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Law Debenture Corp (LWDB)

  Print      Mail a friend       Annual reports

Tuesday 13 March, 2012

Law Debenture Corp

Annual Financial Report

ANNUAL FINANCIAL REPORT for the year ended

31 December 2011(audited)

This is the Annual Financial Report of The Law Debenture Corporation p.l.c. as
required to be published under DTR 4 of the UKLA Listing Rules.

The directors recommend a final dividend of 9.0p per share making a total for
the year of 13.5p. Subject to the approval of shareholders, the final dividend
will be paid on 27 April 2012 to holders on the register on the record date of 
30 March 2012. The annual financial report has been prepared in accordance with
International Financial Reporting Standards.

Group income statement
for the year ended 31 December

                               2011                       2010           
                     Revenue  Capital    Total  Revenue Capital    Total 
                        £000     £000     £000     £000    £000     £000 
UK dividends          11,643        -   11,643   10,180       -   10,180 
UK special               140        -      140        -       -        - 
Overseas dividends     1,755        -    1,755    1,640       -    1,640 
Overseas special          64        -       64       76       -       76 
Interest from            524        -      524      553       -      553 
                      14,126        -   14,126   12,449       -   12,449 
Interest income          446        -      446      296       -      296 
Independent           30,948        -   30,948   30,381       -   30,381 
fiduciary services                                                       
Other income              94                94      118       -      118 
Total income          45,614        -   45,614   43,244       -   43,244 
Net (loss)/gain on     -     (22,175) (22,175)    -      68,476   68,476 
investments held at                                                      
fair value through                                                       
profit or loss                                                           
Gross income and      45,614 (22,175)   23,439   43,244  68,476  111,720 
Cost of sales        (4,313)        -  (4,313)  (6,184)       -  (6,184) 
Administrative      (18,643)    (223) (18,866) (17,368)   (146) (17,514) 
Operating profit      22,658 (22,398)      260   19,692  68,330   88,022 
Finance costs                                                            
Interest payable     (2,450)        -  (2,450)  (2,452)       -  (2,452) 
(Loss)/profit         20,208 (22,398)  (2,190)   17,240  68,330   85,570 
before taxation                                                          
Taxation             (1,977)        -  (1,977)  (1,679)       -  (1,679) 
(Loss)/profit for     18,231 (22,398)  (4,167)   15,561  68,330   83,891 
(Loss)/return per      15.52  (19.07)   (3.55)    13.26   58.22    71.48 
ordinary share                                                           
Diluted (loss)/        15.52  (19.07)   (3.55)    13.25   58.17    71.42 
return per ordinary                                                      
share (pence)                                                            

Statement of comprehensive income
for the year ended 31 December

                          Revenue  Capital   Total Revenue Capital   Total
                             2011     2011    2011    2010    2010    2010
                             £000     £000    £000    £000    £000    £000
(Loss)/profit for the      18,231 (22,398) (4,167)  15,561  68,330  83,891
Foreign exchange on             -      (9)     (9)       -     102     102
translation of foreign                                                    
Pension actuarial         (3,145)        - (3,145)     283       -     283
Taxation on pension           800        -     800    (79)       -    (79)
Total comprehensive        15,886 (22,407) (6,521)  15,765  68,432  84,197
(loss)/income for the                                                     

Financial summary


                               31 December   31 December
                                      2011          2010
                                     pence         pence
Share price                         333.50        356.60
NAV per share after proposed        323.75        342.92
final dividend                                          
Revenue return per share                                
- Investment trust                    8.27          7.07
- Independent fiduciary               7.25          6.19
Group revenue return per share       15.52         13.26
Capital (loss)/return per          (19.07)         58.22
Dividends per share                  13.50         12.70


                                      2011          2010
                                         %             %
Share price total return¹            (2.9)          30.5
NAV total return¹                    (1.6)          24.8
FTSE Actuaries All-Share Index       (3.5)          14.5
total return                                            

¹ Source AIC, including reinvestment of dividends.

Chairman's statement and review of 2011


Our net asset value total return for the year to 31 December 2011 was -1.6%,
compared to a total return of -3.5% for the FTSE Actuaries All-Share Index. 
Net revenue return per share was 15.52p, an increase of 17.0% over the previous 
year, as a result of a 17.0%increase in the investment trust and a 17.1% 
increase in independent fiduciary services.


The board is recommending a final dividend of 9.0p per ordinary share (2010:
8.5p), which together with the interim dividend of 4.5p (2010:4.2p) gives a
total dividend of 13.5p (2010:12.7p).

The final dividend will be paid, subject to shareholder approval, on 27 April
2012 to holders on the register on the record date of 30 March 2012.

The Corporation's policy continues to be to seek growth in both capital and
income. We attach considerable importance to the dividend, which we aim to
increase over a period, if not every year, at a rate which is covered by
earnings and which does not inhibit the flexibility of our investment strategy.
Our basis for reporting earnings is more conservative than that of many
investment trusts, in that all our expenses, including interest costs, are
charged fully to the revenue account.

Investment trust

Equity markets were impacted by a year of uncertainty resulting from debt
problems, especially in the eurozone, political unrest and natural disasters.
We responded by taking gearing out of the investment portfolio and investing
the cash raised in short dated UK gilts.

Corporate performance during 2011 was good, resulting in improvement in
dividends, which led to our improved earnings. The high exposure to industrial
companies has been maintained, whilst consumer related stocks were reduced. For
a discussion of the portfolio please see the investment manager's review.

The prospects for dividend growth are encouraging; however uncertainty in the
world economy is still a significant issue for future prospects.

Independent fiduciary services

New appointments in financial wholesale markets remain below historic levels
with no sign of any improvement in the corporate bond and securitisation
markets. Special fees from pre-existing appointments have been at a high level
and we have also benefited from an improvement in the number of corporate
transactions in global markets. The outlook remains uncertain, but we continue
to look for new opportunities and control costs.

For a discussion on the independent fiduciary services business please see the
managing director's report.


Armel Cates is not seeking re-election to the board at the annual general
meeting and I thank him for his valued contribution to the Corporation during
the last 11 years. Robert Laing, a partner in the law firm Maclay Murray &
Spens LLP, joins the board. His legal background and investment trust
experience should be valuable to the Corporation and we look forward to working
with him.

In difficult markets we have grown our revenue return and dividends to
shareholders. I should like to thank James Henderson and Caroline Banszky and
her team for their performances in challenging conditions.

The annual general meeting will be held at the Brewers Hall, Aldermanbury
Square, London EC2V 7HR on 24 April 2012, and I look forward to seeing as many
as possible of you there.

Douglas McDougall

Investment manager's review


The global economy expanded as the emerging economies continued to outperform
the more developed ones. However, global trade was disrupted by natural
disasters such as the Japanese tsunami and by political events in the Middle
East and North Africa.

The price of oil and other commodities fell during 2011, suggesting that the
sharp rises in inflation that were reported during the year will subside,
although any continued political instability in the Middle East might lead to
oil price increases. Problems in Western countries - where indebtedness of both
governments and consumers will take a long time to resolve - led to further
strain and even some concern about the possible break-up of the euro. The
uncertainty created by these worries led to the falls in the equity market
experienced during the summer and early autumn.

This was frustrating for the observers of individual stocks because companies'
operating performances have generally been better than expected. Corporate debt
has been dramatically reduced by substantial cash generation flowing from
improved profitability and strict cost control. Good dividend growth has been
achieved and historically high levels of dividend cover are being recorded. It
is a pity therefore that the macroeconomic concerns have meant that so far this
has not led to improved valuations for equities.

Portfolio activity

Growing concern about the viability of the euro and the general financial
background led to a decision to remove the gearing in early September. This was
done by reducing holdings in a large number of individual equities and some £35
million of sales were carried out, with the proceeds being placed in short
dated UK government gilts. The object during the selling was to maintain the
balance and diversity of the portfolio and retain the bias towards capital
goods companies. This area is seen as being a beneficiary of the growing global
economy, and companies held in the portfolio should thrive if they are
producing excellent products. Aerospace businesses such as Rolls Royce and
Senior are examples of companies achieving this objective, with sales and
profit performance that show no sign of being impacted by recessionary
concerns. On the other hand, consumer-related stocks were reduced and in some
cases, such as Carnival Corporation, sold altogether. This reflects my view
that the consumer area in both the US and Europe will remain difficult while
debt is being paid down and wage growth remains muted.

The overseas holdings bring to the portfolio the type of companies we cannot
find in the UK market and which we believe are good value. An example of this
approach was the purchase during the year of Microsoft.

The holdings in collective funds were left untouched. These holdings allow us
to access different areas of investment expertise. For instance, the holding in
Herald Investment Trust gives the portfolio exposure to a diversified range of
smaller technology and media stocks that we could not replicate by direct

The overall shape of the portfolio has not altered and currently no change is
envisaged. We continue to have very limited exposure to banks as their earnings
outlook remains murky - they are attempting fundamental change, but the return
on capital that their new business models will achieve remains uncertain. Our
financial sector exposure therefore comes mainly through life assurance
companies and general non-life insurers, which have shown their strength over
the last year as they have dealt with high levels of natural disasters and yet
have held or increased their dividend payments.


There is a tension among investors between those who believe that the global
economy is in a fragile state and therefore advocate a very cautious investment
approach and those who believe that the worries are overstated. I am of the
latter belief. Companies are generally in good health, but I see no sign of
complacency from management. The global economy overall is likely to show some
growth, so the potential remains for substantial corporate cash generation and
improving operating margins. The biases in the portfolio, particularly the
weighting in manufacturing industry, should mean it is well placed to benefit
from any upturn.

James Henderson

Henderson Global Investors Limited

Management review - independent fiduciary services


Independent fiduciary services profit before tax increased by 17.2% from £8.95
million to £10.49 million. Revenue return per share increased by 17.1% from
6.19p to 7.25p.

Independent fiduciary services businesses

Law Debenture is a leading provider of independent third party fiduciary
services, including corporate and pension trusts, service of process, treasury
and agency solutions, corporate services, board effectiveness and whistle
blowing. The businesses are monitored and overseen by a board comprising the
heads of the relevant business areas, chaired by a non-executive independent
director, currently Christopher Smith.

Review of 2011

The independent fiduciary businesses performed better than we had anticipated.
Although the markets where we operate did not return to pre-recession levels,
activity levels were up on 2010. Some markets, particularly for service of
process appointments, were very lively as corporate activity overseas increased
following recovery in certain regions. We maintained market share across all of
the businesses and activity levels in pre-existing transactions remained high,
with a number of cases generating significant additional fees.

Some notable highlights of the year are set out below.

Corporate trusts

Corporate trusts had a good year despite low levels of activity in the bond
market caused by the eurozone crisis and continuing nervousness in the banking

Existing clients such as Akzo Nobel, Aviva, Marks & Spencer, National Grid,
Next, Northern Ireland Electricity and The Housing Finance Corporation
appointed us to act as trustee of their bond issues. A number of investment
trusts also selected us, including City Natural Resources High Yield Trust,
Edinburgh Dragon Trust and Standard Life UK Smaller Companies Trust.

Beyond the bond market, we are doing an increasing amount of work as escrow
agent where we are asked to hold cash or shares as an independent third party
and we have been selected to act as security trustee on a number of non-bond
related financing transactions.

We have also been busy on post issuance work on existing trusts. This has
included work on restructuring and in dealing with transaction implications
arising from ratings downgrades of transaction parties.

Pension trusts

Our pension scheme trusteeship service continued to be busy and demanding,
reflecting the challenges which pension schemes face. We were appointed to a
number of new schemes, including the BT Pension Scheme, which is the UK's
largest private sector scheme. The Right Honourable Michael Portillo chaired a
very successful 2011 annual debate and has agreed to chair our 2012 debate,
where the proposal that pension schemes should be regulated in the same way as
insurance companies will be keenly contested.

Corporate services

Our long established and highly regarded service of process business saw a
continued increase in new appointments arising from increased corporate
activity overseas as some regions prospered.

The corporate services business (provision of corporate directors, company
secretary, accounting and administration of special purpose vehicles) had a
good year. Despite continuing low activity levels in the structured finance
markets, we were appointed to new transactions originated by Apollo European
Principal Finance and the City of Kiev. We also continued to win business from
other markets. This included a number of new company secretarial roles and some
specialised roles supporting companies set up for specific purposes in the
light of the 2007/2008 recession.

Treasury and agency solutions

The team continued to grow and develop its business further during the year. We
have a strong cash escrow business and through the creation of enhanced
reporting systems we are well placed to capitalise on opportunities to increase
the existing agency business, as customers look for high-end service and
customised solutions.


It has been a good year for our external whistleblowing service with a 45%
increase in the customer base. The introduction of the Bribery Act 2010 has
resulted in a number of organisations reviewing their policies and procedures
and deciding to contract with Safecall. Notable appointments include Kazakhmys,
Guardian Media Group, Worldpay, Brit Insurance and Simmons & Simmons.

Governance Services

Our new governance service business was launched in February 2011. It has been
warmly received for its independence and has been featured in the specialist
business press. While many listed businesses have delayed formal board
evaluations to 2012 or later, there has been a lot of interest from non-listed
sectors. We have developed additional products and services for operating
boards and committees that focus particularly on decision making and managing
risk, and these products and services will give us a useful additional offering
to clients in the coming years.


United States

The business in the United States continues to generate favourable earnings and
increased visibility. Law Debenture Trust Company of New York obtained a number
of trust, administration, paying agent and escrow appointments, while the
corporate services business, including Delaware Corporate Services, continues
to generate good returns.

Hong Kong

The Far East market was strong for much of the year and overall 2011 was a good
year for our business in Hong Kong. Service of process appointments reached a
record high, employee share trusts continued to be a major growth area and
escrow appointments associated with Chinese cross-border transactions increased
on the back of our exclusive co-operation arrangements with Jiangsu
International Trust Corporation in mainland China. China continues to be a
potential growth area for both foreign direct investment as well as overseas
direct investment by Chinese entities in other markets where Law Debenture
already provides a full range of services.

Channel Islands

There was an increase in income from restructuring activity, although this was
offset by the termination of two voting trust transactions.

Summary and outlook

Overall, our independent fiduciary business had a better than expected 2011,
which reflects great credit on the dedication and hard work of our staff. The
markets in which we operate remain sluggish, even fractured in some cases, so
the prospects for 2012 are difficult to predict. The danger of a double dip
recession in the eurozone, combined with continuing caution in the banking
sector, make for significant challenges. However, our businesses are well
established and robust and we will continue to seek to turn challenges into

Caroline Banszky

Statement of financial position
as at 31 December

                                       2011       2010  
                                       £000       £000  
Non current assets                                      
Goodwill                                2,218      2,211
Property, plant and equipment             320        190
Other intangible assets                   199        118
Investments held at fair value        423,044    441,337
through profit or loss                                  
Deferred tax assets                     1,416        871
Total non current assets              427,197    444,727
Current assets                                          
Trade and other receivables             4,940      6,731
Other accrued income and prepaid        6,246      3,797
Cash and cash equivalents              18,063     20,030
Total current assets                   29,249     30,558
Total assets                          456,446    475,285
Current liabilities                                     
Trade and other payables               11,674     11,446
Short term borrowings                       -         77
Corporation tax payable                 1,293      1,119
Other taxation including social           559        846
Deferred income                         3,902      3,714
Total current liabilities              17,428     17,202
Non current liabilities and deferred                    
Long term borrowings                   39,391     39,364
Retirement benefit obligations          3,138        876
Deferred income                         5,563      5,277
Total non current liabilities          48,092     45,517
Total net assets                      390,926    412,566
Called up share capital                 5,905      5,904
Share premium                           8,106      8,066
Capital redemption                          8          8
Shared based payments                     201        201
Own shares                            (1,684)    (1,794)
Capital reserves                      346,268    368,666
Retained earnings                      31,609     30,993
Translation reserve                       513        522
Total equity                          390,926    412,566

Statement of cash flows
for the year ended 31 December

Operating activities                               2011      2010
                                                   £000      £000
Operating profit before interest payable and        260    88,022
Losses/(gains) on investments                    22,398  (68,330)
Foreign exchange                                   (12)      (24)
Depreciation of property, plant and equipment       164       122
Amortisation of intangible assets                    76        95
(Increase) in receivables                         (658)   (2,334)
Increase in payables                                442     2,352
Transfer to/(from) capital reserves                 126     (347)
Normal pension contributions in excess of cost    (883)     (769)
Cash generated from operating activities         21,913    18,787
Taxation                                        (1,548)   (1,325)
Interest paid                                   (2,450)   (2,452)
Operating cash flow                              17,915    15,010
Investing activities                                             
Acquisition of property, plant and equipment      (289)      (58)
Expenditure on intangible assets                  (157)      (86)
Purchase of investments                        (96,508)  (36,262)
Sale of investments                              92,275    36,676
Cash flow from investing activities             (4,679)       270
Financing activities                                             
Dividends paid                                 (15,270)  (14,308)
Proceeds of increase in share capital                41        29
Purchase of own shares                              110       246
Net cash flow from financing activities        (15,119)  (14,033)
Net (decrease)/increase in cash and cash        (1,883)     1,247
Cash and cash equivalents at beginning of        19,953    18,612
Foreign exchange (losses)/gains on cash and         (7)        94
cash equivalents                                                 
Cash and cash equivalents at end of period       18,063    19,953
Cash and cash equivalents comprise                               
Cash and cash equivalents                        18,063    20,030
Bank overdrafts                                       -      (77)
                                                 18,063    19,953

Statement of changes in equity

                     Share   Share     Own    Capital   Share Translation  Capital   Retained    Total 
                   capital premium  shares redemption   based     reserve reserves   earnings         
                      £000    £000    £000       £000 payment        £000     £000       £000     £000       
Equity at 1          5,904   8,066 (1,794)          8     201         522  368,666     30,993  412,566 
January 2011                                                                                           
Net (loss)               -       -       -          -       -           - (22,398)     18,231  (4,167) 
Foreign exchange         -       -       -          -       -         (9)        -          -      (9) 
Actuarial (loss)         -       -       -          -       -           -        -    (2,345)  (2,345) 
on pension scheme                                                                                      
(net of tax)                                                                                           
Total                    -       -       -          -       -         (9) (22,398)     15,886  (6,521) 
Issue of shares          1      40       -          -       -           -        -          -       41 
Dividend relating        -       -       -          -       -           -        -    (9,984)  (9,984) 
to 2010                                                                                                
Dividend relating        -       -       -          -       -           -        -    (5,286)  (5,286) 
to 2011                                                                                                
Movement in own          -       -     110          -       -           -        -          -      110 
Total equity at 31   5,905   8,106 (1,684)          8     201         513  346,268     31,609  390,926 
December 2011                                                                                          
Equity at 1          5,903   8,038 (2,040)          8     201         420  300,336     29,536  342,402 
January 2010                                                                                           
Net profit               -       -       -          -       -           -   68,330     15,561   83,891 
Foreign exchange         -       -       -          -       -         102        -          -      102 
Actuarial gain on        -       -       -          -       -           -        -        204      204 
pension scheme                                                                                         
(net of tax)                                                                                           
Total                    -       -       -          -       -         102   68,330     15,765   84,197 
Issue of shares          1      28       -          -       -           -        -          -       29 
Dividend relating        -       -       -          -       -           -        -    (9,378)  (9,378) 
to 2009                                                                                                
Dividend relating        -       -       -          -       -           -        -    (4,930)  (4,930) 
to 2010                                                                                                
Movement in own          -       -     246          -       -           -        -          -      246 
Total equity at 31       5,904   8,066  (1,794)        8      201      522  368,666     30,993  412,566
December 2010                                                                                          
Capital reserves comprises realised and unrealised gains/ (losses) on                                  
investments held at fair value through profit or loss.                                                 

Segmental analysis

                          Investment trust     Independent          Total      
                            2011     2010     2011     2010     2011     2010  
                            £000     £000     £000     £000     £000     £000  
Segment income              14,126   12,449   30,948   30,381   45,074   42,830
Other income                    76       87       18       31       94      118
Cost of sales                    -        -  (4,313)  (6,184)  (4,313)  (6,184)
Administration costs       (1,915)  (1,679) (16,728) (15,689) (18,643) (17,368)
                            12,287   10,857    9,925    8,539   22,212   19,396
Interest (net)             (2,566)  (2,565)      562      409  (2,004)  (2,156)
Return, including profit     9,721    8,292   10,487    8,948   20,208   17,240
ordinary activities                                                            
before taxation                                                                
Taxation                         -        -  (1,977)  (1,679)  (1,977)  (1,679)
Return, including profit     9,721    8,292    8,510    7,269   18,231   15,561
attributable to                                                                
Revenue return per            8.27     7.07     7.25     6.19    15.52    13.26
ordinary share                                                                 
Assets                     434,325  450,287   22,121   24,998  456,446  475,285
Liabilities               (57,233) (51,665)  (8,287) (11,054) (65,520) (62,719)
Total net assets           377,092  398,622   13,834   13,944  390,926  412,566
The capital element of the income statement is wholly attributable to the      
investment trust.                                                              

Portfolio changes in geographical distribution

                 Valuation Purchases    Costs of    Sales (Depreciation) Valuation
                        31      £000 acquisition proceeds           £000        31
                  December                  £000     £000                 December
                      2010                                                    2011
                      £000                                                    £000
United Kingdom     313,388    37,385       (207) (66,356)        (9,505)   274,705
North America       30,250    11,309        (13) (10,251)        (3,436)    27,859
Europe              41,450     3,048         (5) (10,877)        (2,353)    31,263
Japan               18,928         -           -  (4,791)        (1,384)    12,753
Other Pacific       37,321         -           -        -        (5,348)    31,973
UK Gilts                 -    44,766           -        -          (275)    44,491
                   441,337    96,508       (225) (92,275)       (22,301)   423,044

The financial information set out above does not constitute the Corporation's
statutory accounts for 2010 or 2011. Statutory accounts for the years ended 31
December 2010 and 31 December 2011 have been reported on by the Independent
Auditor. The Independent Auditor's Reports on the Annual Report and Financial
Statements for 2010 and 2011 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 2010 have been filed with the
Registrar of Companies. The statutory accounts for the year ended 31 December
2011 will be delivered to the Registrar in due course.

The financial information in this Annual Financial Report has been prepared
using the recognition and measurement principles of International Accounting
Standards, International Financial Reporting Standards and Interpretations
adopted for use in the European Union (collectively Adopted IFRSs). The
accounting policies adopted in this Annual Financial Report have been
consistently applied to all the years presented and are consistent with the
policies used in the preparation of the statutory accounts for the year ended
31 December 2011. The principal accounting policies adopted are unchanged from
those used in the preparation of the statutory accounts for the year ended 31
December 2010.

Group summary

From its origins in 1889 Law Debenture has diversified to become a group with a
unique range of activities in the financial and professional services sector.
The group divides into two distinct complementary areas of business.

The investment trust and its management

We are a global growth investment trust, listed on the London Stock Exchange.

The Corporation carries on its business as a global growth investment trust.
Its objective is set out in the chairman's review. The aim is to achieve a
higher rate of total return than the FTSE Actuaries All-Share

Index through investing in a portfolio diversified both geographically and by

Henderson Global Investors Limited (Henderson) is responsible for the
management of the investment portfolio. Henderson is fully aware of the
Corporation's investment policy and provides a cost competitive service.
Consequently the directors believe that the continuing appointment of Henderson
is in the best interests of shareholders. The agreement does not cover custody
or the preparation of data associated with investment performance, which are
outsourced, or record keeping, which is maintained by the Corporation. Fees
paid to Henderson in the year amounted to £1,150,000 (2010: £965,000). For the
period to 31 March 2011, fees were based on 0.25% per annum of the average
portfolio value, excluding cash. From 1 April 2011, the fee basis changed to be
expressed as 0.30% of the value of the net assets of the group (excluding the
net assets of the independent fiduciary services business), calculated on the
basis adopted in the audited financial statements. This represents an increase
in the overall amount payable to Henderson (the first increase in the rate of
fee since 1999) but means that the Corporation continues to maintain one of the
most competitive fee structures in the investment trust sector. The underlying
management fee of 1% on the Corporation's holdings in the Henderson Japanese
and Pacific OEICs continues to be rebated. From 1 April 2011, the notice period
under the agreement was reduced from 12 months to 6 months.

The investment trust - investment strategy and implementation

The Corporation's investment strategy is as follows:

Investments are selected on the basis of what appears most attractive in the
conditions of the time. This approach means that there is no obligation to hold
shares in any particular type of company, industry or geographical location.
The independent fiduciary services businesses do not form part of the
investment portfolio and are outwith this strategy.

The Corporation's portfolio will typically contain between 70 and 150 listed
investments. The portfolio is widely diversified both by industrial sector and
geographic location of investments in order to spread investment risk.

Whilst performance is measured against local and UK indices, the composition of
these indices does not influence the construction of the portfolio. As a
consequence, it is expected that the Corporation's investment portfolio and
performance will deviate from the comparator indices.

Because the Corporation's assets are invested internationally and without
regard to the composition of indices, there are no restrictions on maximum or
minimum stakes in particular regions or industry sectors. However, such stakes
are monitored in detail by the board at each board meeting in order to ensure
that sufficient diversification is maintained.

Liquidity and long-term borrowings are managed with the aim of improving
returns to shareholders. The policy on gearing is to assume only that level of
gearing which balances risk with the objective of increasing the return to
shareholders. In pursuit of its investment objective, investments may be held
in, inter alia, equity shares, fixed interest securities, interests in limited
liability partnerships, cash and liquid assets. Derivatives may be used but
only with the prior authorisation of the board. Investment in such instruments
for trading purposes is proscribed.

It is permissible to hedge against currency movements on capital and income
account, subject again to prior authorisation of the board. Stock lending,
trading in suspended shares and short positions are not permitted.

The Corporation's investment activities are subject to the following
limitations and restrictions:

• No investment may be made which raises the aggregate value of the largest 20
holdings, excluding investments in OEICs and in Scottish Oriental Smaller
Companies Trust and UK gilts, to more than 40% of the Corporation's portfolio,
including cash. The value of a new acquisition in any one company may not
exceed 5% of total portfolio value (including cash) at the time the investment
is made, further additions shall not cause a single holding to exceed 5%, and
board approval must be sought to retain a holding, should its value increase
above the 5% limit.

• The Corporation applies a ceiling on effective gearing of 150%. While
effective gearing will be employed in a typical range of 90% to 120%, the board
retains the ability to reduce equity exposure to below 90% if deemed

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

• Board approval must be sought for any proposed direct investments in certain

• The Corporation has a policy not to invest more than 15% of gross assets in
other UK listed investment companies.

Investment strategy- implementation

During the year, the assets of the Corporation were invested in accordance with
the investment strategy.

At 31 December 2011 the top 20 holdings (excluding the Henderson OEICs)
comprised 33% of the total portfolio (2010: 35%).

The extent to which the Corporation's objective has been achieved, and how the
investment strategy was implemented, are described in the chairman's statement 
and the investment manager's review.

The most recently published high level portfolio information at 29 February
2012 is:

Top 10 Holdings

Rank    Name of Holding                           % of
                                          (excl. cash)
1.      UK Treasury 4.5% 07/03/13                 4.35
2.      Senior                                    3.37
3.      UK Treasury 2.25% 07/03/14                3.22
4.      BP                                        2.80
5.      Henderson Japan Capital Growth            2.56
6.      Henderson Asia Pacific Capital            2.53
7.      Royal Dutch Shell                         2.50
8.      GlaxoSmithKline                           2.23
9.      GKN                                       2.17
10.     Baillie Gifford Pacific                   2.04

Geographical Split

Region                       % of        
UK                           65          
Europe                       7           
North America                8           
Japan                        3           
Other Pacific                8           
Other                        0           
Cash and Fixed Interest      9           
TOTAL                        100         

Independent fiduciary services

We are a leading provider of independent fiduciary services. Our activities are
corporate trusts, treasury and agency solutions, pension trusts, corporate
services (including agent for service of process), whistle blowing services and
board effectiveness services. We have offices in London, Sunderland, New York,
Delaware, Hong Kong, the Channel Islands and the Cayman Islands.

Companies, agencies, organisations and individuals throughout the world rely
upon Law Debenture to carry out its duties with the independence and
professionalism upon which its reputation is built.

Principal risks and uncertainties

The principal risks of the Corporation relate to its investment activities and
include market price risk, foreign currency risk, liquidity risk, interest rate
risk and credit risk:

  * market 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, as described above. 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 2011 fell or rose by 10%, the impact on the group's total profit
    or loss for the year would have been £42.3 million (2010: £44.1 million).
  * foreign currency risk, arising from movements in currency rates applicable
    to the group's investment in equities and fixed interest securities and the
    net assets of the group's overseas subsidiaries denominated in currencies
    other than sterling. The group's financial assets denominated in currencies
    other than sterling were:
                                       2011                            2010                              
            Investments       Net     Total Investments       Net     Total 
                     £m  monetary  currency          £m  monetary  currency
                           assets  exposure                assets  exposure
                               £m        £m                    £m        £m                      
US Dollar          24.1       3.3      27.4        28.5       3.8      32.3
Canadian            3.8         -       3.8         1.7         -       1.7
Euro               18.4       0.4      18.8        26.2       3.9      30.1
Danish                -         -         -         0.8         -       0.8
Swedish             1.8         -       1.8         1.1         -       1.1
Swiss Franc        11.0         -      11.0        13.3         -      13.3
Hong Kong             -       0.4       0.4           -       0.4       0.4
Japanese            1.5         -       1.5         6.6         -       6.6
Total              60.6       4.1      64.7        78.2       8.1      86.3

The holdings in the Henderson Japan Capital Growth, Henderson Pacific Capital
Growth, Baillie Gifford Pacific and First Asia Pacific, OEICs and Scottish
Oriental Smaller Companies Trust are denominated in sterling but have
underlying assets in foreign currencies equivalent to £43.3 million (2010: £
49.7 million). Investments made in the UK and overseas have underlying assets
and income streams in foreign currencies which cannot be determined and this
has not been included in the sensitivity analysis. If the value of all other
currencies at 31 December 2011 rose or fell by 10% against sterling, the impact
on the group's total profit or loss for the year would have been £10.4 million
(2010: £12.8 million). The calculations are based on the investment portfolio
at the respective year end dates and are not representative of the year as a

  * liquidity risk, arising from any difficulty in realising assets or raising
    funds to meet commitments associated with any of the above financial
    instruments. To minimise this risk, the board's strategy guidelines only
    permit investment in equities and fixed interest securities quoted in major
    financial markets. In addition, cash balances and overdraft facilities are
    maintained commensurate with likely future settlements.
  * 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 at 31 December 2011 was:
                            Sterling HK Dollars US Dollars        Euro
                                  £m         £m         £m          £m
Fixed rate assets                  -          -          -           -
Floating rate assets            13.9        0.4        3.3         0.4
Fixed rate liabilities*         39.4          -          -           -
Weighted average fixed        6.125%                                  

*Fixed until 2034.

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.

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 £140,000 (2010: £144,000). It
is assumed that interest rates are unlikely to fall below the current level.

  * credit risk, arising from the failure of another party to perform according
    to the terms of their contract. The group minimises credit risk through
    policies which restrict deposits to highly rated financial institutions and
    restrict the maximum exposure to any individual financial institution. The
    group's maximum exposure to credit risk arising from financial assets is £
    23.0 million (2010: £26.8 million).
The principal risks of the independent fiduciary services business arise during
the course of defaults, potential defaults and restructurings where we have
been appointed to provide services. To mitigate these risks we work closely
with our legal advisers and, where appropriate, financial advisers, both in the
set up phase to ensure that we have as many protections as practicable, and at
all other stages whether or not there is a danger of default.

Capital management

As an investment trust the Corporation is not allowed to distribute capital
profits, even if realised. The Corporation is not allowed to retain more than
15% of its income from shares and securities each year and has a policy to
increase dividends, however revenue profits are calculated after all expenses
and distributions will not be made if they inhibit the investment strategy.

The investment strategy of the Corporation includes a ceiling on effective
gearing of 150%, with a typical range of 90% to 120%.

Related party transactions

There have been no related party transactions during the period which have
materially affected the financial position or performance of the group. During
the period transactions between the Corporation and its subsidiaries have been
eliminated on consolidation.

Acquisition of own shares

A subsidiary of the Corporation made one purchase of shares in 2011 in
connection with the Deferred Share Plan for senior staff. On 2 March 2011,
181,117 shares were purchased in the market at 351.7 pence per share. These
shares will be held in trust by the subsidiary and released to eligible staff
if and when the release conditions (as prescribed under the Plan rules) are met
in 2014.

Total voting rights

The Corporation has an issued share capital at 13 March 2012 of 118,094,577
ordinary shares with voting rights and no restrictions and no special rights
with regard to control of the Corporation. There are no other classes of share
capital and none of the Corporation's issued shares are held in treasury.
Therefore the total number of voting rights in The Law Debenture Corporation
p.l.c. is currently 118,094,577.

Directors' responsibility statement pursuant to DTR4

The directors confirm that to the best of their knowledge:

  * The group financial statements have been prepared in accordance with
    International Financial Reporting Standards as adopted by the European
    Union (IFRSs) and Article 4 of the IAS Regulation and give a true and fair
    view of the assets, liabilities, financial position and profit or loss of
    the group;
  * The annual report includes a fair review of the development and performance
    of the business and the position of the group and parent company, together
    with a description of the principal risks and uncertainties that they face.
Copies of this Annual Financial Report are available on

Copies of the annual report will be available from the Corporation's registered
office or on the above website link once published on 21 March 2012.

By order of the board

Law Debenture Corporate Services Limited


13 March 2012