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Law Debenture Corp (LWDB)

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Friday 31 July, 2020

Law Debenture Corp

Half-year Report

RNS Number : 7481U
Law Debenture Corp PLC
31 July 2020
 

 

 

The following amendment has been made to the Half Year Report announcement under RNS number 6825U: Footnote 3 relating to the Financial Summary has been corrected in relation to the intention to pay a full year dividend of not less than 26.0 pence per share.  All other details remain unchanged.  The full amended text is shown below.

 

The Law Debenture Corporation p.l.c. today published its results for the half-year ended 30 June 2020.

Group Highlights:

· 2020 dividend to be at least equal to 2019 level of 26.0 pence per share

· Dividend yield of 5%1

· Solid performance from the Independent Professional Services business continues to support dividend growth

· Transitioned to quarterly dividends, creating greater regularity and predictability around dividend payments

· On-going charges remain low at 0.48% compared to the industry average of 1.04%2

 

Investment Portfolio Highlights:

 

· NAV total return (with debt at par) for the six months declined 16.5%3 compared to a 17.5%4 decline in the benchmark FTSE Actuaries All-Share Total Return Index

· Sizeable net investor during period, investing £33m to take advantage of attractive valuations

· Outperformance of the benchmark in all performance periods.  Strong long term out performance of 57.6% over 10 years and 58.6% over 5 years4

· Moving to daily NAV publication from the start of August to increase transparency

Performance

 

YTD

%

1 year

%

3 years

%

5 years

%

10 years

%

NAV total return (with debt at par)3*

(16.5)

(10.6)

(2.0)

24.1

144.7

NAV total return (with debt at fair value)3*

(18.6)

(13.0)

(4.8)

18.1

129.7

FTSE Actuaries All-Share Index Total Return5

(17.5)

(13.0)

(4.6)

15.2

91.8

Share price total return5*

(16.5)

(7.3)

2.0

21.9

163.9

Change in Retail Price Index5

0.3

1.1

7.5

13.0

30.6

 

Independent Professional Services (IPS) Highlights:

 



Longer Term Track Record:

 

Commenting, Robert Hingley, Chairman, said:

" The spread of Covid-19 has resulted in some very challenging months for the global economy. Your Company has shared in some of that pain, with a decline in NAV total return never comfortable to report. However, our investment portfolio's long-term performance remains well ahead of its benchmark.  Our IPS business has continued to build on two years of strong high single digit growth, despite some significant macroeconomic headwinds.

 

The pandemic has highlighted how advantageous Law Debenture's unique structure is for regular income seekers. The Board recognises the importance of our dividend to shareholders, at a time of pervasive dividend cuts across the market.  We informed shareholders in June of our intention to at least maintain calendar 2020 dividends at 26.0 pence per share, implying an attractive 5% dividend yield. We have moved to a quarterly dividend cycle, with our first quarterly payment made to shareholders on 28 July.  This differentiates Law Debenture and illustrates our continued resilience and strong revenue reserves."

 

Commenting, Denis Jackson, Chief Executive Officer, said:

"I am grateful to our talented team for their incredible work and best in class client service through the pandemic. Despite the difficult macroeconomic backdrop, our IPS business grew revenues by 6.5% and earnings per share by an impressive 6.6%.

 

As we look ahead, we remain focused on execution within our IPS business where we continue to see significant opportunities to grow our market share. We have an excellent investment management team, who the Board is confident are well placed to continue to position the equity portfolio for future longer-term growth and outperformance."

 

Company History:

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 has two distinct areas of business.

 

Investment Portfolio:

Our portfolio of investments is managed by James Henderson and Laura Foll of Janus Henderson Investors.

 

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 Total Return through investing in a diversified portfolio of stocks.

 

Independent Professional Services:

We are a leading provider of independent professional services, built on three excellent foundations: our Pensions, Corporate Trust and Corporate Services businesses.  We operate globally, with offices in the UK, New York, Ireland, Hong Kong, Delaware and the Channel Islands.

 

Companies, agencies, organisations and individuals throughout the world rely upon Law Debenture to carry out our duties with the independence and professionalism upon which our reputation is built.

The Law Debenture Corporation

Denis Jackson, Chief Executive Officer

Katie Thorpe, Chief Financial Officer

 

Tulchan Communications (Financial PR)

David Allchurch

Deborah Roney

+44 (0)20 7606 5451

[email protected]  

[email protected]

 

+44 (0)20 7353 4200

[email protected]

 

 

* Items marked "*" are considered to be alternative performance measures.  For a description of these measures, see page 115 of the annual report and financial statements for the year ended 31 December 2019.    
1 Based on a closing share price of 522 pence as at 29 July 2020.
2 Law Debenture ongoing charges have been calculated based on data held by Law Debenture as at 31 December 2019.  Industry average data was sourced from The Association of Investment Companies (excluding 3i) as at 31 December 2019.
3 NAV is calculated in accordance with the Association of Investment Companies methodology, based on performance data held by Law Debenture including the fair value of the IPS business and long-term borrowings.  NAV is shown with debt measured at par and with debt measured at fair value.
4 Outperformance compares NAV total return with debt at par to the FTSE Actuaries All-Share Index Total Return.
5 Source: Bloomberg
6 Calculation based on the increase in annual dividend per share between 1 January 2010 and 31 December 2019.
7 Dividends paid to shareholders between 1 July 2010 and 30 June 2020. 

 



The Law Debenture Corporation p.l.c. and its subsidiaries

 

Half yearly report for the six months to 30 June 2020 (unaudited)

 

 

Financial summary

 

 

 

30 June

2020

£000

30 June

2019

£000

31 December

2019

£000

Net assets1

642,705

784,213

830,139


Pence

Pence

Pence

Net Asset Value (NAV) per share at fair value1,2*

 

543.93

 

663.67

 

702.17

Revenue return per share




- Investment portfolio

6.33

11.76

22.18

- Independent professional services

 

4.18

 

3.92

 

8.54

- Group charges

-

-

(0.04)

Group revenue return per share

10.51

15.68

30.68

Capital (loss)/return per share

(131.86)

50.42

79.27

Dividends per share3

13.0

6.60

26.00

Share price

517.00

592.00

650.00


%

%

%

Ongoing charges4*

0.48

0.43

0.48

Gearing4

19

7

9

Discount*

(5.0)

(10.8)

(7.4)

 

* Items marked "*" are considered to be alternative performance measures.  For a description of these measures, see page 115 of the annual report and financial statements for the year ended 31 December 2019.

1 Please refer to later in this statement for calculation of net asset value. 

2 NAV is calculated in accordance with the Association of Investment Companies (AIC) methodology, based on performance data held by Law Debenture including fair value of IPS business and long-term borrowings.  NAV is shown with debt measured at par and with debt measured at fair value. 

3 Whilst the second interim dividend is not due to be announced until September 2020, the Board have already indicated their intention to pay a full year dividend of not less than 26.0 pence for 2020.  This number includes an expected second interim dividend of 6.5 pence for comparability. 

4 Source: AIC. Ongoing charges are based on the costs of the investment trust and include the Janus Henderson Investors management fee of 0.30% of NAV of the investment trust. There is no performance related element to the fee.

 

 



Half yearly management report

 

Introduction

 

The Covid-19 pandemic has had a profound impact on the investment trust industry. The impact has not just been felt in the well documented volatility in markets and wide spread dividend cuts, but also by our growing global workforce of 154 people.

 

During the first three weeks of March, all of our employees transitioned to remote working as Covid-19 took a firm grip on the world's economy.

 

Since that time, all of our employees have had to adapt their working practices significantly and have made huge sacrifices in both their personal and professional lives. My enduring memory of the last six months will be the way that all of our staff, unselfishly, and with no prompting from me, brought the very best of our collective experience to bear to solve the rapidly evolving needs of our clients. I am proud of the kindness that our staff showed to one another and the calm, measured and thoroughly professional way in which they applied themselves. We are  lucky to have them and must continue to invest in them and in their wellbeing.

 

Dividend

 

In April, our AGM was held virtually for the first time in your Company's 131 year history. The Corporation declared, and our shareholders overwhelmingly approved, a 50% increase in our final dividend payment for 2019.

 

With significant turmoil in global markets as a result of the Covid-19 pandemic, a large number of quoted companies cut their dividends in response to the collapse of global revenues. We recognised that this was happening at a time when the recipients of those dividends may themselves be increasingly reliant on that income.

 

A great advantage of the investment trust structure is the ability to retain a portion of income received each year in order to smooth dividends in times of market stress. With that backdrop, the unique advantage of the Law Debenture structure has never been more evident. We approached 2020 with an Independent Professional Services business that had funded more than a third of dividends for the Group over the preceding 10 years and Group retained earnings of £62.5m1.  Indeed, Investec produced some independent research in March highlighting that our reserves position was the strongest of all investments trusts in the AIC's UK income and growth sector.

 

We were able to use these qualities to our shareholders' advantage. Our first quarterly dividend payment of 6.5 pence per ordinary share was made earlier this week to shareholders on the register at the close of business on 26 June 2020. Based on the current share price, that implies a dividend yield for the Law Debenture share of 5.0%2.

 

Part of the reason for the confidence in our dividend is that we have done this for a long time. The business itself was founded as a Corporate Trustee 131 years ago; in every single one of the last 41 years we have either increased or at least maintained that dividend. Indeed, in the last 10 years the dividend has more than doubled. We intend to pay two further interim dividends of 6.5 pence per ordinary share in October 2020 and January 2021. Shareholders will be asked to vote on a final dividend to be paid in April 2021 at the Corporation's 2021 AGM. It is the Board's current intention to recommend the final dividend payment be at least 6.5 pence per share, thus sustaining our dividend at a time of persistent market cuts.

 

 

1 Group retained earnings as at 31 December 2019 as disclosed on page 81 of the annual report and accounts.

2 Based on a closing share price of 522 pence as at 29 July 2020.



Our Investment Portfolio

 

The impact on global stock markets of the Covid-19 pandemic has been profound. Every business has been affected in some way, as our way of life changed overnight. For many businesses, at least initially, this impact has been a negative one. For a smaller proportion, the impact has been positive, as change drove strong demand for certain pockets of products.

 

Your investment portfolio has shared in some of that pain. At the peak of market dislocation on 23 March, the FTSE Actuaries All Share Index against which we benchmark our performance was down 34.3%. With a predominately UK portfolio of quoted stocks, combined with a widening of discounts across the sector, our share price at that point in the cycle had declined by 33.4% from the start of the year.

 

Since then, we have seen a partial recovery from markets and a strengthening of demand for our shares which, as I write to you today, have gained 24.8%5 from that low. The net asset value total return performance (with debt at par) for the first half of 2020 declined by 16.5%, compared to a decline of 17.5% by the benchmark. With a mandate to grow capital for our shareholders, we can never be comfortable reporting such a decline. We can, and do however, take comfort from our outperformance of the benchmark on a year to date, one, three, five and 10 year performance metric6.

 

The unique combination of our IPS business with our investment portfolio, as we have noted above, provides a significant advantage for our Investment Managers with regards to portfolio construction. Put simply, the cash that we generate from that IPS business has allowed James and Laura to avoid potential value traps, as other income funds may be forced into a narrower selection of stocks to maintain their own dividend yield. You can hear from James and Laura in their own words later in this results statement on the drivers behind the performance of the portfolio for the period and their outlook on markets in these challenging economic circumstances.

 

We are fortunate to have secured their expert services for a management fee of 30 basis points. Our ongoing charges ratio is currently 483 basis points compared to a sector average of 1034 basis points, which we believe makes the trust excellent value for money. In light of continued market volatility, we will be providing a daily NAV to the market from the start of August. This is another step in our journey of increasing transparency for our shareholders.

 

Independent Professional Services

 

DIVISION


Revenue7

30 June 2019

£000

Revenue7

30 June 2020

£000

Growth

2019/2020

%

Pensions


5,098

5,839

14.5

Corporate Trust


4,372

4,878

11.6

Corporate Services


5,991

5,735

(4.0)

Total


15,461

16,470

6.5

 

3 Calculated based on data held by Law Debenture for the year ended 31 December 2019.

4 Source: Association of Investment Companies industry average (excluding 3i) as a31 December 2019.

5 Based on a closing share price of 522 pence as at 29 July 2020.

6 Outperformance compares NAV total return with debt at par to the FTSE Actuaries All-Share Index Total Return.

7 Revenue shown is net of cost of sales.



 

We have often talked about the advantage of our unique structure, but it is at points like this in the cycle where that benefit is even more pronounced. Firstly, the capital valuation of the IPS business (which currently accounts for 17% of the net asset value of the Group), while linked to, is not directly correlated with markets. This provides a diversification of risk for our investors, compared to broader market movements. Secondly, as noted above, it allows James and Laura a genuine flexibility in portfolio construction. Thirdly, within the IPS business, our diverse revenue streams have afforded our shareholders a great deal of resilience in these challenging economic circumstances.

 

Over the course of the first half of 2020 we have been able to grow our revenues by 6.5% and earnings per share by 6.6% compared to 2019. This builds on revenue growth of 9.0% and earnings per share growth of 9.2% in 2018 and on revenue growth of 7.5% and earnings per share growth of 8.5% in 2019. Over the past two and a half years we have grown revenue by 20.8% and earnings per share by 22.1%. We are proud that our business has been able to deliver these results for shareholders in such a difficult economic environment.

.

Our Pensions business

 

Our Pensions business has posted its fourth year of positive growth, with revenue increasing by 14.5% compared to the first half of 2019. Today, we service more than 200 schemes, with oversight of over £350bn of assets, providing pension benefits to more than three million families.

 

The requirement for excellent governance of pension schemes is not dependent on economic conditions. In fact, with extreme market dislocation comes heightened risk. Covid-19 has brought many challenges to the pensions industry, including the weakening of employer covenants; cash constraints in large corporates to fund deficits; and concerns around the administration of schemes and the payment of pensions in light of remote working requirements. In these circumstances, the focus of the management teams of the sponsor may legitimately be elsewhere. This highlights the benefit of our sole trustee and Pegasus offerings to take away the administrative burden of a highly complex area. Over the past two years, our Pegasus business, which provides outsourced pensions executive services, has doubled the size of its' team and grown revenue by 85%, Revenues for the first half of 2020 have more than doubled compared to the same period in 2019.

 

In addition to supporting our clients on a day to day basis through these turbulent times, we have also been providing innovative solutions to broader strategic problems. We have been involved in several transformational deals and industry initiatives, including playing an instrumental role in Premier Foods PLC's landmark agreement regarding the restructure of its pension schemes. Cash contributions required to the schemes have reduced by between £115m and £145m. The shares in the company have more than doubled since the changes were announced. We have improved the security for British Bankers' Association scheme members (a sole corporate trustee client) through the purchase of a £95 million insurance policy with FTSE 100 Aviva. Two of our trustees were also elected to the Legal & General Mastertrust Board and the Legal & General Investment Management's Independent Governance Committee respectively as we continue to develop our defined contribution offering.

 

Our Corporate Trust business

 

Our Corporate Trust business is why we came into being in 1890, providing services to act as a bridge between the issuers and holders of bonds. Much of this revenue is predictable and inflation linked, which is a considerable advantage when operating under these type of market conditions. We started 2020 with almost two thirds of our revenue secured and inflation linked.

 

In addition to this structural advantage, there is a strong degree of counter-cyclicality to this business. In times of economic stress, we are often required to do additional work for our clients as they seek waivers or restructure their debt. Our post issue work has seen a 47.6% increase in revenue in the first half of 2020. compared to the same period in the prior year. This in turn has contributed to overall revenue growth in the Corporate Trust business of 11.6%. Following the global financial crisis in 2008, after an initial slowdown of revenue as a result of a drying up of debt issuance, we ultimately saw revenues recover and grow over the following three year period This crisis has fundamentally different characteristics, with the possibility of increased revenue from stressed situations. That said, we must be mindful that in some circumstances default scenarios may involve the business incurring cost and can take years to play out.

 

In addition to the stability and predictability of our revenues, despite more than 130 years in this business, we still display the ability to innovate. We have been quick to support new clients as countries have needed to urgently source PPE to combat the Covid-19 crisis, providing a small, but absolutely critical contribution through our escrow services to help to solve those procurement issues. Working with both new and existing clients in the year, we have acted as trustee on almost £30bn of bonds, notes and certificates issued in the first half of the year. This brought the total principal value on which we act as trustee to more than £900bn as at 30 June 2020.

 

Our Corporate Services business

 

Our diversified pool of businesses has served us well during this challenging period but our Corporate Services business suffered the greatest collective headwinds. This line of business is made up of three distinct revenue streams being core Corporate Services, the Safecall whistleblowing business and Service of Process.

 

Our company secretarial, special purpose vehicle accounting and administrative services offering continued to grow nicely from a small base, with a particularly strong first quarter. We made new hires during the period and will continue to do so to stay ahead of demand. We are relatively small compared to the market opportunity and are confident we can significantly increase our footprint.

 

Our Safecall whistleblowing business had a bright start to the year in January and February and wins during the period included Channel 4, Morgan Sindall and Westminster Council. On 27 January, The House of Lords had its first reading of the Office of the Whistleblower Bill which establishes the UK frameworks for whistleblowing legislation. Helpful too, in the medium term, is the European Whistleblowing Directive that comes into force in 2021. The Directive requires all companies with over 50 employees or €10m in turnover in the EU to have a whistle blowing regime in place. These regulatory tailwinds will be supportive to our long term growth ambitions. Equally important are the numerous examples of the high quality work that we completed on behalf of our existing clients during the period.

 

With the onset of Covid-19 in March, the growth of this business did slow from the c.20% seen in the prior two calendar years, as many purchasing decisions were understandably placed on hold. Conversely, the value of our proposition to the management teams and boards of our clients has never been clearer. Employees used our service to raise concerns around working conditions, allowing employers to quickly adapt to new working practices. We have received much unsolicited praise for our work and have an increased confidence in both the quality and value of our product. As we start the second half of the year, new business enquiries are returning to more normal levels. We remain optimistic regarding our ability to grow our market share around the world.

 

Our service of process business is highly transactional and is our business with the least contractual recurring revenues. Put simply, sharp contractions in the global economy mean less deals are signed, which in turn reduces demand for a service of process agent. History tells us that the drop off in revenues that we saw from March onwards is similar to the sharp drop off that we saw in 2008 at the height of the global financial crisis. History tells us too that demand should recover well as the subsequent restructuring phase of economic hardship gets a full head of steam. We have deep relationships around the globe that have been built over many decades, and remain sanguine that our opportunities will increase as the world economy begins to recover. In the meantime we continue to invest in the technology platform that supports this business and in developing digital distribution channels that we believe will differentiate our offering.

 

Outlook

 

The next six months will undoubtedly bring ongoing challenges due to the pandemic and the UK's exit from European Union.  We feel optimistic for the rest of year and excited to see what the longer term future will hold for your Company.

 

As announced previously Katie Thorpe, our Chief Financial Officer, will be leaving us in October. Katie has made a hugely positive contribution to our business and we wish her every continued success in her new endeavours. I am delighted to announce that Hester Scotton will be promoted to replace Katie as CFO. We continue to invest in creating a platform for sustainable and controlled growth in all of our businesses, and we have also promoted Kelly Stobbs to the role of General Counsel.

 

We have listened to our investors who are seeking regular, reliable income and have moved to a quarterly dividend cycle. We are currently providing a dividend yield of 5%, which we have sustained at a time of profound and widespread dividend cuts across the wider market. Our dividend is underpinned by the diversified and highly repeatable nature of the revenues of our professional services business. We believe, and our track record over the past three years demonstrates, we can continue to grow over time. We have an excellent long term track record of outperformance versus our benchmark and believe we are at a favorable point in the investment cycle to identify quality companies that have been mispriced by the market.

 

Despite these unprecedented challenges, our Independent Professional Services business was able to produce a plethora of outstanding outcomes for our clients and a positive result for our shareholders. I suspect though, the real value creation for our shareholders from the IPS business over last six months will be harvested over time, as the litany of best in class experiences has added materially to our reputation for operational excellence. We also remain alert to any prospective acquisitions that we feel could accelerate growth in returns for our shareholders.

 

This combination of factors underpins my belief that the Law Debenture investment proposition is, in fact, stronger now than it was at the end of last year. On behalf of the Board, I would like to thank all of our shareholders who have trusted us with their hard earned capital, and to reassure you that we are working tirelessly to reward the faith you have shown in us over this unprecedented crisis.

 

 

 

Denis Jackson

Chief Executive

30 July 2020

 

 



Investment manager's review

 

Investment approach and process

 

The challenges facing the global economy as a result of the Covid-19 pandemic are well documented, albeit the longer term implications are still uncertain. For managers looking to provide a much needed source of income as well as a long term capital return to shareholders, the almost unprecedented dividend cuts implemented by companies have made the markets in 2020 particularly difficult to navigate.

 

In markets such as these, the advantages of the investment trust structure, when compared to open ended investment products, become even more pronounced. Specifically we know the Board had the advantage of entering this period of global uncertainty with the strongest reserves position in the UK equity income sector1. Coupled with that, we have the unique advantage of the diversified source of revenue provided by the IPS business, which has funded 35%2 of Law Debenture's dividends to its shareholders over the past ten years. As a result of the continued robust nature of the IPS revenue, we have not been forced into the value traps that may have ensnared other income investors as they search for yield to maintain their own dividend payments to their investors.

 

We have a diversified investment portfolio, which aims to be a one-stop-shop for investors seeking quoted market exposure to quality companies. Our overall approach of the portfolio has not changed, either as a result of the current pandemic or the change in sector from the AIC's Global sector to the UK Equity Income sector, slightly over a year ago. What we believe has changed over that same period is the opportunity set when we look at global valuations. 2020 has continued the theme of the second half of 2019, rotating out of overseas stocks on the grounds of valuation and rotating into UK stocks we feel have been disproportionately penalised by the market in the current economic environment.

 

The majority of the portfolio, 80.3%, was in UK stocks at the half year end, little changed from 80.7% at 31 December 2019. Of the UK portfolio, around 55% of the portfolio is invested in the FTSE 100, with the remainder in small and medium sized companies.

 

Although our focus remains the UK, we will continue to confidently go to other geographies for companies that do not have a credible UK equivalent where we perceive we can add value to the overall portfolio. This approach remains entirely consistent with the approach we have applied historically and has not been affected by the change in sector. Looking to the global element of the portfolio, we have reduced our exposure to North America, primarily as a result of the stretch in valuation levels.

 

Our long standing benchmark is the FTSE Actuaries All-Share Index Total Return. The portfolio performance for the period is discussed in more detail below.

 

Portfolio performance and activity

 

The trust's NAV fell 16.5% on a total return basis (with debt at par) in the first half of 2020. While it is always disappointing to see the NAV decline in absolute terms, this decline was modestly less than the FTSE All-Share benchmark which fell 17.5% during the same time period. We go into more detail in the portfolio attribution section below, but predominantly the outperformance was driven by two alternative energy names held (Ceres Power and ITM Power), as well as holding comparatively less than the benchmark in the oil & gas industry following a material fall in the oil price. On a debt at fair value basis, the NAV fell 18.6%, modestly underperforming the benchmark. This is because in an environment of falling bond yields the fair value of the debt was revised upwards.

 

The largest change in positioning year to date is that we were sizeable net investors during the period, investing £33m in total and taking the gearing at period end to 19%. The majority of this net investment took place in March during a period of heightened market weakness; in recent months we have been largely neutral with buying and selling approximately matched.

 

Net investment during the six months was concentrated in the UK and Continental Europe. In contrast, in North America we reduced the exposure by £16m, exiting long held positions including Microsoft and Johnson & Johnson. In both cases the positions were sold on valuation grounds following strong performance rather than as a result of fundamental concerns.

 

New positions established during the six months included Anglo American, Marks & Spencer, Linde, Tesco, Boku and Ricardo. There is deliberately no common theme across these additions; they range from small to large companies, domestically focused to international, and the impact on their businesses of Covid-19 varies widely. For example Boku, which sells mobile payments technology, has benefitted during the period with mobile payment volumes growing materially as consumers transitioned to spending online. For Tesco, the effect of Covid-19 has been broadly neutral, with higher sales largely offset by additional costs, while for Marks & Spencer the effect has been negative as the majority of their clothing & home sales were temporarily paused (although the share price, in our view, more than reflects this difficult trading period).

 

If there were to be a commonality across the additions to the portfolio it would be that the majority have chosen to temporarily suspend their dividends as a result of Covid-19. This is not a coincidence. It has come about because, in our view, the best total return opportunities in the market currently reside in areas that have been most affected by the virus and have therefore chosen to temporarily suspend payments. When these companies return to paying dividends, and some have already signalled their desire to do so, the prices that we have been purchasing the shares will, we think, result in an attractive dividend yield in the future. The unique structure of Law Debenture with the income provided by the IPS business means that we can confidently purchase these shares that are currently not paying a dividend, while knowing that the Trust as a whole can still pay an attractive dividend yield to shareholders.

 

Portfolio attribution

 

At the sector level, the largest positive contributor to returns relative to the FTSE All-Share benchmark was oil & gas. This splits into two distinct categories; the larger position in alternative energy names (Ceres Power and ITM Power), which contributed strongly to performance at both an absolute and relative level, and the relatively smaller holding in traditional oil & gas companies (specifically Royal Dutch Shell and BP), which contributed positively to relative performance.

 

Conversely the largest detractor from returns relative to the benchmark was the sizeable position in the industrials sector, specifically companies exposed to civil aerospace including Rolls-Royce and Senior. We go into those companies in more detail in the detractors section below.

 

1 Source: Investec.

2 Dividends paid to shareholders between 1 July 2010 and 30 June 2020.

 

 

 



 

Top five contributors

 

The following five stocks produced the largest absolute contribution for 2020:

 

 

 

Stock

Share price total return (%)

 

Contribution (£m)

Ceres Power

103.1

12.4

ITM Power

275.2

6.3

Flutter Entertainment

 

19.5

 

1.8

Microsoft

14.5

1.4

Cellnex Telecom Sau

51.0

1.0

 

Source: Bloomberg calendar year share price total return as at 30 June 2020.

 

As the need to reduce global carbon emissions becomes evident, there is a growing interest in alternatives to fossil fuels. One area of focus is the role that hydrogen can play in the transition to a lower carbon economy. We have two companies exposed to the area, Ceres Power, which designs fuel cells and licenses the technology to partners including Bosch and Weichai, and ITM Power, which produces electrolysers that can be used to generate hydrogen from electricity and water (ideally 'green hydrogen' with electricity generated from renewable energy sources). Both companies have performed well as they move closer towards widespread commercialisation of their technologies by forming agreements with large partners.

 

ITM Power announced a joint venture with industrial gases company Linde (also held in the portfolio), and Ceres Power announced that Bosch would be increasing their stake in the company and taking a seat on the Ceres Board. These partners provide external validation of the technologies and could also accelerate commercialisation because of the relationships and balance sheets that they bring. In both cases following strong share price performance we have reduced the positions.

 

Another strong performer during the period was Flutter Entertainment (formerly Paddy Power Betfair), which completed the acquisition of US company Stars Group giving them exposure to the fast growing US gambling market. Following strong performance we have recently taken modest profits in the position.

 

As noted above, we have now exited the Microsoft position on the basis of valuation following strong performance. Cellnex, a Spanish telecoms infrastructure business, also performed well, benefitting from its defensive revenue streams at a time of high economic uncertainty and also from the perception that large, incumbent telcoms companies will continue to sell their tower assets to specialist tower companies.

 



Top five detractors

 

The following five stocks produced the largest negative impact on the portfolio valuation for 2020:

 

 

 

Stock

Share price total return (%)

 

Contribution (£m)

Royal Dutch Shell

-45.3

-12.7

Hammerson

-73.4

-7.6

Rolls Royce

-60.5

-6.8

Senior

-57.9

-6.5

Carnival

-72.9

-6.0

 

Source: Bloomberg calendar year share price total return as at 30 June 2020.

 

The largest detractor from returns on an absolute basis was Royal Dutch Shell. The sharp fall in the oil price as a result of falling demand (particularly in transportation) meant their ability to generate free cash flow was substantially reduced. As a result the Board took the (in our view logical) decision to reduce the dividend by two thirds to a level which we now view as sustainable, and which has the potential to grow if the oil price recovers. The share price performance has been disappointing and (with hindsight) the company was over-distributing. However, at the newly rebased level the shares are still paying an approximately 4% dividend yield and on an oil price recovery the shares could recover.

 

One of the main detractors from performance at the sub-sector level has been civil aerospace, where we have three holdings exposed materially to the supply chain; engine maker Rolls-Royce and components manufacturers Senior and Meggitt. The sharp fall in flying hours that will occur this year has been a seismic shock for the aerospace industry; considerably worse in terms of the hit to passenger miles flown than the financial crisis of 9/11. It will likely take several years for passenger numbers to recover to 2019 levels. This backdrop creates a challenging environment for the supply chain in terms of, for example, excess capacity that needs to come out and likely pricing pressure from Boeing and Airbus. However, we need to view these challenges in the context of how weak the shares have already been, the cost savings programmes that are being accelerated, and the other businesses that the companies operate in (for example all three companies also operate in defence as an end market, which is proving resilient). In our view the very challenging end market in civil aerospace is well known and understood, and on balance we have decided to maintain our exposure to the area.

 

Also among the largest detractors were retail property owner Hammerson and cruise ship operator Carnival, both of which had their business models severely disrupted as a result of Covid-19. In the case of Hammerson, the majority of their tenants had to close stores during 'lockdown' and as a result rental receipts were poor. This came at a time when retail property values were already under pressure from the shift in consumer spending to online. In our view these structural factors will persist but there will continue to be a value for prime retail properties, such as Bicester village (in which Hammerson own a stake) or the Bullring in Birmingham. Cruise operator Carnival, in a similar manner to the airline industry, had to temporarily suspend its cruises and the timeline to re-starting in some countries (such as the US) remains unclear. The valuation is low on a return to historic levels of profitability, but in the short term there is a lack of visibility.

 

Income

 

Investment income during the period fell to £9.1m, compared to £15.1m in the first six months of 2019. This fall was a result of widespread dividend suspensions in abroad variety of sectors  including retailers, housebuilders, industrial companies, non-life insurers and banks. Other sectors including life insurers, pharmaceuticals, utilities, consumer goods and alternative asset classes (such as renewable energy) are proving more resilient, as are the overseas holdings. As a result of the diversified nature of the portfolio we expect the fall in investment income in 2020 to be less than the fall in the overall market, although still material.

 

Given the strength of the reserves and the contribution of the IPS business, the Board recently announced its intention for the 2020 dividend to be at least equal to the 2019 level of 26.0p per share (paid in quarterly instalments). We fully support this decision and crucially do not think that it impacts the way the portfolio has always been managed, which is to treat income as an output and focus on growing the capital.

 

Outlook

 

There is large divergence in economic forecasts from reputable analysts.  It is not clear how consumers and corporates in aggregate are going to behave as 'lockdown' is eased. The consumers saving ratio has substantially risen while peacetime has never seen government indebtedness expand faster. Companies, given the increased cost of production as they comply with social distancing, may use an increase in demand to raise prices while the changes to trading patterns forced by the approach of Brexit are unclear.

 

We take comfort from the fact that Law Debenture's portfolio is not a proxy for the UK economy, but rather a diverse mix of holdings in companies with strong management teams that are well placed to cope with adversity. It is a focus on excellence of product or service that is the best solution in dealing with an erratic economy. The valuation of the overall portfolio holdings is low given their longer-term earnings prospects. This is why after share price weakness we have increased gearing, positioning the portfolio for a pick-up in economic activity, as confidence slowly returns.

 

 

James Henderson and Laura Foll

Investment Managers

30 July 2020

 



Sector distribution of portfolio by value

 


30 June 2020

%

31 December 2019

%

Oil and gas

10.4

9.7

Basic materials

8.6

6.4

Industrials

21.2

23.2

Consumer goods

6.0

5.2

Health care

8.6

8.9

Consumer services

9.6

10.2

Telecommunications

1.4

1.1

Utilities

4.7

4.0

Financials

27.5

28.9

Technology

2.0

2.4

 

 

Geographical distribution of portfolio by value

 


30 June 2020

%

31 December 2019

%

United Kingdom

80.3

80.7

North America

6.7

8.3

Europe

10.2

7.8

Japan

1.2

1.1

Other Pacific

0.9

0.9

Other

0.7

1.2

 



Fifteen largest holdings

at 30 June 2020

 



 

% of

Approx. Market

Valuation

2019

 

Purchases

 

Sales

Appreciation

/(Depreciation)

Valuation

2020

Rank

Company

portfolio

Cap.

£000

£000

£000

£000

£000

 

1

GlaxoSmithKline

3.91

£82bn

29,792

-

-

(2,386)

27,406

2

Ceres Power

3.09

£924m

12,052

-

(2,869)

12,428

21,611

3

Rio Tinto

2.43

£57bn

16,884

-

-

173

17,057

4

Royal Dutch Shell

2.18

£96bn

27,994

-

-

(12,694)

15.300

5

Relx

2.00

£37bn

14,288

-

-

(263)

14,025

6

National Grid

1.99

£37bn

13,307

-

-

618

13,925

7

Herald Investment Trust

1.86

£1bn

12,580

-

-

476

13,056

8

Severn Trent

1.77

£6bn

12,575

-

-

(180)

12,395

9

Dunelm

1.75

£2bn

11,097

-

-

340

12,247

10

Prudential

1.62

£32bn

13,506

-

-

(2,125)

11,381

11

AstraZeneca

1.49

£111bn

13,609

-

(3,962)

789

10,436

12

HSBC

1.42

£78bn

15,606

-

-

(5,629)

9,977

13

BP

1.40

£62bn

15,091

-

-

(5,262)

9,829

14

Urban Logistics REIT

1.33

£258m

9,933

-

-

(620)

9,313

15

Morgan Advanced Materials

1.32

£688m

11,095

979

-

(2,795)

9,279

 

 



Calculation of net asset value (NAV) per share

 

Valuation of our IPS Business

 

Accounting standards require us to consolidate the income, costs and taxation of our IPS business into the Group income statement. The assets and liabilities of the business are also consolidated into the Group column of the statement of financial position. A segmental analysis is provided which shows a detailed breakdown of the split between the investment portfolio, IPS business and Group charges.

 

Consolidating the value of the IPS business in this way failed to recognise the value created for the shareholder by the IPS business. To address this, from December 2015, the NAV we have published for the Group has included a fair value for the standalone IPS business.

 

The current fair value of the IPS business is calculated based upon historical earnings before interest, taxation, depreciation and amortisation (EBITDA) for the second half of 2019, and the EBIDTA for half year 2020, with an appropriate multiple applied. 

 

The calculation of the IPS valuation and methodology used to derive it are included in the previous annual report at note 14. In determining a calculated basis for the fair valuation of the IPS business, the Directors have taken external professional advice. The multiple applied in valuing IPS is from comparable companies sourced from market data, with appropriate adjustments to reflect the difference between the comparable companies and IPS in respect of size, liquidity, margin and growth. A range of multiples is then provided by the professional valuation firm, from which the Board selects an appropriate multiple to apply. The multiple selected for the current year is 8.7x, which represents a discount of almost 39% on the mean multiple across the comparable businesses.

 

It is hoped that our initiatives to inject growth into the IPS business will result in a corresponding increase in valuation over time. As stated above, management is aiming to achieve mid to high single digit growth in 2020. The valuation of the business has increased by £21.6m/23.8% since the first valuation of the business as at 31 December 2015.

 

Valuation guidelines require the fair value of the IPS business be established on a stand-alone basis. The valuation does not therefore reflect the value of Group tax relief from the investment portfolio to the IPS business.

 

In order to assist investors, the Company restated its historical NAV in 2015 to include the fair value of the IPS business for the last ten years.  This information is provided in the annual report within the 10 year record. 

 

Long-term borrowing

 

The methodology of valuing all long-term borrowings is to benchmark the Group debt against A rated UK corporate bond yields.

 



Calculation of NAV per share

 

The table below shows how the NAV at fair value is calculated. The value of assets already included within the NAV per the Group statement of financial position that relate to IPS are removed (£23,179,000) and substituted with the calculation of the fair value and surplus net assets of the business £112,056,000. The fair value of the business has declined by 3.6% in light of the impact on multiples of the Covid-19 pandemic and resulting market instability, partially offset by the increase in EBITDA.  An adjustment of (£47,680,000) is then made to show the Group's debt at fair value, rather than the book cost that is included in the NAV per the Group statement of financial position. This calculation shows an NAV fair value for the Group as at 30 June 2020 of £642,705,000 or 543.93 pence per share:

 


30 June 2020

31 December 2019


£000

Pence per share

£000

Pence per share

Net asset value (NAV) per Group statement of financial position

 

609,206

 

515.58

 

775,272

 

655.76

Fair valuation of IPS: EBITDA at a multiple of 8.7x (2019: 9.2x)

 

102,086

 

86.40

 

105,938

 

89.61

Surplus net assets

9,970

8.44

16,367

13.84

Fair value of IPS business

112,056

94.84

122,305

103.45

Removal of assets already included in NAV per financial statements

 

(23,179)

 

(19.62)

 

(30,445)

 

(25.75)

Fair value uplift for IPS business

88,877

75.22

91,860

77.70

Debt fair value adjustment

(47,680)

(40.36)

(36,992)

(31.29)

Dividend

(7,698)

(6.51)

-

-

NAV at fair value

642,705

543.93

830,139

702.17

 

 



Group income statement

for the six months ended 30 June 2020 (unaudited)


30 June 2020

30 June 2019


Revenue

  £000

Capital

  £000 

Total

  £000

Revenue

  £000

Capital

  £000 

Total

  £000








UK dividends

6,654

-

6,654

11,990

-

11,990

UK special dividends

458

-

458

893

-

893

Overseas dividends

1,986

-

1,986

2,131

-

2,131

Overseas special dividends

 

-

 

-

 

-

 

85

 

-

 

85


9,098

-

9,098

15,099

-

15,099

 







Interest income

88

-

88

358

-

358

Independent professional services fees

 

18,633

 

-

 

18,633

 

17,634

 

-

 

17,634

Other income

16

-

16

27

-

27








Total income

27,835

-

27,835

33,118

-

33,118








Net gain on investments held at fair value through profit or loss

 

 

-

 

 

(152,698)

 

 

(152,698)

 

 

-

 

 

62,730

 

 

62,730

 

Total income and capital (losses)/gains

 

 

27,835

 

 

(152,698)

 

 

(124,863)

 

 

33,118

 

 

62,730

 

 

95,848








Cost of sales

(2,163)

-

(2,163)

(2,172)

-

(2,173)

Administrative expenses

(11,943)

(1,145)

(13,088)

(11,114)

(1,166)

(12,280)

 

Operating profit(loss)

 

13,729

 

(153,843)

 

(140,114)

 

19,831

 

61,564

 

81,395








Finance costs














Interest payable

(660)

(1,979)

(2,639)

(660)

(1,979)

(2,639)








Profit/(loss) before taxation

13,069

(155,822)

(142,753)

19,171

59,585

78,756








Taxation

(650)

-

(650)

(642)

-

(642)








Profit/(loss) for the period

12,419

(155,822)

(143,403)

18,529

59,585

78,114








Return per ordinary share (pence)

 

10.51

 

(131.86)

 

(121.35)

 

15.68

 

50.42

 

66.10








Diluted return per ordinary share (pence)

 

10.51

 

(131.86)

 

(121.35)

 

15.68

 

50.42

 

66.10

 

 

 



Statement of comprehensive income

for the six months ended 30 June (unaudited)


30 June 2020

30 June 2019


Revenue

£000

Capital

£000

Total

£000

Revenue

£000

Capital

£000

Total

£000

Profit/(loss) for the period

12,419

(155,822)

(143,403)

18,529

59,585

78,114

Other comprehensive income for the period

-

-

-

-

-

-

Foreign exchange on translation of foreign operations

-

489

489

-

12

12

Total comprehensive income for the period

 

12,419

 

(155,333)

 

(142,914)

 

18,529

 

59,597

 

78,126

 

 



Group statement of financial position

 


Unaudited

30 June 2020

£000

Unaudited

30 June 2019

£000

Audited

31 December 2019

£000





Assets-Non-current assets




Goodwill

1,966

1,952

1,930

Property, plant and equipment

78

89

64

Right-of-use asset

5,632

-

1,057

Other intangible assets

73

135

104

Investments held at fair value through profit or loss

701,014

822,316

Retirement benefit asset

3,180

2,969

2.700

Total non-current assets

711,943

766,929

828,171

Assets-Current assets




Trade and other receivables

9,208

6,866

7,213

Other accrued income and prepaid expenses

5,822

6,540

6,438

Cash and cash equivalents

25,504

86,467

71,236

Total current assets

40,534

99,873

84,887

Total assets

752,477

866,802

913,058

Current liabilities




Trade and other payables

13,376

11,525

13,010

Lease liability

240

-

730

Corporation tax payable

814

662

710

Deferred tax liability

150

-

83

Other taxation including social security

714

656

540

Deferred income

5,417

4,719

5,625

Total current liabilities

20,711

17,562

20,698

Non-current liabilities and deferred income




Long-term borrowings

114,179

114,135

114,157

Deferred income

2,451

3,106

2,463

Lease liability

5,803

-

350

Provision for onerous contracts

127

135

118

Total non-current liabilities

122,560

117,376

117,088

Total net assets

609,206

731,864

775,272

Equity




Called up share capital

5,922

5,919

5,921

Share premium

9,171

8,916

9,147

Own shares

(1,533)

(1,332)

(1,332)

Capital redemption

8

8

8

Translation reserve

2,386

2,123

1,897

Capital reserves

541,297

663,018

697,119

Retained earnings

51,955

53,212

62,512

Total equity 

609,206

731,864

775,272

Net Asset Value (pence) per share

515.58

619.37

655.76

 

 

Group statement of cash flows

 


Unaudited

30 June 2020

£000

Unaudited

30 June 2019

£000

Audited

31 December 2019

£000

Operating activities




Operating (loss)/profit before interest payable and taxation

 

(140,114)

 

81,395

 

136,638

(Losses)/gains on investments

153,843

(61,564)

(97,644)

Foreign exchange (gains)/losses

(26)

(1)

20

Depreciation of property, plant and equipment

 

21

 

-

 

1,101

Depreciation of right-of-use assets

572

29

55

Interest on lease liability

35

-

99

Amortisation of intangible assets

37

56

104

(Increase) in receivables

(811)

(713)

(958)

Increase/(decrease) in payables

163

(344)

1,298

Transfer (from) capital reserves

(798)

(867)

(1,680)

Normal pension contributions in excess of cost

 

(480)

 

(469)

 

(1,000)

Cash generated from operating activities

 

12,442

 

17,522

 

38,033

Taxation

(479)

(168)

(663)

Operating cash flow

11,963

17,354

37,370

Investing activities




Acquisition of property, plant and equipment

 

(31)

 

(17)

 

(21)

Expenditure on intangible assets

(6)

(5)

(23)

Purchase of investments

(89,827)

(70,098)

(163,106)

Sale of investments

58,089

33,445

102,888

Cash flow from investing activities

(31,775)

(36,675)

(60,262)

Financing activities




Interest paid

(2,639)

(2,639)

(5,277)

Dividends paid

(22,976)

(15,272)

(23,050)

Payment of lease liability

(613)

-

(1,777)

Proceeds of increase in share capital

25

12

245

(Purchase) of own shares

(201)

(366)

(366)

Net cash flow from financing activities

 

(26,404)

 

(18,265)

 

(29,625)

Net (decrease) in cash and cash equivalents

 

(46,216)

 

(37,586)

 

(52,517)

Cash and cash equivalents at beginning of period

 

71,236

 

124,148

 

124,148

Foreign exchange gains/(losses) on cash and cash equivalents

 

484

 

(95)

 

(395)

Cash and cash equivalents at end of period

 

25,504

 

86,467

 

71,236













 



Group statement of changes in equity

 


Share

capital

£000

Share

premium

£000

Own

shares

£000

Capital

redemption

£000

Translation

reserve

£000

Capital

reserves

£000

Retained

earnings

£000

 

Total

£000

Balance at 1 January 2020

 

5,921

 

9,147

 

(1,332)

 

8

 

1,897

 

697,119

 

62,512

 

775,272

Net loss for the period

 

-

 

-

 

-

 

-

 

-

 

(155,822)

 

12,419

 

(143,403)

Foreign exchange

 

-

 

-

 

-

 

-

 

489

 

-

 

-

 

489

Total comprehensive income for the period

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

489

 

 

 

(155,822)

 

 

 

12,419

 

 

 

(142,914)

Issue of shares

1

24

-

-

-

-

-

25

Dividend relating to 2019

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(22,976)

 

 

(22,976)

Movement in own shares

 

-

 

-

 

(201)

 

-

 

-

 

-

 

-

 

(201)

Total equity at 30 June 2020

 

5,922

 

9,171

 

(1,533)

 

8

 

2,386

 

541,297

51,955

 

609,206










 

 

 



Group segmental analysis

 


Investment Portfolio

Independent professional services

 

Group charges

 

  Total


30

June 2020

30

June 2019

31

Dec 2019

30

June 2020

30

June 2019

31

Dec 2019

30

June 2020

30

June 2019

31

Dec 2019

30

June

2020

30

June

 2019

31

Dec

2019

 

£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

Revenue

 













Segment income

 

9,098

 

15,099

 

29,201

 

18,633

 

17,634

 

36,815

 

-

 

-

 

-

 

27,731

 

32,733

 

66,016

Other income

12

21

17

 

4

 

6

 

3

 

-

 

-

 

-

 

16

 

27

 

20

Cost of sales

-

-

-

 

(2,163)

 

(2,173)

 

(5,026)

 

-

 

-

 

-

 

(2,163)

 

(2,173)

 

(5,026)

Adminis-tration costs

 

 

(1,034)

 

 

(865)

 

 

(2,186)

 

 

(10,909)

 

 

(10,249)

 

 

(20,536)

 

 

-

 

 

-

 

 

(113)

 

 

(11,943)

 

 

(11,114)

 

 

(22,835)

Release onerous contracts

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

113

 

 

-

 

 

-

 

 

113


8,076

14,255

27,032

5,565

5,218

11,256

-

-

-

13,641

19,473

38,288

Interest (net)

 

(600)

 

(360)

 

(822)

 

28

 

58

 

209

 

-

 

-

 

-

 

(572)

 

(302)

 

(613)

Return, including profit on ordinary activities before taxation

 

 

 

 

 

 

7,476

 

 

 

 

 

 

13,895

 

 

 

 

 

 

26,210

 

 

 

 

 

 

5,593

 

 

 

 

 

 

5,276

 

 

 

 

 

 

11,465

 

 

 

 

 

 

-

 

 

 

 

 

 

-

 

 

 

 

 

 

-

 

 

 

 

 

 

13,069

 

 

 

 

 

 

19,171

 

 

 

 

 

 

37,675

Taxation

-

-

-

(650)

(642)

(1,370)

-

-

(50)

(650)

(642)

(1,420)

Return, including profit attributable to share-holders

 

 

 

 

 

 

7,476

 

 

 

 

 

 

13,895

 

 

 

 

 

 

26,210

 

 

 

 

 

 

4,943

 

 

 

 

 

 

4,634

 

 

 

 

 

 

10,095

 

 

 

 

 

 

-

 

 

 

 

 

 

-

 

 

 

 

 

 

(50)

 

 

 

 

 

 

12,419

 

 

 

 

 

 

18,529

 

 

 

 

 

 

36,255

Return per ordinary share (pence)

 

 

 

 

6.33

 

 

 

 

11.76

 

 

 

 

22.18

 

 

 

 

4.18

 

 

 

 

3.92

 

 

 

 

8.54

 

 

 

 

-

 

 

 

 

-

 

 

 

 

(0.04)

 

 

 

 

10.51

 

 

 

 

15.68

 

 

 

 

30.68

Assets

714,209

825,358

870,944

38,218

41,387

42,021

50

57

50

752,477

866,802

913,015

Liabilities

(128,105)

(123,636)

(126,399)

(15,039)

(11,167)

(11,226)

(127)

(135)

(118)

(143,271)

(134,938)

(137,743)

Total net assets

 

586,104

 

701,722

 

744,545

 

23,179

 

30,220

 

30,795

 

(77)

 

(78)

 

(68)

 

609,206

 

731,864

 

775,272














The capital element of the income statement is wholly attributable to the Investment Portfolio.

 

 



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, country/region risk and regulatory risk. These are explained in the notes to the annual accounts for the year ended 31 December 2019. 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.

 

Since the year end the Board has considered the risks faced by the Corporation arising from the Covid-19 pandemic on both the investment portfolio and the ability of the IPS business to operate.  More information on the impact is given in the half-yearly management report and in the Investment Manager's report. 

 

The principal risks of the IPS 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 and gives a true and fair view of the assets, liabilities, financial position and profit of the Group as required by DTR 4.2.4R;

 

· the half yearly report includes a fair review of the information required by:

 

(a)  DTR 4.2.7R of the Disclosure Guidance 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 Guidance 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

 

Robert Hingley

Chairman

30 July 202 

 

 



Basis of preparation

 

The results for the period have been prepared in accordance with International Financial Reporting Standards (IAS 34 - Interim financial reporting). 

 

The financial resources available are expected to meet the needs of the Group for the

foreseeable future. The financial statements have therefore been prepared on a going concern basis.

 

The Group's accounting policies during the period are the same as in its 2019 annual financial statements, except for those that relate to new standards effective for the first time for periods beginning on (or after) 1 January 2020 and will be adopted in the 2020 annual financial statements.

 

Notes

 

1. Presentation of financial information

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 statements for 2019 have been filed with the Registrar of Companies. The independent auditor's report on the annual report and financial statements for 2019 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. Calculations of NAV and earnings per share

The calculations of NAV and earnings per share are based on:

   

NAV: shares at end of the period 118,159,734 (30 June 2019: 118,162,211; 31 December 2019: 118,224,400) being the total number of shares in issue less shares acquired by the ESOT in the open market.

 

Income: average shares during the period 118,169,964 (30 June 2019: 118,168,197; 31 December 2019: 118,181,082) being the weighted average number of shares in issue after adjusting for shares held by the ESOT.

 

3. Listed investments

Listed investments are all traded on active markets and as defined by IFRS 7 are Level 1 financial instruments. As such they are valued at unadjusted quoted bid prices. Unlisted investments are Level 3 financial instruments. They are valued by the directors using unobservable inputs including the underlying net assets of the instruments.

 

4. Portfolio investments

A full list of investments is included on the website each month. 

 

5. Half-yearly report 2020

The half-yearly report 2020 will be available on the website in early August via the following link:

 

https://www.lawdebenture.com/investment-trust/shareholder-information/regulatory-financial-reporting

 

Registered office:

Fifth Floor, 100 Wood Street, London EC2V 7EX  Telephone: 020 7606 5451

(Registered in England - No. 00030397)

LEI number - 2138006E39QX7XV6PP21


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.
 
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