Annual Financial Report

RNS Number : 0288V

Lowland Investment Co PLC

08 December 2021

 

LOWLAND INVESTMENT COMPANY PLC

ANNUAL FINANCIAL RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2021

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 2021

· Net Asset Value ('NAV') Total Return¹ of 51.0%

· Benchmark Total Return² of 27.9%

· Dividend growth of 0.4%

· Dividend for the Year³ of 60.25p

	Year ended 30 September 2021	Year ended 30 September 2020
NAV per share at year end (debt at par) 4	1,459p	1,031p
NAV per share at year end (debt at fair value) 4	1,446p	1,006p
Share price at year end 5	1,315p	914p
Market capitalisation	£355m	£247m
Dividend per share	60.25p 3	60.0p
Ongoing charge including Performance Fee 6	n/a	0.7%
Ongoing charge excluding Performance Fee	0.6%	0.7%
Dividend yield 7	4.6%	6.6%
Gearing at year end	13.8%	15.0%
Discount at year end 8	9.1%	9.2%
AIC UK Equity Income Sector Average Discount	3.9%	5.7%

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 15.25p per ordinary share for the year ended 30 September 2021 that will be put to shareholders for approval at the Annual General Meeting on Wednesday 26 January 2022

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  The performance fee was removed from the management agreement with effect from 1 October 2020

⁷  Based on dividends paid and payable in respect of the financial year and the share price at the year end

⁸  Calculated using year end fair value NAVs including current year revenue

Sources: Morningstar for the AIC, Janus Henderson, Refinitiv Datastream

Historical Performance

	1 year	3 years	5 years	10 years	25 years
Net asset value	51.0	2.6	23.6	154.5	883.4
Share price	53.3	1.8	23.4	153.2	912.0
FTSE All-Share	27.9	9.5	29.8	119.2	379.0

Year ended 30 September	Dividend per ordinary share  (pence)	Total return/(loss) per ordinary share (pence)	Net revenue return per ordinary share (pence)	Total net assets (£'000)	Net asset value per ordinary share (pence)	Share price per ordinary share (pence)
2011	28.00	68.3	28.8	214,251	811.0	762.5
2012	30.50	229.9	31.1	266,401	1,008.4	991.5
2013	34.00	330.1	36.7	347,202	1,306.9	1,325.0
2014	37.00	73.3	39.4	361,856	1,345.6	1,355.0
2015	41.00	11.8	46.4	354,563	1,318.4	1,287.0
2016	45.00	156.4	47.7	386,910	1,432.0	1,336.5
2017	49.00	243.2	49.1	439,896	1,628.1	1,504.0
2018	54.00	47.4	58.6	438,934	1,624.6	1,515.0
2019	59.50	(138.7)	68.0	385,904	1,428.3	1,280.0
2020	60.00	(336.9)	33.8	278,653	1,031.3	914.0
2021	60.25 1	487.9	42.7	394,285	1,459.3	1,315.0

¹ Includes the final dividend of 15.25p per ordinary share for the year ended 30 September 2021 that will be put to the shareholders for approval at the Annual General Meeting on Wednesday 26 January 2022

 

CHAIRMAN'S STATEMENT

Performance

I am delighted to report that Lowland's performance in the year was very satisfactory, both in absolute terms and compared to the FTSE All-Share index, which is our benchmark. Net Asset Value rose by 51.0% against a rise of 27.9% in the index. The share price outstripped both these increases, rising 53.3%, all on a total return basis.

The previous year had started well but our portfolio was particularly exposed to the effects of COVID-19, a number of holdings in the industrials and financials sectors being severely punished. The rapid economic recovery which stemmed from the successful vaccination programme resulted in exposure to precisely these cyclical sectors being rewarded. Taking the two years together our NAV increased by 13.5%, almost exactly double the 6.7% increase in the index again, both on a total return basis. To borrow a sporting expression, I think we would have 'taken' such an outcome, had it been offered early in the pandemic. It vindicates the Fund Managers' calm response to the crisis, and belief that there remained value within the market.

Two themes are worthy of comment. Firstly, one year's detractors were in many cases the following year's top contributors. Senior, heavily exposed to the aviation sector, is an example of a company widely but prematurely written off. The unexpected speed of recovery of demand has led many companies to recover sales and earnings to near pre-pandemic levels, and return to paying dividends. Secondly, the level of interest from foreign investors has given rise to some exit opportunities, but also underlines the lowly valuation of the UK market, described by one senior observer as approaching pariah status.

Dividends

Earnings per share rose by 26% to 42.7p, although still well below the 68.0p recorded in 2019. This recovery reflects the performance of portfolio companies, as mentioned above, and to a degree the fact that Lowland has been a net investor over the year. The Fund Managers explain in their report their expectation that, barring unforeseen shocks, investment income will continue to rise towards the levels pertaining pre-pandemic.

Since the start of the pandemic, we have cautiously maintained that we would seek to stick by our quarterly progressive dividend policy, always with a weather eye as to whether dividends would recover to their previous level in a reasonable time frame. The Board is proposing a final dividend of 15.25p, compared with 15.00p last year. If approved, this will give rise to total dividends for the year of 60.25p, a very slight increase on last year's 60.00p. In proposing this course of action, the Board is convinced that it can be pursued without prejudice to the investment policy, especially avoiding chasing income at the expense of total return. We are also cognisant that Revenue Reserves amounted to £6.7m at the year-end, which is less than the amount of the third interim and final dividend, totalling £8.2m, payable after 30 September. This will result in the use of £1.5m from Capital Reserves, which amounted to £271.2m at the year-end.

We recognise that one of the many advantages an investment trust presents, compared with alternative investment vehicles, is that it can provide investors with a progressive flow of income. Our large number of retail investors value this characteristic, which is in considerable contrast with the experience of investing in the UK equity income open-ended fund sector, which on average reduced pay-outs by over 25% in 2020. We therefore will aspire to maintain our progressive quarterly dividend policy, which may require further limited drawings on our Capital Reserves.

Investment review and gearing

A further advantage of an investment trust is that it may use borrowing to finance the portfolio. During the year we increased net borrowings from £42.6m to £54.9m, although with asset values rising, gearing reduced in percentage terms, from 15% to 13.8%. Lowland has available medium-term facilities of £40m (with an option to borrow a further £20m) and £30m 3.15% Loan Notes due in 2037. This long-term debt has been more expensive than short-term debt, since it was raised in 2017, but we value a balance of short- and long-term borrowings, the latter offering protection against a potential rise in rates.

Lowland has always invested in small, medium and large companies. Added to the balance which this gives the portfolio, the Fund Managers are now also classifying investments by 'bucket', each bucket being characterised by factors such as income, growth, recovery and so on. We hope that their report will help shareholders understand the underlying nature of the portfolio, and also see how it is structured with a mind to providing a combination of income and growth.

I draw your attention to the section in the Investment Managers' report which illustrates the part ESG plays in the investment process, as well as the new Environmental, Social and Governance section in the Strategic Report. At its simplest the importance of environmental, social and governance issues to risk management is blindingly obvious, even if the manner in which it is sometimes reported does not always so suggest. There is nothing fundamentally new in terms of the banana skins companies face if they don't get it right. An environmental disaster from a mining company, exploitative practices in a clothing company, or a governance lapse in any company are straightforward examples of own goals which face the unwary. Something which is relatively new, and becoming more important, is the opportunity to invest in companies which will benefit from the increased focus on environmental and societal considerations in the world at large.

Ongoing charge

The ongoing charge was 0.6% relative to the previous year's 0.7%. The main element of costs is the Management Fee which was renegotiated with effect from the beginning of the 2021 financial year. It amounts to 0.5% on Net Chargeable assets up to £325m and 0.4% thereafter. We believe this is competitive and will result in the ongoing charge ratio declining as the portfolio grows.

Share price discount

During the year the discount to cum income, fair value NAV fluctuated between 0.5% and 10.0%, ending the year at 9.1%. The policy on discount is set out in the Annual Report.

The Board

I mentioned last year that Karl Sternberg planned to step down from the Board, which he has now done. I shall not repeat my sincere and profound thanks to Karl for his contribution.

In my Interim Statement I mentioned Helena Vinnicombe's appointment to the Board, and I am glad to report that she has now attended her first physical meeting, as well as several virtual meetings! I do hope we are able to introduce her in person at the AGM, rules permitting.

I would mention that your Board has been more than usually active during the pandemic, meeting frequently on an ad hoc basis as the crisis unfolded. The Fund Managers claim that they found the rigour of active discussion of strategy helpful at these challenging times.

The Board's robust approach to its own governance issues, such as ensuring that its own members are independent, that there is a balance of continuity and refreshment, and that Directors have adequate time to devote to the Company's affairs, is set out in the Annual Report.

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: [e-mail]

Proposed share split

We are always keen to receive feedback from our shareholders and a recurring suggestion in recent years has been undertaking a share split, given the optically high share price. We are cognisant, for example, that many of our shareholders use dividend reinvestment plans, and a lower share price would mean less surplus cash at the point of dividend reinvestment. We are therefore proposing a resolution at the AGM to approve sub-dividing each ordinary share of 25p into 10 ordinary shares of 2.5p each. The Board believe this to be in the best interests of shareholders. Further details can be found in the circular convening this year's AGM.

Annual General Meeting ('AGM')

We are pleased, subject to further guidance, to be able to return to an 'in person' AGM this year. The AGM will be held at the offices of Janus Henderson on 26 January 2022 at 12.30 pm. Full details of the business to be conducted at the meeting are set out in the Notice of Meeting which has been sent to shareholders with this report.

As usual our Fund Managers will be making a presentation. This is an important opportunity for shareholders to meet the Board and Fund Managers and to ask them questions. We would encourage as many shareholders as possible to attend; we welcome your questions and observations. The AGM will be broadcast live on the internet, so if you are unable to attend the AGM in person you will be able to log on to watch as it happens, by visiting www.janushenderson.com/en-gb/investor/investment-trusts-live/

Outlook

The question posed at the end of last year's report, of how long inflation might lie fallow, has been answered, with the Retail Price Index (RPI) rising by 4.9% for the year ending 30 September. Questions now are how much, how long; how will authorities react and what will be the influence on our investment universe. Against this background, and the renewed uncertainties caused by the Omicron variant,  the recent stall in the performance of the Company's NAV, and the market in general, is not surprising. Since the year-end there has been no material movement in the company's NAV, share price or discount, or in the benchmark.

Portfolio companies face conflicting influences. On the one hand demand for their products and services is broadly strong. On the other, there are material supply chain and cost pressures as the economy re-opens. As ever Lowland's portfolio is managed on a stock by stock basis, and for the most part companies in which we are invested are market leaders or among the market leaders, with the pricing power to pass on the effects of higher costs. These have historically been the best hedge against higher inflation environments.

We believe that there is value in much of the UK market, certainly by comparison with almost all other markets. We think there continues to be value in our portfolio, and opportunity to invest further.

Robert Robertson

Chairman

8 December 2021

 

FUND MANAGER'S REPORT

Background

The twelve months to the end of September were a period of strong returns for Lowland's portfolio. This is a welcome return to good performance as we recognise the three year performance has been challenging. The portfolio fortunes have been closely linked to the performance of the UK economy. This is because the portfolio companies in aggregate derive more of their earnings from the UK than the average company in the FTSE All-Share index. The opening up of the economy following the peak of the pandemic and the Brexit deal brought about a return of some investor confidence. This sparked a pick-up in proposed and actual corporate takeover activity, with the portfolio benefitting from deals such as RSA being purchased by a consortium and Senior successfully rebutting a private equity bid approach. The takeovers came predominantly from overseas buyers as UK company share prices have generally lagged other major markets. The valuation of UK companies appears to be at bargain levels, particularly for US buyers. The reasons for this lie in uncertainties created by Brexit and a lack of the newer technology companies in the UK. This meant global investors have shunned UK assets. The Brexit deal and an economic recovery has partially countered these concerns.

Lowland maintains a large exposure to the UK economy because this is where very good opportunities can be found as the valuations for good quality companies are undemanding.  The small and medium sized companies are overall more UK centric than the major constituents of the market, which means that the UK exposure will be higher than the index.

Performance Attribution

As is always the case with performance numbers, the starting point makes a huge difference to the end outcome. Lowland's financial year (starting on 1 October 2020) captured the full benefit of the positive COVID-19 vaccination trials, starting with Pfizer in early November. This led to a material recovery in cyclical sectors, such as industrials and financials, to which Lowland's portfolio has a significant exposure. In some cases, however, the strong recovery in share prices in 2021 needs to be seen in the context of recovering from very low levels during the pandemic. This is particularly the case for companies exposed to the most impacted areas, such as civil aerospace. For this reason, in the tables of top five and bottom five contributors and detractors from performance, we have included two year share price total return so that share prices can also be seen relative to their pre-pandemic level.

At the sector level, the largest contributor to relative performance was industrials. This was driven predominantly by stock selection rather than asset allocation. The key drivers of this positive stock selection included Senior, Redde Northgate, Somero Enterprises, Morgan Advanced Materials, Tyman and Clarkson. While they share little commonality of end markets, with the exception of Senior all saw a good recovery in sales following the pandemic.

The top five contributors to relative return (not including underweight positions) were:

Company Name	Contribution to relative return (%)	1 year share price total return (%)	2 year share price total return (%)
K3 Capital	1.5	154	146
Senior	1.4	287	(7)
Redde Northgate	1.0	126	34
Somero Enterprises	0.9	121	226
International Personal Finance	0.8	202	27

Examining each in turn:

1.  K3 Capital was initially purchased at IPO in April 2017 for 95p (the share price at Lowland's financial year-end was £3.53). The position has been added to several times following the IPO, including in fund raisings where we supported the company in acquiring complementary businesses. Initially a corporate broking business based in Bolton, the business has grown successfully and now spans R&D tax credits and restructuring services as well. In our view the business has considerable further scope for sales and earnings growth, led by an ambitious management team.

2.  Aerospace components designer and manufacturer Senior has been held in the portfolio for over ten years. While it was a good performer in the years following the financial crisis, on a three year and five year basis the company is one of the largest detractors from performance. This was driven initially by the Boeing 737 Max grounding (to which Senior supplied components that were unrelated to the crashes), and subsequently by COVID-19's impact on the civil aerospace industry. In the last financial year the shares recovered well from their pandemic lows, supported by a takeover approach from private equity firm Lone Star (that was rejected by the Senior Board).

3.  Redde Northgate was initially purchased for the portfolio (as Redde) in April 2017. It then merged with flexible van hire firm Northgate in early 2020, with the former Redde CEO as the group CEO. As a combined business it has over-delivered on its cost savings targets and it is making tentative but promising early progress in sales synergies. Despite its recent good performance the valuation remains low relative to the broader UK market and it pays an attractive dividend yield.

4.  Somero Enterprises (which makes equipment for the construction industry) has been held in the portfolio for over ten years and has been one of the best long-term performers. While its sales can be volatile (as it requires construction companies to have the confidence to buy a relatively expensive piece of 'kit'), sales and earnings have grown well over the long-term and it is a highly cash generative business.

5.  International Personal Finance has been in the portfolio for over ten years and has been a detractor from performance over the long-term. It provides digital and door to door lending in a range of emerging markets including Eastern Europe and Mexico. While it has performed poorly over its period of ownership, in our view this stems largely from unforeseen regulatory changes in some geographies rather than mismanagement. In the last financial year the shares recovered well from their lows driven by lower loan losses than initially feared (a trend seen across many lenders) and a successful refinancing of a large corporate bond that matured in Spring 2021. We continue to hold the position as we see the valuation as attractive and we see good potential for future earnings growth, driven in particular by their digital lending offering.

The largest five detractors from relative return (not including underweight positions) were:

Company Name	Contribution to relative return (%)	1 year share price total return (%)	2 year share price total return (%)
Phoenix Group	(0.8)	1	8
Severn Trent	(0.6)	11	31
4D Pharma	(0.6)	(61)	(40)
Hiscox	(0.5)	(5)	(49)
Pennon Group	(0.4)	9	42

Three of the largest five detractors from relative performance are in defensive industries (including life insurance and utilities) where consumer demand does not decrease or increase as much as the market and these underperformed in a sharply rising market. We will therefore focus on the two companies where the share prices fell during the financial year and that have been disappointing long term performers; early stage drug developer 4D Pharma and non-life insurer Hiscox. In the case of 4D Pharma the position was sold in late 2020 as clinical trials were not progressing at the speed at which we initially expected when the position was established. Hiscox underperformed on ongoing concerns regarding heightened claims inflation impacting returns. The nature of these claims concerns has shifted; prior to the pandemic there were concerns regarding rising litigation costs, particularly in the US. This then moved onto business interruption and events cancellation claims during the pandemic. More recently concerns have emerged around non-life insurers more broadly in a rising inflation environment. We continue to hold a position in Hiscox as in our view the potential for future earnings growth from increasing insurance coverage of US smaller companies outweighs shorter term concerns regarding claims inflation.

Portfolio Positioning

The portfolio will always be a blend of faster growing smaller companies and more stable, cash generative larger companies. A company in a faster growth, earlier phase of its life cycle should command a higher valuation than one which is more established and growing at a slower, more consistent rate. Different portions of the portfolio need, therefore, to be viewed through different valuation lenses. For this reason we have divided the portfolio into six classifications, listed below. The aim of these classifications is not to fundamentally change the way the portfolio is managed, but rather to ensure diversity within the portfolio and clarity for shareholders:

Classification	Description	Indicative Range (%)	Exposure (%)	Example holdings
Small cap growth	These are companies that could be substantially bigger in time if their technology reaches full commercialisation. They are there for capital growth purposes and to provide diversification for the broader portfolio. With few exceptions they do not currently pay a dividend, nor are they likely to on a medium-term time horizon.	0-10	3	IP Group, Ilika, Oxford Sciences Innovation
Small and mid cap compounders	These are the core of the portfolio and are the key differentiator, along with small cap income, of Lowland versus large company focused income portfolios. These are companies with higher potential sales and earnings growth than the small cap income category, with a corresponding lower dividend yield (but with more potential for dividend growth).	25-40	33	K3 Capital, Morgan Advanced Materials, Direct Line
Small cap income	These are companies that fall outside of the remit of large cap income funds and small cap growth managers, where we can add value by paying close attention. They are well managed, cash generative businesses with modest earnings growth potential. They will often be the market leader in their specialist area. They will normally pay an attractive dividend yield with modest scope to grow.	5-15	8	Redde Northgate, Finsbury Food, Epwin
Large cap compounders	This category has higher potential sales and earnings growth than the large cap income category, with a corresponding lower dividend yield.	10-20	14	Relx, Anglo American, Prudential
Large cap income	These are large, established companies and would have the greatest crossover with other large-cap focused UK income funds. They are well managed, often market leaders with modest potential for sales and earnings growth. They pay an attractive dividend yield with modest scope to grow.	20-35	28	Royal Dutch Shell, Phoenix, Severn Trent
Recovery	These are companies where there are well known and well understood issues, but where we think the problems are more than discounted in the current share price.	5-15	13	Senior, FBD, Irish Continental

Portfolio Activity

It was an active year for the portfolio in which 14 new positions were purchased and 17 were sold. We were net investors during the year of approximately £6.9m, as we continued to find attractive valuation opportunities across the UK equity market.

Within larger companies, a sector that was added to meaningfully was banks, where we added to existing positions in Natwest, Lloyds and HSBC as well as a new position in Barclays. The additions to the banking sector, where we have been cautious in the period since the financial crisis, was driven by a combination of top-down and bottom-up reasons. From a bottom-up perspective, valuations remain low relative to history and balance sheets are well positioned following a period of building up surplus capital. From a top-down perspective, as economies recover from the pandemic this should lead to a recovery in loan demand from businesses and consumers. The banking sector could also be a beneficiary if interest rates begin to rise from their exceptionally low current levels.

Within smaller and medium sized companies, the largest new positions added were Jupiter Fund Management, Reach (a newspaper publisher, formerly Trinity Mirror), Serica Energy (a North Sea oil & gas producer) and Finsbury Food (a producer of speciality breads and cakes). All of these companies are well managed, cash generative businesses but trade at a valuation discount to the broader UK market because of a 'question mark' around their capacity for future sales and earnings growth. In our view this valuation discount more than reflects the issues and we can see a realistic likelihood of future earnings growth. For example, Reach could grow group earnings by better monetising its online content, Serica Energy could acquire additional North Sea assets funded from its strong balance sheet (and is a beneficiary of rising UK gas prices), Finsbury Food will benefit from a reopening of food service channels following the pandemic and Jupiter Fund Management could see a return to net inflows on better sentiment towards UK and European equities.

Two of the largest sales during the year were driven by takeover activity; St Modwen Properties was taken over by private equity and RSA was taken over by a consortium of peers. Elsewhere sales were, in some cases, driven by share prices reaching what we deemed to be fair value. This was the case with Avon Protection, Secure Income REIT, Croda, HICL Infrastructure and Ten Entertainment. In some cases sales were driven by industry fundamentals deteriorating or the investment thesis not progressing as planned. This was the case with the small position in Cineworld, which was sold as during the pandemic films were increasingly released straight to online platforms (such as Disney+); a trend that we had a concern would continue following the pandemic.

Dividends

2021 was a much more positive year for investment income than 2020. Compared to 33.8p in revenue earnings per share in 2020, earnings per share rose to 42.7p. Both of these numbers need to be considered in the context of 68.0p revenue earnings per share in 2019.  Therefore, while dividends have recovered well, they remain significantly below pre-COVID levels.

The key drivers of dividend growth in 2021 were the banking sector (where dividends recovered from near zero levels in 2020 following a suspension of dividends by the regulator), the mining sector as a result of high commodity prices, and a broader resumption of dividends from cyclical industries that reduced or suspended dividends during the peak of the pandemic. Investment income was also helped by the rise in net asset value of the Company allowing us to be net investors during the year while remaining within our historic average 'low to mid teens' percentage gearing level.

Looking into 2022, our forecasts suggest (barring unforeseen circumstances) a further modest rise in investment income from 2021 levels. This is because approximately 17% of the portfolio did not pay a dividend in the 2021 financial year, and we expect the majority of these zero dividend payers to return to paying in the current financial year. Examples of companies where we expect dividends to resume imminently include Irish insurer FBD, Finsbury Food and BT Group.

While we expect a further rise in investment income in FY22, our forecasts do not indicate a return to the 2019 level. Part of the reason for this is that we have seen some companies (particularly smaller and medium sized companies) rebase their dividend payout ratios during the pandemic. These companies are not currently indicating that they intend to return to their higher historic payouts, therefore there is a portion of the portfolio that will (all else being equal) pay a lower dividend yield than it has historically. In the majority of cases we support company boards with this decision. Company life cycles are in many cases compressing, some companies needing to retain more to stay at the forefront of their industry, whether through organic investment or selective acquisitions.  It remains our strongly held view that investment income should be an 'output' from the portfolio rather than the driver of investment decisions.

Environmental, social and governance (ESG) considerations

ESG factors are important not only as a standalone objective in order to allocate the capital of the Company to companies with the most responsible and sustainable practices. It is also crucial for us as Fund Managers to identify the key opportunities and risks for any companies either held in or under consideration for the portfolio. Our approach does not extend to the exclusion of specific sectors (such as fossil fuels); we address the reasons why in more detail below. It continues to be our view that engagement is more conducive to change than exclusion.

There are three core principles of incorporating environmental, social and governance factors into the Lowland investment process:

1. Identifying investment opportunities. Within Lowland we seek to identify companies with underappreciated opportunities for sustainable sales and earnings growth. The drivers of this sustainable growth could include environmental or societal factors; for example, the need to decarbonise the global economy is driving demand for alternative energy sources.

2. Identifying material risks. Identifying material ESG risks is an implicit part of the investment process. While identification of a material environmental, social or governance risk does not necessarily preclude ownership within the portfolio, it will be an important consideration when determining position size and appropriate valuation level. Companies which have material ESG risks identified should be actively seeking to address these issues and show evidence of progress; if no progress is evident we would not own the company. Progress is monitored by use of both third-party data sources (such as Sustainalytics) as well as engagement with the company management team. Engagement will be led by either the Fund Managers or the experienced Janus Henderson Governance and Responsible Investment ('GRI') team.

3. Active engagement and upholding strong governance standards. We take our responsibilities as stewards of investors' capital seriously and seek to engage with companies thoughtfully on executive remuneration, where possible always vote at AGMs, and encourage high standards of corporate governance (such as Board diversity). Janus Henderson subscribes to independent proxy voting advisers. In situations where the adviser recommends voting against, the GRI team alongside the Fund Managers will assess whether they agree with the recommendation, with the final voting decision made by the Fund Managers. In our view a company's board and senior executive remuneration policy needs to be appropriately struck relative to both its peers (on a domestic and global basis) and (increasingly) relative to its broader employee base. There needs to be a defensible logic to how corporate remuneration levels have been set.

Examples of applying each of the three core principles:

1.  Identifying investment opportunities:

·Ilika (a producer of solid state batteries) - there is a need for non-flammable, faster charging and longer charge retention battery technology. Ilika is seeking to address this by developing and manufacturing solid state batteries for use across a range of applications (such as healthcare, industry and, over the long-term, electric vehicles). Their technology remains at an early stage of commercialisation, but the need for better battery technology driven by (in some cases) the transition away from fossil fuels means potential end markets are large.

·Ricardo (an environmental consultant) - as companies across a broad range of industries commit to achieving net zero, there is a need for a specialist consultant to help companies plan out and achieve these goals. Ricardo work across a range of industries including automobiles, the public sector, defence and utilities to help companies achieve their environmental goals. In our view the need to decarbonise the global economy will be a helpful tailwind to Ricardo's sales and earnings growth.

2.  Identifying material risks:

·Royal Dutch Shell and BP - both Royal Dutch Shell and BP continue to generate the majority of their earnings from fossil fuels. Therefore as the world gradually transitions towards lower carbon energy sources there is a question mark surrounding durability of earnings and cash generation. In our view fossil fuels will form a necessary part of the energy transition, with renewable energy sources currently lacking the scale to wholly replace fossil fuels on a short or medium term time horizon. In this transition period, there continues to be a need for fossil fuels to provide the world's energy requirements. These fossil fuel sales are providing Shell and BP with the cash generation to spend meaningful sums (in both absolute terms and as a proportion of their total capital expenditure) transitioning towards renewable energy. In our view the valuation of Royal Dutch Shell and BP (measured on metrics such as free cash flow generation), combined with their meaningful investment in renewable or lower carbon energy sources, means they merit a place in a portfolio.

3.  Active engagement and upholding strong governance standards:

·  ISS (an independent proxy voting adviser to which Janus Henderson subscribes) recently recommended voting against the AstraZeneca remuneration policy and performance share plan. We compared the potential CEO remuneration under the proposed policy with global pharmaceutical peers and found the policies not to be an outlier. This, combined with the strong long-term performance of AstraZeneca relative to peers and the successful and low-cost COVID vaccine, meant that in our view the package was appropriately struck with a defensible logic. We therefore voted in favour of both the remuneration policy and performance share plan.

Outlook

There are large structural changes happening in the economy. The move away from fossil fuels, the changes in work practices brought about by COVID and the long-term consequences of the UK leaving the EU will lead to fundamental changes in the UK economy. For companies these changes present both challenges and opportunities. It is a very exciting time to observe business models being rethought. As investors in this time of extreme change we need to keep with a relatively long list of diverse holdings in large, medium and small companies. The speed of change is such that some companies will fail to adapt fast enough, while others will grow into substantial businesses if they are supplying excellent and required goods or services.

As well as the large structural changes, the era of ultra-low interest rates might be ending as inflationary pressures build. For instance, the move to a lower carbon economy will require substantial investment across much of the economy. During this period there will be transitional costs as new technologies reach commercial scale. These inflationary pressures will be a challenge for economic policy makers for the foreseeable future. The companies that succeed in a period of rising inflation are those that have a differentiated offering that allows them to increase prices, so as to counter supply price increases and preserve margins. Companies that can do this are a very good hedge against inflation.

The portfolio is not centred around a dominant macroeconomic view. It is built up of businesses that we expect to be able to deal with the circumstances they find because they have flexible and dynamic management teams.

James Henderson and Laura Foll

Fund Managers

8 December 2021

 

Twenty Largest Holdings as at 30 September 2021

The stocks in the portfolio are a diverse mix of businesses operating in a wide range of end markets.

Rank 2021 (2020)	Company	% of portfolio	Approx. market cap	Valuation 2021 £'000
1 (8)	Royal Dutch Shell A vertically integrated oil & gas company. At the current oil price the company is capable of generating substantial amounts of free cash flow. This cash is being allocated partly to shareholders (via a growing dividend and share buyback) and partly to investing in the necessary transition away from fossil fuels.	2.6	£137.9bn	11,567
2 (1)	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 track record.	2.5	£71.7bn	11,297
3 (2)	Phoenix The company operates primarily in the UK and specialises in taking over and managing closed life insurance and pension funds.	2.4	£6.6bn	10,797
4 (3)	Severn Trent 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.	2.2	£6.7bn	9,765
5 (5)	Prudential The company provides an assortment of insurance and investment products around the world, with a particular focus on fast growing Asian markets.	2.1	£40.2bn	9,454
6 (*)	K3 Capital 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.	2.1	£250.9m	9,276
7 (7)	Relx The company publishes information for the scientific, medical, legal and business sectors serving customers worldwide. The company is a consistent, high quality growth business.	1.9	£40.1bn	8,588
8 (11)	Morgan Advanced Materials 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 and development and the results are beginning to be evident in improved organic growth and margins.	1.9	£991.7m	8,550
9 (*)	BP 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.	1.8	£72.0bn	8,336
10 (6)	Direct Line 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.	1.8	£3.8bn	8,109
11 (15)	Aviva This company provides a wide range of insurance and financial services. Under a new CEO there is heightened focus on simplifying the business and exiting peripheral geographies.	1.8	£15.3bn	7,918
12 (*)	Vodafone 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.	1.7	£30.5bn	7,612
13 (17)	HSBC The global bank provides international banking and financial services. The diversity of the countries it operates in as well as its exposure to faster growing economies make it well placed.	1.7	£90.5bn	7,527
14 (*)	Redde Northgate The company provides flexible vehicle hire and fleet management services. The company was formed via a merger in 2020 and has performed well as a combined business.	1.7	£968.4m	7,453
15 (*)	Senior An engineering company which designs and manufactures components for sectors including aerospace, trucks and energy. The civil aerospace market has been suppressed during the pandemic but the company has managed costs well and is well placed to benefit as the market recovers.	1.6	£671.1m	7,233
16 (4)	National Grid A regulated utility (electricity and gas distribution) operating in the US and UK. The regulated asset base has good scope to grow in both the US and the UK. The shares pay an attractive dividend yield.	1.6	£33.0bn	7,224
17 (*)	Anglo American 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.	1.6	£38.0bn	7,081
18 (12)	Irish Continental1 The group provides passenger transport, roll-on and roll-off freight transport and container services between Ireland, the UK 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.	1.6	£683.0m	6,980
19 (*)	M&G The company was originally spun out of Prudential in 2019, and provides a range of investment and insurance products in the UK market. The company pays an attractive dividend yield to shareholders.	1.5	£5.1bn	6,922
20 (*)	Natwest The company is one of the leading retail and commercial lenders in the UK. Since the financial crisis the balance sheet has been materially improved and the business has largely returned to its original focus on domestic lending. The company's earnings would benefit from any rise in UK interest rates.	1.4	£26.5bn	6,519
				168,208

At 30 September 2021 these investments totalled £168,208,000 or 37.5% of portfolio.

* Not in the top twenty largest investments last year

1 Overseas listed stocks (Ireland)

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 the Annual Report.

The Board has considered the impact of the COVID-19 pandemic on the Company.  The pandemic developed significantly and swiftly in 2020, 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 are therefore considered one of the principal risks facing the Company.

Principal risks	Mitigating measure
Global pandemic The impact of the coronavirus pandemic on the Company's investments and its direct and indirect effects, including the effect on the global economy.	The Fund Managers maintain close oversight of the Company's portfolio, and in particular its gearing levels, and the performance of investee companies. Regular 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 risk An inappropriate investment strategy or poor execution, for example, in terms of asset allocation or level of gearing, may result in underperformance against the Company's benchmark index and the companies in its peer group, and also in the Company's shares trading on a wider discount to the net asset value per share.	The Board manages these risks by ensuring a diversification of investments and a regular review of the extent of borrowings. Janus Henderson operates in accordance with investment limits and restrictions and policy determined by the Board, which includes limits on the extent to which borrowings may be employed. The Board reviews the investment limits and restrictions on a regular basis and the Manager confirms adherence to them every month. Janus Henderson provides the Board with management information, including performance data and reports and shareholder analyses. The Board monitors the implementation and results of the investment process with the Fund Managers at each Board meeting and monitors risk factors in respect of the portfolio. Investment strategy is reviewed at each meeting.
Portfolio and market price Although the Company invests almost entirely in securities that are listed on recognised markets, share prices may move rapidly. The companies in which investments are made may operate unsuccessfully, or fail entirely. A fall in the market value of the Company's portfolio would have an adverse effect on equity shareholders' funds.	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 report is considered on a regular basis. 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 A reduction in dividend income could adversely affect the Company's dividend record.	The Board reviews income forecasts at each meeting. The Company has revenue reserves of £6.7 million (before payment of the third interim and final dividend) and distributable capital reserves of £271.2 million.
Financial risk The financial risks faced by the Company include market price risk, interest rate risk, liquidity risk, currency risk and credit and counterparty risk.	The Company minimises the risk of a counterparty failing to deliver securities or cash by dealing through organisations that have undergone rigorous due diligence by Janus Henderson. The Company holds its liquid funds almost entirely in interest bearing bank accounts in the UK or on short-term deposit. This, together with a diversified portfolio which comprises mainly investments in large and medium-sized 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 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.	At the point of drawing down debt, gearing will never exceed 29.99% of the portfolio valuation. 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 Changes in the tax and regulatory environment could adversely affect the Company's financial performance, including the return on equity. 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.	The Manager provides its services, inter alia, through suitably qualified professionals and the Board receives internal control reports produced by the Manager on a quarterly basis, which confirm legal and regulatory compliance. The Fund Managers also consider tax and regulatory change in their monitoring of the Company's underlying investments.
Operational Disruption to, or failure of, the Manager's or its administrator's (BNP 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 one or more of its suppliers may not provide the required level of service.	The Board monitors the services provided by the Manager and its other suppliers and receives reports on the key elements in place to provide effective internal control. Cyber security is closely monitored and the Audit Committee receives an annual 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

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 with the European Union following its departure from 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 out 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 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.

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

8 December 2021

 

INCOME STATEMENT

	Year ended 30 September 2021			Year ended 30 September 2020
	Revenue return £'000	Capital return £'000	Total £'000	Revenue return £'000	Capital return £'000	Total £'000
Gains/(losses) on investments held at fair value through profit or loss (note 2)	-	121,353	121,353	-	(98,742)	(98,742)
Income from investments (note 3)	13,591	319	13,910	11,124	-	11,124
Other interest receivable and similar income (note 4)	93	-	93	128	-	128
Gross revenue and capital gains/(losses)	13,684	121,672	135,356	11,252	(98,742)	(87,490)
Management fee	(811)	(811)	(1,622)	(835)	(836)	(1,671)
Administrative expenses	(658)	-	(658)	(547)	-	(547)
Net return/(loss) before finance costs and taxation	12,215	120,861	133,076	9,870	(99,578)	(89,708)
Finance costs	(584)	(585)	(1,169)	(594)	(593)	(1,187)
Net return/(loss) before taxation	11,631	120,276	131,907	9,276	(100,171)	(90,895)
Taxation on net return	(93)	-	(93)	(144)	-	(144)
Net return/(loss) after taxation	11,538	120,276	131,814	9,132	(100,171)	(91,039)
Return/(loss) per ordinary share  - basic and diluted (note 5)	42.7p	445.2p	487.9p	33.8p	(370.7p)	(336.9p)
	=====	=====	=====	=====	=====	=====

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

Year ended 30 September 2021	Called up share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Other capital reserves £'000	Revenue reserve £'000	Total £'000
At 1 October 2020	6,755	61,619	1,007	197,968	11,304	278,653
Net return after taxation	-	-	-	120,276	11,538	131,814
Third interim dividend (15.0p) for the year ended 30 September 2020 paid 30 October 2020	-	-	-	-	(4,053)	(4,053)
Final dividend (15.0p) for the year ended 30 September 2020 paid 29 January 2021	-	-	-	-	(4,053)	(4,053)
First interim dividend (15.0p) for the year ended 30 September 2021 paid 30 April 2021	-	-	-	-	(4,053)	(4,053)
Second interim dividend (15.0p) for the year ended 30 September 2021 paid 30 July 2021	-	-	-	-	(4,053)	(4,053)
Return of unclaimed dividends					30	30
	---------	----------	----------	-----------	----------	----------
At 30 September 2021	6,755	61,619	1,007	318,244	6,660	394,285
	=====	=====	=====	======	=====	======

Year ended 30 September 2020	Called up share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Other capital reserves £'000	Revenue reserve £'000	Total £'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
	=====	=====	=====	======	=====	======

STATEMENT OF FINANCIAL POSITION

	As at 30 September 2021 £'000	As at 30 September 2020 £'000
Fixed assets
Investments held at fair value through profit or loss:
Listed at market value in the United Kingdom	355,306	256,935
Listed at market value on AIM	74,696	48,425
Listed at market value overseas	15,962	12,695
Unlisted	2,868	2,495
	-----------	-----------
	448,832	320,550
	-----------	-----------
Current assets
Debtors	1,625	2,424
Cash at bank	7,976	3,232
	-----------	-----------
	9,601	5,656
	-----------	-----------
Creditors: amounts falling due within one year	(34,357)	(17,772)
	-----------	-----------
Net current liabilities	(24,756)	(12,116)
	-----------	-----------
Total assets less current liabilities	424,076	308,434
Creditors: amounts falling due after one year	(29,791)	(29,781)
	-----------	-----------
Net assets	394,285	278,653
	=======	=======
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	318,244	197,968
Revenue reserve	6,660	11,304
	-----------	-----------
Total shareholders' funds	394,285	278,653
	=======	=======
Net asset value per ordinary share - basic and diluted	1,459.3p	1,031.3p
	=======	=======

STATEMENT OF CASH FLOWS

	Year ended 30 September 2021 £'000	Year ended 30 September 2020 £'000
Cash flows from operating activities
Net return/(loss) before taxation	131,907	(90,895)
Add back: finance costs	1,169	1,187
Add: (gains)/losses on investments held at fair value through profit or loss	(121,353)	98,742
Withholding tax on dividends deducted at source	(96)	(177)
(Increase)/decrease in other debtors	(359)	814
Decrease in other creditors	(42)	(784)
	-----------	-----------
Net cash inflow from operating activities	11,226	8,887
Cash flows from investing activities
Purchase of investments	(72,746)	(53,045)
Sale of investments	66,553	67,917
	-----------	-----------
Net cash (outflow)/inflow from investing activities	(6,193)	14,872
Cash flows from financing activities
Equity dividends paid (net of refund of unclaimed distributions and reclaimed distributions)	(16,182)	(16,212)
Net loans drawn down/(repaid)	17,043	(5,109)
Interest paid	(1,132)	(1,207)
	-----------	-----------
Net cash outflow from financing activities	(271)	(22,528)
	-----------	-----------
Net increase in cash and cash equivalents	4,762	1,231
Cash and cash equivalents at start of year	3,232	2,008
Effect of foreign exchange rates	(18)	(7)
	-----------	-----------
Cash and cash equivalents at end of year	7,976	3,232
	=======	=======
Comprising:
Cash at bank	7,976	3,232
	-----------	-----------
	7,976	3,232
	=======	=======
Cash inflow from dividends net of taxation was £13,445,000 (2020: £11,713,000).

 

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 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 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.	Gains on Investments held at fair value through profit or loss	2021 £'000	2020 £'000
	Gains/(losses) on the sale of investments based on historical cost	6,700	(2,753)
	Less: revaluation losses recognised in previous years	(1,599)	(4,313)
		-----------	-----------
	Gains/(losses) on investments sold in the year based on carrying value at previous Statement of Financial Position date	5,101	(7,066)
	Revaluation gains/(losses) on investments held at 30 September	116,270	(91,669)
	Exchange losses	(18)	(7)
		----------	----------
		121,353	(98,742)
		======	======

3.	Income from Investments	2021 £'000	2020 £'000
	UK dividends:
	Listed investments	11,954	9,493
	Unlisted	34	49
	Property income dividends	444	169
		---------	---------
		12,432	9,711
		---------	---------
	Non UK dividends:
	Overseas dividend income	1,159	1,413
		---------	---------
		1,159	1,413
		---------	---------
		13,591	11,124
		=====	=====

4.	Other Interest Receivable and Similar Income	2021 £'000	2020 £'000
	Stock lending commission	89	121
	Income from underwriting	4	5
	Bank interest	-	2
		---------	---------
		93	128
		=====	=====
	At 30 September 2021 the total value of securities on loan by the Company for stock lending purposes was £20,721,000 (2020: £21,774,000). The maximum aggregate value of securities on loan at any time during the year ended 30 September 2021 was £54,999,000 (2020: £74,214,000). The Company's agent holds collateral comprising FTSE 100 stocks, gilts, overseas equities and overseas government bonds with a collateral value of £21,878,000 (2020 £22,937,000) amounting to a minimum of 106% (2020: minimum 105%) of the market value of any securities on loan. Stock lending commission has been shown net of brokerage fees of £22,000 (2020: £30,000).

5.	Return per Ordinary Share - Basic and Diluted
	The return/(loss) per ordinary share is based on the net return attributable to the ordinary shares of £131,814,000 (2020: net loss of £91,039,000) and on 27,018,565 ordinary shares (2020: 27,018,565) being the weighted average number of ordinary shares in issue during the year. The return/(loss) per ordinary share can be further analysed between revenue and capital, as below.
				2021 £'000	2020 £'000
	Net revenue return			11,538	9,132
	Net capital return/(loss)			120,276	(100,171)
				---------	---------
	Net total return/(loss)			131,814	(91,039)
				=====	=====
	Weighted average number of ordinary shares in issue during the year			27,018,565	27,018,565
				2021 Pence	2020 Pence
	Revenue return per ordinary share			42.7	33.8
	Capital return/(loss) per ordinary share			445.2	(370.7)
				----------	----------
	Total return/(loss) per ordinary share			487.9	(336.9)
				======	======
	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
	Dividends on ordinary shares	Record date	Payment date		2021 £'000	2020 £'000
	Third interim dividend (15.0p) for the year ended 30 September 2019	4 October 2019	31 October 2019		-	4,053
	Final dividend (15.0p) for the year ended 30 September 2019	3 January 2020	31 January 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 2020	3 July 2020	31 July 2020		-	4,053
	Third interim dividend (15.0p) for the year ended 30 September 2020	2 October 2020	30 October 2020		4,053	-
	Final dividend (15.0p) for the year ended 30 September 2020	29 December 2020	29 January 2021		4,053	-
	First interim dividend (15.0p) for the year ended 30 September 2021	6 April 2021	30 April 2021		4,053	-
	Second interim dividend (15.0p) for the year ended 30 September 2021	2 July 2021	30 July 2021		4,053	-
	Return of unclaimed dividends				(30)	-
					---------	---------
					16,182 =====	16,212 =====

The third interim dividend and the final dividend for the year ended 30 September 2021 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.
		2021 £'000
	Revenue available for distribution by way of dividend for the year	11,538
	First interim dividend (15.0p) for the year ended 30 September 2021	(4,053)
	Second interim dividend (15.0p) for the year ended 30 September 2021	(4,053)
	Third interim dividend (15.0p) for the year ended 30 September 2021	(4,053)
	Final dividend (15.25p) for the year ended 30 September 2021 (based on 27,018,565 ordinary shares in issue at 3 December 2021)	(4,120)
	Return of unclaimed dividends	30
		---------
	Transfer from reserves	(4,711)1
		=====

¹ The residual will be transferred from the revenue reserve (£3,198,000) (2020: £7,080,000) and from the capital reserve (£1,513,000) (2020: £nil)

7.	Called up Share Capital
			Number of shares entitled to dividend	Total number of shares	Nominal value of shares £'000
	At 30 September 2020		27,018,565	27,018,565	6,755
			-----------	-----------	-----------
	At 30 September 2021		27,018,565	27,018,565	6,755
The Company issued no ordinary shares during the year (2020: nil).

8.	Net Asset Value per Ordinary Share
	The net asset value per ordinary share of 1,459.3p (2020: 1,031.3p) is based on the net assets attributable to the ordinary shares of £394,285,000 (2020: £278,653,000) and on 27,018,565 (2020: 27,018,565) shares in issue on 30 September 2021. The movements during the year of the assets attributable to the ordinary shares were as follows:
		2021 £'000	2020 £'000
	Total net assets at start of year	278,653	385,904
	Total net return/(loss) after taxation	131,814	(91,039)
	Net dividends paid in the year:	(16,182)	(16,212)
		-----------	-----------
	Net assets attributable to the ordinary shares at 30 September	394,285	278,653
		======	======

9.	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 but have not yet been delivered to 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.
10.	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 and filed with 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.
11.	Dividend
	The final dividend, if approved by the shareholders at the Annual General Meeting, of 15.25p per ordinary share will be paid on 31 January 2022 to shareholders on the register of members at the close of business on 31 December 2021. This will take the total dividends for the year to 60.25p (2020: 60.0p). The Company's shares will be traded ex-dividend on 30 December 2021.

12.	Annual Report
	The Annual Report will be posted to shareholders in December 2021 and will be available on the Company's website (www.lowlandinvestment.com).

13.	Annual General Meeting
	The Annual General Meeting will be held on 26 January 2022 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: [phone]	Telephone: [phone]
James de Sausmarez
Head of Investment Trusts
Janus Henderson Investors
Telephone: [phone]

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.

 

END

 

 

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