Half-yearly Report
The Law Debenture Corporation p.l.c. and its subsidiaries
HALF YEARLY REPORT FOR THE SIX MONTHS TO 30 JUNE 2012 (unaudited)
The Directors recommend an interim dividend of 4.5p on the ordinary shares for
the six months to 30 June 2012. 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 six 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 Actuaries 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 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.
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
2012 2011 2011
Pence Pence Pence
Share price 376.00 372.80 333.50
NAV per share after proposed 348.31 361.86 323.75
dividend
Net revenue return per share:
- Investment trust 4.78 5.03 8.27
- Independent fiduciary services 3.45 3.55 7.25
Group net revenue return per share 8.23 8.58 15.52
Capital return per share 21.22 15.05 (19.07)
Dividends per share 4.50 4.50 13.50
Performance to 30 June 2012
6 months 12 months
% %
Share price total return 1 15.5 4.6
NAV total return 1 8.7 0.1
FTSE All-Share Index total return 3.3 (3.1)
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 2012 was 8.7%,
compared to a total return of 3.3% for the FTSE Actuaries All-Share Index. Net
revenue per share was 8.23p, a decrease of 4.1% over the corresponding period
last year, as a result of a 5.0% decrease in the investment trust and a 2.8%
decrease in independent fiduciary services.
Dividend
The board has declared an interim dividend of 4.5p (2011: 4.5p). The dividend
will be paid on 13 September 2012 to holders on the record date of 10 August
2012. The current expectation of the directors is that the final dividend will
be maintained.
Investment trust
Equity markets have been volatile but ultimately changed little during the
first six months of the year. The debate still rages between investors who
focus on the macro economic worries and those who look at the reasonable
valuations of companies that are producing good results.
In these market conditions, there are opportunities to be taken. Among the best
relative contributors to the portfolio in the first six months of the year were
two technology based companies, IP Group and BTG. Part of the attraction for
investors in these stocks is that they are not closely connected with the
economic cycle. It has been stocks that are perceived to have cyclical risk
that have detracted from performance. Weir Group would be an example.
Good industrial companies producing competitive products will come through the
economic turbulence. Global trade is set to keep growing in spite of a slowing
in world economic growth and the strong companies will benefit.
Outlook
Dividend cover in the stocks held in the portfolio is at historically high
levels and further dividend growth is anticipated. The gearing in the companies
is low as they continue to be cash generative. We are not using gearing in the
investment trust as uncertainties about the Eurozone and debt problems continue
to persist. The resolution of these difficulties is not in sight. However, when
appropriate, we will consider increasing our exposure to equities.
Independent fiduciary services
Revenues, net of cost of sales, which represent legal costs recharged to
clients, increased by 2.0% and while costs continued to be tightly controlled,
profit before taxation decreased by 0.2%. New appointments in financial
wholesale markets remain at relatively low levels with no sign of any
improvement in the corporate bond and securitisation markets. The outlook in
global financial markets remains uncertain, particularly in Europe, but we
continue to look for new opportunities and control our costs.
Group income statement
For the six months ended 30 June 2012 (unaudited)
30 June 2012 30 June 2011
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
UK dividends 6,104 - 6,104 6,580 - 6,580
UK special dividends 181 - 181 - - -
Overseas dividends 1,221 - 1,221 1,185 - 1,185
Overseas special dividends 48 - 48 51 - 51
Interest from securities 334 - 334 222 - 222
7,888 - 7,888 8,038 - 8,038
Interest income 42 - 42 52 - 52
Independent fiduciary 14,904 - 14,904 14,416 - 14,416
services fees
Other income 58 - 58 175 - 175
Total income 22,892 - 22,892 22,681 - 22,681
Net gain on investments - 25,031 25,031 - 17,744 17,744
held at fair value through
profit or loss
Gross income and capital 22,892 25,031 47,923 22,681 17,744 40,425
gains
Cost of sales (1,800) - (1,800) (1,615) - (1,615)
Administrative expenses (9,314) (83) (9,397) (8,874) (64) (8,938)
Operating profit 11,778 24,948 36,726 12,192 17,680 29,872
Finance costs
Interest payable (1,225) - (1,225) (1,225) - (1,225)
Profit before taxation 10,553 24,948 35,501 10,967 17,680 28,647
Taxation (876) - (876) (894) - (894)
Profit for period 9,677 24,948 34,625 10,073 17,680 27,753
Return per ordinary share 8.23 21.22 29.45 8.58 15.05 23.63
(pence)
Diluted return per ordinary 8.23 21.21 29.44 8.57 15.04 23.61
share (pence)
Statement of comprehensive income
For the six months ended 30 June 2012 (unaudited)
30 June 2012 30 June 2011
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Profit for the period 9,677 24,948 34,625 10,073 17,680 27,753
Other comprehensive
income:
Foreign exchange - (29) (29) - (109) (109)
Total comprehensive income 9,677 24,919 34,596 10,073 17,571 27,644
for the period
Group statement of financial position
30 June 201 30 June 2011 31 December
2 2011
(unaudited)
(unaudited) (audited)
£000
£000 £000
Assets
Non current assets
Goodwill 2,210 2,191 2,218
Property, plant and equipment 300 214 320
Other intangible assets 429 85 199
Investments held at fair value 446,857 459,133 423,044
through profit or loss
Deferred tax assets 1,223 662 1,416
Total non current assets 451,019 462,285 427,197
Current assets
Trade and other receivables 5,113 4,989 4,940
Other accrued income and prepaid 6,473 5,502 6,246
expenses
Cash and cash equivalents 16,381 19,300 18,063
Total current assets 27,967 29,791 29,249
Total assets 478,986 492,076 456,446
Current liabilities
Trade and other payables 10,585 10,818 11,674
Corporation tax payable 783 1,109 1,293
Other taxation including social 623 622 559
security
Deferred income 4,184 3,848 3,902
Total current liabilities 16,175 16,397 17,428
Non current liabilities and
deferred income
Long term borrowings 39,404 39,378 39,391
Retirement benefit obligations 2,823 561 3,138
Deferred income 5,765 5,433 5,563
Total non current liabilities 47,992 45,372 48,092
Total net assets 414,819 430,307 390,926
Equity
Called up share capital 5,905 5,904 5,905
Share premium 8,106 8,070 8,106
Capital redemption 8 8 8
Share based payments 201 201 201
Own shares (1,805) (1,717) (1,684)
Capital reserves 371,216 386,346 346,268
Retained earnings 30,704 31,082 31,609
Translation reserve 484 413 513
Total equity 414,819 430,307 390,926
Group statement of cash flows
For the six months ended 30 June 2012
30 June 30 June 31 December
2012 2011 2011
(unaudited) (unaudited)
(audited)
£000 £000 £000
Operating activities
Operating profit before interest 36,726 29,872 260
payable and taxation
(Gains)/losses on investments (24,948) (17,680) 22,398
Foreign exchange 8 20 (12)
Depreciation of property, plant and 56 63 164
equipment
Amortisation of intangible assets 109 33 76
(Increase)/decrease in receivables (400) 37 (658)
(Decrease)/increase in payables (528) (548) 442
Transfer to/(from) capital reserves 529 (40) 126
Normal pension contributions in (315) (315) (883)
excess of cost
Cash generated from operating 11,237 11,442 21,913
activities
Taxation (1,193) (695) (1,548)
Interest paid (1,225) (1,225) (2,450)
Operating cash flow 8,819 9,522 17,915
Investing activities
Acquisition of property, plant and (36) (87) (289)
equipment
Expenditure on intangible assets (339) - (157)
Purchase of investments (20,504) (20,403) (96,508)
Sale of investments 21,120 20,272 92,275
Cash flow from investing activities 241 (218) (4,679)
Financing activities
Dividends paid (10,582) (9,984) (15,270)
Proceeds of increase in share capital - 4 41
Purchase of own shares (121) 77 110
Net cash flow from financing (10,703) (9,903) (15,119)
activities
Net (decrease) in cash and cash (1,643) (599) (1,883)
equivalents
Cash and cash equivalents at 18,063 19,953 19,953
beginning of period
Foreign exchange (losses) on cash and (39) (54) (7)
cash equivalents
Cash and cash equivalents at end of 16,381 19,300 18,063
period
Cash and cash equivalents comprise
Cash and cash equivalents 16,381 19,300 18,063
Group statement of changes in equity
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
Equity at 1 5,905 8,106 (1,684) 8 201 513 346,268 31,609 390,926
January 2012
Net profit - - - - - - 24,948 9,677 34,625
Other
comprehensive
income:
Foreign exchange - - - - - (29) - - (29)
Total - - - - - (29) 24,948 9,677 34,596
comprehensive
income for the
period
Issue of shares - - - - - - - - -
Movement in own - - (121) - - - - - (121)
shares
Dividend relating - - - - - - - (10,582) (10,582)
to 2011
Total equity at 5,905 8,106 (1,805) 8 201 484 371,216 30,704 414,819
30 June 2012
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
2012 2011 2011 2012 2011 2011 2012 2011 2011
£000 £000 £000 £000 £000 £000 £000 £000 £000
Revenue
Segment income 7,888 8,038 14,126 14,904 14,416 30,948 22,792 22,454 45,074
Other income - 71 76 58 104 18 58 175 94
Cost of sales - - - (1,800) (1,615) (4,313) (1,800) (1,615) (4,313)
Administration costs (993) (958) (1,915) (8,321) (7,916) (16,728) (9,314) (8,874) (18,643)
6,895 7,151 12,287 4,841 4,989 9,925 11,736 12,140 22,212
Interest (net) (1,279) (1,245) (2,566) 96 72 562 (1,183) (1,173) (2,004)
Return, including 5,616 5,906 9,721 4,937 5,061 10,487 10,553 10,967 20,208
profit on ordinary
activities before
taxation
Taxation - - - (876) (894) (1,977) (876) (894) (1,977)
Return, including 5,616 5,906 9,721 4,061 4,167 8,510 9,677 10,073 18,231
profit attributable
to shareholders
Revenue return per 4.78 5.03 8.27 3.45 3.55 7.25 8.23 8.58 15.52
ordinary share
(pence)
Assets 454,766 468,162 434,325 24,220 23,914 22,121 478,986 492,076 456,446
Liabilities (55,424) (53,635) (57,233) (8,743) (8,134) (8,287) (64,167) (61,769) (65,520)
Total net assets 399,342 414,527 377,092 15,477 15,780 13,834 414,819 430,307 390,926
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 Appreciation/ Valuation %
acquisition proceeds 30 June
31 £000 (depreciation) 2012
December £000 £000
2011 £000 £000
£000
United 274,705 14,641 (65) (7,737) 18,983 300,527 67.2
Kingdom
North America 27,859 4,639 (7) - 1,697 34,188 7.7
Europe 31,263 1,224 (1) (1,774) 1,303 32,015 7.2
Japan 12,753 - - - 643 13,396 3.0
Other Pacific 31,973 - - (2,807) 2,528 31,694 7.1
UK Gilts 44,491 - - (8,802) (652) 35,037 7.8
423,044 20,504 (73) (21,120) 24,502 446,857 100.0
By Sector (excluding cash)
As at As at
30 June 31 December
2012 2011
% %
Oil & gas 10.2 10.2
Basic materials 3.8 3.8
Industrials 22.0 21.5
Consumer goods 10.9 10.8
Health care 8.3 7.8
Consumer services 5.9 6.2
Telecommunications 1.9 2.5
Utilities 4.6 4.6
Financials 11.3 9.6
Technology 2.7 1.4
Pooled equity investments 10.6 11.1
UK Gilts 7.8 10.5
100.0 100.0
Investment portfolio valuation
as at 30 June 2012
UK unless otherwise
stated.
Holdings in italics were acquired
after 31 December 2011
£000 %
Oil & gas
Oil & gas producers
BP 11,180 2.50
Royal Dutch Shell 11,125 2.49
BG 4,550 1.02
Total (Fra) 1,764 0.39
Premier Oil 1,690 0.38
30,309 6.78
Oil equipment &
services
Gibson Energy (Can) 4,076 0.91
Cape 3,686 0.82
Schlumberger (USA) 3,311 0.74
National Oilwell 2,054 0.46
Varco (USA)
Saipem (Ita) 1,096 0.25
AMEC 1,002 0.22
15,225 3.40
Basic materials
Chemicals
Croda 3,958 0.89
Brenntag (Ger) 864 0.19
4,822 1.08
Forestry & paper
Mondi 2,720 0.61
2,720 0.61
Mining 6,793 1.52
Rio Tinto
BHP Billiton 2,709 0.61
9,502 2.13
Industrials
Construction &
materials
Balfour Beatty 3,619 0.81
Marshalls 557 0.12
4,176 0.93
Aerospace & defence
Senior 15,107 3.38
Meggitt 5,393 1.21
BAE Systems 5,195 1.16
Rolls Royce 5,145 1.15
Hampson Industries 3 -
30,843 6.90
£000 %
General industrials
Smith (DS) 6,578 1.47
6,578 1.47
Electronic &
electrical
equipment
Morgan Crucible 5,564 1.25
Spectris 4,587 1.03
Applied Materials 3,648 0.81
(USA)
TT Electronics 2,193 0.49
Legrand (Fra) 706 0.16
16,698 3.74
Industrial
engineering
Hill & Smith 5,872 1.31
Cummins (USA) 4,324 0.97
Weir Group 3,825 0.86
Caterpillar (USA) 2,165 0.48
Renold 1,463 0.33
IMI 831 0.19
Severfield-Rowen 375 0.08
18,855 4.22
Industrial
transportation
Kuehne & Nagel 929 0.21
(Swi)
Goldenport 469 0.11
Autologic 304 0.07
Wincanton 196 0.04
1,898 0.43
Support services
Interserve 5,959 1.33
Carillion 3,446 0.77
Babcock 2,132 0.48
SGS (Swi) 1,853 0.41
Deutsche Post (Ger) 1,635 0.37
Sodexho (Fra) 1,191 0.27
Johnson Service 1,058 0.24
Adecco (Swi) 857 0.19
DKSH (Swi) 605 0.14
Augean 351 0.08
19,087 4.28
£000 %
Consumer goods
Automobiles & parts
GKN 8,342 1.87
Toyota Motor (Jap) 1,748 0.39
10,090 2.26
Beverages
Diageo 6,236 1.40
Pernod-Ricard (Fra) 870 0.19
7,106 1.59
Food producers
Unilever 3,752 0.84
Associated British Foods 3,202 0.72
Nestlé (Swi) 3,033 0.68
9,987 2.24
Household goods & home
construction
Bellway 3,744 0.84
Redrow 2,673 0.60
Reckitt Benckiser 2,524 0.56
Essilor (Fra) 1,035 0.23
L'Oreal (Fra) 821 0.18
10,797 2.41
Tobacco
British American Tobacco 5,673 1.27
Imperial Tobacco 3,682 0.82
Swedish Match (Swe) 1,269 0.28
10,624 2.37
Health care
Health care equipment &
services
Becton Dickinson (USA) 3,573 0.80
Fresenius (Ger) 3,049 0.68
Smith & Nephew 2,994 0.67
Fresenius Medical Care (Ger) 1,758 0.39
11,374 2.54
£000 %
Pharmaceuticals &
biotechnology
GlaxoSmithKline 10,853 2.43
BTG 7,544 1.69
Novartis (Swi) 2,474 0.55
AstraZeneca 2,138 0.48
Pfizer (USA) 1,465 0.33
Roche (Swi) 1,433 0.32
25,907 5.80
Consumer services
Food & drug retailers
Tesco 2,325 0.52
2,325 0.52
General retailers
Dunelm 4,382 0.98
Inditex (Spa) 1,307 0.29
Findel 477 0.11
Topps Tiles 291 0.07
6,457 1.45
Media
Reed Elsevier 3,836 0.86
Pearson 3,479 0.78
British Sky Broadcasting 1,741 0.39
Daily Mail & General Trust 1,480 0.33
Yell 19 -
10,555 2.36
Travel & leisure
Greene King 3,468 0.77
Marstons 2,128 0.48
International Consolidated 1,315 0.29
Airlines
6,911 1.54
£000 %
Telecommunications
Fixed line
telecommunications
BT 2,536 0.57
2,536 0.57
Mobile telecommunications
Vodafone 3,585 0.80
Inmarsat 1,783 0.40
Ericsson (Swe) 778 0.17
6,146 1.37
Utilities
Electricity
Scottish & Southern Energy 4,173 0.93
Scottish & Southern Energy 2,491 0.56
5.75% 5/2/14
Iberdrola (Spa) 489 0.11
7,153 1.60
Gas water & multiutilities
National Grid 6.125% 15/4/ 5,745 1.29
14
National Grid 4,120 0.92
Severn Trent 3,359 0.75
Centrica 318 0.07
13,542 3.03
Financials
Banks
HSBC 7,294 1.63
7,294 1.63
Nonlife insurance
Amlin 7,779 1.74
Hiscox 5,769 1.29
Hardy Underwriting Bermuda 510 0.11
14,058 3.14
Life insurance / assurance
Prudential 2,212 0.50
Aviva 2,140 0.48
Chesnara 1,715 0.38
Irish Life & Permanent 8 -
(Ire)
6,075 1.36
Real estate investments &
services
St Modwen Properties 1,685 0.38
1,685 0.38
Real estate investment
trusts
Mucklow (A&J) Group 2,940 0.66
Land securities 2,375 0.53
5,315 1.19
£000 %
Financial services
IP Group 7,485 1.68
Provident Financial 3,341 0.75
International Personal 2,989 0.67
Finance
3i 986 0.22
Deutsche Borse (Ger) 826 0.18
15,627 3.50
Equity investment
instruments
Henderson Japan Capital 11,648 2.61
Growth
Henderson Asia Pacific 10,717 2.40
Capital Growth
Baillie Gifford Pacific 9,344 2.09
First State Asia Pacific 8,391 1.88
Herald Investment Trust 4,071 0.91
Scottish Oriental Smaller 3,242 0.73
Company Trust
47,413 10.62
Technology
Software & computer
services
Microsoft (USA) 5,849 1.31
Amadeus IT (Spa) 1,322 0.30
Sage 971 0.22
8,142 1.83
Technology hardware &
equipment
Apple (USA) 3,723 0.83
3,723 0.83
UK Gilts
UK Treasury 4.5% 07/03/13 20,059 4.49
UK Treasury 2.25% 07/03/14 14,978 3.35
35,037 7.84
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 as 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 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
24 July 2012
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 has neither been audited nor reviewed pursuant to guidance issued
by the Auditing Practices Board. The annual report and financial statement
for 2011 have been filed with the Registrar of Companies.
The independent auditors' report on the annual report
and financial statements for 2011 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 section 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 117,575,226 (30 June 2011: 117,454,638) (31
December 2011: 117,482,050).
Income: average shares during the period 117,565,430 (30 June 2011:
117,449,590) (31 December 2011: 117,459,408).
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