Interim Management Statement and interim dividend
The Law Debenture Corporation p.l.c. and its subsidiaries
INTERIM MANAGEMENT STATEMENT FOR THE SIX MONTHS TO 30 JUNE 2009 (unaudited)
The Directors recommend an interim dividend of 4.2p on the ordinary shares for
the six months to 30 June 2009. The interim management statement including the
unaudited results for the period is as follows:
Company 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
At At At
30 June 30 June 31 December
2009 2008 2008
Pence Pence Pence
Share price 229.50 281.00 223.50
NAV per share after proposed 218.19 280.29 219.20
Dividend
Revenue return per share:
- Investment trust 4.36 6.18 10.23
- Independent fiduciary services 2.26 2.56 5.35
Group revenue return per share 6.62 8.74 15.58
Dividends per share 4.20 4.20 12.20
Performance to 30 June 2009
6 months 12 months
% %
Share price 2.7 (18.3)
NAV total return 1.5 (17.8)
FTSE All-Share Index total return 0.8 (20.5)
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.
Interim management report
Performance
In the six months to 30 June 2009 our net asset value total return per share
increased by 1.5%, compared to a total return of 0.8% for the FTSE Actuaries
All-Share Index.
Revenue return and dividends
Revenue return per share for the period was 6.62p, a decrease of 24.3% from
8.74p for the corresponding period last year. The investment trust suffered a
significant reduction in income as companies cut dividends and interest rates
fell. £15million was invested in short dated quality corporate bonds with
yields of around 6% to reduce the negative impact on revenue return.
The board has declared an interim dividend of 4.2p. The dividend is payable on
9 September 2009 to shareholders on the register on 14 August 2009. The current
expectation of the directors is that the final dividend will be maintained. The
board is reviewing the timing of the payment of the final dividend.
Investment manager's report
The portfolio has begun to recover some of the ground lost in 2008.
During the first three months of the period, equity markets fell as the world's
economy continued to suffer a severe contraction. Company profit expectations
were reduced and levels of corporate debt became an increasingly pressing
problem. There was a recovery in share prices from late March following which a
number of companies sought to raise new equity capital. The investment trust
took up its rights under issues from companies including HSBC and Great
Portland Estates. Investments were also made in high quality corporate bonds of
relatively short duration, benefiting our revenue which has suffered due to
dividend cuts by many companies in the portfolio and low interest rates on
deposits. Our investment manager believes that most of the cuts have now been
made and that dividend growth should resume in 2010.
In addition to investing in equities and corporate bonds, holdings were sold
where it was believed that the company would not cope satisfactorily with the
difficult economic climate. Over the period effective gearing reduced from 108%
to 106%. The holding in the Henderson Far East OEIC was reduced, with the
proceeds used to buy three other Far East trusts.
The global economy is stabilising but overall growth is slow. Companies in the
portfolio are reducing costs and focusing on generating cash. The investment
manager believes that these companies will over time prove to be good
investments, being well placed to take advantage of a recovery when it comes.
Independent fiduciary services
The profit before tax for our independent fiduciary services business fell by
13.1% compared with the corresponding period last year. While revenues were, on
the face of it, up on the previous year, this was largely attributable to legal
fees incurred and recharged to third parties, which are included both in
revenue and in cost of sales.
Our corporate trust business has seen an overall reduction in new
opportunities, but there has been an increase in investment grade corporate
bond issues. Additional work continues to arise on established trusts as a
result of the impact of the recession on companies. Our corporate services
business has been affected similarly with a reduced level of new appointments
but with special work on existing business. Service of process work has slowed
significantly during the period as a result of reduced corporate transactions
activity. Our pension trustee business continues to see new business enquiries
and the new members of the team recruited at the end of 2008 have taken on new
clients.
In the US new business won at the end of 2008 and organisational changes made
at the beginning of 2009 have benefited the results for the period.
The profile of our independent whistleblowing service provided by Safecall is
increasing in the current economic environment.
Because of the general reduction in new business, steps were taken to reduce
costs. From 1 April 2009, future pension benefits accruing to employees through
the defined benefit pension scheme were reduced, transferring some of the
mortality and investment risks to employees. In July 2009, following a review
of our UK business, headcount was reduced partly as a result of merging our
treasury management and structured finance administration businesses. This will
reduce costs from 2010, whilst being neutral for this year.
There is no doubt that market conditions remain tough. But Law Debenture's
traditional strengths of independence and quality of service should ensure that
we continue to win our fair share of new business opportunities.
Group statement of comprehensive income
For the period ended 30 June 2009 (unaudited)
30 June 2009 30 June 2008
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
UK dividends 4,745 - 4,745 7,511 - 7,511
UK special dividends 29 - 29 15 - 15
Overseas dividends 1,549 - 1,549 1,694 - 1,694
Interest from securities 468 - 468 60 - 60
6,791 - 6,791 9,280 - 9,280
Interest income 202 - 202 534 - 534
Independent fiduciary 18,672 - 18,672 15,853 - 15,853
services fees
Other income 257 - 257 - - -
Total income 25,922 - 25,922 25,667 - 25,667
Net (loss) on investments - (3,859) (3,859) - (74,454) (74,454)
held at fair value
through profit or loss
Gross income and capital 25,922 (3,859) 22,063 25,667 (74,454) (48,787)
(losses)
Cost of sales (7,556) - (7,556) (4,439) - (4,439)
Administrative expenses (8,240) (98) (8,338) (8,452) (218) (8,670)
Operating profit/(loss) 10,126 (3,957) 6,169 12,776 (74,672) (61,896)
Finance costs
Interest payable (1,226) - (1,226) (1,227) - (1,227)
Profit/(loss) before 8,900 (3,957) 4,943 11,549 (74,672) (63,123)
taxation
Taxation (1,142) - (1,142) (1,323) - (1,323)
Profit/(loss) for the 7,758 (3,957) 3,801 10,226 (74,672) (64,446)
period
Return/(loss) per 6.62 (3.38) 3.24 8.74 (63.81) (55.07)
ordinary share (pence)
Diluted return/(loss) per 6.62 (3.38) 3.24 8.72 (63.65) (54.93)
ordinary share (pence)
Other comprehensive income
For the period ended 30 June 2009 (unaudited)
30 June 2009 30 June 2008
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Profit/(loss) for the 7,758 (3,957) 3,801 10,226 (74,672) (64,446)
period
Other comprehensive
income:
Foreign exchange - (252) (252) 34 - 34
Total comprehensive 7,758 (4,209) 3,549 10,260 (74,672) (64,412)
income/(loss) for the
period
Group balance sheet
30 June 30 June 2008 31 December
2009 2008
(unaudited)
(unaudited) (audited)
£000
£000 £000
Assets
Non current assets
Goodwill 3,088 4,028 3,181
Property, plant and equipment 433 630 477
Other intangible assets 136 39 83
Investments held at fair value 291,288 358,228 288,566
through profit or loss
Deferred tax assets 1,999 340 1,953
Total non current assets 296,944 363,265 294,260
Current assets
Trade and other receivables 5,477 5,437 3,461
Other accrued income and prepaid 4,347 5,038 4,126
expenses
Corporation tax receivable 271 200 239
Other taxation including social 34 - 455
security
Cash and cash equivalents 20,191 21,386 31,590
Total current assets 30,320 32,061 39,871
Total assets 327,264 395,326 334,131
Current liabilities
Trade and other payables 8,901 7,277 8,491
Short term borrowings 75 72 85
Corporation tax payable 1,469 1,855 1,782
Other taxation including social - 443 416
security
Deferred income 4,062 3,807 4,019
Total current liabilities 14,507 13,454 14,793
Non current liabilities and
deferred income
Long term borrowings 39,324 39,297 39,311
Retirement benefit obligations 5,200 17 5,478
Deferred income 6,849 7,649 7,226
Contingent purchase consideration 900 1,986 900
Total non current liabilities 52,273 48,949 52,915
Total net assets 260,484 332,923 266,423
Equity and liabilities
Called up share capital 5,902 5,889 5,902
Share premium 7,971 7,568 7,971
Capital redemption 8 8 8
Share based payment 201 235 201
Own shares (2,257) (2,137) (2,137)
Capital reserves 222,806 293,328 226,763
Retained earnings 25,319 28,259 26,929
Translation reserve 534 (227) 786
Total equity shareholders' funds 260,484 332,923 266,423
Group cash flow statement
For the period ended 30 June 2009
30 June 30 June 31 December
2009 2008 2008
(unaudited) (unaudited)
(audited)
£000 £000 £000
Operating activities
Operating profit/(loss) before 6,169 (61,896) (118,253)
interest payable and taxation
Losses on investments 3,957 74,672 141,772
Foreign exchange losses/(gains) 97 - (248)
Depreciation of property, plant and 82 94 286
equipment
Amortisation of intangible assets 20 7 31
Share based payments - - 6
(Increase) in receivables (1,816) (2,476) (29)
(Decrease) in payables (327) (1,501) (551)
Transfer from capital reserves (164) (186) (336)
UK and overseas withholding tax (158) (146) (212)
deducted at source
Normal pension contributions in (278) (240) (811)
excess of cost
Cash generated from operating 7,582 8,328 21,655
activities
Taxation (1,375) (1,182) (2,463)
Interest paid (1,226) (1,227) (2,456)
Operating cash flow 4,981 5,919 16,736
Investing activities
Acquisition of property, plant and (42) (58) (88)
equipment
Expenditure on intangible assets (73) - (68)
Purchase of investments (50,066) (51,018) (81,112)
Sale of investments 43,676 41,564 74,208
Cash flow from investing activities (6,505) (9,512) (7,060)
Financing activities
Dividends paid (9,368) (9,353) (14,278)
Proceeds of increase in share capital - 92 508
Purchase of own shares (net) (120) (534) (534)
Net cash flow from financing (9,488) (9,795) (14,304)
activities
Net decrease in cash and cash (11,012) (13,388) (4,628)
equivalents
Cash and cash equivalents at 31,505 34,620 34,620
beginning of period
Foreign exchange (losses)/gains on (377) 82 1,513
cash and cash equivalents
Cash and cash equivalents at end of 20,116 21,314 31,505
period
Cash and cash equivalents comprise
Cash and cash equivalents 20,191 21,386 31,590
Bank loans and overdrafts (75) (72) (85)
20,116 21,314 31,505
Analysis of the investment portfolio
By geographical location
United North Europe Japan Pacific Total
Kingdom America £000 £000 £000 £000
£000 £000
Valuation at 31 202,146 10,184 40,434 17,260 18,542 288,566
December 2008
Purchases 31,876 2,213 3,813 - 12,164 50,066
Cost of acquisition (78) (3) (3) - (14) (98)
Sales proceeds (24,625) (593) (5,350) (913) (12,195) (43,676)
Appreciation/ (3,045) (83) (2,811) (1,423) 3,792 (3,570)
(depreciation)
Valuation at 30 June 206,274 11,718 36,083 14,924 22,289 291,288
2009
% of total 70.8 4.0 12.4 5.1 7.7 100.0
By Sector (excluding cash)
As at As at
30 June 31 December
2009 2008
% %
Oil & gas 10.9 11.6
Basic materials 3.6 3.2
Industrials 16.4 17.3
Consumer goods 13.9 13.3
Health care 8.7 10.6
Consumer services 9.0 8.5
Telecommunications 3.1 3.9
Utilities 4.8 2.6
Financials 17.7 17.7
Technology - 0.5
Equity investment instruments 11.9 10.8
100.0 100.0
Group statement of changes in equity
Share Share Own Capital Share Translation Capital Retained Total
capital premium shares redemption based reserve reserves earnings
payment
£000 £000 £000 £000 £000 £000 £000 £000 £000
Balance at 1 5,902 7,971 (2,137) 8 201 786 226,763 26,929 266,423
January 2009
Net profit/(loss) - - - - - - (3,957) 7,758 3,801
for the period
Other
comprehensive
income:
Foreign exchange - - - - - (252) - - (252)
Total - - - - - (252) (3,957) 7,758 3,549
comprehensive
income for the
period
Movement in own - - (120) - - - - - (120)
shares
Dividend relating - - - - - - - (9,368) (9,368)
to 2008
Total equity 5,902 7,971 (2,257) 8 201 534 222,806 25,319 260,484
shareholders'
funds at 30 June
2009
Group segmental analysis
Investment trust Independent fiduciary Total
services
30 Jun 30 31 Dec 30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec
2009 Jun 2008 2009 2008 2008 2009 2008 2008
2008
£000 £000 £000 £000 £000 £000 £000 £000 £000
Segment income 6,791 9,280 15,201 18,672 15,853 32,090 25,463 25,133 47,291
Other income 212 - 93 45 - 19 257 - 112
Cost of sales - - - (7,556) (4,439) (9,431) (7,556) (4,439) (9,431)
Administration (713) (927) (1,254) (7,527) (7,525) (15,195) (8,240) (8,452) (16,449)
costs
6,290 8,353 14,040 3,634 3,889 7,483 9,924 12,242 21,523
Interest (net) (1,016) (977) (1,944) (8) 284 949 (1,024) (693) (995)
Return for the 5,274 7,376 12,096 3,626 4,173 8,432 8,900 11,549 20,528
period before
taxation
Taxation (158) (145) (110) (984) (1,178) (2,170) (1,142) (1,323) (2,280)
Return for the 5,116 7,231 11,986 2,642 2,995 6,262 7,758 10,226 18,248
period
Revenue return per 4.36 6.18 10.23 2.26 2.56 5.35 6.62 8.74 15.58
ordinary share
(pence)
The capital element of the income statement is wholly attributable to the
investment trust.
Investment portfolio valuation
as at 30 June 2009
UK unless otherwise
stated.
* Holdings were acquired after 31 December
2008
£000 %
Oil & gas
Oil & gas producers
BP 10,511 3.61
Royal Dutch Shell 10,289 3.53
BG 2,545 0.87
Total (Fra) 2,014 0.69
25,359 8.70
Oil equipment & services
Schlumberger (USA) 3,285 1.13
John Wood 1,335 0.46
National Oilwell Varco 992 0.34
(USA)
Saipem (Italy) 863 0.30
6,475 2.23
Basic materials
Chemicals
Asahi Kasei (Japan) 1,236 0.42
Croda 1,067 0.37
2,303 0.79
Forestry & paper
Mondi 1,656 0.57
1,656 0.57
Mining
Anglo American 3,527 1.21
Rio Tinto 3,089 1.06
6,616 2.27
Industrials
Construction & materials
CRH (Ireland) 1,778 0.61
Balfour Beatty 1,540 0.53
Marshalls 540 0.19
Heywood Williams 10 -
3,868 1.33
Aerospace & defence
Senior 3,545 1.22
Rolls Royce 3,073 1.05
Meggitt 2,484 0.85
Smiths 1,052 0.36
10,154 3.48
£000 %
General industrials
Tomkins 1,110 0.38
Smith (DS) 898 0.31
2,008 0.69
Electronic & electrical
equipment
Applied Materials (USA) 3,331 1.14
Morgan Crucible 2,423 0.83
Neopost (Fra) 1,404 0.48
TT Electronics 475 0.16
7,633 2.61
Industrial engineering
Hill & Smith 3,991 1.37
Cummins (USA) 2,136 0.73
Weir Group 1,848 0.63
Delta 1,450 0.50
ABB (Switz) 905 0.31
Caterpillar (USA) 802 0.27
Severfield-Rowen * 483 0.17
Renold 390 0.13
12,005 4.11
Industrial transportation
Kuehne & Nagel (Switz) 1,017 0.35
Wincanton 922 0.32
Autologic 496 0.17
2,435 0.84
Support services
Carillion 2,518 0.86
Interserve 2,322 0.80
SGS (Switz) 1,536 0.53
Sodexho (Fra) 1,305 0.44
Deutsche Post (Ger) 1,059 0.36
Johnson Service 549 0.19
Augean 412 0.14
9,701 3.32
£000 %
Consumer goods
Automobiles & parts
GKN 2,289 0.79
Toyota Motor (Japan) 1,617 0.56
3,906 1.35
Beverages
Diageo 3,745 1.29
Pernod-Ricard (Fra) 478 0.16
4,223 1.45
Food producers
Unilever 2,492 0.86
Nestlé (Switz) 2,162 0.74
Associated British Foods * 1,905 0.65
Dairy Crest 640 0.22
Cadbury Schweppes Fin.785% 636 0.22
20/12/10 *
Uniq 341 0.12
Premier Foods 89 0.03
8,265 2.84
Household goods
Bellway 3,803 1.31
Redrow 2,929 1.01
Reckitt Benckiser 2,074 0.71
Essilor (Fra) 1,923 0.66
10,729 3.69
Leisure goods
Alba 214 0.07
214 0.07
Tobacco
British American Tobacco 5,856 2.01
Imperial Tobacco Finance 4,490 1.54
6.875% 13/06/12 *
Imperial Tobacco * 2,760 0.95
13,106 4.50
Health care
Health care equipment &
services
Fresenius (Ger) 2,944 1.01
Smith & Nephew 2,113 0.73
Fresenius Medical Care 1,902 0.65
(Ger)
Synthes (Switz) * 439 0.15
7,398 2.54
£000 %
Pharmaceuticals &
biotechnology
GlaxoSmithKline 9,403 3.23
AstraZeneca 2,671 0.92
Shire 2,507 0.86
Novartis (Switz) 1,708 0.59
Roche (Switz) * 825 0.28
Sanofi-Aventis (Fra) 819 0.28
17,933 6.16
Consumer services
Food & drug retailers
Tesco 4,240 1.46
4,240 1.46
General retailers
Marks & Spencers 5.875% 29 2,348 0.81
/05/12 *
Dunelm 1,984 0.68
Inditex (Spain) 1,641 0.56
Lawson (Japan) 1,067 0.37
Topps Tiles 555 0.19
Findel 285 0.10
7,880 2.71
Media
Reed Elsevier 2,938 1.01
Pearson 1,676 0.58
BSkyB 1,363 0.47
Thomson Reuters 1,247 0.43
Toppan Printing (Japan) 1,104 0.38
Daily Mail & General Trust 284 0.10
*
Johnston Press 254 0.09
Yell 164 0.06
9,030 3.12
Travel & leisure
Greene King 1,856 0.63
Carnival 866 0.30
British Airways 717 0.25
Marstons 592 0.20
Carnival (USA) 567 0.19
Avis Europe 294 0.10
4,892 1.67
£000 %
Telecommunications
Fixed line
telecommunications
Cable & Wireless 1,331 0.46
BT 1,319 0.45
2,650 0.91
Mobile telecommunications
Vodafone 4,468 1.53
Inmarsat 1,975 0.68
6,443 2.21
Utilities
Electricity
Scottish & Southern Energy 2,432 0.83
5.75% 05/02/14 *
Scottish & Southern Energy 2,278 0.78
Iberdrola (Spain) 797 0.27
5,507 1.88
Gas water & multiutilities
National Grid 6.125% 15/04 5,424 1.86
/14 *
Severn Trent 1,677 0.58
National Grid 1,368 0.47
8,469 2.91
Financials
Banks
HSBC 8,543 2.93
Barclays Bank 2,866 0.98
Banco Santander (Spain) 2,506 0.86
Standard Chartered 2,272 0.78
BNP Paribas (Fra) 1,292 0.44
UBS (Switz) * 594 0.20
18,073 6.19
Nonlife insurance
Amlin 3,627 1.25
Hiscox 3,185 1.09
Chubb * 605 0.21
Chauser 328 0.11
Hardy Underwriting Bermuda 176 0.06
*
7,921 2.72
£000 %
Life insurance / assurance
Aviva 2,679 0.92
Irish Life & Permanent 1,976 0.68
(Ire)
Prudential 1,833 0.63
Legal & General 1,305 0.45
Old Mutual 1,290 0.44
Friends Provident 758 0.26
9,841 3.38
Real estate
Great Portland Estate 2,464 0.85
Land Securities 2,106 0.72
Mucklow (A&J) Group 1,920 0.66
St Modwen Properties 1,633 0.56
Hammerson 1,532 0.53
Segro 1,419 0.49
11,074 3.81
General financial
Provident Financial 1,389 0.48
Deutsche Börse (Ger) 1,269 0.44
Bureau Veritas (Fra) * 884 0.30
International Personal 549 0.19
Finance
Intermediate Capital Group 484 0.17
4,575 1.58
Equity investment
instruments
Henderson Japan Capital 9,900 3.40
Growth (Japan)
Henderson Asia Pacific 8,112 2.78
Capital Growth (Pacific)
Baillie Gifford Pacific * 5,872 2.02
First State Asia Pacific * 5,435 1.87
Scottish Oriental Smaller 2,870 0.99
Company Trust *
Herald Investment Trust 2,312 0.79
34,501 11.85
Principal risks and uncertainties
The principal risks of the group 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.
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 interim 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
23 July 2009
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 2008 have been filed with the Registrar of
Companies. The independent auditors' report on the annual report
and financial statements for 2008 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 237(2) or 237(3) of the Companies Act 1985.
2. The calculations of NAV and earnings per share are based on:
NAV: shares at end of the period 117,130,631 (2008, June: 117,023,883) (2008,
December: 117,261,943).
Income: average shares during the period 117,153,099 (2008, June: 117,027,094)
(2008, December: 117,124,503).
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