliver securities
or cash by dealing through organisations that have undergone rigorous due
The financial risks faced by the Company include market price risk, interest diligence by Janus Henderson. The Company holds its liquid funds almost
rate risk, liquidity risk, currency risk and credit and counterparty risk. entirely in interest bearing bank accounts in the UK or on short-term deposit.
This, together with a diversified portfolio which comprises mainly investments
in large and medium-sized listed companies mitigates the Company's exposure to
liquidity risk. Currency risk is mitigated by the low exposure to overseas
stocks. Please see note 14 in the Annual Report.
Gearing risk At the point of drawing down 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.
Tax and regulatory The Manager provides its services, inter alia, through suitably qualified
professionals and the Board receives internal control reports produced by the
Changes in the tax and regulatory environment could adversely affect the Manager on a quarterly basis, which confirm legal and regulatory compliance.
Company's financial performance, including the return on equity. The Fund Managers also consider tax and regulatory change in their monitoring
of the Company's underlying investments.
A breach of s.1158/9 could lead to a loss of investment trust status,
resulting in capital gains realised within the portfolio being subject to
corporation tax. A breach of the Listing Rules could result in suspension of
the Company's shares, while a breach of the Companies Act 2006 could lead to
criminal proceedings, or financial or reputational damage.
Operational The Board monitors the services provided by the Manager and its other
suppliers and receives reports on the key elements in place to provide
Disruption to, or failure of, the Manager's or its administrator's (BNP effective internal control.
Paribas Securities Services) accounting, dealing or payment systems or the
Depositary's records could prevent the accurate reporting and monitoring of
the Company's financial position. Cyber crime could lead to loss of
confidential data. The Company is also exposed to the operational risk that Cyber security is closely monitored and the Audit Committee receives an annual
one or more of its suppliers may not provide the required level of service. presentation from Janus Henderson's Head of Information Security.
Details of how the Board monitors the services provided by Janus Henderson and
its other suppliers and the key elements designed to provide effective
internal control are explained further in the Internal Controls section of the
Corporate Governance Statement in the Annual Report.
Emerging risks
In addition to the principal risks facing the Company, the Board also
regularly considers potential emerging risks, which are defined as potential
trends, sudden events or changing risks which are characterised by a high
degree of uncertainty in terms of the probability of them happening and the
possible effects on the Company. Should an emerging risk become sufficiently
clear, it may be moved to a principal risk.
VIABILITY STATEMENT
RELATED PARTY TRANSACTIONS
The Company is a long-term investor; the Board believes it is appropriate to
assess the Company's viability over a five-year period in recognition of our
long-term horizon and what we believe to be investors' horizons, taking
account of the Company's current position and the potential impact of the
principal and emerging risks and uncertainties as documented above in this
Strategic Report.
The assessment has considered the impact of the likelihood of the principal
and emerging risks and uncertainties facing the Company, in particular
investment strategy and performance against benchmark, whether from asset
allocation or the level of gearing, and market risk, in severe but plausible
scenarios, and the effectiveness of any mitigating controls in place.
The Board has taken into account the liquidity of the portfolio and the
gearing in place when considering the viability of the Company over the next
five years and its ability to meet liabilities as they fall due. This included
consideration of the duration of the Company's loan facilities and how a
breach of the loan facility covenants could impact on the Company's liquidity,
net asset value and share price.
The Board does not expect there to be any significant change in the current
principal risks and adequacy of the mitigating controls in place. Also the
Directors do not envisage any change in strategy or objectives or any events
that would prevent the Company from continuing to operate over that period as
the Company's assets are liquid, its commitments are limited and the Company
intends to continue to operate as an investment trust. Only a substantial
financial crisis affecting the global economy could have an impact on this
assessment.
In coming to this conclusion, the Directors have considered the ongoing impact
of the war in Ukraine and the COVID-19 pandemic, in particular the impact on
income and the Company's ability to meet its investment objective. The Board
does not believe that they will have a long-term impact on the viability of
the Company and its ability to continue in operation, notwithstanding the
short-term uncertainty they have caused in the markets.
Based on this assessment, the Directors have a reasonable expectation that the
Company will be able to continue in operation and meet its liabilities as they
fall due over the next five-year period.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
In accordance with Disclosure Guidance and Transparency Rule 4.1.12, each of
the Directors confirms that, to the best of his or her knowledge:
• the Company's financial statements, which have been prepared in accordance
with UK Accounting Standards and applicable law give a true and fair view of
the assets, liabilities, financial position and return of the Company; and
• the Strategic Report, Report of the Directors and financial statements
include a fair review of the development and performance of the business and
the position of the Company, together with a description of the principal
risks and uncertainties that it faces.
For and on behalf of the Board
Robert Robertson
Chairman
12 December 2022
INCOME STATEMENT
Year ended 30 September 2022 Year ended 30 September 2021
Revenue return £'000 Capital return £'000 Revenue return £'000 Capital return £'000
Total Total
£'000 £'000
(Losses)/gains on investments held at fair value through profit or loss - (79,801) (79,801) - 121,353 121,353
(note 2)
Income from investments (note 3) 18,666 - 18,666 13,591 319 13,910
Other interest receivable and similar income (note 4) 70 - 70 93 - 93
Gross revenue and capital (losses)/gains 18,736 (79,801) (61,065) 13,684 121,672 135,356
Management fee (862) (861) (1,723) (811) (811) (1,622)
Administrative expenses (645) - (645) (658) - (658)
Net return/(loss) before finance costs and taxation 17,229 (80,662) (63,433) 12,215 120,861 133,076
Finance costs (657) (657) (1,314) (584) (585) (1,169)
Net return/(loss) before taxation 16,572 (81,319) (64,747) 11,631 120,276 131,907
Taxation on net return (81) - (81) (93) - (93)
Net return/(loss) after taxation 16,491 (81,319) (64,828) 11,538 120,276 131,814
Return/(loss) per ordinary share 6.10p (30.10p) (24.00p) 4.27p 44.52p 48.79p
- basic and diluted(1) (note 5)
===== ===== ===== ===== ===== =====
(1) Comparative figures for the year ended 30 September 2021 have been
restated due to the sub-division of each ordinary share of 25p into ten
ordinary shares of 2.5p each on 7 February 2022
The total columns of this statement represent the Profit and Loss Account of
the Company. The revenue return and capital return columns are supplementary
to this and are prepared under guidance published by the Association of
Investment Companies. All revenue and capital items in the above statement
derive from continuing operations. The Company had no other comprehensive
income other than those disclosed in the Income Statement. The net return is
both the profit for the year and the total comprehensive income.
STATEMENT OF CHANGES IN EQUITY
Called up share capital £'000 Share premium account £'000 Capital redemption reserve Other capital reserves £'000
£'000 Revenue reserve £'000
Total
Year ended £'000
30 September 2022
At 1 October 2021 6,755 61,619 1,007 318,244 6,660 394,285
Net (loss)/return after taxation - - - 16,491 (64,828)
(81,319)
(23) - (23)
Costs relating to the sub-division of shares
Third interim dividend (1.5p(1)) for the year ended 30 September 2021 paid 29 - - - - (4,053) (4,053)
October 2021
Final dividend (1.525p(1)) for the year ended 30 September 2021 paid 31 - - - (1,513) (2,607) (4,120)
January 2022
First interim dividend (1.525p) for the year ended 30 September 2022 paid 29 - - - - (4,120) (4,120)
April 2022
Second interim dividend (1.525p) for the year ended 30 September 2022 paid 29 - - - - (4,120) (4,120)
July 2022
Return of unclaimed dividends - - - - 15 15
--------- ---------- ---------- ----------- ---------- ----------
6,755 61,619 1,007 8,266 313,036
At 30 September 2022 235,389
===== ===== ===== ====== ===== ======
(1) Comparative figures have been restated due to the sub-division of each
ordinary share of 25p each into ten ordinary shares of 2.5p on 7 February 2022
Called up share capital £'000 Share premium account £'000 Capital redemption reserve Other capital reserves £'000
£'000 Revenue reserve £'000
Total
Year ended £'000
30 September 2021
At 1 October 2020 6,755 61,619 1,007 197,968 11,304 278,653
Net return after taxation - - - 11,538 131,814
120,276
Third interim dividend (1.5p(1)) for the year ended 30 September 2020 paid 30 - - - - (4,053) (4,053)
October 2020
Final dividend (1.5p(1)) for the year ended 30 September 2020 paid 29 January - - - - (4,053) (4,053)
2021
First interim dividend (1.5p(1)) for the year ended 30 September 2021 paid 30 - - - - (4,053) (4,053)
April 2021
Second interim dividend (1.5p(1)) for the year ended 30 September 2021 paid 31 - - - - (4,053) (4,053)
July 2021
Return of unclaimed dividends - - - - 30 30
--------- ---------- ---------- ----------- ---------- ----------
6,755 61,619 1,007 6,660 394,285
At 30 September 2021 318,244
===== ===== ===== ====== ===== ======
(1) Comparative figures have been restated due to the sub-division of each
ordinary share of 25p each into ten ordinary shares of 2.5p on 7 February 2022
STATEMENT OF FINANCIAL POSITION
As at 30 September 2022 As at 30 September
£'000 2021
£'000
Fixed assets
Investments held at fair value through profit or loss:
Listed at market value in the United Kingdom 247,017 335,416
Listed at market value on AIM 58,664 73,997
Listed at market value overseas 15,503 15,830
Unlisted 2,908 2,868
Investments on loan(1) 27,989 20,721
----------- -----------
352,081 448,832
----------- -----------
Current assets
Debtors 1,228 1,625
Cash at bank 9,395 7,976
----------- -----------
10,623 9,601
----------- -----------
Creditors: amounts falling due within one year (19,866) (34,357)
----------- -----------
Net current liabilities (9,243) (24,756)
----------- -----------
Total assets less current liabilities 342,838 424,076
Creditors: amounts falling due after one year (29,802) (29,791)
----------- -----------
Net assets 313,036 394,285
======= =======
Capital and reserves
Called up share capital 6,755 6,755
Share premium account 61,619 61,619
Capital redemption reserve 1,007 1,007
Other capital reserves 235,389 318,244
Revenue reserve 8,266 6,660
----------- -----------
Total shareholders' funds 313,036 394,285
======= =======
Net asset value per ordinary share - basic and diluted(2) 115.9p 145.9p
======= =======
(1) Prior year comparatives have been restated as explained further in note
1a)
(2) Comparative figures for the year ended 30 September 2021 have been
restated to the sub-division of each ordinary share of 25p into ten ordinary
shares of 2.5p each on 7 February 2022.
STATEMENT OF CASH FLOWS
Year ended Year ended
30 September 2022 30 September 2021
£'000 £'000
Cash flows from operating activities
Net (loss)/return before taxation (64,747) 131,907
Add back: finance costs 1,314 1,169
Add: losses/(gains) on investments held at fair value through profit or loss 79,801 (121,353)
Withholding tax on dividends deducted at source (59) (96)
Decrease/(increase) in other debtors 41 (359)
Increase/(decrease) in other creditors 98 (42)
----------- -----------
Net cash inflow from operating activities 16,448 11,226
Cash flows from investing activities
Purchase of investments (40,491) (72,746)
Sale of investments 57,726 66,553
----------- -----------
Net cash inflow/(outflow) from investing activities 17,235 (6,193)
Cash flows from financing activities
Equity dividends paid (net of refund of unclaimed distributions and reclaimed (16,398) (16,182)
distributions)
Costs relating to sub-division of shares (23) -
Loans drawn down(1) 9,149 45,121
Loans repaid(1) (23,726) (28,078)
Interest paid (1,294) (1,132)
----------- -----------
Net cash outflow from financing activities (32,292) (271)
----------- -----------
Net increase in cash and cash equivalents 1,391 4,762
Cash and cash equivalents at start of year 7,976 3,232
Effect of foreign exchange rates 28 (18)
----------- -----------
Cash and cash equivalents at end of year 9,395 7,976
======= =======
Comprising:
Cash at bank 9,395 7,976
----------- -----------
9,395 7,976
======= =======
Cash inflow from dividends net of taxation was £18,835,000 (2021:
£13,445,000) and Interest received was £4,000 (2021: £nil).
(1) Prior year comparatives have been restated as explained further in note
1a)
NOTES TO THE FINANCIAL STATEMENTS)
1. Accounting Policies
a) Basis of Preparation
The Company is a registered investment company as defined in section 833 of
the Companies Act 2006 and is incorporated in the United Kingdom. It operates
in the United Kingdom and is registered at 201 Bishopsgate, London, EC2M 3AE.
The financial statements have been prepared in accordance with the Companies
Act 2006, FRS 102 - The Financial Reporting Standard applicable in the UK and
Republic of Ireland and with the Statement of Recommended Practice: Financial
Statements of Investment Trust Companies and Venture Capital Trusts (the
'SORP') issued in April 2021.
The principal accounting policies applied in the presentation of these
financial statements are set out below. These policies have been consistently
applied to all the years presented.
The financial statements have been prepared under the historical cost basis
except for the measurement of fair value of investments. In applying FRS102,
financial instruments have been accounted for in accordance with Section 11
and 12 of the standard. All of the Company's operations are of a continuing
nature.
The preparation of the Company's financial statements on occasion requires the
Directors to make judgements, estimates and assumptions that affect the
reported amounts in the primary financial statements and the accompanying
disclosures.
These assumptions and estimates could result in outcomes that require a
material adjustment to the carrying amount of assets or liabilities affected
in the financial year.
The Directors do not believe that any accounting judgements or estimates have
been applied to this set of financial statements that have a significant risk
of causing a material adjustment to the carrying amount of assets and
liabilities within the next financial year. In line with UK GAAP investments
are valued at fair value which are quoted prices of the investments in active
markets and therefore reflect participant' views of climate change risk.
Loan draw downs and repayments have previously been shown as a net amount in
the Statement of Cash Flows. In the current year, the disclosure has been
corrected and the Statement of Cash Flows now shows the gross value of loans
drawn down and loans repaid, with the prior year comparatives restated to be
on the same basis.
The investment disclosures in the Statement of Financial Position previously
included the value of investments on loan within the values of investments
listed at market value in the United Kingdom, listed at market value on AIM
and listed at market value overseas. In the current year, the value of
investments on loan has been disclosed separately and the prior year
comparatives corrected to be restated to be on the same basis.
These changes in presentation have no impact on the Company's net assets,
Income Statement or total cash flows.
b) Going Concern
The Directors have considered the liquidity of the portfolio and concluded
that the assets of the Company consist of securities that are readily
realisable. They have also considered the impact of the war in Ukraine and of
COVID-19, including cash flow forecasting, and a review of covenant compliance
including the headroom above the most restrictive covenants. They have
concluded that they are able to meet their financial obligations as they fall
due for at least twelve months from the date of approval of the financial
statements. Having assessed these factors, the principal risks and other
matters discussed in connection with the viability statement, the Directors
considered it appropriate to adopt the going concern basis of accounting in
preparing the financial statements.
2. 2022 2021
(Losses)/gains on investments held at fair value through profit or loss £'000 £'000
Gains on the sale of investments based on historical cost 12,602 6,700
Less: revaluation losses recognised in previous years (7,450) (1,599)
----------- -----------
Gains on investments sold in the year based on carrying value at previous 5,152 5,101
Statement of Financial Position date
Revaluation (losses)/gains on investments held at 30 September (84,981) 116,270
Exchange gains/(losses) 28 (18)
---------- ----------
(79,801) 121,353
====== ======
3. 2022 2021
Income from Investments £'000 £'000
UK dividends:
Listed investments 16,180 11,954
Unlisted 13 34
Property income dividends 460 444
--------- ---------
16,653 12,432
--------- ---------
Non UK dividends:
Overseas dividend income 2,013 1,159
--------- ---------
2,013 1,159
--------- ---------
18,666 13,591
===== =====
2022 2021
4. £'000 £'000
Other Interest Receivable and Similar Income
Stock lending commission 62 89
Income from underwriting - 4
Bank interest 8 -
--------- ---------
70 93
===== =====
Stock lending commission has been shown net of brokerage fees of £16,000
(2021: £22,000).
5. Return per Ordinary Share - Basic and Diluted
The return/(loss) per ordinary share is based on the net loss attributable to
the ordinary shares of £64,828,000 (2021: net return of £131,814,000) and on
270,185,650 ordinary shares (2021: 270,185,650(1)) being the weighted average
number of ordinary shares in issue during the year. The (loss)/return per
ordinary share can be further analysed between revenue and capital, as below.
2022 2021
£'000 £'000
Net revenue return 16,491 11,538
Net capital (loss)/return (81,319) 120,276
--------- ---------
Net total (loss)/return (64,828) 131,814
===== =====
Weighted average number of ordinary shares in issue during the year 270,185,650(1) 270,185,650(1)
2022 2021
Pence Pence(1)
Revenue return per ordinary share 6.10 4.27
Capital (loss)/return per ordinary share (30.10) 44.52
---------- ----------
Total (loss)/return per ordinary share (24.00) 48.79
====== ======
The Company does not have any dilutive securities, therefore the basic and
diluted returns per share are the same.
(1) Comparative figures for the year ended 30 September 2021 have been
restated due to the sub-division of each ordinary share of 25p into ten
ordinary shares of 2.5p each on 7 February 2022
6. Dividends Paid and Payable on the Ordinary Shares
Dividends on ordinary shares 2022 2021
Record date Payment date £'000 £'000
Third interim dividend (1.5p(1)) for the year ended 30 September 2020 2 October 2020 30 October 2020 - 4,053
Final dividend (1.5p(1)) for the year ended 29 December 2020 29 January 2021 - 4,053
30 September 2020
First interim dividend (1.5p(1)) for the year ended 30 September 2021 6 April 2021 30 April 2021 - 4,053
Second interim dividend (1.5p(1)) for the year ended 30 September 2021 2 July 2021 31 July 2021
- 4,053
Third interim dividend (1.5p(1)) for the year ended 30 September 2021 30 September 2021 29 October 2021 4,053 -
Final dividend (1.525p(1)) for the year ended 30 September 2021 30 December 2021 31 January 2022 4,120 -
First interim dividend (1.525p) for the year ended 30 September 2022 31 March 2022 29 April 2022 4,120 -
Second interim dividend (1.525p) for the year ended 30 September 2022 30 June 2022 29 July 2022
4,120 -
Return of unclaimed dividends (15) -
--------- ---------
16,398 16,182
===== =====
(1) Comparative figures for the year ended 30 September 2021 have been
restated due to the sub-division of each ordinary share of 25p into ten
ordinary shares of 2.5p each on 7 February 2022
The third interim dividend and the final dividend for the year ended 30
September 2022 have not been included as a liability in these financial
statements. The total dividends payable in respect of the financial year,
which form the basis of the retention test under Section 1158 of the
Corporation Tax Act 2010, are set out below.
2022
£'000
16,491
Revenue available for distribution by way of dividend for the year
First interim dividend (1.525p) for the year ended 30 September 2022 (4,120)
Second interim dividend (1.525p) for the year ended 30 September 2022 (4,120)
Third interim dividend (1.525.0p) for the year ended 30 September 2022 (4,120)
Final dividend (1.525p) for the year ended 30 September 2022 (based on ( 4,120)
270,185,650 ordinary shares in issue at 9 December 2022)
Return of unclaimed dividends 15
---------
Transfer to reserves 26(1)
=====
(1) The residual will be transferred to the revenue reserve (2021: transfer
from revenue reserve £3,198,000 and from the capital reserve £1,513,000)
7. Called up Share Capital
Number of shares entitled to dividend Total number of shares Nominal value of shares
£'000
At 30 September 2021 27,018,565 27,018,565 6,755
Issue of ordinary shares following 10:1 share split 243,167,085 243,167,085 -
----------- ----------- -----------
At 30 September 2022 270,185,650 270,185,650 6,755
During the year, the Company's shares in issue increased as a
result of the sub-division of the existing ordinary shares. No shares were
allotted or bought back during the year (2021: nil).
8. Net Asset Value per Ordinary Share
The net asset value per ordinary share of 115.9p (2021: 145.9p(1)) is based on
the net assets attributable to the ordinary shares of £313,036,000 (2021:
£394,285,000) and on 270,185,650 (2021: 270,185,650(1)) shares in issue on 30
September 2022.
(1) Comparative numbers for the year ended 30 September 2022 have been
restated due to the sub-division of each ordinary share of 25p into ten
ordinary shares of 2.5p each on 7 February 2022.
The movements during the year of the assets attributable to the ordinary
shares were as follows:
2022 2021
£'000 £'000
Total net assets at start of year 394,285 278,653
Total net (loss)/return after taxation (64,828) 131,814
Costs relating to sub-division of shares (23) -
Net dividends paid in the year:
Ordinary shares (16,398) (16,182)
----------- -----------
Net assets attributable to the ordinary shares at 30 September 313,036 394,285
====== ======
9. 2022 Financial Information
The figures and financial information for the year ended 30 September 2022 are
extracted from the Company's annual financial statements for that period and
do not constitute statutory accounts. The Company's annual financial
statements for the year to 30 September 2022 have been audited but have not
yet been delivered to the Registrar of Companies. The Independent Auditor's
Report on the 2022 annual financial statements was unqualified, did not
include reference to any matter to which the Auditor drew attention without
qualifying the report, and did not contain any statements under sections
498(2) or 498(3) of the Companies Act 2006.
10. 2021 Financial Information
The figures and financial information for the year ended 30 September 2021 are
extracted from the Company's annual financial statements for that period and
do not constitute statutory accounts. The Company's annual financial
statements for the year to 30 September 2021 have been audited and filed with
the Registrar of Companies. The Independent Auditor's Report on the 2021
annual financial statements was unqualified, did not include reference to any
matter to which the Auditor drew attention without qualifying the report, and
did not contain any statements under sections 498(2) or 498(3) of the
Companies Act 2006.
11. Dividend
The final dividend, if approved by the shareholders at the Annual General
Meeting, of 1.525p per ordinary share will be paid on 31 January 2023 to
shareholders on the register of members at the close of business on 30
December 2022. This will take the total dividends for the year to 6.10p (2021:
6.025p(1)). The Company's shares will be traded ex-dividend on 29 December
2022.
(1) Comparative numbers for the year ended 30 September 2022 have been
restated due to the sub-division of each ordinary share of 25p into ten
ordinary shares of 2.5p each on 7 February 2022.
12. Annual Report
The Annual Report will be posted to shareholders in December 2022 and will be
available on the Company's website (www.lowlandinvestment.com
(http://www.lowlandinvestment.com) ).
13. Annual General Meeting
The Annual General Meeting will be held on 25 January 2023 at 12.30pm at 201
Bishopsgate, London EC2M 3AE. The Notice of Meeting will be sent to
shareholders with the Annual Report.
For further information please contact:
James Henderson Laura Foll
Fund Manager Fund Manager
Lowland Investment Company plc Lowland Investment Company plc
Telephone: 020 7818 4370 Telephone: 020 7818 6364
Dan Howe
Head of Investment Trusts
Janus Henderson Investors
Telephone: 020 7818 4458
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