Half-yearly Report
The Law Debenture Corporation p.l.c. and its subsidiaries
HALF YEARLY REPORT FOR THE SIX MONTHS TO 30 JUNE 2013 (unaudited)
The Directors recommend an interim dividend of 4.5p on the ordinary shares for
the six months to 30 June 2013. The report including the unaudited results for
the period was as follows:
Financial summary
30 June 30 June 31 December
2013 2012 2012
Pence Pence Pence
Share price 481.50 376.00 425.00
NAV per share after proposed 423.10 348.31 374.55
dividend
NAV per share after proposed 418.61 348.31 367.86
dividend
with debt at fair value
- Investment trust 5.60 4.78 8.47
- Independent fiduciary services 3.24 3.45 6.67
Group net revenue return per share 8.84 8.23 15.14
Capital return per share 44.71 21.22 50.24
Dividends per share 4.50 4.50 14.25
%
Ongoing charges 0.45
Gearing 5
Ongoing charges are based on the
cost of the investment trust and
include the Henderson management
fee of 0.30% of NAV for the
investment trust. There is no
performance element related to the
fee.
Performance to 30 June 2013
6 months 12 months
% %
Share price total return 1 15.70 32.20
NAV total return 1 12.70 24.10
FTSE All-Share Index total return 8.50 17.90
1. Source AIC. NAV used to calculate total return has been adjusted to reflect the
fair value of the debenture. The adjustment reduced NAV at 30 June 2013 by 4.49p
(31 December 2012: 6.69p; 30 June 2012: nil)
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 2013 was 12.7%,
compared to a total return of 8.5% for the FTSE Actuaries All-Share Index. Net
revenue per share was 8.84p, an increase of 7.4% over the corresponding period
last year, as a result of a 17.2% increase in the investment trust and a 6.1%
decrease in independent fiduciary services.
Dividend
The board has declared an interim dividend of 4.5p (2012: 4.5p). The dividend
will be paid on 12 September 2013 to holders on the record date of 16 August
2013. The current expectation of the directors is that the final dividend will
be maintained.
Investment trust
Equity markets rose and good corporate performance led to increased dividends.
Towards the end of the period, markets fell on profit taking inspired by
concerns that quantitative easing would end and that the Chinese economy was
slowing.
Our exposure to industrial companies remains high and the three best relative
contributors to the portfolio in the first six months of the year were Senior,
GKN and GlaxoSmithKline. Corporate profits continue to increase as costs are
well controlled and sales improve, resulting in higher margins. The growing
profitability is leading to falling corporate debt and increased dividends,
including special dividends. We continue to be fully invested in equities in
the investment portfolio.
Independent fiduciary services
Revenues, net of cost of sales, which represent legal costs recharged to
clients were flat whilst administration costs increased by 5.3% resulting in a
decrease in profit before taxation of 9.7%. Our markets remain difficult
although some sectors, such as service of process, found ways to improve
revenues. Since 2002 and following the commencement of the US trust business, a
US $50 million guarantee has been provided to Law Debenture Trust Company of
New York (LDTCNY) to meet contractual requirements under certain trust
indentures where LDTCNY acts as trustee. With the advice of legal, tax and
accounting advisers, it has now been deemed necessary to replace the guarantee
with an uncommitted borrowing facility of approximately US $45 million at an
interest rate of 1.5 per cent over LIBOR. The proceeds of this facility have
been contributed as capital to LDTCNY and will be held by LDTCNY in US $
denominated money market funds.
Group income statement
For the six months ended 30 June 2013 (unaudited)
30 June 2013 30 June 2012
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
UK dividends 6,531 - 6,531 6,104 - 6,104
UK special dividends 778 - 778 181 - 181
Overseas dividends 1,401 - 1,401 1,221 - 1,221
Overseas special 32 - 32 48 - 48
dividends
Interest from securities 295 - 295 334 - 334
9,037 - 9,037 7,888 - 7,888
Interest income 30 - 30 42 - 42
Independent fiduciary 14,751 - 14,751 14,904 - 14,904
services fees
Other income 21 - 21 58 - 58
Total income 23,839 - 23,839 22,892 - 22,892
Net gain on investments - 52,737 52,737 - 25,031 25,031
held at fair value
through profit or loss
Gross income and capital 23,839 52,737 76,576 22,892 25,031 47,923
gains
Cost of sales (1,590) - (1,590) (1,800) - (1,800)
Administrative expenses (9,977) (128) (10,105) (9,314) (83) (9,397)
Operating profit 12,272 52,609 64,881 11,778 24,948 36,726
Finance costs
Interest payable (1,225) - (1,225) (1,225) - (1,225)
Profit before taxation 11,047 52,609 63,656 10,553 24,948 35,501
Taxation (643) - (643) (876) - (876)
Profit for period 10,404 52,609 63,013 9,677 24,948 34,625
Return per ordinary share 8.84 44.71 53.55 8.23 21.22 29.45
(pence)
Diluted return per 8.83 44.67 53.50 8.23 21.21 29.44
ordinary share (pence)
Statement of comprehensive income
For the six months ended 30 June 2013 (unaudited)
30 June 2013 30 June 2012
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Profit for the period 10,404 52,609 63,013 9,677 24,948 34,625
Foreign exchange - (254) (254) - (29) (29)
Total comprehensive 10,404 52,355 62,759 9,677 24,919 34,596
income for the period
Group statement of financial position
30 June 2013 30 June 2012 31 December 2012
(unaudited) (unaudited) (audited)
£000 £000 £000
Assets
Non current assets
Goodwill 2,238 2,210 2,182
Property, plant and equipment 230 300 254
Other intangible assets 300 429 363
Investments held at fair value 533,083 446,857 479,521
through profit or loss
Deferred tax assets 1,020 1,223 1,126
Total non current assets 536,871 451,019 483,446
Current assets
Trade and other receivables 3,297 5,113 4,244
Other accrued income and prepaid 5,638 6,473 5,980
expenses
Cash and cash equivalents 21,332 16,381 22,201
Total current assets 30,267 27,967 32,425
Total assets 567,138 478,986 515,871
Current liabilities
Trade and other payables 11,464 10,585 10,745
Corporation tax payable 679 783 1,005
Other taxation including social 617 623 629
security
Deferred income 4,175 4,184 3,948
Total current liabilities 16,935 16,175 16,327
Non current liabilities and deferred
income
Long term borrowings 39,431 39,404 39,418
Retirement benefit obligations 1,867 2,823 2,227
Deferred income 5,769 5,765 6,035
Total non current liabilities 47,067 47,992 47,680
Total net assets 503,136 414,819 451,864
Equity
Called up share capital 5,905 5,905 5,905
Share premium 8,125 8,106 8,122
Capital redemption 8 8 8
Share based payments - 201 -
Own shares (1,797) (1,805) (1,778)
Capital reserves 457,943 371,216 405,334
Retained earnings 32,897 30,704 33,964
Translation reserve 55 484 309
Total equity 503,136 414,819 451,864
Group statement of cash flows
For the six months ended 30 June 2013
30 June 30 June 31 December
2013 2012 2012
(unaudited) (unaudited) (audited)
£000 £000 £000
Operating activities
Operating profit before interest 64,881 36,726 81,064
payable and taxation
(Gains) on investments (52,609) (24,948) (59,066)
Foreign exchange (62) 8 39
Depreciation of property, plant and 72 56 149
equipment
Amortisation of intangible assets 101 109 214
Decrease/(increase) in receivables 1,289 (400) 962
Increase/(decrease) in payables 681 (528) (314)
Transfer to capital reserves 223 529 772
Normal pension contributions in excess (360) (315) (575)
of cost
Cash generated from operating 14,216 11,237 23,245
activities
Taxation (863) (1,193) (1,855)
Interest paid (1,225) (1,225) (2,450)
Operating cash flow 12,128 8,819 18,940
Investing activities
Acquisition of property, plant and (43) (36) (89)
equipment
Expenditure on intangible assets (37) (339) (375)
Purchase of investments (49,489) (20,504) (48,376)
Sale of investments 48,305 21,120 50,193
Cash flow from investing activities (1,264) 241 1,353
Financing activities
Dividends paid (11,471) (10,582) (15,873)
Proceeds of increase in share capital 3 - 16
Purchase of own shares (19) (121) (94)
Net cash flow from financing activities (11,487) (10,703) (15,951)
Net (decrease)/increase in cash and (623) (1,643) 4,342
cash equivalents
Cash and cash equivalents at beginning 22,201 18,063 18,063
of period
Foreign exchange (losses) on cash and (246) (39) (204)
cash equivalents
Cash and cash equivalents at end of 21,332 16,381 22,201
period
Group statement of changes in equity
Share Share Own Capital Translation Capital Retained Total
capital premium shares redemption reserve reserves earnings
£000 £000 £000 £000 £000 £000 £000 £000
Equity at 1 5,905 8,122 (1,778) 8 309 405,334 33,964 451,864
January 2013
Net profit - - - - - 52,609 10,404 63,013
Other
comprehensive
income:
Foreign exchange - - - - (254) - - (254)
Total - - - - (254) 52,609 10,404 62,759
comprehensive
income for the
period
Issue of shares - 3 - - - - - 3
Movement in own - - (19) - - - - (19)
shares
Dividend - - - - - - (11,471) (11,471)
relating to 2011
Total equity at 5,905 8,125 (1,797) 8 55 457,943 32,897 503,136
30 June 2013
Group segmental analysis
Investment trust Independent fiduciary Total
services
30 June 30 June 31 Dec 30 June 30 June 31 Dec 30 June 30 June 31 Dec
2013 2012 2012 2013 2012 2012 2013 2012 2012
£000 £000 £000 £000 £000 £000 £000 £000 £000
Revenue
Segment income 9,037 7,888 14,392 14,751 14,904 29,760 23,788 22,792 44,152
Other income - - 12 21 58 93 21 58 105
Cost of sales - - - (1,590) (1,800) (3,761) (1,590) (1,800) (3,761)
Administration costs (1,218) (993) (1,917) (8,759) (8,321) (16,721) (9,977) (9,314) (18,638)
7,819 6,895 12,487 4,423 4,841 9,371 12,242 11,736 21,858
Interest (net) (1,232) (1,279) (2,534) 37 96 224 (1,195) (1,183) (2,310)
Return, including 6,587 5,616 9,953 4,460 4,937 9,595 11,047 10,553 19,548
profit on ordinary
activities before
taxation
Taxation - - - (643) (876) (1,753) (643) (876) (1,753)
Return, including 6,587 5,616 9,953 3,817 4,061 7,842 10,404 9,677 17,795
profit attributable
to shareholders
Revenue return per 5.60 4.78 8.47 3.24 3.45 6.67 8.84 8.23 15.14
ordinary share
(pence)
Assets 545,371 454,766 491,643 21,767 24,220 24,228 567,138 478,986 515,871
Liabilities (58,480) (55,424) (54,915) (5,522) (8,743) (9,092) (64,002) (64,167) (64,007)
Total net assets 486,891 399,342 436,728 16,245 15,477 15,136 503,136 414,819 451,864
Analysis of the investment portfolio
By geographical location
Valuation Valuation
31 December Costs of Sales Appreciation/ 30 June
2012 Purchases acquisition proceeds (depreciation) 2013
£000 £000 £000 £000 £000 £000 %
United Kingdom 330,297 24,135 (128) (24,009) 37,808 368,103 69.0
North America 31,440 3,092 (4) - 6,114 40,642 7.6
Europe 38,203 2,878 (4) (4,796) 4,517 40,798 7.7
Japan 13,174 - - - 3,917 17,091 3.2
Other Pacific 31,937 - - - 568 32,505 6.1
UK Gilts 34,470 19,384 - (19,500) (410) 33,944 6.4
479,521 49,489 (136) (48,305) 52,514 553,083 100.0
By Sector (excluding cash)
As at As at
30 June 31 December
2013 2012
% %
Oil & gas 9.5 9.6
Basic materials 4.7 4.9
Industrials 23.8 22.8
Consumer goods 10.4 9.9
Health care 8.5 7.5
Consumer services 7.9 6.6
Telecommunications 0.6 1.8
Utilities 3.4 4.3
Financials 12.2 13.1
Technology 2.9 2.4
Pooled equity investments 9.7 9.9
UK Gilts 6.4 7.2
100.0 100.0
Investment portfolio valuation
as at 30 June 2013
UK unless otherwise stated.
£'000 %
Oil & gas
Oil & gas producers
BP 13,202 2.48
Royal Dutch Shell 10,878 2.04
Premier Oil 2,497 0.47
Indus Gas 2,473 0.46
Xcite Energy 1,470 0.28
Providence Resources 1,337 0.25
Total (Fra) 1,332 0.25
33,189 6.23
Oil equipment & services
Cape 5,445 1.02
Gibson Energy (Can) 4,803 0.90
Schlumberger (USA) 3,777 0.71
National Oilwell Varco 2,271 0.43
(USA)
AMEC 1,005 0.19
17,301 3.25
Basic materials
Chemicals
Oxford Catalysts 5,835 1.09
Croda 4,329 0.81
Brenntag (Ger) 1,224 0.23
Linde (Ger) 1,223 0.23
Elementis 735 0.14
13,346 2.50
Forestry & paper
Mondi 3,266 0.61
3,266 0.61
Mining
Rio Tinto 6,037 1.13
BHP Billiton 2,522 0.47
8,559 1.60
Industrials
Construction & materials
Balfour Beatty 3,491 0.65
Accsys Technologies 1,999 0.37
Marshalls 833 0.16
6,323 1.18
Aerospace & defence
Senior 17,757 3.33
Meggitt 7,245 1.36
BAE Systems 6,894 1.29
Rolls Royce 6,798 1.28
Lockheed Martin (USA) 3,216 0.60
41,910 7.86
General industrials
Smith (DS) 8,814 1.65
8,814 1.65
Electronic & electrical
equipment
Morgan Advanced Materials 5,196 0.97
Applied Materials (USA) 4,912 0.92
Spectris 4,775 0.90
TT Electronics 2,197 0.41
XP Power 1,438 0.27
Philips Electronics (Net) 1,115 0.21
Legrand (Fra) 996 0.19
20,629 3.87
Industrial engineering
Hill & Smith 6,686 1.25
Weir Group 6,453 1.21
Cummins (USA) 5,006 0.94
Caterpillar (USA) 2,176 0.42
IMI 1,239 0.23
Renold 1,110 0.21
Severfield-Rowen 392 0.07
23,062 4.33
Industrial transportation
AP Moller-Maersk (Den) 1,179 0.22
Wincanton 302 0.06
Goldenport 235 0.04
1,716 0.32
Support services
Interserve 8,114 1.52
Carillion 3,445 0.65
Babcock 2,755 0.52
Johnson Service 2,731 0.51
Deutsche Post (Ger) 2,379 0.45
SGS (Swi) 1,838 0.34
Sodexo (Fra) 1,613 0.30
Adecco (Swi) 1,137 0.21
Augean 336 0.06
24,348 4.56
Consumer goods
Automobiles & parts
GKN 13,932 2.61
Toyota Motor (Jap) 2,713 0.51
16,645 3.12
Beverages
Diageo 7,142 1.34
Pernod-Ricard (Fra) 1,370 0.26
8,512 1.60
Food producers
Unilever 4,657 0.87
Associated British Foods 3,904 0.73
Nestlé (Swi) 3,440 0.65
12,001 2.25
Household goods & home construction
Bellway 5,711 1.07
Redrow 4,822 0.90
L'Oreal (Fra) 1,731 0.32
Essilor (Fra) 1,571 0.29
13,835 2.58
Tobacco
Imperial Tobacco 3,420 0.64
Swedish Match (Swe) 1,410 0.26
4,830 0.90
Health care
Health care equipment &
services
Becton Dickinson (USA) 4,881 0.92
Smith & Nephew 3,454 0.65
Fresenius (Ger) 3,326 0.63
Fresenius Medical Care 1,812 0.34
(Ger)
13,473 2.54
Pharmaceuticals &
biotechnology
GlaxoSmithKline 12,360 2.32
BTG 7,376 1.38
Pfizer (USA) 2,770 0.52
Novartis (Swi) 2,546 0.48
AstraZeneca 2,335 0.44
Roche (Swi) 2,127 0.40
Shire 2,085 0.39
31,599 5.93
Consumer services
Food & drug retailers
Tesco 2,485 0.47
2,485 0.47
General retailers
Dunelm 8,028 1.51
Findel 1,470 0.28
Inditex (Spa) 1,160 0.22
Topps Tiles 519 0.10
11,177 2.11
Media
Reed Elsevier 5,603 1.05
Pearson 3,220 0.60
Daily Mail & General Trust 2,299 0.43
British Sky Broadcasting 1,980 0.37
Hibu 4 -
13,106 2.45
Travel & leisure
Greene King 4,879 0.92
Carnival 4,580 0.86
Marstons 2,872 0.54
International Consolidated 2,176 0.41
Airlines
Betfair 853 0.16
15,360 2.89
Telecommunications
Mobile telecommunications
Inmarsat 2,443 0.46
Ericsson (Swe) 853 0.16
3,296 0.62
Utilities
Electricity
SSE 4,569 0.86
SSE 5.75% 05/02/14 2,402 0.45
6,971 1.31
Gas water & multiutilities
National Grid 6.125% 15/04/ 5,546 1.04
14
National Grid 4,548 0.85
Centrica 1,260 0.24
11,354 2.13
Financials
Banks
HSBC 10,229 1.92
Barclays 4,176 0.79
14,405 2.71
Nonlife insurance
Amlin 9,619 1.80
Hiscox 6,825 1.28
16,444 3.08
Life insurance / assurance
Prudential 3,222 0.60
Aviva 2,666 0.50
Chesnara 2,492 0.47
Permanent TSB (Ire) 9 -
8,389 1.57
Real estate investments & services
St Modwen Properties 3,619 0.68
3,619 0.68
Real estate investment
trusts
Mucklow (A&J) Group 3,103 0.58
Land Securities 2,845 0.53
5,948 1.11
Financial services
International Personal 5,988 1.12
Finance
IP Group 4,645 0.88
Provident Financial 4,086 0.77
Deutsche Börse (Ger) 1,430 0.27
16,149 3.04
Equity investment
instruments
Henderson Japan Capital 14,378 2.70
Growth
Henderson Asia Pacific 12,052 2.26
Capital Growth
Baillie Gifford Pacific 10,692 2.01
First State Asia Pacific 9,761 1.83
Herald Investment Trust 4,641 0.87
51,524 9.67
Technology
Software & computer
services
Microsoft (USA) 6,830 1.28
Amadeus IT (Spa) 2,137 0.40
Sage 1,940 0.36
SAP (Ger) 1,797 0.34
12,704 2.38
Technology hardware & equipment
Imagination Technologies 2,585 0.48
2,585 0.48
UK Gilts
UK Treasury 2.25% 07/03/14 33,944 6.37
33,944 6.37
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
Christopher Smith
Chairman
25 July 2013
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 2012 have been filed with the Registrar of Companies.
The independent auditors' report on the annual report
and financial statements for 2012 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 117,664,360 (30 June 2012: 117,575,226) (31
December 2012: 117,583,308).
Income: average shares during the period 117,657,023 (30 June 2012:
117,565,430) (31 December 2012: 117,568,771).
Group summary
From its origins in 1889, Law Debenture has diversified to become a group with
a unique range of activities in the financial and professional services
sectors. The group divides into two distinct complementary areas of business.
Investment trust
We are a global investment trust, listed on the London Stock Exchange.
Our portfolio of investments is managed by Henderson Global Investors Limited
under a contract terminable by either side on six months' notice.
Our objective is to achieve long term capital growth in real terms and steadily
increasing income. The aim is to achieve a higher rate of total return than the
FTSE Actuaries All-Share Index through investing in a portfolio diversified
both geographically and by industry.
Independent fiduciary services
We are a leading provider of independent fiduciary services. Our activities are
corporate trusts, treasury and agency solutions, pension trusts, corporate
services (including agent for service of process) whistle blowing services and
corporate governance 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)
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