Annual Report 2010 The Law Debenture Corporation p.l.c. Contents 1 Group summary 2 10 year record 3 Financial summary 4 Long term performance 5 The board 6 Chairman’s statement 7 Investment manager’s review 8 Top 20 equity holdings by value 9 Changes in geographical distribution 10 Classification of investments 12 Portfolio valuation 14 Management review – independent fiduciary services 16 Corporation advisers and information 17 Directors’ report 23 Corporate governance 28 Remuneration report 34 Independent auditors’ report 36 Group income statement 36 Statement of comprehensive income 37 Statement of financial position 38 Statement of changes in equity 40 Statements of cash flows 41 Notes to the accounts 63 Shareholder information 64 Financial calendar 65 Notice of annual general meeting 67 Notes to the notice of annual general meeting Group summary 1 From its origins in 1889, Law Debenture has diversified to become a group with a unique range of activities in the financial and professional services sectors. The group divides into two distinct complementary areas of business. Investment trust Independent fiduciary services We are a global investment trust, listed on We are a leading provider of independent the London Stock Exchange. fiduciary services. Our activities are corporate trusts, treasury management and Our portfolio of investments is managed structured finance administration, pension by Henderson Global Investors Limited trusts, corporate services (including agent under a contract terminable by either side for service of process), whistle blowing on 12 months’ notice. services and board effectiveness services. Our objective is to achieve long term capital We have offices in London, Sunderland, growth in real terms and steadily increasing New York, Delaware, Hong Kong, the income. The aim is to achieve a higher rate Channel Islands and the Cayman Islands. of total return than the FTSE All-Share Index Companies, agencies, organisations and through investing in a portfolio diversified individuals throughout the world rely upon both geographically and by industry. Law Debenture to carry out its duties with the independence and professionalism upon which its reputation is built. www.lawdeb.com The Law Debenture Corporation p.l.c. 2 10 year record 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Net assets1 (£m) 294.6 260.3 199.6 241.7 272.5 339.6 392.6 407.1 266.4 342.4 412.6 Revenue return2 (pence) 7.85 7.05 6.33 6.91 8.57 10.05 12.19 14.23 15.58 13.02 13.26 Capital return2 (pence) 5.08 (29.75) (50.12) 37.31 25.85 54.67 40.94 9.37 (120.59) 62.77 58.22 Total2 (pence) 12.93 (22.70) (43.79) 44.22 34.42 64.72 53.13 23.60 (105.01) 75.79 71.48 Revenue return2 (pence) Investment trust 5.45 4.07 4.10 4.51 5.06 5.73 7.07 8.60 10.23 7.33 7.07 Independent fiduciary services 2.40 2.98 2.23 2.40 3.51 4.32 5.12 5.63 5.35 5.69 6.19 7.85 7.05 6.33 6.91 8.57 10.05 12.19 14.23 15.58 13.02 13.26 Dividends2 (pence) 6.80 6.90 6.90 6.90 7.55 9.05 10.50 12.00 12.20 12.20 12.70 NAV1, 2 (pence) (after proposed final dividend) 252.6 222.9 170.5 201.9 228.1 284.0 328.2 339.6 219.2 284.0 342.9 Share price1, 2 (pence) 239.6 233.5 192.5 221.75 232.5 288.75 349.0 354.5 223.5 284.5 356.6 Premium/(discount)1 (%) (5.1) 4.7 12.9 9.8 1.9 1.7 6.3 4.4 2.0 0.2 4.0 Market capitalisation1 (£m) 279.4 272.7 225.3 260.0 273.2 339.7 410.8 417.4 263.8 335.9 418.6 Cost of running investment trust3 (% of average portfolio value) 0.47 0.53 0.56 0.55 0.52 0.51 0.49 0.49 0.48 0.54 0.43 1 At 31 December. 2 Pence per share as restated following a five for one share split in August 2002. 3 Cost of running investment trust in 2008 and 2009 excludes VAT refunds related to prior years. The information in respect of 2003-2010, is in accordance with International Financial Reporting Standards. The information in respect of 2000-2002 is in accordance with UK Generally Accepted Accounting Principles. The Law Debenture Corporation p.l.c. www.lawdeb.com Financial summary 3 Highlights 31 December 31 December 2010 2009 pence pence Share price 356.60 284.50 NAV per share after proposed final dividend 342.92 283.95 Revenue return per share – Investment trust 7.07 7.33 – Independent fiduciary services 6.19 5.69 Group revenue return per share 13.26 13.02 Capital return per share 58.22 62.77 Dividends per share 12.70 12.20 Performance 2010 2009 % % Share price total return1 30.5 34.4 NAV total return1 24.8 37.8 FTSE All-Share Index total return 14.5 30.1 1 Source AIC, including reinvestment of dividends. www.lawdeb.com The Law Debenture Corporation p.l.c. 4 Long term performance 5 years 10 years % % NAV total return1 48.4 100.0 FTSE Actuaries All-Share Index total return1 28.4 43.2 Share price total return1 49.7 111.5 Change in retail price index1 17.1 31.8 Annual revenue earnings growth 5.7 5.4 Annual dividend growth 7.0 6.5 Annual RPI change 3.2 2.8 1 Source: AIC. The performance data contained above has been compiled in accordance with AIC recommendations. Total returns assume the reinvestment of dividends. 20 year performance 1000 Law Debenture share price Law Debenture net asset value Law Debenture dividend per share FTSE All-Share Index RPI 500 400 300 Logarithmic Scale 200 100 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 The Law Debenture Corporation p.l.c. www.lawdeb.com The board 5 Douglas McDougall OBE John Kay Chairman Non-executive director Chairman of The Independent Investment Trust plc, Appointed to the board in September 2004. The European Investment Trust PLC and The Scottish Business economist, writer and broadcaster. Investment Trust plc and a director of The Monks Visiting Professor at the London School of Investment Trust, Pacific Horizon Investment Trust, Economics. Founded London Economics, Britain’s Herald Investment Trust and Stramongate Assets plc. largest independent economic consultancy. Director Former joint senior partner of Baillie Gifford & Co, of SVM UK Active Fund plc, Value and Income Trust investment managers, and former chairman of IMRO, plc, Scottish Mortgage Investment Trust plc and of the Association of Investment Trust Companies Clear Capital, an equity research boutique. and of the Fund Managers’ Association. Joined the He writes a weekly column for the Financial Times. board in 1998, becoming chairman in 2000. Member of the audit, remuneration and nomination Chairman of the remuneration and nomination committees and chairman of L.D. Pension Plan committees, and a member of the audit committee. Trustee Limited. Caroline Banszky Christopher Smith Managing director Non-executive director Appointed to the board in January 2002. Former Appointed to the board on 1 March 2009. chief operating officer of SVB Holdings PLC (now Former Managing Director–Corporate Finance for called Novae plc), a Lloyd’s listed integrated vehicle, JP Morgan Cazenove. Over 30 years experience in and former finance director of N.M. Rothschild & corporate finance and equity capital markets. He is Sons Limited. a member of the Panel on Takeovers and Mergers, a non-executive director of CG Asset Management Armel Cates Limited and a director of Allchurches Trust Limited. Non-executive director A former partner of Clifford Chance and appointed He is chairman of the audit committee, a member to the board in February 2001. Wide experience of the remuneration and nomination committees, of capital markets transactions including medium chairman of L.D.C. Trust Management Limited and term note programmes, securitisations and chairman of Law Debenture Trust Company of repackagings. Director of Fatburen Investment BV New York Inc. and of Charterhouse-in-Southwark Trustee Company. A member of the remuneration, nomination and audit committees and a director of the L.D.C. Trust Management Limited board. Investment manager James Henderson Joined Henderson Global Investors in 1983 and has been an investment trust portfolio manager since 1990, managing Lowland Investment Company plc since then and Henderson Opportunities Trust plc since January 2006. He first became involved in the management of Law Debenture’s portfolio in 1994 and took over sole management of the portfolio in June 2003. www.lawdeb.com The Law Debenture Corporation p.l.c. 6 Chairman’s statement Performance Independent fiduciary services Our net asset value total return for the year to 31 December New transactions and appointments continued to be below 2010 was 24.8%, compared to a total return of 14.5% for the historic levels, but a combination of high activity from existing FTSE Actuaries All-Share Index. Net revenue return per share business and strict cost control led to an increase in profits. was 13.26p, an increase of 1.8% over the previous year, as a Future improvement in profits is dependent upon continued result of a 3.5% fall in the investment trust and an 8.8% global growth and an increase in capital market transactions.