TIDMLWDB
RNS Number : 4291Q
Law Debenture Corp PLC
26 February 2021
The Law Debenture Corporation p.l.c.
26 February 2021
Strong overall performance with 5.8% increase in full year
dividend
The Law Debenture Corporation p.l.c. ("Law Debenture") today
published its results for the year ended 31 December 2020.
Group Highlights:
-- Share price total return [1] for 2020 of 12.9%, outperforming
the FTSE Actuaries All-Share Index by 22.7%
-- Continued strong performance from the Independent
Professional Services business (IPS) supports dividend growth
-- GBP20m acquisition of UK company secretarial business from
Eversheds Sutherland (International) LLP ("CSS"), which completed
at the end of January 2021 and has not been factored into the
financial statements as at 31 December 2020
-- Continued low ongoing charges (0.55%), compared to the industry average of 1.02% [2]
-- GBP10,000 invested in Law Debenture ten years ago would be
worth GBP27,746 as at 31 December 2020 [3]
Dividend Highlights:
-- 2020 FY dividends increased by 5.8% to 27.5 pence per ordinary share (2019: 26.0p)
-- Dividend yield of 3.8% [4] , Q4 dividend of 8.00 pence per ordinary share
-- Transitioned to quarterly dividends, creating greater
regularity and predictability around dividend payments
Investment Highlights:
-- Net Asset Value (NAV) per share (with debt at par) grew 3.6% [5]
-- Moved to daily NAV publication from the start of August to increase transparency
-- Law Debenture has consistently outperformed its benchmark on
short- and longer-term performance measures
1 year 3 years 5 years 10 years
NAV total return debt at
par(5) 3.6% 15.6% 59.1% 147.8%
NAV total return debt at
fair value(5) 2.0% 13.2% 53.0% 134.7%
Share price total return 12.9% 24.3% 67.3% 174.8%
FTSE Actuaries All-Share
Index(3) (9.8)% (2.7)% 28.5% 71.9%
IPS Highlights:
-- Leading wholly-owned independent provider of professional
services which helps support dividend growth, a key differentiator
to other investment trusts
-- Revenue increase of 8.5% and earnings per share are up 9.5%
on prior period, reflecting consistent growth under new management
team, funding over a third of the increased 2020 full year
dividend
-- Fair value of the IPS business increased by 18.3% in 2020 to
GBP136.0m (2019 increase was 21%) [6]
Longer-Term Record:
-- 132 years of value creation for shareholders
-- 42 years of increasing or maintaining dividends to shareholders
-- 116.5% [7] increase in dividend over ten years
Commenting, Robert Hingley, Chairman, said:
"Law Debenture seeks to combine long-term capital growth and
steadily increasing income. In light of the Covid-19 pandemic, Law
Debenture has delivered a good performance in 2020, demonstrating
the advantages of its unique structure, which allows increased
flexibility in portfolio construction. Following the step change in
dividend in 2019, we are pleased again to propose to increase our
full year dividend at a time of widespread dividend cuts across the
market. This illustrates our continued resilience and strong
revenue reserves.
Our investment portfolio's long-term performance remains well
ahead of its benchmark and our IPS business has now delivered three
years of strong, high single-digit growth, despite some significant
macroeconomic headwinds. Long-term income sustainability is a key
priority and the Group's aim is to continue to deliver gradually
increasing dividend payments in excess of inflation over time."
Commenting, Denis Jackson, Chief Executive Officer, said:
"2020 was another successful year for Law Debenture with a share
price total return of 12.9%, outperforming its benchmark by 22.7%.
On behalf of the management team, I would like to express my
deepest gratitude to everyone for their incredible work through the
pandemic. Both the long and short-term performance of our
investment portfolio remains strong. We have an excellent
investment management team, who the Board is confident is well
placed to continue to position the equity portfolio for future
longer-term growth.
We are encouraged that IPS has delivered on its ambitions, with
a third year of high single digit earnings per share growth,
despite a challenging macroeconomic backdrop. Reflecting these
improved earnings and growth prospects, the valuation of our IPS
business increased by 18.3% in 2020.
We still see opportunities to grow revenue and earnings
significantly over time. IPS has attractive financial
characteristics and we continue to invest in talent and technology
to take advantage of material market share opportunities. We are
proud to welcome the CSS team and view the acquisition as both
strategically and financially compelling with attractive
longer-term revenue synergy opportunities. Ultimately, the
strengthening of IPS will facilitate our aim of producing long-term
capital growth and steadily increasing income for our
shareholders."
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 internationally, 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.
Law Debenture +44 (0)20 7606 5451
Denis Jackson, Chief Executive denis.jackson@lawdeb.com
Officer hester.scotton@lawdeb.com
Hester Scotton, Chief Financial trish.houston@lawdeb.com
Officer
Trish Houston, Chief Operating
Officer +44 (0)20 7353 4200
lawdebenture@tulchangroup.com
Tulchan Communications (Financial
PR)
David Allchurch
Deborah Roney
Laura Marshall
(1) Source: Bloomberg.
(2) Ongoing charges are for the year ended 31 December 2020. Law
Debenture ongoing charges have been calculated based on data held
by Law Debenture. Industry average data was sourced from The
Association of Investment Companies (AIC) industry as at 31
December 2020. No performance related element to the fee.
(3) Calculated on a total return basis assuming dividend
re-investment between 31 December 2010 and 31 December 2020.
(4) Based on a closing share price of 723p as at 24 February
2021.
(5) NAV is calculated in accordance with the AIC methodology,
based on performance data held by Law Debenture including 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.
(6) Increase in annual valuation of IPS business, excluding
change in surplus net assets.
(7) Calculated on total dividend payments in respect of
accounting periods ended 31 December 2010 to 31 December 2020.
ANNUAL FINANCIAL REPORT
YEARED 31 DECEMBER 2020 (AUDITED)
This is an announcement of the Annual Financial Report of The
Law Debenture Corporation p.l.c. as required to be published under
DTR 4 of the UKLA Listing Rules.
The Directors recommend a final dividend of 8.00p per share
making a total for the year of 27.50p. Subject to the approval of
shareholders, the final dividend will be paid on 15 April 2021 to
holders on the register of the record date of 12 March 2021 . The
annual financial report has been prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by
the European Union.
The financial information set out in this Annual Financial
Report does not constitute the Company's statutory accounts for
2019 or 2020. Statutory accounts for the years ended 31 December
2019 and 31 December 2020 have been reported on by the Independent
Auditor. The Independent Auditor's Reports on the Annual Report and
Financial Statements for 2019 and 2020 were unqualified, did not
draw attention to any matters by way of emphasis and did not
contain a statement under 498(2) or 498(3) of the Companies Act
2006.
Statutory accounts for the year ended 31 December 2019 have been
filed with the Registrar of Companies. The statutory accounts for
the year ended 31 December 2020 will be delivered to the Registrar
in due course.
The financial information in this Annual Financial Report has
been prepared using the recognition and measurement principles of
International Accounting Standards, International Financial
Reporting Standards and Interpretations adopted for use in the
European Union (collectively Adopted IFRSs). The accounting
policies adopted in this Annual Financial Report have been
consistently applied to all the years presented and are consistent
with the policies used in the preparation of the statutory accounts
for the year ended 31 December 2020. The principal accounting
policies adopted are unchanged from those used in the preparation
of the statutory accounts for the year ended 31 December 2019.
Financial summary
31 December 31 December
2020 2019
GBP000 GBP000 Change
-------------------------- ----------- ----------- --------
Net assets(1) 787,219 830,139 (5.2)%
Pence Pence
Net Asset Value (NAV) per
share at fair value(1) * 666.15 702.17 (5.1)%
Revenue return per share
Investment portfolio 12.12 22.18 (45.4)%
Independent professional
services 9.35 8.54 +9.5%
Group charges 0.09 (0.04) N/M
Group revenue return per
share 21.56 30.68 (29.7)%
Capital (loss)/return per
share (19.06) 79.27 N/M
Dividends per share 27.50 26.00 +5.8%
Share price 690.00 650.00 +6.2%
%%
Ongoing charges(3) * 0.55 0.48
Gearing(3) 95
Premium/(Discount)* 3.6 (7.4)
-------------------------- ----------- ----------- --------
Performance
1 year 3 years 5 years 10 years
% % % %
-------------------------------- ------ ------- ------- --------
NAV total return(2*) (with debt
at par) 3.6 15.6 59.1 147.8
NAV total return(2*) (with debt
at fair value) 2.0 13.2 53.0 134.7
FTSE Actuaries All-Share Index
Total Return(4) (9.8) (2.7) 28.5 71.9
Share price total return(4*) 12.9 24.3 67.3 174.8
Change in Retail Price Index(4) 0.9 6.4 13.0 29.4
-------------------------------- ------ ------- ------- --------
* Items marked "*" are considered to be alternative performance
measures and are described in more detail in the full annual report
and accounts.
The 2019 gearing has been restated to reflect the revised
approach to the calculation. The calculation is aligned with AIC
guidance and presents Net Debtors as a percentages of Shareholders'
Funds.
(1) Please refer below for calculation of net asset value.
(2) NAV is calculated in accordance with the AIC methodology,
based on performance data held by Law Debenture including 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.
(3) 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. Gearing is described in the
strategic report below and in our alternative performance measures
in the full annual report. and accounts and includes a restatement
of 2019.
(4) Source: Refinitiv Datastream
Robert Laing's retirement
Robert Laing has informed the Board of his intention to retire
as a Non-Executive Director of the Company at the conclusion of its
Annual General Meeting, scheduled to take place on 7 April 2021.
The Board would like to thank Robert for his significant
contribution over the years and wish him every continued success
for the future.
Claire Finn will succeed Robert Laing as Chair of the
Remuneration Committee, with effect from 7 April 2021.
Chairman's statement
In what has been a challenging year, Law Debenture has shown
good resilience and I am delighted to introduce our 2020 annual
report.
Performance
2020 was a very difficult year. The impact of Covid-19 on our
lives has been substantial and has led to significant economic
volatility. Although the recent approval and rollout of new
vaccines usher in hope, it is difficult to assess how long this
period of instability will last.
However, the strength and capabilities of your Company have been
evident in these volatile times. During the period, our active
investment managers have demonstrated the value in their
stock-picking strategy. Despite the current backdrop, Law Debenture
saw a share price total return of 12.9% in 2020, outperforming the
FTSE Actuaries All-Share Index by 22.7%, which declined by 9.8%.
Over the same period, your Company's net asset value (with debt at
par) grew 3.6%(1) .
We are proud of this achievement and our ability to deliver on
our aim of producing long-term capital growth and steadily
increasing income for our shareholders.
The Board remains strongly focused on longer-term performance.
Over the three-year period to 31 December 2020, the NAV per share
(with debt at par) total return was up 15.6%, which compares
favourably with the 2.7% total return of the FTSE All-Share Index
and, over ten years, your Company saw a NAV per share total return
of 147.8%, outstripping the 71.9% total return for the FTSE
All-Share Index.
We are continuing to closely monitor and actively manage the
impact of Covid-19 on our portfolio and clients. We are also taking
the necessary precautions to protect both our employees and the
communities in which we operate.
Dividend
Law Debenture has a proud history of maintaining or increasing
its dividend payments for 42 years.
The Covid-19 crisis has highlighted the unique benefits that Law
Debenture's structure offers. The severe turbulence across global
markets in 2020 caused a large proportion of listed companies to
suspend or cut their dividends in order to protect their businesses
over the long-term. The stable income provided by our IPS business
means that we are not as dependent as many on the payouts from our
underlying investments, illustrating the trust's relative
resilience in a downturn. The IPS business has funded over a third
of our dividends to shareholders over the past eleven years. It
continues to demonstrate a good performance at a time of
significant market instability.
Furthermore, as with all investment trusts, we have the ability
to hold back a portion of our income received each year. These
revenue reserves help us to maintain or continue increasing our
dividends in times of economic distress. At the start of 2020, we
had one of the strongest reserves positions within the UK Equity
Income sector with a Group retained earnings of GBP62.5m(2) .
Understandably, having regular, reliable income is now more
important than ever for many of our shareholders. We listened to
feedback from our investors and in July, transitioned to a
quarterly dividend cycle, providing greater regularity around
dividend payments.
Subject to your approval, we propose paying a final dividend of
8 pence per ordinary share. The dividend will be paid on 15 April
2021 to holders on the register on the record date of 12 March
2021. This will provide shareholders with a total dividend of 27.5
pence per share for 2020 and represents a dividend yield of 3.8%
based on our share price of 723p pence on 24 February 2021.
As we have done this year, we will continue to listen and
respond to feedback, to deliver value for our shareholders.
Our investment portfolio
Our experienced investment management team, led by James
Henderson and Laura Foll, has left us well-positioned for future
longer-term growth. The investment managers' review below contains
a more detailed explanation from James and Laura on the portfolio's
performance.
Through these difficult times, your Board continues to support
the investment managers' strategy of investing in high-quality
companies at attractive valuations, which offer good total return
opportunities. With markets in their current state, the advantages
of Law Debenture's structure have been evident. The cash that we
generate from our 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.
IPS business
Within the IPS business, our diverse revenue streams have shown
resilience in these difficult macroeconomic conditions.
During the period, we continued to deliver growth. Over the
course of 2020, IPS grew its revenues by 8.5% while earnings per
share grew by 9.5% compared to 2019. This is built on two previous
years of good performance and, over the last three years, revenues
have grown by 27.1% and earnings per share by 29.7% in total.
We maintained operational continuity throughout the Covid-19
pandemic and did not furlough any employees, implement any pay cuts
or make any redundancies related to Covid-19.
In December, we were pleased to announce the acquisition of a
company secretarial business line (CSS) from Konexo UK, a division
of Eversheds Sutherland (International) LLP, for GBP20 million. The
acquisition was an important step forward in supporting Law
Debenture's strategy. The expansion of our existing company
secretarial offering will enable us to grow in an attractive core
business and meet increasing customer needs in a specialised
market.
The Board believes that the IPS business continues to have good
prospects for further organic growth and we remain alert to
opportunities presented by acquisitions which meet Law Debenture's
strict financial and strategic criteria.
Environmental, Social and Governance (ESG) considerations
Robust governance, transparency and accountability are embedded
in our corporate values. Within our IPS business, utilities'
consumption and business travel are critical aspects of our
environmental and carbon footprint. In 2020, we were pleased to
move into a new 'green' office and adopt paperless ways of working
and we look forward to increasing our focus on ESG in 2021. The
Board will be conducting a full internal review on ESG and we plan
to monitor our emissions and evaluate carbon reduction targets,
step up employee engagement and ensure individual voices continue
to be heard. Many of our IPS activities constitute governance
services and we strive to maximise the potential of all our
colleagues and partners.
This year there were several new appointments within our senior
leadership, as covered later in this report. I am proud that we
have strong female representation across our management team. We
are working to ensure that ethnic diversity is appropriately
represented within our organisation, but we acknowledge that there
is more work to do. We are committed to progressing this further in
2021.
Our investment managers have an ESG policy of discussing any
material issues directly with their investee companies and
monitoring for improvement. They are not afraid to exit positions
where management fail to deliver expected improvements. In
addition, James and Laura are always looking for companies that are
actively seeking to address ESG issues. Holdings exposed to the
need to decarbonise the global economy have performed extremely
well during the year, including Ceres Power and ITM Power. ESG
issues are considered both directly by James and Laura, and also by
the experienced responsible investing team at Janus Henderson.
While they do have quantitative metrics on ESG available for the
portfolio, they are not at present explicitly screening companies
out on ESG ratings as the data quality is sometimes unreliable.
This will be kept under review.
The Board
I would like to thank our CEO, Denis Jackson, for his tireless
efforts during 2020, particularly in relation to the acquisition of
the CSS business and delivering another set of strong results for
your Company. The Board worked closely with our CEO to restructure
our Executive Leadership team. We were delighted to appoint Trish
Houston as our new COO and welcomed her as an Executive Director on
the Board on 2 September. She is a chartered accountant with almost
two decades of experience in financial services. Her in-depth
sector knowledge will be invaluable as we continue to make progress
against our stated growth strategy.
Katie Thorpe stood down as CFO in October and was succeeded by
Hester Scotton, who joined Law Debenture in 2019 as Head of
Internal Controls and Group Money Laundering and Reporting Officer.
The management transition has gone well, with both Hester and Trish
playing integral roles in our acquisition of CSS from Konexo UK. I
look forward to working with them both as we look to continue our
growth trajectory.
The Executive Leadership team was further strengthened with the
promotion of Kelly Stobbs to General Counsel.
After nine years on the Board, Robert Laing will be stepping
down as non-executive director and Chairman of the Remuneration
Committee. We would like to thank him for his significant
contribution to the Company over the years and wish him all the
best in the future.
Report and accounts
Every year we reflect on the format and disclosure of the
reports and accounts, striving to improve how we communicate with
shareholders. For 2020 you will notice we have presented additional
disclosure within our risk management section and simplified our
presentation of the remuneration report. We cannot ignore the
impact of Covid-19 and have set out in full within the Strategic
Report how we have responded to the pandemic to protect our key
stakeholders. We will continue to listen to shareholders and
analysts, reflecting on the areas they find important and evolving
our reporting to make sure we have the appropriate level of
transparency. We continue to develop an integrated ESG narrative
and see this as the start of a journey and will be looking to
continue to evolve our reporting into 2021 and beyond.
Looking forward
The Board is confident in the expertise of our investment
managers and their strategy of investing in high-quality companies
with strong competitive characteristics. Where the current
valuation does not reflect the long-term prospects, these companies
should continue to deliver attractive returns to shareholders.
The prospects of the IPS businesses remain positive due to their
strong market positions and good reputation, supported by strong
governance and regulatory drivers in the markets in which they
operate.
Overall, the Board is confident that your Company is positioned
to perform well in the long-term and our unique structure is well
placed to serve shareholders searching for a reliable and growing
income stream.
In closing, we are grateful to our people for their tremendous
work and efforts in delivering a good set of results in 2020 and
for their ongoing dedication to our business.
Robert Hingley
Chairman
25 February 2021
(1) NAV is calculated in accordance with the AIC methodology,
based on performance data held by Law Debenture including 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.
(2) Investec Securities analysis from 30 March 2020, based on
Group Revenue Return, including professional services fees.
Calculated on an annualised basis on dividend payments in respect
of accounting years between 1 January 2011 and 31 December 2020.
Group retained earnings were GBP62.5m as at 1 January 2020.
Chief Executive Officer's review
Introduction
2020 was a year of significant turbulence and uncertainty, which
saw companies around the world being forced to adapt quickly and
nimbly to a continually changing environment. For the UK, the
macroeconomic uncertainty caused by Covid-19, combined with an
ongoing lack of clarity on its future relationship with the EU, our
largest export market, saw the fastest contraction in economic
activity of modern times.
However, our generally robust performance through the year
reflects well on our ability to withstand major operational and
market challenges. It is with great pride that I can say I now feel
more optimistic than ever about the longer-term growth trajectory
of Law Debenture, the strength of our business model and quality of
our investment managers, James Henderson and Laura Foll of Janus
Henderson Investors. As a UK Equity Income Trust, this Company
works to ensure shareholders can depend on us for regular, reliable
income. We aim to gradually increase income, by increasing dividend
payments in excess of inflation over time. 2020 was a year which
showcased how the unique combination of our equity portfolio and
leading global professional services business can drive value for
our stakeholders.
The Board at Law Debenture is focused on delivering for
stakeholders over the longer-term and we are proud to have
delivered a 117% increase in dividend over the last ten years with
42 years of increasing or maintaining dividends to shareholders.
This is all supported by the diversified nature of IPS revenues,
which funded around 35% of dividends for the trust over the
preceding 10 years.
At the AGM on 7 April 2020 when talking to the potential impact
of lockdown on the IPS business we stated that "we would get a
bloody nose, but overall the diversified mix of revenue streams
would serve us well". Almost one year on, that still feels like an
appropriate assessment. IPS business net revenues for the full year
were up 8.5% at GBP34.5m (2019: GBP31.8m) and earnings per share up
by 9.5% to 9.35p (2019: 8.54p). At the start of 2019 we committed
to shareholders that we would seek to grow our IPS business by mid
to high single digits. Given everything that 2020 threw at us, we
are proud to have been able to deliver growth within this targeted
range.
Our unique proposition as an investment trust is that the IPS
business allows James and Laura increased flexibility in portfolio
construction. This was highlighted in 2020. The combination of our
strong reserves position and the resilience of the IPS revenues
allowed our investment managers to maintain or increase exposures
to great companies whose dividends are challenged in the
short-term. Moreover, the strength of our diversified income
streams allowed us to invest into some emerging companies with
excellent long-term growth prospects who will not be paying
dividends for many years.
We have also invested in our central leadership team and
functions to provide greater support to the IPS business. As part
of this, I have built out our Executive Leadership team. I am
delighted to welcome Trish Houston as COO. During the year, Hester
Scotton was promoted to CFO and Kelly Stobbs was promoted to
General Counsel.
Net Revenue Net Revenue Net Revenue Growth
2018 2019 2020 2019/2020
DIVISION GBP000 GBP000 GBP000 %
------------------- ----------- ----------- ----------- ----------
Pensions 9,488 10,598 11,479 8.3%
Corporate trust 8,362 9,024 10,788 19.5%
Corporate services 11,734 12,167 12,226 0.5%
Total 29,584 31,789 34,493 8.5%
Taking each business in turn:
Corporate trust
Law Debenture was founded 132 years ago to be a bond trustee.
Our role as a bond trustee is to act, as a conduit, between the
issuer of a bond and the bondholders themselves. Typical duties for
us include being a point of contact between the issuer and its
bondholders and receiving certain financial, security and covenant
information from the issuer, for which we are usually paid an
inflation-linked annual fee throughout the lifetime of the bond. We
started 2020 with approximately GBP5m of annual revenues
contractually secured.
We also earn revenue from 'post issuance work', such as
documentation changes, which can arise over the life of the bond.
The revenue and risk profile can change substantially when a bond
issuer becomes stressed or a bond issue itself goes into default.
In these circumstances, the trustee may be required to perform a
material amount of extra work in order to optimise returns for all
bondholders. Such default scenarios may involve the business
incurring costs and can take many years to play out. That said,
given a favourable result, this may lead to incremental revenues
for the business. We do not wish any operating difficulties on any
of the issuers in our portfolio. Nonetheless, the
countercyclicality of post issuance work with the economic cycle
has been demonstrated time and again throughout our history.
Our corporate trust team are considered and careful in taking on
new business. This disciplined approach has produced consistent
profits for over a century. Our shareholders should understand that
short-term swings in our revenue (and in turn our profit) may
result from adopting a prudent approach to provisioning, as
specific long-term default situations work their way through to a
conclusion.
Market dynamics
Following the challenging operating environment in 2019,
remarkably the onset of Covid-19 and the actions of policy makers
provided a favourable operating environment for this business.
Primary market activity recovered well in 2020 and we were able
to capture our fair share of roles on new bond issues. Our main
market, Europe, had a particularly challenging 2019 with investment
banking revenues down 14%, but recovered well in 2020 with debt
issuance revenues up 21%.
Post issuance work increased materially as many businesses
around the world saw their revenues severely challenged, or in some
cases even evaporate completely, as economies went into 'lockdown'.
While we have seen some bankruptcies, policymakers have provided a
number of support mechanisms that have enabled businesses to stay
afloat in some form or another. Unsurprisingly, this has led to a
plethora of covenant waivers and restructuring type work. The
longer-term position for many challenged companies and sectors
remains unclear as the global economy works its way through this
crisis.
Highlights
We took on a significant number of new appointments in 2020. We
are proud to have been appointed by many of the UK's leading
companies including BP, Legal & General, British Telecom and
Vodafone for various roles.
Eliot Solarz, Head of Corporate Trust, continues to invest in
his team and build on our reputation for technical knowledge, speed
and innovation. We will always play to our strengths and are able
to compete highly effectively against global banks for more complex
products.
The growth of our escrow offering in 2020 was particularly
pleasing. Many of our investors who have purchased a home may be
familiar with the concept of an escrow. In the case of a house
purchase often a solicitor receives execution documentation from
the various parties involved (e.g. buyer/seller/bank/title company
etc.) and the associated monies. Having satisfied themselves that
all is in order, the solicitor then distributes the proceeds and
documentation accordingly to the various parties. Eliot's team does
not perform escrows for house purchases, but the principles that
underpins his team's work in this area are in essence the same.
The demand for rapid responses to Covid-19 exposed many
procurement processes as being cumbersome and overly engineered.
Happily, our escrow offering, was able to move fast and respond to
rapidly evolving demand. Particularly pleasing was the role that we
played on several PPE related escrows as various NHS trusts looked
to urgently source supply from around the world. In addition, we
upped our profile on escrows related to M&A, pensions,
litigation and commercial real estate transactions. Our escrow
balances ended the year over five times higher than at the start of
2020.
In 1910, we were trustee to the Kansai Railway in Japan and we
continue to support long dated infrastructure financing. In 2020,
we were appointed as the security trustee to the IFC backed Almaty
Ring Road in Kazakhstan.
We continue to build on our expertise to support financings in
renewable energy, as demonstrated by the case study on Falck
Renewables found in the full annual report and accounts. In
addition, as the year ended, we signed as Security Agent for the
IFC/ADB backed Nur Novi solar power project in Uzbekistan.
As we mentioned in last year's review, social housing is an
important and growing part of our book of business. We are thrilled
to have been appointed as bond and security trustee on the GBP2.5
billion note programme launched by London and Quadrant during the
year.
Outlook for our corporate trust business
As we have mentioned above, certain aspects of our corporate
trust business are strongly countercyclical. Recent history tells
us that, as the world economy recovered from the global financial
crisis, our post issuance workload should remain at elevated levels
for some time to come.
Levels of primary market activity are very difficult to predict.
The see-saw of the past two years is clear evidence of this, and we
have no crystal ball when looking at 2021. That said, we have a
broad suite of products, deep and long standing relationships with
clients, law firms and financial institutions, which give us
confidence that we should continue to build on the gains made in
our corporate trust business over the past three years.
Pensions
Our pensions business completed its fourth successive year of
positive growth with revenues up by 8.3% for the year. We continue
to invest heavily in this business.
Initially founded over 50 years ago as a pension trustee
business, this remains very much at the core of our offering. More
recently, we have expanded our governance offerings under our
Pegasus brand to provide a much broader range of services from
pensions secretarial through to fully outsourced pensions scheme
management. We remain the largest and longest established
independent professional pension trustee business in the UK.
Market dynamics
In the short-term, the stresses placed on the world economy by
Covid-19 have further highlighted the need for best in class
pensions governance. At precisely the same time that scheme assets
and liabilities were experiencing extreme volatility, sponsoring
employer covenants came under significant strain as operating
conditions for many businesses were severely disrupted. With the
need to rapidly move the administrative monthly payment of pensions
to a robust and secure remote operating environment, the necessity
for top quality scheme oversight was evident. That said, following
a burst of activity in March and April in particular, the move to
virtual meetings has resulted in shorter meetings which reduced our
time based charges. We expect that this will reverse somewhat as
Government remote working requirements begin to fade away.
Over the medium-term, the Pensions Regulator's drive towards a
smaller number of better governed defined benefit schemes continues
to build momentum and plays to our strengths. Consolidation
provides an opportunity for smaller schemes to enhance their
governance. A larger asset base may well give a scheme the
financial resources to employ a professional trustee. Put simply,
we act for under 5% of the 5,500 defined benefit schemes in the UK
so there is plenty of room to grow our market share in what we
believe is a growing market.
While the negative effects of Covid-19 will hopefully only be
temporary, the Pensions Regulator backed the expansion of
stewardship definitions and the advancement of ESG investment
agendas are looking increasingly permanent. Best in class standards
are rapidly evolving. There is significant opportunity for us to
help our clients stay ahead of the game as the investing world
addresses the impact on the environment and on society in
general.
Highlights
2020 was the year that our outsourced pensions executive
service, Pegasus, came of age. Pegasus continued to see strong
revenue growth in 2020 and we are confident that Pegasus will
continue to increase our share of total pensions revenue. We have
widely received positive feedback from our quickly growing client
base. What has been particularly pleasing is our ability to execute
relatively small appointments well, and nurture these into much
broader relationships. Chief financial officers use tough operating
conditions to focus capital allocation on activities that
differentiate their specific company's offering while
simultaneously outsourcing essential but non-core functions, such
as Pensions Administration, where our Pegasus business can provide
support to oversee such changes. Our Pegasus business has also
fared well in the 'temporary staff' market where, for example,
opportunities to provide maternity cover have added further strings
to our bow. Our sole trustee solution continues to build momentum
and resonates well with buyers looking for a 'one stop shop'
approach to their governance needs.
On the trustee side we did much to enhance our reputation for
innovation. We also executed well and added to our expertise in
longevity swaps, buy-ins and buy-outs, such as the work we did for
Baker Hughes (UK) and the British Bankers' Association.
Increasingly too, we have much to offer clients as they navigate
the tricky pensions waters that lap against M&A activity, such
as the work we have been appointed to undertake for Cobham.
Finally, and without wishing ill on any firm, our experience of
dealing with distressed and restructuring type situations, in both
the public and private markets, continues to grow
significantly.
Outlook for our pensions business
A broad and stable set of foundations underpins the long-term
growth potential of our pensions business. An aging population, a
growing middle class, a relatively recent auto-enrolment regime and
strong moves by regulators to professionalise the governance of
schemes creates a sound platform on which to build. Our team is
well placed to enable us to solve our clients' problems. Our
reputation has been hard won over five decades. We will continue to
invest in our people and nurture the next generation of problem
solvers in this growing market.
I would like to thank Michael Chatterton, Head of Pensions, and
Mark Ashworth, Chairman of Pensions, for encouraging their team to
continuously produce advantageous outcomes for our clients.
Corporate services
Overall the diversification within the IPS revenue streams
served us well in 2020, but our corporate services businesses were
adversely affected by the pandemic. This revenue stream consists of
three components: our company secretarial and accounting offering,
the Safecall whistleblowing business and our service of process
business. Year on year revenues of GBP12.2m were broadly flat.
Market dynamics
Company secretarial and accounting
The growing market for company secretarial offerings is
underpinned by three main factors. Firstly, ever increasing
reporting demands on businesses from governments and regulatory
authorities. Secondly, increased desire by corporations to focus
their efforts on their particular unique value proposition and
outsource critical but non-differentiating aspects of their
business. Thirdly, the increasing speed of corporate lifecycles and
ever-changing market dynamics hand an advantage to those
organisations that can access new markets quickly and simply.
Expertise combined with ease of use will remain at the core of our
ability to effectively compete in this market.
Highlights
Company secretarial and accounting
We have been in this business in a modest way for well over
twenty years and we understand it well. Our existing business, led
by Mark Filer, grew soundly off a small base in 2020. Particularly
noteworthy were roles on residential mortgage backed
securitisations (RMBS), that we were appointed to for LendInvest,
an increasingly disruptive property lending company in the UK. We
further deepened our relationship with Atom Bank, a fast growing UK
challenger bank, where we acted on their new RMBS issue. We were
delighted to take on a significant piece of work with one of the
largest pension schemes in the UK, the Universities Superannuation
Scheme, to help them service an equity release funding platform. We
also took on our largest ever company secretarial appointment to
date on the back of a complex restructuring of a significant real
estate portfolio.
On 29 January, 2021 we completed the acquisition of the company
secretarial business of Konexo UK, a division of Eversheds
Sutherland (International) LLP. This significantly expands our
footprint in this exciting market.
We believe that we can increase our market share in this growing
market, and we are confident that there are significant avenues for
us to explore across our c.450 new clients with respect to other
Law Debenture offerings. The acquired business is headed by Andy
Casey. We have very much enjoyed welcoming our new colleagues to
Law Debenture and look forward to working closely with them in the
future.
Market dynamics
Whistleblowing
Regulatory frameworks continue to be established. The UK
parliament had its first reading of The Office of the Whistleblower
Bill in 2020 and in 2021 the European Whistleblowing Directive (the
Directive) comes into force. The Directive requires that all
European companies with over 50 employees and EUR10million in
turnover have a whistleblowing solution in place. ISO37002 for
Whistleblowing Management Systems is expected to be established in
2021. Despite the fact that this is a relatively new market,
private equity investors have been quick to see its growth
potential and have been consistently buying up operators and
consolidating businesses. While many competitors have followed a
lowest cost proposition based around call centre staff following
scripts, our offering is based on highly trained employees who
follow a clearly defined process. Issues raised by employees were
at record levels as they used our service to flag concerns around
working conditions in particular.
Highlights
Whistleblowing
We have received much unsolicited praise for our work during the
year. Boards, General Counsels, Heads of Human Resources, Heads of
Risk and Compliance and employers have seen real value in the
quality and timeliness of our work. However, the period from March
until June 2020 was dominated by a 'no new projects' mentality as
potential buyers adjusted to the uncertainties caused by Covid-19.
Sales picked up as the year progressed and we ended with roughly
the same number and same annual contract values of new wins as the
prior year. We ended the year with revenues up approximately
11.3%.
High quality clients that we were thrilled to onboard during the
year included Brompton Cycles, Channel 4 (see the case study found
in the full annual report and accounts), Co-op Food, Morgan Sindall
and Wolseley (renamed Ferguson).
After 22 years at the helm Graham Long, who founded this
business along with his late father Alan, will step back from the
day-to-day running of this business during 2021. Safecall has been
an amazing success story as Graham has taken this from just an idea
to a market leading whistleblowing business that helps employees
from well over 500 companies all over the world. As we look to
accelerate our growth and adapt the use of technology to support
this business, Graham felt that the next chapters should be written
with the help of a fresh perspective. At this time, our search for
a new Managing Director has just started and Graham will remain
fully engaged to ensure a smooth transition. Our thanks to Graham,
but not farewell just yet, as he will continue to be Non-Executive
Chairman of the Safecall Board.
Service of process
Our service of process business, headed up by Anne Hills, is the
highest volume transactional business with the least recurring
contractual revenues of all the IPS businesses. It is highly
correlated to the global economic cycle. Contractions in the global
economy mean that fewer commercial transactions are completed,
which in turn reduces the demand for a service process agent to
complete documentation. In 2020, we experienced our toughest year
since the global financial crisis.
Our history over many economic cycles in this area gives us
confidence that as the world economy recovers, so too will our
revenues. Our referral network has been nurtured over many decades
and is global. In the meantime, we continue to invest in enhancing
our use of technology to create a seamless user experience for our
clients in this high volume business.
Outlook for our corporate services business
We believe that the governance services businesses that combine
to make up our corporate services offering all operate in markets
that have sound long-term growth prospects. They are, after all,
elements that make up the "G" in ESG. However, 2020 reminds us that
even the most robust long-term businesses are not immune from
unexpected short-term challenges. We have held our nerve and
increased our investment in these business at a time when many
competitors could simply not afford to do so, with the aim of
ensuring we can meet the needs of our customers simply and to the
highest of standards.
Technology
If 'Covid' was the word of the year for 2020 then 'Zoom' must be
a close second. If we could have received a pound for each time we
said "you're on mute", we would have all done rather well. Surely
one of the largest gains that the global economy will benefit from,
as we emerge from the Covid-19 crisis, is the crash course in
technology that we all received as we transitioned to fully remote
working in March 2020. It was the digital era's equivalent of a
rapid mass literacy program.
I am delighted to report that our own technology platform was up
to the challenge. Having joined us in December 2018 our Chief
Technology Officer (CTO), David Williams, was front and centre in
ensuring that, after 131 years of being on site, our business was
able to seamlessly transition to a virtual existence. Under David's
leadership, our excellent and growing technology team has
transitioned much of our outdated hosted infrastructure to
cloud-based services. These changes bring an increased scale to our
operations and enhance our controls and security.
We are increasingly agile users of third party software
applications to support our various businesses. We have also
invested significantly in customising platforms to both simplify
and improve our clients' user experience.
This past year saw the launch of a number of initiatives for our
Safecall business. Potential clients can now purchase our Safecall
whistleblowing services online. In addition, we have a suite of
e-learning modules that clients can roll out to all staff that
covers everything from the basics through to training for managers
in how to appropriately handle whistleblowing cases. We rapidly
shifted classroom based training to online to meet client demand,
hosting 15 such events in the second half of 2020.
These gains are hard earned, but we must quicken our pace of
change. As we start 2021, we are determined to further enhance our
operational efficiency and resilience, and to creatively evolve our
products and services. We expanded our IT team in 2020 and will do
so again in 2021. Increasingly, we are using technology to
interface with our clients and our future success will depend on
our ability to satisfy their rapidly accelerating demands.
Property
2020 was certainly an interesting year for the lease on our Head
Office to expire. After plenty of searching we settled on a new
lease for premises at 100 Bishopsgate, EC2N 4AG. Despite the
challenges of 2020, this move was successfully completed during the
year.
The new building has excellent transport links as it is situated
across the street from Liverpool Street station. Importantly, the
building has been designed to limit its impact on the environment,
as shown on the diagram in the full annual report and accounts.
An unintended consequence of the eleven months since lockdown
last March has been a most thorough test of our remote working
environment. It is clear we are able to work from home. Some staff
felt that there were productivity gains when the need arose to
avoid distractions and spend an extended period to complete a
complex piece of client work. However, it is also clear that to
work optimally we must retain a modern fit for purpose office
environment. We are collectively more efficient and creative. We
benefit from collaboration and we have more fun.
In 2021, when Government guidance encourages a return to the
workplace, we plan to allow employees to work up to two days per
week from home with their manager's approval. This allows our staff
to retain flexibility and keep the gains of periodic remote
working, while ensuring that for the majority of our time we are in
a communal environment where we are most effective.
Given our change in work patterns, our shift of much of our IT
infrastructure to cloud-based services, and the huge digitalisation
initiative, we were able to reduce our physical footprint by
approximately one third.
Like a house move, an office move provides a wonderful
opportunity to throw things away. In common with many professional
services firms we had paper everywhere. It was a huge one-off
project but we were able to digitalise many decades worth of
materials. This makes retrieval easier, reduces demand for physical
storage space and reduces our costs.
As part of this process, we uncovered many items which showcased
our rich history. These included a glorious 999 year lease on a
property complete with wax seal signed six weeks before the Battle
of Waterloo. Sadly the lease was not ours, rather it belonged to a
client.
Having moved in during early December, we look forward to
welcoming our staff and our clients to our new space as 2021
unfolds.
Prospects
Although it is impossible to predict when global economies and
our everyday lives will return to normal post the turmoil that
Covid-19 has brought, I remain optimistic in our longer-term
outlook. Your Company is resilient and prospects remain bright with
a strong and dedicated team.
We closed the year in a solid position, despite the economic
turmoil. Your Company continued to execute against its stated
strategy of growing the IPS business. We acquired the company
secretarial business of Konexo UK, taking an important step forward
to cement our position in a growing and attractive sector. This
strengthens our IPS business and its longer-term earnings outlook.
We look forward to continuing to grow and develop the IPS business
and build greater market share by seeking to further capitalise on
the significant market opportunities available through both organic
investment and disciplined acquisitions, where appropriate.
Over the last three years we have shown an IPS compound annual
growth rate (CAGR) of 8.3% and 9.1% respectively for revenue and
earnings per share. There have been ups and downs by individual
area but this correlates well with our mid to high single digit
medium-term growth ambition.
It is in challenging times like these when good judgement and
extensive knowledge is critical to a successful investment strategy
and I am grateful that Law Debenture has been able to benefit from
both James's and Laura's expertise and experience. I am confident
that their focus on selecting strong business models and attractive
valuation opportunities, coupled with a deep understanding of
companies and industries, will enable them to continue to position
the equity portfolio for future longer-term growth and
outperformance.
On behalf of the Board, I would like to thank our shareholders
for their continued support and confidence in our abilities during
a particularly tumultuous time. At Law Debenture, we greatly value
our culture and close partnership with clients. I would also like
to express my deepest thanks to our employees; their commitment has
shone through. I look forward to keeping you updated on the Group's
future operational and strategic achievements.
Denis Jackson
Chief Executive Officer
25 February 2021
Investment manager's review
The equity portfolio
In a wholly unpredictable year, diversity within the investment
portfolio was particularly important. This portfolio benefitted
from its aim to be a 'one stop shop' for investors, by holding
equities in a deliberately diverse collection of well-managed,
market leading companies. While the majority of the portfolio (82%)
was invested in the UK at year end, much of underlying revenues
from the portfolio were derived from overseas. In addition to
geographic diversity, the long list of holdings, 137 at year end,
alongside the broad range of end market operations, meant that the
portfolio held enough beneficiaries from the current environment to
show of growth 3.6% in absolute terms during the year, while the
FTSE All-Share benchmark fell 9.8%. We will go on to discuss the
largest contributors to performance in greater detail, but the need
to decarbonise the global economy and the shift of much of consumer
spending to online were common themes among the best
performers.
By the calendar year end we were roughly neutral net investors
within the portfolio. However, during the course of the year we
invested heavily in the spring and, by the end of March, had
invested GBP36.8m (net). This net investment was then gradually
reduced as valuations rose, particularly in the final month of the
year. Geographically, sales were concentrated in North America,
where on a net basis we sold GBP30.5m during the year, while
purchases were concentrated in the UK, where on a net basis we
purchased GBP24.8m. This geographic difference was not driven by a
macroeconomic view. The US stocks sold during the year, such as
Microsoft, had on average performed well and were trading on high
valuations versus history, while we were finding a number of
attractive valuation opportunities in the UK.
Our investment strategy
We take a bottom-up approach, spending a great deal of time with
the management teams of our portfolio companies, conducting
detailed analysis of the strengths, weaknesses and growth prospects
of those companies into which we invest your money. Were there to
be a common theme amongst the diverse portfolio, it would be that
the majority of companies held are market leaders in the product or
service they are providing. This market leadership could be in the
UK or on a global scale; it could be a small niche market such as
UK paving stones (Marshalls) or a large global market such as
oncology drugs (Bristol-Myers Squibb). What we are looking for is
companies with excellent products or services and with experienced
management teams that can help navigate different market
environments.
We are patient with our positions and invest for the long-term.
We build up positions gradually. Having taken the decision to
invest in a stock, we typically begin by investing around 30bps of
overall net asset value, and then add to this over time, depending
upon the risk profile of an individual stock.
Our long list of stocks allows us to moderate our position size
where we perceive the investment case is higher risk than may be
the case elsewhere in the portfolio. This means that we take a
risk-based approach to our position sizing, while ensuring that, if
we get something right, the sizing is sufficient to influence the
portfolio performance as a whole. Our patience keeps our portfolio
turnover low, reducing the drag of dealing costs on returns to our
investors. That patience has rewarded our shareholders; over 10
years, the portfolio has outperformed the benchmark index by 69%
(valuing debt at par).
ESG considerations in our investment strategy
Responsible investing, incorporating ESG, has always been an
integral feature of our process as we are long-term investors.
Therefore any material ESG issues are also material to the
investment case. These issues are of growing prominence to both
investors and companies and whilst they have always been an
implicit part of the investment process, we are now explicitly both
monitoring internally and discussing with company management teams
any particular issues of concern. We have decided not to explicitly
exclude any sectors, partly because the data quality on the more
difficult to measure environmental and social area is not robust,
and partly because, in our view, it is better to engage with
companies to encourage better practices rather than to sell the
shares. In addition to monitoring the risks associated with ESG
issues, we also aim to invest in companies that are seeking
positively to address these challenges, such as the need to
decarbonise the economy. One such area is hydrogen fuel cells, and
portfolio performance this year has benefitted from exposure to
this area.
1 year 3 years 5 years 10 years
% % % %
------------------------------- ------ ------- ------- --------
NAV total return (with debt at
par)(1) 3.6 15.6 59.1 147.8
NAV total return (with debt at
fair value)(1) 2.0 13.2 53.0 134.7
FTSE Actuaries All-Share Index
total return(2) (9.8) (2.7) 28.5 71.9
(1) NAV is calculated in accordance with AIC methodology, based
on performance data held by Law Debenture including fair value of
IPS business. NAV total return with debt at par excludes the fair
value of long-term borrowings, where NAV total return with debt at
fair value includes the fair value adjustment.
(2) Source: Refinitiv Datastream, all references to 'FTSE
All-Share' and 'benchmark' in this review refer to the FTSE
Actuaries All-Share Index total return.
Overview of 2020
The lessons the authorities learnt in the financial crisis of
2008/9 proved invaluable in dealing with the crisis brought about
by Covid-19. Co-ordinated quantitative easing and fiscal stimulus
saved the global economy from the extreme fall-out that might have
happened as businesses were forced to close their doors as
'lockdown' was imposed. The authorities' actions stabilised markets
and Law Debenture's asset value was virtually unchanged on the
year. The economy and its outlook, however, were impacted
dramatically and we saw a rapid acceleration of existing structural
trends. For instance the move in retailing from physical stores to
online was already happening but it received an extraordinary
boost. The desire for decarbonisation of the economy was well in
motion but again the progression has been rapidly advanced by the
desire to rebuild a more sustainable environment after the
pandemic. These trends have had a massive effect on equity prices,
with the best performing areas of the portfolio being in companies
that are working towards the goal of decarbonisation, and the worst
being the property companies that own retail space, along with
aerospace companies.
Economic backdrop
The UK economy contracted violently in March as the virus took
hold and 'lockdown' was enforced. The gradual easing of
restrictions saw a rapid recovery in economic activity that was
further aided by the prospect of a limited free trade deal with the
European Union. However, by the year end the re-imposition of
'lockdown' meant the pick-up in activity lost momentum. During this
period there has been an extraordinary shift to private saving and
the state increasing its borrowing. This can be done as interest
rates remain very low. However, a great deal of production has been
lost, some capital spend programmes have been deferred and
unemployment has risen. The economy has materially shrunk; UK GDP
on consensus is estimated to have contracted 11.3% in 2020. Some
economic activity will recover relatively quickly. However, higher
government debt and the losers from structural change in consumer
behaviour will remain long-term issues for the economy. In this
economic environment we need to be invested in companies that have
a credible way forward to deal with a testing economic
backdrop.
UK market backdrop
Prior to 2020, the UK equity market had underperformed other
developed equity markets in the period following the EU referendum
vote in 2016. 2020 was no exception, meaning that over a five-year
period the UK equity market has underperformed Continental Europe
by 38% and the US by 90%.
The reasons for this underperformance include the uncertain
future trading relationship with the EU and the sector composition
of the UK market, with comparatively more in underperforming
sectors such as energy, and comparatively less in outperforming
sectors such as technology. During 2020 there was also a larger
contraction in UK GDP following the pandemic than in other major
economies. With the UK economy forecast to grow strongly in 2021
(5.3% on consensus numbers), and a free trade agreement on goods
reached with the EU, these overhangs on the UK equity market could
be lifting at a time when UK companies are trading at a stark
valuation discount to their global peers. The graph provided in the
full annual report and accounts shows the discount of the UK market
relative to the US and Europe on cyclically adjusted
price/earnings. The UK also trades at a discount using other
valuation methods such as price/book.
Income backdrop
In prior years, we have emphasised the unique advantage of Law
Debenture's structure, with the income generated by the IPS
business allowing greater flexibility to invest in lower or zero
dividend yield stocks within the investment portfolio. This allows
us to focus on capital generation, while knowing that historically
approximately a third of the Trust's income has been provided by
the IPS business. In a year when investment income fell 38% to
GBP18.1m (2019: GBP29.2m) as a result of the pandemic
(approximately in line with the fall seen in the wider UK market),
this greater flexibility provided by the growing income from the
IPS business helped the Trust from both an income and a capital
perspective.
From a shareholder perspective, the share of Group income
generated by the IPS business this year grew to 43.4% (1) .
Therefore the fall in investment income was partially offset by
growing income from the IPS business. This, combined with the large
historical revenue reserve, allowed the Board to confidently grow
the dividend 5.8% year on year.
From a capital perspective, the below-benchmark portfolio yield
at the start of 2020 insulated the portfolio from being overly
exposed to among the worst performers last year. The best
illustration of this is the comparative performance of the FTSE 350
High Yield index and the FTSE 350 Low Yield index last year, where
it can be seen that on average higher yielding stocks substantially
underperformed.
While 2020 was a challenging year for UK dividends, in the
latter half of the year there were reasons for optimism on the UK
dividend outlook. Many companies held in the portfolio which had
suspended dividends in the first half of the year, chose to resume
paying and in some cases catch up on missed payments. In the
banking sector, while dividends remained forcibly suspended by the
regulator, there were clear indications from management teams that
when restrictions were lifted they would seek to resume dividends.
Following updated guidance from the regulator we expect modest
dividends to resume.
In 2021, we expect investment income from the portfolio to rise,
but not to reach 2019 levels. Some companies held, including Royal
Dutch Shell and BP, have permanently rebased their dividends lower
as they seek to transition their portfolios gradually away from
fossil fuels towards renewable energy. Other companies (such as
those exposed to the aerospace industry) continue to have
limitations on their trading as a result of the pandemic and
therefore will not return to paying dividends until 2022 at the
earliest.
(1) Calculated on IPS contribution to total earnings per share for year end 31 December 2020.
Top five contributors
The following five stocks produced the largest absolute
contribution for 2020:
Share price
total return Contribution
Stock (%) (GBPm)
------------------- -------------- -------------
Ceres Power 403.8 33.5
ITM Power 626.1 13.3
Herald Investment
Trust 51.7 6.0
Rio Tinto 21.5 3.6
Royal Mail 49.2 3.4
Source: Share price total returns from Bloomberg, all in
GBP.
Portfolio attribution
There were broadly two themes to the best performers during the
year; companies exposed to the need to decarbonise the global
economy, and companies exposed to the shift of much of consumer
spending online.
Ceres Power , which designs hydrogen fuel cells, and ITM Power,
which produces electrolysers that can be used to generate 'green
hydrogen' from renewable energy, were both among the best
performers. In both cases the technology has existed for some time,
but one of the catalysts for the shares performing well was they
both received external validation from strong commercial
partnerships; Ceres agreed a manufacturing licence agreement with
Bosch, and later in the year Doosan in South Korea, while ITM Power
formed a partnership with industrial gas producer Linde. These
commercial partnerships came at a time when many developed
economies are increasingly willing to make substantial investments
in 'green technology' in order to meet future environmental
targets.
Both Herald Investment Trust and Royal Mail benefited from the
accelerated move 'online' in 2020. Herald invests predominantly in
technology shares, which performed exceptionally well last year as
businesses shifted to working remotely and were increasingly
reliant on cloud computing, and consumer spending moved
increasingly online. Royal Mail had for many years seen a gradual
decline in letters and an increase in parcel delivery; this trend
was accelerated last year, allowing them to progress with their
reconfiguration of the delivery network and reallocation of costs
towards parcels.
Top five detractors
The following five stocks produced the largest negative impact
on the portfolio valuation for 2020:
Share price
total return Contribution
Stock (%) (GBPm)
------------------- -------------- -------------
Royal Dutch Shell (43.8) (12.3)
Hammerson (82.4) (9.2)
GlaxoSmithKline (20.6) (7.3)
BP (46.0) (6.9)
HSBC (36.0) (5.7)
Source: Share price total returns from Bloomberg, all in
GBP.
The worst performing stocks during the year were broadly those
exposed to a fall in economic activity, whether via the fall in the
oil price as transportation fuel demand fell markedly (Royal Dutch
Shell, BP in the table above) or those exposed to further declines
in already low interest rates and uncertain loan losses (HSBC).
GlaxoSmithKline in the table above is the exception to this, with
earnings expectations remaining largely unchanged during the year
as a result of its defensive end markets (vaccines, pharmaceuticals
and consumer healthcare). The underperformance could be due to
lower earnings growth than pharmaceutical peers as they continue to
invest heavily in research and development in order to improve
their pipeline. We continue to view this as a long-term opportunity
and it remains a top ten holding.
Portfolio activity
What we have been buying
The most material decision during the year was to be net
investors during the peak of the market weakness in spring. March
was the most active month for net investment, where we invested an
additional GBP14.8m in the portfolio.
The investment process aims to identify market leading,
well-managed businesses and invest at the point of which they are
out of favour. There was an abundance of these opportunities during
the spring. We invested broadly, adding to both existing positions
such as Aviva, and establishing new positions such as Anglo
American and Marks & Spencer. While there was deliberately no
commonality in these additions in terms of geography or end-market
exposure, we focused purchases on companies that would benefit from
a global economic recovery following the pandemic. This modest
shift in the portfolio towards sectors that are more cyclical can
be seen in the sector composition at year end, with a higher
weighting in, for example, materials and oil and gas than the
previous year. It is also evident in the top five purchases
detailed below, which are spread between financials, materials and
oil and gas.
What we have been selling
Sales during the year were predominantly for either valuation
reasons or driven by corporate activity. For example Microsoft,
which had for a number of years been the largest overseas holding
in the portfolio, performed well following the pandemic and in our
view there were better valuation opportunities elsewhere. Ceres
Power was reduced following strong performance, partially in order
to fund other investments in the alternative energy sector such as
AFC Energy.
The position in insurer RSA was sold following a takeover offer
from overseas peers. Towards the end of the year there was a
notable pick-up in takeover activity in the UK, with another of the
portfolio's holdings (Elementis) also receiving a takeover
approach. This is a theme that we expect to continue in the current
year while there continues to be a valuation gap between UK and
other developed equity markets.
Five largest purchases
The largest five purchases during the year are detailed
below:
Total purchased
Stock (GBPm)
---------------- ----------------
M&G 7.4
Barclays 7.1
Anglo American 6.9
Aviva 6.7
BP 6.3
Five largest sales
The largest five sales during the year are detailed below:
Total sold
Stock (GBPm)
----------------------- -----------
Ceres Power 21.4
AstraZeneca 13.3
Flutter Entertainment 12.0
Microsoft 10.9
RSA Insurance 10.7
Outlook
Structural changes that are happening in the economy throw up
opportunities, as well as severe challenges for companies. The
speed of the change has accelerated as a result of Covid-19, but
reflects the longer-term trend that intellectual capital has been
replacing physical assets as the driving force for corporate
success. The shelf life of intellectual capital can be short. This
is the reason behind the need for an active rather than a passive
approach to portfolio management. We will retain a broad and
relatively long list of stocks. We are always on the lookout for
stocks that are reasonably valued and have characteristics that
cannot be found in the UK. The focus, though, will be predominantly
in the UK as this is where value can be found. The companies will
be serving a wide range of end markets. Diversity is important in
order to achieve a reasonable level of consistency in returns.
The companies held are adapting to the challenging economic
backdrop. The key is to have excellent products and services that
remain relevant to the customer. This usually means an emphasis on
research and productive capital expenditure. Therefore the
portfolio is about the individual companies, and it is not a proxy
for the economy. The overall valuation of the stocks held remains
undemanding using history as a guide. Therefore, the intention is
to retain a reasonable level of gearing so that the portfolio is
fully exposed to the opportunities that can be found in the equity
market.
James Henderson & Laura Foll
Investment manager
25 February 2021
Portfolio by Sector and Value
Portfolio by sector
2020 2019
-------------------- ------ ------
Oil and gas 11.6% 9.7%
Basic materials 9.3% 6.4%
Industrials 22.0% 23.2%
Consumer goods 6.2% 5.2%
Health care 5.2% 8.9%
Consumer services 8.9% 10.2%
Telecommunications 1.9% 1.1%
Utilities 4.8% 4.0%
Financials 28.5% 28.9%
Technology 1.6% 2.4%
Geographical distribution of portfolio by value
2020 2019
---------------- ------ ------
United Kingdom 82.1% 80.7%
North America 5.4% 8.3%
Europe 10.1% 7.8%
Japan 1.1% 1.1%
Other Pacific 0.9% 0.9%
Other 0.4% 1.2%
Fifteen largest holdings
as at 31 December 2020
Approx. Valuation Appreciation/ Valuation
Rank % of Market 2019 Purchases Sales (Depreciation) 2020
2020 Company portfolio Cap. GBP000 GBP000 GBP000 GBP000 GBP000
------ -------------------- ----------- ---------- ---------- ---------- --------- ---------------- ----------
1 Ceres Power 2.99 GBP2.7bn 12,052 - (21,368) 33,513 24,197
2 GlaxoSmithKline 2.77 GBP70.2bn 29,792 - - (7,314) 22,478
3 Rio Tinto 2.53 GBP77.2bn 16,884 - - 3,628 20,512
Herald Investment
4 Trust 2.16 GBP1.4bn 12,580 - (1,073) 5,998 17,505
5 Royal Dutch Shell 1.94 GBP52.2bn 27,994 - - (12,251) 15,743
6 BP 1.79 GBP60.8bn 15,091 6,285 - (6,852) 14,524
7 Prudential Corp 1.55 GBP37.1bn 13,506 - - (925) 12,581
8 National Grid 1.5 GBP30.1bn 13,307 - - (1,118) 12,189
Morgan Advanced
9 Materials 1.47 GBP0.9bn 11,095 974 - (95) 11,974
10 HSBC 1.46 GBP83.1bn 15,606 1,955 - (5,680) 11,881
11 ITM Power 1.41 GBP3.0bn 2,295 1,160 (5,285) 13,318 11,488
12 Severn Trent 1.41 GBP5.6bn 12,575 - - (1,135) 11,440
13 Accsys Technologies 1.37 GBP0.3bn 8,218 - - 2,913 11,131
14 Aviva 1.36 GBP13.6bn 5,380 6,665 - (1,037) 11,008
15 Anglo American* 1.34 GBP37.6bn - 6,838 - 4,072 10,910
(*Anglo American was first purchased on 12 March 2020.)
Changes in geographical distribution
Valuation Valuation
31 December Costs of Sales Appreciation/ 31 December
2019 Purchases acquisition proceeds (depreciation)* 2020
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 %
--------------- ------------ ----------- ------------- ---------- ---------------- ------------ -----
United Kingdom 664,021 129,219 (534) (98,200) (28,706) 665,800 82.1
North America 68,182 3,513 (2) (33,771) 6,234 44,156 5.4
Europe 64,409 39,921 (52) (33,574) 11,639 82,343 10.1
Japan 8,693 - - - 604 9,297 1.1
Other Pacific 7,237 - - - (160) 7,077 0.9
Other 9,774 1,178 - (1,363) (5,965) 3,624 0.4
--------------- ------------ ----------- ------------- ---------- ---------------- ------------ -----
822,316 173,831 (588) (166,908) (16,354) 812,297 100.0
--------------- ------------ ----------- ------------- ---------- ---------------- ------------ -----
Extracts from the Strategic report
The full Strategic report will be included in the Annual Report
and Financial Statements.
Who we are
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. Law Debenture is an investment
trust with two distinct lines of business: an investment portfolio
and a leading provider of independent professional services.
Law Debenture shares are intended for private investors in the
UK (retail investors), professionally advised private clients and
institutional investors. When choosing an investment trust,
shareholders typically accept the risk of exposure to equities but
hope that the pooled nature of an investment trust portfolio will
give some protection from the volatility in share price movements
that can sometimes affect individual equities.
Our objective
Our objective for the investment trust 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 diversified
portfolio of stocks and ownership of the IPS business.
Our business model
Our business model is designed to position the Company to the
best advantage in the investment trust sector.
Investment Portfolio (c.83% of NAV)
The Company's portfolio will typically contain between 70 and
150 listed investments. The portfolio is diversified in order to
spread investment risk with no obligation to hold shares in any
particular type of company, industry or geographical location. The
IPS business does not form part of the investment portfolio.
Whilst performance is measured against local and UK indices, the
composition of these indices does not influence the construction of
the portfolio. As a consequence, it is expected that the Company's
investment portfolio and performance will deviate from the
comparator indices.
Independent Professional Services (c.17% of NAV)
Operating through wholly owned subsidiary companies, all of
which are listed at note 14 in the full annual report and accounts,
we provide pension trustee executives, outsourced pension services,
corporate trust services and corporate services to companies,
agencies, organisations and individuals throughout the world. The
services are provided through offices in the UK, Dublin, New York,
Delaware, Hong Kong, the Channel Islands and the Cayman
Islands.
Group employees are employed by L.D.C. Trust Management Limited
and Safecall Limited (in the UK) or a locally incorporated entity
(in the overseas jurisdictions). As part of their duties, a number
of the employees provide services to the investment trust and their
time is charged to the trust, forming a part of the ongoing
charges.
More details about the performance of the IPS business in 2020
are given in the Chief Executive Officer's review above.
Total Shareholder Return
Investment Portfolio Independent Professional Services
-- Invests in a diverse equity -- Trusted, professional, independent,
portfolio third party
-- Earns capital returns and dividends -- Generates re-occuring fees
-- Low ongoing charges -- Cost base kept under control
-- Profits give a dividend stream
which increases the ability for the
Group to pay dividends to shareholders
-- Tax efficient
----------------------------------------
Our strategy - implementation
We aim to deliver the investment trust's objective by skilled
implementation of the investment strategy, complemented by
maintaining and operating our IPS business profitably and safely,
while keeping it distinct from the portfolio. The operational
independence of the IPS business means that it can act flexibly and
commercially. It provides a regular flow of dividend income to the
Company. This helps the Board to smooth out equity dividend peaks
and troughs, means that the investment manager does not have to be
constrained by choosing stocks just for yield and is an important
element in delivering the objective of steadily increasing income
for shareholders. In turn, some of the tax relief at the investment
trust level arising from our debenture interest and excess costs,
which would otherwise be unutilised, can be transferred to the IPS
business, thus reducing the overall tax liability of the Group.
The way in which we implemented the investment strategy during
2020 is described in more detail in the CEO's review above and the
investment managers' review above.
Performance against KPIs is set out in the full annual report
and accounts, which contain comprehensive tables, charts and data
to explain performance both over the year under review and over the
long-term.
Our strategy - guidelines
There are some guidelines, set by the Board, on maximum or
minimum stakes in particular regions and all stakes are monitored
in detail by the Board at every scheduled Board meeting in order to
ensure that sufficient diversification is maintained.
Minimum Maximum
% %
United Kingdom 55 100
North America 0 20
Europe 0 10
Japan 0 10
Other Pacific 0 10
Other 0 10
Liquidity and long-term borrowings are managed with the aim of
improving returns to shareholders. The policy on gearing is to
adopt a level of gearing that balances risk with the objective of
increasing the return to shareholders, in pursuit of its investment
objective. More information on gearing can be found below.
Investments may be held in, inter alia, equity shares, collective
investment products including open ended investment companies
(OEICs), fixed interest securities, interests in limited liability
partnerships, cash and liquid assets. Derivatives may be used but
only with the prior authorisation of the Board. It is permissible
to hedge against currency movements on both the capital and income
account, and to lend stocks up to 30% of the NAV, subject again to
prior authorisation of the Board. Trading in suspended shares and
short positions are not permitted. No more than 15% of gross assets
will be invested in other UK listed investment trusts. During 2020,
the Board took the decision to remove the cap on UK investments
given our AIC classification in the UK Equities Sector. However,
the Company's investment activities are subject to the following
limitations and restrictions:
-- No investment may be made which raises the aggregate value of
the largest 20 holdings, excluding investments in collective investment
vehicles that give exposure to the Japan, Asia/Pacific or emerging
market regions, to more than 40% of the Company's portfolio, including
gilts and cash.
-- The value of a new acquisition in any one company may not exceed
5% of total portfolio value (including cash) at the time the investment
is made. Further additions shall not cause a single holding to
exceed 5%, and Board approval must be sought to retain a holding,
should its value increase above the 5% limit (that approval to
be sought at the next Board meeting).
-- The Company applies a ceiling on effective gearing of 50%. While
effective gearing will be employed in a typical range of 10% net
cash to 20% gearing, the Board retains the ability to reduce equity
exposure so that net cash is above 10% if deemed appropriate.
-- The Company may not make investments in respect of which there
is unlimited liability.
Gearing
Investment trusts have the benefit of being able to 'gear' their
portfolios according to market conditions. This means that they can
raise debt (either short or long-term) to generate funds for
further investment. These funds can be used to increase the size of
the portfolio, or assets from within the portfolio can be sold to
reduce debt and even be 'negatively geared'. This means selling
assets to hold cash so that less than 100% of the Company's assets
are invested in equities. At 31 December 2020, our gearing was 9%
(2019: 5% restated ).
There has been no change in the Company's gearing policy, with
effective gearing typically employed in a range of 10% net cash to
20% gearing.
Please refer to gearing/(net cash) note in the full annual
report and accounts.
Borrowings
The Company has two debentures (long dated sterling denominated
financing) details of which are at in the full Annual Report and
Accounts. The weighted average interest payable on the Company's
structural borrowings is 4.589% (2019: 4.589%).
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
below. The assets and liabilities of the business are also
consolidated into the Group column of the statement of financial
position on below. A segmental analysis is provided in the annual
report and accounts 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 2020, with an appropriate multiple
applied. The EBITDA for the IPS business for 2020 was GBP13.3m.
This number is reached by taking the return, including profit
attribution on ordinary activities before interest and taxation of
GBP12.2m and adding back the depreciation charge for property plant
and equipment of GBP1.2m and the amortization of intangible assets
of GBP59,000.
The calculation of the IPS valuation and methodology used to
derive it are included in the annual report and accounts. In
determining a calculated basis for the fair valuation of the IPS
business, the Board has taken appropriate external professional
advice. The multiple applied in valuing the IPS business is based
on comparable companies sourced from market data, with appropriate
adjustments to reflect the difference between the comparable
companies and IPS business 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 9.4x, which represents a discount of almost 30% on
the mean multiple across the comparable businesses, to reflect the
relative size of the IPS business and the fact that it is
unlisted.
The comparable companies used, and their recent performance, is
presented in the table below:
LTM EV/ Revenue EBITDA
Revenue EBITDA CAGR margin
LTM (1) 31 Dec 2016-2020 LTM
Company (GBPm) 2020
------------------------- ---------- -------- ----------- --------
Law Deb IPS 35 9.4x 7% 44%
Intertrust N.V. 518 11.2x 12% 33%
Sanne Group plc 170 19.6x 28% 29%
SEI Investments Company 1,286 15.1x 3% 28%
(1) LTM refers to the trailing 12 months 'results' which are
publicly available.
Source: Capital IQ.
Valuation guidelines require that the fair value of the IPS
business be established on a stand-alone basis. Therefore, the
valuation does not reflect the value of Group tax relief applied
from the investment trust to the IPS business, which reduced the
tax charge by GBP1,549,000 (2019: GBP1,120,000). 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
GBP44.9m/49.6% since the first valuation of the business as at 31
December 2015.
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 fair value of long-term borrowings held by the Group is
disclosed in the annual report and accounts. The methodology of
fair 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 the IPS business are
removed (GBP23.5m) and substituted with the calculation of the fair
value and surplus net assets of the business (GBP136m). An
adjustment of GBP52.2m 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 a NAV fair value for the Group as at 31 December 2020 of
GBP787.2m or 666.15 pence per share:
31 December 2020 31 December 2019
Pence Pence
GBP000 per share GBP000 per share
--------------------------------------------- --------- ----------- ----------- -----------
Net asset value (NAV) per Group statement
of financial position 726,994 615.19 775,272 655.76
--------------------------------------------- --------- ----------- ----------- -----------
Fair valuation of IPS: EBITDA at a multiple
of 9.4x (2019: 9.2x) 125,349 106.07 105,938 89.61
Surplus net assets 10,605 8.97 16,367 13.84
Fair value of IPS business 135,954 115.05 122,305 103.45
Removal of assets already included in
NAV per financial statements (23,547) (19.93) (30,445) (25.75)
Fair value uplift for IPS business 112,407 95.12 91,860 77.70
Debt fair value adjustment (52,182) (44.16) (36,992) (31.29)
--------------------------------------------- --------- ----------- ----------- -----------
NAV at fair value 787,219 666.15 830,139 702.17
Principal risks and internal controls - overview
The Group's risk management and internal control framework is
embedded in our operations and subject to continuous enhancements.
Board-level oversight is provided by our Audit and Risk Committee.
Our Executive Risk Committee has responsibility for the oversight
of the management of operational risk within the Group. The
framework enables the Board to identify, evaluate and manage
principal risks to support our delivery of long-term priorities.
The Board recognises that there are certain risks which are
inherent in our business structure, such as market risk with
respect to its investment portfolio and the controls to mitigate
against such risks are paramount to the delivery of our
objectives.
On an annual basis, the Audit and Risk Committee consider the
risks to the Group and the adequacy of the controls in place to
appropriately manage those risks. Consideration is also given to
emerging risks to ensure that the risk management framework is
updated to protect the business. Where there is insufficient
information on the potential risk, ongoing monitoring is put in
place.
During 2020, the General Counsel oversaw the roll out of a
policy review for key Group-wide risks and procedures. This
included an updated approach to the management of incident
reporting up to the Executive Risk Committee level and to the Audit
and Risk Committee, if necessary. This was supported by an enhanced
all staff risk and compliance training programmes to build on the
existing learning and development programs. In November 2020, the
Chairman of the Audit and Risk Committee and the Executive Risk
Committee both agreed a plan to refresh the Group's risk management
and internal audit framework during 2021. This will further enhance
the governance and oversight of the management of the principal
risks (detailed in the full annual report and accounts). An update
on this refresh will be made in next year's annual report.
Presentation of Group risks
The key risks for Law Debenture are referred to as principal
risks; they broadly relate to market, credit, liquidity and
operational risks and are split into three categories:
1.Group Risks.
2.Investment Portfolio Risks.
3.IPS Risks.
The principal risks for the Group are presented below together
with their corresponding controls and mitigating actions. In line
with FRC guidance issued in October 2020, Law Debenture have
identified where Covid-19 has materially impacted or has the
potential to materially impact existing risks and has acted
accordingly. This is outlined in the Covid-19 section in the full
annual report and accounts.
Part of Law Debenture's risk management framework is the ongoing
management and strengthening of its internal control framework.
This also includes some of our planned enhancements.
Governance
The Group's risk management and internal control framework is
managed through its governance structure. The IPS business risks
are managed through business unit risk committees and management
meetings. The outputs of these are fed through to the Executive
Risk Committee.
Group risk summary and internal controls
PRINCIPAL GROUP RISKS MITIGATING ACTIVITIES
1.Financial Reporting
---------------------------------------------------------------
The risk of inaccurate publication To mitigate these risks, the management and
of financial statements, annual production of all financial reporting is
reports, NAV, factsheets and overseen by appropriately skilled and trained
other market data that can colleagues within the Group's Finance team,
adversely impact financial with review from the CFO.
results, investor decisions,
reputation or which may lead The valuation is calculated based on the
to regulatory fines or sanctions. reconciled data using a specialist third
party for the pricing and the NAV is reported
to the London Stock Exchange and Morningstar
daily. Investment Data is reconciled to third
party data held by the Custodian/Depositary
and Janus Henderson as the investment manager.
---------------------------------------------------------------
2.Liquidity and Dividend To mitigate these risks, the Board has various
The risk that the Group cannot measures in place:
meet its cash and collateral
obligations at a reasonable * The investment limits and restrictions it has placed
cost. This is for both expected on the investment portfolio only permit investments
and unexpected cash flows, in primarily equities and fixed interest securities
without adversely affecting quoted on major financial markets. Excess cash is
daily operations or financial held in money market funds with immediate access.
conditions. Liquidity risk There are also daily dealing limits in place for
can arise from cash flow mismatches, Janus Henderson and liquidity within the investment
market constraints from the portfolio (and the Group as a whole) is closely
inability to convert assets monitored by the Finance team.
to cash, the inability to
raise cash in the markets
or contingent liquidity events.
It could also arise from the * A refreshed liquidity policy has been reviewed by the
operating business of the CFO and a liquidity stress test is included in the
IPS if, for example, its debtor Group Board papers on a quarterly basis. This
position were to materially furthers the Finance team's and CFO's monitoring of
deteriorate or where, in extremis, the Group's liquidity position.
the Group is required to use
its capital to mitigate a
material post issue event
within IPS where we could * The Group is not permitted to retain more than 15% of
be paid years after the event. its income from shares and securities each year. This
is actively monitored by the Finance team and is also
Liquidity issues could result a key consideration as part of the discussions on the
in the Group being required final annual dividend and interim dividends.
to sell stock that Janus Henderson
has invested in a sub-optimal
time/price, not be able to
maintain or increase the dividend * The Company has a stated objective to provide
(a publicly stated aim) or shareholders with a steadily increasing flow of
require additional borrowing. income and this is considered when making any
dividend decision. Distribution is reviewed by the
Board quarterly.
---------------------------------------------------------------
3.Foreign Currency
---------------------------------------------------------------
The risk arising from movements Cash positions are monitored daily by the
in currency rates applicable Finance team. Where appropriate, funds are
to the investment portfolio's converted to our reporting currency.
investment in equities and
the net assets of the Group's
overseas subsidiaries denominated
in currencies other than sterling.
---------------------------------------------------------------
4.Interest Rates
---------------------------------------------------------------
The risk arising from movements To mitigate interest rate risks, the Board
in interest rates on borrowing, reviews the mix of fixed and floating rate
deposits and short-term investments. exposures and ensures that gearing levels
are appropriate to the current and anticipated
market environment. Cash positions are monitored
daily by the Finance team. Where possible,
funds are moved into liquid funds with higher
returns.
---------------------------------------------------------------
5.Legal and Regulatory
---------------------------------------------------------------
The risk that the Group's To mitigate these risks, the following controls
business will be negatively are in place:
affected if we do not comply
with the various laws and * A schedule of all Group legal, regulatory, compliance
regulations the Group is required and reporting obligations to ensure all reporting and
to, or if we are not able other requirements across the Group are tracked and
to anticipate and keep pace complied with.
with rapid changes in laws
or regulations, or if laws
or regulations decrease the
need for our services or increase * A GDPR review is also underway following the growth
our costs. of the IPS business and changes to ways of working.
* A review of regulatory permissions across the Group
is ongoing.
* Horizon scanning for any changes in legislation and
regulations is also being progressed.
---------------------------------------------------------------
6.Third Party Suppliers
---------------------------------------------------------------
Law Debenture relies on third To mitigate these risks, all third-party
parties to perform key functions suppliers are subject to robust due diligence,
of its business operations review and sign off from the Executive Risk
enabling its provision of Committee.
services to clients. The Board
recognises that such third
parties may act in ways that
could harm our business either
through failure to deliver
services or negative public
opinion.
---------------------------------------------------------------
7. Financial Crime and Fraud
---------------------------------------------------------------
Across all jurisdictions the To mitigate these risks, the following controls
Group's activities are subject are in place:
to various financial crime
laws and regulations, including * Enhanced incident reporting procedures for the Group
sanctions and export control, with timelines for notifications and clear reporting
anti-bribery, anti-corruption, lines.
anti-money-laundering and
counter-terrorist financing.
Changes to these laws could
have a material adverse impact * Appropriate whistleblowing procedures and a clearly
on our operations or financial defined reporting structure with colleagues having
results. the option to raise any concerns with their line
manager, the General Counsel and HR Manager or if
those avenues are not appropriate, to the Chairman of
the Audit and Risk Committee, who is the employee
representative of the Board.
* There are robust policies in place covering fraud
prevention, anti-bribery and corruption which are
supported by employee training.
---------------------------------------------------------------
Investment portfolio risk summary and internal controls
INVESTMENT PORTFOLIO RISKS MITIGATING ACTIVITIES
1.Investment Performance
and Market Risk
-------------------------------------------------------
The risk of the investment Even though this is an accepted risk given
portfolio failing to deliver the nature of the investment portfolio, the
and/or failing to consider Board is responsible for ensuring that there
and react to market conditions are adequate controls to help manage the inherent
to deliver the publicly stated risk. As such, the Board has put in place
strategic objectives to: various controls, details of which can be
found above in the strategic report on Our
* Achieve long-term capital growth. Strategy - implementation.
Furthermore, the NAV is published daily and
subject to review by the CFO, which enables
* Deliver a steadily increasing income. ongoing monitoring of the investment portfolio's
performance.
The Board further notes that the IPS business
* Achieve a rate of return greater than the FTSE also provides an additional layer of diversification
Actuaries All-Share Index. for the portfolio, meaning that the investment
portfolio and the Group as a whole are less
exposed to any potential dividend cuts from
the equity holdings.
Investment performance and
market risk is the largest
risk which the investment
portfolio is exposed to,
however, this is an accepted
risk and one which the Board
actively takes as it believes
long-term equity investment
is an attractive proposition.
-------------------------------------------------------
2.Gearing
-------------------------------------------------------
This risk could arise where To mitigate this risk, all borrowings require
the Company has borrowed the prior approval of the Board and gearing
money for investment purposes. levels are kept under close review by the
If the value of portfolio Board. The Board applies a ceiling on effective
investments falls, any borrowings gearing of 50%. While effective gearing will
will magnify the extent of be employed in a typical range of 10% net
this loss. cash to 20% gearing, the Board retains the
ability to reduce equity exposure so that
net cash is above 10% if deemed appropriate.
Gearing is reviewed and reported on to the
AIC monthly by the Finance team.
-------------------------------------------------------
3.Credit Risk (Securities
Lending)
-------------------------------------------------------
Securities lending within To mitigate this risk, the Board has limited
the investment portfolio the amount of stock lending within the investment
could lead to the risk of portfolio to up to 30% of NAV only. In addition,
loss if any of our borrowers' the Board is indemnified by HSBC as the sub-custodian
default on their obligations under the securities lending arrangements.
to the business. HSBC are obliged to indemnify the arrangements
such that the security collateral value shall
always be greater than the value of securities
on loan and a minimum margin is applied onto
the security collateral: 102.5% for government
bonds and 105% for equities.
-------------------------------------------------------
4.Legal and Regulatory
-------------------------------------------------------
This could arise from a failure All legal, regulatory, compliance and reporting
to comply with legal and obligations across the Group, including that
regulatory requirements and of the investment portfolio, are tracked and
filings resulting in fines, complied with. Horizon scanning for any changes
suspension of listing or in legislation and regulations is also being
a loss of investment trust progressed. An annual "Key Information Document"
status. Changes to legislation (KID) is compiled and published by the business
could have a negative impact as are European PRIIP and MIFID templates
on Law Debenture's ability (EPT/EMT). There is also oversight and monitoring
to meet its objectives. e.g. from the Depositary.
Government intervention on
publicly listed firms' dividend
policy.
-------------------------------------------------------
5.Technology, Systems and
Internal Controls
-------------------------------------------------------
The risk of loss resulting To mitigate these risks, Janus Henderson are
from inadequate or failed subject to an annual ISAE3402 audit and AAF
technology, information and review to ensure there are no material deficiencies.
manual processes and systems The Executive Risk Committee also receive
of Janus Henderson, including a monthly operational report with respect
business continuity/disaster to Janus Henderson's risks and controls.
recovery incidents and wider
control issues such as fraud
or conflicts of interest.
-------------------------------------------------------
IPS business risk summary and internal controls
IPS BUSINESS RISKS MITIGATING ACTIVITIES
1.Financial
----------------------------------------------------
This is the risk that the To mitigate these risks, monthly management
IPS business is not able information is provided to the CEO and Business
to scale up and deliver on Heads to monitor and assess business performance.
its growth plans to generate Through 2020 there has been significant investment
anticipated revenue growth, in people and technology to support the long-term
profitability, cost savings growth of the business and these needs continue
and react to any changes to be regularly assessed.
in market conditions.
----------------------------------------------------
2.People
----------------------------------------------------
This is key as the IPS business To mitigate our key people risks, a new COO
is based on successfully and Human Resources Manager have been recruited
attracting and retaining and are developing plans for continued and
talented employees representing better employee engagement and wellbeing.
diverse backgrounds, experiences With this, the Board recognises that there
and skill sets. The loss is an opportunity to further develop and enhance
of key colleagues, no succession its strategic plans to support employees in
planning or failure to ensure a collaborative culture.
effective transfer of knowledge
and smooth transition could Maintaining the brand and reputation, as well
damage or result in the loss as a diverse and inclusive work environment
of client relationships and that enables all our employees to thrive,
could result in such colleagues is important to our ability to recruit and
competing against the business. retain employees.
----------------------------------------------------
3.Technology and Systems
----------------------------------------------------
The risk of cyberattacks To mitigate such risks, the office move is
and security vulnerabilities allowing for enhanced technology resources
is ever present, and failures and capability through investment and increased
here could lead to reduced use of cloud services allowing sustainable,
revenue, increased costs, scalable technology growth in 2021 and beyond.
liability claims, or harm Incident reporting procedures are in place.
to our reputation or competitive
position.
----------------------------------------------------
4.Legal and Regulatory
----------------------------------------------------
The IPS business will be The General Counsel helps safeguard the IPS
negatively affected if it business and ensures that it complies with
is not able to anticipate changes in law or regulations.
and keep pace with rapid
changes in laws or regulations,
or if laws or regulations
decrease the need for the
services provided or increase
costs.
----------------------------------------------------
5.Credit
----------------------------------------------------
This is the risk of loss Credit risk is actively monitored by the Finance
to our receivables should team; the mitigations in place ensure that
any of IPS' clients or other debtors across the business are monitored
counterparties default on and moreover, the credit status of clients
their payment obligations is considered as part of the client onboarding
either through no payment process.
or late payment for services
we have delivered or the
risk of exposure or centration
to one client or business
sector.
----------------------------------------------------
6.Strategic
----------------------------------------------------
This is the risk that the To mitigate this risk, there has been significant
current business model becomes investment in people and technology to support
obsolete due to a lack of the IPS business strategy and this will continue
technical or commercial innovation, to be monitored along with the introduction
market disruption, product of the Group's 3-year strategic plan which
obsolesce or regulatory or forms part of the Group's longer term viability
legislative change. statement. There are also regular IPS board
meetings where the strategy of the business
is discussed with the Business Heads and the
Executive Leadership team.
----------------------------------------------------
Viability statement
The UK Corporate Governance Code (the Code) requires the Board
to issue a 'viability statement' declaring whether the Directors
believe the Company can operate and meet its liabilities, taking
into account its current position and principal risks. The
overriding aim of the Code is to ensure that the Board focuses on
the longer term and is actively involved in the oversight of the
risk management framework and internal control environment.
The Board is required to assess the Company's viability over a
period greater than twelve months. Our stated financial objective
is to deliver long-term capital growth in real terms and to
steadily increase income to our shareholders. As such, the Board
considers that the Company is a long-term investment vehicle and,
for the purposes of this statement, has decided that three years is
an appropriate period over which to consider its viability and we
have aligned our business planning process and remuneration at a
senior level accordingly.
In assessing the viability of the Company over the review
period, the Board has considered a number of key factors,
including:
Our business model and strategy
-- The Board seeks to ensure that the Company delivers long-term
performance. The closed ended nature of the investment trust means
that the Company does not face liquidity issues when shareholders
wish to sell their shares, avoiding any untimely requirements
to sell down the portfolio.
-- As an investment trust, we benefit from the unique structure of
a predominantly UK-based equity portfolio with a diversified revenue
stream arising from the IPS business. As shown both historically
and during the recent economic crisis brought about by Covid-19,
the IPS revenue streams provide protection to the long-term viability
of the Company.
-- The majority of the portfolio is investments in UK listed securities
which are traded on major stock exchanges.
-- The Company has an ongoing charge of 0.55%, which is lower than
other comparable trusts within our Sector.
Our business operations
-- The Company retains ownership of all assets held by the Custodian
under the terms of formal agreements with the Custodian and Depositary.
-- The Group's cash is all held with banks approved by the Board.
The Group's cash balance, including money market funds, at 31
December 2020 totalled GBP41.8m (2019: GBP71.2m).
-- There is long-term borrowing in place comprising of two debentures;
6.125% debenture maturing in 2034 and a 3.77% debenture maturing
in 2045. These are subject to formal agreements, including financial
covenants which the Company complied with in full during the year.
-- During January 2021, the Company put in place a GBP50m unsecured
overdraft facility with HSBC.
-- The Board reviews the Trust performance including revenue forecasts,
along with other key metrics such as gearing at each Board meeting
and receives regular financial reporting.
In addition to this, the Board carried out a robust assessment
of our principal and emerging risks and uncertainties which could
threaten the Company's business model, as detailed above, along
with the controls in place to mitigate these risks.
During 2020 there has been significant global economic
volatility bought about by the Covid-19 global pandemic, which has
impacted the UK Equity Investment Trust Sector, as many listed
companies took steps to suspend or cut their dividend payments. A
detailed overview of the response by the Board and Company to
Covid-19 can be found in the full annual report and accounts. In
light of the current conditions, the Board has considered the
Company's current financial position and the potential impact of
its principal risks and uncertainties, and has a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due for a period of three
years from the date of this annual report.
Repurchase of shares
At the 2020 AGM the Directors were given power to buy back
17,753,225 ordinary shares or if less the number of shares equal to
14.99% of the Company's issued share capital at that date. During
the year, the Company did not repurchase any of its shares for
cancellation. This authority will expire at the 2021 AGM. The
Company intends to seek shareholder approval to renew its powers to
repurchase shares for cancellation up to 14.99% of the Company's
issued share capital if circumstances are appropriate, at the 2021
AGM.
Share capital and significant shareholdings
The Company's share capital is made up of ordinary shares with a
nominal value of 5p each. The voting rights of the shares on a poll
are one vote for every share held. There are no restrictions on the
transfer of the Company's ordinary shares or voting rights and no
shares which carry specific rights with regard to the control of
the Company. There are no other classes of share capital and none
of the Company's issued shares are held in treasury. As at 31
December 2020, there were 118,454,562 ordinary shares in issue with
118,454,562 voting rights. Note 18 in the full annual report and
accounts includes details of share capital changes in the year.
As at 25 February 2021, there were no shareholders that had
notified the Company of a beneficial interest in 3% or more of the
issued share capital. Share information as required by section 992
of the Companies Act 2006 appears in the full annual report and
accounts.
Significant financial issues relating to the 2020 accounts
The Code requires us to describe any significant issues
considered in relation to the financial statements and how those
issues were addressed.
No new significant issues arose during the course of the audit.
As reported in previous years, an area of consideration is that
relating to bad debt provisions.
Management makes an estimate of a number of bad debt provisions
for non-collection of fees and costs as part of the risk management
and control framework.
Other issues that arose included: the risk that portfolio
investments may not be beneficially owned or correctly valued; and
that revenue is appropriately recognised. The Committee has
received assurance on these matters from management.
The Committee is satisfied that the judgements made by
management are reasonable and that appropriate disclosures have
been included in the accounts. Taken in its entirety, the Committee
was able to conclude that the financial statements themselves and
the annual report as a whole are fair, balanced and understandable
and provide the necessary information for shareholders to assess
the Company and Group's position and performance, business model
and strategy. That conclusion was reported to the Board.
Directors' responsibility statement pursuant to DTR4
The Directors confirm to the best of their knowledge that:
-- the financial statements have been prepared in accordance
with international financial reporting standards adopted pursuant
to Regulation (EC) No 1606/2002 as it applies in the European Union
and give a true and fair view of the assets, liabilities, financial
position and profit and loss of the Group; and
-- the annual report includes a fair review of the development
and performance of the business and the financial position of the
Group, together with a description of the principal risks and
uncertainties that they face.
By order of the Board
Law Debenture Corporate Services Limited
Company Secretary
25 February 2021
Group income statement
as at 31 December 2020
2020 2019
-------------------------------- ---------------------------------- ------------------------------
Revenue Capital Total* Revenue Capital Total*
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------------- ---------- ---------- ---------- --------- -------- ---------
UK dividends 14,794 - 14,794 23,458 - 23,458
UK special dividends 458 - 458 2,364 - 2,364
Overseas dividends 2,685 - 2,685 3,294 - 3,294
Overseas special dividends - - - 85 - 85
-------------------------------- ----------
17,937 - 17,937 29,201 - 29,201
Interest income 89 - 89 706 - 706
Independent professional
services fees 38,898 - 38,898 36,815 - 36,815
Other income 219 - 219 20 - 20
-------------------------------- ---------- ---------- ---------- --------- -------- ---------
Total income 57,143 - 57,143 66,742 - 66,742
-------------------------------- ---------- ---------- ---------- --------- -------- ---------
Net (loss)/gain on investments
held at fair value through
profit or loss - (16,354) (16,354) - 100,023 100,023
-------------------------------- ---------- ---------- ---------- --------- -------- ---------
Total income and capital
gains/(losses) 57,143 (16,354) 40,789 66,742 100,023 166,765
-------------------------------- ---------- ---------- ---------- --------- -------- ---------
Cost of sales (4,405) - (4,405) (5,026) - (5,026)
Administrative expenses (24,879) (2,216) (27,095) (22,835) (2,379) (25,214)
Provision for onerous
contracts 118 - 118 113 - 113
-------------------------------- ---------- ---------- ---------- --------- -------- ---------
Operating profit/(loss) 27,977 (18,570) 9,407 38,994 97,644 136,638
Finance costs
Interest payable (1,320) (3,958) (5,278) (1,319) (3,958) (5,277)
-------------------------------- ----------
Profit/(loss) before taxation 26,657 (22,528) 4,129 37,675 93,686 131,361
Taxation (1,178) - (1,178) (1,420) - (1,420)
-------------------------------- ----------
Profit/(loss) for the
year 25,479 (22,528) 2,951 36,255 93,686 129,941
-------------------------------- ---------- ---------- ---------- --------- -------- ---------
Return per ordinary share
(pence) 21.56 (19.06) 2.50 30.68 79.27 109.95
Diluted return per ordinary
share (pence) 21.56 (19.06) 2.50 30.67 79.27 109.94
-------------------------------- ---------- ---------- ---------- --------- -------- ---------
Statement of comprehensive income
as at 31 December 2020
2020 2019
--------------------------------------- ----------------------------- -------------------------
Revenue Capital Total Revenue Capital Total
GROUP GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------------------- -------- --------- -------- ------- ------- -------
Profit for the year 25,479 (22,528) 2,951 36,255 93,686 129,941
--------------------------------------- -------- --------- -------- ------- ------- -------
Items that will or may be reclassified
to profit or loss:
--------------------------------------- -------- --------- -------- ------- ------- -------
Foreign exchange on translation of
foreign operations - 105 105 - (214) (214)
--------------------------------------- -------- --------- -------- ------- ------- -------
Items that will not be reclassified
to profit or loss:
--------------------------------------- -------- --------- -------- ------- ------- -------
Pension actuarial losses (6,500) - (6,500) (800) - (800)
Taxation on pension 1,235 - 1,235 152 - 152
--------------------------------------- -------- --------- -------- ------- ------- -------
Other comprehensive loss for the year (5,265) 105 (5,160) (648) (214) (862)
--------------------------------------- -------- --------- -------- ------- ------- -------
Total comprehensive (loss)/income
for the year 20,214 (22,423) (2,209) 35,607 93,472 129,079
--------------------------------------- -------- --------- -------- ------- ------- -------
Statement of financial position
as at 31 December 2020
GROUP COMPANY
2020 2019 2020 2019
Assets GBP000 GBP000 GBP000 GBP000
----------------------------------------- --------- --------- --------- ---------
Non-current assets
----------------------------------------- --------- --------- --------- ---------
Goodwill 1,914 1,930 - -
Property, plant and equipment 1,088 64 - -
Right-of-use asset 5,413 1,057 - -
Other intangible assets 619 104 16 16
Investments held at fair value
through profit or loss 812,297 822,316 812,083 822,102
Investments in subsidiary undertakings - - 61,283 61,283
Retirement benefit asset - 2,700 - -
Deferred tax asset 771 - - -
----------------------------------------- --------- --------- --------- ---------
Total non-current assets 822,102 828,171 873,382 883,401
----------------------------------------- --------- --------- --------- ---------
Current assets
----------------------------------------- --------- --------- --------- ---------
Trade and other receivables 16,129 7,213 4,084 542
Other accrued income and prepaid
expenses 6,529 6,438 1,900 2,155
Cash and cash equivalents 41,762 71,236 32,098 46,128
----------------------------------------- --------- --------- --------- ---------
Total current assets 64,420 84,887 38,172 48,825
----------------------------------------- --------- --------- --------- ---------
Total assets 886,522 913,058 911,554 932,226
----------------------------------------- --------- --------- --------- ---------
Current liabilities
----------------------------------------- --------- --------- --------- ---------
Amounts owed to subsidiary undertakings - - 61,698 53,990
Trade and other payables 27,405 13,010 13,075 1,420
Lease liability - 730 - -
Corporation tax payable 238 710 - 20
Deferred tax liability - 83 - -
Other taxation including social
security 860 540 793 534
Deferred income 4,367 5,625 16 16
--------- ---------
Total current liabilities 32,870 20,698 75,582 55,980
----------------------------------------- --------- --------- --------- ---------
Non-current liabilities and deferred
income
----------------------------------------- --------- --------- --------- ---------
Long-term borrowings 114,201 114,157 74,569 74,551
Deferred income 4,011 2,463 125 135
Lease liability 5,606 350 - -
Retirement benefit liability 2,840 - - -
Provision for onerous contracts - 118 - -
----------------------------------------- --------- --------- --------- ---------
Total non-current liabilities 126,658 117,088 74,694 74,686
----------------------------------------- --------- --------- --------- ---------
Total net assets 726,994 775,272 761,278 801,560
----------------------------------------- --------- --------- --------- ---------
Equity
----------------------------------------- --------- --------- --------- ---------
Called up share capital 5,923 5,921 5,923 5,921
Share premium 9,277 9,147 9,277 9,147
Own shares (1,461) (1,332) - -
Capital redemption 8 8 8 8
Translation reserve 2,002 1,897 - -
Capital reserves 674,591 697,119 733,189 755,717
Retained earnings 36,654 62,512 12,881 30,767
--------- ---------
Total equity 726,994 775,272 761,278 801,560
----------------------------------------- --------- --------- --------- ---------
Total equity pence per share 615.19 655.76
----------------------------------------- --------- --------- --------- ---------
As permitted by Section 408 of the Companies Act 2006, the
Company has not presented its own income statement, however its
gain for the year was GBP5,658,000 (2019: gain GBP122,817,000).
Approved and authorised for issue by the Board on 25 February 2021
and signed on its behalf by:
R. Hingley, Chairman | D. Jackson, Chief Executive Officer
Registered number 30397.
Statement of changes in equity
as at 31 December 2020
Called
up share Share Own Capital Translation Capital Retained
capital premium shares redemption reserve reserves earnings Total
GROUP GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------- ---------- --------- --------- ------------ ------------ ---------- ---------- ----------
Balance at
1 January
2020 5,921 9,147 (1,332) 8 1,897 697,119 62,512 775,272
-------------------- ---------- --------- --------- ------------ ------------ ---------- ---------- ----------
Net gain for
the period - - - - - (22,528) 25,479 2,951
Foreign exchange - - - - 105 - - 105
Actuarial
gain on pension
scheme (net
of tax) - - - - - - (5,265) (5,265)
-------------------- ---------- --------- --------- ------------ ------------ ---------- ---------- ----------
Total comprehensive
loss
for the period - - - - 105 (22,528) 20,214 (2,209)
Issue of shares 2 130 - - - - - 132
Movement in
own shares - - (129) - - - - (129)
Dividend relating
to 2019 - - - - - - (22,976) (22,976)
Dividend relating
to 2020 - - - - - - (23,096) (23,096)
Statute barred
dividends - - - - - - - -
-------------------- ---------- --------- --------- ------------ ------------ ---------- ---------- ----------
Total equity
at
31 December
2020 5,923 9,277 (1,461) 8 2,002 674,591 36,654 726,994
-------------------- ---------- --------- --------- ------------ ------------ ---------- ---------- ----------
Called
up share Share Own Capital Translation Capital Retained
capital premium shares redemption reserve reserves earnings Total
GROUP GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------- ---------- --------- --------- ------------ ------------ ---------- ---------- ----------
Balance at
1 January
2019 5,919 8,904 (966) 8 2,111 603,433 49,955 669,364
-------------------- ---------- --------- --------- ------------ ------------ ---------- ---------- ----------
Net gain for
the period - - - - - 93,686 36,255 129,941
Foreign exchange - - - - (214) - - (214)
Actuarial
gain on pension
scheme (net
of tax) - - - - - - (648) (648)
-------------------- ---------- --------- --------- ------------ ------------ ---------- ---------- ----------
Total comprehensive
income
for the period - - - - (214) 93,686 35,607 129,079
Issue of shares 2 243 - - - - - 245
Movement in
own shares - - (366) - - - - (366)
Dividend relating
to 2018 - - - - - - (15,272) (15,272)
Dividend relating
to 2019 - - - - - - (7,813) (7,813)
Statute barred
dividends - - - - - - 35 35
-------------------- ---------- --------- --------- ------------ ------------ ---------- ---------- ----------
Total equity
at
31 December
2019 5,921 9,147 (1,332) 8 1,897 697,119 62,512 775,272
-------------------- ---------- --------- --------- ------------ ------------ ---------- ---------- ----------
Capital reserves comprises realised and unrealised gains on
investments held at fair value through profit or loss.
share Share Own Capital Translation Capital Retained
capital premium shares redemption reserve reserves earnings Total
COMPANY GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------- --------- --------- -------- ------------ ------------ ---------- ---------- ----------
Balance at
1 January
2020 5,921 9,147 - 8 - 755,717 30,767 801,560
--------------------- --------- --------- -------- ------------ ------------ ---------- ---------- ----------
Total comprehensive
gain
for the period - - - - - (22,528) 28,186 5,658
--------------------- --------- --------- -------- ------------ ------------ ---------- ---------- ----------
Issue of shares 2 130 - - - - - 132
Dividend relating
to 2019 - - - - - - (22,976) (22,976)
Dividend relating
to 2020 - - - - - - (23,096) (23,096)
Statute barred
dividends - - - - - - - -
--------------------- --------- --------- -------- ------------ ------------ ---------- ---------- ----------
Total equity
at
31 December
2020 5,923 9,277 - 8 - 733,189 12,881 761,278
--------------------- --------- --------- -------- ------------ ------------ ---------- ---------- ----------
share Share Own Capital Translation Capital Retained
capital premium shares redemption reserve reserves earnings Total
COMPANY GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------- --------- --------- -------- ------------ ------------ ---------- ---------- ---------
Balance at
1 January
2019 5,919 8,904 - 8 - 662,031 24,686 701,548
--------------------- --------- --------- -------- ------------ ------------ ---------- ---------- ---------
Total comprehensive
gain
for the period - - - - - 93,686 29,131 122,817
--------------------- --------- --------- -------- ------------ ------------ ---------- ---------- ---------
Issue of shares 2 243 - - - - - 245
Dividend relating
to 2018 - - - - - - (15,272) (15,272)
Dividend relating
to 2029 - - - - - - (7,813) (7,813)
Statute barred
dividends - - - - - - 35 35
--------------------- --------- --------- -------- ------------ ------------ ---------- ---------- ---------
Total equity
at
31 December
2019 5,921 9,147 - 8 - 755,717 30,767 801,560
--------------------- --------- --------- -------- ------------ ------------ ---------- ---------- ---------
Capital reserves comprises realised and unrealised gains on
investments held at fair value through profit or loss.
Statement of cash flows
for the year ended 31 December 2020
GROUP COMPANY
---------------------------------------------- ----------------------- ---------- -----------
2020 2019 2020 2019
GBP000 GBP000 GBP000 GBP000
---------------------------------------------- ---------- ----------- ---------- -----------
Operating activities
Operating profit before interest payable
and taxation 9,406 136,638 10,843 128,207
Losses/(gains) on investments 18,570 (97,644) 18,570 (97,644)
Non-cash dividends - - (10,000) -
Foreign exchange losses/(gains) 19 20 - -
Depreciation of property, plant and
equipment 37 55 - -
Depreciation of right-of-use assets 1,179 1,101 - -
Interest on lease liability 49 99 - -
Amortisation of intangible assets 59 104 - -
Loss on sale of fixed assets (15) - - -
Decrease/(increase) in receivables (9,007) (958) (3,377) (626)
(Decrease)/increase in payables 14,926 1,298 11,922 60
Transfer from capital reserves (1,341) (1,680) (1,341) (1,680)
Normal pension contributions in excess
of cost (960) (1,000) - -
---------------------------------------------- ---------- ----------- ---------- -----------
Cash generated from operating activities 32,922 38,033 26,617 28,317
Taxation (1,103) (663) - -
Operating cash flow 31,819 37,370 26,617 28,317
---------------------------------------------- ---------- ----------- ---------- -----------
Investing activities
---------------------------------------------- ---------- ----------- ---------- -----------
Acquisition of property, plant and equipment (1,079) (21) - -
Expenditure on intangible assets (574) (23) - (16)
Purchase of investments (173,831) (163,106) (173,831) (163,106)
Sale of investments 166,908 102,888 166,908 102,888
Acquisition of subsidiary undertakings - - - (50)
Cash flow from investing activities (8,576) (60,262) (6,923) (60,284)
---------------------------------------------- ---------- ----------- ---------- -----------
Financing activities
---------------------------------------------- ---------- ----------- ---------- -----------
Intercompany funding - - 17,708 6,150
Interest paid (5,278) (5,277) (5,206) (5,390)
Dividends paid (46,071) (23,050) (46,071) (23,050)
Payment of lease liability (1,163) (1,177) - -
Proceeds of increase in share capital 132 245 132 245
Purchase of own shares (129) (366) - -
Net cash flow from financing activities (52,509) (29,625) (33,437) (22,045)
---------------------------------------------- ---------- ----------- ---------- -----------
Net (decrease)/increase in cash and
cash equivalents (29,266) (52,517) (13,743) (54,012)
---------------------------------------------- ---------- ----------- ---------- -----------
Cash and cash equivalents at beginning
of period 71,236 124,148 46,128 100,321
Foreign exchange (losses)/gains on cash
and cash equivalents (208) (395) (287) (181)
Cash and cash equivalents at end of
period 41,762 71,236 32,098 46,128
---------------------------------------------- ---------- ----------- ---------- -----------
Extracts from the Notes to the Accounts
Going concern
The financial statements have been prepared on a going concern
basis and under the historical cost basis of accounting, modified
to include the revaluation of investment at fair value.
The assets of the Company consist of securities that are readily
realisable and, accordingly, the Directors believe that the Company
has adequate resources to continue in operational existence for at
least 12 months from the date of approval of the financial
statements.
The Directors have also considered the impact of Covid-19,
including cash flow forecasting, balances sheet review at entity
level, a review of covenant compliance including the headroom above
the covenants and an assessment of the liquidity of the portfolio.
A detailed overview of these considerations can be found in the
section on our response to Covid-19, in the full annual report and
accounts. They have concluded that the Group is able to meet its
financial obligations, including the repayment of the debenture
interest, as they fall due for a period of at least 12 months from
the date of approval of the financial statements. Having assessed
these factors and the principal risks, the Directors are not aware
of any material uncertainties that cast significant doubt on the
Group's ability to continue as a going concern.
The Directors have also considered the wider operational
consequences and ramifications of the Covid-19 pandemic. As
explained in the Chief Executive Officer's report our business
infrastructure has proved resilient in protecting the safety of our
employees and maintaining our high levels of client service as the
vast majority of Group staff work from home. We continue to review
our approach in line with latest developments and government
guidance.
Provision for onerous contracts
GROUP 2020 2019
GBP000 GBP000
-------------------------------------- -------- --------
At 1 January 118 236
(Release) made in the year (118) (113)
Utilisation of provision in the year - -
Foreign exchange - (5)
-------------------------------------- -------- --------
At 31 December - 118
-------------------------------------- -------- --------
In December 2016 the Group completed the disposal of
substantially all of its US corporate trust business for a
consideration of $1. The disposal was the completion of the first
part of a strategy to exit the US corporate trust business, so as
to release $50m of capital required by the business. At the time of
disposal the contracts remaining were assessed and deemed to
generate insufficient income to cover the costs of running and
financing the remainder of the business up to the eventual date of
its closure. A provision for onerous costs of GBP3,106,000
representing the expected net future costs up to the date of
disposal or completion of the remaining contracts was included in
the year ended 31 December 2016. The business was closed during
2020 and the remaining provision of GBP118,000 was released (2019:
release of GBP113,000). No provision was required at 31 December
2020.
Segment analysis
Independent
professional
Investment portfolio services Group charges Total
---------------- ------------------------ ------------------------- ---------------------- -----------------------
31 31 31 31 31 31
December 31 December December 31 December December December December December
2020 2019 2020 2019 2020 2019 2020 2019
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------- ---------- ------------ ---------- ------------- ---------- ---------- ---------- -----------
Revenue
---------------- ---------- ------------ ---------- ------------- ---------- ---------- ---------- -----------
Segment income 17,937 29,201 38,898 36,815 - - 56,835 66,016
Other income 213 17 6 3 - - 219 20
Cost of sales - - (4,405) (5,026) - - (4,405) (5,026)
Administration
costs (2,570) (2,186) (22,301) (20,536) (8) (113) (24,879) (22,835)
Release of
onerous
contracts - - - - 118 113 118 113
---------------- ---------- ------------ ---------- ------------- ---------- ---------- ---------- -----------
15,580 27,032 12,198 11,256 110 - 27,888 38,288
Interest
payable
(net) (1,260) (822) 29 209 - - (1,231) (613)
---------------- ---------- ------------ ---------- ------------- ---------- ---------- ---------- -----------
Return,
including
profit on
ordinary
activities
before
taxation 14,320 26,210 12,227 11,465 110 - 26,657 37,675
---------------- ---------- ------------ ---------- ------------- ---------- ---------- ---------- -----------
Taxation - - (1,178) (1,370) - (50) (1,178) (1,420)
---------------- ---------- ------------ ---------- ------------- ---------- ---------- ---------- -----------
Return,
including
profit
attributable
to
shareholders 14,320 26,210 11,049 10,095 110 (50) 25,479 36,255
---------------- ---------- ------------ ---------- ------------- ---------- ---------- ---------- -----------
Revenue return
per ordinary
share (pence) 12.12 22.18 9.35 8.54 0.09 (0.04) 21.56 30.68
---------------- ---------- ------------ ---------- ------------- ---------- ---------- ---------- -----------
Assets 850,255 870,944 36,246 42,021 21 50 886,522 913,015
Liabilities (146,992) (126,399) (12,536) (11,226) - (118) (159,528) (137,743)
---------------- ---------- ------------ ---------- ------------- ---------- ---------- ---------- -----------
Total net
assets 703,263 744,545 23,710 30,795 21 (68) 726,994 775,272
---------------- ---------- ------------ ---------- ------------- ---------- ---------- ---------- -----------
For the purposes of reporting segmental performance, the table
above presents a split of the revenue column between the investment
portfolio, the IPS business and Group charges. Group dividends are
paid from the investment portfolio segment of revenue reserves.
Geographic location of revenue : 90% of revenue is based in the
UK. Geographic location is based on the jurisdiction in which the
contracting legal entity is based.
Major customers : Due to the diverse nature of the IPS revenue
streams, there is no single customer or concentration of customers
that represents more than 2% of gross revenue streams.
Capital element : The capital element of the income statement is
wholly gains and losses relating to investments held at fair value
through profit and loss (2020 loss of GBP16,354,000; 2019 gain of
GBP100,023,000), administrative expenses (2020: GBP2,216,000; 2019:
GBP2,379,000) and interest payable (2020: GBP3,958,000; 2019:
GBP3,958,000) which corresponds to amounts classified as capital in
nature in accordance with the SORP are shown in the capital column
of the income statement above.
Details regarding the segments are included in the Group summary
and notes to the accounts in the full annual report and
accounts.
The total of the capital element and the table above is loss of
GBP8,208,000 (2019: gain of GBP119,896,000).
Financial instruments
The principal risks facing the Group in respect of its financial
instruments remain unchanged from 2019 and are:
Market risk
Price risk, arising from uncertainty in the future value of
financial instruments. The Board maintains strategy guidelines
whereby risk is spread over a range of investments, the number of
holdings normally being between 70 and 150. In addition, the stock
selections and transactions are actively monitored throughout the
year by the investment manager, who reports to the Board on a
regular basis to review past performance and develop future
strategy. The investment portfolio is exposed to market price
fluctuation: if the valuation at 31 December 2020 fell or rose by
10%, the impact on the Group's total profit or loss for the year
would have been GBP81.2m (2019: GBP82.2m). Corresponding 10%
changes in the valuation of the investment portfolio on the
Company's total profit or loss for the year would have been
GBP81.2m (2019: GBP82.2m).
Foreign currency risk, arising from movements in currency rates
applicable to the Group's investment in equities and fixed interest
securities and the net assets of the Group's overseas subsidiaries
denominated in currencies other than sterling. The Group's
financial assets denominated in currencies other than sterling
were:
2020 2019
------------------ -------------------------------------------- --------------------------------------------
Net monetary Total currency Net monetary Total currency
GROUP Investments assets exposure Investments assets exposure
GBPm GBPm GBPm GBPm GBPm GBPm
------------------ ------------ ------------- --------------- ------------ ------------- ---------------
US Dollar 40.1 11.7 51.8 70.7 5.0 75.7
Canadian Dollar 5.5 - 5.5 7.2 - 7.2
Euro 65.2 0.4 65.6 49.6 0.7 50.3
Danish Krone 2.3 - 2.3 2.9 - 2.9
Swedish Krona - - - 1.0 - 1.0
Swiss Franc 9.5 - 9.5 11.0 - 11.0
Hong Kong Dollar - 1.0 1.0 - 0.4 0.4
Japanese Yen 9.3 - 9.3 8.7 - 8.7
------------------ ------------ ------------- --------------- ------------ ------------- ---------------
131.9 13.1 145.0 151.1 6.1 157.2
------------------ ------------ ------------- --------------- ------------ ------------- ---------------
The Group US dollar net monetary assets is that held by the US
operations of GBP1.4m (2019: GBP3.1m) together with GBP10.3m (2019:
GBP1.2m) held by non-US operations.
2020 2019
----------------- -------------------------------------------- ----------------------------------------------
Net monetary Total currency Net monetary Total currency
COMPANY Investments assets exposure Investments (liabilities) exposure
GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ------------ ------------- --------------- ------------ --------------- ---------------
US Dollar 40.1 9.9 50.0 70.7 0.1 70.8
Canadian Dollar 5.5 - 5.5 7.2 - 7.2
Euro 65.2 - 65.2 49.6 - 49.6
Danish Krone 2.3 - 2.3 2.9 - 2.9
Swedish Krona - - - 1.0 - 1.0
Swiss Franc 9.5 - 9.5 11.0 - 11.0
Japanese Yen 9.3 - 9.3 8.7 - 8.7
----------------- ------------ ------------- --------------- ------------ --------------- ---------------
131.9 9.9 141.8 151.1 0.1 151.2
----------------- ------------ ------------- --------------- ------------ --------------- ---------------
The holding in Scottish Oriental Smaller Companies Trust is
denominated in sterling but has underlying assets in foreign
currencies equivalent to GBP7.1m (2019: GBP7.2m which included
GBP23.0m in Baillie Gifford Pacific and Stewart Investors Asia
Pacific OEICs which were sold in 2019). Investments made in the UK
and overseas have underlying assets and income streams in foreign
currencies which cannot easily be determined and have not been
included in the sensitivity analysis. If the value of all other
currencies at 31 December 2020 rose or fell by 10% against
sterling, the impact on the Group's total profit or loss for the
year would have been GBP15.5m and GBP12.5m respectively (2019:
GBP17.6m and GBP14.2m). Corresponding 10% changes in currency
values on the Company's total profit or loss for the year would
have been the same. The calculations are based on the investment
portfolio at the respective year end dates and are not
representative of the year as a whole.
Interest rate risk , arising from movements in interest rates on
borrowing, deposits and short-term investments. The Board reviews
the mix of fixed and floating rate exposures and ensures that
gearing levels are appropriate to the current and anticipated
market environment. The Group's interest rate profile was:
2020
GROUP COMPANY
------------------------------------------ ----------------------
Sterling HK Dollars US Dollars Euro Sterling US Dollars
GBPm GBPm GBPm GBPm GBPm GBPm
--------------- --------- ----------- ----------- ----- --------- -----------
Floating rate
assets 28.2 1.0 11.7 0.4 22.0 9.9
--------------- --------- ----------- ----------- ----- --------- -----------
2019
GROUP COMPANY
------------------------------------------ ----------------------
Sterling HK Dollars US Dollars Euro Sterling US Dollars
GBPm GBPm GBPm GBPm GBPm GBPm
--------------- --------- ----------- ----------- ----- --------- -----------
Floating rate
assets 65.1 0.4 5.0 0.7 46.0 0.1
--------------- --------- ----------- ----------- ----- --------- -----------
The Group holds cash and cash equivalents on short-term bank
deposits and money market funds. Interest rates tend to vary with
bank base rates. The investment portfolio is not directly exposed
to interest rate risk.
GROUP COMPANY
-------------------- --------------------
2020 2019 2020 2019
Sterling Sterling Sterling Sterling
GBPm GBPm GBPm GBPm
----------------------------- --------- --------- --------- ---------
Fixed rate liabilities 114.2 114.2 74.5 74.6
----------------------------- --------- --------- --------- ---------
Weighted average fixed rate
for the year 4.589% 4.589% 3.770% 3.770%
----------------------------- --------- --------- --------- ---------
If interest rates during the year were 1.0% higher the impact on
the Group's total profit or loss for the year would have been
GBP458,000 credit (2019: GBP791,000 credit). It is assumed that
interest rates are unlikely to fall below the current level.
The Company holds cash and cash equivalents on short-term bank
deposits and money market funds, it also has short-term borrowings.
Amounts owed to subsidiary undertakings include GBP40m at a fixed
rate. Interest rates on cash and cash equivalents and amounts due
to subsidiary undertakings at floating rates tend to vary with bank
base rates. A 1.0% increase in interest rates would have affected
the Company's profit or loss for the year by GBP317,000 credit
(2019: GBP593,000 credit). The calculations are based on the
balances at the respective year end dates and are not
representative of the year as a whole.
Liquidity risk
Is the risk arising from any difficulty in realising assets or
raising funds to meet commitments associated with any of the above
financial instruments. To minimise this risk, the Board's strategy
largely limits investments to equities and fixed interest
securities quoted in major financial markets. In addition, cash
balances are maintained commensurate with likely future
settlements. The maturity of the Group's existing borrowings is set
out in the full annual report and accounts. The interest on
borrowings is paid bi-annually on March and September for the 2045
secured senior notes and April and October for the 2034 secured
bonds.
Credit risk
Is the risk arising from the failure of another party to perform
according to the terms of their contract. The Group minimises
credit risk through policies which restrict deposits to highly
rated financial institutions and restrict the maximum exposure to
any individual financial institution. The Group's maximum exposure
to credit risk arising from financial assets is GBP57.9m (2019:
GBP78.4m). The Company's maximum exposure to credit risk arising
from financial assets is GBP36.2m (2019: 46.7m).
Stock lending
Stock lending agreements are transactions in which the Group
lends securities for a fee and receives cash as collateral. The
Group continues to recognise the securities in their entirety in
the statement of financial position because it retains
substantially all of the risks and rewards of ownership. Because as
part of the lending arrangement the Group sells the contractual
rights to the cash flows of the securities, it does not have the
ability to use the transferred assets during the term of the
arrangement.
Stock lending transactions are carried out with a number of
approved counterparties. Details of the value of securities on loan
at the year end can be found in the full annual report and
accounts. In summary, the Group only transacts with counterparties
that it considers to be credit worthy.
Trade and other receivables
Trade and other receivables not impaired but past due by the
following:
GROUP COMPANY
------- ------- ------- --------
2020 2019 2020 2019
GBP000 GBP000 GBP000 GBP000
------------------- ------- ------- ------- --------
Between 31 and 60
days 1,550 1,225 - -
Between 61 and 90
days 1,044 219 - -
More than 91 days 4,804 2,330 - -
------------------- ------- ------- ------- --------
Total 7,398 3,774 - -
------------------- ------- ------- ------- --------
IFRS 9 credit loss rates
The Group applies the IFRS 9 simplified approach to measuring
expected credit losses using a lifetime expected credit loss
provision for trade receivables and contract assets. To measure
expected credit losses trade receivables are grouped based on
similar risk characteristics including business area and business
geography and ageing.
The expected loss rates are based on the Company's historical
credit losses experienced over a three-year period prior to the
year end. The historical loss rates are adjusted for current and
forward-looking information on macroeconomic factors affecting the
Company's customers. The Group has identified gross domestic
product (GDP) and unemployment trends act as key economic
indicators which may impact our customers' future ability to pay
debt. At 31 December 2020 the provision in relation to IFRS 9
resulting from credit loss rates is GBP790,000.
The below table display the gross carrying amount against the
expected credit loss provision on Group trade receivables. Excluded
from the table below are specific provisions of GBP2,416,000 which
relate to balances 91+ days overdue.
The total specific and credit loss provision at 31 December 2020
is GBP3,206,000 (2019: GBP2,907,000).
Current 1-30 days 31-60 days 61-90 days 91+ days Total
GBP000 overdue overdue overdue overdue GBP000
GBP000 GBP000 GBP000 GBP000
------------------------- -------- ---------- ----------- ----------- --------- --------
31 December 2020
Expected loss rate 4.04% 6.23% 4.43% 8.01% 6.66% 6.25%
Gross carrying amount
(GBP000) 1,781 1,638 1,557 724 6,938 12,638
------------------------- -------- ---------- ----------- ----------- --------- --------
Loss provision (GBP000) (72) (102) (96) (58) (462) (790)
------------------------- -------- ---------- ----------- ----------- --------- --------
31 December 2019
Expected loss rate 2.54% 4.16% 5.85% 0% 3.27% 3.49%
Gross carrying amount
(GBP000) 1,733 1,129 991 181 3,637 7,670
------------------------- -------- ---------- ----------- ----------- --------- --------
Loss provision (GBP000) (44) (47) (58) - (119) (268)
------------------------- -------- ---------- ----------- ----------- --------- --------
Trade and other payables
Trade and other payables
-------------------------- ------- -------- ------- --------
GROUP COMPANY
------- -------- ------- --------
2020 2019 2020 2019
GBP000 GBP000 GBP000 GBP000
-------------------------- ------- -------- ------- --------
Due in less than one
month 27,139 12,686 13,075 1,420
Due in more than one
month and less than
three months 266 324 - -
-------------------------- ------- -------- ------- --------
27,405 13,010 13,075 1,420
-------------------------- ------- -------- ------- --------
Fair value
The Directors are of the opinion that the fair value of
financial assets and liabilities of the Group are not materially
different to their carrying values, with the exception of the
long-term borrowings. The Group's basis of fair value calculation
on these long-term borrowings uses quoted prices (unadjusted) in
active markets for identical liabilities that the entity can access
at the measurement date. The Group does not make adjustments to
quoted prices, only under specific circumstances, for example when
a quoted price does not represent the fair value (i.e. when a
significant event takes place between the measurement date and
market closing date).
Related party transactions
Group
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation.
Company
The related party transactions between the Company and its
wholly owned subsidiary undertakings are summarised as follows:
2020 2019
GBP000 GBP000
------------------------------------------- ------- -------
Dividends from subsidiaries 13,709 3,000
Interest on intercompany balances charged
by subsidiaries 2,378 2,562
Management charges from subsidiaries 700 600
------------------------------------------- ------- -------
The key management personnel are the Directors of the Company.
Details of their compensation are included in the notes to the
accounts and in Part 3 of the annual remuneration report in the
full annual report and accounts. Key management personnel costs
inclusive of employers national insurance are GBP1,352,977 (2019:
GBP1,529,583).
Annual General Meeting ("AGM")
The 131st Annual General Meeting will be held electronically on
7 April 2021 at 11.00am.
On 11 February 2021, at an Extraordinary General Meeting,
amendments to the Company's Articles of Association allowing
shareholders to attend, speak and vote electronically at the 2021
AGM and subsequent AGMs and general meetings, were approved.
Accordingly, this year's AGM will be held electronically to provide
shareholders with the opportunity to participate by virtual means,
given the ongoing Covid-19 related restrictions at the time of the
approval of the Notice of AGM.
Further details are included in the Notice of AGM included in
the full Annual Report and Accounts.
National Storage Mechanism
A copy of the annual report and accounts will be submitted to
the National Storage Mechanism ("NSM") on 3 March 2021 and will be
available for inspection at the NSM, which is situated at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
Copies of the annual report and accounts will be available from
the Company's registered office or on its website once published on
3 March 2021. This will be found at
https://www.lawdebenture.com/investment-trust/shareholder-information/financial-statements
Corporate Information
Directors Investment portfolio manager
Robert Hingley(*+) Janus Henderson Global Investors
Denis Jackson 201 Bishopsgate, London EC2M 3AE
Trish Houston
Robert Laing() Investment managers
Mark Bridgeman(#) James Henderson and Laura Foll are
Tim Bond joint managers. They also manage Lowland
Claire Finn Investment Company plc, Henderson
Opportunities Trust plc and the Henderson
(*) Chairman of the Board UK Equity Income & Growth Fund.
(+) Chairman of Nomination Committee
() Chairman of Remuneration Committee James joined Henderson Global Investors
(#) Chairman of Audit and Risk Committee (now Janus Henderson Investors) in
1983 and has been an investment trust
portfolio manager since 1990. He first
became involved in the management
of Law Debenture's portfolio in 1994
and took over lead responsibility
for management of the portfolio in
June 2003.
Laura joined Janus Henderson Investors
in 2009 and has held the position
of portfolio manager on the Global
Equity Income team since 2014. She
first became involved with Law Debenture's
portfolio in September 2011 and became
joint portfolio manager in 2019
Website
https://www.lawdebenture.com/
Registrar
Computershare Investor Services PLC
The Pavilions, Bridgwater Road, Bristol
BS99 6ZZ
T: 0370 707 1129
Auditors
BDO LLP, 55 Baker Street, London W1U
7EU
Alternative Investment Fund Manager Broker
The Law Debenture Corporation p.l.c. J.P. Morgan Cazenove Limited
25 Bank Street, London E14 5JP
Global custodian Depositary
HSBC Bank plc (under delegation by NatWest Trustee and Depositary Services
the depositary) Limited
8 Canada Square, London E14 5HQ 250 Bishopsgate, London EC2M 4AA
The Law Debenture Corporation p.l.c. is registered in England,
company registration number 30397. LEI number -
2138006E39QX7XV6PP21
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END
FR DKPBBDBKBBBB
(END) Dow Jones Newswires
February 26, 2021 02:00 ET (07:00 GMT)
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