JANUS HENDERSON FUND MANAGEMENT UK LIMITED

LOWLAND INVESTMENT COMPANY PLC

Legal Entity Identifier: 2138008RHG5363FEHV19

30 May 2024

LOWLAND INVESTMENT COMPANY PLC

          Unaudited results for the half-year ended 31 March 2024

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.

Investment policy

Asset Allocation

The Company invests in a combination of large, medium and smaller companies listed in the UK.  We are not constrained by the weightings of any index; we limit risk by running a diversified  portfolio, which is constructed on a bottom-up, stock-picking basis.  In normal circumstances up to half the portfolio is invested in FTSE 100 companies; the remainder is divided between small and medium-sized companies. The Manager may also invest a maximum of 15% in other listed trusts.

Dividend

The Company aims to pay a progressive dividend, with each dividend equal to or greater than its previous equivalent.

Gearing

The Board believes that debt in a closed-end fund is a valuable source of long-term outperformance, and therefore the Company will usually be geared.  At the point of drawing down debt, gearing will not exceed 30% of the portfolio valuation but generally will be around half that level. Borrowing will be a mixture of short and long-dated debt, depending on relative attractiveness of rates.

Key data for the six months to 31 March 2024

¹ FTSE All-Share Index

Financial highlights

¹ NAV with debt at par value

² Using mid-market closing price

³ Based on dividends paid and declared in respect of the previous twelve month period

Total return performance (including dividends reinvested and excluding transaction costs)

¹ Using mid-market closing price

² FTSE All-Share Index

Sources: Morningstar Direct, Funddata, Factset and Janus Henderson

Historical record - Year to 30 September

¹ Net revenue and net dividends paid are for the six month period ended 31 March 2024

² Attributable to ordinary shares

³ NAV per ordinary share with debt at par value

⁴ First interim dividend of 1.60p per ordinary share paid on 30 April 2024 and second interim dividend of 1.60p per ordinary share that will be paid on 31 July 2024.

* Figures for 2014 to 2021 have been restated due to the sub-division of each ordinary share of 25p into ten ordinary shares of 2.5p each on 7 February 2022.

 INTERIM MANAGEMENT REPORT

CHAIRMAN'S STATEMENT

Overview

Overview

Lowland's Net Asset Value ('NAV') increased by 7.5% in the six months ended 31 March 2024, just above the 6.9% increase in the FTSE All-Share index, our benchmark (all figures on a total return basis). Shareholders are benefitting from a dividend yield in excess of 5%, in addition to modest capital appreciation. However, it is fair to say that the undervaluation of the UK market remains unrecognised in the main, other than in the number of take-over bids from outside the market, and by numerous commentators.

Dividends

Lowland's earnings are strongly weighted to the second half of its financial year. The decline in Earnings Per Share ('EPS') from 2.13p to 1.71p in the first half should be seen in this light, influenced as it is by small movements in quantum and timing. Nevertheless, there is a discernible trend in favour of share buy-backs to the detriment of dividend payments, particularly of special dividends. This does not impact on Lowland's overall strategy of growing capital and, with that, income. A second interim dividend of 1.6p has been declared today, meaning both interim dividends declared this year being 4.9% above their prior year equivalents. We expect to maintain our quarterly progressive dividend policy, so that the last two dividends in respect of the current year should be at least at this rate.

Gearing

Gearing has not varied greatly over the period, ending at 13.1%, up modestly from 12.3% at the financial year end. We see this level of gearing as being appropriate to position ourselves in an undervalued market.

Share price and discount

In common with almost all investment trusts, share price discounts have fluctuated significantly, in our case between 8.0% and 15.4%.  Our share price rose by 8.9% over the half year, just above the increase in NAV, with the discount at which our shares trade narrowing slightly from 14.2% to 10.9%.

The Board believes that a discount control mechanism is not in shareholders' interests, for reasons set out in the Annual Report.

Board

As previously announced, Mark Lam joined the Board on 1 January this year. Also previously announced is that I am to step down at the AGM in January next year. I am delighted to announce that Helena Vinnicombe will succeed me as Chair. With a background in investment management, and having been on the board since 2021, Helena is very qualified for the role.

Outlook

Portfolio companies are making operational progress; there are tentative signs of improvement in the UK economy; and there are prospects for a reduction in interest rates. The UK economic environment is largely supportive, with a return to growth and fall in headline inflation, albeit that a reduction in interest rates may have to await further progress on underlying inflation. The UK market continues to be undervalued by comparison with other markets and historic norms. The Company maintains a progressive dividend policy and our shares yield 5.2%. Lowland's mildly contrarian portfolio trades at a discount to the UK market, and the shares at a discount to NAV. I can only conclude that the outlook is favourable for our shareholders.

At the time of writing, in the period from 31 March to close of business on 28 May, the NAV has increased by 8.5% and the share price by 7.6%, compared to a rise in the benchmark of 4.7%.

Robert Robertson

Chairman

30 May 2024

Equity allocation

¹ FTSE All-Share Index

¹ FTSE All-Share Index

¹ FTSE All-Share Index

FUND MANAGERS' REPORT

Performance review

During the six month period Lowland's net asset value modestly outperformed, rising 7.5% while the FTSE All-Share index benchmark rose 6.9% (both figures are total return). The drivers of performance did not change from the previous financial year, with recovery stories and takeovers leading the way. However, the performance is beginning to move down the market capitalisation scale.

The final column of the table below shows that the FTSE 250 index, representing mid-sized companies, outperformed indices for both large and small companies. The portfolio's holdings in the mid and large companies outperformed their relative benchmarks but the holdings in the small company indices underperformed. This was due to stock selection, particularly the holding in the unsecured lender Vanquis Banking Group, where profit forecasts fell substantially as a result of temporarily higher costs. 

The tables of absolute stock contributors and detractors during the six month period are shown below, with winners and losers to be found across the market.  That investors have been reminded of the recovery potential of overly maligned stocks is a positive feature of the period.

Ten largest absolute contributors

In a similar trend to the previous financial year, many of the best performers during the six months were companies subject to takeover offers such as logistics firm Wincanton and paper and packaging firm DS Smith.  In addition, since the period end, BHP, the Australian based company, has made a withdrawn approach for Anglo American. In the previous annual report we spoke about the vulnerability of UK companies to takeover approaches given their valuation discount to overseas peers. This very much remains the case, although interestingly we are seeing some corporate activity within UK companies (such as within the housebuilding sector). Until we see UK valuation levels meaningfully improve relative to overseas, we expect to see this trend continue and indeed in the period since the half year end we have seen further corporate activity (a recommended offer for both Hipgnosis Songs Fund and IDS). Outside of corporate activity the most meaningful contributor to performance was engine manufacturer Rolls-Royce, which has seen a strong recovery in flying hours for its engines post Covid as well as substantial 'self help' in the form of cost reductions and price rises.

Ten largest absolute detractors

Turning to detractors during the period, there are a few themes that can be drawn out:

· Consumer spending on bigger ticket areas has been slow to recover. The areas that were 'Covid winners', such as spending on the home and on, for example, cycling, have taken longer to normalise than expected, particularly in an environment where until recently there has been pressure on real wages. This has impacted Headlam (a carpet distributor) and retailer Halfords.

· Consumer lenders continue to face challenges around uncertain regulatory backdrops and unexpected costs. For example the regulatory backdrop for consumer lending remains uncertain in Poland which has impacted International Personal Finance and UK consumer lender Vanquis has experienced an unexpected jump in costs following a claims management company targeting their credit card business. While this is disappointing, under a new management team Vanquis has a much greater focus on returns, as well as ambitions for lending growth that can be funded from the existing balance sheet. We have therefore maintained the holding.

· Commodity price weakness continued to impact the earnings of some holdings including North Sea gas producer Serica and diversified miner Anglo American.

Activity

During the period we continued to refresh the portfolio, partly with the proceeds of the aforementioned takeover offers which led to full sales of positions including Finsbury Food and Wincanton. Other disposals included BAE Systems which, following good performance, trades on a much higher valuation than it has in the past.

New positions during the period were spread across the breadth of the UK market, and included global underwriter Beazley, defence services provider Babcock, property owners Shaftesbury Capital and Workspace and food retailer Sainsbury. There is little commonality to these businesses except for the fact they are making substantial operational progress that in our view is not reflected in the current valuation. Taking Sainsbury as an example, they are back winning market share in the UK following a period of adjusting their price competitiveness. More broadly for the listed food retailers (we own both Tesco and Sainsburys) the competitive dynamic has been improved with two substantial competitors now under private equity ownership with high levels of indebtedness.

At the end of the period gearing within the Company stood at 13.1%, up modestly from 12.3% at the financial year end. We continue to see the ability to gear as a key advantage of the investment trust structure and it is particularly advantageous at times such as now when we can see considerable value within the UK market.

Outlook

The UK is fast approaching the criteria required for an interest cut. Inflation is falling near to the desired level, wage pressure is moderating and the economy (while showing tentative signs of improvement) is more or less flat lining.  There is certainly no 'irrational exuberance', in fact quite the reverse. There is a lack of investment going on by both companies with their capital spend programmes and with equity investors into shares. In some respects a cut in interest rates now could lower inflation by easing upward pressure on wages stimulated by the rise in the cost of living. A cut in interest rates might be the catalyst that is needed to stimulate the economy and interest in the market.

That UK stocks are undervalued is generally accepted and can be evidenced by the high level of takeovers. If economic growth is stimulated, and earnings upgrades start to come through, the low valuation on corporate earnings will look very stark. A cut in interest rates, and being the other side of the UK general election, could lead to a pick-up in capital spend as uncertainties ease. Some capital spend programmes have been put on hold and could be reactivated. The resulting pick-up in activity would feed through to profits as companies have controlled their cost bases well, reacting to the current difficult operating environment. Interest rate cuts, low valuations and earnings upgrades are a positive background for a UK stock market revival.             

James Henderson and Laura Foll

Fund Managers

30 May 2024

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 and expenses incurred on the Company's business, 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:

Market, geopolitical, macroeconomic or environmental;

Global pandemic;

Investment activity and strategy;

Portfolio and market price;

Dividend income;

Financial;

Gearing;

Tax and regulatory; and

Operational.

Information on these risks and how they are managed is given in the Annual Report for the year ended 30 September 2023. The Board has completed a thorough review of the principal risks, and the uncertainties facing the Company.  As a result of this review, the Board considers that the principal risks and uncertainties remain largely unchanged and that they 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 2024 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).

On behalf of the Board

Robert Robertson

Chairman

30 May 2024

INVESTMENT PORTFOLIO

As at 31 March 2024

¹ AIM Stocks

² Unlisted Investments

Source: Janus Henderson

CONDENSED INCOME STATEMENT

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.

____________________                

The accompanying notes form an integral part of these condensed financial statements.

The accompanying notes form an integral part of these condensed financial statements.

CONDENSED STATEMENT OF CASH FLOWS

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

The half-year financial statements cover the period from 1 October 2023 to 31 March 2024 and have not been audited or reviewed by the Company's auditors.

For further information, please contact:

James Henderson and Laura Foll

Fund Managers

Lowland Investment Company plc

Tel: 020 7818 4370/6364

Dan Howe

Head of Investment Trusts

Janus Henderson Investors

Tel: 020 7818 4458

Harriet Hall

PR Director, Investment Trusts

Janus Henderson Investors

Telephone: 020 7818 2919

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.