Half-yearly Report
The Law Debenture Corporation p.l.c. and its subsidiaries
HALF YEARLY REPORT FOR THE SIX MONTHS TO 30 JUNE 2011 (unaudited)
The Directors recommend an interim dividend of 4.5p on the ordinary shares for
the six months to 30 June 2011. 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 portfolio
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 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)
whistle blowing 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
2011 2010 2010
Pence Pence Pence
Share price 372.80 278.20 356.60
NAV per share after proposed 361.86 279.40 342.92
dividend
Net revenue return per share:
- Investment portfolio 5.03 4.32 7.07
- Independent fiduciary services 3.55 2.72 6.19
Group net revenue return per share 8.58 7.04 13.26
Capital return per share 15.05 (7.71) 58.22
Dividends per share 4.50 4.20 12.70
Performance to 30 June 2010
6 months 12 months
% %
Share price total return 1 7.1 39.2
NAV total return 1 6.8 34.3
FTSE All-Share Index total return 3.0 25.6
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 2011 was 6.8%,
compared to a total return of 3.0% for the FTSE Actuaries All-Share Index. Net
revenue per share was 8.58p, an increase of 21.9% over the corresponding period
last year, as a result of a 16.4% increase in the investment portfolio and a
30.5% increase in independent fiduciary services.
Dividend
The board has declared an interim dividend of 4.5p (2010: 4.2p). The dividend
will be paid on 8 September 2011 to holders on the record date of 5 August
2011. The current expectation of the directors is that the final dividend will
be at least maintained.
Investment portfolio
Equity markets were little changed during the period. They reacted to events as
they unfolded but there was no clear direction. On the one hand, company
profits have been strong, monetary policy has remained accommodative and the
developing world has continued to grow strongly. On the other hand, serious
problems persist: the debt problems of recent years have not been resolved, the
handling of the euro crisis is not encouraging and two rounds of quantitative
easing in the USA do not appear to have had the desired impact on the general
economy.
A feature of the period has been the strength of company performance. Corporate
debt has fallen and strong cash generation is coming through as profitability
increases, driven by well controlled costs and growing sales. Growing profits
combined with a high level of dividend cover have delivered dividend growth in
our portfolio and this is likely to continue. Against this background we have
retained a modest level of gearing, which along with the bias to industrial
companies has led to the outperformance over the period.
Activity
The changes to the portfolio have been small. It has been a period in which it
has been best to keep with successful companies and not to be tempted to buy
shares that appear cheap in companies where there are problems to overcome. The
reason is that the world economy is very competitive, which is not helping the
weaker companies, while the strength of global trade is rewarding the truly
competitive.
Management fee
As previously announced, the management fee payable to Henderson from 1 April
2011 is expressed as a percentage of the value of the net assets of the Group,
excluding the net assets of the independent fiduciary services business. The
percentage amount payable is now 0.3% per annum.
Outlook
Law Debenture's portfolio is a collection of companies. It is not a proxy for
the UK economy. The UK companies in the portfolio, it is estimated, have
approximately two-thirds of their profits coming from overseas. This is a
measure of how outward looking they have become. The valuations are modest and
growth prospects real.
Independent fiduciary services
Revenues, net of legal costs recharged to clients, increased by 10.4%.
Administrative costs continued to be tightly controlled and consequently profit
before taxation increased by 28.0%. New appointments in financial wholesale
markets remain at low levels with little sign of any substantial improvement in
the corporate bond and securitisation markets. However, global markets continue
to grow and we have benefited from increased levels of corporate transactions.
The outlook for financial markets remains uncertain, particularly in Europe,
but we continue to look for new opportunities and to control our costs.
Group income statement
For the six months ended 30 June 2011 (unaudited)
30 June 2011 30 June 2010
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
UK dividends 6,580 - 6,580 5,278 - 5,278
Overseas dividends 1,185 - 1,185 1,425 - 1,425
Overseas special dividends 51 - 51 53 - 53
Interest from securities 222 - 222 327 - 327
8,038 - 8,038 7,083 - 7,083
Interest income 52 - 52 50 - 50
Independent fiduciary 14,416 - 14,416 14,489 - 14,489
services fees
Other income 175 - 175 144 - 144
Total income 22,681 - 22,681 21,766 - 21,766
Net gain/(loss) on - 17,744 17,744 - (8,962) (8,962)
investments held at fair
value through profit or
loss
Gross income and capital 22,681 17,744 40,425 21,766 (8,962) 12,804
gains/(losses)
Cost of sales (1,615) - (1,615) (2,885) - (2,885)
Administrative expenses (8,874) (64) (8,938) (8,627) (84) (8,711)
Operating profit 12,192 17,680 29,872 10,254 (9,046) 1,208
Finance costs
Interest payable (1,225) - (1,225) (1,234) - (1,234)
Profit/(loss) before 10,967 17,680 28,647 9,020 (9,046) (26)
taxation
Taxation (894) - (894) (754) - (754)
Profit/(loss) for the 10,073 17,680 27,753 8,266 (9,046) (780)
period
Return/(loss) per ordinary 8.58 15.05 23.63 7.04 (7.71) (0.67)
share (pence)
Diluted return/(loss) per 8.57 15.04 23.61 7.04 (7.71) (0.67)
ordinary share (pence)
Statement of comprehensive income
For the six months ended 30 June 2011 (unaudited)
30 June 2011 30 June 2010
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Profit/(loss) for the 10,073 17,680 27,753 8,266 (9,046) (780)
period
Other comprehensive
income:
Foreign exchange - (109) (109) - 407 407
Total comprehensive income 10,073 17,571 27,644 8,266 (8,639) (373)
/(loss) for the period
Group statement of financial position
30 June 2011 30 June 2010 31 December
2010
(unaudited) (unaudited) (audited)
£000 £000 £000
Assets
Non current assets
Goodwill 2,191 2,266 2,211
Property, plant and equipment 214 268 190
Other intangible assets 85 110 118
Investments held at fair value 459,133 366,858 441,337
through profit or loss
Deferred tax assets 662 1,003 871
Total non current assets 462,285 370,505 444,727
Current assets
Trade and other receivables 4,989 3,339 6,731
Other accrued income and prepaid 5,502 4,730 3,797
expenses
Cash and cash equivalents 19,300 14,954 20,030
Total current assets 29,791 23,023 30,558
Total assets 492,076 393,528 475,285
Current liabilities
Trade and other payables 10,818 7,967 11,446
Short term borrowings - 77 77
Corporation tax payable 1,109 1,037 1,119
Other taxation including social 622 446 846
security
Deferred income 3,848 4,127 3,714
Total current liabilities 16,397 13,654 17,202
Non current liabilities and
deferred income
Long term borrowings 39,378 39,351 39,364
Retirement benefit obligations 561 1,613 876
Deferred income 5,433 6,035 5,277
Total non current liabilities 45,372 46,999 45,517
Total net assets 430,307 332,875 412,566
Equity and liabilities
Called up share capital 5,904 5,903 5,904
Share premium 8,070 8,038 8,066
Capital redemption 8 8 8
Share based payments 201 201 201
Own shares (1,717) (1,816) (1,794)
Capital reserves 386,346 291,290 368,666
Retained earnings 31,082 28,424 30,993
Translation reserve 413 827 522
Total equity 430,307 332,875 412,566
Group statement of cash flows
For the six months ended 30 June 2011
30 June 30 June 31 December
2011 2010 2010
(unaudited) (unaudited) (audited)
£000 £000 £000
Operating activities
Operating profit before interest 29,872 1,208 88,022
payable and taxation
(Gains)/losses on investments (17,680) 9,046 (68,330)
Foreign exchange 20 (82) (24)
Depreciation of property, plant and 63 67 122
equipment
Amortisation of intangible assets 33 31 95
Decrease/(increase) in receivables 37 125 (2,334)
(Decrease)/increase in payables (548) (369) 2,352
Income gain on OEICs (40) (120) (347)
Normal pension contributions in (315) (315) (769)
excess of cost
Cash generated from operating 11,442 9,591 18,787
activities
Taxation (695) (535) (1,325)
Interest paid (1,225) (1,234) (2,452)
Operating cash flow 9,522 7,822 15,010
Investing activities
Acquisition of property, plant and (87) (64) (58)
equipment
Expenditure on intangible assets - (28) (86)
Purchase of investments (20,403) (20,995) (36,262)
Sale of investments 20,272 18,308 36,676
Cash flow from investing activities (218) (2,779) 270
Financing activities
Dividends paid (9,984) (9,378) (14,308)
Proceeds of increase in share capital 4 - 29
Purchase of own shares 77 224 246
Net cash flow from financing (9,903) (9,154) (14,033)
activities
Net (decrease)/increase in cash and (599) (4,111) 1,247
cash equivalents
Cash and cash equivalents at 19,953 18,612 18,612
beginning of period
Foreign exchange (losses)/gains on (54) 376 94
cash and cash equivalents
Cash and cash equivalents at end of 19,300 14,877 19,953
period
Cash and cash equivalents comprise
Cash and cash equivalents 19,300 14,954 20,030
Bank overdrafts - (77) (77)
19,300 14,877 19,953
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
Balance at 1 5,904 8,066 (1,794) 8 201 522 368,666 30,993 412,566
January 2011
Net profit - - - - - - 17,680 10,073 27,753
Other
comprehensive
income:
Foreign exchange - - - - - (109) - - (109)
Total - - - - - (109) 17,680 10,073 27,644
comprehensive
income for the
period
Issue of shares - 4 - - - - - - 4
Movement in own - - 77 - - - - - 77
shares
Dividend relating - - - - - - - (9,984) (9,984)
to 2010
Total equity at 5,904 8,070 (1,717) 8 201 413 386,346 31,082 430,307
30 June 2011
Group segmental analysis
Investment portfolio Independent fiduciary Total
services
30 June 30 June 31 Dec 30 June 30 June 31 Dec 30 June 30 June 31 Dec
2011 2010 2010 2011 2010 2010 2011 2010 2010
£000 £000 £000 £000 £000 £000 £000 £000 £000
Revenue
Segment income 8,038 7,083 12,449 14,416 14,489 30,381 22,454 21,572 42,830
Other income 71 63 87 104 81 31 175 144 118
Cost of sales - - - (1,615) (2,885) (6,184) (1,615) (2,885) (6,184)
Administration costs (958) (867) (1,679) (7,916) (7,760) (15,689) (8,874) (8,627) (17,368)
7,151 6,279 10,857 4,989 3,925 8,539 12,140 10,204 19,396
Interest (net) (1,245) (1,214) (2,565) 72 30 409 (1,173) (1,184) (2,156)
Return, including 5,906 5,065 8,292 5,061 3,955 8,948 10,967 9,020 17,240
profit on ordinary
activities before
taxation
Taxation - - - (894) (754) (1,679) (894) (754) (1,679)
Return, including 5,906 5,065 8,292 4,167 3,201 7,269 10,073 8,266 15,561
profit attributable
to shareholders
Revenue return per 5.03 4.32 7.07 3.55 2.72 6.19 8.58 7.04 13.26
ordinary share
(pence)
Assets 468,162 370,957 450,287 23,914 22,571 24,998 492,076 393,528 475,285
Liabilities (53,635) (52,924) (51,665) (8,134) (7,729) (11,054) (61,769) (60,653) (62,719)
Total net assets 414,527 318,033 398,622 15,780 14,842 13,944 430,307 332,875 412,566
The capital element of the income statement is wholly attributable to the
investment portfolio.
Analysis of the investment portfolio
By geographical location
Valuation Purchases Costs of Sales Appreciation/ Valuation %
acquisition proceeds 30 June
31 £000 (depreciation) 2011
December £000 £000
2010 £000 £000
£000
United 313,388 12,304 (55) (15,799) 15,994 325,832 70.9
Kingdom
North America 30,250 6,931 (7) (3,055) (217) 33,902 7.4
Europe 41,450 1,168 (2) (1,418) 3,353 44,551 9.7
Japan 18,928 - - - (590) 18,338 4.0
Other Pacific 37,321 - - - (811) 36,510 8.0
441,337 20,403 (64) (20,272) 17,729 459,133 100.0
By Sector (excluding cash)
As at As at
30 June 31 December
2011 2010
% %
Oil & gas 10.9 10.7
Basic materials 3.3 3.2
Industrials 24.6 22.7
Consumer goods 12.3 12.6
Health care 8.1 7.4
Consumer services 7.6 9.7
Telecommunications 2.6 2.8
Utilities 4.5 4.3
Financials 14.0 14.3
Technology 0.6 0.1
Pooled equity investments 11.5 12.2
100.0 100.0
Investment portfolio valuation
as at 30 June 2011
UK unless otherwise
stated.
Holdings in italics were acquired
after 31 December 2010
£000 %
Oil & gas
Oil & gas producers
Royal Dutch Shell 15,321 3.34
BP 12,144 2.64
BG 4,946 1.08
Total (Fra) 2,212 0.48
34,623 7.54
Saipem (Ita)
Oil equipment &
services
Schlumberger (USA) 5,378 1.17
John Wood 3,238 0.71
National Oilwell 2,434 0.53
Varco (USA)
Gibson Energy (Can) 2,243 0.49
Saipem (Ita) 1,242 0.27
Diamond Offshore 1,096 0.24
Drilling (USA)
15,631 3.41
Basic materials
Chemicals
Croda 3,772 0.82
Asahi Kasei (Jap) 1,663 0.36
Brenntag (Ger) 881 0.19
6,316 1.37
Forestry & paper
Mondi 3,723 0.81
3,723 0.81
Mining
BHP Billiton 4,902 1.07
4,902 1.07
Industrials
Construction &
materials
Balfour Beatty 2,975 0.65
CRH (Ire) 1,770 0.39
Marshalls 674 0.15
5,419 1.19
Aerospace & defence
Senior 17,185 3.74
Meggitt 6,005 1.31
Rolls Royce 4,512 0.98
BAE Systems 3,185 0.69
Hampson Industries 255 0.06
31,142 6.78
£000 %
General industrials
Smith (DS) 4,642 1.01
Smiths 1,800 0.39
3M (USA) 1,476 0.32
Siemens (Ger) 1,109 0.24
9,027 1.96
Electronic &
electrical
equipment
Morgan Crucible 7,846 1.71
Applied Materials 4,052 0.88
(USA)
Spectris 3,184 0.69
TT Electronics 2,900 0.63
Legrand (Fra) 785 0.17
18,767 4.08
Industrial
engineering
Weir Group 6,378 1.39
Hill & Smith 6,033 1.31
Cummins (USA) 5,154 1.12
Caterpillar (USA) 2,652 0.58
Renold 1,516 0.33
ABB (Swi) 1,129 0.25
Severfield-Rowen 543 0.12
23,405 5.10
Industrial
transportation
Kuehne & Nagel 2,016 0.44
(Swi)
BBA Aviation 1,630 0.35
Goldenport 788 0.17
Wincanton 558 0.12
Autologic 352 0.08
5,344 1.16
Support services
Interserve 6,859 1.49
Carillion 4,693 1.02
SGS (Swi) 1,824 0.40
Deutsche Post (Ger) 1,723 0.38
Sodexho (Fra) 1,365 0.30
Johnson Service 1,363 0.30
Babcock 988 0.22
Adecco (Swi) 797 0.17
Augean 295 0.06
19,907 4.34
£000 %
Consumer goods
Automobiles & parts
GKN 10,705 2.33
Toyota Motor (Jap) 1,752 0.38
Bridgestone (Jap) 1,067 0.23
13,524 2.94
Beverages
Diageo 5,474 1.19
Pernod-Ricard (Fra) 783 0.17
6,257 1.36
Food producers
Nestlé (Swi) 3,657 0.80
Unilever 3,507 0.76
Associated British Foods 3,246 0.71
Dairy Crest 740 0.16
Uniq 64 0.01
11,214 2.44
Household goods
Bellway 3,575 0.78
Redrow 2,752 0.60
Reckitt Benckiser 2,575 0.56
Essilor (Fra) 1,488 0.32
10,390 2.26
Leisure goods
Harvard International 156 0.03
156 0.03
Tobacco
British American Tobacco 8,193 1.78
Imperial Tobacco 5,693 1.24
Swedish Match (Swe) 1,311 0.29
15,197 3.31
Health care
Health care equipment &
services
Fresenius (Ger) 4,501 0.98
Becton Dickinson (USA) 4,025 0.88
Smith & Nephew 3,125 0.68
Fresenius Medical Care (Ger) 2,267 0.49
13,918 3.03
£000 %
Pharmaceuticals &
biotechnology
GlaxoSmithKline 10,672 2.32
AstraZeneca 4,660 1.01
Shire 3,888 0.85
Novartis (Swi) 2,645 0.58
Roche (Swi) 1,351 0.29
23,216 5.05
Consumer services
Food & drug retailers
Tesco 4,823 1.05
Sainsbury 1,646 0.36
6,469 1.41
General retailers
Dunelm 3,501 0.76
Inditex (Spa) 1,781 0.39
Lawson (Jap) 1,300 0.28
Findel 1,196 0.26
Topps Tiles 428 0.09
8,206 1.78
Media
Reed Elsevier 4,245 0.92
Pearson 3,234 0.70
Daily Mail & General Trust 2,090 0.46
Toppan Printing (Jap) 862 0.19
Yell 72 0.02
10,503 2.29
Travel & leisure
Greene King 2,826 0.62
Carnival 2,507 0.55
Marstons 2,085 0.45
International Consolidated 1,459 0.32
Airlines
Carnival (USA) 849 0.18
9,726 2.12
£000 %
Telecommunications
Fixed line
telecommunications
BT 2,619 0.58
Cable & Wireless Worldwide 461 0.10
Cable & Wireless 405 0.09
Communications
3,485 0.77
Mobile telecommunications
Vodafone 6,302 1.37
Inmarsat 2,017 0.44
8,319 1.81
Utilities
Electricity
Scottish & Southern Energy 4,179 0.91
Scottish & Southern Energy 2,530 0.55
5.75% 5/2/14
Iberdrola (Spa) 922 0.20
7,631 1.66
Gas water & multiutilities
National Grid 6.125% 15/4/ 5,820 1.27
14
National Grid 3,430 0.75
Severn Trent 2,991 0.65
Centrica 808 0.18
13,049 2.85
Financials
Banks
HSBC 11,120 2.42
Banco Santander (Spa) 2,471 0.55
Barclays 1,795 0.39
BNP Paribas (Fra) 1,254 0.27
UBS (Swi) 808 0.18
17,448 3.81
Nonlife insurance
Hiscox 5,650 1.23
Amlin 4,873 1.06
Chubb (USA) 2,925 0.64
Hardy Underwriting Bermuda 500 0.11
Chaucer 405 0.09
14,353 3.13
£000 %
Life insurance / assurance
Aviva 3,446 0.75
Prudential 3,190 0.69
Chesnara 2,337 0.51
Irish Life & Permanent 10 -
(Ire)
8,983 1.95
Real estate investments &
services
St Modwen Properties 1,847 0.40
1,847 0.40
Real estate investment
trusts
Great Portland Estate 3,052 0.66
Land Securities 2,741 0.60
Mucklow (A&J) Group 2,482 0.54
Segro 2,018 0.44
10,293 2.24
Financial services
IP Group 2,871 0.63
International Personal 2,758 0.60
Finance
Provident Financial 2,647 0.58
Intermediate Capital Group 1,449 0.32
Deutsche Börse (Ger) 1,136 0.25
10,861 2.38
Equity investment
instruments
Henderson Asia Pacific 12,369 2.69
Capital Growth
Henderson Japan Capital 11,694 2.55
Growth
Baillie Gifford Pacific 9,497 2.07
First State Asia Pacific 8,594 1.87
Scottish Oriental Smaller 6,050 1.32
Company Trust
Herald Investment Trust 4,475 0.97
52,679 11.47
Technology
Software & computer
services
Microsoft (USA) 1,618 0.35
Amadeus (Spa) 1,270 0.28
2,888 0.63
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
22 July 2011
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 2010 have been filed with the Registrar of Companies.
The independent auditors' report on the annual report
and financial statements for 2010 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 117,454,638 (30 June 2010: 117,366,193) (31
December 2010: 117,399,342).
Income: average shares during the period 117,449,590 (30 June 2010:
117,356,194) (31 December 2010: 117,366,347).
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