Interim Results
Lowland Investment Co PLC
17 May 2006
Page 1 of 9
17 May 2006
LOWLAND INVESTMENT COMPANY PLC
Unaudited Interim Results
for the half year ended 31 March 2006
Chairman's Statement
Review
During the six month period to 31 March 2006 the net asset value per share, as
calculated under the new UK Accounting Standards, rose by 14.6% from 785.8p to
900.7p. Using the same Accounting Standards as last year, which we believe are
more meaningful, the net asset value per share rose from 774.0p to 892.7p, an
increase of 15.3%. These rises compare with a rise in the FTSE All-Share Index
(capital return only) over the same period of 11.0%.
The relative outperformance is the result of the gearing, the Japanese
investments and selective UK holdings benefiting from the benign economic
background. Recent results from companies have in aggregate been at the top end
of expectations with improved operating margins being reported. This is despite
substantial rises in costs such as some utility and energy prices.
The focus in stock selection remains on companies with growing dividends that
have a reasonable starting yield. These are proving increasingly difficult to
find. Therefore, we have taken the opportunity of the strength in share prices
to pay back some of our short term borrowings and during the period we reduced
the level of gearing from 25% to 9%. This is a reflection of the fact that
current valuations are now more demanding rather than an attempt to predict a
stock market correction. In addition, corporate activity, with companies such
as BOC and PD Ports receiving agreed bids, has resulted in cash coming back into
the portfolio. Our holdings in Japanese equities, which we made in the second
half of last year, were sold in March, apart from the shares in Toyota Motors.
It was a profitable exercise of a kind which we will repeat when we believe
there is a suitable opportunity.
Dividend
Earnings per share for the half year are 6.1p, compared to 6.3p in the
corresponding period last year. Dividends from the underlying holdings are
showing good growth which should come through in the second half of the year.
The interim dividend is 8.0p, compared with 7.5p last time, an increase of 6.7%.
It is the Board's intention, barring unforeseen circumstances, at least to
maintain the final dividend, subject to shareholder approval.
Revised UK Accounting Standards
In common with other UK companies, we adopted revised UK Accounting Standards on
1 October 2005 and these interim accounts have been prepared on this basis. The
notes to the accounts include reconciliations of the figures for the comparative
periods to those reported previously. Whilst there are a number of changes,
only two of the new requirements have an effect on the net asset value per
share. Investments are now valued at bid (or selling) prices rather than at
mid-market prices and this reduces the valuation of the portfolio as at 31 March
2006 by £106,000 or 0.04%. The second change is that dividends recommended by
the Board are no longer included in the accounts as payable until they have
either been paid to, or approved by, shareholders. Accordingly, the dividend in
respect of the half year ended 31 March 2006 is not accrued as a liability in
these accounts.
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Page 2 of 9
LOWLAND INVESTMENT COMPANY PLC
Unaudited Interim Results
for the half year ended 31 March 2006
Outlook
The global economy has experienced a long period of growth with subdued
inflation which has resulted in strong corporate profits growth. Returns on
capital employed and overall profits as a percentage of GDP are at unusually
high levels. Forward valuations based on earnings forecasts do not look
demanding but rising global interest rates will test the robustness of corporate
profits and this could leave some valuations looking exposed. Our strategy
going forward will be increasingly cautious. If we do not find appropriate
investment opportunities we will not invest. This could mean that not only will
gearing fall further but that cash deposits may build. This would position us
to take advantage of value when it re-emerges.
John Hancox
Chairman
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Page 3 of 9
LOWLAND INVESTMENT COMPANY PLC
Unaudited Interim Results
for the half year ended 31 March 2006
Income Statement
for the half year ended 31 March 2006
(Unaudited) (Unaudited and restated)* (Audited and restated)*
Half year ended Half year ended Year ended
31 March 2006 31 March 2005 30 September 2005
Revenue Capital Revenue Capital Revenue Capital
Return Return Total Return Return Total Return Return Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Gains on investments held
at fair value through
profit or loss - 29,421 29,421 - 21,465 21,465 - 40,044 40,044
Income from investments
held at fair value through
profit or loss 3,376 - 3,376 3,013 - 3,013 7,567 - 7,567
Other interest receivable
and similar income 52 - 52 22 - 22 86 - 86
--------- -------- --------- --------- --------- --------- --------- --------- ---------
Gross revenue and capital
gains 3,428 29,421 32,849 3,035 21,465 24,500 7,653 40,044 47,697
Management fee (606) - (606) (475) - (475) (1,014) - (1,014)
Other administrative
expenses (128) - (128) (111) - (111) (222) - (222)
--------- -------- --------- --------- --------- --------- --------- --------- ---------
Net return on ordinary
activities before finance
charges and taxation 2,694 29,421 32,115 2,449 21,465 23,914 6,417 40,044 46,461
Finance charges (1,210) - (1,210) (1,110) - (1,110) (2,383) - (2,383)
--------- ---------- --------- --------- --------- --------- --------- --------- ---------
Net return on ordinary
activities before taxation 1,484 29,421 30,905 1,339 21,465 22,804 4,034 40,044 44,078
Taxation on net return on
ordinary activities (2) - (2) - - - (22) - (22)
--------- -------- -------- --------- --------- --------- --------- --------- ---------
Net return on ordinary
activities after taxation 1,482 29,421 30,903 1,339 21,465 22,804 4,012 40,044 44,056
===== ===== ===== ===== ===== ===== ===== ===== =====
Return per ordinary share
(note 3) 6.1p 121.2p 127.3p 6.3p 101.5p 107.8p 18.2p 182.0p 200.2p
The total columns of this statement represent the profit and loss accounts of
the Company.
All revenue and capital items in the above statement derive from continuing
operations.
*Restated see note 2.
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Page 4 of 9
LOWLAND INVESTMENT COMPANY PLC
Unaudited Interim Results
for the half year ended 31 March 2006
Reconciliation of Movements in Shareholders' funds
(Unaudited)
Half year ended 31 March 2006
Called up Share
share capital premium
account Other capital Revenue
reserves
reserve Total
£'000 £'000 £'000 £'000 £'000
At 30 September 2005 (as restated see note 6,067 29,895 149,527 5,206 190,695
2)
Adjustment to bid valuation (see note 1a) - - (168) - (168)
Net return from ordinary activities - - 29,421 1,482 30,903
Final dividend (11.75p) for year ended 30
September 2005 - - - (2,851) (2,851)
Write back of dividends over 12 years old - - - 2 2
------------ ------------ ------------ ------------- -----------
At 31 March 2006 6,067 29,895 178,780 3,839 218,581
======= ======= ======= ======= ======
(Unaudited)
Half year ended 31 March 2005
Share
Called up premium account Other capital Revenue
share capital reserves reserve
Total
£'000 £'000 £'000 £'000 £'000
At 30 September 2004 (as restated see 5,250 6,922 109,483 5,091 126,746
note 2)
Issue of shares 81 2,163 - - 2,244
Net return from ordinary activities - - 21,465 1,339 22,804
Final dividend (11.00p) for year ended
30 September 2004 - - - (2,310) (2,310)
----------- ------------ ---------- ------------ -----------
At 31 March 2005 5,331 9,085 130,948 4,120 149,484
====== ======= ====== ======= ======
(Audited)
Year ended 30 September 2005
Share
Called up premium Other capital Revenue
share capital reserves reserve
account Total
£'000 £'000 £'000 £'000 £'000
At 30 September 2004 (as restated see 5,250 6,922 109,483 5,091 126,746
note 2)
Issue of shares 817 22,973 - - 23,790
Net return from ordinary activities - - 40,044 4,012 44,056
Final dividend (11.00p) for year ended
30 September 2004 - - - (2,310) (2,310)
Interim dividend (7.50p) for year ended
30 September 2005 - - - (1,599) (1,599)
Write back of dividends over 12 years - - - 12 12
old
------------ ------------ ------------ ------------ -----------
At 30 September 2005 6,067 29,895 149,527 5,206 190,695
======= ======= ======= ======= ======
Purchase transaction costs for the half year ended 31 March 2006 were £158,000
(half year ended 31 March 2005: £153,000; year ended 30 September 2005:
£411,000). These comprise mainly stamp duty and commission. Sale transaction
costs for the half year ended 31 March 2006 were £96,000 (half year ended 31
March 2005: £28,000; year ended 30 September 2005: £52,000).
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Page 5 of 9
LOWLAND INVESTMENT COMPANY PLC
Unaudited Interim Results
for the half year ended 31 March 2006
Balance Sheet
as at 31 March 2006
(Unaudited and (Audited and
restated)* restated)*
(Unaudited) 31 March 30 September
31 March 2005 2005
2006
£'000 £'000 £'000
Fixed assets
Investments held at fair value through profit or loss 240,017 185,747 239,898
----------- ----------- -----------
Current assets
Debtors 1,633 1,565 3,082
Cash at bank and in hand 185 1,165 2,743
---------- ----------- -----------
1,818 2,730 5,825
Creditors: amounts falling due within one year (17,254) (32,993) (49,028)
----------- ----------- -----------
Net current liabilities (15,436) (30,263) (43,203)
----------- ----------- -----------
Total assets less current liabilities 224,581 155,484 196,695
Creditors: amounts falling due after more than one
year (6,000) (6,000) (6,000)
----------- ----------- -----------
Total net assets 218,581 149,484 190,695
====== ====== ======
Capital and reserves
Called up share capital 6,067 5,331 6,067
Share premium account 29,895 9,085 29,895
Other capital reserves 178,780 130,948 149,527
Revenue reserve 3,839 4,120 5,206
----------- ----------- -----------
Total equity shareholders' funds 218,581 149,484 190,695
====== ====== ======
Net asset value per ordinary share (note 5) 900.7p 701.0p 785.8p
*Restated (see note 2)
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Page 6 of 9
LOWLAND INVESTMENT COMPANY PLC
Unaudited Interim Results
for the half year ended 31 March 2006
Cash Flow Statement
for the half year ended 31 March 2006
(Unaudited) (Unaudited) (Audited)
Half year ended Half year ended Year ended
31 March 31 March 30 September
2006 2005 2005
£'000 £'000 £'000
Net cash inflow from operating activities 2,374 1,835 6,028
Net cash outflow from servicing of finance (1,120) (1,227) (2,437)
Total tax recovered 2 25 32
Net cash inflow/(outflow) from purchases and sales of
investments 31,306 (5,120) (28,463)
Equity dividends paid (2,849) (2,310) (3,897)
---------- ---------- -----------
Net cash inflow/(outflow) before financing 29,713 (6,797) (28,737)
Net cash (outflow)/inflow from financing (29,828) 5,544 26,648
---------- ----------- ------------
Decrease in cash (115) (1,253) (2,089)
====== ====== ======
Reconciliation of operating revenue to net cash inflow
from operating activities
Net revenue before finance charges and taxation 2,694 2,449 6,417
Increase in accrued income (371) (503) (303)
Decrease/(increase) in other debtors 14 (8) 26
Increase in creditors 41 13 71
Overseas withholding tax (4) (4) (16)
Scrip dividends included in investment income - (112) (167)
---------- ---------- ------------
Net cash inflow from operating activities 2,374 1,835 6,028
====== ====== ======
Reconciliation of net cash inflow to movement in net
debt
Decrease in cash as above (115) (1,253) (2,089)
Cash outflow/(inflow) from repayment/(drawdown) of
loans 29,828 (3,300) (14,763)
Exchange movements 182 4 (42)
---------- ---------- ------------
29,895 (4,549) (16,894)
Net debt at beginning of the period (49,680) (32,786) (32,786)
---------- ---------- ------------
Net debt at the end of the period (19,785) (37,335) (49,680)
====== ====== ======
Represented by:
Cash at bank less bank overdrafts 185 1,165 267
Debt falling due within one year (13,970) (32,500) (43,947)
Debt falling due after more than one year (6,000) (6,000) (6,000)
---------- ---------- ------------
(19,785) (37,335) (49,680)
====== ====== ======
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Page 7 of 9
LOWLAND INVESTMENT COMPANY PLC
Unaudited Interim Results
for the half year ended 31 March 2006
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 and with 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 2005 have been
applied with the following exceptions:
(a) Valuation of fixed asset investments
Prior to 1 October 2005, listed investments were valued at middle market prices. Following the
introduction 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. 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 31 March 2005 and 30 September 2005 are
stated at middle market prices. The adoption of bid market 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 31 March 2006 by £106,000 and increase the net return on ordinary activities
after taxation for the period then ended by £62,000.
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'. Also included within this caption are transaction costs in relation to the
purchase or sale of investments, including the difference between the purchase price of an investment
and its bid price at the date of purchase. All purchases and sales are accounted for on a trade date
basis.
(b) Dividends
Under FRS21 - Events after the Balance Sheet Date - ordinary dividends should not be accrued in the
accounts unless they have been approved by shareholders before the Balance Sheet date. Interim dividends
are therefore recognised in the period in which they are paid. As a result of this change, the accounts
for the half year ended 31 March 2005 and year ended 30 September 2005 have been restated as per note 2
below.
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Page 8 of 9
LOWLAND INVESTMENT COMPANY PLC
Unaudited Interim Results
for the half year ended 31 March 2006
Notes continued
2. Restatement in respect of dividends
Income Statement (formerly Statement of Total Return)
The Income Statement no longer reflects payment of ordinary dividends: these are now shown in the
Reconciliation of Movements in Shareholders' Funds during the period in which they are paid. The
Income Statement for the half year ended 31 March 2005 and the year ended 30 September 2005 have been
restated accordingly.
Balance Sheets
30 September 31 March 30 September
2004 2005 2005
£'000 £'000 £'000
Net assets as previously stated 124,436 147,885 187,844
Add back accrual of final dividend (11.00p 2,310 - -
per share) for the year ended 30 September
2004 paid on 17 December 2004
Add back accrual of interim dividend (7.50p - - -
per share) for the year ended 30 September
2005 paid on 24 June 2005
Add back accrual of final dividend (11.75p - 1,599 2,851
per share) for the year ended 30 September
2005 paid on 19 December 2005
----------- ----------- -----------
Restated net assets 126,746 149,484 190,695
====== ====== =======
3. Return per ordinary share
(Unaudited) (Unaudited) (Audited)
Half year ended Half year ended Year ended
31 March 31 March 30 September
2006 2005 2005
£'000 £'000 £'000
The return per ordinary share is based on the
following figures:
Revenue return 1,482 1,339 4,012
Capital return 29,421 21,465 40,044
---------- ----------- -----------
Total 30,903 22,804 44,056
====== ====== ======
Weighted average number of ordinary shares in 24,267,954 21,143,255 22,006,318
issue for each period
Revenue return per ordinary share 6.1p 6.3p 18.2p
Capital return per ordinary share 121.2p 101.5p 182.0p
---------- ----------- -----------
Total 127.3p 107.8p 200.2p
====== ====== ======
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Page 9 of 9
LOWLAND INVESTMENT COMPANY PLC
Unaudited Interim Results
for the half year ended 31 March 2006
Notes continued
4. 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.
5. 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
£218,581,000 (31 March 2005: £149,484,000 as restated; 30 September 2005: £190,695,000 as restated) and on
24,267,954 ordinary shares (31 March 2005: 21,325,205; 30 September 2005: 24,267,954) being the number of
ordinary shares in issue at the end of each period.
6. Interim dividend
An interim dividend of 8.0p has been declared and will be paid on 23 June 2006 to shareholders on the
register on 26 May 2006. The Company's shares will trade ex-dividend on 24 May 2006.
7. Accounts for the year ended 30 September 2005
The figures and financial information for the year ended 30 September 2005 are an extract from the latest
published accounts of the Company and have been restated to comply with revised UK Accounting Standards.
They 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 the difference between quoted investments and equity shareholders' funds divided by
equity shareholders' funds.
- ENDS -
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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