The Law Debenture Corporation Annual Report 2019

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FY2019 Annual Report · The Law Debenture Corporation

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A N N U A L R E P O R T
2019

The Law Debenture Corporation p.l.c.

A T A G L A N C E

A differentiated investment proposition

A PROUD HISTORY

131 years

of value creation for shareholders

STRENGTH AND DIVERSITY OF INCOME

32.8%

LONG-TERM DIVIDEND GROWTH

of total 2019 dividend funded by our Independent Professional Services business

41 years

of increasing or maintaining dividends to shareholders (113.1% increase in
dividend over the last ten years)

CONSISTENT LONG-TERM OUTPERFORMANCE OF BENCHMARK

53.4%

outperformance of benchmark over ten years, 12.8% over five years
and 25.5% over three years

Key statistics

for the year ended 31 December 2019

702.2p

NAV per share

(2018: 614.1p)

37.6%

19.4%

17.9%

Proposed increase in 2019

NAV total return for the year

dividend per share

(2018: 9.2%)

(with debt at par)

(2018: (6.6)%)

(with debt at fair value)

(2018: (5.8)%)

830.1m1

Net Asset Value

(2018: 725.9m)

44.3%

19.2%

21.0%2

Increase in revenue return

Benchmark total return

Growth in fair valuation

per share

for the year

(2018:(9.5)%)

of IPS

(2018: 13.1%)

1 Please refer to page 38 for calculation of net asset value.

2 Increase in annual valuation of IPS business, excluding change in surplus net assets.

lawdebenture.com

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, it has 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
Portfolio

c. 85% of NAV

Independent Professional
Services (IPS) business

c. 15% of NAV

Managed by James Henderson and Laura Foll
of Janus Henderson

OBJECTIVE: LONG-TERM CAPITAL

GROWTH IN REAL TERMS & STEADILY

INCREASING INCOME

– Focused on long-term returns

– Low ongoing charges ratio at 0.48%1

compared to industry average of 1.04%2

– Contrarian investment style:

– Out of favour equities standing at

valuation discounts to their long-term

historical average

– High quality companies with strong

competitive advantage at attractive valuations

– Selective, bottom-up approach

– Diversified portfolio by sector
(predominant UK weighting)

PENSIONS

The longest
established and
largest UK
provider of
independent
pension trustees

CORPORATE
TRUST

A leading
independent
corporate
trustee across
international
capital markets

CORPORATE
SERVICES

Range of
outsourced
solutions to
corporates
internationally

INTERNATIONAL PRESENCE:

United Kingdom, New York, Ireland, Hong Kong,
Delaware, and Channel Islands

All divisions have further potential for growth
through the overall market growth for these
services and market share gains, alongside better
leveraging technology, strong relationships and
a high quality brand

Significant, consistent income contribution from IPS gives greater flexibility in stock selection

1 Calculated based on data held by Law Debenture for the year ended 31 December 2019.

2 Source: Association of Investment Companies industry average (excluding 3i) as at 31 December 2019.

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A T A G L A N C E

Contents

A T A G L A N C E

C O R P O R A T E G O V E R N A N C E

Financial summary and performance

Directors’ report

S T R A T E G I C I N F O R M A T I O N

Chairman’s statement

Q&A with Denis Jackson, CEO

Q&A with James Henderson and Laura Foll,
investment managers

Chief Executive Officer’s review

Investment managers’ review

Fifteen largest holdings

Classification of investments

Investment portfolio valuation

Changes in geographical distribution

Strategic report

Calculation of net asset value
(NAV) per share

Long-term performance record

4-5

6-7

8-10

12-17

18-23

24-25

28-31

32-37

Corporate governance report

Audit Committee report

Annual remuneration report

Company advisers and information

The Board

F I N A N C I A L S T A T E M E N T S

Independent auditor’s report

Group income statement

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

Financial calendar

Subsidiary company details

40-42

43-46

48-49

50-70

72-73

75-79

82-83

85-113

115

116

Notice of annual general meeting (AGM)

117-118

Notes to the notice of AGM

AGM venue

119-120

121

lawdebenture.com

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Change

+14.4%

+14.3%

+67.6%

+8.5%

n/a

+44.3%

n/a

+37.6%

+20.4%

31 December 2019
£000

31 December 2018
£000

725,863

Pence

614.07

13.23

7.87

0.16

21.26

(71.85)

18.90

540.00

0.43

(12.1)

830,139

Pence

702.17

22.18

8.54

(0.04)

30.68

79.27

26.00

650.00

0.48

(7.4)

1 year
%

19.4

17.9

19.2

24.5

3 years
%

5 years
%

10 years
%

27.6

22.0

34.6

9.3

52.4

49.4

43.8

43.5

13.4

192.4

181.5

118.3

217.8

33.9

Financial summary

Net assets1

Net Asset Value (NAV) per share at fair value1*

Revenue return per share

Investment portfolio

Independent professional services

Group charges

Group revenue return per share5

Capital (loss)/return per share5

Dividends per share

Share price

Ongoing charges3*

Gearing3

Discount*

Performance

NAV total return2* (with debt at par)

NAV total return2* (with debt at fair value)

FTSE Actuaries All-Share Index Total Return4

Share price total return4*

Change in Retail Price Index4
2.2
* Items marked “*” are considered to be alternative performance measures and are described in more detail on page 115.

1 Please refer to page 38 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. NAV is shown with debt measured at par and with debt measured at fair value.

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 34.

4 Source: Bloomberg.

5 Effective from 1 January 2019, allocation of finance costs and investment management fees in the income statement is split 25% to revenue and 75% to capital (2018: 100% to revenue) in

order to better reflect the expected split of future returns between revenue and capital. This change in allocations is not a change in accounting policy.

S T R A T E G I C I N F O R M A T I O N

Chairman’s statement

Law Debenture has a very well diversified equity portfolio which aims

to be a one-stop-shop for investors seeking largely UK quoted market

exposure to high quality companies. Our investment managers have

a strong record of long term outperformance and a proven ability to

seek out attractive and undervalued stocks. The team continue to

view the UK market as attractive on a relative valuation basis as it has

underperformed other global equity markets over the last five years

despite a strong absolute showing in 2019.

Dividend

Law Debenture has increased or maintained its dividend in each of

the last 41 years. Since becoming Chairman, I, along with your Board,

have been looking carefully at the balance we provide between our

objectives of long-term capital growth and steadily increasing income.

Our IPS business provides us with a unique advantage: we are far less

reliant on the level of dividends paid by our underlying investments
than other funds and trusts. Indeed, 35%4 of our dividends in the ten
years to 31 December 2019 have been funded by our IPS business and

we are confident that the new management team can continue to

deliver growth in the longer term.

We have listened to the feedback from our shareholders, alongside

our own observations of our dividend yield compared to peers. The

combination of strong profit growth in both our IPS business and

our investment trust portfolio, the opportunity for greater flexibility

of payment caused by the adjustment of our expense allocation and

the strength of our reserves has provided the Board with a unique

opportunity to reset our dividend to a level closer to our peers and to

In what has been a year of significant progress for Law Debenture,

I am delighted to introduce our 2019 annual report.

Performance

Our aim is to produce long-term capital growth and steadily

increasing income for our shareholders. Against those two aims,

2019 proved a very successful year for Law Debenture, seeing a share

price total return of 24.5%. We are proud to have generated almost

the wider market.

£157m of value for our shareholders over the course of last year and

to see the share price end the year at £6.50, up from £5.40 at the end

of 2018.

Following an easing of negative sentiment towards the UK, 2019

saw something of a reversal of fortunes for the UK market. Our

benchmark, the FTSE Actuaries All-Share Index, delivered a 19.2%

total return, following a 9.5% decline in 2018. Our aim, as we say,

is long-term capital growth. We take an active management

approach, meaning shareholders should not expect our investment

performance to directly track the market. We are pleased that,

against that back-drop, the Company’s NAV total return (with debt

at par) marginally outperformed the benchmark, with a total return

of 19.4% for 2019. Including debt at fair value, the total return for the

year was 17.9%. This follows a performance in 2018 which reflected

only 60% of the market decline.

Over the longer term, we have outperformed our index by 25.5%
over three years, 12.8% over five years and 53.4% over ten years1,
demonstrating our ability to consistently outperform the market

over time. £1,000 invested in Law Debenture ten years ago would
have been worth £3,178 2 at the end of 2019. Looking back further still
to the start of 1993, when James Henderson first became involved

in the management of the portfolio, the trust has outperformed the
FTSE All-share by 230%3.

Subject to your approval, we propose to pay a final dividend of

19.4 pence per share, an increase of 50% on the 2018 final dividend

of 12.9 pence per share. The dividend will be paid on 16 April 2020 to

holders on the register on the record date of 13 March 2020. This will

provide shareholders with a total dividend of 26.0 pence per share

for 2019, compared to 18.9 pence in 2018, an increase of 38%. We are

happy to make this recommendation in the context of £62.5m of

consolidated retained earnings and a revenue profit for the year of

£36.3m. This enhanced payment represents a dividend yield of 4.4%

based on our share price of 592 pence on 25 February 2020, compared

to 3.5% yield at 31 December 2018. If approved, we will have increased

the dividends paid to shareholders by more than 100% over the past
ten years, with an annualised dividend growth of 7.9%5.

We have given careful consideration to the long-term sustainability of

this increase and are confident we can deliver a closer to market yield

without restricting Janus Henderson’s investment approach. Looking

to 2020 and beyond, we will aim to continue to deliver gradually

increasing income payments in excess of inflation over time, subject

to unforeseen circumstances. We are also taking this opportunity to

move to a schedule of quarterly dividend payments. We hope that

increasing the amount, predictability and regularity of our dividends

will prove attractive for both new and existing shareholders.

1 Calculated on a total return basis with debt at fair value.

2 Calculated on a total return basis assuming dividend re-investment between 31 December 2009 and 31 December 2019.

3 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 2019. FTSE Actuaries All Share Total Return measured over the same performance

period. Bloomberg data includes the adjustment to the fair value of the investment trust in respect of the IPS business from 29 February 2016.

lawdebenture.com

4 Calculated based on dividends paid in respect of the financial years between 2010 and 2019.

5 Calculated on an annualised basis on dividend payments in respect of accounting years between 1 January 2010 and 31 December 2019.

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Investment portfolio

2019 has been a significant year for the investment trust and the

The capital valuation of the business has increased by 21.0% over

portfolio. In May, we completed our transfer from the AIC’s Global

the course of 2019, details of which can be found on page 38. We

sector to the UK Equity Income Sector, better reflecting the reality of

are confident that this unique business can continue to support

our long-term portfolio construction, which has seen at least a 70%

both of our objectives of long-term capital growth and steadily

allocation to UK stocks over the past decade.

increasing income.

Over the course of 2019, our UK exposure has increased to 80.7% from

74.5% at the end of 2018. The conviction to increase our exposure

to the UK ahead of the election result by our fund managers, James

Henderson and Laura Foll of Janus Henderson, proved astute.

Combined with their methodical long-term approach to stock

selection, this lead to a robust 19.4% NAV total return (with debt at

par) for 2019.

Laura’s appointment as co-manager came into effect from 1 August,

changing little from an operational perspective, but better reflecting
Laura’s contribution to the overall running of the portfolio. You can

read more from James and Laura in their investment review on

pages 18 to 22, where we continue to enhance disclosure to help our

shareholders better understand how they approach managing the

portfolio. We have also introduced a question and answer section

on pages 8 to 10 where you can read in their own words what has

worked well for the portfolio in 2019 and what has them excited from

an investment perspective for 2020.

Your Company’s Board

Having welcomed Katie Thorpe our Chief Financial Officer to the

Board from 1 January 2019, we were delighted to appoint Claire Finn

to the Board on 2 September 2019. Claire has in-depth knowledge

of the UK asset management, pensions and insurance landscape,

having had a career spanning over 18 years in financial services. We

have a Board which is diverse in terms of its skill set and is well placed

to guide your Company going forwards.

Report and accounts

Following the modernisation of the look and feel of the report and

accounts in 2018, we have continued to evolve and improve our

disclosure to investors. You will find numerous points of enhanced

disclosure throughout this document, including an expansion of

our thought process around Environmental, Social and Governance

Our on-going charges ratio for 2019 of 0.48% for the investment

(ESG), additional disclosure on the investment rationale behind our

trust remains significantly lower than the average for UK investment
trusts of 1.04%1. This, in turn, means shareholders are experiencing a
significantly reduced drag on their on-going investment performance

than may be the case for other trusts.

largest investments and improved reporting on our IPS business and

how we calculate its value. In response to shareholder feedback, we

will be publishing a full portfolio listing every month, rather than

simply publishing our top 10 investments. We aim to continue to

evolve our reporting into 2020 and beyond.

Independent professional services (IPS)

2019 was another solid year for our IPS business. We provided

Looking forwards

forward guidance for our shareholders for the first time in respect

For our investment portfolio, James and Laura remain net investors

of 2019, stating our commitment to achieving mid to high single-

into the market on days of weakness, using their disciplined and

digit growth. In that context, I am pleased to report revenue growth
of 7.5%2 and an increase in earnings per share of 8.5%. We have
been able to achieve this despite a difficult market backdrop, with

continued Brexit uncertainty, fears of globally escalating trade wars

and reduced levels of investment banking activity, all of which have

negatively affected our capital markets facing businesses.

Work continues to lay the foundations for future growth. We are

confident that we are still at the early stages of growth and believe

we can continue to grow our revenue and earnings significantly over

contrarian approach to identify stocks with strong fundamentals

currently overlooked by the market.

For our IPS business, we believe we remain in the early stages of a re-

invigorated growth cycle and that there is great value to be created

for our shareholders as we remain focussed on growing our revenues

while controlling our cost base.

time. The belief in this growth was a key factor in the determination of

an increased dividend to shareholders. Our aim is for our IPS business

again to deliver mid to high single-digit growth for our investors over

Robert Hingley
Chairman

26 February 2020

the course of 2020.

As we continue to drive growth and improve the transparency of

the nature and operations of our business, we are starting to see

the investor community pay increasing attention to this business.

Law Debenture’s on-going charges of 0.48% has been calculated based on guidance provided by the AIC and includes the Janus

Henderson management fee of 0.3% of the NAV of the investment trust. There is no performance related element to the fee. The

average on-going charges ratio for UK investment trusts of 1.04% as at 31 December 2019 has been sourced from the AIC website.

2 Revenue growth for the IPS business for 2019, after the deduction of costs of sales, which comprises solely of legal fees that we incur

on behalf of and then recharge to clients.

S T R A T E G I C I N F O R M A T I O N

Q&A with Denis Jackson, Chief Executive Officer

What is the Board’s view of the 2019
investment performance and what do you
believe are the prospects for the portfolio
in 2020?

Having sheltered our investors from approximately 40% of our

benchmark’s decline in 2018, it was very pleasing to participate

fully in the upside for 2019.

The sands are shifting quickly under many traditional business

models. Newsfeeds are littered with tales of investor losses

as companies fail to adapt to rapidly changing consumer

behaviours and investor demands.

While James and Laura didn’t avoid every stock that had a

challenging year, on balance we remain very pleased with both

the short-term and long-term performance.

As we start 2020, we are reminded of our need to focus on

creating value for our shareholders in the long term. Short-term

sentiment is being weighed on heavily by the rapidly spreading

Coronavirus in China, an event that was not flagged by anyone in

their 2020 Investment Outlooks.

James and Laura invest in great companies that (in almost every

case) produce real cash profits. We are optimistic that, as 2020

unfolds and the UK’s trading relationships with both the EU and

the major economies becomes clearer, the relative cheapness of

UK equities will start to reverse. James and Laura provide further

context on this in the investment managers’ review.

Why do you think it was important for Law
Debenture to move from AIC’s Global to the
UK Equity Income sector?

During my first year of investor meetings we often received

feedback that our ‘Global’ classification was causing some

confusion among investors, particularly as they tried to reconcile

this label to our historically UK-biased portfolio. Post the

change, this distraction has fallen away and our investors are

rightly focused on how we are executing rather than how we

are categorised.

You inherited a great business in IPS, but
growth had stalled. What have you done
differently to inject growth back in to
the business?

I think there are three simple changes that we continue to work

on that have had the largest impact. First, we have endeavoured

to raise the ambition of each of our great businesses. Secondly,

we are gradually becoming much more outwardly rather

than inwardly focused; put simply we listen more keenly to

understanding the commercial problems that our clients are

trying to solve in order to evolve our products. Thirdly, we have

attracted new talent to our business, broadening the diversity of

our skill set and encouraging innovation.

lawdebenture.com

One thing we have not changed is the focus on quality of client

Given our role as a bridge between bond investors and corporate

experience. This remains very much top of the agenda for

issuers (corporate trust), pension investors and allocation of

every employee.

You provided forward guidance to
shareholders on the growth prospects
of the IPS business for the first time last
year. Were you pleased with this year’s
performance?

I am pleased with the excellent momentum that our Pensions

and Whistleblowing businesses continue to build. The strong

regulatory tail-winds that are accelerating their growth are

also very welcome. The Capital Markets facing businesses,

however, had a tougher year. Given that we started acting as

a bond trustee over 130 years ago, it is difficult to argue that

we are not operating in very mature markets. We need to use

our competitive advantages of speed and technical excellence

together to grow market share in more complex transactions.

capital (pensions), and whistle-blowers and their employer

(Safecall). We are well placed to grow our market share in

a market we believe will expand significantly over the next

few years.

What do you think the biggest challenge
is for the IPS business in 2020 and what
excites you most about the year to come?

We have touched on this several times elsewhere, but following

a tough year for our capital markets facing businesses in 2019,

our biggest challenge will be to accelerate our growth in this

highly competitive space. We are investing in new people and

skills to upgrade our offerings and will play to our strengths.

I am most excited about our Monday morning management

meetings. We start each week by reviewing client activities of

note across our businesses from the prior and coming week.

Do you believe you can sustainably grow all
three divisions of the IPS business?

I never cease to be energised by the quality of clients, and the

successful outcomes that a firm of around 140 people can

generate week in and week out.

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Yes. If we didn’t believe that, we should exit any business that we

felt would be dilutive to shareholders. Our investment objective

is simple: long-term capital gains and steadily increasing

income. One of the great things about having permanent capital

is that we are able to invest for the long term. We remain alert to

any prospective acquisitions that would enhance our businesses

and offer value to our shareholders.

What key themes are you thinking about
across all aspects of your business?

Law Debenture’s reputation is built on independence and trust.

We are extremely careful every day to protect these values. The

increasing use of technology and evolution of ESG initiatives are

the two main themes that permeate all of our divisions.

Like many professional services firms, we had been relatively

slow adopters of technology. This is rapidly changing. We have

significantly added depth and breadth to the technology team

that we employ. This in turn has galvanised many initiatives that

enhance the way that we interact with our clients. That said, we

are still at the early stages of this journey. Critical to our long-

term success will be our ability to adopt best-in-class third party

software solutions that increase control, build scale, and enhance

our clients’ experience.

Turning to ESG, our professional service businesses all form part

of the “G” in the ESG lexicon. The rapid, and still accelerating

adoption by investors globally of ESG factors when making capital

allocation decisions is an irresistible force.

S T R A T E G I C I N F O R M A T I O N

Q&A with James Henderson & Laura Foll
investment managers

Can you sum up your approach to investing
for our shareholders?

James: The approach is to look for excellent quality, often globally
competitive companies, and invest at the point at which the

valuation is low. This could be for a variety of reasons; short term

results might have been disappointing; there might have been

a change of management team; it could simply be that (and

this is often the case with small and medium sized companies)

the company is not well known and potentially misunderstood.

We are investors for the long term. The approach is to start with

a small position and gradually increase it as confidence in the

investment case builds. We will then often hold the position for

five years or longer. Where we go overseas for holdings it is where

You have been working as a team for
nearly ten years now. Can you explain
to shareholders how that partnership
works in practice?

Laura: The blend of our complementary skills has served the
portfolio exceptionally well, both in terms of experience and

sector knowledge. James has a long history of successful investing

through previous cycles, as well as in depth knowledge of sectors

that are a material portion of the portfolio such as industrials

and insurance.

James: Laura has offered a great deal of valuable insight since
joining me in 2011. Her significant expertise in pharmaceuticals

there is no UK equivalent. The best example of this is Microsoft

is just one example of where Laura’s insight has been a real asset

where there is, unfortunately, no UK company that is comparable.

as we looked for high quality stocks that are somewhat out of

favour but have significant potential for growth and attractive

valuations. I’m delighted by the Board’s decision to appoint her as

co-manager and look forward to many more years of successful

delivery for our stakeholders.

lawdebenture.com

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How do you think about and manage
risk in the portfolio?

What stock are you currently most
excited about?

James: Primarily through position-sizing and a relatively long list
of holdings, meaning the capital at risk and the income being

James: Our portfolio aims to be balanced in its exposure, which
means that no individual stock or ‘theme’ will be the sole driver

provided by any one stock is comparatively low as a proportion

of performance. That said, there are of course stocks that we are

of the total. The IPS business also provides an additional layer

particularly excited about.

of diversification for the portfolio, so we are less exposed to any

potential dividend cuts from the equity holdings.

What do you enjoy most about running
the Law Debenture portfolio?

Laura: The unique advantage of Law Debenture is the
combination of the professional services business with the

investment trust. What this allows James and me to do is run
the portfolio with less of an income constraint, while knowing

that the yield of the overall Company will still be attractive

for shareholders.

The UK has been out of fashion with
investors in recent years, particular since
the country voted to leave the European
Union. How has this impacted the portfolio?

James: Domestically focused UK companies were effectively
discounted by the market following the EU referendum. This

discount has only very recently begun to close, from the fourth

quarter of 2019 onwards. For Law Debenture this de-valuation

of ‘domestic UK’ (along with the devaluation of Sterling) has

meant that its overseas weighting has been a material positive

contributor to performance as overseas markets, particularly the

US, have outperformed. It has also meant a number of attractive

valuation opportunities became available in the UK. Dunelm, for

example, was added to the portfolio at what looked like a very low

valuation, partly because it is entirely domestic in its exposure.

This is now one of our largest 15 investments for the investment

trust and has generated a 144% share price total return since the

investment was added in August 2018.

What was the best decision you made
for the portfolio in 2019?

Laura: Being a net investor in the market and increasing the
gearing level steadily during the year. The fourth quarter of 2018

was a weak period for equity markets globally with concerns

about a potential global slowdown and even a US recession

in 2019 (that did not ultimately materialise). This presented a

valuation opportunity for those with a longer time horizon and we

were net investors of over £60m during the calendar year.

At the moment one of those stocks is insurance company Hiscox.

The holding has been in the Law Debenture portfolio since I

started running it in 2002. The share price of Hiscox has gone

up around ten times since then and has also delivered a strong

stream of dividends. There have been times we have reduced

the holding on portfolio balance and valuation considerations,

and others when we have put money in when they have had

a capital raise. The holding has added very considerable value

over time as the company has grown to be a substantial global

insurance company.

Recently it has experienced some share price weakness as

insurance claims have been running at a high level. The company

has the same disciplined culture that has served it well over

many years, meaning we expect it to move forward again when

insurance rates rise and profitable growth resumes. We will

be adding to the holding when we see the evidence for this

coming through.

Where do you sit on the ESG debate and
how will this affect the Law Debenture
portfolio going forwards?

Laura: ESG has long been an integral part of our investment
process, for the key reason that we are long-term investors

and therefore any material ESG factors are also material to

the investment case. It is, however, a very broad topic, and

while governance is comparatively easy to measure (and

there has already been substantial improvement in this area),

environmental and social concerns are both broader and more

difficult to measure quantitatively. Therefore the approach

we have is pragmatic. While we do have quantitative metrics

on ESG available for the portfolio, we are not going down the

route of explicitly screening companies out on ESG ratings

as the data quality is sometimes poor. The route we go down

instead is any material issues flagged are discussed directly

with the company and monitored for improvement. We are

not afraid to exit positions where management fail to deliver

expected improvements.

ESG issues are considered both directly by James and I, and

also by the experienced responsible investing team at Janus

Henderson. We recognise that many of these issues are complex

and, in some cases, subjective. Therefore we need both the

internal resource at Janus Henderson and external data providers

such as Sustainalytics, to reach an informed decision on

companies. This includes how they compare versus listed peers,

whether they are improving and what the material controversies

Q&A with James Henderson & Laura Foll
investment managers continued

are. We consider our own discussions with companies, the views

•

Will UK economic growth start to accelerate? Consensus

of the internal responsible investing team and Sustainalytics, but

expectations for economic growth in the UK this year could,

ultimately the investment decisions fall to us as Fund Managers.

we think, look too low. This would benefit some of the more

We will always vote at company AGMs; we see this as a key part of

our role as institutional shareholders. Where we have concerns (for

example regarding executive pay) we will flag these for discussion

ahead of the vote, with the hope that changes will be made and

domestic UK holdings (for example Dunelm and Johnson

Service Group). If the UK economy were to materially slow,

this would be a modest negative for the portfolio, as we have

increased the domestic UK exposure.

a compromise reached. Therefore in ideal circumstances votes

•

How do we position the portfolio for the transition to a lower

against companies will be rare, but if we do not see evidence

carbon economy? There is undoubtedly a desire to shift the

of adequate change we absolutely are prepared to vote against

global economy away from fossil fuels at an accelerating pace.

that resolution.

The Board has stated their ambition to
increase the yield paid to investors. Were
you supportive of that decision and do you
think it is sustainable in the longer term?

In recent years we have purchased a number of positions such

as Ceres Power and ITM that will benefit from this shift and this

is an area we will continue to monitor closely. This area is not

only an opportunity for these new portfolio companies but also

a challenge for the more traditional fossil fuel companies, such

as Royal Dutch Shell and BP.

Laura: We were fully supportive of the decision and are very
pleased with the dividend increase as both shareholders and

What do you believe the outlook is for
the UK economy?

fund managers.

James: The investment income grew strongly year on year.
Partly because the gearing level increased but also due to good

Laura: The UK economy has a number of long-term positives
that have been lost in the ‘fog’ of political uncertainty. We have

an excellent corporate governance framework, a relatively open

underlying income growth and a number of special dividends

market for corporate activity, good demographics (the UK is not

(many of which we think will recur in 2020). When we review

the next Japan) and relatively low levels of red tape. The UK equity

the dividend forecast, we are comfortable with the durability of

market is also starting from a point where valuation is low relative

the dividend. From an equity portfolio perspective we are less

to other global equity markets and sentiment (while improving) is

reliant than the Index on a few large companies because of the

still relatively poor. Putting all of this together makes us positive on

long, diverse list of holdings. From a shareholder perspective, the

the UK equity market, so we are happy with our current allocation

professional services business brings another layer of diversity to

of around 80% of the portfolio to the UK.

the income that is unique to this Company. Therefore we think

this Company is well placed to be an attractive income holding for

shareholders and are pleased to see the Board making full use of

the opportunity to grow the dividend materially.

What key themes in 2020 will drive the
performance of the portfolio and what do
you think the key challenges will be?

James: The investment portfolio is deliberately diverse in its
exposure and therefore there is not any one key theme that

will drive performance. That being said, there are a number

of key considerations that we are thinking about this year.

These considerations are both an opportunity and, potentially,

a challenge:

•

Will the global economy continue to grow at a modest pace?

The portfolio has a material portion invested in industrial and

financial companies, both of which would benefit if the global

economy continues to grow modestly. Conversely, if the global

economy materially slows, this would be a difficult backdrop

for these companies to grow earnings. Current economic data

would suggest that industrial activity is bottoming out with

modest signs of improvement.

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11
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Our IPS business is a key
differentiator between us
and other investment trusts.

As James Henderson and
Laura Foll explain in their
investment review, the
reliable nature of the IPS
earnings have covered around
35% of total annual dividend
payments in the past ten
years, allowing James and
Laura increased flexibility
in portfolio construction.

S T R A T E G I C I N F O R M A T I O N

Chief Executive Officer’s review

Over the past three quarters of 2019, their confidence in the

attractive valuation opportunities within the UK market could

have been considered by many as a contrarian play, in light of

continued uncertainties over Brexit and the uncertain outcome of

the general election. Ultimately the judgement to reposition the

portfolio by reducing certain overseas holdings and increasing

leverage proved profitable for shareholders in 2019. While not

every call will be right, their depth of knowledge and experience

continue to deliver outstanding results for our shareholders year

on year. I would like on behalf of our Board to extend our sincere

thanks to James and Laura for the expert way in which they

continue to guide the portfolio.

Our independent professional services
business (IPS)

Our IPS business remains a key differentiator between us and

other investment trusts. As we continue to grow that business,

the contribution we are able to make to the income paid out to

our shareholders increases.

At the start of 2019, we committed to shareholders that we

would grow the IPS business by mid to high single-digits, and

that is exactly what we have achieved. In the face of significant

headwinds in capital markets, we were able to grow our full-

year revenues by 7.5% in 2019. This emphasises the strength of

the diversification of our revenue streams, particularly in the

context of difficult trading results reported by many capital

At the core of

Law Debenture’s

financial objectives

are two keys aims;

the first is to

achieve long-term

capital growth,

the second is to steadily

increase income for

our shareholders.

markets facing businesses. It is of critical

importance that this increase in revenue

growth translates to greater rewards

for our shareholders. We were able to

increase our earnings per share from our

IPS business by 8.5% in 2019, supporting a

third of the proposed dividend payment.

IPS earnings have covered 35% of

total annual dividend payments in the

past ten years, allowing James and

Laura increased flexibility in portfolio

construction. It is this diversification,

coupled with our on-going growth

agenda for the IPS business, which I

believe makes us uniquely placed to

support the step change in dividend

payments the Board is proposing.

We remain confident we can grow the

IPS business considerably over time,

while preserving our quality of product,

outstanding client outcomes and our

hard won reputation.

Introduction

As you have heard from our Chairman,

at the core of Law Debenture’s financial

objectives are two keys aims; the first is

to achieve long-term capital growth, the

second is to steadily increase income for

our shareholders. Our investment portfolio

appreciated by over £100m in 2019, our

investment portfolio income increased

by 25.9% and the earnings per share

generated by our IPS business increased by
8.5% showing significant progress across all

of those metrics.

Our investment trust

The strength of our investment return

continues to build. As CEO of the Group,

I see the enormous benefit for our

shareholders in the long-term partnership

between James Henderson and Laura

Foll of Janus Henderson Investors. I take

great comfort in observing the passion

James and Laura have for the portfolio. As we step up our efforts

to meet investors, they speak with great clarity and conviction

Our leading independent professional services business is built

on three excellent foundations; our pension, corporate trust and

around their investment thesis, coupled with a depth of long-term

corporate services businesses.

understanding about the companies in which we invest.

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2019 may well come to be seen as the year in which discussion about ESG swung from being

a niche question about ‘ethical’ investment to a mainstream recognition that these factors

can and do affect the financial performance of pension scheme assets.

The table below sets out the revenue by division for the past

we have been required to take to discharge our duties as trustees,

three years, alongside a percentage growth number for 2019

where the cost of this advice has ultimately been charged to

compared to prior year. This number is presented net of cost of

our client. We believe this provides our shareholders with a true

sales. This means we have deducted the cost of any legal advice

representation of the growth of our business.

DIVISION

Pensions

Corporate trust

Corporate services

Total

Taking each business in turn:

Pensions

Our pensions business is now more than 50 years old and

continues to go from strength to strength. Our team of trustees

grew by 10% over the course of 2019 and is now supporting in

excess of 200 clients, with oversight of over £350bn of assets,

providing pension benefits to more than three million families.

Market dynamics
The trend towards consolidation among the UK’s 5,500 defined

benefit pension schemes is now firmly established. Consolidation

provides an opportunity for smaller schemes to enhance
governance, improving outcomes for pensioners as well as for

the companies funding these schemes. This in turn presents

the opportunity for Law Debenture to increase market share,

with larger schemes having the appetite and financial resources

to employ a professional trustee. Indeed, we have won some

significant new mandates in light of this trend.

Stewardship and ESG
Over the 50 years that we have acted as independent trustees, our

primary duty has been to act in the best interests of beneficiaries.

This duty remains the cornerstone of the trustee role; however,

2019 has also seen a significant extension of that role, with an

increasing focus on stewardship and environmental, social and

governance (ESG) factors.

This presents us with an opportunity to expand our product

offering in what we expect will be a fast growing market over the

short, medium and longer term.

Net revenue
2017
£000

Net revenue
2018
£000

Net revenue
2019
£000

Growth
2018/2019
%

8,270

7,900

10,977

27,147

9,488

8,362

11,734

29,584

10,598

9,024

12,167

31,789

11.7

7.9

3.7

7.5

The Pensions Regulator has broadened the definition of

stewardship to consider the sustainability of value creation by

pension schemes, not only for beneficiaries but for the economy

and wider society.

From October 2019, trustees have been required to explain how

they engage with debt and equity holders on not only investment

performance, strategy and risk, but also on the environmental,

social and governance impact of those businesses. 2019 may

well come to be seen as the year in which discussion about ESG

swung from being a niche question about ‘ethical’ investment to

a mainstream recognition that these factors can and do affect the

financial performance of pension scheme assets.

Some of our schemes have carried out surveys of their

membership and have found that an ESG investment focus can

carry considerable support and can be a way of engaging younger

members who have grown up amid the reality of climate change.

We are not complacent about the challenges presented by

ESG: this is an emerging area, and both climate science and the

response of financial institutions to it are evolving. But we do

believe there are opportunities for us as professional trustees to

provide valuable assistance to our clients to help them to address

those challenges.

Professional trusteeship
In 2019, the Pensions Regulator consulted on a range of proposals,

including a suggestion that all trustees should be required to

have a professional trustee on Board. Whilst they did not support

a mandatory requirement, we expect it to be a question they

ask frequently moving forward. We think that will lead to an

increasing demand for our professional trustee services.

S T R A T E G I C I N F O R M A T I O N

Chief Executive Officer’s review continued

The consultation also focused on the ‘sole trustee’ model, which

In order to grow our business, we are always searching for the

is becoming increasingly popular as employers are distanced

best possible staff. We have critically challenged our recruitment

from legacy pension schemes, and it becomes even harder to

processes over the course of 2019 to support our agenda of

find member representatives willing to serve on the pension

increasing diversity. We are delighted that we contracted four

trust board. We were pleased to be able to meet the Pensions

outstanding women to join our business over the course of 2019

Regulator to discuss our approach to sole trusteeship, which

and the start of 2020, helping the continued evolution over time

provides a robust governance and decision-making framework for

from a largely male trustee population. The demand for diversity

pension schemes.

A further area of focus from the Regulator is the requirement for

trustees and employers to have a workable road map to get their

scheme into a position of long-term sustainability. This could

be through buy-out, a low dependency model or transfer of the

is not just one of gender; by encouraging diversity in all of its

forms we weave a richer web of experience with which to deliver

innovative and insightful thinking to our clients. Our clients in

turn are thinking hard about diversity, so it is vital we continue to

expand our team in a way that meets our clients demands.

scheme to a consolidator. The Pensions Regulator’s long-awaited

2019 saw further excellent progress in our Pension’s Governance

consultation on a new defined benefit funding code is expected

Service business, Pegasus. Investment in the expansion of our

in March 2020.

Risk Transfer to the Insurance Sector

The last few years have seen a significant increase in

company pension schemes looking to reduce risk through

risk transfer to the insurance sector. Law Debenture has

played an important role in many of these deals. 2019 saw

the largest bulk annuity transaction to date of £4.7bn by

Telent’s GEC 1972 Plan, which we supported through our

role on the trustee board. We were involved in a further

third of all other large bulk annuity deals transacted in

2019, which collectively amounted to an additional £5bn+

team delivered a 55% increase in revenue in 2019, with a very

strong pipeline of prospective clients promising an even higher

level of growth for 2020.

Outlook for our pension business
Our defined benefit scheme clients continue to represent the

majority of our revenues. The combination of our excellent

team and reputation, leaves us well placed to continue to grow

our market share. At the same time, we have an eye to the

future where we believe that the growth in importance of our

defined contribution (DC) work relative to our total revenues

will continue. We are confident too in our ability to grow our

Pegasus business over time.

of value. This included the deal between Legal & General

I would like to thank Mark, Michael and their team for their

and Tate & Lyle, where we have acted as trustee for more

persistent pursuit of superior outcomes for their clients.

than 10 years. The longevity swap market (which transfers

longevity risk from company pension schemes to the

insurance market) has also seen some very large deals

being transacted. We were involved as part of the trustee

team in the £10bn longevity swap recently completed by

the Lloyds Banking Group pension schemes. Involvement

in these important market-leading deals puts our trustees

in an excellent position to support other schemes

wishing to undertake these material risk-

reducing transactions, as well as increasing the

security of members’ benefits in the schemes

undertaking the transactions.

Highlights
Our pension’s team goes from strength to strength under the

leadership of Michael Chatterton and Mark Ashworth. Our

results in 2019 continue to build on strong growth in 2018,

Corporate trust

Our corporate trust business led to the creation of Law Debenture

over 130 years ago and happily one of our first appointments as a

trustee remains in place today. Our duty as a corporate trustee is

to act as a bridge between bondholders and a bond issuer. Over

the course of 2019, we acted as trustee for more than £60bn of

new bond issues. We are currently acting as trustee for bonds with
a collective face value of more than £600bn across almost 8,700

live appointments.

As a trustee, we are typically paid an inflation linked annual fee

to discharge our duties throughout the lifetime of a bond. We

started 2019 with almost two thirds of our £9.0m annual revenue

contractually secured, with an overall inflation linked increase of

1.9% on those same contracted revenues in 2018. We also earn

revenue when amendments to documentation or other actions

with revenue up 11.7% from £9.5m to £10.6m. One of our key

are required. This will often be separately remunerated and

differentiators is the quality and diversity of skill sets within our

provides us with an additional income stream, which represented

team. By appointing Law Debenture, our clients access not just

15% of our corporate trust revenue for 2019.

one highly commercial and qualified individual, but a collective

400 years of knowledge and experience of the pensions

industry. As we continue to lead the market in supporting and

innovating for our clients, we have an exciting pipeline of new

business for 2020 and beyond.

The revenue and risk profile of the trustee can shift substantially

in instances where a bond goes into default. In these scenarios,

the trustee may be required to perform material extra work

that, given an optimum result, can lead to significant additional

income. However, default scenarios may involve the business

incurring cost and can take years to play out.

lawdebenture.com

Our corporate trust team are conservative and careful in taking

The combination of significant demand and political will to create

on new business, operating in an environment that has long

new affordable housing will, we believe, lead to an expansion in

prioritised these qualities. This highly disciplined approach has

this market. We are well placed to grow our market share in light

produced consistent profits for over a century. Our shareholders

of that expected expansion.

should understand that swings in our revenue (and in turn profit)

can result from adopting a prudent approach to provisioning, as

long-term defaults work their way to a conclusion.

Market dynamics
2019 proved a difficult year for capital markets-facing businesses.

Investment banking revenue was down 4% globally, with Europe
the weakest region, down 14%1. We have fought hard to maintain
our market share in a highly competitive market place and are

pleased to report revenue growth of 7.9% over the course of 2019

Highlights
We took on 265 trustee engagements in 2019, booking revenues

of £0.6m in 2019 for these contracts, a small fraction of the

full value over their life cycle of around £6.0m. In light of the

challenging conditions across capital markets, fees from new

business were slightly lower than in 2018. The multi-year impact

of new business wins, coupled with a release of reserves of £0.4m

lead to an overall increase in year-on-year revenue of £0.7m.

from £8.4m to £9.0m.

Key client appointments include:

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Clean Energy

We have deep expertise and experience in green energy

project finance. For example, in 2019 we were appointed

as trustee on a €200m note issuance by Alerion Clean

Power S.p.A., an Italian company whose principal activity

is managing a portfolio of wind farms. The

proceeds of this note will be used to finance

wind farm projects, which comply with the

International Capital Markets Association Green

2019 saw a number of senior hires to re-invigorate the Hong

Bond Principals 2018.

Eliot Solarz continues to lead a team with a market reputation

for outstanding technical knowledge, speed, quality of service

and willingness to innovate. We are privileged to have been

appointed by many of the UK’s best known brands such as Lloyds,

M&G, Sainsbury’s and Next, during the year for Investment Grade

corporate bond issues.

We continue to play very much to our strengths. Our depth of

Kong branch of our business. While social unrest and latterly the

outbreak of the coronavirus has made it more challenging to do

business, we were delighted to see a strong turnout of both our

long-term and new clients to our celebration to re-launch Law

Debenture Asia in October. As a Company, we are building for the

long term, we are confident that the quality of our team in Asia

will bear significant fruit for shareholders over time.

Outlook for our corporate trust business
The long-term nature of appointments in the corporate trust

market knowledge, coupled with the absence of bureaucracy,

universe provides a desirable stable and index-linked source of

provides us with a distinct competitive advantage when

revenue for the Group. As highlighted above, only a small fraction

competing against global banks for more complex products.

of the value of contracts won in a given financial year will benefit

We often have an edge in long-dated ‘real asset’ financings, an

that year’s profit and loss account. Our aim is to consistently win

example of which is given below:

new business in both the standard investment grade space and

Social Housing

One in ten people lives in a Housing Association home.2 We have long standing relationships with many players in this sector
and social purpose lies at the core of what they do. Our appointments include bond trustee, security, trustee, note holder

representative and loan agency roles.

A chronic shortage of social housing was highlighted by all sides during the December election campaign. The new Government

has pledged to bring forward publication of a Social Housing White Paper and also pledged to simplify our planning laws.

We are hopeful that these initiatives will be followed through and in turn accelerate investment in much needed projects. We are

actively engaged with both existing and new clients and investors to help facilitate vital growth in our nation’s housing

infrastructure.

2 Source: English Housing Survey 2016/7

1 Source: Dealogic

S T R A T E G I C I N F O R M A T I O N

Chief Executive Officer’s review continued

niches where our speed and deep expertise provide us with a

significant advantage.

With the possibility of some of the Brexit clouds finally starting

to clear, 2020 has started with improved sentiment among our

customers. We will continue to pursue new opportunities to lock

in multi-year index-linked revenue streams.

Highlights
Revenue from these businesses grew from £11.7m in 2018 to

£12.2m in 2019, an increase of 3.7%. Our traditional corporate

services businesses were able to achieve a moderate level of

growth, notwithstanding the difficult conditions within capital

markets highlighted above.

Corporate services

By contrast and again showing the benefit of the diversity of our

income, the market for our whistleblowing service continues

to expand significantly. Headed up by Graham Long, he and his

Corporate services provide outsourced solutions across a range

team have delivered a 20% increase in revenue in 2019 and a 50%

of company secretarial, accounting and facility agent services.

increase in revenue over the past three years.

These services are provided largely, but by no means exclusively,

to corporates and special purpose vehicles.

Market dynamics
The traditional credit card, mortgage and asset backed

Today, Safecall has over 500 clients. We work with businesses

with as few as 25 staff, right the way to multinationals with

80,000 staff, where we are able to assist them in more than

100 languages.

securitisation aspect of this market remains below its pre-financial

Key client wins for this year include:

crisis peak and the marketplace remains fiercely competitive.

In the short term, over-capacity (in part underwritten by private

equity money) needs to work its way through to a conclusion. In

the meantime, 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, 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 2019 despite tough investment banking

conditions. Led by Anne Hills, it has a market-leading reputation

with law firms in London, New York and Hong Kong.

We also provide independent whistleblowing services, through

our subsidiary Safecall, in what is a dynamic and fast growing

industry. Safecall provides an independent, confidential,

anonymous (if desired) route to raise issues to the highest

levels of organisations. In addition to providing a service which

allows the whistle-blower to feel supported and listened to, the

reporting mechanism to our clients provides members of senior

management and the Board with increased confidence that a

robust independent process is in place to uncover and address

potential wrongdoing before it has further negative impact on

their company.

Governments continue to legislate in this area. The EU

Whistleblowing Directive was adopted in April 2019 with a two

year implementation period. The start of 2020 saw the first

reading of the ‘Office of the Whistleblower Bill’ in the House

of Lords, calling for the creation of legislative frameworks to

underpin citizen and workers’ rights. Safecall is helping to develop

ISO37002 Whistleblowing Management Systems to standardise

best practice within businesses, which is due for publication in

2021. In a world where ESG has become an integral part of good

business practice, the demand for our services is set to increase.

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Between our exceptional investment managers and our talented and hardworking IPS team,

we generated £157m of value for our shareholders in 2019. While our team feels justifiably proud

of that achievement, rest assured that our focus remains firmly on our clients and on 2020.

Outlook

Premises

We believe the team at Safecall offers a product superior to their

competitors at a competitive price. We continue to think long-

term for this business, building the right technological solutions

and products for our clients today that we can continue to evolve

for many years to come.

The lease on our London office expires in July of this year. We are
currently exploring options as to whether to renew our current
lease or seek accommodation elsewhere. Any decision we make
will be balanced between our key stakeholders, our clients, our
staff and our shareholders.

Red Tractor: supporting welfare
improvements in our supply chains

Our client Red Tractor provides a quality assurance standard

for food and drink sourced in the UK. Their challenge was to

have a greater understanding of potential wrongdoing within

the farms accredited under their standard. Possible users of

the service ranged from farm workers, vets and suppliers, as

well as the general public. We provided a customised online

solution that allows anyone who witness wrongdoing to

inform Safecall of their concerns. By using our

service, Red Tractor has the tools to identify and

address instances of unacceptable behaviour

taking place in the food chain.

Prospects

2019 was a very successful year for Law Debenture with the share

price rising by 24.5% and a proposed increase in the final dividend

of 50%. Regarding income, the Group’s aim is also to continue

to deliver gradually increasing dividend payments in excess of

inflation over time.

We are encouraged that IPS has delivered on its ambitions

with a second year of mid to high single-digit growth despite a

challenging backdrop for capital market activity. We remain in

the early stages of a re-invigorated growth cycle and continue

to see opportunities to grow revenue and earnings significantly

over time. IPS has very attractive financial characteristics and we

continue to invest in talent and technology to take advantage

of material market share opportunities. We are also alert to

opportunities presented by acquisitions, where we believe we

The need to tackle a broad range of issues including animal

could utilise our balance sheet to accelerate the growth in returns

welfare, environmental protection and modern slavery are

for our shareholders.

rapidly rising up the agenda for governments, companies and

individuals. In light of this, we expect the market for our services

to continue to grow rapidly. More information is available at

www.safecall.co.uk.

Both the long and short-term performance of our investment

portfolio remains strong. We have an excellent investment

management team, who the Board is confident are well placed

to continue to position the equity portfolio for future longer-term

growth. They continue to see opportunities to seek out quality

Investment in technology

stocks with high entry barriers.

Towards the end of 2018, we appointed David Williams as Chief

Technology Officer (CTO). David brought with him a great wealth

and depth of experience as the former CTO of Marshall Wace

LLP and Tibra Trading. Building on our successes in 2018, David

has hired a further seven full-time technical experts to facilitate

delivery of high quality technical solutions. We are a people

business, but, in today’s world, it is critical that we are smart

users of technology. David and his team are working tirelessly

to improve the services that we provide to our clients, be that

introducing additional functionality, enhancing security or

reducing costs by delivering efficiencies in our operations. Many

more valuable initiatives are at various stages of delivery across a

rolling two year plan.

Our differentiated business model allows increased flexibility

in portfolio construction. We are confident that our unique

combined businesses are well placed for the future and continued

delivery of long term capital growth and steadily increasing

income.

Denis Jackson
Chief Executive Officer

26 February 2020

S T R A T E G I C I N F O R M A T I O N

Investment managers’ review

Following the intention flagged to our shareholders at the start

of 2019, the Company completed the transition from the AIC’s

Global sector to the UK Equity Income sector in May. We believe

this sector provides a much more relevant comparator to what

your portfolio is aiming to deliver, while retaining flexibility for us

to allocate a portion of the portfolio outside of the UK, as we have

done successfully over many years.

Our investment process

We take a bottom-up approach, spending a great deal of time with

the management teams of our portfolio companies, conducting

detailed analysis of the strengths, weaknesses and growth prospects

of those companies into which we invest your money. Responsible

investing (incorporating environmental, social and governance

issues) has always been an integral feature of the investment process

as we are long-term investors. Therefore, any material responsible
environmental issues are also material to the investment case. These

issues are of growing prominence to both investors and companies.

We increased

our leverage and

repositioned our

holdings over the

course of the year

to take advantage of

comparatively low

valuations within the

UK market, particularly

for domestic stocks.

Therefore, while they have always been an

implicit part of the investment process,

we are now explicitly both monitoring

internally and discussing with company

management teams any particular issues

or areas of concern. We have decided not

to explicitly exclude any sectors, partly

because on the more difficult to measure

environmental and social area the data

quality remains, in some cases, poor and

partly because in our view it is better

to engage with companies on better

practices rather than to sell the shares.

We often buy stocks at the point at which

they have either fallen out of favour or are

relatively unknown, but importantly that

we believe have significant potential for

earnings growth. They will typically be

world class brands selling globally, that
operate in an industry with high barriers

to entry that therefore enables them

to generate a good operating margin.

One such example, where we added

The equity portfolio

We have a diversified portfolio which aims

to be a one-stop-shop for investors seeking

quoted market exposure to quality companies.

The majority of the portfolio, 80.7%, was

invested in UK stocks at the year end, of which

around 55% was invested in the FTSE 100,

with the remainder in mid and small cap

stocks. This allocation to the UK is a notable

increase from 74.5% at the end of 2018, driven

by a net investment of £102m into the UK

during the year. We increased our leverage and

repositioned our holdings over the course of

the year to take advantage of comparatively

low valuations within the UK market,

particularly for domestic stocks.

Although our focus is, and will remain, the

UK, we confidently go to other geographies

for companies that do not have a credible

UK equivalent. Microsoft remains the largest

overseas position, having been held in the

portfolio for the last eight years. There is,

unfortunately, no UK equivalent. While we

have reduced the position in recent years on valuation grounds,

the organic growth being achieved, considering the scale of the

company, remains impressive and we therefore remain happy with

a modest position. 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

almost £9m to the holding during 2019, was GlaxoSmithKline. The

business was trading at a material valuation discount to the global

pharmaceutical sector despite having within the Group world-class

consumer healthcare and vaccines businesses.

We are patient with our positions and invest for the long term. We

the world. This had fallen to 8.3% in North America, 7.8% in Europe

build up positions gradually. Having taken the decision to invest

and 3.1% in the rest of the world by the end of 2019 as a result of

the portfolio repositioning. Overall, we were net investors of £60m

across the portfolio in 2019.

The Company’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.

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

lawdebenture.com

NAV total return with debt at par1

NAV total return with debt at fair value1

FTSE Actuaries All-Share Index total return2

1 year
%

19.4

17.9

19.2

3 years
%

27.6

22.0

5 years
%

10 years
%

52.4

49.4

43.8

192.4

181.5

118.3

1 NAV is calculated in accordance with AIC methodology, based on performance data held by Law Debenture including fair value of IPS business. NAV total return with debt at par excludes

the fair value of long-term borrowings, where NAV total return with debt at fair value includes the fair value adjustment.

2 Source: Bloomberg, all references to ‘FTSE All-Share’ and ‘benchmark’ in this review refer to the FTSE Actuaries All-Share Index total return.

is sufficient to influence the portfolio performance as a whole.

More information on our investment approach can be found on

Our patience keeps our portfolio turnover low, reducing the

pages 32 to 33 of the strategic report.

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 53.4%.

Review of 2019

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The Company has paid £196m to its shareholders in dividends over

the past ten years, of which £68m, or 35%, has been funded by the
IPS business3. We are supportive of the Board using the growth in
the IPS business, the increase in investment

2019 was a year of strong performance for the Law Debenture

portfolio. Overall, the Company generated a total return of 19.4%
(with debt at par), creating £141m of value for our shareholders.

income and the change in the allocation of

investment management fees and interest

to substantially increase the final dividend

to be paid to shareholders for 2019.

We are confident (subject to unforeseen

circumstances) that this dividend is

sustainable in the longer term. We retain

the historical freedom afforded to us by the

contribution of the IPS business to bypass

stocks which do not fit our investment

criteria, but which that others seeking to

provide a yield to shareholders may be

forced to buy. We are 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.

We regularly interact with private

shareholders who hold Law Debenture

as their only equity investment. We

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. It is our firm belief

that, if we focus on growing capital, it will

2019 was a year of

strong performance

for the Law Debenture

portfolio. Overall, the

Company generated

a total return of 19.4%

(with debt at par),

creating £141m of value

for our shareholders.

Investment income

grew by 25.9%,

affording the Board

greater flexibility on its

approach to dividends.

Investment income grew by 25.9%,

affording the Board greater flexibility on

its approach to dividends. Over that same

period, the FTSE Actuaries All-Share Index

total return was 19.2%. This means we were

able to capture the market increase, having

protected the portfolio from 40% of the

overall market decline in 2018.

Economic backdrop
The good returns generated by global

equity markets (including the UK equity

market) in 2019 need to be considered in

the context of a weak period for equities

in the fourth quarter of 2018. Towards the

end of 2018 there was concern, led by the

escalating trade war between the US and

China, that there would be a synchronised

global economic downturn and, in a worst

case scenario, a US recession. This meant

that towards the end of 2018 market

expectations for earnings growth in 2019

were revised downwards. Therefore, when

the global economy continued to grow at

a modest pace in 2019 there was scope,

from low expectations, for earnings to

positively surprise and for valuations to

move upwards.

result in increased dividend income from that capital. This is the

cornerstone of our investment philosophy and is unaffected by

the development of the Company’s dividend policy.

After a difficult and volatile 2018, 2019 proved fruitful for those

who kept faith with the UK economy. We are pleased to report

that our patient approach continues to see your portfolio (with

debt at par) outperform its benchmark on a one, three, five and

ten year basis.

The UK economy continued to grow

modestly during 2019, with real economic growth of just over

1%. This placed UK economic growth roughly in line with much

of the Eurozone, despite the political uncertainty that created

an overhang on business investment and consumer confidence.

At the time of writing, consensus expectations are that the

UK economy will grow at a similar pace (1.1%) in 2020, with an

acceleration in growth towards the end of the year. This could in

our view look pessimistic. Pent-up business investment may go

ahead this year and the UK consumer could, having had decent

S T R A T E G I C I N F O R M A T I O N

Investment managers’ review continued

levels of real wage growth, choose to spend the extra income

The valuation discount and attractive dividend yield on the UK

rather than increase their savings.

Market review
While the UK equity market performed well in 2019, on a longer

market should be seen in the context of a number of structural

positives for the UK economy including an excellent corporate

governance framework, a relatively open market for corporate

activity and low red tape. In our view, the long-term positives of

term basis it has underperformed other global equity markets.

the UK market have been forgotten with the political uncertainty

in recent years, but continue to represent a valuation opportunity

for long-term investors. We therefore remain happy with

approximately 80% of the portfolio invested in the UK as at the

end of December.

Portfolio attribution

The best performer during the year was Johnson Service Group,
a UK textile rental company that operates across workwear,

hotel linen and restaurant linen. The shares performed well on a

combination of strong earnings growth (earnings per share are
forecast to have grown a low-teens percentage during 2019) and a

revaluation upwards of the shares. The share price total return for

the year was 71.3%. On a longer term basis, Johnson Service Group

has performed well by providing a continually high level of service

and reliability for customers. They have also undertaken selective

acquisitions, often in adjacent regions in the UK where they did not

historically have a presence.

Another of the best performers was homeware retailer Dunelm,
which was first purchased for the portfolio when Dunelm listed

on the market in 2006. We added to the position materially in

the final quarter of 2018 when the shares were trading on a low

valuation. Dunelm is the market leader in homeware in the UK,

and is benefitting from store closures from some competitors

(such as Debenhams), as well as its own internal initiatives under

a new management team, such as substantially improving the

website and adding features such as Click & Collect. The share

price total return for 2019 was 129.5%.

Top five contributors

The following five stocks produced the largest absolute
contribution for 2019:

Stock

Johnson Service Group

Dunelm

Marshalls

Microsoft

Ceres Power

Share price
total return (%)

Contribution
(£m)

71.3

129.5

89.7

51.4

59.8

7.1

6.2

4.9

4.5

4.1

Source: Share price total returns from Bloomberg, all in £

The UK equity market has underperformed other global
equity markets over the last five years

Europe ex UK

World

250

200

150

100

D ec 2 014

Ju n e 2 015

D ec 2 015

Ju n e 2 016

D ec 2 016

Ju n e 2 017

D ec 2 017

Ju n e 2 018

D ec 2 018

Ju n e 2 019

D ec 2 019

Source: Datastream as at 31st December 2019. Rebased to 100 as at 31st December 2014.

Total Return, £. UK – FTSE All Share, World – MSCI World, Europe ex UK – MSCI World ex UK,

US – S&P 500.

This underperformance has meant the UK continues to look

attractive on a relative valuation basis, with an attractive, over 4%,

dividend yield:

Estimated 2020 dividend yield (%)

4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0

MSCI Europe (ex UK)

12 month forward P/E

MSCI Europe (ex UK)

Source: Bloomberg as at 31 December 2019

lawdebenture.com

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Top five detractors

The following five stocks produced the largest negative
impact on the portfolio valuation for 2019:

Stock

Eddie Stobart Logistics

Kier

Rolls Royce

Tullow Oil

IP Group

Share price
total return (%)

Contribution
(£m)

N/A1

-76.1

-16.5

-63.4

-34.6

-7.1

-3.8

-2.4

-2.3

-1.8

Source: Share price total returns from Bloomberg, all in £

1 Shares in Eddie Stobart Logistics are suspended and the valuation has been substantially

written down from the last traded price.

Eddie Stobart Logistics is suspended from share dealing. The
company’s auditors have found irregularities, which has meant

the group has so far failed to produce its report and accounts for

last year. There has been a cash injection that has diluted existing

shareholders but may ensure the company remains trading.

Kier is a major contractor in the UK. The level of debt has become
a great concern of investors. The company is taking action by

focusing the business and selling the housing division.

Rolls Royce has had a difficult period as its major customer,
Boeing, has had to suspend manufacturing of it’s best-selling

plane. The long-term demand for Rolls Royce’s Trent engine

remains in place.

Portfolio activity

What we’ve been buying
The two largest new positions during the year were Lloyds and
RBS. This represented quite a shift in the portfolio, having held
no domestic banks since the financial crisis (we have held two

internationally focused banks – HSBC and Standard Chartered).

What changed was a confluence of factors coming together. The

ongoing capital requirement is now clearer following a period

of capital ‘creep’ upwards following the financial crisis. Payment

the cut-off for new claims. These two factors came at a time when

Lloyds and RBS were trading on low valuations (roughly at book

value in the case of Lloyds and substantially below book value in the

case of RBS). Both pay an attractive dividend yield to shareholders.

Outside of the FTSE 100, the largest purchases included adding

materially to the existing position in motor and home insurer
Direct Line, which is making good progress under its new chief
executive officer. Despite a difficult backdrop for car insurance

(with high claims inflation), it continues to generate good

underwriting returns. We also participated in fund raisings for
Hipgnosis Songs Fund which purchases music back catalogues
from song writers (for which they receive a royalty stream if the

song is, for example, streamed on services such as Spotify, or

broadcast). This pays an attractive approximately 5% dividend

yield to shareholders and has the additional benefit that it brings

diversification to the portfolio (as it should, for example, not be

exposed to the economic cycle).

In the US the largest new position was Bristol-Myers Squibb,
which was purchased subsequent to Bristol announcing a

merger with Celgene that was poorly received. As a result, the

shares were trading on a low valuation for a pharmaceutical

company that is among the world leaders in oncology.

What we’ve been selling
The two largest sales during the year were the two open
ended Fund holdings, Baillie Gifford Overseas Growth and
Stewart Investors Asia Pacific Leaders. Both had been good
performers for the investment trust over the long term and had

brought additional diversity to the portfolio, both in terms of

geography and sector exposure. We continue to hold a selection

of closed ended Funds that in our view bring diversification to

the investment trust in areas outside of our expertise. A good
example is Herald Investment Trust which has been an excellent
performer for the portfolio over time.

Also among the largest sales during the year was Greene King,
which was sold following a cash takeover approach from Hong
Kong conglomerate CK Asset Holdings. Property company
A&J Mucklow was also sold following a cash and shares takeover
from UK-listed peer LondonMetric. We expect there to be further

protection insurance provisions have also come to an end following

corporate activity within the portfolio in 2020, as UK listed

In our view the long-term positives of the UK market have been forgotten with the political

uncertainty in recent years, but continue to represent a valuation opportunity for long-term

investors. We therefore remain happy with approximately 80% of the portfolio invested

in the UK as at the end of December.

S T R A T E G I C I N F O R M A T I O N

Investment manager’s review continued

companies remain at a valuation discount, but with greater

The focus is to find stocks where there is an excellence in their

political clarity following the general election.

offering but that it is not recognised in the valuation. The discipline

Where we reduced positions during the year it tended to be on

valuation grounds following a period of strong performance. For
example the positions in textile rental company Johnson Service
Group and paving stone company Marshalls were reduced.

of having a valuation screen is important. A product or service

may be very competitive currently, but the pace of change means

this will not necessarily be maintained. The life cycle of products

is generally getting shorter. For this reason, the belief that a stock

can be held ‘forever’ is flawed. Therefore, we will be reducing

Details of your Company’s largest holdings, along with our

the ‘winners’ when valuations are high and buying the forgotten

investment case, can be found on pages 24 and 25.

companies on low valuations; hopefully, before they reinvent

A full portfolio listing can be found on pages 28 to 31.

Outlook

themselves and return to growth.

Buying these recovery stocks will at times result in holding

companies that do not return to growth and fail. This is why

a successful investor using this approach will have a relatively

The future relationship of the UK with the rest of Europe will start

long list of stocks. During periods of low economic activity, good

to be resolved over the course of this year but the UK economy

opportunities often emerge to refresh the portfolio with future

faces continued uncertainties; Sterling could be volatile and

tariffs are a concern if a free trade deal is not achieved. At the
same time, many industries are facing structural change. For

strong growing companies. These companies will often have

an above average dividend yield as they are out of favour with

investors. Therefore the new buying is expected to add to the

instance, the growth of online shopping is dramatically changing

dividend potential of Law Debenture as well as providing capital

the retail landscape. The need to reduce carbon emissions is

growth as these stocks gain traction.

leading to profound changes for the business model of heavy

energy users. These changes will create opportunities as well as

threats for companies, but overall economic growth is expected

to be fairly subdued. However, the stocks in the portfolio are

not a proxy for the UK economy but, rather a broad mix of

James Henderson & Laura Foll
Investment manager

companies with management teams that, through quality of their

26 February 2020

services or products, are expected to add value in spite of the

economic background.

22
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lawdebenture.com
lawdebenture.com

Portfolio by sector

2019

2018

Oil and gas 9.7%

Basic materials 6.4%

Industrials 23.2%

Consumer goods 5.2%

Health care 8.9%

Consumer services 10.2%

Telecommunications 1.1%

Utilities 4.0%

Technology 2.4%

Financials 28.9%

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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%

Technology 3.7%

Financials 27.6%

Geographical distribution

of portfolio by value
2019

of portfolio by value
2018

United Kingdom 80.7%

North America 8.3%

Europe 7.8%

Japan 1.1%

Other Pacific 0.9%

Other 1.2%

United Kingdom 74.5%

North America 9.9%

Europe 8.6%

Japan 1.1%

Other Pacific 4.5%

Other 1.4%

S T R A T E G I C I N F O R M A T I O N

Fifteen largest holdings: Investment Rationale
at 31 December 2019

Rank
2019 Company

% of
portfolio

Approx
Market Cap.

Valuation
2018
£000

Purchases
£000

GlaxoSmithKline

3.6

£89bn

17,149

8,981

Sales
£000

—

Appreciation/
(Depreciation)
£000

Valuation
2019
£000

3,662

29,792

GlaxoSmithKline is one of the world’s largest pharmaceutical, vaccine and consumer healthcare companies. The position was added

to in 2019 as we gained confidence in the strategy under the (relatively) new CEO Emma Walmsley. GSK has historically traded at

a discount to the global pharmaceutical sector. While they have world leading consumer healthcare and vaccines businesses, the

pharmaceutical division has lagged behind others in, for example, innovative oncology drugs. Under a new management team (as well

as Emma there is a new head of pharmaceuticals and new head of research & development) they are re-investing in R&D and focussing

on innovative products. Given the long development time within pharmaceuticals, it will take years for this change to become fully

evident, but we are seeing early stages of an improved drug pipeline.

Royal Dutch Shell

3.4

£176bn

29,213

—

(1,219)

27,994

Royal Dutch Shell is a vertically integrated oil & gas company. Following the material oil price fall from 2014 to 2015 and subsequent

acquisition of BG Group, Shell focussed intensely on reducing its operating and capital expenditure in order to improve its free cash

generation at a lower oil price. The management have successfully brought down the ‘break-even’ oil price at which Shell can generate

free cash flow, such that their existing over 6% dividend yield is covered by cash generation. Shell are also perceived to be leading the
transition to renewable energy within integrated oil and gas companies, which we believe will be a vital component of their success over

time.

Rio Tinto

2.1

£73bn

13,986

—

(688)

3,586

16,884

Rio Tinto is one of the world’s largest mining companies, with a particular focus on iron ore, aluminium and copper. Their mines are well

positioned on the cost curve, often at the lowest cost quartile globally, meaning that they can continue to be highly cash generative

despite volatile commodity prices. This cash generation, combined with a strong balance sheet, has meant that they have been able

to return excess cash to shareholders in the form of special dividends in recent years, a trend we expect to continue in the current

year. They fully exited all coal production in 2018 and score highly relative to other mining companies on environmental, social and

governance risk factors.

HSBC

1.9

£120bn

17,054

—

(1,448)

15,606

HSBC are a global bank with a market-leading presence in Hong Kong as well as some emerging economies. Their geographic focus

brings worthwhile diversity to the portfolio, and they currently pay an attractive dividend yield of over 6%. Under a new management

team, they are scaling back their comparatively lower returning US and European operations and seeking to redeploy the capital in Asia

and the Middle East in order to improve the returns of the group overall. This is not, in our view, factored into the current valuation.

1.8

£96bn

15,870

—

(779)

15,091

BP is a vertically integrated oil and gas company. Similar to Royal Dutch Shell, they materially reduced operating and capital expenditure

following the last oil price fall, meaning their ‘break-even’ oil price has been substantially reduced. They currently pay an attractive over

6% dividend yield that is covered by free cash flow. Under their new CEO they have committed to achieving net zero carbon emissions

by 2050 (both from their own operations and those of their upstream oil & gas customers), while continuing to grow free cash flow

and dividends.

Relx

1.7

£37bn

12,124

—

2,164

14,288

Relx (formerly Reed Elsevier) are an information services provider across a broad range of industries. For example, their LexisNexis

software is used as a reference and analytical tool by the majority of law firms globally. They also manage exhibitions and publish

scientific and medical journals. Relx have done an excellent job of growing sales and earnings consistently in recent years, with low

single-digit organic sales growth plus a small amount of margin growth leading to high single-digit earnings growth. This consistency

has meant they have acquired a (in our view justified) valuation premium relative to the broader market.

Johnson Service

1.7

£725m

10,191

—

(3,047)

7,123

14,267

Johnson Service Group is a UK textile rental company operating across workwear, hotel and restaurant linen. It has grown well both

organically and via ‘bolt-on’ acquisitions in recent years, often filling in geographic gaps in the portfolio. This has led it to consistently

grow earnings while maintaining an only modestly geared balance sheet. In 2019, the position was modestly reduced, not because of

fundamental concerns about the business, but rather because the shares have performed well and, as a result, are on a higher valuation

than they have been historically.

lawdebenture.com

Rank
2019 Company

AstraZeneca

% of
portfolio

Approx
Market Cap.

Valuation
2018
£000

Purchases
£000

1.7

£100bn

10,492

—

Sales
£000

—

Appreciation/
(Depreciation)
£000

Valuation
2019
£000

3,117

13,609

AstraZeneca are a global pharmaceutical company. Following the appointment of Pascal Soriot as CEO in 2012, the business has

invested heavily in R&D and has become one of the world leaders in oncology drugs. The shares have performed well and now trade at

a valuation premium to the global pharmaceutical sector. However, the fast growing new oncology products in the portfolio mean it is

also growing sales and earnings substantially faster than peers.

Prudential

1.6

£38bn

13,095

—

(1,467)

1,878

13,506

The company is a leading provider of insurance products in Asia, with additional operations in the US. In 2019 Prudential spun off its M&G

division which constituted its UK business. This brings a clearer focus to the company and enhances its growth prospects. The savings

market in Asia is immature and has strong growth drivers.

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National Grid

1.6

£33bn

10,769

—

2,538

13,307

National Grid are a regulated utility company with operations in both the UK and the US. The position was added to substantially in

2018 as it was trading at a material discount to global peers, partly due to the threat of nationalisation of its UK assets under a potential
Labour government. In our view this valuation discount was underestimating how global its operations are, with the US already

generating roughly 50% of its earnings (where they own gas and electricity distribution networks in cities such as New York). Electricity

networks will play a crucial role in the transition away from fossil fuels – the widespread adoption of electric cars will put increasing

pressure on electricity networks that will require substantial investment. This would be a long term positive for National Grid as their

regulated asset base grows. The shares have performed well and the position brings defensive qualities whilst continuing to pay an

attractive dividend yield.

Herald Investment Trust

1.5

£1bn

9,095

—

3,485

12,580

Herald is a global technology focussed investment trust managed by Katie Potts (who launched the trust in 1994). Its technology focus

brings worthwhile diversity to the portfolio and it has been an excellent performer over time (on both a short term and long term basis).

The trust is predominantly focused on the UK and North America, with a high weighting to fast-growing software companies. Katie

and her team cover the approximately 300 holdings in the trust to a high level of detail with substantial specialist knowledge of the

technology sector.

Severn Trent

1.5

£6bn

8,163

925

—

3,487

12,575

Severn Trent is a UK water utility. Similar to National Grid the position was added to substantially in 2018 and early 2019 on the view that

the threat of nationalisation was causing the valuation to be too low. Severn Trent is one of the best-quality water companies in the UK

on metrics such as preventing leakages as it has a well invested network. It also scores highly on environmental, social and governance

concerns relative to other listed (and privately held) water companies. The shares have performed well particularly since the UK election,

but the position brings defensiveness to the overall portfolio and the dividend yield remains attractive.

Land Securities

1.5

£7bn

8,435

1,524

—

2,400

12,359

Land Securities are a property owner in the UK with assets roughly equally split between offices and retail. Largely due to the retail
exposure, they have traded at a discount to estimated net asset value. However, this discount could in our view be too simplistic because

of the quality of their retail assets. For example, only 20% of their portfolio is in retail outside of London, with their shopping centres

in London often being more focussed on food outlets than traditional clothing retail (a good example of this would be their ‘One

New Change’ shopping centre in St Paul’s). They are among the leaders in UK property companies in environmental targets, recently

announcing their aim to become a net zero carbon business.

Ceres Power

1.5

£403m

6,372

1,590

—

4,090

12,052

The company operates as a fuel cell technology and engineering business. The technology is fuel flexible (it can use a combination of

hydrogen and natural gas) and the company has licensed it out to Bosch, Weichi, Minra and Doosan, therefore strong revenue growth

is expected in coming years. Recently Bosch have taken a substantial stake in the company and a seat on the board. The desire to push

towards lowering carbon emissions drives the need for fuel cell technology to be adopted.

Dunelm

1.5

£2bn

4,873

852

—

6,182

11,907

Dunelm are an in-store and online homeware retailer in the UK. Under a (relatively) new CEO they have taken a number of measures

to improve both financial and operating performance, leading to an improvement in trading both in store and online (where they have

materially improved their website and are seeing the benefit of this). Their trading performance has been particularly impressive in what

has been a difficult retail trading backdrop in the UK.

2525

S T R A T E G I C I N F O R M A T I O N

Classification of investments

based on market values at 31 December 2019

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

Tobacco

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

Nonlife 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 2019
TOTAL 2018

lawdebenture.com

U.K.
%

6.12

1.79

7.91

1.70

1.02

3.24

5.96

4.01

5.73

1.32

2.67

2.31

1.11

2.01

19.16

—

1.70

—

0.98

2.68

1.05

5.28

6.33

1.88

2.85

3.58

8.31

0.62

0.70

3.26

3.96

5.67

3.48

3.40

1.12

3.97

5.13

3.05

25.82

—

80.75

74.50

North
America
%

Europe
%

Rest of the
world
%

0.88

0.42

1.30

—

2.56

—

2.56

0.76

—

0.46

—

0.46

—

0.46

0.12

—

0.21

0.27

—

0.28

0.88

—

0.31

0.43

—

0.61

—

0.61

1.06

—

0.76

0.74

1.06

—

1.74

—

1.16

0.78

1.94

8.30

9.88

—

0.77

—

0.45

1.39

1.84

0.51

—

0.51

0.65

—

0.51

—

1.67

0.50

—

0.50

7.83

8.61

—

0.57

—

0.88

1.45

—

3.12

7.01

Total
2019
%

7.46

2.21

9.67

2.16

1.02

3.24

6.42

4.13

6.34

1.53

2.94

4.87

1.11

2.29

23.21

1.82

0.31

0.43

1.70

—

0.98

5.24

1.05

7.79

8.84

1.88

3.30

4.97

10.15

1.13

0.70

3.26

3.96

6.18

4.13

3.40

1.69

3.97

5.64

3.93

Total
2019
£000

61,340

18,114

79,454

17,732

8,419

26,656

52,807

33,971

52,140

12,525

24,158

39,990

9,089

18,778

Total
2018
%

9.24

1.58

10.82

2.87

0.99

3.48

7.34

5.19

7.33

1.37

2.59

5.16

1.08

2.02

Total
2018
£000

61,055

10,517

71,572

19,109

6,534

23,060

48,703

34,376

48,486

9,073

17,166

34,246

7,163

13,405

190,651

24.74

163,915

14,910

2,534

3,499

13,952

—

8,079

42,974

8,608

64,098

72,706

15,462

27,105

40,946

83,513

9,325

5,825

26,775

32,600

50,890

33,916

28,048

13,916

32,633

46,442

32,315

2.13

0.36

0.42

1.42

0.21

—

14,125

2,406

2,803

9,403

1,394

—

4.54

30,131

2.28

6.64

8.92

1.03

2.32

4.05

7.40

1.38

0.70

2.86

3.56

4.33

4.03

2.96

1.59

3.34

4.47

15,093

43,912

59,005

6,816

15,377

26,725

48,918

9,124

4,612

18,932

23,544

28,749

26,710

19,625

10,481

22,115

29,753

6.91

45,868

28.94

238,160

27.63

183,301

1.66

0.78

2.44

13,676

6,450

20,126

100.00

822,316

2.08

1.59

3.67

13,814

10,566

24,380

—

100.00

662,593

The above table excludes bank balances and short-term deposits

S
T
R
A
T
E
G

N
F
O
R
M
A
T
I

O
N

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 2019

Location

Sector

Industry

Holding name

GlaxoSmithKline

Royal Dutch Shell

Rio Tinto

HSBC

Relx

Johnson Service

AstraZeneca

Prudential

National Grid

Herald Investment Trust

Severn Trent

Land Securities

Ceres Power

Dunelm

Senior

Rolls Royce

Morgan Advanced Materials

Standard Chartered

Smith (DS)

Lloyds Banking

Hiscox

Hammerson

BAE Systems

Direct Line Insurance

Urban Logistics REIT

BHP

Royal Bank Of Scotland

Flutter Entertainment

St Modwen Properties

Hill & Smith

Watkin Jones

Toyota Motor (Jap)

Smith & Nephew

International Consolidated Airlines

Croda

Mondi

Accsys Technologies

Carnival

Cummins (USA)

British American Tobacco

RSA Insurance

lawdebenture.com

Oil Equipment Services & Distribution

12,052

Health Care

Pharmaceuticals & Biotechnology

Oil & Gas

Oil & Gas Producers

Basic Materials

Financials

Oil & Gas

Mining

Banks

Oil & Gas Producers

Consumer Services

Media

Industrials

Health Care

Financials

Utilities

Pooled Equity

Investments.

Utilities

Financials

Oil & Gas

Support Services

Pharmaceuticals & Biotechnology

Life Insurance / Assurance

Gas Water & Multiutilities

Equity Investment Instruments

Gas Water & Multiutilities

Real Estate Investment Trusts

Consumer Services

General Retailers

Industrials

Financials

Industrials

Financials

Industrials

Financials

Aerospace & Defence

Electronic & Electrical Equipment

Banks

General Industrials

Banks

Nonlife Insurance

Real Estate Investment Trusts

Aerospace & Defence

Nonlife Insurance

Real Estate Investment Trusts

Basic Materials

Mining

Financials

Banks

Consumer Services

Travel & Leisure

Financials

Industrials

Real Estate Investment & Services

Industrial Engineering

Consumer Goods

Household Goods & Home Construction

8,730

Japan

Consumer Goods

Automobiles & Parts

USA

Health Care

Health Care Equipment & Services

Consumer Services

Travel & Leisure

Basic Materials

Chemicals

Basic Materials

Forestry & Paper

Industrials

Construction & Materials

Consumer Services

Travel & Leisure

Industrials

Industrial Engineering

Consumer Goods

Tobacco

Financials

Nonlife Insurance

8,693

8,608

8,594

8,429

8,419

8,218

8,186

8,103

8,079

7,916

£000

29,792

27,994

3.62

3.41

16,884

2.05

15,606

1.90

15,091

14,288

14,267

13,609

13,506

13,307

12,580

12,575

12,359

11,907

11,293

11,273

11,095

10,940

10,816

10,625

10,522

10,341

10,166

10,156

9,933

9,772

9,510

9,492

9,206

9,195

9,068

1.84

1.74

1.66

1.64

1.62

1.53

1.50

1.47

1.45

1.37

1.35

1.33

1.32

1.29

1.28

1.26

1.24

1.21

1.19

1.16

1.15

1.12

1.10

1.06

1.05

1.03

1.02

1.00

0.99

0.98

0.96

Microsoft (USA)

USA

Technology

Software & Computer Services

S
T
R
A
T
E
G

N
F
O
R
M
A
T
I

O
N

Holding name

Babcock

Caterpillar (USA)

Marshalls

Provident Financial

Location

Sector

Industry

USA

Industrials

Financials

Aerospace & Defence

Industrial Engineering

Construction & Materials

Financial Services

£000

7,811

7,802

7,740

7,466

0.95

0.94

0.91

Scottish Oriental Smaller

Companies Trust

Other

Pacific

Pooled Equity

Investments

Equity Investment Instruments

7,237

0.88

Gibson Energy (Can)

Canada

Oil & Gas

Oil & Gas Producers

Ibstock

Royal Mail

Euromoney Institutional Investor

Meggitt

Industrials

Construction & Materials

Industrial Transportation

Consumer Services

Media

Industrials

Aerospace & Defence

Irish Continental (Ire)

Ireland

Consumer Services

Travel & Leisure

Applied Materials (USA)

IP Group

General Motors (USA)

Hipgnosis Songs Fund

Spectris

International Personal Finance

USA

Technology

Financials

Technology Hardware & Equipment

Financial Services

Consumer Goods

Automobiles & Parts

Pooled Equity

Investments

Industrials

Financials

Equity Investment Instruments

6,210

0.76

Electronic & Electrical Equipment

Financial Services

Johnson & Johnson (USA)

USA

Health Care

Pharmaceuticals & Biotechnology

Standard Life Aberdeen

Chesnara

Aviva

Elementis

Balfour Beatty

Taylor Wimpey

IMI

Vodafone

Deere (USA)

Embraer (Bra)

Ryanair (Ire)

Financials

Financial Services

Life Insurance / Assurance

Basic Materials

Chemicals

Industrials

Construction & Materials

Consumer Goods

Household Goods & Home Construction

5,222

Industrials

Industrial Engineering

Telecommunications Mobile Telecommunications

USA

Other

Industrials

Industrial Engineering

Aerospace & Defence

Grit Real Estate Income

Other

Financials

Real Estate Investment & Services

Ireland

Consumer Services

Travel & Leisure

4,958

0.60

Allied Minds

TT Electronics

Indus Gas

Pfizer (USA)

Foresight Solar

Bristol-Myers Squibb (USA)

SSE

USA

Financials

Industrials

Oil & Gas

Financial Services

Electronic & Electrical Equipment

Oil & Gas Producers

Health Care

Pharmaceuticals & Biotechnology

Pooled Equity

Investments

Equity Investment Instruments

4,393

0.53

Health Care

Pharmaceuticals & Biotechnology

Utilities

Electricity

Muenchener Rueckver (Ger)

Germany

Financials

Nonlife Insurance

Oxford Sciences Innovation (unlisted) UK

Financials

Financial Services

Total (Fra)

France

Oil & Gas

Oil & Gas Producers

Koninklijke DSM (Net)

Netherlands Basic Materials

Chemicals

7,223

0.88

6,919

6,789

0.84

0.83

6,545

0.80

6,544

0.80

6,506

6,450

6,299

6,217

0.79

0.78

0.77

0.76

6,175

5,877

5,502

5,434

5,419

5,380

5,297

5,261

5,156

5,137

5,105

5,053

0.75

0.71

0.67

0.66

0.65

0.64

0.63

0.62

0.61

4,721

4,699

4,680

4,633

4,434

0.57

0.56

0.54

4,357

4,316

3,865

3,855

3,802

3,769

0.53

0.52

0.47

0.46

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 2019

Holding name

Phoenix

Vivendi (Fra)

Studio Retail

Nestlé (Swi)

Roche (Swi)

Marstons

Sigmaroc

Bawag (Aus)

Weir Group

SAP (Ger)

Morses Club

Location

Sector

Industry

Financials

Life Insurance / Assurance

France

Consumer Services

Media

Consumer Services

General Retailers

Switzerland Consumer Goods

Food Producers

Switzerland Health Care

Pharmaceuticals & Biotechnology

£000

3,743

3,703

3,555

3,499

3,475

0.46

0.45

0.43

0.42

Consumer Services

Travel & Leisure

3,403

0.40

Industrials

Construction & Materials

Austria

Financials

Banks

Industrials

Industrial Engineering

Germany

Technology

Software & Computer Services

Financials

Financial Services

Novo-Nordisk (Den)

Denmark

Health Care

Pharmaceuticals & Biotechnology

M and G

Redde

Financials

Financial Services

Pernod-Ricard (Fra)

France

Consumer Goods

Beverages

Schlumberger (USA)

USA

Oil & Gas

Oil Equipment Services & Distribution

Deutsche Börse (Ger)

Germany

Financials

Financial Services

ITM Power

SGS (Swi)

Oil & Gas

Oil Equipment Services & Distribution

Switzerland Industrials

Support Services

Daily Mail & General Trust

Consumer Services

Media

Deutsche Telekom (Ger)

Germany

Telecommunications Mobile Telecommunications

Augean

Legrand (Fra)

Cellnex Telecom (Spa)

Amundi (Fra)

Kier

France

Spain

France

Industrials

Support Services

Electronic & Electrical Equipment

Telecommunications Mobile Telecommunications

Financials

Industrials

Financial Services

Construction & Materials

Sig Combibloc (Swi)

Switzerland Industrials

General Industrials

Hipgnosis Songs Fund - Class C

Simec Atlantis Energy

Pooled Equity

Investments

Equity Investment Instruments

1,545

0.19

Utilities

Electricity

Allianz (Ger)

Wincanton

Tullow Oil

Premier Oil

Prosus (Net)

Germany

Financials

Nonlife Insurance

Industrials

Industrial Transportation

Oil & Gas

Oil & Gas Producers

Netherlands Technology

Software & Computer Services

ING Group (Net)

Netherlands Financials

Banks

Renold

National Oilwell Varco (USA)

USA

Industrials

Oil & Gas

Industrial Engineering

Oil Equipment Services & Distribution

Assa Abloy (Swe)

Sweden

Industrials

Construction & Materials

Centrica

Eddie Stobart Logistics

Severfield

Better Capital (2012)

lawdebenture.com

Utilities

Industrials

Pooled Equity

Investments

Gas Water & Multiutilities

Industrial Transportation

Industrial Engineering

Equity Investment Instruments

350

0.04

3,125

3,123

3,018

2,984

2,968

2,929

2,806

2,650

2,534

2,427

2,403

2,294

2,293

2,288

2,224

2,218

2,208

1,964

1,772

1,762

1,709

0.38

0.37

0.36

0.35

0.33

0.32

0.31

0.29

0.28

0.27

0.24

0.22

0.21

1,509

1,457

1,425

1,274

1,227

1,182

1,100

1,041

946

893

875

697

0.18

0.17

0.15

0.14

0.13

0.12

0.11

0.08

Holding name

Velocys

Mirriad Advertising

Carclo

LDIC Investments

Now (USA)

Providence Resources

Fastjet

Location

Sector

Industry

£000

USA

Oil & Gas

Oil Equipment Services & Distribution

Consumer Services

Media

Basic Materials

Chemicals

Financials

Oil & Gas

Financial Services

Oil Equipment Services & Distribution

Oil & Gas Producers

Consumer Services

Travel & Leisure

289

281

237

213

106

0.04

0.03

0.01

0.00

822,316

100.00

S
T
R
A
T
E
G

N
F
O
R
M
A
T
I

O
N

Permanent TSB (Ire)

Ireland

Financials

Banks

Changes in geographical distribution

Valuation
31 December
2018
£000

Purchases
£000

Costs of
acquisition
£000

Sales
proceeds
£000

Appreciation/
(depreciation)*
£000

United Kingdom

493,564

132,493

North America

Europe

Japan

Other Pacific

Other

65,495

57,053

7,433

29,928

9,120

4,743

23,497

—

2,373

(596)

(1)

(63)

—

(1)

(31,731)

(17,891)

(27,963)

—

(25,303)

—

662,593

163,106

(661)

(102,888)

70,291

15,836

11,885

1,260

2,612

(1,718)

100,166

Valuation
31 December
2019
£000

664,021

68,182

64,409

8,693

7,237

9,774

80.7

8.3

7.8

1.1

0.9

1.2

822,316

100.0

* Please refer to note 2 on page 90.

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

a Group with a unique range of activities in the financial and

professional services sectors. The Group has two distinct areas of

business: we are an investment trust with an investment portfolio

and a leading provider of independent professional services (IPS

or IPS business).

Objectives, investment strategy,
business model

Our objective for the investment trust 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 through investing in a diversified portfolio of stocks.

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.

Our investment strategy (which did not change in 2019) is as

follows:

North America

Europe

Japan

Other Pacific

Other

Minimum
%

Maximum
%

companies (OEICs), fixed interest securities, interests in limited

liability partnerships, cash and liquid assets. Derivatives may

be used but only with the prior authorisation of the Board. It is

permissible to hedge against currency movements on both the

capital and income account, and 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:

•

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 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 outside 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

consequence, it is expected that the

Company’s investment portfolio and

performance will deviate from the

comparator indices.

The aim is to achieve

a higher rate of

total return than the

•

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 a holding, should

its value increase above the 5% limit

(that approval to be sought at the next

FTSE Actuaries All-

Board meeting).

Share Index through

•

The Company applies a ceiling on

investing in a diversified

portfolio of stocks

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.

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.

•

The Company may not make investments in respect of which
there is unlimited liability.

Our business model is designed to position the Company to best

advantage in the investment trust sector.

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 34. Investments may be held in, inter alia, equity shares,

collective investment products including open ended investment

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. It provides a regular flow of dividend income to

the Company. This helps the Board to smooth out equity dividend

lawdebenture.com

peaks and troughs, means that the investment manager does

the longer term and Janus Henderson has delivered positive

not have to be constrained by choosing stocks just for yield and

returns over many years.

is an important element in delivering the objective of steadily

increasing income for shareholders. In turn, some of the tax

relief at the investment trust level arising from our debenture

interest and excess costs, which would otherwise be unutilised,

can be transferred to the IPS business, thus reducing the overall

tax liability of the Group.

Fee structure and ongoing charges

Our portfolio of investments is managed under delegation by

James Henderson and Laura Foll 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 of the Group (excluding the net assets of IPS), calculated

on the basis adopted in the audited financial statements. This

The agreement with Janus Henderson does not cover custody

which is the responsibility of the depositary (see section on

regulatory compliance in the Directors’ report, page 40). Nor

does it cover the preparation of data associated with investment

performance, or record keeping, both of which are maintained by

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 shown on page 5 is one of the lowest in the marketplace.

No performance fees are paid to the investment manager.

Capital structure – simple and mainstream

means that the Company continues to maintain one of the most

Law Debenture’s capital structure is transparent. We have only

competitive fee structures in the investment trust sector and

one class of share – ordinary shares – and each share has the same

this, combined with the strong performance of Janus Henderson

rights as every other share.

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 considered over

The Company conducts its affairs so that its ordinary shares are

capable of being recommended by independent financial advisors

to retail investors in accordance with relevant FCA rules.

S
T
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A
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N
F
O
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M
A
T
I

O
N

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

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

S T R A T E G I C I N F O R M A T I O N

Strategic report continued

Our ordinary shares are, we consider, mainstream investment

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 a mainstream investment.

Transparency

In order to assist shareholders in understanding the nature of the

underlying investments they are buying into when investing in Law

Principal risks and uncertainties –
investment portfolio

The principal risks to the Company’s ability 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 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.

Debenture shares, we publish our entire

portfolio twice a year – in the annual report

(see pages 28 to 31) and half-yearly report

– with regular monthly updates on the

composition of the top ten holdings in the

portfolio. From February 2020, we will be

publishing our full portfolio listing monthly,
to further improve the transparency around

the portfolio for investors.

Gearing

Law Debenture’s

latest published level

of ongoing charges

is one of the lowest

Investment trusts have the benefit of being

in the marketplace at

Market risk could arise from sudden

fluctuations in world stock markets. 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

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.

These funds can be used to increase the

size of the portfolio, or assets from within

the portfolio can be sold to reduce debt

0.48%. No performance

significant market shock.

fees are paid to the

investment manager.

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

and even be “negatively geared”. This means selling assets to hold

cash so that less than 100% of the Company’s assets are invested in

equities. At 31 December 2019, our gearing was 9% (2018: 3%).

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 107. The

weighted average interest payable on the Company’s structural

borrowings is 4.589% (2018: 4.589%).

Share price and NAV

Investment trusts can trade at a discount (where the share price

is lower than the combined value (NAV) of the underlying assets),

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.

Operational risk could arise from failure of the Company’s accounting

systems, the systems of the investment manager, or those of the

custodian, which might result in an inability to provide accurate

reporting and monitoring or a misappropriation of assets. All relevant

providers of these services have comprehensive business continuity

plans which include robust plans for continued operation of the

business in the event of a service disruption or other major disruption.

The Audit Committee considers detailed reports on the Company’s

risk profile and the internal controls in place to mitigate such risks, as

well as receiving reports by other key third party providers.

or at a premium (where the share price trades at a higher level

Gearing risk could arise where the Company has borrowed money

than the underlying NAV). Investment trust investors need to

for investment purposes. If the value of portfolio investments falls,

understand these concepts as well as examine the underlying

any borrowings will magnify the extent of this loss. All borrowings

portfolio and the way in which it is managed, to decide whether or

require the prior approval of the Board and gearing levels are

not an investment trust share represents “good value”.

kept under close review by the Board. As stated in the investment

strategy, there is a ceiling on effective gearing of 50%.

lawdebenture.com

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The Board is cognisant that, with an ever changing political, market

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NAV total return per share (combining the capital and income

and regulatory backdrop, it is increasingly important to monitor

returns of the Group) and how this compares, over various time

and identify new and emerging risk.

intervals, with relevant indices;

The Company views effective risk management as a key priority

and the corporate governance report sets out in detail the control

framework in place to manage or mitigate the risks that the

•

the discount/premium in share price to NAV; and

the cost of running the portfolio as a percentage of its value.

Group faces.

Viability statement

The Company is required to publish a longer term statement about

its viability.

The Directors believe that a forward looking period of three years is

appropriate. The Directors assess the Company’s future prospects

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 years. There

are no current plans to amend the investment policy, which has

delivered good capital and dividend returns for shareholders over

many years. In May 2019, the Company moved to the UK Equity

Income sector AIC category from the previous global sector

classification. The strategy for the IPS business remains to continue

to drive growth; more detail can be found in the Chief Executive

Officer’s review on pages 12 to 17.

The Directors’ strategic report explains in detail their assessment

and understanding of the principal risks facing the Company. There

is a detailed description of the controls in place to manage those

risks in the corporate governance report. The main qualification
to this viability statement is that the investment manager is

appointed on a fully discretionary basis, so, while stocks are picked

by the manager within the guidelines in the investment strategy,

the Board does not dictate what individual stocks are bought

or sold. Portfolio over- or under-performance 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. This risk is

accepted within the Board’s risk appetite.

This statement is in addition to, rather than any replacement of, the

going concern basis of preparation statement on page 45.

Key performance indicators (KPIs) and
alternative performance measures

The KPIs used to measure the progress and performance of the

Group are:

Since the objective of the investment trust is measurable solely in

financial terms, the Directors do not consider that it is appropriate

to adopt non-financial KPIs. 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 115.

Investment strategy – implementation

The way in which we implemented the investment strategy during
2019 is described in the investment manager’s review on pages 18

to 22.

Performance against KPIs is set out at pages 3 to 31, which contain

comprehensive tables, charts and data to explain performance

both over the year under review and over the long term.

Law Debenture’s responsibilities as an
institutional shareholder

The Company recognises that in delivering its objective to produce

long-term capital growth and a steadily increasing income, it must

ensure that its investment strategy is delivered with due emphasis

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 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 particular goal.

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.

The Janus Henderson corporate governance unit will notify Law

Debenture’s investment managers, who in turn may notify Law

S T R A T E G I C I N F O R M A T I O N

Strategic report continued

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.

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 discretion as to portfolio decisions and as a matter of

Statement in compliance with section 172
of the Companies Act 2006

The Board is responsible for the overall strategy and management

of the Group, setting investment strategy and ensuring that the

Company is acting in accordance with its legal and regulatory

obligations. In discharging its responsibilities, the Board takes into

account the Group’s purpose, value and culture and acts in good

faith in a way that is most likely to promote the success of the

Company and to maintain high standards of business conduct. It

considers the key stakeholders with whom the business interacts

and which are impacted by the Company’s activities including

shareholders, principal service providers, clients, employees, the

policy, has no access to ‘non-public’ knowledge about any of the

community and the environment.

activities of the IPS business.

The IPS business –
part of our business model

Shareholders: The Board actively communicates with its
shareholders as detailed in the Directors’ report on page 41.

In addition, meetings are held with shareholders throughout

the year which are attended by Executive and Non-Executive

Directors along with representatives from the investment

Operating through wholly owned subsidiary companies, all

manager. Key topics of discussion during the year included

of which are listed at note 14 to the accounts, we provide

pension trustee executives, outsourced pension services,

prospects and valuation of the IPS business, performance against

benchmark, prospects for the UK economy and the investment

corporate trust services, and corporate services to companies,

style and stock selection. As a result of shareholder feedback, the

agencies, organisations and individuals throughout the world.

Company will be publishing a full portfolio listing on the website

The services are provided through offices in the UK, Dublin,

every month going forwards and reporting will evolve in 2020 and

New York, Delaware, Hong Kong, the Channel Islands and the

beyond. When making decisions the Board considers the interests

Cayman Islands.

Group employees are employed by L.D.C. Trust Management

Limited and Safecall Limited (in the UK) or a locally incorporated

entity (in the overseas jurisdictions). As part of their duties, a

of shareholders as a whole and the need to act fairly as between

members of the Company.

Service providers: The Company has regard for principal service
providers, and in particular the investment manager, with which it

number of the employees provide services to the investment

engages on an on-going basis. The investment manager provides

trust and their time is charged to the trust, forming a part of the

an update on management of the portfolio at every Board

ongoing charges.

More details about the performance of the IPS in 2019 are given in

the Chief Executive Officer’s review at pages 12 to 17.

Principal risks and uncertainties –
IPS business

The principal risks to the business model for IPS arise where

transactions to which we provide a service come under stress.

An example of this would be where we act as trustee on a

bond which goes 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. To mitigate these risks, we work closely with our legal

advisers and where appropriate, financial advisers, both in the

meeting and the Directors meet annually with relevant senior

Janus Henderson employees to consider the systems and controls

in place in respect of the management of Law Debenture’s

portfolio. The Board also receives presentations from each IPS

business head on a rolling basis during the course of the year,

including details of client relationship management initiatives and
proposed new service offerings to expand the client base.

Employees: With effect from 1 January 2019, the Board appointed
Mark Bridgeman as its designated Non-Executive Director to

gather the views of Law Debenture’s workforce. He commissioned

an employee engagement survey across the entire employee

base, the results of which have been considered by the Board.

Employees are also invited to attend and ask questions at an all

staff “townhall” presentation from the Executives and investment

manager following the result of the half year and annual results.

set up phase to ensure that we have as many protections as

The Group’s employees are provided with modern, comfortable

practicable and on a continuing basis. The Directors, via detailed

working environments that comply with all relevant safety

Audit Committee review, monitor these risks closely.

regulations. Employee wellbeing is ensured through delivery of

The single KPI of the IPS business is revenue return per share,

which is reported within the financial summary and the ten year

record at pages 3 and 39.

a range of benefits designed to promote good health including

health insurance and access to medical reviews. Independent

confidential helpline facilities are provided to enable employees

to deal with issues of concern to them, whether work related

lawdebenture.com

or domestic. As a result of these measures, and senior

management’s open style, staff turnover is generally low.

Future trends and factors

Community and environment: We disclose our carbon emissions
consumption as part of the Directors’ report. Those emissions

Law Debenture will continue to strive to deliver its business

objectives for both the investment trust and the IPS business.

relate solely to the maintenance of our various offices around

The Chairman’s statement, the investment manager’s review and

the world.

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.

the Chief Executive Officer’s review (all of which form part of this

strategic report) respectively set out the Company’s views on

future developments.

Brexit

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The Group is unaware of any human rights issues that might arise

from its activities, mindful though of the need to act responsibly

as an institutional shareholder (as described on page 35).

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

Key decisions impacting shareholders in 2019: One of the key
decisions taken this year was in relation to dividend policy and
a move to pay quarterly dividends, as explained more in the

Chairman’s Statement on page 4. The Board sees this as a positive

on a going concern basis.

Performance and related data

for shareholders and many of our employees who are also long

Pages 3, 13 and 18 to 22, which contain performance and related

term shareholders, and perceive no impact on other stakeholders.

data, form a part of this strategic report.

Law Debenture Corporate Services Limited
Company Secretary

26 February 2020

The Remuneration Committee have reviewed the Company’s

Remuneration Policy and, as described in full in the remuneration

report on pages 50 to 62, has recommended that a new policy

be approved by shareholders. Some of the larger shareholders

and their representative bodies were consulted on the policy.

The Board believes the new policy will ensure both strong

differentiation of performance alignment of management

rewards with the shareholder experience, while providing a

more competitive remuneration package that will help attract,

retain and motivate key talent to ensure the successful delivery

of strategy.

The Board initiated consultation with the Association of

Investment Companies to assess whether it remained appropriate

for Law Debenture to stay within the Global sector. Following this

consultation, the AIC elected to move the Company into the UK

Equity Income sector. It is the Board’s belief that this move will

assist all stakeholders in being able to compare the Company with

its peers and assess its performance.

Breakdown of employees by sex

We report that at the 2019 year end:

•

two Directors of the Group parent were female (2018: nil).

31% of the senior managers of the Group were female (2018:

23%) (senior manager being any individual with responsibility

for planning, directing or controlling an activity of one of the

subsidiary companies, excluding the Chief Executive Officer

and the Chief Financial Officer); and

• 50% (2018: 43%) of the Group employees were female.

S T R A T E G I C I N F O R M A T I O N

Calculation of net asset value (NAV) per share

Valuation of our IPS Business

Accounting standards require us to consolidate the income, costs

reflect the difference between the comparable companies and

and taxation of our IPS business into the Group income statement

IPS in respect of size, liquidity, margin and growth. A range of

on page 80. The assets and liabilities of the business are also

multiples is then provided by the professional valuation firm, from

consolidated into the Group column of the statement of financial

which the Board selects an appropriate multiple to apply. The

position on page 81. A segmental analysis is provided in note 7

multiple selected for the current year is 9.2x, which represents

(page 93) to these accounts which shows a detailed breakdown

a discount of almost 30% on the mean multiple across the

of the split between the investment portfolio, IPS business and

comparable businesses.

Group charges.

Valuation guidelines require the fair value of the IPS business

Consolidating the value of the IPS business in this way failed

be established on a stand-alone basis. The valuation does not

to recognise the value created for the shareholder by the IPS

therefore reflect the value of Group tax relief from the investment

business. To address this, from December 2015, the NAV we

trust to the IPS business reduced the tax charge by £1,120,000

have published for the Group has included a fair value for the

(2018: £845,000), which is not reflected in this valuation. It is

standalone IPS business.

The current fair value of the IPS business is calculated based
upon historical earnings before interest, taxation, depreciation

and amortisation (EBITDA) for 2019, with an appropriate multiple

applied. The EBITDA for the IPS business for 2019 was £11,515,000.

This number is reached by taking the return, including profit

hoped that our initiatives to inject growth into the IPS business

will result in a corresponding increase in valuation over time. As

stated above, management is aiming to achieve mid to high single
digit growth in 2020. The valuation of the business has increased

by £31.8m/35.2% since the first valuation of the business as at

31 December 2015.

attribution on ordinary activities before interest and taxation

In order to assist investors, the Company restated its historical

of £11,356,000 from note 7 on page 93 and adding back the

NAV in 2015 to include the fair value of the IPS business for the last

depreciation charge for property plant and equipment of £93,000

ten years. This information is provided in the annual report within

and the amortization of intangible assets of £65,000 shown in

the 10 year record on the opposite page.

note 3 on page 91.

The calculation of the IPS valuation and methodology used

to derive it are included in the annual report at note 14. In

determining a calculated basis for the fair valuation of the IPS

business, the Directors have taken external professional advice.

The multiple applied in valuing IPS is from comparable companies

sourced from market data, with appropriate adjustments to

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.

Calculation of NAV per share

The table below shows how the NAV at fair value is calculated. The value of assets already included within the NAV per the Group statement

of financial position that relate to IPS are removed (£30,445,000) and substituted with the calculation of the fair value and surplus net assets

of the business (£122,305,000). An adjustment of £36,992,000 is then made to show the Group’s debt at fair value, rather than the book

cost that is included in the NAV per the Group statement of financial position. This calculation shows an NAV fair value for the Group as at

31 December 2019 of £830,139,000 or 702.17 pence per share:

Net asset value (NAV) per Group statement of financial position

Fair valuation of IPS: EBITDA at a multiple of 9.2x (2018: 8.4x)

Surplus net assets

Fair value of IPS business

Removal of assets already included in NAV per financial statements

Fair value uplift for IPS business

Debt fair value adjustment

NAV at fair value

31 December 2019

31 December 2018

£000 Pence per share

775,272

105,938

16,367

122,305

(30,445)

91,860

(36,992)

830,139

655.76

669,364

566.27

89.61

13.84

103.45

(25.75)

77.70

(31.29)

702.17

87,562

16,844

104,406

(25,967)

78,439

(21,940)

725,863

74.08

14.25

88.33

(21.97)

66.36

(18.56)

614.07

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Long-term performance record

10 year record

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

412.6

390.9

451.9

569.1

574.2

557.3

662.3

748.3

669.4

775.3

Net assets (£m)1

Revenue return (pence)

342.4

13.02

Capital return (pence)

62.77

58.22

(19.07)

50.24

13.26

15.52

15.14

16.27

97.18

16.95

18.10

15.96

21.66

21.26

30.68

3.87

(17.47)

89.30

67.10

(71.85)

79.27

Total (pence)

75.79

71.48

(3.55)

65.38

113.45

20.82

0.63

105.26

88.76

(50.59)

109.95

Revenue return (pence)

Investment trust

Independent professional

services

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

22.18

7.87

8.54

Group charges2

—

(2.60)

0.12

0.16

(0.04)

13.02

13.26

15.52

15.14

16.27

16.95

18.10

18.56

21.54

21.10

30.72

13.02

13.26

15.52

15.14

16.27

16.95

18.10

15.96

21.66

21.26

30.68

Dividends (pence)

12.20

12.70

13.50

14.25

15.00

15.70

16.20

16.70

17.30

18.90

26.00

Share price (pence)1

284.5

356.6

333.5

425.0

529.0

530.0

498.0

530.0

629.0

540.0

650.0

(Discount)/premium (%)1

(15.7)

(10.5)

NAV at fair value (pence)1

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

(7.4)

702.2

Market capitalisation (£m)1

335.9

418.6

393.8

501.9

625.0

627.1

589.3

627.2

744.5

639.3

769.8

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, excluding which, normalised earnings per share were 7.21 pence per share

Note: The 10 year record has been restated (2009-2014) to reflect the fair value of the IPS business and the long-term borrowings

39
39

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

statements for the year ended 31 December 2019. The Company

Regulatory compliance

operates as an investment trust in accordance with Sections 1158-

The Company is subject to continuing obligations applicable to

1159 of the Corporation Tax Act 2010 as amended (s1158-1159) and has

premium listed companies, overseen by the UK Listing Authority.

been approved as such by HM Revenue & Customs. In the opinion of

the Directors, the Company has conducted its affairs so as to enable

it to continue to be an Approved Investment Trust under s1158-1159.

The Company, which (as far as the Directors are aware) is not a close

company, is registered as an investment company as defined in

Section 833 of the Companies Act 2006 and operates as such. The

Directors consider that the Group operates as a going concern.

The corporate governance report forms a part of the Directors’

report.

Information required to be disclosed in accordance with Listing

Rule 9.8.4 is included as referenced below:

Rule

9.8.4 (1)

9.8.4 (7)

Detail

Where

Interest capitalised

Note 6, page 92

Allotment of equity securities Note 18, page 101

9.8.4 (2-6) (8-14) Not applicable

n/a

Essential contracts

In the view of the Board, the only contract that is essential to the

business of the Group is the investment management agreement

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 the FCA.
The Company has elected to be its own AIFM.

with Janus Henderson, details of which are set out in the strategic

The AIFM is required to provide portfolio management, risk

report.

Revenue, dividends and reserves

The Group revenue return attributable to shareholders for the

year ended 31 December 2019 was 30.68p per share. The Directors

recommend a final dividend of 19.4p per share, which, together

with the interim dividend of 6.60p paid in September 2019,

will produce a total of 26.0p per share (2018: 18.90p). The final

dividend will be paid on 16 April 2020 to holders on the register

on the record date of 13 March 2020. After deduction of the

interim and final dividends of £30,788,000 (2018: £22,339,000),

consolidated revenue reserves increased by £4,854,000 (2018:

increase of £4,075,000).

Directors

The Directors at the date of this report are listed on pages 72 and

73. All Directors held office throughout the year other than Claire
Finn, who was appointed on 2 September 2019.

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, 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 has been 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

All Directors are required to stand for re-election every year (or election

the sum of the Company’s positions after the deduction of sterling

at the next AGM following appointment). The list of candidates, which

cash balances, without taking into account any hedging and

the Board supports, is set out in the notice of annual general meeting,

netting arrangements. Under the commitment method, exposure is

along with a statement in each case of why the candidate is supported

calculated without the deduction of sterling cash balances and after

and the particular attributes that each brings to the objective of

certain hedging and netting positions are offset against each other. At

promoting the success of the Company and the Group.

31 December 2019, the maximum amount of leverage under the gross

Directors’ conflicts of interests

and commitment methods was 1.50 and actual amounts were 1.06

and 1.15 respectively.

The Directors are under statutory duty to avoid conflicts of interest.

The Board has in place appropriate procedures to deal with conflicts

Greenhouse gas emissions

and potential conflicts, including an annual review, and can confirm

The Group’s carbon emissions arise from its consumption of energy

those procedures are operating effectively. Each Director has

in maintaining its offices. Using conversion factors published by

declared all matters that might give rise to a potential conflict of

the UK Department for Business, Energy and Industrial Strategy,

interest and these have been considered and (where necessary)

emissions for the year to 31 December 2019 were 228.63 tonnes of

approved by the Board.

lawdebenture.com

CO2e (2018: 265.64 tonnes of CO2e). This equates to 0.0062 tonnes

of CO2e per £000 of IPS revenue (2018: 0.0079 tonnes of CO2e).

Modern Slavery Act

Shareholder relations

We are required to publish a ‘slavery and human trafficking

The Company encourages communication between management

statement’ to outline the steps the Group has taken to ensure

and shareholders on matters of mutual interest. All shareholders on

that slavery and human trafficking is not taking place within Law

the register are sent a copy of the annual report and the half yearly

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.

report, and the Company also provides this service to shareholders

in nominee companies where the nominee has made appropriate

arrangements. Shareholders wishing to receive reports and other

communications electronically may do so by writing to the Company.

In addition to periodic regulatory reports published via the London

While Law Debenture is committed to preventing slavery and

Stock Exchange, the Company publishes a monthly factsheet on its

human trafficking in its corporate activities, it believes that its

website about the investment portfolio performance.

supply chains are of low risk as suppliers, for the most part,

are professional advisory firms. The Executive Directors 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 1). 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.

Investment manager – interests held

Laura Foll held 1,750 shares in the Company as at 31 December

2019 (2018: nil). James Henderson did not have a beneficial interest
at 31 December 2019 (2018: nil), although persons connected to

him had an interest of 100,000 shares (2018: 100,000 shares). In

addition, a charity with which James Henderson has non-beneficial

connections owns 100,000 shares (2018: 100,000 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 154,026 shares in the Company at

31 December 2019 (2018: 87,955 shares).

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This statement has been approved by the Board and is also

published on Law Debenture’s website.

Bribery Act

Repurchase of shares

During the year, the Company did not repurchase any of its shares

for cancellation. It intends to seek shareholder approval to renew

its powers to repurchase shares for cancellation up to 14.99% of the

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/issue of shares

Company’s issued share capital, if circumstances are appropriate at

Employees are informed of the financial aspects of the Group’s

the 2020 AGM.

Share capital and substantial shareholdings

The Company’s share capital is made up of ordinary shares with

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.

a nominal value of 5p each. The voting rights of the shares on a

Options outstanding under the SAYE scheme at 31 December

poll are one vote for every share held. There are no restrictions on

2019 were:

the transfer of the Company’s ordinary shares or voting rights and

no shares which carry specific rights with regard to the control

of the Company. There are no other classes of share capital and

none of the Company’s issued shares are held in treasury. As at

31 December 2019, there were 118,429,010 ordinary shares in issue

with 118,429,010 voting rights. Note 18 includes details of share

capital changes in the year.

As at 25 February 2020, there were no shareholders that had

notified the Company of a beneficial interest in 3% or more of the

issued share capital. Share information as required by section 992

of the Companies Act 2006 appears at pages 32 and 101.

Date of grant

27 August 2014

19 August 2015

23 August 2016

15 August 2017

15 August 2018

14 August 2019

Number
of option
holders

Shares
under
option

Exercise
price

3,801

518.00p

24,872

512.50p

13,611

18,153

495.75p

594.75p

47,380

606.00p

27,761

592.00p

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Directors’ report continued

The Company also operates a Share Incentive Plan, details of

which are provided in the remuneration report.

Website publication

Directors’ responsibilities

The Directors are responsible for preparing the annual report and

the financial statements in accordance with applicable law and

regulations.

Company law requires the Directors to prepare financial

The Directors are responsible for ensuring the annual report

and the financial statements are made available on a website.

Financial statements are published on the Company’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 website is the responsibility of the Company. The

work carried out by the auditors does not involve consideration

statements for each financial year and have elected to prepare the

of these matters and, accordingly the auditors accept no

financial statements in accordance with International Financial

responsibility for any changes that may have occurred to the

Reporting Standards (IFRSs) as adopted by the European Union.

annual report since it was initially presented on the website.

Under company law the Directors must not approve the financial

statements unless they are satisfied that they give a true and fair

view of the state of affairs of the Group and Company and of the

profit and loss for the Group for that period.

Directors’ responsibility statement
pursuant to DTR4

In preparing these financial statements, the Directors are required

The Directors confirm to the best of their knowledge:

to:

•

select suitable accounting policies and then apply
them consistently;

make judgements and accounting estimates that are
reasonable and prudent;

state whether they have been prepared in accordance
with IFRSs as adopted by the European Union, subject

to any material departures disclosed and explained in

the financial statements;

•

prepare a Director’s report, a strategic report and
Director’s remuneration report which comply with the

requirements of the Companies Act 2006.

The Directors are responsible for keeping adequate accounting

records that are sufficient to show and explain the Company’s

transactions and disclose with reasonable accuracy at any time

the financial position of the Company and enable them to ensure

that the financial statements comply with the Companies Act

2006 and, as regards the Group financial statements, Article 4 of

the IAS Regulation. They are also responsible for safeguarding the

assets of the Company and hence for taking reasonable steps for

the prevention and detection of fraud and other irregularities. The

Directors are responsible for ensuring that the annual report and

accounts, taken as a whole, are fair, balanced, and understandable

and provides the information necessary for shareholders to assess

the Group’s performance, business model and strategy.

•

The Group financial statements have been prepared in

accordance with International Financial Reporting Standards

(IFRSs) as adopted by the European Union and Article 4 of

the IAS Regulation and give a true and fair view of the assets,

liabilities, financial position and profit and loss of the Group.

•

The annual report includes a fair review of the development

and performance of the business and the financial position of

the Group and the parent company, together with a description

of the principal risks and uncertainties that they face.

Auditors

A resolution to re-appoint BDO LLP as auditors to the Company

will be proposed at the annual general meeting.

By order of the Board

Law Debenture Corporate Services Limited
Company Secretary

26 February 2020

lawdebenture.com

Corporate governance report

Corporate governance

Procedures are in place to enable independent professional

advice to be taken by individual Directors at the Company’s

The Directors are required to report on how the Company has

expense. Appropriate insurance cover is in place in respect of legal

applied the main and supporting principles in the UK Corporate

action against the Directors.

Governance Code (the Code), and to confirm that it has complied

with the Code’s provisions or, where this has not been the case,

to provide an explanation. This report relates to the Code as

published in July 2018, a copy of which may be obtained by

visiting www.frc.org.uk. The FRC has recognised that the Board

structure of investment companies such as Law Debenture might

affect the relevance of some of the provisions of the Code. The

Company has therefore considered the provisions of the Code

that are applicable to it as a FTSE 250 listed investment company.

Where Law Debenture has departed from any provisions of

the Code, this is explained below. This corporate governance

statement forms a part of the Directors’ report and should be read

in conjunction with the strategic report on pages 32 to 37.

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 report

are on pages 72 and 73 of the annual report. Katie Thorpe was

appointed as an Executive Director on 1 January 2019 and Claire Finn

was appointed as a Non-Executive Director on 2 September 2019.

The Board meets regularly throughout the year. The attendance

records of the Directors (both at meetings of the Board and, where

they are a member, meetings of Board Committees) are set out in

the table below. There was also a strategy meeting in September

2019, attended by all of the Directors, the investment manager

and certain senior executives.

Board Remuneration

Audit

Nominations

Number of

meetings in

the year

Meetings
attended by:

D. Jackson

K. Thorpe

R. Hingley

R. Laing

M. Bridgeman

T. Bond

C. Finn*

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The Board is responsible for the overall strategy and management

* Appointed on 2 September 2019

of the Group, setting investment strategy and ensuring that the

Company is operating in compliance with statutory and legal

Whilst not members of the Committees, Denis Jackson, Katie

obligations. There is a formal schedule of matters specifically

Thorpe attend meetings at the invitation of the relevant

reserved for Board decision, published on the Company’s website

Committee. The same is true in relation to Robert Hingley’s

(www.lawdebenture.com under investment-trust/corporate-

attendance at Audit Committee meetings.

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.

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

In discharging its responsibilities, the Board takes account of the

the Chairman’s performance, the results of the review being

Group’s purpose, value and culture, aiming to promote enhanced

discussed with the Chairman by the Senior Independent Director

value for shareholders in both capital and income terms. The

(SID). The Board evaluates its own performance and that of its

Board sets a cultural tone that encourages openness, diversity and

Committees and considers these matters again after each AGM

attention to the needs and views of shareholders and those who

in the light of comments received from shareholders and other

transact with us through our IPS activities.

interested parties. The Board notes the requirement of the

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.

The Board operates as a collective decision-making forum.

Individual Directors are required to scrutinise reports produced

by the executive and are encouraged to debate issues in an open

and constructive manner. If one or more Directors cannot support

a consensus decision, a vote will be taken and the views of a

dissenting Director recorded in the minutes.

Code for Companies in the FTSE 350 to undertake an external

evaluation at least every three years. Since its move to the FTSE

250 in 2019, the Board will be considering the appropriate time to

undertake such a review.

Robert Laing is the SID. The SID is available to shareholders who

have concerns that cannot be addressed through the Chairman,

Chief Executive Officer or Chief Financial Officer.

C O R P O R A T E G O V E R N A N C E

Corporate governance report continued

The Board – independence

All new Directors undergo an induction process, involving

presentations by the Chief Executive Officer, Chief Financial

At least half of the Board, excluding the Chairman, must be

Officer and each business head and meetings with the

independent Non-Executive Directors (NEDs). The Board can

investment manager. All Directors are submitted for annual re-

confirm that as at the date of this report, excluding the Chairman,

election, subject to continued satisfactory performance, which

four of the six other Directors are independent NEDs. In assessing

is assessed as described above. There is no maximum number of

Directors’ independence, the Board takes into account whether or

terms that a Director may serve, other than the Chairman whose

not a Director is independent of management and any material

tenure is explained on page 45. The Company has established a

business or other relationship that could affect or interfere with the

diversity policy, described in the Nominations Committee report.

exercise of objective judgement by the Director, or his/her ability

to act in the best interests of the Company and its subsidiaries. As

well as being satisfied that each Director dedicates sufficient time

to Law Debenture, the Board is satisfied that none of the Directors

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,

are described in the notes to the notice of AGM.

Directors’ remuneration

Details of the Directors’ remuneration appear in the remuneration

report on pages 50 to 70.

Board Committees

The Chairman, Robert Hingley, was independent at appointment

The Board has established a Nominations Committee, an Audit

and continued to be independent throughout the period, in the

Committee and a Remuneration Committee, to each of which

view of the Board, having no current or previous connections with

it has delegated certain responsibilities. Each Committee has

the Company or any of its subsidiaries.

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.

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 position of the Company as an investment

trust, the Board is deliberately kept small and it believes this is in

the best interests of shareholders. The Board is satisfied that its

Robert Laing was independent at appointment in April 2012 and

composition and size is sufficient to ensure that the requirements

the Board is satisfied that he remains so, having no current or

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.

The Board does not operate a management engagement

Tim Bond was independent at appointment in April 2015 and the

Committee, the duties of such a Committee being undertaken

Board is satisfied that he remains so, having no current or previous

directly by the Board.

connections with the Company or any of its subsidiaries.

A summary of each Committee is set out below.

Claire Finn was independent at appointment in September 2019

and the Board is satisfied that she remains so, having no current or
previous 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

The Nominations Committee ensures that the Board has in place

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

Nominations Committee

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.

Key duties
•

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;

to the duties expected of them and as necessary, diversity issues

•

succession planning (in particular of the Chairman and

are considered. No new NED is appointed without first being

Chief Executive Officer);

interviewed by each existing NED and comfort being obtained in

relation to their other commitments to ensure they have sufficient

time to devote to the role.

•

making recommendations about the re-appointment of

non-executive Directors; and

lawdebenture.com

•

ensuring that the Board and its Committees are constituted

financial statements. The Directors consider it appropriate to adopt

to comply so far as practicable with the Code.

a going concern basis in preparing the financial statements.

The Committee reports as follows:

The Nomination Committee is also responsible for considering the

policy on the tenure of the Chairman of the Board and planning

for the chair’s succession. Robert Hingley was appointed to the

Board in October 2017 and, in line with the policy on tenure and

the recommendations of the Code, he will stand down after nine

years although this period may be extended for a limited time to

facilitate effective succession planning.

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 Officer. In the opinion

of the Board, the annual report, taken as a whole, is fair, balanced

and understandable and provides the necessary information for

shareholders to assess the corporation and Group’s position and

The Committee engaged Nurole, the online Board and C-level

performance, business model and strategy.

recruitment platform (which has no other connection with the

Company) to conduct a search for a new Non-Executive Director

and, as a result, Claire Finn was appointed. Our diversity policy

states that, while the Board remains small, it will endeavour to

have at least two Directors who are female. That objective is

being met at the date of this report. The Committee’s approach

to effectiveness evaluation is set out elsewhere in the governance

report and the gender balance of those in senior management is

set out in the strategic report.

Members
R. Hingley (Chairman)

T. Bond

M. Bridgeman

C. Finn

R. Laing

Audit and Remuneration Committees

Following best practice guidelines published by the Financial

Reporting Council (FRC), the Audit Committee’s report is

published as a separate section of the annual report and can be

found at pages 48 and 49.

Information on the role of the Remuneration Committee is with

the separate annual remuneration report on pages 50 to 70.

Accountability and audit, fair balanced
and understandable reporting and going
concern

The statement of Directors’ responsibilities in relation to the

financial statements appears on page 42. The independent

auditors’ report appears on pages 75 to 79. The Directors confirm

that the Group and Company are a going concern as evidenced by

the financial statements, which demonstrate a healthy position,

taking into account all known and future anticipated liabilities,

and the Group’s ability to meet those liabilities. The performance

metrics of the Group remain strong. The Trust has outperformed is

benchmark by 230% over the last ten years and the IPS business

has shown positive growth following the introduction of a new

management team. There are no material uncertainties that call

into question the Company’s ability to continue to be a going

concern for at least 12 months from the date of approval of the

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Internal controls

The framework of internal controls ensures that the Company has

sound risk management systems to enable it to operate within the

desired risk appetite. The following paragraphs provide a description

of the main features of the internal control and risk management

systems in relation to the financial reporting process, which fulfill

the obligations of the FRC “Guidance on Risk Management, Internal

Control and Related Financial and Business Reporting” and the

UKLA’s Disclosure and Transparency Rules. This section should be

read in conjunction with the strategic report section which sets out

how the Directors manage or mitigate the principal risks relating to

the Company and Group business model.

The Board monitors the effectiveness of internal controls on a

continuous basis to ensure that internal control and risk mitigation is

incorporated in to the day to day management of the organisation,

both directly through main Board general reviews and by the more

specific work carried out by the Audit Committee. The annual internal

audit programme and system of compliance checks have both been

developed using a risk-based methodology and an evaluation of the

existing process controls. Other mechanisms in place to monitor

risk include:

•

Board review of the Group’s matrix of key risks and controls
managed by the legal, risk and compliance officer, reporting to

an executive risk committee;

an internal audit function, which involves business departments
and business wide processes (including overseas offices) being

subject to audit on a regular basis;

testing by the legal, risk and compliance officer of the Financial
Conduct Authority (FCA) regulated business systems and controls;

testing by the legal, risk and compliance officer of the
Company’s compliance with its AIFMD obligations;

review of reports by the depositary and the sub-custodian;

periodic reports to the Board by the legal, risk and compliance
officer about legal and regulatory changes, and the steps that

the Board must take to comply; and

review of the reports produced by the external auditors on their
annual audit work.

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Corporate governance report continued

The Board considers that the above measures constitute continuing

monitoring the effectiveness of the internal control systems for

application of the FRC risk guidance and form an important

the period. This process has been in place throughout 2019 and

management tool in the monitoring and control of the Group’s

will be reviewed by the Board on a regular basis.

operational risks.

Arrangements are in place by which staff of the Group may, in

An important element of the overall controls remains a continuous

confidence, raise concerns under the Public Interest Disclosure

review of the quality and effectiveness of internal financial controls

Act 1998 about possible improprieties in matters of financial

of the Group. In addition to safeguarding the ongoing maintenance

reporting or other matters. Any concerns which are raised will

of proper accounting records to enable the production of

be subject to proportionate and independent investigation, with

robust financial information to support appropriate business

appropriate follow up action. All employees also have to access

decisions, the Board has hired a new head of internal controls

to en external whistleblowing service. If necessary, any member

and started a programme of investment to further enhance the

of staff with an honest and reasonable suspicion about possible

controls in operation across the business. This is in recognition

impropriety may raise the matter directly with the Chairman of the

of the importance of ensuring that the controls in place are not

Audit Committee.

only effective but also efficient and support the delivery of the

Company’s growth strategy. This includes enhancing the data

available to the Board to allow for consideration of country and

currency exposure and potential impairment of assets (both

financial and non-financial). Key elements of the systems of internal

control continue to be:

•

regular qualitative self-assessment of the effectiveness of the

individual controls maintained in the overall internal financial

control framework;

•

preparation by management of a comprehensive and detailed

Information about share capital

The information that the Company is required to disclose about

its share capital can be found in the Directors’ report (significant

holders) and AGM notice (total voting rights).

Annual general meeting (AGM)

Details of the AGM for 2020 are set out at pages 117 to 121.

budget, involving annual Board approval and monthly

The Board recognises the value of the AGM as an opportunity to

comparison at Board level of actual results with budgets and

communicate with shareholders and encourage their participation.

forecasts;

•

systematic reporting to the Board of matters relating to

litigation, insurance, pensions, taxation, accounting, counterparty

risk and cash management as well as legal, compliance and

company secretarial issues;

Separate resolutions are put to the AGM on each substantially

separate issue. The number of proxies lodged for each resolution,

the balance for and against the resolution and the number of votes

withheld is published immediately after the AGM to the London

Stock Exchange and on the Company’s website. In line with

governance recommendations, if 20% or more of the votes cast

•

review of internal audit reports by the appropriate professional

are against any Board resolution, the Company would announce

services company Board and the Audit Committee;

what action it intended to take to consult shareholders views and

•

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 compliance staff of Janus

Henderson;

provide a summary of the outcome. The Board confirms that none

of the resolutions put to shareholders at the AGM in 2019 received

votes against above 20% of the votes cast. The notice of the AGM

and related papers are sent to shareholders at least 21 working days

before the meeting. Where requested by nominee holders, annual

reports and related documentation are circulated to beneficial

owners and the Company is happy for beneficial owners to attend

•

monitoring by the Board of the investment management

the AGM and (where appropriate arrangements have been made

process, including the establishment and maintenance

with the nominee) to vote their shares in person.

Summary statement of compliance

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.

of investment guidelines, receiving a report from the

investment manager at each Board meeting, the review of

all transactions with the investment manager and regular

reconciliations of the records of the Group with those of the

depositary and sub-custodian; and

•

receipt of frequent and detailed reports about the

performance of independent professional services business,

including the overseas subsidiaries.

The systems of internal financial control are designed to provide

reasonable assurance against material misstatement or loss.

By means of the procedures set out above, the Directors have

established a robust process for identifying, evaluating and

lawdebenture.com

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

I am pleased to present the Company’s Audit Committee report

During the year, the Committee’s business included:

for the year ending 31 December 2019.

•

consideration of the annual report and financial statements

The Committee was comprised at the year end of Robert Laing,

and of the half yearly report and statements including

Tim Bond, Claire Finn and me. Robert Hingley, whilst not a

consideration of the final and interim dividends;

member of the Committee, is invited to attend.

Role and duties

The main function of the Audit Committee is to assist the Board

in the management of the Group’s finances, financial reporting

structure and internal controls. Our key duties are as follows:

•

consideration of the Company’s matrix of risks and controls

and general oversight of the Group’s internal control systems

and procedures including in the context of reports by the

depositary and the Company’s obligations as an AIFM;

•

meetings with the external auditor to discuss the 2018

financial statements and, in the fourth quarter, to plan the

2019 audit. These meetings included discussions on fees,

•

monitoring the independence and objectivity of the auditors,

auditor independence, key risks and developments in

their performance and agreeing their remuneration;

accounting standards;

the reappointment of the external auditors;

monitoring the integrity of the financial statements and
the statutory audit process and in particular focussing on

significant issues highlighted in the process;

•

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

•

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 in accounting policy and providing an opinion to the

Board on whether the report and accounts are fair, balanced

and understandable; and

•

reviewing the effectiveness of systems of internal control
and risk management, including monitoring the executive

risk management function, the internal audit function and

consideration of country and currency risks.

As part of my duties as Committee Chairman, I met with the

audit partner and I met a number of times with the Chief

Financial Officer and Company Secretary to discuss matters

of significance.

The Committee considers that I have recent and relevant

financial experience due to my extensive experience as a fund

manager and from my executive management experience.

Similarly, Tim Bond satisfies the requirement as an active fund

manager. The Committee as a whole has competence relevant

to the sector in which the Company operates.

lawdebenture.com

•

review of new accounting standards and the possible impact

on Law Debenture.

Shortly after the year end, the Committee met with the external

auditors to discuss the 2019 financial statements and the

outcome of that discussion is set out below.

Risk management, internal control
and internal audit

The internal controls adopted by the Group are set out in

the corporate governance report. The Board as a whole is

responsible for the effectiveness of internal control mechanisms

but it is informed by more specific work carried out by the

Audit Committee, which includes the initiation and oversight

of any investigations that may be necessary to address control

weaknesses/breaches, as identified.

In particular, the Committee reviews the adequacy and

effectiveness of the Group’s risk management systems and

processes. The head of legal, risk and compliance reports through

an executive risk Committee, but in line with good practice in this

area, the terms of reference give her the right to report directly to

me on any specific matter of concern.

The internal auditor, who reports to me as Chairman of the

Audit Committee, presents his annual audit programme to

the Committee for approval each year and attends Committee

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,

Non-audit services

having taken views from Directors and senior management.

Non-audit services provided by the auditor are reviewed by the

Based on that review, the Committee is satisfied that the quality,

Committee to ensure that independence is maintained. Non-

experience and expertise of the internal auditor is appropriate

audit fees are shown at note 3 to the accounts. The Committee’s

for the business.

External auditors – assessing effectiveness

One of the most important functions of the Committee is to

monitor the independence and objectivity of the auditors, their

performance and effectiveness. The Committee achieves this

by an annual formal meeting with the audit partner to plan

that year’s audit. Part of that process requires the auditor to

give the Committee written assessment of how the audit team

identifies and manages the threats to its independence, along

policy is that non-audit work should be limited to those matters

where the external auditor is most appropriately placed to carry

out the work, unless there is a conflict of interest. Consequently,

fees for non-audit services have historically been low and in the

year under review were £14,000 (2018: £14,000).

Significant financial issues relating
to the 2019 accounts

The Code requires us to describe any significant issues considered

in relation to the financial statements and how those issues

with the description of the safeguards that it has in place to avoid
such threats. This vital part of the audit process also enables

were addressed.

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

No new significant issues arose during the course of the audit. As

reported in previous years, an area of consideration is that relating

to bad debt provisions.

considered that year.

At the conclusion of each audit, the Committee receives a

presentation from the audit partner on the principal findings.

This provides the opportunity for robust challenge, particularly

in areas where management judgement has been required. The

Committee will also give the auditors an opportunity, without

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

were no matters of concern raised during the period under review.

Audit tendering

BDO LLP (BDO) were first appointed as the Company’s auditors on

31 October 2008. Having consideration of the experience of staff

and level of service provided, it is recommended that BDO LLP
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 audit

firm (BDO) and a reserve audit firm. The Board resolved to appoint

BDO as auditor. Whilst the Audit Committee continues to believe

that the level of service provided by BDO is satisfactory, it has

recommended to the Board that the Company should undertake

an audit tender during the course of 2020 to ensure that the costs

of the audit are competitive following the step increase in the

audit fees for the 2019 audit.

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.

Other issues that arose included: the risk that portfolio

investments may not be beneficially owned or correctly valued;

and that revenue is appropriately recognised. The Committee has

received assurance on these matters from management.

The Committee is satisfied that the judgements made by

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 2020

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Annual remuneration report

Part 1 Remuneration Committee Chairman’s annual statement

Dear Shareholder

On behalf of the Board, I am pleased to present the Company’s

Directors’ Remuneration Report for the year ending 31 December

2019. This year we have overhauled the report to improve

transparency and clarity for all stakeholders and improve

alignment with governance best practice.

The current Remuneration Policy is due to expire in 2020, and

therefore a new Remuneration Policy is being presented for

shareholder approval at the AGM in April 2020. This report

summarises the new Policy, how it will be implemented in 2020,

and how the current Policy has been operated during the year.

New Remuneration Policy

During the year, the Committee, undertook a comprehensive

review of the Policy to ensure that it supports the Company’s

strategy. The IPS is a key differentiator between Law Debenture

and other investment trusts. A key component of the Company’s

strategy is to drive sustainable long-term growth in the IPS

business to increase profit, which will fund dividends and create

value for shareholders. It provides a regular flow of dividend

income to the Company, contributing 35% of annual dividend
payments to shareholders in the past ten years1, which has
allowed the investment portfolio manager, increased flexibility in

constructing the investment portfolio.

For a professional services business such as IPS, the most

important driver of growth is the quality of the people. It is

therefore critical for Law Debenture to have a remuneration

structure that is effective to attract, retain and motivate key talent

of the right calibre to drive long-term sustainable growth in the

IPS business, ensuring the successful delivery of the strategy

and creation of value for shareholders. The Committee has

reviewed the current Policy and concluded that it is no longer

fit for purpose, as it provides neither a sufficient link between

management reward and business performance to achieve this,

nor sufficient lock-in or shareholder alignment.

The Committee has sought to address these issues in the new

Policy through restructuring the incentives to include a new Long-

Term Incentive Plan (“LTIP”) and a simplified, more robust annual

bonus structure. At the same time, the Committee has taken the

opportunity to align the new Policy with the 2018 UK Corporate

Governance Code (“the Code”) and best practice. Further details of

these changes are provided below.

New Long-Term Incentive Plan
From 2020, the Executive Directors will receive annual awards

of conditional shares worth 100% of salary under the LTIP which

vest based on performance over a 3-year period and are released

after five years from grant. Other individuals will be eligible to

participate at a lower level at the Committee’s discretion. The main

arguments in support of the introduction of the LTIP are as follows:

1 Calculated based on dividends paid in respect of the financial years between 2010 and 2019.

lawdebenture.com

•

Market practice: A review of the remuneration policies of a
comparator group of companies revealed that an important

component in the remuneration of senior executives was the

ability to participate in an LTIP. The Committee therefore believe

that the introduction of an LTIP is an important element in its

ability to recruit and retain key individuals.

•

Conservative quantum: When designing the LTIP, the
Committee was cognisant of the potential increase in total

remuneration as a result of its introduction. It has therefore been

careful to calibrate award levels to ensure that the overall pay

positioning against the comparator group is conservative and

not excessive. Whilst the Company is in the FTSE 250, for which

the median CEO LTIP award is 200% of salary, the Committee

took a conservative approach and set a lower award level of

100% of salary.

This was felt to be more reflective of the size and complexity of
the area of the business directly within management’s control.

•

Management shares in the value created for shareholders: The
LTIP provides a link between value creation for shareholders and

LTIP rewards for management by allowing them to share in a

percentage of incremental profit. At least 50% of the awards will

normally be based on IPS EPS profit (2020: 100%), this being the

single KPI of the IPS business, with targets calibrated to deliver

rewards only for meeting or exceeding shareholder expectations.

The additional growth in EPS driven by the LTIP should help to

reduce the discount to NAV as investors become more confident

in its ability to generate real value over the longer term. While

the IPS performance condition focusses on the main business

area directly in management’s control, the delivery of the

awards in Company shares ensures that management are fully

aligned with shareholders and remain focussed on the business

as a whole.

•

Alignment with LTIP market and best practice: The Terms
& Conditions of the new LTIP fully comply with the 2018 UK

Corporate Governance Code and best practice.

Revised annual bonus framework
For 2020, the Committee is introducing a more robust

framework for determining Executive Director bonuses that

is simple and provides greater clarity and transparency of the

link between pay and performance for both participants and

shareholders. This was felt necessary because the current bonus

structure, whereby Executive Directors have a maximum bonus

based on performance targets but are also subject to the same

general bonus pool applying to the workforce, is complex and

unusual in the listed environment and does not readily support

clear articulation and disclosure of the assessment of bonus

outcomes by the Committee. The new simplified framework will

operate as follows:

•

Financial and non-financial targets are set at the start of the year
(at least 50% based on IPS financial measures).

•

The maximum individual bonus limit for Executive Directors is
unchanged at 100% of salary and is de-linked from the general

proposing to increase her salary by 6.4% to £240,000 for 2020.

The CEO’s salary will be increased by 3.0% to £325,000 for 2020,

bonus pool.

The total bonus for Executive Directors is capped at 25% of the
general bonus pool to provide protection for shareholders and

prevent excessive bonuses relative to the wider workforce.

The first £100,000 will be paid in cash, with half of any bonus
above deferred in shares for three years. This provides for greater

levels of deferral at higher bonus payouts.

in line with the increase to the wider workforce. For the remainder

of the Policy, the Committee intends to limit Executive Director

salary increases to the level of increase for the wider workforce.

The Executive Directors’ pension contributions will continue to be

aligned with the workforce at 12% of salary.

The maximum bonus opportunity will remain unchanged at 100%

of salary for 2020, with 50% of performance measures based on IPS

financial targets and with the remainder based on non-financial

•

Greater disclosure of bonus targets and achievements will be

measures aligned to the strategic priorities of both the IPS and the

provided in the Annual Report.

A general bonus pool available to all staff other than the Executive

Directors will be retained that will normally be funded by a flat
percentage of up to 20% of IPS profit before tax subject to a

threshold of 90% of the previous year’s profit.

Changes to improve alignment with governance
best practice
The Committee has ensured that the introduction of the LTIP

is accompanied by the incorporation of several best practice

governance features and that the new Policy is fully aligned with the

2018 Code. In particular, the following changes have been made in

the new Policy:

Company as a whole. Further details are provided on page 54 of this

report, and the specific targets will be published together with the

bonus outcome in the Annual Report on Remuneration for 2020.

The deferral requirement has been enhanced under the new Policy

such that half of any bonus earned above £100,000 will be deferred

in shares for three years.

Executive Directors will receive LTIP awards of 100% of salary in 2020

which will vest based on 3-year IPS EPS targets ranging from 4% p.a.

growth at threshold (at which 25% of the award vests) to 10% p.a.

at stretch. Given the internal business plan, analyst forecasts, the

historically flat performance of the IPS business, and economic

uncertainty, to sustain the proposed stretch level of earnings growth

for three years would be exceptional. Any shares vesting must be

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Introduction of a minimum shareholding requirement of 200%

held for a further two years. Further details are provided on page 54

of salary for Executive Directors, extending for two years post-

of this report.

cessation of employment.

•

Enhanced malus and clawback triggers to include serious

reputational damage and corporate failure, in line with the FRC

Guidance on Board Effectiveness.

Performance and outcomes for 2019

Financial and operational highlights
Our aim is to produce long-term capital growth and steadily

•

Remuneration Committee discretion included to override

increasing income for our shareholders. Against those two aims,

formulaic outcomes in incentives to reflect overall business

2019 proved a very successful year for Law Debenture, seeing a share

performance.

•

Improved disclosure of bonus measures, targets and assessment

of outcomes.

Shareholder engagement
The Committee consulted with nine of our largest institutional

price total return of 24.5%. We are proud to have generated £157m of

value for our shareholders over the course of last year and to see the

share price end the year at £6.50, up from £5.40 at the end of 2018.

2019 was another positive year for our IPS business with revenue

growth of 7.5% and an increase in earnings per share of 8.5% after

several years of flat performance prior to the recruitment of the new

shareholders and the main proxy voting agencies (the Investment

management team. Please refer to the Chairman’s Statement on

Association, ISS and Glass Lewis) to gain their input on the proposed

pages 4 and 5 for further overview of the financial and operational

new Policy prior to its finalisation.

highlights for 2019.

Implementation of the new Policy in 2020

The new CFO, who was appointed on 1 January 2019, was initially

recruited on a below market-competitive salary with the intention of

moving to a more competitive level as she became more established

and proved herself in her first PLC director role. The Committee

reviewed her performance at the end of her first year and

determined that an increase was warranted to a more competitive

level given her strong performance. The Committee is therefore

Annual bonus outcomes for 2019
We believe that the changes to the Policy set out in this Report

will help drive continued growth of the IPS and the recruitment

and retention of key personnel to the benefit of shareholders.

Management delivered well against a stretch target for IPS earnings

per share of 9.0% and revenue growth of 8.0%. This has been

achieved despite a difficult market backdrop, namely continued

Brexit uncertainty, fears of globally escalating trade wars and

reduced levels of investment banking activity, all of which have

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Annual remuneration report continued

Part 1 Remuneration Committee Chairman’s annual statement continued

particularly affected our capital markets facing businesses. It has

as the Non-Executive Director with responsibility for enhancing

also been pleasing to see the maintenance of margin, despite new

that engagement process. Since making that appointment, various

hiring and investment in technology which will help to further

methods of communication (including presentations, email

accelerate the growth of the business over the longer term.

correspondence and availability for face-to-face meetings) have been

utilised to raise employee awareness of the role and engagement

Discretions
The Committee determined that the annual bonus outcomes for 2019,

with the Board more broadly. An employee engagement survey was

commissioned towards the end of the year. Steps have already taken

based on the application of the performance conditions, were in line

to address some of the issues raised, with a longer term plan currently

with the overall performance of the business and did not exercise its

being put in place to deal with others.

discretion to alter the outcomes. The Committee did not make any

adjustments to account for share price appreciation or depreciation

over the vesting period. The Remuneration Policy operated over the

2019 financial year as the Committee intended. In view of the positive

outcome for the IPS business in what has been a difficult year and the

progress that has been made in achieving various strategic objectives
including the recruitment of new senior management, starting

the process of overhauling the IT systems as well as their support in

numerous shareholder meetings and presentations, we have decided

to award a bonus of 91% to the CEO and 91% to the CFO.

Wider workforce considerations and fairness

In developing the proposed executive remuneration policy, the

Committee has carefully considered remuneration arrangements

across the Group. The Committee receives information on wider

workforce remuneration of our staff, ensuring they have a good

understanding of the structure and application of the reward policies

throughout the Group.

We are strengthening our approach to communicating with our

employees in line with the provisions of the 2018 UK Corporate

Governance Code. During the year we appointed Mark Bridgeman

Conclusions

In summary, the proposed changes to the executive remuneration

Policy provide a framework which is in line with best practice and the

2018 UK Corporate Governance Code. We are confident the proposed

changes ensure both strong differentiation of performance and

alignment of management rewards with the shareholder experience,

while providing a more competitive remuneration package that

will help attract, retain and motivate key talent to ensure successful

delivery of the strategy.

I would like to thank our shareholders and their representative bodies

for the constructive consultation on the new Remuneration Policy.

We hope shareholders will be able to give their support at the AGM in

April 2020. I will be available at the meeting to answer any questions

in relation to this Remuneration report and the new Policy.

Robert Laing
Chairman, Remuneration Committee

26 February 2020

lawdebenture.com

Part 2 Remuneration Policy

The Remuneration Committee is required to put the new

Directors’ Remuneration Policy to a binding shareholder vote at

the next Annual General Meeting on 7 April 2020, as the current

Committee Process to determine
the new Remuneration Policy

Policy that was approved at the 2017 AGM is approaching the

In determining the 2020 Remuneration Policy the Committee:

end of its three-year approval period. This new Policy, set out

below, will take effect from the date of that meeting and is

intended to apply for three years.

Our remuneration principles

A key objective of our Policy is to balance the interests of

shareholders with those of the staff. We believe that:

•

Remuneration packages should be competitive but not

extravagant and should broadly be in line with average
packages in the markets in which Law Debenture operates;

•

There should be a clear link between total remuneration

(including a profit related element) and performance; and

•

There should be no reward for failure, but the executives

should be rewarded for the performance of the IPS business,

which is central to Law Debenture’s business model and

unique identity.

•

Considered the Company’s strategy, how the current Policy

related to and supported the strategy, and formed its own

views on the changes (if any) required to the Policy to align with

the strategy;

•

Considered feedback from Shareholders and investor bodies on

the 2018 Remuneration Report;

•

Sought advice from independent remuneration consultants

on the impact of the 2018 UK Corporate Governance Code,

Regulations and current investor sentiment in formulating the

new Policy;

•

Reviewed wider workforce remuneration and incentives to

ensure a consistent approach;

•

Consulted with senior management on the proposed changes
to the Policy; and

Conducted a full consultation exercise with major Shareholders
and investor bodies on the changes.

The Committee was mindful in its deliberations on the new Policy

of any potential conflicts of interest and sought to minimise them

through an open and transparent internal consultation process;

by seeking independent advice from its external advisers and by

undertaking a full shareholder consultation exercise.

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Annual remuneration report continued

Changes to the new Remuneration Policy

ELEMENT

CURRENT POLICY

PROPOSED CHANGE

RATIONALE

Long-Term
Incentive Plan
(LTIP)

None.

New LTIP

Drives long-term sustainable growth of

•

Annual award of performance shares.

the IPS business, in line with the strategy.

• Maximum limit of 100% of salary.

• Based on 3-year IPS EPS growth.

•

Vests after 3 years with a 2-year

holding period post-vesting.

Provides lock-in of critical talent and

long-term alignment with shareholders,

both lacking from the current Policy.

Annual bonus

Executive Director bonuses

Executive Director bonuses will be de-

Robust, simplified bonus structure

are allocated from the

linked from the general bonus pool and

that is more appropriate for a listed

general bonus pool.

based solely on pre-defined financial and

environment.

High level disclosure of

payouts, with specific
targets not clearly

non-financial objectives.

The maximum individual limit is
unchanged at 100% of salary, however

disclosed.

an aggregate cap will apply to Executive

Improved pay-performance linkage.

Improved clarity and transparency for

all stakeholders.

A third of the bonuses

is deferred in shares for

Director bonuses of up to 25% of the

Enhanced deferral results in a greater

general pool awarded to all other staff.

level of deferral for higher payouts.

three years.

Enhanced disclosure of metrics, targets

Aggregate bonus cap based on a

and the assessment of bonus outcomes.

percentage of the general bonus pool

Half of any bonus earned above £100,000

will be deferred in shares for three

years (enhanced malus and clawback

provisions will apply as described below).

provides protection for shareholders and

prevents excessive bonuses relative to the

wider workforce.

Shareholding
requirement

None.

200% of salary for Executive Directors,

In line with the 2018 Code, investor

extending for two years post-cessation.

expectations and the IA guidance.

50% of vesting deferred bonus and LTIP

An Employee Benefit Trust or nominee

awards are retained, net of tax, until met.

account will be used to hold shares to

enable the post cessation requirements

to be operated.

Malus/clawback
triggers

•

IPS profits overstated.

• Gross misconduct.

Enhanced to align with the FRC

• Breach of contract.

• Misstatement of results.

Guidance on Board Effectiveness.

• Error in calculation.

• Serious reputational damage.
• Corporate failure.

Remuneration
Committee
discretion

Bonus outcome is

Committee discretion to override

In line with the 2018 Code. Ensures

subject to a discretionary

formulaic outcomes in the bonus

rewards reflect the shareholder

assessment.

and LTIP to reflect overall business

experience and prevents rewards

performance.

for failure.

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In determining the new Remuneration Policy, the Committee paid attention to Provision 40 of the 2018 UK Corporate Governance Code,

as follows:

FACTOR

HOW OUR NEW REMUNERATION POLICY ALIGNS

Clarity
remuneration arrangements should

•

Bonus and LTIP performance conditions are based on the core KPIs of the strategy and

therefore there is a clear link to all stakeholders between their delivery and reward

be transparent and promote effective

provided to management.

engagement with shareholders and the

•

The LTIP provides annual grants of shares which must be retained for the longer-term

workforce.

to ensure a focus on sustainable performance. This provides complete clarity of the

alignment of the interests of management and shareholders.

Simplicity
remuneration structures should avoid

•

Executive Director bonuses will be delinked from the general bonus pool and be linked

to clearly defined corporate objectives to ensure the payout is reflective of corporate

complexity and their rationale and

performance.

operation should be easy to understand.

•

The performance conditions for the annual bonus and LTIP are based on the Company’s

key strategic objectives. This alignment of reward with the delivery of key markers of the

success of the implementation of the strategy ensures simplicity.

The Remuneration Policy includes:

•

Compulsory deferral of a substantial proportion of pay in shares for a material period;

Aligning the performance conditions with the strategy of the Company;

Ensuring a focus on long-term sustainable performance through the LTIP; and

Ensuring there is enough flexibility to adjust payments through malus and clawback and

an overriding discretion to depart from formulaic outcomes.

These elements mitigate against the risk of target-based incentives by:

•

Deferring the value in shares for the long-term which helps ensure that the performance

earning the award was sustainable and thereby discouraging short term behaviours;

•

Aligning any reward to the agreed strategy of the Company;

The LTIP supports a focus on the sustainability of performance over the longer term;

Reducing the awards or cancelling them if the behaviours giving rise to the awards are
inappropriate; and

•

Reducing the awards or cancelling them if it appears that the criteria on which the award

was based do not reflect the underlying performance of the Company.

•

The Remuneration Policy sets out clearly the range of values and discretions in respect of

the remuneration of management.

•

LTIP award levels are set to be conservative to avoid any egregious payouts.

Risk
remuneration arrangements should

ensure reputational and other risks from

excessive rewards, and behavioural risks

that can arise from target-based incentive

plans, are identified and mitigated.

Predictability
the range of possible values of rewards to

individual Directors and any other limits

or discretions should be identified and

explained at the time of approving the

policy.

Proportionality
the link between individual awards, the

•

The annual bonus and LTIP provides a clear link between the reward provided to
management and the delivery of the strategy through incentivising management to

delivery of strategy and the long-term

deliver the KPIs.

performance of the company should be

clear. Outcomes should not reward poor

performance.

•

The LTIP provides a focus on long-term sustainable performance through the build-up of

a long-term locked in shareholding.

•

Both incentive plans allow the Remuneration Committee to exercise its discretion to

override formulaic outcomes.

•

Executive Director bonuses are subject to an aggregate cap based on a percentage of the

general bonus pool to prevent excessive bonuses relative to the wider workforce.

Alignment to culture
incentive schemes should drive

behaviours consistent with company

purpose, values and strategy.

•

The annual bonus drives behaviours consistent with the strategy.

The LTIP drives behaviours consistent with the Company’s purpose and values which are

focused on the long-term future of the business throughout the business cycle.

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Annual remuneration report continued

Policy table for Executive Directors

COMPONENT

Base salary

PURPOSE AND
LINK TO STRATEGY OPERATION

OPERATION

PERFORMANCE
FRAMEWORK

To provide an

Typically reviewed annually,

Salary increases will normally

None.

appropriate level of

taking account of the

be in line with those of the

salary to attract and

following:

retain individuals of

the required calibre

to successfully deliver

•

Scope and responsibilities

of role;

the business strategy.

•

Individual skills, experience

and performance;

wider workforce. Increases

may be made above this level

in certain circumstances,

including (but not limited to):

•

An increase in scale, scope

or responsibilities of the

•

Business performance and

role;

the external economic

environment;

•

To ensure salaries remain

market competitive; and

•

Appropriate market data;

and

•

Pay and conditions

•

Where individuals

have been recruited or

promoted with salaries

elsewhere in the Company.

below the targeted policy

level initially and have

become more established

in their role.

Benefits

To provide market

Benefits may include (but

Benefits may vary by role and

None.

competitive benefits.

are not limited to) private

individual circumstance and

medical insurance, life

are reviewed periodically.

insurance cover, disability

income plan, season ticket

loans and professional

subscriptions.

Other benefits may be

introduced from time to

time to ensure the benefits

package is competitive and

reflects the circumstances

of the individual Director,

for example relocation
allowances.

The Remuneration

Committee may award non-

pensionable cash payments

in lieu of one or more of

these benefits.

Pension

To provide funding

Executive Directors

None.

for retirement at

may receive pension

(including current

market competitive

contributions to a personal

incumbents and new

levels.

pension scheme and/or

Directors) receive a

cash allowances in lieu of

contribution of 12% of salary

contributions.

in line with the contribution

for the wider workforce.

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COMPONENT

Annual bonus

PURPOSE AND
LINK TO STRATEGY OPERATION

OPERATION

PERFORMANCE
FRAMEWORK

To incentivise

Performance measures,

Maximum individual

Performance measures, targets

and reward the

targets and weightings are set

annual bonus opportunity

and weightings are determined

achievement of

at the start of the year.

is 100% of base salary.

each year to reflect key business

annual business

objectives to

enable successful

implementation

of the Group

strategy, and to

align the interests of

Executive Directors

with shareholders
and support

At the end of the year, the

The total aggregate

Committee determines the

annual bonus payment

priorities and are measured over

a period of one financial year.

extent to which the targets

for Executive Directors

A minimum of 50% of the

have been achieved and

is capped at 25% of the

bonus is based on financial

the resulting proportion of

general bonus pool for

measures. The remainder

the maximum individual

employees.

opportunity payable to

Executive Directors.

Half of any bonus earned

20% of the maximum will

be payable for threshold
performance and 50%

is based on non-financial

measures aligned to the

strategic priorities of the

business and may also contain
individual performance

objectives.

retention.

above £100,000 will be

of the maximum will be

deferred in shares for three

payable for on-target

years. Dividend equivalents

performance, with full

The Committee has discretion

may accrue on deferred

payment for stretch

to adjust the formulaic bonus

bonus awards and be paid on

performance. Payment

outcome to reflect underlying

those shares which vest.

increases on a straight-line

Company performance. Any

The Plan contains malus and

clawback provisions (see

below for details).

basis between threshold,

adjustments or discretion applied

target and stretch.

by the Committee will be fully

explained in the following year’s

Remuneration Report.

LTIP

To drive sustained

An award of conditional

Maximum award of 100%

At least half of the award will

long-term

performance

that supports

the creation of

shareholder value,

and to encourage

and facilitate

substantial

long-term share

ownership.

shares or nil cost-options may

of salary.

be granted annually.

25% of the award

Awards vest after three years,

will vest for threshold

be based on financial measures,

normally profit-based measures

linked to the IPS business.

subject to performance and

performance, with

The Committee has discretion

continued employment.

full vesting for stretch

to adjust the formulaic vesting

Following vesting, an additional

performance. Vesting

outcome to reflect underlying

two-year holding period will

increases on a straight-

Company performance. Any

apply (net of tax), such that

line basis between

adjustments or discretion

shares are not released until

threshold and stretch.

applied by the Committee

five years from grant.

Award levels and performance

conditions are reviewed

in advance of each grant

to ensure they remain

appropriate.

Dividend equivalents may

accrue on shares held under

the Plan and be paid on those

shares which vest. These

will be delivered in shares

in line with the Investment

Association Guidelines.

The Plan contains malus and

clawback provisions (see

below for details).

will be fully explained in the

following year’s Remuneration

Report.

C O R P O R A T E G O V E R N A N C E

Annual remuneration report continued

Policy table for Executive Directors continued

COMPONENT

All Employee
Plans

PURPOSE AND
LINK TO STRATEGY OPERATION

OPERATION

PERFORMANCE
FRAMEWORK

To encourage

The Executive Directors are

The prevailing HMRC

None.

share ownership

eligible to participate in an

approved limits apply.

throughout the

HMRC-approved Save As You

Company

Earn Share Save Plan (SAYE)

and/or Share Incentive Plan (SIP)

on the same basis as all other

eligible UK employees. The

Committee intends to maintain

and operate these schemes in

accordance with scheme rules

and HMRC Regulations.

Legacy arrangements

The Committee reserves the right to make any remuneration

The performance targets are set to be stretching but achievable,

payments and payments for loss of office (including exercising

taking into account a range of internal and external reference

any discretions available to it in connection with such payments)

points and having regard to the particular strategic priorities and

that are not in line with the Policy set out in this report where the

economic environment.

terms of the payment were agreed before the Policy came into

effect or at a time when the relevant individual was not a Director

of the Company.

Malus and clawback

Minimum shareholding requirement

Malus is the adjustment of deferred annual bonus awards or

unvested LTIP awards, because of the occurrence of one or more

circumstances listed below. The adjustment may result in the value

The Committee believes that Directors should build a sizeable

being reduced to nil.

shareholding in Law Debenture over time to ensure that they are

as closely aligned as possible with the Shareholder experience.

The minimum shareholding guideline for Executive Directors is

two times their gross basic salary. Executive Directors are required

to retain 50% of the post-tax number of vested shares from

the Company incentive plans until the minimum shareholding

requirement is met and maintained.

On cessation of employment, Executive Directors are required to
retain their minimum shareholding requirement immediately prior to

departure for two years. Where their actual shareholding at departure

is below the minimum shareholding requirement, the Executive

Director’s actual shareholding is required to be retained on the same

terms and for the same periods. In addition, the Company is using an

Employee Benefit Trust or nominee accounts in which to hold shares

to enable the post cessation requirements to be operated.

Clawback is the recovery of cash payments made under the annual

bonus or vested LTIP awards as a result of the occurrence of one

or more circumstances listed below. Clawback may apply to all

or part of a participant’s payment or award and may be effected,

among other means, by requiring the transfer of shares, payment

of cash or reduction of awards or bonuses.

The circumstances in which malus and clawback could apply are

as follows:

•

Gross misconduct;

Misstatement of the financial results;

Error in reporting or calculation;

Serious reputational damage; or

Corporate failure.

Performance measure selection

Performance Measures used under the annual bonus and LTIP are

selected annually to reflect the Group’s main short- and long-term

objectives and reflect both financial and non-financial priorities.

Malus applies to deferred annual bonus awards and unvested LTIP

awards up to the date of vesting. Clawback applies to cash annual

bonus payments and vested LTIP awards for up to two years from

payment or vesting.

For Executive Directors, performance measures in incentives will

Annual bonus payments and LTIP awards are subject to malus and

focus predominantly on the profitability of the IPS business which

clawback for up to two years from payment of the bonus or vesting

is central to Law Debenture’s business model and unique identity

of shares.

and is the area of the business fully within management’s control.

lawdebenture.com

Discretion

The Committee will operate all incentive plans according to

the rules and discretions contained therein to ensure that the

implementation of the Remuneration Policy is fair, both to the

individual Director and to the shareholders. The discretions cover

aspects such as:

•

treatment of awards on termination of employment and change
of control;

•

adjustment of awards in certain circumstances, e.g. changes in

capital structure, demerger, special dividend, distribution or any

other corporate event which may affect the current or future

•

selection of participants;

value of an award;

timing of grant and vesting of awards;

size of awards (subject to the Policy limits);

•

adjustment of performance conditions in exceptional
circumstances provided the new targets are fair and reasonable

and neither materially more or less challenging than the original

choice of measures, weightings and targets;

targets; and

determining level of payout or vesting based on an assessment

•

application of malus and/or clawback.

of performance;

•

settlement of awards in cash or shares;

Any such use of discretion will be fully disclosed in the subsequent

Annual Report and may, as appropriate, be the subject of
consultation with the Company’s major Shareholders.

Illustrations of total remuneration opportunity

The charts below provide estimates of the potential future

The Committee was mindful in its deliberations on the new Policy

reward opportunities under the Policy for each of the Executive

of any potential conflicts of interest and sought to minimise them

Directors and the potential split between the different elements

through an open and transparent internal consultation process;

of remuneration under four different performance scenarios:

by seeking independent advice from its external advisers and by

‘Minimum’, ‘On Target’, ‘Maximum’ and ‘Maximum with share price

undertaking a full shareholder consultation exercise.

growth of 50% over 3 years’. The ‘Minimum; scenario includes base

salary, pension and benefits only (i.e. fixed remuneration).

s
0
0
0
£

1,200

1,000

800

600

400

200

£1,017

£1,179

£750

£870

£610

£367

£450

£270

Minimum

On-Target

Maximum

Denis Jackson (CEO)

Maximum with
50% share
price
appreciation

Minimum

On-Target

Maximum

Katie Thorpe (CFO)

Maximum with
50% share
price
appreciation

Fixed

Annual Bonus

LTIP

Share price appreciation

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ELEMENT

ASSUMPTIONS

Total fixed pay

Base salary: CEO £325,000, CFO £240,000 (effective 1 January 2020).

Pension: 12% of salary.

Benefits: As disclosed in single figure table on page 64.

Annual bonus

Minimum: No payout.

On-target: 50% of maximum (50% of salary).

Maximum: 100% of maximum (100% of salary).

LTIP

Minimum: No vesting.

On-target: 25% of maximum (25% of salary).

Maximum: 100% of maximum (100% of salary).

Share price growth

Impact of 50% share price appreciation on maximum remuneration over three years.

C O R P O R A T E G O V E R N A N C E

Annual remuneration report continued

Recruitment Policy

When determining the remuneration arrangements of a new

•

The Committee will appoint new Executive Directors with a

appointment to the Board, the Committee will seek to apply the

package that is in line with the Remuneration Policy in place

following principles:

•

Although we operate in a competitive market for talent, we are

mindful to pay no more than is necessary to attract and retain

high-quality talent;

at the time, as indicated in the table below. In particular, the

maximum level of variable remuneration will be in line with the

limits set out in the Policy table.

Approach on recruitment

ELEMENT

ASSUMPTIONS

Salary

•

The base salaries of new appointees will be determined by reference to the individual’s role and responsibilities,

experience and skills, relevant market data and pay and conditions elsewhere in the Company.

•

Pension

Benefits

Base salary may be higher or lower than the previous incumbent. Salaries may be set at a lower level initially with
the intention of increasing salaries at a higher than usual rate as the executive gains experience in the role.

New appointees will be eligible to receive pension contributions (or cash in lieu) in line with the Policy.

New appointees will be eligible to receive benefits in line with the Policy, including relocation benefits if the

Committee deems it appropriate.

Annual bonus

•

The structure described in the Policy table will normally apply to new appointees with the relevant maximum being

pro-rated to reflect the proportion of the year served. The Committee retains the flexibility to determine that for the

first year of appointment any annual incentive award will be subject to such terms as it may determine.

LTIP

•

New appointees will be eligible for awards under the LTIP which will normally be on the same terms as other

executives, as described in the Policy table.

Termination Policy

To facilitate recruitment, it may be necessary to “buy-out”

Executive Directors will be entitled to receive salary and benefits

remuneration arrangements forfeited on leaving a previous

during the notice period, which may be paid ‘in lieu’ of all or part of

employer. This will be considered on a case-by-case basis and may

any period of notice. Payments may be made as either a lump sum

comprise cash or performance and non-performance related share

or in equal monthly instalments until the end of the notice period

awards and would be in such form as the Committee considers

at the discretion of the Company and Executive Directors will be

appropriate considering all relevant factors such as the form,

expected to mitigate their loss.

performance conditions, expected value, anticipated vesting and

timing of the forfeited remuneration. The Committee’s intention

is that the value awarded would be no more than the commercial

value of the awards forfeited.

The Committee will seek to ensure that there are no unjustified

payments for failure. 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

For internal promotions, the approach will be consistent with the

is given notice of termination of employment within 12 months

policy for external appointees. Where an individual has contractual

of any change in control of the Company, he/she will be given not

commitments made prior to their promotion to Executive Director

less than 12 month’s written notice and the same arrangements

level, the Company will continue to honour these arrangements.

for receiving salary and benefits during this period will apply as

described above.

The Committee may authorise payments for statutory entitlements

in the event of termination, reasonable settlement of potential

legal claims, and payment of reasonable reimbursement of

professional fees in connection with such agreements.

Service contracts

Executive Director service contracts can be terminated by not

less than six months’ notice given in writing by either party to the

contract, with no contractual provisions for compensation payable

on early termination of the contract. The Directors are subject to

annual re-election at the AGM. Non-Executive Directors’ contracts

are available to view at the Company’s registered office.

lawdebenture.com

PLAN

GOOD LEAVERS1

ALL OTHER LEAVERS

CHANGE OF CONTROL

•

Annual bonus

•

Typically paid at the same time

as continuing employees, to the

extent that the performance

conditions are achieved with pro-

rating for the proportion of the

financial year served, unless the

Committee determines otherwise.

•

Deferred bonus awards will

continue until the normal vesting

date or may vest earlier at the

discretion of the Committee.

•

Unvested LTIP awards will typically

vest on the normal vesting date, to

the extent that the performance
conditions are achieved with pro-

rating for the proportion of the

financial year served, unless the

Committee determines otherwise.

•

Vested awards will remain subject

to any holding period.

LTIP

No bonus payable.

•

Normally paid immediately on the

Unvested deferred bonus

awards lapse.

effective date of change of control,

subject to the achievement of

the performance conditions and

pro-rated for the proportion of the

year served to the date of change

of control, unless the Committee

determines otherwise.

•

Deferred bonus awards vest

immediately in full on the effective

date of change of control.

Unvested awards lapse.

•

Unvested LTIP awards will typically

Vested awards will remain subject

to any holding period.

vest immediately in full on the

effective date of change of control,
subject to the achievement of

the performance conditions and

pro-rated for the proportion of the

year served to the date of change

of control, unless the Committee

determines otherwise.

•

The holding period applicable to

any awards will end at the time of

change in control.

•

Alternatively, awards may be

exchanged for new equivalent

awards in the acquiring company.

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1 The Committee has discretion to determine that an Executive Director is a good leaver. It is the Committee’s intention to only use this discretion in circumstances where there is an appropriate

business case which will be explained in full to shareholders. A good leaver is typically defined as an employee who ceases to hold employment by reason of: death, injury, ill-health or disability;

retirement with the agreement of the Group; redundancy; the participant’s employing Company being transferred to an entity which is not a Group member; Transfer of undertaking; or any

other reason at the Committee’s discretion.

External appointments

It is the Board’s policy to allow Executive Directors to take up one

for face-to-face meetings) have been utilised to raise employee

Non-Executive position on the Board of another company, subject

awareness of the role and engagement with the Board more

to the prior approval of the Board. Any fee earned in relation to

broadly. The Company has also commissioned an annual

outside appointments is retained by the Executive Director.

engagement survey to receive employee feedback.

Consideration of employment
conditions elsewhere

In determining the remuneration arrangements for Executive

Directors, the Committee considers pay and conditions of other

employees across the IPS business and aims to ensure a consistent

approach. To facilitate this, the Committee receives information

on wider workforce remuneration, ensuring they have a good

understanding of the structure and application of the reward

policies throughout the Group.

Mark Bridgeman has been appointed as the Non-Executive

Director with responsibility for engaging with the workforce. Since

making that appointment, various methods of communication

(including presentations, email correspondence and availability

Differences in remuneration policy
for Executive Directors compared
with other employees

The Company’s approach to annual salary reviews is consistent

across the Group, with consideration given to the level of

experience, responsibility, individual performance and salary levels

in comparable companies.

In terms of variable incentives, all employees are eligible to

participate in an annual bonus scheme with business area-specific

metrics and individual performance taken into account where

appropriate. The maximum bonus opportunity of 100% of salary is

consistent across all staff.

C O R P O R A T E G O V E R N A N C E

Annual remuneration report continued

Policy for Chairman
and Non-Executive Directors

Senior managers may be eligible to participate in the LTIP with

The Non-Executive Directors, including the Chairman, do not

annual awards up to 100% of salary. Performance conditions are

have service contracts and are appointed for an indefinite term.

consistent for all participants, while award sizes vary by level.

Non-Executive Directors will not be entitled to compensation on

Specific cash incentives are also in place to motivate, reward and

termination of their Directorship, no matter what the reason for

retain staff below Board level.

When determining incentive outcomes, the Remuneration

Committee may take account of the Executive Director’s

termination. The Directors are subject to annual re-election at the

AGM. Non-Executive Directors’ letters of appointment are available

to view at the Company’s registered office.

contribution to the investment trust strategy and performance,

Non-Executive Directors do not receive benefits from the

as well as the performance of the IPS business. For all other

Company, and they are not eligible to join the Company’s pension

employees, performance is primarily based on the IPS business.

scheme or participate in any bonus or share incentive plans. Where

All UK employees are eligible to participate in the Company’s SAYE

and SIP schemes on the same terms.

specific cash or share arrangements are delivered to the Chairman

or Non-Executive Directors, these will not include share options or

any other performance related elements. Any reasonable expenses

that they incur in the furtherance of their duties are reimbursed by

the Company (including any tax liability thereon).

PURPOSE AND LINK TO STRATEGY

OPERATION

FEE LEVELS

To attract and retain Non-Executive

The Chairman is paid a single annual all-

Fee increases are typically expected to be in

Directors of the required calibre by offering

inclusive fee for all Board responsibilities.

line with wider employee rises.

market competitive fees.

Non-Executive Directors receive a basic

In exceptional circumstances (including, but

annual Board fee. Additional fees may be

not limited to, material misalignment with

payable for additional Board responsibilities

the market or a change in the complexity,

such as Chairmanship or Membership

responsibility or time commitment required

of a Committee, or the role of Senior

to fulfil the role) the Board may make

Independent Director.

appropriate adjustments to fee levels to

The Chairman’s fee is determined by the

Committee, and fees to Non-Executive

ensure they remain market competitive and

fair to the Director.

Directors are determined by the Board. Fees

The maximum annual aggregate fee for

are reviewed periodically, considering time

all Non-Executive Directors will be within

commitment, scope and responsibilities,

the limit set out in the Company’s Articles

and appropriate market data.

of Association.

Expenses incurred in the performance of

non-executive duties for the Company may
be reimbursed or paid for directly by the

Company, including any tax due thereon.

Minor amendments

The Committee may make minor amendments to the Policy set

any remuneration issues that arise in relation to the Executive

out above (for regulatory, exchange control, tax or administrative

Directors. This feedback is taken into account when developing

purposes or to take account of a change in legislation) without

executive remuneration arrangements, in addition to guidelines of

obtaining Shareholder approval for that amendment.

investor bodies and shareholder views. The Committee continues

Consideration of Shareholder views

The Remuneration Committee is committed to shareholder

dialogue and engages with shareholders as appropriate to address

to monitor trends and developments in corporate governance

and market practice to ensure the structure of executive

remuneration remains appropriate and commits to undertake a

shareholder consultation in advance of any material changes to the

Remuneration Policy.

lawdebenture.com

Part 3 Annual remuneration report

This section provides details of how our Remuneration Policy was implemented during the financial year ended 31 December 2019, and

how the Committee intends to implement the new Policy in 2020.

Remuneration Committee membership
and activities during 2019

The members of the Committee who served during the year were:

than in relation to advice on remuneration, PwC provides support

R. Laing (Chairman)

R. Hingley

T. Bond

M. Bridgeman

C. Finn

Claire Finn was appointed as a Non-Executive Director with

effect from 2 September 2019 and became a member of the
Remuneration Committee on that date.

to the Company in relation to valuation of the IPS business and

tax advice. The Committee is satisfied that PwC engagement

does not have connections with the Group that may impair their

objectivity and independence.

During the year, the Committee also took advice from the CEO

and CFO, whose attendance at Committee meetings was by

invitation from the Chair, to advise on specific questions raised

by the Committee and on matters relating to the performance

and remuneration of the Senior Management team, including

Details of Committee meetings and attendance can be found

the development of the new LTIP. No Director was present for any

on page 43.

discussions that related directly to their own remuneration.

Key activities of the Committee during the year included:

• Determining 2018 annual bonus outturns and payments;

• Preparing the 2018 Directors’ Remuneration Report;

• Determining salary adjustments;

• Setting annual bonus measures and targets for 2019;

•

Reviewing Corporate governance and regulatory updates,

and matters requiring further action in respect of the 2018 UK

Corporate Governance Code;

• Reviewing the remuneration Policy for 2020;

Key responsibilities of the Committee
The Committee’s Terms of Reference are published on the

Company’s website (www.lawdebenture.com/investment-

trust/corporate-governance). The Committee is reviewing its

Terms of Reference for 2020 to ensure it reflects the broader

responsibilities under the new UK Corporate Governance Code

in relation to wider workforce remuneration and the operation of

incentive plans throughout the Company. The key responsibilities

of the Remuneration Committee are to:

•

Determine the Remuneration Policy for Executive Directors

and Senior Managers (including the Company Secretary) in

the context of pay and conditions across the workforce, and

•

Designing the new LTIP and reviewing the operation of the

engaging with shareholders thereon;

annual bonus;

• Benchmarking pay for the Executive Directors;

Directors and Senior Managers;

•

Determine the individual remuneration packages for Executive

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Determining executive pay for 2020, including performance

conditions for the first LTIP awards;

Reviewing workforce terms and conditions and the workforce
engagement mechanism;

•

Approve the remuneration package of the Chairman;

Consider the design of, determine targets for, and review

outcomes for the annual bonus plan;

•

Determine the design of, quantum and performance conditions

Review of Remuneration Committee Terms of Reference; and

for long-term incentive plans;

•

Reviewing Gender Pay Gap reporting.

Support provided to the Committee
PricewaterhouseCoopers LLP (‘PwC’) was appointed by the

Remuneration Committee on 14 February 2019 as independent

adviser following a formal selection process. PwC is a founding

member of the Remuneration Consultants Group and voluntarily

operates under its Code of Conduct in its dealings with the

Committee. PwC’s fees charged for the provision of independent

advice to the Committee during the year were £50,000. Other

•

Review workforce remuneration and related policies across the
Company as a whole;

•

Review pension arrangements, service contracts and

termination payments for Executive Directors and Senior

Managers; and

•

Approving the Directors’ Remuneration Report, ensuring

compliance with governance requirements.

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Annual remuneration report continued

Statement of shareholder voting at the Company’s AGMs

The table below sets out the results of the most recent shareholder votes on the Policy Report and the Annual Report on Remuneration at

the AGM on 11 April 2019.

Policy Report

2018 Annual Report on Remuneration

Percentage of votes cast

Number of votes cast

For

97.94%

97.91%

Against

2.06%

2.09%

For

Against

Withheld1

31,560,733

31,523,592

662,366

673,060

63,565

115,012

1 A vote withheld is not a vote in law and is not counted in the calculation of the proportion of votes cast for and against a resolution.

Single total figure of remuneration (audited)

The table below sets out the single figure for the total remuneration received by each Executive Director and Non-Executive Director for

the year ended 31 December 2019 and the prior period:

Salary/fees

Taxable
benefits1

Annual
bonus2

LTIP3

Pension4

Other5

Total

Amount
attributable
to share price
appreciation

Executive Directors

Denis Jackson

Katie Thorpe6

Non-Executive Directors

Christopher Smith7

Robert Hingley

Robert Laing

Mark Bridgeman

Tim Bond

Claire Finn8

2019

£315,425

£7,909

£286,750

2018

£286,750

£7,305

£286,750

2019

£225,500

£3,421

£205,000

2018

2019

2018

—

£22,462

2019

£85,000

2018

2019

2018

2019

2018

2019

2018

2019

2018

£69,170

£54,153

£52,000

£51,940

£46,909

£44,000

£41,250

£13,750

—

£33,309

£30,281

£25,013

—

£643,393

£100

£611,186

—

£458,934

—

£22,462

£85,000

£69,170

£54,153

£52,000

£51,940

£46,909

£44,000

£41,250

£13,750

—

1 Benefits received in 2018 and 2019 were the cost of life insurance cover and the disability income plan together with private medical insurance.

2 This is the total bonus earned in respect of performance during the relevant year, including any deferred bonus. For 2018 and 2019, one third of the bonus was deferred. Further details

of the performance criteria, achievement and resulting awards for the 2019 bonus are set out below.

3 There were no long-term incentive arrangements in place during 2018 and 2019.

4 During 2018 and 2019, the Executive Directors received pension contributions of 12% of salary, in line with the workforce. Where this was received as a cash allowance, 88% of that

contribution was payable.

5 Other payments include a contractual payment for signature of the service agreement.

6 Katie Thorpe was promoted to the Board as an Executive Director with effect from 1 January 2019.

7 Christopher Smith retired 11 April 2018.

8 Claire Finn joined the Board as a Non-Executive Director with effect from 2 September 2019.

lawdebenture.com

Annual bonus payout in respect of 2019 (audited)

For 2019 the maximum bonus opportunity for the Executive Directors was 100% of salary. Performance conditions were based 60% on

financial metrics and 40% on strategic metrics. Details of the specific measures, weightings, targets and outcome achieved are set out

below:

Measure

IPS EPS growth

IPS revenue growth

Market standing

Governance and risk management

Total

Threshold
(0% of
maximum)

Target
(50% of
maximum

Maximum
(100% of
maximum)

Weighting

30%

25%

15%

100%

6.5%

5.5%

Further details set out below

Actual

8.5%

7.5%

Denis Jackson
(% of salary)

Katie Thorpe
(% of salary)

27%

23%

14%

91%

27%

23%

14%

91%

Strategic objectives
Executive Directors’ strategic objectives are linked to the delivery of Law Debenture’s strategic priorities. By their nature, some objectives

require a more subjective assessment than others and this is done by the Committee following the input from the wider Board and other

Board Committees as appropriate.

Recognising that the retail investment space is highly competitive, the Executive Directors have been targeted to improve the market

standing of Law Debenture as an investment proposition. In assessing the Executive Directors performance against this metric, the

Committee has considered the improved engagement with analysts, wealth managers, fund platforms, journalists and investors they

have delivered which has helped to broaden and deepen the knowledge of our investment case. The Committee believes that significant

progress has been made with regards to market standing over the course of 2019. The discount moved from 12.1% at the 31 December

2018 to 7.4% at 31 December 2019. While it is impossible to assess the specific impact these efforts have had in narrowing the discount,

(particularly given improved sentiment to the UK and sustained strong performance from the portfolio), it is never-the-less the belief

of the Committee that the significant efforts of the Executive Directors have contributed to this shift which has helped to create value

for shareholders.

It is of critical importance to the Board that the standard of strong Governance & Risk Management is maintained by the Executive

Directors as the IPS business starts to accelerate its growth. In assessing performance against this metric, the Committee has considered

the steps taken to modernise and enhance the governance, risk and control environment over the course of the 2019. Significant

improvements have been made to the underlying IT systems and infrastructure that support the business, including implementation

of cloud based solutions and introduction of higher levels of automation to reduce the risk of human error. It is the assessment of the

Committee that significant enhancements to governance and risk management were achieved over the course of 2019.

The Committee is satisfied that the bonus outcomes above are reflective of the performance delivered over the year and therefore has not

used any discretion to adjust the payouts.

One third of the bonus earned is deferred in shares for three years.

Long-term incentives vesting and scheme interests awarded during 2019 (audited)

There are currently no long-term incentive arrangements in place. It is proposed that a new Long-Term Incentive Plan will be introduced

from 2020 under the new Policy.

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Payments for loss of office (audited)

There were no payments to former Directors during the year.

Payments to past Directors (audited)

There were no payments to former Directors during the year.

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Annual remuneration report continued

Directors’ shareholdings (audited)

The table below shows the interests of the Directors and connected persons in shares (owned outright or vested) as at 31 December 2019.

There have been no changes in Directors’ interests in the period between 31 December 2019 and 25 February 2020.

Outstanding scheme interests

Shares owned
outright

Unvested
shares not
subject to
performance4

Unvested
options
not subject to
performance5

Vested but
unexercised
share options5

Total scheme
interests

Shareholding
guideline
(% of salary)6

Current
shareholding
(% of salary)7 Guideline met

Denis Jackson

Katie Thorpe1

Robert Hingley

Robert Laing

Mark Bridgeman2

Tim Bond

Claire Finn3

1,854

1,767

4,870

12,300

4,513

—

19,075

6,620

—

2,475

—

19,075

9,095

—

200

n/a

3.82

5.09

n/a

1 Katie Thorpe joined the Board as an Executive Director with effect from 1 January 2019.

2 Interests of connected persons in addition to his beneficial holding – 1,120 shares.

3 Claire Finn joined the Board as a Non-Executive Director with effect from 2 September 2019.

4 Includes deferred bonus awards granted under the Deferred Share Plan.

5 Includes options awarded under the Save As You Earn Share Save Plan.

6 There was no minimum shareholding requirement for Executive Directors in 2019. A new shareholding requirement is being introduced under the new Policy from 2020. Further

details are provided on page 54.

7 Based on the share price on 31 December 2019 of 650p. Shares owned outright have been included.

Directors’ interests in shares and option plans (audited)

Interests
held at
1 January
2019

Granted
in the
year

Date of
grant

Market
price at
grant

Vested
in the
year

Lapsed /
forfeited
in the
year

Exercised
in the
year

Market
price at
date of
exercise

Interests
held at
31 December
2019

Vesting /
first
exercise
date

Exercise
price

—

— 5.94546p

— 5.93890p

—

606.00p

n/a

2,981 01.03.21

16,094 11.03.22

19,075

6,620 11.03.22

2,475 01.10.23

9,095

Denis Jackson

Katie Thorpe

Scheme

DSP1

DSP2

Total

DSP2

—

2,981

02.03.18 572.00p

— 16,094

11.03.19 582.00p

— 19,075

—

6,620

11.03.19 582.00p

SAYE3

2,475

—

15.08.18 612.00p

Total

2,475

6,620

1 Deferred Share Plan 2018.

2 Deferred Share Plan 2019.

3 Save As You Earn Save Plan 2018.

lawdebenture.com

Percentage change in CEO remuneration

The table below shows the percentage change in CEO remuneration, comprising salary, taxable benefits and annual bonus, and

comparable data for the average of all UK employees within the Company.

Salary

Benefits

Annual bonus

Total

2019
(£000)

315

287

643

CEO

2018
(£000)

287

611

%
change1

All UK employees2
% change

10.0

9.7

—

5.3

3.0

6.1

7.1

4.0

1 Calculations are based on actual numbers in whole pounds as shown on page 64.

2 All UK employees of L.D.C. Trust Management Limited have been used as the comparator group.

The CEO was initially remunerated at the same salary level as his predecessor. When the salary was reviewed at the end of his first full

year in office, the Committee calculated that a 10% increase was justified to make it more competitive with market rates. The increase in
taxable benefits is broadly in line with that of employees. The rationale for the bonus calculation can be found on page 65. Based on this

calculation, his total bonus remained unchanged year on year, compared to an increase of 7.1% for the employee population.

Relative importance of spend on pay

The chart below shows the Company’s actual expenditure on Shareholder distributions (including dividends and share buybacks) and

total employee pay expenditure for the financial years ended 31 December 2018 and 31 December 2019.

Total employee pay expenditure1

Total distributed to shareholders2

2019
(£000)

£14,709

£30,778

2018
(£000)

£13,964

£22,339

% change

5.3

37.8

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.

Distribution to shareholders has been subject to a significant increase for the current year as explained in the Chairman’s statement on

pages 4 and 5. The average number of employees has increased from 123 in 2018 to 133 in 2019, which has lead to an increase in employee

pay expenditure. The increase also includes an element of inflationary increase in individuals remuneration.

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Historical remuneration and TSR chart

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Incumbent

C. Banszky C. Banszky C. Banszky C. Banszky C. Banszky C. Banszky C. Banszky

CEO single figure of total

remuneration (£000)

Annual bonus and

deferred bonus awarded

(against maximum %)

528.4

588.5

602.7

636.9

690.7

677.5

67.5%

90.0%

75.0%

70.0%

72.1%

62.0%

100.0%

M. Adams1 T. Fullwood2

C. Banszky M. Adams

D. Jackson3 D. Jackson3

180.5

757.8

142.2

344.1

65.1%

100.0%

0.0%

611.2

643.4

100.0%

90.9%

1 C. Banszky stepped down as CEO on 31 August and was succeeded by M. Adams on the same date following his appointment to the Board on 4 August.

2 T. Fullwood was appointed interim Chief Executive Officer from 22 October for a fixed term until retirement at 31 December 2017.

3 D. Jackson was appointed as CEO on 1 January 2018.

C O R P O R A T E G O V E R N A N C E

Annual remuneration report continued

Total Shareholder Return (TSR) chart and historical remuneration

The graph below compares the value of £1,000 invested in Law Debenture’s shares, including reinvested dividends, with the FTSE All-Share

Total Return Index over the last ten years. This index was selected because it is the index adopted as Law Debenture’s benchmark.

£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

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Law Debenture share price total return, assuming
the investment of £1,000 on 31 December 2009
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 2009
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.

External appointments

It is the Board’s policy to allow the Executive Directors to take up one non-executive position on the board of another company, subject to

the prior approval of the Board. The CEO had one external directorship of Meinl Capital Markets Limited from which he earned £5,625 in

2019. He stepped down from this role effective 30 September 2019.

Implementation of the Policy in 2020

Base salary
Executive Director salary increases for 2020 are provided in the table below:

Committee member

Denis Jackson

Katie Thorpe

Base salary effective
1 January 2020

% change

Base salary effective
1 January 2019

£325,000

£240,000

3.0%

6.4%

£315,425

£225,500

% change

10.0%

Base salary effective
1 January 2018

£286,750

lawdebenture.com

During 2019, the Committee increased the salaries of the new CEO and CFO by 10% in recognition of their strong performance in 2018

in achieving growth in the IPS business after a long period of stagnation. The Committee recognises that this was a large increase in the

current environment but on balance believed it is in the best interests of shareholders to retain and motivate the new management team

given their criticality to the business at an important time, and as their total levels of remuneration were below the market.

For 2020, the Committee conducted a holistic review of the remuneration Policy for Executive Directors. In case of the new CFO, who

joined in June 2018 and was appointed to the Board on 1 January 2019, she was initially recruited on a below market-competitive salary

with the intention of moving to a more competitive level as she become more established and proved herself in her first PLC director role.

The Committee reviewed her performance at the end of her first year on the Board and determined that a further increase was warranted

to a more competitive level given her strong performance. The Committee is therefore proposing to increase her salary to £240,000 for

2020. The CEO’s salary will be increased by 3% to £325,000 for 2020, in line with the increase for the wider workforce.

For the remainder of the term of the Policy, the Committee intends to limit Executive Director salary increases to the level of increase for

the wider workforce.

Pension and Benefits
For 2019, Executive Directors’ benefits will include private medical insurance, life insurance cover and disability income protection. Pension

contributions for the CEO and CFO will be 12% of salary, in line with the contribution to the wider workforce. Where this is received as a

cash allowance, 88% of that contribution is payable.

Annual bonus
The maximum annual bonus opportunity for Executive Directors will be 100% of salary for 2020, subject to an aggregate cap for Executive

Director bonuses of 25% of the general bonus pool. The performance measures will be based 50% on IPS financial targets, with the

remainder based on non-financial measures aligned to the strategic priorities of both IPS and the Company as a whole. Half of any bonus

earned above £100,000 will be deferred in shares for 3 years. Dividend equivalents will accrue on deferred bonus awards and be paid on

those shares which vest. Malus and clawback provisions may apply in the event of gross misconduct, misstatement of financial results, an

error in reporting or calculation, serious reputational damage, or corporate failure. Full disclosure on the targets, performance achieved

and resulting bonus payouts for 2020 will be provided in next year’s report.

Long-Term Incentive Plan awards
The first awards under the new LTIP will be granted to Executive Directors in 2020 at a level of 100% of salary. The awards will vest after

three years based on IPS EPS performance, and any vested shares (net of tax) will be subject to a further two-year holding period. The

performance targets will be as follows:

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Below threshold

Threshold

Stretch

% vesting

25%

100%

IPS EPS
3-year CAGR (p.a.)

Less than 4%

10%

Vesting increases on a straight-line basis between threshold and stretch

Prior to vesting, the Committee will consider whether a discretionary adjustment is required to the outcome to reflect overall business

performance.

Dividend equivalents will accrue over the vesting period and be paid on those shares which vest. Malus and clawback provisions may

apply in the event of gross misconduct, misstatement of financial results, an error in reporting or calculation, serious reputational damage,

or corporate failure.

C O R P O R A T E G O V E R N A N C E

Annual remuneration report continued

Implementation of the Policy in 2020 continued

Non-Executive Director fees
For 2020, the fees for the Chairman and Non-Executive Directors have been increased in line with the wider workforce:

Fees effective
1 January 2020

Fees effective
1 January 2019

% change

£87,550

£45,320

£5,665

£85,000

£44,000

£5,500

3.0

Fee

Chairman fee

Non-Executive Director base fee

Additional fee for Chairman of Audit Committee

Additional fee for Chairman of Remuneration Committee

Additional fee for oversight of workforce engagement

For and on behalf of the Remuneration Committee.

Robert Laing

Chairman of the Remuneration Committee

26 February 2020

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lawdebenture.com
lawdebenture.com

Company advisers and information

Registered office

Broker

Fifth Floor, 100 Wood Street, London EC2V 7EX

T: 020 7606 5451

F: 020 7606 0643

W: www.lawdebenture.com

(Registered in England – No. 30397)

Investment managers

J.P. Morgan Cazenove Limited

25 Bank Street, London E14 5JP

AIC

A member of the Association of Investment

Companies

James Henderson joined Henderson Global Investors (now Janus

Henderson Investors) in 1983 and has been an investment trust

portfolio manager since 1990. He first became involved in the

Shareholder information

management of Law Debenture’s portfolio in 1994 and took over lead

responsibility for management of the portfolio in June 2003. He also

Investment trust status
The Company carries on business as an investment trust company

manages Lowland Investment Company plc, Henderson Opportunities
Trust plc and Henderson UK Equity Income & Growth Fund.

as defined in Sections 1158-1159 of the Corporation Tax Act 2010.

James is assisted by Laura Foll, who joined Janus Henderson

Investors in 2009 and has held the position of Portfolio Manager

on the Global Equity Income Team since 2014. She first became

involved with Law Debenture’s portfolio in September 2011 and

became joint portfolio manager in 2019.

Alternative Investment Fund Manager

The Law Debenture Corporation p.l.c.

Investment portfolio manager

Janus Henderson Global Investors

201 Bishopsgate, London EC2M 3AE

Auditors

BDO LLP, 55 Baker Street, London W1U 7EU

Depositary

NatWest Trustee and Depositary Services Limited

250 Bishopsgate, London EC2M 4AA

Global custodian

HSBC Group (under delegation by the depositary)

8 Canada Square, London E14 5HQ

Registrar

Computershare Investor Services PLC

Company share information
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 the Financial Times.

Registrars
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 a nominee).

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

The Pavilions, Bridgwater Road, Bristol BS99 6ZZ

introducer for the share dealing service and receives no financial

T: 0370 707 1129

benefit, either from making shareholders aware of the service

or from any share deals conducted by shareholders who use

the service.

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C O R P O R A T E G O V E R N A N C E

The Board

Robert Hingley
Chairman, Non-Executive Director

Denis Jackson
Chief Executive Officer

Katie Thorpe
Chief Financial Officer

Appointed to the Board in October 2017,

Appointed to the Board in January 2018

Appointed to the Board in January 2019.

becoming Chairman in April 2018. A

having joined Law Debenture in July

She is a chartered accountant and qualified

corporate financier with over 30 years’

2017 as Chief Commercial Officer. He was

with PricewaterhouseCoopers before

experience. A partner of Ondra LLP until

previously at Capita plc as director of new

joining J. Rothschild Capital Management

October 2017. Before that, in 2012 he

business enterprise, having been a director

Limited, the manager/subsidiary of RIT

joined the Association of British Insurers as

at Throgmorton UK Limited (which Capita

Capital Partners plc. Initially appointed as

director, investment affairs and acted as a

acquired). Prior to that, he was regional

financial controller, she was promoted to

consultant following the merger of ABI’s

general manager – Europe and the United

deputy chief operating officer, responsible

Investment Affairs with the Investment

States – for Tibra Trading Europe Limited,

for day-to-day operations, HR, IT, legal and

Management Association, until the end

a FCA regulated proprietary trading

company secretarial, with a significant

of 2014. From 2010 until 2015, he was

company, which he joined from Citigroup

emphasis on RIT’s investor relations

a managing director, and later senior

(formerly Salomon Brothers). He spent

with shareholders and brokers. She is a

advisor, at Lazard. He was previously

almost 20 years there in a variety of roles

Trustee of the Rambert School of Ballet

director-general of The Takeover Panel, on

including in treasury (both in New York

and Contemporary Dance and chairs the

secondment from Lexicon Partners, where

and London), as head of the finance desk

school’s finance and premises committee.

he was vice chairman. Prior to that, he was

in Hong Kong, head of fixed income prime

co-head of the global financial institutions

brokerage in New York and ultimately, head

group and head of german investment

of EMEA prime brokerage sales.

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 non-executive

director of Marathon Asset Management,

chairman of Euroclear UK and Ireland

Limited, a member of The Takeover Panel

and trustee of a charitable organisation.

He is a member of the Remuneration and

Nominations Committees.

lawdebenture.com

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Robert Laing
Non-Executive Director

Mark Bridgeman
Non-Executive Director

Tim Bond
Non-Executive Director

Claire Finn
Non-Executive Director

Appointed to the Board in April

Appointed to the Board in

Appointed to the Board in April

Appointed to the Board in

2012. Admitted as a solicitor in

March 2013. He spent 19 years

2015. Partner of Odey Asset

September 2019. She had

England in 1977 and in Scotland

with Schroders plc as an analyst

Management LLP, which he

a career spanning over 18

in 1985. He worked for Slaughter

and then fund manager, rising

joined in 2010, he currently

years in financial services,

and May from 1975 until 1983

to become global head of

manages Odey’s Odyssey Fund.

with extensive experience in

when he joined Maclay Murray

research. He now manages a

He previously spent 12 years at

fund product development

& Spens. He was a partner

large rural estate and farming

Barclays Capital as managing

and distribution to retail and

in that firm (which has since

business in Northumberland.

director and head of global

institutional investors. She was

merged with Dentons) from

He is a non-executive Director

asset allocation and was editor

previously at BlackRock, where

1985 and its chairman from

of JP Morgan Brazil Investment

and principal author of Barclays

she spent almost 13 years,

1 June 2010 until his retirement

Trust plc. He is president of

Capital’s Equity Gilt Study and

rising to become managing

from the firm in May 2016. He

the board of the Country Land

chief advisor to the bank’s

director – head of UK DC,

is a non-executive director of

and Business Association (CLA)

RADAR fund. Before Barclays,

unit-linked and platforms,

The Independent Investment

and is also on the boards of

he worked as a strategist at

responsible for strategy,

Trust plc. Senior independent

two charities. Chairman of the

Moore Capital and at Tokai

innovation and growth. She

Director, Chairman of the

Audit Committee, a member

Bank Europe. He is a member

is a non-executive director

Remuneration Committee and

of the Remuneration and

of the audit, remuneration and

of Artemis Fund Managers

a member of the Audit and

Nominations Committees and

nominations Committees.

Limited. She is a member of

Nominations Committees.

the designated Non-Executive

Director appointed to oversee

workforce engagement.

the Audit, Remuneration and

Nominations Committees.

F I N A N C I A L S T A T E M E N T S

lawdebenture.com

Independent auditor’s report

to the Members of the Law Debenture Corporation P.l.c.

Opinion

We have audited the financial statements of The Law Debenture

Corporation p.l.c. (the ‘parent company’) and its subsidiaries (the

‘group’) for the year ended 31 December 2019 which comprise the

group income statement, the group statement of comprehensive

Conclusions relating to principal risks,
going concern and viability statement

We have nothing to report in respect of the following information

in the Annual Report, in relation to which the ISAs (UK) require us

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 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.

In our opinion the financial statements:

•

give a true and fair view of the state of the group’s and of the
parent company’s affairs as at 31 December 2019 and of the

group’s profit 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.

•

the directors’ confirmation set out on page 34 in the Annual

Report that they have carried out a robust assessment of the

Group’s emerging and principal risks and the disclosures in

the annual report that describe the principal risks and the

procedures in place to identify emerging risks and explain how

they are being managed or mitigated;

•

the directors’ statement set out on page 45 in the financial

statements about whether the directors considered it

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

parent company’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 35 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.

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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 90% of the total
assets of the group. The investment portfolio
at the year-end comprised of listed equity
investments valued at £818m and unlisted
investments valued at £4m (notes 1 and 14 to
the financial statements).

Investments represent the most significant
balance in the financial statements and
underpins the principal activity of the entity
therefore we identified the following areas to
be of significant focus:

•

Valuation, existence and ownership of
listed equity investments

Completion, accuracy and clarity of the
investment related disclosures

Valuation of investments with respect to
unrealised gains/losses

Completeness of income from investments
(Notes 1 and 7 to the financial statements)
We considered the completeness of dividend
income recognised 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 October 2019 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.

Accuracy of income in relation to the
provision of professional services (Notes 1
and 7 to the financial statements)
Revenue in relation to the provision of
professional services also consists of fees
receivable from the provision of various
professional services including, but not
limited to, annual trustee services, transaction
fees, service of process fees, company
secretarial fees, special fees, daily rates, single
payments, new fee structure and European
Medium Term Note revenue.

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.

lawdebenture.com

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:

•

Checked against independent data sources that the correct bid-price has been used for the year
end fair value

Performed a total recalculation of the listed portfolio using the holdings per the third party HSBC
report and the independent bid prices as above

Checked the appropriateness of the valuation methodology applied and checked 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 in the name of the group to independently received third party
confirmation from the custodian to confirm existence, ownership and completeness

Reviewed the latest available independent assurance report addressing the relevant controls in
place at the custodian to assess whether any of the exceptions identified had an impact on our
audit approach

We corroborated a sample additions to the BNP third party confirmations and recalculated the
cost recognised in the financial statements

For a sample of disposals, we corroborated the proceeds figure to the BNP third party confirmation
and recalculated the realised gains and losses based on the brought forward book cost

We also tested 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 did this by taking the portfolio holdings at three different points in the year
and corroborating the bid prices to independent sources, obtaining evidence comfort over the
unrealised movements recognised between these points.

Key observations:
Based on our procedures performed, we did not identify any exceptions with regards to valuation,
existence or ownership of listed investments as well as the corresponding disclosures.

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 and presented in accordance with this
stated accounting policy.

In respect of completeness of dividend income, we tested that the appropriate dividends had been
recognised in the year by reference to independent data of dividends declared on a sample of
investment holdings in the portfolio.

Key observations:
Based on our procedures performed, we did not identify any exceptions with regards to the
completeness of income from investments.

In respect of fee income from the provision of professional services, our audit strategy differed per
revenue stream.

For annual trustee fees in all entities bar Safecall, we agreed a sample of recorded revenue to a
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 based on the above to check
that the appropriate proportion of income had been recognised in the year. The same approach was
taken for transaction fees, service of process, company secretarial fees and special fees.

For annual fees within the Safecall subsidiaries, as well as the daily rates revenue stream, we tested
controls around the establishment of a contract, the authorisation of sales invoices raised and
controls around the bank reconciliations performed. This testing was supported by tracing a sample
of items to invoice and bank receipt.

Single payments, New Fee Structure and European Medium Term Note revenue generated was
tested through a sample being agreed to client agreements or recent correspondence where
a countersigned agreement was not available, sales invoices and bank receipts; in addition to a
revenue recalculation being performed.

Assurance over completeness was gained through a number of procedures to confirm that revenue
is recognised in the correct period. We reviewed client take on records and tested post year-end
credit notes raised to ascertain revenue raised in 2019 that has been nullified post year end.

We performed controls testing where appropriate, on the key manual controls operating in the year
assessing their implementation and effectiveness.

Key observations:
Based on our procedures performed, we did not identify any exceptions with regards to the accuracy
of income in relation to the provision of professional services.

Our application of materiality

We apply the concept of materiality both in planning

evaluated as immaterial as we also take account of the nature

and performing our audit, and in evaluating the effect of

of identified misstatements, and the particular circumstances

misstatements. We consider materiality to be the magnitude

of their occurrence, when evaluating their effect on the

by which misstatements, including omissions, could influence

financial statements as a whole. The application of these key

the economic decisions of reasonable users that are taken

considerations gives rise to three levels of materiality applicable

on the basis of the financial statements. Importantly,

to the Group, the quantum and purpose of which are tabulated

misstatements below these levels will not necessarily be

below.

Materiality measure

Purpose

Financial statement
materiality
(1% of investment portfolio)

Assessing whether the financial
statements as a whole present a true
and fair view.

Performance materiality
(75% of materiality)

Specific materiality – classes
of transactions and balances
which impact on net realised
returns
(5% of revenue return
before tax)

Lower level of materiality applied
in performance of the audit when
determining the nature and extent of
testing applied to individual balances
and classes of transactions.

Assessing those classes of transactions,
balances or disclosures for which
misstatements of lesser amounts than
materiality for the financial statements
as a whole could reasonably be
expected to influence the economic
decisions of users taken on the basis of
the financial statements.

Key considerations

and benchmark s

• The value of investments
The level of judgement
•
inherent in the valuation
The range of reasonable
alternative valuations

•

Risk and control
environment

Quantum (£)

£8,220,000

(31 December 2018: £6,630,000)

£6,165,000

(31 December 2018: £4,970,000)

•

Net revenue returns of the
Group

£1,884,000

(31 December 2018: £1,325,000)

Parent company financial
statement materiality
(95% of Group materiality)

Assessing whether the parent company
financial statements as a whole present
a true and fair view.

•

A principal consideration
in assessing the financial
performance of the Group

Materiality - £7,809,000

Performance materiality (75%) -
£5,857,000

(31 December 2018: Materiality
- £6,300,000, Performance
materiality (75%) - £4,720,000)

Full scope audits of the seven significant components were

We agreed with the Audit Committee that we would report to

performed at a materiality level calculated based on a level

the Committee all audit differences in excess of £164,000 for the

appropriate to the relative scale of the business concerned. Five of

financial statements as a whole (2018: £133,000) and £38,000 for

the components had a materiality calculated based on 5% of their

items impacting net realised returns this year (2018: £27,000),

adjusted profit before tax with LDCTM based on 1% of expenditure

as well as differences below that threshold that, in our view,

and the parent company capped at 95% of Group materiality.

warranted reporting on qualitative grounds.

An overview of the scope of our audit

All significant components are based in the UK and the group audit

As part of designing our audit, we determined materiality and

team have responsibility for the audit of all components included

assessed the risks of material misstatement in the financial

in the consolidated financial statements. Component materiality

statements.

ranged up to £7,809,000. For components where full scope audits

were not undertaken, the group audit team undertook audit

procedures on material balances with a performance materiality of

75% in all cases.

Capability of the audit to detect irregularities, including fraud
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

Our audit approach was developed by obtaining an understanding

applicable laws and regulations, including fraud. These included

of the group’s activities, the key functions undertaken by the Board

but were not limited to compliance with Companies Act 2006,

and the overall control environment. Based on this understanding

the FCA listing and DTR rules, the principles of the UK Corporate

we assessed those aspects of the group’s transactions and balances

Governance Code, industry practice represented by the AIC SORP

which were most likely to give rise to a material misstatement.

and International Financial Reporting Standards (IFRSs) as adopted

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Independent auditor’s report continued

An overview of the scope of our audit continued

misstated. If we identify such material inconsistencies

or apparent material misstatements, we are required to

by the European Union. We also considered the company’s

determine whether there is a material misstatement in the

qualification as an Investment Trust under UK tax legislation.

financial statements or a material misstatement of the other

We designed audit procedures to respond to the risk,

recognising 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.

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.

We have nothing to report in this regard.

In this context, we also have nothing to report in regard to our

responsibility to specifically address the following items in

We considered compliance with this framework through

the other information and to report as uncorrected material

discussions with the Audit Committee and performed audit

misstatements of the other information where we conclude

procedures on these areas as considered necessary. Our

that those items meet the following conditions:

procedures involved enquiries with Management, review of the

reporting to the directors with respect to compliance with laws

and regulation, review of board meeting minutes and review of
legal correspondence.

•

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.

shareholders to assess the corporation and group’s position

Our tests included, but were not limited to:

•

agreement of the financial statement disclosures to
underlying supporting documentation;

enquiries of management;

review of minutes of board meetings throughout the period;
and

considering the effectiveness of the control environment in
monitoring compliance with laws and regulations

There are inherent limitations in the audit procedures described

above and the further removed non-compliance with laws

and regulations is from the events and transactions reflected

in the financial statements, the less likely we would become

aware of it. We also addressed the risk of management 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

The directors are responsible for the other information. The

other information comprises the information included in

the Annual Report, other than the financial statements and

our auditor’s report thereon. Our opinion on the financial

statements does not cover the other information and, except

to the extent otherwise explicitly stated in our report, we do

not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our

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

lawdebenture.com

•

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 communicated by us to the audit; or

Directors’ statement of compliance with the UK
Corporate Governance Code – the parts of the directors’
statement required under the Listing Rules relating to the

company’s compliance with the UK Corporate Governance

Code containing provisions specified for review by the

auditor in accordance with Listing Rule 9.8.10R(2) do not

properly disclose a departure from a relevant provision of

the UK Corporate Governance Code.

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 Companies Act 2006.

In our opinion, based on the work undertaken in the course of

the audit:

•

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

•

the strategic report and the directors’ report have

been prepared in accordance with applicable legal

requirements.

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.

We have nothing to report in respect of the following matters in

relation to which the Companies Act 2006 requires us to report

to 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

agreement with the accounting records and returns; or

certain disclosures of directors’ remuneration specified by law
are not made; or

•

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

Following the recommendation of the audit committee, we were

reappointed on 11 April 2019 to audit the financial statements

for the year ended 31 December 2019 and subsequent financial

periods. The period of total uninterrupted engagement is 11 years,

covering the years ending 31 December 2009 to 31 December

2019.

The non-audit services prohibited by the FRC’s Ethical Standard

were not provided to the group or the parent company and we
remain independent of the group and the parent company in

conducting our audit.

Our audit opinion is consistent with the additional Report to the

we have not received all the information and explanations we
require for our audit.

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. To the fullest extent permitted by law,

we do not accept or assume responsibility to anyone other than

the parent company and the parent company’s members as a

body, for our audit work, for this Report, or for the opinions we

have formed.

Vanessa-Jayne Bradley (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor

London

United Kingdom

26 February 2020

BDO LLP is a limited liability partnership registered in England and

Wales (with registered number OC305127).

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Responsibilities of Directors

As explained more fully in the directors’ responsibilities statement,

within the director’s report set out on page 42, 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.

In preparing the financial statements, the directors are

responsible for assessing the group’s and the parent company’s

ability to continue as a going concern, disclosing, as applicable,

matters related to going concern and using the going

concern basis of 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 the economic decisions of users taken on

the basis of these financial statements.

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 2019

UK dividends

UK special dividends

Overseas dividends

Overseas special dividends

Interest income

Independent professional

services fees

Other income

Total income

Net gain/(loss) 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

Revenue
£000

23,458

2,364

3,294

29,201

706

36,815

66,742

Capital
£000

—

2019

Total*
£000

23,458

2,364

3,294

29,201

706

36,815

66,742

Revenue
£000

18,892

810

3,407

23,199

480

33,252

176

57,107

Capital
£000

—

2018

Total*
£000

18,892

810

3,407

23,199

480

33,252

176

57,107

—

100,023

—

(84,301)

66,742

(5,026)

(22,835)

113

100,023

—

(2,379)

—

166,765

(5,026)

(25,214)

113

38,994

97,644

136,638

(1,319)

37,675

(1,420)

36,255

(3,958)

93,686

—

93,686

(5,277)

131,361

(1,420)

129,941

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)

30.68

79.27

109.95

21.26

(71.85)

(50.59)

30.67

79.27

109.94

21.25

(71.84)

(50.59)

Statement of comprehensive income

as at 31 December 2019

GROUP

Profit/(loss) for the year

Foreign exchange on translation

of foreign operations

Pension actuarial gains/(losses)

Taxation on pension

Other comprehensive (loss)/income

for the year

Total comprehensive income/(loss)

for the year

lawdebenture.com

Revenue
£000

36,255

—

(800)

152

Capital
£000

93,686

(214)

—

2019

Total
£000

129,941

(214)

(800)

152

Revenue
£000

25,118

—

1,600

(304)

(648)

(214)

(862)

1,296

Capital
£000

(84,911)

450

—

450

2018

Total
£000

(59,793)

450

1,600

(304)

1,746

35,607

93,472

129,079

26,414

(84,461)

(58,047)

Statement of financial position

as at 31 December 2019

Assets

Non-current assets

Goodwill

Property, plant and equipment

Right-of-use asset

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

Lease liability

Corporation tax payable

Deferred tax liability

Other taxation including social security

Deferred income

Total current liabilities

Non-current liabilities and deferred income

Long-term borrowings

Deferred income

Lease liability

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

Total equity pence per share

Notes

2019
£000

1,930

1,057

104

GROUP

2018
£000

1,952

100

—

186

822,316

662,593

—

2,700

—

2,500

COMPANY

2018
£000

2019
£000

—

822,102

61,283

—

662,379

61,233

—

828,171

667,342

883,401

723,612

7,213

6,438

71,236

84,887

913,058

—

13,010

730

710

540

5,625

20,698

114,157

2,463

350

118

117,088

775,272

5,921

9,147

(1,332)

1,897

697,119

62,512

775,272

655.76

6,925

5,768

124,148

136,841

804,183

—

11,888

—

199

—

583

4,005

16,675

114,112

3,796

—

236

118,144

669,364

5,919

8,904

(966)

2,111

603,433

49,955

669,364

566.27

542

2,155

46,128

48,825

384

1,687

100,321

102,392

932,226

826,004

53,990

1,420

47,840

1,404

—

534

—

497

55,980

49,777

74,551

74,534

135

—

145

—

74,686

801,560

74,679

701,548

5,921

9,147

—

755,717

30,767

801,560

5,919

8,904

—

662,031

24,686

701,548

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As permitted by Section 408 of the Companies Act 2006, the Company has not presented its own income statement, however its gain for

the year was £122,817,000 (2018: loss £60,070,000). Approved and authorised for issue by the Board on 26 February 2020 and signed on its

behalf by:

R. Hingley, Chairman
Registered number 30397.

| D. Jackson, Chief Executive Officer

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 2019

GROUP

Called up
share capital
£000

Share
premium
£000

Own
shares
£000

Capital
redemption
£000

Translation
reserve
£000

Capital
reserves
£000

Retained
earnings
£000

Total
£000

Balance at 1 January 2018

5,918

8,787

(1,033)

Net loss for the period

Foreign exchange

Actuarial gain on pension

scheme (net of tax)

Total comprehensive loss

for the period

Issue of shares

Dividend relating to 2017

Dividend relating to 2018

Movement in own shares

Total equity at

31 December 2018

—

117

—

5,919

8,904

(966)

Balance at 1 January 2019

5,919

8,904

(966)

Net gain for the period

Foreign exchange

Actuarial gain on pension

scheme (net of tax)

Total comprehensive income

for the period

Issue of shares

Dividend relating to 2018

Dividend relating to 2019

Statute barred dividends

Movement in own shares

Total equity at

31 December 2019

—

243

—

(366)

5,921

9,147

(1,332)

—

1,661

688,344

44,573

748,258

—

450

—

(84,911)

25,118

(59,793)

—

450

1,296

450

(84,911)

26,414

(58,047)

—

118

(13,942)

(7,090)

—

2,111

603,433

49,955

669,364

2,111

—

(214)

—

603,433

49,955

669,364

93,686

36,255

129,941

—

(214)

(648)

(214)

93,686

35,607

129,079

—

245

(15,272)

(7,813)

—

(366)

1,897

697,119

62,512

775,272

Capital reserves comprises realised and unrealised gains on investments held at fair value through profit or loss (see note 19).

lawdebenture.com

Statement of changes in equity continued

as at 31 December 2019

COMPANY

Balance at 1 January 2018

Total comprehensive income

Issue of shares

Dividend relating to 2017

Dividend relating to 2018

Total equity at

31 December 2018

Share
capital
£000

5,918

Share
premium
£000

8,787

—

117

—

5,919

8,904

Balance at 1 January 2019

5,919

8,904

Total comprehensive gain

for the period

Issue of shares

Dividend relating to 2018

Dividend relating to 2019

Statute barred dividends

Total equity at

31 December 2019

—

243

—

5,921

9,147

Own
shares
£000

Capital
redemption
£000

Translation
reserve
£000

—

Capital
reserves
£000

745,025

(82,994)

—

Retained
earnings
£000

Total
£000

22,794

782,532

22,924

(60,070)

—

118

(13,942)

(7,090)

662,031

24,686

701,548

662,031

24,686

701,548

93,686

29,131

122,817

—

245

(15,272)

(7,813)

755,717

30,767

801,560

Capital reserves comprises realised and unrealised gains on investments held at fair value through profit or loss (see note 19).

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Statements of cash flows
for the year ended 31 December 2019

Operating activities

Operating profit before interest payable and taxation

Losses/(gains) on investments

Foreign exchange losses/(gains)

Depreciation of property,plant and equipment

Depreciation of right-of-use assets

Interest on lease liability

Amortisation of intangible assets

Decrease/(increase) in receivables

(Decrease)/increase 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

Sales of subsidiary undertakings

Acquisition of subsidiary undertakings

Cash flow from investing activities

Financing activities

Intercompany funding

Derivative financial instrument

Interest paid

Dividends paid

Payment of lease liability

Proceeds of increase in share capital

Purchase of own shares

2019
£000

GROUP

2018
£000

COMPANY

2018
£000

2019
£000

136,638

(53,858)

(97,644)

84,911

128,207

(97,644)

(54,521)

82,994

1,101

104

(958)

1,298

(1,680)

(1,000)

38,033

(663)

37,370

(7)

—

(1,273)

(138)

(200)

(600)

29,013

(820)

28,193

—

(626)

(1,680)

—

342

138

(200)

—

28,317

28,753

—

28,317

28,753

(21)

(23)

(70)

(110)

—

(16)

—

(163,106)

(113,396)

(163,106)

(113,396)

102,888

102,166

102,888

—

(50)

102,141

35,078

—

(60,262)

(11,410)

(60,284)

23,823

—

(5,277)

—

(1,390)

(5,748)

6,150

—

(5,390)

(5,757)

(1,390)

(5,549)

(23,050)

(21,032)

(23,050)

(21,032)

(1,177)

245

(366)

—

118

—

245

—

118

—

Net cash flow from financing activities

(29,625)

(27,985)

(22,045)

(33,610)

Net (decrease)/increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

Foreign exchange (losses)/gains on cash and cash equivalents

Cash and cash equivalents at end of period

(52,517)

124,148

(395)

71,236

(11,202)

(54,012)

134,011

100,321

1,339

(181)

18,966

78,549

2,806

124,148

46,128

100,321

lawdebenture.com

Notes to the accounts

for the year end 31 December 2019

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 71. 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 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 October 2019 (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 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 1.0% instead of 0.8% (2018: 1.1% instead of 1.0%)

The Directors take advice from an actuary when selecting assumptions.

New IFRSs

Increase/(decrease) in asset

at 31 December
2019
£ million

at 31 December
2018
£ million

(1.1)

0.9

2.0

(0.6)

(0.9)

0.7

2.0

(0.2)

F
I

N
A
N
C

A
L

S
T
A
T
E
M
E
N
T
S

The following relevant standard and interpretation was issued by the International Accounting Standards Board (IASB) or the IFRS

Interpretations Committee (IFRIC) before the period end:

IFRS 16

Leases (effective from 1 January 2019).

IFRS 16 ‘Leases’ replaces IAS 17 and addresses the definition, recognition and measurement of leases. The key change arising

from IFRS 16 is that most operating leases will be accounted for on the balance sheet as a right-of-use asset and a lease

liability based on discounted future lease payments. The asset will be depreciated over its useful economic life while the

lease payment will be apportioned between a capital repayment of the lease liability and a finance charge representing the

incremental borrowing.

Notes to the accounts continued

for the year end 31 December 2019

1. Summary of significant accounting policies continued

New IFRSs continued

The Group elected to apply the modified retrospective approach for incorporating this standard in 2019, which does not require

restatement of comparative periods. This method applies a cumulative effect for the current year and therefore the Group

will only recognise leases on the balance sheet at 1 January 2019. In addition it has decided to measure the right-of-use assets

using the lease liability on that date. Leases of low value (under £5,000) or less than 12 months remaining have been excluded

from reporting in incorporation of this new standard. The impact to the Group using the modified retrospective approach is

immaterial for 2019.

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 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 has been:

• 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 portfolio and independent professional services business. This is consistent with internal reporting.

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.

lawdebenture.com

Property, plant and equipment and right-of-use assets

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.

Right-of-use assets are measured at cost less accumulated depreciation. The carrying amount is adjusted for any re-measurement of the

lease liability.

Leasehold improvements

over the remaining lease period

Office furniture and equipment

3-10 years

Right-of-use asset

over the remaining lease period

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 Group has not taken the option to irrevocably designate any equity securities as fair value through other

comprehensive income. Transaction costs are expensed immediately.

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).

F
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N
A
N
C

A
L

S
T
A
T
E
M
E
N
T
S

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

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, subject to insignificant changes in fair value.

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.

Notes to the accounts continued

for the year end 31 December 2019

1. Summary of significant accounting policies continued

Financial instruments continued

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.

Investment in subsidiaries
Investments in subsidiaries are carried at cost.

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.

Corporate Services
Corporate Services provide governance services and includes Corporate Services, Service of Process and Safecall. 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 fulfilled at the point in time we are appointed as process agent for the client, who is the contract

counter party. The performance obligation is the arising provision of contract services for Corporate Services and Safecall.

The transaction price can include any combination of one-off acceptance fees, regular annual payments, and special fees for extra

work. Transactions are billed as a single payment at point of engagement or as on-going annual fees. Revenue is recognised over the

period of time it is taken to fulfil the contracted performance obligation.

lawdebenture.com

Corporate Trust
Contract terms are dealt with either in trust deeds or appointment letters. 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 an annual or quarterly

basis. The transaction price can include any combination of one-off acceptance fees, regular annual payments, and special fees for

extra work, and are recognised over the annual term or when the performance obligation is met.

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 over the period for which the trust or structure will be in place.

Pensions
Pension trusts provide professional trustee and governance services to clients, typically on a fixed annual fee basis or a time cost basis.

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. The transaction price may be determined either by time billed or as an annual fixed fee.

The performance obligation is provision of the time of the Pensions professionals and the transfer of the services is at that point

of time.

Employee benefits

Pension costs
The Group operates a defined benefit pension plan, which was closed to 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.

F
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N
A
N
C

A
L

S
T
A
T
E
M
E
N
T
S

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.

Notes to the accounts continued

for the year end 31 December 2019

1. Summary of significant accounting policies continued

Reserves continued

Translation reserve
This reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries and in

prior years 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 reclassified under right-of-use model
Previously under IAS 17, 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, were charged to the income statement on a

straight-line basis over the period of the lease.

From 1 January 2019 IFRS 16 replaces IAS 17; and the right-of-use model replaces the risks and rewards of ownership model. Under

this new standard leases previously classified as operating leases are recognised on the balance sheet, and the impact to the income

statement is a change to both the expense character (rent expenses replaced with depreciation and interest expense) and recognition

pattern (acceleration of lease expense relative to the recognition pattern for operating leases today).

Further detail on leases is provided in note 23 of the accounts.

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.

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 gain/(loss) on investments

Transfers (to) revenue

2019
£000

39,043

(22,242)

16,801

83,365

100,166

(143)

2018
£000

38,273

(34,390)

3,883

(87,984)

(84,101)

(200)

100,023

(84,301)

lawdebenture.com

3. Administrative expenses

Administrative expenses include:

Salaries and Directors’ fees

Social security costs

Other pension costs

Investment management fee*

Depreciation – property, plant and equipment

Depreciation – right-of-use asset

Amortisation – intangible assets

Interest on lease liability

Foreign exchange

Auditors’ remuneration

2019
£000

12,731

1,457

878

15,066

512

1,101

104

265

2018
£000

11,953

1,211

800

13,964

2,144

—

(21)

193

* From 1 January 2019 25% of the management fee is charged to revenue, and 75% to capital reserves, to better reflect the expected split of future returns between income and capital.

Further details are given in note 1 on page 88.

During the year, the Group employed an average of 133 staff (2018: 123). 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 33 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 represent legal charges incurred to discharge trustee duties which are recovered from clients 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

2019
£000

251

265

F
I

N
A
N
C

A
L

S
T
A
T
E
M
E
N
T
S

2018
£000

179

193

* Including the Company £45,500 (2018: £32,000).

A description of the work of the Audit Committee is set out in the Audit Committee report on pages 48 to 49 and includes an explanation

of how auditor objectivity and independence is safeguarded when non-audit services are provided by the auditors.

Notes to the accounts continued

for the year end 31 December 2019

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

2019
£000

236

(113)

—

(5)

118

2018
£000

1,667

(319)

(1,131)

236

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 $50m 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 2019 comprises of the expected net running costs (including

the cost of closure) of $150,000 (2018: $300,000). A reassessment of the provision required at December 2019 resulted in a release of

£113,000 (2018: release of £319,000).

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 page 64.

6. Interest

Interest Income

Interest on pension scheme (net)

Interest on bank deposits

Returns on money market funds

Interest Payable

Implied interest on derivative financial instruments

Interest on long-term debt – revenue

Interest on long-term debt – capital

Utilisation of onerous provision in the year (see note 4)

2019
£

2018
£

1,351,170

842,977

—

1,351,170

842,977

2019
£000

100

605

706

—

1,319

3,958

—

5,277

2018
£000

—

479

480

471

5,277

—

(1,131)

4,617

Interest (net)

(4,571)

(4,137)

lawdebenture.com

7. Segment analysis

Investment portfolio

Independent
professional services

Group charges

Total

31 December
2019
£000

31 December
2018
£000

31 December
2019
£000

31 December
2018
£000

31 December
2019
£000

31 December
2018
£000

31 December
2019
£000

31 December
2018
£000

Revenue

Segment income

29,201

23,199

36,815

33,252

Net gain on investments

Other income

Cost of sales

—

169

—

(5,026)

(3,668)

Administration costs

(2,186)

(3,360)

(20,536)

(19,345)

Release of onerous contracts

—

27,032

20,008

Interest (net) (note 6)

(822)

(4,372)

Return, including profit on

ordinary activities before taxation

26,210

15,636

Taxation

—

Return, including profit

—

11,256

209

11,465

(1,370)

—

10,246

235

10,481

(1,183)

attributable to shareholders

26,210

15,636

10,095

9,298

—

(113)

113

—

(50)

—

319

—

319

(135)

66,016

56,451

—

176

(5,026)

(3,668)

(22,835)

(22,705)

113

38,288

(613)

37,675

(1,420)

319

30,573

(4,137)

26,436

(1,318)

184

36,255

25,118

Revenue return per

ordinary share (pence)

Assets

Liabilities

Total net assets

22.18

13.23

870,944

764,771

(126,399)

(121,239)

744,545

643,532

8.54

42,021

(11,226)

30,795

7.87

39,312

(13,345)

25,967

(0.04)

(118)

(68)

0.16

100

(235)

(135)

30.68

21.26

913,015

804,183

(137,743)

(134,819)

775,272

669,364

For the purposes of reporting segmental performance, the table above presents a split of the revenue column between the investment

portfolio, the IPS business and Group charges.

Geographic location of revenue: 90% of revenue is based in the UK. Geographic location is based on the jurisdiction in which the
contracting legal entity is based.

Major customers: Due to the diverse nature of the IPS revenue streams, there is no single customer or concentration of customers that
represents more than 1.6% of gross revenue streams.

Capital element: The capital element of the income statement is wholly gains and losses relating to investments held at fair value through
profit and loss (2019 gain of £100,023,000; 2018 loss of £84,301,000), administrative expenses (2019: £2,379,000; 2018: £610,000) and

interest payable (2019: £3,958,000; 2018: nil) which corresponds to amounts classified as capital in nature in accordance with the SORP are

shown in the capital column of the income statement on page 80.

Details regarding the segments are included on page 1 – Group summary and in note 1 – Segment reporting on page 86.

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L

S
T
A
T
E
M
E
N
T
S

Investment portfolio

Independent
professional services

Total

31 December
2019
£000

31 December
2018
£000

31 December
2019
£000

31 December
2018
£000

31 December
2019
£000

31 December
2018
£000

Other information

Capital expenditure

Depreciation/amortisation

Depreciation – right-of-use asset

—

159

1,101

180

178

—

159

1,101

180

178

—

Group charges before taxation during the year comprised the following:

Closure of the US trust business:

Release for onerous contracts (see note 4)

2019
£000

2018
£000

113

319

Notes to the accounts continued

for the year end 31 December 2019

8. Taxation

Taxation based on revenue for the year comprises:

UK Corporation tax at 19.0% (2018: 19.0%)

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% (2018: 19.0%)

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 under provision in respect of current tax

Deferred tax on movement in provision for onerous contracts

2019
£000

855

327

1,182

238

1,420

2019
£000

131,361

24,885

150

(18,959)

(4,848)

217

—

(50)

1,420

2018
£000

816

203

1,019

299

1,318

2018
£000

(58,475)

(11,110)

16,133

(4,231)

591

(135)

1,318

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

prior reporting period.

GROUP
Deferred tax assets/(liabilities)

At 1 January 2018

(Charge) to income

(Charge) to other comprehensive income

Foreign exchange

At 1 January 2019

(Charge) to income

(Charge)/credit to other comprehensive income

Foreign exchange

At 31 December 2019

Accelerated tax
depreciation
£000

Retirement
benefit
obligations
£000

671

(185)

—

486

(48)

—

(8)

430

(57)

(114)

(304)

—

(475)

(190)

152

—

(513)

Total
£000

614

(299)

(304)

—

(238)

152

(8)

(83)

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 £1,245,981 (2018: £1,187,400) as their usability cannot be predicted with reasonable certainty.

lawdebenture.com

9. Dividends on ordinary shares

Dividends on ordinary shares comprise the following:

2019 Interim 6.60p (2018: 6.00p)

2018 Final 12.90p (2017: 11.80p)

Statute barred dividends*

Total for year

Proposed final dividend for the year ended 31 December 2019

* Relates to dividends unclaimed over 12 years old.

2019
£000

2018
£000

7,813

15,272

(35)

7,090

13,942

—

23,050

21,032

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.

2019 Interim 6.60p (2018: 6.00p)

2019 Final 19.40p (2018: 12.90p)

2019
£000

7,813

22,975

30,788

2018
£000

7,090

15,249

22,339

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.

10. Net asset value/return per share

NAV per share is calculated based on 118,224,400 (2018: 118,205,909) shares, being the total number of shares in issue of 118,429,010 (2018:

118,381,667), less 204,610 (2018: 175,758) shares, acquired by the ESOT in the open market. The net asset value of £830,139,000 (2018:

£725,863,000) comprises the NAV per the balance sheet of £775,272,000, (2018: £669,364,000) plus the fair value adjustment to for the IPS

business of £91,860,000, (2018: £78,439,000) less the fair value adjustment for the debt of £36,993,000, (2018: £21,940,000).

Revenue return per share is based on profits attributable of £36,255,000 (2018: £25,118,000).

Capital return per share is based on capital gains for the year of £93,686,000 (2018: loss £84,911,000).

Total return per share is based on gain for the year of £129,941,000 (2018: loss £59,793,000).

The calculations of returns per share are based on 118,181,082 (2018: 118,174,550) shares, being the weighted average number of shares

in issue during the year after adjusting for shares owned by the ESOT. In 2019, total revenue and capital diluted returns per share were

calculated using 118,190,993 shares (2018: 118,187,923 shares), being the diluted weighted average number of shares in issue assuming

exercise of options at less than fair value. There were 47,380 (2018: 83,061) antidilutive shares.

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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

2019
£000

2,397

(38)

2,359

445

—

(16)

429

2018
£000

2,339

2,397

419

—

445

1,930

1,952

Notes to the accounts continued

for the year end 31 December 2019

The goodwill is identifiable with separate operating companies (Safecall Limited: £1,419,000; and Delaware Corporate Services Inc.:

£512,000). At 31 December 2019 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 2020.

The review for Safecall was assessed using annual growth for five years of 5% with no terminal growth, which is based on the lower end

of current expectations and a discount rate of 9% (2018: 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% (2018: 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 (2018: nil).

12. Property, plant and equipment

GROUP

Cost

At 1 January

Additions at cost

Foreign exchange

At 31 December

Accumulated depreciation

At 1 January

Charge

Foreign exchange

At 31 December

Net book value at 31 December

Office
improvements
£000

Furniture &
equipment
£000

2019

Total
£000

Office
improvements
£000

Furniture &
equipment
£000

899

(3)

913

888

(3)

900

1,836

2,735

(5)

(8)

1,835

2,748

1,747

(3)

1,784

2,635

(6)

2,684

866

—

899

848

888

1,791

1,836

1,680

1,747

2018

Total
£000

2,657

2,735

2,528

2,635

100

The Company holds no property, plant and equipment.

13. Other intangible assets

GROUP

Cost

At 1 January

Additions at cost

Foreign exchange

At 31 December

Accumulated amortisation

At 1 January

Charge

Foreign exchange

At 31 December

Net book value at 31 December

lawdebenture.com

Computer
software
2019
£000

Computer
software
2018
£000

1,792

(1)

1,814

1,606

104

—

1,710

104

1,682

110

—

1,792

1,521

—

1,606

186

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

– realised gains on sales

Gains/(losses) in the income statement

Closing fair value at 31 December

Closing cost at 31 December

Gains

Closing fair value at 31 December

Fair value through profit or loss

COMPANY

Opening cost at 1 January

Gains at 1 January

Opening fair value at 1 January

Purchases at cost

Cost of acquisition

Sales – proceeds

– realised gains on sales

Gains/(losses) in the income statement

Closing fair value at 31 December

Closing cost at 31 December

Gains

Closing fair value at 31 December

Listed
£000

531,245

127,264

658,509

163,106

(661)

(102,888)

39,043

61,138

818,247

629,845

188,402

818,247

Listed
£000

536,343

122,166

658,509

163,106

(661)

(102,888)

39,043

61,138

818,247

634,943

183,304

818,247

Unlisted
£000

3,547

537

4,084

—

(15)

4,069

3,547

522

4,069

Unlisted
£000

3,333

537

3,870

—

(15)

3,855

3,333

522

3,855

2019

Total
£000

534,792

127,801

662,593

163,106

(661)

(102,888)

39,043

61,123

822,316

633,392

188,924

822,316

2019

Total
£000

539,676

122,703

662,379

163,106

(661)

(102,888)

39,043

61,123

822,102

638,276

183,826

822,102

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

485,697

250,175

735,872

113,396

(408)

(102,166)

38,273

(122,374)

662,593

534,792

127,801

662,593

2018

Total
£000

490,556

245,077

735,633

113,396

(408)

(102,141)

38,273

(122,374)

662,379

539,676

122,703

662,379

F
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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

Investment in subsidiary – capital redemption

Additions in year

At 31 December

2019
£000

2018
£000

61,233

—

61,283

96,311

(35,078)

—

61,233

Notes to the accounts continued

for the year end 31 December 2019

Investments in subsidiaries are measured at cost less impairment. The financial statements consolidate the results and financial position

of the Group, including all subsidiary undertakings, which are listed in this note under section “subsidiaries and related undertakings”.

The cost of subsidiary undertakings includes capital contributions and as a consequence is not comparable to the fair value of the IPS

business.

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 9.2 (2018: 8.4)

Surplus net assets

2019
£000

105,938

16,367

122,305

2018
£000

87,562

16,844

104,406

An increase or decrease of 1 in the multiple would give rise to a £11.5m change in the fair valuation of the IPS. The adjustment to NAV to

reflect the IPS fair value is an increase of 77.70p per share (2018: 66.36p).

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 116. 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

Safecall Limited

Safecall Training Limited

Law Debenture Investment Management Limited

The Whistleblowing Company Limited

Law Debenture (Independent Professional Services) Limited

The Sole Trustee plc

Beagle Nominees Limited

The Law Debenture Corporation (Deutschland) Limited

The Law Debenture Trust Corporation p.l.c.

L.D.C. Latvia Limited

The Law Debenture Pension Trust Corporation p.l.c.

Law Debenture Trustee for Charities

Pegasus Pensions plc

Law Debenture (No. 1 Scheme) Trust Corporation

Law Debenture Corporate Services Limited

Law Debenture (No. 2 Scheme) Trust Corporation

Law Debenture Trustees Limited

Law Debenture (No. 3 Scheme) Pension Trust Corporation

The Law Debenture Intermediary Corporation p.l.c.

The Law Debenture (No. 5) Trust Corporation

Law Debenture Overseas No. 1 Limited

The Law Debenture (1996) Pension Trust Corporation

Law Debenture Finance p.l.c.

The Law Debenture (Airborne) Pension Trust Corporation

Law Debenture Securitisation Services Limited

The Law Debenture (BAA) Pension Trust Corporation

LDPTC Nominees Limited

The Law Debenture (BIS Management) Pension Trust Corporation

Law Debenture Governance Services Limited

The Law Debenture (BIS Retirement) Pension Trust Corporation

lawdebenture.com

14. Investments continued

The Law Debenture (Freemans) Trust Corporation

The Law Debenture (GS) Pension Trust Corporation

The Law Debenture (Intel Old Plan) Pension Trust Corporation

The Law Debenture (SAPP) Pension Trust Corporation

The Law Debenture (JLPF) Pension Trust Corporation

The Law Debenture (JLPP) Pension Trust Corporation

The Law Debenture (JGRP) Pension Trust Corporation

The Law Debenture (JGSPS) Pension Trust Corporation

The Law Debenture (JIC) Pension Trust Corporation

LDC DR Trustee Limited

LDC DR Nominees Limited

L.D.C. (SPV No.1) Limited

LD (Holdco) Limited

LD (Bidco) Limited

The Law Debenture Corporation (HK) Limited
(incorporated/registered office in Hong Kong)

Law Debenture Trust (Asia) Limited
(incorporated/registered office in Hong Kong)

Law Debenture China Limited

The Law Debenture (KBPP) Pension Trust Corporation

(incorporated/registered office in Hong Kong)

Law Debenture Services (HK) Limited
(incorporated/registered office in Hong Kong)

The Law Debenture Trust Corporation (Channel Islands) Limited
(incorporated/registered office in Jersey)

The Law Debenture Trust Corporation (Cayman) Limited
(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)

F
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The Law Debenture (KGPP) Pension Trust Corporation

The Law Debenture (LBS) Pension Trust Corporation

The Law Debenture (Swiss Re GB) Trust Corporation

Law Debenture (Ocean) Trust Corporation

Law Debenture (Odyssey) Trust Corporation

The Law Debenture (SRL) Pension Trust Corporation

The Law Debenture (Stena Line EPS) Pension Trust Corporation

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

Law Debenture MC Senior Pension Trust Corporation

ICI Specialty Chemicals Pensions Trustee Limited

RTL Shareholder SVC 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

Notes to the accounts continued

for the year end 31 December 2019

14. Investments continued

Unlisted investments

The Group holds an immaterial amount (approximately 0.5% of the portfolio) in unlisted investments.

Investment trust

The majority of the investment portfolio is invested in listed investments. A small minority of investments are unlisted comprising a small

fund investment and a number of other immaterial unquoted investments.

Quarterly valuations for the small fund investment are received. The Investment Valuation Committee updates the valuation of this

immaterial investment on a six monthly basis. The minutes of the meeting are shared with the auditors on a bi-annual basis.

Other unquoted investment holdings are reviewed on a bi-annual basis to market value and agreed by the Committee members at the

same Investment Valuation Committee meeting.

Independent professional services

As part of the services offered by the Independent Professional Services business, the Group acts as the registered holder of an immaterial

amount of unlisted shares in structured finance companies which are held on trust for discretionary charitable purposes. The Group has

no beneficial interest in those shares or the results of the companies whose shares are held.

The holdings are reviewed on a bi-annual basis at the Investment Valuation Committee meeting but are not revalued as there is no market

rate and the Group has no beneficial or economic interest in those shares.

15. Trade and other receivables

The carrying value represents trade and other receivables which are not impaired. The Directors consider that the carrying value

approximates to the fair value.

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 ageing.

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.

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.

100

lawdebenture.com

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

As at 1 January

Issued in year

As at 31 December

2019
£000

5,919

5,921

2018
£000

5,918

5,919

Number

118,381,667

118,358,244

47,343

23,423

118,429,010

118,381,667

During the year to 31 December 2019, 47,343 shares (2018: 23,423 shares) were allotted under the SAYE scheme for a total consideration of

£244,937 (2018: £117,336) which includes a premium of £242,570 (2018: £116,165).

During the year, 27,761 options were granted under the Company’s SAYE scheme. At 31 December 2019, options under the SAYE scheme

exercisable from 2019 to 2025 at prices ranging from 495.72p to 606.00p per share were outstanding in respect of 135,578 ordinary shares

(2018: 180,221 ordinary shares). During 2019, 25,061 options lapsed or were cancelled (2018: 8,233) and 47,343 (2018: 23,423) were exercised.

Further details of options outstanding are given in the Directors’ report on page 41.

Own shares held - Group

Value

Own shares held - cost

2019
£000

2018
£000

1,332

966

The own shares held represent the cost of 204,610 (2018: 175,758) 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 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 2019 was £1,329,965 (2018: £949,093).

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101

Notes to the accounts continued

for the year end 31 December 2019

19. Capital reserves

GROUP

At 1 January

Transfer on disposal of investments

Net gains on investments

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

2019

Total
£000

Unrealised
appreciation
£000

Realised
reserves
£000

2018

Total
£000

121,273

(22,242)

83,365

(661)

(181)

(143)

181,411

Unrealised
appreciation
£000

114,554

(22,242)

83,365

(661)

(181)

(143)

174,692

482,160

603,433

22,242

16,801

—

(5,495)

515,708

Realised
reserves
£000

547,477

22,242

16,801

—

(5,495)

581,025

—

100,166

(661)

(181)

(5,638)

697,119

2019

Total
£000

662,031

—

100,166

(661)

(181)

(5,638)

755,717

244,457

(34,390)

(87,984)

(408)

(202)

(200)

443,887

688,344

34,390

3,883

—

(84,101)

(408)

(202)

(200)

121,273

482,160

603,433

Unrealised
appreciation
£000

Realised
reserves
£000

2018

Total
£000

235,821

(34,390)

(87,984)

(408)

1,715

(200)

509,204

745,025

34,390

3,883

—

(84,101)

(408)

1,715

(200)

114,554

547,477

662,031

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 18 to 31.

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.

This policy on dividends is expected to continue going forwards. The investment strategy of the Company is disclosed on page 32 and

includes a ceiling on effective gearing of 50%, with a typical range of 10% net cash to 20% gearing. At 31 December 2019 gearing was 9%

(2018: 3%). Gearing is calculated in line with net gearing guidelines from the AIC.

Capital is represented by the Group’s net assets.

102

lawdebenture.com

The Group and Company held the following categories of financial assets and liabilities at 31 December 2019:

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

Financial liabilities measured at amortised cost

Trade and other payables

Long-term borrowings

Lease liability

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

Financial liabilities measured at amortised cost

Amounts owed to subsidiary undertakings

Trade and other payables

Long-term borrowings

Total financial liabilities

2019
£000

2018
£000

822,316

662,593

7,213

71,236

78,449

6,925

124,148

131,073

900,765

793,666

13,010

114,157

1,080

11,888

114,112

—

128,247

126,000

2019
£000

2018
£000

822,102

662,379

542

46,128

46,670

868,772

384

100,321

100,705

763,084

53,990

1,420

74,551

129,961

47,840

1,404

74,534

123,778

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A
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E
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S

103

Notes to the accounts continued

for the year end 31 December 2019

20. Financial instruments continued

Derivative financial instruments

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 2018 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 2019 fell or rose by 10%, the impact on the Group’s total profit or loss for the year would have been £82.2m (2018: £66.3m).

Corresponding 10% changes in the valuation of the investment portfolio on the Company’s total profit or loss for the year would have been

£82.2m (2018: £66.2m).

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

2019

2018

70.7

7.2

49.6

2.9

1.0

11.0

—

8.7

151.1

5.0

—

0.7

—

0.4

—

6.1

75.7

7.2

50.3

2.9

1.0

11.0

0.4

8.7

71.5

5.0

37.1

2.3

1.6

14.1

—

7.4

157.2

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

144.0

2018

The Group US dollar net monetary assets is that held by the US operations of £3.1m together with £1.2m held by non-US operations.

2019

Investments
£m

Net monetary
assets
£m

Total currency
exposure
£m

Investments
£m

Net monetary
(liabilities)
£m

Total currency
exposure
£m

70.7

7.2

49.6

2.9

1.0

11.0

8.7

151.1

0.1

—

0.1

70.8

7.2

49.6

2.9

1.0

11.0

8.7

151.2

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

139.0

0.2

139.2

COMPANY

US Dollar

Canadian Dollar

Euro

Danish Krone

Swedish Krona

Swiss Franc

Japanese Yen

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lawdebenture.com

The holding in Scottish Oriental Smaller Companies Trust is denominated in sterling but has underlying assets in foreign currencies

equivalent to £7.2m (2018: £29.9m which included £23.0m in Baillie Gifford Pacific and Stewart Investors Asia Pacific OEICs which were

sold in 2019). Investments made in the UK and overseas have underlying assets and income streams in foreign currencies which cannot

easily be determined and have not been included in the sensitivity analysis. If the value of all other currencies at 31 December 2019 rose

or fell by 10% against sterling, the impact on the Group’s total profit or loss for the year would have been £17.6m and £14.2m respectively

(2018: £18.9m and £15.4m). 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

HK Dollars

US Dollars

£m

65.1

£m

0.4

£m

5.0

Floating rate assets

Sterling
£m

119.1

HK Dollars
£m

US Dollars
£m

0.4

4.3

GROUP

Euro

£m

0.7

GROUP

Euro
£m

0.3

2019

COMPANY

Sterling

US Dollars

£m

46.0

£m

0.1

2018

Sterling
£m

100.1

COMPANY

US Dollars
£m

0.2

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

2019
Sterling
£m

114.2

GROUP

2018
Sterling
£m

114.1

2019
Sterling
£m

74.6

COMPANY

2018
Sterling
£m

74.5

Weighted average fixed rate for the year

4.589%

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 £791,000

credit (2018: £1,111,000 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 £40m 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 £593,000 credit (2018: £730,000 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.

F
I

N
A
N
C

A
L

S
T
A
T
E
M
E
N
T
S

105

Notes to the accounts continued

for the year end 31 December 2019

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 £78.4m (2018: £131.1m). The Company’s maximum

exposure to credit risk arising from financial assets is £46.7m (2018: £100.7m).

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

2019
£000

1,225

219

2,330

3,774

GROUP

2018
£000

1,315

437

1,721

3,473

COMPANY

2018
£000

2019
£000

—

The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss provision for

trade receivables and contract assets. To measure expected credit losses trade receivables are grouped based on similar risk characteristics

and ageing.

The expected loss rates are based on the Company’s historical credit losses experienced over a two-year period prior to the year end.

The historical loss rates are adjusted for current and forward-looking information on macroeconomic factors affecting the Company’s

customers. At 31 December 2019 the provision in relation to IFRS 9 resulting from credit loss rates is £2,907,000.

Trade and other payables

Due in less than one month

Due in more than one month and less than three months

2019
£000

12,686

324

13,010

GROUP

2018
£000

11,621

267

11,888

COMPANY

2018
£000

1,404

—

1,404

2019
£000

1,420

—

1,420

Fair value

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).

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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

2019
£000

GROUP

2018
£000

COMPANY

2018
£000

2019
£000

39,606

74,551

114,157

39,578

74,534

114,112

—

74,551

—

74,534

The 6.125% bonds were issued by Law Debenture Finance p.l.c. and guaranteed by the Company. The £40m nominal tranche, which

produced proceeds of £39.1m, 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 £75m nominal tranche, which produced proceeds of £74.5m, 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 £151.2m at

31 December 2019 (2018: £136.1m) would have the effect of decreasing the year end NAV by 31.29p (2018: 18.56p). 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 (2018: 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 provided a guarantee in respect of

liabilities that could arise from its US corporate trust business in the period before the business was sold. The guarantee ended in 2019.

F
I

N
A
N
C

A
L

S
T
A
T
E
M
E
N
T
S

107

Notes to the accounts continued

for the year end 31 December 2019

23. Right-of-use asset and lease liability

Changes in significant accounting policies: IFRS 16 ‘Leases’

This note explains the impact of the adoption of IFRS 16 Leases on the financial statements.

IFRS 16 introduced a single, on-balance sheet accounting model for lessees and replaces IAS 17, effective from 1 January 2019.

This is the first set of the Group’s financial statements in which IFRS 16 has been applied. Changes to significant accounting policies are

described in note 1.

i) Definition of a lease

Previously the Group determined at contract inception whether an arrangement was or contained a lease under IAS 17 and IFRIC 4.

The Group now assesses whether a contract is or contains a lease based on the new definition of a lease. Under IFRS 16, a contract is, or

contains, a lease if the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration.

The Group’s leasing activities and how these are accounted for

The Group leases various office properties. Rental contracts are typically made for fixed periods of 1 to 10 years and lease terms are

negotiated on an individual basis.

As a lessee, the Group previously classified leases as either operating or finance leases based on its assessment of whether the lease
transferred substantially all of the risks and rewards of ownership.

The right-of-use model under IFRS 16 replaces the risks and rewards model in IAS 17, thereby the distinction between finance and

operating leases is eliminated under IFRS 16.

Under IFRS 16, the Group recognises right-of-use assets and lease liabilities for its office lease.

The Group has elected not to recognise right-of-use assets and lease liabilities for some short-term leases and leases of low-value assets. Short-

term leases are leases with a lease term of 12 months or less. Low-value assets typically comprise IT-equipment, and under £5,000 per IFRS 16.

The right-of-use asset is initially measured at cost, and subsequently at cost less any accumulated depreciation and impairment losses,

adjusted for certain re-measurements of the lease liability and is presented on the face of the statement of financial position.

Lease liabilities are presented in trade and other payables in the statement of financial position, initially measured at the present value

of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease. If that rate

cannot be readily determined, the Group’s incremental borrowing rate is used. Generally, the Group uses its incremental borrowing rate as

the Group’s borrowing rate which is 4.589% as of 1 January 2019.

The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payments made. It is re-

measured when there is a change to future lease payments arising from a change in an index rate, a change in the estimate of the amount

expected to be payable under the residual value guarantee, or as appropriate, changes in the assessment of whether a purchase or

extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised.

ii) Transition

On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as ‘operating leases’

under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted at

the Group’s incremental borrowing rate of 4.589% as of 1 January 2019.

The associated right-of-use assets were measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or

accrued lease payments relating to that lease recognised in the balance sheet as at 1 January 2019. There were no onerous lease contracts

that would have required an adjustment to the right-of-use assets at the date of initial application.

In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard:

•

the use of a single discount rate to a portfolio of leases with reasonably similar characteristics;

for leases previously accounting for as operating leases with a remaining lease term of less than 12 months the Group has applied the

optional exemptions not to recognise right-of-use assets but to account for the remaining lease expense on a straight-line basis over the

remaining lease term;

the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application; and

the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.

The Group has also elected not to reassess whether a contract is, or contains a lease at the date of initial application. Instead, for contracts

entered into before the transition date the Group relied on its assessment made applying IAS 17 and IFRIC 4.

108

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iii) Impacts of transition

As a result of initially applying IFRS 16, in relation to the leases that were previously classified as operating leases, the company recognised

£2,009,000 of right-of-use assets and (£2,009,000) of lease liabilities as at 1 January 2019.

The following is a reconciliation of total operating lease commitments at 31 December 2018 (as disclosed in the financial statements to

31 December 2018) to the lease liabilities recognised at 1 January 2019:

Total operating lease commitments disclosed at 31 December 2018

Recognition exemptions:

Recognition exemption for leases with less than 12 months of lease term at transition and other reasons

Operating lease liabilities before discounting

Discounted using incremental borrowing rate

Total lease liabilities recognised under IFRS 16 at 1 January 2019

The subsequent values at 31 December 2019 were £1,057,000 of right-of-use assets and (£1,080,000) of lease liabilities.

Right -of-use asset
Additional information on the right-of-use assets is as follows:

GROUP

£000

2,242

(73)

2,169

(160)

2,009

Opening balance at 1 January

Leases signed in year

Depreciation

Closing NBV at 31 December

Lease liabilities
Lease liabilities are presented in the statement of financial position as follows:

Current

Non-Current

Total lease liability

iv) Prior Periods

Office
building
leases
£000

2,009

149

(1,101)

1,057

GROUP

Total
Right-of-use
assets
£000

2,009

149

(1,101)

1,057

GROUP

31 December
2019
£000

31 December
2018
£000

730

350

1,080

—

F
I

N
A
N
C

A
L

S
T
A
T
E
M
E
N
T
S

The modified retrospective approach to IFRS 16 has been applied, whereby this standard applies to year ended 2019, but prior year

comparatives are unchanged. The reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the

opening balance sheet on 1 January 2019 as a cumulative catch-up.

v) Future leases

In 2020, the Group will sign a lease for its London Headquarters as its current lease at 100 Wood Street expires. At the date of signing, no

lease agreement has been signed by the Directors.

109

Notes to the accounts continued

for the year end 31 December 2019

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 Company has appointed an independent sole

trustee to oversee the governance of the 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 2019. 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 2019 is

currently underway. The estimated amount of total employer contributions expected to be paid to the plan during 2019 is £0.9m (2019

actual: £0.9m).

Actuarial gains and losses are recognised immediately through other comprehensive income.

The major assumptions in the 31 December 2019 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.

2019
%

2018
%

2.9

2.1

n/a

3.2

2.2

2.9

n/a

2019
years

2018
years

23.6/25.4

25.4/26.9

25.3/26.8

2019
£000

(100)

—

(100)

2018
£000

—

300

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 2019

Life expectancy of male/female aged 65 in 2039

The amounts recognised in the income statement are as follows:

Interest income

Past service cost

Total (income)/expense recognised in the income statement

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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

Interest on plan liabilities

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

Benefits paid

At 31 December

Allocation %

£000

Allocation %

2019

30,000

5,600

14,900

700

8,100

1,200

2018

£000

25,600

5,300

14,000

700

7,700

800

100

60,500

100

54,100

2019
£000

2018
£000

51,600

1,500

(100)

6,200

—

(1,400)

—

57,800

57,300

1,300

—

(5,100)

(600)

(1,600)

300

51,600

2019
£000

2018
£000

54,100

1,600

5,300

900

(1,400)

60,500

57,600

1,300

(4,100)

900

(1,600)

54,100

F
I

N
A
N
C

A
L

S
T
A
T
E
M
E
N
T
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).

111

Notes to the accounts continued

for the year end 31 December 2019

24. Pension commitments continued

Movement in the net defined benefit obligations

(Asset) at 1 January

(Income)/expense charged to profit and loss

Amount recognised outside of profit and loss

Employer contributions

Closing net (assets) at 31 December

Plan assets and obligations

Present value of defined benefit

obligation

Fair value of plan assets

(Asset)/deficit

25. Related party transactions

Group

2019
£000

2018
£000

(2,500)

(100)

800

(900)

(2,700)

(300)

300

(1,600)

(900)

(2,500)

2019
£000

2018
£000

57,800

(60,500)

(2,700)

51,600

(54,100)

(2,500)

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

2019
£000

3,000

2,562

600

2018
£000

8,500

2,562

260

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 63 to 70. Key management personnel costs inclusive of employers national insurance

are £1,529,583 (2018: £958,286).

Fees were received from J. Rothschild Capital Management Limited of £17,369 (2018:nil) in respect of the provision of sole trustee services

to the entities pension scheme. J. Rothschild Capital Management Limited is a related party to a Director of the Group.

112

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26. Movement in borrowings

Under IAS 7, the movement in borrowings in the year are as follows:

GROUP

Long-term borrowings

6.125% guaranteed secured bonds 2034

3.77% secured senior notes 2045

COMPANY

Long-term borrowings

3.77% secured senior notes 2045

31 December
2019
£000

Non-cash items
movement
£000

31 December
2018
£000

Non-cash items
movement
£000

31 December
2017
£000

39,606

74,551

114,157

74,551

39,578

74,534

114,112

74,534

39,552

74,516

114,068

74,516

The Group had no short-term borrowings in 2019 (2018: nil).

27. Distributable reserves

All historical dividend payments have been made from revenue reserves. The Group has retained earnings to pay 1.3 years of dividend at

the current level. The Group has realised capital reserves of £515,708,000 including distributable capital reserves and retained earnings,

which would allow 16.8 years of dividend payments at the current level. The Group does not intend to make dividend payments from

capital reserves.

F
I

N
A
N
C

A
L

S
T
A
T
E
M
E
N
T
S

113

C O R P O R A T E I N F O R M A T I O N

114
114

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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 38 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.

C
O
R
P
O
R
A
T
E

N
F
O
R
M
A
T
I

O
N

115115

C O R P O R A T E I N F O R M A T I O N

Financial calendar

Dividend and interest payments

Ordinary shares:

Three interim dividends

Announced in June, September and December

Paid, July, October and January

Final announced February/March

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 pages 98 and 99, 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

38/39 Fitzwilliam Square, Dublin 2, Ireland

Companies registered in USA
other than Delaware Corporate Services

801 2nd Avenue, Suite 403, New York,

NY 10017, USA

Companies registered in USA -
Delaware Corporate Services

Company registered in Jersey

919 N Market St, Suite 725, Wilmington,

DE 19801, USA

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

116116

lawdebenture.com

Notice of annual general meeting

NOTICE IS HEREBY GIVEN that the 130th annual general meeting of the Company will be held on 7 April 2020 at 11.00am at the

Pewterer’s Hall, Oat Lane, London EC2V 7DE for the following purposes:

Ordinary resolutions

To receive the report of the Directors, the strategic report and the audited accounts and the auditor’s report for the year

ended 31 December 2019.

To approve amendments to the Company’s remuneration policy.

To receive and approve the Directors’ remuneration report for the year ended 31 December 2019.

To declare a final dividend of 19.4p per share in respect of the year ended 31 December 2019.

To re-elect Denis Jackson as a Director.

To re-elect Robert Hingley as a Director.

To re-elect Robert Laing as a Director.

To re-elect Mark Bridgeman as a Director.

To re-elect Tim Bond as a Director.

10. To re-elect Katie Thorpe as a Director.

11. To elect Claire Finn as a Director.

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 £296,084;

(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 resolutions

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 £296,084 (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 17,753,225 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

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 2020

Registered No. 30397

Registered office:

Fifth Floor

100 Wood Street

London EC2V 7EX

118118

lawdebenture.com

Notes to the notice of annual general meeting

1. A member who holds ordinary shares on the register of

increase in profits continues to enhance shareholder value.

members and is entitled to attend and vote at this meeting

His biography is included on page 72 of the annual report.

is entitled to appoint one or more proxies to attend and, on a

poll, to vote in his or her place (or in the case of a corporation,

to appoint one or more corporate representatives who may

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

8. Resolution 6: Robert Hingley offers himself for re-election.
The Board supports his re-election. Robert has continued

to evidence his abilities 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 Officer have found

extremely helpful. His biography is included on page 72 of the

annual report.

shareholders to instruct a ‘vote withheld’ if preferred. A vote

9. Resolution 7: Robert Laing offers himself for re-election. The

withheld is not a vote in law and will not be counted in the

Board supports his re-election. The Board continues to believe

calculation of votes. It may be used, for example, to convey

that its effectiveness is enhanced by having Robert Laing

a message of dissatisfaction on a particular issue, where the

as a Non-Executive Director with a legal background and

strength of feeling is not so great as to oppose the resolution,

experience of one or more of the professional services sectors

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

where Law Debenture operates. He is an effective Senior

Independent Director and Chairman of the Remuneration

Committee. His biography is included on page 73 of the

annual report.

10. Resolution 8: Mark Bridgeman offers himself for re-election.
The Board supports his re-election. The Board recognises the

by post at the office of the Company’s registrar,

value in having at least one non-executive Director with fund

Computershare Investor Services PLC, The Pavilions,

management experience and Mark fulfils that need. He is an

Bridgwater Road, Bristol BS99 6ZY. CREST members can

effective Director and chairs the Audit Committee skillfully.

His biography is included on page 73 of the annual report.

Euroclear. Proxies must be received not less than 48 hours

before the time appointed for the holding of the meeting.

This is also the voting record date by which a person must be

entered on the register in order to have a right to 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

macroeconomic background and an expert insight into the

capital markets generally. Both from his current and previous

experience, Tim is able to contribute in this way and does so

The register of Directors’ interests will be available for

effectively. His biography is included on page 73.

inspection at the registered office of the Company during

normal business hours and at the annual general meeting.

No Director has a service contract with the Company of more

than one year’s duration.

12. Resolution 10: Katie Thorpe offers herself for re-election.
The Board supports her re-election. Katie has a sound

understanding of both the investment trust and the IPS

business and her experience in the investment trust sector

4. Subject to the dividend on the ordinary shares now

in particular has been of great value to Law Debenture and

recommended being approved at the annual general

how the businesses operate. She works effectively with Denis

meeting, dividend payments will be made on 16 April 2020 to

Jackson to deliver enhanced shareholder value. Her biography

shareholders on the register on the record date on 13 March

is included on page 72.

2020.

5. Resolution 2 is to approve amendments to the Company’s
remuneration policy. The revised and updated policy is

13. Resolution 11: Claire Finn offers herself for election. The
Board supports her election. Claire joined the Board in

September 2019. The Board recognises the value of having

being proposed for the reasons set out by the Remuneration

a Director with fund product competence and distribution

Committee Chairman on pages 50 and 51.

experience which Claire is able to provide. Her biography is

6. Resolution 3 is to receive and approve the Directors’

include on page 73.

remuneration report for the year ended 31 December 2019.

14. Resolution 12 is to re-appoint BDO LLP as the Company’s

The remuneration report, which follows the format required

auditors. BDO LLP were first appointed on 31 October 2008

by the relevant regulations, is set out at pages 50 to 70 of the

and were the successful firm in the audit tender conducted

annual report.

in the autumn of 2017.

7. Resolution 5: Denis Jackson offers himself for re-election.

The Board supports his re-election. Denis continues to lead

15. Resolution 13 renews the authority given to Directors at
the last annual general meeting to allot unissued capital

the effective implementation of strategy across the Group,

not exceeding 296,084 shares, being 5% of the issued

and has been instrumental in increasing the profits of the

share capital. This authority would be exercised only at

IPS business, as discussed within the annual report. This

times when it would be advantageous to the Company’s

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Notes to the notice of annual general meeting continued

shareholders to do so. Shares would not be issued under

this authority at a price lower than market price or net asset

19. Meeting notice requirements – the Company is required
under the Act to make a number of additional disclosures

value at the time of the issue. If approved, the authority

as follows. The Company’s website – www.lawdebenture.

will continue to operate until the next annual general

com/investment-trust/shareholder-information/corporate

meeting. N.B. In the ordinary course of business, the power

-governance/agm – contains a copy of this notice, which

given by this resolution will only be used to allot shares

includes the current total voting rights, as set out below.

to participants in the HMRC approved Save As You Earn

Should the required number of members requisition the

Sharesave scheme.

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 296,084 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.

Company to publish any statement about the audit or related

matters that the relevant members propose to raise at the

AGM (in accordance with section 527 of the Act), this 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

17. Special resolution 15 renews the authority given to

in attendance.

Directors at the last annual general meeting to purchase

ordinary shares in the market for cancellation. Such
purchases at appropriate times and prices could be a

suitable method of enhancing shareholder value and would

be applied within guidelines set from time to time by the

Board. It should be noted that no such purchases would

be undertaken if shares were trading at a premium to net

asset value.

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

ahead, circumstances might arise when such a meeting

might become necessary and the Directors deem it in the

best interests of shareholders that it be held as quickly as

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).

Total voting rights and share information
The Company has an issued share capital at 25 February 2020 of 118,433,786 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 118,433,786.

120120

lawdebenture.com

Annual general meeting venue

Pewterers’ Hall, Oat Lane, London EC2V 7DE

PEWTERERS’ HALL

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Milk St

Russia Row

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RAILWAY

UNDERGROUND

BUSES

PARKING

Main line stations within

one mile include:

Moorgate
(Circle, Metropolitan,

From Cheapside the 501 service

There is limited meter parking

connects London Bridge and

in business hours near the

• 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

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.

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The Law Debenture Corporation p.l.c. Fifth Floor, 100 Wood Street, London EC2V 7EX

Tel: 020 7606 5451 | www.lawdebenture.com