Half-year Report - REPLACEMENT

The issuer advises that the following replaces the announcement released on 11 June 2018 at 10.40am under RNS number 9684Q, to correct the record date and ex-dividend date in Note 7.

 

All other details remain unchanged. The full amended text appears below.

 

 

 

Legal Entity Identifier: 2138008RHG5363FEHV19

 

LOWLAND INVESTMENT COMPANY PLC

                                                Unaudited Results for the Half-Year Ended 31 March 2018

 

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.

 

Key Data for the Six Months to 31 March 2018

 

Net Asset Value Total Return	-3.6%
Benchmark1  Total Return	-2.3%
Growth in Dividend	8.3%
Dividend	26.0p

¹ FTSE All-Share Index

 

Financial Highlights

 

	Half-Year Ended 31 Mar 2018	Half-Year Ended 31 Mar 2017	Year Ended 30 Sept 2017
NAV Per Ordinary Share1	1,553p	1,561p	1,628p
Share Price2	1,485p	1,445p	1,504p
Market Capitalisation	£401m	£390m	£406m
Dividend Per Share	26.0p	24.0p	49.0p
Ongoing Charge Including Performance Fee	0.6%	0.6%	0.7%
Ongoing Charge Excluding Performance Fee	0.6%	0.6%	0.6%
Dividend Yield3	3.4%	3.2%	3.3%
Gearing	14.2%	12.6%	6.3%
Discount	-4.4%	-7.4%	-7.6%

¹ NAV (Net Asset Value) with debt at par value

² Using Mid-Market Closing Price

³ Based on dividends paid in respect of the previous twelve months

 

Total Return Performance (including dividends reinvested and excluding transaction costs)

 

	6 months %	1 year %	3 years %	5 years %	10 years %
Net Asset Value	-3.6	+2.6	+21.2	+51.6	+153.1
Share Price1	+0.4	+6.2	+26.5	+48.5	+159.9
Benchmark2	-2.3	+1.3	+18.6	+37.6	+90.6

¹ Using Mid-Market Closing Price

² FTSE All-Share Index

Sources: Morningstar, Funddata, Datastream and Janus Henderson

 

 

Historical Record

 

Year to 30 September	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	As at 31 Mar 2018
Net Assets1 (£m)	178	174	204	214	266	347	362	355	387	440	420
Per Ordinary Share
Net Asset Value2	675p	657p	770p	811p	1,008p	1,307p	1,346p	1,318p	1,432p	1,628p	1,553p
Share Price	625p	610p	700p	763p	992p	1,325p	1,355p	1,287p	1,337p	1,504p	1,485p
Net Revenue	33.0p	22.7p	22.5p	28.8p	31.1p	36.7p	39.4p	46.4p	47.7p	49.1p	18.4p
Net Dividends Paid	26.5p	26.5p	27.0p	28.0p	30.5p	34.0p	37.0p	41.0p	45.0p	49.0p	26.0p3

 

¹ Attributable to Ordinary Shares

² NAV with debt at par value

³ First Interim Dividend of 13p per Ordinary Share paid on 30 April 2018 and the Second Interim Dividend of 13p per Ordinary Share that will be paid on 31 July 2018

 

 

Interim Management Report

Chairman's Statement

 

Review

Financial market volatility returned during the period. The tension between rising interest rates and reasonable economic growth caused stock prices to move up and down without any clear direction. The UK economy is growing, with manufacturing exporters expanding, but there is some very marked weakness in certain consumer-facing areas.

 

Over the six months under review, the Company's net asset value (NAV) total return was -3.6%, while the total return from the FTSE All Share Index was -2.3%. These returns should be seen in the context of the strong longer-term performance, as demonstrated in the Total Return Performance table above.

 

Dividend

The Company has long operated a progressive dividend policy; annual dividends have increased in every year since 1975, except in 2009, when the dividend was unchanged. Since we started paying quarterly dividends in 2013, the final quarterly dividend has been increased each year and has set the new base level for the following three quarterly dividends.

 

It is our ambition to continue this pattern of dividend increases should circumstances permit. The Board would only change the pattern if it felt that it might restrict capital growth. Capital growth over the long term is essential to provide the base for greater dividends. The Company's annual average rate of dividend growth over the last twenty-five years has been 7.3%.  The Company's revenue earnings per share in the six months under review totalled 18.4p, an increase of 13.6%. The Company paid a first interim dividend of 13.0p per share at the end of April and has declared a second interim dividend of 13.0p payable at the end of July. Interim dividends in respect of the first half of the current financial year therefore amounted to 26.0p per share, an increase of 8.3% over last year. Barring unforeseen circumstances, the Board's intention is to pay a total dividend for this financial year of 53.0p, an increase of 8.2% on last year's 49.0p.

 

Dividend Payments

	1st Interim	2nd Interim	3rd Interim	Final
2015	10.0p	10.0p	10.0p	11.0p
2016	11.0p	11.0p	11.0p	12.0p
2017	12.0p	12.0p	12.0p	13.0p
2018	13.0p	13.0p	13.0p*	14.0p*

 

* Intention barring unforeseen circumstances

 

Management fees and finance costs

The Company currently charges all management fees and finance costs to the revenue account. The Board has reviewed this policy and an analysis of Lowland's historical source of returns indicates that a 50/50 allocation of these expenses between the revenue account and capital account would be appropriate. Whilst the current policy is an acceptable allocation policy, the Board is aware that most investment trusts allocate management fees and finance costs between revenue and capital accounts. In light of this analysis the Board has decided that with effect from 1 October 2018, these costs will be allocated 50% to revenue and 50% to capital to reflect the anticipated long-term sources of total return. If this policy had been applied in the prior full year to 30 September 2017, the revenue earnings per share would have been 54.5p instead of 49.1p. There will be no change to the allocation of any performance fee which will continue to be allocated to the capital account.

 

Share price discount

The share price discount to the NAV at the period end was 4.4%.  In order to contribute to liquidity in the shares, the Company needs to be understood by potential new investors. To this end our Manager, Janus Henderson, has recently launched www.stepstoinvesting.com, an online educational resource for first-time investors containing videos, articles and tools to help people starting out in the world of investment.

 

A summary of the five biggest contributors and detractors to the portfolio is set out in this announcement.  Conviviality was the biggest detractor and was written off, following its entry into administration. The company unravelled very quickly as a result of a weakness in trading and very poor financial controls. We had been investors since it had come to the market in 2015. Although the holding was reduced several times as the share price rose, it was a painful reminder that distribution companies need good financial disciplines and that their quality of earnings can be low.

 

Activity

We reduced gearing in the period immediately after the Brexit vote.  UK earnings have held up better than expected but their valuation has fallen, giving us the opportunity to purchase relatively cheap UK assets. During the period the gearing was increased from 6.3% to 14.2% as we became increasingly confident that the valuation of certain companies fully discounted the likely difficulties they faced. The increase in the gearing of the portfolio is a reflection of the Fund Managers finding more opportunities to invest in companies that have the right attributes of reasonable valuation and real long-term growth prospects. For instance, a new addition to the portfolio has been Greene King.¹

 

Greene King brews popular beer and has a high-quality estate. These strengths should ensure it comes through the current subdued trading period. Part of the approach to running Lowland is to buy sound businesses when they fall out favour. There are opportunities to make this type of investment as many UK companies are being ignored by investors as a result of macroeconomic fears. However, as an equity investor, the Fund Managers are not buying the UK economy, but rather a share in a business that they believe may deal with the external circumstances and grow over time as a result of the excellence of their product or service.

 

The largest disposal was GKN, after it was the subject of a bid from Melrose PLC. The price paid was a significant premium to the price prior to the bid and it may fully reflect the inherent value.

 

Outlook

We expect the UK economy to continue to grow, albeit more slowly than Europe or the US. There are commentators who believe it will slow further due to concerns about Brexit, which may limit the free movement of goods and people. However, economic growth does not determine the direction of individual companies' share prices; rather, the driver is their operational performance and their equity valuation. The latter factor has moved into attractive territory.²

 

On a final note, we value contact with our shareholders and I would be delighted to be contacted at the Company Secretary's email address should you have any matters you wish to raise with me.

 

 

Robert Robertson

Chairman

11 June 2018

 

¹ Data illustrating the Greene King Share Price is set out below

 

	March 2013	March 2014	March 2015	March 2016	March 2017	March 2018
Share Price	702.0p	903.0p	836.0p	872.0p	701.5p	471.4p

 

² Data illustrating the FTSE All Share Adjusted Price Earnings Ratio' is set out below

 

March 1994	March 1995	March 1996	March 1997	March 1998	March 1999	March 2000	March 2001	March 2002	March 2003	March 2004	March 2005
16.3	18.4	18.4	16.4	21.1	25.8	24.7	20.2	23.5	15.4	15.8	13.8

 

March 2006	March 2007	March 2008	March 2009	March 2010	March 2011	March 2012	March 2013	March 2014	March 2015	March 2016	March 2017	March 2018
13.5	12.1	11.4	10.1	11.8	11.1	12.1	14.9	14.0	19.5	17.8	23.2	12.9

 

Performance as at 31 March 2018

The tables below show the top five contributors to and the bottom five detractors from the Company's total return performance over the six months under review.

 

Top 5 Contributors

Company	Sector	Contribution %
K3 Capital	Support Services	0.56
Royal Mail	Industrial Transportation	0.49
GKN	Automobiles & Parts	0.38
Hiscox	Non-Life Insurance	0.36
Avon Rubber	Aerospace & Defence	0.32

 

Bottom 5 Detractors

Company	Sector	Contribution %
Conviviality Retail	Food & Drug Retail	-1.32
Renold	Industrial Engineering	-0.48
Low & Bonar	Construction & Materials	-0.43
4D Pharma	Pharmaceuticals & Biotechnology	-0.39
Carclo	Chemicals	-0.32

                                   

	Sector Analysis
		% as at 31 March 2018		% as at 30 September 2017
		Company	Benchmark1	Company	Benchmark1
Financials		35.2	27.1	32.2	26.5
Industrials		27.4	10.8	28.7	11.3
Consumer Services		9.6	11.3	11.1	11.0
Oil & Gas		9.1	12.8	8.7	12.2
Basic Materials		5.3	7.7	6.1	7.2
Utilities		4.1	2.7	1.6	3.0
Health Care		4.0	8.6	4.2	8.5
Consumer Goods		3.0	14.8	5.5	15.7
Telecommunications		2.3	3.3	1.8	3.5
Technology		-	0.9	0.1	1.1
Total		100.0	100.0	100.0	100.0

 

¹ FTSE All-Share Index

 

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 and the only amounts paid to them were in respect of Directors' remuneration for which there were no outstanding amounts payable at the period 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.

 

Principal Risks and Uncertainties

The principal risks and uncertainties associated with the Company's business can be divided into various areas:

 

•  Investment Activity and Strategy;

•  Portfolio and Market Price;

•  Financial;

•  Gearing;

•  Operational; and

•  Accounting, Legal and Regulatory.

 

Information on these risks is given in the Annual Report for the year ended 30 September 2017.  In the view of the Board these principal risks and uncertainties are as applicable to the remaining six months of the financial year as they were to the six months under review.

 

Statement of Directors' Responsibilities

The Directors confirm that, to the best of their knowledge:

 

(a)     the set of financial statements for the half-year to 31 March 2018 has been prepared in accordance with "FRS 104 Interim Financial Reporting";

 

(b)     the Interim Management Report includes a fair review of the information required by Disclosure Guidance 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 Guidance and Transparency Rule 4.2.8R (disclosure of related party transactions and changes therein).

 

For and on behalf of the Board

Robert Robertson

Chairman

11 June 2018

 

 

 

 

CONDENSED INCOME STATEMENT

 

	(Unaudited) Half-year ended 31 March 2018			(Unaudited) Half-year ended 31 March 2017			(Audited) Year-ended 30 September 2017
	Revenue return £'000	Capital return £'000	Total £'000	Revenue return £'000	Capital return £'000	Total £'000	Revenue return £'000	Capital return £'000	Total £'000
(Losses)/gains on investments held at fair value through profit or loss	-	(18,550)	(18,550)	-	36,742	36,742	-	52,847	52,847
Income from investments	6,888	-	6,888	6,037	-	6,037	16,871	-	16,871
Other interest receivable and similar income	93	-	93	40	-	40	50	-	50
	---------	--------	---------	---------	--------	---------	---------	---------	---------
Gross revenue and capital (losses)/gains	6,981	(18,550)	(11,569)	6,077	36,742	42,819	16,921	52,847	69,768
Management fee and  performance fee (note 2)	(1,009)	-	(1,009)	(948)	-	(948)	(1,920)	(416)	(2,336)
Other administrative expenses (note 2)	(296)	-	(296)	(276)	-	(276)	(553)	-	(553)
	---------	--------	---------	---------	--------	---------	---------	---------	---------
Net return/(loss) before finance costs and taxation	5,676	(18,550)	(12,874)	4,853	36,742	41,595	14,448	52,431	66,879
Finance costs	(606)	-	(606)	(398)	-	(398)	(1,009)	-	(1,009)
	---------	--------	---------	---------	--------	---------	---------	---------	---------
Net return before taxation	5,070	(18,550)	(13,480)	4,455	36,742	41,197	13,439	52,431	65,870
Taxation on net return	(95)	-	(95)	(76)	-	(76)	(186)	-	(186)
	---------	--------	---------	---------	--------	---------	---------	---------	---------
Net return after taxation	4,975	(18,550)	(13,575)	4,379	36,742	41,121	13,253	52,431	65,684
	======	======	======	======	======	======	=====	======	=====
Return per ordinary share - basic and diluted (note 3)	18.4p	(68.7p)	(50.3p)	16.2p	136.0p	152.2p	49.1p	194.1p	243.2p
	======	======	======	======	======	======	=====	======	======

 

The total columns of this statement represent the Income Statement of the Company, prepared in accordance with FRS 104. The revenue and capital columns are supplementary to this and are published under guidance from the Association of Investment Companies.

 

The Company has no recognised gains or losses other than those disclosed in the Income Statement and Statement of Changes in Equity.

 

All items in the above statement derive from continuing operations. No operations were acquired or discontinued during the period.

 

The accompanying notes are an integral part of the condensed financial statements.