ANNUAL REPORT 2018 The Law Debenture Corporation p.l.c. AT A GLANCE A differentiated investment proposition A PROUD HISTORY 130 years of value creation for shareholders STRENGTH AND DIVERSITY OF INCOME 39% of total dividend funded by our Independent Professional Services business LONG-TERM DIVIDEND GROWTH of increasing or maintaining dividends to shareholders (55% increase in dividend 40 years over the last ten years) CONSISTENT LONG-TERM OUTPERFORMANCE OF BENCHMARK outperformance of benchmark over three years, 38% over five years 40% and 44% over ten years Key statistics for the year ended 31 December 2018 614.1p 9.2% (5.8)% NAV per share Proposed increase in 2018 NAV total return for the year (2017: 669.5p) dividend per share (2017: 16.6%) (2017: 3.6%) 725.9m1 9.2% (9.5)% Net Asset Value Increase in normalised Benchmark total return for the year (2017: 791.1m) revenue return per share (2017: 13.1%) 1 Please refer to note 10 on page 76 for calculation of net asset value lawdebenture.com AT A GLANCE AT Contents AT A GLANCE FINANCIAL STATEMENTS Overview 2 Independent auditor’s report 57-61 Financial summary and performance 3 Group income statement 62 Statement of comprehensive income 62 STRATEGIC INFORMATION Statement of financial position 63 Statement of changes in equity 64-65 Chairman’s statement 4-5 Statements of cash flows 66 Chief executive officer’s review 6-10 Notes to the accounts 67-90 Investment manager’s review 12-15 Twenty largest holdings 16-17 CORPORATE INFORMATION Sector and geographical distribution 18 Classification of investments 19 Alternative performance measures 91 Investment portfolio valuation 20-22 Financial calendar 92 Changes in geographical distribution 22 Subsidiary company details 92 Strategic report 24-29 Notice of annual general meeting (AGM) 93-94 Calculation of net asset value Notes to the notice of AGM 95-96 (NAV) per share 30 AGM venue 97 Long-term performance record 31 CORPORATE GOVERNANCE Directors’ report 32-34 Corporate governance 35-39 Audit committee report 40-41 Annual remuneration report 42-52 Company advisers and information 53 The board 54-55 1 AT A GLANCE Investment trust We are an investment trust with a net asset value of £726m1, listed on the London Stock Exchange. Law Debenture is an Our portfolio of investments is managed by James Henderson of Janus Henderson Investors. investment trust and Our objective is to achieve long-term capital growth in real terms and steadily increasing a leading provider of income. The aim is to achieve a higher rate of total return than the FTSE Actuaries All-Share independent professional Index Total Return through investing in a diversified portfolio of stocks. services, listed on the London Stock Exchange. Independent From its origins in 1889, professional services (IPS) we have diversified to We are a leading provider of independent professional services. become a group with a Built on three excellent foundations: our unique range of activities Pension, Corporate Trust and Corporate Services businesses. in the financial and We operate globally, with offices in the UK, Dublin, New York, Delaware, Hong Kong, the professional services Channel Islands and the Cayman Islands. sectors. The group has two Companies, agencies, organisations and individuals throughout the world rely upon distinct areas of business. Law Debenture to carry out our duties with the independence and professionalism upon which our reputation is built. 1 As at 31 December 2018 2 lawdebenture.com AT A GLANCE AT Financial summary 31 December 2018 31 December 2017 £000 £000 Net assets1 725,863 791,089 Pence Pence Net Asset Value (NAV) per share at fair value1* 614.07 669.53 Revenue return per share Investment trust 13.23 11.61 Independent professional services (normalised) 7.87 7.21 Independent professional services (exceptional) — 2.72 Group charges 0.16 0.12 Group revenue return per share 21.26 21.66 Capital (loss)/return per share (71.85) 67.10 Dividends per share 18.90 17.30 Share price 540.00 629.00 % % Ongoing charges3* 0.43 0.43 Gearing3 3 1 Performance 1 year 3 years 5 years 10 years % % % % NAV total return2* (5.8) 27.3 30.4 199.0 FTSE Actuaries All-Share Index Total Return4 (9.5) 19.5 22.1 138.3 Share price total return4* (11.6) 19.0 18.8 243.5 Change in Retail Price Index4 2.7 9.6 12.7 34.1 1 Please refer to note 10 on page 76 for calculation of net asset value 2 NAV is calculated in accordance with the Association of Investment Companies (AIC) methodology, based on performance data held by Law Debenture including fair value of IPS business and long-term borrowings 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 on page 26 4 Source: Bloomberg 5 Items marked “*” are considered to be alternative performance measures and are described in more detail on page 91 3 STRATEGIC INFORMATION Chairman’s statement Dividend Law Debenture has increased or maintained its dividend in each of the last 40 years. Over the last ten years, we have delivered a 55% increase in dividend and an annualised dividend growth of 4.5%.2 We recognise that, in a low interest rate environment, great value is ascribed by our shareholders to the dividend they receive from this Company. We were pleased to provide investors with a 9.2% increase in the interim dividend paid in September. The board is recommending we maintain that increase for your final dividend. Subject to your approval, we will pay a final dividend of 12.9p per share on 18 April 2019 to holders on the register on the record date of 15 March 2019. This will provide shareholders with a total dividend of 18.9p per share for 2018, compared to 17.3p in 2017. We are happy to make this recommendation in the context of £50.0m of consolidated retained earnings and a In what has been my first year as Chairman revenue profit for the year of £25.1m. of Law Debenture, I am pleased to introduce our shareholders to the 2018 annual report. Investment portfolio Performance We are comforted that We believe the ongoing charges ratio of 0.43% for the trust as a whole offers excellent Against a backdrop of significant market the portfolio was protected value for money for our shareholders. Indeed, turbulence and uncertainty over the UK’s from almost 40% of the this is significantly lower than the average exit from the EU, the FTSE Actuaries All- ongoing charges ratio for UK investment Share Index Total Return declined by 9.5% overall market decline, trusts which the AIC published as 1.21% as at in 2018. In this context, I can report that and that our relative 31 December 2018. your Company’s net asset value declined by 5.8% on a total return basis over that same performance remains The board has given a great deal of period. As investors quite rightly challenge strong over thought on how best strategically to active managers’ ability to demonstrate position the investment trust, in light of their value over passive counterparts, we are one, three, five and our portfolio’s significant UK weighting. satisfied with this relative outperformance. ten year periods. While much of our portfolio comprises UK Our aim is to grow your capital over the stocks with a global bias, our performance long-term; however it is never comfortable is more closely linked to the performance £1,000 invested in to report a decline in net asset value in of UK markets than it is to broader global the short-term. We are comforted that the Law Debenture ten markets. Indeed, it is the FTSE Actuaries portfolio was protected from almost 40% All-Share Index Total Return against years ago would have of the overall market decline, and that our which the board assesses the investment relative performance remains strong over been worth £3,4351 performance. To more closely reflect the one, three, five and ten year periods. £1,000 reality of our portfolio construction, later at the end of 2018 invested in Law Debenture ten years ago this year we will be moving to a UK sector would have been worth £3,4351 at the end AIC category from the current global of 2018. sector classification. 1 Calculated on a total return basis assuming dividend re-investment between 31 December 2008 and 31 December 2018 2 Calculated on an annualised basis on dividend payments made by accounting year between 31 December 2008 and 31 December 2018 4 lawdebenture.com Independent professional services (IPS) Report and accounts INFORMATION STRATEGIC Your Company benefits from the unique proposition of an After following the same tried and tested format for many years, equity portfolio combined with a professional services business. we felt it was the right time to make some changes to modernise Law Debenture has paid in aggregate £172m to shareholders in the look and feel of your annual report. At the same time, we have dividends over the past 10 years, of which £67m, or 39%, has been listened to feedback from shareholders and analysts and have funded by the IPS business. increased the transparency of reporting around our IPS business. On page 7 you will find for the first time a breakdown of net As you will hear from our chief executive officer, Denis Jackson, in revenue by division, along with guidance for 2019.