Annual Financial Report - Amended version

ANNUAL FINANCIAL REPORT for the year ended 31 December 2012(audited) This is a corrected version of the Report originally published at 7.30am on 1 March 2013, amending only the table headed "Financial Summary" to correctly state the NAV. 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 9.75p per share making a total for the year of 14.25p. Subject to the approval of shareholders, the final dividend will be paid on 18 April 2013 to holders on the register on the record date of 22 March 2013. The annual financial report has been prepared in accordance with International Financial Reporting Standards. The Corporation has for the first time, included in its financial summary at 31 December 2012 a figure for NAV after the final dividend with long term debt stated at fair value. On this basis the long term debt would be valued at £47.3m rather than book value of £39.4m representing a reduction in the year end NAV of 6.69 pence per share. Group income statement for the year ended 31 December 2012 2011 Revenue Capital Total Revenue Capital Total £000 £000 £000 £000 £000 £000 UK dividends 11,431 - 11,431 11,643 - 11,643 UK special 457 - 457 140 - 140 dividends Overseas dividends 1,792 - 1,792 1,755 - 1,755 Overseas special 51 - 51 64 - 64 dividends Interest from 661 - 661 524 - 524 securities 14,392 - 14,392 14,126 - 14,126 Interest income 140 - 140 446 - 446 Independent 29,760 - 29,760 30,948 - 30,948 fiduciary services fees Other income 105 105 94 - 94 Total income 44,397 - 44,397 45,614 - 45,614 Net gain/(loss) on - 59,259 59,259 - (22,175) (22,175) investments held at fair value through profit or loss Gross income and 44,397 59,259 103,656 45,614 (22,175) 23,439 capital gains/ (losses) Cost of sales (3,761) - (3,761) (4,313) - (4,313) Administrative (18,638) (193) (18,831) (18,643) (223) (18,866) expenses Operating profit 21,998 59,066 81,064 22,658 (22,398) 260 Finance costs Interest payable (2,450) - (2,450) (2,450) - (2,450) Profit/(loss)before 19,548 59,066 78,614 20,208 (22,398) (2,190) taxation Taxation (1,753) - (1,753) (1,977) - (1,977) Profit/(loss) for 17,795 59,066 76,861 18,231 (22,398) (4,167) year Return/(loss) per 15.14 50.24 65.38 15.52 (19.07) (3.55) ordinary share (pence) Diluted return/ 15.13 50.21 65.34 15.52 (19.07) (3.55) (loss) per ordinary share (pence) Statement of comprehensive income for the year ended 31 December Revenue Capital Total Revenue Capital Total 2012 2012 2012 2011 2011 2011 £000 £000 £000 £000 £000 £000 Group Profit/(loss) for the 17,795 59,066 76,861 18,231 (22,398) (4,167) year Foreign exchange on - (204) (204) - (9) (9) translation of foreign operations Pension actuarial gains/ 336 - 336 (3,145) - (3,145) (losses) Taxation on pension (104) - (104) 800 - 800 Total comprehensive 18,027 58,862 76,889 15,886 (22,407) (6,521) income/(loss)for the year Financial summary and performance Financial summary 31 December 31 December 2012 2011 pence pence Share price 425.00 333.50 NAV per share after proposed 374.55 323.75 final dividend NAV per share after proposed 367.86 323.75 final dividend with debt at fair value* Revenue return per share - Investment trust 8.47 8.27 - Independent fiduciary 6.67 7.25 services Group revenue return per share 15.14 15.52 Capital return/(loss) per 50.24 (19.07) share Dividends per share 14.25 13.50 * The estimated fair value of the debt at 31 December 2012 has been based upon the redemption yield of the reference gilt plus a margin derived from the spread of BBB UK corporate bond yields over UK gilt yields. 2012 % Ongoing charges 0.47 Gearing 100 Ongoing charges are based on the cost of the investment trust and include the Henderson management fee of 0.30% of the NAV of the investment trust. There is no performance related element to the fee. Performance 2012 2011 % % Share price total return¹ 32.0 (2.9) NAV total return¹ 19.7 (1.6) FTSE Actuaries All-Share Index 12.3 (3.5) total return ¹ Source AIC. Chairman's statement and review of 2012 Performance Our net asset value total return for the year to 31 December 2012 was 19.7%, compared to a total return of 12.3% for the FTSE Actuaries All-Share Index. Net revenue return per share was 15.14p, a decrease of 2.4% over the previous year, as a result of a 2.4% increase in the investment trust and an 8.0% decrease in independent fiduciary services. Dividend The board is recommending a final dividend of 9.75p per ordinary share (2011: 9.0p), which together with the interim dividend of 4.5p (2011: 4.5p) gives a total dividend of 14.25p (2011: 13.5p). The final dividend will be paid, subject to shareholder approval, on 18 April 2013 to holders on the register on the record date of 22 March 2013. 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 rose and good corporate performance led to increased dividends. However, uncertainty remained as a result of persistent fiscal deficits, uncertainty over the euro and disappointing rates of recovery following the financial crisis. We remained fully invested in equities in the investment portfolio, but the board has not been convinced that the macroeconomic uncertainty of recent years is over and has therefore not deployed our gearing. Our exposure to industrial companies has remained high. For a discussion of the portfolio, see the investment manager's review. Independent fiduciary services The business continued to deliver a good return for shareholders, against a background of difficult market conditions. For a discussion on the independent fiduciary services business please see the managing director's report. Regulatory environment The introduction of the Retail Distribution Review at the end of 2012 has changed the way that retail investors receive and pay for independent financial advice. This might lead to an increased awareness of investment trust shares generally, but also means that those who advise retail investors may require greater detail about individual trusts in order to recommend them or include them on execution only platforms. With that in mind, the Corporation has introduced a new section in this year's annual report. During 2013, the board will be taking decisions on how the Corporation should best organise itself to comply with the latest iteration of the Combined Code, the Foreign Account Tax Compliant Act ("FATCA") and the Alternative Investment Fund Manager's Directive. Neither of these last two developments is welcome and both may impose significant costs for little or no benefit to shareholders. Board Mark Bridgeman will be appointed to the board on 15 March 2013 and comes up for election at the annual general meeting. He has a strong background in investment management, having been Global Head of Research at Schroder plc, and experience of investment trusts. I am confident that he will make a valuable contribution and encourage you to support his election. I shall retire from the board at the conclusion of the annual general meeting. In my period of office I have been fortunate to work with two outstanding investment managers, first Michael Moule and latterly James Henderson, and with Caroline Banszky, who with her team, has vigorously enhanced the profitability of the independent fiduciary services business. Christopher Smith, who takes over from me, has a deep understanding of both sides of this unique and successful company, and I am confident of its future in the hands of him and his colleagues. The annual general meeting will be held at the Brewers Hall, Aldermanbury Square, London EC2V 7HR on 10 April 2013, and I look forward to seeing as many as possible of you there. Douglas McDougall Investment manager's review Review The global economy did not grow in 2012 as fast as had been hoped but this did not stop equity markets performing well. Markets were driven by decent corporate profit and dividend growth at a time when investor expectations were low. The best performing area was the Far East, while the US stocks lagged after a few years of strong performance. The majority of our investments are in the UK, where small and medium sized companies significantly outperformed larger companies. The four biggest detractors of value from the portfolio, as can be seen from the table below, were large blue chips involved in the oil, gas and pharmaceutical industries, while the fifth largest detractor was Cape, where accounting irregularities were discovered. The five largest contributors all came from different business sectors. Among these, IP Group works with start-up companies to commercialise their intellectual property, International Personal Finance provides home credit to customers in emerging markets and Hill & Smith manufactures infrastructure products. Biggest rises by value £000 1. IP Group 3,386 2. Smith (DS) 2,788 3. Hill & Smith 2,713 4. International Personal Finance 2,519 5. Senior 2,253 Biggest falls by value £000 1. Royal Dutch Shell (1,400) 2. BG (1,061) 3. GlaxoSmithKline (1,028) 4. BP (929) 5. Cape (851) The equity market advanced across most business sectors during the year, suggesting - encouragingly - that the operating improvements in UK companies achieved in recent years are not confined to a narrow part of the economy. Some commentators claim that the UK economy is in a poor state, but if they were to visit companies they would take a different view. I continue regularly to have face-to-face meetings with the senior managements of UK companies, as I have been doing for over twenty five years, and believe that companies have never been financially stronger or operationally more motivated than they are at present. Investment Approach The focus is on individual companies with the intention of buying them when their prospects for growth are being underestimated and selling them when the valuations reach or exceed a level that more accurately reflects the potential. The frequent mispricing of individual stocks affords opportunities to the investor who pays close attention to the monitoring of stocks. The approach is to have a relatively low portfolio turnover, with purchases and sales being determined by the company fundamentals rather than based on a wider macroeconomic view, which is subjective and notoriously difficult to get right. I do not believe that we can add long term value to the portfolio simply by switching between different geographic areas, nor do I believe that taking a view on currencies, say by hedging the currency exposure, would bring any benefit or value in the long term. The object is to play to the strengths in the team at Henderson and to recognise the weaknesses. We will use other fund managers' vehicles to obtain their expertise if Henderson does not have it. For example, we have a holding in Herald Investment Trust as this gives us access to smaller technology companies; and we spread our exposure to the Far East between three different investment houses. Portfolio activity We remained fully invested throughout the year aside from our gearing. Rather than employing gearing to make new purchases, we reduced some holdings when it was deemed that they had become overweight in the overall portfolio. An example of this was Senior, the aerospace and automotive supplier, which is operationally performing well and continues to be our largest individual holding, and about which we remain positive. We profitably bought and sold Apple; it is unusual for a company to come in and out of the portfolio so fast but consumer electronics is a fluid industry undergoing rapid change and the sale subsequently proved to have been timely. We will consider investing in companies of any size so long as they can add value. For example, we took a holding in Oxford Catalysts, a small AIM listed company whose technology in the production of clean synthetic fuels could lead to substantial growth in business over coming years. The exposure to manufacturing businesses in the portfolio remains large. In the USA and UK they are experiencing a period of renewed dynamic growth, as they apply advanced technologies to new products. The aerospace sector is a good example. The overall turnover in the portfolio during the year was approximately 10%. Outlook Companies are stronger. Corporate debt has fallen substantially and many of our holdings have net cash. Corporate margins may surprise many commentators over the coming year by increasing as management teams continue to drive operational efficiencies at a time when the economy is stable but dull. There is no complacency from managements, even though the upswing in valuation is now into its fourth year. The memories of 2008 still exert a discipline, but we believe the equity market may make further advances. James Henderson Henderson Global Investors Limited Management review - independent fiduciary services Results Independent fiduciary services profit before tax decreased by 8.5% from £10.49 million to £9.60 million. Revenue return per share decreased by 8.0% from 7.25p to 6.67p. 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 2012 The independent fiduciary businesses performed reasonably well in the face of continuing macroeconomic negativity, particularly in the first half of the year. The dip back into recession, further pressure on the banking sector and Eurozone difficulties all contributed to uncertainty in the markets where we operate. However, some sectors, such as service of process, were very lively as corporate activity overseas was maintained at 2011 levels. Market share remained satisfactory across all of the businesses and activity levels in pre-existing transactions remained high, caused by the continuing need for transactions to be amended as a result of strains incurred since 2007. In a number of these cases, we were able to generate additional fees for time spent. Some features of the year are set out below. Corporate trusts Corporate trusts had a reasonable year, with signs of greater activity in the bond market in the second half. We were selected to act as trustee by a wide range of companies including Aviva, BG Energy, Friends Life, First Group, GlaxoSmithKline, National Grid, Severn Trent and The Housing Finance Corporation. We took on an increasing amount of security trustee work, including on two major international project financings with the International Finance Corporation. Our recognised independence as an impartial third party was instrumental in securing a growing number of escrow agent appointments, holding a variety of assets. We remained busy on post-issuance work including restructurings and transaction amendments arising from, for example, 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 11 new schemes ranging in size from £5 million to over £8 billion and new clients included IBM and Santander. Michael Chatterton and Simone Lavelle were appointed as joint Managing Directors to manage our practice and Mark Ashworth took on the role of Chairman. John Nestor joined the team. His expertise is in investment management. Reflecting the ever changing nature of the pensions sector, we now offer sole trusteeship services, where we act as the sole trustee of a pension scheme to deliver extra governance where people, time or knowledge are lacking. We are also developing on-line trustee assessment and board effectiveness survey tools. Corporate services Our long established and highly regarded service of process business had another solid year with an increase in new appointments. The corporate services business (provision of corporate directors, company secretary, accounting and administration of special purpose vehicles) was steady. While the market for new structured finance transactions was slow, new securitisations were secured originated by Virgin Money and Apollo European Principal Finance. We also continued to win business from other markets, including a number of new company secretarial appointments and specialised roles providing administration support to companies in distress. Treasury and agency solutions We successfully developed and launched our advanced on-line Dynamic Analytical Reporting Tool system (`DARTS') during the course of the year. DARTS delivers superior real time client reporting, accessible directly by borrowers, investors and other parties on structured, loan facility and treasury transactions. We continue to service our cash escrow, security trust and project finance business, as well as providing other customised solutions including data verification and data room services. Safecall It was another good year for our external whistleblowing service with a significant increase in the customer base. Recent legislation including The Bribery Act continues to result in a number of organisations reviewing their policies and procedures and deciding to contract with Safecall. Notable appointments in 2012 include Michelin, NXP Semiconductors, 3663, CHEP and Bright Horizons. Governance services Our governance services business completed its second year in what remains a fragmented and competitive market. We won a number of assignments in board effectiveness in the listed, public and voluntary sectors and expect this to continue in 2013. We have developed sector specific approaches, for example for investment companies and the insurance market, where we have found that modifications have been necessary. Our ancillary products - tools for use in decision making and risk management - have been positively received by boards, management teams and operating committees alike. Overseas United States The US corporate trust business held its own. Its core successor trustee business (which derives from bankruptcies) faced challenges in an improving domestic economy and a continued low interest rate environment. However, new roles, including acting as a "separate trustee" to pursue remedial rights in residential mortgage securitisations, generated a healthy number of new appointments. This business should continue to offer growth prospects in the year ahead. The corporate services business, including Delaware Corporate Services, continued to generate excellent returns. Hong Kong General business levels remained strong until the third quarter, when both the Hong Kong and the Chinese markets became less active. However, we saw continued firm demand for employee share trust and escrow services and our service of process team had another good year in respect of appointments under local law and particularly on behalf of the US and UK offices. Channel Islands There was an overall increase in transactional activity during the year from our existing client base, although this was largely offset by the loss of several transactions coming to the end of their natural life. New business remains difficult to come by, although there were several new service of process appointments taken on in the year. Outlook The recent rally in stock market values may indicate that investor confidence is returning, possibly leading to an increase in activity in the capital markets. Similarly, governmental initiatives to stimulate lending could possibly lead to an increase in debt market activities and the crisis in the Eurozone seems to have abated, at least for the time being, removing some uncertainty. While prospects for a possible upturn in activity may exist, caution remains the watchword as growth prospects remain largely dependent on wider macroeconomic factors. We are well positioned to take advantage of opportunities as they arise, including being willing to expand our fiduciary services into areas where there is a need for an established, trusted, independent third party. Caroline Banszky Statement of financial position as at 31 December 2012 2011 £000 £000 Assets Non current assets Goodwill 2,182 2,218 Property, plant and equipment 254 320 Other intangible assets 363 199 Investments held at fair value 479,521 423,044 through profit or loss Deferred tax assets 1,126 1,416 Total non current assets 483,446 427,197 Current assets Trade and other receivables 4,244 4,940 Other accrued income and prepaid 5,980 6,246 expenses Cash and cash equivalents 22,201 18,063 Total current assets 32,425 29,249 Total assets 515,871 456,446 Current liabilities Trade and other payables 10,745 11,674 Corporation tax payable 1,005 1,293 Other taxation including social 629 559 security Deferred income 3,948 3,902 Total current liabilities 16,327 17,428 Non current liabilities and deferred income Long term borrowings 39,418 39,391 Retirement benefit obligations 2,227 3,138 Deferred income 6,035 5,563 Total non current liabilities 47,680 48,092 Total net assets 451,864 390,926 Equity Called up share capital 5,905 5,905 Share premium 8,122 8,106 Capital redemption 8 8 Shared based payments - 201 Own shares (1,778) (1,684) Capital reserves 405,334 346,268 Retained earnings 33,964 31,609 Translation reserve 309 513 Total equity 451,864 390,926 Statement of cash flows for the year ended 31 December 2012 2011 £000 £000 Operating activities Operating profit before interest payable and 81,064 260 taxation (Gains)/losses on investments (59,066) 22,398 Foreign exchange 39 (12) Depreciation of property, plant and equipment 149 164 Amortisation of intangible assets 214 76 Decrease/(increase) in receivables 962 (658) (Decrease)/increase in payables (314) 442 Transfer to capital reserves 772 126 Normal pension contributions in excess of cost (575) (883) Cash generated from operating activities 23,245 21,913 Taxation (1,855) (1,548) Interest paid (2,450) (2,450) Operating cash flow 18,940 17,915 Investing activities Acquisition of property, plant and equipment (89) (289) Expenditure on intangible assets (375) (157) Purchase of investments (48,376) (96,508) Sale of investments 50,193 92,275 Cash flow from investing activities 1,353 (4,679) Financing activities Dividends paid (15,873) (15,270) Proceeds of increase in share capital 16 41 Purchase of own shares (94) 110 Net cash flow from financing activities (15,951) (15,119) Net increase/(decrease) in cash and cash 4,342 (1,883) equivalents Cash and cash equivalents at beginning of 18,063 19,953 period Foreign exchange (losses) on cash and cash (204) (7) equivalents Cash and cash equivalents at end of period 22,201 18,063 Statement of changes in equity Share Share Own Capital Share Translation Capital Retained Total Capital Premium Shares Redemption based Reserve Reserve Earnings payment £000 £000 £000 £000 £000 £000 £000 £000 £000 Equity 1 5,905 8,106 (1,684) 8 201 513 346,268 31,609 390,926 January 2012 Profit - - - - - - 59,066 17,795 76,861 Foreign - - - - - (204) - - (204) exchange Actuarial - - - - - - 232 232 gain on pension scheme (net of tax) Total - - - - - (204) 59,066 18,027 76,889 comprehensive income Issue of - 16 - - - - - - 16 shares Dividend - - - - - - - (10,582) (10,582) relating to 2011 Dividend - - - - - - - (5,291) (5,291) relating to 2012 Movement in - - (94) - - - - - (94) own shares Transfer - - - - (201) - - 201 - Total equity 5,905 8,122 (1,778) 8 - 309 405,334 33,964 451,864 31 December 2012 Equity 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 - - - - - (9) - - (9) exchange Actuarial - - - - - - - (2,345) (2,345) (loss) on pension scheme (net of tax) Total - - - - - (9) (22,398) 15,886 (6,521) comprehensive (loss) Issue of 1 40 - - - - - - 41 shares Dividend - - - - - - - (9,984) (9,984) relating to 2010 Dividend - - - - - - - (5,286) (5,286) relating to 2011 Movement in - - 110 - - - - - 110 own shares Total equity 5,905 8,106 (1,684) 8 201 513 (346,268) 31,609 390,926 31 December 2011 Segmental analysis Investment trust Independent Total fiduciary services 2012 2011 2012 2011 2012 2011 £000 £000 £000 £000 £000 £000 Revenue Segment income 14,392 14,126 29,760 30,948 44,152 45,074 Other income 12 76 93 18 105 94 Cost of sales - - (3,761) (4,313) (3,761) (4,313) Administration costs (1,917) (1,915) (16,721) (16,728) (18,638) (18,643) 12,487 12,287 9,371 9,925 21,858 22,212 Interest (net) (2,534) (2,566) 224 562 (2,310) (2,004) Return, including 9,953 9,721 9,595 10,487 19,548 20,208 profit on ordinary activities before taxation Taxation - - (1,753) (1,977) (1,753) (1,977) Return, including 9,953 9,721 7,842 8,510 17,795 18,231 profit attributable to shareholders Revenue return per 8.47 8.27 6.67 7.25 15.14 15.52 ordinary share Assets 491,643 434,325 24,228 22,121 515,871 456,446 Liabilities (54,915) (57,233) (9,092) (8,287) (64,007) (65,520) Total net assets 436,728 377,092 15,136 13,834 451,864 390,926 The capital element of the income statement is wholly attributable to the investment trust. Portfolio changes in geographical distribution Valuation Purchases Costs of Sales Appreciation/ Valuation 31 December acquisition proceeds (depreciation) 31 December 2011 2012 £000 £000 £000 £000 £000 £000 United Kingdom 274,705 36,240 (173) (26,858) 46,383 330,297 North America 27,859 5,375 (8) (4,096) 2,310 31,440 Europe 31,263 6,761 (12) (4,049) 4,240 38,203 Japan 12,753 - - - 421 13,174 Other Pacific 31,973 - - (6,388) 6,352 31,937 UK Gilts 44,491 - - (8,802) (1,219) 34,470 423,044 48,376 (193) (50,193) 58,487 479,521 The financial information set out above does not constitute the Corporation's statutory accounts for 2011 or 2012. Statutory accounts for the years ended 31 December 2011 and 31 December 2012 have been reported on by the Independent Auditor. The Independent Auditor's Reports on the Annual Report and Financial Statements for 2011 and 2012 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 2011 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 December 2012 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 2012. The principal accounting policies adopted are unchanged from those used in the preparation of the statutory accounts for the year ended 31 December 2011. 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 industry. Henderson Global Investors Limited (Henderson) is responsible for the management of the investment portfolio. Henderson is fully aware of the Corporation's investment strategy 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 £1,208,000 (2011: £1,150,000). Fees are charged at 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 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. The investment trust - investment strategy and implementation The Corporation's investment strategy is as follows: The Corporation carries on its business as a global growth investment trust. Its objective is set out in the business 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 industry. To achieve this, 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, Baillie Gifford Pacific, First State Asia Pacific 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 appropriate. • 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 jurisdictions. • 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 2012 the top 20 holdings (excluding the Henderson OEICs) comprised 33% of the total portfolio (2011: 33%). 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 31 January 2013 is: Top 10 Holdings Rank Name of Holding % of portfolio (excl. cash) 1. UK Treasury 4.5% 07/03/13 3.83 2. Senior 2.96 3. UK Treasury 2.25% 07/03/14 2.89 4. BP 2.65 5. Henderson Asia Pacific Capital 2.48 Growth 6. Henderson Japan Capital Growth 2.38 7. Royal Dutch Shell 2.24 8. GKN 2.18 9. GlaxoSmithKline 2.12 10. Baillie Gifford Pacific 2.10 Geographical Split Region % of portfolio UK 67 Europe 8 North America 7 Japan 3 Other Pacific 6 Other - 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, the number of holdings normally being between 70 and 150. In addition, the stock selections and transactions are actively monitored throughout the year by the investment manager, who reports to the board on a regular basis to review past performance and develop future strategy. The investment portfolio is exposed to market price fluctuation: if the valuation at 31 December 2012 fell or rose by 10%, the impact on the group's total profit or loss for the year would have been £48.0 million (2011: £42.3 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: 2012 2011 Net Total Net Total Investments monetary currency Investments monetary currency assets exposure assets exposure £m £m £m £m £m £m Group US Dollar 26.8 3.7 30.5 24.1 3.3 27.4 Canadian 4.7 - 4.7 3.8 - 3.8 Dollar Euro 24.1 0.3 24.4 18.4 0.4 18.8 Danish 0.7 - 0.7 - - - Krone Swedish 2.1 - 2.1 1.8 - 1.8 Krona Swiss Franc 11.6 - 11.6 11.0 - 11.0 Hong Kong - 0.6 0.6 - 0.4 0.4 Dollar Japanese 1.9 - 1.9 1.5 - 1.5 Yen Total 71.9 4.6 76.5 60.6 4.1 64.7 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 £43.2 million (2011: £43.3 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 2012 rose or fell by 10% against sterling, the impact on the group's total profit or loss for the year would have been £11.5 million (2011: £10.4 million). The calculations are based on the investment portfolio at the respective year end dates and are not representative of the year as a whole. * liquidity risk, arising from any difficulty in realising assets or raising funds to meet commitments associated with any of the above financial instruments. To minimise this risk, the board's strategy guidelines only permit investment in equities and fixed interest securities quoted in major financial markets. In addition, cash balances and overdraft facilities are maintained commensurate with likely future settlements. * 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 2012 was: Group Sterling HK Dollars US Dollars Euro £m £m £m £m Floating rate assets 17.6 0.6 3.7 0.3 Fixed rate assets Bonds SSE 5.75% 05/02/14 2.4 National Grid 6.125% 15/04 5.7 /14 8.1 Gilts UK Treasury 4.5% 07/03/13 19.7 UK Treasury 2.25% 07/03/14 14.8 34.5 Total 42.6 Weighted average fixed 1.53% rate to maturity based on fair value Fixed rate liabilities* 39.4 Weighted average fixed 6.125% rate *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 £152,000 (2011: £140,000). 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 £26.4 million (2011: £23.0 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 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 2012 in connection with the Deferred Share Plan for senior staff. On 15 March 2012, 166,889 shares were purchased in the market at 395.2 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 2015. Total voting rights The Corporation has an issued share capital at 1 March 2013 of 118,101,503 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 118,101,503. 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 www.lawdeb.com/ investment-trust/financial-statements Copies of the annual report will be available from the Corporation's registered office or on the above website link once published on 5 March 2013. By order of the board Law Debenture Corporate Services Limited Secretary 1 March 2013

Companies

Law Debenture Corp. (LWDB)
UK 100
FTSE quotes by TradingView

Latest directors dealings

All directors dealings today