TIDMLWDB
RNS Number : 9050F
Law Debenture Corp PLC
26 February 2015
ANNUAL FINANCIAL REPORT for the year ended
31 December 2014 (audited)
This is the Annual Financial Report of The Law Debenture
Corporation p.l.c. as required to be published under DTR 4 of the
UKLA Listing Rules.
The directors recommend a final dividend of 11.0p per share
making a total for the year of 15.7p. Subject to the approval of
shareholders, the final dividend will be paid on 23 April 2015 to
holders on the register on the record date of 20 March 2015. The
annual financial report has been prepared in accordance with
International Financial Reporting Standards.
Group income statement
for the year ended 31 December
2014 2013
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
UK dividends 14,054 - 14,054 12,276 - 12,276
UK special
dividends 631 - 631 990 - 990
Overseas dividends 2,094 - 2,094 1,918 - 1,918
Overseas special
dividends 34 - 34 35 - 35
Interest from
securities 103 - 103 566 - 566
---------- -------- --------- ---------- ---------- ------------
16,916 - 16,916 15,785 - 15,785
Interest income 88 - 88 61 - 61
Independent
fiduciary services
fees 32,366 - 32,366 31,819 - 31,819
Other income 220 - 220 183 - 183
---------- -------- --------- ---------- ---------- ------------
Total income 49,590 - 49,590 47,848 - 47,848
Net gain on
investments
held at fair
value through
profit or loss - 4,638 4,638 - 114,864 114,864
---------- -------- ---------
Gross income
and capital
gains 49,590 4,638 54,228 47,848 114,864 162,712
Cost of sales (5,291) - (5,291) (4,744) - (4,744)
Administrative
expenses (20,231) (71) (20,302) (19,539) (496) (20,035)
---------- -------- --------- ---------- ---------- ------------
Operating profit 24,068 4,567 28,635 23,565 114,368 137,933
Finance costs
Interest payable (2,896) - (2,896) (2,736) - (2,736)
Profit before
taxation 21,172 4,567 25,739 20,829 114,368 135,197
Taxation (1,199) - (1,199) (1,679) - (1,679)
Profit for
year 19,973 4,567 24,540 19,150 114,368 133,518
---------- -------- --------- ---------- ---------- ------------
Return per
ordinary share
(pence) 16.95 3.87 20.82 16.27 97.18 113.45
Diluted return
per ordinary
share (pence) 16.95 3.87 20.82 16.26 97.10 113.36
Statement of comprehensive income
for the year ended 31 December
Revenue Capital Total Revenue Capital Total
2014 2014 2014 2013 2013 2013
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------------- ------- ------- ------- ------- ------- -------
Profit for the year 19,973 4,567 24,540 19,150 114,368 133,518
Foreign exchange on translation
of foreign operations - 431 431 - (121) (121)
Pension actuarial (losses)/gains (2,846) - (2,846) 432 - 432
Taxation on pension 569 - 569 (100) - (100)
--------------------------------- ------- ------- ------- ------- ------- -------
Total comprehensive income
for the year 17,696 4,998 22,694 19,482 114,247 133,729
--------------------------------- ------- ------- ------- ------- ------- -------
Financial summary and performance
Financial summary
31 December 31 December
2014 2013
Pence pence
--------------------------------- ----------- -----------
Share price 530.00 529.00
NAV per share after proposed
final dividend 475.82 472.87
NAV per share after proposed
final dividend with debt
at fair value 465.62 467.87
Revenue return per share
- Investment trust 10.08 9.31
- Independent fiduciary services 6.87 6.96
Group revenue return per
share 16.95 16.27
Capital return per share 3.87 97.18
Dividends per share 15.70 15.00
--------------------------------- ----------- -----------
2014
%
------------------- ----
Ongoing charges(1) 0.47
Gearing(1) 5
(1) Source AIC.
Ongoing charges are based on the costs of the investment trust
and include the Henderson management fee of 0.30% of the NAV of the
investment trust. There is no performance related element to the
fee.
Performance
2014 2013 2012 2011 2010
% % % % %
---------------------------- ---- ---- ---- ----- ----
Share price total return(1) 3.1 28.3 32.0 (2.9) 30.5
NAV total return(1) 2.6 28.6 19.7 (1.6) 24.8
FTSE Actuaries All-Share
Index total return 1.2 20.8 12.3 (3.5) 14.5
---------------------------- ---- ---- ---- ----- ----
(1) Source AIC.
Chairman's statement and review of 2014
Performance
Our net asset value total return for the year to 31 December
2014 was 2.6%, compared to a total return of 1.2% for the FTSE
Actuaries All-Share Index. Net revenue return per share was 16.95p,
an increase of 4.2% over the previous year, as a result of a 8.3%
increase in the investment trust and a 1.3% decrease in independent
fiduciary services.
Dividend
The board is recommending a final dividend of 11.0p per ordinary
share (2013: 10.5p), which together with the interim dividend of
4.7p (2013: 4.5p) gives a total dividend of 15.7p (2013:
15.00p).
The final dividend will be paid, subject to shareholder
approval, on 23 April 2015 to holders on the register on the record
date of 20 March 2015.
The Corporation's policy continues to be to seek growth in both
capital and income. We attach considerable importance to the
dividend, which we aim to increase over a period, if not every
year, at a rate which is covered by earnings and which does not
inhibit the flexibility of our investment strategy. Our basis for
reporting earnings is more conservative than that of many
investment trusts, in that all of our expenses, including interest
costs, are charged fully to the revenue account.
Investment trust
The portfolio performed reasonably well during the year
outperforming the FTSE-All Share Index once again. James Henderson
describes the performance in 2014 in more detail in his report. We
had a less successful second half and with the benefit of
hindsight, we should have had more weight in the USA and our
position in the oil sector, particularly in small oil exploration
companies in the UK, was not well judged. More positively, holdings
in the pharmaceutical sector have again performed well and dividend
revenues have been particularly pleasing. We have retained a modest
level of gearing at 5% but continue to keep this under review.
Looking forward, the markets are particularly difficult to judge at
present. The fundamentals underlying many stocks suggest that there
is still value in the market and continuing strong cash generation
should see good dividend receipts. The reduction in the oil price
should have a positive impact in some sectors. Weighed against
these factors, continuing concerns about the strength of the global
recovery, particularly in Europe, introduce a level of uncertainty
that may prove to be a drag on markets. The portfolio continues to
be well diversified on a geographical and industry sector
basis.
Independent fiduciary services
The businesses are an integral part of Law Debenture's unique
business model. Performance in 2014 was solid - a more detailed
review of the independent fiduciary services businesses is set out
below.
125th anniversary
Law Debenture reached the age of 125 in December 2014. While we
have not sought to make too much of this, nevertheless it is a
milestone that should be noted. I am very proud to be the Chairman
of the City institution that is Law Debenture. Our shareholders
have benefited from consistently good performance and dividend
growth from the portfolio over many years. Not many will be aware,
I suspect, of just how ingrained is the reputation of Law Debenture
as an independent fiduciary within the City and more widely. That
is a testament to the professionalism of our Managing Director and
staff, whose important work often goes unseen and unheralded, but
is nevertheless important to the effective functioning of certain
sectors of the City's capital markets.
Regulatory matters - the Alternative Investment Fund Managers
('AIFM') Directive
The AIFM Directive requires certain funds, including investment
trusts, to appoint an appropriately regulated AIFM to provide
portfolio management, risk management, administration, accounting
and company secretarial services to the fund. Since all of these
functions, bar portfolio management, have traditionally been
performed by the Corporation, which unusually for an investment
trust has full time staff within the Group, the Corporation has
elected to be its own AIFM as permitted under the legislation. As
part of this, we have been required to appoint a depositary at not
insignificant cost to shareholders. The Corporation will, it goes
without saying, continue to comply with its legal and regulatory
obligations to the maximum extent necessary. Nevertheless, I am yet
to hear a satisfactory explanation for why investment trusts have
been caught by this Directive, nor have I found anybody in the
industry (or more widely) who can suggest what benefit shareholders
might derive from its adoption
The annual general meeting will be held at the Brewers Hall,
Aldermanbury Square, London, EC2V 7HR on 14 April 2015 and I look
forward to seeing as many as possible of you there.
Christopher Smith
Investment manager's review
Review
Returns from equities were positive during the year driven by
the expansion of the US economy. It was therefore US shares that
led the way and the dollar was strong.
Towards the end of the year the oil price dramatically fell as
OPEC did not cut back production despite of a build up in over
supply.
This fall has initially been met with investor concern; however,
over the longer term it will in aggregate be beneficial to
companies. It will reduce costs and will stimulate demand. For
instance the current fall in petrol prices is estimated to be a
GBP4bn windfall to car users in the UK in 2015, while it is
projected it will add 0.4% to US GDP over the year. During much of
2014, before the oil price fall, the worry was that GDP growth
could stall, particularly in Europe. This led to concerns that
industrial companies would face operational headwinds and share
prices in this area retreated. The large position in industrials in
the portfolio was a negative during the year, as was the exposure
to oil related companies. However, the exposure to overseas markets
and stocks, such as the pharmaceutical companies BTG and
AstraZeneca, meant that overall, the portfolio marginally
outperformed the FTSE All-Share. It should be remembered over a
five year period, the exposure to industrials has been a major
contributor to the portfolio's outperformance.
Biggest rises by value
Value appreciation
GBP'000
--- -------------------- -------------------
1 Applied Materials 2,654
--- -------------------- -------------------
2. BTG 2,641
--- -------------------- -------------------
3. Provident Financial 2,304
--- -------------------- -------------------
4. AstraZeneca 2,280
--- -------------------- -------------------
5. Microsoft 1,876
--- -------------------- -------------------
Biggest falls by value
Value depreciation
GBP'000
--- --------------------- -------------------
1. BP (2,750)
--- --------------------- -------------------
2. Indus Gas (2,747)
--- --------------------- -------------------
3. Providence Resources (2,233)
--- --------------------- -------------------
4. Rolls Royce (2,023)
--- --------------------- -------------------
5 BHP Billiton (1,910)
--- --------------------- -------------------
Investment Approach
The focus is on picking stocks that are long term growth
companies, trading at valuations which do not properly reflect
their long term prospects. The focus on providing good shareholder
returns through dividend growth and the international spread of
their earnings is an attractive mix. However, individual stocks
need to be blended so that the overall portfolio has genuine
diversity of underlying activities. Therefore we have a relatively
long list of stocks so that we can hold large, medium and small
companies as well as overseas equities when they bring something to
the mix that we cannot find in the UK market. An example of this
would be global oil services companies. The world leading companies
in this area such as Schlumberger, reside in the US.
The UK market last year underperformed global markets but over
the long term it has performed in line.
The UK market currently offers investors better value as
measured by the Price Earnings Ratio and a higher dividend yield
than other major markets.
Portfolio Activity
The general weakness in emerging markets equities was driven by
concerns over QE ending in the US. This has thrown up longer term
investment opportunities. During the year we purchased a holding in
Embraer, the Brazilian aerospace company that has excellent
products sold to a global client base. Templeton Emerging Markets
Investment Trust, which is on a reasonable discount to its asset
value, brings value to the overall blend of Law Debenture's
portfolio. In the UK market towards the year end, we increased a
position in Tesco at distressed prices. The problems the retailer
is facing are large but the poor sentiment towards the stock is
probably over exaggerated. We increased the position in selective
smaller companies such as Velocys, the gas to liquid, technology
company. Our holding in Shire was sold on the proposed bid that did
not materialise and the position in AstraZeneca was reduced as the
strength of its drug pipeline came to be more fully appreciated by
investors. However, as usual portfolio turnover remained low at
approximately 9% for the year
Outlook
Over the year the exposure to oil and commodity stocks has been
increased and with hindsight this has been a mistake as the oil
price has continued to weaken. The level of oversupply in oil over
demand is estimated to be 1 1/2 %. It is surprising that this level
of oversupply should result in a fall of over 50% in the price of
oil, especially as demand growth is expected to outstrip supply
growth in coming years, even before oil companies cut back on
production because of the oil price fall. This suggests that, over
time, the oil price will rise. However, the timing of any increase
is very difficult to predict. The portfolio will retain its
exposure to oil companies. The focus will be on stocks that can
survive through a sustained difficult period. These stocks bring
diversity to the portfolio and help to position it for the expected
recovery in energy prices. Meanwhile the industrial companies
should benefit from stronger economic growth and reduced cost
pressures. Industrial operating margins can rise further. These
companies are producing strong cash flows as a result of these
margins. Special dividends, share buybacks and the normal dividend
being increased will be the result. The strength of the balance
sheets of the companies held in the portfolio is high. This
positions them well to produce both good capital and income growth,
which underlies our confidence in the portfolio. As a result we
remain committed to equities and we are employing gearing of around
5%.
James Henderson
Henderson Global Investors Limited
Management review - independent fiduciary services
Results
Independent fiduciary services profit before tax decreased by
5.7% from GBP9.9million to GBP9.3million. Revenue return per share
decreased by 1.3% from 6.96p to 6.87p.
Independent fiduciary services businesses ("IFS")
Law Debenture is a leading provider of independent third party
fiduciary services, including corporate trusts (including trustee
and escrow banking), agency services, pension trusts, corporate
services, agent for service of process, whistleblowing services and
governance services to client boards and pension funds. The
businesses are monitored and overseen by a board comprising the
heads of the relevant business areas and two non-executive,
independent directors.
Review of 2014
The IFS performance was generally satisfactory, with some areas
performing strongly. As reported last year, 2013 revenues were
boosted by one-off receipts of fees accumulated but uncollected
over several years. In addition, interest costs were higher in 2014
as a result of the full year impact of the loan taken out in July
2013. This complicates comparison with 2014, which in fact
(excluding the one-offs) saw an increase in "business as usual"
profits compared to 2013.
The markets in which we operate were generally quite active and
levels of new appointments reflect this, although in some areas
these remain behind pre-recession levels. As a result, we continue
to experience downward pressure on fees as competition for new
appointments remains fierce in most of our markets, especially so
in the pensions area. Some sectors, such as service of process and
corporate trusts were very busy and Safecall, our whistleblowing
service, again had its best year so far. Market share remained
satisfactory and activity levels in pre-existing transactions,
where we are able to generate additional fees for time spent,
remained high.
In what was our 125th year as a trustee, it is clear from the
appointments we won in 2014 - some notable highlights are set out
below - that our services remain as relevant and highly valued as
ever by eminent national and multi-national bodies and corporations
throughout the world. As a testimony to our longevity, dignified
austerity and dependability, shareholders may be interested to know
that our oldest active trust - the Merchants Trust - is as old as
we are, dating back to 1889.
Corporate trusts, including trustee and escrow banking
Corporate trusts had a good year for new appointments, with the
trends that we saw in 2013 continuing: greater activity in the bond
market particularly in the European high yield bond market (where
medium sized companies are now looking to the capital markets
rather than their traditional bank lenders); and more long term
security trustee appointments such as in the airline sector.
We act as trustee of the Bank of England's own debt issuance
programme and early in 2014, the Bank issued US$2 billion 0.875%
Notes due 2017 under the programme. We were also appointed as
trustee on debt issues by a wide range of companies including
Aviva, Babcock International, BAT, Hammerson, HSBC Holdings, Legal
& General, National Grid, Pearson, TSB and Vodafone.
We have acted as trustee for many years for The Housing Finance
Corporation ("THFC"), which raises funds in the capital markets and
then on-lends to UK housing associations. THFC was selected by the
UK government to set up a new debt programme called Affordable
Housing Finance, which raises funds guaranteed by the UK Government
for affordable housing providers, and to which we were appointed
trustee.
We have also acted for International Finance Corporation ("IFC")
for many years and we were appointed in 2014 as trustee on a number
of new IFC projects including acting as offshore security trustee
on three solar energy projects in Jordan.
We were appointed as Delegate for several new sukuk bonds, which
have the benefit of a guarantee provided by The Islamic Development
Bank under its US$10 billion Trust Certificate Issuance
Programme.
Our recognised independence as an impartial third party has been
instrumental in enabling us to secure many escrow agent
appointments and our trustee and escrow banking team continues to
service our cash escrow, security trust and project finance
business.
Finally, we remained busy on post-issuance work including both
restructurings, liquidations and transaction amendments. This work
generates significant additional income.
Pension trusts and governance services
Our pension trusteeship service had a good year in a changing
market environment. An increased focus on defined contribution
schemes and the continued refinement of the needs of final salary
schemes provided an increasing demand for our services.
The performance of our sole trusteeship services, where we act
as the sole trustee of final salary schemes and deliver one-stop
governance cost effectively, continues to show progress. This
positive development, alongside the requirement for the providers
of workplace personal pensions to establish Independent Governance
Committees, has generated new opportunities for us.
Our governance and board effectiveness business completed its
fourth year in a highly competitive market that is still
developing. We continued to win assignments in the investment trust
and FTSE 250 sectors as well as reviewing several pension trustee
boards. Our corporate governance board evaluation tools are being
used widely, especially by our clients on pension fund trustee
boards. We have also published our fourth annual review of FTSE 350
board evaluation compliance.
Corporate services and agency solutions
Our long established and highly regarded service of process
business had another solid year with an increase in new
revenue.
The corporate services business (provision of corporate
directors, company secretary, accounting and administration of
special purpose vehicles) saw some good gains, including new
securitisations for Virgin Money and Unicredit Bank AG. We secured
appointments to several issuers with bonds traded on the London
Stock Exchange's Order Book for Retail Bonds market and we
continued to win new customers in the company secretarial, private
equity, pensions and corporate governance markets.
Our agency solutions team continues to provide CDO and CLO
administration, facility agency and other customised solutions
including data verification and data room services.
Safecall
It was another good year for our external whistleblowing service
with a further increase in the number of new appointments. The
demand for whistleblowing continues to remain strong both in the UK
and across Europe, particularly in the manufacturing sector, as
organisations recognise the value of an external whistleblowing
service. Notable appointments included Air Liquide, Rexam, Virgin
Atlantic, Yorkshire Water and City of Edinburgh Council.
Overseas
United States
The New York Trust Company produced mixed results. The separate
trustee business continued to grow and we are shepherding several
high profile litigation matters through the U.S. courts as trustee
for investors in the residential mortgage-backed security market.
We also secured appointment to the creditors' committee, as a
trustee for bondholders, in one of the largest U.S. leveraged
buy-out bankruptcies and we maintained our top ten ranking in the
U.S. trustee league tables (measuring business volumes). However,
we continue to face strong headwinds in the challenging
successor/bankruptcy trustee market.
The corporate services business, including Delaware Corporate
Services, continued to generate good returns.
Hong Kong
General business levels were quiet during the first half of the
year but picked up in the second half, notably in M&A related
escrow work. The service of process business continued to make a
strong contribution to revenues and we remain one of the leaders in
the employee share trust business - the continuing flow of PRC
related IPOs coming to market suggests that this is an area of
further potential. New management was taken on mid-year and has
identified some promising opportunities for the future in what is a
very competitive market.
Channel Islands
Although we had an increase in the number of service of process
appointments, 2014 generally saw a continuation in the difficult
market conditions for independent offshore corporate services.
However, enquiries received near the year end may signal a positive
change in activities and financial returns.
Outlook
We expect that 2015 will see limited growth in market activity
levels, since there are still wider macroeconomic uncertainties,
especially in Europe, that are preventing some players from
returning to the market. We will continue to keep under review the
range of services that we offer and remain open to any prospect
that might allow us safely to grow the IFS business, either by
expansion into areas where there is a need for an established,
trusted, independent third party, or through acquisition.
Caroline Banszky
Managing director
Statement of financial position
as at 31 December
2014 2013
-------------------------------------- -------- --------
GBP000 GBP000
-------------------------------------- -------- --------
Assets
Non current assets
Goodwill 2,215 2,167
Property, plant and equipment 131 207
Other intangible assets 45 223
Investments held at fair value
through profit or loss 600,894 595,173
Deferred tax assets 1,234 775
-------------------------------------- -------- --------
Total non current assets 604,519 598,545
-------------------------------------- -------- --------
Current assets
Trade and other receivables 7,491 6,787
Other accrued income and prepaid
expenses 4,679 4,963
Cash and cash equivalents 50,321 49,688
-------------------------------------- -------- --------
Total current assets 62,491 61,438
-------------------------------------- -------- --------
Total assets 667,010 659,983
-------------------------------------- -------- --------
Current liabilities
Trade and other payables 13,012 12,071
Short term borrowings 26,548 26,793
Corporation tax payable 632 951
Other taxation including social
security 613 655
Deferred income 4,027 4,059
Total current liabilities 44,832 44,529
-------------------------------------- -------- --------
Non current liabilities and deferred
income
Long term borrowings 39,472 39,445
Retirement benefit obligations 3,250 1,089
Deferred income 5,245 5,848
Total non current liabilities 47,967 46,382
-------------------------------------- -------- --------
Total net assets 574,211 569,072
-------------------------------------- -------- --------
Equity
Called up share capital 5,916 5,908
Share premium 8,622 8,283
Capital redemption 8 8
Own shares (1,686) (1,695)
Capital reserves 524,269 519,702
Retained earnings 36,463 36,678
Translation reserve 619 188
-------------------------------------- -------- --------
Total equity 574,211 569,072
-------------------------------------- -------- --------
Statement of cash flows
for the year ended 31 December
Operating activities *Restated
2014 2013
GBP000 GBP000
Operating profit before interest payable
and taxation 28,635 137,933
(Gains) on investments (4,567) (114,368)
Foreign exchange (49) 15
Depreciation of property, plant and
equipment 120 154
Amortisation of intangible assets 185 199
Increase in receivables (420) (1,526)
Increase in payables 291 1,303
Transfer (from)/to capital reserves (389) 150
Normal pension contributions in excess
of cost (685) (706)
Cash generated from operating activities 23,121 23,154
Taxation (1,408) (1,482)
Operating cash flow 21,713 21,672
---------------------------------------------- --------- ----------
Investing activities
Acquisition of property, plant and equipment (40) (109)
Expenditure on intangible assets (10) (57)
Purchase of investments (54,894) (101,534)
Sale of investments 53,997 100,222
Cash flow from investing activities (947) (1,478)
---------------------------------------------- --------- ----------
Financing activities
Interest paid* (2,896) (2,736)
Dividends paid (17,911) (16,768)
Proceeds of increase in share capital 347 164
Purchase of own shares 9 83
Net cash flow from financing activities (20,451) (19,257)
---------------------------------------------- --------- ----------
Net increase in cash and cash equivalents 315 937
---------------------------------------------- --------- ----------
Cash and cash equivalents at beginning
of period 22,895 22,201
Foreign exchange gains / (losses) on
cash and cash equivalents 563 (243)
Cash and cash equivalents at end of
period 23,773 22,895
---------------------------------------------- --------- ----------
* Interest paid has been included in financing activities. It
was previously included in operating activities.
Statement of changes in equity
Share Share Own Capital Translation Capital Retained
capital premium shares redemption reserve reserves earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------- --------- --------- ---------- ------------ ------------ ---------- ---------- ----------
Equity 1
January 2013 5,905 8,122 (1,778) 8 309 405,334 33,964 451,864
-------------------- --------- --------- ---------- ------------ ------------ ---------- ---------- ----------
Profit - - - - - 114,368 19,150 133,518
Foreign exchange - - - - (121) - - (121)
Actuarial
gain on pension
scheme (net
of tax) - - - - - - 332 332
-------------------- --------- --------- ---------- ------------ ------------ ---------- ---------- ----------
Total comprehensive
income - - - - (121) 114,368 19,482 133,729
Issue of
shares 3 161 - - - - - 164
Dividend
relating
to 2012 - - - - - - (11,471) (11,471)
Dividend
relating
to 2013 - - - - - - (5,297) (5,297)
Movement
in own shares - - 83 - - - - 83
Total equity
31 December
2013 5,908 8,283 (1,695) 8 188 519,702 36,678 569,072
-------------------- --------- --------- ---------- ------------ ------------ ---------- ---------- ----------
Equity 1
January 2014 5,908 8,283 (1,695) 8 188 519,702 36,678 569,072
-------------------- --------- --------- ---------- ------------ ------------ ---------- ---------- ----------
Profit - - - - - 4,567 19,973 24,540
Foreign exchange - - - - 431 - - 431
Actuarial
(loss) on
pension scheme
(net of tax) - - - - - - (2,277) (2,277)
-------------------- --------- --------- ---------- ------------ ------------ ---------- ---------- ----------
Total comprehensive
income - - - - 431 4,567 17,696 22,694
Issue of
shares 8 339 - - - - - 347
Dividend
relating
to 2013 - - - - - - (12,368) (12,368)
Dividend
relating
to 2014 - - - - - - (5,543) (5,543)
Movement
in own shares - - 9 - - - - 9
-------------------- --------- --------- ---------- ------------ ------------ ---------- ---------- ----------
Total equity
31 December
2014 5,916 8,622 (1,686) 8 619 524,269 36,463 574,211
-------------------- --------- --------- ---------- ------------ ------------ ---------- ---------- ----------
Segmental analysis
Independent fiduciary
Investment services Total
trust
2014 2013 2014 2013 2014 2013
---------------------- ------------ ---------------- ---------------- --------- ----------- --------- -----
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Revenue
Segment income 16,916 15,785 32,366 31,819 49,282 47,604
Other income 60 71 160 112 220 183
Cost of sales - - (5,291) (4,744) (5,291) (4,744)
Administration costs (2,606) (2,412) (17,625) (17,127) (20,231) (19,539)
14,370 13,444 9,610 10,060 23,980 23,504
Interest (net) (2,498) (2,481) (310) (194) (2,808) (2,675)
---------------------- ------------ ----------- ----------------- ------------- ----------- ----------------
Return, including
profit
on
ordinary activities
before
taxation 11,872 10,963 9,300 9,866 21,172 20,829
Taxation - - (1,199) (1,679) (1,199) (1,679)
---------------------- ------------ ----------- ----------------- ------------- ----------- ----------------
Return, including
profit
attributable to
shareholders 11,872 10,963 8,101 8,187 19,973 19,150
---------------------- ------------ ----------- ----------------- ------------- ----------- ----------------
Revenue return per
ordinary
share 10.08 9.31 6.87 6.96 16.95 16.27
---------------------- ------------ ----------- ----------------- ------------- ----------- ----------------
Assets 609,653 605,761 57,357 54,222 667,010 659,983
Liabilities (51,100) (53,320) (41,699) (37,591) (92,799) (90,911)
---------------------- ------------ ----------- ----------------- ------------- ----------- ----------------
Total net assets 558,553 552,441 15,658 16,631 574,211 569,072
---------------------- ------------ ----------- ----------------- ------------- ----------- ----------------
The capital element of the income statement is wholly attributable
to the investment trust.
Portfolio changes in geographical distribution
Valuation Appreciation/ Valuation
31 December Costs of Sales (depreciation) 31 December
2013 Purchases acquisition proceeds GBP000 2014
GBP000 GBP000 GBP000 GBP000 GBP000
--------------- ------------ ----------- ------------- ---------- --------------- ------------
United Kingdom 455,812 38,891 (141) (47,651) (9,171) 437,740
North America 49,223 1,195 (1) (2,891) 8,603 56,129
Europe 39,996 1,608 (2) (3,455) 457 38,604
Japan 16,955 - - - 507 17,462
Other Pacific 33,187 775 (4) - 4,663 38,621
Other - 12,425 (55) - (32) 12,338
--------------- ------------ ----------- ------------- ---------- --------------- ------------
595,173 54,894 (203) (53,997) 5,027 600,894
--------------- ------------ ----------- ------------- ---------- --------------- ------------
The financial information set out above does not constitute the
Corporation's statutory accounts for 2013 or 2014. Statutory
accounts for the years ended 31 December 2013 and 31 December 2014
have been reported on by the Independent Auditor. The Independent
Auditor's Reports on the Annual Report and Financial Statements for
2013 and 2014 were unqualified, did not draw attention to any
matters by way of emphasis, and did not contain a statement under
498(2) or 498(3) of the Companies Act 2006.
Statutory accounts for the year ended 31 December 2013 have been
filed with the Registrar of Companies. The statutory accounts for
the year ended 31 December 2014 will be delivered to the Registrar
in due course.
The financial information in this Annual Financial Report has
been prepared using the recognition and measurement principles of
International Accounting Standards, International Financial
Reporting Standards and Interpretations adopted for use in the
European Union (collectively Adopted IFRSs). The accounting
policies adopted in this Annual Financial Report have been
consistently applied to all the years presented and are consistent
with the policies used in the preparation of the statutory accounts
for the year ended 31 December 2014. The principal accounting
policies adopted are unchanged from those used in the preparation
of the statutory accounts for the year ended 31 December 2013.
Investment trust - 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 portfolio
diversified both geographically and by industry.
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 is as follows:
The Corporation carries on its business as a global investment
trust.
The Corporation's portfolio will typically contain between 70
and 150 listed investments. The portfolio is diversified both by
industrial sector and geographic location of investments in order
to spread investment risk.
There is no obligation to hold shares in any particular type of
company, industry or geographical location. The IFS businesses do
not form part of the investment portfolio and are outwith this
strategy.
Whilst performance is measured against local and UK indices, the
composition of these indices does not influence the construction of
the portfolio. As a consequence, it is expected that the
Corporation's investment portfolio and performance will from time
to time deviate from the comparator indices.
The Corporation's assets are invested internationally and
without regard to the composition of indices. There are some
guidelines, set by the board, on maximum or minimum stakes in
particular regions and all stakes are monitored in detail by the
board at each board meeting in order to ensure that sufficient
diversification is maintained.
Liquidity and long-term borrowings are managed with the aim of
improving returns to shareholders. The policy on gearing is to
adopt a level of gearing that balances risk with the objective of
increasing the return to shareholders. In pursuit of its investment
objective, investments may be held in, inter alia, equity shares,
collective investment products including 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. Investment in such instruments for
trading purposes is proscribed. It is permissible to hedge against
currency movements on both capital and income account, subject
again to prior authorisation of the board. Stock lending, 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 Corporation'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 Corporation's
portfolio, including gilts and cash. The value of a new acquisition
in any one company may not exceed 5% of total portfolio value
(including cash)
at the time the investment is made. Further additions shall not
cause a single holding to exceed 5%, and board approval must be
sought to retain a holding, should its value increase above the 5%
limit.
--The Corporation applies a ceiling on effective gearing of 50%.
While effective gearing will be employed in a typical range of 10%
net cash to 20% gearing, the board retains the ability to reduce
equity exposure so that net cash is above 10% if deemed
appropriate.
--The Corporation may not make investments in respect of which
there is unlimited liability.
Our business model is designed to position the Corporation to
best advantage in the investment trust sector. We aim to deliver
the investment trust's objective by skilled implementation of the
investment strategy complemented by maintaining and operating our
IFS businesses profitably and safely, while keeping them distinct
from the portfolio. The operational independence of the IFS means
that they can act flexibly and commercially. They provide a regular
flow of dividend income to the Corporation. This helps the board to
smooth out equity dividend peaks and troughs and is an important
element in
delivering the objective of steadily increasing income for
shareholders, fully covered by current revenues. In turn, 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 IFS.
Fee structure, ongoing charges and Investment Management
Agreement
Our portfolio of investments is managed under delegation by
James Henderson of Henderson Global Investors Limited ('Henderson')
under a contract terminable by either side on six months' notice.
On a fully discretionary basis, Henderson is responsible for
implementing the Corporation'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 the IFS), calculated on the basis
adopted in the audited financial statements. Underlying management
fees of 1% on the Corporation's holdings in Henderson Japanese and
Pacific OEICs are
fully rebated. This means that the Corporation continues to
maintain one of the most competitive fee structures in the
investment trust sector and this, combined with the good
performance of Henderson as our investment manager, has led the
board to conclude that the continuing appointment of Henderson as
the Corporation's investment manager is in the best interests of
shareholders.
The agreement with Henderson does not cover custody which is the
responsibility of the depositary. Nor does it cover the preparation
of data associated with investment performance, or record keeping,
both of which are maintained by the Corporation.
Investment trusts are required to publish their ongoing charges.
This is the cost of operating the trust and includes the investment
management fee, depositary and custody fees, investment performance
data, accounting, company secretary and back office administration.
Law Debenture's latest published level of ongoing charges is one of
the lowest in the marketplace at 0.47%. No performance fees are
paid to the investment manager.
Future trends and factors
Law Debenture will continue to strive to deliver its business
objectives for both the investment trust and the IFS.
The investment manager's review and the IFS management review
respectively set out some views on future developments.
Gearing
During the year, the Corporation retained a modest gearing of 5%
as described in the investment manager's review above.
Key performance indicators ('KPI')
The KPIs used to measure the progress and performance of the
group are:
-- net asset value total return per share (combining the capital
and income returns of the group);
-- the discount/premium in share price to NAV; and
-- the cost of running the portfolio as a percentage of its value.
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.
Top 20 equity holdings by value
2014 2014 2013 2013
----- ------------------ ------- ---------- ---------- -----
Value % of % of
----- ------------------ ------- ---------- ---------- -----
Rank Company GBP000 portfolio portfolio Rank
----- ------------------ ------- ---------- ---------- -----
1 Senior 17,419 2.90 2.96 1
----- ------------------ ------- ---------- ---------- -----
2 GKN 15,563 2.59 2.83 2
----- ------------------ ------- ---------- ---------- -----
3 BP 14,371 2.39 2.67 3
----- ------------------ ------- ---------- ---------- -----
Royal Dutch
4 Shell 13,395 2.23 2.30 4
----- ------------------ ------- ---------- ---------- -----
5 Rio Tinto 12,746 2.12 1.86 8
----- ------------------ ------- ---------- ---------- -----
6 Amlin 11,669 1.94 1.88 7
----- ------------------ ------- ---------- ---------- -----
7 HSBC 11,259 1.87 1.95 6
----- ------------------ ------- ---------- ---------- -----
8 GlaxoSmithKline 10,320 1.72 2.03 5
----- ------------------ ------- ---------- ---------- -----
9 Smith (DS) 8,862 1.47 1.68 10
----- ------------------ ------- ---------- ---------- -----
10 Bellway 8,712 1.45 1.19 19
----- ------------------ ------- ---------- ---------- -----
11 Hill & Smith 8,700 1.45 1.30 14
----- ------------------ ------- ---------- ---------- -----
12 BAE Systems 8,487 1.41 1.31 13
----- ------------------ ------- ---------- ---------- -----
13 Velocys 8,320 1.38 1.09 25
----- ------------------ ------- ---------- ---------- -----
14 Reed Elsevier 8,235 1.37 1.13 24
----- ------------------ ------- ---------- ---------- -----
15 IP Group 8,232 1.37 0.97 32
----- ------------------ ------- ---------- ---------- -----
Applied Materials
16 (USA) 7,991 1.33 0.90 36
----- ------------------ ------- ---------- ---------- -----
17 Dunelm 7,850 1.31 1.29 15
----- ------------------ ------- ---------- ---------- -----
18 Hiscox 7,662 1.28 1.40 11
----- ------------------ ------- ---------- ---------- -----
19 Glencore 7,468 1.24 - -
----- ------------------ ------- ---------- ---------- -----
20 Marshalls 7,199 1.20 0.19 110
----- ------------------ ------- ---------- ---------- -----
34.02
----- ------------------ ------- ---------- ---------- -----
Other significant holdings by value
2014 2014 2013
----- -------------------- ------- ---------- ----------
Value % of % of
----- -------------------- ------- ---------- ----------
Rank Company GBP000 portfolio portfolio
----- -------------------- ------- ---------- ----------
Henderson Japan
1 Capital Growth* 14,632 2.43 2.42
----- -------------------- ------- ---------- ----------
Henderson Asia
Pacific Capital
2 Growth* 13,516 2.25 2.11
----- -------------------- ------- ---------- ----------
Baillie Gifford
3 Pacific* 12,776 2.13 1.86
----- -------------------- ------- ---------- ----------
First State
4 Asia Pacific* 11,516 1.92 1.61
----- -------------------- ------- ---------- ----------
Templeton Emerging
Markets Investment
5 Trust 8,357 1.39 -
----- -------------------- ------- ---------- ----------
Herald Investment
6 Trust 5,559 0.93 0.98
----- -------------------- ------- ---------- ----------
Better Capital
7 (2012) 3,700 0.62 0.92
----- -------------------- ------- ---------- ----------
8 Foresight Solar 3,127 0.52 0.49
----- -------------------- ------- ---------- ----------
Scottish Oriental
Smaller Company
9 Trust 813 0.14 -
----- -------------------- ------- ---------- ----------
12.33
----- -------------------- ------- ---------- ----------
*Open ended investment companies.
Portfolio by sector 2014
Oil & gas 8.7%
-------------------- ------
Basic materials 8.0%
-------------------- ------
Industrials 25.4%
-------------------- ------
Consumer goods 11.3%
-------------------- ------
Health care 8.0%
-------------------- ------
Consumer services 8.3%
-------------------- ------
Telecommunications 0.5%
-------------------- ------
Utilities 2.9%
-------------------- ------
Technology 1.8%
-------------------- ------
Financials 25.1%
-------------------- ------
Portfolio by sector 2013
Oil & gas 10.4%
-------------------- ------
Basic materials 6.3%
-------------------- ------
Industrials 25.1%
-------------------- ------
Consumer goods 10.7%
-------------------- ------
Health care 8.8%
-------------------- ------
Consumer services 9.3%
-------------------- ------
Telecommunications 0.6%
-------------------- ------
Utilities 3.3%
-------------------- ------
Technology 2.2%
-------------------- ------
Financials 23.3%
-------------------- ------
Geographical distribution of portfolio 2014
United Kingdom 72.8%
---------------- ------
North America 9.4%
---------------- ------
Europe 6.4%
---------------- ------
Japan 2.9%
---------------- ------
Other Pacific 6.4%
---------------- ------
Other 2.1%
---------------- ------
Geographical distribution of portfolio 2013
United Kingdom 76.6%
---------------- ------
North America 8.3%
---------------- ------
Europe 6.7%
---------------- ------
Japan 2.8%
---------------- ------
Other Pacific 5.6%
---------------- ------
Acquisition of own shares
During the year, the Corporation 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 Corporation's issued share capital, if circumstances are
appropriate. On 11 March 2014, a subsidiary acquired 104,629 of the
Corporation's shares on the open market at 5.365094 pence per share
in anticipation of fulfilling awards made under the Deferred Share
Plan.
Significant financial issues relating to the 2014 accounts.
No new significant issues arose during the course of the audit.
As reported in previous years, an area of consideration continues
to be consideration of bad debt provisions.
Management makes an estimate of a number of bad debt provisions
for non-collection of fees as part of the risk management and
control framework. The audit committee has received reports from
management describing the basis for assumptions used.
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 audit committee has
received assurance on these matters from management.
The audit 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 audit
committee was able to conclude that the financial statements
themselves and the annual report as a whole are fair, balanced and
understandable and that conclusion has been reported to the
board.
Total voting rights and share information
The Corporation has an issued share capital at 26 February of
118,314,903 ordinary shares with voting rights and no restrictions
and no special rights with regard to control of the Corporation.
There are no other classes of share capital and none of the
Corporation's issued shares are held in treasury. Therefore the
total number of voting rights in The Law Debenture Corporation
p.l.c. is 118,314,903.
Borrowings
2014 2013
----------------------- ------- -------
GBP000 GBP000
----------------------- ------- -------
Short term borrowings
----------------------- ------- -------
Bank overdraft 26,548 26,793
----------------------- ------- -------
The Corporation has an uncommitted overdraft facility of
GBP30,000,000, repayable on demand, provided by HSBC Bank plc which
is secured by a floating charge which ranks pari passu with a
charge given in respect of the debenture. At 31 December 2014, fair
value is the same as book value.
The uncommitted facility has been drawn down in US dollars and
interest was payable at 1.5% above HSBC's bank rate.
2014 2013
------------------------------------------------ ------- -------
GBP000 GBP000
------------------------------------------------ ------- -------
Long term borrowings
------------------------------------------------ ------- -------
Long term borrowings are repayable as follows:
------------------------------------------------ ------- -------
In more than five years
------------------------------------------------ ------- -------
Secured
------------------------------------------------ ------- -------
6.125% guaranteed secured bonds 2034 39,472 39,445
------------------------------------------------ ------- -------
The 6.125% bonds were issued by Law Debenture Finance p.l.c. and
guaranteed by the Corporation. The GBP40 million nominal tranche,
which produced proceeds of GBP39.1 million, is constituted by Trust
Deed dated 12 October 1999 and the Corporation's guarantee is
secured by a floating charge on the undertaking and assets of the
Corporation. The stock is redeemable at its nominal amount on 12
October 2034. Interest is payable semi-annually in equal
instalments on 12 April and 12 October in each year.
The 6.125% bonds are stated in the statement of financial
position at book value. Restating them at a fair value of GBP51.5
million at 31 December 2014 (2013: GBP45.3 million) has the effect
of decreasing the year end NAV by 10.20p (2013: 5.00p). The
estimated fair value is based on the redemption yield of the
reference gilt (UK Treasury 4.5% 2034) plus a margin derived from
the spread of BBB UK corporate bond yields over UK gilt yields.
Related party transactions
The related party transactions between the Corporation and its
wholly owned subsidiary undertakings are summarised as follows:
2014 2013
----------------------------------------------------------- ------- -------
GBP000 GBP000
----------------------------------------------------------- ------- -------
Dividends from subsidiaries 6,500 2,500
----------------------------------------------------------- ------- -------
Interest on intercompany balances charged by subsidiaries 2,656 2,642
----------------------------------------------------------- ------- -------
Management charges from subsidiaries 192 198
----------------------------------------------------------- ------- -------
Interest on intercompany balances charged to subsidiaries 1,238 4,950
----------------------------------------------------------- ------- -------
Principal risks and uncertainties - investment trust
The principal risks facing the group in respect of its financial
instruments remain unchanged from 2013 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 2014 fell or rose by
10%, the impact on the group's total profit or loss for the year
would have been GBP60.1 million (2013: GBP59.5 million).
Corresponding 10% changes in the valuation of the investment
portfolio on the Corporation's total profit or loss for the year
would have been the same.
-- 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:
2014 2014 2014 2013 2013 2013
------------- ------------ ------------- --------------- ------------ ------------- ---------------
Investments Net monetary Total currency Investments Net monetary Total currency
assets exposure assets exposure
------------- ------------ ------------- --------------- ------------ ------------- ---------------
Group
------------- ------------ ------------- --------------- ------------ ------------- ---------------
GBPm GBPm GBPm GBPm GBPm GBPm
------------- ------------ ------------- --------------- ------------ ------------- ---------------
US Dollar 55.4 7.7 63.1 44.3 4.9 49.2
------------- ------------ ------------- --------------- ------------ ------------- ---------------
Canadian
Dollar 4.7 - 4.7 4.9 - 4.9
------------- ------------ ------------- --------------- ------------ ------------- ---------------
Euro 22.8 1.2 24.0 28.2 0.4 28.6
------------- ------------ ------------- --------------- ------------ ------------- ---------------
Danish
Krone 2.5 - 2.5 1.6 - 1.6
------------- ------------ ------------- --------------- ------------ ------------- ---------------
Swedish
Krona 1.2 - 1.2 1.2 - 1.2
------------- ------------ ------------- --------------- ------------ ------------- ---------------
Swiss Franc 12.1 - 12.1 11.6 - 11.6
------------- ------------ ------------- --------------- ------------ ------------- ---------------
Hong Kong
Dollar - 0.4 0.4 - 0.5 0.5
------------- ------------ ------------- --------------- ------------ ------------- ---------------
Japanese
Yen 2.8 - 2.8 2.6 - 2.6
------------- ------------ ------------- --------------- ------------ ------------- ---------------
101.5 9.3 110.8 94.4 5.8 100.2
------------- ------------ ------------- --------------- ------------ ------------- ---------------
The group US dollar net monetary assets is that held by the US
operations of GBP34.2 million less the US dollar short term
borrowings of GBP26.5 million, which represents the fair value of
the borrowings at 31 December 2014. The short term borrowings were
designated as a hedging investment to hedge the net investment in
US operations at inception in July 2013. The hedge has been
reviewed on an ongoing basis and it has been effective at all times
since inception. The gain or loss on the hedging instrument is
recognised in the translation reserve and set off against the gain
or loss on the translation of the net investment in US
operations.
2014 2014 2014 2013 2013 2013
----------------- ------------ ------------- --------------- ------------ ------------- ---------------
Investments Net monetary Total currency Investments Net monetary Total currency
assets exposure assets exposure
----------------- ------------ ------------- --------------- ------------ ------------- ---------------
Corporation
----------------- ------------ ------------- --------------- ------------ ------------- ---------------
GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ------------ ------------- --------------- ------------ ------------- ---------------
US Dollar 55.4 (26.5) 28.9 44.3 (26.8) 17.5
----------------- ------------ ------------- --------------- ------------ ------------- ---------------
Canadian Dollar 4.7 - 4.7 4.9 - 4.9
----------------- ------------ ------------- --------------- ------------ ------------- ---------------
Euro 22.8 0.9 23.7 28.2 0.2 28.4
----------------- ------------ ------------- --------------- ------------ ------------- ---------------
Danish Krone 2.5 - 2.5 1.6 - 1.6
----------------- ------------ ------------- --------------- ------------ ------------- ---------------
Swedish Krona 1.2 - 1.2 1.2 - 1.2
----------------- ------------ ------------- --------------- ------------ ------------- ---------------
Swiss Franc 12.1 - 12.1 11.6 - 11.6
----------------- ------------ ------------- --------------- ------------ ------------- ---------------
Japanese Yen 2.8 - 2.8 2.6 - 2.6
----------------- ------------ ------------- --------------- ------------ ------------- ---------------
101.5 (25.6) 75.9 94.4 (26.6) 67.8
----------------- ------------ ------------- --------------- ------------ ------------- ---------------
The holdings in the Henderson Japan Capital Growth, Henderson
Pacific Capital Growth, Baillie Gifford Pacific and First State
Asia Pacific OEICs and Templeton Emerging Markets Investment Trust
and Scottish Oriental Smaller Companies Trust are denominated in
sterling but have underlying assets in foreign currencies
equivalent to GBP61.6 million (2013: GBP47.6 million). Investments
made in the UK and overseas have underlying assets and income
streams in foreign currencies which cannot be determined and this
has not been included in the sensitivity analysis. If the value of
all other currencies at 31 December 2014 rose or fell by 10%
against sterling, the impact on the group's total profit or loss
for the year would have been GBP16.3 million (2013: GBP14.2
million). Corresponding 10% changes in currency values on the
Corporation'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:
2014
Sterling HK Dollars US Dollars Euro
-------------- --------- ----------- ----------- -----
GBPm GBPm GBPm GBPm
-------------- --------- ----------- ----------- -----
Floating
rate assets 14.5 0.4 34.2 1.2
--------------- --------- ----------- ----------- -----
2013
Sterling HK Dollars US Dollars Euro
-------------------- --------- ----------- ----------- -----
GBPm GBPm GBPm GBPm
-------------------- --------- ----------- ----------- -----
Floating rate
assets 17.1 0.5 31.7 0.4
-------------------- --------- ----------- ----------- -----
Fixed rate assets
-------------------- --------- ----------- ----------- -----
Bonds
-------------------- --------- ----------- ----------- -----
SSE 5.75% 05/02/14 2.3
-------------------- --------- ----------- ----------- -----
National Grid
6.125% 15/04/14 5.4
-------------------- --------- ----------- ----------- -----
Total 7.7
-------------------- --------- ----------- ----------- -----
Weighted average fixed rate to maturity based on fair value
5.82%.
The group holds cash and cash equivalents on short term bank
deposits and money market funds and has short term borrowings.
Interest rates tend to vary with bank base rates. The investment
portfolio is not directly exposed to interest rate risk.
2014 2013
US Dollars US Dollars
--------------------------- ------------ ------------
GBPm GBPm
--------------------------- ------------ ------------
Floating rate liabilities
--------------------------- ------------ ------------
Short term borrowings 26.5 26.8
--------------------------- ------------ ------------
Interest on the short term borrowings is 1.5% above HSBC's base
rate, the weighted average rate during the year was 1.59%
(2013:1.61%).
2014 2013
Sterling Sterling
----------------------------- ---------- ----------
GBPm GBPm
----------------------------- ---------- ----------
Total
----------------------------- ---------- ----------
Fixed rate liabilities* 39.5 39.4
----------------------------- ---------- ----------
Weighted average fixed rate 6.125% 6.125%
----------------------------- ---------- ----------
*Fixed until 2034.
The group holds cash and cash equivalents on short term bank
deposits and money market funds and has short term borrowings.
Interest rates tend to vary with bank base rates. The investment
portfolio is not directly exposed to interest rate risk.
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
GBP183,000 credit (2013: GBP173,000 credit). It is assumed that
interest rates are unlikely to fall below the current level.
The Corporation holds cash and cash equivalents on short term
bank deposits and money market funds and has short term borrowings.
Amounts owed to subsidiary undertakings include GBP40 million at a
fixed rate. Interest rates on cash and cash equivalents and amounts
due to subsidiary undertakings at floating rates tend to vary with
bank base rates. A 1.0% increase in interest rates would have
affected the Corporation's profit or loss for the year by
GBP142,000 charge (2013: GBP27,000 charge). 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
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 guidelines
only permit investment in equities and fixed interest securities
quoted in major financial markets. In addition, cash balances and
overdraft facilities are maintained commensurate with likely future
settlements. The maturity of the group's existing borrowings is set
out below
Credit 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 GBP57.8 million (2013: GBP56.5
million). The Corporation's maximum exposure to credit risk arising
from financial assets is GBP8.0 million (2013: GBP69.5
million).
Trade and other receivables not impaired but past due by the
following:
2014 2013
------------------------ ------- -------
GBP000 GBP000
------------------------ ------- -------
Between 31 and 60 days 1,533 1,706
------------------------ ------- -------
Between 61 and 90 days 493 149
------------------------ ------- -------
More than 91 days 1,950 509
------------------------ ------- -------
Total 3,976 2,364
------------------------ ------- -------
At 31 December 2014, trade and other receivables which were
impaired and for which there was a bad debt provision totalled
GBP272,000 (2013: GBP347,000) (Corporation: GBPnil (2013:
GBP14,000)). All the impaired trade and other receivables were more
than 91 days past due.
Trade and other payables
2014 2013
------------------------------------------------------- ------- -------
GBP000 GBP000
------------------------------------------------------- ------- -------
Due in less than one month 12,448 10,863
------------------------------------------------------- ------- -------
Due in more than one month and less than three months 564 552
------------------------------------------------------- ------- -------
13,012 11,415
------------------------------------------------------- ------- -------
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
6.125% guaranteed secured bonds 2034.
Principal risks and uncertainties - IFS businesses
The principal risks of the IFS arise where transactions to which
we provide a service come under stress - say by going into default,
or where re-financings or other transaction amendments are
required. Such risks may arise from the wider economic pressures on
some sectors, borrowers and regions. To mitigate these risks, we
work closely with our legal advisers and where appropriate,
financial advisers, both in the set up phase to ensure that we have
as many protections as practicable and on a continuing basis.
The single KPI of the IFS is revenue return per share, which is
reported within the financial summary and performance table.
Directors' responsibility statement pursuant to DTR4
The directors confirm that to the best of their knowledge:
the group financial statements have been prepared in accordance
with IFRSs and Article 4 of the IAS Regulation and give a true and
fair view of the assets, liabilities, financial position and profit
or loss of the group; and
the annual report includes a fair review of the development and
performance of the business and the position of the group and
parent company, together with a description of the principal risks
and uncertainties that they face.
Copies of the annual report will be available from the
Corporation's registered office or on the above website link once
published on 9 March 2015.
By order of the board
Law Debenture Corporate Services Limited
Secretary
26 February 2015
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR UVVKRVRAUUAR
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