A N N U A L R E P O R T
2018
The Law Debenture Corporation p.l.c.
A T A G L A N C E
A differentiated investment proposition
A PROUD HISTORY
130 years
of value creation for shareholders
STRENGTH AND DIVERSITY OF INCOME
39%
LONG-TERM DIVIDEND GROWTH
of total dividend funded by our Independent Professional Services business
40 years
of increasing or maintaining dividends to shareholders (55% increase in dividend
over the last ten years)
CONSISTENT LONG-TERM OUTPERFORMANCE OF BENCHMARK
40%
outperformance of benchmark over three years, 38% over five years
and 44% over ten years
Key statistics
for the year ended 31 December 2018
614.1p
NAV per share
(2017: 669.5p)
9.2%
(5.8)%
Proposed increase in 2018
NAV total return for the year
dividend per share
(2017: 3.6%)
(2017: 16.6%)
725.9m1
Net Asset Value
(2017: 791.1m)
9.2%
(9.5)%
Increase in normalised
Benchmark total return for the year
revenue return per share
(2017: 13.1%)
1 Please refer to note 10 on page 76 for calculation of net asset value
lawdebenture.com
Contents
A T A G L A N C E
F I N A N C I A L S T A T E M E N T S
Overview
Financial summary and performance
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3
Independent auditor’s report
Group income statement
S T R A T E G I C I N F O R M A T I O N
Chairman’s statement
Chief executive officer’s review
Investment manager’s review
Twenty largest holdings
Sector and geographical distribution
Classification of investments
Statement of comprehensive income
Statement of financial position
Statement of changes in equity
Statements of cash flows
Notes to the accounts
C O R P O R A T E I N F O R M A T I O N
Alternative performance measures
4-5
6-10
12-15
16-17
18
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Investment portfolio valuation
20-22
Financial calendar
Changes in geographical distribution
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Subsidiary company details
Strategic report
24-29
Notice of annual general meeting (AGM)
Notes to the notice of AGM
AGM venue
Calculation of net asset value
(NAV) per share
Long-term performance record
C O R P O R A T E G O V E R N A N C E
Directors’ report
Corporate governance
Audit committee report
Annual remuneration report
Company advisers and information
The board
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32-34
35-39
40-41
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95-96
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A T A G L A N C E
Law Debenture is an
investment trust and
a leading provider of
independent professional
services, listed on the
London Stock Exchange.
From its origins in 1889,
we have diversified to
become a group with a
unique range of activities
in the financial and
professional services
sectors. The group has two
distinct areas of business.
Investment trust
We are an investment trust with a
net asset value of £726m1, listed on
the London Stock Exchange.
Our portfolio of investments is managed by
James Henderson of Janus Henderson Investors.
Our objective is to achieve long-term capital
growth in real terms and steadily increasing
income. The aim is to achieve a higher rate of
total return than the FTSE Actuaries All-Share
Index Total Return through investing in a
diversified portfolio of stocks.
Independent
professional services (IPS)
We are a leading provider of
independent professional services.
Built on three excellent foundations: our
Pension, Corporate Trust and Corporate Services
businesses.
We operate globally, with offices in the UK,
Dublin, New York, Delaware, Hong Kong, the
Channel Islands and the Cayman Islands.
Companies, agencies, organisations and
individuals throughout the world rely upon
Law Debenture to carry out our duties with the
independence and professionalism upon which
our reputation is built.
1 As at 31 December 2018
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lawdebenture.com
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31 December 2018
£000
31 December 2017
£000
725,863
Pence
614.07
13.23
7.87
—
0.16
21.26
(71.85)
18.90
540.00
%
0.43
3
791,089
Pence
669.53
11.61
7.21
2.72
0.12
21.66
67.10
17.30
629.00
%
0.43
1
1 year
%
(5.8)
(9.5)
(11.6)
2.7
3 years
%
5 years
%
10 years
%
27.3
19.5
19.0
9.6
30.4
22.1
18.8
12.7
199.0
138.3
243.5
34.1
Financial summary
Net assets1
Net Asset Value (NAV) per share at fair value1*
Revenue return per share
Investment trust
Independent professional services (normalised)
Independent professional services (exceptional)
Group charges
Group revenue return per share
Capital (loss)/return per share
Dividends per share
Share price
Ongoing charges3*
Gearing3
Performance
NAV total return2*
FTSE Actuaries All-Share Index Total Return4
Share price total return4*
Change in Retail Price Index4
1 Please refer to note 10 on page 76 for calculation of net asset value
2 NAV is calculated in accordance with the Association of Investment Companies (AIC) methodology, based on performance data held by Law Debenture including fair value of IPS business
and long-term borrowings
3 Source: AIC. Ongoing charges are based on the costs of the investment trust and include the Janus Henderson Investors management fee of 0.30% of NAV of the investment trust. There is
no performance related element to the fee. Gearing is described in the strategic report on page 26
4 Source: Bloomberg
5 Items marked “*” are considered to be alternative performance measures and are described in more detail on page 91
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S T R A T E G I C I N F O R M A T I O N
Chairman’s statement
In what has been my first year as Chairman
of Law Debenture, I am pleased to introduce
our shareholders to the 2018 annual report.
Dividend
Law Debenture has increased or maintained
its dividend in each of the last 40 years.
Over the last ten years, we have delivered a
55% increase in dividend and an annualised
dividend growth of 4.5%.2
We recognise that, in a low interest rate
environment, great value is ascribed by
our shareholders to the dividend they
receive from this Company. We were
pleased to provide investors with a 9.2%
increase in the interim dividend paid in
September. The board is recommending
we maintain that increase for your final
dividend. Subject to your approval, we will
pay a final dividend of 12.9p per share on
18 April 2019 to holders on the register on
the record date of 15 March 2019. This will
provide shareholders with a total dividend
of 18.9p per share for 2018, compared to
17.3p in 2017. We are happy to make this
recommendation in the context of £50.0m
of consolidated retained earnings and a
revenue profit for the year of £25.1m.
Investment portfolio
Performance
We are comforted that
We believe the ongoing charges ratio of
Against a backdrop of significant market
turbulence and uncertainty over the UK’s
exit from the EU, the FTSE Actuaries All-
Share Index Total Return declined by 9.5%
in 2018. In this context, I can report that
your Company’s net asset value declined by
5.8% on a total return basis over that same
period. As investors quite rightly challenge
active managers’ ability to demonstrate
their value over passive counterparts, we are
satisfied with this relative outperformance.
Our aim is to grow your capital over the
long-term; however it is never comfortable
to report a decline in net asset value in
the short-term. We are comforted that the
portfolio was protected from almost 40%
of the overall market decline, and that our
relative performance remains strong over
one, three, five and ten year periods. £1,000
invested in Law Debenture ten years ago
would have been worth £3,4351 at the end
of 2018.
the portfolio was protected
from almost 40% of the
overall market decline,
0.43% for the trust as a whole offers excellent
value for money for our shareholders. Indeed,
this is significantly lower than the average
ongoing charges ratio for UK investment
trusts which the AIC published as 1.21% as at
and that our relative
31 December 2018.
performance remains
strong over
one, three, five and
ten year periods.
£1,000 invested in
Law Debenture ten
years ago would have
been worth £3,4351
at the end of 2018
The board has given a great deal of
thought on how best strategically to
position the investment trust, in light of
our portfolio’s significant UK weighting.
While much of our portfolio comprises UK
stocks with a global bias, our performance
is more closely linked to the performance
of UK markets than it is to broader global
markets. Indeed, it is the FTSE Actuaries
All-Share Index Total Return against
which the board assesses the investment
performance. To more closely reflect the
reality of our portfolio construction, later
this year we will be moving to a UK sector
AIC category from the current global
sector classification.
1 Calculated on a total return basis assuming dividend re-investment between 31 December 2008 and 31 December 2018
2 Calculated on an annualised basis on dividend payments made by accounting year between 31 December 2008 and 31 December 2018
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lawdebenture.com Independent professional services (IPS)
Report and accounts
Your Company benefits from the unique proposition of an
After following the same tried and tested format for many years,
equity portfolio combined with a professional services business.
we felt it was the right time to make some changes to modernise
Law Debenture has paid in aggregate £172m to shareholders in
the look and feel of your annual report. At the same time, we have
dividends over the past 10 years, of which £67m, or 39%, has been
listened to feedback from shareholders and analysts and have
funded by the IPS business.
increased the transparency of reporting around our IPS business.
As you will hear from our chief executive officer, Denis Jackson, in
his report on pages 6 to 10, 2018 was a solid year for our IPS business.
When Denis took over as chief executive at the start of 2018, he made
a firm commitment to start a trajectory of growth in our IPS business
On page 7 you will find for the first time a breakdown of net
revenue by division, along with guidance for 2019. We see this as
the start of a journey and will be looking to continue to evolve our
reporting into 2020 and beyond.
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and he has done just that. With the support of
a strengthened team, revenue has grown by
9.0% and normalised earnings per share (after
the removal of exceptional items) by 9.2%.
We have ambitions to achieve mid to high
single digit growth in 2019. This is underpinned
by a rigorous business plan and budgeting
process. Increased income, combined with
a firm control of costs, would drive revenue
earnings per share growth and support higher
dividends for our shareholders. This will allow
us to continue to build on our unbroken
40 year history of maintaining or growing
the dividend. Our aim for 2019 is to continue
the journey to turn a highly profitable, but
relatively static or low-growth business, into
something much more dynamic, while at the
same time retaining the highest quality of
service for our global clients. If we are able to
grow our revenue and earnings over time, this
should drive a corresponding increase to the
valuation of the IPS business, helping to drive
capital growth for the trust as a whole.
Your Company’s board
Having welcomed Katie Thorpe as our chief
Looking forwards
We have seen a modest recovery in markets
after the woes of the later part of 2018.
In that context, we are pleased to report
that your Company’s net asset value has
increased by 6.7% as at 22 February 2019,
Debate continues to rage
around the possible outcome
compared to 7.7% for the FTSE Actuaries
for the UK over Brexit,
while on the global stage
All-Share Index Total Return.
Debate continues to rage around the
possible outcome for the UK over Brexit,
there remain significant
while on the global stage there remain
concerns around trade
significant concerns around trade disputes
between the US and China. Your Company
disputes between the US
has weathered many storms over its long
and China. Your Company
has weathered many storms
history and will remain relentlessly focussed
on creating value for our shareholders.
For our investment trust, James Henderson
over its long history and
is an accomplished investor who has
will remain relentlessly
been involved in the management of your
portfolio for the past 25 years. During that
focussed on creating value
time, the portfolio has generated a net
for our shareholders
asset value total return of 944% compared
to 393% by the FTSE All-Share1. We rely
on James to continue to do that at which
he excels; the identification of quality
financial officer in June of 2018, I was delighted to announce her
companies at a favourable valuation at an opportune point in
appointment as an executive director of your Company from
the cycle.
1 January this year. Her appointment to the board reflects the value
that she brings to the organisation. We believe diversity is key to
enhancing independent thinking and healthy challenge. To that
end, we have a search in place to appoint a further director to your
Company’s board – we are committed to framing that recruitment
with a backdrop of diversity in all of its forms.
For our IPS business, the diversity and repeatable nature of our
income, coupled with a strengthened team, leave us well placed to
deliver on our growth objectives for 2019.
As the appointment of an additional director will put us close to
Robert Hingley
the limit on fees set out in the articles of association, we are seeking
Chairman
shareholder approval to increase the article limit for the first time
26 February 2019
since 2008 to £400,000. This will allow the board to manage its
composition for the foreseeable future in accordance with the articles.
1 Source: Bloomberg, total return analysis from first available data point on Bloomberg of Law Debenture NAV (measured ex income with debt at par) as at 1 February 1994, measured to
31 December 2018. FTSE Actuaries All Share Total Return measured over the same performance period. Bloomberg data includes the adjustment to the fair value of the trust in respect
of the IPS business from 29 February 2016.
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Chief executive officer’s review
Our investment trust
It has been a great pleasure getting to know James Henderson
over the past year and we were glad to welcome Laura Foll back
from maternity leave in the autumn. Laura has assisted James in
running the portfolio since 2011.
James’ successful long term record has rightly earned him a large
and loyal following in the investment trust investor community.
NAV total return has consistently outperformed our benchmark
on a one, three, five and ten year basis. In the past year, the
portfolio has been sheltered from almost 40% of the benchmark
decline. Over three years, the portfolio has generated an
outperformance of 40.0% and over ten years an outperformance
of 43.9%.
The board has given a great deal of thought on how best to
strategically position the investment trust. As a result of these
deliberations, later this year we will be moving to a UK sector AIC
category from the current global sector classification.
For nearly two decades, James has run the portfolio with at least
70% allocated to UK stocks. Our benchmark is UK. A UK sector
reflects far more accurately what the portfolio is as an investment
proposition.
Our independent professional services
business (IPS)
Our IPS business is a key differentiator between us and other
investment trusts. As the Chairman explains in his statement, the
IPS earnings have covered almost 40% of total annual dividend
payments in the past ten years, allowing James increased
flexibility in portfolio construction.
Following many meetings in 2018
with brokers, wealth managers and
shareholders, it is clear to me that we
have more work to do to explain our
differentiated investment proposition. It
is incumbent on us to better explain both
the nature of the professional services
that we provide, and the inherent value of
IPS to our owners.
Our stated objective is “to achieve long
term capital growth in real terms and
steadily increasing income”. Between
2011 and 2017, IPS earnings were flat (see
table on page 31). While we score highly
for consistency, net operating margin
and return on capital employed, we have
failed to register growth and we need to
address that. I am pleased to report some
steps in the right direction in this regard
in 2018.
Introduction
I am delighted to be introducing our final results for the twelve
months ended 31 December 2018, my first full year as CEO of
Law Debenture. Since joining, I have spent a great deal of time
getting to know the two complementary, but distinct, areas
of Law Debenture that make up our
unique business model. I am confident
that the powerful combination of our
equity portfolio, (ably managed by James
Henderson) and our leading global
independent professional services business
Our leading global
will be a key value driver.
The quality of the overall group and its
people has been clearly impressed upon
me since joining and I was pleased to
welcome Katie Thorpe as CFO following
the retirement of Tim Fullwood. She is a
fantastic addition to the business given
her wealth of experience working with
investment trusts. She is well known to
investors and is already increasing the
transparency and understanding of our
business. Following a commendably
fast start, Katie joined our board on
1 January 2019.
6
independent
professional services
business will be a
key value driver as
we deliver our core
objective of long-term
capital growth and
steadily increasing
income
lawdebenture.com IPS normalised earnings per share increased from 7.21 pence
Our leading independent professional services provider is built
per share in 2017 to 7.87 pence in 2018, a 9.2% increase. Revenue
on three excellent foundations; our Pension, Corporate Trust and
(net of cost of sales) increased from £27.1m to £29.6m, an increase
Corporate Services businesses.
of 9.0%.
The table below sets out the revenue by division net of cost of
We are confident we can grow the IPS business considerably over
sales for the past three years, alongside a percentage growth
time, while preserving our quality of product, outstanding client
number compared to prior year:
outcomes and our hard won reputation.
DIVISION
Pensions
Corporate Trust
Corporate Services
Discontinued1
Total
Net revenue
2016
£000
Net revenue
2017
£000
Net revenue
2018
£000
Growth
2016/2017
%
Growth
2017/2018
%
7,814
8,411
10,117
828
27,170
8,270
7,900
10,977
—
27,147
9,488
8,362
11,734
—
29,584
5.8%
-6.0%
8.5%
—
-0.1%
14.7%
5.8%
6.9%
—
9.0%
1 This relates to revenue earned by the US corporate trust business that was discontinued as at 31 December 2016 and a dividend received from Nordic Trustee Holdings ASA which was sold
during 2017
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2019 marks the 50th anniversary of our first pension fund client, Demerara Sugar.
While the landscape has changed considerably, the fundamental value proposition of a
qualified independent pension trustee has not. Many of the reasons for our appointment
to Demerara Sugar are as true today as they were 50 years ago
Taking each business in turn:
to put in place tax incentives for people to save in the long term
Pensions
2019 marks the 50th anniversary of being appointed by our first
pension client, Demerara Sugar.
while maintaining tax revenues in the short term. Top this off with
the political desire of successive Chancellors of the Exchequer
to “solve this once and for all” by introducing yet another
refinement to our pensions legislation and we are left with
(positive metaphors only) a simply delicious plate of spaghetti for
While the landscape has changed considerably, the fundamental
trained professionals only to devour, lest the public choke on the
value proposition of a qualified independent pension trustee
same ingredients.
has not. Many of the reasons for our appointment to Demerara
Sugar are as true today as they were 50 years ago: ensuring
proper and professional governance; the need to protect against
abuse of schemes; and the deployment of an effective strategy to
communicate fair management of a scheme and its benefits to a
sometimes sceptical workforce.
Market dynamics
Politically agnostic, we echo the cries of “hear, hear” in the
Commons Chamber with our own “well, well” as successive
governments add to the complex web to be untangled.
We currently deal with around 200 Defined Benefit schemes out
of around 5,500 schemes in the UK. We firmly believe that the
next 10 years will see an increasing trend towards consolidation
of these 5,500 in order to optimise operating efficiencies and
No one particularly likes to save for their pension but almost
enhance governance structures given the common problems
everyone wants to retire one day. Add to this the irresistible
that many share. Even after consolidation, a market share of
demographics of an ageing population and a growing middle
3.6% leaves plenty more schemes to serve and support.
class. Overlay this conundrum with the need of the government
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Chief executive officer’s review continued
Highlights
Corporate trust
The single most important driver of success in professional
services is quality of people and, in 2001, we recruited Mark
This business led to the creation of Law Debenture nearly 130 years
Ashworth. Today, Mark sits at the top table of the profession in
ago. Our longest appointment is for a share trustee role in 1889,
the UK and thankfully he too recruits well. Michael Chatterton
the year in which Law Debenture was founded. This appointment
joined us in 2010, and between them Mark and Michael lead
remains in place today.
a team that is rightly viewed by its clients as the leading UK
independent pension trustee. Our trustee team has grown
by 20% over the past two years, as we recruit outstanding
commercial professionals from a rich variety of backgrounds.
In 2018, we started to see returns from that investment in
people, with revenues up 14.7% from £8.3m to £9.5m. This is
a very pleasing result that we are looking to build on in 2019
and beyond.
Our duty as a corporate trustee is to act as a bridge between
bondholders and a bond issuer. The trustee’s role and income
stream can vary greatly between “non-defaulted” and “defaulted”
bonds.
In non-default situations, the trustee is typically paid an (inflation
linked) annual fee to discharge its duties throughout the lifetime
of the bond. We started 2018 with more than two-thirds of our
£8.4m annual revenue contractually secured, with an overall
2018 also saw the launch of our pensions governance business,
inflation linked increase of 1.5% on those same contracted
PEGASUS. There is a recent trend towards the appointment of
revenues in 2017.
sole corporate professional trustees, rather than a traditional
multi trustee board model. Growing regulatory focus on the
sector as a result of the fallout of several high profile corporate
and pension failures, has seen lay trustees facing increased
pressure, accountability and responsibility. With wins of five
In addition, the trustee becomes involved when amendments to
deal with documentation or waivers are required. This will often
be separately remunerated and provides us with an additional
income stream, which represented 19.5% of our corporate trust
additional sole trusteeships in 2018, our
provision of sole trustee solutions is now
beyond critical mass.
Key client wins for this year include
John Lewis, Fujifilm, Ernst & Young,
Smart Pension and the British Bankers’
Association.
Outlook for our pension business
As we look forward, the long-term decline
in the Defined Benefit market is well aired,
albeit one that has many years to play out
given the long term nature of liabilities to
be funded.
Accordingly, we believe that the growth in
importance of our Defined Contribution
(DC) work relative to our total revenues
will continue. The considerably increased
number of DC appointments in recent
We started 2018
with more than two-thirds
of our £8.4m annual
revenue contractually
secured, with an overall
inflation linked increase
of 1.5% on those same
contracted revenues
in 2017
revenue for 2018.
In default scenarios, the revenue and
risk profile of the trustee often shifts
substantially. A key role of the trustee
is to be the legal creditor of the issuer
on behalf of the bond holders. This can
require material extra work that, given an
optimum outcome, can lead to significant
additional income. However, default
scenarios can take years to play out and
have uncertain outcomes. The trustee is at
risk if it is subsequently judged not to have
discharged its duties appropriately.
Our corporate trust team are conservative
and careful in taking on new business,
and operate in an environment that
has long prioritised these qualities. This
highly disciplined approach has produced
consistent profits for over a century. Our
shareholders should understand that
years provides us with tangible evidence of this and, while we
have an enviable roster of larger clients, our ability to create
swings in our revenue (and in turn profit) can result from adopting
a prudent approach to provisioning, as long term defaults work
solutions for the mid-market and to support consolidation type
their way to a conclusion.
solutions at the smaller end will help drive growth.
In the meantime, I would like to thank Mark and Michael for
their outstanding leadership of this business and the whole
team for their unstinting professionalism. We are fortunate to
have them.
Market dynamics
Our corporate trust business is a leading independent player;
however, the market is highly competitive, particularly as a result
of the emergence of multi-service offerings by global banks. Eliot
Solarz was appointed to head this team on 1 January 2018 and
leads by example as we look to accelerate our growth.
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Happily, as with all of our businesses, Eliot
has strong foundations on which to build;
we consistently receive excellent feedback
from clients for our technical knowledge,
Outlook for our corporate trust
business
The long term nature of appointments in
the corporate trust universe provides a
speed, quality of service and willingness to
Our corporate trust team
stable and index linked source of revenue
innovate. We pick our spots carefully and
play very much to our strengths.
All bond trustees love an appointment to
a standard investment grade corporate
bond and we are no exception. We are
thrilled when issuers such as Vodafone,
Unilever or NatWest appoint us as their
trustee. But we have learned long ago
that by moving off the beaten path a
little, there are more complex products
that are well served by our deep technical
knowledge and our ability to move fast.
A particular focus is in infrastructure and
“real asset” businesses e.g. transportation,
energy and real estate. Short-term issuance
are conservative and
careful in writing new
business, and operate in
a culture that has long
prioritised these qualities.
This highly disciplined
approach has produced
for the group. As highlighted above, only
a small fraction of the value of contracts
won in a given financial year will benefit
that year’s profit and loss account. Our aim
is to consistently win new business in both
the standard investment grade space and
the niches where our speed and agility
provide us with a significant advantage.
Corporate services
consistent profits for
Corporate services provides outsourced
over a century
solutions across a continuum of
company directors, company secretarial,
accounting, corporate administration and
facility agent services. These services are
in these sectors will ebb and flow but as a long-term proposition,
experience tells us that global demand for capital in these areas is
almost bound to continue to increase. Indeed, we first acted in this
provided largely, but by no means exclusively, to corporates and
special purpose vehicles.
space for The Kansai Railway Company in Japan in 1905.
Market dynamics
A more recent example is Mutual Energy’s 35 year Gas to the
West project which was launched in 2018. This is to finance the
extension of a gas network in Ireland, where we provide security
trustee, noteholder agent and registrar services. There are other
smaller niches, where a deep expertise, reputation for quality
and excellence in service delivery among specialist issuers and
specialist arrangers serve us well.
Highlights
We took on 250 trustee engagements in 2018, acting as trustee
to bonds with an issuance value of close to £600bn. We booked
revenues of £0.8m in 2018 for these contracts, a small fraction of
the full value over their life cycle of around £10.8m. The majority
of that future revenue is index linked. We now have around 1,800
trustee roles on our books for bonds with over £1.8tn of value.
The traditional securitisation aspect of this market has not
yet returned to its pre-financial crisis peak, but nevertheless
the marketplace remains fiercely competitive. We continue to
put great effort into building our relationships with arrangers,
advisers, sponsors and end users. We are confident over time
that, as with all of our businesses, our high quality service,
underpinned by outstanding technical knowledge, relentless
focus on client delivery and willingness to innovate will yield an
incremental stream of repeatable earnings.
We provide a highly regarded global service of process business
that had a solid year in 2018. Led by Anne Hills, it has a market
leading reputation with law firms in London, New York and
Hong Kong.
Highlights
Corporate trust’s net increase in revenues for 2018 was 5.8%, with
total revenue increasing from £7.9m to £8.4m. Our new business
fees earned in 2018 were the second highest recorded since the
global financial crisis and at £0.8m were 24% higher than new
Revenue from these businesses grew from £11.0m in 2017 to
£11.7m in 2018, an increase of 6.9%. This year, the corporate
service offering that I would like to highlight is relatively small but
our fastest growing: our provider of independent whistleblowing
business fees earned in 2017.
services, Safecall.
This increase was partially offset by a net addition to reserves of
£0.3m across our book of transactions working through various
stages of the default journey. Our aim is to recover these amounts
in the future, but, as is almost invariably the case, quantum and
timing of that recovery remains uncertain.
Based in Sunderland, Law Debenture acquired Safecall in 2007,
following its establishment 20 years ago by Alan Long, a former
police officer. It has been expertly led since 2004 by his son
Graham Long. He and his team have delivered a 15.4% increase
in revenue in 2018 and a 44% increase in revenue over the past
three years, with revenue for 2018 exceeding £1.6m for the
Key client wins for this year include Unilever, Sapporo, Playtech,
first time.
Radisson Hotels and MORhomes.
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Chief executive officer’s review continued
Ethics and compliance have leapt onto the front page in 2018,
The primary goal of the application of technology is to further
following the multitude of revelations that, unfortunately
enhance the characteristics that make the IPS business a unique
for many, have come to light too late. Safecall provides an
proposition; responsiveness, speed, flexibility, discretion and
independent, confidential, anonymous (if desired) route to raise
delivery. We are also aware that key to our value proposition is the
issues to the highest levels of organisations that can see that line
expertise of our people. We see technology as a way to enhance
management chains sometime fail and senior people don’t always
our capabilities, enabling our people to do more and faster to help
meet expected standards of behaviour.
deliver increased revenue, scale and control.
We believe the team at Safecall offers a product superior to their
During 2018 we appointed David Williams as chief technology
competitors at a competitive price point. This is supported by
officer (CTO). David is the former CTO of Marshall Wace LLP and
Safecall’s ownership structure. Where competitors are almost
Tibra Trading. We have also hired five full-time technical experts to
exclusively private equity backed and focused on extracting
facilitate delivery of high quality technical solutions. This new team
value, we are interested in the long-term success of Safecall,
has already delivered a new technology platform for Safecall, a new
underpinned by the quality of the service provided by our highly
website for both Safecall and Law Debenture; a new collaboration
trained call handlers.
Safecall took on 72 new clients in 2018. The team now support
over 400 organisations, employing anywhere between 25 and
platform and secure file sharing service for our pensions trustees.
Many more valuable initiatives are at various stages of delivery
across a rolling two year plan.
80,000 staff, on a truly global basis, covering 100+ languages. We
currently act for 41 companies within the FTSE350, with significant
Prospects
2018 was a year of change and investment for the IPS business,
putting in place the foundations for future growth. Looking ahead,
I am excited about future prospects. After nearly 130 years, Law
Debenture remains focused on building on its reputation for
delivering long-term income and capital growth. I’m encouraged
by the progress already made by the IPS business in the last
year and the outstanding team we now have in place to help
future opportunities. We will also remain alert to any prospective
acquisitions that would offer accretive value to shareholders
without diluting our core brand and strengths.
For ten years, IPS has accounted for almost 40% of total annual
dividend payments, which has allowed James Henderson greater
flexibility in the equity portfolio’s stock selection. The continued
performance of IPS and its attractive, recurring revenues will
continue to support our ambition to increase the dividend for the
benefit of our shareholders. The move to a UK sector AIC category
from the current global sector classification will better reflect
Law Debenture’s overall investment proposition. The board and
I remain confident in James’ ability to position the equity portfolio
for future growth.
Denis Jackson
Chief executive officer
26 February 2019
growth ambitions for this market.
Key client wins for this year include:
In addition to achieving excellent growth in 2018 we have also
made strategic investments to set Safecall up for future success.
We launched a new website, built a new case management
solution as a service offering (SaaS), and have added headcount
in business development, technology and client service. More
information is available at www.safecall.co.uk.
Investment in technology
2018 has seen a strong focus on advancing the use of technology
across IPS in order to improve the service that we provide to our
clients, be that introducing additional functionality, enhancing
security or reducing costs by delivering efficiencies in our operations.
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Our IPS business is a key differentiator
between us and other investment trusts.
As James Henderson explains in his
investment review, the reliable nature of
the IPS earnings have covered around 40%
of total annual dividend payments in the
past ten years, allowing James increased
flexibility in portfolio construction
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Investment manager’s review
The equity portfolio
We have a diversified portfolio which aims to be a one-stop-
shop for investors seeking quoted market exposure to quality
Our investment process
We take a bottom-up approach, spending a great deal of time
with the management teams of our portfolio companies and
conducting detailed analysis of the strengths, weaknesses and
long-term growth prospects of those companies into which we
invest your money.
We are patient with our positions and invest for the long-term. We
build up positions gradually - having taken the decision to invest in
a stock, we typically begin by investing around 30bps of overall net
asset value, which we add to over time dependent upon the risk
profile of an individual stock.
Our long list of stocks allows us to moderate our position size
where we perceive the investment case is higher risk than may
be the case elsewhere in the portfolio. This means that we take
a risk-based approach to our position sizing, while ensuring that,
if we get something right, the sizing is sufficient to influence the
portfolio performance as a whole. I am ably assisted in this process
by Laura Foll.
Our patience keeps our portfolio turnover low, reducing the drag of
dealing costs on returns to our investors. That patience has rewarded
companies. The majority of the portfolio,
74.5%, was in listed UK stocks at the year
end, of which around two thirds were in
the FTSE350 and the remaining third in
mid and small cap stocks. Although our
focus is the UK, we confidently go to other
geographies for companies that do not
have a credible UK equivalent – an example
of this is Microsoft which we have held in
the portfolio for seven years. At the end of
2018, 9.9% of your portfolio was invested in
North America, 8.6% in Europe and 7.0% in
the rest of the world. The trust’s benchmark
is the FTSE Actuaries All-Share Index Total
Return and it is against this benchmark
that we assess the relative success of the
performance of your portfolio.
Recognising that we have consistently
allocated at least 70% of the portfolio to UK
stocks, the board has taken the decision to
move to a UK sector AIC category from the
current global sector classification later this
year. We support this move; we believe the
performance of the portfolio will remain
more closely linked to the performance
Our patience keeps
our portfolio turnover
low, reducing the
drag of dealing
costs on returns to
our investors. That
patience has rewarded
our shareholders; over
10 years, the portfolio
has outperformed
the benchmark index
by 44%
our shareholders; over 10 years, the portfolio
has outperformed the benchmark index
by 44%.
The trust has paid £172m to its shareholders
in dividends over the past ten years, of
which £67m or 39% has been funded by
the IPS business. As a manager, this gives
us the freedom to bypass stocks which do
not fit our investment criteria, that others
seeking to provide a yield to shareholders
may be forced to buy. I am encouraged to
see the growth in the normalised earnings
per share of the IPS business and believe
that the plans Denis and his team have
will create exciting opportunities for
shareholders over time for both income
and capital growth.
A great example of this is tobacco stocks.
As the decline in global demand for
tobacco shows no signs of abating, many
income managers have been forced to
purchase these traditionally consistent
yielding stocks to maintain the dividend
yield within their portfolio. As a declining
of UK markets than it will to that of broader global markets. This
industry, these stocks do not meet our investment criteria of
change will better reflect the nature of the portfolio and will have
quality global companies with significant prospects for future
minimal impact on our long standing investment approach.
growth. Our ability to steer clear of stocks of that nature has been
accretive to our relative performance over the last twelve months.
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I regularly interact with private shareholders who hold Law Debenture as their only equity
investment. I often think about them when making investment decisions, balancing the need to
achieve long-term capital growth with the risk of exposing those investors to significant volatility
NAV total return1
FTSE Actuaries All-Share Index total return2
1 year
%
(5.8)
(9.5)
3 years
%
27.3
19.5
5 years
%
30.4
22.1
10 years
%
199.0
138.3
1 NAV is calculated in accordance with AIC methodology, based on performance data held by Law Debenture including fair value of IPS business and long-term borrowings
2 Source: Bloomberg, all references to ‘FTSE All-Share’ and ‘benchmark’ in this review refer to the FTSE Actuaries All-Share Index Total Return
We often buy stocks that are slightly unfashionable but that we
believe have a significant potential for growth. They will typically
Top five contributors
be world class brands selling globally, that have fallen out of favour.
The following five stocks produced the largest absolute
One such stock is Standard Chartered, which we purchased two
contribution for 2018:
years ago when it was experiencing considerable headwinds and
had suspended its dividend payment. This is a normally world class
stock which had been overly punished by the market and which
we were able to purchase at a favourable valuation.
I regularly interact with private shareholders who hold Law
Debenture as their only equity investment. I often think about
Stock
GKN
Sky
Microsoft
them when making investment decisions, balancing the need to
Accsys Technologies
achieve long-term capital growth with the risk of exposing those
GlaxoSmithKline
investors to significant volatility.
Share price
total return (%)
Contribution
(£m)
53.2
74.1
28.2
33.1
19.0
5.1
3.3
2.6
1.8
1.8
Markets were difficult and volatile in 2018, with the possibility
for investors to lose significant capital if they got the timing and
nature of their investments wrong. With this backdrop, I am
pleased to report that our patient approach has seen your portfolio
outperform its benchmark on a one, three, five and ten year basis.
Source: Bloomberg calendar year share price total return
(in the case of GKN and Sky, until point of acquisition)
The two largest contributors to return during the year were GKN
and Sky, both of which were taken over at a material premium to
the prevailing share price at the time of acquisition. The valuation
level in the UK market (along with the low value of sterling)
More information on our investment approach can be found on
may well lead to further corporate activity if the UK market is not
pages 24 to 26 of the strategic report.
re-rated closer to global markets.
Review of 2018
As the Chairman said in his statement, we are satisfied with our
relative outperformance of the benchmark against a backdrop
of troubled and volatile markets. Over 2018, the FTSE Actuaries
All-Share Index declined by 9.5%, while your Company’s net asset
value declined by 5.8% on a total return basis. As a manager
aiming to grow your capital over time, it is never comfortable to
report a decline in net asset value. I am, however, content that our
bottom up approach to owning quality companies has sheltered
the portfolio from almost 40% of the overall market decline.
The holding in Microsoft was also a strong contributor to performance.
As noted above, we have the flexibility to allocate overseas where
there is no equivalent company in the UK. The position was
purchased in 2011 (for $24 per share), when there were structural
concerns regarding the decline in use of desktop computers and
the impact this would have on businesses providing their operating
systems and software. Under a (relatively) new management team,
Microsoft has successfully transitioned the business towards a ‘cloud’
based subscription model and, as a result, the shares have re-rated
materially and were trading at $101 at the year end. We have recently
been reducing the position as a result of the higher valuation, but it
remains 1.5% of the portfolio at the end of December.
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Investment manager’s review continued
Top five detractors
The following five stocks produced the largest negative
impact on the portfolio valuation for 2018:
of 4.72% as at 31 December 2018, compared to 3.70% for Europe
(excluding the UK) and 2.15% for the US.
The UK market has materially underperformed since the
EU referendum
Stock
Fastjet
DS Smith
Senior
Prudential
HSBC
Share price
total return (%)
Contribution
(£m)
(89.7)
(35.9)
(25.6)
(24.4)
(11.0)
(8.2)
(5.1)
(4.2)
(3.9)
(3.1)
Source: Bloomberg calendar year share price total return
The largest individual detractor from returns was Fastjet, which
is aiming to roll out a low-cost airline in Africa. While there is
substantial unmet demand for a low-cost carrier serving the
African market, Fastjet had to exit its core Tanzanian market when
the state-owned carrier added substantial new capacity at an
uneconomic return. As at the end of December, Fastjet was 0.1%
of the portfolio. Although the position has been disappointing, it
demonstrates the importance of running a long, diversified list of
holdings in our portfolio.
Although a detractor in 2018, DS Smith, a cardboard packaging
company, has been a strong contributor in previous years. It has
undertaken a number of successful acquisitions under its current
chief executive, entering first the European market and more
recently the American market. The shares were weak in 2018 on
concerns about a broader economic slowdown and at a company
level the amount of debt taken on. The end markets are cyclical,
but DS Smith is a far better business than it was going into the
previous downturn and, in our view, this is not reflected in the
current valuation.
UK
World ex UK
170
160
150
140
130
120
110
100
90
80
01/2 016
0 4/2 016
0 7/2 016
10/2 016
01/2 017
0 4/2 017
0 7/2 017
10/2 017
01/2 018
0 4/2 018
0 7/2 018
10/2 018
12/2 018
Source: Datastream as at 31 December 2018. Total return, £. UK – FTSE All-Share,
World ex UK – MSCI World ex UK
In the 20 years prior to the EU referendum the UK and world
markets performed roughly in-line
UK
World ex UK
450
400
350
300
250
200
150
100
50
0
1995
2000
2005
2010
2015
Source: Datastream as at 31 December 2015. Total return, £. UK – FTSE All-Share, World ex
We have maintained our holdings in DS Smith and other stocks
UK – MSCI World ex UK
where we believe our investment thesis holds true. We have used
periods of weakness to selectively add to certain positions bringing
We are retaining our exposure to the UK and adding to certain
our gearing from 1% at the start of the year to 3% at the end.
positions on days of market weakness, as explained below. A
breakdown of the portfolio by geography can be found on page 18.
Attribution
Since the referendum vote in June 2016, the UK stock market has
significantly underperformed other major global markets.
This is in contrast to the twenty years before where UK and world
markets performed roughly in line.
Portfolio activity
What I’ve been buying
During the year, purchases were predominantly in the UK market,
many of which can be characterised as global companies listed
in the UK. The UK market has materially underperformed global
In a historical context, the UK market therefore appears to offer
markets in recent years, which has left many good quality
significant value. Price earnings ratios for UK companies with
companies trading at a discount to both global peers and their
positive earnings in the FTSE All-Share were an average of 11x for
recent history. An example of this is insurer and asset manager
the 12 months ending 31 December 2018, compared to 13.6x for
Prudential, which was added to during the fourth quarter at under
Europe (excluding the UK) and 16.5x for the US. Looking at dividend
10x current year earnings.
yield, UK companies in the FTSE All-Share had an average yield
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We used the market weakness towards the end of 2018 to be net
During the year we exited two of the overseas investment trust
investors, adding to existing holdings, including pub operator
holdings, Schroder Japan Growth and Templeton Emerging
Greene King, cruise operator Carnival and retailer Dunelm. We
Markets. In the case of Schroder Japan Growth, we purchased the
also for the first time in recent years added a new position in a UK
position in 2016 at a double digit discount to net asset value and
housebuilder (Taylor Wimpey). The shares had de-rated to near
sold the position following strong portfolio performance and a
provider, which demonstrates characteristics
asset value declined by 5.8%
been a strong performer since purchase and
provides access to an area of the market
book value, which historically has been a
good entry point for the sector. The balance
sheet has also improved materially since the
financial crisis. This remains a small position
(0.3% of the portfolio) but we expect to add
to the position opportunistically if presented
with further market weakness.
The largest new holding during the year was
Kier Group, a contractor and support services
of quality but which has fallen out of favour
with the market. This was purchased at
£3.60 subsequent to the rights issue in
December 2018, which we felt presented an
attractive entry point. Following a number
been a push among both the market and
lenders for companies to operate with less
debt. The £250m rights issue provided Kier
with a much stronger balance sheet, while
underlying operations have not deteriorated.
Kier has not historically entered into large
fixed cost contracts outside of its areas of
expertise, which has proved a problem for
peers when they have overrun on costs
and impacted profitability. Kier has instead
focused on smaller contracts where it
continues to generate good margins.
narrowing in the discount level. Templeton
Emerging Markets was sold due to concerns
about the outlook for emerging markets.
Broadly, we aim to use investment trust and
other collective investment holdings to gain
exposure to specialist areas. For example,
we continue to have a holding in Herald
Investment Trust, which brings exposure
Over 2018, the FTSE
All-Share declined by 9.5%
while your Company’s net
to emerging technology companies. It has
on a total return basis. As
to which otherwise we would not have
a manager aiming to grow
your capital over time, it is
been exposed.
Details of your Company’s largest holdings,
along with our investment case, can be
a decline in net asset value.
listing can be found on pages 20 to 22.
I am however content that
Outlook
our bottom up approach to
Economic forecasting for the UK continues
owning quality companies
to be difficult. A large unknown looms in
has sheltered the portfolio
from almost 40% of the
overall market decline
‘Brexit’ and what it means for business is
unclear. The global economy appears to
be slowing and UK productivity growth
remains disappointing. The dark clouds
are considered to be mounting for the UK
by many commentators. However, the UK
companies we hold are not a proxy for the
of poor performers in the sector, there has
never comfortable to report
found on pages 16 and 17. A full portfolio
Also among the largest purchases was one of the UK’s water
utilities, Severn Trent. Along with many shares that are focussed
on the UK, it has de-rated versus recent history. As a result, it is
currently paying an attractive 5% dividend yield, with a dividend
that is expected to grow above the rate of inflation. Severn Trent is
among the best in the sector in terms of operational performance,
with a well-invested network. In our view, this was not reflected in
the valuation.
What I’ve been selling
The largest sale during the year was aerospace and automotive
supplier GKN, which was sold following a takeover from Melrose
at a substantial premium. GKN had been a long-held position in
the portfolio, having been purchased originally in 2006 at just
below £3 and then added to substantially during the financial
crisis at 89p in an emergency rights issue. The position was sold
at approximately £4.30 early in 2018, providing a total shareholder
return of 53.2%. We continue to retain positive exposure to the
ongoing development of the civil aerospace sector through our
remaining holdings in Senior and Rolls-Royce.
UK economy; they are strong businesses with good management
teams. They are good at what they do and provide competitive
products and services; they also earn around 65% of their revenues
outside the UK. The negative sentiment towards these businesses
has become extreme, which has made valuations and the dividend
yield attractive. The intention over the next few months is to move
the gearing up by buying UK stocks to take advantage of this
dislocation. The US holdings have in aggregate performed well and
where the valuation looks stretched they will be further reduced.
The UK companies purchased serve a diverse number of end
markets and we will likely add to existing holdings. It is important
to use the weakness to position the portfolio for an improved
investment background.
James Henderson
Investment manager
26 February 2019
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Twenty largest holdings
at 31 December 2018
Rank
2018 Company
1
Royal Dutch Shell
% of
portfolio
Approx
Market Cap.
Valuation
2017
£000
Purchases
£000
Sales
£000
Appreciation/
(Depreciation)
£000
Valuation
2018
£000
4.4
£192bn
31,300
—
—
(2,087)
29,213
An oil explorer, producer and refiner. Following the oil price decline in 2014 and subsequent BG acquisition Shell was proactive in
materially reducing operating and capital expenditure and as a result cash generation has markedly improved.
2
GlaxoSmithKline
2.6
£73bn
13,839
1,554
—
1,756
17,149
A global pharmaceutical company with a range of businesses across vaccines, pharmaceuticals and consumer health. The vaccine and
consumer healthcare businesses are steadily growing and the pharmaceutical division is showing signs of a turnaround under a new
leadership team.
3
HSBC
2.6
£129bn
20,199
—
—
(3,145)
17,054
A global banking and financial services business. It operates in faster growing economies creating potential for growth over the long-
term and pays an attractive dividend.
4
BP
2.4
£100bn
16,707
—
—
(837)
15,870
An oil explorer, producer and refiner. Following the oil price decline in 2014 it has successfully reduced costs and as a result can now generate
good levels of cash flow at a lower oil price.
5
Rio Tinto
2.1
£65bn
14,775
—
—
(789)
13,986
An international mining company with a broad range of commodity exposure. Its mines operate at the low end of the cost curve leaving
it well placed to generate cash even in volatile commodity markets.
6
Rolls-Royce
2.1
£16bn
13,976
—
—
(301)
13,675
A designer and manufacturer of engines for use in a range of end markets such as aerospace. It is well placed in growing civil aerospace
programmes and this gives it a good pathway for future earnings growth.
7
Stewart Investors APL Fund
2.0
£8bn
15,933
—
(3,303)
830
13,460
The Stewart Investors Asia Pacific Leaders Fund is an open ended fund that brings exposure to geographies which we have little
exposure to elsewhere, such as India and Taiwan. It brings diversification to the portfolio and has performed well over time.
8
Prudential
2.0
£36bn
13,968
3,049
—
(3,922)
13,095
A global insurer and asset manager. Its Asian business has grown impressively in recent years and we think there is good potential for
further growth.
9
Relx
1.8
£32bn
13,035
—
—
(911)
12,124
A provider of referencing and analytics tools for a broad range of end markets. It is a high quality business that has delivered very
consistent earnings growth in recent years.
10
Hiscox
1.8
£5bn
11,509
—
(689)
1,155
11,975
An international insurer that has a high quality retail book that allows it to generate good returns across the underwriting cycle.
11
Senior
1.7
£790mn
14,991
189
—
(4,177)
11,003
A specialist engineer for aerospace and industrial end markets. It has established good content levels across a range of new civil
aerospace programmes that should allow good sales and earnings growth in future.
12
National Grid
1.6
£26bn
4,890
6,711
—
(832)
10,769
A regulated utility that operates within the UK and the US. Shares trade at a lower multiple than has been the case historically relative to
its asset base, with an attractive dividend yield.
13
AstraZeneca
1.6
£74bn
5,118
4,565
—
809
10,492
A global pharmaceutical company. Under a (relatively) new management team the pipeline has been materially improved leading to
good prospects for sales and earnings growth.
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Rank
2018 Company
% of
portfolio
Approx
Market Cap.
Valuation
2017
£000
Purchases
£000
Sales
£000
Appreciation/
(Depreciation)
£000
Valuation
2018
£000
14
Johnson Service Group
1.5
£430mn
12,987
—
—
(2,796)
10,191
A textile rental company that provides hotel linens, work wear and other textile products. The quality of the business has improved
materially in recent years following the exit from the dry-cleaning business.
15
Microsoft (USA)
1.5
£593bn
9,485
—
(2,111)
2,595
9,969
A global software provider. It has successfully transitioned the business to a subscription model and continues to grow earnings strongly.
16
Baillie Gifford Pacific Fund
1.4
£370mn
16,024
—
(4,851)
(1,621)
9,552
This open ended fund brings diversity to the portfolio by investment style with a growth, rather than a value focus and also by geography.
17
Standard Chartered
1.4
£20bn
10,029
1,312
—
(1,984)
9,357
An international bank operating across markets such as Asia and Africa. Under a (relatively) new management team they have improved
the balance sheet and the focus is now on returning the business to growth.
18
Herald Investment Trust
1.4
£901mn
9,894
—
—
(799)
9,095
This investment trust brings exposure to the global technology sector. It has been an excellent performer over the long-term.
19
BHP
1.4
£88bn
8,371
—
—
703
9,074
An international mining, oil & gas company. It is well positioned on the cost curve to generate cash, even in volatile end markets for
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commodity prices.
20
Land Securities
1.3
£6bn
8,050
2,241
—
(1,856)
8,435
A property company that owns retail and office assets in the UK. Due to concerns about the domestic economy and structurally about
the retail sector, it is trading at a material discount to net asset value with an attractive dividend yield.
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Portfolio by sector
2018
Portfolio by sector
2017
Oil and gas 10.8%
Basic materials 7.3%
Industrials 24.8%
Consumer goods 4.5%
Health care 8.9%
Consumer services 7.4%
Telecommunications 1.4%
Utilities 3.6%
Financials 27.6%
Technology 3.7%
Oil and gas 9.4%
Basic materials 7.1%
Industrials 28.2%
Consumer goods 5.9%
Health care 7.5%
Consumer services 8.5%
Telecommunications 1.2%
Utilities 1.5%
Financials 28.8%
Technology 1.9%
Geographical distribution
Geographical distribution
of portfolio by value
2018
of portfolio by value
2017
United Kingdom 74.5%
North America 9.9%
Europe 8.6%
Japan 1.1%
Other Pacific 4.5%
Other 1.4%
United Kingdom 72.4%
North America 9.4%
Europe 8.3%
Japan 2.1%
Other Pacific 5.4%
Other 2.4%
18
lawdebenture.com
Classification of investments
based on market values at 31 December 2018
United
Kingdom
%
North
America
%
Europe
%
Rest of
the world
%
Total
2018
%
Total
2018
£000
Oil & gas
Oil & gas producers
Oil equipment services & distribution
Basic materials
Chemicals
Forestry & paper
Mining
Industrials
Construction & materials
Aerospace & defence
General industrials
Electronic & electrical equipment
Industrial engineering
Industrial transportation
Support services
Consumer goods
Automobiles & parts
Beverages
Food producers
Household goods & home construction
Personal goods
Health care
Health care equipment & services
Pharmaceuticals & biotechnology
Consumer services
General retailers
Media
Travel & leisure
Telecommunications
Mobile telecommunications
Utilities
Electricity
Gas water & multi utilities
Financials
Banks
Non-life insurance
Life insurance/assurance
Real estate investment & services
Real estate investment trusts
Financial services
Equity investment instruments
Technology
Software & computer services
Technology hardware & equipment
TOTAL 2018
TOTAL 2017
8.14
1.07
9.21
2.15
0.99
3.48
6.62
4.64
6.43
1.27
2.35
2.47
0.94
1.69
0.75
0.51
1.26
—
—
—
—
—
—
—
—
2.69
—
—
19.79
2.69
—
—
—
1.42
—
1.42
1.04
4.17
5.21
1.03
2.32
3.13
6.48
1.02
1.02
0.70
2.86
3.56
3.98
3.49
2.96
1.11
3.34
3.91
2.40
21.19
0.89
—
—
—
—
0.89
0.93
1.33
2.26
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
74.50
72.42
1.50
1.28
2.78
9.88
9.35
The above table excludes bank balances and short-term deposits
0.10
0.24
—
0.14
0.33
1.36
0.12
0.36
0.42
—
0.21
1.11
0.31
1.14
1.45
—
—
0.92
0.92
0.36
0.36
—
—
—
0.35
0.54
—
—
—
0.56
—
1.45
0.58
0.31
0.89
8.61
8.30
0.35
—
0.35
0.72
—
—
0.72
0.55
—
—
—
—
—
—
—
—
—
0.90
—
—
—
—
—
9.24
1.58
61,055
10,517
10.82
71,572
2.87
0.99
3.48
7.34
5.19
7.33
1.37
2.59
5.16
1.08
2.02
19,109
6,534
23,060
48,703
34,376
48,486
9,073
17,166
34,246
7,163
13,405
Total
2017
%
7.97
1.41
9.38
2.89
1.05
3.15
7.09
3.44
6.83
1.56
4.94
6.26
1.13
Total
2017
£000
58,664
10,399
69,063
21,288
7,724
23,146
52,158
25,320
50,169
11,450
36,280
46,100
8,342
4.09
30,028
S
T
R
A
T
E
G
I
C
I
N
F
O
R
M
A
T
I
O
N
0.90
24.74
163,915
28.25
207,689
1.12
—
—
—
—
1.12
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.48
—
—
4.51
4.99
—
—
—
7.01
9.93
2.13
0.36
0.42
1.42
0.21
4.54
2.28
6.64
8.92
1.03
2.32
4.05
7.40
1.38
1.38
0.70
2.86
3.56
4.33
4.03
2.96
1.59
3.34
4.47
6.91
14,125
2,406
2,803
9,403
1,394
30,131
15,093
43,912
59,005
6,816
15,377
26,725
48,918
9,124
9,124
4,612
18,932
23,544
28,749
26,710
19,625
10,481
22,115
29,753
45,868
27.63
183,301
2.08
1.59
3.67
13,814
10,566
24,380
100.00
662,593
3.94
0.30
0.38
1.27
—
28,963
2,197
2,802
9,363
—
5.89
43,325
3.17
4.34
7.51
1.01
3.63
3.90
8.54
1.20
1.20
0.54
0.95
1.49
4.72
3.28
3.63
1.02
2.48
23,316
31,918
55,234
7,458
26,659
28,774
62,891
8,823
8,823
3,954
7,050
11,004
34,771
24,166
26,814
7,489
18,295
3.05
22,395
10.59
28.77
77,918
211,848
1.88
13,837
—
—
1.88
13,837
—
—
100.00
735,872
19
S T R A T E G I C I N F O R M A T I O N
Investment portfolio valuation
based on market values at 31 December 2018
The number of investments was 139 at 31 December 2018 (2017:137), including de-listed stocks. Those shown in italics are new holdings in
the six months since 30 June 2018.
OIL & GAS
Oil & gas producers
Royal Dutch Shell
BP
Gibson Energy (Can)
Indus Gas
Tullow Oil
Total (Fra)
Premier Oil
Providence Resources
Oil equipment services & distribution
Ceres Power
Schlumberger (USA)
National Oilwell Varco (USA)
Velocys
Now (USA)
TOTAL OIL & GAS
BASIC MATERIALS
Chemicals
Croda
Elementis
Linde (Ger)
Koninklijke DSM (Net)
Brenntag (Ger)
Carclo
Forestry & paper
Mondi
Mining
Rio Tinto
BHP
TOTAL BASIC MATERIALS
UTILITIES
Electricity
SSE
Simec Atlantis Energy
Gas water & multiutilities
National Grid
Severn Trent
TOTAL UTILITIES
20
lawdebenture.com
£000
29,213
15,870
4,979
3,947
3,582
2,247
831
386
61,055
6,372
2,266
1,008
757
114
10,517
71,572
£000
7,916
5,368
1,887
1,748
1,163
1,027
19,109
6,534
6,534
13,986
9,074
23,060
48,703
£000
3,241
1,371
4,612
10,769
8,163
18,932
23,544
INDUSTRIALS
Construction & materials
Marshalls
Accsys Technologies
Kier
Balfour Beatty
Ibstock
Geberit (Swi)
Assa Abloy (Swe)
Aerospace & defence
Rolls-Royce
Senior
BAE Systems
Embraer (Bra)
Babcock
Meggitt
%
4.41
2.40
0.75
0.60
0.54
0.35
0.13
0.06
9.24
0.96
0.34
0.15
0.11
0.02
1.58
10.82
General i ndustrials
Smith (DS)
Sig Combibloc (Swi)
%
1.19
0.81
0.28
0.26
0.18
0.15
2.87
0.99
0.99
2.11
1.37
3.48
7.34
%
0.49
0.21
0.70
1.63
1.23
2.86
3.56
Electronic & electrical equipment
Morgan Advanced Materials
Spectris
TT Electronics
Legrand (Fra)
Industrial engineering
Hill & Smith
Caterpillar (USA)
Cummins (USA)
Deere (USA)
IMI
Weir Group
Renold
Severfield
Industrial transportation
Eddie Stobart Logistics
Royal Mail
Wincanton
Deutsche Post (Ger)
Support services
Johnson Service
SGS (Swi)
Augean
Interserve
£000
8,390
7,351
6,105
5,017
3,868
2,058
1,587
34,376
13,675
11,003
8,266
5,965
4,874
4,703
48,486
8,420
653
9,073
7,896
4,843
2,839
1,588
17,166
7,381
6,982
6,296
4,572
4,130
2,596
1,714
575
34,246
3,750
1,360
1,093
960
7,163
10,191
2,199
733
282
13,405
%
1.27
1.11
0.92
0.76
0.58
0.31
0.24
5.19
2.06
1.66
1.25
0.90
0.74
0.72
7.33
1.27
0.10
1.37
1.19
0.73
0.43
0.24
2.59
1.11
1.05
0.95
0.69
0.62
0.39
0.26
0.09
5.16
0.57
0.21
0.16
0.14
1.08
1.54
0.33
0.11
0.04
2.02
TOTAL INDUSTRIALS
163,915
24.74
CONSUMER GOODS
Automobiles & parts
Toyota Motor (Jap)
General Motors (USA)
Knorr-Bremse (Ger)
Beverages
Pernod-Ricard (Fra)
Food producers
Nestlé (Swi)
Household goods & home construction
Watkin Jones
Taylor Wimpey
Personal goods
L’Oreal (Fra)
TOTAL CONSUMER GOODS
HEALTH CARE
Health care equipment & services
Smith & Nephew
Becton Dickinson (USA)
Philips Electronics (Net)
Pharmaceuticals & biotechnology
GlaxoSmithKline
AstraZeneca
Pfizer (USA)
Johnson & Johnson (USA)
Novartis (Swi)
Novo-Nordisk (Den)
Roche (Swi)
TOTAL HEALTH CARE
CONSUMER SERVICES
General retailers
Dunelm
Findel
Media
Relx
Daily Mail & General Trust
Mirriad Advertising
Travel & leisure
International Consolidated Airlines
Greene King
Irish Continental (Ire)
Carnival
Marstons
Paddy Power Betfair
Ryanair (Ire)
Fastjet
TOTAL CONSUMER SERVICES
£000
7,433
5,908
784
14,125
2,406
2,406
2,803
2,803
7,087
2,316
9,403
1,394
1,394
30,131
£000
6,881
6,190
2,022
15,093
17,149
10,492
5,140
3,547
3,179
2,389
2,016
43,912
59,005
£000
4,873
1,943
6,816
12,124
2,962
291
15,377
6,952
5,268
4,633
3,760
2,050
1,920
1,447
695
26,725
48,918
%
1.12
0.89
0.12
2.13
0.36
0.36
0.42
0.42
1.07
0.35
1.42
0.21
0.21
4.54
%
1.04
0.93
0.31
2.28
2.59
1.58
0.78
0.55
0.48
0.36
0.30
6.64
8.92
%
0.74
0.29
1.03
1.83
0.45
0.04
2.32
1.05
0.80
0.70
0.58
0.31
0.29
0.22
0.10
4.05
7.40
FINANCIALS
Banks
HSBC
Standard Chartered
ING Group (Net)
UBS (Swi)
Permanent TSB (Ire)
Nonlife insurance
Hiscox
RSA Insurance
Direct Line Insurance
Muenchener Rueckver (Ger)
Allianz (Ger)
Life insurance/assurance
Prudential
Chesnara
Aviva
Real estate investments & services
St Modwen Properties
Grit Real Estate Income
Real estate investment trusts
Land Securities
Urban Logistics REIT
Mucklow (A&J) Group
Hammerson
Financial services
Provident Financial
IP Group
Oxford Sciences Innovation (unlisted)
International Personal Finance
Allied Minds
Deutsche Börse (Ger)
Standard Life Aberdeen
Amundi (Fra)
Equity investment instruments
Stewart Investors Asia Pacific
Baillie Gifford Pacific
Herald Investment Trust
Scottish Oriental Smaller Company Trust
Foresight Solar
Hipgnosis Songs Fund
Better Capital (2012)
£000
17,054
9,357
1,188
1,145
5
28,749
11,975
7,162
3,981
2,145
1,447
26,710
13,095
3,582
2,948
19,625
7,326
3,155
10,481
8,435
7,527
3,683
2,470
22,115
7,379
6,457
3,870
3,471
3,002
2,051
1,684
1,625
29,539
13,460
9,552
9,095
6,916
3,225
3,195
425
45,868
S
T
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A
T
E
G
I
C
I
N
F
O
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M
A
T
I
O
N
%
2.57
1.41
0.18
0.17
—
4.33
1.81
1.08
0.60
0.32
0.22
4.03
1.98
0.54
0.44
2.96
1.11
0.48
1.59
1.27
1.14
0.56
0.37
3.34
1.11
0.97
0.58
0.52
0.45
0.31
0.25
0.25
4.44
2.03
1.44
1.37
1.04
0.49
0.48
0.06
6.91
TOTAL FINANCIALS
183,087
27.60
TELECOMMUNICATIONS
Mobile telecommunications
Vodafone
Deutsche Telekom (Ger)
Inmarsat
TOTAL TELECOMMUNICATIONS
£000
5,351
2,397
1,376
9,124
9,124
%
0.81
0.36
0.21
1.38
1.38
21
S T R A T E G I C I N F O R M A T I O N
Investment portfolio valuation continued
based on market values at 31 December 2018
TECHNOLOGY
Software & computer services
Microsoft (USA)
SAP (Ger)
Amadeus IT (Spa)
Technology hardware & equipment
Lam Research (USA)
Applied Materials (USA)
ASML (Net)
TOTAL TECHNOLOGY
OTHER
£000
9,969
2,985
860
13,814
4,925
3,599
2,042
10,566
24,380
%
1.50
0.45
0.13
2.08
0.74
0.54
0.31
1.59
3.67
TOTAL OTHER*
214
0.03
TOTAL INVESTMENTS
662,593
100.00
* Classified under Financials in table on page 19
Changes in geographical distribution
Valuation
31 December
2017
£000
532,923
68,796
61,119
15,484
39,618
17,932
Purchases
£000
Costs of
acquisition
£000
Sales
proceeds
£000
Appreciation/
(depreciation)*
£000
Valuation
31 December
2018
£000
83,134
5,297
21,914
—
—
3,051
(377)
(52,446)
(69,670)
493,564
—
(31)
—
—
—
(5,523)
(17,892)
(7,338)
(8,155)
(10,812)
(3,075)
(8,057)
(713)
(1,535)
(1,051)
65,495
57,053
7,433
29,928
9,120
%
74.5
9.9
8.6
1.1
4.5
1.4
735,872
113,396
(408)
(102,166)
(84,101)
662,593
100.0
United Kingdom
North America
Europe
Japan
Other Pacific
Other
* Please refer to note 2 on page 72
22
lawdebenture.com
The dark clouds are considered
to be mounting for the UK by many
commentators. However, the UK
companies we hold are not a proxy for the
UK economy; they are strong businesses
with good management teams
S
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S T R A T E G I C I N F O R M A T I O N
Strategic report
Who we are
From its origins in 1889, Law Debenture has diversified to become
UK
a group with a unique range of activities in the financial and
professional services sectors. The group divides into two distinct
areas of business: we are an investment trust and a leading
provider of independent professional services (IPS or IPS business).
Investment trust – objectives, investment
strategy, business model
North America
Europe
Japan
Other Pacific
Other
Minimum
%
Maximum
%
55
0
0
0
0
0
80
20
10
10
10
10
Our objective for the investment trust is to achieve long-term capital
investment products including open ended investment companies
growth in real terms and steadily increasing income. The aim is to
(OEICs), fixed interest securities, interests in limited liability
Investments may be held in, inter alia, equity shares, collective
achieve a higher rate of total return than the FTSE Actuaries All-
Share Index through investing in a diversified portfolio.
Law Debenture shares are intended for private investors in
the UK (retail investors), professionally advised private clients
and institutional investors. By investing in an investment trust,
shareholders typically accept the risk of exposure to equities but
hope that the pooled nature of an investment trust portfolio will
give some protection from the volatility in share price movements
that can sometimes affect individual equities.
partnerships, cash and liquid assets. Derivatives may be used but
only with the prior authorisation of the board. Investment in such
instruments for trading purposes is proscribed. It is permissible to
hedge against currency movements on both capital and income
account, and, since December 2018, to lend stocks up to 30% of
the NAV, subject again to prior authorisation of the board. Trading
in suspended shares and short positions are not permitted. No
more than 15% of gross assets will be invested in other UK listed
investment trusts. The Company’s investment activities are subject
to the following limitations and restrictions:
Our investment strategy (which did not
change in 2018) is as follows:
The Company’s portfolio will typically
contain between 70 and 150 listed
investments. The portfolio is diversified in
order to spread investment risk. There is no
obligation to hold shares in any particular
type of company, industry or geographical
location. The IPS business does not form
part of the investment portfolio and is
outwith this strategy.
Whilst performance is measured against
local and UK indices, the composition
of these indices does not influence
the construction of the portfolio. As a
The aim is to achieve a
higher rate of total return
than the FTSE Actuaries
All-Share Index through
investing in a diversified
portfolio of stocks
•
No investment may be made which
raises the aggregate value of the largest
20 holdings, excluding investments
in collective investment vehicles that
give exposure to the Japan, Asia/Pacific
or emerging market regions, to more
than 40% of the Company’s portfolio,
including gilts and cash.
•
The value of a new acquisition in any
one company may not exceed 5% of
total portfolio value (including cash)
at the time the investment is made.
Further additions shall not cause a
single holding to exceed 5%, and board
approval must be sought to retain
consequence, it is expected that the Company’s investment
a holding, should its value increase above the 5% limit (that
portfolio and performance will deviate from the comparator
approval to be reported to the next board meeting).
indicies.
There are some guidelines, set by the board, on maximum or
minimum stakes in particular regions and all stakes are monitored
in detail by the board at each board meeting in order to ensure
that sufficient diversification is maintained.
Liquidity and long-term borrowings are managed with the aim
of improving returns to shareholders. The policy on gearing is to
adopt a level of gearing that balances risk with the objective of
increasing the return to shareholders, in pursuit of its investment
objective. More information on gearing can be found on page 26.
•
The Company applies a ceiling on effective gearing of 50%.
While effective gearing will be employed in a typical range
of 10% net cash to 20% gearing, the board retains the ability
to reduce equity exposure so that net cash is above 10% if
deemed appropriate.
•
The Company may not make investments in respect of which
there is unlimited liability.
24
lawdebenture.com
Our business model is designed to position the Company to best
of the group (excluding the net assets of the IPS), calculated
advantage in the investment trust sector.
on the basis adopted in the audited financial statements. This
We aim to deliver the investment trust’s objective by skilled
implementation of the investment strategy, complemented
by maintaining and operating our IPS business profitably and
safely, while keeping it distinct from the portfolio. The operational
independence of the IPS means that the business can act flexibly
and commercially. They provide a regular flow of dividend income
to the Company. This helps the board to smooth out equity
dividend peaks and troughs, means that the investment manager
doesn’t have to be constrained by choosing stocks just for yield
means that the Company continues to maintain one of the most
competitive fee structures in the investment trust sector and
this, combined with the good performance of Janus Henderson
over the years as our investment manager, has led the board to
conclude that the continuing appointment of Janus Henderson
as the Company’s investment manager remains in the best
interests of shareholders. Equity investment needs to be seen
over the longer term and here Janus Henderson has delivered
over many years.
and is an important element in delivering the objective of steadily
The agreement with Janus Henderson does not cover custody
increasing income for shareholders. In turn, some of the tax relief
which is the responsibility of the depositary (see section on
at the investment trust level arising from our debenture interest
regulatory compliance in the directors’ report, page 32). Nor
and excess costs, which would otherwise be unutilised, can be
does it cover the preparation of data associated with investment
transferred to the IPS.
performance, or record keeping, both of which are maintained by
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Fee structure and ongoing charges
Our portfolio of investments is managed under delegation
by James Henderson of Janus Henderson Investors (Janus
Henderson) under a contract terminable by either side on six
months’ notice. On a fully discretionary basis, Janus Henderson is
responsible for implementing the Company’s investment strategy
and fees are charged at 0.30% of the value of the net assets
the Company.
Investment trusts are required to publish their ongoing charges.
This is the cost of operating the trust and includes the investment
management fee, depositary and custody fees, investment
performance data, accounting, company secretary and back
office administration. Law Debenture’s latest published level of
ongoing charges is one of the lowest in the marketplace at 0.43%.
No performance fees are paid to the investment manager.
THE L AW DEBE NTURE BUSIN ESS MO DE L
The business model provides advantages over other investment trusts
Total shareholder return
INVESTMENT PORTFOLIO
•
Invests in diverse equity portfolio
• Earns capital returns and dividends
• Low ongoing charges of 0.43%
INDEPENDENT PROFESSIONAL
SERVICES
• Trusted, professional and third party
• Earns fees
• Cost base kept under control
•
Profits give a dividend stream which
increases the ability to pay dividends
to shareholders
• Tax efficient
25
S T R A T E G I C I N F O R M A T I O N
Strategic report continued
Capital structure – simple and mainstream
Share price and NAV
Law Debenture’s capital structure is transparent. We have only
Investment trusts can trade at a discount (where the share price
one class of share – ordinary shares – and each share has the same
is lower than the combined value (NAV) of the underlying assets),
rights as every other share.
The Company conducts its affairs so that its ordinary shares are
capable of being recommended by independent financial advisors
to ordinary retail investors in accordance with relevant FCA rules.
Our ordinary shares are, we consider, mainstream investment
or at a premium (where the share price trades at a higher level
than the underlying NAV). Investment trust investors need to
understand these concepts as well as examine the underlying
portfolio and the way in which it is managed, to decide whether or
not an investment trust share represents “good value”.
products because they are shares in an
investment trust. The Company intends
to continue conducting its affairs for the
foreseeable future so that the ordinary
shares can continue to be categorised as
mainstream.
Transparency
In order to assist shareholders in
understanding the nature of the underlying
investments they are buying into when
investing in Law Debenture shares, we
publish our entire portfolio twice a year – in
the annual report (see pages 20 to 22) and
half yearly report – with regular monthly
updates on the composition of the top ten
holdings in the portfolio.
Gearing
Principal risks and
uncertainties –
investment trust
Law Debenture’s latest
The principal risks to the Company’s ability
published level of ongoing
charges is one of the
lowest in the marketplace
at 0.43%. No performance
fees are paid to the
investment manager
to continue operations as an investment
trust relate to investment activities
generally and include market price risk,
foreign currency risk, liquidity risk, interest
rate risk, credit risk, country/region risk and
regulatory risk. The directors have carried
out a robust assessment of these and other
risks, which are explained in more detail
below and in note 20 to the accounts.
Market risk could arise from sudden
fluctuations in world stock markets.
Investment trusts have the benefit of being able to ‘gear’ their
portfolios according to market conditions. This means that they can
raise debt (either short- or long-term) to generate funds for further
investment – i.e. to increase the size of the portfolio – or they can
sell assets from within the portfolio to reduce debt and even be
“negatively geared” – i.e. selling assets to hold cash so that less than
100% of the trust’s assets are invested in equities. At 31 December
2018, our gearing was 3% (2017: 1%).
There has been no change in the Company’s gearing policy, with
effective gearing typically employed in a range of 10% net cash to
20% gearing.
Borrowings
The Company has two debentures (long dated sterling
denominated financing) details of which are at page 87. The
The portfolio deliberately contains a ‘long list’ of stocks and
is diversified to spread risk. In extreme circumstances, as the
Company’s investments comprise almost entirely of readily
realisable, quoted equities, these could be sold to meet funding
requirements. The Company conducts stress tests each month, as
part of its compliance programme, which gives the board a degree
of comfort about the Company’s ability to withstand any significant
market shock.
Regulatory risk could arise from failure to comply with legal and
regulatory obligations. This could result in suspension of the
Company’s stock exchange listing and/or regulatory sanction
(including financial penalties). Breach of the Corporation Tax Act
2010 could lead to the Company being subject to tax on capital
gains. The executive team provides regular reports to the board
and the audit committee on the monitoring programmes in place
to mitigate these risks. As its own AIFM, the Company is able to
monitor investment positions along with levels of forecast income
and expenditure and the depositary carries out regular checks on
the Company’s investment activity and accounting.
weighted average interest payable on the Company’s structural
Operational risk could arise from failure of the Company’s
borrowings is 4.589% (2017: 4.589%).
accounting systems, the systems of the investment manager, or
those of the custodian, which might result in an inability to provide
26
lawdebenture.com accurate reporting and monitoring or a misappropriation of
The directors’ strategic report explains in detail their assessment
assets. All relevant providers of these services have comprehensive
and understanding of the principal risks facing the Company. There
business continuity plans which include robust plans for continued
is a detailed description of the controls in place to manage those
operation of the business in the event of a service disruption or
risks in the corporate governance report. The main qualification
other major disruption. The audit committee considers detailed
to this viability statement is that the investment manager is
reports on the Company’s risk profile and the internal controls in
appointed on a fully discretionary basis, so, while stocks are
place to mitigate such risk, as well as receiving reports by other key
picked by the manager within the guidelines in the investment
third party providers.
Gearing risk could arise where the Company has borrowed money
for investment purposes. If the value of portfolio investments falls,
any borrowings will magnify the extent of this loss. All borrowings
require the prior approval of the board and gearing levels are
strategy, the board does not dictate what individual stocks are
bought or sold. Portfolio over or underperformance is only properly
measurable over the medium and longer term. Short-term
fluctuations will not necessarily result in a change of strategy, but
might in extreme circumstances pose a risk to viability.
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kept under close review by the board. As stated in the investment
This risk is accepted within the board’s risk appetite.
strategy, there is a ceiling on effective gearing of 50%.
This statement is in addition to, rather than any replacement of,
The Company takes risk management very seriously and the
the going concern basis of preparation statement on page 37.
corporate governance report sets out in detail the control framework
in place to manage or mitigate the risks that the group faces.
Viability statement
Key performance indicators (KPIs) and
alternative performance measures
The KPIs used to measure the progress and performance of the
The Company is required to publish a longer term statement about
group are:
its viability.
•
NAV total return per share (combining the capital and income
The directors believe that a forward looking period of three years is
returns of the group) and how this compares, over various time
appropriate. The directors assess the Company’s future prospects
intervals, with relevant indices;
by keeping under close review its current
and projected financial position, threats/
risks to the delivery over the longer term
of the investment strategy objectives
and the group business model and a
macroeconomic overview based on a
reasonable time horizon. A three-year time
period also takes into account the nature
of the markets in which the IPS business
operates, where fluctuations in revenue can
occur year-on-year for reasons beyond Law
Debenture’s control.
The directors confirm that they have a
reasonable expectation that the Company
will continue to implement its investment
strategy and business model and to
operate and be able to meet its liabilities
as they fall due for the next three financial
•
the discount/premium in share price to
NAV; and
•
the cost of running the portfolio as a
percentage of its value.
Law Debenture’s capital
structure is transparent.
Since the objective of the investment trust
is measurable solely in financial terms,
the directors do not consider that it is
We only have one class of
appropriate to adopt non-financial KPIs.
share – ordinary shares
– and each share has
the same rights as every
other share
The financial measures adopted as KPIs are
part of our financial reporting obligations.
Alternative Performance Measures as defined
under ESMA guidelines have been adopted
and these are described in detail on page 91.
Investment strategy –
implementation
years. There are no current plans to amend the investment
The way in which we implemented the investment strategy during
policy, which has delivered good capital and dividend returns
2018 is described in the investment manager’s review on pages 13
for shareholders over many years. As reported elsewhere, the
to 15.
Company will be moving during 2019 into a UK sector AIC category
from the current global sector classification. The strategy for the
IPS business remains to continue to grow them; more detail can be
found in the chief executive officer’s review on pages 6 to 10.
Performance against KPIs is set out at pages 3, 13 to 22 and
31, which contain comprehensive tables, charts and data to
explain performance both over the year under review and over
the long-term.
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Strategic report continued
Law Debenture’s responsibilities
as an institutional shareholder
The Company does not believe that conflicts arise between its
duties as an institutional shareholder and the IPS work undertaken
by the IPS business. The investment manager has complete
The Company recognises that in delivering its objective to produce
discretion as to portfolio decisions and as a matter of policy, has no
long-term capital growth and a steadily increasing income, it must
access to ‘non-public’ knowledge about any of the activities of the
ensure that its investment strategy is delivered with due emphasis
IPS business.
on the need to ensure that investee companies are acting in
accordance with accepted standards of corporate governance. The
Company has therefore adopted the following policy.
Law Debenture will normally support incumbent management
and vote in favour of resolutions proposed by the boards of
companies in which it has a shareholding, but will vote against
management or withhold a vote where appropriate.
The IPS business –
part of our business model
Operating through wholly owned subsidiary companies, all of
which are listed at note 14 to the accounts, we provide pension
trustee, corporate trusts, and corporate services to companies,
agencies, organisations and individuals throughout the world.
The board determines the Company’s
investment strategy but does not issue
express instructions to the investment
manager on transactions in particular
shares. Where Law Debenture believes
that incumbent management is failing in
its duties, Law Debenture (or on its behalf,
the Company’s investment manager) may
attempt to enter into dialogue with the
company concerned in an attempt to alter
the management’s position.
Where this is not possible, or where
incumbent management declines to alter
its behaviour, Law Debenture will consider
voting against resolutions proposed by
the management. Further, if it is deemed
necessary or desirable, the Company would
consider acting collectively with other
institutional investors to try and achieve a
The services are provided through offices
in the UK, Dublin, New York, Delaware,
Hong Kong, the Channel Islands and the
Cayman Islands.
Group employees are employed by L.D.C.
Trust Management Limited and Safecall
On a fully discretionary
basis, Janus Henderson
Limited (in the UK) or a locally incorporated
is responsible for
implementing the
Company’s investment
entity (in the overseas jurisdictions).
As part of their duties, a small number
of the employees provide services to
the investment trust and their time is
charged to the trust, forming a part of the
strategy. Fees are charged
ongoing charges.
at 0.30% of the value of the
More details about the performance of the
net assets of the group, this
IPS in 2018 are given in the chief executive’s
means that the Company
continues to maintain one
review at pages 6 to 10.
The principal risks to the business model
from the IPS arise where transactions to
particular goal.
of the most competitive
which we provide a service come under
Janus Henderson, on Law Debenture’s
behalf, monitors companies in which Law
Debenture is invested, and from time to
time may discuss matters of corporate
responsibility with such companies.
fee structures in the
investment trust sector
stress – say by going into default, or
where re-financings or other transaction
amendments are required. Such risks may
arise from the wider economic pressures
on some sectors, borrowers and regions.
The Janus Henderson corporate governance unit will notify Law
Debenture’s investment manager, who in turn may notify Law
Debenture, should matters arise that might lead the Company
to consider intervening, abstaining or voting against a particular
proposal. During the year, the Company abstained or voted against
one or more resolutions at the annual general meetings of 22
investee companies.
The Company will not hold shares in companies whose ethical
and environmental practices are in its view likely to damage the
performance of the business to the detriment of its shareholders.
To mitigate these risks, we work closely with our legal advisers and
where appropriate, financial advisers, both in the set up phase to
ensure that we have as many protections as practicable and on
a continuing basis. The directors, via detailed audit committee
review, monitor these risks closely to ensure that the risks of the
IPS business do not impact the investment portfolio.
The single KPI of the IPS is revenue return per share, which is
reported within the financial summary and the ten year record at
pages 3 and 31.
28
lawdebenture.com Environmental, employee related,
community and social issues
US subsidiary – return of regulatory capital
Two years ago, we reported that we had completed the sale of
Law Debenture considers that none of its trading activities has a
substantially all of our US corporate trust business. The associated
negative environmental impact. We disclose our carbon emissions
regulatory cost of business in the US – where since 2013 we had
consumption as part of the directors’ report.
been obliged to maintain capital of US$50m – was unwelcome,
Those emissions relate solely to the maintenance of our various
offices around the world.
so the decision was made that this capital could more usefully
be employed elsewhere. In line with the expectation reported to
shareholders two years ago, the regulatory capital requirement
The group’s employees are provided with modern, comfortable
ceased to apply during 2018. The US$50m capital was returned to
working environments that comply with all relevant safety
the UK and a SWAP that had been in place to hedge the net US$
regulations. Employee wellbeing is ensured through delivery of
investment was terminated at the end of its term. See notes 4 and
a range of benefits designed to promote good health including
20 of the financial statements. These funds are now available to the
health insurance and medicals. Independent confidential helpline
Company, either for investment or for general corporate use.
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facilities are provided to enable employees to deal with issues of
concern to them, whether work related or domestic. As a result
of these measures, and senior management’s open style, staff
turnover is generally low.
The group supports certain charities from time to time, particularly
where employees have personally organised events, or take part
in sponsored activities, that benefit charities related to them or
their families.
Future trends and factors
Law Debenture will continue to strive to deliver its business
objectives for both the investment trust and the IPS.
The chairman’s statement, the investment manager’s review and
the chief executive’s review (all of which form part of this strategic
report) respectively set out some views on future developments.
The group is unaware of any human rights issues that might arise
from its activities, mindful though of the need to act responsibly as
Brexit
an institutional shareholder (as described above).
Breakdown of employees by sex
We report that at the 2018 year end:
The board continues to believe that the UK’s decision to leave the
EU does not present a threat to the group’s business model, the
viability statement, or its ability to continue producing accounts
on a going concern basis. The chairman comments separately on
Brexit in his review.
•
no directors of the group parent were female (2017: nil), noting
that Katie Thorpe was appointed to the board as an executive
director on 1 January 2019;
Performance and related data
•
23% of the senior managers of the group were female (2017:
Pages 3, 7 and 12 to 22, which contain performance and related
20%) (senior manager being any individual with responsibility
data, form a part of this strategic report.
for planning, directing or controlling an activity of one of the
subsidiary companies, excluding the chief executive); and
•
43% (2017: 47%) of the group employees were female.
Law Debenture Corporate Services Limited
Company Secretary
26 February 2019
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Calculation of net asset value (NAV) per share
NAV per share
NAV per share per financial statements
Fair value adjustment for independent professional services
Debt fair value adjustment
NAV per share at fair value
Background
31 December
2018
Pence
31 December
2017
Pence
566.27
66.36
(18.56)
614.07
633.28
61.57
(25.32)
669.53
valuation does not therefore reflect the full value to the group and
its shareholders. The value of group tax relief from the investment
Our consolidated financial statements are presented in order to
trust to the IPS business reduced the tax charge by £845k (2017:
comply with International Financial Reporting Standards (IFRS),
£1.2m), which is not reflected in this valuation. It is hoped that our
with the value of the investment portfolio expressed at fair value,
initiatives to inject growth into the IPS business will result in a
which is broadly a rational and unbiased estimate of the potential
corresponding increase in valuation over time.
market value, taking into account acquisition/replacement/
disposal costs.
In order to assist investors, the Company restated its historic NAV
in 2015 to include the fair value of the IPS business for the last
Since 31 December 2015, we have published a fair value NAV
10 years. This information is provided in the annual report within
that includes the fair value of the IPS business and long-term
the 10 year record (page 31), performance (page 3) and 10 year
borrowings.
performance (page 3).
The calculation of the IPS valuation and methodology used to derive
it are included in the annual report at note 14. In accordance with
financial reporting standards, the valuation itself is not reflected in
the financial statements. In determining a basis for the fair valuation
of the IPS business, the directors have taken external professional
advice. It should be noted that valuation guidelines require the fair
value of the IPS business be established on a stand-alone basis. The
Long-term borrowing
The fair value of long-term borrowings held by the group is
disclosed in note 21 to the accounts. The methodology of fair
valuing all long-term borrowings is to benchmark the group debt
against A rated UK corporate bond yields.
30
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lawdebenture.com
Long-term performance record
10 year record
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Net assets (£m)1
266.4
342.4
412.6
390.9
451.9
569.1
574.2
557.3
662.3
748.3
669.4
Revenue return (pence)
15.58
13.02
13.26
15.52
15.14
Capital return (pence)
(120.59)
62.77
58.22
(19.07)
50.24
16.27
97.18
16.95
18.10
15.96
21.66
21.26
3.87
(17.47)
89.30
67.10
(71.85)
Total (pence)
(105.01)
75.79
71.48
(3.55)
65.38
113.45
20.82
0.63
105.26
88.76
(50.59)
Revenue return (pence)
Investment trust
Independent professional
services
10.23
5.35
7.33
5.69
7.07
6.19
8.27
7.25
8.47
6.67
9.31
10.08
6.96
6.87
11.01
7.09
10.88
7.68
11.61
9.933
13.23
7.87
Group charges2
—
—
—
—
—
—
—
—
(2.60)
0.12
15.58
13.02
13.26
15.52
15.14
16.27
16.95
18.10
18.56
21.54
21.10
0.16
15.58
13.02
13.26
15.52
15.14
16.27
16.95
18.10
15.96
21.66
21.26
Dividends (pence)
12.20
12.20
12.70
13.50
14.25
15.00
15.70
16.20
16.70
17.30
18.90
Share price (pence)1
223.5
284.5
356.6
333.5
425.0
529.0
530.0
498.0
530.0
629.0
540.0
(Discount)/premium (%)1
(20.7)
(15.7)
(10.5)
NAV at fair value (pence)1
282.0
337.5
398.5
(13.4)
385.1
0.1
(2.4)
(2.3)
(5.1)
(11.4)
(6.0)
424.7
541.8
542.3
524.5
598.5
669.5
(12.1)
614.1
Market capitalisation (£m)1
263.8
335.9
418.6
393.8
501.9
625.0
627.1
589.3
627.2
744.5
639.3
1 At 31 December calculated in accordance with AIC methodology, based on performance data held by Law Debenture including fair value of IPS business and long-term borrowings
2 For details see note 7 to the accounts
3 This includes 2.72 pence per share of exceptional items including the sale of an unlisted investment
Note: The 10 year record has been restated (2008-2014) to reflect the fair value of the IPS business and the long-term borrowings
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C O R P O R A T E G O V E R N A N C E
Directors’ report
The directors present their annual report and the audited financial
Directors’ conflicts of interests
statements for the year ended 31 December 2018. The Company
retains its status as an investment trust and has been treated by
The directors are under statutory duty to avoid conflicts of interest.
HM Revenue & Customs and approved as such for the year ended
The board has in place appropriate procedures to deal with
31 December 2017, the latest year for which financial statements
conflicts and potential conflicts, including an annual review, and
have been submitted. Such approval for the year ended 2017 is
those procedures are operating effectively. Each director has
subject to there being no subsequent enquiry under Corporation
declared all matters that might give rise to a potential conflict of
Tax Self Assessment. In the opinion of the directors, the Company
interest and these have been considered and (where necessary)
has subsequently conducted its affairs so as to enable it to obtain
approved by the board.
approval under Sections 1158-1159 of the Corporation Tax Act 2010.
The Company, which (as far as the directors are aware) is not a
close company, is registered as an investment company as defined
Regulatory compliance
in Section 833 of the Companies Act 2006 and operates as such.
The Company is subject to continuing obligations applicable to
The directors consider that the group operates as a going concern.
premium listed companies, overseen by the UK Listing Authority
The strategic report and the corporate governance report form a
part of the directors’ report.
Essential contracts
and all relevant disclosures required by Listing Rule 9.8.4 have
been made (see note 18).
Under the Alternative Investment Fund Managers Directive (AIFMD)
the Company is required to appoint an “Alternative Investment
Fund Manager” (AIFM), which must be appropriately regulated by
In the view of the board, the only contract that is essential to the
the FCA. The Company has elected to be its own AIFM.
business of the group is the investment management agreement
with Janus Henderson, details of which are set out in the strategic
report.
Revenue, dividends and reserves
The group revenue return attributable to shareholders for the year
ended 31 December 2018 was 21.26p. The directors recommend a
final dividend of 12.9p per share, which together with the interim
dividend of 6.0p paid in September 2018, will produce a total of
18.9p (2017: 17.3p). The final dividend will be paid on 18 April 2019
to holders on the register on the record date of 15 March 2019.
After deduction of the interim and final dividends of £22,339,000
(2017: £20,442,000), consolidated revenue reserves increased by
£4,075,000 (2017: increase of £6,610,000).
Directors
The directors at the date of this report are listed on pages 54 and
55. All directors held office throughout the year other than Katie
Thorpe, who was appointed on 1 January 2019.
All directors are required to stand for re-election every year (or
election at the next AGM following appointment). The list of
candidates, which the board supports, is set out in the notice of
annual general meeting, along with a statement in each case
of why the candidate is supported and the particular attributes
that each brings to the objective of promoting the success of the
Company and the group.
Principal risks and uncertainties
These are set out as part of the strategic report.
32
The AIFM is required to provide portfolio management, risk
management, administration, accounting and company secretarial
services to the Company. All of these functions, barring portfolio
management which continues to be delegated to Janus Henderson,
are undertaken by the Company. The Company has appointed
NatWest Trustee and Depositary Services Limited, which replaced
National Westminster Bank plc by novation (contract terms
unaffected) during the year, as depositary under Article 36 of the
AIFMD. A fee is payable for this service, being 0.0225% per annum
of the calculated monthly NAV. As part of its duties, the depositary
is responsible for custody of the Company’s portfolio assets, and has
appointed HSBC Bank plc (which was the Company’s custodian for
many years) as sub-custodian.
AIFMs are obliged to publish certain information for investors
and prospective investors and that information may be found
either in this annual report or on the Company’s website at
www.lawdebenture.com/investment-trust/corporate-governance/
the-aifmd.
The AIFMD requires us to report on ‘leverage’. This is slightly different
from gearing, leverage being any method of borrowing that
increases the Company’s exposure, including the borrowing of cash
and the use of derivatives. It is expressed as a ratio between the
Company’s exposure and its NAV and must be calculated on a ‘gross’
and a ‘commitment’ method. Under the gross method, exposure
represents the sum of the Company’s positions after the deduction
of sterling cash balances, without taking into account any hedging
and netting arrangements. Under the commitment method,
exposure is calculated without the deduction of sterling cash
balances and after certain hedging and netting positions are offset
against each other. At 31 December 2018, the maximum amount of
leverage under the gross and commitment methods was 1.50 and
actual amounts were 0.99 and 1.18 respectively.
lawdebenture.com Greenhouse gas emissions
Shareholder relations
The group’s carbon emissions arise from its consumption of energy
The Company encourages communication between the management
in maintaining its offices. Using conversion factors published by
and shareholders on matters of mutual interest. All shareholders on
the UK Department for Business, Energy and Industrial Strategy,
the register are sent a copy of the annual report and the half yearly
emissions for the year to 31 December 2018 were 265.64 tonnes of
report, and the Company also provides this service to shareholders
CO2e (2017: 396.68 tonnes of CO2e). This equates to 0.0079 tonnes
in nominee companies where the nominee has made appropriate
of CO2e per £000 of IPS revenue (2017: 0.0128 tonnes of CO2e).
arrangements. Shareholders wishing to receive reports and other
Modern Slavery Act
communications electronically may do so by writing to the Company.
In addition to periodic regulatory reports published via the London
Stock Exchange, the Company publishes a monthly factsheet on its
We are required to publish a ‘slavery and human trafficking
website about the investment portfolio performance.
statement’ to outline the steps the group has taken to ensure
that slavery and human trafficking is not taking place within Law
Investment manager – interests held
Debenture’s supply chain.
Law Debenture is a service provider, rather than a manufacturer. Its
supply chain comprises the steps taken to get our services to
a customer.
James Henderson did not have a beneficial interest at 31 December
2018 (2017: nil) although persons connected to him had an interest
of 100,000 shares (2017: 100,000 shares). In addition, a charity with
which he has non-beneficial connections owns 100,000 shares
While Law Debenture is committed to preventing slavery and
(2017: nil shares).
human trafficking in its corporate activities, it believes that its
supply chains are of low risk as suppliers, for the most part, are
professional advisory firms. The executive have reviewed the supply
chains across the group. Law Debenture’s organisational structure
is set out elsewhere in the annual report, including the countries
in which it is established (see page 2). None of the activities listed
is considered to be at high risk of slavery or human trafficking in its
supply chains.
All of Law Debenture’s employees have access to confidential
whistleblowing arrangements which make it easy for them to
make disclosures, without fear of retaliation, if an employee has
any concerns about Law Debenture’s supply chain. Law Debenture
only uses suppliers – generally, this means legal advisers, financial
advisers, accountants and other professional firms – of the highest
repute and of appropriate regulatory status.
This statement has been approved by the board and is also
published on Law Debenture’s website.
Repurchase of shares
The Company holds no shares in members of the Janus Henderson
Group. It has been notified that funds managed by members of
the Janus Henderson Group held 87,955 shares in the Company at
31 December 2018 (2017: 87,955 shares).
Bribery Act
The Company maintains a ‘zero tolerance’ anti-bribery policy,
which applies to the Company and all its subsidiaries. The policy is
published on the Company’s website.
Employee participation
Employees are informed of the financial aspects of the group’s
performance through periodic management meetings. Copies
of the annual and half yearly reports are made available to all
employees. The Company operates a SAYE scheme in which all UK
full-time employees are eligible to participate after completing a
minimum service requirement.
Options outstanding under the SAYE scheme at 31 December
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During the year, the Company did not repurchase any of its shares
2018 were:
for cancellation. It intends to seek shareholder approval to renew
its powers to repurchase shares for cancellation up to 14.99% of the
Company’s issued share capital, if circumstances are appropriate.
Date of grant
Substantial shareholdings
and share information
As at 26 February 2019, there were no shareholders that had
notified the Company of a beneficial interest in 3% or more of the
14 August 2013
27 August 2014
19 August 2015
23 August 2016
15 August 2017
issued share capital. Share information as required by section 992
15 August 2018
of the Companies Act 2006 appears at pages 26, 81 and 96.
Number
of option
holders
Shares
under
option
Exercise
price
1
21
14
13
19
27
600
499.50p
50,232
518.00p
25,457
20,871
29,246
512.50p
495.75p
594.75p
53,815
606.00p
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Directors’ report continued
The Company also operates a Share Incentive Plan, details of which
•
prepare a strategic report, a directors’ report and directors’
are provided in the remuneration report.
remuneration report that complies with the Companies Act
Employee engagement
Effective from 1 January 2019, in compliance with the UK Corporate
Governance Code that has effect from that date, the board has
appointed Mark Bridgeman as its designated non-executive
director to gather the views of Law Debenture’s workforce. Future
annual reports will describe how that activity has been undertaken.
Statement of directors’ responsibilities in
relation to the financial statements
The directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the Company, for safeguarding the assets
of the Company, for taking reasonable steps for the prevention
and detection of fraud and other irregularities and for the
preparation of a strategic report, a directors’ report and directors’
remuneration report which complies with the requirements of the
Companies Acts.
The directors are responsible for preparing the annual report
and the financial statements in accordance with the Companies
2006, as amended.
Financial statements are published on the group’s website in
accordance with legislation in the United Kingdom governing the
preparation and dissemination of financial statements, which may
vary from legislation in other jurisdictions. The maintenance and
integrity of the group’s website is the responsibility of the directors
and is subject to annual review by the board. The directors’
responsibility also extends to the ongoing integrity of the financial
statements contained therein.
Statement of information given to auditors
The directors have confirmed, that so far as they are aware, there is
no relevant audit information of which the Company’s auditors are
unaware, and that they have taken all the steps that they ought to
have taken as directors in order to make themselves aware of any
relevant audit information and to establish that the Company’s
auditors are aware of that information.
Directors’ responsibility statement
pursuant to DTR4
Act 2006. The directors are also required to prepare financial
The directors confirm to the best of their knowledge:
statements for the group in accordance with International
Financial Reporting Standards as adopted by the European
Union (IFRSs) and Article 4 of the IAS Regulation. The directors
have chosen to prepare financial statements for the Company in
accordance with IFRSs.
•
the group financial statements have been prepared in
accordance with IFRSs and Article 4 of the IAS Regulation and
give a true and fair view of the assets, liabilities, financial position
and profit or loss of the group; and
•
the annual report includes a fair review of the development and
International Accounting Standard 1 requires that financial
performance of the business and the position of the group and
statements present fairly for each financial year the Company’s
parent company, together with a description of the principal
financial position, financial performance and cash flows. This
risks and uncertainties that they face.
requires the faithful representation of the effects of transactions,
other events and conditions in accordance with the definitions and
recognition criteria for assets, liabilities, income and expenses set
Auditors
out in the International Accounting Standards Board’s ‘Framework
A resolution to re-appoint BDO LLP as auditors to the Company
for the preparation and presentation of financial statements’. In
will be proposed at the annual general meeting.
virtually all circumstances, a fair presentation will be achieved
by compliance with all applicable IFRSs. A fair presentation also
By order of the board
requires the directors to:
• consistently select and apply appropriate accounting policies;
•
present information, including accounting policies, in a manner
Law Debenture Corporate Services Limited
that provides relevant, reliable, comparable and understandable
information;
Company Secretary
26 February 2019
•
provide additional disclosures when compliance with the
specific requirements in IFRSs is insufficient to enable users to
understand the impact of particular transactions, other events
and conditions on the entity’s financial position and financial
performance; and
34
lawdebenture.com Corporate governance
Corporate governance
The board operates as a collective decision-making forum.
Individual directors are required to scrutinise reports produced
The directors are required to report on how the Company has
by the executive and are encouraged to debate issues in an open
applied the main and supporting principles in the UK Corporate
and constructive manner. If one or more directors cannot support
Governance Code (the Code), and to confirm that it has complied
a consensus decision, a vote will be taken and the views of a
with the Code’s provisions or, where this has not been the case, to
dissenting director recorded in the minutes.
provide an explanation. This report relates to the Code as published
in April 2016, a copy of which may be obtained by visiting
www.frc.org.uk. The Code recognises that investment companies
such as Law Debenture may have board structures which might
affect the relevance of particular provisions of the Code. Law
Procedures are in place to enable independent professional advice
to be taken by individual directors at the Company’s expense.
Appropriate insurance cover is in place in respect of legal action
against the directors.
Debenture was a constituent of the FTSE Small Cap throughout
The board meets regularly throughout the year. The attendance
the period under review. Where Law Debenture has departed from
records of the directors (both at meetings of the board and, where
any provisions of the Code, this is explained below. This corporate
they are a member, meetings of board committees) are set out in
governance statement forms a part of the directors’ report.
the table below. There was also a strategy meeting in September
A new version of the Code applies to financial years beginning
1 January 2019. The board will be adopting the new Code
requirements during the course of the current year.
2018, attended by all of the directors, the investment manager and
certain senior executives.
Board Remuneration
Audit
Nominations
The board – role, modus operandi
and appraisal
The board includes a majority of non-executive directors. The
names and biographies of the directors at the date of this
Number of
meetings in
the year
Meetings
attended by:
report are on pages 54 and 55 of the annual report. In addition,
D. Jackson
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Christopher Smith served as a non-executive director and
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11 April 2018. Katie Thorpe was appointed as an executive director
on 1 January 2019.
The board is responsible for the overall strategy and management
of the group, setting investment strategy and ensuring that the
Company is operating in compliance with statutory and legal
obligations. There is a formal schedule of matters specifically
reserved for board decision, published on the Company’s website
(www.lawdebenture.com under investment-trust/corporate-
governance). Matters connected with strategy and management,
structure and capital, financial reporting and control, investment
trust portfolio, contracts, shareholder communication, board
membership and other appointments, remuneration and
corporate governance are reserved for the board.
In discharging its responsibilities, the board takes account of the
group’s purpose, value and culture, aiming to promote enhanced
value for shareholders in both capital and income terms. The
board sets a cultural tone that encourages openness, diversity and
attention to the needs and views of shareholders and those who
transact with us through our IPS activities.
The chairman takes personal responsibility for leadership of the
board and ensures that directors receive accurate, timely and clear
information. He reviews channels for provision of information with
the company secretary at least annually.
7
7
7
7
1
7
7
5
—
5
5
3
5
5
4
—
4
4
—
4
2
3
—
3
3
1
3
3
M. Bridgeman
R. Laing
C. Smith*
T. Bond
R. Hingley**
* Retired 11 April 2018 (attended all meetings prior to that date)
** Ceased to be a member of the audit committee after becoming chairman of the Company
on 11 April 2018
The board keeps under review the performance of the executive
directors and the chairman formally appraises all the directors
each year and implements any training or education needs that
might be identified. The non-executive directors meet once
each year (without the presence of the chairman) to review
the chairman’s performance, the results of the review being
discussed with the chairman by the senior independent director
(SID). The board evaluates its own performance and that of its
committees and considers these matters again after each AGM
in the light of comments received from shareholders and other
interested parties.
Robert Laing is the SID. The SID is available to shareholders who
have concerns that cannot be addressed through the chairman,
chief executive or chief financial officer.
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Corporate governance continued
The board – independence
All new directors undergo an induction process, involving
presentations by the chief executive, chief financial officer and
At least half of the board, excluding the chairman, must be
each business head and meetings with the investment manager.
independent non-executive directors (NEDs). The board has
All directors are submitted for annual re-election, subject to
concluded that as at the date of this report, excluding the
continued satisfactory performance, which is assessed as described
chairman, three of the five other directors are independent NEDs.
above. There is no maximum number of terms that a director may
In judging independence, the board takes into account whether
serve. The Company has established a diversity policy, described in
or not a director is independent of management and any material
the nominations committee report.
business or other relationship that could affect or interfere with the
exercise of objective judgement by the director, or his/her ability
to act in the best interests of the Company and its subsidiaries. As
Directors’ remuneration
well as being satisfied that each director dedicates sufficient time
Details of the directors’ remuneration appear in the remuneration
to Law Debenture, the board is satisfied that none of the directors
report on page 50.
is ‘overboarded’ (having five or more listed company roles). The
contribution made by each director to the Company’s and group’s
long-term success, along with the particular skills that each brings,
Board committees
are described in the notes to the notice of AGM.
The chairman, Robert Hingley, was independent at appointment
and continued to be independent throughout the period in the
view of the board.
The board is satisfied that Robert Hingley’s other commitments
do not interfere with the discharge of his responsibilities to
Law Debenture, and that he makes sufficient time available to
discharge his duties as chairman.
Robert Laing was independent at appointment in April 2012 and
The board has established a nominations committee, an audit
committee and a remuneration committee, to each of which
it has delegated certain responsibilities. Each committee has
terms of reference, which are published on the Company’s
website (www.lawdebenture.com/investment-trust/corporate-
governance). Membership of the committees is kept under review,
taking account of the Code’s acknowledgement of the position
of investment trusts. The board is deliberately kept small and the
board believes this is in the best interests of shareholders. The
board is satisfied that its composition and size is sufficient to
the board is satisfied that he remains so, having no current or
ensure that the requirements of the business can be met.
previous connections with the Company or any of its subsidiaries.
A majority of members of board committees are independent
Mark Bridgeman was independent at appointment in March 2014
NEDs as assessed by the board and the committee memberships
and the board is satisfied that he remains so, having no current or
are fully compliant with Code stipulations.
previous connections with the Company or any of its subsidiaries.
A summary of each committee is set out below.
Tim Bond was independent at appointment in April 2015 and the
board is satisfied that he remains so, having no current or previous
Nominations committee
connections with the Company or any of its subsidiaries.
Denis Jackson and Katie Thorpe, as executive directors, are not
independent.
The board – re-election and renewal
Role
To keep under review the structure, size and composition of the
board and make recommendations about adjustments that are
deemed necessary, and to ensure effective succession planning
in accordance with legal and corporate governance needs.
The nominations committee ensures that the board has in place
Key duties
arrangements for orderly and transparent appointments to the
board. There are job descriptions in place for NEDs’ roles, and
the board has written terms and conditions of appointment for
NEDs, which are available for inspection at the AGM. Particular
care is taken to ensure that NEDs have sufficient time to commit
to the duties expected of them and as necessary, diversity issues
are considered. No new NED is appointed without first being
interviewed by each existing NED.
•
identification and nomination for board approval of suitable
candidates to fill vacancies with particular regard for the need
to develop a diverse pipeline of board members and senior
executives;
•
succession planning (in particular of the chairman and
chief executive);
•
making recommendations about the re-appointment of
non-executive directors; and
•
ensuring that the board and its committees are constituted
to comply so far as practicable with the Code.
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The committee reports as follows:
benefits of the executive directors and senior staff and considered
The committee did not engage any third parties during the year.
Our diversity policy states that while the board remains small, it
will endeavour to have at least one director who is female. That
remuneration policy matters. No new long-term incentive
arrangements were introduced in the period. The committee
considered in particular:
objective is being met at the date of this report. In the near future,
•
the remuneration level for the chief executive, including the
the objective is to be at least one third female representation.
performance measures against which his bonus for 2018 would
The committee’s approach to effectiveness evaluation is set out
be calculated;
elsewhere in the governance report and the gender balance of
•
the amount of the total pool available for the profit sharing
those in senior management is set out in the strategic report.
schemes;
Members
R. Hingley (Chairman)
T. Bond
M. Bridgeman
R. Laing
Audit committee
•
the level of awards to be made to senior executive staff and the
terms to be applied to the awards, along with the salary/benefit
packages of any new joiners that report directly to the chief
executive;
•
routine administrative matters connected with the Company’s
benefits structure;
•
the remuneration policy (an amendment is being put to
shareholders at the 2019 AGM as described on pages 42 and 95);
and
Following best practice guidelines published by the Financial
•
the format and content of the remuneration report.
Reporting Council (FRC), the audit committee’s report is published
as a separate section of the annual report and can be found at
pages 40 and 41.
Remuneration committee
Role
The 2019 Code introduces requirements about workforce
engagement. A statement on this appears in the directors’ report.
The board does not operate a management engagement
committee, the duties of such a committee being undertaken
directly by the board.
To develop the Company’s remuneration policy and oversee its
implementation, monitoring the effectiveness of the policy as it
relates to the group’s executives.
Accountability and audit, fair balanced
and understandable reporting
and going concern
Key duties
The statement of directors’ responsibilities in relation to the
•
reviewing and agreeing the remuneration and benefits of the
financial statements appears on page 34. The independent
executive directors and senior executives in the light, as relevant,
auditors’ report appears on pages 57 to 61. The directors confirm
of corporate performance against a range of measures;
that the group and corporation are a going concern as evidenced
•
development of total remuneration packages, taking account
by the financial statements, which demonstrate a healthy position,
of factors set out in the Code, based in part on performance
taking into account all known and future anticipated liabilities, and
and subject to suitable performance measurements as set by
the group’s ability to meet those liabilities. There are no material
the committee;
uncertainties that call into question the Company’s ability to
•
approving the remuneration policy required to be put to
continue to be a going concern for at least 12 months from the
shareholders for approval every three years; and
date of approval of the financial statements. The directors consider
•
making recommendations to the board for any changes to long-
it appropriate to adopt a going concern basis in preparing the
term incentive arrangements.
financial statements.
Members
R. Laing (Chairman)
T. Bond
M. Bridgeman
R. Hingley
The audit committee has concluded and the board concurs,
that the financial statements present a fair, balanced and
understandable assessment of the financial position and prospects
of the Company and the group. The financial statements are
reviewed by the audit committee, then approved by the board
and signed by the chairman and chief executive. In the opinion
The committee chairman reports specifically about how the
of the board, the annual report, taken as a whole, is fair, balanced
remuneration policy was implemented during the year on page 42.
and understandable and provides the necessary information for
More generally, the committee reports as follows. It met five times
shareholders to assess the corporation and group’s position and
during the period. It made decisions on the remuneration and
performance, business model and strategy.
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Corporate governance continued
Internal controls
•
regular qualitative self-assessment of the effectiveness of the
individual controls maintained in the overall internal financial
The following paragraphs describe the framework of internal
control framework;
controls in place to ensure that the Company complies with the
•
preparation by management of a comprehensive and detailed
FRC “Guidance on Risk Management, Internal Control and Related
budget, involving annual board approval and monthly
Financial and Business Reporting”, and with the obligations of
comparison at board level of actual results with budgets
the UKLA’s Disclosure and Transparency Rules which require a
and forecasts;
description of the main features of the internal control and risk
•
systematic reporting to the board of matters relating
management systems in relation to the financial reporting process.
to litigation, insurance, pensions, taxation, accounting,
This section should be read in conjunction with the strategic
counterparty risk and cash management as well as legal,
report section about the principal risks to the Company and group
compliance and company secretarial issues;
business model as it sets out how the directors manage or mitigate
•
review of internal audit reports by the appropriate professional
those risks.
The board monitors the effectiveness of internal controls on a
continuous basis and in a number of ways, both directly through main
board general reviews and also by the more specific work carried out
by the audit committee. The various mechanisms include:
services company board and the audit committee;
•
review of the internal controls of those services, such as
investment management, which have been delegated to
third parties. This review was conducted during the initial
contractual negotiations and on a regular basis, including
annual discussions with the senior management and
•
board review of the group’s matrix of key risks and controls
compliance staff of Janus Henderson;
managed by the chief risk officer, reporting to an executive risk
•
monitoring by the board of the investment management
committee;
process, including the establishment and maintenance of
•
an internal audit function, which involves not only each
investment guidelines, receiving a report from the investment
business department (including overseas offices) being
manager at each board meeting, the review of all transactions
subject to audit on a regular basis, but also regular reviews
with the investment manager and regular reconciliations of
of other business wide processes;
the records of the group with those of the depositary and
•
testing by the compliance officer of the Financial Conduct
sub-custodian; and
Authority (FCA) regulated business systems and controls;
•
receipt of frequent and detailed reports about the
•
testing by the compliance officer of the Company’s
independent professional services business, including the
compliance with its AIFMD obligations;
overseas subsidiaries.
•
•
review of reports by the depositary and the sub-custodian;
periodic reports to the board by the compliance officer about
legal and regulatory changes, and the steps that the board
The systems of internal financial control are designed to provide
reasonable assurance against material misstatement or loss.
must take to comply; and
By means of the procedures set out above, the directors have
•
review of reports by the external auditors on their annual
established a robust process for identifying, evaluating and
audit work.
The internal audit programme and system of compliance checks
have both been developed using a risk-based methodology and an
monitoring the effectiveness of the internal control systems for the
period. This process has been in place throughout 2018 and will be
reviewed by the board on a regular basis.
evaluation of process controls.
Arrangements are in place by which staff of the group may, in
The board considers that the above measures constitute continuing
application of the FRC risk guidance and form an important
management tool in the monitoring and control of
the group’s operational risks.
confidence, raise concerns under the Public Interest Disclosure Act
1998 about possible improprieties in matters of financial reporting
or other matters. If necessary, any member of staff with an honest
and reasonable suspicion about possible impropriety may raise
the matter directly with the chairman of the audit committee.
An important element of the overall controls remains a continuous
In addition, the executive staff have access to an external whistle
review of the quality and effectiveness of internal financial controls
blowing service. Arrangements are in place for the proportionate
of the group. During the year, the board has continued to require
and independent investigation of such matters and for appropriate
that the group maintains proper accounting records, so that it can
follow up action.
rely on the financial information it receives to make appropriate
business decisions and also that the group’s assets are safeguarded.
This includes having data that allows the board to consider country
and currency exposure and potential impairment of assets (both
Relations with shareholders and
institutional shareholder responsibilities
financial and non-financial). Key elements of the systems of internal
The Company’s compliance with these aspects of the Code is
control continue to be:
described separately within the directors’ report.
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Information about share capital
Stock Exchange and on the Company’s website. The notice of
the AGM and related papers are sent to shareholders at least 21
The information that the Company is required to disclose about
working days before the meeting. Where requested by nominee
its share capital can be found in the directors’ report (significant
holders, annual reports and related documentation are circulated
holders) and AGM notice (total voting rights).
to beneficial owners and the Company is happy for beneficial
Annual general meeting (AGM)
owners to attend the AGM and (where appropriate arrangements
have been made with the nominee) to vote their shares in person.
Details of the AGM for 2019 are set out at pages 93 to 97.
Summary statement of compliance
The board recognises the value of the AGM as an opportunity to
communicate with shareholders and encourage their participation.
Separate resolutions are put to the AGM on each substantially
separate issue. The number of proxies lodged for each resolution,
The board has concluded that, as demonstrated by the disclosures
made in the foregoing, the Company has complied with all of the
requirements applicable to it of the UK Corporate Governance Code.
the balance for and against the resolution and the number of votes
26 February 2019
withheld is published immediately after the AGM to the London
The board has
concluded that, as
demonstrated by the
disclosures made
in the foregoing,
the Company has
complied with all of
the requirements
applicable to it of
the UK Corporate
Governance Code
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Audit committee report
Annual statement by the chairman
of the audit committee
Principal activities of the committee
During the year, the committee’s business included:
I am pleased to present the Company’s audit committee report for
the year ending 31 December 2018.
•
consideration of the annual report and financial statements and
of the half yearly report and statements including consideration
The committee was comprised at the year end of Robert Laing,
of the final and interim dividends;
Tim Bond and me. Robert Hingley stepped down as a member
•
consideration of the Company’s matrix of risks and controls and
of the committee at the conclusion of the 2018 AGM, when he
general oversight of the group’s internal control systems and
became group chairman.
procedures including in the context of reports by the depositary
Role and duties
and the Company’s obligations as an AIFM;
•
meetings with the external auditor to discuss the 2017 financial
statements and, in the fourth quarter, to plan the 2018 audit. These
The main function of the audit committee is to assist the board
meetings included discussions on fees, auditor independence, key
in the management of the group’s finances, financial reporting
structure and internal controls. Our key duties are as follows:
•
monitoring the independence and objectivity of the auditors,
their performance and agreeing their remuneration;
•
the appointment, reappointment and removal of external
auditors including negotiation of the engagement letter and
supervision of the audit tender process;
•
•
•
risks and developments in accounting standards;
review and approval of internal audit programme;
consideration of all internal audit reports;
receipt of reports about reconciliations, procedures in place to
prevent fraud and anti-bribery and corruption; and
•
review of new accounting standards and the possible impact on
Law Debenture.
•
monitoring the integrity of the financial statements and the
Shortly after the year end, the committee met with the external
statutory audit process and in particular focussing on significant
auditors to discuss the 2018 financial statements and the outcome
issues highlighted in the process;
of that discussion is set out below.
•
developing and implementing policy on the engagement (or
not) of the external auditor for non-audit services;
•
reviewing the annual and half yearly accounts before
submission to the board, including particular focus on changes
Risk management, internal control
and internal audit
in accounting policy and providing an opinion to the board
The internal controls adopted by the group are set out in the
on whether the report and accounts are fair, balanced and
corporate governance report. The board as a whole is responsible
understandable; and
for the effectiveness of internal control mechanisms but it
•
reviewing the effectiveness of systems of internal control
is informed by more specific work carried out by the audit
and risk management, including monitoring the executive
committee, which includes the initiation and oversight of
risk management function, the internal audit function and
any investigations that may be necessary to address control
consideration of country and currency risks.
weaknesses/breaches, as identified.
As part of my duties as committee chairman, I met with the audit
In particular, the committee reviews the adequacy and effectiveness
partner and I met a number of times with the chief financial officer
of the group’s risk management systems and processes. The chief
and company secretary to discuss matters of significance.
risk officer reports through an executive risk committee, but in line
The committee considers that I have recent and relevant financial
experience due to my long experience as a fund manager and
with good practice in this area, his terms of reference give him the
right to report directly to me on any specific matter of concern.
from my executive management experience. Similarly, Tim Bond
The internal auditor, who reports to me as chairman of the
satisfies the test as an active fund manager. The committee as
audit committee, presents his annual audit programme to
a whole has competence relevant to the sector in which the
the committee for approval each year and attends committee
Company operates.
40
meetings, presenting all of his reports including management’s
actions in response to his findings and recommendations. The
internal auditor has the right, should he wish, to meet separately
with the audit committee to raise any matters of concern that
may arise (although he did not need to do so during the year
under report). I undertake an annual review of the internal
auditor’s effectiveness by formally appraising him in writing, having
taken views from directors and senior management. Based on that
review, the committee is satisfied that the quality, experience and
expertise of the internal auditor is appropriate for the business.
lawdebenture.com External auditors – assessing effectiveness
Non-audit services
One of the most important functions of the committee is to
Non-audit services provided by the auditor are reviewed by the
monitor the independence and objectivity of the auditors, their
committee to ensure that independence is maintained. Non-audit
performance and effectiveness. The committee achieves this
fees are shown at note 3 to the accounts. The committee’s policy
by an annual formal meeting with the audit partner to plan
is that non-audit work should be limited to those matters where
that year’s audit. Part of that process requires the auditor to
the external auditor is most appropriately placed to carry out the
give the committee written assessment of how the audit team
work, unless there is a conflict of interest. Consequently, non-audit
identifies and manages the threats to its independence, along
services have historically been low. In the year under review, total
with the description of the safeguards that it has in place to avoid
non-audit fees were £nil (2017: £nil).
such threats. This vital part of the audit process also enables
the committee to examine in detail the scope of the audit,
ensuring that the auditor’s objectives meet the committee’s own
expectations, along with key audit and accounting matters to be
considered that year.
At the conclusion of each audit, the committee receives a
presentation from the audit partner on the principal findings.
Significant financial issues relating
to the 2018 accounts
The Code requires us to describe any significant issues considered
in relation to the financial statements and how those issues were
addressed.
This provides the opportunity for robust challenge, particularly
No new significant issues arose during the course of the audit. As
in areas where management judgement has been required. The
reported in previous years, an area of consideration is that relating
committee will also give the auditors an opportunity, without
to bad debt provisions.
executive management present, to comment on the quality and
standard of the executive’s performance generally and during the
audit. Similarly, the committee will seek the views of the executive
on the effectiveness and performance of the audit team. There
Management makes an estimate of a number of bad debt
provisions for non-collection of fees and costs as part of the risk
management and control framework.
were no matters of concern raised during the period under review.
Other issues that arose included: the risk that portfolio investments
The committee reviews independent reports on the auditor’s
own quality control procedures and is satisfied that the auditors
continue to have the resource and technical backup necessary
may not be beneficially owned or correctly valued; and that
revenue is appropriately recognised. The committee has received
assurance on these matters from management.
to continue delivering an effective audit of the Company and
The committee is satisfied that the judgements made by
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its subsidiaries.
The audit partner was mandatorily rotated following the
conclusion of the 2017 audit having served as partner for five
audits. This report and financial statements is the first to be signed
by the new partner, Vanessa-Jayne Bradley.
Audit tendering
BDO LLP were first appointed as the Company’s auditors on
31 October 2008. After due consideration, the committee
continues to be satisfied about the quality, performance and
effectiveness of the audit by BDO LLP and accordingly, has
recommended that they be reappointed at the forthcoming AGM.
The committee last put the audit to tender during 2017. The
process was conducted in accordance with the Competition
and Markets Authority Audit Order with which the Company
is in compliance. Following the tender process the committee
recommended a preferred auditor (BDO) and a reserve auditor.
The board resolved to appoint BDO.
management are reasonable and that appropriate disclosures have
been included in the accounts. Taken in its entirety, the committee
was able to conclude that the financial statements themselves and
the annual report as a whole are fair, balanced and understandable
and provide the necessary information for shareholders to assess
the Company and group’s position and performance, business
model and strategy. That conclusion was reported to the board.
Mark Bridgeman
Chairman, Audit Committee
26 February 2019
41
C O R P O R A T E G O V E R N A N C E
Annual remuneration report
Part 1 Remuneration committee chairman’s annual statement
Dear Shareholder
I am pleased to present the Company’s remuneration report for the
year ending 31 December 2018.
than being made available to distribute to the rest of the staff. In our
opinion, this will have no material impact on shareholders and is
more equitable to the executive staff in general because the formula
driving the size of the bonus pool reflects their collective efforts, so to
Our policy continues to balance the interests of shareholders with
see an element of it returned to shareholders may be seen as unfair.
those of the staff. We believe that:
We have also decided to propose a further minor amendment in the
•
remuneration packages should be competitive but not extravagant
light of evolving governance standards that aim to remove unequal
and should broadly be in line with average packages in the markets
treatment between executive directors and the workforce generally.
in which Law Debenture operates;
Specifically, our policy currently says that more junior staff who
•
there should be a clear link between total remuneration (including
are entitled to a discretionary bonus award will receive graduated
a profit related element) and performance; and
percentages between 0 and 50% of basic salary. We are proposing
•
there should be no reward for failure, but the executives should be
that this percentage range should be equalised to that which
rewarded for the performance of the IPS business, which is central
applies to the executive directors and senior staff – namely, that more
to Law Debenture’s business model and unique identity.
Our annual remuneration report shows how we implemented the
policy during 2018. The report – see Part 3 on page 49 – is audited (as
indicated) to the extent required by the relevant Regulations.
Our policy operated as intended to deliver an outcome that is
reflected in the group’s performance in 2018.
The key points in our remuneration policy are that: the chief executive
and executive staff will be remunerated on a transparent basis;
performance related elements will be measured against the IPS
business and, except in the case of the chief executive and chief
financial officer, not against the investment trust; and there will only
junior staff can also receive up to 100% of basic salary as a bonus for
outstanding performance. Again, this makes no difference to the
quantum of the bonus pool itself, but it will enable a fairer distribution.
Finally, in order more equitably to align the interests of staff with
shareholders, we propose that with effect from the final dividend
proposed for 2018, deferred shares held in trust should receive
dividends, which will be re-invested by the trustee in Law Debenture
shares. These will be released to award recipients at the same time
the underlying shares are released.
The committee believes that it is in the interests of shareholders to
approve these proposed minor amendments to the policy, put as
be a small number of incentive schemes.
resolution 3 at the AGM.
In section A of part 3 of our report, we report retrospectively on
the targets that were set for the chief executive, against which his
performance was measured and the level of his bonus for 2018
was calculated.
The bonus formula provided that the amount notionally available for
the chief executive’s bonus was £357,000, so as a result the remaining
amount that was notionally available – £30,679 – has been credited to
shareholder funds.
The committee has reviewed the remuneration policy in the light of
the appointment of Katie Thorpe as an executive director on 1 January
2019, bearing in mind that the policy is predicated on an assumption
that there would only be one executive director in post at any given
time. Since we now have two executive directors, the current bonus
arrangement – whereby the first 11% of the bonus pool is reserved
for the (sole) executive director – will no longer be appropriate.
Accordingly, we intend to seek shareholder approval to adjust the
policy by removing that 11% top slice provision and by including the
two executive directors within the overall bonus pool with the rest of
the staff.
The board is committed to ensuring both that staff are appropriately
incentivised and rewarded and that Law Debenture complies fully
with corporate governance best practice. We are mindful that
the new UK Governance Code requires us to review workforce
remuneration and related policies and the alignment of incentives
and rewards with Law Debenture’s culture, taking these into account
when setting the policy for executive director remuneration.
With all of that in mind, recognising also that the 2020 AGM marks
the triennial point at which our remuneration policy as a whole must
be considered for approval by the shareholders, we are engaging
external remuneration consultants in the current year. The task will
be to take a fresh look at, and advise us on the appropriateness and
structure of, our remuneration policy in the light of governance code
changes, market practice, the appointment of the new CEO and CFO,
the increased investment in senior qualified staff and the ambition
to grow the IPS business at a rate that will deliver higher dividends
and capital growth for our shareholders. This review will include
the possibility of introducing a Long-Term Incentive Plan which
would provide executives with an increased proportion of their total
compensation in shares, subject to appropriate targets being achieved.
We recognise that removal of the executive director’s top slice
removes the prospect for some of the bonus pool to be returned to
Robert Laing
shareholders. Currently, any element of the 11% available for, but not
Chairman, remuneration committee
awarded to, the executive director is returned to shareholders rather
26 February 2019
42
lawdebenture.com Part 2 Remuneration policy
Our remuneration policy was approved at the 2017 AGM, with
The policy is as set out below, with the minor amendments that we
some amendments approved by shareholders in 2018. The policy is
are proposing clearly described in the first column.
predicated on the assumption that there will be only one executive
director of the Company (the ‘Executive Director’) in post at any
given time. For the year just ended, this was the Chief Executive
Officer, Denis Jackson. We have said in the past that, if the board
decided to increase the number of Executive Directors, other
than for short periods to enable smooth succession, the policy will
be re-examined and if necessary, re-submitted to shareholders
for approval. As described in Part 1, a minor change has become
necessary following the appointment of Katie Thorpe as an
Executive Director.
The policy applies to UK directors of the Company and senior staff
employed in its subsidiaries, in the case of non-UK subsidiaries
subject to local legal obligations.
Non-executive directors are appointed for an indefinite term,
subject to annual re-election by the shareholders. Non-executive
directors do not qualify for compensation payable on early
termination of their roles.
A. Executive Director and senior staff
The major components of Law Debenture’s remuneration package
for the Executive Director and senior staff will be as set out in the
table below (Table 2A).
Component
BASIC SALARY
Proposed change
All references to Executive Director
to become Executive Directors
throughout the policy
Commentary
Set at levels consistent with individual performance and market rates applicable
to positions of similar complexity and responsibility as measured annually by an
independent remuneration consultant, but ordinarily subject to a cap for the Executive
Director of increasing by no more than inflation or by that amount awarded to the rest of
the workforce.
BENEFITS PACKAGE
Consists of private medical insurance, life insurance cover, disability income plan, season
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ticket loan and professional subscriptions. The remuneration committee may award non-
pensionable cash payments in lieu of one or more of these benefits. Such payments will be
capped at the equivalent gross amount that it would have cost to provide the benefit being
foregone.
Private medical insurance – All staff including the Executive Director are entitled to receive
private health scheme membership for themselves (family cover and any other extensions
require contribution by the executive).
Life insurance cover – Life insurance cover is provided to all members of staff, including the
Executive Director. The cover provides for a payment of 6 times salary in the event of death
in service, subject to the HMRC notional salary cap (£160,800 from 1 January 2019).
Disability Income Plan – A standard benefit for all staff, including the Executive Director,
whereby subject to the length of service conditions, 75% of salary continues to be paid after
26 weeks’ absence through illness.
Season ticket loan – Season ticket loans are available to all staff including the Executive
Director. The loans are interest free, repayable from monthly salary.
Professional subscriptions – One professional subscription will be paid for the Executive
Director (and all other members of UK staff) if it can be demonstrated that the professional
membership is relevant to the role.
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Annual remuneration report continued
Commentary
The funded contributory, HMRC approved, final salary occupational pension scheme was
closed to new members and closed for future accruals for existing members as from 31
December 2016. Employer contributions of 12% of reference salary are, from 1 January 2017,
made into the Law Debenture Flexible Retirement Plan (FRP), a defined contribution scheme
operated by Standard Life.
The remuneration committee reserves the right to negotiate amendments to the FRP if it is
deemed in the best interests of shareholders to do so.
Employees are eligible for the following annual bonuses which are discretionary, not
contractual, and subject to performance.
a) A general discretionary bonus payable to all UK IPS employees other than the Executive
Director. This general bonus, which will be between 5-15% of salary, is dependent on the IPS
profits in a given year being at least 80% of the IPS profits in the prior year. Awards will be
determined by individual performance.
b) Individual performance related discretionary bonus payable to middle and senior
management (including the Executive Director) as a part of their overall remuneration
package, a portion of which will be deferred. No discretionary bonuses are payable unless IPS
profits in a given year are at least 80% of the IPS profits in the prior year.
c) One off performance related bonuses may be paid to any employee not entitled to a bonus
described at b) to reflect outstanding performance. Again, the 80% trigger applies. A sum
totalling £30,000 will be held back from the bonus pool and used to pay “spot bonuses”
where an employee in this category performs particularly well on a specific project during the
year. Any undistributed spot bonus amount at each year end will be credited to shareholders’
funds.
Calculation of amount available for distribution
The Executive Director and staff eligible for the discretionary performance related bonus will
receive awards based on the profits of the IPS in the year under review, with the total pool
distributable being calculated by reference to performance in that year versus the prior year.
All relevant figures will be subject to audit and disclosed in the annual report and financial
statements.
The formula for establishing how much profit will be distributable as bonuses is as follows:
Performance achieved
(measured against prior year)
Pool amount
(percentage of IPS profit made in the year under review)
79.99% or lower
80 - 102.99%
103 - 120%
Above 120%
0%
15 - 19.46%
22.33 - 26%
26% plus remco discretion
Component
PENSION
ARRANGEMENTS
BONUS
ARRANGEMENTS
44
lawdebenture.com Component
BONUS
ARRANGEMENTS
continued
Commentary
Once the committee has established the total bonus pool for distribution, it will determine
an award payable to the Executive Director taking into account the performance measures
set out below. The first 11% of the total bonus pool will be available for this purpose. Other
than for outstanding performance when an award up to 100% of basic salary may be made,
it is expected that the Executive Director’s bonus will normally be between 0 and 75% of
basic salary. Should the 11% set aside prove to be insufficient to make an award up to 75%
of basic salary, or should the committee decide that the Executive Director’s performance
has been outstanding and warrants a payment higher than 75% of salary, then the
committee may resolve to draw such further amounts as necessary from the IPS profits to
Proposed change
make that higher award. On the other hand, should the committee decide not to utilise
Removal of 11% set aside for Executive
the full amount set aside in this manner, then any surplus from the 11% set aside after
Director
the committee has finalised the sum payable to the Executive Director will be credited to
shareholders’ funds.
The remaining 89% of the bonus pool will be distributed firstly, to fund the general bonus
and secondly, to those individuals entitled to receive a discretionary performance related or
spot bonus award.
For the purpose of this policy, ‘profit’ is deemed to be the reported amount of IPS profit
before tax and bonus.
The total bonus pool will be used to pay any employers’ NI due on awards made.
Basis of distribution of individual discretionary awards – performance measures
Individual awards will be made to the Executive Director dependent on whether
performance has been assessed as satisfactory, good, excellent or outstanding.
Awards will be made in the following ranges:
Performance
Not adequate
Satisfactory
Good
Excellent
Outstanding
Bonus (as % of basic salary)
0%
0 - 25%
25 - 50%
50 - 75%
75 - 100%
Proposed change
Where performance is deemed to be ‘not adequate’, no discretionary bonus is payable even
if the IPS profits have been sufficient to generate a bonus pool.he r
Removal of distinction between senior
Performance awards for senior staff will also be assessed on similar parameters; more junior
and junior staff so that all staff are
staff who are entitled to a discretionary award will receive graduated percentages between
eligible for awards between 0-100%,
0 and 50% of basic salary.
dependent upon performance
Awards above 75% of basic salary will only be made in exceptional circumstances. 75% is
thus the effective cap, but recognising that outstanding performance may warrant a higher
award in some circumstances.
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Annual remuneration report continued
Component
Commentary
Performance is measured against certain KPIs:
• an individual’s personal performance including performance against targets set annually
(both financial and non-financial);
• revenue performance of an individual’s department against budget and/ or prior
year (or for the Executive Director or employees in non-fee earning departments, the
performance of the IPS as a whole);
• percentage change in profit of an individual’s department over the year’s and/or
prior year budget (or for the Executive Director or employees in a non-fee earning
department, the performance of the IPS profits as a whole); and
• delivery of costs against budget.
In addition, for the Executive Director, the committee will take into account performance
that is non-financial and not specific to a particular year or a particular strategic target
(such as acquisition and disposal policy, exceptional events, etc) and will assess any factors
relating to the performance of the investment trust portfolio that may be deemed relevant.
It is not the intention to state publicly and in advance what the financial targets will be.
Given that performance is in respect of the IPS business, financial targets are commercially
sensitive and could, if published, compromise our competitiveness. However, commencing
in the annual report for the year ending 31 December 2017, the remuneration report sets
out, without breaching commercial sensitivity, the targets that were set for the Executive
Director for the year under review and his performance against those targets.
Deferred element
All UK recipients of a discretionary bonus will have between one third and one half of the
bonus withheld for three years under the Deferred Share Bonus Plan. The remuneration
committee will decide the percentage to be withheld on a case by case basis. Shares
will be purchased in the open market up to the amount of an individual’s bonus to be
withheld. The shares will be held on trust for the withholding period, to be released to
the individual on the third anniversary of grant or earlier if good leaver provisions apply.
The individual must pay PAYE and NI before the shares are released, otherwise they are
Proposed change
Dividend rights will accrue and be
forfeited. Entitlement to deferred shares will normally be lost if the individual gives notice
re-invested by the trustee into shares,
to resign, or is put on notice of termination for cause, before the award release date, unless
which will be released to individuals at
the committee exercises its discretion, which it is entitled to do under the rules. Dividend
the same time as the underlying award
rights and voting rights on shares held pending release will be waived.
is released
Clawback and malus
The following rules apply:
i) clawback – there is a requirement on the Executive Director to pay back an amount
already received under the bonus arrangements if:
a) the IPS profits turn out to have been overstated at the time a payment or share award
was made; or
b) it is later discovered that the Executive Director was in breach of contract at the time
a payment or share award was made.
ii) malus is the forfeit of all or part of a bonus/share award before it has vested and been
paid. Any cash award determined but not yet paid, or any deferred shares awarded but
not yet vested, may be reduced or taken away altogether if the circumstances described
under ‘clawback’ above are discovered to be the case before vesting or payment.
46
lawdebenture.com Component
LONG-TERM
INCENTIVE PLANS
Commentary
No long-term incentive plans exist and the committee does not intend to introduce such a
plan whilst this policy remains in place.
SCHEMES AVAILABLE
Eligible staff are able to join a Save As You Earn Share Save Plan (SAYE) and/or a Share Incentive
Plan (SIP). Both plans are HMRC approved. The committee intends to maintain these schemes
and operate them in accordance with scheme rules and HMRC Regulations. Both schemes
require employees to contribute their own money and participation is open to all UK employees.
While offering employees some tax advantages, the Schemes have a negligible operating cost
and are deemed to be a key part of the Company’s ability to recruit and retain staff.
Under the SAYE, the Executive Director and all UK members of staff may make monthly
savings in aggregate up to HMRC limits (currently £500 per month) direct from post-tax pay
with a guaranteed tax free return after five years. On joining the scheme, savers are given an
option to acquire shares in the Company at the end of the five year saving period, at a price
fixed at the beginning of the saving period. This will be the market price of the shares on the
invitation date or the latest published NAV, whichever is higher. At the end of the five year
saving period, participants may choose to apply the amount saved to exercise the options
over the shares notified at the outset of the saving period, or they may choose to relinquish
their options in favour of receiving a cash repayment of all of their contribution plus a bonus
as specified by HMRC (current HMRC rules do not permit a bonus).
The SIP enables participants (all the UK employees) to sacrifice up to the HMRC limit
(currently £5,400) of their pre-tax cash bonus to buy the Company’s shares at current market
price. These are held by a trustee and released tax free after five years. Any earlier release is
subject to PAYE and NI. Participants receive dividend and voting rights on shares held in the
SIP during the five year trust period.
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B. Non-executive directors
The components of Law Debenture’s remuneration package for non-executive directors of the Company are set out in the table below
(Table 2B). Fee levels stated below reflect the amount payable at the time the 2017 policy was approved by shareholders and remained at
these levels at 31 December 2018.
Component
BASIC SALARY
Commentary
NED fee
Chairman’s fee*
Non-executive director of other group company
Committee chair
Pension scheme chair**
£41, 250
£80,000
£5,600
£5,150
£15,500
* The Chairman is paid a single fee which includes any other group directorships and committee roles. Actual fee paid may be
lower if other roles decrease
** If undertaken by a non-executive director
The fees are reviewed by the board on advice from the Executive Director, who from time
to time undertakes comparative studies using an independent remuneration consultant to
ensure that the non-executive fee levels are consistent with the marketplace. Fees will only
be increased in line with inflation unless the recommendation from the external consultant
justifies consideration of a higher award.
The Chairman is a non-executive director.
BENEFITS PACKAGE
PENSION
ARRANGEMENTS
BONUS & OTHER INCENTIVE
ARRANGEMENTS
None
None
None
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Annual remuneration report continued
C. Recruitment of new directors
Any new Executive Director recruited while this policy is in force
E. Diagrammatic summary of fixed versus variable
remuneration receivable - the Executive Director
will be remunerated in accordance with the policies set out in
The following chart demonstrates minimum, in-line and
Table 2A. In addition, the following rules will apply:
maximum amounts potentially receivable by the Executive
•
no new Executive Director will receive a starting salary that
exceeds the existing Executive Director’s basic salary by more
than 20%;
•
no additional bonus or long-term incentive arrangements will
be established without prior shareholder approval;
•
•
no ‘golden hello’ payments will be made;
relocation packages will only be paid at the discretion of the
remuneration committee; and
•
the remuneration committee may agree to a payment of up to
one third of the basic starting salary of a new Executive Director
in lieu of any deferred bonus payments awarded and due to
the executive from a former employer, but which are being
Director.
Maximum
receivable
Receivable
for in-line
performance
Minimum
receivable
sacrificed in order to join Law Debenture. As far as practicable,
0
100
200
300
400
500
600
700
any such payments will be subject to the same deferment and
£000
withholding provisions that applied to the entitlement being
Fixed
sacrificed.
Any new non-executive directors will receive fees in accordance
with Table 2B.
D. Compensation for loss of office
Executive Directors are appointed with a notice period of six
months, with no contractual provisions for compensation payable
on early termination (with notice) of the contract. Otherwise,
there will be an entitlement to receive salary and benefits during
the notice period, which may be paid ‘in lieu’ of all or part of any
period of notice. There are no entitlements to payments of any sort
in the event that for cause an Executive Director’s employment
is summarily terminated. In the event that an Executive Director
is given notice of termination of employment within twelve
months of any change in control of the Company, he/she will be
given not less than twelve month’s written notice and the same
arrangements for receiving salary and benefits during this period
will apply as described above.
Non-executive directors will not be entitled to compensation on
termination of their directorship, no matter what the reason for
termination.
Annual cash bonus
Deferred share bonus
F. Closing statements
In deriving the policy set out above, the remuneration committee
has considered employment conditions generally as they
apply to staff across the IPS business along with legislative and
governance requirements. The aim of the policy remains to ensure
that the Executive Director receives broadly the same elements
of salary, bonus and benefits as the generality of staff, with
awards as to quantum based on similar performance conditions
and measurements.
The exceptions for the Executive Director are:
•
the remuneration committee may take account of the Executive
Director’s contribution to the investment trust strategy and
performance, as well as the performance of the IPS business;
•
the Executive Director (along with senior staff) may receive
higher percentage bonus payments than more junior staff; and
• the Executive Director is not eligible for the general bonus.
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lawdebenture.com Part 3 Annual remuneration report
A. Total remuneration (audited)
The following paragraphs are set out in the form prescribed by the Regulations. Certain elements of the report have been audited, as
clearly indicated.
Executive Directors - 2018
D. Jackson*
Executive Directors - 2017
M. Adams**
T. Fullwood***
Total
salary fees
£
Annual and
deferred
cash bonus
£
Deferred share
bonus received
£
286,750
286,750
286,750
286,750
238,958
66,173
305,131
—
66,173
66,173
—
—
—
—
—
Benefits
£
7,305
7,305
4,744
9,926
14,670
Pension
related
benefit
£
30,281
30,281
Other
£
100
100
Total
receivable
£
611,186
611,186
28,675
71,688
344,065
—
—
28,675
71,688
142,272
486,337
* Mr D. Jackson received a cash allowance in lieu of pension benefits, which is included in pension related benefits
** Mr M. Adams resigned 22 October 2017. Mr Adams was a member of the flexible retirement plan to which the group made contributions. On departure, Mr Adams received three months
salary in lieu of notice and a payment in respect of accrued holiday (totalling £71,688)
*** Mr T. Fullwood was appointed interim Chief Executive from 22 October 2017 for a fixed term until retirement at 31 December 2017. Mr Jackson was appointed chief executive officer from
1 January 2018
Notes
1.
Mr Fullwood received an agreed salary of £66,173 for the fixed term of his appointment together with a cash bonus of £66,173. The annual salary for Mr Jackson from 1 January 2018 is
£286,750 (Mr Adams from 1 January 2017: £286,750)
2. The balance of the maximum amount of the bonus pool available to make an award to the Executive Director of £30,679 has been released to shareholders’ funds
3. Benefits were the cost of life insurance cover and the disability income plan together with a payment in lieu of private medical insurance
4. There are no long-term incentive plans
We report retrospectively on the performance targets that were
The subjective tests were about strategy and leadership. These are
set for the Executive Director and his performance against those
not expected to change materially in any given year and for 2018
targets. The report is as follows. In respect of his performance
were:
in 2018, the Executive Director received a bonus of 100% of his
salary. This reflected outstanding performance against a range of
objective and subjective measures. The objective measures were to
deliver growth of the IPS business under various financial matrices
1. Development and delivery of strategy to enhance market
standing – IPS business (maximum bonus available – 25%; bonus
amount achieved 25%); and
as set out below. In each case, a range of growth targets was set,
2. Development and delivery of strategy to enhance the profile of
with the level of bonus dependent on how far along the curve the
Law Debenture’s shares, delivery of appropriate governance and
actual growth measured. These ranges will change each year to
risk management framework – (maximum bonus available – 15%;
reflect prevailing market conditions. For 2018, the ranges were:
bonus amount achieved 15%).
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1. IPS EBITDA growth (maximum bonus available – 30%; bonus
amount achieved 30%); and
2. IPS revenue growth (maximum bonus available – 30%; bonus
amount achieved 30%).
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Non-executive directors
C. Smith*
R. Hingley
M. Bridgeman
R. Laing
T. Bond
* Retired 11 April 2018
Total fees
receivable for
2018
£
Total fees
receivable for
2017
£
22,462
69,170
46,909
52,000
41,250
80,000
10,313
46,400
52,000
41,250
231,791
229,963
B. Save As You Earn Share Save Plan 2012 (audited)
Interest at
31 December
2017
Interest
acquired/
(lapsed)
in 2018
D. Jackson
—
—
Exercise
price
—
Market price
at invitation
date
Interest at
31 December
2018
—
—
Earliest
exercise
—
Latest
exercise
—
C. Deferred Share Plan (audited)
D. Jackson
Interest at
31 December
2017
—
Interest
acquired
in 2018
2,981
Interest (lapsed)
in 2018
Purchase
price
Interest at
31 December
2018
Date
shares
released
—
£5.94546
2,981
01.03.21
D. Miscellaneous disclosures (audited)
No payments were made to former directors during the year. No payments were made to any director for loss of office.
Directors are encouraged to hold shares throughout the term of their appointment, to align their own interests with those of the shareholders
as a whole. Directors’ shareholdings at 31 December 2018 (and at the date of this report, unless otherwise indicated) were as follows:
T. Fullwood
T. Bond
M. Bridgeman*
R. Hingley
R. Laing
C. Smith
D. Jackson
* Interests of connected persons in addition to his beneficial holding – 1,120 shares
50
Beneficial
interests as at
31 December
2018
Beneficial
interests as at
31 December
2017
Shares
receivable
but not vested
at 31 December
2018
n/a
—
4,513
4,870
12,300
n/a
948
114,823
—
4,153
4,870
12,300
55,000
n/a
—
—
—
—
—
—
2,981
lawdebenture.com E. Aggregate directors’ remuneration (audited)
Emoluments
F. Performance graph
£4,200
£4,000
£3,800
£3,600
£3,400
£3,200
£3,000
£2,800
£2,600
£2,400
£2,200
£2,000
£1,800
£1,600
£1,400
£1,200
£1,000
£800
£600
2018
£
2017
£
842,977
716,300
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2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Law Debenture share price total return, assuming
the investment of £1,000 on 31 December 2008
and the reinvestment of all dividends (excluding
dealing expenses)
FTSE All-Share Index Total Return assuming notional
investment of £1,000 into the index on 31 December 2008
and the reinvestment of all income (excluding dealing
expenses)
Notes
1. The graph shows the total shareholder return of a nominal holding of £1,000 of Law Debenture’s shares measured against the total shareholder return of a nominal holding of £1,000
invested in the FTSE All-Share Index over a 10 year period
2. Dividends have been reinvested
3. FTSE All-Share Index is chosen as the comparator in this table because that is the index against which, historically, the Company has reported the performance of the investment trust
portfolio
51
C O R P O R A T E G O V E R N A N C E
Annual remuneration report continued
G. Executive Director – diagrammatic
summaries
iii) Relative spend on salaries
The following table shows the total amount spent on remuneration
(to all group employees, including the Executive Director) with
The Regulations require us to publish the following tables relating
a comparator to last year, along with total distributions to
to Executive Directors. For Law Debenture, the chief executive was
shareholders by way of dividend or (where applicable) share buy-
the only Executive Director.
i) Historical remuneration
The table below sets out the Executive Directors’ total remuneration
over the same period as the performance graph above.
2018 – D. Jackson
2017 – T. Fullwood
2017 – M. Adams
2016 – M. Adams*
2016 – C. Banszky**
2015
2014
2013
2012
2011
2010
2009
2008
Single figure
of total
remuneration
£
Annual bonus
and deferred
bonus award
(against
maximum %)
611,186
142,272
344,065
180,532
757,816
677,473
690,725
636,921
636,923
602,676
588,482
528,443
510,780
100.0%
100.0%
0%
65.1%
0%
100.0%
62.0%
72.1%
70.0%
75.0%
90.0%
67.5%
70.0%
* The annual bonus and deferred share award for Mr Adams in respect of 2016 is based
upon his salary paid from appointment to 31 December 2016. Shares awarded to him
have since lapsed
** The deferred cash bonus and deferred share bonus to Mrs Banszky were awarded in
back or other distributions.
Total remuneration spend
Total distributed to shareholders
2018
£000
13,964
22,339
2017
£000
12,330
20,442
1. Total remuneration includes bonuses, employers’ NI and pension costs and is the figure
reported at note 3 of the accounts
2. Amounts distributed to shareholders are the totals of the final and interim dividends
in respect of that year. There were no other distributions. The 2018 figure assumes that
shareholders approve the proposed dividend at the AGM on 11 April 2019
iv) Statement of policy implementation
in the current year
The remuneration committee is committed to implementing the
remuneration policy set out at Part 2 above during the current
financial year subject to the amendments proposed at the AGM.
Performance measures and weightings applicable to bonus
calculations will be calculated in accordance with the policy at
Table 2A. The IPS profit before tax and bonus, used to calculate the
2018 bonus pool, was £13.0m (2017: £11.5m).
H. Consideration of matters relating to
directors’ remuneration
The board delegates all remuneration matters to the remuneration
committee save for NED fees, which are considered by the board
on advice from the chief executive.
prior years
The members of the committee who served during the year are:
The maximum bonus payment was 100% each year. The bonus
payment includes the deferred element (see Table 2A).
ii) Percentage change in remuneration
R. Laing – Chairman
R. Hingley
T. Bond
The following table shows the percentage change in remuneration
M. Bridgeman
of the Executive Director compared to UK employees as a whole
during the year.
C. Smith (until 11 April)
2018
2017
the Executive Director (although not in respect of his own
During the year, the committee took advice from the following:
Salary
%
Benefits
%
Bonus
%
Salary
%
Benefits
%
Bonus
%
remuneration), the chief financial officer and the company
secretary.
(6.0)
(50.0)
333.0
1.6
18.0
—
I. Voting at general meetings
3.5
3.1
48.7
1.9
(3.4)
(3.0)
1. The figure used to calculate the Executive Director’s salary is ‘total salary/fees’ figure at
Table 3A
At the AGM on 11 April 2018, the directors’ remuneration report for
the year ended 31 December 2017 received the following votes: for
99.36%; against 0.64%; votes withheld represented 0.47% of the
total votes cast. Amendments to the remuneration policy received
2. The benefits and bonus are as set out in Table 3A, which exclude pension benefits
the following votes: for 99.36%; against 0.64%; votes withheld
represented 0.25% of the total votes cast.
52
Executive
Director
UK
employees
as a whole
lawdebenture.com Company advisers and information
Registered office
Broker
Fifth Floor, 100 Wood Street, London EC2V 7EX
J.P. Morgan Cazenove Limited, 25 Bank Street, London E14 5JP
T: 020 7606 5451
F: 020 7606 0643
W: www.lawdebenture.com
(Registered in England – No. 30397)
AIC
A member of the Association of Investment Companies
Investment manager
Shareholder information
James Henderson
Investment trust status
Joined Henderson Global Investors (now Janus Henderson
The Company carries on business as an investment trust company
Investors) in 1983 and has been an investment trust portfolio
as defined in Sections 1158-1159 of the Corporation Tax Act 2010. The
manager since 1990. He first became involved in the
directors will endeavour to conduct its affairs so as to enable it to
management of Law Debenture’s portfolio in 1994 and took
maintain HMRC approval of the Company’s status in this respect. So far
over lead responsibility for management of the portfolio in June
as the directors are aware, the close company provisions of the Income
2003. He also manages Lowland Investment Company plc,
and Corporation Taxes Act 1988 do not apply to the Company.
Henderson Opportunities Trust plc and Henderson UK Equity
Income & Growth Fund.
Company share information
James is assisted by Laura Foll, who first became involved with
Law Debenture’s portfolio in September 2011.
Information about the Company can be found on its web site
www.lawdebenture.com. The market price of its ordinary shares is also
published daily in a number of newspapers.
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Alternative Investment Fund Manager
Registrars
The Law Debenture Corporation p.l.c.
Investment portfolio manager
Janus Henderson Investors, 201 Bishopsgate, London EC2M 3AE
Auditors
BDO LLP, 55 Baker Street, London W1U 7EU
Depositary
NatWest Trustee and Depositary Services Limited
Global custodian
Our registrars, Computershare Investor Services PLC, operate a
dedicated telephone service for Law Debenture shareholders – 0370
707 1129. Shareholders can use this number to access holding balances,
dividend payment details, share price data, or to request that a form be
sent to their registered address.
Share dealing
Computershare Investor Services PLC offers shareholders a share dealing
service via the internet or by telephone, details of which are as follows:
www.computershare.trade
T: 0370 703 0084
Commission for the internet service is 1% with a minimum charge of
£30 and 1% for the telephone service, plus £35.
The service is available only to those shareholders who hold their shares
on the register (i.e. it is not available to those who hold their shares via
HSBC Group (under delegation by the depositary)
a nominee).
Registrar
Computershare Investor Services PLC
The Pavilions, Bridgwater Road, Bristol BS99 6ZZ
T: 0370 707 1129
Shareholders using the internet service will need their Shareholder
Reference Number (SRN) and post code to complete their trade. The
SRN can be found printed on your proxy card.
Computershare Brokerage Services are provided by The Share Centre
Ltd, which is member of the London Stock Exchange and is authorised
and regulated by the FCA. The Company is not responsible or liable for
anything arising from a shareholder’s decision to use the service. The
Company is not acting as an introducer for the share dealing service
and receives no financial benefit, either from making shareholders
aware of the service or from any share deals conducted by shareholders
who use the service.
53
C O R P O R A T E G O V E R N A N C E
The board
The board
Robert Hingley
Chairman, non-executive director
Appointed to the board in October 2017, becoming chairman in April 2018. A corporate
financier with over 30 years’ experience. A partner of Ondra LLP until October 2017. Before
that, in 2012 he joined the Association of British Insurers as Director, Investment Affairs and
acted as a consultant following the merger of ABI’s Investment Affairs with the Investment
Management Association, until the end of 2014. From 2010 until 2015, he was a Managing
Director, and later Senior Advisor, at Lazard. He was previously Director-General of The
Takeover Panel, on secondment from Lexicon Partners, where he was Vice Chairman. Prior
to that, he was Co-Head of the Global Financial Institutions Group and Head of German
Investment Banking at Citigroup Global Capital Markets, which acquired the investment
banking business of Schroders in 2000. He joined Schroders in 1985 after having qualified
as a solicitor with Clifford Chance in 1984. He is Chairman of Phoenix Spree Deutschland
Limited, a member of The Takeover Panel and trustee/governor of several charitable
organisations. He is a member of the remuneration and nominations committees.
Denis Jackson
Chief executive officer
Appointed to the board in January 2018 having joined Law Debenture in July 2017 as Chief
Commercial Officer. He was previously at Capita plc as director of new business enterprise,
having been a director at Throgmorton UK Limited (which Capita acquired). Prior to that,
he was regional general manager – Europe and the United States – for Tibra Trading Europe
Limited, a FCA regulated proprietary trading company, which he joined from Citigroup
(formerly Salomon Brothers). He spent almost 20 years there in a variety of roles including in
Treasury (both in New York and London), as Head of the Finance Desk in Hong Kong, Head of
Fixed Income Prime Brokerage in New York and ultimately, Head of EMEA Prime Brokerage
Sales.
Katie Thorpe
Chief financial officer
Appointed to the board in January 2019. She is a chartered accountant and qualified with
PricewaterhouseCoopers before joining J. Rothschild Capital Management Limited, the
manager/subsidiary of RIT Capital Partners plc. Initially appointed as Financial Controller, she
was promoted to Deputy Chief Operating Officer, responsible for day-to-day operations, HR,
IT, legal and company secretarial, with a significant emphasis on RIT’s investor relations with
shareholders and brokers. She is a Trustee of the Rambert School of Ballet and Contemporary
Dance and chairs the school’s Finance and Premises Committee.
54
lawdebenture.com
Robert Laing
Non-executive director
Appointed to the board in April 2012. Admitted as a solicitor in England in 1977 and in
Scotland in 1985. He worked for Slaughter and May from 1975 until 1983 when he joined
Maclay Murray & Spens. He was a partner in that firm (which has since merged with
Dentons) from 1985 and its chairman from 1 June 2010 until his retirement from the firm in
May 2016. He is a non-executive director of The Independent Investment Trust plc. Senior
independent director, chairman of the remuneration committee and a member of the audit
and nominations committees and a non-executive director of Law Debenture (Independent
Professional Services) Limited.
Tim Bond
Non-executive director
Appointed to the board in April 2015. Partner of Odey Asset Management LLP, which he
joined in 2010, he currently manages Odey’s Odyssey Fund. He previously spent 12 years at
Barclays Capital as Managing Director and head of global asset allocation and was editor and
principal author of Barclays Capital’s Equity Gilt Study and chief advisor to the bank’s RADAR
fund. Before Barclays, he worked as a strategist at Moore Capital and at Tokai Bank Europe.
He is a member of the audit, remuneration and nominations committees.
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Mark Bridgeman
Non-executive director
Appointed to the board in March 2013. He spent 19 years with Schroders plc as an analyst and
then fund manager, rising to become Global Head of Research. He now manages a large rural
estate and farming business in Northumberland. He is a non-executive director of JP Morgan
Brazil Investment Trust plc. He is deputy president and chairman of the board of the Country
Land and Business Association and is also on the boards of two charities. Chairman of the
audit committee and a member of the remuneration and nominations committees.
55
F I N A N C I A L S T A T E M E N T S
56
lawdebenture.com
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Independent auditor’s report
to the Members of the Law Debenture Corporation P.l.c.
Opinion
Conclusions relating to principal risks,
going concern and viability statement
We have audited the financial statements of The Law Debenture
Corporation p.l.c. (the ‘parent company’) and its subsidiaries (the
We have nothing to report in respect of the following information
‘group’) for the year ended 31 December 2018 which comprise the
in the Annual Report, in relation to which the ISAs (UK) require us
group income statement, the group statement of comprehensive
to report to you whether we have anything material to add or draw
income, the group and Company statement of financial position,
attention to:
the group and Company statement of changes in equity, the
group and Company statements of cash flows and the related
notes to the financial statements, including a summary of
significant accounting policies. The financial reporting framework
that has been applied in their preparation is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by
the European Union and, as regards the parent company financial
statements, as applied in accordance with the provisions of the
Companies Act 2006.
•
the disclosures in the Annual Report set out on pages 84 to 86
that describe the principal risks and explain how they are being
managed or mitigated;
•
the directors’ confirmation set out on page 26 in the Annual
Report that they have carried out a robust assessment of the
principal risks facing the group, including those that would
threaten its business model, future performance, solvency
or liquidity;
•
the directors’ statement set out on page 37 in the financial
In our opinion the financial statements:
statements about whether the directors considered it
•
give a true and fair view of the state of the group’s and of the
parent company’s affairs as at 31 December 2018 and of the
group’s loss for the year then ended;
•
the group financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union;
•
the parent company financial statements have been properly
prepared in accordance with IFRSs as adopted by the European
Union and as applied in accordance with the provisions of the
Companies Act 2006; and
•
the financial statements have been prepared in accordance with
the requirements of the Companies Act 2006; and, as regards
the group financial statements, Article 4 of the IAS Regulation.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor’s responsibilities for the audit of the financial statements
section of our Report. We are independent of the group and the
parent company in accordance with the ethical requirements
that are relevant to our audit of the financial statements in the
UK, including the FRC’s Ethical Standard as applied to listed
public interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements. We
believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
appropriate to adopt the going concern basis of accounting
in preparing the financial statements and the directors’
identification of any material uncertainties to the group and
the corporation’s ability to continue to do so over a period
of at least twelve months from the date of approval of the
financial statements;
•
whether the directors’ statement relating to going concern
required under the Listing Rules in accordance with Listing Rule
9.8.6R(3) is materially inconsistent with our knowledge obtained
in the audit; or
•
the directors’ explanation set out on page 37 in the Annual
Report as to how they have assessed the prospects of the group,
over what period they have done so and why they consider that
period to be appropriate, and their statement as to whether
they have a reasonable expectation that the group will be able
to continue in operation and meet its liabilities as they fall
due over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications
or assumptions.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had
the greatest effect on: the overall audit strategy, the allocation of
resources in the audit; and directing the efforts of the engagement
team. These matters were addressed in the context of our audit
of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on
these matters.
57
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Independent auditor’s report continued
Key Audit Matter
How the matter was addressed in the audit
Valuation, existence and ownership of
investments
Investments comprise 82% of the total assets of
the group. The investment portfolio at the year-end
comprised of listed equity investments valued at
We responded to this matter by testing the valuation, existence and ownership
of 100% of the portfolio of listed investments.
We performed the following procedures:
•
Confirmed against independent data sources that the correct bid-price has
£658.5m and unlisted investments valued at £4.1m
been used for the year end fair value
(note 14).
We considered the valuation, existence and ownership
of listed equity investments to be the most significant
audit areas as investments represent the most
significant balance in the financial statements and
underpin the principal activity of the entity. We
therefore also considered the completeness, accuracy
and clarity of the investment related disclosures to be
a significant area.
We also considered the valuation of investments with
respect to unrealised gains/losses to be a significant
area.
Completeness of income from investments
and the accuracy of income in relation to the
provision of professional services (note 1 to the
financial statements)
We considered the completeness of dividend income
recognition and its presentation in the Income
Statement, as set out in the requirements of The
Association of Investment Companies Statement of
Recommended Practice (the ‘AIC SORP’ issued in
November 2014 and updated in January 2017 with
consequential amendments) to be a significant risk.
Dividend income is one of the key drivers of dividend
returns to investors and is often a key factor is
demonstrating the performance of the portfolio.
Revenue also consists of fees receivable from the
provision of professional services. Revenue recognition
in the professional services component of the group
was considered to be a risk as the timing of invoicing
of fees results in amounts being accrued or deferred
at the year-end based on management’s estimates,
including the stage of completion. This is because
incomplete or inaccurate income could have a
material impact on the group’s earnings per share.
•
Checked the appropriateness of the valuation methodology applied
and confirmed that there are no contra indicators, such as liquidity
considerations, to suggest that bid price is not the most appropriate
indication of fair value
•
Agreed the investment holdings to independently received third party
confirmation from the custodian to confirm existence and completeness
•
Reviewed the latest available independent assurance report addressing the
relevant controls in place at the custodian
We also considered the completeness, accuracy and clarity of investment
related disclosures.
For the unrealised gains/losses on investments held at fair value, we tested
the valuation of the portfolio at the year-end, together with testing the
reconciliation of opening and closing investments.
We assessed the accounting policy for income recognition in the Investment
Trust for compliance with accounting standards and the AIC SORP and
performed testing to confirm the nature of the revenue and to check that
income had been accounted for in accordance with this stated accounting
policy.
In respect of completeness of dividend income, we tested that the appropriate
dividends had been received in the year by reference to independent data of
dividends declared on a sample of investment holdings in the portfolio. Our
testing did not identify any unrecorded dividends.
In respect of fee income from the provision of professional services, for a
sample we agreed to contract or similar agreement, invoice and receipt of cash.
We also obtained a breakdown of accrued and deferred income and selected
a sample which we recalculated to gain assurance that the relevant proportion
of income had been recognised in the year. Assurance over completeness
was gained through a number of procedures including cut-off testing and
reviewing client take on records. In addition, we performed controls testing
where appropriate, on the key manual controls operating in the year assessing
their implementation and effectiveness.
Defined benefit pension scheme (closed to new
members and future accruals on 31 December
2016) (note 24 to the financial statements)
The group operates a defined benefit pension scheme.
We instructed an external actuarial expert to complete a review of the pension
accounting figures provided by the group, including the assumptions made, under
IAS 19 which is the accounting standard for employee benefits. We considered the
expert’s objectivity and competence and evaluated the findings of their work.
There is a high degree of estimation in calculating
the year end valuation, which has been prepared by
management’s actuaries, as it is based on information
and assumptions made by management in respect of
the key inputs into the calculation.
We benchmarked the key assumptions made by management to the industry
standards, and where outliers or inconsistencies were noted, management were
challenged on the appropriateness of the assumptions made and the audit team
made inquiries and where relevant, we obtained supporting information.
58
lawdebenture.com Our application of materiality
We apply the concept of materiality both in planning and performing
Full scope audits of the thirteen components were performed
our audit, and in evaluating the effect of misstatements. We consider
at a materiality level calculated based on a level appropriate to
materiality to be the magnitude by which misstatements, including
the relative scale of the business concerned. All components are
omissions, could influence the economic decisions of reasonable
based in the UK and the group audit team have responsibility
users that are taken on the basis of the financial statements.
for the audit of all components included in the consolidated
Importantly, misstatements below these levels will not necessarily
financial statements. Component materiality ranged up to
be evaluated as immaterial as we also take account of the nature of
£6,300,000. For components where full scope audits were not
identified misstatements, and the particular circumstances of their
undertaken, the group audit team undertook audit procedures on
occurrence, when evaluating their effect on the financial statements
material balances. The audits of the significant components were
as a whole. The application of these key considerations gives rise to
performed by the UK audit team.
three levels of materiality, the quantum and purpose of which are
tabulated below.
Materiality measure
Purpose
Key considerations and benchmark s
Quantum (£)
Financial statement
materiality
Assessing whether the financial
• The value of investments
£6,630,000
statements as a whole present a true
•
The level of judgement inherent in
(1% of investment portfolio)
and fair view.
the valuation
•
The range of reasonable alternative
valuations
(31 December 2017:
£7,300,000)
Performance materiality
Lower level of materiality applied
• Financial statement materiality
£4,970,000
(75% of materiality)
in performance of the audit when
• Risk and control environment
determining the nature and extent of
testing applied to individual balances
and classes of transactions.
(31 December 2017:
£4,700,000)
Specific materiality –
classes of transactions
and balances which
impact on net realised
returns
Assessing those classes of
•
Net revenue returns of the Group
£1,325,000
transactions, balances or disclosures
for which misstatements of lesser
amounts than materiality for the
(31 December 2017:
£669,000)
(5% of revenue return
financial statements as a whole could
before tax)
reasonably be expected to influence
the economic decisions of users
taken on the basis of the financial
statements.
Parent company financial
statement materiality
Assessing whether the financial
•
A principal consideration in
Materiality -
statements as a whole present a true
assessing the financial performance
£6,300,000,
F
I
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C
I
A
L
S
T
A
T
E
M
E
N
T
S
(95% of group materiality)
and fair view.
of the group
We agreed with the Audit Committee that we would report to
the Committee all audit differences in excess of £133,000 (2017:
£145,000), as well as differences below that threshold that, in our
view, warranted reporting on qualitative grounds.
Performance
materiality -
£4,720,000
(31 December
2017: Materiality
– £6,900,000,
Performance
materiality –
£4,480,000)
59
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Independent auditor’s report continued
An overview of the scope of our audit
Audit Committee Report, the Remuneration Report, other than
the financial statements and our Auditor’s Report thereon. The
As part of designing our audit, we determined materiality and
directors are responsible for the other information. Our opinion
assessed the risks of material misstatement in the financial
on the financial statements does not cover the other information
statements. In particular, we looked at where the directors made
and, except to the extent otherwise explicitly stated in our Report,
subjective judgements, for example in respect of the valuation
we do not express any form of assurance conclusion thereon.
of the defined benefit pension scheme which has a high level of
In connection with our audit of the Financial Statements, our
estimation uncertainty.
We gained an understanding of the legal and regulatory framework
applicable to the group and the industry in which it operates, and
considered the risk of acts by the Company which were contrary to
applicable laws and regulations, including fraud. These included
but were not limited to compliance with Companies Act 2006,
the FCA listing and DTR rules, the principles of the UK Corporate
Governance Code, industry practice represented by the Statement
of Recommended Practice: Financial Statements of Investment
Trust Companies and Venture Capital Trusts (“the SORP”) issued in
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in
the audit or otherwise appears to be materially misstated. If
we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of the other information; we are required to report that fact.
November 2014 and updated in February 2018 with consequential
We have nothing to report in this regard.
amendments and International Financial Reporting Standards
(IFRSs) as adopted by the European Union. We also considered
the Company’s qualification as an Investment Trust under UK
tax legislation.
In this context, we also have nothing to report in regard to our
responsibility to specifically address the following items in
the other information and to report as uncorrected material
misstatements of the other information where we conclude that
We designed audit procedures to respond to the risk, recognising
those items meet the following conditions:
that the risk of not detecting a material misstatement due to fraud
is higher than the risk of not detecting one resulting from error, as
fraud may involve deliberate concealment by, for example, forgery,
misrepresentations or through collusion.
•
Fair, balanced and understandable – the statement given
as to why the Annual Report does not include a statement
by the directors that they consider the Annual Report and
financial statements taken as a whole is fair, balanced and
We focused on laws and regulations that could give rise to a
understandable and provides the necessary information for
material misstatement in the Company financial statements. Our
shareholders to assess the corporation and group’s position
tests included, but were not limited to:
and performance, business model and strategy, is materially
inconsistent with our knowledge obtained in the audit; or
•
Audit Committee reporting – the section describing the work
of the audit committee does not appropriately address matters
•
agreement of the financial statement disclosures to underlying
supporting documentation;
enquiries of management;
•
•
•
review of minutes of board meetings throughout the period; and
communicated by us to the audit; or
considering the effectiveness of the control environment in
monitoring compliance with laws and regulations
•
Directors’ statement of compliance with the UK Corporate
Governance Code – the parts of the directors’ statement
There are inherent limitations in the audit procedures described
required under the Listing Rules relating to the Company’s
above and the further removed non-compliance with laws and
compliance with the UK Corporate Governance Code containing
regulations is from the events and transactions reflected in the
provisions specified for review by the auditor in accordance with
financial statements, the less likely we would become aware of it.
Listing Rule 9.8.10R(2) do not properly disclose a departure from
As in all of our audits we also addressed the risk of management
a relevant provision of the UK Corporate Governance Code.
override of internal controls, including testing journals and
evaluating whether there was evidence of bias by the directors that
represented a risk of material misstatement due to fraud.
Other information
Opinions on other matters prescribed by
the Companies Act 2006
In our opinion, the part of the directors’ remuneration report to
be audited has been properly prepared in accordance with the
The other information comprises the information included in the
Companies Act 2006.
Annual Report, including the Financial summary, the Chairman’s
statement, the Strategic Report, the Investment manager’s review,
the Directors’ Report, the Statement of Corporate governance, the
•
the information given in the strategic report and the directors’
report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
60
lawdebenture.com •
the strategic report and the directors’ report have been prepared
the economic decisions of users taken on the basis of these
in accordance with applicable legal requirements.
financial statements.
Matters on which we are required to report
by exception
In the light of the knowledge and understanding of the group and
the parent company and its environment obtained in the course
of the audit, we have not identified material misstatements in the
Strategic Report or the Directors’ Report.
A further description of our responsibilities for the audit of the
financial statements is located on the Financial Reporting Council’s
website at: www.frc.org.uk/auditorsresponsibilities. This description
forms part of our Auditor’s Report.
Other matters which we are required
to address
We have nothing to report in respect of the following matters in
Following the recommendation of the audit committee, we were
relation to which the Companies Act 2006 requires us to report to
appointed on 11 April 2018 to audit the financial statements for the
you if, in our opinion:
•
adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been
received from branches not visited by us; or
•
the parent company financial statements and the part of
the Directors’ Remuneration Report to be audited are not in
year ended 31 December 2018 and subsequent financial periods.
The period of total uninterrupted engagement is 10 years, covering
the years ending 31 December 2009 to 31 December 2018. Due to
the length of tenure, the Company undertook a competitive tender
process in November 2017 which resulted in the recommendation
that BDO LLP be reappointed at the next AGM.
agreement with the accounting records and returns; or
The non-audit services prohibited by the FRC’s Ethical Standard
•
certain disclosures of directors’ remuneration specified by law
were not provided to the group or the parent company and we
are not made; or
remain independent of the group and the parent company in
•
we have not received all the information and explanations we
conducting our audit.
require for our audit.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set
out on page 34 the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and
fair view, and for such internal control as the directors determine is
necessary to enable the preparation of financial statements that are
free from material misstatement, whether due to fraud or error.
Our audit opinion is consistent with the additional Report to the
audit committee.
Use of our report
This Report is made solely to the parent company’s members, as a
body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state
to the parent company’s members those matters we are required
to state to them in an Auditor’s Report and for no other purpose.
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In preparing the financial statements, the directors are responsible
To the fullest extent permitted by law, we do not accept or assume
for assessing the group’s and the parent company’s ability to
responsibility to anyone other than the parent company and the
continue as a going concern, disclosing, as applicable, matters
parent company’s members as a body, for our audit work, for this
related to going concern and using the going concern basis of
Report, or for the opinions we have formed.
accounting unless the directors either intend to liquidate the group
or the parent company or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities for the audit
of the financial statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
Auditor’s Report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence
Vanessa-Jayne Bradley (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London
United Kingdom
26 February 2019
BDO LLP is a limited liability partnership registered in England and
Wales (with registered number OC305127).
61
F I N A N C I A L S T A T E M E N T S
Group income statement
as at 31 December 2018
UK dividends
UK special dividends
Overseas dividends
Overseas special dividends
Interest income
Independent professional
services fees
Other income
Total income
Net (loss)/gain on investments
held at fair value through profit
or loss
Total income and capital
gains/(losses
Cost of sales
Administrative expenses
Provision for onerous contracts
Operating profit/(loss)
Finance costs
Interest payable
Profit/(loss) before taxation
Taxation
Profit/(loss) for the year
Return per ordinary share
(pence)
Diluted return per ordinary
share (pence)
* See note 1
Notes
6
2
3
4
6
7
8
7
10
10
Revenue
£000
18,892
810
3,407
90
23,199
480
33,252
176
57,107
Capital
£000
—
—
—
—
—
—
—
—
—
2018
Total*
£000
18,892
810
3,407
90
23,199
480
33,252
176
57,107
Revenue
£000
Capital
£000
17,017
743
3,646
57
21,463
139
31,021
344
52,967
—
—
—
—
—
—
—
—
—
2017
Total*
£000
17,017
743
3,646
57
21,463
139
31,021
344
52,967
—
(84,301)
(84,301)
3,275
79,674
82,949
57,107
(3,668)
(22,705)
319
31,053
(4,617)
26,436
(1,318)
25,118
(84,301)
—
(610)
—
(27,194)
(3,668)
(23,315)
319
(84,911)
(53,858)
—
(4,617)
(84,911)
(58,475)
—
(1,318)
(84,911)
(59,793)
21.26
(71.85)
(50.59)
21.25
(71.84)
(50.59)
56,242
(3,875)
(20,842)
245
31,770
(4,785)
26,985
(1,391)
25,594
21.66
21.66
79,674
—
(407)
—
79,267
—
79,267
—
79,267
135,916
(3,875)
(21,249)
245
111,037
(4,785)
106,252
(1,391)
104,861
67.10
88.76
67.09
88.75
Statement of comprehensive income
as at 31 December 2018
GROUP
Profit/(loss) for the year
Foreign exchange on translation
of foreign operations
Pension actuarial gains
Taxation on pension
Other comprehensive income
for the year
Total comprehensive income
for the year
62
Revenue
£000
25,118
—
1,600
(304)
1,296
Capital
£000
(84,911)
450
—
—
450
2018
Total
£000
(59,793)
450
1,600
(304)
Revenue
£000
25,594
—
1,800
(342)
Capital
£000
79,267
(495)
—
—
2017
Total
£000
104,861
(495)
1,800
(342)
1,746
1,458
(495)
963
26,414
(84,461)
(58,047)
27,052
78,772
105,824
lawdebenture.com Statement of financial position
as at 31 December 2018
Assets
Non-current assets
Goodwill
Property, plant and equipment
Other intangible assets
Investments held at fair value through profit or loss
Investments in subsidiary undertakings
Retirement benefit asset
Deferred tax assets
Total non-current assets
Current assets
Trade and other receivables
Other accrued income and prepaid expenses
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Amounts owed to subsidiary undertakings
Trade and other payables
Corporation tax payable
Other taxation including social security
Deferred income
Derivative financial instruments
Total current liabilities
Non-current liabilities and deferred income
Long-term borrowings
Deferred income
Provision for onerous contracts
Total non-current liabilities
Total net assets
Equity
Called up share capital
Share premium
Own shares
Capital redemption
Translation reserve
Capital reserves
Retained earnings
Total equity
Notes
11
12
13
14
14
24
8
15
16
17
20
21
4
18
18
2018
£000
1,952
100
186
GROUP
2017
£000
COMPANY
2018
£000
2017
£000
1,920
129
161
—
—
—
—
—
—
662,593
735,872
662,379
735,633
—
2,500
11
—
300
614
61,233
96,311
—
—
—
—
667,342
738,996
723,612
831,944
6,925
5,768
124,148
136,841
6,417
5,003
134,011
145,431
384
1,687
100,321
102,392
1,000
1,413
78,549
80,962
804,183
884,427
826,004
912,906
—
11,888
199
583
4,005
—
16,675
114,112
3,796
236
118,144
669,364
5,919
8,904
(966)
8
2,111
—
11,649
—
570
3,942
299
47,840
1,404
20
497
16
—
53,597
1,385
20
386
16
299
16,460
49,777
55,703
114,068
74,534
74,516
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
3,974
1,667
119,709
748,258
5,918
8,787
(1,033)
8
1,661
145
—
74,679
701,548
5,919
8,904
—
8
—
662,031
24,686
701,548
155
—
74,671
782,532
5,918
8,787
—
8
—
745,025
22,794
782,532
19
603,433
688,344
49,955
44,573
669,364
748,258
As permitted by Section 408 of the Companies Act 2006, the Company has not presented its own income statement, however its loss for
the year was £60,070,000 (2017: profit £103,881,000). Approved and authorised for issue by the board on 26 February 2019 and signed on
its behalf by:
R. Hingley, Chairman
| D. Jackson, Chief executive officer
Registered number 30397.
63
F I N A N C I A L S T A T E M E N T S
Statement of changes in equity
as at 31 December 2018
GROUP
Called up
share capital
£000
Share
premium
£000
Equity at 1 January 2017
5,917
8,722
Profit
Foreign exchange
Actuarial gain on pension
scheme (net of tax)
Total comprehensive income
Issue of shares
Dividend relating to 2016
Dividend relating to 2017
Movement in own shares
Total equity at
31 December 2017
—
—
—
—
1
—
—
—
—
—
—
—
65
—
—
—
Own
shares
£000
(1,197)
—
—
—
—
—
—
—
164
5,918
8,787
(1,033)
Equity at 1 January 2018
5,918
8,787
(1,033)
Profit
Foreign exchange
Actuarial gain on pension
scheme (net of tax)
Total comprehensive income
Issue of shares
Dividend relating to 2017
Dividend relating to 2018
Movement in own shares
Total equity at
31 December 2018
—
—
—
—
1
—
—
—
—
—
—
—
117
—
—
—
—
—
—
—
—
—
—
67
5,919
8,904
(966)
Capital
redemption
£000
Translation
reserve
£000
Capital
reserves
£000
Retained
earnings
£000
Total
£000
8
—
—
—
—
—
—
—
—
8
8
—
—
—
—
—
—
—
—
8
2,156
609,077
37,602
662,285
—
79,267
25,594
104,861
(495)
—
—
—
—
(495)
1,458
1,458
(495)
79,267
27,052
105,824
—
—
—
—
—
—
—
—
—
66
(13,582)
(13,582)
(6,499)
(6,499)
—
164
1,661
688,344
44,573
748,258
1,661
688,344
44,573
748,258
—
450
—
450
—
—
—
—
(84,911)
25,118
(59,793)
—
—
—
450
1,296
1,296
(84,911)
26,414
(58,047)
—
—
—
—
—
118
(13,942)
(13,942)
(7,090)
(7,090)
—
67
2,111
603,433
49,955
669,364
Capital reserves comprises realised and unrealised gains on investments held at fair value through profit or loss (see note 19).
64
lawdebenture.com Statement of changes in equity continued
as at 31 December 2018
COMPANY
Equity at 1 January 2017
Total comprehensive income
Issue of shares
Dividend relating to 2016
Dividend relating to 2017
Total equity at
31 December 2017
Share
capital
£000
5,917
Share
premium
£000
8,722
—
1
—
—
—
65
—
—
5,918
8,787
Equity at 1 January 2018
5,918
8,787
Total comprehensive income
Issue of shares
Dividend relating to 2017
Dividend relating to 2018
Total equity at
31 December 2018
—
1
—
—
—
117
—
—
5,919
8,904
Own
shares
£000
Capital
redemption
£000
Translation
reserve
£000
—
—
—
—
—
—
—
—
—
—
—
—
8
—
—
—
—
8
8
—
—
—
—
8
—
—
—
—
—
—
—
—
—
—
—
—
Capital
reserves
£000
662,307
82,718
—
—
—
Retained
earnings
£000
21,712
21,163
—
Total
£000
698,666
103,881
66
(13,582)
(13,582)
(6,499)
(6,499)
745,025
22,794
782,532
745,025
(82,994)
22,794
782,532
22,924
(60,070)
—
—
—
—
118
(13,942)
(13,942)
(7,090)
(7,090)
662,031
24,686
701,548
Capital reserves comprises realised and unrealised gains on investments held at fair value through profit or loss (see note 19).
F
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F I N A N C I A L S T A T E M E N T S
Statements of cash flows
for the year ended 31 December 2018
Operating activities
Operating (loss)/profit before interest payable and taxation
Losses/(gains) on investments
(Profit) on sale of unlisted investment
Foreign exchange
Depreciation of property, plant and equipment
Amortisation of intangible assets
Provision for impairment of goodwill
(Increase)/decrease in receivables
Increase/(decrease) in payables
Transfer (from) capital reserves
Normal pension contributions in excess of cost
Cash generated from operating activities
Taxation
Operating cash flow
Investing activities
Acquisition of property, plant and equipment
Expenditure on intangible assets
Purchase of investments
Sale of investments
Sale of unlisted investments
Return of capital from subsidiary undertakings
Cash flow from investing activities
Financing activities
Intercompany funding
Settlement of derivative financial instrument
Interest paid
Dividends paid
Proceeds of increase in share capital
Sale of own shares
Net cash flow from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Foreign exchange gains/(losses) on cash and cash equivalents
Cash and cash equivalents at end of period
66
2018
£000
(53,858)
84,911
—
(7)
93
85
—
(1,273)
(138)
(200)
(600)
29,013
(820)
28,193
(70)
(110)
(113,396)
102,166
—
—
GROUP
2017
£000
111,037
(79,267)
(3,275)
(13)
101
61
—
(137)
(2,000)
(142)
(800)
25,565
(1,035)
24,530
(74)
(149)
(80,356)
120,089
3,318
—
(11,410)
42,828
—
(1,390)
(5,748)
—
1,698
(5,916)
COMPANY
2018
£000
2017
£000
(54,521)
82,994
109,271
(82,718)
—
—
—
—
—
342
138
(200)
—
28,753
—
—
—
—
—
—
(569)
(297)
(142)
—
25,545
—
28,753
25,545
—
—
(113,396)
102,141
—
35,078
23,823
(5,757)
(1,390)
(5,549)
—
—
(80,356)
120,089
—
—
39,733
(8,492)
1,698
(5,390)
(21,032)
(20,081)
(21,032)
(20,081)
118
67
66
164
118
—
(27,985)
(24,069)
(33,610)
(11,202)
134,011
1,339
124,148
43,289
94,804
(4,082)
134,011
18,966
78,549
2,806
100,321
66
—
(32,199)
33,079
45,606
(136)
78,549
lawdebenture.com Notes to the accounts
for the year end 31 December 2018
1. Summary of significant accounting policies
General information
The Law Debenture Corporation p.l.c. is a public company incorporated in the United Kingdom. The address of the registered office
is given on page 53. The group’s operations and its principal activities are as an investment trust and the provider of independent
professional services.
Basis of preparation
The financial statements have been prepared on a going concern basis and under the historical cost basis of accounting, modified to
include the revaluation of investments and derivatives at fair value through profit or loss.
The financial statements of The Law Debenture Corporation p.l.c. and the group have been prepared in accordance with International
Financial Reporting Standards (IFRS), as adopted by the European Union.
Where presentational guidance set out in the Statement of Recommended Practice Financial Statements of Investment Trust Companies
and Venture Capital Trusts issued November 2014 and updated in February 2018 (SORP) is consistent with the requirements of IFRS, the
directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.
Critical accounting estimates and judgements
The preparation of the financial statements necessarily requires the exercise of judgement both in application of accounting policies which
are set out below and in the selection of assumptions used in the calculation of estimates. These estimates and judgements are reviewed
on an ongoing basis and are continually evaluated based on historical experience and other factors. However, actual results may differ from
these estimates. The most significantly affected component of the financial statements and associated critical judgements is as follows:
Defined benefit scheme
The calculation of the defined benefit scheme assets and obligations is sensitive to the assumptions used. The assumptions used are given
in note 24 to the financial statements.
The sensitivity to changes in assumptions and conditions which are significant to the calculation of the asset have been considered
and the following is an illustration of the potential impact.
Discount rate +0.1%
Inflation assumptions +0.1%
Life expectancy at 65 +1 year
RPI/CPI gap 1.1% instead of 1.0%
Increase/(decrease) in liability
at 31 December
2018
£ million
at 31 December
2017
£ million
(0.9)
0.7
(0.2)
2.0
(1.1)
0.8
2.0
(0.3)
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The directors take advice from an actuary when selecting assumptions.
New IFRSs, interpretations and amendments not yet effective
None of the new standards, interpretations or amendments, which are effective for the first time in these financial statements, has had a
material impact on the group financial statements.
The following relevant standards and interpretations were issued by the International Accounting Standards Board (IASB) or the IFRS
Interpretations Committee (IFRIC) before the period end:
IFRS 9
Financial Instruments (effective for annual periods beginning on or after 1 January 2018).
The group has applied IFRS 9 from 1 January 2018. Based on the group’s assessment, there has been no material financial
impact as a result of the implementation of IFRS 9. The following key areas have been assessed:
Classification – the classification of financial assets as “fair value through profit and loss” is unchanged.
Impairment – IFRS 9 replaced the ‘incurred loss’ model in IAS 39 with a forward looking ‘expected credit loss’ model. The impact
to the group will only be in relation to the impairment of trade and other receivables. The impairment assessment has been
made on a simplified approach basis and did not have any material impact on the financial assets of the group. There are no
other impairment impacts from the implementation of IFRS 9.
67
Notes to the accounts continued
for the year end 31 December 2018
1. Summary of significant accounting policies continued
New IFRSs, interpretations and amendments not yet effective continued
Long-term borrowings – continue to be recognised initially at fair value, which is generally the proceeds net of transaction costs
incurred. The difference between the proceeds net of transaction costs and the redemption value will continue to be recognised
in the income statement over the term of the borrowings using the effective interest rate method.
Hedge accounting – when initially applying IFRS 9, the group has choosen as its accounting policy to continue to apply the
hedge accounting requirements of IAS 39 instead of the requirements in Chapter 6 of IFRS 9. The group has elected to continue
to apply IAS 39. Disclosure of the hedge accounting in accordance with IFRS 9 will be made by the group.
IFRS 15 Revenue from contracts with customers (effective for annual periods beginning on or after 1 January 2018).
The group has applied IFRS 15 from 1 January 2018. Based on management’s assessment, there has been no material financial
impact as a result of the implementation of IFRS 15. Revenue is measured based on the consideration specified in a contract
with a customer and is recognised by the group when it transfers control over a service to a customer. Each of the revenue
streams generated by the IPS businesses has been assessed and no amendment to the current revenue recognition policy has
been required.
IFRS 16
Leases (effective for annual periods beginning on or after 1 January 2019).
The group is still assessing the likely impact on its financial statements. However, it is likely to have a significant impact on assets
and liabilities but may not have a significant impact on net assets. IFRS 16 will give rise to the recognition of an asset in respect
of leases currently treated as operating leases. Lease costs will be recognised in the form of depreciation and interest. See note
23 for details of the lease commitments.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of The Law Debenture Corporation p.l.c. and entities controlled
by the Company (its subsidiaries) made up to the end of the financial period. The Company controls an investment if all three of the
following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to
use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change
in any of these elements of control.
The assets, liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess
consideration over the fair values of the identifiable net assets acquired is recognised as goodwill.
Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. The financial
statements of subsidiaries are adjusted, where necessary, to ensure the accounting policies used are consistent with those adopted by
the group.
Presentation of income statement and statement of comprehensive income
In order to better reflect the activities of an investment trust company and in accordance with the SORP, supplementary information
which analyses the income statement and statement of comprehensive income between items of a revenue and capital nature has been
presented. Additionally, the net revenue is the measure the directors believe appropriate in assessing the group’s compliance with certain
requirements set out in Sections 1158-1159 of the Corporation Tax Act 2010.
Effective from 1 January 2019, the board has decided to alter the allocation of finance costs and investment management fees between
the revenue and the capital columns in the income statement to better reflect the expected split of future returns between income and
capital. Whereas previously all investment management fees and finance costs were allocated to the revenue column, from 1 January 2019
the proportional split will be:
• Revenue 25%
• Capital 75%
The change in allocation is not a change in accounting policy.
Segment reporting
Operating segments are components of an entity about which separate financial information is available that is evaluated regularly by
the directors in deciding how to allocate resources and in assessing performance. The group comprises two operating segments; the
investment trust and independent professional services business. This is consistent with internal reporting.
68
lawdebenture.com
Foreign currencies
Transactions recorded in foreign currencies are translated into sterling at the exchange rate ruling on the date of the transaction.
Assets and liabilities denominated in foreign currencies at the reporting date are translated into sterling at the exchange rate ruling at that
date. Gains and losses on translation are included in profit or loss for the period, however exchange gains or losses on investments held at
fair value through profit or loss are included as part of their fair value gain or loss.
The assets and liabilities of overseas subsidiaries are translated at exchange rates prevailing on the reporting date. Income and expenses of
overseas subsidiaries are translated at the average exchange rates for the period. Exchange differences arising from the translation of net
investment in foreign subsidiaries are recognised in the statement of comprehensive income and transferred to the group’s translation reserve.
Property, plant and equipment
All property, plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly
attributable to the acquisition of the item. Depreciation is calculated using the straight-line method to allocate the cost over the assets’
estimated useful lives as follows:
Leasehold improvements
over the remaining lease period
Office furniture and equipment
3-10 years
Intangible assets
Computer software
Computer software is capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are
amortised over their estimated useful lives of between three and five years.
Goodwill
Goodwill arising on consolidation represents the excess of the cost of acquisition over the group’s interest in the fair value of the identifiable
assets and liabilities of a subsidiary at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured
at cost less any accumulated impairment losses. Goodwill which is recognised as an asset is reviewed for impairment at least annually. Any
impairment would be recognised in profit or loss and is not subsequently reversed.
Impairment of assets
An impairment loss is recognised for the amount by which an asset’s carrying amount exceeds its recoverable amount. Assets are reviewed on a
regular basis and tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Financial instruments
Investments
Listed and unlisted investments, which comprise the investment trust portfolio, have been designated as investments held at fair value
through profit or loss. Purchases and sales of listed and unlisted investments are recognised on the date on which the group commits to
purchase or sell the investment. Investments are initially recognised at fair value and transaction costs are expensed as incurred. Gains and
losses arising from listed and unlisted investments, as assets at fair value through profit or loss, are included in the income statement in
the period in which they arise.
The fair value of listed investments is based on quoted market prices at the reporting date. The quoted market price used is the bid price.
The fair value of unlisted investments is determined by the directors with reference to the International Private Equity and Venture Capital
Valuation (IPEV) guidelines (December 2018).
Gains and losses on investments and direct transaction costs are analysed within the income statement as capital. All other costs of the
investment trust are treated as revenue items.
Trade receivables
Trade receivables do not carry any interest and are stated at their nominal value as reduced by appropriate allowances for estimated
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irrecoverable amounts.
Trade payables
Trade payables are not interest bearing and are stated at their nominal value.
Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held with banks and other short-term highly liquid investments with original
maturities of three months or less.
69
Notes to the accounts continued
for the year end 31 December 2018
1. Summary of significant accounting policies continued
Financial instruments continued
Borrowings
Borrowings are recognised initially at fair value, which is generally the proceeds net of transaction costs incurred. The difference between
the proceeds net of transaction costs and the redemption value is recognised in the income statement over the term of the borrowings
using the effective interest rate method, so as to generate a constant rate of return on the amount outstanding.
Hedge accounting
The group had designated US dollar/sterling foreign exchange forward swaps as hedging instruments to hedge the net investment in its
US operations. The hedges were documented at the inception of the relationships and were reviewed on an ongoing basis to assess the
effectiveness of the hedges.
The gain or loss on the hedging instruments relating to the effective portion of the hedges was recognised in other comprehensive income
and accumulated in the translation reserve. Following the return of capital from a US subsidiary, these instruments were fully settled in
September 2018.
Share capital
Ordinary shares are classified as equity. The ordinary shares of the Company which have been purchased by the Employee Share
Ownership Trust (ESOT) to provide share based payments to employees are valued at cost and deducted from equity.
Taxation
Current tax is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statement because it
excludes items of income or expense which are either never taxable or deductible or are taxable or deductible in other periods. The
group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the year end date.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the consolidated financial statements.
Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which deductible temporary differences can be utilised.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the group is able
to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each year end date and reduced to the extent that it is no longer probable that
sufficient taxable profits will be available to recover the asset.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is expected to be settled or the asset is
expected to be realised based on tax rates that have been enacted or substantively enacted at the year end date.
Deferred tax assets and liabilities are offset when the group has a legally enforceable right to do so and presented as a net number on the
face of the balance sheet.
Revenue recognition
Dividend income
Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established.
Interest income
Interest income is accrued on a time basis using the effective interest rate applicable.
IPS income
The group has disaggregated the IPS revenue into various categories below which depict the nature, amount, timing, and uncertainty of
revenue and cash flows.
Annual income
Annual income is derived from the provision of annual trustee services rendered net of any value added tax based on a contracted fee
amount. The performance obligations are services provided in the creation of the trust or the structure and the obligations set out in the
trust deed or service agreement. The timing of the transfer of goods and services is over time based on the period of service. Revenue is
recognised over the period of service where amounts which are not recognised in the financial period are deferred. Amounts are mostly
billed and paid on a monthly basis.
Pension income
Pension income is the total revenue charged to schemes based on the number of billable hours recorded at a contracted chargeable rate.
The performance obligations are to provide the time of professional trustees to the pension trust and the timing of transfer of goods and
70
lawdebenture.com services are at that point in time. The revenue is recognised in the accounting period in which the time has been recorded with amounts
mostly billed and paid on a quarterly basis.
Service of process and acceptance fee income
Revenues are derived from acceptance of new business based on the fee charged, which is considered to be the transaction price. For
service of process, the performance obligation is being appointed as process agent for the client, who is the contract counter party. In
both instances the timing of transfer of goods and services is at that point of time, with revenue recognised in the accounting period the
transaction occurs net of any value added tax. Amounts are billed and paid on a monthly basis.
Employee benefits
Pension costs
The group operates a defined benefit pension plan, which was closed to new members and future accrual on 31 December 2016. The
cost of providing benefits under the plan is determined using the projected unit credit method, with independent actuarial calculations
being carried out at each year end date. Actuarial gains and losses are recognised in full in the period in which they occur through other
comprehensive income.
The asset recognised in the statement of financial position in respect of the defined benefit plan is the present value of the defined benefit
obligation at the year end date less the fair value of the plan assets.
In addition the group operates defined contribution plans, where the cost recognised is the contributions paid in respect of the year.
Profit share schemes
The group recognises provisions in respect of its profit share schemes when contractually obliged or when there is a past practice that has
created a constructive obligation.
Share based plans
The group has awarded share options to executives and the group makes equity based awards to executives.
Reserves
A description of each of the reserves follows:
Share premium
This reserve represents the difference between the issue price of shares and the nominal value of shares at the date of issue,
net of related issue costs.
Capital redemption
This reserve was created on the cancellation and repayment of the Company’s share capital.
Own shares
This represents the cost of shares purchased by the ESOT.
Capital reserves
The following are dealt with through this reserve:
• gains and losses on realisation of investments; and
• changes in fair value investments which are readily convertible to cash.
Retained earnings
Net revenue profits and losses of the Company and its subsidiaries and the fair value costs of share based payments which are revenue in
nature are dealt with in this reserve.
Translation reserve
This reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries and the
gains or losses on hedging instruments relating to the effective portion of the hedge related to the net investment in foreign subsidiaries.
Leases
Operating leases
Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. Payments made
under operating leases, net of incentives received from the lessor, are charged to the income statement on a straight-line basis over the
period of the lease.
Dividend distribution
Dividends are recognised when they become legally payable. In the case of interim dividends to equity shareholders, this is when paid. In the
case of final dividends, this is when approved by the shareholders.
71
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Notes to the accounts continued
for the year end 31 December 2018
2. Net capital gain/(loss) on investments
Realised gains based on historical cost
Amounts recognised as unrealised in previous years
Realised gains based on carrying value at previous year end date
Unrealised loss on investments
Realised gain on sale of unlisted investment
Transfers (to) revenue
2018
£000
2017
£000
38,273
60,439
(34,390)
(40,046)
3,883
(87,984)
(84,101)
—
(200)
(84,301)
20,393
62,698
83,091
(3,275)
(142)
79,674
During August 2017 the group completed the disposal of its minority interest in an unlisted investment within the IPS business segment
(“Nordic Trustee Holding ASA”). The consideration received of £3,318,000 resulted in a gain on disposal of £3,275,000 (investment held at
original cost of £43,000).
3. Administrative expenses
Administrative expenses include:
Salaries and directors’ fees
Social security costs
Other pension costs
Investment management fee
Depreciation – property, plant and equipment
Amortisation – intangible assets
Operating leases – land and buildings
Foreign exchange
Auditors’ remuneration
2018
£000
11,953
1,211
800
13,964
2,144
93
85
1,147
(21)
193
2017
£000
10,249
1,351
730
12,330
2,032
101
61
1,214
10
193
During the year, the group employed an average of 123 staff (2017: 120). All staff are engaged in the provision of independent professional
services. The Company has no employees.
Details of the terms of the investment management agreement are provided on page 25 of the strategic report.
Administrative expenses charged to capital are transaction costs and foreign exchange differences on the purchase of investments held at
fair value through profit or loss.
Cost of sales represents legal charges which are recovered as part of fees.
A more detailed analysis of the auditors’ remuneration on a worldwide basis is provided below:
Audit services
– fees payable to the Company’s auditors for the audit of its financial statements*
– audit related regulatory
2018
£000
179
14
193
2017
£000
177
16
193
* Including the Company £32,000 (2017: £37,000)
A description of the work of the audit committee is set out in the audit committee report on pages 40 to 41 and includes an explanation of
how auditor objectivity and independence is safeguarded when non-audit services are provided by the auditors.
72
lawdebenture.com 4. Provision for onerous contracts
GROUP
At 1 January
(Release) made in the year
Utilisation of provision in the year
Foreign exchange
At 31 December
2018
£000
1,667
(319)
(1,131)
19
236
2017
£000
3,106
(245)
(1,131)
(63)
1,667
In December 2016 the group completed the disposal of substantially all of its US corporate trust business for a consideration of $1. The
disposal was the completion of the first part of a strategy to exit the US corporate trust business, so as to release $50 million of capital
required by the business. At the time of disposal the contracts remaining were assessed and deemed to generate insufficient income to
cover the costs of running and financing the remainder of the business up to the eventual date of its closure. A provision for onerous costs
of £3,106,000 representing the expected net future costs up to the date of disposal or completion of the remaining contracts was included
in the year ended 31 December 2016. The remaining provision at 31 December 2018 comprises of the expected net running costs (including
the cost of closure) of $300,000 (2017: $725,000). A reassessment of the provision required at December 2018 resulted in a release of
£319,000 (2017: release of £245,000).
5. Remuneration of directors (key management personnel)
The remuneration of the directors, who are the key management personnel of the group, comprises the following:
Short-term benefits including fees in respect of non-executive directors
Deferred share bonus scheme
Details for each individual director are shown in the remuneration report on pages 49 and 50.
6. Interest
Interest Income
Interest on bank deposits
Returns on money market funds
Interest payable
Interest on pension scheme (net)
Implied interest on derivative financial instruments
Interest on long-term debt
Utilisation of onerous provision in the year (see note 4)
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N
T
S
2018
£
2017
£
842,977
716,300
—
—
842,977
716,300
2018
£000
1
479
480
—
471
5,277
(1,131)
(4,617)
2017
£000
1
138
139
100
539
5,277
(1,131)
4,785
Interest (net)
(4,137)
(4,646)
73
Notes to the accounts continued
for the year end 31 December 2018
7. Segment analysis
Investment trust
Independent
professional services
Group charges
Total
31 December
2018
£000
31 December
2017
£000
31 December
2018
£000
31 December
2017
£000
31 December
2018
£000
31 December
2017
£000
31 December
2018
£000
31 December
2017
£000
Revenue
Segment income
23,199
21,463
33,252
Net gain on investments
Other income
Cost of sales
—
169
—
—
95
—
31,021
3,275
249
—
7
(3,668)
(3,875)
Administration costs
(3,360)
(3,274)
(19,345)
(17,568)
Release of onerous contracts
—
20,008
(4,372)
Interest (net) (note 6)
Return, including profit
on ordinary activities
—
18,284
(4,561)
—
10,246
235
—
13,102
(85)
—
—
—
—
—
319
319
—
—
—
—
—
—
245
245
—
56,451
52,484
—
176
3,275
344
(3,668)
(3,875)
(22,705)
(20,842)
319
30,573
245
31,631
(4,137)
(4,646)
before taxation
15,636
13,723
Taxation
—
—
10,481
(1,183)
13,017
(1,287)
319
(135)
245
(104)
26,436
26,985
(1,318)
(1,391)
Return, including profit
attributable to shareholders
15,636
13,723
9,298
11,730
184
141
25,118
25,594
Revenue return per
ordinary share (pence)
13.23
11.61
7.87
9.93
Assets
Liabilities
764,771
816,595
39,312
67,613
(121,239)
(90,152)
(13,345)
(44,358)
Total net assets
643,532
726,443
25,967
23,255
0.16
100
(235)
(135)
0.12
227
21.26
21.66
804,183
884,435
(1,667)
(134,819)
(136,177)
(1,440)
669,364
748,258
The capital element of the income statement is wholly attributable to the investment trust. Details regarding the segments are included
on page 3 – Group summary and in note 1 – Segment reporting on page 69.
Other information
Capital expenditure
Depreciation/amortisation
Investment trust
Independent
professional services
Total
31 December
2018
£000
31 December
2017
£000
31 December
2018
£000
31 December
2017
£000
31 December
2018
£000
31 December
2017
£000
—
—
—
—
180
178
223
162
180
178
223
162
Group charges before taxation during the year comprised the following:
Closure of the US trust business:
Release for onerous contracts (see note 4)
74
2018
£000
2017
£000
319
319
245
245
lawdebenture.com 8. Taxation
Taxation based on revenue for the year comprises:
UK Corporation tax at 19.0% (2017: 19.25%)
Overseas tax charge
Total current tax charge
Deferred tax charge
Charge for the year
Taxation
The charge for the year can be reconciled to the profit per the income statement as follows:
Profits before taxation
Tax on ordinary activities at standard rate 19.0% (2017: 19.25%)
Effects of:
Expenses not deductible for tax purposes
Higher rates of tax on overseas income
Non-taxable capital (gains)/losses
Tax credit on dividend income
Limit on group relief for UK interest expense
Prior year (over)/under provision in respect of current tax
Prior year (over) provision in respect of deferred tax
Deferred tax on movement in provision for onerous contracts
2018
£000
816
203
1,019
299
1,318
2018
£000
(58,475)
(11,110)
10
44
16,133
(4,231)
591
16
—
(135)
1,318
2017
£000
824
255
1,079
312
1,391
2017
£000
106,252
20,454
47
84
(15,259)
(4,087)
412
(100)
(56)
(104)
1,391
The group expects that a substantial portion of its future income will continue to be in the form of dividend receipts and capital gains
and losses, which constitute non-taxable income. On this basis, the group tax charge is expected to remain significantly different to the
standard UK rate of 19.0%.
Deferred Tax
The following are the major deferred tax liabilities and assets recognised by the group and movements thereon during the current and
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prior reporting period.
GROUP
Deferred tax assets/(liabilities)
At 1 January 2017
(Charge) to income
(Charge) to other comprehensive income
Foreign exchange
At 1 January 2018
(Charge) to income
(Charge) to other comprehensive income
Foreign exchange
At 31 December 2018
Accelerated tax
depreciation
£000
Retirement
benefit
obligations
£000
875
(160)
—
(44)
671
(185)
—
—
486
437
(152)
(342)
—
(57)
(114)
(304)
—
(475)
Total
£000
1,312
(312)
(342)
(44)
614
(299)
(304)
—
11
In accordance with the accounting policy, deferred tax is calculated at the tax rates that are expected to apply to the reversal. Overseas
taxes reflect the current rate, whilst UK taxes are at the enacted rate of 19.0%. A deferred tax asset has not been recognised in respect of
overseas losses of £1,187,400 (2017: £1,198,480) as their usability cannot be predicted with reasonable certainty.
75
Notes to the accounts continued
for the year end 31 December 2018
9. Dividends on ordinary shares
Dividends on ordinary shares comprise the following:
2018 Interim 6.00p (2017: 5.50p)
2017 Final 11.80p (2017: 11.50p)
Total for year
Proposed final dividend for the year ended 31 December 2018
2018
£000
2017
£000
7,090
13,942
21,032
15,249
6,499
13,582
20,081
The proposed final dividend is subject to approval by shareholders at the annual general meeting and has not been included as a liability
in these financial statements.
Set out below is the total dividend payable in respect of the financial year, which is the basis on which the requirements of Sections 1158-
1159 of the Corporation Tax Act 2010 are considered.
2018 Interim 6.00p (2017: 5.50p)
2018 Final 12.90p (2017: 11.80p)
2018
£000
7,090
15,249
22,339
2017
£000
6,499
13,943
20,442
On this basis, The Law Debenture Corporation p.l.c. satisfies the requirements of Sections 1158-1159 of the Corporation Tax Act 2010, as an
approved investment trust company. Dividends have been waived in respect of the shares owned by the ESOT (see note 18).
10. Net asset value/return per share
NAV per share is calculated based on 118,205,909 (2017: 118,160,055) shares, being the total number of shares in issue of 118,381,667 (2017:
118,358,244), less 175,758 (2017: 198,189) shares, acquired by the ESOT in the open market. The net asset value of £725,863,000 (2017:
£791,089,000) comprises the NAV per the balance sheet of £669,364,000, (2017: £748,258,000) plus the fair value adjustment to for the IPS
business of £78,439,000, (2017: £72,757,000) less the fair value adjustment for the debt of £21,940,000, (2017: £29,926,000).
Revenue return per share is based on profits attributable of £25,118,000 (2017: £25,594,000).
Capital return per share is based on capital losses for the year of £84,911,000 (2017: gains £79,267,000).
Total return per share is based on loss for the year of £59,793,000 (2017: gain £104,861,000).
The calculations of returns per share are based on 118,174,550 (2017: 118,136,983) shares, being the weighted average number of shares
in issue during the year after adjusting for shares owned by the ESOT. In 2018, total revenue and capital diluted returns per share were
calculated using 118,187,923 shares (2017: 118,156,483 shares), being the diluted weighted average number of shares in issue assuming
exercise of options at less than fair value. There were 83,061 (2017: 32,776) antidilutive shares.
11. Goodwill
GROUP
Cost
At 1 January
Foreign exchange
At 31 December
Provision for impairment
At 1 January
Provision in year
Foreign exchange
At 31 December
Net book value at 31 December
76
2018
£000
2,339
58
2,397
419
—
26
445
2017
£000
2,427
(88)
2,339
459
—
(40)
419
1,952
1,920
lawdebenture.com The goodwill is identifiable with separate operating companies (Safecall Limited: £1,419,000; and Delaware Corporate Services Inc.:
£533,000). At 31 December 2018 the goodwill in relation to the operating companies was reviewed. The review assessed whether the
carrying value of goodwill was supported by the net present value of future cash flows based on management forecasts for 2018.
The review for Safecall was assessed using annual growth for five years of 5% with no terminal growth, which is based on current
expectations and a discount rate of 9% (2017: 9%). Sensitivity analysis was also completed using annual growth of 2% and a discount rate
of 10% and on neither basis was the goodwill considered to be impaired.
The review of Delaware Corporate Services Inc. was assessed using annual growth for five years of 5% with no terminal growth, which is
based on current expectations and a discount rate of 9% (2017: 9%). Sensitivity analysis was also completed using annual growth of 2%
and a discount rate of 10% and on neither basis was the goodwill considered to be impaired (2017: nil).
12. Property, plant and equipment
GROUP
Cost
At 1 January
Additions at cost
Foreign exchange
At 31 December
Accumulated depreciation
At 1 January
Foreign exchange
Charge
At 31 December
Net book value at 31 December
Office
improvements
£000
Furniture &
equipment
£000
866
33
—
899
848
7
33
888
11
1,791
37
8
1,836
1,680
7
60
1,747
89
2018
Total
£000
2,657
70
8
2,735
2,528
14
93
2,635
100
Office
improvements
£000
Furniture &
equipment
£000
881
—
(15)
866
830
(11)
29
848
18
1,735
74
(18)
1,791
1,625
(17)
72
1,680
111
2017
Total
£000
2,616
74
(33)
2,657
2,455
(28)
101
2,528
129
The Company holds no property, plant and equipment.
13. Other intangible assets
GROUP
Cost
At 1 January
Additions at cost
At 31 December
Accumulated amortisation
At 1 January
Foreign exchange
Charge
At 31 December
Net book value at 31 December
The Company holds no other intangible assets.
Computer
software
2018
£000
Computer
software
2017
£000
1,682
110
1,792
1,521
—
85
1,606
186
1,533
149
1,682
1,463
(3)
61
1,521
161
77
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A
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E
N
T
S
Notes to the accounts continued
for the year end 31 December 2018
14. Investments
Investments held at fair value through profit or loss
GROUP
Opening cost at 1 January
Gains at 1 January
Opening fair value at 1 January
Purchases at cost
Cost of acquisition
Sales – proceeds
Return of capital from subsidiary
(Losses)/gains in the income statement
Closing fair value at 31 December
Closing cost at 31 December
Gains
Closing fair value at 31 December
COMPANY
Opening cost at 1 January
Gains at 1 January
Opening fair value at 1 January
Purchases at cost
Cost of acquisition
Sales – proceeds
Return of capital from subsidiary
(Losses)/gains in the income statement
Closing fair value at 31 December
Closing cost at 31 December
Gains
Closing fair value at 31 December
Listed
£000
482,125
249,872
731,997
113,396
(408)
(102,141)
38,273
(122,608)
658,509
531,245
127,264
658,509
Listed
£000
487,223
244,774
731,997
113,396
(408)
(102,141)
38,273
(122,608)
658,509
536,343
122,166
658,509
Unlisted
£000
3,572
303
3,875
—
—
(25)
—
234
4,084
3,547
537
4,084
Unlisted
£000
3,333
303
3,636
—
—
—
—
234
3,870
3,333
537
3,870
2018
Total
£000
Listed
£000
Unlisted
£000
485,697
464,942
250,175
735,872
113,396
(408)
227,180
692,122
80,356
(248)
3,615
343
3,958
—
—
2017
Total
£000
468,557
227,523
696,080
80,356
(248)
(102,166)
(120,089)
(3,318)
(123,407)
38,273
(122,374)
662,593
534,792
127,801
662,593
2018
Total
£000
57,164
22,692
731,997
482,125
249,872
731,997
3,275
(40)
3,875
3,572
303
3,875
Listed
£000
Unlisted
£000
490,556
470,040
245,077
735,633
113,396
(408)
222,082
692,122
80,356
(248)
(102,141)
(120,089)
38,273
(122,374)
662,379
539,676
122,703
662,379
57,164
22,692
731,997
487,223
244,774
731,997
3,333
343
3,676
—
—
—
—
(40)
3,636
3,333
303
3,636
60,439
22,652
735,872
485,697
250,175
735,872
2017
Total
£000
473,373
222,425
695,798
80,356
(248)
(120,089)
57,164
22,652
735,633
490,556
245,077
735,633
Listed investments are all traded on active markets and as defined by IFRS 13 are Level 1 financial instruments. As such they are valued at
unadjusted quoted bid prices. Unlisted investments are Level 3 financial instruments. They are valued by the directors using unobservable
inputs including the underlying net assets of the investments. There were no transfers in or out of Level 3 during the year.
Investments in subsidiary undertakings – Company
Cost
At 1 January
Capital redemption
At 31 December
2018
£000
2017
£000
96,311
(35,078)
61,233
96,311
—
96,311
The cost of subsidiary undertakings includes capital contributions and as a consequence is not comparable to the fair value of the IPS
business. Further details of the capital redemption in subsidiary undertakings can be found on page 29, which sets out the return of
capital by a subsidiary entity.
78
lawdebenture.com Fair valuation of the IPS
The fair value of the IPS business relates to all of the wholly owned subsidiaries of the Company, with the exception of Law Debenture
Finance p.l.c. The directors have chosen to provide a fair valuation of the IPS business, which is not included within the financial
statements, to assist the users of the annual report. The fair valuation is used in preparing performance data for the group. The fair value
is determined using unobservable inputs (including the group’s own data), which represent Level 3 inputs. The directors’ estimate of fair
value uses the guidelines and methodologies on valuation published by the International Private Equity and Venture Capital Association.
The fair valuation of IPS is based upon the historic earnings before interest, taxation, depreciation and amortisation (EBITDA), an
appropriate multiple and the surplus net assets of the business at their underlying fair value. The multiple applied in valuing IPS is from
comparable companies sourced from market data, with appropriate adjustments to reflect the difference between the comparable
companies and IPS in respect of growth, margin, size and liquidity.
Fair valuation of IPS
EBITDA at a multiple of 8.4 (2017: 7.9)
Surplus net assets
2018
£000
87,562
16,844
104,406
2017
£000
77,396
17,176
94,572
An increase or decrease of 1 in the multiple would give rise to a £10.4 million change in the fair valuation of the IPS. The adjustment to NAV
to reflect the IPS fair value is an increase of 66.36p per share (2017: 61.57p).
Subsidiaries and related undertakings
The following is a list of all of the subsidiaries within the Law Debenture group. Each of them is 100% owned within the group and has been
consolidated in the group accounts. Subsidiaries held directly by the Company are in bold. Unless indicated, all subsidiaries are incorporated
and have their registered office in the United Kingdom at Fifth Floor, 100 Wood Street, London EC2V 7EX. The addresses of overseas
registered companies appear at page 92. All shares issued by group subsidiaries are ordinary shares. The Company and the group do not have
any significant holdings in any qualifying undertakings other than the subsidiary undertakings listed below.
L.D. Pension Plan Trustee Limited
L.D.C. Trust Management Limited
Law Debenture (No. 2 Scheme) Trust Corporation
Law Debenture (No. 3 Scheme) Pension Trust Corporation
Law Debenture Investment Management Limited
The Law Debenture (No. 5) Trust Corporation
Law Debenture (Independent Professional Services) Limited
The Law Debenture (1996) Pension Trust Corporation
Beagle Nominees Limited
The Law Debenture (Airborne) Pension Trust Corporation
The Law Debenture Trust Corporation p.l.c.
The Law Debenture (BAA) Pension Trust Corporation
The Law Debenture Pension Trust Corporation p.l.c.
The Law Debenture (BIS Management) Pension Trust Corporation
Pegasus Pension plc
The Law Debenture (BIS Retirement) Pension Trust Corporation
Law Debenture Corporate Services Limited
The Law Debenture (Freemans) Trust Corporation
Law Debenture Trustees Limited
The Law Debenture (GS) Pension Trust Corporation
The Law Debenture Intermediary Corporation p.l.c.
The Law Debenture (Intel Old Plan) Pension Trust Corporation
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Law Debenture Overseas No. 1 Limited
The Law Debenture (SAPP) Pension Trust Corporation
Law Debenture Finance p.l.c.
The Law Debenture (JLPF) Pension Trust Corporation
Law Debenture Securitisation Services Limited
The Law Debenture (JLPP) Pension Trust Corporation
LDPTC Nominees Limited
The Law Debenture (JGRP) Pension Trust Corporation
Law Debenture Governance Services Limited
The Law Debenture (JGSPS) Pension Trust Corporation
Safecall Limited
Safecall Training Limited
The Law Debenture (JIC) Pension Trust Corporation
The Law Debenture (KBPP) Pension Trust Corporation
The Whistleblowing Company Limited
The Law Debenture (KGPP) Pension Trust Corporation
The Sole Trustee plc
The Law Debenture (LBS) Pension Trust Corporation
The Law Debenture Corporation (Deutschland) Limited
The Law Debenture (Swiss Re GB) Trust Corporation
L.D.C. Latvia Limited
Law Debenture (Ocean) Trust Corporation
Law Debenture Trustee for Charities
Law Debenture (Odyssey) Trust Corporation
Law Debenture (No. 1 Scheme) Trust Corporation
The Law Debenture (SRL) Pension Trust Corporation
79
Notes to the accounts continued
for the year end 31 December 2018
14. Investments continued
The Law Debenture (Stena Line EPS) Pension Trust Corporation
The Law Debenture Corporation (HK) Limited
The Law Debenture (Tootal) Trust Corporation
Law Debenture (GWR) Pension Trust Corporation
The Law Debenture (JGDBS) Pension Trust Corporation
ICI Pensions Trustee Limited
Morgan Crucible Pension Trustees Limited
AstraZeneca Pensions Trustee Limited
(incorporated/registered office in Hong Kong)
Law Debenture Trust (Asia) Limited
(incorporated/registered office in Hong Kong)
Law Debenture China Limited
(incorporated/registered office in Hong Kong)
Law Debenture Services (HK) Limited
(incorporated/registered office in Hong Kong)
Law Debenture MC Senior Pension Trust Corporation
The Law Debenture Trust Corporation (Channel Islands) Limited
ICI Specialty Chemicals Pensions Trustee Limited
(incorporated/registered office in Jersey)
RTL Shareholder SVC Limited
The Law Debenture Trust Corporation (Cayman) Limited
Billiton SVC Limited
DLC SVC Limited
LDC (NCS) Limited
Terrier Services Limited
L.D.C. Securitisation Director No. 1 Limited
L.D.C. Securitisation Director No. 2 Limited
L.D.C. Securitisation Director No. 3 Limited
L.D.C. Securitisation Director No. 4 Limited
L.D.C. Corporate Director No. 1 Limited
L.D.C. Corporate Director No. 2 Limited
L.D.C. Corporate Director No. 3 Limited
L.D.C. Corporate Director No. 4 Limited
L.D.C. Corporate Director No. 5 Limited
CD Corporate Director No. 1 Limited
CD Corporate Director No. 2 Limited
LDC Nominee Director No. 1 Limited
LDC Nominee Director No. 2 Limited
LDC Nominee Secretary Limited
LDC DR Trustee Limited
LDC DR Nominees Limited
L.D.C. (SPV No.1) Limited
LD (Holdco) Limited
LD (Bidco) Limited
15. Trade and other receivables
(incorporated/registered office in the Cayman Islands)
The Law Debenture Trust Company of New York
(incorporated/registered office in the USA)
Law Debenture Corporate Services Inc.
(incorporated/registered office in the USA)
Law Debenture Holdings Inc.
(incorporated/registered office in the USA)
Delaware Corporate Services Inc.
(incorporated/registered office in the USA)
Law Debenture (Ireland) Limited
(incorporated/registered office in the Republic of Ireland)
Law Debenture Ireland (Trustees) Limited
(incorporated/registered office in the Republic of Ireland)
Law Debenture Holdings (Ireland) Limited
(incorporated/registered office in the Republic of Ireland)
LDI (OCS) Limited
(incorporated/registered office in the Republic of Ireland)
Registered Shareholder Services No.1 Limited
(incorporated/registered office in the Republic of Ireland)
Registered Shareholder Services No.2 Limited
(incorporated/registered office in the Republic of Ireland)
Registered Shareholder Services No.3 Limited
(incorporated/registered office in the Republic of Ireland)
BHP SVC PTY Limited
(incorporated/registered office in Australia)
The carrying value represents trade and other receivables which are not impaired. The directors consider that the carrying value
approximates to the fair value. Allowances for impairment are determined by reference to past experience.
The group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss provision for
trade receivables. To measure expected credit losses trade receivables are grouped based on similar risk characteristics and aging.
The expected loss rates are based on the group’s historical credit losses experienced over the two year period prior to the period
end. The historical loss rates are then adjusted for current and forward-looking information on macroeconomic factors affecting the
group’s customers.
Contract assets and contract liabilities are included within “other accrued income and prepaid expenses” and “deferred income”
respectively on the face of the statement of financial position. They arise from the group’s IPS business which enters into contracts that
can take more than one year to complete.
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lawdebenture.com
16. Cash and cash equivalents
These comprise cash held at bank by the group, short-term bank deposits with an original maturity of three months or less and money
market funds with immediate access. The carrying value of these assets approximates to their fair value.
17. Trade and other payables
Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit
period taken for trade purchases is 30 days.
The directors consider that the carrying value of trade and other payables approximates to their fair value, due to their age.
18. Called up share capital
Allotted, issued and fully paid share capital - Group and Company
Value
As at 1 January
Issued in year
As at 31 December
Shares
As at 1 January
Issued in year
As at 31 December
2018
£000
5,918
1
5,919
2017
£000
5,917
1
5,918
Number
Number
118,358,244
118,344,399
23,423
13,845
118,381,667
118,358,244
During the year to 31 December 2018, 23,423 shares were allotted under the SAYE scheme for a total consideration of £117,336 which
includes a premium of £116,165.
During the year, 53,815 options were granted under the Company’s SAYE scheme. At 31 December 2018, options under the SAYE scheme
exercisable from 2018 to 2024 at prices ranging from 499.50p to 606.00p per share were outstanding in respect of 180,221 ordinary shares
(2017: 158,062 ordinary shares). During 2018, 8,233 options lapsed or were cancelled (2017: 29,595) and 23,423 (2017: 13,845) were exercised.
Further details of options outstanding are given in the directors’ report on page 33.
Own shares held - Group
Value
Own shares held - cost
2018
£000
2017
£000
966
1,033
The own shares held represent the cost of 175,758 (2017: 198,189) ordinary shares of 5p each in the Company, acquired by the ESOT in
the open market. The shares have been acquired to meet the requirements of the Deferred Share Plan. The dividends and voting rights
relating to the shares have been waived while the relevant shares remain in trust, in accordance with the Plan rules. The market value
of the shares at 31 December 2018 was £949,093 (2017: £1,246,609). Subject to shareholder approval at the 2019 AGM, dividends will be
receivable on shares held in trust and re-invested by the trustee into Law Debenture shares. These will be released to award holders at the
same time as the underlying shares.
81
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Notes to the accounts continued
for the year end 31 December 2018
19. Capital reserves
GROUP
At 1 January
Transfer on disposal of investments
Net gains on investments
Realised gain on sale of unlisted investment
Cost of acquisition
Foreign exchange
Transfers (to) revenue
At 31 December
COMPANY
At 1 January
Transfer on disposal of investments
Net gains on investments
Cost of acquisition
Foreign exchange
Transfers (to) revenue
At 31 December
20. Financial instruments
Unrealised
appreciation
£000
Realised
reserves
£000
2018
Total
£000
Unrealised
appreciation
£000
Realised
reserves
£000
2017
Total
£000
244,457
(34,390)
(87,984)
—
(408)
(202)
(200)
443,887
688,344
222,354
386,723
609,077
34,390
3,883
—
(40,046)
(84,101)
62,698
—
—
—
—
—
(408)
(202)
(200)
—
(248)
(159)
(142)
40,046
20,393
(3,275)
—
—
—
—
83,091
(3,275)
(248)
(159)
(142)
121,273
482,160
603,433
244,457
443,887
688,344
Unrealised
appreciation
£000
Realised
reserves
£000
2018
Total
£000
Unrealised
appreciation
£000
Realised
reserves
£000
2017
Total
£000
235,821
509,204
745,025
210,267
452,040
662,307
(34,390)
(87,984)
(408)
1,715
(200)
34,390
3,883
—
—
—
—
(40,046)
40,046
—
(84,101)
62,698
17,118
79,816
(408)
1,715
(200)
(248)
3,292
(142)
—
—
—
(248)
3,292
(142)
114,554
547,477
662,031
235,821
509,204
745,025
The group’s investment objective is to achieve long-term capital growth through investing in a diverse portfolio of investments. In pursuit
of this objective, the group has the power to deploy the following financial instruments:
• Quoted equities, unlisted equities and fixed interest securities
• Cash and short-term investments and deposits
• Debentures, term loans and bank overdrafts to allow the group to raise finance
• Derivative transactions to manage any of the risks arising from the use of the above instruments
• Derivative transactions to hedge the net investment in overseas subsidiaries
It remains the group’s policy that no trading in derivatives is undertaken. Information in respect of the investment portfolio is included on
pages 12 to 22.
Capital management
The Company is not allowed to retain more than 15% of its income from shares and securities each year and has a policy to increase
dividends. However revenue profits are calculated after all expenses. Distributions will not be made if they inhibit the investment strategy.
The investment strategy of the Company is disclosed on page 24 and includes a ceiling on effective gearing of 50%, with a typical range of
10% net cash to 20% gearing.
Capital is represented by the group’s net assets.
82
lawdebenture.com The group and Company held the following categories of financial assets and liabilities at 31 December 2018:
GROUP
Assets
Financial assets held at fair value through profit or loss:
Equity investments
Financial assets held at amortised cost
Trade and other receivables
Cash and cash equivalents
Total financial assets
Liabilities
Derivative financial instruments at fair value
Financial liabilities measured at amortised cost
Trade and other payables
Long-term borrowings
Total financial liabilities
COMPANY
Assets
Financial assets held at fair value through profit or loss:
Equity investments
Financial assets held at amortised cost
Trade and other receivables
Cash and cash equivalents
Total financial assets
Liabilities
Derivative financial instruments at fair value
Financial liabilities measured at amortised cost
Amounts owed to subsidiary undertakings
Trade and other payables
Long-term borrowings
Total financial liabilities
2018
£000
2017
£000
662,593
735,872
6,925
124,148
131,073
6,417
134,011
140,428
793,666
876,300
—
299
11,888
114,112
126,000
126,000
11,649
114,068
125,717
126,016
2018
£000
2017
£000
662,379
735,633
384
100,321
100,705
763,084
1,000
78,549
79,549
815,182
—
299
47,840
1,404
74,534
123,778
123,778
53,597
1,385
74,516
129,498
129,797
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Notes to the accounts continued
for the year end 31 December 2018
20. Financial instruments continued
Derivative financial instruments
Fair value of hedge instrument
2018
£000
—
2017
£000
299
The hedge instrument was put in place to hedge US$50m of regulatory capital required by a US subsidiary engaged in corporate trust
business. Following the sale of substantially all of the US corporate trust business at the end of 2016, the regulatory capital requirement
ceased to apply in 2018 and the capital was returned to the UK. The swap that had been put in place to hedge this investment was
terminated at the end of its term in September 2018.
The principal risks facing the group in respect of its financial instruments remain unchanged from 2017 and are:
Market risk
Price risk, arising from uncertainty in the future value of financial instruments. The board maintains strategy guidelines whereby risk is
spread over a range of investments, the number of holdings normally being between 70 and 150. In addition, the stock selections and
transactions are actively monitored throughout the year by the investment manager, who reports to the board on a regular basis to
review past performance and develop future strategy. The investment portfolio is exposed to market price fluctuation: if the valuation at
31 December 2018 fell or rose by 10%, the impact on the group’s total profit or loss for the year would have been £66.3 million (2017: £73.6
million). Corresponding 10% changes in the valuation of the investment portfolio on the Company’s total profit or loss for the year would
have been £66.2 million (2017: £73.6 million).
Foreign currency risk, arising from movements in currency rates applicable to the group’s investment in equities and fixed interest
securities and the net assets of the group’s overseas subsidiaries denominated in currencies other than sterling. The group’s financial
assets denominated in currencies other than sterling were:
GROUP
US Dollar
Canadian Dollar
Euro
Danish Krone
Swedish Krona
Swiss Franc
Hong Kong Dollar
Japanese Yen
Investments
£m
Net monetary
assets
£m
Total currency
exposure
£m
Investments
£m
Net monetary
assets
£m
Total currency
exposure
£m
2018
2017
71.5
5.0
37.1
2.3
1.6
14.1
—
7.4
139.0
4.3
—
0.3
—
—
—
0.4
—
5.0
75.8
5.0
37.4
2.3
1.6
14.1
0.4
7.4
69.9
5.0
47.5
3.8
—
9.8
—
7.7
144.0
143.7
3.6
—
0.4
—
—
—
0.3
—
4.3
73.5
5.0
47.9
3.8
—
9.8
0.3
7.7
148.0
The group US dollar net monetary assets is that held by the US operations of £3.1 million together with £1.2 million held by non-US operations.
COMPANY
US Dollar
Canadian Dollar
Euro
Danish Krone
Swedish Krona
Swiss Franc
Japanese Yen
84
Investments
£m
Net monetary
assets
£m
Total currency
exposure
£m
Investments
£m
Net monetary
(liabilities)
£m
Total currency
exposure
£m
2018
2017
71.5
5.0
37.1
2.3
1.6
14.1
7.4
0.2
—
—
—
—
—
—
71.7
5.0
37.1
2.3
1.6
14.1
7.4
69.9
5.0
47.5
3.8
—
9.8
7.7
(36.6)
—
—
—
—
—
—
139.0
0.2
139.2
143.7
(36.6)
33.3
5.0
47.5
3.8
—
9.8
7.7
107.1
lawdebenture.com The holdings in Baillie Gifford Pacific OEIC, Stewart Investors Asia Pacific OEIC, and Scottish Oriental Smaller Companies Trust are
denominated in sterling but have underlying assets in foreign currencies equivalent to £29.9 million (2017: £59.2 million). Investments
made in the UK and overseas have underlying assets and income streams in foreign currencies which cannot be determined and this has
not been included in the sensitivity analysis. If the value of all other currencies at 31 December 2018 rose or fell by 10% against sterling, the
impact on the group’s total profit or loss for the year would have been £18.9 million and £15.4 million respectively (2017: £22.7 million and
£18.5 million). Corresponding 10% changes in currency values on the Company’s total profit or loss for the year would have been the same.
The calculations are based on the investment portfolio at the respective year end dates and are not representative of the year as a whole.
Interest rate risk, arising from movements in interest rates on borrowing, deposits and short-term investments. The board reviews the mix
of fixed and floating rate exposures and ensures that gearing levels are appropriate to the current and anticipated market environment.
The group’s interest rate profile was:
Floating rate assets
Sterling
£m
119.1
HK Dollars
£m
US Dollars
£m
0.4
4.3
Floating rate assets
Sterling
£m
92.7
HK Dollars
£m
US Dollars
£m
0.3
40.6
GROUP
Euro
£m
0.3
GROUP
Euro
£m
0.4
Sterling
£m
100.1
2018
COMPANY
US Dollars
£m
0.2
2017
COMPANY
US Dollars
£m
0.4
Sterling
£m
78.1
The group holds cash and cash equivalents on short-term bank deposits and money market funds. Interest rates tend to vary with bank
base rates. The investment portfolio is not directly exposed to interest rate risk.
Fixed rate liabilities
2018
Sterling
£m
114.1
GROUP
2017
Sterling
£m
114.1
COMPANY
2017
Sterling
£m
74.5
2018
Sterling
£m
74.5
Weighted average fixed rate for the year
4.589%
4.589%
3.770%
3.770%
If interest rates during the year were 1.0% higher the impact on the group’s total profit or loss for the year would have been £1,111,000
credit (2017: £924,000 credit). It is assumed that interest rates are unlikely to fall below the current level.
The Company holds cash and cash equivalents on short-term bank deposits and money market funds, it also has short-term borrowings.
Amounts owed to subsidiary undertakings include £40 million at a fixed rate. Interest rates on cash and cash equivalents and amounts
due to subsidiary undertakings at floating rates tend to vary with bank base rates. A 1.0% increase in interest rates would have affected
the Company’s profit or loss for the year by £730,000 credit (2017: £501,000 credit). The calculations are based on the balances at the
respective year end dates and are not representative of the year as a whole.
Liquidity risk
Is the risk arising from any difficulty in realising assets or raising funds to meet commitments associated with any of the above financial
instruments. To minimise this risk, the board’s strategy largely limits investments to equities and fixed interest securities quoted in major
financial markets. In addition, cash balances are maintained commensurate with likely future settlements. The maturity of the group’s
existing borrowings is set out in note 21.
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Notes to the accounts continued
for the year end 31 December 2018
20. Financial instruments continued
Credit risk
Is the risk arising from the failure of another party to perform according to the terms of their contract. The group minimises credit risk
through policies which restrict deposits to highly rated financial institutions and restrict the maximum exposure to any individual financial
institution. The group’s maximum exposure to credit risk arising from financial assets is £131.1 million (2017: £140.4 million). The Company’s
maximum exposure to credit risk arising from financial assets is £100.7 million (2017: £79.5 million).
Trade and other receivables
Trade and other receivables not impaired but past due by the following:
Between 31 and 60 days
Between 61 and 90 days
More than 91 days
Total
GROUP
COMPANY
2018
£000
1,315
437
1,721
3,473
2017
£000
657
293
1,047
1,997
2018
£000
2017
£000
—
—
—
—
—
9
—
9
At 31 December 2018, trade and other receivables which were impaired and for which there was a bad debt provision totalled £1,245,000
(2017: £956,000) (Company: £nil (2017: £nil)). All the impaired trade and other receivables were more than 91 days past due.
The group assessed the lifetime expected credit losses for trade receivables and considered the amount immaterial. No provision has been
recognised.
Trade and other payables
Due in less than one month
Due in more than one month and less than three months
Fair value
GROUP
COMPANY
2018
£000
11,621
267
11,888
2017
£000
11,353
296
11,649
2018
£000
1,404
—
1,404
2017
£000
1,385
—
1,385
The directors are of the opinion that the fair value of financial assets and liabilities of the group are not materially different to their carrying
values, with the exception of the long-term borrowings (see note 21).
86
lawdebenture.com 21. Long-term borrowings
Long-term borrowings are repayable as follows:
In more than five years
Secured
6.125% guaranteed secured bonds 2034
3.77% secured senior notes 2045
2018
£000
GROUP
2017
£000
COMPANY
2018
£000
2017
£000
39,578
74,534
114,112
39,552
74,516
114,068
—
74,534
74,534
—
74,516
74,516
The 6.125% bonds were issued by Law Debenture Finance p.l.c. and guaranteed by the Company. The £40 million nominal tranche, which
produced proceeds of £39.1 million, is constituted by a Trust Deed dated 12 October 1999 and the Company’s guarantee is secured by
a floating charge on the undertaking and assets of the Company. The bonds are redeemable at nominal amount on 12 October 2034.
Interest (see note 6) is payable semi-annually in equal instalments on 12 April and 12 October in each year.
The 3.77% notes were issued by the Company. The £75 million nominal tranche, which produced proceeds of £74.5 million, is constituted
by a note purchase agreement and the notes are secured by a floating charge which ranked pari passu with the charge given as part of
the 6.125% bond issue. The notes are redeemable at nominal amount on 25 September 2045. Interest (see note 6) is payable semi-annually
in equal instalments on 25 March and 25 September in each year.
The long-term borrowings are stated in the statement of financial position at book value. Including them at a fair value of £136.1 million at
31 December 2018 (2017: £144.0 million) would have the effect of decreasing the year end NAV by 18.56p (2017: 25.32p). The estimated fair
value is based on the redemption yield of reference gilts plus a margin derived from the spread of A rated UK corporate bond yields over
UK gilt yields (2017: A).
22. Contingent liabilities
The group is from time to time party to legal proceedings and claims, which arise in the ordinary course of the IPS business. The directors
do not believe that the outcome of any of these proceedings and claims, either individually or in aggregate, will have a material adverse
effect upon the group’s financial position.
The Company has provided a guarantee to a subsidiary undertaking in respect of the ongoing liabilities of the group defined benefit
pension scheme (see note 24). The Company has provided surety for the lease of the group’s main property which is held by a subsidiary
undertaking. The annual rental is currently £907,000 and its full term ends in 2020. The Company has provided a guarantee in respect of
its liabilities that could arise from its US corporate trust business in the period before the business was sold. The guarantee ends in 2019.
23. Lease commitments
At the year end date, the group had outstanding commitments for future minimum lease payments under non-cancellable operating
leases, which fall due as follows:
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M
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S
Less than one year
Two to five years
More than five years
2018
£000
1,173
1,048
21
2,242
2017
£000
1,077
1,658
83
2,818
Lease payments represent rentals payable by the group for its office properties. The lease for the main property was negotiated for a term
of 20 years and rentals are fixed for an average of five years.
87
Notes to the accounts continued
for the year end 31 December 2018
24. Pension commitments
For some employees, the group operates a funded pension plan providing benefits for its employees based on final pensionable
emoluments. The assets of the plan are held in a separate trustee administered fund. The plan closed to future accrual of benefits on
31 December 2016 and benefits now increase broadly in line with inflation.
Under the defined benefit pension plan, each member’s pension at retirement is related to their pensionable service and final
pensionable emoluments. The weighted average duration of the expected benefit payments from the plan is around 20 years. The defined
benefit scheme is operated from a trust, which has assets which are held separately from the group and is overseen by an independent
sole trustee who ensures the plan’s rules are strictly followed.
These figures were prepared by an independent qualified actuary in accordance with IAS19 (revised), and are based on membership
data as at 31 December 2018. The funding target is for the plan to hold assets equal in value to the accrued benefits based on projected
pensionable emoluments. If there is a shortfall against this target, then the group and the Trustee will agree deficit contributions to meet
this deficit over a period.
There is a risk to the group that adverse experience could lead to a requirement for the group to make additional contributions to reduce
any deficit that arises.
Contributions are set based upon funding valuations carried out every three years; the next valuation in respect of 31 December 2018 is
currently underway. The estimated amount of total employer contributions expected to be paid to the plan during 2019 is £0.9 million
(2018 actual: £0.9 million).
Actuarial gains and losses are recognised immediately through other comprehensive income.
The major assumptions in the 31 December 2018 disclosure under IAS19 (revised) are shown below and are applied to membership data
supplied at that date. This shows the net pension assets and liabilities.
Significant actuarial assumptions:
Retail Price Inflation
Consumer Price Inflation
Discount rate
5% limited RPI pension increases in payment
General salary increases
Life expectancy of male/female aged 65 in 2018
Life expectancy of male/female aged 65 in 2038
The amounts recognised in profit or loss are as follows:
Interest cost
Past service cost
Total expense recognised in profit or loss
2018
%
2017
%
2016
%
2015
%
2014
%
3.2
2.2
2.9
n/a
n/a
3.2
2.2
2.4
3.1
n/a
3.2
2.2
2.7
3.1
n/a
3.0
2.0
3.7
2.9
4.5
3.0
2.0
3.7
2.9
4.5
2018
years
2017
years
23.6/25.4
23.7/25.5
25.3/26.8
25.4/26.9
2018
£000
2017
£000
—
300
300
100
—
100
88
lawdebenture.com The current allocation of plan assets is as follows:
Equities
Bonds
Gilts
Pensioner annuities
Diversified growth funds
Other
Total
Reconciliation of present value of defined benefit obligation
At 1 January
Employer’s part of current service cost
Interest on plan liabilities
Contributions by plan participants
Actuarial losses/(gains) due to:
Experience on benefit obligations
Changes in financial assumptions
Changes in demographic assumptions
Benefits paid
Curtailments and settlements
At 31 December
Reconciliation of fair value of plan assets
At 1 January
Interest on plan assets
Actual returns net of interest
Contributions by the employer
Contributions by plan participants
Benefits paid
At 31 December
2018
Allocation %
£000
Allocation %
47
10
26
1
14
2
25,600
5,300
14,000
700
7,700
800
49
10
24
1
14
2
2017
£000
28,400
5,500
13,900
800
8,100
900
100
54,100
100
57,600
2018
£000
2017
£000
57,300
56,000
—
1,300
—
—
(5,100)
(600)
(1,600)
300
51,600
—
1,500
—
—
3,400
(1,300)
(2,300)
—
57,300
2018
£000
2017
£000
57,600
1,300
(4,100)
900
—
(1,600)
54,100
53,700
1,400
3,900
900
—
(2,300)
57,600
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M
E
N
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S
The pension plan is exposed to investment risk, (the movement of the discount rate used against the value of the plans assets,) interest rate
risk (decreases/ increases in the discount rate which will increase/ decrease the defined benefit obligation) and longevity risk, (changes in
the estimation of mortality rates of members).
89
Notes to the accounts continued
for the year end 31 December 2018
24. Pension commitments continued
Movement in the net defined benefit obligations
(Asset)/deficit at 1 January
Expense charged to profit and loss
Amount recognised outside of profit and loss
Employer contributions
Closing net (assets) at 31 December
2018
£000
2017
£000
(300)
300
(1,600)
(900)
(2,500)
2,300
100
(1,800)
(900)
(300)
2018
£000
2017
£000
2016
£000
2015
£000
2014
£000
2013
£000
51,600
(54,100)
(2,500)
57,300
56,000
45,200
(57,600)
(53,700)
(43,800)
(300)
2,300
1,400
46,390
(43,140)
3,250
40,720
(39,631)
1,089
Plan assets and obligations
Present value of defined benefit
obligation
Fair value of plan assets
(Asset)/deficit
25. Related party transactions
Group
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation.
Company
The related party transactions between the Company and its wholly owned subsidiary undertakings are summarised as follows:
Dividends from subsidiaries
Interest on intercompany balances charged by subsidiaries
Management charges from subsidiaries
2018
£000
8,500
2,562
260
2017
£000
8,650
2,562
250
The key management personnel are the directors of the Company. Details of their compensation are included in note 5 to the accounts
and in Part 3 of the remuneration report on pages 49 to 50. Key management personnel costs inclusive of employers national insurance
are £958,286 (2017: £797,647).
90
lawdebenture.com Alternative performance measures
Alternative performance measures are numerical measures of
the Company’s current, historical or future performance, financial
position or cash flows, other than financial measures defined or
specified in the financial framework that the Company has chosen
to apply (International Financial Reporting Standards and the AIC
SORP). The directors use these measures as a means of assessing
the Company’s performance. The measures are particularly relevant
for investment trusts and are widely used across the investment
trust sector.
Net Asset Value (NAV) per ordinary share
The value of the Company’s assets and cash at bank less any
liabilities for which the Company is responsible, divided by the
number of shares in issue. In Law Debenture’s case, the published
NAV will include adjustments to reflect the fair value of the IPS
business and the Company’s long term debt. There is a detailed
summary of the NAV, including a description of how it is calculated,
on page 30 of the annual report. The NAV per ordinary share is
published weekly and immediately after each month end.
The change in NAV per share (see total return below) over one,
three, five and ten years, as shown at page 3, is calculated by taking
total return over the respective period and dividing by the opening
NAV at the start of each period.
Ongoing charges
The ongoing charges have been calculated in accordance with
AIC guidelines: annualised charges (total expenses), excluding
non-recurring expenses, incurred by the Company, divided by the
average net asset values throughout the year.
Premium/discount
The amount by which the market price per share of the Company is
either higher (premium) or lower (discount) than the NAV per share,
expressed as a percentage of the NAV per share.
Total return – on share price and NAV
The return on the share price or NAV taking into account both the
movement of share price, NAV and the dividends and interest paid
to shareholders and long term debt noteholders. Any dividends
paid by Law Debenture to a shareholder are assumed to have been
reinvested in either additional shares (for share price total return) or
the Company’s assets (for NAV total return) at the prevailing NAV/
share price.
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Financial calendar
Dividend and interest payments
Ordinary shares:
Interim announced July
Final announced February/March
Paid September
Paid April
6.125% guaranteed secured notes
Paid April and October
3.77% senior secured notes
Paid March and September
Group results
Half year results
Full year results
Report and accounts
Annual general meeting
Factsheets
Announced in July
Announced in February/March
Published in March
Held in London in April
Published monthly on the Company’s website
Payment methods for dividends
Dividends and interest can be paid to shareholders by means of BACS. Mandate forms for this purpose are available on request from the
Company’s registrars.
Subsidiary company details
Subsidiary companies not incorporated in the United Kingdom, as listed at page 80, are registered at the following addresses:
Companies registered in Hong Kong
Suite 1301 Ruttonjee House, Ruttonjee Centre,
11 Duddell Street, Central, Hong Kong
Companies registered in the Republic of Ireland
Second Floor, 5 Harbourmaster Place,
IFSC, Dublin 1, Ireland
Companies registered in USA
801 2nd Avenue, Suite 403, New York,
other than Delaware Corporate Services
NY 10017, USA
Companies registered in USA -
Delaware Corporate Services
901 N Market St #705, Wilmington,
DE 19801, USA
Company registered in Jersey
PO Box 150, 3rd Floor, Standard Bank House, 47-49 La Motte Street,
St Helier, Jersey JE4 5NW
Company registered in Cayman Islands
Elgin Court, Elgin Avenue, PO Box 448, Georgetown,
Grand Cayman, KY1 1106, Cayman Islands
Company registered in Australia
PO Box 1385, Nowra, NSW 2541,
Australia
92
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Notice of annual general meeting
NOTICE IS HEREBY GIVEN that the 129th annual general meeting of the Company will be held on 11 April 2019 at 10.00am at the
Brewers’ Hall, Aldermanbury Square, London EC2V 7HR for the following purposes:
Ordinary business
1.
To receive the report of the directors, the strategic report and the audited accounts for the year ended 31 December 2018.
2. To receive and approve the directors’ remuneration report for the year ended 31 December 2018.
3. To approve amendments to the Company’s remuneration policy.
4. To declare a final dividend of 12.9p per share in respect of the year ended 31 December 2018.
5. To re-elect Denis Jackson as a director.
6. To re-elect Robert Hingley as a director.
7. To re-elect Robert Laing as a director.
8. To re-elect Mark Bridgeman as a director.
9. To re-elect Tim Bond as a director.
10. To elect Katie Thorpe as a director.
11.
To increase the aggregate amount of ordinary remuneration of the non-executive directors set out in article 72 of the
Company’s articles of association from £200,000 to £400,000 per annum with immediate effect (see note 13).
12.
To re-appoint BDO LLP as auditors of the Company to hold office until the conclusion of the next general meeting at which
accounts are laid and to authorise the audit committee to determine their remuneration.
13. General authority to allot shares.
THAT:
(a) the directors be generally and unconditionally authorised pursuant to and in accordance with section 551 of the Companies
Act 2006 (the ‘Act’) to exercise for the period ending on the date of the Company’s next annual general meeting, all the
powers of the Company to allot shares in the Company or to grant rights to subscribe for or to convert any security into
shares in the Company up to an aggregate nominal amount (within the meaning of sections 551(3) and (6) of the Act)
of £295,954;
(b) the Company may during such period make offers or agreements which would or might require the making of allotments of
equity securities or relevant securities as the case may be after the expiry of such period.
Special business
To consider and, if thought fit, to pass the following resolutions which will be proposed as special resolutions:
14. Disapplication of statutory pre-emption rights.
THAT:
(a) in exercise of the authority given to the directors by resolution 13 above, the directors be empowered pursuant to section
570 of the Act to allot shares or grant rights to subscribe for or to convert any security into shares in the Company for the
period ending on the date of the Company’s next annual general meeting wholly for cash generally up to an aggregate
nominal amount of £295,954 (i.e. 5% of the issued share capital) as if section 561 of the Act did not apply to such allotment,
provided always that no more than 7.5% of the issued share capital shall be issued on a non pre-emptive basis within any
three year period;
(b) the Company may during such period make offers or agreements which would or might require the making of allotments of
equity securities or relevant securities as the case may be after the expiry of such period.
15. General authority to buy back shares.
THAT: the Company be and is generally and unconditionally authorised in accordance with sections 693 and 701 of the Act
to make market purchases (within the meaning of section 693(4) of the Act) of any of its issued ordinary shares of 5p each in
the capital of the Company, in such manner and upon such terms as the directors of the Company may from time to time
determine, PROVIDED ALWAYS THAT:
(a) the maximum number hereby authorised to be purchased shall be limited to 17,745,767 shares, or if less, that number of
shares which is equal to 14.99% of the Company’s issued share capital as at the date of the passing of this resolution;
(b) the minimum price which may be paid for a share shall be 5p;
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Notice of annual general meeting continued
(c) the maximum price which may be paid for a share shall be an amount equal to 105% of the average of the middle
market quotations (as derived from the London Stock Exchange Daily Official List) for the shares for the five business days
immediately preceding the day on which the share is purchased;
(d) unless previously revoked, renewed or varied, the authority hereby conferred shall expire on the date of the Company’s
next annual general meeting provided that a contract of purchase may be made before such expiry which will or may be
executed wholly or partly thereafter, and a purchase of shares may be made in pursuance of any such contract.
16. Authority to convene a general meeting – notice.
THAT: a general meeting of the Company, other than an annual general meeting, may be called on not less than 14 clear
days’ notice.
By order of the board
Law Debenture Corporate Services Limited
Secretary
| 26 February 2019
Registered No. 30397
Registered office:
Fifth Floor
100 Wood Street
London EC2V 7EX
94
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Notes to the notice of annual general meeting
1. A member who holds ordinary shares on the register of
on his clear vision to deliver growth and increased profits. The
members and is entitled to attend and vote at this meeting
board is confident that Denis’s strategy is proving effective,
is entitled to appoint one or more proxies to attend and, on a
already having increased IPS profits, which in turn enhances
poll, to vote in his or her place (or in the case of a corporation,
shareholder value. His biography is included on page 54 of the
to appoint one or more corporate representatives who may
annual report.
exercise on its behalf all of its powers as a member). A proxy
need not be a member of the Company. Proxy rights do not
apply to nominated persons although the nominated person
may have a right under an agreement with the registered
member to appoint a proxy. In addition to instructing a
proxy to vote for or against a resolution, the form enables
shareholders to instruct a ‘vote withheld’ if preferred. A vote
withheld is not a vote in law and will not be counted in the
8. Resolution 6: Robert Hingley offers himself for re-election. The
board supports his re-election. Robert has quickly established
himself as a knowledgeable and effective chairman. His
corporate finance and market experience enables him to
deliver constructive guidance and counsel that the board
and the chief executive have found extremely helpful. His
biography is included on page 54 of the annual report.
calculation of votes. It may be used, for example, to convey
9. Resolution 7: Robert Laing offers himself for re-election.
a message of dissatisfaction on a particular issue, where the
The board supports his re-election. The board’s effectiveness
strength of feeling is not so great as to oppose the resolution,
is greatly enhanced by having a non-executive director
but supporting it is not appropriate either.
2. Shareholders who hold shares on the register of members
(as opposed to holding them in a nominee) will find
enclosed a form of proxy for use at the meeting. To be valid,
forms of proxy must be lodged electronically by accessing
www.investorcentre.co.uk/eproxy or by post at the office of
the Company’s registrar, Computershare Investor Services PLC,
with a legal background and experience of one or more
of the professional services sectors where Law Debenture
operates. Robert Laing matches this requirement. He is an
effective senior independent director and chairman of the
remuneration committee, as well as providing wise counsel as
a NED on the IPS operating businesses board. His biography is
included on page 55 of the annual report.
The Pavilions, Bridgwater Road, Bristol BS99 6ZY. CREST
10. Resolution 8: Mark Bridgeman offers himself for re-election.
members can register votes electronically by using the service
The board supports his re-election. The board recognises the
provided by Euroclear. Proxies must be received not less than
value in having at least one non-executive director with fund
48 hours before the time appointed for the holding of the
management experience and Mark fulfils that need. He is an
meeting. This is also the voting record date by which a person
effective director and chairs the audit committee skillfully. His
must be entered on the register in order to have a right to
biography is included on page 55 of the annual report.
attend and vote at the meeting. Lodgement of a form of
proxy will not prevent a member from attending and voting
in person.
11. Resolution 9: Tim Bond offers himself for re-election. The
board supports his re-election. The board believes that it is
desirable to have input from someone with a global, strategic
3.
The register of directors’ interests will be available for
macroeconomic background and an expert insight into the
inspection at the registered office of the Company during
capital markets generally. Both from his current and previous
normal business hours and at the annual general meeting.
experience, Tim is able to contribute in this way and does so
No director has a service contract with the Company of more
effectively. His biography is included on page 55.
than one year’s duration.
12. Resolution 10: Katie Thorpe offers herself for election and
4. Subject to the dividend on the ordinary shares now
the board supports her election. Katie joined Law Debenture
recommended being approved at the annual general
in June 2018 as chief financial officer and was appointed to
meeting, dividend payments will be made on 18 April 2019 to
the board as an executive director with effect from 1 January
shareholders on the register on the record date on 15 March
2019. She is a chartered accountant. Since arriving, Katie has
2019.
5. Resolution 2 is to receive and approve the directors’
remuneration report for the year ended 31 December 2018.
The remuneration report, which follows the format required
by the relevant regulations, is set out at pages 42 to 52 of the
annual report.
6. Resolution 3 is to approve amendments to the Company’s
remuneration policy. The revised and updated policy is
being proposed for the reasons set out by the remuneration
committee chairman on page 42.
demonstrated a sound understanding of both the investment
trust and the IPS business. Her experience in the investment
trust sector is proving to be of great value to Law Debenture
and she has made a positive contribution to the way that the
businesses operate. She works effectively with Denis Jackson
to deliver enhanced shareholder value. Her biography is
included on page 54.
13. Resolution 11 concerns the non-executive directors’ fees.
The Company’s articles of association currently stipulate
a maximum limit on the aggregate level of ordinary
remuneration that can be paid to the non-executive
7. Resolution 5: Denis Jackson offers himself for re-election.
directors per annum, currently £200,000. This limit was
The board supports his re-election. Denis has an excellent
approved by shareholders in 2008 and has remained
understanding of our IPS business and he has begun to deliver
unchanged since. “Ordinary remuneration” describes
9595
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the base fee payable to NEDs. Should the nominations
17. Special resolution 15 renews the authority given to directors at
committee recommend that one or more additional non-
the last annual general meeting to purchase ordinary shares
executive directors be appointed, as may the case in order
in the market for cancellation. Such purchases at appropriate
to accommodate developing governance requirements
times and prices could be a suitable method of enhancing
about – for example – diversity, then the article limit might
shareholder value and would be applied within guidelines set
be breached. Accordingly, the board recommends that the
from time to time by the board. It should be noted that no
limit on fees be increased from £200,000 to £400,000 per
such purchases would be undertaken if shares were trading at
annum. This is within best practice guidelines (i.e. that article
a premium to net asset value.
limits should be increased by a factor no greater than two
times current levels) and if approved, will provide sufficient
headroom for the board to operate strategically for some
years to come.
18. Special resolution 16 seeks authority to convene a general
meeting (but not the annual general meeting) by giving
not less than 14 clear days’ notice. While the directors have
no current intention to call a general meeting in the year
14. Resolution 12 is to re-appoint BDO LLP as the Company’s
ahead, circumstances might arise when such a meeting
auditors. BDO LLP were first appointed on 31 October 2008
might become necessary and the directors deem it in the
and were the successful firm in the audit tender conducted
best interests of shareholders that it be held as quickly as
in the autumn of 2017.
15. Resolution 13 renews the authority given to directors at the
last annual general meeting to allot unissued capital not
exceeding 5,919,202 shares, being 5% of the issued share
possible. Such circumstances might include, for example, a
decision to make a material amendment to the investment
strategy (shareholder approval for such a change being a
regulatory stipulation).
capital. This authority would be exercised only at times when
19. Meeting notice requirements – the Company is required
it would be advantageous to the Company’s shareholders
under the Act to make a number of additional disclosures as
to do so. Shares would not be issued under this authority
follows. The Company’s website – www.lawdebenture.com/
at a price lower than market price or net asset value at the
investment-trust/investor-information – contains a copy of this
time of the issue. If approved, the authority will continue
notice, which includes the current total voting rights, as set out
to operate until the next annual general meeting. N.B. In
below. Should the required number of members requisition
the ordinary course of business, the power given by this
the Company to publish any statement about the audit or
resolution will only be used to allot shares to participants in
related matters that the relevant members propose to raise
the HMRC approved Save As You Earn Sharesave scheme.
at the AGM (in accordance with section 527 of the Act), this
16. Special resolution 14 is proposed because the directors
consider that in order to allot shares in the circumstances
described in resolution 13 it is in the best interests of the
Company and its shareholders to permit the allotment of
a maximum of 5,919,202 shares, being 5% of the issued
share capital, other than on a pre-emptive basis. The board
would not, however, issue more than 7.5% of the issued
share capital on a non-pre-emptive basis within any three
year period.
Total voting rights and share information
would be published at the Company’s expense on the website
and forwarded to the auditor. Similarly, any shareholder
statements, resolutions and matters of business connected
with the meeting received after publication of this notice will
be published on the website subject to compliance by the
submitting party with the Act. At the AGM, the Company will
cause to be answered any question relating to the business
being dealt with at the meeting put by a shareholder
in attendance.
The Company has an issued share capital at 25 February 2019 of 118,384,040 ordinary shares with voting rights and no restrictions and no
special rights with regard to control of the Company. There are no other classes of share capital and none of the Company’s issued shares
are held in treasury. Therefore the total number of voting rights in The Law Debenture Corporation p.l.c. is 118,384,040.
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96 lawdebenture.com
lawdebenture.com Annual general meeting venue
Brewers’ Hall, Aldermanbury Square, London EC2V 7HR
RAILWAY
UNDERGROUND
BUSES
PARKING
Main line stations within
Moorgate
From Cheapside the 501 service
There is limited meter parking
one mile include:
(Circle, Metropolitan,
connects London Bridge and
in business hours near the
Hammersmith & City, and
Waterloo via Holborn, from
hall. Underground parking is
Thames Link)
Moorgate the 43 and 133 buses
available beneath London Wall,
Bank
(Central, Northern, Waterloo
& City)
St Paul’s
(Central)
go to Liverpool Street, from
entrance being by the corner
London Wall the 172 goes
of Coleman Street and on the
to Blackfriars.
north side of London Wall
immediately before Bastion
House. There is multi-storey
parking in Aldersgate Street just
north of the intersection with
London Wall.
• Holborn Viaduct
• Blackfriars
• Cannon Street
• London Bridge
• Fenchurch Street
• Farringdon
• Liverpool Street
Main line stations within
two miles are:
• Charing Cross,
• Waterloo
• King’s Cross
• St Pancras
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9797
The Law Debenture Corporation p.l.c. Fifth Floor, 100 Wood Street, London EC2V 7EX
Tel: 020 7606 5451
• www.lawdebenture.com