Interim Results

RNS Number : 4804U

Lowland Investment Co PLC

14 May 2008

 



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.

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  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.

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: [phone]

James de Sausmarez

Head of Investment Trusts, Henderson Global Investors, Tel: [phone]

Sarah Gibbons-Cook
Investor Relations and PR Manager, Henderson Global Investors, Tel: [phone]

- ENDS -

 

END

 

 

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