TIDMLWDB
RNS Number : 3072R
Law Debenture Corp PLC
28 February 2023
The Law Debenture Corporation p.l.c.
28 February 2023
Multiple award wins and share price outperformance over 1, 3, 5
and 10 years
The Law Debenture Corporation p.l.c. ("Law Debenture" or the
"Company") releases its results for the year ended 31 December
2022.
Highlights:
-- Share price total return marginally outperformed the FTSE
Actuaries All-Share Index with a total return of 0.4%
for 2022.
-- NAV total return with debt and Independent Professional
Services ("IPS") business at fair value for FY 2022 of
0.6% (-6.8% with debt at par).
-- Another period of consistent performance from IPS with
net revenue increasing by 8.6%, profit before tax up by
8.1% and valuation up 18.7% to a record GBP201.7 million.
-- The Company issued 5.2 million new Ordinary Shares at
a premium to NAV during 2022, to existing and new investors,
with net proceeds of GBP41.4 million to support ongoing
investment.
-- Continued low ongoing charges of 0.49%(1,) compared to
the industry average of 1.04%(2) .
Winner of Investment Week's UK Equity Income Investment Trust of
the Year for 2022 (second year running); winner in UK Equity -
Active category at the AJ Bell Fund and Investment Awards 2022 and
winner for Best Investment Trust for Income at the 2022 Shares
Awards.
Dividend Highlights
-- 2022 full year dividend increased by 5.2% to 30.5 pence
per Ordinary Share (2021: 29.0 pence per Ordinary Share).
-- Dividend yield of 3.7% (based on our closing share price
of 827 pence on 24 February 2023) , proposed Q4 dividend
of 8.75 pence per Ordinary Share.
-- 7.91% CAGR in dividends over last ten years reflecting
strong IPS cashflow and good portfolio performance.
Investment Portfolio Highlights
-- Consistent share price and NAV (with IPS and debt at fair
value) outperformance of the benchmark over three, five
and ten years (see table below).
-- Strong long-term record with share price total return
outperforming FTSE Actuaries All-Share over 1, 3, 5 and
10 years.
-- Revenue from the portfolio of GBP 34.4 m (December 2022:
GBP 26.2 m), representing growth of 31 %.
1 year 3 years 5 years 10 years
% % % %
NAV total return(3) (with IPS
at fair value and debt at par) (6.8) 16.8 30.3 141.5
------- -------- -------- ---------
NAV total return(3) (with IPS
and debt at fair value) 0.6 26.0 39.9 154.6
------- -------- -------- ---------
FTSE Actuaries All-Share Index
Total Return(4) 0.3 7.1 15.5 88.2
------- -------- -------- ---------
Share price total return(4) 0.4 37.7 51.6 161.2
------- -------- -------- ---------
Change in Retail Price Index(5) 13.4 23.5 29.6 46.0
------- -------- -------- ---------
Please note that past performance cannot be relied on as a guide
to future performance. The value of investments and any income from
them can go down as well as up. Your capital is at risk.
IPS Highlights
-- The Company's leading wholly-owned independent provider
of professional services is a key differentiator to other
investment trusts.
-- Accounts for c.21% of 2022 NAV but has funded approximately
34% of dividends paid by the Company in the last 10 years
.
-- IPS has now delivered five consecutive years of growth
with a 5 year net PBT CAGR of 8.2% and a 2022 valuation
of GBP201.7 million up 113 % since 2017.
Longer Term Track Record
-- 134 years of history with a long-term track record of
valuation creation for shareholders.
-- 114% aggregate increase in the dividend over the last
10 years (7.91% CAGR).
-- 44 years of increasing or maintaining dividends to shareholders.
Robert Hingley, Chairman, said:
"Law Debenture aims to provide a steadily increasing income for
our shareholders whilst achieving long-term capital growth in real
terms. In 2022, we have continued to make progress, exemplified
through an IPS valuation uplift and another good increase in our
full-year dividend of 5.2%. I am pleased with the consistent
long-term outperformance of the share price total return of our
benchmark.
"We are confident that, in the long term, the combination of a
robust and well-positioned equity portfolio and continued growth in
our IPS business will deliver attractive returns for our
shareholders."
Denis Jackson, Chief Executive Officer, commented:
"2022 has been a creditable overall year for Law Debenture
despite the continued macroeconomic uncertainty. Capital has
largely been preserved in a year when many global stock markets
fell sharply, and we had our 44th year of maintaining or increasing
dividends.
"Law Debenture is resilient by design. The combination of IPS
with the Investment Portfolio offers strong flexibility in stock
picking and is a well proven model. Though we are cognisant that
2023 will present challenges, I am cautiously optimistic about the
Company's progress this year and beyond, and our ongoing investment
in IPS leaves it well positioned for medium-term growth in-line
with our mid to high single percentage target."
Investment Portfolio
Our portfolio of investments is managed by James Henderson and
Laura Foll of Janus Henderson Investors.
Our objective is to achieve long-term capital growth in real
terms and steadily increasing income. The aim is to achieve a
higher rate of total return than the FTSE Actuaries All-Share Index
Total Return through investing in a diversified portfolio of
stocks.
Independent Professional Services
We are a leading provider of independent professional services,
built on three excellent foundations: our Pensions, Corporate Trust
and Corporate Services businesses. We operate internationally, with
offices in the UK, New York, Ireland, Hong Kong, Delaware and the
Channel Islands.
Companies, agencies, organisations and individuals throughout
the world rely upon Law Debenture to carry out our duties with the
independence and professionalism
upon which our reputation is built.
The Law Debenture Corporation
Denis Jackson, Chief Executive
Officer
Hester Scotton, Chief Financial
Officer
Trish Houston, Chief Operating
Officer +44 (0)20 7606 5451
Tulchan Communications (Financial
PR)
David Allchurch
Stephanie Mackrell +44 (0)20 7353 4200
(1) Calculated based on data held by Law Debenture for the year
ended 31 December 2022.
(2) Source: Association of Investment Companies (AIC) industry
average as at 31 December 2022.
(3) NAV is calculated in accordance with the AIC methodology,
based on performance data held by Law Debenture including fair
value of the IPS business and long-term borrowings. NAV is shown
with debt measured at par and with debt measured at fair value and
both total returns account for shareholder returns through
dividends.
(4) Source: Refinitiv.
(5) Source: Office for National Statistics.
ANNUAL FINANCIAL REPORT
YEARED 31 DECEMBER 2022 (AUDITED)
This is an announcement of the Annual Financial Report of The
Law Debenture Corporation p.l.c. as required to be published under
DTR 4 of the FCA Listing Rules.
The Directors recommend a final dividend of 8.75p per share
making a total for the year of 30.5p. Subject to the approval of
shareholders, the final dividend will be paid on 13 April 2023 to
holders on the register of the record date of 10 March 2023. The
Annual Financial Report has been prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by
the UK.
The financial information set out in this Annual Financial
Report does not constitute the Company's statutory accounts for
2021 or 2022. Statutory accounts for the years ended 31 December
2021 and 31 December 2022 have been reported on by the Independent
Auditor. The Independent Auditor's Reports on the Annual Report and
Financial Statements for 2021 and 2022 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 2021 have been
filed with the Registrar of Companies. The statutory accounts for
the year ended 31 December 2022 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 UK
(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 2022. The principal accounting policies adopted are
unchanged from those used in the preparation of the statutory
accounts for the year ended 31 December 2021.
Financial summary
31 December 31 December
2022 2021
GBP000 GBP000 Change
Net Asset Value - with debt
and IPS at fair value (1*) 972,566 964,493 0.84%
------------ ------------ ---------
Total Net Assets per the statement
of financial position 799,067 878,837 (9.08%)
------------ ------------ ---------
Pence Pence
------------ ------------ ---------
Net Asset Value (NAV) per share
at fair value (1*) 761.69 787.83 (3.3%)
------------ ------------ ---------
Revenue return per share
------------ ------------ ---------
Investment Portfolio 24.06 18.09 33.0%
------------ ------------ ---------
Independent professional services 10.38 10.00 3.8%
------------ ------------ ---------
Group revenue return per share 34.44 28.09 22.6%
------------ ------------ ---------
Capital return/(loss) per share (103.17) 94.60 (209.1%)
------------ ------------ ---------
Dividends per share 30.50 29.00 5.2%
------------ ------------ ---------
Share price (4) 771 799 (3.5%)
------------ ------------ ---------
% %
------------ ------------ ---------
Ongoing charges (3*) 0.49% 0.50%
------------ ------------ ---------
Gearing (3) 12% 13%
------------ ------------ ---------
Premium/(discount)(*) 1.22% 1.42%
------------ ------------ ---------
Performance
1 year 3 years 5 years 10 years
% % % %
NAV total return(2*) (with IPS
at fair value and debt at par) (6.8) 16.8 30.3 141.5
------- -------- -------- ---------
NAV total return(2*) (with IPS
and debt at fair value) 0.6 26.0 39.9 154.6
------- -------- -------- ---------
FTSE Actuaries All-Share Index
Total Return(4) 0.3 7.1 15.5 88.2
------- -------- -------- ---------
Share price total return(4*) 0.4 37.7 51.6 161.2
------- -------- -------- ---------
Change in Retail Price Index(5) 13.4 23.5 29.6 46.0
------- -------- -------- ---------
* Items marked "*" are considered to be alternative performance
measures and are described in more detail on page 152 of the Annual
Report.
1 Please refer below for calculation of net asset value. Please
note change in NAV per share in the financial summary does account
for the effect of dividends on total return.
2 NAV is calculated in accordance with the AIC methodology,
based on performance data held by Law Debenture including fair
value of the IPS business and long-term borrowings. NAV is shown
with debt measured at par and with debt measured at fair value and
both total returns account for shareholder returns through
dividends.
3 Ongoing charges are calculated based on AIC guidance, using
the administrative costs of the investment trust and include the
Janus Henderson Investors' management fee, charged at the annual
rate of 0.30% of the NAV. There is no performance related element
to the fee. Gearing is described in the strategic report below and
in our alternative performance measures in the annual report.
4 Source: Refinitiv.
5 Source: Office for National Statistics.
Chairman's statement
Performance
I am pleased to report that Law Debenture has performed
creditably in the midst of the ongoing global economic uncertainty.
Rising interest rates and inflation, combined with tumultuous
domestic politics and the ongoing war in Ukraine, have resulted in
market volatility and low risk appetite. Despite these headwinds,
the combination of our diversified Portfolio and another good IPS
performance have ensured that Law Debenture continues to deliver on
its commitment to produce capital growth over the longer term and
steadily increasing income to benefit all our shareholders.
Our benchmark, the FTSE Actuaries All-Share Index, delivered a
0.3% total return, and we are satisfied that the Company's share
price total return marginally outperformed this with a total return
of 0.4% for 2022. The Net Assets Value ('NAV') with debt and the
independent professional services ('IPS') at fair value delivered a
return of 0.6%.
The highlight was receiving recognition for all the hard work of
our great team of people from the investment community in the shape
of three awards. At the 2022 Shares Awards, we were recognised as
the Best Investment Trust for Income, and it was also a great
honour to be the recipient of the UK Equity Income Investment Trust
of the Year award for the second year running. We also came out on
top in the UK Equity - Active category at the AJ Bell Fund and
Investment Awards. The triple success demonstrates the excellent
short- and longer-term record of our investment managers, and the
continued resilience, long-term outperformance and dividend growth
offered by our Trust.
Dividend
We retain a proud record of increasing or maintaining our
dividend payments for the 44th year in a row. The current climate
has naturally affected yields from our Investment Portfolio, and it
is likely that the enduring impact of the past year's difficulties
will continue to affect dividends across capital markets. However,
the consistent and reliable cash flows from our diversified IPS
business have helped ensure that we can continue our strong
dividend record.
Subject to your approval, we propose paying a final dividend of
8.75 pence per ordinary share. The dividend will be paid on 13
April 2023 to holders on the register on the record date of 10
March 2023. This will provide shareholders with a total dividend of
30.50 pence per share for 2022, an increase of 5.2% compared with
2021.(1) This represents a dividend yield of 3.7% based on our
closing share price of 827 pence on 24 February 2023. Over the last
10 years, we have increased the dividend by 114% in aggregate.
Capital structure
In 2022, the Group issued 5.2 million new ordinary shares at a
premium to NAV, to existing and new investors, with net proceeds of
GBP41.4m to support ongoing investment. Shares were issued at a
premium to NAV to be accretive to existing shareholders.
Our Investment Portfolio
Despite recessionary pressures and high inflation, James
Henderson and Laura Foll, our investment managers, continue to
invest in a differentiated selection of high-quality businesses
with competitive advantage and good long-term growth prospects. We
are pleased to report dividend income of GBP34.4m from the
Portfolio, representing growth of 31% compared to the prior year.
Stocks globally were buffeted over the past year resulting in an
understandable, but disappointing, total capital loss for the year
of GBP129.6m. Of this, GBP126.2m is unrealised as it relates to
movements in the value of the holdings within Portfolio and is
offset by the movement of GBP75m in the fair value of debt and
GBP12.5m in the fair value uplift of IPS. However, we are confident
that their disciplined approach of buying at attractive entry point
valuations will continue to deliver over the longer term for our
shareholders. The high-margin and revenue flows that IPS generates
give James and Laura the opportunity to explore a more flexible
portfolio that includes both income and growth-focused stocks.
Further detail on the Portfolio performance with a review from
our investment managers may be found below.
IPS
Our professional services business, a unique offering that lends
an advantage compared to other UK income funds, has grown from
strength to strength in recent years with a compound annual growth
in profit before tax of 8.2%(2) over the last five years. The
turmoil caused by the 'mini budget' brought the pensions industry
into widespread focus, and, while it was undoubtedly a difficult
period, I am proud of how our Trustee business delivered for
clients.
In a year where global uncertainty badly affected capital
markets, the value of IPS for shareholders became more evident.
Some of our businesses benefit from a degree of
counter-cyclicality, which is, in part, why IPS had another year of
mid-high single digit revenue and profit growth. This is
underpinned by our specialist knowledge and record of providing
excellent client service. The Board is pleased to see employee
engagement and satisfaction scores improving and this ongoing
investment in talent and technology, leaves us confident IPS should
have the potential to sustain mid to high single digit growth over
the medium term.
Environmental, Social and Governance (ESG)
Those with whom we have worked over the past few years will
likely be aware of the cultural changes at Law Debenture. I want to
give credit to our Executive Leadership team who have been
instrumental in creating a working culture that encompasses our
four values: Make Change Happen; Better Together; Believe It's
Possible and Never Stop Learning.
Our IPS business is built upon the provision of independent
governance services. A central tenet of this work is our commitment
to diversity, and we are delighted that we have established a
balanced gender pay gap position and have strong female
representation both at Board and senior executive level, with women
making up 47% of the senior leadership team. In 2022, we ranked 1st
in the Financial Services category of the FTSE Women Leaders Review
- an achievement that we are extremely proud of. Supporting our
people is directly beneficial to our clients, with improved
representation promoting broader perspectives, experiences, and
skillsets.
As an organisation, we believe that long-term growth is
underpinned by sustainability. This presents opportunities for
investment within the Portfolio. The IPS has a relatively small
carbon-footprint and, over the years, we have taken steps to
further reduce this. As part of our commitment to the ESG agenda,
Law Debenture has voluntarily chosen to adopt the Task Force on
Climate-Related Financial Disclosures ('TCFD'). This can be found
on page 51 of the Annual Report.
Our investment managers are committed to investing in businesses
that have a sustainable business model and carefully take ESG into
consideration when making investment decisions. For more details
please see page 50 of the Annual Report.
The Board
During the course of 2022, Mark Bridgeman stepped down as Chair
of the Audit and Risk Committee and from the Board, having served
nine years. I would like to thank him for his significant
contribution to the Board and the Company over the years.
Pars Purewal, who joined the Board in December 2021, was
appointed as our new Chair of the Audit and Risk Committee. Pars
brings extensive Audit and Risk experience, having been a Senior
Partner and worked in the PwC Audit Practice for 35 years.
Following Mark's departure, Clare Askem has taken over as
Workforce Engagement Director and has already invested time in
hosting listening groups with our staff to provide feedback to our
Executive Leadership team and the Board.
Looking forward
The beginning of 2023 has brought some tentative optimism from
investors that inflation and the cost-of-living crisis will perhaps
subside sooner than first thought. While I welcome a more
optimistic outlook on UK market valuations, particularly with the
more stable environment that we are now seeing, there is still some
way to go, and it is reasonable to expect much of this year to
follow the current trends. The majority of the Portfolio is
invested in UK equities, although many of the earnings are derived
from outside the UK. James and Laura continue to believe that UK
market valuations are too low and offer some attractive longer-term
growth opportunities with a lot of bad news already priced in.
The Board and our investment managers remain confident in our
future performance, due to the diversified and resilient nature of
our Portfolio and the good growth potential for IPS. Its services
are well sought after and the market share opportunities are
considerable.
During these challenging times, our consistent delivery has only
been possible due to the hard work of our talented people and, on
behalf of the Board, I would like to thank them all.
Robert Hingley
Chairman of the Board
27 February 2023
(1) Refer to financial summary above.
(2) Calculated using the published PBT of the IPS business over
the past 5 years.
Chief Executive Officer's review
Introduction
2022 has been an encouraging year overall for Law Debenture,
despite the continued macroeconomic uncertainty we have seen.
Markets have been difficult across the world and the UK saw
political volatility which exacerbated the turbulence in financial
markets. Despite this, Law Debenture's performance reflected well
on the Group's ability to adapt to a changeable economic climate
and navigate short-term headwinds. Law Debenture delivered on its
two main objectives; producing some, albeit modest, share price
growth and continuing to steadily increase income for
shareholders.
The sharp jump in inflation and interest rates and overall
challenging economic environment for businesses has not been easy
for our investment managers to navigate. The median share price for
the UK was down 18% over the course of the year and so I am pleased
with our total share price performance, which was very marginally
up. Capital has been preserved in a year when many global stock
markets fell sharply and we had our 44(th) year of maintaining or
increasing dividends.
James Henderson and Laura Foll have continued to perform
creditably in difficult market conditions. The Group takes great
pride in our long-term record over one, three, five and ten years,
with consistent outperformance of the benchmark, the FTSE Actuaries
All Share Index. James and Laura have a consistent and proven
valuation-driven process which aims to identify market-leading,
high-quality companies that are undervalued at the point of
purchase. It is a testament to the continued outperformance and the
investment team that Law Debenture has won three prestigious
investment trust awards this year.
Our IPS business has shown its fifth consecutive year of middle
to high single digit growth. For 134 years, we have stuck to our
principles of independence, trust and excellence. Our investment
for growth over the last five years has positioned us well for the
future. The acquisition of Eversheds Sutherland (International)
LLP's Corporate Secretarial Services ('CSS') business in 2021 has
strengthened its client offering. I am very proud of our strong
client relationships and approximately two-thirds of our business
is repeated year on year. As we face a complex macro-economic
environment in 2023, our aim is that IPS should continue to provide
an element of counter cyclical revenue that will support our
overall performance. High-quality governance should remain core to
our clients, regardless of the economic cycle.
IPS business net revenues (gross revenue less direct costs
incurred) for the full year 2022 were up 8.6% at GBP45.2m (2021:
GBP41.6m) and profit before tax was up 8.1%. The diversification of
our income streams again served us well, but we have had to compete
with the challenging recruitment environment to retain our people
who underpin the quality of service we deliver. However, we are
active in the management of our cost base and are working hard to
ensure our profit margins are sustainable.
We are proud to have delivered a 114% increase in dividend over
the last ten years. This is supported by the diversified nature of
IPS, which makes Law Debenture a unique investment trust. The flow
of income from IPS has funded around 34% of dividends over that
period and gives James and Laura the flexibility to invest in a
broader and higher-growth portfolio than many sector peers, helping
to position the equity portfolio for future longer-term growth.
Corporate trust
Law Debenture was incorporated to act as a bond trustee in 1889.
The role of a bond trustee is to act as a bridge between the issuer
of a bond and the individual bondholders. Our responsibilities as
bond trustee can vary materially, whether servicing or performing
or defaulted bond issues.
Net revenue Net revenue Net revenue Net revenue Net revenue
Growth
2018 2019 2020 2021 2022 2021/2022
DIVISION GBP000 GBP000 GBP000 GBP000 GBP000 %
Corporate trust 8,362 9,024 10,789 9,771 10,620 8.7%
------------ ------------ ------------ ------------ ------------- -----------
Pensions 9,488 10,598 11,479 13,060 14,343 9.8%
------------ ------------ ------------ ------------ ------------- -----------
Corporate services 11,734 12,167 12,226 18,755 20,206 7.7%
------------ ------------ ------------ ------------ ------------- -----------
Total 29,584 31,789 34,494 41,586 45,169* 8.6%
------------ ------------ ------------ ------------ ------------- -----------
*Total net revenue is calculated by reducing segment income of
GBP53,452k by cost of sales of GBP8,283k.
Corporate services: 2021 includes additional revenue arising
from the acquisition of the CSS business from Eversheds Sutherland
(International) LLP.
Normal obligations for the bond trustee to support performing
issues include communication to the bondholders of financial or
security data, together with the distribution of covenant
information. For this type of work, we are typically paid an annual
fee throughout the lifetime of the bond. This fee is inflation
linked for the majority of our existing book of business. When an
amendment to bond documentation is required, we can also earn
additional revenues to complete the necessary changes.
When bonds default, the workflow, risk and revenue profiles of
our role can materially change. A key duty of the bond trustee is
to be the legal creditor of the issuer on behalf of the
bondholders. We never wish our clients to suffer bad fortune, but
our role in such default situations requires material incremental
work that, given a favourable outcome, can lead to significant
additional income for the firm. Defaults often take years to play
out and the results are uncertain. Given this long-dated and
fluctuating backdrop, our revenues for this work in any specific
calendar year can fluctuate. However, such post issuance work has
strong economic countercyclicality and has produced sound returns
for our shareholders over time.
Highlights
Following a difficult 2021, when we reported a 9.4% decrease in
revenues for the Corporate Trust business, we are pleased to report
revenue growth of 8.7% in 2022, despite challenging market
conditions.
As noted at the half year, the majority of the capital markets
transactions that sit on our books have been built up over many
decades and have contractual inflation-linked fee increases for our
services. These fee increases are applied on each transaction
anniversary. As 2022 progressed and inflation remained at elevated
levels, the more such inflation-linked increases fed through to our
book of business.
Despite the extremely tough primary market conditions, under the
leadership of Eliot Solarz, we completed some notable new
transactions, including an appointment Trustee for the Real Estate
Investment Trust, SEGRO plc's EUR1.15 billion senior unsecured
Green Bond issue. The proceeds of the issue will principally be
used to finance and/or refinance Eligible Green Projects as
outlined in the SEGRO Green Finance Framework, as well as providing
funding for general corporate purposes. Later in the year we were
also appointed as Trustee on the EUR750 million senior unsecured
Green bond issue for the SEGRO European Logistics Partnership
('SELP') joint venture.
Our escrow business continues to build momentum and broaden its
diversification of use. During 2022 we were appointed to a range of
roles that included M & A, litigation, commercial real estate,
sporting events, sales of ships, and to support global trade in
commodities.
Our business is built on trust and independence, our domain
expertise, and our ability to move fast.
Outlook for our corporate trust business
Levels of primary market activity are difficult to predict.
Growth in European primary debt issuance revenues over the past
four years illustrate this well at -14% for 2019, +21% for 2020,
+1% for 2021 and -23% for 2022 respectively (source; Dealogic). Our
post-issuance work is equally difficult to predict, but
historically has had a strong economic countercyclicality.
We continue to increase our range of products and broaden and
deepen our relationships with clients, law firms and financial
institutions that underpin activity in this market. We have hired
extra business development resource to help to grow this business
and we are increasingly raising our profile within the marketplace
for our services. Even if year-on-year revenue growth can be
somewhat lumpy, we are confident that, over time, we can continue
to grow this business.
Pensions
We are one of the largest independent providers of Pension
Trustees in the UK and, throughout 2022, continued to support our
clients as the pensions landscape evolved.
Our Pegasus offering of outsourced pensions executive solutions
is a leading provider in the UK in a fast-growing market.
Market dynamics
While many large pension schemes have a professional trustee
appointed to their board, around 50% of schemes in the UK have not
yet appointed a professional trustee - these are mainly small to
medium-sized schemes.
In 2022, the DWP published its consultation on new funding and
investment regulations, with a focus on having a longer-term
strategy for all pension schemes. Together with the new code of
practice on funding due to be in force in 2023, this will push
schemes to consider investment strategies and their "end-game"
planning in more detail. We expect that this will continue the
trend of sponsors and schemes to look to strengthen the level of
professional expertise on their pension scheme trustee boards.
In addition to these regulatory developments, the gilt market
and associated LDI crises in late September and October 2022
further highlighted the need for professionalism, good governance
and the need to react quickly to significant market events.
The UK regulator will also, in 2023, introduce a single combined
code of practice, focusing on improving governance and requiring
schemes to assess the risks being run in their schemes. These new
requirements will encourage schemes to identify gaps in governance.
Any resulting resourcing issues may encourage more to
outsource.
Highlights
As I announced in the 2021 Annual Report, Vicky Paramour was
appointed as Managing Director for our Pensions business, with
Sankar Mahalingham heading up the fast-growing Pegasus side of the
business. 2022 was another strong year for our Pensions and Pegasus
business with growth in revenues of 9.8%. Over the past five years,
compound revenue growth is a healthy 12%. In our core Trustee
business, we were delighted to add incremental appointments that
included names such as Riverstone, SEI Master Trust and
Invesco.
We recognise that revenue growth is driven by investing in the
best people and we remain committed to continuing to do so. During
the year, we continued to invest in our trustee team both at the
director level as well as professional trustees with a specific
focus on broad pension industry and pensions' management skillsets,
to service our increasing portfolio of smaller to medium sized
schemes. We also continued to invest in regional and international
talent. In Manchester, we hired our first pensions trustees
alongside our Pegasus employees to service a large pool of
potential clients based in this region and we will continue to add
to this capability. We also expanded our capability in Ireland, to
cover increasing opportunities in the Irish market from both local
and international companies.
During the year, Pegasus continued to grow, with more full
outsourced pension management wins, alongside interim resource and
project support. Pegasus offers a range of services from simple
pension scheme secretarial services through to fully outsourced
pensions management and professional sole trustee solutions. After
five years, this business now has revenues of approximately GBP4m
per annum. We have a broad product range and client base and we see
increasing demand for our expertise to independently support
projects such as GMP equalisation and de-risking. We also continue
to invest in hiring professionals with buy in, buy out and
wind-down experience which is of value to a growing number of
schemes.
Outlook for our Pensions business
The increasing governance burden for UK pensions schemes means
that there are more opportunities for providing independent
professional support to schemes of all sizes. For example:
-- The knock-on effects of the LDI crisis in 2022 are likely to
give added impetus to the appointment of professional trustees
-- New funding and investment regulations are likely to require
greater support and challenge from trustee boards, including
negotiations with sponsors
-- Corporate sponsors will consider to what extent the efficient
processes associated with professional corporate sole trustee
models will ensure value for money while helping schemes manage
their risks
-- Schemes moving towards full de-risking solutions are likely
to need to call on greater professional expertise and
experience.
Many sponsors of pension schemes continue to face resourcing
issues, for example where:
-- In-house administration is outsourced for the first time
-- Succession planning issues become relevant as pension managers and their teams retire
-- Increased governance requirements put stress on already under-resourced teams
Rather than continue to operate with full in-house teams, there
are likely to be an increasing number who will look to outsource
all or part of their functions to third parties. This provides
opportunities for the Pegasus business to grow substantially by
taking on these large, outsourced mandates.
In addition, given the highlighted market dynamics, driving the
increased professionalisation of pension governance and complex
pensions laws that require expert navigation, we believe that the
market for our expanding range of pension governance services will
continue to increase steadily over time.
Corporate services
Corporate Services has four well-diversified constituents:
Corporate Secretarial Services ('CSS'), our whistleblowing
division, Safecall, Structured Finance Services and Service of
Process. Pleasingly, all businesses grew or maintained their
revenue during the year, although the total increase in revenues,
up 7.7%, was affected by CSS. In the prior year, the CSS result was
for an 11-month period, the acquisition having completed at the end
of January 2021.
Corporate Secretarial Services
CSS - Market dynamics
We operate in three main product areas.
Managed services : We deliver Global Entity Management services
to over 350 clients, acting as a single point of contact to ensure
that overseas legal entities are kept in good standing for
international compliance. Client appointments vary in scale and
coverage, ranging from a single legal entity in one country at its
simplest to over 300 subsidiaries in 50 countries at its most
complex. We are paid a fixed annual fee to deliver annual
compliance and corporate records maintenance. We may also earn
incremental revenues from additional projects such as
incorporations and dissolutions, the co-ordination of global
corporate change projects and performing entity validation work.
Excellent workflow management and use of technology is critical to
compete effectively in this space and we are investing heavily
here. Our team is based in our London and Manchester offices.
Corporate governance services : This work stream covers all
aspects of board and committee support, from full outsourced
company secretarial support to attending and minuting meetings. We
also provide practical company secretarial, governance and listing
rules support to companies preparing for an IPO, including support
post listing. Our clients range from major Main Market and AIM
listed companies, including investment trusts, to UK operating
subsidiaries of top global brands. Our fees vary between fixed
annual fees for specifically scoped mandates but can also be time
or project-based. Demand here is often for skilled professionals
with prior experience in a particular industry and/or governance
framework who can seamlessly transition work from being completed
inhouse. This team in based in London.
Interim resourcing : Here we provide immediate access to
qualified governance professionals, whether on-site or remote, and
full time or part time, as required by the client. Typically, we
are paid on a time spent basis, but also complete certain work on a
fixed fee basis. This team is based in London.
Corporate Governance standards are being elevated worldwide and
our evidence is that outsourcing growth trends have been
accelerated by the pandemic. Large in-house company secretarial
departments are typically decreasing in number and are suffering
from underinvestment. We have been offering solutions in this
sector for over twenty years, have critical mass and are confident
of our ability to increase our market share over time in a growing
market.
We continue to strive to provide services to which support our
clients' needs. In response to changes in legislation, we have
become authorised to act as a verifier for the Register of Overseas
Entities, providing an essential service for overseas clients and
contacts acquiring property in the UK.
CSS - Highlights
Frustratingly, we were unable to expand our client base as much
as we would have liked during the year because the demand for our
products and services in 2022 exceeded our ability to offer
appropriate resourcing, particularly in the interim and corporate
governance services areas.
Increasing our capability with appropriately qualified people is
something that we are continuing to address. We transferred across
46 people at the time of the acquisition in 2021 and, at 2022 year
end, our headcount in this business was 64. We will continue to
hire and develop the right people, skills, technology and
infrastructure that we require in order to deliver a first-class
service.
We have also invested in the leadership of this business. Upon
her return from maternity leave in late summer 2022, our COO and
Executive Director, Trish Houston, took on the responsibility for
the day-to-day running of this growing business. Trish brings
renewed rigour to ensure that this business can grow sustainably
over time and take full advantage of the opportunities that exist
in this growing market.
Despite the capacity constraints referred to above, we added to
our client roster, winning work to support several Investment
Trusts managed by Schroders, as well as the LXI REIT. It is
pleasing too that there have been a number of new clients on the
Managed Service side, including several FTSE 100 and Fortune 500
groups and FTSE 250 groups on the corporate governance services
side.
Whistleblowing: Safecall - Market dynamics
The emerging regulatory frameworks and standards that we have
highlighted for some time now continue to accelerate throughout the
developed world. The whistleblowing concept is understood and
widely discussed, and we are seeing a growing demand for our
products and services. Several 2022 news headlines on a national
level were driven by some sort of whistleblowing activity. Early
adopters of independent whistleblowing services were often larger
entities, but increasingly smaller and mid-sized employers are
adopting this emerging best practice.
Unsurprisingly, competition is increasing in this growing
market. As with all of our IPS business, what differentiates us is
the quality of our people. All enquiries are dealt with by our
highly trained staff that consists of former police officers. Time
and again, the quality of the work that we do for our clients
receives high praise.
Whistleblowing: Safecall - Highlights
Yet again we provided a record number of reports to our clients
in 2022, up 20% on 2021. Increasingly, digital channels are being
used to raise and manage issues, so we were delighted to have
rolled out our new client portal during the year. In order to
compete more effectively, we will invest in further digital
capability throughout 2023.
Under new leadership of Joanna Lewis, who joined us at the end
of August 2021, we have expanded our sales team and invested in an
expanded account management set up. Results to date have been
encouraging, with increasing demand from existing clients for our
training and investigations offerings. During the course of 2023,
we will look to expand these offerings.
Revenues from new clients were again a record and among the 134
new clients we took on in 2022 were EDF Renewables, WHSmith, The
Entertainer Ltd and CFC Underwriting.
In order to build on our momentum, we will be investing further
across all aspects of the business in 2023. As well as investment
in our technology platform, we will add further capacity to our
operations team, expertly managed by Tim Smith. Moreover, we will
add further headcount to our sales, account management and
marketing initiatives in order to accelerate our growth.
Structured finance services - Market dynamics
This business is based on providing accounting and corporate
administrative services mainly to Special Purpose Vehicles
('SPV's') and other similar corporate structures. Typical buyers
would include financial institutions that wish to gain risk
exposure to a particular asset type- for example Aircraft Leases or
Mortgages or companies being established as part of a corporate
acquisition. These buyers regularly access third-party outsource
providers to help them with the servicing of the assets. Boutique
asset managers (Private Equity and Hedge Funds) and challenger
banks are growing users of these services together with overseas
businesses acquiring companies in the jurisdictions we serve.
The competitive landscape is dominated by the larger providers
with long-established relationships. We are a small player in the
sector but, thanks to Mark Filer and his team, receive strong
praise from our clients.
Structured finance services - Highlights
Despite capital markets new issuance levels being particularly
challenged during 2022, we were delighted to receive repeat
appointments from a number of names operating in the sector. Quotes
for new business and wins were both new records. Our challenge is
to raise our profile with a broader universe of clients.
Our paying agency business also grew steadily during the year to
record levels and we were pleased to see the number of professional
firms referring business to us continuing to increase.
A particular highlight was being asked to take over an
appointment from a competitor on a new innovative protective cell
company structure for the London insurance markets. These
structures are in their infancy and have been created with the aim
of keeping reinsurance in London rather than in offshore
centres.
Another win, was the appointment to undertake operational
accounting work for one of our CSS clients. We believe that this is
a potential area of growth for our business.
Service of process - Market dynamics
Under the leadership of Anne Hills, this remains our highest
volume business. We have well over 50,000 appointments on our books
and typically enter into over 10,000 new appointments each year. Of
all of the IPS business, its results are most correlated to levels
of global economic activity.
Service of process - Highlights
Following an encouraging first half of the year, the surge in
inflation and interest rates and the corresponding slowdowns
reported in GDP growth around the world unsurprisingly made for a
much tougher second half of the year. We ended the year essentially
flat to 2021. Given the significant reduction in primary capital
markets activity (a key source of appointments), we believe this is
a result with which we can be satisfied.
Our upgraded technology, together with our increased headcount,
has built capacity. We are more outward looking and better
coordinated with our business development and sales activities and
so well-positioned for future growth.
Outlook - for our corporate services business
We are pleased to have grown revenues in all four businesses in
our Corporate Services reporting segment in 2022.
It is an important advantage in these sectors to be an integral
part of a well-capitalised, 134 year old, listed organisation
willing to invest for the long term. Many of our competitors are
private equity owned and subject to different operating
demands.
The markets in which we operate are growing and we believe we
are well placed to exploit future opportunities.
Support functions
Over the last few years, we have made a significant investment
in modernising our central support functions. With oversight from
our CFO, Hester Scotton, we have now fully embedded our shared
service centre in Manchester to support our Accounts Payable,
Accounts Receivable and Debtor management operations. We have grown
our HR team, with a new approach to appraisals and objectives, put
in place career frameworks to provide visibility and support to our
staff as they look to develop their roles and rolled out the first
two of our "Future Leaders" training programmes.
We launched new healthcare and pensions arrangements across the
firm at the start of 2022. We also made a one-off payment of
GBP1,000 to support our lowest-paid employees navigate the
cost-of-living crisis. We have added expertise in Finance, Risk,
Legal and Compliance, and, under the leadership of Suzy Walls,
boosted our Business Development resource. These investments are
essential to be able to grow our businesses sustainably. While we
will selectively add resource in these areas in 2023, at this
point, from a headcount perspective, we consider much of the
significant incremental investment to have been completed.
Information Technology
Our IT capability has radically changed over the past few years.
Thanks to David Williams and his team, we now have a cloud-based
infrastructure, our employees (circa 300 colleagues) can be fully
remote or office based as required, and an IT team of 17, whose
proactive role is to deliver new software solutions for our
businesses and clients in a controlled, scalable manner.
In last year's Annual Report, we wrote that professional
services firms' success will be increasingly defined by their
commercial offerings' "ease of use". We made solid progress here in
2022. Among our accomplishments were delivery of a new client
portal for Safecall, implementation of a new client and supplier
onboarding portal and roll-out of an invoice payment portal for
clients.
Nonetheless , we still have further work to do and will continue
to accelerate our technology improvements. Our main deliverables in
2023 will include rolling out new modules for our Safecall clients
and establishing an improved workflow management infrastructure for
our CSS business.
Prospects
Law Debenture is resilient by design. The combination of IPS
with the Investment Portfolio is a well proven model and I am
cautiously optimistic about the Group's progress in 2023 and
beyond. I think that IPS is well positioned for medium-term growth
in line with our mid to high single percentage target. We continue
to look for opportunities to grow IPS through organic investment
and disciplined acquisitions, where appropriate. We are encouraged
by recent senior hires, good new business momentum and continue to
invest to ensure we gain market share and maintain longer-term
growth.
On behalf of the Board, I want to thank my colleagues for their
outstanding dedication to developing Law Debenture's client
service. I am also very grateful for the continued support of
shareholders.
We are cognisant that 2023 will present challenges but I am
confident that the people, investment and significant actions we
have taken mean that we are well positioned to take advantage of
longer-term growth opportunities and maintain our 44-year record of
maintaining or raising the dividend.
Denis Jackson
Chief Executive Officer
27 February 2023
IPS net revenue and PBT - 5 year performance
5yr Revenue 5yr Revenue
2018 2019 2020 2021 2022 Variance Variance
Department GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 %
Pensions 9,488 10,598 11,479 13,060 14,343 4,855 51%
--------- --------- --------- ---------- ---------- ------------ ------------
Corporate
trust 8,362 9,024 10,789 9,771 10,620 2,258 27%
--------- --------- --------- ---------- ---------- ------------ ------------
Corporate
services 11,734 12,167 12,226 18,755(1) 20,206 8,472 72%
--------- --------- --------- ---------- ---------- ------------ ------------
IPS net
revenue 29,584 31,789 34,494 41,586 45,169(2) 15,585 53%
--------- --------- --------- ---------- ---------- ------------ ------------
% Revenue
growth 9% 7% 9% 21% 9%
--------- --------- --------- ---------- ---------- ------------ ------------
Profit before
tax 10,481 11,465 12,227 13,340 14,422 3,941 38%
--------- --------- --------- ---------- ---------- ------------ ------------
% growth
in PBT 8% 9% 7% 9% 8%
--------- --------- --------- ---------- ---------- ------------ ------------
1 Includes revenue from the acquisition of the Company
Secretarial Services business from Eversheds Sutherland
(International) LLP.
2 This figure is included in the income statement by subtracting
cost of sales of GBP8.2m from gross revenue of GBP53.4m.
IPS Valuation
31.12.2018 31.12.2019 31.12.2020 31.12.2021 31.12.2022 5yr growth
GBP000 GBP000 GBP000 GBP000 GBP000 %
EBITDA 10,424 11,515 13,335 15,369 16,588 59%
----------- ----------- ----------- ----------- ----------- -----------
Multiple 8.4 9.2 9.4 10.8 10.5 25%
----------- ----------- ----------- ----------- ----------- -----------
IPS fair value
(excluding net assets) 87,562 105,938 125,349 165,985 174,174 99%
----------- ----------- ----------- ----------- ----------- -----------
NAV adjustment:
total value less
net assets already
included 78,439 91,860 112,407 135,885 148,376 89%
----------- ----------- ----------- ----------- ----------- -----------
Investment managers' review
Our investment strategy
Over the long term it is our view that the diversification in
our underlying holdings aids consistency of performance and
protects capital. That said, in 2022, as we explore in the
performance section below, this worked against us to some degree.
There is no common theme to the stocks held other than they are
good at what they do and, we believe, have forward-thinking,
dynamic management teams. They cover a wide variety of activities.
They are all sizes (in market capitalisation terms). We try and
blend the different risk profiles they have within the Portfolio.
For instance, we have conventional energy stocks as well as
alternative energy suppliers.
This diversification does not stop us making strong views about
an individual company count in the portfolio. It is an approach
focused on stocks. We believe that, by paying attention to what is
happening at companies, value can be added. It is better to do it
this way rather than having a Portfolio built around large macro-
economic views. There are too many variables and unknowns to have
conviction at a macro level. However, if we are paying proper
attention to companies, investments can be made in businesses that
can produce results, almost regardless of what is happening in the
wider economy. While there are fewer variables and unknowns at the
micro level, they do still exist and this is the reason for long
lists and diversification.
Unusually for a portfolio that is in the equity income sector,
there are a number of zero dividend-paying shares. The contribution
from the Independent Professional Services business to the revenue
pool means the Portfolio can hold these shares without affecting
the level of income generated overall. This is a significant
advantage Law Debenture has over other investment trusts in our
peer group and means we have a larger choice of investment
opportunities than most other funds in the income sector. We take
advantage of this freedom by buying some recovery shares before
they become dividend payers and young, immature companies we
believe will be significant businesses of the future. It is
fundamentally important to grow the capital value of the Portfolio
if long-term income growth is to be achieved. The recovery and
small company element of the Portfolio can help to provide
long-term capital growth. When successful small company and
recovery investments can be recycled into income-producing
investments, underpinning longer-term dividend growth.
1 year 3 years 5 years 10 years
Alternative Performance Measures % % % %
NAV total return (with IPS at
fair value and debt at par)(1) (6.8) 16.8 30.3 141.5
------- -------- -------- ---------
NAV total return (with debt
and IPS at fair value)(1) 0.6 26.0 39.9 154.6
------- -------- -------- ---------
FTSE Actuaries All-Share Index
total return(2) 0.3 7.1 15.5 88.2
------- -------- -------- ---------
(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, whereas NAV total return with debt
at fair value includes the fair value adjustment.
(2) Source: Refinitiv Datastream, all references to 'FTSE
All-Share' and 'benchmark' in this review refer to the FTSE
Actuaries All-Share Index total return.
Investment process
Different valuation metrics are used in different sectors. The
investment approach has a valuation filter because the entry price
a stock is bought at matters, as even the best companies are
likely, over time, to mature and decline. The life cycle for many
businesses is getting shorter as the global economy is competitive,
with new entrants always likely to challenge the established order.
Therefore, high valuations are vulnerable because of the pace of
this economic change.
We visit and meet potential investments, looking for companies
that are in a strong competitive position with management teams
that have the qualities needed to grow the business. There is no
blueprint for this other than drive and a degree of flexibility.
The Portfolio turnover is usually around 20% per annum, so a
relatively long-term time horizon is fundamental to the
process.
Performance
We always aim to outperform the benchmark over one, three, five
and ten years. Whilst we continue to outperform in the medium and
long term, this last year has been challenging with the Portfolio
declining in value by 10%. This has been offset by the fair
valuation of debt and the increase in the fair value of the IPS
business. The under-performance of the Portfolio was driven by
holding a larger weighting in smaller size companies relative to
the benchmark. In comparison, the benchmark is heavily weighted in
the largest 20 stocks in the UK market. As illustrated by the table
below, the FTSE 100 top 20 made positive returns during the year.
It is within the FTSE 100 top 20 that the very large oil and
resource companies reside. For instance BP, Shell and Glencore all
made very good share price progress as a result of the Ukraine war
leading to the appreciation of raw material prices. At the same
time the rise in the price of oil and gas has hurt energy using
companies and this led to a slowdown in UK economic activity. In
the largest 20 companies in the UK FTSE 100 index more than 80% of
their earnings are derived from overseas. The smaller quoted
companies are more closely tied to the fortunes of the UK economy.
During the year, funds with a broad list of companies large, medium
and small were very likely to underperform when virtually only a
select few very large international companies could prosper.
Full Year 2022
Index %
FTSE All-Share 0.34
----------------
FTSE 100 4.70
----------------
- FTSE 100 top 20 15.70
----------------
- FTSE 100 bottom 80 -17.20
----------------
FTSE 250 -17.39
----------------
Numis Smaller Companies Index (excluding Its) -17.87
----------------
FTSE AIM All-Share -30.67
----------------
Stock attribution
Given the ramifications of the Russia Ukraine war, it is not
surprising that the best performers were oil and resource stocks,
such as BP and Glencore, as well as a manufacturer of defence
equipment, BAE. The detractors are a mixed group. Accsys, a company
that focuses on the sustainable transformation of wood, was a large
positive contributor in the past. However, it has had problems
building and commissioning a new plant. Therefore, although the
demand for its products is growing, the growth of the company has
been severely held back. It is hoped that the new plant will come
on stream and the company will again progress. Ceres Power was the
largest contributor to the fund in 2020 and considerable profits
were taken but, unfortunately, we did not sell the entire holding.
The share price had got ahead of what has actually been achieved
and this has unwound. The company may play a real role in the move
away from fossil fuels with its fuel cell technology. The company
appears to be making progress even if this is happening at a slower
pace than investors had hoped so, on the share price fall, we are
buying back some of the stock we sold.
Top five gains
The five largest gains during the year were:
Stock GBP Appreciation % Appreciation
BP 8,230,800 43.69%
----------------- ---------------
BAE Systems 5,375,563 54.32%
----------------- ---------------
Glencore 3,854,182 58.74%
----------------- ---------------
Rio Tinto 3,397,500 18.52%
----------------- ---------------
Standard Chartered 3,281,142 38.80%
----------------- ---------------
Top five losses
The five largest losses during the year were:
Stock GBP Depreciation % Depreciation
Accsys Technologies (10,689,194) (67.98%)
----------------- ---------------
Ceres Power (8,842,543) (67.72%)
----------------- ---------------
Marks & Spencer (6,752,893) (47.84%)
----------------- ---------------
IP Group (6,188,997) (54.89%)
----------------- ---------------
Watkin Jones (5,973,819) (61.74%)
----------------- ---------------
Portfolio income
The income that was generated by the portfolio rose from
GBP26.3m in 2021 to GBP34.4m for 2022, an increase of 31%. There
are several reasons behind this. Some companies returned to paying
dividends having stopped paying during the pandemic. The level of
special dividends was particularly high, the most notable being
NatWest Bank of GBP1.2m, and a distribution of capital from Aviva
of GBP3.4m. There was underlying good repeatable dividend growth
across our holdings. The reduction of the US holdings and the
increased exposure to the UK has also benefitted the income
account. The dividend yield on the UK market is substantially
higher than other major stock markets. We think it is likely the
dividend growth from the underlying stocks will continue in
2023.
Portfolio activity
The relative low turnover of stocks and value bias approach has
been behind the activity.
The valuation on US stocks, particularly early on in the year,
looked stretched, so holdings in Applied Materials and Schlumberger
were sold. They are both excellent companies; the issue was
valuation. Applied Materials fell as economic slowdown concerns
surfaced. The fall was substantial and has allowed us to buy the
stock back towards the end of the year. High valuations among the
select few companies in favour in the UK meant the holding in Relx
was sold. It has been in the Portfolio for many years adding
considerable value, but the valuation meant we believed we could
recycle into other UK stocks. Among the new purchases within the
Portfolio were Cranswick which produces and supplies meat products.
It has been a consistently successful company and this is expected
to continue. A holding in Castings was added. It is a UK foundry
business that has weathered recessionary conditions many times.
There is a lack of foundry capacity in the UK, which should mean it
will keep performing well in operational terms and this is not
reflected in the valuation.
The Portfolio in recent years has benefited from an exposure to
alternative energy stocks. During the year, we made a purchase in
an unquoted company, Britishvolt, that intended to manufacture
batteries for EV cars. Britishvolt had been seen as a landmark
project to boost the country's production of EV components. The
project was saved from administration in November 2022 after
securing additional funding, only to re-enter administration in
January 2023. We wrote the investment down to zero before the year
end. It illustrates the problems facing the alternative energy
sector and the lack of access to meaningful amounts of capital
which will be needed if EV car manufacturing is to flourish in the
UK. The only other unquoted investment of note in the Portfolio is
Oxford Science Innovation. This is a company that helps early-stage
businesses that come out of Oxford University. It has been a
successful investment since we invested in it in 2015 with the NAV
up over 60%. The unquoted exposure in the Portfolio will remain
small. The low level of valuations has led to corporate activity,
with companies taking the opportunity to take over quoted
companies. The notable example during the year for the Portfolio
was Euromoney that received a successful cash bid.
The number of stocks in the Portfolio has risen and the Board
has given authority for the maximum number to be 175. This is
because we often start by buying a small holding in developing
companies and adding when they have good projects that need more
capital. This feature of the overall Portfolio differentiates us
from other funds in our sector and, we believe, has added value
over time.
Economic background
The major event in the global economy during the period was the
upward move in interest rates, as a result of inflation breaking
out everywhere. The catalyst was the Russian attack on Ukraine,
forcing up oil prices as well as agricultural products. Prices in
other products and services responded by increasing at rates not
seen for forty years. However, inflationary pressures had been
building before the Russian attack. The effect of Covid-related
restrictions led to supply issues in many product areas. The
monetary expansion required to alleviate the worst effects the
pandemic had in many areas was always likely to stimulate
inflation.
The upward move in interest rates, as illustrated by the chart
above, after a prolonged period of unnaturally low rates led to a
number of foreseeable consequences. Property prices fell, as did
other alternative asset classes, as investors demanded higher
yields. However, the fall in the economy generally has not so far
been as marked as some predicted, the reason being that, although
interest rates were very low, this had not resulted in high levels
of bank borrowing overall in the economy. The regulations brought
in after the banking crisis had made accessing the low rates
difficult for many. Therefore, the rapid rise in interest rates has
slowed the economy, but not brought about deep recessionary
conditions. This can be evidenced in the UK by the continued low
level of unemployment. Inflation, as well as meaning interest rates
rise, has put an upward pressure on wages, leading to public sector
strikes. The debate rages about how entrenched inflation has
become.
We remain mindful of this difficult economic backdrop, but the
Portfolio is invested in individual companies not in "UK plc". The
businesses we regularly see are dealing with the cost pressures and
achieving price increases for their products, which is resulting in
a preservation of operating margin.
Portfolio update and gearing
During the year we reduced the exposure to US stocks by around
GBP16m and increased the holdings in the UK by about GBP40m. The UK
market is not only relatively attractive but is on a cheap
valuation, as can be seen in the chart above. The overall gearing
on the portfolio fell from 13.3% to 11.8% by year end as a result
of share issuances, which brought in GBP41.4m over the year. This
gives us the ability to remain active net buyers of equity as
opportunities present themselves. It will allow us to keep the
Portfolio refreshed.
Outlook
The intention is to be a net buyer of equities. Investors' macro
concerns have meant that valuation levels for companies are at
historical lows. This is particularly the case with UK shares.
There are opportunities to add positions for the Portfolio in
companies that fulfil our investment criteria and we will continue
to add to the Portfolio. The purchases will be in a diverse range
of companies, as the testing economic conditions will mean some
companies disappoint expectations. However, the dynamism and
strengths to be found in some UK companies is not being recognised
but, we are confident, it will become so, as some of the economic
concerns are slowly resolved.
James Henderson and Laura Foll
Investment managers
27 February 2023
Portfolio by sector and value
Portfolio by sector 2022
Oil and gas 10.9%
------
Basic materials 8.7%
------
Industrials 21.7%
------
Consumer goods 7.7%
------
Health care 8.1%
------
Consumer services 9.0%
------
Telecommunications 2.0%
------
Utilities 3.2%
------
Financials 27.4%
------
Technology 1.3%
------
Portfolio by sector 2021
Oil and gas 10.1%
------
Basic materials 9.7%
------
Industrials 20.7%
------
Consumer goods 7.4%
------
Health care 7.2%
------
Consumer services 8.8%
------
Telecommunications 2.6%
------
Utilities 4.4%
------
Financials 27.5%
------
Technology 1.6%
------
Geographical distribution of portfolio by value 2022
United Kingdom 83.2%
---------------
North America 5.1%
---------------
Europe 10.6%
---------------
Japan 1.1%
---------------
Geographical distribution of portfolio by value 2021
United Kingdom 82.6%
---------------
North America 5.4%
---------------
Europe 10.0%
---------------
Japan 1.1%
---------------
Other Pacific 0.7%
---------------
Other 0.2%
---------------
Fifteen largest holdings: investment rationale
as at 31 December 2022
Approx Valuation Appreciation/ Valuation
Rank % of Market 2021 Purchases (Sales) (Depreciation) 2022
2022 Company portfolio Cap. GBP000 GBP000 GBP000 GBP000 GBP000
1. Shell 3.27 GBP113.51bn 20,280 - - 8,795 29,075
---------------- ----------- ------------ ---------- ----------- --------- --------------- ----------
2. BP 3.05 GBP90.05bn 18,838 - - 8,231 27,069
---------------- ----------- ------------ ---------- ----------- --------- --------------- ----------
3. HSBC 2.52 GBP129.16bn 19,454 - - 2,906 22,360
---------------- ----------- ------------ ---------- ----------- --------- --------------- ----------
4. Rio Tinto 2.44 GBP46.61bn 18,345 - - 3,398 21,743
---------------- ----------- ------------ ---------- ----------- --------- --------------- ----------
5. GlaxoSmithKline 2.24 GBP69.56bn 26,911 718 - (7,646) 19,983
---------------- ----------- ------------ ---------- ----------- --------- --------------- ----------
6. Barclays 2.19 GBP16.39bn 20,196 2,355 - (3,053) 19,498
---------------- ----------- ------------ ---------- ----------- --------- --------------- ----------
Flutter
7. Entertainment 1.96 GBP19.89bn 8,812 6,919 - 1,761 17,492
---------------- ----------- ------------ ---------- ----------- --------- --------------- ----------
8. NatWest 1.93 GBP24.33bn 14,100 - - 3,138 17,238
---------------- ----------- ------------ ---------- ----------- --------- --------------- ----------
9. Anglo American 1.63 GBP28.00bn 13,572 - - 977 14,549
---------------- ----------- ------------ ---------- ----------- --------- --------------- ----------
Direct Line
10. Insurance 1.59 GBP4.18bn 13,950 3,211 - (3,004) 14,157
---------------- ----------- ------------ ---------- ----------- --------- --------------- ----------
Lloyds Banking
11. Group 1.53 GBP34.31bn 14,340 - - (717) 13,623
---------------- ----------- ------------ ---------- ----------- --------- --------------- ----------
Morgan Advanced
12. Materials 1.5 GBP0.75bn 13,783 1,071 - (1,488) 13,366
---------------- ----------- ------------ ---------- ----------- --------- --------------- ----------
13. National Grid 1.47 GBP27.97bn 14,934 - (1,218) (658) 13,058
---------------- ----------- ------------ ---------- ----------- --------- --------------- ----------
14. Sanofi 1.44 GBP103.68bn 8,559 3,639 - 617 12,815
---------------- ----------- ------------ ---------- ----------- --------- --------------- ----------
15. Tesco 1.33 GBP17.13bn 13,488 1,697 - (3,297) 11,888
---------------- ----------- ------------ ---------- ----------- --------- --------------- ----------
Changes in geographical distribution
Valuation Valuation
31 December Costs of Sales Appreciation/ 31 December
2021 Purchases acquisition proceeds (Depreciation)* 2022
Region** GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 %
United Kingdom 828,365 135,201 (431) (91,658) (128,222) 743,255 83
------------- ------------ -------------- --------------- ----------------- ------------- ----
Europe 99,297 30,815 (98) (32,739) (4,433) 92,842 11
------------- ------------ -------------- --------------- ----------------- ------------- ----
North America 53,665 5,182 (16) (21,495) 8,146 45,482 5
------------- ------------ -------------- --------------- ----------------- ------------- ----
Japan 11,151 - - - (1,725) 9,426 1
------------- ------------ -------------- --------------- ----------------- ------------- ----
992,478 171,198 (545) (145,892) (126,234) 891,005 100
------------- ------------ -------------- --------------- ----------------- ------------- ----
*Please refer to note 2 on page 126 of the Annual Report.
**'Other' and 'Other Pacific' regions from 2021 have been
reclassified according to their location of listing.
Extracts from the Strategic report
Who we are
From its origins in 1889, Law Debenture has diversified to
become a Group which provides our shareholders, clients and people
a unique combination of an Investment Portfolio and an Independent
Professional Services business.
Our purpose and objective
Our purpose is to deliver peace of mind for our shareholders,
clients and people. This is central to our strategy, both at the
portfolio and IPS levels, and underpins the way we think and behave
every day.
Our objective as an 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 and ownership of the IPS business.
To our IPS clients we are trusted, independent experts and have
134 years of experience to call on in delivering vital aspects of
their business cycle.
Our purpose and objective are underpinned by our corporate
values of:
-- We believe it's possible
-- We make change happen
-- We are better together
-- We never stop learning
Our strategy - implementation
Our strategy is centred round the unique combination of the
Investment Portfolio and our IPS business. Whilst overseen by the
Board, the IPS business operates independently from the Investment
Portfolio.
The IPS profits provide a reliable source of revenue to the
investment trust, helping to smooth out equity peaks and troughs.
This supports the delivery of steadily increasing income for our
shareholders and ensures our investment managers are not
constrained to choosing stocks on yield. Instead, the investment
managers benefit from increased flexibility in stock selection
supporting the delivery of long-term capital growth.
Our unique structure is also tax efficient as some tax relief,
arising from excess costs and interest payments which would
otherwise be unutilised, can be passed from the Investment
Portfolio to the IPS business reducing the tax liability for the
Group and increasing shareholder returns.
The way in which we implemented the investment strategy during
2022 is described in more detail in the investment managers' review
above.
Performance against KPIs is set out on pages 2 to 29 of the
Annual Report, which contain tables, charts and data to explain
performance both during the year under review and over the
long-term.
Our business model
Our business model is designed to position the Company for
optimal performance in the investment trust sector.
Total Shareholder Return
INVESTMENT PORTFOLIO INDEPENT PROFESSIONAL SERVICES
(c. 79% of NAV - including IPS and (c. 21% of NAV - including IPS
long-term borrowings at fair value) and long-term borrowings at fair
* Invests in a diverse equity portfolio value)
* Trusted provider of independent governance services,
generating recurring revenue
* Earns capital returns and dividends
* Profits provide the investment trust with a steadily
* Low ongoing charges increasing revenue stream
* Tax efficient
------------------------------------------------------------
INVESTMENT PORTFOLIO
* The Company's portfolio will typically contain over
70 and up to 175 stocks, the maximum permitted.
* The portfolio is diversified in order to spread
investment risk with no obligation to hold shares in
any particular type of company or industry.
* The IPS business does not form part of the Investment
Portfolio.
Whilst performance is measured against the FTSE Actuaries All-Share
Index, the composition of the index 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
index.
INDEPENT PROFESSIONAL SERVICES
Operating through a number of wholly owned subsidiary companies,
(see note 13 to the accounts in the Annual Report), we provide pension
trustee executives, outsourced pension services, corporate trust
services and corporate services to companies, agencies, organisations
and individuals throughout the world. The services are provided
through offices in the UK, Dublin, New York, Delaware, Hong Kong,
the Channel Islands and the Cayman Islands.
Group employees are employed by L.D.C. Trust Management Limited
and Safecall Limited (in the UK) or a locally incorporated entity
(in the overseas jurisdictions). As part of their duties, a number
of the employees provide services to the investment trust and their
time is charged to the trust, forming a part of the ongoing charges.
More details about the performance of the IPS business in 2022 are
given in the Chief Executive Officer's review above.
Law Debenture's shares are intended for private investors in the
UK (retail investors), professionally advised private clients and
institutional investors. When choosing 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
affect individual equities.
Our strategy - guidelines
The Board sets the investment strategy and actively monitors
both the investment managers' and Executive Leadership team's
adherence through a series of guidelines and parameters in each
scheduled Board meeting. The strategy is reviewed periodically to
ensure we deliver on our objective.
Investments Permitted types of investments Restrictions:
are:
* Equity Shares * Trading is not permitted in suspended shares or short
positions
* Cash/Liquid Assets
* No more than 15% of gross assets will be invested in
other UK listed investment trusts
* No more than 175 stocks
* No investment may be made which raises the aggregate
value of the largest 20 holdings, excluding holdings
in collective investment vehicles that give exposure
to Japan, Asia/Pacific or emerging market regions, to
more than 40% of the Investment Portfolio, including
gilts and cash
* The value of a new acquisition in any one holding may
not exceed 5% of the total Investment Portfolio value
(including cash) at the time the investment is made
* Further additions shall not cause a single holding to
exceed 5%, and Executive approval must be sought (to
be reported at the next Board meeting), to retain a
holding should its value increase above the 5% limit
* No investment in any investment vehicle managed or
advised by Janus Henderson shall be made without
prior Board approval
* No investment other than in equity shares quoted on a
major international Stock Exchange (including AIM for
the avoidance of doubt) or instruments convertible
into the same may be made without prior Executive
approval
* The Company may not make investments in unlimited
liability companies
------------------------------------ ---------------------------------------------------------------
The current regional parameters are:
-----------------------------------------------------------------------------------------------------
Minimum Maximum
% %
------------------------------------ ------------------------------- ------------------------------
United Kingdom 55 100
---------------------------------------------------- ------------------------------- ------------------------------
North America 0 20
---------------------------------------------------- ------------------------------- ------------------------------
Continental Europe 0 20
---------------------------------------------------- ------------------------------- ------------------------------
Japan 0 10
---------------------------------------------------- ------------------------------- ------------------------------
Asia/Pacific 0 10
---------------------------------------------------- ------------------------------- ------------------------------
Other (including South
America) 0 10
---------------------------------------------------- ------------------------------- ------------------------------
Derivatives May be used with prior authorisation of the Board
-----------------------------------------------------------------------------------------------------
Hedging Currency hedges may be put in place with Board approval
to protect against foreign exchange movements on the
capital and income accounts
-----------------------------------------------------------------------------------------------------
Stock-lending Up to 30% of the market value of the Investment Portfolio
may be lent
-----------------------------------------------------------------------------------------------------
Gearing A ceiling on net gearing of 50% is applied. Typically
net gearing, (i.e. gearing net of cash), is between 10%
and 20% of the total Trust value. The Board retains the
ability to reduce equity exposure so that net cash is
above 10% if deemed appropriate. Refer to page 152 of
the Annual Report for calculation of gearing
-----------------------------------------------------------------------------------------------------
Daily dealing Net purchases in any dealing day are to be limited to
limit GBP30 million unless prior Executive approval is obtained
-----------------------------------------------------------------------------------------------------
Underwriting Permitted capital at risk up to 5% of the value of the
Investment Portfolio
-----------------------------------------------------------------------------------------------------
Corporate Where indicated, the investment manager must obtain prior
approval approval to exceed permitted limits either through Board
or Executive approval. Executive approval shall be the
approval of either the Board Chair or the Chief Executive
Officer. The Board may make non-material adjustments
or changes to the investment policy from time to time.
Any changes to the investment policy, which the Board
deem to be material, require prior shareholder approval
-----------------------------------------------------------------------------------------------------
Agreement with the investment managers
Appointed investment managers: James Henderson and Laura Foll,
Janus Henderson Investors.
On a fully discretionary basis, our investment managers are
responsible for implementing the Company's investment strategy. The
contract is terminable by either side on six months' notice.
The agreement with Janus Henderson does not cover custody, which
is the responsibility of the depository (see section on regulatory
compliance in the Directors' Report, page 61 of the Annual Report).
It also does not cover the preparation of data associated with
investment performance or record keeping, both of which remain the
responsibility of the Company.
Fee structure and ongoing charges
Investment trusts are required to publish their ongoing charges
ratio. This is the cost of operating the trust and includes the
investment management fee, depository and custody fees, investment
performance data, accounting, company secretary and back office
administration.
The Company continues to have one of the more competitive fee
structures in the UK Equity Income Sector with investment
management fees of 0.30% p.a. of the value of net assets of the
Group (excluding the net assets of IPS), calculated on the basis
adopted in the audited financial statements, and total ongoing
charges of 0.49%.
No performance fee is paid to the investment manager.
Reappointment of the investment managers
On an annual basis, at a minimum, the Board assesses whether the
investment managers should be reappointed. The key criterion for
assessment is the long-term performance of the Portfolio.
Given Janus Henderson's proven record of performance, and the
competitive fee arrangements in place, the Board has concluded that
the continued appointment of our existing investment manager
remains in the interests of our shareholders.
Gearing and long-term borrowing
Investment trusts have the benefit of being able to 'gear' their
portfolios according to market conditions. This means that they can
raise debt (either short or long-term) to generate funds for
further investment. These funds can be used to increase the size of
the Portfolio. Alternatively, assets from within the Portfolio can
be sold to reduce debt and the Portfolio can 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 2022,
our gearing was 12% (2021: 13%).
The Company has four debentures (long dated sterling denominated
financing) details of which are on page 145 of the Annual Report.
The weighted average interest payable on the Company's debentures
is 3.961% (2021: 3.966%).
The fair value of long-term borrowings held by the Group is
disclosed in note 20 to the accounts in the Annual Report. The
methodology of fair valuing all long-term borrowings is to
benchmark the Group debt against A-rated UK corporate bond
yields.
Valuation of our IPS business
Accounting standards require us to consolidate the income, costs
and taxation of our IPS business into the Group income statement
below. The assets and liabilities of the business are also
consolidated into the Group column of the statement of financial
position below. A segmental analysis is provided below, which shows
a detailed breakdown of the split between the Investment Portfolio,
IPS business and Group charges.
Consolidating the value of the IPS business in this way does not
fully recognise the value created for the shareholder by the IPS
business in the NAV. To address this, from December 2015, the NAV
we have published for the Group has included a fair value for the
standalone IPS business.
The current fair value of the IPS business is calculated based
upon maintainable earnings before interest, taxation, depreciation
and amortisation (EBITDA) for 2022, with an appropriate multiple
applied. The EBITDA for the IPS business for 2022 was GBP16.6m.
This number is reached by taking the return, including profit
attribution on ordinary activities before interest and taxation of
GBP14.4m from note 6 on page 128 of the Annual Report and adding
back the depreciation charge for property plant and equipment of
GBP2.2m, the amortisation of intangible assets of GBP1.0m, and
interest on the lease liabilities shown in note 3 on page 126 of
the Annual Report.
The calculation of the IPS valuation and methodology used are
included at note 13 on pages 134 to 137 of the Annual Report. In
determining a calculated basis for the fair valuation of the IPS
business, the Board has taken appropriate external professional
advice. The multiple applied in valuing the IPS business is based
on comparable companies sourced from market data, with appropriate
adjustments to reflect the difference between the comparable
companies and IPS business in respect of size, liquidity, margin
and growth. A range of multiples is then provided by the
professional valuation firm, from which the Board selects an
appropriate multiple to apply.
The challenge that we faced in this valuation cycle is that many
of our core comparators, have been subject to mergers and
acquisition activity in the past year. As a result of the premium
this builds into the valuations, the companies most like our IPS
business were excluded from the comparator group. Whilst the group
of companies presented in the table have some likeness to IPS,
further work has been required in producing a multiple reflective
of the fair value to attribute to IPS. Given this, as a
cross-check, we have validated the valuation using a discounted
cash flow with an externally advised WACC and are satisfied it is
in range.
The multiple of 10.5x has been applied to value the business.
The uplift reflects that the IPS business now has five years of
revenue and profit growth. The multiple selected has decreased
since the prior year in line with wider market trends.
The comparable companies used, and their recent performance, are
presented in the table below:
Company Revenue LTM EV/ EBITDA
LTM(1) 31 December Net revenue CAGR EBITDA
(GBPm) 2022 2018-2022 margin LTM
Law Deb IPS 45 10.5x 11.0% 35.0%
--------- ---------------- ------------------ -------------
SEI
Investments Company 1,827 11.9x 9.4% 28.3%
--------- ---------------- ------------------ -------------
SS&C
Technologies Holding, Inc 4,702 10.1x 15.0% 33.9%
--------- ---------------- ------------------ -------------
EQT Holdings Limited 63 13.2x 6.3% 37.8%
--------- ---------------- ------------------ -------------
Perpetual Limited 425 6.2x 8.9% 23.7%
--------- ---------------- ------------------ -------------
(1) LTM refers to the trailing 12 months 'results' which are
publicly available. Source: Capital IQ.
Of the comparator companies previously presented, the following
were the subject of mergers and acquisitions activity: Sanne Group
plc was subject to a valuation 30x of EBITDA and Intertrust a
valuation at 12-13x of EBITDA.
Valuation guidelines require that the fair value of the IPS
business be established on a stand-alone basis. Therefore, the
valuation does not reflect the value of Group tax relief applied
from the investment trust to the IPS business, which reduced the
tax charge by GBP2.06m (2021: GBP1.89m).
It is hoped that our continued initiatives to achieve 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 percentage growth in 2023. The total
valuation (including surplus net assets) of the business has
increased by GBP111m/123% since the first valuation of the business
as at 31 December 2015.
In order to assist investors, the Company restated its
historical NAV in 2015 to include the fair value of the IPS
business for the last ten years. This information is provided in
the Annual Report within the 10-year record on page 37 of the
Annual Report.
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 the IPS business
have been removed (GBP53.4m) and substituted with the calculation
of the fair value and surplus net assets of the business GBP201m.
An adjustment of GBP25.1m is then made to show the Group's debt at
fair value, rather than the amortised cost that is included in the
NAV per the Group statement of financial position. This calculation
shows a NAV fair value for the Group as at 31 December 2022 of
GBP972.6m or 761.69 pence per share.
31 December 2022 31 December 2021
Pence Pence
GBP000 per share GBP000 per share
--------- ----------- --------- -----------
Net asset value (NAV) per Group
statement of financial position 799,067 625.81 878,837 717.86
--------- ----------- --------- -----------
Fair valuation of IPS: EBITDA
at a multiple of 10.5x (2021:
10.8x) 174,174 136.41 165,985 135.58
--------- ----------- --------- -----------
IPS net assets attributable
to IPS valuation 27,566 21.59 4,041 3.30
--------- ----------- --------- -----------
Fair value of IPS business 201,740 158.00 170,026 138.88
--------- ----------- --------- -----------
Removal of IPS net assets included
in Group net assets (53,364) (41.79) (34,141) (27.89)
--------- ----------- --------- -----------
Fair value uplift for IPS business 148,376 116.20 135,885 111.00
--------- ----------- --------- -----------
Debt fair value adjustment 25,123 19.68 (50,229) (41.03)
--------- ----------- --------- -----------
NAV at fair value 972,566 761.69 964,493 787.83
--------- ----------- --------- -----------
NAV attributable to IPS 201,740 21% 170,026 18%
--------- ----------- --------- -----------
The 'results' NAV at fair value calculated above differs to the
'published' NAV at fair value for 30 December 2022 (year end NAV
released by RNS on 3 January 2023). As such, please see below for a
reconciliation:
31 December 2022
Reconciliation of published NAV to results NAV: Value Pence
GBP000 per share
---------- -----------
Published NAV cum income with debt at fair value 956,030 748.74
---------- -----------
Reconciliation of shareholders' funds to net assets:
---------- -----------
Published NAV (803,226) (629.07)
---------- -----------
Results NAV 799,067 625.81
---------- -----------
Subtotal (4,159)
---------- -----------
Revised IPS valuation uplift:
---------- -----------
Published NAV (valuation per 30 June 2022) (133,964) (104.92)
---------- -----------
Results NAV 148,376 116.20
---------- -----------
Subtotal 14,412
---------- -----------
Revised Fair Value of Debentures:
---------- -----------
Published NAV (18,840) (14.75)
---------- -----------
Results NAV 25,123 19.68
---------- -----------
Subtotal 6,283
---------- -----------
Total NAV at fair value per results 972,566 761.69
---------- -----------
Our approach to risk
The Group's risk management and internal control framework is
embedded in everyday operations and subject to regular enhancements
in a continuous risk management process as demonstrated in the
diagram below to ensure that risks are effectively managed and
monitored. Top-down Board-level oversight for the Investment
Portfolio and IPS business is provided by the Audit and Risk
Committee.
The Executive Risk Committee has responsibility for the
oversight of operational risk within the IPS business. Detailed,
bottom-up risk identification and management is owned by either
individual business lines where they are specific to that business
function, or centrally if relates to the Shared Services Centre or
other central function. The risk identification and management is
supported by the Group Risk Manager.
During the year, the Audit and Risk Committee carried out a
robust assessment of principal risks to the Group and the adequacy
of the controls in place to appropriately manage those risks to
support the delivery of long-term priorities. Consideration is also
given to emerging risks to ensure that the risk management
framework is updated to protect the business. Where there is
insufficient information on the potential risk, ongoing monitoring
is put in place.
The Board recognises that there are certain risks which are
inherent in the Group, such as market risk with respect to its
Investment Portfolio, and the controls to mitigate against such
risks are paramount to the delivery of our objectives.
During 2022, we launched our incident risk management reporting
system. We ran extensive training and awareness sessions as we
continue to build an open risk-reporting and no-blame culture to
better understand risks across our business.
The risk assessment process evaluates the probability of the
risk materialising and the financial, strategic or reputational
impact of the risk using a scoring system approved by the ARC.
There may be uncertainty in measuring certain risks, but the aim is
to inform and guide decisions and pinpoint areas which may require
more urgent attention.
Those risks which have a higher probability and significant
impact on strategy, reputation or a financials under the risk
scoring system are identified as principal risks below.
Governance
The Group's risk management and internal control framework is
managed through its governance structure shown in the diagram on
page 38 of the Annual Report and overseen by the Audit and Risk
Committee. IPS business risks are managed through regular business
unit risk committees and management meetings. The outputs of these
are fed through to the Executive Risk Committee and then the Audit
and Risk Committee for review and to the Board if appropriate.
Group risk summary and mitigating actions
Overall risk trend in 2022
We recognise the heightened global geopolitical and
macroeconomic risks that impact our global community in the last
year and are conscious of the risk and uncertainty they pose for
the Investment Portfolio and IPS business. These macroeconomic
risks are a key driver behind the in-year change in risk profile to
many of our principal risks with continuing uncertainty extending
into 2023 and are incorporated into our "changes to risk in 2022"
section of the table below.
PRINCIPAL GROUP CHANGES TO RISK IN MITIGATING ACTIVITIES
RISKS 2022
1. Investment Performance and Market Risk
The risk of the + Increased risk
Investment Portfolio * Market risk is an accepted risk given the nature of
failing to deliver The risk level has the Investment Portfolio. To manage this inherent
and/ or failing increased due to the risk the Board regularly reviews the investment
to consider and war in Ukraine, managers' report including risk indicators and has
react to market volatility open dialogue with the investment managers on their
conditions to deliver of domestic politics approach and performance.
the publicly stated and global economic
strategic objectives pressures, all of
to: which * The Investment Portfolio is closed ended so it does
have had an not have to sell investments to provide liquidity to
* Achieve long-term capital growth. unfavourable shareholders who wish to sell. This enables our
impact on global investment managers to invest for the long-term and
markets take advantage of any opportunities created by
* Deliver steadily increasing income. and therefore the external factors.
Investment
Portfolio. Rising
* Achieve a rate of return greater than the FTSE global * To mitigate leverage risk, all borrowings require the
Actuaries All-Share Index. inflation runs prior approval of the Board and gearing levels are
undermines kept under close review by the Board.
the value of
investment
Investment performance returns. * The negotiated covenants in our debt arrangements are
and market risk such that the decline in markets would have to be
is the largest risk extreme before any breach occurred.
to which the Group
is exposed. However,
this is an accepted
risk and one which
the Board actively
adopts as it believes
long-term equity
investment is the
fundamental reason
our shareholders
invest in our Company.
Our investment risk
includes market
risk, gearing risk,
credit risk and
liquidity risk.
---------------------- ------------------------------------------------------------
2. Cyber, Technology and Systems Risk
We rely on a set + Increased risk
of critical IT * The Group is Cyber Essentials Plus certified, the
systems which Cyber-attack trends highest level of certification offered under the
are fundamental and high-profile Government-backed, industry-supported Cyber
to the day-to-day cases in the media Essentials scheme which helps organisations protect
running of the demonstrates the themselves against common online security threats.
business. The increasing frequency
threat of unauthorised and scale of this
or malicious attacks risk including trends * During 2022, we further enhanced our internal
on our IT systems on increased "impersonation" monitoring system (SIEM) to track aspects of IT cyber
is an ongoing scams from bogus security e.g. unusual log-in attempts and unwanted
risk. email addresses and traffic on our Group website. Cyber insurance is also
ransomware. in place.
Failures in these
systems could
lead to reduced * We conduct regular penetration testing and take steps
revenue, increased to address identified weaknesses.
costs, liability
claims, or harm
to our reputation * We place focus on training our staff about cyber
or competitive security risks including phishing testing.
position. This
includes the systems
of Janus Henderson. * We adopt a continuous improvement approach to IT
security and continue to invest in cloud-based
technology across the Group.
* Janus Henderson are subject to an independent annual
controls review to ensure there are no material
deficiencies. During the year we conducted an on-
site assessment of Janus Henderson's information
system and business continuity/disaster recovery
plans and consider them to be acceptable for our
purposes.
---------------------------------- ------------------------------------------------------------------
3. IPS Concentration Risk NEW
The unique setup = Unchanged
of the Group as * The IPS business comprises a diversified range of
an Investment The IPS business services with very limited client concentration risk.
Portfolio with includes some counter-cyclical
the unquoted IPS services providing
business, which opportunity for some * The CEO and COO are accountable for the day-to- day
represents 21% business lines during running and operation of the IPS business with
of NAV and accounted market downturn which independent oversight and challenge from the
for 30% of revenue helps protect overall Non-Executive Directors. The performance of the IPS
return per share IPS performance; business is reviewed at all regular Board meetings.
in 2022, creates therefore, concentration
an illiquid concentration risk is broadly the
risk. same year-on-year. * The annual IPS budget is subject to review and
approval by the Board which provides robust scrutiny
Failure to deliver and challenge on IPS strategic plans.
on IPS strategy
could result in
a significant * Any significant IPS investment requires Board
reduction in valuation approval. This reduces the risk of unplanned
of the Group's concentration risk.
largest asset
thereby putting
pressure on our * Valuation of the IPS business takes into account the
ability to meet illiquid nature of the holding.
our stated objective
of long-term capital
growth, and to
steadily increase
income for our
shareholders.
---------------------------------- ------------------------------------------------------------------
Emerging risks and mitigating actions
EMERGING RISKS CHANGES TO RISK IN MITIGATING ACTIVITIES
2022
1. ESG Considerations
As ESG becomes = Unchanged ESG is considered by our investment
an area of increased managers when selecting investments.
focus, we must This risk continues ESG ratings and events in relation
consider the impact to present challenges to our Portfolio holdings are
of ESG factors around consistency regularly reviewed by the Board
adversely affecting and reliability of and challenged where necessary.
the Group's reputation ESG ratings. Considerable ESG progress has
and performance. been made in 2022 - including
These can impact voting data, voluntary TCFD,
the Group both defining our ESG Strategy, and
directly and indirectly creating an ESG area on our
through our shareholders Group website.
and other stakeholders. We continue to engage and monitor
with stakeholders on ESG, in
There is also a order to identify trends, patterns
significant uptick and areas of key concern.
in the ESG regulatory
landscape; we must
ensure that we
do not fall behind
in meeting these
requirements including
climate and ESG-
related targets.
----------------------- --------------------------------------
PRINCIPAL RISKS REMOVED DURING 2022
During 2022, the ARC performed a robust review of principal risks
under the approved principal risk scoring system. At full year 2022,
following our risk assessment process, we present "IPS Concentration
Risk" to include the 2021 "IPS risks" including "Strategic & Financial",
"Change Management" and "Financial Crime" and emerging risk "Digital
Disruptors and Change". "IPS Concentration Risk" better represents
the Group principal risk using the approved principal risk scale.
"Financial Reporting" risk was removed as the residual risk score
fell below the threshold for principal risk reporting following the
Audit and Risk Committee's robust assessment of principal risks during
2022.
Viability statement
The Board has considered the Company's current financial
position and the potential impact of its principal risks and
uncertainties, and have a reasonable expectation that the Company
will be able to continue in operation and meet its liabilities as
they fall due for a period of three years from the date of this
report.
In assessing the viability of the Company of the review period,
the Board has considered a number of key factors, including:
Our business model and strategy
-- The Board seeks to ensure that the Company delivers long-term
performance. The closed ended nature of the investment trust
creates a stable capital basis which enables our investment
manager's to take a longer-term view in their construction and
management of the Portfolio. This partially mitigates the risk to
the Group of potential liquidity issues should shareholders wish to
sell their shares, avoiding any untimely requirements to sell down
the Portfolio.
-- As an investment trust, we benefit from the unique structure
of a predominantly UK-based equity portfolio with a diversified
revenue stream arising from the IPS business. As demonstrated by
our long-term performance, the combination of the Investment
Portfolio and the IPS revenue streams provide protection to the
long-term viability of the Company. Over a three year period, the
share-price total return is 37.7%. The NAV total return with debt
at fair value is 26.0% compared to the FTSE Actuaries All-Index
Total Return of 7.1%.
-- One of the principal Group risks relates to investment
strategy and market performance. Part of the risk to the Group is a
breach of our debt covenants resulting in a requirement for the
Group to repay the debentures at short notice, potentially
requiring the sale of assets during a market downturn. Whilst the
Board acknowledges this risk, the uncertainty arising due to the
Covid-19 pandemic demonstrates the Group's ability to navigate
these challenges. At the height of market decline on 23 March 2020,
the Group maintained significant headroom on all covenants.
-- The IPS business currently holds enough working capital to
meet any short term requirements of the Group and our book of
clients provides a steady, largely recurring, flow of income. There
has been a concerted focus on debtor management which has enhanced
the IPS business's cashflow over the past year and improved our
working capital cycle.
Furthermore, the majority of the Portfolio is invested in UK
listed securities which are traded on major stock exchanges,
providing the Group with the ability to quickly liquidate assets,
should the need arise.
-- The Company has an ongoing charge of 0.49%. This is the third
lowest OCR in the UK Equity Income sector.*
*Source: The AIC -
https://www.theaic.co.uk/aic/find-compare-investment-companies/advanced-compare?end=2563
Our business operations
-- The Company retains ownership of all assets held by the
Custodian under the terms of formal agreements with the Custodian
and Depositary. This supports our ability to meet our Legal and
Regulatory requirements and acts as a control to both verify the
existence our assets and further safeguard the interests of our
Shareholders.
-- The Company's cash is all held with banks approved by the
Board. The Company's cash balance, including money market funds, at
the 31 December 2022 amounted to GBP29.8m (30 December 2021:
GBP25.5m), with IPS holding a further GBP18.7m. Cash is treated as
fungible across the Group and it is deployed on a basis of need.
During the course of 2022, there has been a concerted effort to
clear down inter-company balances and a netting-off agreement has
also been put in place.
-- There is long term borrowing in place comprising of four debentures:
Maturity date PAR Value Interest
2034 GBP40m 6.125%
----------- -------------------------
2041 GBP20m 2.54%
----------- -------------------------
2045 GBP75m 3.77%
----------- -------------------------
2050 GBP30m 2.53%
----------- -------------------------
Total GBP165m Weighted average: 3.966%
----------- -------------------------
The weighted average cost of borrowing based on the debt at PAR
values is 3.966%. Each debenture is subject to a formal agreement,
including financial covenants which the Company has complied with
in full during the year. As at the end of December, net gearing was
12%, which is well within the typical operating range of
10%-20%.
-- During January 2021, the Company also made arrangements to
put in place a GBP50m unsecured overdraft facility with HSBC.
Whilst available, this facility is currently not in use but
provides further mitigation of any liquidity risk.
-- The Board reviews the Portfolio performance including revenue
forecasts, along with other key metrics such as gearing at each
Board Meeting and receives regular financial reporting to monitor
and manage the principal risk relating to investment
performance.
In addition to this, the Board carries out an assessment of our
principal risks and uncertainties which could threaten the
Company's business model. This assessment has been shared
separately and will be presented as part of the Annual Report. As
part of this exercise, the Board has assessed the emerging risks
which may impact the operations of the Company and will continue to
actively review the likely impact of these potential risks. This is
set out at above.
The political and economic situation has placed a strain on the
global and UK economy, bringing with it uncertainty, supply- side
inflation and rising interest rates. The IPS business has also felt
the impact of the competition for talent in the UK market. This has
resulted in rising salary expectations of both our people and any
potential new hires. At present, the Board does not consider this
will have an impact on the longer-term viability of the
Company.
Balance sheet resilience
As at the 31 December 2022, Law Debenture Corporation held total
investments, including cash and the IPS business, of GBP1.14bn (31
December 2021: GBP1.20bn). With the exception of the IPS business,
the majority of these assets are liquid and could be sold down
within a short period of time, i.e. less than 10 working days.
The Board and the Executive Leadership team have actively
monitored the cash position across the Group throughout the year,
mindful of our commitment to pay quarterly dividends to
shareholders. As of 31 December 2022, the Group holds cash and cash
equivalents of GBP49.6m (31 December 2021: GBP35.8m). In addition
to this, the Company has an overdraft facility of GBP50m to protect
against any significant fall of cash inflows.
Repurchase and issue of shares
At the 2022 AGM, the Directors were given power to buy back up
to 18,567,488 ordinary shares or, if less, the number of shares
equal to 14.99% of the Company's issued share capital at that date.
During the year, the Company did not repurchase any of its shares
for cancellation. This authority will expire at the 2023 AGM. The
Company intends to seek shareholder approval to renew its powers to
repurchase shares for cancellation up to 14.99% of the Company's
issued share capital if circumstances are appropriate, at the 2023
AGM.
The Directors were also given power to allot up to 12,386,583
ordinary shares at the 2022 AGM. From the 2022 AGM to the 27
February 2023 the Company issued a total of 3.7m ordinary shares
under its share issuance programme, launched in February 2021 and
our SAYE scheme. The authority will expire at the 2023 AGM at which
the Company intends to seek shareholder approval to renew its
powers to issue shares up to 10% of the Company's share capital in
issue at 27 February 2023.
Share capital and significant shareholdings
The Company's share capital is made up of ordinary shares with a
nominal value of 5p each. The voting rights of the shares on a poll
are one vote for every share held. There are no restrictions on 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 2022, there were 128,172,019 ordinary shares in issue with
128,172,019 voting rights. Details of share capital changes in the
year may be found in note 17 to the Accounts in the Annual
Report.
Significant financial issues relating to the 2022 accounts
The Code requires us to describe any significant issues
considered in relation to the financial statements and how those
issues were addressed.
The significant issues considered by the Audit and Risk
Committee include the valuation of IPS, oversight of the CSS
impairment review, the existence and valuation of Investments,
discussions around the control environment and the accounting for
Pension Defined Benefit Scheme.
No new significant issues arose during the course of the audit.
During 2022, there was a big focus on embedding the improved
Finance operations, which we invested in heavily during 2021. We
are pleased with the progress made and the improved control
environment which has resulted.
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.
Directors' responsibility statement pursuant to DTR4
The Directors confirm to the best of their knowledge that:
-- the financial statements have been prepared in accordance
with international financial reporting standards adopted pursuant
to Regulation (EC) No 1606/2002 as it applies in the European Union
and give a true and fair view of the assets, liabilities, financial
position and profit and loss of the Group; and
-- the Annual Report includes a fair review of the development
and performance of the business and the financial position of the
Group, together with a description of the principal risks and
uncertainties that they face.
This report was approved by the Board of Directors on 27
February 2023.
Group income statement
as at 31 December 2022
2022 2021
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------- ------------ ------------ --------- ---------- ----------
UK dividends 29,837 - 29,837 21,426 - 21,426
--------- ------------ ------------ --------- ---------- ----------
UK special
dividends 1,176 3,442 4,618 250 - 250
--------- ------------ ------------ --------- ---------- ----------
Overseas dividends 3,451 - 3,451 4,583 - 4,583
--------- ------------ ------------ --------- ---------- ----------
Total dividend
income 34,464 3,442 37,906 26,259 - 26,259
--------- ------------ ------------ --------- ---------- ----------
Interest income 266 - 266 - - -
--------- ------------ ------------ --------- ---------- ----------
Independent
professional
services fees 53,452 - 53,452 49,513 - 49,513
--------- ------------ ------------ --------- ---------- ----------
Other income 847 - 847 551 - 551
--------- ------------ ------------ --------- ---------- ----------
Total income 89,029 3,442 92,471 76,323 - 76,323
--------- ------------ ------------ --------- ---------- ----------
Net (loss)/gain
on investments
held value
through profit
or loss - (126,234) (126,234) - 121,170 121,170
--------- ------------ ------------ --------- ---------- ----------
Total income
and capital
gains/(losses) 89,029 (122,792) (33,763) 76,323 121,170 197,493
--------- ------------ ------------ --------- ---------- ----------
Cost of sales (8,408) - (8,408) (8,037) - (8,037)
--------- ------------ ------------ --------- ---------- ----------
Administrative
expenses (34,332) (1,908) (36,240) (31,680) (2,456) (34,136)
--------- ------------ ------------ --------- ---------- ----------
Operating
profit/(loss) 46,289 (124,700) (78,411) 36,606 118,714 155,320
--------- ------------ ------------ --------- ---------- ----------
Finance costs
--------- ------------ ------------ --------- ---------- ----------
Interest payable (1,636) (4,908) (6,544) (1,319) (3,958) (5,277)
--------- ------------ ------------ --------- ---------- ----------
Profit/(loss)
before taxation 44,653 (129,608) (84,955) 35,287 114,756 150,043
--------- ------------ ------------ --------- ---------- ----------
Taxation (1,392) - (1,392) (1,210) - (1,210)
--------- ------------ ------------ --------- ---------- ----------
Profit/(loss)
for the year 43,261 (129,608) (86,347) 34,077 114,756 148,833
--------- ------------ ------------ --------- ---------- ----------
Return per
ordinary share
(pence) 34.44 (103.17) (68.73) 28.09 94.60 122.69
--------- ------------ ------------ --------- ---------- ----------
Diluted return
per ordinary
share (pence) 34.42 (103.14) (68.72) 28.08 94.57 122.66
--------- ------------ ------------ --------- ---------- ----------
Group statement of comprehensive income
as at 31 December 2022
2022 2021
Revenue Capital Total Revenue Capital Total
GROUP GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------- ---------- --------- -------- -------- --------
Profit/(loss) for
the period 43,261 (129,608) (86,347) 34,077 114,756 148,833
-------- ---------- --------- -------- -------- --------
Foreign exchange
on translation of
foreign operations - 199 199 - 654 654
-------- ---------- --------- -------- -------- --------
Pension actuarial
(losses)/gains (300) - (300) 8,500 - 8,500
-------- ---------- --------- -------- -------- --------
Taxation on pension 57 - 57 (1,615) - (1,615)
-------- ---------- --------- -------- -------- --------
Other comprehensive
income/(loss) for
year (243) 199 44 6,885 654 7,539
-------- ---------- --------- -------- -------- --------
Total comprehensive
income/(loss) for
the year 43,018 (129,409) (86,391) 40,962 115,410 156,372
-------- ---------- --------- -------- -------- --------
All items stated in the statement of comprehensive income will
be subsequently classified when specific conditions are met.
Statement of financial position
as at 31 December 2022
GROUP COMPANY
2022 2021 2022 2021
Assets GBP000 GBP000 GBP000 GBP000
---------- ---------- -------- ----------
Non-current assets
---------- ---------- -------- ----------
Goodwill 19,036 18,973 - -
---------- ---------- -------- ----------
Property, plant and
equipment 1,796 1,974 - -
---------- ---------- -------- ----------
Right-of-use assets 5,040 5,542 - -
---------- ---------- -------- ----------
Other intangible assets 3,417 3,516 16 16
---------- ---------- -------- ----------
Investments held at
fair value through
profit or loss 891,005 992,478 890,905 992,378
---------- ---------- -------- ----------
Investments in subsidiary
undertakings - - 61,368 61,283
---------- ---------- -------- ----------
Retirement benefit
asset 7,400 6,577 - -
---------- ---------- -------- ----------
Total non-current
assets 927,694 1,029,060 952,289 1,053,677
---------- ---------- -------- ----------
Current assets
---------- ---------- -------- ----------
Trade and other receivables 19,697 20,466 515 57,581
---------- ---------- -------- ----------
Contract assets 7,182 6,611 769 583
---------- ---------- -------- ----------
Cash and cash equivalents 49,559 35,880 29,825 25,507
---------- ---------- -------- ----------
Total current assets 76,438 62,957 31,109 83,671
---------- ---------- -------- ----------
Total assets 1,004,132 1,092,017 983,398 1,137,348
---------- ---------- -------- ----------
Current liabilities
---------- ---------- -------- ----------
Amounts owed to subsidiary
undertakings - - 19,603 87,631
---------- ---------- -------- ----------
Trade and other payables 19,815 29,329 10,046 13,447
---------- ---------- -------- ----------
Lease liability 991 287 - -
---------- ---------- -------- ----------
Corporation tax payable 1,256 925 - -
---------- ---------- -------- ----------
Other taxation including
social security 2,892 1,543 1,860 850
---------- ---------- -------- ----------
Contract liabilities 5,223 5,620 7 34
---------- ---------- -------- ----------
Total current liabilities 30,177 37,704 31,516 101,962
---------- ---------- -------- ----------
Non-current liabilities
---------- ---------- -------- ----------
Long-term borrowings 163,909 164,245 124,389 124,586
---------- ---------- -------- ----------
Contract liabilities 3,976 4,054 125 125
---------- ---------- -------- ----------
Deferred tax liability 1,344 1,060 - -
---------- ---------- -------- ----------
Lease liability 5,659 6,117 - -
---------- ---------- -------- ----------
Total non-current
liabilities 174,888 175,476 124,514 124,711
---------- ---------- -------- ----------
Total net assets 799,067 878,837 827,368 910,675
---------- ---------- -------- ----------
Equity
---------- ---------- -------- ----------
Called up share capital 6,407 6,145 6,407 6,145
---------- ---------- -------- ----------
Share premium 83,022 41,865 83,022 41,865
---------- ---------- -------- ----------
Own shares (3,128) (3,215) - -
---------- ---------- -------- ----------
Capital redemption 8 8 8 8
---------- ---------- -------- ----------
Translation reserve 2,855 2,656 - -
---------- ---------- -------- ----------
Capital reserves 662,512 789,423 708,382 835,293
---------- ---------- -------- ----------
Retained earnings 47,391 41,955 29,549 27,364
---------- ---------- -------- ----------
Total equity 799,067 878,837 827,368 910,675
---------- ---------- -------- ----------
Total equity pence
per share 625.81 717.86
---------- ---------- -------- ----------
As permitted by Section 408 of the Companies Act 2006, the
Company has not presented its own income statement, however its
loss for the year was GBP89,312,000 (2021: profit GBP151,510,000).
Approved and authorised for issue by the Board on 27 February 2023
and signed on its behalf by:
R. Hingley, Chairman | D. Jackson, Chief Executive Officer
The Law Debenture Corporation p.l.c. registered number
00030397.
Group statement of changes in equity
as at 31 December 2022
GROUP Called up
share Share Capital Translation Capital Retained
capital premium Own shares redemption reserve reserves earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 1
January
2022 6,145 41,865 (3,215) 8 2,656 789,423 41,955 878,837
---------- ---------- ----------- ----------- ------------ ------------ ---------- -----------
Profit/(loss)
for
the period - - - - - (129,608) 43,261 (86,347)
---------- ---------- ----------- ----------- ------------ ------------ ---------- -----------
Foreign
exchange - - - - 199 2,697 426 3,322
---------- ---------- ----------- ----------- ------------ ------------ ---------- -----------
Actuarial gain
on
pension
scheme (net
of tax) - - - - - - (243) (243)
---------- ---------- ----------- ----------- ------------ ------------ ---------- -----------
Total
comprehensive
loss for the
period - - - - 199 (126,911) 43,444 (83,268)
---------- ---------- ----------- ----------- ------------ ------------ ---------- -----------
Issue of
shares 262 41,157 87 - - - - 41,506
---------- ---------- ----------- ----------- ------------ ------------ ---------- -----------
Dividend
relating
to 2021 - - - - - - (10,396) (10,396)
---------- ---------- ----------- ----------- ------------ ------------ ---------- -----------
Dividend
relating
to 2022 - - - - - - (27,612) (27,612)
---------- ---------- ----------- ----------- ------------ ------------ ---------- -----------
Total equity
at
31 December
2022 6,407 83,022 (3,128) 8 2,855 662,512 47,391 799,067
---------- ---------- ----------- ----------- ------------ ------------ ---------- -----------
GROUP Called up
share Share Capital Translation Capital Retained
capital premium Own shares redemption reserve reserves earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 1
January
2021 5,923 9,277 (1,461) 8 2,002 674,591 36,654 726,994
----------- ------------ ----------- ----------- ------------ ---------- ---------- ----------
Profit/(loss)
for
the period - - - - - 114,756 34,077 148,833
----------- ------------ ----------- ----------- ------------ ---------- ---------- ----------
Foreign
exchange - - - - 654 76 (738) (8)
----------- ------------ ----------- ----------- ------------ ---------- ---------- ----------
Actuarial gain
on
pension
scheme (net
of tax) - - - - - - 6,885 6,885
----------- ------------ ----------- ----------- ------------ ---------- ---------- ----------
Total
comprehensive
loss for the
period - - - - 654 114,832 40,224 155,710
----------- ------------ ----------- ----------- ------------ ---------- ---------- ----------
Issue of
shares 222 32,588 - - - - - 32,810
----------- ------------ ----------- ----------- ------------ ---------- ---------- ----------
Movement in
own shares - - (1,754) - - - - (1,754)
----------- ------------ ----------- ----------- ------------ ---------- ---------- ----------
Dividend
relating
to 2020 - - - - - - (9,614) (9,614)
----------- ------------ ----------- ----------- ------------ ---------- ---------- ----------
Dividend
relating
to 2021 - - - - - - (25,309) (25,309)
----------- ------------ ----------- ----------- ------------ ---------- ---------- ----------
Total equity
at
31 December
2021 6,145 41,865 (3,215) 8 2,656 789,423 41,955 878,837
----------- ------------ ----------- ----------- ------------ ---------- ---------- ----------
Capital reserves comprises realised and unrealised gains on
investments held at fair value through profit or loss. Please refer
to note 18 in the notes to the Accounts in the Annual Report, for
details of dividends paid.
Statement of changes in equity
as at 31 December 2022
COMPANY Share capital Share Capital Capital Retained
GBP000 premium redemption reserves earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 1
January 2022 6,145 41,865 8 835,293 27,364 910,675
-------------- --------- ------------ ------------ ---------- -----------
Profit/(loss)
for the period - - - (129,608) 40,296 (89,312)
-------------- --------- ------------ ------------ ---------- -----------
Foreign exchange - - - 2,697 (103) 2,594
-------------- --------- ------------ ------------ ---------- -----------
Total comprehensive
loss for the
period - - - (126,911) 40,193 (86,718)
-------------- --------- ------------ ------------ ---------- -----------
Issue of shares 262 41,157 - - - 41,419
-------------- --------- ------------ ------------ ---------- -----------
Dividend relating
to 2021 - - - - (10,396) (10,396)
-------------- --------- ------------ ------------ ---------- -----------
Dividend relating
to 2022 - - - - (27,612) (27,612)
-------------- --------- ------------ ------------ ---------- -----------
Total equity
at
31 December
2022 6,407 83,022 8 708,382 29,549 827,368
-------------- --------- ------------ ------------ ---------- -----------
COMPANY Share capital Share Capital Capital Retained
GBP000 premium redemption reserves earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 1
January 2021 5,923 9,277 8 733,189 12,881 761,278
-------------- --------- ------------ ---------- ---------- ----------
Profit/(loss)
for the period - - - 114,756 36,754 151,510
-------------- --------- ------------ ---------- ---------- ----------
Total comprehensive
profit for the
period - - - 114,756 36,754 151,510
-------------- --------- ------------ ---------- ---------- ----------
Issue of shares 222 32,588 - - - 32,810
-------------- --------- ------------ ---------- ---------- ----------
Dividend relating
to 2020 - - - - (9,614) (9,614)
-------------- --------- ------------ ---------- ---------- ----------
Dividend relating
to 2021 - - - (12,652) (12,657) (25,309)
-------------- --------- ------------ ---------- ---------- ----------
Total equity
at
31 December
2021 6,145 41,865 8 835,293 27,364 910,675
-------------- --------- ------------ ---------- ---------- ----------
Capital reserves comprises realised and unrealised gains on
investments held at fair value through profit or loss. Please refer
to note 18 in the notes to the Accounts in the Annual Report, for
details of dividends paid.
Cash Flow Statement
for the year ended 31 December 2022
GROUP COMPANY
2022 2021 2022 2021
GBP000 GBP000 GBP000 GBP000
---------- ---------- ---------- ----------
Cash flows from operating
activities (before dividends
received) and taxation
paid 2,249 4,422 (6,157) (1,534)
---------- ---------- ---------- ----------
Cash dividends received 37,498 27,550 47,136 42,500
---------- ---------- ---------- ----------
Taxation paid (700) (307) - -
---------- ---------- ---------- ----------
Cash generated from
operating activities 39,047 31,665 40,979 40,966
---------- ---------- ---------- ----------
Investing activities
---------- ---------- ---------- ----------
Acquisition of property,
plant and equipment (151) (1,075) - -
---------- ---------- ---------- ----------
Acquisition of right (428) - - -
of use assets
---------- ---------- ---------- ----------
Expenditure on intangible (639) - - -
assets
---------- ---------- ---------- ----------
Cash consideration transferred - (18,214) - -
in relation to acquisition
---------- ---------- ---------- ----------
Purchase of investments
(less cost of acquisition) (170,653) (200,096) (170,653) (200,096)
---------- ---------- ---------- ----------
Sale of investments 145,892 140,440 145,892 140,327
---------- ---------- ---------- ----------
Cash flow from investing
activities (25,979) (78,945) (24,761) (59,769)
---------- ---------- ---------- ----------
Financing activities
---------- ---------- ---------- ----------
Interest paid (6,544) (5,277) (6,653) (5,567)
---------- ---------- ---------- ----------
Dividends paid (37,167) (34,923) (37,167) (34,923)
---------- ---------- ---------- ----------
Payment of lease liability (505) (371) - -
---------- ---------- ---------- ----------
Proceeds of increase
in share capital 41,419 32,810 41,419 32,810
---------- ---------- ---------- ----------
Proceeds of issuance
of long-term borrowings - 50,000 - 50,000
---------- ---------- ---------- ----------
Purchase of own shares 87 (1,754) - -
---------- ---------- ---------- ----------
Amounts receivable from
intercompany - - (23,207) (55,935)
---------- ---------- ---------- ----------
Intercompany funding - - 11,114 25,933
---------- ---------- ---------- ----------
Net cash flow from financing
activities (2,710) 40,485 (14,494) 12,318
---------- ---------- ---------- ----------
Net increase/(decrease)
in cash and cash equivalents 10,358 (6,488) 1,724 (6,485)
---------- ---------- ---------- ----------
Cash and cash equivalents
at beginning of period 35,880 41,762 25,507 32,098
---------- ---------- ---------- ----------
Foreign exchange gains/(losses)
on cash and cash equivalents 3,321 606 2,594 (106)
---------- ---------- ---------- ----------
Cash and cash equivalents
at end of period 49,559 35,880 29,825 25,507
---------- ---------- ---------- ----------
Extracts from the Notes to the Accounts
Going concern
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).
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.
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 investment at fair value.
The Directors have considered the impact of the current economic
uncertainty, across the Group, including cash flow forecasting,
balance sheet review at entity level, a review of covenant
compliance including the headroom above the covenants and an
assessment of the liquidity of the portfolio. Whilst the debentures
held are subject to covenants, the Directors are comfortable that
the risk of breach is minimal, and the current economic environment
does not create material uncertainty for the Company.
The assets of the Company consist largely of securities that are
readily realisable, and it will be able to meet its financial
obligations, including the repayment of the debenture interest, as
they fall due for a period of at least twelve months from the date
of approval of the financial statements.
Accordingly, the Directors believe that the Company has adequate
resources to continue in operational existence for at least twelve
months from the date of approval of the financial statements.
Having assessed these factors and the principal risks, the
Directors are not aware of any other material uncertainties that
cast significant doubt on the Group's ability to continue as a
going concern.
Segment analysis
Independent Professional
Investment Portfolio Services Total
31 December 31 December 31 December 31 December 31 December 31 December
2022 2021 2022 2021 2022 2021
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------ ------------ ------------- ------------ ------------ ------------
Revenue
------------ ------------ ------------- ------------ ------------ ------------
Dividend income 34,464 26,259 - - 34,464 26,259
------------ ------------ ------------- ------------ ------------ ------------
IPS revenue:
------------ ------------ ------------- ------------ ------------ ------------
Corporate trust - - 13,292 13,317 13,292 13,317
------------ ------------ ------------- ------------ ------------ ------------
Corporate services - - 25,792 22,981 25,792 22,981
------------ ------------ ------------- ------------ ------------ ------------
Pensions - - 14,368 13,215 14,368 13,215
------------ ------------ ------------- ------------ ------------ ------------
Segment revenue 34,464 26,259 53,452 49,513 87,916 75,772
------------ ------------ ------------- ------------ ------------ ------------
Other income 847 551 - - 847 551
------------ ------------ ------------- ------------ ------------ ------------
Cost of sales (125) (110) (8,283) (7,927) (8,408) (8,037)
------------ ------------ ------------- ------------ ------------ ------------
Administration
costs (3,522) (3,434) (30,810) (28,246) (34,332) (31,680)
------------ ------------ ------------- ------------ ------------ ------------
Return before
interest and tax 31,664 23,266 14,359 13,340 46,023 36,606
------------ ------------ ------------- ------------ ------------ ------------
Interest payable
(net) (1,432) (1,319) 62 - (1,370) (1,319)
------------ ------------ ------------- ------------ ------------ ------------
Return, including
profit on ordinary
activities before
taxation 30,232 21,947 14,421 13,340 44,653 35,287
------------ ------------ ------------- ------------ ------------ ------------
Taxation - - (1,392) (1,210) (1,392) (1,210)
------------ ------------ ------------- ------------ ------------ ------------
Return, including
profit attributable
to shareholders 30,232 21,947 13,029 12,130 43,261 34,077
------------ ------------ ------------- ------------ ------------ ------------
Revenue return
per ordinary share
(pence) 24.06 18.09 10.38 10.00 34.44 28.09
------------ ------------ ------------- ------------ ------------ ------------
Assets 922,080 1,020,114 84,640 71,903 1,006,720 1,092,017
------------ ------------ ------------- ------------ ------------ ------------
Liabilities (176,377) (175,418) (31,276) (37,762) (207,653) (213,180)
------------ ------------ ------------- ------------ ------------ ------------
Total net assets 745,703 844,696 53,364 34,141 799,067 878,837
------------ ------------ ------------- ------------ ------------ ------------
The table below illustrates a breakdown of net revenue per
department:
Gross Revenue Cost of sales Net Revenue
31 December 31 December 31 December 31 December 31 December 31 December
2022 2021 2022 2021 2022 2021
GBP GBP GBP GBP GBP GBP
------------ ------------ ------------ ------------ ------------ ------------
Pensions 14,368 13,215 (25) (155) 14,343 13,060
------------ ------------ ------------ ------------ ------------ ------------
Corporate
Trust 13,292 13,317 (2,672) (3,546) 10,620 9,771
------------ ------------ ------------ ------------ ------------ ------------
Corporate
Services 25,792 22,981 (5,586) (4,226) 20,206 18,755
------------ ------------ ------------ ------------ ------------ ------------
Total
IPS Income 53,452 49,513 (8,283) (7,927) 45,169 41,586
------------ ------------ ------------ ------------ ------------ ------------
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. Group dividends are
paid from the Investment Portfolio segment of revenue reserves.
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 3% 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 (2022: loss of GBP126,234,000; 2021: gain
of GBP121,170,000), administrative expenses (2022: GBP1,908,000;
2021: GBP2,456,000), interest payable (2022: GBP4,908,000; 2021:
GBP3,958,000) and a capital dividend received of GBP3,442,000 which
corresponds to amounts classified as capital in nature in
accordance with the SORP are shown in the capital column of the
income statement above.
Financial instruments
The principal risks facing the Group in respect of its financial
instruments remain unchanged from 2021 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 175. 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 2022 fell or rose by
10%, the impact on the Group's total profit or loss for the year
would have been GBP89.1m (2021: GBP99.2m). Corresponding 10%
changes in the valuation of the Investment Portfolio on the
Company's total profit or loss for the year would have been
GBP89.1m (2021: GBP99.2m). 10% has been used based on historic
trends, however we will continue to revisit this on a periodic
basis.
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 2022 2021
Net monetary Total Net monetary Total
assets currency assets currency
Investments GBP000 exposure Investments GBP000 exposure
GBP000 GBP000 GBP000 GBP000
-------------- ------------- ---------- -------------- ------------- ----------
US Dollar 35,552 7,681 43,233 44,700 3,600 48,300
-------------- ------------- ---------- -------------- ------------- ----------
Canadian
Dollar 6,700 - 6,700 6,100 - 6,100
-------------- ------------- ---------- -------------- ------------- ----------
Euro 64,452 3,508 67,960 72,600 1,100 73,700
-------------- ------------- ---------- -------------- ------------- ----------
Danish
Krone 2,405 - 2,405 2,300 - 2,300
-------------- ------------- ---------- -------------- ------------- ----------
Swedish
Krona - - - 1,200 - 1,200
-------------- ------------- ---------- -------------- ------------- ----------
Swiss
Franc 7,237 - 7,237 9,600 - 9,600
-------------- ------------- ---------- -------------- ------------- ----------
Hong Kong
Dollar - 976 976 - 1,000 1,000
-------------- ------------- ---------- -------------- ------------- ----------
Japanese
Yen 9,426 - 9,426 11,200 - 11,200
-------------- ------------- ---------- -------------- ------------- ----------
Total 125,772 12,165 137,937 147,700 5,700 153,400
-------------- ------------- ---------- -------------- ------------- ----------
The Group US dollar net monetary assets is that held by the US
operations of GBP1.3m (2021: GBP2m) together with GBP6.4m (2021:
GBP1.6m) held by non-US operations.
COMPANY 2022 2021
Net monetary Total Net monetary Total
assets currency Investments (liabilities) currency
Investments GBP000 exposure GBP000 GBP000 exposure
GBP000 GBP000 GBP000
-------------- ------------- ---------- -------------- --------------- ----------
US Dollar 35,552 - 35,552 44,700 100 44,800
-------------- ------------- ---------- -------------- --------------- ----------
Canadian
Dollar 6,700 - 6,700 6,100 - 6,100
-------------- ------------- ---------- -------------- --------------- ----------
Euro 64,452 - 64,452 72,600 - 72,600
-------------- ------------- ---------- -------------- --------------- ----------
Danish
Krone 2,405 - 2,405 2,300 - 2,300
-------------- ------------- ---------- -------------- --------------- ----------
Swedish
Krona - - - 1,000 - 1,000
-------------- ------------- ---------- -------------- --------------- ----------
Swiss
Franc 7,237 - 7,237 9,600 - 9,600
-------------- ------------- ---------- -------------- --------------- ----------
Japanese
Yen 9,426 - 9,426 11,200 - 11,200
-------------- ------------- ---------- -------------- --------------- ----------
Total 125,772 - 125,772 147,500 100 147,600
-------------- ------------- ---------- -------------- --------------- ----------
The holding in Scottish Oriental Smaller Companies Trust is
denominated in sterling but has underlying assets in foreign
currencies equivalent to GBP7.3m (2021: GBP7.1m). 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 2022 rose or fell by 10% against
sterling, the impact on the Group's total profit or loss for the
year would have been GBP14.0m and GBP11.4m respectively (2021:
GBP17.3m and GBP14.1m). 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:
2022
GROUP COMPANY
------------------------------------------------ -----------------------------------
HK Dollars US Dollars US Dollars
Sterling GBP000 GBP000 Euro Sterling GBP000 Euro
GBP000 GBP000 GBP000 GBP000
----------- ----------- ----------- --------- ----------- ----------- ---------
Floating
rate assets 37,351 976 7,681 3,508 14,357 5,780 2,662
----------- ----------- ----------- --------- ----------- ----------- ---------
2021
GROUP COMPANY
------------------------------------------------ -----------------------------------
HK Dollars US Dollars US Dollars
Sterling GBP000 GBP000 Euro Sterling GBP000 Euro
GBP000 GBP000 GBP000 GBP000
----------- ----------- ----------- --------- ----------- ----------- ---------
Floating
rate assets 29,700 1,000 3,600 1,100 25,000 100 -
----------- ----------- ----------- --------- ----------- ----------- ---------
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.
GROUP COMPANY
2022 2021 2022 2021
Sterling Sterling Sterling Sterling
GBP000 GBP000 GBP000 GBP000
---------- ---------- ---------- ----------
Fixed rate liabilities 163,909 164,200 124,400 124,200
---------- ---------- ---------- ----------
Weighted average fixed rate for the
year 3.961% 3.966% 3.276% 3.276%
---------- ---------- ---------- ----------
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
GBP346,000 credit (2021: GBP314,000 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 GBP40m 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 GBP224,000 credit
(2021: GBP233,000 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 20 in the notes to the accounts in the Annual Report.
The interest on borrowings is paid bi-annually on March and
September for the 2045 secured senior notes, April and October for
the 2034 secured bonds and May and November for the 2041 and 2050
senior secured notes.
Credit risk
Is the risk arising from the failure of another party to perform
according to the terms of their contract. Cash and cash equivalents
are held with banks which are rated "A-" or higher by Standard
& Poor's Rating Services.
The credit risk on liquid funds and borrowings is limited
because the counter-parties are banks with high credit-ratings
assigned by international credit rating agencies.
The Group's maximum exposure to credit risk arising from
financial assets is GBP69.3m (2021: GBP56.3m). The Company's
maximum exposure to credit risk arising from financial assets is
GBP30.3m (2021: GBP83.1m).
Outstanding customer receivables are continuously monitored and
followed up where required. Specific provisions are made when there
is evidence that the Group will not be able to collect the debts
from the customer. The ageing of trade receivables and the expected
credit loss at the reporting date are disclosed below.
Stock lending
Stock lending agreements are transactions in which the Group
lends securities for a fee and receives cash as collateral. The
Group continues to recognise the securities in their entirety in
the statement of financial position because it retains
substantially all of the risks and rewards of ownership. Because as
part of the lending arrangement the Group sells the contractual
rights to the cash flows of the securities, it does not have the
ability to use the transferred assets during the term of the
arrangement.
Stock lending transactions are carried out with a number of
approved counterparties. Details of the value of securities on loan
at the year end can be found in note 27 in the notes to the
accounts in the Annual Report. In summary, the Group only transacts
with counterparties that it considers to be credit worthy.
Trade and other receivables
The ageing profile of the carrying value of trade receivables
past due is as follows:
GROUP COMPANY
2022 2021 2022 2021
GBP000 GBP000 GBP000 GBP000
-------- -------- -------- --------
Between 31 and 60 days 2,162 3,342 - -
-------- -------- -------- --------
Between 61 and 90 days 1,367 2,403 - -
-------- -------- -------- --------
More than 91 days 11,640 10,941 15 -
-------- -------- -------- --------
Total 15,169 16,686 15 -
-------- -------- -------- --------
IFRS 9 credit loss rates
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 including business area and business
geography and ageing.
The expected loss rates are based on the Company's historical
credit losses experienced over a three-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. The Group has identified gross domestic
product (GDP) and unemployment trends act as key economic
indicators which may impact our customers' future ability to pay
debt.
The below table displays the gross carrying amount against the
expected credit loss provision and specific provisions. Specific
provisions relate to balances 91+ days overdue.
The total specific and credit loss provision at 31 December 2022
is GBP3,953,000 (2021: GBP3,314,000).
1-30 days 31-60 61-90
overdue days overdue days overdue 91+ days
Current GBP000 GBP000 GBP000 overdue Total
GBP000 GBP000 GBP000
31 December 2022
---------- ---------- -------------- -------------- ----------- ---------
Expected loss rate 1.71% 5.64% 3.75% 4.68% 3.59% 3.79%
---------- ---------- -------------- -------------- ----------- ---------
Gross carrying amount 2,634 3,562 2,162 1,367 11,640 21,365
---------- ---------- -------------- -------------- ----------- ---------
Expected credit loss
provision (45) (201) (81) (64) (418) (809)
---------- ---------- -------------- -------------- ----------- ---------
Specific provision - - - - (3,144) (3,144)
---------- ---------- -------------- -------------- ----------- ---------
Net carrying amount 2,589 3,361 2,081 1,303 8,078 17,412
---------- ---------- -------------- -------------- ----------- ---------
31 December 2021
---------- ---------- -------------- -------------- ----------- ---------
Expected loss rate 2.98% 2.94% 2.42% 4.45% 4.12% 3.62%
---------- ---------- -------------- -------------- ----------- ---------
Gross carrying amount 1,343 3,939 3,342 2,403 10,941 21,968
---------- ---------- -------------- -------------- ----------- ---------
Expected credit loss
provision (40) (116) (81) (107) (451) (795)
---------- ---------- -------------- -------------- ----------- ---------
Specific provision - - - - (2,519) (2,519)
---------- ---------- -------------- -------------- ----------- ---------
Net carrying amount 1,303 3,823 3,261 2,296 7,971 18,654
---------- ---------- -------------- -------------- ----------- ---------
GROUP COMPANY
2022 2021 2022 2021
Trade and other payables GBP000 GBP000 GBP000 GBP000
-------- -------- -------- --------
Due in less than one month 17,566 27,988 10,046 10,860
-------- -------- -------- --------
Due in more than one month and - - - -
less than three months
-------- -------- -------- --------
Total 17,566 27,988 10,046 10,860
-------- -------- -------- --------
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. The Group's basis of fair value calculation
on these long-term borrowings uses quoted prices (unadjusted) in
active markets for identical liabilities that the entity can access
at the measurement date. The Group does not make adjustments to
quoted prices, only under specific circumstances, for example when
a quoted price does not represent the fair value (i.e. when a
significant event takes place between the measurement date and
market closing date).
Related party transactions
GROUP
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation.
COMPANY
The related party transactions between the Company and its
wholly owned subsidiary undertakings are summarised as follows:
2022 2021
GBP000 GBP000
Dividends from subsidiaries 9,638 14,950
-------- --------
Interest on intercompany balances charged
by subsidiaries 2,559 2,559
-------- --------
Management charges from subsidiaries 850 700
-------- --------
The ultimate parent entity is The Law Debenture Corporation
p.l.c.
The key management personnel are the Directors of the Company.
Details of their compensation are included in note 4 to the
accounts and in Part 2 of the Remuneration Report on pages 76 to 98
of the Annual Report. Key management personnel costs inclusive of
employers national insurance are GBP1,572,684 (2021:
GBP1,438,456).
Annual General Meeting (AGM)
The 133(rd) AGM will be held in-person at the offices of The Law
Debenture Corporation p.l.c., 8th Floor, 100 Bishopsgate, London,
EC2N 4AG. Further details are included in the Notice of AGM
included in the full annual report and accounts.
Access to the Annual Report
On 6 March 2023, the annual report and accounts will be
available for download from the National Storage Mechanism at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
CORPORATE INFORMATION
Company advisers and information
Directors Investment portfolio manager
Robert Hingley(*+) Janus Henderson Global Investors
Tim Bond 201 Bishopsgate, London EC2M 3AE
Pars Purewal(#)
Claire Finn() Investment managers
Clare Askem James Henderson and Laura Foll are joint
Denis Jackson managers. They also manage Lowland Investment
Trish Houston Company plc, Henderson Opportunities Trust
plc and the Henderson UK Equity Income
(*) Chairman of the Board & Growth Fund.
(+) Chairman of the Nomination
Committee James joined Henderson Global Investors
() Chairman of the Remuneration (now Janus Henderson Investors) in 1983
Committee and has been an investment trust portfolio
(#) Chairman of the Audit manager since 1990. He first became involved
and Risk Committee in the management of Law Debenture's portfolio
in 1994 and took over lead responsibility
for management of the portfolio in June
2003.
Laura 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.
Website
https://www.lawdebenture.com
Registrar
Computershare Investor Services
PLC
The Pavilions, Bridgwater
Road, Bristol BS99 6ZZ
T: 0370 707 1129
Auditors
Deloitte LLP, 110 Queen Street,
Glasgow, G1 3BX
Alternative Investment Fund
Manager
The Law Debenture Corporation
p.l.c.
Global custodian
HSBC Bank plc (under delegation
by the depositary)
8 Canada Square, London E14
5HQ
Broker
J.P. Morgan Cazenove Limited
25 Bank Street, London E14
5JP
Peel Hunt LLP
100 Liverpool Street, London,
EC2M 2AT
Depositary
NatWest Trustee and Depositary
Services Limited
250 Bishopsgate, London EC2M
4AA
The Law Debenture Corporation p.l.c. is registered in England,
company registration number 30397. LEI number -
2138006E39QX7XV6PP21
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END
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