Final Results
Lowland Investment Co PLC
02 November 2006
2 November 2006
LOWLAND INVESTMENT COMPANY PLC
Unaudited Preliminary Results for the year ended 30 September 2006
Financial Highlights
Unaudited Audited
Year ended Year ended
30 September 30 September
2006 2005
Revenue return per ordinary share 20.77p 18.23p
Net dividends per ordinary share:
Interim paid 8.00p 7.50p
Final recommended 12.75p 11.75p
-------- --------
Total 20.75p 19.25p
Net asset value per ordinary share 915.7p * 785.8p
* Restated: See notes 1 (e) and 5
Extracts from the Chairman's Statement
Assets, Revenue Return and Dividends
I am pleased to report that during the year to 30 September 2006 the Company's
net asset value rose from 785.8p (as restated) to 915.7p, an increase of 16.5%.
This compares with a rise in the Company's benchmark, the FTSE All-Share Index,
of 11.1% over the same period. The revenue return per share for the year was
20.77p which compares with 18.23p last year. The proposed final dividend is
12.75p making a total of 20.75p for the year, an increase of 7.8% over the
19.25p paid last year.
Review
It has been a good year for the equity market which has been driven by very
strong corporate profitability. This resulted in substantial cash generation
which in turn led to purchases by companies of their own shares and to corporate
takeover activity. Lowland's portfolio has benefited from this. The discipline
of emphasising dividend growth in the stock selection process has highlighted
strong cash generative businesses. This has helped point investment decisions in
the right direction and is the most important factor behind Lowland's
outperformance of the FTSE All-Share Index during the year. Over the last five
years the FTSE All-Share Index has risen 29.8%, while Lowland's net asset value
has increased by 96.3%. I would like to congratulate our Portfolio Manager,
James Henderson, for this excellent performance.
Objective
It is the growth of capital that provides the long term growth of income.
Lowland's dividend has been increased by 89% over the last ten years, while the
dividend on the FTSE All-Share Index has increased by 34% over the same period.
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LOWLAND INVESTMENT COMPANY PLC
Unaudited Preliminary Results for the year ended 30 September 2006
However, over recent years, the dividend yield on Lowland's shares has fallen
below that on the Index as a result of Lowland's superior capital growth. It
therefore seems appropriate to make a small change to Lowland's stated objective
by removing the word 'income' from the 'higher than average income return' which
currently appears in the stated objective. This would then leave the objective
as 'to give shareholders a higher than average return with growth of both
capital and income over the medium to long term'. This in no way alters the
Board's intention to continue with the progressive dividend policy. The Board's
objective will remain the focus on growing the capital, through holdings that
usually have reasonable dividend yields, or the expectation of above average
dividend growth, and hence Lowland's distributions of income should continue to
increase.
Investment Philosophy
Lowland's investment philosophy is predominantly contrarian and value
orientated. The FTSE All-Share Index is solely used for comparative purposes and
does not influence the Manager's stock selection. The Index is becoming an
increasingly random collection of global businesses with some of its new
constituents being of doubtful quality. To base an investment strategy around
such an Index seems at odds with prudent investment management. An important
characteristic of the portfolio is the relatively long list of holdings. Whilst
there is a trend in other trusts towards shorter lists of 'high conviction'
holdings, the benefit of a larger number of holdings is not just that it reduces
stock specific risk but that it also allows the Manager to take positions in
some companies at an earlier stage of their recovery or growth cycle. This does
mean that Lowland will hold some companies that may fail but without having some
failures a Manager is probably not taking enough risk. Successful investment
management requires sensible, monitored risk-taking and a blend of stocks with
different attributes to diversify the risk.
Outlook
During the year Lowland's gearing has been reduced from 25.8% to 9.4%. This is
the result of the Manager finding it increasingly difficult to find good value
investment opportunities. The reduction in borrowings is likely to continue if
share prices continue rising. At times, successful investment management is
about capital preservation and, after the steady advances in share prices since
March 2003, those times may be approaching. Lowland will prepare for this by
continuing to focus on holdings in its portfolio which are soundly valued with
robust business franchises and by retaining the cash raised from sales or
takeovers to enable the portfolio to take full advantage of value when it
re-emerges.
J P D Hancox
Chairman
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LOWLAND INVESTMENT COMPANY PLC
Unaudited Preliminary Results for the year ended 30 September 2006
Income Statement
for the year ended 30 September 2006
Restated *
Year ended 30 September 2006 Year ended 30 September 2005
Revenue Capital Revenue Capital
Return Return Return Return
£'000 £'000 Total £'000 £'000 Total £'000
£'000
Gains on investments held at fair value
through profit or loss - 31,441 31,441 - 40,044 40,044
Income from investments held at fair value
through profit or loss 8,427 - 8,427 7,567 - 7,567
Other interest receivable and similar income 87 - 87 86 - 86
-------- -------- -------- --------- --------- ---------
Gross revenue and capital gains 8,514 31,441 39,955 7,653 40,044 47,697
Management fee (1,262) - (1,262) (1,014) - (1,014)
Other administrative expenses (303) - (303) (231) - (231)
--------- --------- --------- --------- --------- ---------
Net return on ordinary activities before
finance charges and taxation 6,949 31,441 38,390 6,408 40,044 46,452
Finance charges (1,905) - (1,905) (2,374) - (2,374)
--------- --------- --------- --------- --------- ---------
Net return on ordinary activities before
taxation 5,044 31,441 36,485 4,034 40,044 44,078
Taxation on net return on ordinary activities (4) - (4) (22) - (22)
--------- --------- --------- --------- --------- ---------
Net return on ordinary activities after
taxation 5,040 31,441 36,481 4,012 40,044 44,056
===== ===== ===== ===== ===== =====
Return per ordinary share - basic and diluted
(note 4) 20.77p 129.56p 150.33p 18.23p 181.97p 200.20p
===== ===== ===== ===== ===== ======
The total columns of this statement represent the profit and loss account of the
Company. All revenue and capital items derive from continuing operations. No
operations were acquired or discontinued during the year. The Company has no
recognised gains or losses other than those recognised in the Income Statement.
* See note 1(b)
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LOWLAND INVESTMENT COMPANY PLC
Unaudited Preliminary Results for the year ended 30 September 2006
Reconciliation of Movements in Shareholders' Funds
for the years ended 30 September 2006 and 30 September 2005
Year ended 30 September 2006 Called Up Share Other
Share Capital Premium Capital
£'000 Account Reserves Revenue
£'000 £'000 Reserve
£'000 Total
£'000
At 30 September 2005 as restated (see note 5) 6,067 29,895 149,527 5,206 190,695
Adjustment to bid valuation (see note 1(d)) - - (168) - (168)
Net return on ordinary activities after taxation - - 31,441 5,040 36,481
Final dividend (11.75p) for the year ended 30
September 2005 paid 19 December 2005 - - - (2,851) (2,851)
Interim dividend (8.0p) for the year ended 30
September 2006 paid 23 June 2006 - - - (1,942) (1,942)
Write-back of dividends over twelve years old - - - 2 2
--------- --------- --------- --------- ---------
At 30 September 2006 6,067 29,895 180,800 5,455 222,217
===== ===== ===== ===== =====
Year ended 30 September 2005
Called Up Share Other
Share Capital Premium Capital
£'000 Account Reserves Revenue
£'000 £'000 Reserve
£'000 Total
£'000
At 30 September 2004 as restated (see note 5) 5,250 6,922 109,483 5,091 126,746
Issue of shares 817 22,973 - - 23,790
Net return on ordinary activities after taxation - - 40,044 4,012 44,056
Final dividend (11.00p) for the year ended 30
September 2004 paid 17 December 2004 - - - (2,310) (2,310)
Interim dividend (7.5p) for the year ended 30
September 2005 paid 24 June 2005 - - - (1,599) (1,599)
Write-back of dividends over twelve years old - - - 12 12
--------- --------- --------- --------- ---------
At 30 September 2005 6,067 29,895 149,527 5,206 190,695
===== ===== ===== ===== =====
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LOWLAND INVESTMENT COMPANY PLC
Unaudited Preliminary Results for the year ended 30 September 2006
Balance Sheet
at 30 September 2006
* Restated
2006 2005
£'000 £'000
Investments held at fair value through profit or loss
Listed at market value in the United Kingdom 219,871 220,325
Quoted on AIM 17,905 6,271
Listed at market value overseas 3,375 12,038
Unquoted at directors' valuation 2,014 1,264
----------- ---------
243,165 239,898
----------- ---------
Current assets
Debtors 1,337 3,082
Cash at bank 87 2,743
----------- ---------
1,424 5,825
Creditors: amounts falling due after more than one year (16,372) (49,028)
----------- -----------
Net current liabilities (14,948) (43,203)
----------- -----------
Total assets less current liabilities 228,217 196,695
Creditors: amounts falling due after more than one year (6,000) (6,000)
----------- -----------
Total net assets 222,217 190,695
====== ======
Capital and reserves
Called up share capital 6,067 6,067
Share premium account 29,895 29,895
Other capital reserves 180,800 149,527
Revenue reserve 5,455 5,206
----------- -----------
Equity shareholders' funds 222,217 190,695
====== ======
Net asset value per ordinary share 915.7p 785.8p
====== ======
* See note 5
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LOWLAND INVESTMENT COMPANY PLC
Unaudited Preliminary Results for the year ended 30 September 2006
Cash Flow Statement
For the year ended 30 September 2006
2006 2006 2005 2005
£'000 £'000 £'000 £'000
Net cash inflow from operating activities 7,172 6,014
Servicing of finance
Interest paid (2,001) (2,423)
---------- ---------
Net cash outflow from servicing of finance (2,001) (2,423)
Taxation
Overseas withholding tax recovered 9 32
---------- ---------
Net tax recovered 9 32
Financial investment
Purchase of investments (67,785) (68,107)
Sales of investments 95,690 39,644
---------- -----------
Net cash inflow/(outflow) from financial investment 27,905 (28,463)
Equity dividends paid (4,791) (3,897)
---------- ---------
Net cash inflow/(outflow) before financing activities 28,294 (28,737)
Financing
Issue of shares - 11,885
Net loans (repaid)/drawn down (28,519) 14,763
----------- -----------
(28,519) 26,648
---------- ----------
Decrease in cash (225) (2,089)
---------- ----------
Reconciliation of net cash flow to movement in net
debt
Decrease in cash as above (225) (2,089)
Net cash outflow/(inflow) from movement in loans 28,519 (14,763)
Exchange movements 241 (42)
--------- ----------
Movement in net debt 28,535 (16,894)
Net debt at 1 October (49,680) (32,786)
---------- -----------
Net debt at 30 September (21,145) (49,680)
---------- -----------
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LOWLAND INVESTMENT COMPANY PLC
Unaudited Preliminary Results for the year ended 30 September 2006
Top Ten Holdings as at 30 September 2006
Holding % of Portfolio % of Portfolio
2006 2005
BP 4.1% 5.7%
Royal Dutch Shell 3.7% 5.2%
GlaxoSmithKline 2.3% 2.4%
McAlpine (Alfred) 2.2% 2.4%
Vodafone 2.2% 1.8%
Royal Bank of Scotland 2.0% N/A
Senior 2.0% 2.0%
Diageo 1.7% N/A
Laing (John) 1.6% N/A
United Utilities 1.6% N/A
These investments account for 23.4% (2005: 26.5%) of the total portfolio
valuation of £243,165,000 (2005: £239,898,000). N/A= not in top ten last year
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LOWLAND INVESTMENT COMPANY PLC
Unaudited Preliminary Results for the year ended 30 September 2006
Notes:
1. Accounting policies
a) Basis of Accounting
The accounts are prepared on the historical cost basis of accounting, modified to include the
revaluation of fixed asset investments, and in accordance with The Companies Act 1985,
accounting standards applicable in the United Kingdom and with the Revised Statement of
Recommended Practice - 'Financial Statements of Investment Trust Companies' - dated December
2005 (the 'Revised SORP'). All the Company's operations are of a continuing nature.
b) Changes in presentation
The Company has adopted the provisions of the Revised SORP which has resulted in some changes
to the presentation of the Company's accounts.
The Statement of Total Return is now called the Income Statement. Dividends payable to equity
shareholders are no longer reflected in the Income Statement, although they continue to be
shown in the Reconciliation of Movements in Shareholders' Funds which is now presented as a
primary statement.
c) Changes in accounting policy
The Company has changed its accounting policy for the valuation of listed investments and the
recognition of dividends payable to equity shareholders in accordance with the provisions of
FRS 26 - Financial Instruments: Recognition and Measurement and FRS 21 - Events after the
Balance Sheet Date, respectively. These changes in policy and the associated impact on the
results of the Company are referred to below.
d) Valuation of fixed asset investments
Prior to 1 October 2005, listed investments were valued at middle market prices. Following the
adoption of FRS 26, listed investments have been designated by the Board as held at fair value
through profit or loss and accordingly are valued at fair value, deemed to be bid market prices
or the last traded price depending on the convention of the Exchange on which the investment is
quoted. In accordance with the exemption conferred by FRS 26, comparatives have not been
restated for this change in accounting policy, and therefore listed investments shown at 30
September 2005 are stated at middle market prices. The adoption of bid prices at 1 October
2005 decreased the value of listed investments by £168,000. The effect of this change in
accounting policy is to decrease the value of investments at 30 September 2006 by £555,000 and
decrease the net return of ordinary activities after taxation for the period ended by £387,000.
Unquoted investments are valued by the directors using primary valuation techniques such as
earnings multiples, recent transactions and net assets. Where fair value cannot reliably be
measured the investment will be carried at the previous reporting date value unless there is
evidence that the investment has since been impaired, in which case the value will be reduced.
Changes in the fair value of investments held at fair value through profit or loss and gains
and losses on disposal are recognised in the Income Statement as 'gains or losses on
investments held at fair value through profit or loss'. All purchases and sales are accounted
for on a trade date basis
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LOWLAND INVESTMENT COMPANY PLC
Unaudited Preliminary Results for the year ended 30 September 2006
e) Dividends payable to equity shareholders
Under FRS 21 dividends should not be accrued in the accounts unless they have been
approved by shareholders before the balance sheet date. Interim dividends payable to
equity shareholders are recognised in the Reconciliation of Movements in Shareholders'
Funds once they have been paid to shareholders.
There is no impact from this change on the recognised gains and losses in either 2004 or
2005. However, the net assets at 30 September 2005 and 30 September 2004 have been
impacted as disclosed in note 5. The effect of this change is to increase ordinary
shareholders' funds at 30 September 2005 by £2,851,000 (or 11.75p per share) (30 September
2004: £2,310,000 or 11.00p per share).
2. Share Capital
There were no changes made to the issued share capital during the year. The issued share
capital is 24,267,954 ordinary shares of 25p.
3. Dividend
The recommended final dividend of 12.75p net per ordinary share, subject to approval at the
Annual General Meeting, is payable on 22 December 2006 to shareholders on the register of
members at the close of business on 17 November 2006. The Company's shares will be quoted
ex-dividend on 15 November 2006. Based on the number of shares in issue as at 2 November, the
total cost of the final dividend will be £3,094,000.
4. Return per ordinary share - basic and diluted
The return per ordinary share is based on the net return attributable to the ordinary shares of
£36,481,000 (year ended 30 September 2005: £44,056,000) and on 24,267,954 ordinary shares (year
ended 30 September 2005: 22,006,318) being the weighted average number of ordinary shares in
issue during the year.
The return per ordinary share can be further analysed between revenue and capital, as below.
Year ended Year ended
30 September 30 September
2006 2005
Net revenue return (£'000) 5,040 4,012
Net capital return (£'000) 31,441 40,044
----------- -----------
Net total return (£'000) 36,481 44,056
====== ======
Weighted average number of ordinary shares
In issue during the year 24,267,954 22,006,318
Revenue return per ordinary share 20.77p 18.23p
Capital return per ordinary share 129.56p 181.97p
----------- -----------
Total return per ordinary share 150.33p 200.20p
====== ======
The Company does not have any dilutive securities, therefore the basic and diluted returns per
share are the same.
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LOWLAND INVESTMENT COMPANY PLC
Unaudited Preliminary Results for the year ended 30 September 2006
5. Restatement of Balance Sheets Note Previously
reported Adjustments Restated
£'000 £'000 £'000
Balance sheet at 30 September 2005
Investments 239,898 - 239,898
Current assets 5,825 - 5,825
Creditors: amounts falling due within one
year 1 (51,879) 2,851 (49,028)
------------- ------------- ------------
Total assets less current liabilities 193,844 2,851 196,695
Creditors: amounts falling due after more
than one year (6,000) - (6,000)
------------ ------------ -----------
Net assets 187,844 2,851 190,695
====== ====== ======
Capital and reserves
Called up share capital 6,067 - 6,067
Share premium account 29,895 - 29,895
Other capital reserves 149,527 - 149,527
Revenue reserve 1 2,355 2,851 5,206
----------- ----------- -----------
Equity shareholders' funds 187,844 2,851 190,695
====== ====== ======
Net asset value per ordinary share 774.04p 11.75p 785.79p
Previously
Note reported
£'000 Adjustments Restated
£'000 £'000
Balance sheet at 30 September 2004
Investments 158,634 - 158,634
Current assets 3,907 - 3,907
Creditors: amounts falling due within one
year 1 (32,105) 2,310 (29,795)
----------- ----------- -----------
Total assets less current liabilities 130,436 2,310 132,746
Creditors: amounts falling due after more
than one year (6,000) - (6,000)
------------ ----------- -----------
Net assets 124,436 2,310 126,746
======= ====== ======
Capital and reserves
Called up share capital 5,250 - 5,250
Share premium account 6,922 - 6,922
Other capital reserves 1 109,483 - 109,483
Revenue reserve 2,781 2,310 5,091
------------ ----------- -----------
Equity shareholders' funds 124,436 2,310 126,746
======= ====== =======
Net asset value per ordinary share 592.55p 11.00p 603.55p
Note 1: No provision has been made for the final dividend on ordinary shares for
the years ended 30 September 2005 and 2004. Under FRS 21 final dividends are
not recognised until approved by shareholders.
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LOWLAND INVESTMENT COMPANY PLC
Unaudited Preliminary Results for the year ended 30 September 2006
6. 2006 Accounts
The preliminary figures for the year ended 30 September 2006 are an extract from the latest accounts of
the Company. These accounts have not yet been delivered to the Registrar of Companies, nor have the
auditors yet reported on them.
7. 2005 Accounts
The figures and financial information for the year ended 30 September 2005 (as restated) are extracted
from the latest published accounts of the Company and do not constitute statutory accounts for that
year. Those 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. Annual Report
The Annual Report will be posted to shareholders in November and thereafter copies will be available at
the registered office at 4 Broadgate, London EC2M 2DA.
9. Annual General Meeting
The Annual General Meeting will be held on Thursday, 21 December 2006 at 11.30 am at 4 Broadgate,
London, EC2M 2DA.
For further information please contact:
James Henderson
Lowland Investment Company plc
Telephone: 020 7818 4370
James de Sausmarez
Head of Investment Trusts
Henderson Global Investors
Telephone: 020 7818 3349
Sarah Gibbons-Cook
Investor Relations and PR Manager
Henderson Global Investors
Telephone: 020 7818 3198
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