TIDMLWI
RNS Number : 8342H
Lowland Investment Co PLC
08 December 2020
HERSON INVESTMENT FUNDS LIMITED
LOWLAND INVESTMENT COMPANY PLC
LEGAL ENTITY IDENTIFIER: 2138008RHG5363FEHV19
LOWLAND INVESTMENT COMPANY PLC
ANNUAL FINANCIAL RESULTS FOR THE YEARED 30 SEPTEMBER 2020
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 2020
-- Net Asset Value ('NAV') Total Return(1) of -24.8%
-- Benchmark Total Return of -16.6%(2)
-- Dividend growth of 0.8%
-- Dividend for the Year(3) of 60.0p
Year ended Year ended
30 September 30 September
2020 2019
---------------------------------------------- -------------- --------------
NAV per share at year end 1,031p 1,428p
Share price at year end (4) 914p 1,280p
Market capitalisation GBP247m GBP346m
Dividend per share [60.0p] (3) 59.5p
Ongoing charge including performance fee 0.66% 0.63%
Ongoing charge excluding performance fee 0.66% 0.63%
Dividend yield (5) 6.60% 4.60%
Gearing at year end 15.00% 12.80%
Discount at year end (6) 9.15% 9.10%
AIC UK Equity Income sector average discount 5.70% 4.50%
(1) NAV per share total return (including dividends
reinvested)
(2) The FTSE All-Share Index (including dividends
reinvested)
(3) Includes the final dividend of 15.0p per ordinary share for
the year ended 30 September 2020 that will be put to shareholders
for approval at the Annual General Meeting on Wednesday 27 January
2021
(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 fair value NAVs including current
year revenue
Sources: Morningstar for the AIC, Janus Henderson, Refinitiv
Datastream
Historical Performance
Total Net revenue Net asset
Dividend return/(loss) return per Total value per Share price
Year ended per ordinary per ordinary ordinary net assets ordinary per ordinary
30 September share (pence) share (pence) share (pence) (GBP'000) share (pence) share (pence)
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 (138.7) 68.0 385,904 1,428.3 1,280.0
--------------- ------------------- --------------- ------------ --------------- ---------------
2020 60.0(1) (336.9) 33.8 278,653 1,031.3 914.0
--------------- ------------------- --------------- ------------ --------------- ---------------
(1) Includes the final dividend of 15.0p per ordinary share for
the year ended 30 September 2020 that will be put to the
shareholders for approval at the Annual General Meeting on
Wednesday 27 January 2021
CHAIRMAN'S STATEMENT
Performance
Lowland's NAV declined by 24.8% during the year, and its share
price by a similar amount. These declines compare with a fall in
the Company's benchmark, the FTSE All-Share index, of 16.6%. The
Company has always taken a long-term view, but it is disappointing
that we need to look at the ten year period, as well as longer
periods, to see outperformance over the index. It is particularly
disappointing as the year started very well, and it looked as if
our multi-cap focus, with a bias towards modestly valued UK stocks,
was to be rewarded for patience. The unprecedented impact of the
COVID-19-19 pandemic hit the portfolio in March. The NAV having
been down 30.3% at the half year, saw modest recovery in the second
half.
The Fund Managers provide a detailed analysis of performance in
their report. Suffice it to observe here, that the underperformance
in absolute and relative terms was due predominantly to the effect
of the pandemic on the stocks held in our portfolio, exacerbated by
the effects of gearing. There have obviously been companies which
have benefitted from the consequences of the pandemic,
technology-driven international companies for instance; but our
portfolio consisted predominantly of companies which suffered from
the effects of the pandemic and governments' response to it. The
Fund Managers operate on a bottom-up stock selection basis, but the
two sectors in which we were materially overweight - Industrials
and Insurance - were disproportionately hit by the pandemic. In
particular, our exposure to insurance companies, and those related
to aerospace, was punished. While the Fund Managers have reassessed
their exposure to companies in these sectors, they remain confident
that the valuation of current holdings overly discounts their long
term prospects.
Consideration of strategy is intensified in times of difficulty.
Whereas some value-focused trusts have abandoned their historic
approach, we are persuaded to stick to our last, and convinced that
rewards will ensue.
Dividends
UK dividends are forecast to fall by about 40%, excluding
special dividends, in the 2020 calendar year. Small and
medium-sized companies have cut their dividends more aggressively
than larger companies. In the second calendar quarter of the year,
the worst period for dividend cuts, dividends paid by FTSE 100
companies fell 45% while dividends paid by small and medium-sized
companies fell by three quarters.
As a result of lower dividend receipts, Lowland's revenue
earnings per share fell from 68p in 2019, to 33.8p.
Lowland has pursued a progressive quarterly dividend policy
since 2013. At the half year stage, I said "Revenue reserves are
there for a rainy day. At present, it feels more like a
thunderstorm, and we will have to make a judgement on whether we
can maintain the policy. We are cognisant of shareholders' desire
for regular income and it is our firm intention to maintain the
policy if possible". It would be rash to forecast a speedy return
to clement weather conditions, although some companies have resumed
dividends where they had been suspended.
We will draw on our Revenue Reserves to fund a little under half
the proposed total dividend for this year. Revenue Reserves
declined from GBP18.4m (68.0p per share) to GBP11.3m (41.8p per
share) at the year end.
We will continue to monitor the dividend outlook very closely.
Our latest review concluded that, under a reasonable domestic
recovery scenario, we can return to almost covering the current
level of dividend in our 2022 financial year. If prospects appear
much worse than this, we may have to review our policy.
We propose to shareholders at the forthcoming AGM an unchanged
final dividend of 15.0p. This brings the total for the year to
60.0p, marginally higher than last year.
Investment Review and Gearing
Although net debt went down, from GBP45.6m at the beginning of
the year, to GBP42.6m at year end, as a percentage it increased
from 12.8% to 15.0% over the period. This reflects the reduction in
the value of the portfolio. Gearing amounted to GBP44.0 million, or
13.0%, on 4 December 2020.
The weighting of small, medium, and large companies has not
changed materially from last year. In terms of sector weightings,
Industrials and Financials remain the two largest positions.
Ongoing Charge and Fee Arrangements
The ongoing charge was 0.66% compared to the previous year's
0.63%.
As previously announced, from 1 October 2020 the performance fee
has been removed. This brings us into line with competing trusts in
our sector. The level at which the management fee drops from 0.5%
to 0.4% of net chargeable assets has also been reduced from GBP375m
to GBP325m.
We believe these fee arrangements, and the level of ongoing
charges, to be competitive.
Share price discount
During a volatile year, the Company traded briefly at a premium,
but on average at a discount of 7.0%, ending the year at a 9.2%
discount. The policy on discount is set out in the annual
report.
The Board
Karl Sternberg has indicated that he will step down between now
and the 2022 AGM, once the Board has agreed on a suitable
successor. Karl has been an outstanding Director, and is an example
of one whose contribution has been enhanced both by the duration of
his service and the experience gained from a wide range of other
activities. It is unfashionable to say this but his tenure, which
will amount to twelve years, has done nothing whatsoever to
diminish his independence; neither have his other activities
impinged remotely on his availability to fulfil his duties or his
enthusiasm in so doing. Our approach with regard to tenure, and to
ensure that our directors are not 'overboarded' in any meaningful
sense, is set out in the annual report. The Lowland Board has never
been fashion conscious; it is merely guided by shareholders'
interests.
I would like to thank Karl, on behalf of shareholders, and
fellow Directors, for his considerable contribution to the
Company.
An announcement as to his successor will be made in due
course.
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
While we normally look forward to seeing shareholders at our
AGM, the restrictions and limitations imposed by the pandemic mean
that this is unlikely to be possible in 2021. Instead, we will
broadcast the AGM via Zoom
https://jhi.zoom.us/webinar/register/WN_jO3n_WjSSDKtISvCXs3hNw on
27 January 2021. Voting on the resolutions will be conducted via
poll, and I strongly encourage you to vote using the proxy form
provided with the copy of this report. Please do sign up to
register for the AGM, so you can log on to hear from the Fund
Managers and ask any questions you may have of them or the
Board.
Outlook
Hopefully it is safe to believe that the US presidential
election has been resolved, and that the roll-out of vaccines will
enable the COVID-19 virus to be brought substantially under control
over the course of 2021. We shall know soon whether good sense from
the EU and the UK will prevail in bringing about an orderly Brexit.
The resolution of so much serious uncertainty should make us
optimistic. Reflecting a reversal of the pattern experienced during
the financial year, the Company's NAV has increased by 23.3%
compared with an increase of 13.3% in the benchmark since the year
end (both on a total return basis).
Whilst asset prices generally are at elevated valuations, the
exception is the UK equity market. Our approach to investment will
remain bottom-up, but in looking at the prospects for individual
companies, the prominence of macroeconomic challenges will be
unusually apparent. It is impossible to foresee how governments
will deal with the massive levels of debt incurred by their
reactions to the pandemic, and there are many differences between
this and the last severe recession. After the financial crisis, the
British and many other governments chose financial orthodoxy by
spending cuts to rebalance the books. This time around, governments
seem more inclined to respond with expansionary policies. Money
supply hardly grew after 2007, but is now growing at its fastest
rate since the 1980s. We struggle to understand whether inflation
can continue to lie fallow. We face the prospect of increasing
unemployment and bankruptcies. We cannot yet know which of these
contrary influences will prevail.
Assuming that the very immediate dangers which have preoccupied
the last months are overcome, markets' initial relief may soon be
displaced by a new focus on the more medium-term concerns of this
sort. Our Fund Managers do see considerable value in many parts of
the UK market but a bumpy ride looks assured.
Robert Robertson
Chairman
7 December 2020
FUND MANAGER'S REPORT
Background
The UK economy has shrunk materially, and as investors closely
linked to corporate UK, we have suffered. The underlying companies
we hold have significantly more of their earnings derived from the
UK than from overseas. This has helped the portfolio in periods
when the UK has grown well relative to other developed economies,
but not when the UK has substantially lagged. Contraction in
economic activity has been more marked in the UK than in other
major economies.
The virus came at a time of already large structural change in
the economy, and it has further accelerated the process. The move
in retailing from physical stores to online is a striking example.
It has meant older, established businesses with traditional
infrastructures have suffered disproportionately more than the new
businesses with less capital tied up in physical assets. A
portfolio that has a bias towards dividend-paying companies will
usually have more in the older cash generating stocks than in the
cash-consuming younger companies.
The fallout from COVID-19 also hit some industries much harder
than others, with aerospace and insurance being particularly
affected. The Lowland portfolio has a large exposure to both. The
UK has been a leader in both these industries with globally
recognised successful companies. The aerospace sector had been
growing faster than aggregate global economic growth for a number
of years, but the pandemic grounded around 80% of global fleets.
This has had a devastating effect on the industry; the fall-out
will take several years to remedy. In the insurance sector,
confusion over the level of business interruption risk that was
being covered, meant the liability was not being properly
recognised and the scale of the loss has been significantly bigger
than anticipated.
Good management teams are those which, when tested, can deal
with the unexpected. It has been impressive watching how many of
the companies held have dealt with the challenge of COVID-19. We
have made further investments in companies already in the portfolio
where management teams are tackling the problems they face and can
emerge from the downturn with a strong product (or service)
proposition. Many of these companies will also emerge to a more
subdued competitive environment and with a leaner cost base.
Performance Attribution
It was a very difficult year for performance, both on an
absolute basis and relative to the FTSE All-Share benchmark.
Before examining the reasons for underperformance at the stock
and sector level, it is worth noting the impact on net asset value
of gearing.
At the start of the financial year, gearing was 12.8%. Valuation
levels in the UK equity market were low relative to other developed
equity markets, and the UK market was substantially 'out of favour'
(prior to the UK General Election and clarity that Brexit was to
happen). Therefore, at the start of the year, it was our view that
the portfolio should be modestly geared to reflect a broad range of
attractive investment opportunities. The NAV performance in the
last quarter of the 2019 calendar year reflected our view of what
could happen if confidence returned to the UK market, and it was a
strong period for the portfolio (both on an absolute and relative
basis). However, at a time of material market weakness in the
Spring when the effects of the pandemic and the subsequent policy
response became evident, this gearing level materially detracted
from returns. We estimate gearing detracted 3.5% from net asset
value total return during the year.
At the sector level, the biggest detractor from relative returns
was the overweight position in the Industrials and Financials
sectors. However, in both cases the driver of negative returns was
predominantly stock selection, rather than sector allocation.
Therefore in examining the reasons for underperformance we are
focusing on stocks, rather than sectors. Trading conditions faced
by companies even in the same industry were very disparate, which
is a further reason for focusing on the stock-specific drivers of
performance.
The largest five holdings contributing to relative return:
Company Name Average weight Share price total Contribution
in portfolio return (%) to relative return
during the financial (%)
year (%)
Avon Rubber 1.4 157.4 1.4
---------------------- ------------------ --------------------
Ilika 0.6 303.0 0.8
---------------------- ------------------ --------------------
XP Power 1.1 85.7 0.8
---------------------- ------------------ --------------------
Phoenix Group 3.0 7.1 0.7
---------------------- ------------------ --------------------
Somero Enterprises 1.0 45.9 0.5
---------------------- ------------------ --------------------
Examining each in turn:
1. Avon Rubber. A provider of defence equipment (such as gas
masks and body armour). In recent years they have used selective
acquisitions and disposals to re-shape the portfolio. The valuation
rose to a materially higher level than where it had traded
historically and relative to defence peers, therefore the position
was reduced.
2. Ilika. A designer and manufacturer of solid state batteries,
with the potential for faster charging and longer battery life than
traditional batteries. This year Ilika made further progress
towards commercialisation, and the shares performed well as a
result.
3. XP Power. A designer and manufacturer of power converters for
a range of end-markets. Healthcare and semiconductor end markets
have proven resilient, offsetting weakness in industrial end
markets and allowing group earnings to continue to grow during
2020.
4. Phoenix Group. A closed book life insurer (life insurance
policies and pension funds that are in gradual run-off). It
continued to grow via selective acquisitions and benefitted from
its ability to continue to pay an attractive dividend yield
throughout the year, at a time when many companies reduced or
suspended dividend payments.
5. Somero Enterprises. A producer of concrete levelling
equipment for the commercial building industry. After initial
weakness in Spring, demand recovered strongly and recovered to
historic levels in their key North American market.
The largest five holdings detracting from relative return:
Company Name Average weight Share price Contribution
in portfolio total return to relative
during the financial (%) return (%)
year (%)
Senior 1.5 -76.0 -1.6
---------------------- -------------- -------------
Hiscox 1.9 -46.1 -0.8
---------------------- -------------- -------------
Hammerson 0.5 -96.1 -0.8
---------------------- -------------- -------------
International Personal
Finance 0.8 -58.1 -0.7
---------------------- -------------- -------------
Rolls-Royce 1.0 -83.5 -0.6
---------------------- -------------- -------------
Examining each in turn:
1. Senior. An engineering firm that produces equipment such as
structures for aeroplane wings and fluid transportation systems for
aerospace, industrial and energy markets. Approximately half of
group sales are exposed to the civil aerospace market, where
production cuts from Boeing and Airbus have meant material earnings
downgrades. With a large portion of the global aeroplane fleet
currently grounded, overcapacity in the market is likely to extend
for several years even as passenger demand recovers (which, in our
view, it will). This means profitability for Senior is likely to be
suppressed for several years. We reduced the position during the
period but we have maintained a small holding on a recovery in
earnings as the valuation is very low.
2. Hiscox. A global insurer that writes predominantly small- and
medium-sized business insurance. Among its coverage is business
interruption and event cancellation insurance, an area that has
seen highly contested claims as the insurance was not intended to
cover prolonged forced closures as a result of a pandemic. There
has recently been clarity on claims levels as a result of a test
case in the UK High Court. We modestly added to the holding during
the year in a placing by the company to ensure the balance sheet
could fund COVID-19 claims.
3. Hammerson. An owner and operator of prime retail assets in
the UK and Continental Europe. At a time when there was already a
structural shift in consumer spending to online, there was then a
forced closure of a material portion of their retail estate,
leading to low rental payments from tenants. Towards the end of the
financial year Hammerson undertook a rights issue (in which the
Company participated) and disposal of some properties in order to
re-set the balance sheet. In our view, there is a future for prime
retail assets in combination with online, allowing a coherent
multichannel offering for brands. However, in the short term, with
uncertainty as to the extent of enforced closures, the trading
outlook for retailers, and therefore the outlook for rents, remains
uncertain.
4. International Personal Finance. A provider of door-to-door
and digital lending. A wide range of regulatory changes (including
debt moratoria) were imposed across a number of end markets at the
beginning of the pandemic, leading to concerns of heightened bad
debts. While this effect has (so far) been manageable, there were
also concerns regarding the company's ability to refinance a
sizeable corporate bond which expires early in 2021. This
refinancing issue has, following the financial year end, been
resolved. The valuation of the company has modestly recovered but
remains low.
5. Rolls-Royce. A designer and manufacturer of engines. As with
Senior, approximately half of group sales are exposed to the civil
aerospace market. Therefore both aftermarket sales and new engine
sales have been materially impacted by reduced demand. Other
markets to which the group is exposed, such as defence, have been
more resilient and the management team have responded to the
downturn with material cost savings across the business.
The largest sector weighting within the portfolio remains
Financials. Within this, the portfolio has a substantial weighting
in insurance (both life and non-life insurance) with a relatively
low weighting in banks (4.3% of the portfolio as at the end of
September).
The second largest sector weighting is the Industrials sector.
Aerospace & defence, having been a large subsector weighting in
the portfolio over many years, remains a small overweight position
versus the benchmark, but at an aggregate level is now modest at
3.5% of the portfolio (versus 6.5% at the end of the previous
financial year). This reduction in exposure to aerospace &
defence is a combination of reducing positions held in companies
such as Senior and Rolls-Royce, and underperformance of the
subsector as a result of weakness in the civil aerospace
market.
Historically the Company has held a material weighting in
Insurance and Industrials on the view that the two sectors provide
diversification benefits; the insurance industry follows the
underwriting cycle, while industrial companies broadly follow the
economic cycle. This year has been exceptionally unusual in that
the same underlying event (COVID-19) has materially impacted the
earnings of both sectors. In insurance, as described in the
portfolio attribution sector, writers of business interruption
insurance (such as Hiscox and RSA) faced an uncertain claims
backdrop as a result of forced business closures. These claims
costs have recently been clarified following a test case in the
High Court. In industrials, what began as a supply shock (with
industrial facilities forced to close early in calendar 2020 to
prevent localised outbreaks), swiftly became a demand shock, with
particularly acute demand weakness in end markets such as civil
aerospace and energy. This demand weakness led to material earnings
downgrades across much of the Industrials sector, although there
remained some resilient areas such as healthcare and
semiconductors.
The Company continues to hold a sizeable weighting in the
Industrials and Financials sectors. Following the Financial Crisis
the Industrials sector performed well, as sales recovered and the
drop-through from sales to earnings surprised positively. We are
expecting similar dynamics when sales recover from the current
downturn. Industrial companies are currently focused on cost
savings; several companies held have accelerated cost reduction
plans that would have taken up to three years, to 12-18 months. In
many cases these are permanent savings, such as closing
manufacturing sites. Therefore when sales recover (it is a 'when'
in our view, rather than an 'if'), the drop-through to earnings
could again surprise positively, at a time when valuations (on a
lower earnings level) are low. For the Insurance sector, following
several years of high natural catastrophe losses and subsequently
high claims as a result of COVID-19, this is driving a hardening of
the market with material price rises across a number of lines. This
hardening market comes at a time when valuations are low. Therefore
we continue to hold the positions in both areas.
Portfolio Activity
The largest new positions purchased during the year fall broadly
into two categories; companies which are well placed to continue
growing their earnings (and dividends) irrespective of the
progression of the pandemic, and companies where a return to
'normal' trading conditions is not, in our view, factored into the
current valuation.
Among the largest purchases in the former category were Tesco
and Hipgnosis Songs Fund. Tesco is guiding to 'at least' flat
retail profits year on year, with higher costs as a result of
COVID-19 being offset by higher like-for-like sales growth as food
consumption shifts from restaurants to eating at home. Tesco
continues to be the market leader in the UK and has substantially
reduced the debt on its balance sheet. This leaves it well placed
to return a material portion of its cash generation to
shareholders. Hipgnosis Songs Fund is an investment trust which
purchases back catalogues of songs from song writers. They have so
far purchased catalogues from a variety of well known artists. The
music industry, having been in decline for many years as a result
of piracy and the decline of CD purchases, has recently returned to
growth as a result of streaming services such as Spotify. This
streaming growth, which in our view is a structural shift in the
way music is consumed, should continue largely independent of the
broader economic backdrop. Therefore the over 4% dividend yield
currently paid by Hipgnosis should prove defensive with good scope
to grow.
A number of new positions were also purchased in companies where
earnings have been materially impacted by the pandemic, but where
we can see a clear path to sales and earnings recovery as trading
conditions normalise. These companies have often temporarily
suspended their dividend, but we are purchasing positions at what
we think will prove to be an attractive dividend yield when
dividends resume. Among the largest purchases in this area were new
positions in retailers Marks & Spencer and Halfords. Marks
& Spencer is a company that we have historically avoided within
the portfolio; it has ceded market share for many years in clothing
and as a result group earnings have struggled to grow. However,
there are two aspects of the investment case that have recently
changed; a new management team (led by new Chairman Archie Norman)
and a joint venture with Ocado. Under a new management team they
have begun to address many of their legacy issues, including their
store estate and an (at times) bewilderingly large number of
similar items. The partnership with Ocado allows their food
division to move online, potentially allowing material scale
benefits in bringing their (historically successful) food division
to a larger end-market. Halfords was a new purchase in February,
that was subsequently increased once the effects of the pandemic
became clearer. Under a new management team it has improved both
its consumer proposition (for example a materially improved
website) and its focus on return on capital. On a short-term basis
it has also benefitted from strong trading in its cycling
division.
Among the sales during the period were pub operator Greene King,
medical device manufacturer Consort Medical, clothing retailer Moss
Bros and building materials company Low & Bonar, all of which
were sold following takeover approaches. Other large reductions
included defence equipment manufacturer Avon Rubber (where the
remainder of the position was sold shortly after the year end) and
Royal Dutch Shell. Avon Rubber had been in the portfolio for over
fifteen years, progressing from a supplier of milking equipment to
the dairy industry to a strategic supplier to the US Department of
Defense (providing protective equipment such as gas masks). Fifteen
years ago the share price was GBP2.14; the final sale just after
the period end was at GBP43.99 and there have been many dividends
received in addition. This achievement is a testament to both the
current and previous management teams that have undertaken
selective acquisitions at sensible valuations to grow the earnings
materially while maintaining a strong balance sheet.
Royal Dutch Shell was reduced both prior to and following the
two thirds dividend cut announced this year. The reason for the
reduction was that it became clear the company had been
historically over-distributing; cash spent on its dividend relative
to its capital expenditure had been gradually rising over a number
of years and it was also becoming increasingly indebted. Other
material reductions included textile rental company Johnson Service
Group and restaurant crockery designer and manufacturer Churchill
China. In both cases they are market leaders in the UK, with well
invested facilities, experienced management teams and a history of
strong organic growth. However, both are materially exposed to the
hospitality industry, which has been very badly impacted by a
prolonged period of closure during 'lockdown' and a subsequent slow
recovery in trading activity.
Dividends
At the peak of uncertainty in Spring this year, UK dividends
were cut at an unprecedented rate. In the second quarter of 2020,
UK dividend payments fell 50% (excluding special dividends), with
steeper cuts among small and medium sized companies, where dividend
payments fell by three quarters. Dividend cuts were most pronounced
among cyclical sectors including Financials, while in more
defensive sectors payments continued largely unaffected.
For Lowland specifically, earnings per share (including special
dividends) fell 50% during the financial year. While the portfolio
was less affected than the broader market by large company dividend
cuts (such as Royal Dutch Shell, BP and HSBC, where we hold
comparatively less than the FTSE All-Share benchmark), the
portfolio holds more in small and medium sized companies, where
companies (generally at an earlier stage in their life cycle and
more exposed to the domestic economy) were quicker to suspend their
dividend. A number of the non-life insurers held (such as Hiscox,
RSA and Direct Line), also suspended their dividend because of an
uncertain claims outlook, although some (such as Direct Line and
Aviva), have subsequently resumed payments.
Since the peak period of dividend cuts in the second quarter,
there has been an encouraging trend of companies returning to
paying dividends across a broad range of sectors. Examples of this
include paper and packaging company Mondi, defence equipment
provider BAE Systems and industrial engineer IMI.
Our approach to the dividend trajectory for the Company has been
to model investment income under a reasonable domestic recovery
scenario out to FY22 (the financial year starting September 2021),
in order to determine whether earnings per share can realistically
recover to the point where it can cover the dividend payment. Based
on what we view as reasonable (and in some cases conservative)
assumptions regarding dividend payments, we think earnings per
share can recover to near their historic trajectory.
Outlook
Since the majority of this statement was written, the US
election has taken place and Pfizer, Moderna and AstraZeneca have
released promising initial trial results from their COVID-19-19
vaccines. This has (at least to a degree) removed two key
uncertainties, leaving our future trading relationship with the EU
as the remaining overhang on the UK equity market. The Company's
net asset value has responded positively to news of a vaccine. As
at the close of business on Friday 4 December, the Company's NAV
(on a total return basis) had risen 23.3% since the financial year
end, while the FTSE All-Share rose 13.3% over the same period. In a
reversal of the pattern described in the attribution section of
this report, the best performing shares since year end have been
those most positively exposed to a 're-opening' of the domestic and
global economy. Despite the recent move upwards in equity prices we
continue to see excellent value opportunities across the UK equity
market as we look ahead into 2021.
The UK economy could see a strong recovery from 2021 onwards as
the spending deferred during lockdown 'kicks in' on consumer and
business confidence returning. The result could be a rapid
improvement in corporate margins as sales recover. However, it is
important to remain mindful that the debt taken in the pandemic by
governments and companies needs to be paid back over time. The
long-term implications of the pandemic on economic life will need
to be worked through over an extended period.
James Henderson and Laura Foll
Fund Managers
7 December 2020
Twenty Largest Holdings as at 30 September 2020
The stocks in the portfolio are a diverse mix of businesses
operating in a wide range of end markets.
Rank Company % of Approx. Valuation
2020 portfolio market 2020
(2019) cap GBP'000
GlaxoSmithKline
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 turnaround what
has been a mixed research and development
1 (2) track record. 4.1 GBP73bn 13,141
----------------------------------------------- ----------- ---------- ----------
2 (3) Phoenix 3.6 GBP4.9bn 11,509
The company operates primarily in
the UK and specialises in taking over
and managing closed life insurance
and pension funds.
----------------------------------------------- ----------- ---------- ----------
3 (8) Severn Trent 2.9 GBP5.8bn 9,146
A UK water utility with a well invested
network and strong track record on
operational performance. There is a
good dividend yield with scope to grow.
----------------------------------------------- ----------- ---------- ----------
4 (14) National Grid 2.3 GBP31.2bn 7,267
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.
----------------------------------------------- ----------- ---------- ----------
Prudential
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.
5 (6) . 2.2 GBP28.9bn 7,209
----------------------------------------------- ----------- ---------- ----------
6 (19) Direct Line 2.2 GBP3.6bn 7,004
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.
----------------------------------------------- ----------- ---------- ----------
7 (10) Relx 2.1 GBP33.2bn 6,904
The company publishes information
for the scientific, medical, legal
and business sectors serving customers
worldwide. The company is a consistent,
high quality growth business.
----------------------------------------------- ----------- ---------- ----------
8 (1) Royal Dutch Shell 2.1 GBP113bn 6,670
The company explores, produces and
refines oil; it produces fuels, chemicals
and lubricants as well as operating
filling stations worldwide. The company
has reduced their cost base to adapt
to a lower oil price. While the dividend
has recently been re-based, the dividend
yield remains attractive and the dividend
has scope to grow.
----------------------------------------------- ----------- ---------- ----------
9 (4) Hiscox 1.9 GBP3.1bn 6,178
The international insurance company
manages underwriting syndicates and
underwrites a range of personal and
commercial insurance. The company is
a disciplined underwriter and has over
the long-term achieved a high return
on capital. On a shorter term basis
shares have performed poorly due to
an uncertain claims backdrop in business
interruption insurance during the pandemic.
----------------------------------------------- ----------- ---------- ----------
10 (*) Rio Tinto 1.8 GBP75.5bn 5,819
A diversified mining company with exposure
to commodities including iron ore, copper
and aluminium. Their mines are well
positioned on the global cost curve,
allowing strong cash generation even
in a volatile commodity price backdrop.
The shares pay an attractive dividend
yield.
----------------------------------------------- ----------- ---------- ----------
11 (*) Morgan Advanced Materials 1.8 GBP679m 5,653
A designer and producer of specialist
materials and components for a range
of end markets including transportation,
semiconductors, healthcare and general
industry. Under a new management team
the business has invested in research
& development and the results are beginning
to be evident in improved organic growth
and margins.
----------------------------------------------- ----------- ---------- ----------
12 (16) Irish Continental (1) 1.6 GBP529m 5,298
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 an uncertain trading relationship
between the UK and the EU. However,
they continue to be a well managed
business operating in a duopolistic
industry.
----------------------------------------------- ----------- ---------- ----------
Henderson Opportunities Trust
An investment Trust focused primarily
on UK smaller companies, managed by
James Henderson and Laura Foll. The
portfolio has little cross-over with
Lowland and brings diversification to
the portfolio through its exposure to
earlier stage, often lower yielding,
13 (*) smaller UK companies. 1.6 GBP68m 5,196
----------------------------------------------- ----------- ---------- ----------
14 (*) Pennon 1.6 GBP4.3bn 5,155
A UK water utility with a well invested
network. The shares have benefitted
from the disposal of Viridor, Pennon's
waste management business, to private
equity at what was perceived to be a
high valuation.
----------------------------------------------- ----------- ---------- ----------
15 (20) Aviva 1.6 GBP11.2bn 5,000
This company provides a wide range
of insurance and financial services.
Under a new CEO there is a heightened
focus on simplifying the business and
exiting peripheral geographies.
----------------------------------------------- ----------- ---------- ----------
16 (*) Mondi 1.5 GBP8.0bn 4,919
A vertically integrated producer of
paper and packaging products. They are
well positioned on the cost curve across
the products they produce, allowing
strong cash generation and attractive
margins.
----------------------------------------------- ----------- ---------- ----------
17 (5) HSBC 1.5 GBP61.4bn 4,763
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.
----------------------------------------------- ----------- ---------- ----------
18 (9) Standard Chartered 1.5 GBP11.2bn 4,732
The international banking group operates
principally in Asia, Africa and the
Middle East. The management team has
focused the bank on areas of relative
strength in growing markets.
----------------------------------------------- ----------- ---------- ----------
19 (*) Hill & Smith 1.4 GBP948m 4,495
An engineering firm operating in the
US and UK that produces materials for
infrastructure, along with galvanising
services. Their products and services
are positively exposed to the commitment
of both the UK and US governments to
grow infrastructure spending.
----------------------------------------------- ----------- ---------- ----------
20 (*) FBD (1) 1.4 GBP276m 4,358
An Irish insurer with a focus on the
agricultural sector, as well as writing
motor and business insurance. The shares
have performed poorly in the short term
because of business interruption claims
as a result of the pandemic. On a longer
term basis they are disciplined underwriters
and the balance sheet is strong.
----------------------------------------------- ----------- ---------- ----------
40.7 130,416
----------------------------------------------- ----------- ---------- ----------
At 30 September 2020 these investments totalled GBP130,416,000
or 40.7% of portfolio.
* Not in the top twenty largest investments last year
1 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,
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 the annual report.
The Board has also considered the impact of the COVID-19
pandemic on the Company. Originally identified as an emerging risk,
the pandemic developed significantly and swiftly, triggering sharp
falls in global stock markets and resulting in uncertainty about
the ongoing impact on markets and companies, and around future
dividend income. The risks associated with the pandemic were
therefore removed from emerging risks into one of the principal
risks facing the Company.
Principal risks Mitigating measure
Global pandemic The Fund Managers maintain close
The impact of the coronavirus oversight of the Company's portfolio,
pandemic on the Company's investments and in particular its gearing
and its direct and indirect levels, and the performance
effects, including the effect of investee companies. Regular
on the global economy. stress testing of the revenue
account under different scenarios
for dividends is carried out.
The Board monitors the effects
of the pandemic on the operations
of the Company and its service
providers to ensure that they
continue to be appropriate,
effective and properly resourced
.
----------------------------------------
Investment activity and strategy The Board manages these risks
risk by ensuring a diversification
An inappropriate investment of investments and a regular
strategy or poor execution, review of the extent of borrowings.
for example, in terms of asset Janus Henderson operates in
allocation or level of gearing, accordance with investment limits
may result in underperformance and restrictions and policy
against the Company's benchmark determined by the Board, which
index and the companies in its includes limits on the extent
peer group, and also in the to which borrowings may be employed.
Company's shares trading on
a wider discount to the net The Board reviews the investment
asset value per share. limits and restrictions on a
regular basis and the Manager
confirms adherence to them every
month. Janus Henderson provides
the Board with management information,
including performance data and
reports and shareholder analyses.
The Board monitors the implementation
and results of the investment
process with the Fund Managers
at each Board meeting and monitor
risk factors in respect of the
portfolio.
Investment strategy is reviewed
at each meeting.
----------------------------------------
Portfolio and market price The Board reviews the portfolio
Although the Company invests at the five Board meetings held
almost entirely in securities each year and receives regular
that are listed on recognised reports from the Company's brokers.
markets, share prices may move A detailed liquidity report
rapidly. The companies in which is considered on a regular basis.
investments are made may operate
unsuccessfully, or fail entirely. The Fund Managers closely monitor
A fall in the market value of the portfolio between meetings
the Company's portfolio would and mitigate this risk through
have an adverse effect on equity diversification of investments.
shareholders' funds. The Fund Managers periodically
present the Company's investment
strategy in respect of current
market conditions. Performance
relative to the FTSE All-Share
Index, and other UK equity income
trusts is also monitored.
----------------------------------------
Dividend income The Board reviews income forecasts
A reduction in dividend income at each meeting. The Company
could adversely affect the Company's has revenue reserves of GBP11.3
dividend record. million (before payment of the
third interim and final dividend)
and distributable capital reserves
of GBP265.6 million.
----------------------------------------
Financial risk The Company minimises the risk
The financial risks faced by of a counterparty failing to
the Company include market price deliver securities or cash by
risk, interest rate risk, liquidity dealing through organisations
risk, currency risk and credit that have undergone rigorous
and counterparty risk. due diligence by Janus Henderson.
The Company holds its liquid
funds almost entirely in interest
bearing bank accounts in the
UK or on short-term deposit.
This, together with a diversified
portfolio which comprises mainly
investments in large and medium-sized
listed companies mitigates the
Company's exposure to liquidity
risk. Currency risk is mitigated
by the low exposure to overseas
stocks. Please see note 14 in
the annual report.
----------------------------------------
Gearing risk At the point of drawing down
In the event of a significant debt, gearing will never exceed
or prolonged fall in equity 29.99% of the portfolio valuation.
markets gearing would exacerbate
the effect of the falling market The Company minimises the risk
on the Company's NAV per share by the regular monitoring of
and, consequently, its share the levels of the Company's
price. borrowings in accordance with
the agreed limits. The Company
confirms adherence to the covenants
of the loan facilities on a
monthly basis.
----------------------------------------
Tax and regulatory The Manager provides its services,
Changes in the tax and regulatory inter alia, through suitably
environment could adversely qualified professionals and
affect the Company's financial the Board receives internal
performance, including the return control reports produced by
on equity. the Manager on a quarterly basis,
which confirm legal and regulatory
A breach of s.1158/9 could lead compliance. The Fund Managers
to a loss of investment trust also consider tax and regulatory
status, resulting in capital change in their monitoring of
gains realised within the portfolio the Company's underlying investments.
being subject to corporation
tax. A breach of the Listing
Rules could result in suspension
of the Company's shares, while
a breach of the Companies Act
2006 could lead to criminal
proceedings, or financial or
reputational damage.
----------------------------------------
Operational The Board monitors the services
Disruption to, or failure of, provided by the Manager and
the Manager's or its administrator's its other suppliers and receives
(BNP Paribas Securities Services) reports on the key elements
accounting, dealing or payment in place to provide effective
systems or the Depositary's internal control.
records could prevent the accurate
reporting and monitoring of Cyber security is closely monitored
the Company's financial position. and the Audit Committee receives
Cyber crime could lead to loss an annual presentation from
of confidential data. The Company Janus Henderson's Head of Information
is also exposed to the operational Security.
risk that one or more of its
suppliers may not provide the Details of how the Board monitors
required level of service. the services provided by Janus
Henderson and its other suppliers
and the key elements designed
to provide effective internal
control are explained further
in the Internal Controls section
of the Corporate Governance
Statement in the annual report.
----------------------------------------
Emerging risks
In addition to the principal risks facing the Company, the Board
also regularly considers potential emerging risks, which are
defined as potential trends, sudden events or changing risks which
are characterised by a high degree of uncertainty in terms of the
probability of them happening and the possible effects on the
Company. Should an emerging risk become sufficiently clear, it may
be moved to a significant risk, as described above in relation to
the coronavirus pandemic.
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 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
impact of the COVID-19 pandemic and the UK's ongoing negotiations
having left the European Union, 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.
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
7 December 2020
INCOME STATEMENT
Year ended 30 September Year ended 30 September
2020 2019
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 (note 2) - (98,742) (98,742) - (54,206) (54,206)
Income from investments
(note 3) 11,124 - 11,124 20,640 - 20,640
Other interest receivable
and similar income (note
4) 128 - 128 121 - 121
Gross revenue and capital
losses 11,252 (98,742) (87,490) 20,761 (54,206) (33,445)
Management fee (835) (836) (1,671) (983) (983) (1,966)
Administrative expenses (547) - (547) (539) - (539)
Net return/(loss) before
finance costs and taxation 9,870 (99,578) (89,708) 19,239 (55,189) (35,950)
Finance costs (594) (593) (1,187) (669) (670) (1,339)
Net return/(loss) before
taxation 9,276 (100,171) (90,895) 18,570 (55,589) (37,289)
Taxation on net return (144) - (144) (205) - (205)
Net return/(loss) after
taxation 9,132 (100,171) (91,039) 18,365 (55,859) (37,494)
Return/(loss) per ordinary
share
- basic and diluted (note
5) 33.8p (370.7p) (336.9p) 68.0p (206.7p) (138.7p)
===== ===== ===== ===== ===== =====
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
up share premium redemption Other capital Revenue
Year ended capital account reserve reserves reserve Total
30 September 2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ---------- ----------- ------------ ------------------- ----------- -----------
At 1 October 2019 6,755 61,619 1,007 298,139 18,384 385,904
Net (loss)/return after
taxation - - - (100,171) 9,132 (91,039)
Third interim dividend
(15.0p) for the year
ended 30 September 2019
paid 31 October 2019 - - - - (4,053) (4,053)
Final dividend (15.0p)
for the year ended 30
September 2019 paid
31 January 2020 - - - - (4,053) (4,053)
First interim dividend
(15.0p) for the year
ended 30 September 2020
paid 30 April 2020 - - - - (4,053) (4,053)
Second interim dividend
(15.0p) for the year
ended 30 September 2020
paid 31 July 2020 - - - - (4,053) (4,053)
--------- ---------- ---------- ----------- ---------- ----------
At 30 September 2020 6,755 61,619 1,007 197,968 11,304 278,653
===== ===== ===== ====== ===== ======
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
===== ===== ===== ====== ===== ======
STATEMENT OF FINANCIAL POSITION
As at 30 September As at 30 September
2020 2019
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) 256,935 351,431
Listed at market value on AIM 48,425 65,428
Listed at market value overseas 12,695 15,906
Unlisted 2,495 2,422
----------- -----------
320,550 435,187
----------- -----------
Current assets
Debtors 2,424 1,710
Cash at bank 3,232 2,008
----------- -----------
5,656 3,718
----------- -----------
Creditors : amounts falling due within
one year (17,772) (23,222)
----------- -----------
Net current liabilities (12,116) (19,504)
----------- -----------
Total assets less current liabilities 308,434 415,683
Creditors: amounts falling due after
one year (29,781) (29,779)
----------- -----------
Net assets 278,653 385,904
======= =======
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 197,968 298,139
Revenue reserve 11,304 18,384
----------- -----------
Total shareholders' funds 278,653 385,904
======= =======
Net asset value per ordinary share
- basic and diluted 1,031.3p 1,428.3p
======= =======
STATEMENT OF CASH FLOWS
Year ended Year ended
30 September 30 September
2020 2019
GBP'000 GBP'000
-------------------------------------------- -------------- --------------
Cash flows from operating activities
Net loss before taxation (90,895) (37,289)
Add back: finance costs 1,187 1,339
Add: losses on investments held at
fair value through profit or loss 98,742 54,206
Withholding tax on dividends deducted
at source (177) (282)
Decrease in other debtors 814 386
(Decrease)/increase in other creditors (784) 1,159
----------- -----------
Net cash inflow from operating activities 8,887 19,519
Cash flows from investing activities
Purchase of investments (53,045) (51,677)
Sale of investments 67,917 54,923
----------- -----------
Net cash inflow from investing activities 14,872 3,246
Cash flows from financing activities
Equity dividends paid (net of refund
of unclaimed distributions and reclaimed
distributions) (16,212) (15,536)
Net loans repaid (5,109) (5,342)
Interest paid (1,207) (1,344)
----------- -----------
Net cash outflow from financing activities (22,528) (22,222)
----------- -----------
Net increase in cash and cash equivalents 1,231 543
Cash and cash equivalents at start
of year 2,008 1,445
Effect of foreign exchange rates (7) 20
----------- -----------
Cash and cash equivalents at end
of year 3,232 2,008
======= =======
Comprising:
Cash at bank 3,232 2,008
----------- -----------
3,232 2,008
======= =======
Cash inflow from dividends net of taxation was GBP11,713,000
(2019: GBP20,564,000).
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 October 2019.
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. The Directors have also considered the impact of COVID-19,
including cash flow forecasting, a review of covenant compliance
including the headroom above the most restrictive covenants and
an assessment of the liquidity of the portfolio. 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 issuance. Having
assessed these factors, the principal risks and other matters discussed
in connection with the viability statement, the Directors considered
it appropriate to adopt the going concern basis of accounting in
preparing the financial statements.
.
Losses on Investments held at fair value through 2020 2019
2. profit or loss GBP'000 GBP'000
------------ ------------
(Losses)/gains on the sale of investments based
on historical cost (2,753) 13,452
Less: revaluation gains recognised in previous
years (4,313) (11,057)
----------- -----------
(Losses)/gains on investments sold in the year
based on carrying value at previous Statement of
Financial Position date (7,066) 2,395
Revaluation losses on investments held at 30 September (91,669) (56,621)
Exchange (losses)/gains (7) 20
---------- ----------
(98,742) (54,206)
====== ======
2020 2019
3. Income from Investments GBP'000 GBP'000
---------- ----------
UK dividends:
Listed investments 9,493 16,682
Unlisted 49 69
Property income dividends 169 442
--------- ---------
9,711 17,193
--------- ---------
Non UK dividends:
Overseas dividend income 1,413 3,447
--------- ---------
1,413 3,447
--------- ---------
11,124 20,640
===== =====
2020 2019
4. Other Interest Receivable and Similar Income GBP'000 GBP'000
-------------------------- ----------
Stock lending commission 121 112
Income from underwriting 5 5
Bank interest 2 4
--------- ---------
128 121
===== =====
At 30 September 2020 the total value of securities on loan by the
Company for stock lending purposes was GBP21,774,000 (2019: GBP74,715,000).
The maximum aggregate value of securities on loan at any time during
the year ended 30 September 2020 was GBP74,214,000 (2019: GBP118,213,000).
The Company's agent holds collateral comprising FTSE 100 stocks,
gilts, overseas equities and overseas government bonds with a collateral
value of GBP22,937,000 (2019 GBP78,772,000) amounting to a minimum
of 105% (2019: minimum 105%) of the market value of any securities
on loan. Stock lending commission has been shown net of brokerage
fees of GBP30,000 (2019: GBP28,000).
5. Return per Ordinary Share - Basic and Diluted
The loss per ordinary share is based on the net loss attributable
to the ordinary shares of GBP91,039,000 (2019: GBP37,494,000) and
on 27,018,565 ordinary shares (2019: 27,018,565) being the weighted
average number of ordinary shares in issue during the year. The loss
per ordinary share can be further analysed between revenue and capital,
as below.
2020 2019
GBP'000 GBP'000
------------------ ------------------------
Net revenue return 9,132 18,365
Net capital loss (100,171) (55,859)
--------- ---------
Net total loss (91,039) (37,494)
===== =====
Weighted average number of ordinary shares in
issue during the year 27,018,565 27,018,565
2020 2019
Pence Pence
Revenue return per ordinary share 33.8 68.0
Capital loss per ordinary share (370.7) (206.7)
---------- ----------
Total loss per ordinary share (336.9) (138.7)
====== ======
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
2020 2019
Dividends on ordinary shares Record date Payment date GBP'000 GBP'000
---------------------------------- --------------- ------------------- ---------- ----------
Third interim dividend (14.0p)
for the year ended 30 September 4 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
2019 5 April 2019 30 April 2019 - 3,918
Second interim dividend (15.0p)
for the year ended 30 September
2019 5 July 2019 31 July 2019 - 4,053
Third interim dividend (15.0p)
for the year ended 30 September 4 October 31 October
2019 2019 2019 4,053 -
Final dividend (15.0p) for the 3 January 31 January
year ended 30 September 2019 2020 2020 4,053 -
First interim dividend (15.0p)
for the year ended 30 September
2020 3 April 2020 30 April 2020 4,053 -
Second interim dividend (15.0p)
for the year ended 30 September 4,053 -
2020 3 July 2020 31 July 2020
--------- ---------
16,212 15,536
===== =====
The third interim dividend and the final dividend for the year ended
30 September 2020 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.
2020
GBP'000
----------
Revenue available for distribution by way of dividend for
the year 9,132
First interim dividend (15.0p) for the year ended 30 September
2020 (4,053)
Second interim dividend (15.0p) for the year ended 30 September
2020 (4,053)
Third interim dividend (15.0p) for the year ended 30 September
2020 (4,053)
Final dividend (15.0p) for the year ended 30 September 2020
(based on 27,018,565 ordinary shares in issue at 7 December
2020) (4,053)
---------
Revenue surplus (7,080)
=====
7. Called up Share Capital
Number of Nominal value
shares entitled Total number of shares
to dividend of shares GBP'000
----------------------- ----------------- ------------- --------------
At 30 September 2019 27,018,565 27,018,565 6,755
----------- ----------- -----------
At 30 September 2020 27,018,565 27,018,565 6,755
The Company issued no ordinary shares during the year (2019: nil).
8. Net Asset Value per Ordinary Share
The net asset value per ordinary share of 1,031.3p (2019: 1,428.3p)
is based on the net assets attributable to the ordinary shares of
GBP278,653,000 (2019: GBP385,904,000) and on 27,018,565 (2019: 27,018,565)
shares in issue on 30 September 2020.
The movements during the year of the assets attributable to the ordinary
shares were as follows:
2020 2019
GBP'000 GBP'000
---- ---------------------------------------------------- ------------- ------------
Total net assets at start of year 385,904 438,934
Total net loss after taxation (91,039) (37,494)
Net dividends paid in the year: (16,212) (15,536)
----------- -----------
Net assets attributable to the ordinary shares
at 30 September 278,653 385,904
====== ======
9. 2020 Financial Information
The figures and financial information for the year ended 30 September
2020 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 2020 have
been audited but have not yet been delivered to the Registrar of Companies.
The Independent Auditor's Report on the 2020 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. 2019 Financial Information
The figures and financial information for the year ended 30 September
2019 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 29 January
2021 to shareholders on the register of members at the close of business
on 29 December 2020. This will take the total dividends for the year
to 60.0p (2019: 59.5p). The Company's shares will be traded ex-dividend
on 24 December 2020.
12. Annual Report
The Annual Report will be posted to shareholders in December 2020
and will be available on the Company's website ( www.lowlandinvestment.com
).
13. Annual General Meeting
The Annual General Meeting will be broadcast on 27 January 2021 at
3.30 p.m. by zoom webinar. 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.
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END
FR TRBPTMTTMBBM
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December 08, 2020 02:00 ET (07:00 GMT)
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