Lowland Inv. Regulatory News (LWI)

LOWLAND INVESTMENT COMPANY PLC

ANNUAL FINANCIAL RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2021

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 will invest in a combination of large, medium and smaller companies listed in the UK. We are not constrained by the weightings of any index; we focus instead on controlling absolute risk by diversifying on the basis of underlying company characteristics such as size, industry, economic sensitivity, clients and management. In normal circumstances up to half the portfolio will be invested in FTSE 100 companies; the remainder will be divided between small and medium-sized companies. On occasions the Manager will buy shares listed overseas. The Manager may also invest a maximum of 15% in other listed trusts.

Dividend

The Company aims to provide shareholders with better-than-average dividend growth.

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 never exceed 29.99% of the portfolio valuation. Borrowing will be a mixture of short and long-dated debt, depending on relative attractiveness of rates.

Key Data as at 30 September 2021

· Net Asset Value ('NAV') Total Return1 of 51.0%

· Benchmark Total Return2 of 27.9%

· Dividend growth of 0.4%

· Dividend for the Year3 of 60.25p

1 NAV per share total return (including dividends reinvested) with debt at fair value

2 FTSE All-Share Index (including dividends reinvested)

3 Includes the final dividend of 15.25p per ordinary share for the year ended 30 September 2021 that will be put to shareholders for approval at the Annual General Meeting on Wednesday 26 January 2022

4 NAV per share for both figures is before deduction of the third interim dividend paid in October of each year.

5 Mid-market closing price

6 The performance fee was removed from the management agreement with effect from 1 October 2020

7 Based on dividends paid and payable in respect of the financial year and the share price at the year end

8 Calculated using year end fair value NAVs including current year revenue

Sources: Morningstar for the AIC, Janus Henderson, Refinitiv Datastream

Historical Performance

1 Includes the final dividend of 15.25p per ordinary share for the year ended 30 September 2021 that will be put to the shareholders for approval at the Annual General Meeting on Wednesday 26 January 2022

CHAIRMAN'S STATEMENT

Performance

I am delighted to report that Lowland's performance in the year was very satisfactory, both in absolute terms and compared to the FTSE All-Share index, which is our benchmark. Net Asset Value rose by 51.0% against a rise of 27.9% in the index. The share price outstripped both these increases, rising 53.3%, all on a total return basis.

The previous year had started well but our portfolio was particularly exposed to the effects of COVID-19, a number of holdings in the industrials and financials sectors being severely punished. The rapid economic recovery which stemmed from the successful vaccination programme resulted in exposure to precisely these cyclical sectors being rewarded. Taking the two years together our NAV increased by 13.5%, almost exactly double the 6.7% increase in the index again, both on a total return basis. To borrow a sporting expression, I think we would have 'taken' such an outcome, had it been offered early in the pandemic. It vindicates the Fund Managers' calm response to the crisis, and belief that there remained value within the market.

Two themes are worthy of comment. Firstly, one year's detractors were in many cases the following year's top contributors. Senior, heavily exposed to the aviation sector, is an example of a company widely but prematurely written off. The unexpected speed of recovery of demand has led many companies to recover sales and earnings to near pre-pandemic levels, and return to paying dividends. Secondly, the level of interest from foreign investors has given rise to some exit opportunities, but also underlines the lowly valuation of the UK market, described by one senior observer as approaching pariah status.

Dividends

Earnings per share rose by 26% to 42.7p, although still well below the 68.0p recorded in 2019. This recovery reflects the performance of portfolio companies, as mentioned above, and to a degree the fact that Lowland has been a net investor over the year. The Fund Managers explain in their report their expectation that, barring unforeseen shocks, investment income will continue to rise towards the levels pertaining pre-pandemic.

Since the start of the pandemic, we have cautiously maintained that we would seek to stick by our quarterly progressive dividend policy, always with a weather eye as to whether dividends would recover to their previous level in a reasonable time frame. The Board is proposing a final dividend of 15.25p, compared with 15.00p last year. If approved, this will give rise to total dividends for the year of 60.25p, a very slight increase on last year's 60.00p. In proposing this course of action, the Board is convinced that it can be pursued without prejudice to the investment policy, especially avoiding chasing income at the expense of total return. We are also cognisant that Revenue Reserves amounted to £6.7m at the year-end, which is less than the amount of the third interim and final dividend, totalling £8.2m, payable after 30 September. This will result in the use of £1.5m from Capital Reserves, which amounted to £271.2m at the year-end.

We recognise that one of the many advantages an investment trust presents, compared with alternative investment vehicles, is that it can provide investors with a progressive flow of income. Our large number of retail investors value this characteristic, which is in considerable contrast with the experience of investing in the UK equity income open-ended fund sector, which on average reduced pay-outs by over 25% in 2020. We therefore will aspire to maintain our progressive quarterly dividend policy, which may require further limited drawings on our Capital Reserves.

Investment review and gearing

A further advantage of an investment trust is that it may use borrowing to finance the portfolio. During the year we increased net borrowings from £42.6m to £54.9m, although with asset values rising, gearing reduced in percentage terms, from 15% to 13.8%. Lowland has available medium-term facilities of £40m (with an option to borrow a further £20m) and £30m 3.15% Loan Notes due in 2037. This long-term debt has been more expensive than short-term debt, since it was raised in 2017, but we value a balance of short- and long-term borrowings, the latter offering protection against a potential rise in rates.

Lowland has always invested in small, medium and large companies. Added to the balance which this gives the portfolio, the Fund Managers are now also classifying investments by 'bucket', each bucket being characterised by factors such as income, growth, recovery and so on. We hope that their report will help shareholders understand the underlying nature of the portfolio, and also see how it is structured with a mind to providing a combination of income and growth.

I draw your attention to the section in the Investment Managers' report which illustrates the part ESG plays in the investment process, as well as the new Environmental, Social and Governance section in the Strategic Report. At its simplest the importance of environmental, social and governance issues to risk management is blindingly obvious, even if the manner in which it is sometimes reported does not always so suggest. There is nothing fundamentally new in terms of the banana skins companies face if they don't get it right. An environmental disaster from a mining company, exploitative practices in a clothing company, or a governance lapse in any company are straightforward examples of own goals which face the unwary. Something which is relatively new, and becoming more important, is the opportunity to invest in companies which will benefit from the increased focus on environmental and societal considerations in the world at large.

Ongoing charge

The ongoing charge was 0.6% relative to the previous year's 0.7%. The main element of costs is the Management Fee which was renegotiated with effect from the beginning of the 2021 financial year. It amounts to 0.5% on Net Chargeable assets up to £325m and 0.4% thereafter. We believe this is competitive and will result in the ongoing charge ratio declining as the portfolio grows.

Share price discount

During the year the discount to cum income, fair value NAV fluctuated between 0.5% and 10.0%, ending the year at 9.1%. The policy on discount is set out in the Annual Report.

The Board

I mentioned last year that Karl Sternberg planned to step down from the Board, which he has now done. I shall not repeat my sincere and profound thanks to Karl for his contribution.

In my Interim Statement I mentioned Helena Vinnicombe's appointment to the Board, and I am glad to report that she has now attended her first physical meeting, as well as several virtual meetings! I do hope we are able to introduce her in person at the AGM, rules permitting.

I would mention that your Board has been more than usually active during the pandemic, meeting frequently on an ad hoc basis as the crisis unfolded. The Fund Managers claim that they found the rigour of active discussion of strategy helpful at these challenging times.

The Board's robust approach to its own governance issues, such as ensuring that its own members are independent, that there is a balance of continuity and refreshment, and that Directors have adequate time to devote to the Company's affairs, is set out in the Annual Report.

Contact with Shareholders

We are always keen to hear shareholders' views and so I would invite anyone who wishes to contact me to do so at: itsecretariat@janushenderson.com

Proposed share split

We are always keen to receive feedback from our shareholders and a recurring suggestion in recent years has been undertaking a share split, given the optically high share price. We are cognisant, for example, that many of our shareholders use dividend reinvestment plans, and a lower share price would mean less surplus cash at the point of dividend reinvestment. We are therefore proposing a resolution at the AGM to approve sub-dividing each ordinary share of 25p into 10 ordinary shares of 2.5p each. The Board believe this to be in the best interests of shareholders. Further details can be found in the circular convening this year's AGM.

Annual General Meeting ('AGM')

We are pleased, subject to further guidance, to be able to return to an 'in person' AGM this year. The AGM will be held at the offices of Janus Henderson on 26 January 2022 at 12.30 pm. Full details of the business to be conducted at the meeting are set out in the Notice of Meeting which has been sent to shareholders with this report.

As usual our Fund Managers will be making a presentation. This is an important opportunity for shareholders to meet the Board and Fund Managers and to ask them questions. We would encourage as many shareholders as possible to attend; we welcome your questions and observations. The AGM will be broadcast live on the internet, so if you are unable to attend the AGM in person you will be able to log on to watch as it happens, by visiting www.janushenderson.com/en-gb/investor/investment-trusts-live/

Outlook

The question posed at the end of last year's report, of how long inflation might lie fallow, has been answered, with the Retail Price Index (RPI) rising by 4.9% for the year ending 30 September. Questions now are how much, how long; how will authorities react and what will be the influence on our investment universe. Against this background, and the renewed uncertainties caused by the Omicron variant, the recent stall in the performance of the Company's NAV, and the market in general, is not surprising. Since the year-end there has been no material movement in the company's NAV, share price or discount, or in the benchmark.

Portfolio companies face conflicting influences. On the one hand demand for their products and services is broadly strong. On the other, there are material supply chain and cost pressures as the economy re-opens. As ever Lowland's portfolio is managed on a stock by stock basis, and for the most part companies in which we are invested are market leaders or among the market leaders, with the pricing power to pass on the effects of higher costs. These have historically been the best hedge against higher inflation environments.

We believe that there is value in much of the UK market, certainly by comparison with almost all other markets. We think there continues to be value in our portfolio, and opportunity to invest further.

Robert Robertson

Chairman

8 December 2021

FUND MANAGER'S REPORT

Background

The twelve months to the end of September were a period of strong returns for Lowland's portfolio. This is a welcome return to good performance as we recognise the three year performance has been challenging. The portfolio fortunes have been closely linked to the performance of the UK economy. This is because the portfolio companies in aggregate derive more of their earnings from the UK than the average company in the FTSE All-Share index. The opening up of the economy following the peak of the pandemic and the Brexit deal brought about a return of some investor confidence. This sparked a pick-up in proposed and actual corporate takeover activity, with the portfolio benefitting from deals such as RSA being purchased by a consortium and Senior successfully rebutting a private equity bid approach. The takeovers came predominantly from overseas buyers as UK company share prices have generally lagged other major markets. The valuation of UK companies appears to be at bargain levels, particularly for US buyers. The reasons for this lie in uncertainties created by Brexit and a lack of the newer technology companies in the UK. This meant global investors have shunned UK assets. The Brexit deal and an economic recovery has partially countered these concerns.

Lowland maintains a large exposure to the UK economy because this is where very good opportunities can be found as the valuations for good quality companies are undemanding. The small and medium sized companies are overall more UK centric than the major constituents of the market, which means that the UK exposure will be higher than the index.

Performance Attribution

As is always the case with performance numbers, the starting point makes a huge difference to the end outcome. Lowland's financial year (starting on 1 October 2020) captured the full benefit of the positive COVID-19 vaccination trials, starting with Pfizer in early November. This led to a material recovery in cyclical sectors, such as industrials and financials, to which Lowland's portfolio has a significant exposure. In some cases, however, the strong recovery in share prices in 2021 needs to be seen in the context of recovering from very low levels during the pandemic. This is particularly the case for companies exposed to the most impacted areas, such as civil aerospace. For this reason, in the tables of top five and bottom five contributors and detractors from performance, we have included two year share price total return so that share prices can also be seen relative to their pre-pandemic level.

At the sector level, the largest contributor to relative performance was industrials. This was driven predominantly by stock selection rather than asset allocation. The key drivers of this positive stock selection included Senior, Redde Northgate, Somero Enterprises, Morgan Advanced Materials, Tyman and Clarkson. While they share little commonality of end markets, with the exception of Senior all saw a good recovery in sales following the pandemic.

The top five contributors to relative return (not including underweight positions) were:

Examining each in turn:

1. K3 Capital was initially purchased at IPO in April 2017 for 95p (the share price at Lowland's financial year-end was £3.53). The position has been added to several times following the IPO, including in fund raisings where we supported the company in acquiring complementary businesses. Initially a corporate broking business based in Bolton, the business has grown successfully and now spans R&D tax credits and restructuring services as well. In our view the business has considerable further scope for sales and earnings growth, led by an ambitious management team.

2. Aerospace components designer and manufacturer Senior has been held in the portfolio for over ten years. While it was a good performer in the years following the financial crisis, on a three year and five year basis the company is one of the largest detractors from performance. This was driven initially by the Boeing 737 Max grounding (to which Senior supplied components that were unrelated to the crashes), and subsequently by COVID-19's impact on the civil aerospace industry. In the last financial year the shares recovered well from their pandemic lows, supported by a takeover approach from private equity firm Lone Star (that was rejected by the Senior Board).

3. Redde Northgate was initially purchased for the portfolio (as Redde) in April 2017. It then merged with flexible van hire firm Northgate in early 2020, with the former Redde CEO as the group CEO. As a combined business it has over-delivered on its cost savings targets and it is making tentative but promising early progress in sales synergies. Despite its recent good performance the valuation remains low relative to the broader UK market and it pays an attractive dividend yield.

4. Somero Enterprises (which makes equipment for the construction industry) has been held in the portfolio for over ten years and has been one of the best long-term performers. While its sales can be volatile (as it requires construction companies to have the confidence to buy a relatively expensive piece of 'kit'), sales and earnings have grown well over the long-term and it is a highly cash generative business.

5. International Personal Finance has been in the portfolio for over ten years and has been a detractor from performance over the long-term. It provides digital and door to door lending in a range of emerging markets including Eastern Europe and Mexico. While it has performed poorly over its period of ownership, in our view this stems largely from unforeseen regulatory changes in some geographies rather than mismanagement. In the last financial year the shares recovered well from their lows driven by lower loan losses than initially feared (a trend seen across many lenders) and a successful refinancing of a large corporate bond that matured in Spring 2021. We continue to hold the position as we see the valuation as attractive and we see good potential for future earnings growth, driven in particular by their digital lending offering.

The largest five detractors from relative return (not including underweight positions) were:

Three of the largest five detractors from relative performance are in defensive industries (including life insurance and utilities) where consumer demand does not decrease or increase as much as the market and these underperformed in a sharply rising market. We will therefore focus on the two companies where the share prices fell during the financial year and that have been disappointing long term performers; early stage drug developer 4D Pharma and non-life insurer Hiscox. In the case of 4D Pharma the position was sold in late 2020 as clinical trials were not progressing at the speed at which we initially expected when the position was established. Hiscox underperformed on ongoing concerns regarding heightened claims inflation impacting returns. The nature of these claims concerns has shifted; prior to the pandemic there were concerns regarding rising litigation costs, particularly in the US. This then moved onto business interruption and events cancellation claims during the pandemic. More recently concerns have emerged around non-life insurers more broadly in a rising inflation environment. We continue to hold a position in Hiscox as in our view the potential for future earnings growth from increasing insurance coverage of US smaller companies outweighs shorter term concerns regarding claims inflation.

Portfolio Positioning

The portfolio will always be a blend of faster growing smaller companies and more stable, cash generative larger companies. A company in a faster growth, earlier phase of its life cycle should command a higher valuation than one which is more established and growing at a slower, more consistent rate. Different portions of the portfolio need, therefore, to be viewed through different valuation lenses. For this reason we have divided the portfolio into six classifications, listed below. The aim of these classifications is not to fundamentally change the way the portfolio is managed, but rather to ensure diversity within the portfolio and clarity for shareholders:

Portfolio Activity

It was an active year for the portfolio in which 14 new positions were purchased and 17 were sold. We were net investors during the year of approximately £6.9m, as we continued to find attractive valuation opportunities across the UK equity market.

Within larger companies, a sector that was added to meaningfully was banks, where we added to existing positions in Natwest, Lloyds and HSBC as well as a new position in Barclays. The additions to the banking sector, where we have been cautious in the period since the financial crisis, was driven by a combination of top-down and bottom-up reasons. From a bottom-up perspective, valuations remain low relative to history and balance sheets are well positioned following a period of building up surplus capital. From a top-down perspective, as economies recover from the pandemic this should lead to a recovery in loan demand from businesses and consumers. The banking sector could also be a beneficiary if interest rates begin to rise from their exceptionally low current levels.

Within smaller and medium sized companies, the largest new positions added were Jupiter Fund Management, Reach (a newspaper publisher, formerly Trinity Mirror), Serica Energy (a North Sea oil & gas producer) and Finsbury Food (a producer of speciality breads and cakes). All of these companies are well managed, cash generative businesses but trade at a valuation discount to the broader UK market because of a 'question mark' around their capacity for future sales and earnings growth. In our view this valuation discount more than reflects the issues and we can see a realistic likelihood of future earnings growth. For example, Reach could grow group earnings by better monetising its online content, Serica Energy could acquire additional North Sea assets funded from its strong balance sheet (and is a beneficiary of rising UK gas prices), Finsbury Food will benefit from a reopening of food service channels following the pandemic and Jupiter Fund Management could see a return to net inflows on better sentiment towards UK and European equities.

Two of the largest sales during the year were driven by takeover activity; St Modwen Properties was taken over by private equity and RSA was taken over by a consortium of peers. Elsewhere sales were, in some cases, driven by share prices reaching what we deemed to be fair value. This was the case with Avon Protection, Secure Income REIT, Croda, HICL Infrastructure and Ten Entertainment. In some cases sales were driven by industry fundamentals deteriorating or the investment thesis not progressing as planned. This was the case with the small position in Cineworld, which was sold as during the pandemic films were increasingly released straight to online platforms (such as Disney+); a trend that we had a concern would continue following the pandemic.

Dividends

2021 was a much more positive year for investment income than 2020. Compared to 33.8p in revenue earnings per share in 2020, earnings per share rose to 42.7p. Both of these numbers need to be considered in the context of 68.0p revenue earnings per share in 2019. Therefore, while dividends have recovered well, they remain significantly below pre-COVID levels.

The key drivers of dividend growth in 2021 were the banking sector (where dividends recovered from near zero levels in 2020 following a suspension of dividends by the regulator), the mining sector as a result of high commodity prices, and a broader resumption of dividends from cyclical industries that reduced or suspended dividends during the peak of the pandemic. Investment income was also helped by the rise in net asset value of the Company allowing us to be net investors during the year while remaining within our historic average 'low to mid teens' percentage gearing level.

Looking into 2022, our forecasts suggest (barring unforeseen circumstances) a further modest rise in investment income from 2021 levels. This is because approximately 17% of the portfolio did not pay a dividend in the 2021 financial year, and we expect the majority of these zero dividend payers to return to paying in the current financial year. Examples of companies where we expect dividends to resume imminently include Irish insurer FBD, Finsbury Food and BT Group.

While we expect a further rise in investment income in FY22, our forecasts do not indicate a return to the 2019 level. Part of the reason for this is that we have seen some companies (particularly smaller and medium sized companies) rebase their dividend payout ratios during the pandemic. These companies are not currently indicating that they intend to return to their higher historic payouts, therefore there is a portion of the portfolio that will (all else being equal) pay a lower dividend yield than it has historically. In the majority of cases we support company boards with this decision. Company life cycles are in many cases compressing, some companies needing to retain more to stay at the forefront of their industry, whether through organic investment or selective acquisitions. It remains our strongly held view that investment income should be an 'output' from the portfolio rather than the driver of investment decisions.

Environmental, social and governance (ESG) considerations

ESG factors are important not only as a standalone objective in order to allocate the capital of the Company to companies with the most responsible and sustainable practices. It is also crucial for us as Fund Managers to identify the key opportunities and risks for any companies either held in or under consideration for the portfolio. Our approach does not extend to the exclusion of specific sectors (such as fossil fuels); we address the reasons why in more detail below. It continues to be our view that engagement is more conducive to change than exclusion.

There are three core principles of incorporating environmental, social and governance factors into the Lowland investment process:

1. Identifying investment opportunities. Within Lowland we seek to identify companies with underappreciated opportunities for sustainable sales and earnings growth. The drivers of this sustainable growth could include environmental or societal factors; for example, the need to decarbonise the global economy is driving demand for alternative energy sources.

2. Identifying material risks. Identifying material ESG risks is an implicit part of the investment process. While identification of a material environmental, social or governance risk does not necessarily preclude ownership within the portfolio, it will be an important consideration when determining position size and appropriate valuation level. Companies which have material ESG risks identified should be actively seeking to address these issues and show evidence of progress; if no progress is evident we would not own the company. Progress is monitored by use of both third-party data sources (such as Sustainalytics) as well as engagement with the company management team. Engagement will be led by either the Fund Managers or the experienced Janus Henderson Governance and Responsible Investment ('GRI') team.

3. Active engagement and upholding strong governance standards. We take our responsibilities as stewards of investors' capital seriously and seek to engage with companies thoughtfully on executive remuneration, where possible always vote at AGMs, and encourage high standards of corporate governance (such as Board diversity). Janus Henderson subscribes to independent proxy voting advisers. In situations where the adviser recommends voting against, the GRI team alongside the Fund Managers will assess whether they agree with the recommendation, with the final voting decision made by the Fund Managers. In our view a company's board and senior executive remuneration policy needs to be appropriately struck relative to both its peers (on a domestic and global basis) and (increasingly) relative to its broader employee base. There needs to be a defensible logic to how corporate remuneration levels have been set.

Examples of applying each of the three core principles:

1. Identifying investment opportunities:

· Ilika (a producer of solid state batteries) - there is a need for non-flammable, faster charging and longer charge retention battery technology. Ilika is seeking to address this by developing and manufacturing solid state batteries for use across a range of applications (such as healthcare, industry and, over the long-term, electric vehicles). Their technology remains at an early stage of commercialisation, but the need for better battery technology driven by (in some cases) the transition away from fossil fuels means potential end markets are large.

· Ricardo (an environmental consultant) - as companies across a broad range of industries commit to achieving net zero, there is a need for a specialist consultant to help companies plan out and achieve these goals. Ricardo work across a range of industries including automobiles, the public sector, defence and utilities to help companies achieve their environmental goals. In our view the need to decarbonise the global economy will be a helpful tailwind to Ricardo's sales and earnings growth.

2. Identifying material risks:

· Royal Dutch Shell and BP - both Royal Dutch Shell and BP continue to generate the majority of their earnings from fossil fuels. Therefore as the world gradually transitions towards lower carbon energy sources there is a question mark surrounding durability of earnings and cash generation. In our view fossil fuels will form a necessary part of the energy transition, with renewable energy sources currently lacking the scale to wholly replace fossil fuels on a short or medium term time horizon. In this transition period, there continues to be a need for fossil fuels to provide the world's energy requirements. These fossil fuel sales are providing Shell and BP with the cash generation to spend meaningful sums (in both absolute terms and as a proportion of their total capital expenditure) transitioning towards renewable energy. In our view the valuation of Royal Dutch Shell and BP (measured on metrics such as free cash flow generation), combined with their meaningful investment in renewable or lower carbon energy sources, means they merit a place in a portfolio.

3. Active engagement and upholding strong governance standards:

· ISS (an independent proxy voting adviser to which Janus Henderson subscribes) recently recommended voting against the AstraZeneca remuneration policy and performance share plan. We compared the potential CEO remuneration under the proposed policy with global pharmaceutical peers and found the policies not to be an outlier. This, combined with the strong long-term performance of AstraZeneca relative to peers and the successful and low-cost COVID vaccine, meant that in our view the package was appropriately struck with a defensible logic. We therefore voted in favour of both the remuneration policy and performance share plan.

Outlook

There are large structural changes happening in the economy. The move away from fossil fuels, the changes in work practices brought about by COVID and the long-term consequences of the UK leaving the EU will lead to fundamental changes in the UK economy. For companies these changes present both challenges and opportunities. It is a very exciting time to observe business models being rethought. As investors in this time of extreme change we need to keep with a relatively long list of diverse holdings in large, medium and small companies. The speed of change is such that some companies will fail to adapt fast enough, while others will grow into substantial businesses if they are supplying excellent and required goods or services.

As well as the large structural changes, the era of ultra-low interest rates might be ending as inflationary pressures build. For instance, the move to a lower carbon economy will require substantial investment across much of the economy. During this period there will be transitional costs as new technologies reach commercial scale. These inflationary pressures will be a challenge for economic policy makers for the foreseeable future. The companies that succeed in a period of rising inflation are those that have a differentiated offering that allows them to increase prices, so as to counter supply price increases and preserve margins. Companies that can do this are a very good hedge against inflation.

The portfolio is not centred around a dominant macroeconomic view. It is built up of businesses that we expect to be able to deal with the circumstances they find because they have flexible and dynamic management teams.

James Henderson and Laura Foll

Fund Managers

8 December 2021

Twenty Largest Holdings as at 30 September 2021

The stocks in the portfolio are a diverse mix of businesses operating in a wide range of end markets.

At 30 September 2021 these investments totalled £168,208,000 or 37.5% of portfolio.

* Not in the top twenty largest investments last year

1 Overseas listed stocks (Ireland)

MANAGING RISKS

The Board, with the assistance of the Manager, has carried out a robust assessment of the principal risks and uncertainties, including emerging risks facing the Company including those that would threaten its business model, future performance, solvency, liquidity and reputation. The Board regularly considers the principal risks facing the Company and has drawn up a matrix of risks. The Board has put in place a schedule of investment limits and restrictions, appropriate to the Company's investment objective and policy, in order to mitigate these risks as far as practicable. The principal risks which have been identified and the steps taken by the Board to mitigate these are set out in the table below. The principal financial risks are detailed in the Annual Report.

The Board has considered the impact of the COVID-19 pandemic on the Company. The pandemic developed significantly and swiftly in 2020, triggering sharp falls in global stock markets and resulting in uncertainty about the ongoing impact on markets and companies, and around future dividend income. The risks associated with the pandemic are therefore considered one of the principal risks facing the Company.

Emerging risks

In addition to the principal risks facing the Company, the Board also regularly considers potential emerging risks, which are defined as potential trends, sudden events or changing risks which are characterised by a high degree of uncertainty in terms of the probability of them happening and the possible effects on the Company. Should an emerging risk become sufficiently clear, it may be moved to a principal risk.

VIABILITY STATEMENT

The Company is a long-term investor; the Board believes it is appropriate to assess the Company's viability over a five-year period in recognition of our long-term horizon and what we believe to be investors' horizons, taking account of the Company's current position and the potential impact of the principal risks and uncertainties as documented above in this Strategic Report.

The assessment has considered the impact of the likelihood of the principal and emerging risks and uncertainties facing the Company, in particular investment strategy and performance against benchmark, whether from asset allocation or the level of gearing, and market risk, in severe but plausible scenarios, and the effectiveness of any mitigating controls in place.

The Board has taken into account the liquidity of the portfolio and the gearing in place when considering the viability of the Company over the next five years and its ability to meet liabilities as they fall due. This included consideration of the duration of the Company's loan facilities and how a breach of the loan facility covenants could impact on the Company's liquidity, net asset value and share price.

The Board does not expect there to be any significant change in the current principal risks and adequacy of the mitigating controls in place. Also the Directors do not envisage any change in strategy or objectives or any events that would prevent the Company from continuing to operate over that period as the Company's assets are liquid, its commitments are limited and the Company intends to continue to operate as an investment trust. Only a substantial financial crisis affecting the global economy could have an impact on this assessment.

In coming to this conclusion, the Directors have considered the impact of the COVID-19 pandemic and the UK's ongoing negotiations with the European Union following its departure from the European Union, in particular the impact on income and the Company's ability to meet its investment objective. The Board does not believe that they will have a long-term impact on the viability of the Company and its ability to continue in operation, notwithstanding the short-term uncertainty they have caused in the markets.

Based on this assessment, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five-year period.

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. The fees and expenses paid to Directors are set out in the Annual Report. There were no outstanding amounts payable at the year 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. More details on transactions with Janus Henderson, including amounts outstanding at the year end, are given in the Annual Report.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

In accordance with Disclosure Guidance and Transparency Rule 4.1.12, each of the Directors confirms that, to the best of his or her knowledge:

• the Company's financial statements, which have been prepared in accordance with UK Accounting Standards and applicable law give a true and fair view of the assets, liabilities, financial position and return of the Company; and

• the Strategic Report, Report of the Directors and financial statements include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

The directors consider that the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

For and on behalf of the Board

Robert Robertson

Chairman

8 December 2021

INCOME STATEMENT

The total columns of this statement represent the Profit and Loss Account of the Company. The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. All revenue and capital items in the above statement derive from continuing operations. The Company had no other comprehensive income other than those disclosed in the Income Statement. The net return is both the profit for the year and the total comprehensive income.

STATEMENT OF CHANGES IN EQUITY

STATEMENT OF FINANCIAL POSITION

STATEMENT OF CASH FLOWS

NOTES TO THE FINANCIAL STATEMENTS

1 The residual will be transferred from the revenue reserve (£3,198,000) (2020: £7,080,000) and from the capital reserve (£1,513,000) (2020: £nil)

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) are incorporated into, or form part of, this announcement.