Annual Financial Report

ANNUAL FINANCIAL REPORT for the year ended 31 December 2010(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 8.5p per share making a total for the year of 12.7p. Subject to the approval of shareholders, the final dividend will be paid on 20 April 2011 to holders on the register on the record date of 18 March 2011. The annual financial report has been prepared in accordance with International Financial Reporting Standards. Group income statement for the year ended 31 December 2010 2009 Revenue Capital Total Revenue Capital Total Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 UK dividends 10,180 - 10,180 9,097 - 9,097 UK special - - - 29 - 29 dividends Overseas dividends 1,640 - 1,640 1,777 - 1,777 Overseas special 76 - 76 56 - 56 dividends Interest from 553 - 553 911 - 911 securities 12,449 - 12,449 11,870 - 11,870 Interest income 296 - 296 266 - 266 Independent 30,381 - 30,381 34,589 - 34,589 fiduciary services fees Other income 118 - 118 587 - 587 Total income 43,244 - 43,244 47,312 - 47,312 Net gain on - 68,476 68,476 - 73,856 73,856 investments held at fair value through profit or loss Gross income and 43,244 68,476 111,720 47,312 73,856 121,168 capital gains Cost of sales (6,184) - (6,184) (11,521) - (11,521) Administrative (17,368) (146) (17,514) (15,840) (283) (16,123) expenses Operating profit 19,692 68,330 88,022 19,951 73,573 93,524 Finance costs Interest payable (2,452) - (2,452) (2,451) - (2,451) Profit before 17,240 68,330 85,570 17,500 73,573 91,073 taxation Taxation (1,679) - (1,679) (2,243) - (2,243) Profit for year 15,561 68,330 83,891 15,257 73,573 88,830 Return per ordinary 13.26 58.22 71.48 13.02 62.77 75.79 share (pence) Diluted return per 13.25 58.17 71.42 13.01 62.73 75.74 ordinary share (pence) Statement of comprehensive income for the year ended 31 December Revenue Capital Total Revenue Capital Total 2010 2010 2010 2009 2009 2009 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Group Profit for the year 15,561 68,330 83,891 15,257 73,573 88,830 Foreign exchange on - 102 102 - (393) (393) translation of foreign operations Taxation on foreign - - - - 27 27 exchange Pension actuarial gains 283 - 283 2,279 - 2,279 Taxation on pension (79) - (79) (638) - (638) Total comprehensive income 15,765 68,432 84,197 16,898 73,207 90,105 for the year Financial summary Highlights 31 December 31 December 2010 2009 pence pence Share price 356.60 284.50 NAV per share after proposed 342.92 283.95 final dividend Revenue return per share - Investment trust 7.07 7.33 - Independent fiduciary 6.19 5.69 services Group revenue return per share 13.26 13.02 Capital return per share 58.22 62.77 Dividends per share 12.70 12.20 Performance 2010 2009 % % Share price total returnÂ¹ 30.5 34.4 NAV total returnÂ¹ 24.8 37.8 FTSE All-Share Index total 14.5 30.1 return Â¹ Source AIC, including reinvestment of dividends. Chairman's statement and review of 2010 Performance Our net asset value total return for the year to 31 December 2010 was 24.8%, compared to a total return of 14.5% for the FTSE Actuaries All-Share Index. Net revenue return per share was 13.26p, an increase of 1.8% over the previous year, as a result of a 3.5% fall in the investment trust an 8.8% increase in independent fiduciary services. Dividend The board is recommending a final dividend of 8.5 p per ordinary share (2009: 8.0p), which together with the interim dividend of 4.2p (2009:4.2p) gives a total dividend of 12.7p (2009:12.2p). The final dividend will be paid, subject to shareholder approval, on 20 April 2011 to holders on the register on the record date of 18 March 2011. 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 impair the flexibility of our investment policy. 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 volatile in the first six months of the year, with little overall change, but the remainder of the year saw a steady improvement in values. Corporate profits have been increasing and balance sheets have been strengthening, giving rise to expectations of future dividend increases. This improved corporate performance encouraged us to increase equity exposure, which was funded by the sale of part of our holding in short dated corporate bonds, which we had held as an alternative to cash. The performance of the portfolio has benefited from the relatively high exposure to industrial companies, which have seen expanding demand from emerging markets. For a discussion of the portfolio please see the Investment Manager's review. The prospects for UK dividend growth are encouraging and the portfolio is well positioned to take advantage of continued growth in emerging markets from its bias towards industrial companies. Independent fiduciary services New transactions and appointments continued to be below historic levels, but a combination of high activity from existing business and strict cost control led to an increase in profits. Future improvement in profits is dependent upon continued global growth and an increase in capital market transactions. The creation of our board effectiveness services business demonstrates our intention to seek to grow both organically and by way of acquisition where suitable opportunities arise. For a discussion of the independent fiduciary services business please see the managing director's report. The annual general meeting will be held at the Brewers Hall, Aldermanbury Square, London EC2V 7HR at 11am on 12 April 2011. Douglas McDougall Investment Manager's review Overview During the course of 2010 the global stock market rally gained momentum, registering an impressive recovery from the market's nadir in March 2009. Encouraging global economic growth was the main driver behind the advance in equities and risk assets. Well-positioned companies experienced sales growth at a time when they had capacity to fill orders, leading to an increase in corporate profit margins. Consensus earnings forecasts generally lagged behind the actual growth achieved, meaning that the background for investors was positive, as a continual stream of upgrades ensued, with companies demonstrating impressive cash generation. As a consequence of the financial crisis, firms have chosen to focus on paying down their debt, with the result that corporate balance sheets are now generally very strong. Law Debenture's portfolio benefited from the trend of improving company performances, with strength in the industrials sector the major factor behind the portfolio's outperformance during the year. Industrials, which are well-represented in the portfolio, were particularly boosted by the underlying economic expansion, as it is these firms that are providing goods and services demanded by rapidly expanding emerging economies. Such firms also benefit from operational gearing, and were in the forefront of profits growth. Strong cash generation and robust balance sheets led to acceleration of dividend growth in the firms to which we are exposed , as company boards became more sanguine about their forecasts and outlooks. This pick-up in dividends is set to continue and underpins adopting a positive stance towards equity investment. We have employed a modest level of gearing to equity throughout the year, and our intention is to retain it because earnings growth is expected to continue to surprise positively. Geographically, the best performing area for the portfolio was the US, as a result of the strong performance from industrial giants Cummins and Caterpillar, while the weakest geographical area was Continental Europe, as a result of the slower growth within some Mediterranean countries. The Pacific region, again, performed strongly. Law Debenture's holdings here are split between three different OEIC managers and a specialist investment trust. It was this latter holding, Scottish Oriental Smaller Company Trust, that advanced the most as smaller companies in the area outperformed and the discount narrowed. The medium and smaller companies within the UK portfolio also appreciated substantially. Portfolio activity Underlying portfolio activity in buying and selling shares was low over the review period, with turnover of approximately 9% for the year. Trading activity in the portfolio is usually modest, but this was particularly the case over the year, as we resisted the temptation of reducing holdings in stocks where share prices had advanced, because prices looked set to recover yet further. It is important to remember how far some shares fell in 2008, when the actions and pronouncements of some investors were extreme. This overreaction in the markets led to some shares being sold down to completely unjustified levels - therefore the recovery was likely to be a strong one. The key question a shareholder in any company needs to ask is whether the firm's future operational performance justifies its current valuation and, if it does, to keep with the holding regardless of how much that share price has recovered. Many companies have improved substantially as investment propositions in recent years. This can be measured by the straight valuation matrix of earnings, dividend cover, and balance sheet strength. That said, we are always alert to compelling new investment opportunities. For example, we added a holding in the US medical supplier Becton Dickinson, as the valuation was not reflective of the strength of its profit growth profile. We reduced our corporate bond holdings by half to finance the purchase of equities. Our holdings in the banking sector remain low as visibility is poor over their prospective profits. It is unclear how much capital they will require and whether they will be required to separate their retail and wholesale operations. Outlook Looking ahead to the coming year, the global economic recovery should continue across the developed world. Given this favourable backdrop, top class manufacturing companies - wherever they are based geographically - look well-positioned to benefit from the improving conditions, as long as they remain focused and competitive in their undertakings. We are also hopeful that subdued wage pressure in the major economies will prevent a destabilising rise in inflation. Therefore, to conclude, the cocktail of good profits growth, dividend increases, relatively low valuations, and modest inflation would suggest a positive outlook for equity investment. James Henderson Henderson Global Investors Limited Management review - independent fiduciary services Results Independent fiduciary services profit before tax increased by 2.2% from Â£8.76 million to Â£8.95 million. The prior year profit benefited from a one-off gain of Â£694,000 as a result of a change made to the pension scheme. Revenue return per share increased by 8.8% from 5.69p to 6.19p. The effective tax rate fell from 23.8% to 18.8% owing to changes in the taxation of overseas income. Review of 2010 The independent fiduciary businesses again performed well. Although the markets where we operate are yet to return to pre-recession levels, they were livelier than in 2009, particularly for service of process appointments. We maintained market share across all of the businesses and continued with our efforts to augment revenues by diversifying into new areas were successful. Activity levels in pre-existing transactions remained high, allowing us to charge additional fees. Towards the end of the year, we added a new business line - board effectiveness services. This enables us to offer boards of all kinds an independent, external evaluation service in accordance with the revised UK Corporate Governance Code, as well as general board/director development services and business intelligence on corporate governance. Revenues will begin to flow from this new business during 2011. Some notable highlights of the year are set out below. Corporate trusts Among the new roles we secured were: trustee of debt programmes of two train leasing companies Porterbrook and Eversholt; a major security agent role for the French company Technicolor; and appointments for many new clients including Electra Private Equity, Hyde Housing, Northern Gas Networks, and TUI Travel. We were also appointed trustee by ETF Securities on its innovative foreign currency programme and on a base metals programme, believed to be the first of its kind in the London market. We secured a significant role as trustee to enable British Airways to preserve its UK nationality for the purposes of certain international traffic rights, following its merger with Iberia. Acting through a special purpose subsidiary, we hold British Airways B shares - which carry minimal economic rights - representing 50.1% of the total number of issued shares in BA, exercising the votes attaching to the shares in accordance with the terms of the trust. There has continued to be a high level of post-issuance work on existing trusts. Terms for settlement of the long running disputes over the Polish company, Elektrim, have finally been agreed. Pension trusts The pension scheme trusteeship service continued to grow and in consequence we added several high-calibre individuals to our team. Pension schemes face many challenges and our strong and experienced team are well placed to help schemes respond to those challenges. Recognising that, clients are increasingly asking us to be the chair of their trustee boards. Now firmly cemented in the pensions industry calendar, the 2010 annual debate was the best attended to date and we look forward to another lively evening in May 2011 when the subject will be "This house believes that pensions would be better off without politicians". Corporate services Our long established and high regarded service of process business saw a welcome upturn in new appointments as the number of corporate transactions overseas increased in line with the global recovery. The corporate services business had a good year. Despite continuing low activity levels in the structured finance markets, we were appointed to new securitisations originated by Eversholt Rail and Northern Rock. We also picked up business from other markets, including an appointment as company secretary of NBNK Investments, a company seeking to become, through acquisition, a new bank for retail and smaller company customers. Treasury and asset backed solutions The integration of our treasury management and structured finance administration businesses has enabled these businesses to grow and develop. Our cash escrow business remains very active and we are well placed to capitalise on third party servicing opportunities as market activity picks up. Safecall Our external whistle blowing service increased its client base by 25%. Notable appointments included Tullow Oil, Atkins, Michelin and EDF Energy. The commercial and regulatory benefits of independent confidential reporting have become even more pronounced with the advent of The Bribery Act 2010. The need for firms to have in place adequate procedures to comply with the Act has led to an increased number of enquiries for our service. Overseas United States The US business generated positive results across all of its sectors of operation. Notable new trust appointments included Ambac Financial, Las Vegas Monorail and Bank United Trustee. Administration and collateral agent appointments and escrow and paying agent services also performed well. The US corporate services businesses, including Delaware Corporate Services, had an excellent year, recording their highest profits yet. Hong Kong We had a successful year in the Far East, reflecting the continuing resurgence in economic activity in the region. Service of process appointments returned to pre-credit crisis levels, new escrow appointments increased significantly and the employee share trust business flourished. We successfully launched exclusive co-operation arrangements with Jiangsu International Trust Company Limited in Shanghai, enabling us to provide trustee and escrow services for foreign investors in China. Channel Islands While income rose on new pension trustee and short term escrow appointments, provisions for doubtful debts were higher than usual, resulting in a slight decline in net profits. Summary and outlook Nearly all of our independent fiduciary businesses achieved or bettered their revenue targets. During a year when market conditions improved slightly, but by no means reaching pre-recession levels, this is a creditable achievement. In 2011, we expect activity levels to be influenced less by work arising from pre-existing transactions and more by new appointments. This will be reliant, however, upon the continued growth of the global economy and some rejuvenation of the banking sector, from which a good proportion of our business emanates, but which remains more sluggish than we would prefer. Caroline Banszky Statement of financial position as at 31 December 2010 2009 Â£000 Â£000 Assets Non current assets Goodwill 2,211 2,187 Property, plant and equipment 190 254 Other intangible assets 118 127 Investments held at fair value 441,337 373,066 through profit or loss Deferred tax assets 871 1,083 Total non current assets 444,727 376,717 Current assets Trade and other receivables 6,731 3,135 Other accrued income and prepaid 3,797 5,059 expenses Corporation tax receivable - 221 Cash and cash equivalents 20,030 18,688 Total current assets 30,558 27,103 Total assets 475,285 403,820 Current liabilities Trade and other payables 11,446 7,893 Short term borrowings 77 76 Corporation tax payable 1,119 1,119 Other taxation including social 846 395 security Deferred income 3,714 4,303 Total current liabilities 17,202 13,786 Non current liabilities and deferred income Long term borrowings 39,364 39,338 Retirement benefit obligations 876 1,928 Deferred income 5,277 6,366 Total non current liabilities 45,517 47,632 Total net assets 412,566 342,402 Equity Called up share capital 5,904 5,903 Share premium 8,066 8,038 Capital redemption 8 8 Shared based payments 201 201 Own shares (1,794) (2,040) Capital reserves 368,666 300,336 Retained earnings 30,993 29,536 Translation reserve 522 420 Total equity 412,566 342,402 Statement of cash flows for the year ended 31 December Operating activities 2010 2009 Â£000 Â£000 Operating profit before interest payable and 88,022 93,524 taxation Gains on investments (68,330) (73,573) Foreign exchange (24) 94 Depreciation of property, plant and equipment 122 271 Amortisation of intangible assets 95 61 Gain on curtailment of pension benefits - (694) (Increase) in receivables (2,334) (152) Increase/(Decrease) in payables 2,352 (1,168) Income gain on OEICs (347) (89) UK and overseas withholding tax deducted at - (158) source Normal pension contributions in excess of cost (769) (577) Cash generated from operating activities 18,787 17,539 Taxation (1,325) (2,471) Interest paid (2,452) (2,451) Operating cash flow 15,010 12,617 Investing activities Acquisition of property, plant and equipment (58) (48) Expenditure on intangible assets (86) (105) Purchase of investments (36,262) (82,236) Sale of investments 36,676 71,475 Cash flow from investing activities 270 (10,914) Financing activities Dividends paid (14,308) (14,291) Proceeds of increase in share capital 29 68 Purchase of own shares 246 97 Net cash flow from financing activities (14,033) (14,126) Net increase /(decrease)in cash and cash 1,247 (12,423) equivalents Cash and cash equivalents at beginning of 18,612 31,505 period Foreign exchange gains/(losses) on cash and 94 (470) cash equivalents Cash and cash equivalents at end of period 19,953 18,612 Cash and cash equivalents comprise Cash and cash equivalents 20,030 18,688 Bank overdrafts (77) (76) 19,953 18,612 Statement of changes in equity Share Share Own Capital Share Translation Capital Retained Total capital premium shares redemption based reserve reserves earnings payment Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Balance at 1 5,902 7,971 (2,137) 8 201 786 226,763 26,929 266,423 January 2009 Net profit - - - - - - 73,573 15,257 88,830 Foreign exchange - - - - - (366) - - (366) (net of tax) Actuarial gain on - - - - - - - 1,641 1,641 pension scheme (net of tax) Total - - - - - (366) 73,573 16,898 90,105 comprehensive income Issue of shares 1 67 - - - - - - 68 Dividend relating - - - - - - - (9,368) (9,368) to 2008 Dividend relating - - - - - - - (4,923) (4,923) to 2009 Movement in own - - 97 - - - - - 97 shares Total equity at 31 5,903 8,038 (2,040) 8 201 420 300,336 29,536 342,402 December 2009 Balance 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 (net of tax) Actuarial gain on - - - - - - - 204 204 pension scheme (net of tax) Total - - - - - 102 68,330 15,765 84,197 comprehensive income Issue of shares 1 28 - - - - - - 29 Dividend relating - - - - - - - (9,378) (9,378) to 2008 Dividend relating - - - - - - - (4,930) (4,930) to 2009 Movement in own - - 246 - - - - - 246 shares 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 fiduciary services 2010 2009 2010 2009 2010 2009 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Revenue Segment income 12,449 11,870 30,381 34,589 42,830 46,459 Other income 87 587 31 - 118 587 Cost of sales - - (6,184) (11,521) (6,184) (11,521) Administration costs (1,679) (1,365) (15,689) (14,475) (17,368) (15,840) 10,857 11,092 8,539 8,593 19,396 19,685 Interest (net) (2,565) (2,347) 409 162 (2,156) (2,185) Return, including profit 8,292 8,745 8,948 8,755 17,240 17,500 on ordinary activities before taxation Taxation - (158) (1,679) (2,085) (1,679) (2,243) Return, including profit 8,292 8,587 7,269 6,670 15,561 15,257 attributable to shareholders Revenue return per 7.07 7.33 6.19 5.69 13.26 13.02 ordinary share Assets 450,287 381,952 24,223 21,868 474,510 403,820 Liabilities (51,665) (50,951) (10,279) (10,467) (61,944) (61,418) Total net assets 398,622 331,001 13,944 11,401 412,566 342,402 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 acquisition 31 Â£000 proceeds Â£000 31 December Â£000 December Â£000 2009 2010 Â£000 Â£000 United Kingdom 266,534 26,985 (125) (26,897) 46,891 313,388 North America 18,397 3,360 (5) - 8,498 30,250 Europe 43,117 5,917 (8) (9,779) 2,203 41,450 Japan 15,890 - - - 3,038 18,928 Other Pacific 29,128 - - - 8,193 37,321 373,066 36,262 (138) (36,676) 68,823 441,337 The financial information set out above does not constitute the Corporation's statutory accounts for 2009 or 2010. Statutory accounts for the years ended 31 December 2010 and 31 December 2009 have been reported on by the Independent Auditors. The Independent Auditors' Report on the Annual Report and Financial Statements for 2009 and 2010 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 2009 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 December 2010 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 2010. The principal accounting policies adopted are unchanged from those used in the preparation of the statutory accounts for the year ended 31 December 2009. 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 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 Â£965,000 (2009: Â£751,000) and are based on 0.25% per annum of the average portfolio value, excluding cash. The underlying management fee of 1% on the Corporation's holdings in the Henderson Japanese and Pacific OEICs has been rebated. The investment trust - investment policyand implementation The Corporation's investment policy 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 policy. 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 both capital and income account, subject again to prior authorisation of the board. Stock lending, trading in suspended shares and short positions are not permitted. The Corporation's investment activities are subject to the following limitations and restrictions: â€¢ No investment may be made which raises the aggregate value of the largest 20 holdings, excluding investments in OEICs and in Scottish Oriental Smaller Company Trust, 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. â€¢ 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. â€¢ The Corporation may not make investments in respect of which there is unlimited liability. â€¢ Board approval must be sought for any proposed direct investments in certain jurisdictions. â€¢ The Corporation has a policy not to invest more than 15% of gross assets in other UK listed investment companies. Investment policy - implementation During the year, the assets of the Corporation were invested in accordance with the investment policy. At the 31 December 2010 the top 20 holdings (excluding the Henderson OEICs) comprise 35% of the total portfolio (2009: 34%). The extent to which the Corporation's objective has been achieved, and how the investment policy was implemented, are described in the chairman's statement The most recently published high level portfolio information at 31 January 2011 is: Top 10 Holdings Rank Name of Holding % of portfolio (excl. cash) 1. Royal Dutch Shell 3.40 2. BP 3.19 3. Senior 3.16 4. Henderson Asia Pacific Capital 2.82 Growth 5. HSBC 2.78 6. Henderson Japan Capital Growth 2.72 7. GKN 2.12 8. Baillie Gifford Pacific 2.08 9. GlaxoSmithKline 2.05 10. First State Asia Pacific 1.90 Geographical Split Region % of portfolio UK 70 Europe 9 North America 7 Japan 4 Other Pacific 8 Other - Cash and Fixed Interest 2 TOTAL 100 Independent fiduciary services We are a leading provider of independent fiduciary services. Our activities are corporate trusts, treasury management and structured finance administration, 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 policy 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 2010 fell or rose by 10%, the impact on the group's total profit or loss for the year would have been Â£44.1 million (2009: Â£37.3 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: Investments Net 2010 Investments Net 2009 monetary monetary Â£m Total Â£m Total assets currency assets currency Â£m exposure Â£m exposure Â£m Â£m Group US Dollar 28.5 3.8 32.3 17.0 3.5 20.5 Canadian 1.7 - 1.7 1.4 - 1.4 Dollar Euro 26.2 3.9 30.1 28.8 0.7 29.5 Danish 0.8 - 0.8 0.8 - 0.8 Krone Swedish 1.1 - 1.1 0.7 - 0.7 Krona Swiss Franc 13.3 - 13.3 12.8 - 12.8 Hong Kong - 0.4 0.4 - 0.4 0.4 Dollar Japanese 6.6 - 6.6 5.9 - 5.9 Yen Total 78.2 8.1 86.3 67.4 4.6 72.0 The holdings in the Henderson Japan Capital Growth, Henderson Pacific Capital Growth, Baillie Gifford Pacific and First Asia Pacific, OEICs and Scottish Oriental Smaller Company Trust are denominated in sterling but have underlying assets in foreign currencies equivalent to Â£49.7 million (2009: Â£39.1 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 2010 rose or fell by 10% against sterling, the impact on the group's total profit or loss for the year would have been Â£12.8 million (2009: Â£10.7 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 policy 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 2010 was: Group Sterling HK Dollars US Dollars Euro Â£m Â£m Â£m Â£m Fixed rate assets - - - - Floating rate assets 11.9 0.4 3.8 3.9 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 Â£144,000 (2009: Â£135,000). 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 restricts 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 Â£26.8 million (2009: Â£21.8 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 required to distribute at least 85% of its revenue profits 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 impair the investment policy. The investment policy 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 2010 in connection with the Deferred Share Bonus Plan for senior staff. On 25 February, 170,135 shares were purchased in the market at 283.5 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 2013. Total voting rights The Corporation has an issued share capital at 28 February 2011 of 118,079,737 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 118,079,737. 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 14 March 2011. By order of the board Law Debenture Corporate Services Limited Secretary 01 March 2011

Companies

Law Debenture Corp. (LWDB)

Friday, 31st May 2024

COMPANIES COVERED:

JD. FLTR NWG

Flutter shares tank as primary listing moves to New York and the CFO steps aside, JD Sports struggles to impress despite sales growth in challenging market and Nat West buys £1.24bn of its own stock back from the government.

Full Archive

UK 100

Latest directors dealings

1 day ago FDM Group (Holdings)
1 day ago Neo Energy Metals
1 day ago DCC (CDI)
1 day ago 3i Group
1 day ago 3i Group

All directors dealings today