Half-yearly Report
The Law Debenture Corporation p.l.c. and its subsidiaries
HALF YEARLY REPORT FOR THE SIX MONTHS TO 30 JUNE 2010 (unaudited)
The Directors recommend an interim dividend of 4.2p on the ordinary shares for
the six months to 30 June 2010. The report including the unaudited results for
the period was as follows:
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
sectors. The group divides into two distinct complementary areas of business.
Investment trust
We are a global investment trust, listed on the London Stock Exchange.
Our portfolio of investments is managed by Henderson Global Investors Limited
under a contract terminable by either side on 12 months' notice.
Our objective is to achieve long term capital growth in real terms and steadily
increasing income. The aim is to achieve a higher rate of total return than the
FTSE All-Share Index through investing in a portfolio diversified both
geographically and by industry.
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) and
whistleblowing 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.
Registered office
Fifth Floor
100 Wood Street
London EC2V 7EX
Telephone: 020 7606 5451
Facsimile: 020 7606 0643
Email: enquiries@lawdeb.com
(Registered in England No 30397)
Financial summary
Highlights
30 June 30 June 31 December
2010 2009 2009
Pence Pence Pence
Share price 278.20 229.50 284.50
NAV per share after proposed 279.40 218.19 283.95
dividend
Net revenue return per share:
- Investment trust 4.32 4.36 7.33
- Independent fiduciary services 2.72 2.26 5.69
Group net revenue return per share 7.04 6.62 13.02
Capital return per share (7.71) (3.38) 62.77
Dividends per share 4.20 4.20 12.20
Performance to 30 June 2010
6 months 12 months
% %
Share price total return 1 0.4 26.3
NAV total return 1 (0.4) 33.1
FTSE All-Share Index total return (6.1) 21.1
1 Including reinvestment of
dividends
Basis of preparation
The results for the period have been prepared in accordance with International
Financial Reporting Standards (IAS 34 - Interim financial reporting).
There have been no changes to the group's accounting policies during the
period.
Half yearly management report
Performance
Our net asset value total return for the six months to 30 June 2010 was (0.4)%,
compared to a total return of (6.1)% for the FTSE Actuaries All-Share Index.
Profit (revenue) attributable to shareholders was £8.3 million, an increase of
6.5% over the corresponding period last year, as a result of a 21.1% increase
in independent fiduciary services, offset by a 1.0% fall in the investment
trust.
Dividend
The board has declared an interim dividend of 4.2p. The dividend is payable on
8 September 2010 to shareholders on the register on 13 August 2010. The current
expectation of the directors is that the final dividend will be maintained and
that its payment next year will be in tax year 2011/12.
Investment trust
Although the NAV has hardly changed over the period, equity markets have
remained volatile with investors lacking confidence. This is because of major
unresolved issues in the global banking sector and concerns over whether the
economy will suffer a `double dip' recession. Weighed against this, news at
company level has been good. Firms have been reducing their costs and paying
down debts, while sales have increased. The result has been an expansion of
operating margin and better than expected profits. Industrial companies have
been particular beneficiaries.
The improving corporate performance has encouraged us to increase equity
exposure. We have reduced the holding in short dated corporate bonds to buy
good quality high yielding equities. Dividends from companies are expected
to grow over the coming year as cash generation is strong. The global economy
should continue to expand aided by the developing economies of Asia and South
America. Companies that provide value added products will benefit from this
growth and the portfolio is focussed on such companies. The equity gearing at
the period end was 9.3%.
Independent fiduciary services
Independent fiduciary services profit before interest and tax rose by 8.0%,
compared with the corresponding period last year. While gross revenues were, on
the face of it, considerably down on the previous year, income net of cost of
sales increased by 4.7%. Cost of sales are largely attributable to legal fees
incurred and recharged to third parties and are included in gross revenue. In
the corresponding period, cost of sales were exceptionally high due to the
level of activity on corporate trust restructurings. Taxation for the six
months to 30 June 2010 was significantly reduced, compared to the corresponding
period last year, as the tax relief available to independent fiduciary services
from the investment trust has increased because foreign dividends are no longer
taxable. Consequently net revenue return per share has increased by 20.4%,
while profit before taxation has increased by 9.1%.
The number of new transactions and appointments continues to be below historic
levels, as uncertainty in the financial markets persists. Activity levels in
pre-existing transactions remain high and the cost base is well controlled. We
continue to take advantage of any new opportunities that arise within the
existing businesses and look to diversify into other areas where the expertise
of an independent third party is required.
Group income statement
For the six months ended 30 June 2010 (unaudited)
30 June 2010 30 June 2009
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
UK dividends 5,278 - 5,278 4,745 - 4,745
UK special dividends - - - 29 - 29
Overseas dividends 1,425 - 1,425 1,549 - 1,549
Overseas special 53 - 53 - - -
dividends
Interest from securities 327 - 327 468 - 468
7,083 - 7,083 6,791 - 6,791
Interest income 50 - 50 202 - 202
Independent fiduciary 14,489 - 14,489 18,672 - 18,672
services fees
Other income 144 - 144 257 - 257
Total income 21,766 - 21,766 25,922 - 25,922
Net (loss) on investments - (8,962) (8,962) - (3,859) (3,859)
held at fair value
through profit or loss
Gross income and capital 21,766 (8,962) 12,804 25,922 (3,859) 22,063
(losses)
Cost of sales (2,885) - (2,885) (7,556) - (7,556)
Administrative expenses (8,627) (84) (8,711) (8,240) (98) (8,338)
Operating profit 10,254 (9,046) 1,208 10,126 (3,957) 6,169
Finance costs
Interest payable (1,234) - (1,234) (1,226) - (1,226)
(Loss)/profit before 9,020 (9,046) (26) 8,900 (3,957) 4,943
taxation
Taxation (754) - (754) (1,142) - (1,142)
(Loss)/profit for the 8,266 (9,046) (780) 7,758 (3,957) 3,801
period
(Loss)/return per 7.04 (7.71) (0.67) 6.62 (3.38) 3.24
ordinary share (pence)
Diluted (loss)/return per 7.04 (7.71) (0.67) 6.62 (3.38) 3.24
ordinary share (pence)
Statement of comprehensive income
For the six months ended 30 June 2010 (unaudited)
30 June 2010 30 June 2009
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Profit/(loss) for the 8,266 (9,046) (780) 7,758 (3,957) 3,801
period
Other comprehensive
income:
Foreign exchange - 407 407 - (252) (252)
Total comprehensive (loss) 8,266 (8,639) (373) 7,758 (4,209) 3,549
/income for the period
Group statement of financial position
30 June 30 June 2009 31 December
2010 2009
(unaudited)
(unaudited) (audited)
£000
£000 £000
Assets
Non current assets
Goodwill 2,266 3,088 2,187
Property, plant and equipment 268 433 254
Other intangible assets 110 136 127
Investments held at fair value 366,858 291,288 373,066
through profit or loss
Deferred tax assets 1,003 1,999 1,083
Total non current assets 370,505 296,944 376,717
Current assets
Trade and other receivables 3,339 5,477 3,135
Other accrued income and prepaid 4,730 4,347 5,059
expenses
Corporation tax receivable - 271 221
Other taxation including social - 34 -
security
Cash and cash equivalents 14,954 20,191 18,688
Total current assets 23,023 30,320 27,103
Total assets 393,528 327,264 403,820
Current liabilities
Trade and other payables 7,967 8,901 7,893
Short term borrowings 77 75 76
Corporation tax payable 1,037 1,469 1,119
Other taxation including social 446 - 395
security
Deferred income 4,127 4,062 4,303
Total current liabilities 13,654 14,507 13,786
Non current liabilities and
deferred income
Long term borrowings 39,351 39,324 39,338
Retirement benefit obligations 1,613 5,200 1,928
Deferred income 6,035 6,849 6,366
Contingent purchase consideration - 900 -
Total non current liabilities 46,999 52,273 47,632
Total net assets 332,875 260,484 342,402
Equity and liabilities
Called up share capital 5,903 5,902 5,903
Share premium 8,038 7,971 8,038
Capital redemption 8 8 8
Share based payments 201 201 201
Own shares (1,816) (2,257) (2,040)
Capital reserves 291,290 222,806 300,336
Retained earnings 28,424 25,319 29,536
Translation reserve 827 534 420
Total equity 332,875 260,484 342,402
Group statement of cash flows
For the six months ended 30 June 2010
30 June 30 June 31 December
2010 2009 2009
(unaudited) (unaudited)
(audited)
£000 £000 £000
Operating activities
Operating profit before interest 1,208 6,169 93,524
payable and taxation
Losses/(gains) on investments 9,046 3,957 (73,573)
Foreign exchange (82) 97 94
Depreciation of property, plant and 67 82 271
equipment
Amortisation of intangible assets 31 20 61
Gain on adjustment of pension - - (694)
benefits
Decrease/(increase) in receivables 125 (1,816) (152)
(Decrease) in payables (369) (327) (1,168)
Income gain on OEICs (120) (164) (89)
UK and overseas withholding tax - (158) (158)
deducted at source
Normal pension contributions in (315) (278) (577)
excess of cost
Cash generated from operating 9,591 7,582 17,539
activities
Taxation (535) (1,375) (2,471)
Interest paid (1,234) (1,226) (2,451)
Operating cash flow 7,822 4,981 12,617
Investing activities
Acquisition of property, plant and (64) (42) (48)
equipment
Expenditure on intangible assets (28) (73) (105)
Purchase of investments (20,995) (50,066) (82,236)
Sale of investments 18,308 43,676 71,475
Cash flow from investing activities (2,779) (6,505) (10,914)
Financing activities
Dividends paid (9,378) (9,368) (14,291)
Proceeds of increase in share capital - - 68
Purchase of own shares 224 (120) 97
Net cash flow from financing (9,154) (9,488) (14,126)
activities
Net decrease in cash and cash (4,111) (11,012) (12,423)
equivalents
Cash and cash equivalents at 18,612 31,505 31,505
beginning of period
Foreign exchange gains/(losses) on 376 (377) (470)
cash and cash equivalents
Cash and cash equivalents at end of 14,877 20,116 18,612
period
Cash and cash equivalents comprise
Cash and cash equivalents 14,954 20,191 18,688
Bank overdrafts (77) (75) (76)
14,877 20,116 18,612
Group statement of changes in equity and group segmental analysis
Share Share Own Capital Share Translation Capital Retained Total
capital premium shares redemption based reserve reserves earnings
payments
£000 £000 £000 £000 £000 £000 £000 £000 £000
Balance at 1 5,903 8,038 (2,040) 8 201 420 300,336 29,536 342,402
January 2010
Net loss for the - - - - - - (9,046) 8,266 (780)
period
Other
comprehensive
income:
Foreign exchange - - - - - 407 - - 407
Total - - - - - 407 (9,046) 8,266 (373)
comprehensive
loss for the
period
Movement in own - - 224 - - - - - 224
shares
Dividend relating - - - - - - - (9,378) (9,378)
to 2009
Total equity at 5,903 8,038 (1,816) 8 201 827 291,290 28,424 332,875
30 June 2010
Group segmental analysis
Investment trust Independent fiduciary Total
services
30 June 30 June 31 Dec 30 June 30 June 31 Dec 30 June 30 June 31 Dec
2010 2009 2009 2010 2009 2009 2010 2009 2009
£000 £000 £000 £000 £000 £000 £000 £000 £000
Revenue
Segment income 7,083 6,791 11,870 14,489 18,672 34,589 21,572 25,463 46,459
Other income 63 212 587 81 45 - 144 257 587
Cost of sales - - - (2,885) (7,556) (11,521) (2,885) (7,556) (11,521)
Administration costs (867) (713) (1,365) (7,760) (7,527) (14,475) (8,627) (8,240) (15,840)
6,279 6,290 11,092 3,925 3,634 8,593 10,204 9,924 19,685
Interest (net) (1,214) (1,016) (2,347) 30 (8) 162 (1,184) (1,024) (2,185)
Return, including 5,065 5,274 8,745 3,955 3,626 8,755 9,020 8,900 17,500
profit on ordinary
activities before
taxation
Taxation - (158) (158) (754) (984) (2,085) (754) ( 1,142) (2,243)
Return, including 5,065 5,116 8,587 3,201 2,642 6,670 8,266 7,758 15,257
profit attributable
to shareholders
Revenue return per 4.32 4.36 7.33 2.72 2.26 5.69 7.04 6.62 13.02
ordinary share
(pence)
The capital element of the income statement is wholly attributable to the
investment trust.
Analysis of the investment portfolio
By geographical location
Valuation Purchases Costs of Sales (Depreciation) Valuation %
acquisition proceeds / 30 June
31 £000 2010
December £000 £000 appreciation
2009 £000
£000
£000
United 266,534 16,046 (77) (14,885) (7,979) 259,639 70.7
Kingdom
North America 18,397 1,444 (2) - 941 20,780 5.7
Europe 43,117 3,505 (5) (3,423) (3,387) 39,807 10.9
Japan 15,890 - - - 861 16,751 4.6
Other Pacific 29,128 - - - 753 29,881 8.1
373,066 20,995 (84) (18,308) (8,811) 366,858 100.0
By Sector (excluding cash)
As at As at
30 June 31 December
2010 2009
% %
Oil & gas 8.8 10.3
Basic materials 3.0 2.7
Industrials 22.1 19.4
Consumer goods 12.9 14.0
Health care 8.0 7.8
Consumer services 9.8 9.8
Telecommunications 3.0 3.0
Utilities 4.8 4.3
Financials 15.7 17.4
Pooled equity investments 11.9 11.3
100.0 100.0
Investment portfolio valuation
as at 30 June 2010
UK unless otherwise
stated.
Holdings in italics were acquired after 31
December 2009
£000 %
Oil & gas
Oil & gas producers
Royal Dutch Shell 11,000 3.00
BP 8,610 2.35
BG 2,515 0.69
Total (Fra) 1,860 0.51
23,985 6.55
Oil equipment & services
Schlumberger (USA) 3,696 1.01
John Wood 1,566 0.43
National Oilwell Varco 1,105 0.30
(USA)
Diamond Offshore Drilling 1,038 0.28
(USA)
Saipem (Ita) 797 0.22
8,202 2.24
Basic materials
Chemicals
Croda 2,016 0.55
Asahi Kasei (Jap) 1,411 0.38
Syngenta (Swi) 931 0.25
4,358 1.18
Forestry & paper
Mondi 2,305 0.63
2,305 0.63
Mining
BHP Billiton 3,507 0.96
Rio Tinto 742 0.20
4,249 1.16
Industrials
Construction & materials
Balfour Beatty 2,304 0.63
CRH (Ire) 1,792 0.49
Marshalls 506 0.14
4,602 1.26
Aerospace & defence
Senior 11,608 3.16
Meggitt 4,947 1.35
Rolls Royce 3,938 1.07
BAE Systems 2,351 0.64
Hampson Industries 525 0.14
23,369 6.36
£000 %
General industrials
Tomkins 2,834 0.77
Smith (DS) 2,229 0.61
Smiths 1,607 0.44
Siemens (Ger) 789 0.22
7,459 2.04
Electronic & electrical
equipment
Morgan Crucible 4,710 1.28
Applied Materials (USA) 4,017 1.10
TT Electronics 1,385 0.38
10,112 2.76
Industrial engineering
Hill & Smith 5,162 1.41
Cummins (USA) 4,353 1.19
Weir Group 3,630 0.99
Caterpillar (USA) 1,606 0.44
ABB (Swi) 1,116 0.30
Renold 961 0.26
Severfield-Rowen 526 0.14
17,354 4.73
Industrial transportation
Kuehne & Nagel (Swi) 1,482 0.40
Wincanton 1,131 0.31
BBA Aviation 916 0.25
AP Moller-Maersk (Den) 708 0.19
Autologic 368 0.10
4,605 1.25
Support services
Interserve 4,230 1.15
Carillion 3,856 1.05
Sodexho (Fra) 1,573 0.43
SGS (Swi) 1,404 0.38
Deutsche Post (Ger) 1,032 0.28
Johnson Service 702 0.19
Adecco (Swi) 641 0.17
Augean 234 0.06
13,672 3.71
£000 %
Consumer goods
Automobiles & parts
GKN 5,364 1.46
Toyota Motor (Jap) 1,628 0.44
Bridgestone (Jap) 800 0.22
7,792 2.12
Beverages
Diageo 4,554 1.24
Pernod-Ricard (Fra) 668 0.18
5,222 1.42
Food producers
Unilever 3,152 0.86
Nestlé (Swi) 3,064 0.84
Associated British Foods 2,924 0.80
Dairy Crest 738 0.20
Uniq 156 0.04
Premier Foods 46 0.01
10,080 2.75
Household goods
Bellway 3,078 0.84
Redrow 2,504 0.68
Reckitt Benckiser 2,347 0.64
Essilor (Fra) 2,384 0.65
10,313 2.81
Leisure goods
Harvard International 396 0.11
396 0.11
Tobacco
British American Tobacco 7,476 2.04
Imperial Tobacco 5,165 1.41
Swedish Match (Swe) 921 0.25
13,562 3.70
Health care
Health care equipment &
services
Fresenius (Ger) 3,098 0.84
Smith & Nephew 2,987 0.81
Fresenius Medical Care 1,775 0.48
(Ger)
7,860 2.13
£000 %
Pharmaceuticals &
biotechnology
GlaxoSmithKline 9,144 2.49
AstraZeneca 4,754 1.30
Shire 3,435 0.94
Novartis (Swi) 2,266 0.62
Sanofi-Aventis (Fra) 932 0.25
Roche (Swi) 924 0.25
21,455 5.85
Consumer services
Food & drug retailers
Tesco 4,561 1.24
Carrefour (Fra) 911 0.25
5,472 1.49
General retailers
Dunelm 2,966 0.81
Inditex (Spa) 1,403 0.38
Lawson (Jap) 1,171 0.32
Findel 711 0.19
Topps Tiles 371 0.10
6,622 1.80
Media
Reed Elsevier 3,736 1.02
Pearson 2,442 0.68
WPP 2,233 0.61
BSkyB 2,101 0.57
Daily Mail & General Trust 1,975 0.54
Thomson Reuters (Can) 1,725 0.47
Toppan Printing (Jap) 964 0.26
Kabel Deustchland (Ger) 563 0.15
Yell 306 0.08
Johnston Press 192 0.05
16,227 4.42
Travel & leisure
Greene King 2,275 0.62
Marstons 1,902 0.52
Carnival 1,176 0.32
British Airways 1,127 0.31
Carnival (USA) 733 0.20
Thomas Cook 446 0.12
7,659 2.09
£000 %
Telecommunications
Fixed line
telecommunications
BT 1,691 0.46
Cable & Wireless Worldwide 866 0.24
Cable & Wireless 578 0.17
Communications
3,135 0.87
Mobile telecommunications
Vodafone 5,303 1.45
Inmarsat 2,592 0.71
7,895 2.16
Utilities
Electricity
Scottish & Southern Energy 3,354 0.91
Scottish & Southern Energy 2,540 0.69
5.75% 5/2/14
Iberdrola (Spa) 614 0.17
6,508 1.77
Gas water & multiutilities
National Grid 6.125% 15/4/ 5,835 1.59
14
National Grid 2,749 0.75
Severn Trent 2,501 0.68
11,085 3.02
Financials
Banks
HSBC 10,548 2.85
Standard Chartered 3,273 0.89
Banco Santander (Spa) 2,460 0.67
Barclays 1,894 0.52
BNP Paribas (Fra) 956 0.26
UBS (Swi) 772 0.21
ING (Net) 607 0.17
20,420 5.57
Nonlife insurance
Amlin 4,649 1.27
Hiscox 4,614 1.26
Chubb (USA) 2,507 0.68
Hardy Underwriting Bermuda 442 0.12
Chaucer 318 0.09
12,530 3.42
£000 %
Life insurance / assurance
Aviva 2,466 0.67
Prudential 2,254 0.61
Old Mutual 1,654 0.45
Irish Life & Permanent 498 0.14
(Ire)
6,872 1.87
Real estate investments &
services
St Modwen Properties 1,682 0.46
1,682 0.46
Real estate investments
trusts
Land Securities 2,496 0.68
Great Portland Estate 2,237 0.61
Mucklow (A&J) Group 2,090 0.57
Hammerson 1,716 0.47
Segro 1,640 0.45
10,179 2.78
Financial services
Provident Financial 2,307 0.63
International Personal 1,429 0.39
Finance
Intermediate Capital Group 1,125 0.31
Deutsche Börse (Ger) 823 0.22
5,684 1.55
Equity investment
instruments
Henderson Japan Capital 10,777 2.94
Growth
Henderson Asia Pacific 10,393 2.83
Capital Growth
Baillie Gifford Pacific 8,059 2.20
First State Asia Pacific 7,009 1.91
Scottish Oriental Smaller 4,420 1.20
Company Trust
Herald Investment Trust 3,013 0.82
43,671 11.90
Principal risks and uncertainties
The principal risks of the Corporation relate to the investment activities and
include market price risk, foreign currency risk, liquidity risk, interest rate
risk and credit risk. These are explained in the notes to the annual accounts.
In the view of the board these risks are applicable to the remaining six months
of the financial year as they were to the period under review.
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.
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. Details of related party transactions are given in
the notes to the annual accounts.
Directors' responsibility statement
We confirm that to the best of our knowledge:
* the condensed set of financial statements has been prepared in accordance
with IAS 34 Interim Financial Reporting as adopted by the EU;
* the half yearly management report includes a fair review of the information
required by:
a. DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of
important events that have occurred during the first six months of the
financial year and their impact on the condensed set of financial
statements; and a description of the principal risks and uncertainties for
the remaining six months of the year; and
b. DTR 4.2.8R of the Disclosure and Transparency Rules, being related party
transactions that have taken place in the first six months of the current
financial year and that have materially affected the financial position or
performance of the entity during that period.
On behalf of the board
Douglas McDougall
22 July 2010
Notes
1. The financial information presented herein does not amount to full
statutory accounts within the meaning of Section 435 of the Companies Act
2006 and they have neither been audited nor reviewed pursuant to guidance
issued by the Auditing Practices Board. The annual report
and financial statement for 2009 have been filed with the Registrar of
Companies. The independent auditors' report on the annual report
and financial statements for 2009 was unqualified, did not include a
reference to any matters to which the auditor drew attention by way of
emphasis without qualifying the report, and did not contain a statement
under 498(2) or (3) of the Companies Act 2006.
2. The calculations of NAV and earnings per share are based on:
NAV: shares at end of the period 117,366,193 (30 June 2009: 117,130,631) (31
December 2009: 117,286,720).
Income: average shares during the period 117,356,194 (30 June 2009:
117,153,099) (31 December 2009: 117,206,258).
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