Page 1 of 9
14 May 2008
LOWLAND INVESTMENT COMPANY PLC
Unaudited Report Half Year Ended 31 March 2008
Interim Management Report
Extracts of the Chairman's Statement
Review
Over the six months to 31 March 2008 Lowland's NAV fell 17.3%, while the FTSE All-Share fell 11.8%. This underperformance was predominantly the result of the bias in the portfolio to smaller company shares. These were particularly weak as investors became increasingly concerned by the difficult conditions in credit markets and sold to increase liquidity. The FTSE Smaller Companies Index fell 23.1% over the period. Over the longer term the performance has been strong with the NAV rising over the last five years by 129.9%, while the FTSE All-Share has risen 68.6%.
Although the period has been dominated by the ongoing problems in the banking system, corporate results during the period have been good, and dividend growth has been strong.
Dividend
The earnings for the period are 14.7 pence per share. This compares with 10.1 pence a year earlier. The increase is the result of dividend growth from the underlying portfolio holdings, the purchase of high yielding equities and the VAT refund which has added 3.1 pence to the revenue return. The interim dividend is 10.0 pence, an increase of 11.1% over the same period last year. It is expected, barring unforeseen circumstances, that the final dividend will also be increased.
Activity
The investment approach is value based. The fall in equity prices is resulting in good opportunities. During the period £46 million net has been invested in equities, increasing the gearing to 18.4%, from 1.4% at the Company's September 2007 year end. The buying has been predominantly in banks, property companies and selective smaller companies whose valuations have become compelling after significant falls in their share prices. The companies that have been purchased are often trading at below their historic asset values with prospective dividend yields above the cost of borrowing the money. In previous periods this has been an indicator of equities being good value.
VAT on Management Fees
Following the European Court of Justice decision in respect of the case between JP Morgan Claverhouse and HMRC regarding value added tax (VAT) on management fees, investment management services provided to the Company are now VAT exempt and in due course the Company will receive, via the Manager, refunds of some of the VAT borne in past years. To the extent that the recovery is certain, the Company has, in accordance with accounting rules, an obligation to recognise that amount in the Income Statement and Balance Sheet. Accordingly, £830,000 has been recognised in these accounts. Eventually the Company may be able to recover more of the VAT borne in the past but there are uncertainties and the timescale for resolution of these may prove protracted.
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Page 2 of 9
LOWLAND INVESTMENT COMPANY PLC
Unaudited Report Half Year ended 31 March 2008
Outlook
Forecasts for the level of economic growth are being reduced and difficult credit conditions are being experienced. However, the authorities are taking action with interest rates falling. The corporate sector in the UK is going into this difficult period in a relatively sound position with debt levels in aggregate comparatively low and cash generation strong. The share prices of many companies appear to be overly discounting the difficulties ahead. We are therefore using this testing period to buy good quality equities which will refresh the portfolio.
John Hancox
Chairman
14 May 2008
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Page 3 of 9
LOWLAND INVESTMENT COMPANY PLC
Unaudited Report Half Year ended 31 March 2008
Condensed Income Statement
for the half year ended 31 March 2008
|
(Unaudited) Half year ended 31 March 2008 |
(Unaudited) Half year ended 31 March 2007 |
(Audited) Year ended 30 September 2007 |
||||||
|
Revenue Return |
Capital Return |
Total |
Revenue Return |
Capital Return |
Total |
Revenue Return |
Capital Return |
Total |
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
|
|
|
|
(Losses)/gains on |
|
|
|
|
|
|
|
|
|
investments held at |
|
|
|
|
|
|
|
|
|
fair value through |
|
|
|
|
|
|
|
|
|
profit or loss |
- |
(47,866) |
(47,866) |
- |
32,052 |
32,052 |
- |
27,749 |
27,749 |
|
|
|
|
|
|
|
|
|
|
Income from investments |
|
|
|
|
|
|
|
|
|
held at fair value |
|
|
|
|
|
|
|
|
|
through profit or loss |
5,145 |
- |
5,145 |
3,659 |
- |
3,659 |
9,566 |
- |
9,566 |
|
|
|
|
|
|
|
|
|
|
Other interest receivable |
|
|
|
|
|
|
|
|
|
and similar income |
123 |
- |
123 |
118 |
- |
118 |
160 |
- |
160 |
|
--------- |
-------- |
--------- |
--------- |
--------- |
--------- |
--------- |
--------- |
--------- |
|
|
|
|
|
|
|
|
|
|
Gross revenue and |
|
|
|
|
|
|
|
|
|
capital (losses)/gains |
5,268 |
(47,866) |
(42,598) |
3,777 |
32,052 |
35,829 |
9,726 |
27,749 |
37,475 |
|
|
|
|
|
|
|
|
|
|
Management fee |
(672) |
- |
(672) |
(726) |
- |
(726) |
(1,479) |
- |
(1,479) |
|
|
|
|
|
|
|
|
|
|
Write back of VAT (note 5) |
830 |
- |
830 |
- |
- |
- |
- |
- |
- |
|
|
|
|
|
|
|
|
|
|
Other administrative |
|
|
|
|
|
|
|
|
|
expenses |
(138) |
- |
(138) |
(151) |
- |
(151) |
(310) |
- |
(310) |
|
--------- |
-------- |
--------- |
--------- |
--------- |
--------- |
--------- |
--------- |
--------- |
Net return/(loss) on |
|
|
|
|
|
|
|
|
|
ordinary activities |
|
|
|
|
|
|
|
|
|
before finance charges |
|
|
|
|
|
|
|
|
|
and taxation |
5,288 |
(47,866) |
(42,578) |
2,900 |
32,052 |
34,952 |
7,937 |
27,749 |
35,686 |
|
|
|
|
|
|
|
|
|
|
Finance charges |
(1,383) |
- |
(1,383) |
(430) |
- |
(430) |
(929) |
- |
(929) |
|
--------- |
---------- |
--------- |
--------- |
--------- |
--------- |
--------- |
--------- |
--------- |
Net return/(loss) |
|
|
|
|
|
|
|
|
|
on ordinary activities |
|
|
|
|
|
|
|
|
|
before taxation |
3,905 |
(47,866) |
(43,961) |
2,470 |
32,052 |
34,522 |
7,008 |
27,749 |
34,757 |
|
|
|
|
|
|
|
|
|
|
Taxation on net return |
|
|
|
|
|
|
|
|
|
on ordinary activities |
(25) |
- |
(25) |
(13) |
- |
(13) |
(30) |
- |
(30) |
|
--------- |
-------- |
-------- |
--------- |
--------- |
--------- |
--------- |
--------- |
--------- |
Net return/(loss) on |
|
|
|
|
|
|
|
|
|
ordinary activities |
|
|
|
|
|
|
|
|
|
after taxation |
3,880 |
(47,866) |
(43,986) |
2,457 |
32,052 |
34,509 |
6,978 |
27,749 |
34,727 |
|
===== |
===== |
===== |
===== |
===== |
===== |
===== |
===== |
===== |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return/(loss) per ordinary |
|
|
|
|
|
|
|
|
|
share - basic and |
|
|
|
|
|
|
|
|
|
diluted (note 2) |
14.7p |
(181.2p) |
(166.5p) |
10.1p |
132.1p |
142.2p |
27.9p |
110.8p |
138.7p |
The total columns of this statement represent the Income Statement of the Company.
All revenue and capital items in the above statement derive from continuing operations.
No operations were acquired or discontinued during the half year ended 31 March 2008. The Company has no recognised gains or losses other than those disclosed in the Income Statement and Reconciliation of Movements in Shareholders Funds.
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Page 4 of 9
LOWLAND INVESTMENT COMPANY PLC
Unaudited Report Half Year ended 31 March 2008
Condensed Reconciliation of Movements in Shareholders' funds
For the half year ended 31 March 2008
|
(Unaudited) Half year ended 31 March 2008 |
||||
|
Called up share capital |
Share premium account |
Other capital reserves |
Revenue reserve |
Total |
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
At 30 September 2007 |
6,604 |
53,561 |
208,549 |
7,154 |
275,868 |
Net (loss)/ return on ordinary |
|
|
|
|
|
activities after taxation |
- |
- |
(47,866) |
3,880 |
(43,986) |
Final dividend (14.5p) for the year |
|
|
|
|
|
ended 30 September 2007 |
- |
- |
- |
(3,831) |
(3,831) |
|
------------ |
------------ |
------------ |
------------- |
----------- |
At 31 March 2008 |
6,604 |
53,561 |
160,683 |
7,203 |
228,051 |
|
======= |
======= |
======= |
======= |
====== |
|
|
||||
|
(Unaudited) Half year ended 31 March 2007 |
||||
|
Called up share capital |
Share premium account |
Other capital reserves |
Revenue reserve |
Total |
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
At 30 September 2006 |
6,067 |
29,895 |
180,800 |
5,455 |
222,217 |
Net return on ordinary activities after taxation |
- |
- |
32,052 |
2,457 |
34,509 |
Final dividend (12.75p) for the year |
|
|
|
|
|
ended 30 September 2006 |
- |
- |
- |
(3,094) |
(3,094) |
|
----------- |
------------ |
---------- |
------------ |
----------- |
At 31 March 2007 |
6,067 |
29,895 |
212,852 |
4,818 |
253,632 |
|
======= |
======= |
====== |
======= |
====== |
|
|
|
|
|
|
|
(Audited) Year ended 30 September 2007 |
||||
|
Called up share capital |
Share premium account |
Other capital reserves |
Revenue reserve |
Total |
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
At 30 September 2006 |
6,067 |
29,895 |
180,800 |
5,455 |
222,217 |
Net return on ordinary activities after taxation |
- |
- |
27,749 |
6,978 |
34,727 |
Final dividend (12.75p) for the year |
|
|
|
|
|
ended 30 September 2006 |
- |
- |
- |
(3,094) |
(3,094) |
Interim dividend (9.0p) for the year |
|
|
|
|
|
ended 30 September 2007 |
- |
- |
- |
(2,185) |
(2,185) |
Issue of 2,149,473 new shares |
537 |
23,666 |
- |
- |
24,203 |
|
------------ |
------------ |
------------ |
------------ |
----------- |
At 30 September 2007 |
6,604 |
53,561 |
208,549 |
7,154 |
275,868 |
|
======= |
======= |
======= |
======= |
====== |
|
|
|
|
|
|
Purchase transaction costs for the half year ended 31 March 2008 were £365,000 (half year ended 31 March 2007: £151,000; year ended 30 September 2007: £361,000). These comprise mainly stamp duty and commission. Sale transaction costs for the half year ended 31 March 2008 were £20,000 (half year ended 31 March 2007: £64,000; year ended 30 September 2007: £79,000).
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Page 5 of 9
LOWLAND INVESTMENT COMPANY PLC
Unaudited Report Half Year ended 31 March 2008
Condensed Balance Sheet
as at 31 March 2008
|
(Unaudited) 31 March 2008 |
(Unaudited) 31 March 2007 |
(Audited) 30 September 2007 |
|
£'000 |
£'000 |
£'000 |
|
|
|
|
Fixed assets |
|
|
|
Investments held at fair value through profit or loss |
270,027 |
255,092 |
295,604 |
|
----------- |
----------- |
----------- |
Current assets |
|
|
|
Debtors |
3,610 |
1,697 |
2,058 |
Cash at bank and on deposit |
1,746 |
5,504 |
43 |
|
---------- |
----------- |
----------- |
|
5,356 |
7,201 |
2,101 |
|
|
|
|
Creditors: amounts falling due within one year |
(41,332) |
(2,661) |
(15,837) |
|
----------- |
----------- |
----------- |
Net current (liabilities)/assets |
(35,976) |
4,540 |
(13,736) |
|
----------- |
----------- |
----------- |
Total assets less current liabilities |
234,051 |
259,632 |
281,868 |
|
|
|
|
Creditors: amounts falling due after more than one year |
(6,000) |
(6,000) |
(6,000) |
|
----------- |
----------- |
----------- |
Total net assets |
228,051 |
253,632 |
275,868 |
|
====== |
====== |
====== |
Capital and reserves |
|
|
|
Called up share capital |
6,604 |
6,067 |
6,604 |
Share premium account |
53,561 |
29,895 |
53,561 |
Other capital reserves |
160,683 |
212,852 |
208,549 |
Revenue reserve |
7,203 |
4,818 |
7,154 |
|
----------- |
----------- |
----------- |
Total equity shareholders' funds |
228,051 |
253,632 |
275,868 |
|
====== |
====== |
====== |
Net asset value per ordinary share (note 4) |
863.3p |
1,045.1p |
1,044.3p |
|
|
|
|
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Page 6 of 9
LOWLAND INVESTMENT COMPANY PLC
Unaudited Report Half Year ended 31 March 2008
Condensed Cash Flow Statement
for the half year ended 31 March 2008
|
(Unaudited) Half year ended 31 March 2008 |
(Unaudited) Half year ended 31 March 2007 |
(Audited) Year ended 30 September 2007 |
|
£'000 |
£'000 |
£'000 |
|
|
|
|
Net cash inflow from operating activities |
3,544 |
2,319 |
7,540 |
Net cash outflow from servicing of finance |
(1,327) |
(439) |
(927) |
Net cash (outflow)/inflow from purchases and sales of investments |
(23,600) |
21,827 |
(408) |
Equity dividends paid |
(3,831) |
(3,094) |
(5,279) |
Cash placed on deposit |
- |
(5,401) |
- |
|
---------- |
---------- |
----------- |
Net cash (outflow)/ inflow before financing |
(25,214) |
15,212 |
926 |
Net cash inflow/(outflow) from financing |
27,154 |
(15,177) |
(1,154) |
|
---------- |
----------- |
------------ |
Increase/(decrease) in cash |
1,940 |
35 |
(228) |
|
====== |
====== |
====== |
Reconciliation of operating revenue |
|
|
|
to net cash flow from operating activities |
|
|
|
Total (loss)/return before finance charges and taxation |
(42,578) |
34,952 |
35,686 |
Less: capital loss/(return) before finance charges and taxation |
47,866 |
(32,052) |
(27,749) |
|
---------- |
---------- |
------------ |
Net revenue return before finance charges and taxation |
5,288 |
2,900 |
7,937 |
Increase in accrued income |
(848) |
(578) |
(470) |
(Increase)/decrease in other debtors |
(765) |
14 |
9 |
(Decrease)/increase in creditors |
(96) |
(4) |
94 |
Overseas withholding tax |
(35) |
(13) |
(30) |
|
---------- |
---------- |
------------ |
Net cash inflow from operating activities |
3,544 |
2,319 |
7,540 |
|
====== |
====== |
====== |
Reconciliation of net cash flow to movement in net debt |
|
|
|
Increase/(decrease) in cash as above |
1,940 |
35 |
(228) |
Cash (inflow)/outflow from movement in loans |
(27,154) |
15,177 |
1,660 |
Cash outflow from liquid resources |
- |
5,401 |
- |
Exchange movements |
(20) |
36 |
22 |
|
---------- |
---------- |
------------ |
|
(25,234) |
20,649 |
1,454 |
Net debt at the beginning of the period |
(19,691) |
(21,145) |
(21,145) |
|
---------- |
---------- |
------------ |
Net debt at the end of the period |
(44,925) |
(496) |
(19,691) |
|
====== |
====== |
====== |
Represented by: |
|
|
|
Cash at bank less bank overdrafts |
1,746 |
5,504 |
(174) |
Debt falling due within one year |
(40,671) |
- |
(13,517) |
Debt falling due after more than one year |
(6,000) |
(6,000) |
(6,000) |
|
---------- |
---------- |
------------ |
|
(44,925) |
(496) |
(19,691) |
|
====== |
====== |
====== |
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Page 7 of 9
LOWLAND INVESTMENT COMPANY PLC
Unaudited Report Half Year ended 31 March 2008
Notes to the Financial Statements
1. |
Accounting policies |
|||
|
The accounts have been prepared under the historical cost convention, modified to include the revaluation of investments and in accordance with applicable Accounting Standards, pronouncements on interim reporting issued by the Accounting Standards Board and the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies' ('SORP' dated January 2003, revised December 2005). All of the Company's operations are of a continuing nature. The same accounting policies used for the year ended 30 September 2007 have been applied. The taxation charge for each period is based on foreign tax suffered. |
|||
|
||||
2. |
(Loss)/return per ordinary share - basic and diluted |
|||
|
|
|||
|
|
(Unaudited) Half year ended 31 March 2008 £'000 |
(Unaudited) Half year ended 31 March 2007 £'000 |
(Audited) Year ended 30 September 2007 £'000 |
|
The (loss)/return per ordinary share is based |
|
|
|
|
on the following figures: |
|
|
|
|
Revenue return |
3,880 |
2,457 |
6,978 |
|
Capital (loss)/return |
(47,866) |
32,052 |
27,749 |
|
|
---------- |
----------- |
----------- |
|
Total |
(43,986) |
34,509 |
34,727 |
|
|
====== |
====== |
====== |
|
|
|||
|
Weighted average number of ordinary |
|
|
|
|
shares in issue for each period |
26,417,427 |
24,267,954 |
25,039,409 |
|
Revenue return per ordinary share |
14.7p |
10.1p |
27.9p |
|
Capital (loss)/return per ordinary share |
(181.2p) |
132.1p |
110.8p |
|
|
---------- |
----------- |
----------- |
|
Total |
(166.5p) |
142.2p |
138.7p |
|
|
====== |
====== |
====== |
|
The Company does not have any dilutive securities, therefore basic and diluted returns per share are the same. |
|||
3. |
Expenses |
|||
|
All expenses are charged wholly to revenue. Expenses which are incidental to the purchase or sale of a fixed asset investment are included in the cost or deducted from the proceeds of sale of the investment. |
|||
|
|
|||
4. |
Net asset value per ordinary share |
|||
|
The net asset value per ordinary share is based on the net assets attributable to the ordinary shares of £228,051,000 (31 March 2007: £253,632,000; 30 September 2007: £275,868,000) and on 26,417,427 ordinary shares (31 March 2007: 24,267,954; 30 September 2007: 26,417,427) being the number of ordinary shares in issue at the end of each period. |
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Page 8 of 9
LOWLAND INVESTMENT COMPANY PLC
Unaudited Report Half Year ended 31 March 2008
5. |
VAT on management fees |
|
In 2004 the Association of Investment Companies (the 'AIC'), together with JPMorgan Claverhouse Investment Trust plc, launched a case against HM Revenue & Customs ('HMRC') to challenge whether Value Added Tax ('VAT') should be charged on fees paid for management services provided to investment trust companies. On 28 June 2007 the European Court of Justice delivered its judgement on the case in favour of the AIC. Since then, HMRC has accepted that the provision of investment management services to investment trust companies is VAT exempt and has acknowledged its liability to pay claims in respect of VAT borne by investment companies. The manager (Henderson Global Investors Limited) will now be able to reclaim from HMRC the amount of VAT charged to the Company in respect of investment management services from 1 October 2000 to 30 June 2007, to the extent that such VAT was paid by the manager to HMRC. VAT has not been applied to investment management fees invoiced since June 2007. Accordingly, VAT borne by the Company on investment management fees invoiced in the period from 1 October 2000 to 30 June 2007 has been written back, in accordance with an agreement reached between the manger and the Company. An amount of £830,000 has been recognised, representing the repayment the Company anticipates receiving in due course. The write back has been allocated to the revenue return in full according to the allocation of the amounts originally paid. The Company may be able to recover further amounts of the VAT charged on investment management fees back to 1990, in particular in respect of the period from 1 January 1990 to 4 December 1996 (following the decision of the House of Lords in the Fleming/Conde Nast case). However, the Board considers that currently there are too many uncertainties for any reasonable estimate to be calculated of the amounts potentially recoverable during that period. The Company will receive from the manager any interest paid by HMRC on the amounts eventually recovered. |
|
|
6. |
Interim dividend |
|
An interim dividend of 10.0 pence has been declared and will be paid on 20 June 2008 to shareholders on the register on 23 May 2008. The ex-dividend date is 21 May 2008. |
|
|
7. |
Accounts for the year ended 30 September 2007 |
|
The financial information contained in this half year report does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The financial information for the half years ended 31 March 2008 and 31 March 2007 has not been audited or reviewed by the Company's auditors. The figures and financial information for the year ended 30 September 2007 have been extracted from the latest published accounts of the Company and do not constitute statutory accounts for that year. These accounts have been delivered to the Registrar of Companies and included the report of the auditors which was unqualified and did not contain a statement under either section 237(2) or 237(3) of the Companies Act 1985. |
|
|
8. |
Gearing |
|
Gearing is defined as investments less short dated gilts as a percentage of equity shareholders' funds minus 100. |
|
|
9. |
Half year report |
|
The half year report will be posted to shareholders at the end of May and will be available from the Registered Office at 4 Broadgate, London EC2M 2DA thereafter. |
- MORE -
Page 9 of 9
LOWLAND INVESTMENT COMPANY PLC
Unaudited Report Half Year ended 31 March 2008
Other Information Related Party Transactions During the first six months of the current financial year, no transactions with related parties have taken place which have materially affected the financial position or performance of the Company during the period. Details of related party transactions are contained in the annual report and accounts. |
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Principal Risks and Uncertainties The principal risks and uncertainties associated with the Company's business can be divided into various areas: • Investment objective and policy • Gearing • Market movements and performance of the portfolio Information on these risks is given in the Directors' Report and Notes to the Accounts in the Annual Report and Accounts. In the view of the Board these principal risks and uncertainties are applicable to the remaining six months of the financial year as they were to the six months under review. Directors' Responsibility Statement The Directors confirm that, to the best of their knowledge: (a) the condensed set of financial statements has been prepared in accordance with the Accounting Standards Board's statement 'Half-Yearly Financial Reports'; (b) the interim management report includes a fair review of the information required by Disclosure and Transparency Rule 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and (c) the interim management report includes a fair review of the information required by the Disclosure and Transparency Rule 4.2.8R (disclosure of related party transactions and changes therein). For and on Behalf of the Board John Hancox Chairman |
For further information please contact:
James Henderson
Fund Manager, Tel: 020 7818 4370
James de Sausmarez
Head of Investment Trusts, Henderson Global Investors, Tel: 020 7818 3349
Sarah Gibbons-Cook
Investor Relations and PR Manager, Henderson Global Investors, Tel: 020 7818 3198
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