ANNUAL REPORT
2021
Law Debenture is an investment trust and a leading
provider of independent professional services, listed on
the LondonStock Exchange.
lawdebenture.com
The Law Debenture Corporation p.l.c.: AIC Investment Trust Awards, UK Equity Income Sector Winner 2021.
2021 Winner:
UK Equity Income Sector
Investment Trust of the year
UK Equity Income Sector
Investment Trust of the Year
For more information visit our website:
https://www.lawdebenture.com/investment-trust
1
AT A GLANCE
1 Please refer to page 134 for an explanation of net asset value with debt and IPS at fair value.
2 Calculated based on data held by Law Debenture for the year ended 31 December 2021.
3 Source: Association of Investment Companies (AIC) industry average as at 31 December 2021.
Investment
Portfolio
c. 82% of NAV
including IPS and long-term
borrowings at fair value
1
Managed by James Henderson and Laura Foll
ofJanus Henderson
Independent Professional
Services (IPS) business
c. 18% of NAV
including IPS and long-term
borrowings at fair value
1
OBJECTIVE: LONG-TERM CAPITAL
GROWTH IN REAL TERMS AND STEADILY
INCREASINGINCOME
– Focused on long-term returns
– Low ongoing charges ratio at 0.50%
2
compared to industry average of 1.05%
3
– Contrarian investment style:
• Out of favour equities standing
at valuation discounts to their
long-term historical average
• High quality companies with strong
competitive advantage at attractive
valuations
– Selective, bottom-up approach
– Diversified portfolio by sector
(predominant UK weighting)
PENSIONS
The longest
established and
largest UK provider
of independent
pension trustees
CORPORATE
TRUST
A leading
independent
corporate
trustee across
international
capital markets
CORPORATE
SERVICES
Range of
outsourced
solutions to
corporates
internationally
INTERNATIONAL PRESENCE:
United Kingdom, New York, Ireland, Hong Kong,
Delaware, Cayman Islands and Channel Islands
All divisions have potential for further revenue
growth in growing markets. This growth will be
achieved by increasing our market share through
better leveraging of technology, our strong
relationships and our high quality brand.
Significant, consistent income contribution from IPS gives greater flexibility in stock selection
AT A GLANCE
Law Debenture: has a highly differentiated and unique
business model
lawdebenture.com
2
Financial summary
31 December 2021
£000
31 December 2020
£000
Change
Net Asset Value – including debt and IPS at fair value
1
964,493 787,219 22.5%
Total Net Assets per the balance sheet 878,837 726,994 20.9%
Pence Pence
Net Asset Value (NAV) per share at fair value
1
* 787.83 666.15 18.3%
Revenue return per share
Investment portfolio 18.09 12.12 49.3%
Independent professional services 10.00 9.35 7.0%
Group charges — 0.09 n/a
Group revenue return per share 28.09 21.56 30.3%
Capital (loss)/return per share 94.60 (19.06) 596.2%
Dividends per share 29.00 27.50 5.5%
Share price 799 690 15.8%
% %
Ongoing charges
3
* 0.50% 0.55%
Gearing
3
13% 9%
Premium/(Discount)* 1.4% 3.6%
Performance
1 year
%
3 years
%
5 years
%
10 years
%
NAV total return
2
* (with debt at par) 23.1 49.3 59.7 199.2
NAV total return
2
* (with debt at fair value) 25.1 47.3 59.4 187.7
FTSE Actuaries All-Share Index Total Return
4
18.3 27.2 30.2 110.7
Share price total return
4
* 19.2 67.6 81.2 237.0
Change in Retail Price Index
5
7.5 11.2 18.9 32.7
* Items marked “*” are considered to be alternative performance measures and are described in more detail on page 134.
1 Please refer to page 36 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 Ongoing charges are calculated based on AIC guidance, using the administrative costs of the investment trust and include the Janus Henderson Investors’ management fee, charged
at the annual rate of 0.30% of the NAV. There is no performance related element to the fee. Gearing is described in the strategic report on page 33 and in our alternative performance
measures on page 134.
4 Source: Refinitiv.
5 Source: Office for National Statistics.
AT A GLANCE
3
Key statistics
for the year ended 31 December 2021
AT A GLANCE
1 Please refer to page 36 for calculation of net asset value.
2 Increase in annual valuation of Independent Professional Services business, excluding change in surplus net assets.
787.8p
NAV per share
– including debt and IPS at fair value
(2020: 666.2p)
£964.5m
1
Net Asset Value
– including debt and IPS at fair value
(2020: £787.2m)
32.4%
2
Growth in fair valuation
ofIPS
(2020: 18.3%)
30.3%
Growth in earnings
per share
(2020: 9.5%)
18.3%
FTSE Actuaries All-Share Index
benchmark 2021 Total Return
(2020: -9.8%)
25.1%
NAV total return for the year
(with debt at fair value)
(2020: 2.0%)
5.5%
Proposed increase
in 2021 dividend pershare
(2020: 5.8%)
15.8%
Increase in share
price in2021
(2020: 6.2%)
A significant long-term out-performer
Net asset value per balance sheet £878.8m (2020: £726.9m)Net asset value per share based on the balance sheet 717.9p (2020: 615.2p)
Providing real value with a combination of prudent
decisions and responsive services
Law Debenture’s investment proposition
A proud
history
133 years of value creation
forshareholders
Consistent
dividend
growth
43 years of increasing or
maintaining dividends to
shareholders (104% increase
in dividend over the last
tenyears)
8.0% CAGR of dividend over
thelast 10 years
5.5% increase in 2021 DPS
42% of total 2021 dividend
funded by our Independent
Professional Services business
IPS enables
greater flexibility
in portfolio
holdings
IPS accounts for c.18% of the
2021 NAV but has funded 36% of
dividends over the last 10 years
Investment Portfolio: drivers
of long-term outperformance
• Ability to hold zero/low
dividend yield shares (eg; Ceres,
ITM, Herald)
• Ability to avoid high dividend
yield industries in structural
decline (e.g. BAT)
• Ability to invest flexibly overseas
(e.g. Microsoft)
Strength and
diversity
ofincome
Flexibility and valuation uplift
from IPS + consistent portfolio
outperformance
Proven record
delivering
consistent long
and short-term
share price
outperformance
Outperformance of our
benchmark, the FTSE Actuaries
All-Share Index, by 126.3% over ten
years (51.0%over five years and
40.4% over threeyears)
Low ongoing charges ratio of
0.50% compared to industry
average of 1.05%
IPS has aproven
record of growth
under the
management
team
CAGR of 11.3% for revenue
and 8.5% for EPS over last
four years
1
Ambition to grow profits
of IPS by mid to high single
percentage growth
IPS valuation has increased
by 115% between
2017 and 2021
to £166m
2
UK weighting
(82% portfolio)
has potential to
outperform
UK has lagged global
stockmarkets
Around half of earnings
of the FTSE 100
come from
outside the UK
Significant UK valuation
discount has attracted
significant M&A activity
AT A GLANCE
1 Includes acquisition of the Company Secretarial Services business from Eversheds Sutherland (International) LLP in 2021.
2 Increase in annual valuation of Independent Professional Services business, excluding change in surplus net assets.
lawdebenture.com
4
AT A GLANCE
Contents
AT A GLANCE
At a glance 1
Financial summary and performance 2
Key statistics 3
Investment Proposition 4
STRATEGIC REPORT
Chairman’s statement 6-7
Chief Executive Officer’s review 8-14
IPS 5 year performance at a glance 16
Investment managers’ review 18-20
Portfolio by sector and value 21
Fifteen largest holdings 22-23
Classification of investments 24
Investment portfolio valuation 26-29
Changes in geographical distribution 29
Company overview 30-35
Long-term performance record 36
Calculation of net asset value
(NAV)per share 36
Risk Management 37-41
Viability statement 42-43
Section 172(1) Statement 44-47
Environmental, Social and Governance (ESG) 48-51
CORPORATE GOVERNANCE
The Board 52-53
Directors’ report 55-57
Corporate governance report 58-63
Audit and Risk Committee report 64-66
Annual remuneration report 67-82
FINANCIAL STATEMENTS
Independent auditor’s report 84-94
Group income statement 96
Statement of comprehensive income 96
Statement of financial position 97
Statement of changes in equity 98-99
Statements of cash flows 100
Notes to the accounts 101-133
CORPORATE INFORMATION
Alternative performance measures 134-135
Company advisers and information 136
Financial calendar 137
Subsidiary company details 137
Notice of annual general meeting (AGM) 138-139
2022 Sharesave Option Plan (the “2022 Plan”) 140-142
Explanatory notes to the notice of AGM 143-144
Shareholder notes 145-146
Annual general meeting venue 147
AGM online user guide 148
5
In an exciting and eventful year, Law Debenture has shown good
progress against its investment objectives and I am delighted to
introduce our 2021 Annual Report.
Performance
Whilst 2021 presented further global economic uncertainty
and lockdown-induced interruption, Law Debenture remained
committed to delivering on its objective to produce long-term
capital growth and steadily increasing income for our shareholders.
Our benchmark, the FTSE Actuaries All-Share Index, delivered a
18.3% total return, and we are pleased that the Company’s share
price total return marginally outperformed this with a total return
of 19.2% for 2021. Additionally, the Company delivered a NAV
1
total
return (with debt at fair value) of 25.1%. These achievements were
anchored by the quality of our diversifi ed equity portfolio and
growing IPS business.
Long-term outperformance remains the Board’s priority. Our
investment managers have a strong record of share price
outperformance compared to the benchmark of the FTSE
Actuaries All-Share, outperforming by 40.4% over three years,
51.0% over fi ve years and by 126.3% over ten years. We were pleased
to see our performance recognised at the Investment Week
Investment Company of the Year Awards 2021 where we won UK
Equity Income Sector Investment Trust of the Year.
Dividend
In 2020, the market experienced unprecedented dividend cuts
and cancellations from listed companies. Although there has been
a marked improvement in the last 12 months, the residual effect
of the pandemic will likely affect dividend payments for the next
several years.
Given our investment objective, one of our top priorities is to
gradually increase income by increasing dividend payments. It
is with great pride that Law Debenture is now in its 43
rd
year of
maintaining or increasing its dividend payments. This record is
supported by the diversifi ed nature of IPS revenues, which have
funded roughly 36% of dividends over the last 10 years.
Subject to your approval, we propose paying a fi nal dividend
of 8.375 pence per ordinary share. The dividend will be paid on
14April 2022 to holders on the register on the record date of
11March 2022. This will provide shareholders with a total dividend
of 29.00 pence per share for 2021, an increase of 5.5% compared
with 2020. This represents a dividend yield of 3.7% based on our
share price of 783 pence on 23 February 2022.
Capital structure
During the year, the Board decided to issue equity, initially to
refi nance the £20m acquisition of the Company Secretarial
Services (CSS) business from Eversheds Sutherland (International)
LLP in 2021. Shares were issued if they were trading at a premium
to net asset value, and so be accretive to existing shareholders.
Demand for the Company’s shares was encouraging and led to the
issue of a total of ~4.5m new shares during the year, resulting in net
proceeds received by the Company of ~£32.9m.
Having reviewed the capital structure of the Group, the Board
decided to issue two tranches of long-term debt, £20m at 2.54%
which matures in 2041, and £30m at 2.53%, maturing in 2050.
The debt has provided further opportunities for our Investment
Managers to be net investors in the market, along with providing
optionality to consider further inorganic growth for IPS, should the
right opportunity present itself.
Our investment portfolio
Our investment managers, James Henderson and Laura Foll
have continued to invest in high-quality companies at attractive
valuations, which offer good total return opportunities. IPS
earnings continue to support our dividend payments, allowing
James and Laura fl exibility in portfolio construction.
The investment managers’ review on pages 18 to 20 offers further
commentary on the portfolio performance.
STRATEGIC REPORT
Chairman’s statement
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 returns are
shown with debt measured at par and with debt measured at fair value on page 2.
lawdebenture.com
6
7
IPS
The IPS business remains a key differentiator between us and other
UK income funds.
Over the course of 2021, IPS grew its net revenues by 20.6%, with
profit before tax up 9.1% and earnings per share up 7.0% compared
to 2020. The material increase in revenue was driven primarily by
the acquisition of CSS. CSS enhances our capabilities and growth
opportunities in an attractivemarket.
We continue to pursue a consistent strategy of developing IPS
through a combination of organic growth, operational improve-
ments and potential acquisitions that meet Law Debenture’s strict
financial and strategic criteria.
2021 continued to test Law Debenture’s
employees, I am proud of the inspiring efforts
of the IPS teams. They have responded with
determination, helping clients in innovative
ways, and have successfully opened a new
office in Manchester.
Environmental, Social
and Governance (ESG)
considerations
Sustainability and climate change is one
of the biggest economic and political
challenges the world faces. The Board
continues to view ESG as part of Law
Debenture’s operations. Strong governance,
transparency and accountability underpin
our approach across all areas of the IPS
business and investment portfolio.
Within IPS, our core asset is our people.
Throughout the year, we have prioritised the well-being of our
colleagues and it is pleasing to see that Law Debenture’s employee
engagement survey showed our staff are empowered, would
recommend Law Debenture as a place to work and have a real
sense of pride about the services they offer clients.
We want to maximise positive outcomes by embedding
sustainability in our culture and our operations and seeking to
reduce our impact on the environment. During the pandemic, we
moved into a new office which is rated BREEAM (Building Research
Establishment’s Environmental Assessment Method) excellent for
its significant green components.
Our investment managers take positions in companies with long-
term sustainable business models. While James and Laura will not
exclude companies that can help Law Debenture to meet its income
and capital growth investment objectives, they carefully take into
account ESG-risks and opportunities when selecting stocks. Our
investment managers’ approach to ESG is described on page 48.
Governance
Robert Laing retired from the Board at the close of the Annual
General Meeting (AGM) in April 2021. On behalf of my fellow Board
members, I would like to thank Robert for his nine years of wise
counsel and wish him the very best for the future.
Mark Bridgeman will also retire from the Board at the close of the
2022 AGM having served a tenure of nine years. We also thank him
for his invaluable contributions over the years and wish him the
best for the next chapter of his career.
During the year, we welcomed two new Non-Executive Directors
to the Board of Law Debenture. Clare Askem was appointed
to the Board on 10 June 2021 and Clare brings extensive
experience in strategic development, business change and
digital transformation. Clare will succeed Mark as designated
Non-Executive Director for Workforce Engagement, following his
retirement at the close of the 2022 AGM.
We also welcomed Pars Purewal on 16December 2021. Pars has
exceptional experience in accounting, investment trusts and
professional services. Pars will succeed
Mark as Audit and Risk Committee Chair,
following his retirement.
We are pleased to have ranked second
in the FTSE 250 for Women on the Board
and in Leadership roles, in the recently
published FTSE Women Leaders Review.
Looking ahead, the Board will continue
to ensure its membership is diverse in
backgrounds, executive experience and
perspectives.
We will keep shareholders updated on
arrangements to hold a hybrid AGM this
year and other investor events through
ourwebsite.
Looking forward
While the outlook for the pandemic for
2022 is more hopeful, it will continue to
affect economies and monetary policies
around the globe. However, the Board and our investment
managers remain confident that the portfolio is well-placed for
long-term outperformance.
Work has begun on two other key initiatives: i) expanding our
retail shareholder base and ii) articulating our approach to
Environmental, Social and Governance matters. This is a complex
area which requires us to balance the needs of our shareholders,
clients, employees and the wider community. We look forward to
sharing progress with shareholders as our workevolves.
IPS remains well-positioned to continue delivering a resilient
financial performance and capturing the growth potential in
itsmarkets.
Finally, I would like to thank our shareholders for their continuing
support, and our investment managers and Executive team for
their hard work. I have been truly impressed by Law Debenture’s
response to the pandemic.
Robert Hingley
Chairman of the Board
24 February 2022
Law Debenture is a rare
proposition: an investment
trust supported by a
wholly owned professional
services business. The
whole is greater than
the sum of these parts,
providing both a natural
hedge to market volatility
STRATEGIC REPORT
Chairman’s statement continued
lawdebenture.com
8
STRATEGIC REPORT
Introduction
2021 was a year of recovery blended with
signifi cant volatility. It saw companies
around the world attempt to bounce back
from the shocks of 2020, while adapting
their business models to the “new normal”.
For the UK, the economy registered strong
GDP growth, albeit against a very weak
2020, but trends across sectors varied
signifi cantly. In the fi rst quarter of 2021,
the UK entered a third lockdown and we
all had to contend with ongoing Covid-19
related disruptions to the economy. Our
good performance through the year
refl ects well on the Group’s ability to adapt
to a changeable economic climate and
navigate short-term periods of turbulence.
Law Debenture delivered on both of its
objectives; producing long-term capital
growth and steadily increasing income for
our shareholders. Our investment managers, James Henderson
and Laura Foll of Janus Henderson Investors, have continued
their successful long-term record of material outperformance
against our benchmark, the FTSE Actuaries All Share Index, over
one, three, fi ve and ten years. Our IPS business completed its
fourth consecutive year of growth, with net revenue up 20.6%
and profi t before tax up 9.1%, while retaining its reputation for
quality and outstanding client outcomes. Consistent growth
is our longer-term objective and IPS now has a good record to
build on. We have continued to invest in our people to ensure
we have strong foundations for continuing success. I would like
to thank our staff for their continued hard work and focus on
delivering good outcomes for our clients.
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 dividend payments over time. This year
showed how the unique combination of our equity portfolio
and global professional services business can drive value. I
was delighted to see Law Debenture’s strong and attractive
attributes recognised as Investment Week’s 2021 Investment
Company of the Year in the UK Equity Income sector.
We are proud to have delivered a 104% increase in dividend
over the last ten years with 43 years of increasing or maintaining
dividends to shareholders. This is supported by the diversifi ed
nature of IPS, which has funded around 36% of dividends for
the trust over the past 10 years. IPS business net revenues
for the full year were up 20.6% at £41.6m (2020: £34.5m) and
earnings per share up by 7.0% to 10.0p (2020: 9.35p). We are
committed to grow the profi ts of our IPS business by mid to
high single percentage growth. In early 2021, we acquired CSS,
which strengthens our existing business and its longer-term
earnings outlook. We believe that the signifi cant increase in
our CSS market footprint is of strategic importance to the
growth of IPS. The business has expanded our client reach and
creates new opportunities to cross-sell our other services. With
continued investment into our operating
infrastructure and talent to support
future growth, I am encouraged by our
2021performance.
Our unique proposition as an investment
trust is that the IPS business allows
James and Laura increased fl exibility
in their portfolio construction. This was
again highlighted in 2021. The strength
of our diversifi ed income streams
allowed us to invest into some emerging
companies with excellent long-term
growth prospects, which may not pay
dividends for many years.
Corporate trust
Law Debenture has been a bond trustee
for over 133 years. The role of a bond
trustee is to act as a bridge between
the issuer of a bond and the individual
bondholders. Our responsibilities can
vary whether servicing performing or defaulted bondissues.
Normal duties for the bond trustee to support performing issues
could include receipt of fi nancial or other covenant-related
information, together with the distribution of such information
to bondholders. For this work, we are typically paid an annual
fee throughout the lifetime of the bond. For the majority of our
Chief Executive Offi cer’s review
At the core of
LawDebenture’s
fi nancial objectives
are two keys aims;
to achieve long-term
capital growth,
and to steadily
increase income for
ourshareholders.
9
DIVISION
Net revenue
2019
£000
Net revenue
2020
£000
Net revenue
2021
£000
Growth
2020/2021
%
Corporate trust 9,024 10,788 9,771 (9.4)
Pensions 10,598 11,479 13,060 13.8
Corporate services 12,167 12,226 18,755 53.4
Total 31,789 34,493 41,586* 20.6
existing book of business, these annual fees are inflation-linked.
When an amendment to bond documentation is required, we can
also earn additional revenues to complete the necessary changes.
When bonds default, the workflow, risk, and revenue profiles of
our role change. A key duty of the bond trustee is to be the legal
creditor of the issuer on behalf of the bondholders. Our role in
such default situations requires incremental work that, given a
favourable outcome, can lead to significant additional income.
That said, defaults often take years to play out and the results are
uncertain. Given this, our revenues for this work in any particular
year can be somewhat unpredictable. However, such post-
issuance work has strong economic counter-cyclicality and has
produced sound returns for our shareholders over time.
Market dynamics
Following a strong year for primary debt issuance in Europe in
2020 where debt issuance revenues were up by 21% (Source:
Dealogic) primary market debt issuance revenues for 2021 were
up just 1% (Source: Dealogic).
Headwinds in primary issuance were compounded by a
significantly tougher market than we might have expected for
post issuance work. As we mentioned at the half year, a bi-product
of the unprecedented financial support offered to corporates
around the world by central governments has been a significant
reduction in the number of bankruptcies. November 2021 was
the first month since the onset of the pandemic in March 2020
that the number of bankruptcies in the UK was higher than pre-
pandemic levels. The full year numbers showed bankruptcies at
14,056 compared to 17,198 in 2019 (Source: The Insolvency Service).
The bankruptcy experience of the UK over the past two
years is mirrored by many major developed economies. We
would expect bankruptcies to return to more normal levels
as temporary support measures from central governments
are removed and demand for our post-issuance expertise to
increase correspondingly.
Highlights
The business achieved exceptional net revenue growth of
19.5% in 2020. With market conditions as previously described,
delivering revenue growth in 2021 was going to be a challenge.
Reporting a 9.4% decrease in revenues to £9.8m is never
something a business leader wants to do; however, this is not
reflective of the longer-term business performance. In the past
four years, since Eliot Solarz was appointed to lead the business,
corporate trust has achieved compound revenue growth of 5.5%
per annum.
Despite tough primary market conditions, we competed well.
During the year, we have been delighted to have been appointed
to support blue chip issuers including BT and Natwest in the UK,
Santander and Gamenet in Europe, Nippon Steel in Asia and Oi
Movel in South America.
The issuance of green, social, sustainable and sustainability-
linked bonds continue to grow rapidly. Regulators are working
hard to create alignment on an appropriate taxonomy and we
expect final rules of the EU Green Bond Standard to take shape
via the legislative process in 2022. In the UK, the FCA is seeking
input on whether it should recognise existing ICMA Principles
or develop its own UK green bond standard. The European
Commission’s debut next generation EU green bonds and the
UK Government’s debut of green gilts issuances were both
significant landmarks in 2021.
These types of financing have strong momentum and it is
critical that we continue to develop our expertise in support
of them. Sustainability-linked bonds typically have a coupon
step-up linked to the issuer meeting pre-defined targets in
relation to certain key performance indicators, often related
to CO
2
reduction. During the year, we have been appointed to
roles supporting sustainability linked note issuances including
Cullinan Luxembourg and Rimini Italy. We also were appointed
to support Hanetf’s Carbon Securities program and Lithuanian
Emerald’s issuance to develop wind farms.
STRATEGIC REPORT
Our leading independent professional services business is built on three pillars:
our pensions, corporate trust and corporate services businesses.
Chief Executive Officer’s review continued
*Total net revenue is calculated by reducing segment income of £49,513k by cost of sales of £7,927k.
Corporate services: 2021 includes additional revenue arising from the acquisition of the CSS business from Eversheds Sutherland (International) LLP.
lawdebenture.com
10
Chief Executive Offi cer’s review continued
Pensions
We are now in our sixth decade of serving clients in this
sector and we are one of the largest independent providers of
pension trustees in the UK. Our Pegasus offering of outsourced
pensions executive solutions is now a leading provider in the
UK in a fast-growing market.
Market dynamics
With assets of approx. £2.6 trillion (Source: WTW) the UK is the
worlds tird largest pesios aret ad tere is sigifi cat
momentum to drive the professionalisation of the governance
of pension schemes in the UK.
The ability of a board of trustees to positively alter the retirement
outcomes for its pensioners is well understood and the UK
Pensions Regulator (“the Regulator”) is, rightly, increasing its
demands of trustees, along with its expectations of governance
standards. The Pensions Scheme Act of 2021 introduces new
duties for those involved in running pension schemes. New
guidance on procedures for dealing with transfer requests comes
into effect to help scheme members avoid pensions scams. The
Regulator also held a consultation on new enforcement policies
tat iclude ew powers to ipose ig fi es for alfeasace
Managing a pension scheme is a serious, ever more complex
task. Some pension’s governance recruiters still do not place
suffi ciet weigt o te eed for specialist sills or owledge
At Law Debenture, we appreciate that the sub-optimal
management of people’s hard earned retirement monies has
serious consequences. All our pension trustees are experienced
professionals and hold accreditation from the Association of
Professioal Pesiorustees
Highlights
Back in 2001, an excellent decision was taken to hire Mark
Ashworth, who in turn recruited Michael Chatterton in 2010.
However, a number of years ago, Mark Ashworth and Michael
Chatterton indicated their desire to step back from their
leadership positions during 2021. They are leaders in their
fi eld ad as leaders of our busiess te grew te busiess
cosistetl ver te past fi ve ears reveue as grow fro
£7.8m in 2016 to £13.2m last year.
Another strength of theirs was identifying talented individuals.
With Mark stepping down in January 2021 and Michael doing
the same at the end of the year, as of 1 January 2022, Vicky
Paramour has been promoted to lead our pensions business.
Vicky Paramour joined us in 2015, amongst a number of extremely
capable hires. We are fortunate that Mark and Michael remain
with us as Senior Directors. The orderly transition is testament to
the superb way that Mark and Michael have run the business. I
would like to take this opportunity to thank them both for their
coitet to ourbusiess
2021 was another strong year for our pensions business with
growth in net revenues of 13.8%. Over the past four years,
compound revenue growth is 12.1%. In our core pension trustee
STRATEGIC REPORT
We have previously highlighted the work that we do to support
social housing issuers in the UK. The market is large, demand
for additional properties is vast and politicians of all parties are
looking to increase support for the sector. We continue to build
on our excellent footprint in this growing sector. Appointments
for new issuances in 2021 include Gateway, Scottish Boarders
and Metropolitan Thames Valley.
In last year’s Annual Report, we explained the increasing
demand that we are seeing for our escrow products. We
continued to build on this in 2021. Our competitive strengths
include our deep domain expertise and ability to move fast.
Among the more unusual escrow activity in 2021, there were
transactions relating to the acquisition of aircraft landing slots
and avoiding trapped surpluses in corporate pension funds.
Outlook for our corporate trust business
evels of priar aret activit are diffi cult to predict growt
in European primary debt issuance revenues in the past three
years illustrate this well at -14%, +21% and +1% respectively,
(source: Dealogic) ur postissuace wor is euall diffi cult
to predict but historically has had a strong economic counter-
cyclicality. Over time, this business has produced excellent
returns to our shareholders. Large elements of our revenue base
are cotractuall repetitive ad large eleets are i atio
lied ollowig a decade of ver low i atio te recet
icreases i i atio will begi to fi lter troug durig
We continue to increase our range of products and have broad
relatiosips wit cliets law fi rs ad fi acial istitutios
tat uderpi activit i tis aret e ave ever cofi dece
that over time we can continue to grow this business within our
stated target range for the overall business of mid to high single
percentage growth.
Case study: Lloyds Bank Pension
Schemes
Our Pension Trustees have been involved in the successful
completion of the £5.5bn longevity swap for the Lloyds
Bank Pension Schemes No.1 with Scottish Widows Limited
and SCOR.
This is the second longevity swap transaction that Lloyds
Banking Group Pension Trustees Limited (the Trustee) has
entered into in the last two years protecting some £15.5bn
of longevity risk.
Vicky Paramour, Managing Director of the LawDeb Pension
team and chair of the Trustee’s Investment and Funding
Committee said “Working with my colleagues on the
Trustee Board, the Lloyds Bank Trustee Executive and our
advisors, this represents a great achievement in
reducing the Scheme’s exposure to longevity risk
thereby and making the Scheme more secure to
the benefi t of allmembers.”
Trustee Board, the Lloyds Bank Trustee Executive and our Trustee Board, the Lloyds Bank Trustee Executive and our
advisors, this represents a great achievement in advisors, this represents a great achievement in
reducing the Scheme’s exposure to longevity risk reducing the Scheme’s exposure to longevity risk
thereby and making the Scheme more secure to thereby and making the Scheme more secure to
11
A win-win for pension scheme
members and the sponsor achieved
through a buy-in transaction
e fi ve ears sice appoited us as its fi rst idepedet
professional trustee have been quite a journey for the
Company and the trustee. Full outsourcing of pensions
aageet ad adiistratio te trasfer of defi ed
cotributio pesios to te aster trust ad a full
bui of te defi ed beefi t pesios scee
Our trustee director Robert Thomas led the trustees in their
strategic thinking – concluding that insuring the liabilities
through a buy-in would be in members’ and ultimately JTI’s
iterests opa aageet cae to see te beefi ts
of tis approac wic would reove sigifi cat riss ad
ave oter potetial beefi ts e too tie to explore te
details and developed a shared plan, resolving tricky areas
like the use of any surplus and exercise of various powers.
The completion of a full buy-in with Standard Life in late
icluded greatl iproved i atio protectio for
pesioers wic te are alread beefi ttig fro as
well as sigifi cat upside for te copa aria Slette
Corporate Controller, VP of JTI commented “it is great that
the deal was such a win-win for all parties”.
Having started out with one director in a fairly
straigtforward cair role a tea of up to fi ve aweb
colleagues was involved in driving the projects to a
conclusion on aggressive time-scales. This included
marshalling the advisory team, liaising with the company
and project management – roles that an in-house pensions
team would often undertake. One of our pensions
management experts worked with the administrator,
te actuar ad te isurer o data ad beefi t atters
Involving one of our trustee directors with a specialist legal
background helped cut through and resolve the
many challenges that are inevitably thrown up
by a transaction of this complexity, enabling it to
complete on schedule.
background helped cut through and resolve the background helped cut through and resolve the
by a transaction of this complexity, enabling it to by a transaction of this complexity, enabling it to
business, we were delighted to add incremental appointments
that included HSBC and Tesco.
We recognise that revenue growth is driven by investing in
good people. During the year, we made further appointments
in legal and restructuring expertise, and we believe this
will continue to be a growth area for us. We also invested in
regional and international talent. In Manchester, we hired our
fi rst pesios eploees to service a large pool of potetial
cliets based i tis area e also ade our fi rst appoitet
i relad wit Paul orse oiig durig te fi rst alf of te
year to develop our Dublin-based pensions offering. We see
increasing opportunities in the Irish market from both local and
STRATEGIC REPORT
international companies. We have recently been appointed to
wor wit te orers aster rust our fi rst appoitet for a
entity based in Northern Ireland.
During the year, we were delighted to welcome Sankar
Mahalingham to lead Pegasus, our executive pensions offering.
This offers pension scheme secretarial services, at its simplest,
right through to fully outsourced pensions management and
professional sole trustee solutions at its most complex. From a
standing start at the end of 2017, this business now has revenues
of approx. £3m per annum. We have a broad product range and
client base and we see increasing demand for our expertise to
independently support projects such as GMP equalisation and
de-risking. We also continue to invest in hiring professionals with
buy-in, buy-out and wind-down experience which is of high
value to a growing number of schemes.
Outlook
The increasing governance burden for UK pension schemes means
that there are more opportunities for providing independent
professional support to schemes of all sizes. For example:
• The Pensions Act 2021 contains more powers for the Regulator
which introduces new duties for those sponsoring and running
pension schemes
• Schemes moving towards full de-risking solutions
• Trustees face new reporting requirements intended to improve
the quality of governance and reporting as they address
climate-related risks and opportunities.
t te sae tie sposors of pesio scees are fi dig it
arder to fi d voluteers to becoe trustees as well as desirig
a focused business-to-business conversation with their trustee
board - this is true whatever the size and complexity of the
scheme.
We see opportunities for working with new clients who will be
appoitig teir fi rst ever professioal trustee as well as oter
schemes who will be looking to add further professional expertise
to their existing board. Working with schemes of all sizes as the
pensions landscape evolves, we are well placed to provide value to
smaller schemes leveraging insights from our wider portfolio for
teirbeefi t
Many sponsors of pension schemes will also be facing resourcing
issues, for example:
• f iouse adiistratio is outsourced for te fi rst tie
• Succession planning as pension managers and their teams are
due to retire
• Increased governance requirements putting stress on under-
resourced teams.
Rather than continue to operate with full in-house teams, an
increasing number will look to outsource all or part of their
function to third parties. This provides opportunities for Pegasus
to grow substantially by taking on these large, outsourced
mandates.
Chief Executive Offi cer’s review continued
lawdebenture.com
12
STRATEGIC REPORT
Chief Executive Offi cer’s review continued
We believe that the market for our expanding range of pension
governance services will continue to increase steadily over time.
We continue to invest in the people and skills required to be a
market leader in this growth business.
Corporate services
is reveue strea as four costituets structured fi ace
services, our whistleblowing division Safecall, service of process
and our company secretarial services (CSS) business. Pleasingly,
all businesses grew revenues during the year, but the combined
result of revenues up 53.4% was skewed by the acquisition of CSS
o auar
Company Secretarial Services
Market dynamics
Corporate governance standards are being raised worldwide
and statutory and regulatory obligations continue to increase.
Commerce is becoming increasingly globalised and the ability to
move fast and expand geographically is often critical to success.
Outsourcing growth trends have arguably been accelerated by
the pandemic. CFOs are forced to examine their cost base and
look to allocate capital towards activities that will differentiate
their company’s offering. Large in-house company secretarial
departments are decreasing in number. We have been offering
solutions in this sector for over twenty years. The newly acquired
busiess gives us critical ass ad we are cofi det of our abilit
to increase our share of a growing market.
Within CSS, we provide three main service lines:
Managed services: ased out of our ew acester offi ce we
deliver global entity management services to over 350 clients.
We act as a single point of contact to ensure that legal entities
of international subsidiaries are kept in good standing. Client
appointments vary in scale and coverage, ranging from a single
legal entity in one country at its simplest to over 300 subsidiaries
i coutries at its ost coplex e are paid a fi xed aual fee
to deliver annual compliance and corporate records maintenance.
We may also earn incremental revenues from additional projects,
such as incorporations and dissolutions, the co-ordination of
global corporate change projects and performing entity validation
wor xcellet wor ow aageet ad use of tecolog is
critical to compete effectively. We will continue to invest in this
space i
Corporate governance services: we provide all aspects of board
and committee support, from full outsourced company secretarial
support to attending and minuting meetings, in line with best
practice governance standards. We also offer practical company
secretarial services to companies preparing for an IPO transaction
including support post listing. Our clients range from major Main
Market and AIM listed companies, including investment trusts to
leading UK operating subsidiaries of top global brands. Our fees
var betwee fi xed aual fees for specifi call scoped adates
but can also be time or project based. Demand here is often for
skilled professionals with prior experience in a particular industry
and/or governance framework who can seamlessly transition work
from being completed in-house. This team is based in London.
Interim resourcing: e offer iediate access to ualifi ed
governance professionals whether on-site or remote, full time
or part time, as required by the client. Typically, we are paid on
a tie spet basis but a coplete certai wor o a fi xed
feebasis
Company secretarial services
Highlights
Client retention since acquisition has been excellent, with 99% of
the client base transitioning with the acquired business to Law
Debenture. It is pleasing that there have been a number of new
client wins, including several FTSE 100 and Fortune 500 groups
on the managed service side and FTSE 250 groups and regulated
challenger banks on the corporate governance services side. We
have also won several mandates for private groups on the journey
to IPO.
As with all of our businesses, the quality of our people will
determine our long-term success. We have invested in headcount
and incremental skills across all our product areas and will
continue to do so.
Whistleblowing: Safecall
Market dynamics
The emerging regulatory frameworks and standards that we
have highlighted in previous annual reports continue to build
momentum throughout the developed world. Whistleblowing
has come of age. A well-run whistleblowing framework is now
part of good governance. Excitingly for us, this is not limited to
corporates s a igprofi le ews stories i uderlie
wider society has a need to improve standards in a plethora of
areas including sports, charities and the public sector.
Case study: International FTSE 250
listed company – Fully outsourced
company secretarial support
International power generation business, with a market
capitalization of over $ 1bn, listed on the London Stock
Exchange and a constituent of the FTSE 250 Index,
decided to outsource the company secretarial function to a
professional services team.
LawDeb’s Public Company Governance team, a specialized
team within the Company Secretarial Services division,
provides today the full company secretarial support.
This includes full Board and Committee support, from
attendance to governance advisory, managing
the annual report and accounts process,
keeping the company abreast of listed rules and
regulations, to the annual compliance.
keeping the company abreast of listed rules and keeping the company abreast of listed rules and
13
Whistleblowing: Safecall
Highlights
We provided a record number of reports to our clients in 2021,
up 25% on 2020. Feedback from our clients shows an increasing
appreciation for the value that we can bring to their organisations.
Graham Long took the decision to stand down as CEO of
Safecall and we were delighted to welcome the new leader of
the business, Joanna Lewis, at the end of August 2021. With the
country in another national lockdown, it was a slow start to the
year, but our sales gained momentum as the year went on and
ended with 149 new clients, including Savills, DPD, Barnados and
DLA Piper. We ended the year with revenues up and, as we fully
emerge from Covid-19, we believe that we can accelerate our
growth. We have invested in our sales, account management and
marketing efforts and are increasingly providing training as clients
look to improve the quality of their responses to the increasing
number of issues requiring their attention.
The amount of incoming business through digital channels
continues to grow. Critical to our future success will be the quality
of our digital offering. We will increase our investment to continue
to meet the evolving needs of our clients.
Structured finance services
Market dynamics
This business provides accounting and administrative services to
special purpose vehicles (SPVs). Typical clients include financial
institutions that wish to gain risk exposure to a particular asset
type - for example aircraft leases or mortgages. These clients
regularly access third party outsource providers to help them
with the servicing of the assets. Boutique asset managers (private
equity and hedge funds), as well as challenger banks, are typical
buyers in a growing sector.
The competitive landscape is dominated by the larger providers
with long-established relationships. We are a small player and
receive strong praise from our clients. Our challenge is to achieve
the critical mass necessary to accelerate our growth.
Structured finance services
Highlights
We were delighted to receive appointments from market-leading
names, including Carlyle, Avenue, Pepper, One William Street and
LendInvest. Particularly pleasing was a transaction that was a long
time in the making where we supported a deal for Reinsurance
Group of America. This structure uses the risk transfer capability
of capital markets and applies it to the insurance sector. The US
capital markets are widely used by the insurance sector for risk
transfer purposes. It is yet to be seen if Europe will adopt similar
practices, but it can only help to get experience at an early stage
in the market’s development.
We added incremental business development resource to our
efforts here in 2021 and will do so again in 2022.
Service of process
Market dynamics
This is our highest volume business, and its results are closely
correlated with the economic cycle. Unsurprisingly, as the
pandemic took hold, 2020 was a particularly difficult year for this
business.
Service of process
Highlights
As we started out in 2021, our year-on-year comparators remained
equally unfavourable. The first two months of 2020 (pre-
pandemic) were strong whereas in the UK we entered 2021 with
our second full lock down from January 4th until March 9th at
which point children were allowed to return to school. Thankfully,
global economic conditions improved throughout the remainder
of the year, and we finished the year with our revenues up.
Anne Hills continues to lead our efforts. A new technology
platform was added to help build further scale to the business
and we added headcount that is increasingly client focused as
we look to be more proactive with our business development
initiatives.
Outlook for our corporate services business
Following a difficult year in 2020, we are pleased to have grown
revenues in all the four businesses that make up our corporate
services reporting segment in 2021. Our CSS offering has been
transformed. Our whistleblowing business continues to build
momentum under a refreshed leadership. Our structured finance
services business has added to its high-quality roster of clients.
Our service of process business has yet again demonstrated its
durability. Demand for our products and services is strong and the
markets in which we operate are growing.
Central functions
After four years of compound growth of 8.2% in profit before tax*,
we recognise that, in order to continue to grow our business, we
need to ensure that we have an infrastructure that supports this.
We are proud to have delivered a 104% increase in dividend payments
over the last ten years with 43 years of increasing or maintaining dividends.
STRATEGIC REPORT
Chief Executive Officer’s review continued
* Excludes exceptional item in 2017 for gain on unlisted investment of £3.275m.
lawdebenture.com
14
STRATEGIC REPORT
Chief Executive Officer’s review continued
With Trish Houston joining us as COO towards the end of 2020, we
have made significant progress.
Our people are the biggest asset of our IPS business. Ensuring
that we provide an exciting place to work, where people can grow
their careers is pivotal to our future success. During the year, we
have engaged with our people to articulate our values and culture.
The impact of this piece of work has been to unite people across
our business lines and our geographical regions to ensure we
are continuously challenging ourselves to provide the very best
outcomes for our clients. We have also invested in developing a
career framework to support our people in their advancement,
creating a pipeline of talented future leaders for our business.
The acquisition of CSS, which has an office in Manchester,
presented us with an opportunity to look at the structure of our
business. As a result of this review, we have established a shared
services centre based in our Manchester office, which covers all
aspects of operational finance. This creates a scalable platform to
support both organic and inorganic growth across the business.
We have invested in business development support for each
of our teams. During the year, we have been delighted to
build stronger relationships with our existing clients as well as
developing relationships with new or potential clients.
Technology
The ability of professional services firms to flourish will be
increasingly defined by their commercial offerings’ “ease of
use”. Being technically excellent and providing outstanding
outcomes for clients, form an excellent foundation but, on their
own, will no longer be enough. Firms like ours, and the products
that we provide, must be easy to find, simple to engage with
and straightforward to use.
We continue to invest in the people, skills and infrastructure
required to deliver our professional expertise more efficiently
and more effectively using virtual channels.
During 2021, we made further progress with our Safecall
and service of process platforms, in particular. Given their
relatively high transaction volumes, these two businesses lend
themselves well to the effective use of technology.
The optimum technology platform for our clients and employees
requires consistent review. We must ensure that we continue to
invest in our working environment to provide our people with a
stable and sustainable platform upon which to grow our business.
Prospects
Law Debenture has a differentiated and unique business
model, which has served the Group well for many years, and
I remain optimistic about our longer-term outlook. Over the
last four years, we have shown an IPS compound annual
growth rate (CAGR) of 11.3% and 8.5% respectively for revenue
and earnings per share, which compares favourably with our
mid to high single percentage growth objective. We are very
focused on continuing to grow and develop the IPS business
and increase market share by seeking to further capitalise on
the significant market opportunities available through both
organic investment and disciplined acquisitions, like CSS, where
appropriate.
It is a source of great pride that the Group has outperformed
our benchmark of the FTSE Actuary All Share Index consistently
and by 77.0%, with debt and IPS at FV, over the last 10 years. I
am very grateful that Law Debenture has been able to benefit
from both James and Laura’s expertise and experience. I am
confident that their focus on selecting strong business models
and attractive valuation opportunities, will enable them to
continue to position the equity portfolio for future longer-term
growth and outperformance. The fund has a selective, bottom-
up approach.
On behalf of the Board, I would like to thank our employees for
their outstanding commitment and our shareholders for their
continued support. We also greatly value our close partnership
with clients. Our business model and actions undertaken in the
year mean that we are very well positioned to take advantage of
growth opportunities in the future and to continue to deliver on
our objective. We remain focussed on continuing our unbroken
43-year track record of maintaining or raising the dividend.
Denis Jackson
Chief Executive Officer
24 February 2022
15
STRATEGIC REPORT
Photo credit: Jason Hawkes
STRATEGIC REPORT
IPS 5 year performance at a glance
Department
2017
£000
2018
£000
2019
£000
2020
£000
2021
£000
5yr Revenue
Variance
£000
5yr Revenue
Variance
%
Corporate trust 7,900 8,362 9,024 10,789 9,772 1,872 23.7%
Pensions 8,270 9,488 10,598 11,479 13,060 4,790 57.9%
Corporate services 10,977 11,734 12,167 12,226 18,755
1
7,778 70.9%
Total IPS Income 27,147 29,584 31,789 34,494 41,586 14,439 53%
% Revenue Growth 9% 7% 9% 21%
Profit before tax 9,717
2
10,481 11,465 12,227 13,340 3,623 37%
5 YEAR IPS NET REVENUE
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
2017 2018 2019 2020 2021
£’000s
Pensions Corporate trust Corporate services
Source: Law Debenture as at 31 December 2021.
5 YEAR IPS PROFIT BEFORE TAX
Profit Before tax
£’000s
2017 2018 2019 2020 2021
8,000
9,000
10,000
11,000
12,000
13,000
14,000
Source: Law Debenture as at 31 December 2021.
IPS net revenue and PBT – 5 year performance
IPS Valuation
31.12.2017
£000
31.12.2018
£000
31.12.2019
£000
31.12.2020
£000
31.12.2021
£000
5yr growth
%
EBITDA 9,797 10,424 11,515 13,335 15,369 56.9%
Multiple 7.9 8.4 9.2 9.4 10.8 36.7%
IPS fair value (excluding net assets) 77,396 87,562 105,938 125,349 165,985 114.5%
NAV adjustment: total value less net assets already included 72,757 78,439 91,860 112,407 135,885 86.8%
IPS EBITDA & APPLIED MULTIPLE
EBITDA Multiple
2017 2018 2019 2020 2021
0
2
4
6
8
10
12
0
5,000
10,000
15,000
20,000
Multiple x£’000s
Source: Law Debenture as at 31 December 2021.
TOTAL IPS FAIR VALUE (excluding net assets)
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
£’000s
2017 2018 2019 2020 2021
Source: Law Debenture as at 31 December 2021.
1 Includes revenue from the acquisition of the Company Secretarial Services business from Eversheds Sutherland (International) LLP.
2 Excludes exceptional item in 2017 for gain on unlisted investment of £3.275m.
See page 36 for commentary on the IPS valuation.
lawdebenture.com
16
17
STRATEGIC REPORT
Photo credit: Catherine Palarca
lawdebenture.com
18
stocks experiencing share price falls. Reductions had been made
during their rise for portfolio balance reasons as well as the view
that the valuations had become too forward looking. We remain,
however, committed to the area as there are real opportunities as
the global economy transitions away from fossil fuels and towards
renewables. Banks and alternative energy stocks are part of an
overall blend that endeavours to provide balanced growth. The key
is genuine diversity in the holdings.
Our investment strategy
Active investment management that adds worthwhile value
means having a view that is different from the consensus. It is
what is different in the portfolio to others that will make the trust
perform differently over time. It is unnecessary to have strong views
about all aspects of the investment portfolio, but it is important
where the manager has an insight about an investment that they
make it count. We think that this can most consistently be done at
a stock level rather than building portfolios around a single theme
or a macroeconomic view. The reason is that there are less variables
at the stock level than in macroeconomic analysis. Stocks can be
under-researched by investors, which means their long-term value
will be mispriced. Therefore, the approach used is to pay close
attention to companies while being aware of what is happening in
the wider economy.
There are several reasons why a
company might be under-appreciated
and therefore have a share price that
does not refl ect its long-term value.
Investors may have a prejudice against
the company for reasons that are no
longer valid. The management may
have remedied the historical problems.
A company may have a management
team that is putting the building blocks
in place for long-term success but this
has yet to be refl ected in the reported
numbers. These are the sort of factors
that lead to opportunities for the active
investment manager to acquire shares
at levels that will, over time, enhance
relative performance. Of course, changes
in the economic background will always
have a large effect on short-term returns
and they need to be factored in when
looking at individual companies. For
example, at the moment, increasing
supply-chain costs and general
infl ationary pressures mean it is very
important, when analysing a prospective investment, to examine
whether is has real pricing power. Can it increase the price it gets
for goods or services given the onset of rising prices elsewhere? It is
through paying attention to the companies that the question can
beanswered.
Investment managers’ review
STRATEGIC REPORT
We increased
our leverage and
repositioned our
holdings over the
course of the year
to take advantage of
comparatively low
valuations within the
UK market, particularly
for domestic stocks.
The equity portfolio
The portfolio consists of a relatively long list of stocks (149holdings
at year end). The reason for this long list is the breadth of our
investment universe: we invest in large,
medium and small companies in the UK,
as well as overseas if we see a distinct
opportunity. 83% of the portfolio was in UK
listed companies at year end, however in
aggregate they derive well over half their
earnings in overseas markets. It is this diversity
within the portfolio that we hope will deliver
a good level of consistency of performance
in different market conditions. Over time, the
smaller company element has produced better
returns than the large companies. However,
when valuations become stretched and there
is a subsequent period of market weakness
it will usually be in the small company area
that the largest falls occur. Some smaller
company holdings were reduced this year as
the valuations looked demanding but we have
also added some new positions, refreshing the
overall portfolio.
The large company element was added to
towards the end of 2020 when some bank
positions were purchased, alongside some
other fi nancials. This has helped recent performance, as the
belief is that interest rates will rise further from current modest
levels, and this will act as a boost for some fi nancial companies’
earnings. It was the previous year’s strongest performing area
that was the biggest drag this year, with the alternative energy
19
Income backdrop
2021 saw an excellent recovery in UK dividends. Investment
income for the portfolio rose to £26.3m, a 45% rise from £18.1m
in 2020 (for pre-pandemic comparison, £29.2m investment
income was earned in 2019). Among the key drivers of dividend
growth were miners, as a result of high commodity prices,
and banks, where dividends resumed following their forced
suspension by the regulator in 2020. In a broader sense, there
was also an annualization benefit from a number of companies
that suspended dividends during the peak of the pandemic in
Spring 2020, many of which only resumed payments towards
the end of that year.
When we look ahead, there are reasons for optimism on the
prospects for further dividend growth in the portfolio. This is
because there are a number of companies held that are yet to
resume dividends. These tend to be companies in industries
most affected by the pandemic, such as travel or hospitality.
As these end markets will recover, we see it as likely that these
companies will return to paying dividends, adding a further leg
to portfolio dividend growth. In addition, as we were sizeable net
investors over the course of 2021, this will benefit 2022 earnings
from theportfolio.
Overview of 2021
The economic backdrop
Following much debate in 2020 about what shape the economic
recovery would take, in 2021 it became clear that a ‘V-shaped’
recovery was under way. The current expectation is that UK real
GDP will have grown 7% in 2021, with particularly strong growth
of above 5% in the second quarter as trading restrictions were
eased. At the company level, this economic growth was felt in
a fast restoration of demand, with many companies recovering
pre-pandemic sales levels quicker than expected. This good
demand environment came, however, at a time when supply
remained constrained – many companies were struggling with
Covid-19 related staff absences and broader difficulties in filling
vacancies. At a global level, this ‘inelastic’ supply was also felt
in commodities such as oil, where demand recovered but the
supply response remained muted following a prolonged period
of low capital investment. The result was price rises across a
broad range of areas, as illustrated by UK CPI reaching over 5%
inNovember.
This backdrop of a good economic recovery but rising inflation
had a clear directional impact on sector performance during
the year. Sectors where earnings benefit directly from rising
commodity prices (basic materials and energy) performed
well, as did sectors such as industrials that benefitted from a
fast recovery in demand. Conversely, consumer-facing sectors
(consumer staples and consumer services) underperformed the
broader market, as it was perceived that there would, at the very
least, be a time lag between these companies facing rising input
costs and passing them on to the end consumer.
UK market backdrop
While 2021 was a good year in absolute terms for UK equities,
from a relative perspective, the UK equity market continued
to underperform the US, while performing approximately in
line with Continental Europe. This meant there was no closure
in the valuation gap that has built up between UK equities
and their overseas peers (see valuation chart below). This
valuation discount seems erroneous when it is considered that
the majority of earnings from UK equities are derived from
overseas. We would expect that, unless this discount materially
reduces, 2022 is likely to see further widespread takeover offers
for UK companies as buyers seek to take advantage of this
arbitrageopportunity.
Alternative Performance Measures
1 year
%
3 years
%
5 years
%
10 years
%
NAV total return (with debt at par)
1
23.1 49.3 59.7 199.2
NAV total return (with debt and IPS at fair value)
1
25.1 47.3 59.4 187.7
FTSE Actuaries All-Share Index total return
2
18.3 27.2 30.2 110.7
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, whereas NAV total return with debt at fair value includes the fair value adjustment (see page 134).
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.
STRATEGIC REPORT
CYCLICALLY-ADJUSTED P/E OF THE UK VERSUS OTHER
GLOBAL EQUITY MARKETS
0
10
20
30
40
50
60
80 85 90 95 00 05 10 15 20
UK Europe ex UK USA
Source: Citigroup as at 31 December 2021.
Investment managers’ review continued
lawdebenture.com
20
Portfolio activity
The most material active decision in 2021 was to continue to
be a net investor. We invested £58m (net) over the course of
the year, the vast majority of which (£55m) was invested in the
UK. Referring back to the ‘UK market backdrop’ section of this
report, this is because we continue to find widespread value
opportunities in UK equities relative to overseas peers.
While in the Spring of 2020 there was a deliberate tilt towards
purchasing companies that would benefit from the global
economic recovery (such as mining companies such as Rio
Tinto, and retailers like and Marks & Spencer), in 2021 there was
greater breadth to portfolio purchases. Purchases spanned
further additions to financials (such as banks, including Barclays,
HSBC, Lloyds and Natwest) as well as pharmaceuticals (with
new positions in Sanofi and Merck) and specialist retailers
(such as Kingfisher and Vertu Motors). The commonality among
these purchases is that they are well-managed by experienced
teams and are often one of the market leaders in what they are
producing. In seeking out these market-leading businesses, we
are implicitly seeking out businesses which have the capability
to adapt and respond to higher inflation. A company that is a
market leader producing an excellent product (or service) has
a greater likelihood of being able to pass on higher input costs.
This capability will be of increasing importance if, as we expect,
inflation proves to be more persistent than is widelyexpected.
Investment managers’ review continued
STRATEGIC REPORT
Outlook
It appears Covid-19 may be receding as a problem. If this is correct,
2022 should see reasonably strong economic growth as supply
bottlenecks are overcome and consumer confidence returns. The
macroeconomic concerns are turning from worries about recession
to increasing concerns about the persistence of inflation. There are
real worries that inflation as a longer-term problem is not going
away. There are many reasons for this. For instance, the move to
more environmentally sustainable economic growth will come at
a cost. The infrastructure required to move economic activity away
from fossil fuels to renewable energy will be expensive. However,
it will be an added stimulus to economic growth. Successful
companies will adapt to the inflationary environment and those
with strong product offerings will have the pricing power required
to protect their operating margins. We give careful consideration
to ESG factors when selecting stocks and constructing the
portfolio. Further information approach can be found in the ESG
section, on page 48. Meanwhile, the valuations of the companies
held in the portfolio are attractive if the earnings projected come
through. Equities are a good hedge against inflation if the dividend
flow from the underlying companies beats the rate of inflation.
The real value of the investment will rise. The stocks held are a
diversified collection of companies that as a blend are chosen for
thispurpose.
James Henderson and Laura Foll
Investment managers
24 February 2022
Top five purchases
The five largest purchases during the year were:
Stock Amount purchased
Kingfisher £11.7m
Flutter Entertainment £11.0m
Barclays £8.8m
Jubilee Metals £8.6m
Sanofi £8.4m
Top five sales
The five largest sales during the year were:
Stock Amount sold
Applied Materials £12.6m
Croda £11.3m
St Modwen Properties £10.3m
Ceres Power £7.5m
Meggitt £7.5m
Portfolio by sector
2021
Portfolio by sector
2020
Geographical distribution
of portfolio by value
2021
Geographical distribution
of portfolio by value
2020
Basic materials 9.7%
Oil and gas 10.1%
Consumer goods 7.4%
Health care 7.2%
Consumer services 8.8%
Utilities 4.4%
Financials 27.5%
Telecommunications 2.6%
Industrials 20.7%
Technology 1.6%
21
STRATEGIC INFORMATION
Basic materials 9.3%
Oil and gas 11.6%
Consumer goods 6.2%
Health care 5.2%
Consumer services 8.9%
Utilities 4.8%
Financials 28.5%
Telecommunications 1.9%
Industrials 22.0%
Technology 1.6%
Europe 10.1%
North America 5.4%
Other 0.4%
United Kingdom 82.1%
Japan 1.1%
Portfolio by sector and value
Europe 10.0%
North America 5.4%
Other Pacifi c 0.7%
United Kingdom 82.6%
Other 0.2%
Japan 1.1%
Other Pacifi c 0.9%
lawdebenture.com
22
STRATEGIC REPORT
Fifteen largest holdings: investment rationale
as at 31 December 2021
Rank
2021 Company
% of
portfolio
Approx
Market Cap.
Valuation
2020
£000
Purchases
£000
Sales
£000
Appreciation/
(Depreciation)
£000
Valuation
2021
£000
1 GlaxoSmithKline 2.71 £80.8bn 22,478 — — 4,433 26,911
GlaxoSmithKline is one of the world’s largest pharmaceutical, vaccine and consumer healthcare companies. GSK currently trades at a
valuation discount to the global pharmaceutical sector, as, while it has world-leading consumer healthcare, HIV and vaccines businesses,
the pharmaceutical division has often lagged behind others in, for example, innovative oncology drugs. Under its management team, it
is re-investing in R&D and focussing on innovative products. It is also demerging its consumer healthcare division in 2022, which could
be more highly valued as a standalone business.
2 Shell 2.04 £124.7bn 15,743 — — 4,537 20,280
Shell is a vertically integrated oil & gas company, with a diverse range of businesses including upstream oil & gas, renewables, chemicals
and retail. Within the upstream division, Shell has a significant exposure to natural gas, which, in our view, will serve as a key transition
fuel on the route to de-carbonisation. During this transition period, the cash generation from fossil fuels is being used to fund material
investment within the renewables area.
3 Barclays 2.04 £31.3bn 7,261 8,766 — 4,169 20,196
Barclays has a strong retail lending franchise combined with an investment bank. Over time its strong retail franchise should allow it to
generate good returns on capital. However, in the past, these have not consistently come through because of bad debts and persistently
low interest rates. The bad debt provisions appear now to be robust and the direction of interest rates from here is likely to be upwards.
Therefore, the strengths of the bank are expected to come to the fore.
4 HSBC 1.96 £91.1bn 11,881 5,297 — 2,276 19,454
HSBC is a global bank with a substantial presence in Hong Kong and mainland China. Its geographic focus brings worthwhile diversity
to the portfolio. If interest rates globally were to rise from their current modest levels, this has the potential to materially increase group
earnings over time.
5 BP 1.90 £65.2bn 14,524 — — 4,315 18,839
BP is a vertically integrated oil and gas company. Under a new CEO, BP has announced ambitious plans to reach net zero carbon
emissions by 2050 and gradually transition away from fossil fuels towards renewable energy. The cash generation from their oil & gas
business should enable this transition to take place, while also continuing to fund cash returns to shareholders via dividends and share
buybacks.
6 Rio Tinto 1.85 £81.0bn 20,512 — — (2,167) 18,345
Rio Tinto is one of the world’s largest mining companies with a particular focus on iron ore, aluminium and copper. Their mines are well
positioned on the cost curve, often at the lowest cost quartile globally, meaning that they can continue to be highly cash generative
despite volatile commodity prices. This cash generation, combined with a strong balance sheet, has resulted in an attractive ordinary
dividend payment combined with some special dividends in recent years.
7 Accsys Technologies 1.58 £0.3bn 11,131 1,372 — 3,220 15,723
The company focuses on the sustainable transformation of wood through acetylation (creating a natural sealant to protect against
erosion). It is scaling up production in the Netherlands and has a joint venture to build a new plant in the US.
8 Herald Investment Trust 1.51 £4.6bn 17,505 — (4,034) 1,559 15,030
Herald is a global technology focussed investment trust managed by Katie Potts (who launched the trust in 1994). Its technology focus
brings worthwhile diversity to the portfolio and it has been an excellent performer over time.
9 National Grid 1.50 £38.3bn 12,189 — — 2,745 14,934
National Grid is a regulated utility company with operations in both the UK and the US. The need to reduce global carbon emissions is
likely to increase demands on electricity networks and this could lead to faster regulated asset growth in future, driven by the need to
increase grid capacity. The position brings defensive qualities and continues to pay an attractive dividend yield.
10 Severn Trent 1.48 £7.4bn 11,440 — — 3,295 14,735
Severn Trent is a UK water utility. It is one of the best quality water companies in the UK on metrics such as preventing leakages as it has
a well invested network. The position brings defensiveness to the overall portfolio and the dividend yield remains attractive.
2323
Rank
2021 Company
% of
portfolio
Approx
Market Cap.
Valuation
2020
£000
Purchases
£000
Sales
£000
Appreciation/
(Depreciation)
£000
Valuation
2021
£000
11 Relx 1.45 £46.3bn 10,755 — — 3,633 14,388
Relx is an information services provider across a broad range of industries. For example, its LexisNexis software is used as a reference
ad aaltical tool b te aorit of law firs globall t also aages exibitios ad publis scietific ad edical ourals Relx
has done an excellent job historically of growing sales and earnings, with low single digit organic sales growth plus a small amount
of argi growt leadig to ig sigle digit earigs growt is cosistec as eat Relx as acuired a i our view ustified
valuation premium relative to the broader market.
12 Lloyds Banking Group 1.45 £33.9bn 7,652 3,572 — 3,116 14,340
Lloyds is a leading retail and commercial lender in the UK. Its strong market share within UK mortgage lending allowed it to historically
geerate good returs versus peers te period sice te fiacial crisis te balace seet as bee graduall stregteed wic
could allow good returns to shareholders via dividends and share buybacks.
13 Marks & Spencer 1.42 £4.5bn 6,951 1,475 — 5,689 14,115
ars Specer is a food ad clotig retailer der a ew leadersip tea it as siged a partersip wit cado givig it a credible
offering in online food. Within clothing it has made a number of improvements, such as re-setting prices and improving the website.
ese self elp easures are begiig to be evidet i a good recover i sales ad earigs i te curret fiacial ear
14 NatWest 1.42 £25.5bn 9,213 1,480 — 3,407 14,100
Natwest is one of the largest commercial and retail lenders in the UK. In recent years it has largely exited its markets business and re-
focussed on its original area of strength (domestic lending). The balance sheet has been steadily improved over the decade since the
fiacial crisis leavig te busiess i a good positio to steadil retur cas to sareolders via divideds ad sare bubacs
15 Direct Line Insurance 1.41 £3.7bn 10,368 5,197 — (1,615) 13,950
Direct Line is one of the leading motor and home insurers in the UK, with a well-known consumer facing brand. The company is a
disciplined underwriter, with a history of generating good returns in a competitive UK insurance market.
STRATEGIC REPORT
Fifteen largest holdings: investment rationale continued
as at 31 December 2021
lawdebenture.com
24
Classification of investments
based on market values as at 31 December 2021
The above table excludes bank balances and short-term deposits
U.K.
%
North
America
%
Europe
%
Rest of the
world
%
Total
2021
%
Total
2021
£000
Total
2020
%
Total
2020
£000
Oil and gas
Alternative energy 1.24 — — — 1.24 12,330 1.36 11,079
Oil & gas producers 5.05 0.62 — — 5.67 56,137 5.26 42,711
Oil equipment services & distribution 2.26 0.87 — — 3.13 31,063 4.98 40,479
8.55 1.49 — — 10.04 99,530 11.60 94,269
Basic materials
Chemicals 0.83 0.19 1.82 — 2.84 28,074 3.11 25,311
Forestry & paper 0.87 — — — 0.87 8,674 1.01 8,168
Mining 5.27 — 0.66 — 5.93 58,793 5.17 42,010
6.97 0.19 2.48 — 9.64 95,541 9.29 75,489
Industrials
Aerospace & defence 3.79 — 0.13 — 3.92 38,876 4.18 33,928
Construction & materials 4.87 — 0.28 — 5.15 51,143 4.49 36,432
Electronic & electrical equipment 2.86 — — — 2.86 28,363 2.88 23,434
General industrials 1.09 — 0.17 — 1.26 12,478 1.66 13,448
Industrial engineering 2.45 1.53 — — 3.98 39,518 4.52 36,706
Industrial transportation 0.86 — — — 0.86 8,577 1.37 11,104
Support services 2.07 — 0.38 — 2.45 24,370 2.95 23,916
17.99 1.53 0.96 — 20.48 203,325 22.05 178,968
Consumer goods
Automobiles & parts 0.21 0.83 0.33 1.12 2.49 24,727 2.22 18,032
Food & drug retailers 1.36 — — — 1.36 13,488 0.74 6,016
Food producers — — 0.55 — 0.55 5,512 0.43 3,507
Household goods & home construction 2.15 — — — 2.15 21,338 1.49 12,116
Personal goods 0.60 — 0.21 — 0.81 8,012 0.75 6,132
Tobacco — — — — — — 0.58 4,739
4.32 0.83 1.09 1.12 7.36 73,077 6.21 50,542
Health care
Health care equipment & services 1.53 — — — 1.53 15,163 0.87 7,097
Pharmaceuticals & biotechnology 2.72 1.30 1.60 — 5.62 55,648 4.31 34,950
4.25 1.30 1.60 — 7.15 70,811 5.18 42,047
Consumer services
General retailers 3.92 — — — 3.92 38,889 3.23 26,228
Media 2.11 — — — 2.11 20,925 2.68 21,740
Travel & leisure 1.67 — 1.00 — 2.67 26,508 2.96 24,084
7.70 — 1.00 — 8.70 86,322 8.87 72,052
Telecommunications
Fixed line telecommunications 1.07 — 0.19 — 1.26 12,492 0.60 4,852
Mobile telecommunications 1.07 — 0.22 — 1.29 12,858 1.34 10,887
2.14 — 0.41 — 2.55 25,350 1.94 15,739
Utilities
Electricity 0.53 — — — 0.53 5,224 1.72 13,959
Gas, water & multiutilities 3.79 — — — 3.79 37,709 3.08 25,025
4.32 — — — 4.32 42,933 4.80 38,984
Financials
Banks 7.71 — 0.71 — 8.41 83,642 6.35 51,586
Equity investment instruments 2.53 — — 0.71 3.24 32,294 4.70 38,213
Financial services 5.41 0.07 0.32 — 5.80 57,565 6.17 50,102
Life insurance/assurance 3.75 — — — 3.75 37,190 4.09 33,207
Nonlife insurance 2.19 — 0.31
— 2.50 24,780 2.85 23,204
Real estate inv
estment trusts 2.92 — 0.44 — 3.36 33,372 3.43 27,809
Real estate investments & services — — — — — — 0.91 7,400
24.50 0.07 1.78 0.71 27.06 268,843 28.50 231,521
Technology
Advanced medical equipment & technology 0.45 — — — 0.45 4,466 — —
Software & computer services 0.41 — 0.35 — 0.76 7,519 0.43 3,502
Technology hardware & equipment — — 0.33 — 0.33 3,229 1.13 9,184
0.86 — 0.68 — 1.54 15,214 1.56 12,686
Other
Other 0.13 — — — 0.13 1,261 — —
Sustainable energy 0.84 — — 0.19 1.03 10,271 — —
0.97 — — 0.19 1.16 11,532 — —
TOTAL 2021 82.57 5.41 10.00 2.02 100.00 992,478
TOTAL 2020 81.96 5.43 10.14 2.47 — — 100.00 812,297
STRATEGIC REPORT
25
STRATEGIC REPORT
Photo credit: Youssef Sallam
lawdebenture.com
26
Investment portfolio valuation
based on market values as at 31 December 2021
STRATEGIC REPORT
Holding name Country Region Sector Industry £000 %
GlaxoSmithKline UK UK Health Care Pharmaceuticals & biotechnology 26,911 2.71
Shell UK UK Oil & Gas Oil & gas producers 20,280 2.04
Barclays UK UK Financials Banks 20,196 2.04
HSBC UK UK Financials Banks 19,454 1.96
BP UK UK Oil & Gas Oil & gas producers 18,839 1.90
Rio Tinto UK UK Basic Materials Mining 18,345 1.85
Accsys Technologies UK UK Industrials Construction & materials 15,723 1.58
Herald Investment Trust UK UK Financials Equity investment instruments 15,030 1.51
National Grid UK UK Utilities Gas, water & multiutilities 14,934 1.50
Severn Trent UK UK Utilities Gas, water & multiutilities 14,735 1.48
Relx UK UK Consumer Services Media 14,388 1.45
Lloyds Banking Group UK UK Financials Banks 14,340 1.45
Marks & Spencer UK UK Consumer Services General retailers 14,115 1.42
NatWest UK UK Financials Banks 14,100 1.42
Direct Line Insurance UK UK Financials Nonlife insurance 13,950 1.41
Aviva UK UK Financials Life insurance/assurance 13,892 1.40
Morgan Advanced Materials UK UK Industrials Electronic & electrical equipment 13,783 1.39
Anglo American UK UK Basic Materials Mining 13,572 1.37
Tesco UK UK Consumer Goods Food & drug retailers 13,488 1.36
Ceres Power UK UK Oil & Gas Oil equipment services & distribution 13,058 1.32
Linde Germany Europe Basic Materials Chemicals 12,819 1.29
Senior UK UK Industrials Aerospace & defence 12,542 1.26
BHP UK UK Basic Materials Mining 12,095 1.22
Prudential Corp UK UK Financials Life insurance/assurance 11,904 1.20
Land Securities UK UK Financials Real estate investment trusts 11,820 1.19
Kingfisher UK UK Consumer Goods
Household goods & home
construction
11,663 1.18
Dunelm UK UK Consumer Services General retailers 11,462 1.16
IP Group UK UK Financials Financial services 11,274 1.14
Toyota Motor Corporation Japan Japan Consumer Goods Automobiles & parts 11,151 1.12
M & G UK UK Financials Financial services 10,948 1.10
Smith (DS) UK UK Industrials General industrials 10,807 1.09
Vodafone UK UK Telecommunications Mobile telecommunications 10,657 1.07
BT Group UK UK Telecommunications Fixed line telecommunications 10,597 1.07
Rolls Royce UK UK Industrials Aerospace & defence 10,383 1.05
Hipgnosis Songs Fund UK UK Financials Equity investment instruments 10,157 1.02
Hill & Smith UK UK Industrials Industrial engineering 10,124 1.02
Irish Continental Group Ireland Europe Consumer Services Travel & leisure 9,969 1.00
BAE Systems UK UK Industrials Aerospace & defence 9,896 1.00
Watkin Jones UK UK Consumer Goods
Household goods & home
construction
9,676 0.97
Urban Logistics REIT UK UK Financials Real estate investment trusts 9,524 0.96
Kier UK UK Industrials Construction & materials 8,905 0.90
Flutter Entertainment UK UK Consumer Services Travel & leisure 8,813 0.89
Mondi UK UK Basic Materials Forestry & paper 8,674 0.87
Schlumberger USA
North
America
Oil & Gas Oil equipment services & distribution 8,655 0.87
27
Holding name Country Region Sector Industry £000 %
Sanofi France Europe Health Care Pharmaceuticals & biotechnology 8,559 0.86
Standard Chartered UK UK Financials Banks 8,456 0.85
Johnson Service Group UK UK Industrials Support services 8,249 0.83
General Motors USA
North
America
Consumer Goods Automobiles & parts 8,231 0.83
Jubilee Metals Group UK UK Basic Materials Mining 8,221 0.83
Centrica UK UK Utilities Gas, water & multiutilities 8,039 0.81
Provident Financial UK UK Financials Financial services 7,928 0.80
AFC Energy UK UK Oil & Gas Alternative energy 7,817 0.79
Hiscox UK UK Financials Nonlife insurance 7,786 0.78
Spectris UK UK Industrials Electronic & electrical equipment 7,7 73 0.78
Elementis UK UK Basic Materials Chemicals 7,7 11 0.78
Hammerson UK UK Financials Real estate investment trusts 7,671 0.77
Caterpillar USA
North
America
Industrials Industrial engineering 7,640 0.77
IMI UK UK Industrials Industrial engineering 7,595 0.77
Royal Mail UK UK Industrials Industrial transportation 7,590 0.76
ITM Power UK UK Oil & Gas Oil equipment services & distribution 7,585 0.76
Cummins USA
North
America
Industrials Industrial engineering 7,574 0.76
Balfour Beatty UK UK Industrials Construction & materials 7,242 0.73
Standard Life Aberdeen UK UK Financials Financial services 7,239 0.73
Scottish Oriental Small Co Other Asia
Other
Pacific
Financials Equity investment instruments 7,082 0.71
Halfords UK UK Consumer Services General retailers 6,901 0.70
TT Electronics UK UK Industrials Electronic & electrical equipment 6,807 0.69
Glencore Switzerland Europe Basic Materials Mining 6,562 0.66
Marshalls UK UK Industrials Construction & materials 6,233 0.63
Gibson Energy Canada
North
America
Oil & Gas Oil & gas producers 6,114 0.62
Smith & Nephew UK UK Health Care Health care equipment & services 6,065 0.61
International Personal Finance UK UK Financials Financial services 5,999 0.60
Convatec Group UK UK Health Care Health care equipment & services 5,927 0.60
Unilever UK UK Consumer Goods Personal goods 5,918 0.60
Ibstock UK UK Industrials Construction & materials 5,886 0.59
Chesnara UK UK Financials Life insurance/assurance 5,843 0.59
Bristol-Myers Squibb USA
North
America
Health Care Pharmaceuticals & biotechnology 5,760 0.58
Phoenix Group Holdings UK UK Financials Life insurance/assurance 5,551 0.56
VH Global Sustainable
EnergyOpportunities
UK UK Other Sustainable energy 5,340 0.54
Euromoney UK UK Consumer Services Media 5,112 0.52
Redde Northgate UK UK Industrials Support services 5,089 0.51
SSE UK UK Utilities Electricity 4,944 0.50
Oxford Sciences Innovation UKULM UK Financials Financial services 4,933 0.50
International Consolidated
Airlines
UK UK Consumer Services Travel & leisure 4,897 0.49
Merck & Co USA
North
America
Health Care Pharmaceuticals & biotechnology 4,814 0.49
STRATEGIC REPORT
Investment portfolio valuation continued
based on market values as at 31 December 2021
lawdebenture.com
28
STRATEGIC REPORT
Investment portfolio valuation continued
based on market values as at 31 December 2021
Holding name Country Region Sector Industry £000 %
Babcock UK UK Industrials Aerospace & defence 4,762 0.48
Ilika UK UK Oil & Gas Alternative energy 4,513 0.45
Oxford Nanopore
Tehcnologies
UK UK Technology
Advanced medical equipment
&technology
4,466 0.45
SigmaRoc UK UK Industrials Construction & materials 4,410 0.44
Grit Real Estate Income
Group
Guernsey Europe Financials Real estate investment trusts 4,356 0.44
Nestle Switzerland Europe Consumer Goods Food producers 4,204 0.42
Blue Prism Group UK UK Technology Software & computer services 4,105 0.41
Vertu Motors UK UK Consumer Services General retailers 3,930 0.40
iEnergizer Guernsey Europe Industrials Support services 3,808 0.38
UniCredit Italy Europe Financials Banks 3,785 0.38
Ricardo UK UK Industrials Support services 3,753 0.38
i3 Energy UK UK Oil & Gas Oil & gas producers 3,738 0.38
Roche Switzerland Europe Health Care Pharmaceuticals & biotechnology 3,729 0.38
Indus Gas UK UK Oil & Gas Oil & gas producers 3,672 0.37
Koninklijke DSM Netherlands Europe Basic Materials Chemicals 3,631 0.37
Boku UK UK Industrials Support services 3,471 0.35
Weir Group UK UK Industrials Industrial engineering 3,423 0.34
Bawag Austria Europe Financials Banks 3,306 0.33
Morses Club UK UK Financials Financial services 3,281 0.33
ASML Netherlands Europe Technology Technology hardware & equipment 3,229 0.33
Reckitt Benckiser Group UK UK Health Care Health care equipment & services 3,170 0.32
Munchener Rueckver Germany Europe Financials Nonlife insurance 3,043 0.31
Libertine Holdings UK UK Other Sustainable energy 3,000 0.30
Marstons UK UK Consumer Services Travel & leisure 2,829 0.29
Amundi France Europe Financials Financial services 2,631 0.27
Studio Retail Group UK UK Consumer Services General retailers 2,481 0.25
Novo Nordisk Denmark Europe Health Care Pharmaceuticals & biotechnology 2,314 0.23
Ondine Biomedical Inc. Canada
North
America
Health Care Pharmaceuticals & biotechnology 2,292 0.23
Cellnex Telecom Spain Europe Telecommunications Mobile telecommunications 2,201 0.22
SAP Germany Europe Technology Software & computer services 2,142 0.22
Moncler Italy Europe Consumer Goods Personal goods 2,095 0.21
Surface Transforms UK UK Consumer Goods Automobiles & parts 2,054 0.21
Allied Minds UK UK Financials Financial services 1,980 0.20
Gelion Other Other Other Sustainable energy 1,931 0.19
Koninklijke KPN Netherlands Europe Telecommunications Fixed line telecommunications 1,895 0.19
Plant Health Care USA
North
America
Basic Materials Chemicals 1,864 0.19
Renold UK UK Industrials Industrial engineering 1,836 0.19
Longboat Energy UK UK Oil & Gas Oil & gas producers 1,830 0.18
Velocys UK UK Oil & Gas Oil equipment services & distribution 1,766 0.18
Stellantis Netherlands Europe Consumer Goods Automobiles & parts 1,678 0.17
Sig Combibloc Switzerland Europe Industrials General industrials 1,671 0.17
Faurecia France Europe Consumer Goods Automobiles & parts 1,612 0.16
29
Valuation
31 December
2020
£000
Purchases
£000
Costs of
acquisition
£000
Sales
proceeds
£000
Appreciation/
(Depreciation)*
£000
Valuation
31 December
2021
£000 %
United Kingdom 665,800 142,933 (558) (86,301) 97,560 819,434 82.6
North America 44,156 14,717 (2) (17,833) 12,627 53,665 5.4
Europe 82,343 42,446 (85) (33,684) 8,194 99,214 10.0
Japan 9,297 — — — 1,854 11,151 1.1
Other Pacifi c 7,077 — — (998) 1,004 7,083 0.7
Other 3,624 — — (1,624) (69) 1,931 0.2
812,297 200,096 (645) (140,440) 121,170 992,478 100.0
Changes in geographical distribution
* Please refer to note 2 on page 108.
STRATEGIC REPORT
Investment portfolio valuation continued
based on market values as at 31 December 2021
Holding name Country Region Sector Industry £000 %
Arkema SA France Europe Basic Materials Chemicals 1,552 0.16
Kion Group AG Germany Europe Industrials Construction & materials 1,501 0.15
Mirriad Advertising UK UK Consumer Services Media 1,425 0.14
CNH Industrial UK UK Industrials Industrial engineering 1,325 0.13
Danone SA France Europe Consumer Goods Food producers 1,307 0.13
Safran SA France Europe Industrials Aerospace & defence 1,293 0.13
Prosus Netherlands Europe Technology Software & computer services 1,272 0.13
Grifols Spain Europe Health Care Pharmaceuticals & biotechnology 1,270 0.13
Allfunds Group UK UK Other Other 1,261 0.13
AB Skf Sweden Europe Industrials Construction & materials 1,243 0.13
Logistics Development Group UK UK Industrials Industrial transportation 987 0.10
Tullow Oil UK UK Oil & Gas Oil & gas producers 918 0.09
Jackson Financial USA
North
America
Financials Financial services 722 0.07
Harbour Energy UK UK Oil & Gas Oil & gas producers 663 0.07
Brockhaus Capital
Management
Germany Europe Financials Financial services 531 0.05
Carclo UK UK Basic Materials Chemicals 497 0.05
SIMEC Atlantis Energy UK UK Utilities Electricity 280 0.02
LDIC Investments UK UK Other Other 100 0.01
Providence Resources UK UK Oil & Gas Oil & gas producers 83 0.01
Better Cap UK UK Financials Equity investment instruments 25 0.00
Permanent TSB Ireland Europe Financials Banks 5 0.00
992,478 100.00
lawdebenture.com
30
Company overview
Who we are
From its origins in 1889, Law Debenture has diversified to become a Group which provides our shareholders, clients and people a unique
combination of an investment portfolio and an independent professional services business.
Our purpose and objective
Our purpose is to deliver peace of mind for our shareholders,
clients and people. This is central to our strategy, both at the
portfolio and IPS levels, and underpins the way we think and
behave every day.
Our objective as an 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 IPS clients know that we are independent, experts and have
133 years of experience to call on in delivering vital aspects of their
business cycle.
Our purpose and objective are underpinned by our corporate
values of:
• We believe it’s possible.
• We make change happen.
• We are better together.
• We never stop learning.
STRATEGIC REPORT
Our business model
Our business model is designed to position the Company for optimal performance in the investment trust sector.
Total Shareholder Return
INVESTMENT PORTFOLIO
(c. 82% of NAV – including IPS
and long-term borrowings at fair value)
• Invests in a diverse equity portfolio
• Earns capital returns and dividends
• Low ongoing charges
INDEPENDENT PROFESSIONAL SERVICES
(c. 18% of NAV – including IPS
and long-term borrowings at fair value)
• Trusted provider of independent governance
services, generating recurring revenue.
• Profits provide the investment trust with
a steadily increasing revenue stream.
• Tax efficient
INVESTMENT PORTFOLIO
• The Company’s portfolio will typically contain between 70 and 175 listed investments.
• The portfolio is diversified in order to spread investment risk with no obligation to hold shares in any particular type of company
orindustry.
• The IPS business does not form part of the investment portfolio.
Whilst performance is measured against the FTSE Actuaries All-Share Index, the composition of the index 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 index.
31
Our strategy – implementation
Our strategy is centred round the unique combination of the
investment portfolio and our IPS business. Whilst overseen by the
Board, the IPS business operates independently from the portfolio.
The IPS profits provide a regular source of revenue to the
investment trust, helping to smooth out equity peaks and troughs.
This supports the delivery of steadily increasing income for our
shareholders and ensures our investment managers are not
constrained to choosing stocks on yield. Instead, the investment
managers can benefit from increased flexibility in stock selection
supporting the delivery of long-term capital growth.
Our unique structure is also tax efficient as some tax relief, arising
from excess costs and interest payments which would otherwise
be unutilised, can be passed from the investment trust to the IPS
business reducing the tax liability for the Group and increasing
shareholder returns.
The way in which we implemented the investment strategy during
2021 is described in more detail in the investment managers’
review on pages 18 to 20.
Performance against KPIs is set out at pages 2 to 29, which contain
tables, charts and data to explain performance both during the year
under review and over the long-term.
Agreement with the investment managers
Appointed investment managers: James Henderson & Laura Foll,
Janus Henderson Investors.
On a fully discretionary basis, our investment managers are
responsible for implementing the Company’s investment strategy.
The contract in place is terminable by either side on six months’
notice.
The agreement with Janus Henderson does not cover custody,
which is the responsibility of the depository (see section on
regulatory compliance in the Directors’ Report, page 55). It also
does not cover the preparation of data associated with investment
performance or record keeping, both of which remain the
responsibility of the Company.
Our unique structure allows our investment managers to focus on capital generation,
while knowing that historically approximately one-third of thetrust’s incomehas
been provided by the IPS business.
INDEPENDENT PROFESSIONAL SERVICES
Operating through a number of wholly owned subsidiary companies, (see note 14 to the 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 CaymanIslands.
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 ongoingcharges.
More details about the performance of the IPS business in 2021 are given in the Chief Executive Officer’s review on pages 8 to 14.
Law Debenture’s 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 thevolatility in share price movements that
can sometimes affect individualequities.
lawdebenture.com
32
Company overview continued
STRATEGIC REPORT
Fee structure and ongoing charges
Investment trusts are required to publish their ongoing charges
ratio. This is the cost of operating the trust and includes the
investment management fee, depository and custody fees,
investment performance data, accounting, company secretary and
back office administration.
The Company continues to have one of the more competitive
fee structures in the UK Equity Income Sector with investment
management fees of 0.30% p.a. of the value of net assets of the
Group (excluding the net assets of IPS), calculated on the basis
adopted in the audited financial statements, and ongoing charges
of 0.50%.
No performance fee is paid to the investment manager.
Reappointment
of the investment managers
On an annual basis, at a minimum, the Board assesses whether the
investment managers should be reappointed. The key criterion for
assessment is the long-term performance of the portfolio.
Given Janus Henderson’s proven record of performance, and the
competitive fee arrangements in place, the Board has concluded
that the continued appointment of our existing investment
manager remains in the interests of our shareholders.
Our strategy – guidelines
The Board sets the investment strategy and actively monitors
both the investment managers’ and Executive Leadership team’s
adherence through a series of guidelines and parameters in each
scheduled Board meeting. The strategy is reviewed periodically to
ensure that the investment trust delivers on its objective.
Investments
Permitted types of investments are:
• Equity Shares
• Collective Investment Products
including Open Ended Investment
Companies (OEICs)
• Fixed Interest Securities
• Interests in Limited Liability
Partnerships
• Cash
• Liquid Assets
The regional parameters are:
Restrictions:
• Trading is not permitted in suspended
shares or short positions
• No more than 15% of gross assets will be
invested in other UK listed investment trusts
• 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 Japan, Asia Pacific or emerging
market regions, to more than 40% of the
portfolio, including gilts and cash
• The value of a new acquisition in any one
company may not exceed 5% of the 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, at the next Board meeting,
to retain a holding should its value increase
above the 5% limit.
• The Company may not make investments in
respect of which there is unlimited liability.
Derivatives
May be used with prior authorisation of the Board
Hedging
Currency hedges may be put in place to protect against foreign exchange movements on
the capital and income accounts
Stock-lending
Up to 30% of the value of NAV may be lent
Gearing
The Company applies a ceiling on effective gearing of 50%. Typically effective gearing, net
of cash, is between 10% and 20%. The Board retains the ability to reduce equity exposure
so that net cash is above 10% if deemed appropriate.
Minimum
%
Maximum
%
United Kingdom 55 100
North America 0 20
Europe 0 20
Japan 0 10
Other Pacific 0 10
Other 0 10
33
Gearing and long-term borrowing
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. Alternatively, assets from within the portfolio can be sold
to reduce debt and the portfolio can 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 2021, our
gearing was 13% (2020: 9%) (refer page 134).
The Company has four debentures (long dated sterling
denominated financing) details of which are on page 128. The
weighted average interest payable on the Company’s debentures
is 3.966% (2020: 4.589%).
The fair value of long-term borrowings held by the Group is
disclosed in note 21 to the accounts. The methodology of fair
valuing all long-term borrowings is to benchmark the Group debt
against A rated UK corporate bond yields.
Capital structure
Law Debenture has one class of share – ordinary shares – and each
share has the same rights as every other share.
The Company conducts its affairs so that its ordinary shares are
capable of being recommended by independent financial advisors
to retail investors in accordance with relevant FCA rules.
We consider our ordinary shares to be mainstream investment
products because they are shares in an investment trust. The
Company intends to continue conducting its affairs for the
foreseeable future so that the ordinary shares can continue to be
categorised as a mainstream investment.
Transparency
In order to assist shareholders in understanding the nature of
the underlying investments they are buying into when investing
in Law Debenture’s shares, we publish our NAV on a daily basis.
We also publish the entire portfolio monthly – with additional
monthly updates on the composition of the top ten holdings in
theportfolio.
Future trends and factors
Law Debenture will continue to strive to deliver its business
objectives for both the investment trust and the IPS business.
The Chairman’s statement, the CEO’s review and the investment
managers’ review (all of which form part of this strategic report) set
out the Company’s views on futuredevelopments.
Performance and related data
Pages 2 and 18 to 20, which contain performance and related data,
form part of this strategic report.
Key performance indicators (KPIs) and
alternative performance measures
The KPIs used to measure the progress and performance of the
Group are:
• NAV total return per share with IPS and debt at fair value
(combining the capital and income returns of the Group) and
how this compares, over various time intervals, with relevant
indices;
• the discount/premium in share price to NAV; and
• the costs and ongoing charges of running the portfolio as a
percentage of its value.
Since the objective of the investment trust is measurable solely in
financial terms, the Board does not consider that it is appropriate
to adopt non-financial KPIs. The financial measures adopted as
KPIs are part of our financial reporting obligations.
Alternative Performance Measures as defined under ESMA
guidelines have beenadopted and these are described in detail on
page 134.
Share price and NAV
Investment trusts can trade at a discount (where the share price
is lower than the combined value (NAV) of the underlying assets),
or at a premium (where the share price trades at a higher level
than the underlying NAV). Investment trust investors need to
understand these concepts as well as examine the underlying
portfolio and the way in which it is managed, to decide whether or
not an investment trust share represents “goodvalue”.
Company overview continued
STRATEGIC REPORT
NAV total return with IPS and debt at fair value
1 year 3 years 5 years 10 years
25.1% 47.3% 59.4% 187.7%
Premium/(discount)
31 December 2021 31 December 2020
Year end
1.4% 3.6%
High for year
5.4% 6.6%
Low for year
(4.6%) (19.0)%
Ongoing charges ratio
Year ended 31 December 2021 Year ended 31 December 2020
0.50% 0.55%
lawdebenture.com
34
STRATEGIC REPORT
Law Debenture’s responsibilities
as an institutional shareholder
The Company recognises that, in delivering its objective to produce
long-term capital growth and a steadily increasing income, it must
ensure that its investment strategy is delivered with due emphasis
on the need to ensure that investee companies are acting in
accordance with accepted standards of corporate governance. The
Company has therefore adopted the following policy.
Law Debenture will normally support incumbent management
and vote in favour of resolutions proposed by the boards of
companies in which it has a shareholding, but will vote against
management or withhold a vote where appropriate.
The Board determines the Company’s investment strategy but
does not issue express instructions to the investment manager
on transactions in particular shares. Where Law Debenture
believes that incumbent management is failing in its duties, Law
Debenture (or on its behalf, the Company’s investment manager)
may attempt to enter into dialogue with the company concerned
in an attempt to alter the management’s position.
Where this is not possible, or where incumbent management
declines to alter its behaviour, Law
Debenture will consider voting against
resolutions proposed by the management.
Further, if it is deemed necessary or
desirable, the Company would consider
acting collectively with other institutional
investors to try and achieve a particular goal.
Janus Henderson, on Law Debenture’s
behalf, monitors companies in which Law
Debenture is invested, and from time to
time may discuss matters of corporate
responsibility with such companies. The
Janus Henderson corporate governance
unit will notify Law Debenture’s investment
managers, who in turn may notify Law
Debenture, should matters arise that might
lead the Company to consider intervening,
abstaining or voting against a particular
proposal. During the year, the Company
abstained or voted against one or more
resolutions at 30 shareholder meetings of
investee companies.
The Company will not hold shares in companies whose ethical
and environmental practices are, in its view, likely to damage
the performance of the business to the detriment of its
shareholders.
The Company does not believe that conflicts arise between
its duties as an institutional shareholder and the IPS work
undertaken by the IPS business. The investment manager has
complete discretion as to portfolio decisions and as a matter of
policy, has no access to ‘non-public’ knowledge about any of the
activities of the IPS business.
Janus Henderson is a signatory to the 2020 UK Stewardship
Code. As the Company’s investment manager, Janus Henderson
makes the day-to-day investment decisions and is therefore
best placed to engage with portfolio companies and discharge
stewardship obligations. The Board is of the view that becoming a
signatory to the Stewardship Code would unnecessarily duplicate
the work of the investment manager and therefore continues to
rely on Janus Henderson in thisregard.
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
on page 96. The assets and liabilities of the business are also
consolidated into the Group column of the statement of financial
position on page 97. A segmental analysis is provided in note
6 (pages 110 and 111) to these accounts which shows a detailed
breakdown of the split between the investment portfolio, IPS
business and Groupcharges.
Consolidating the value of the IPS business in this way does not
fully recognise the value created for the shareholder by the IPS
business in the NAV. 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 2021, with an
appropriate multiple applied. The EBITDA
for the IPS business for 2021 was £15.4m.
This number is reached by taking the return,
including profit attribution on ordinary
activities before interest and taxation
of £13.3m from note 6 on page 110 and
adding back the depreciation charge for
property plant and equipment of £1.2m, the
amortisation of intangible assets of £0.5m,
and interest on the lease liabilities shown in
note3 on page 109.
The calculation of the IPS valuation and
methodology used are included at note14
on pages 118 and 119. 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 challenge that we faced in this valuation cycle is that many
of our core comparators, as presented in the 2020 Annual Report,
Company overview continued
Law Debenture’s
latest published level
of ongoing charges
is one of the lowest
in the marketplace
at 0.50%.
Noperformance
fee ispaid to the
investmentmanager.
have been subject to mergers and acquisition activity in the past
year. As a result of the premium this builds into the valuations,
the companies most like our IPS business were excluded from
the comparator group. Whilst the group of companies presented
in the table have some likeness to IPS, further work has been
required in producing a multiple reflective of the fair value to
attribute to IPS.
The multiple of 10.8x has been applied to value the business. The
uplift reflects that the IPS business now has four years of revenue
and profit growth. The multiple selected represents a discount
of almost 13% on the mean multiple across the comparable
businesses presented below, to reflect the relative size of the IPS
business and the fact that it is unlisted.
The comparable companies used, and their recent performance,
are presented in the table below:
Of the comparator companies previously presented above, the
following were the subject of mergers and acquisitions activity:
Sanne Group plc was subject to a valuation 23.5x of EBITDA, Link
Administration Holdings Limited a valuation 13.4x of EBITDA and
Intertrust a valuation at 12.3x of EBITDA.
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 IPSbusiness, which reduced the tax
charge by £1.89m (2020: £1.5m).
It is hoped that our continued 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 percentage growth in 2022. The total valuation
(including surplus net assets) of the business has increased
by £79.5m/88% since the first valuation of the business as at
31December 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 on page 36.
Company overview continued
STRATEGIC REPORT
Company
Revenue
LTM
1
(£m)
LTM EV/EBITDA
31 Dec 2021
Revenue CAGR
2017-2021
EBITDA margin
LTM
Law Deb IPS 42 10.8x 11.3% 37%
SEI Investments Company 1,378 13.9x 5.1% 31%
SS&C Technologies Holding, Inc 3,674 13.1x 31.2% 37%
EQT Holdings Limited 55 13.8x 3.8% 36%
Perpetual Limited 354 10.3x 3.6% 22%
1 LTM refers to the trailing 12 months ‘results’ which are publicly available.
Source: Capital IQ.
35
lawdebenture.com
36
STRATEGIC REPORT
Long-term performance record
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Net assets per the statement of
financial positions (£m)
1
451.9 569.1 574.2 557.3 662.3 748.3 669.4 775.3 727.0 878.8
Revenue return (pence) 15.14 16.27 16.95 18.10 15.96 21.66 21.26 30.68 21.56 28.09
Capital return (pence) 50.24 97.18 3.87 (17.47) 89.30 67.10 (71.85) 79.27 (19.06) 94.60
Total (pence) 65.38 113.45 20.82 0.63 105.26 88.76 (50.59) 109.95 2.50 122.69
Revenue return (pence)
Investment portfolio 8.47 9.31 10.08 11.01 10.88 11.61 13.23 22.18 12.12 18.09
Independent professional
services
6.67 6.96 6.87 7.09 7.68 9.93* 7.87 8.54 9.35 10.00
15.14 16.27 16.95 18.10 18.56 21.54 21.10 30.72 21.47 28.09
Group charges
2
— — — — (2.60) 0.12 0.16 (0.04) 0.09 —
15.14 16.27 16.95 18.10 15.96 21.66 21.26 30.68 21.56 28.09
Dividends (pence) 14.25 15.00 15.70 16.20 16.70 17.30 18.90 26.00 27.50 29.00
Share price (pence)
1
425.0 529.0 530.0 498.0 530.0 629.0 540.0 650.0 690.0 799.0
(Discount)/premium (%)
1
0.1 (2.4) (2.3) (5.1) (11.4) (6.0) (12.1) (7.4) 3.6 1.4
NAV at fair value (pence)
1
424.7 541.8 542.3 524.5 598.5 669.5 614.1 702.2 666.2 787.8
Market capitalisation (£m)
1
501.9 625.0 627.1 589.3 627.2 744.5 639.3 769.8 817.3 982.1
1 At 31 December calculated in accordance with AIC methodology, based on performance data held by Law Debenture including fair value of IPS business and long-term borrowings.
2 For details see note 6 to the accounts.
*This includes 2.72 pence per share of exceptional items including the sale of an unlisted investment, excluding which, normalised earnings per share were 7.21 pence per share.
Note: The 10 year record has been restated (2010-2014) to reflect the fair value of the IPS business and the long-term borrowings.
Calculation of net asset value (NAV) per share
31 December 2021 31 December 2020
£000 Pence per share £000 Pence per share
Net asset value (NAV) per Group statement of financial position 878,837 717.86 726,994 615.19
Fair valuation of IPS: EBITDA at a multiple of 10.8x (2020: 9.4x) 165,985 135.58 125,349 106.07
Surplus net assets 4,041 3.31 10,605 8.97
Fair value of IPS business 170,026 138.89 135,954 115.05
Removal of assets already included in NAV per financial statements (34,141) (27.89) (23,547) (19.93)
Fair value uplift for IPS business 135,885 111.00 112,407 95.12
Debt fair value adjustment (50,229) (41.03) (52,182) (44.16)
NAV at fair value 964,493 787.83 787,219 666.15
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 have been removed (£34.1m) and substituted with the calculation of the fair value and
surplus net assets of the business (£170 m). An adjustment of £50.2m 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
31December 2021 of £964.5m or 787.83 pence per share.
See commentary for the breakdown of the assets already included in the NAV per the financial statements.
37
Our approach to risk
The Group’s risk management and internal control framework
is embedded in everyday operations and subject to regular
enhancements in a continuous risk management process as
demonstrated in the diagram below. Top-down Board-level
oversight for the Investment Portfolio and IPS business is provided
by the Audit and Risk Committee. The Executive Risk Committee
has responsibility for the oversight of operational risk within the IPS
business. Detailed, bottom-up risk identification and management
is owned by individual business lines and overseen by the Group
Risk Manager. This framework enables the Board to identify,
evaluate and manage principal risks to support the delivery of
long-term priorities. The Board recognises that there are certain
risks which are inherent in the Group, 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
inplace.
Following the 2020 review of Group-wide risks and processes,
we have continued to enhance our risk management framework.
In Autumn 2021 we appointed a new Group Risk Manager, Vicky
Skaife. We have also designed a new incident management
system, which allows us to more easily identify, assess, evaluate,
mitigate and report events in real-time.
Risk management
STRATEGIC REPORT
RISK MANAGEMENT PROCESS AND GOVERNANCE OVERVIEW
Internal risk reporting Parties involved External reporting
Risk management
process
Consolidated Group-level risks
• Business area risk registers consolidated to draw
out significant risks
• Principal risks identified, including emerging risks
• Review and agreement of the principal risks
by the Executive Risk Committee
• Review and approval by the Audit and
Risk Committee
Principal risks
and uncertainties
• A summarised version
of principal risks for
external reporting
• Review and approval
by the Audit and Risk
Committee and the
Board
Business and functional risk registers
• Continual review and assessment of business
area risk registers and mitigating actions, including
consideration of emerging risks, by the business
andGroup Risk Manager
• Review and challenge of risk content and quality
ofmitigation plans by Group Risk Manager
• Review and challenge of risks at Executive Risk
Committee meetings
Real-time issues and areas of change
• Monitoring of emerging areas of increasing
significance to the Group and establishing sufficient
mitigating actions
• The LDC plc Board
• Group Audit and
Risk Committee
• Executive Risk
Committee
• Group Risk Manager
• Group Risk Manager
• Business Units
Bottom-up
Top-down
Risk identification
Continual risk monitoring
and reporting
Risk assessment
Risk evaluation
and response
lawdebenture.com
38
STRATEGIC REPORT
Risk management continued
Categorisation of Group risks
The principal risks of the Law Debenture Group are split into three
categories: Group risks, IPS risks and emerging risks.
The identified Group risks predominantly relate to the investment
portfolio as that comprises c.82% of net asset value. We also
identify IPS operational risks which could have a material impact
on the IPS valuation and therefore the Group.
Given our objective to deliver sustainable long-term capital
growth, we continually horizon scan for emerging risks which may
impact our ability to deliver to shareholders.
Governance
The Group’s risk management and internal control framework
is managed through its governance structure shown in the
diagram above and overseen by the Audit and Risk Committee.
IPS business risks are managed through regular business unit risk
committees and management meetings. The outputs ofthese are
fed through to the Executive Risk Committee for its review.
Executive Risk Committee
The Executive Risk Committee is made up of the Executive
Leadership team, supported by the Group Risk Manager, and
meets at least quarterly to review business level risks, incidents,
and ensure effective risk management oversight.
The key focus of the Executive Risk Committee is:
• The review of high or out of appetite risks.
• Internal controls and mitigating actions.
• Emerging risks.
• Escalations from Business Units.
The Executive Risk Committee escalates risk events to the Audit
and Risk Committee, as appropriate. The Group Risk Manager also
speaks directly to the Chair of the Audit and Risk Committee on
any matters arising as required.
The governance framework is continually under review to ensure
that it is fit for purpose with annual reviews of the terms of
reference and oversight across the Group by the Chairs of the
Audit and Risk Committee and the Executive Risk Committee.
Photo credit: Hester Scotton
39
Risk management continued
PRINCIPAL GROUP RISKS MITIGATING ACTIVITIES
1. Investment Performance
and Market Risk
The risk of the investment portfolio failing to
deliver and/or failing to consider and react to
market conditions to deliver the publicly stated
strategic objectives to:
• Achieve long-term capital growth.
• Deliver steadily increasing income.
• Achieve a rate of return greater than the FTSE
Actuaries All-Share Index.
Investment performance and market risk is
the largest risk which the Group 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.
Even though this is an accepted risk given the nature of the investment portfolio,
the Board is responsible for ensuring that there are adequate controls to help
manage the inherent risk. As such, the Board has put in place various controls,
such as:
• Regular review of the investment managers’ report including risk indicators.
• Clear risk exposure limits at a stock and regional level which are monitored by
Janus Henderson.
• Open dialogue with the investment managers on their approach and
performance.
Furthermore, the NAV is published daily and subject to review by the CFO, which
enables ongoing monitoring of the investment portfolio’s performance.
The Board further notes that the IPS business represents 18% of the NAV and also
provides an additional layer of diversification 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.
2. Financial Reporting
The risk of inaccurate publication of financial
statements, annual reports, NAV, factsheets and
other market data that can adversely impact
financial results, investor decisions, reputation or
which may lead to regulatory fines or sanctions.
Material financial judgements are supported by
advice and review from appropriately qualified
independent advisors.
To mitigate these risks, Finance have implemented processes with embedded
controls. The management and production of all financial reporting is overseen
by appropriately skilled and trained colleagues within the Group’s Finance team,
with review from the CFO.
Additionally, the Board, Executive Leadership team, Business Heads and
investment managers review and challenge financial information, giving
collective ownership of the financial information.
The financial statements in the Annual Report are audited by a reputable
accounting firm.
The NAV valuation is calculated internally, based on data reconciled to the
custodian/depositary and Janus Henderson, using a specialist third party data
source for the pricing and the NAV is reported to the London Stock Exchange
and Morningstar daily.
3. Cyber, technology and Systems Risk
The risk of cyberattacks and security vulnerabilities
is ever present, and failures here could lead to
reduced revenue, increased costs, liability claims,
or harm to our reputation or competitive position.
This includes the systems of Janus Henderson,
including business continuity/ disaster recovery
incidents and wider control issues such as fraud or
conflicts of interest.
Investment and increased use of cloud services across the Group continued
in 2021 preparing us for sustainable, scalable technology growth in 2022 and
beyond. Incident reporting procedures are in place as well as cyber insurance.
We conduct regular penetration testing and take steps to address identified
weaknesses.
Janus Henderson are subject to an annual ISAE3402 audit and AAF review to
ensure there are no material deficiencies. The Executive Risk Committee also
receive a monthly operational report with respect to Janus Henderson’s risks
andcontrols.
Group risk summary and mitigating actions
STRATEGIC REPORT
lawdebenture.com
40
STRATEGIC REPORT
Risk management continued
IPS BUSINESS RISKS MITIGATING ACTIVITIES
1. Strategic & Financial
A strategic risk arises that the current business
model becomes obsolete due to a lack of
technical or commercial innovation, market
disruption, product obsolesce or regulatory or
legislative change.
Financial risk arises if the IPS business is not
able to scale up and deliver on its growth
plans to generate revenue growth, profitability,
cost savings and react to any changes in
marketconditions.
To mitigate this strategic risk, there has been significant investment in people
and technology to support the IPS business strategy and this will continue to be
monitored along with the three year financial budgeting and planning which
forms part of the Group’s longer-term viability 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.
To mitigate the financial risks, monthly management information is provided to
the CEO and Business Heads to monitor and assess business performance.
2. Change Management
IPS is in a period of operational and cultural
change; new improved systems and technology,
evolution of our culture and purchase of a new
company secretarial business.
We run the risk that the change does not meet
its intended objective, is delivered late or over
budget, or that management time is diverted
away from business as usual to projects, to
the detriment of clients, current systems
orcolleagues.
Governance is in place to provide oversight of operations across the IPS business
including a monthly operations committee. New projects across the group
are given oversight via the project committee. There is dedicated experienced
project management resources across IT and operations teams.
In order to ensure the integration of the new teams and new joiners, we have
increased the headcount in our people team by three, including a Director of
People Strategy and a dedicated recruiter.
3. Financial Crime
Across all jurisdictions the Group’s activities
are subject to various financial crime laws
and regulations, including sanctions and
export control, anti-bribery, anti-corruption,
anti-money laundering and counter-terrorist
financing. Changes to these laws could have a
material adverse impact on our operations or
financialresults.
To mitigate these risks, the following controls are in place:
• Enhanced incident reporting procedures for the Group with timelines for
notifications and clear reporting lines.
• Whistleblowing procedures and a clearly defined reporting structure
with colleagues having 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. If they do not wish to report to any
of these persons for any reason, they may report their concerns using our
whistleblowing service provided by Safecall, which is available 24 hours a day.
Reports using this channel may be made anonymously.
• There are robust policies in place covering AML, fraud prevention, anti-bribery
and corruption which are supported by group-wide interactive mandatory
training modules. Specialist external training courses are also available
tostaff.
IPS business risk summary and mitigating actions
NEW
Risk management continued
Our risk agenda 2022
The focus for 2022 and beyond will be to develop further efficiencies in the risk management process and development of our ESG
reporting. A number of initiatives have been planned for 2022; the below lists some examples.
IPS strategy review
During the course of 2022, the Executive Leadership team and Board will be undertaking a strategic review of the IPS business. The
key outputs of this will be the articulation of our vision to support the future growth of the business.
Development of risk management function
Building on the foundations of work completed in 2021 in line with the plan as agreed by the Chairman of the Audit and Risk
Committee and the Executive Risk Committee, the Risk Management Policy will develop further following the appointment of a
permanent Group Risk Manager in Autumn 2021.
Incident management system
A new incident management system will be launched Group-wide in Q1 2022 to facilitate the effective submission of and responses
to risk incidents, including risk-determined workflows for resolution of incidents. The launch will be accompanied by a series of
workshops for teams to refresh their understanding of risks and how to manage them.
ESG risk management
We will review ESG risk management alongside our sustainability reporting and will publish information on our website including
setting out our forward-looking plan and how we will achieve it.
EMERGING RISKS MITIGATING ACTIVITIES
1. ESG Considerations
As ESG becomes an area of increased focus,
we are yet to fully understand the risks to our
stakeholders.
There is also a significant uptick in the ESG
regulatory landscape; we must ensure that
we do not fall behind in meeting these
requirements including climate and ESG-related
targets.
The group is reviewing this and will publish the outcome from our ESG
review on our Group website during 2022. This is being managed by regular
discussion, led by the Group ESG Manager working with the Board, the ESG
committee, finance and the General Counsel. Meetings have been scheduled
throughout 2022 to ensure we are on track to meeting any mandatory
requirements and also to consider and assess non-mandatory requirements.
2. Digital Disruptors and Change
For the IPS business, the prominence of digital
applications and client portals could be a threat
if we are unable to keep up with the pace of
change resulting in losing new and existing
customers.
In 2022, we will review and assess the possibilities of a more digitalised client
proposition.
Emerging risks and mitigating actions
STRATEGIC REPORT
NEW
NEW
41
lawdebenture.com
42
STRATEGIC REPORT
Viability statement
Viability statement
The UK Corporate Governance 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 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 12 months. Our stated financial objective is
to deliver long-term capital growth in real terms and steadily
increasing 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. 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 have 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 creates a stable capital basis, which enables
our investment manager to take a longer-term view in
their construction and management of the portfolio. This
significantly mitigates the risk to the Group of potential
liquidity issues should 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 mainly UK-based equity portfolio with a
diversified revenue stream arising from the IPS business. As
demontrated by both our long-term performance 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. Over a three year period, the share-price total
return is 67.6%. Additionally, the NAV total return with debt
and IPS at fair value is 47.3%.
• The IPS business holds enough working capital to meet any
short-term requirements of the Group and provides a steady,
largely recurring, flow of income. In addition, the majority
of the portfolio is invested in UK listed securities which are
traded on major stock exchanges, providing the Group with
the ability to quickly liquidate assets, should the need arise.
This mitigates potential risks to liquidity and the potential
inability to meet our obligations.
A related risk is a breach of our debt covenants resulting
in a requirement for the Group to repay the debentures
at short notice. Whilst the Board acknowledges this risk,
the uncertainty arising due to the Covid-19 pandemic
demonstrates the Group’s ability to navigate these challenges.
At the height of market decline on 23 March 2020, the Group
maintained significant headroom on all covenants.
• The Company has an ongoing charge of 0.50%, 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. This supports our ability to meet our
legal and regulatory requirements and acts as a control to both
verify the existence of our assets and further safeguard the
interests of our shareholders.
• The Group’s cash is all held with banks approved by the Board.
The Group’s total cash balance, including money market funds,
at 31 December 2021 was £25.5m (30December 2020: £41.3m),
with IPS holding a further £9.9m.
• There is long-term borrowing in place comprising of four
debentures:
The weighted average cost of borrowing is 3.966%. Each
debenture is subject to a formal agreement, including
financial covenants, which the Company has complied with
in full during the year. As at the end of December 2021, net
gearing was 13%, which is well within the typical operating
range of 10%-20%.
• During January 2021, the Company also made arrangements
to put in place a £50m unsecured overdraft facility with HSBC.
Whilst available, this facility is currently not in use but provides
further mitigation of any liquidity risk.
• The Board reviews the investment trust’s performance
including revenue forecasts, along with other key metrics
such as gearing at each Board meeting and receives monthly
financial reporting to monitor and manage the principle risk
relating to investment performance.
In addition to this, the Board carries out a robust assessment of
our principal risks and uncertainties which could threaten the
Company’s business model. The Board has assessed the emerging
risks which may impact the operations of the Group and will
continue to actively review the likley impact of these potential risks.
This is set out at page 37.
In light of the current conditions, the Board has considered the
Company’s current financial position and the potential impact
Maturity date Amount Interest
2034 £40m 6.125%
2041 £20m 2.54%
2045 £75m 3.77%
2050 £30m 2.53%
Total £165m Weighted average: 3.966%
43
STRATEGIC REPORT
Viability statement continued
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.
Balance sheet resilience
As at 31 December 2021, Law Debenture Corporation held total
investments, including cash and the IPS business (based on the
valuation as 31 December 2021), of £1.178bn (31 December 2020:
£966m). With the exception of the IPS business, the majority of
these assets are liquid and could be sold down within a short
period of time.
The Board and the Executive Leadership team have actively
monitored the cash position across the Group throughout the
year, mindful of our commitment to pay quarterly dividends
to shareholders. As of 31 December 2021, the Group holds cash
of £35.8m (31 December 2020: £41.7m). In addition to this, the
Company has an overdraft facility of £50m to protect against any
significant fall in cash inflows.
Photo credit: Youssef Sallam
lawdebenture.com
44
STRATEGIC REPORT
Section 172(1) Statement
The Board is responsible for the overall strategy and overseeing the management of the Group, setting investment principles and
ensuring that the Company is acting in accordance with its legal and regulatory obligations. The global pandemic has continued to
impact the way in which businesses operate and in response the Board has adopted a hybrid approach to meetings as the year has
progressed. During the course of 2021, the Board met ten times.
As reported on page 30, the Company’s purpose is to deliver peace of mind for our shareholders, clients and people at the portfolio
and IPS business levels, each of whom the Company significantly relies on to deliver its objective to achieve long-term capital growth in
real terms and steadily increasing income. The Company also relies on its principal service providers, community and the health of its
environment to contribute to the infrastructure and sustainability of its operations. It is this purpose that fuels our strategy to deliver on
the stated objective through the unique combination of our portfolio and IPS business and living our core values as stated on page 30.
Our purpose, values and strategy are inextricably linked and ingrained in our evolving culture and reflected in our policies, practices and
high standards of business conduct.
In discharging its responsibilities, the Board takes into account the Group’s purpose, values and culture and acts in good faith to promote
the long-term success of the Company, which includes oversight of stakeholder engagement and ensuring that the Company can
fulfil its obligations to key stakeholders. We believe that this is pivotal to our ability to drive value creation over the longer-term. Those
impacted by the Company’s activities and considered key to the Company’s operations can be grouped into the following five main
categories: shareholders, clients, employees, principal service providers and the community and the environment.
Shareholders
When making decisions, the Board considers the interests of our shareholder group and the need to act fairly on behalf of all
members of the Company. The Board communicates with its institutional and retail shareholders in a process which is subject to
evolution as we respond both to the needs of our shareholders and to external factors, such as the global pandemic. Engagement
activities employed during 2021 may be found at pages 46 and 56 of this statement and the Directors’ report, respectively.
The Board communicates with its shareholders as detailed in the Directors’ report on page 56. We actively engage with any queries
our shareholders raise on the information we publish. In addition, meetings are held with shareholders throughout the year, which
are attended by Executive Directors along with representatives from the investment manager. During 2021, meetings with investors,
including the AGM, have been largely virtual. This provided a forum for our shareholders to engage on all Group matters, including
remuneration. However, assuming government guidelines permit, the Board plans to hold the AGM in a hybrid format, giving
shareholders the option to either attend in person at our offices or join virtually. Key topics of discussion during 2021 included the
issuance of shares, review of the Group’s capital structure, our ESG proposition, IPS strategy and the impact on the valuation of the IPS
business, performance against benchmark, prospects for the UK economy and the investment style and stock selection.
The Board also takes into consideration the views of its individual shareholder base and following requests for less circulation of
hardcopy communications, the Board approved the implementation of deemed consent as described on page 56.
Clients
Ensuring that we provide peace of mind to our clients through the delivery of an excellent service is crucial to the delivery of the
Board’s strategy for the IPS business. This year, we have continued to focus on acting as a trusted advisor to our clients across each of
our offerings. Initiatives have included hiring two new members of the business development team, growth in our product offering
and investment in technology.
The Board receives regular presentations from each IPS Business Head on a rolling basis throughout the year, which includes details of
client relationship management initiatives and proposed new service offerings to expand the client base.
In 2021, we adopted a hybrid approach to client care meetings to understand how we can better serve our clients. We have also held a
range of client events, both virtually and in-person, to ensure that there is a regular, more informal channel of communication.
Employees
During 2021, the Board had oversight of a project to articulate the culture and values of our business. This project was delivered
through a series of workshops, focus groups and wider engagement sessions which sought to ensure that all our people have a voice
in the organisation. This is further supported by quarterly staff surveys to understand what matters to our people. In direct response
to the feedback received, we have invested in developing career frameworks, a review of the contracts and benefits offered to our
people to include health insurance for all and hybrid working and further investment in our HR and IT infrastructure.
KEY
Shareholders Clients Employees Principal service providers Community and the environment
45
STRATEGIC REPORT
Section 172(1) Statement continued
Employees continued
e oard as also osted a luc for staff i our acester o c o proo op c o couicatio is is i additio to
the all-staff hybrid “townhall” presentations from the Executives and investment manager following the half year and annual results. The
Chair of the Audit and Risk Committee has made himself available to staff as an independent escalation channel to complement our
whistleblowing service, which enables employees to deal with issues of concern to them, whether work or domestic related. The Board
cotiues to see sigifi cat value i a oxecutive irector wo is desigated to oversee te wellbeig of our people it ar
Bridgeman stepping down from the Board in April 2022, we are delighted to announce that Clare Askem will succeed him in this role.
Principal service providers
e opa as regard for all service providers e ivestet aager as bee idetifi ed as te pricipal service provider wit
which the Board engages on an on-going basis. The investment manager provides an update on management and performance
of the portfolio at scheduled Board meetings. Further detail on how the Board has supported the investment manager following
engagement, may be found in the table below outlining key strategic decisions impacting stakeholders.
In addition to this, the Board view our other key service providers to be our corporate broker, our custodian, our depository and those
organisations charged with provision of the IPS infrastructure. The Board and Executive Leadership team have sought to have regular
iteractio wit eac of tese providers to esure a ope ad effective ow of iforatio
Community and the environment
The Board recognises the increasing importance of ESG factors to our community, our clients, our people and the environment. In
the 2020 Annual Report, we committed to enhancing our reporting on the ESG impact of the Group on our community and the
eviroet or te fi rst tie we ave icluded a specifi c sectio witi our ual Report see page explaiig our positio
and the work we do on this topic, which includes actively engaging with our investment managers on ESG factors, introducing a
Charity Community Group and supporting the Ambitious about Autism Internship programme.
e ave also sougt to reduce our datoda ipact o te eviroet e ost sigifi cat ivestet was te ove to our ew
ead offi ces at isopsgate odo wic as bee purposefull desiged to ave a reduced ipact o te eviroet e
xecutive eadersip tea ave also itroduced a paperless worig iitiative ad icreased recclig i all our offi ces
The Board and the Executive Leadership team are unaware of any human rights issues that might arise from its activities, mindful of
the need to act responsibly as an institutional shareholder (as described on page 34).
Case Study: s172 case study on employee engagement
Our culture and values
In 2021, we embarked on an ambitious project to re-calibrate and articulate the purpose, values and cultural ambition of our 132-year
old business. We began with an audit of the current cultural norms, which took into account the challenges faced by prolonged
remote working and the near doubling of our headcount since lockdown began (made up of c.50 new colleagues following the
purchase of CSS in January 2021 and c.50 direct hires). Once we had established the existing culture, we were able to set ambitious
goals for what we wanted the culture to be by 2025 and begin to think about the behaviours and values we needed to move us to
that point. This was done via a variety of interviews, workshops and focus groups which involved well over half of our colleagues from
all levels in the business and across all geographies.
avig articulated our purpose ad values we were deligted to welcoe colleagues bac to te offi ces i ul wit a fi rwide
culture wee fi lled wit iterestig tals social evets ad traiig sessios all aliged to aig aweb the business we
collectively want it to be. Off the back of this work, a number of grass roots community groups have been established, all of which
increase our sense of inclusion and belonging (including LGBTQ+, sports and social, and a charity committee), as well as some more
foral prograes suc as our plo utis itersip our partersip wit reewic iversit to etor fi rst geeratio
university students, and our new ESG Committee.
The leadership team is fully committed to continuing this cultural journey and embedding the values in everything we do.
We believe that this will deliver long-term sustainable growth in our IPS business and help the Board to steer the wider
Group to meet our objective for shareholders.
Employ Autism is part of Ambitious about Autism, the national charity for autistic children and young people.
The leadership team is fully committed to continuing this cultural journey and embedding the values in everything we do. The leadership team is fully committed to continuing this cultural journey and embedding the values in everything we do.
lawdebenture.com
46
STRATEGIC REPORT
Stakeholders Ke y priorities Engagement activities in 2021
Shareholders
Investment from shareholders makes up
the majority of the Company’s capital,
funding the principal investment
activities. Shareholders also hold the
Board accountable to its investment
and governance objectives.
To deliver against our stated objective to
provide long-term capital growth in real
terms and a steadily increasing income.
Annual and Half Year Reports
AGM
Investor presentations
Individual shareholder meetings
Analyst meetings
Daily NAV publications
Monthly factsheets
Clients
Clients help to create, maintain and
grow demand for our IPS services.
Their feedback is encouraged to help
us continue to improve as a business.
To seek to provide peace of mind to our
clients by delivering an excellent service.
Client care meetings
Hybrid approach to client events
Lens photography competition
Summer drinks
Annual Pensions Debate
Employees
Our people are key to our IPS operations
and we rely on their support and
expertise to provide exemplary services
to our clients.
To provide a diverse and inclusive
workplace, which supports our people to
grow their careers in a way that is both
meaningful to them and promotes the
delivery of our long-term strategy.
Articulation of culture and values
Quarterly people surveys
Community groups to bring our people
together
Review of benefits and contracts
Team and companywide events
Principal service providers
We rely on our service providers to
manage our portfolio, and provide the
infrastructure and advice to meet our
shareholders’ expectations, service our
client base and remain compliant with
legal and regulatory requirements.
To provide a clear framework and open
communication channel between us
and our key service providers to facilitate
the best possible investment outcomes
for our shareholders.
Investment managers are invited to attend
Board meetings
Quarterly meetings with our custodian and
depository
Quarterly meetings with our corporate broker
Active engagement with large suppliers of the
IPS infrastructure
Community and the environment
We recognise that we are stewards of
our community and the environment
and that investment geared toward
these helps to improve economic
stability and build a more inclusive
community. This in turn contributes
to the Company’s sustainability and
subsequently helps us to deliver on our
objective for our shareholders in light of
our key stakeholders’ interests.
To act responsibly as an institutional
shareholder and to ensure we have
a positive impact on the Company’s
operations, the community and our
environment.
Supported the Ambitious about Autism
Internship programme
Mentoring programme with widening
participation university
Charity group supporting two named charities
Paperless initiative
Implementation of deemed consent
Energy efficient head office building in London
and in Manchester
Increased recycling in all offices
Section 172(1) Statement continued
Key priorities and main methods of engagement with stakeholders in 2021
47
STRATEGIC REPORT
Section 172(1) Statement continued
1) Review of our capital structure
In 2021 we reviewed our capital structure and took the decisions to issue shares at a premium to NAV, when demand allowed,
and to issue two new tranches of long-term debt resulting in a lower net cost of borrowing. Both decisions were taken to facilitate
further investment in our portfolio and the IPS business, enhancing our ability to continue to deliver on our stated objective for
ourshareholders.
2) Review of our investment strategy and ESG approach
Through the review of our capital structure, the Board has been instrumental in supporting our investment manager’s objective
to be a net investor in the UK market. The Board also supported the investment manager’s strategy to make a number of smaller
investments by raising the limit on the number of investments which can be held.
The Board recognises the increasing importance of ESG factors to the environment, the community and to the delivery of our stated
objective of long-term sustainable growth. The Board has actively engaged in considering our ESG proposition and will monitor the
ESG performance of the portfolio at each Board meeting. The Board has supported the Executive Directors’ decision to appoint an
individual with responsibility for overseeing the ESG positioning of the Group and to drive the enhancement of our ESG disclosures.
3) Evolved our Board composition
We are sad to announce that Mark Bridgeman will be stepping down as a member of the Board and Chair of the Audit and Risk
Committee at the end of the 2022 AGM. Pars Purewal was appointed to the Board on 16 December 2021 and is expected to succeed
Mark Bridgeman as Audit and Risk Committee Chair, following his retirement. To ensure a smooth transition, Pars began to work with
the Board in December 2021. As a qualified accountant and a former partner at PwC, Pars has a strong understanding of both the
investment trust market and the operational aspects of a professional services business.
We were also delighted to welcome Clare Askem to the Board in June 2021. Clare brings with her a wealth of commercial expertise
which will support the growth of our IPS business and its operations. Clare will succeed Mark as the designated Non-Executive
Director for workforce engagement, following his retirement from the Board in April 2022.
Both directors bring additional skills and experience to the Board, which complement its strategic goals geared towards the
continued achievement of our objective for shareholders and the long-term success of the Company for the benefit of its members
as a whole.
4) Continued investment in delivering long-term IPS growth
At the start of 2021, the Board oversaw the completion of the acquisition of CSS from Eversheds Sutherland (International) LLP. This
strategic acquisition strengthened our corporate services business.
The Board has also supported the Executive Directors in their decisions to appoint Joanna Lewis as CEO of our Safecall business and
Sankar Mahalingham as Head of Pegasus. Vicky Paramour has been promoted to Managing Director of the pensions business. These
appointments, along with further investment in our client facing teams and central functions, will enhance our client proposition
and facilitate long-term IPS growth.
Key strategic decisions impacting stakeholders in 2021
Where appropriate, information or feedback received from shareholders and other key stakeholders are routinely reported to the Board
by the Executive Leadership team, the Company Secretary or IPS Business Heads. At the end of the year, the Board also reviewed the
stakeholder engagement activities employed by the Board, the Executive and the Corporation’s advisors on behalf of the Company and
concluded that they were effective.
During the year, the Board made decisions to deliver against our strategy, whilst considering the different interests of our stakeholder
groups and the impact of key decisions upon them. Each decision taken by the Board is with a view to ensuring that we deliver on our
commitment to our shareholders to deliver long-term capital growth and steadily increasing income. The following provides an overview
of some of the key decisions taken and how integral our stakeholders are in the Board’s decision-making process.
KEY
Shareholders Clients Employees Principal service providers Community and the environment
lawdebenture.com
48
STRATEGIC REPORT
Environmental, Social and Governance (ESG)
Group approach to ESG
We wholeheartedly believe ESG underpins sustainable long-term
returns for our shareholders, as well as promoting behaviours
aligned to our corporate values.
ESG issues are integrated into our investment analysis and decision-
making as we believe it delivers a resilient portfolio and better
outcomes for our shareholders, community and the environment.
Our purpose and values
Our IPS colleagues are afforded peace of mind that they are part
of a team which is fair, ethical and committed to doing the right
thing through our corporate values of:
• We believe it’s possible.
• We make change happen.
• We are better together.
• We never stop learning.
These values create an environment where we strive to do the right
thing for our stakeholders as well as each other. Our values are the
building blocks for a successful and sustainable future, and will
facilitate meeting our Group goals alongside our ESG objectives.
What we achieved in 2021
Living our values, we are in the process of learning and
implementing meaningful change, which drives our ESG agenda
in 2021. We have delivered the following:
• Appointed a Group ESG Manager.
• Created an ESG Committee.
• Introduced portfolio level ESG risk reporting.
• Sponsored a colleague to begin their Masters in Corporate
Responsibility and Sustainability.
• Produced our fi rst iteral sustaiabilit report
• Published our ESG Statement on the AIC website.
• Engaged with ESG rating providers.
• Moved the majority of our staff to BREEAM (Building Research
Establishment’s Environmental Assessment Method) Excellent
ad ctive Score old offi ces at our odo ead offi ce ad
new Manchester site.
Looking ahead to 2022
In 2022, we are committed to make further change happen by
taking more action and enhancing the availability of our ESG
information in the public domain by:
• Complying with TCFD reporting requirements by 2022 year-end.
• Introducing an ESG section to our website.
• Publishing our ESG reports and related policies, including
our diversity policy, anti-bribery and corruption policy and
environmental usage data.
ESG considerations when investing
Our investment managers, consider ESG factors directly and with
the support of the experienced Janus Henderson responsible
investing team. They are always looking for companies that
are actively seeking to address ESG issues, as seen in the two
case studies below. They are not afraid to exit positions where
management fail to deliver expected improvements.
We continue to avoid mandating investment decisions based
purely on published ESG metrics. We believe that engaging in
active dialogue, understanding individual company nuances and
monitoring for improvements where applicable, provides the best
outcomes for our shareholders and and for society.
During the year, the Board introduced recurring quantitative
ESG metric reporting for the portfolio. The inclusion of this
data provokes important discussion and debate and allows
us to ensure the portfolio continues to deliver against the
commitments made to our shareholders. As the data available
becomes more reliable and the asset management industry
becomes more sophisticated and experienced in analysing the
ESG impact of investing, we will continue to evolve our approach.
Case Study: Accsys Technologies –
identifying investment opportunities
in sustainability innovation
Law Debenture invests in Accsys Technologies. This company
manufactures products that transform wood making it more
durable; this is done through acetylation. This treatment
prevents cells in the wood from being able to absorb water,
thereby turning soft wood into hard wood.
Door and window frames treated with the product will
last many years longer when compared with the same
wood untreated. This is a more sustainable way for the
construction industry to use wood products. Wood is a more
sustainable construction material than uPVC. However
historically the problem for builders has been
how quickly wooden window frames needed
to be replaced – Accsys products have now
cagedtis
sustainable construction material than uPVC. However sustainable construction material than uPVC. However
49
STRATEGIC REPORT
Environmental, Social and Governance (ESG) continued
Case Study: Shell – demonstration of
identifying material risks and active
engagement
Shell currently generates the majority of its earnings from
fossil fuels. Therefore as the world de-carbonises there is a
risk to future group earnings and cash generation. Shell are
actively seeking to address this risk by diverting a material
portion of capital expenditure towards producing and
distributing low-carbon power (such as hydrogen and
biofuels), while shifting their existing mix of hydrocarbon
productio towards gas is is liel to pla a sigifi cat
role as a transition fuel while lower carbon alternatives reach
commercial scale. In making these changes to the portfolio
they have aligned themselves with the Paris Agreement,
committing to becoming a net zero emissions business
by 2050. It is the cash generation of the existing fossil
fuels business that is enabling Shell to make this transition
towards net zero. In our view fossil fuel companies that are
actively seeking to address the issues, have a material role to
play in reaching net zero emissions, as a result of their cash
generation, existing expertise and distribution networks.
We have actively engaged with the Shell Board this year,
which included a discussion on how to balance returns
from renewables versus their upstream portfolio, and
the recent suggestions of activist investor Third Point on
the potential to split into separate businesses.
We continue to hold the view that active
engagement with companies like Shell achieves
ore tadivestet
the recent suggestions of activist investor Third Point on the recent suggestions of activist investor Third Point on
engagement with companies like Shell achieves engagement with companies like Shell achieves
Environmental
Energy use and environmental considerations
Utilities consumption and business travel are critical aspects of
our environmental and carbon footprints and, as with many other
businesses, have materially reduced over the last two years as a
result of the restrictions brought about by the Covid-19 pandemic.
Our ambition is to retain these reduced levels of carbon impact as
restrictions are lifted be that through more thoughtful usage or
proactive offsetting practices.
sigifi cat portio of te roups carbo eissios arises
fro its cosuptio of eerg i aitaiig its offi ces sig
conversion factors published by the UK Department for Business,
Energy and Industrial Strategy, Scope 1 and 2 emissions for the
ear to eceber were toes of e
179.65 tonnes of CO2e). This equates to 0.0028 tonnes of CO2e
per £000 of IPS revenue (2020: 0.0059 tonnes of CO2e). The vast
majority of useage and emissions are from UK-based operations.
The Group does not yet calculate Scope 3 emissions. None of the
entities within the Group (subsidiaries or parent company) meet
the streamlined energy and carbon reporting (SECR) regulations
at a idividuallevel
Sice ovig ead offi ce i late we operate a largel
paperless environment, having reduced our printers from 9
to 3. Both our London and Manchester premises are BREEAM
sustaiable offi ces icludig solar eerg ot water paels
autoated ligtig ad watereffi ciet sstes ovig to a
ore eerg effi ciet ead offi ce as bee a sigifi cat driver i
our year-on-year decrease in carbon footprint. Meeting rooms are
set up to facilitate paperless and virtual meetings with the use of
technology.
We have implemented deemed consent regarding hard copies
of the Annual Report, such that the majority of our shareholders
will now receive their Annual Reports digitally. This reduces
the number of printed Annual Reports and further reduces our
carbon footprint.
Preparing for TCFD
Investment trusts are out of scope for 2021 TCFD reporting.
However, planning is underway to provide these disclosures in the
2022 Annual Report. Progress against this goal will be tracked and
reviewed at least quarterly, with an update provided to both the
Executive Leadership team and Board at least annually.
IPS supporting ESG in capital markets
Within our IPS business our corporate trust team acts as
independent corporate trustee across the full spectrum of capital
arets ad debt fi acig e corporate trust tea also plas
an integral role in bespoke trust arrangements.
The corporate trust team is proud to have facilitated and acted on
an increasing number of transactions aligned to ESG values and
goals. These transactions have covered a wide variety of sectors
and locations including the installation of wind farms in Lithuania,
development of sustainable waste recycling systems in Italy and
te fi rst sustaiabilit lied bod i te social ousig sector
Case Study: Corporate trust ESG
transactions
Green energy: Green Lucca S.p.A.’s €72 million green bond
offerig is te fi rst ree od issuace b te solar power
copa used to refi ace te groups existig debt as well
as provide fi ace for te purcase of ew potovoltaic
systems. The proceeds of the Green Bond will be used in
line with the “Green Bond Principles” established by the
International Capital Markets Association (ICMA).
Social housing bonds: illio sustaiabilit
linked bond (SLB). The corporate trust team are very pleased
to ave acted as bod trustee for te fi rst of its id i
the social housing sector which is directly linked to the
housing association achieving a set of ambitious social
and environmental targets including reducing
scope 1 and 2 greenhouse gas emissions by 20%
and building 8,000 new homes of which 50%
areaffordable
housing association achieving a set of ambitious social housing association achieving a set of ambitious social
scope 1 and 2 greenhouse gas emissions by 20% scope 1 and 2 greenhouse gas emissions by 20%
lawdebenture.com
50
STRATEGIC REPORT
Environmental, Social and Governance (ESG) continued
Social
Diversity and inclusion
Following a number of senior appointments and promotions
over the last two years, our Board and Executive Leadership
tea copositios re ects a diverse cross sectio of geder
ethnicity, age and background. We are proud of the progress we
have made and believe we are reaping the rewards of genuine
diversity of thought. We were particularly pleased to have been
ranked 2nd in the FTSE 250 Rankings for Women on Boards and in
Leadership in the inaugural 2021 report by the FTSE Women Leaders
Review, announced on 22 February 2022. We fully support all the
recommendations in this report and are proud to have a woman
Finance Director, in post since 2020 (recommended in this report
to be appointed by the end of 2025). For more information on the
progress of our diversity and inclusion objectives please refer to
pages ad of our corporate goveracereport
In 2021, IPS underwent an extensive project to clarify, articulate
and embed its corporate values, supported by a culture week.
This has resulted in the launch of a number of internal community
groups designed to improve diversity, inclusion and togetherness
at work. These include:
• Charity Committee • llies
• Running Club • Sustainability Committee
• V Community (diversity) • Wellbeing Community
The Group does not currently meet the thresholds to formally
publish its gender pay gap, but we continue to review this
data internally and are delighted to share the following as at
eceber
*Senior Managers are any individual with responsibility for planning, directing or
controlling an activity of one of the subsidiary companies or a key central business
function, excluding the CEO and the COO.
Social impact
During 2021, we focused on practical and meaningful ways to
make social impact where it relates to our corporate values.
These included:
• Launching our internships with Employ Autism, supporting
our value of “better together” – see the case study above.
• Greenwich university mentoring – supporting social mobility
for fi rst geeratio uiversit studets b laucig our
mentoring programme to inspire and equip them for their
future careers, supporting our value of “believe it’s possible”.
• Providing workplace training and hands-on experience for
placement students, living our values of “never stop learning”.
• Supporting our nominated charities of the year, the
Samaritans and Marie Curie via a wide variety of activities.
Human rights and modern slavery
The Group believes in the importance of doing business in ways
that value and respect the human rights of our staff, customers
and business partners.
The Group will not knowingly engage in companies that use
unlawful child labour or forced labour, nor will it knowingly accept
products or services from suppliers that employ or utilise child
labour or forced labour.
During 2021, we changed our cleaning service provider in our
odo offi ce to oe coitted to paig all of its staff at least
the London Living Wage.
Pursuant to the UK Modern Slavery Act, our Modern Slavery
Statement is published on our website.
Case Study: Employ Autism internship
In 2021, the Group employed two interns through the
University of Greenwich and the Employ Autism programme.
Employ Autism aims to break down barriers to work that
autistic people can experience by increasing employers’
cofi dece ad uderstadig of autis ad eurodiversit
Following the success of this scheme, the Group offered a
permanent role to one of the participants who
joined in September 2021. The Group is excited
to build on this relationship and looks forward to
welcoming another intake in 2022.
Following the success of this scheme, the Group offered a Following the success of this scheme, the Group offered a
joined in September 2021. The Group is excited joined in September 2021. The Group is excited
to build on this relationship and looks forward to to build on this relationship and looks forward to
Female
Male
2020
Seven
Directors
2021
Eight
Directors
37.5%
62.5%
62.5%62.5%
29%
71%
20202020
2021
67%
33%
75%
25%
Female
Male
2020
2021
50%
50%
50%
50%
Female
Male
2020
2021
55%
45%
50%
50%
Female
Male
Executive Leadership
team
Senior Managers*
Board
Group employees
51
Environmental, Social and Governance (ESG) continued
Governance
Good governance is central to Law Debenture.
As a FTSE 250 PLC, we apply requirements under the UK
Corporate Governance Code and the Financial Conduct
Authority’s Listing Rules, which include: reviewing the
effectiveness of our external auditors, board succession, board
diversity and an independent Remuneration Committee – see our
corporate governance report on pages 58 to 63.
As an investment trust, we apply the UK Stewardship Code
which sets out governance and investment approaches and
engagement – see the the section on our responsibilities as an
institutional shareholder on page 34.
IPS as a provider of governance services
ro its origis over ears ago aw ebeture as diversifi ed
to become a group with a range of governance services.
Across its 25 trustee directors, Law Debenture sits on pension
scheme boards with a total assets under management of £300bn
and is leading the industry in terms of responsible investing
and stewardship. With their long-term liabilities, pension funds
are inevitably exposed to the risk of unsustainable practices
but are also able to i uece te future troug appropriate
capital allocation and stewardship. We have worked with both
defi ed beefi t ad defi ed cotributio scees to switc
index tracking equity to products that track carbon transition
indices. We have steered boards towards sustainable credit and
infrastructure and invested in funds with impact objectives.
The previous case study demonstrates how we are supporting
our Pension Scheme clients to meet their TCFD disclosure
requirements.
Within our company secretarial services (CSS) team, ESG
cotiues to gai proiece particularl across te fi acial
services governance (FSG) client base. Our CSS business supports
clients with their governance needs which are connected to
their broader ESG programmes and change agendas. The CSS
tea wors closel wit staeolders i cliet fi rs ad te S
team directly supports clients with their dedicated sustainability
and ESG related forums and committees. As the ESG landscape
evolves and client needs grow, CSS will continue to adapt
alongside clients to provide more tailored support, expertise and
guidance in this area.
Our Safecall whistleblowing business works in partnership with
organsiations by giving their employees and key stakeholders a
voice to speak out on vital issues. Experienced call handlers take
telephone calls and inbound reports concerning human rights
labour ealt safet ad oder slaver alogside issues
surroudig atibriber corruptio diversit cber securit
corporate behaviour and gender pay gaps.
The strength of an organisation’s ethics culture is measured
through multiple indicators of employee behaviours and includes
reporting and responding. Our whistleblowing hotline encourages
and embraces a culture of speaking up, allowing organisations to
demonstrate how they promote compliance and best practice.
Law Debenture ESG Committee
In 2021 we launched a formal ESG Committee which reports to
the Executive Leadership team. This Committee works with the
Group ESG Manager to drive forward the Group’s commitment to
the environment, social responsibility, corporate governance and
sustainability.
Whilst we have a number of ESG-related internal policies, we
have not yet made them public. Our plan for 2022 include
the publication of policies to allow our stakeholders greater
oversight of the internal policies and governance frameworks
curretl iplace
By order of the Board
Law Debenture Corporate Services Limited
Company Secretary
24 February 2022
Case Study: Supporting pension
schemes in TCFD
Larger UK pension schemes are required to meet the
Taskforce for Climate-Related Financial Disclosures’ (TCFD)
reporting requirements. The Department for Work and
Pensions (DWP) has had to consult the industry on how to
appl te disclosures ad aw ebeture is te ol fi r of
professional trustees that engaged with these consultations.
We submitted detailed responses and then, on publication
of the statutory guidelines, quickly highlighted some
unintended consequences of the drafting. This enabled the
DWP to address the issues before the wider industry was
even aware of them.
Law Debenture sits on the board of 55 schemes caught in
te fi rst ad secod wave of exaple is te ars
Specer Pesio Scee
Sio ee ead of te S Pesio rust ad ief
vestet ffi cer coeted “Law Debenture have been
invaluable in helping the M&S Pension Scheme understand
the implications of the TCFD regulations and effectively and
effi ciently helped ready the Scheme for its fi rst year of TCFD
compliance. The Law Debenture directors not only care
passionately about getting this right, but have the practical
insights and experience that are needed to do it well. We
look forward to announcing our net zero carbon target
and the continuing progress towards ensuring
sustainability across the Scheme’s investments
and its wider governance arrangements, as Law
Debenture chair our ESGCommittee.”
look forward to announcing our net zero carbon target look forward to announcing our net zero carbon target
sustainability across the Scheme’s investments sustainability across the Scheme’s investments
and its wider governance arrangements, as Law and its wider governance arrangements, as Law
STRATEGIC REPORT
lawdebenture.com
52
CORPORATE GOVERNANCE
The Board
Robert Hingley
Chairman, Independent Non-Executive
Director
N
R
Appointed to the Board on 1 October
2017 and appointed Chairman in April
2018.
A corporate fi nancier with over 30 years’
experience, Robert was a partner at
Ondra LLP until October 2017. From 2010
until 2015, he was a managing director
and later senior advisor, at Lazard. He
was previously director-general of The
Takeover Panel from 2007 on secondment
from Lexicon Partners, where he was
vice chairman. Prior to joining Lexicon
Partners in 2005, he was co-head of the
Global Financial Institutions Group and
head of German investment banking at
Citigroup Global Capital Markets, which
acquired the investment banking business
of Schroders in 2000. He joined Schroders
in 1985 after having qualifi ed as a solicitor
with Clifford Chance in 1984.
Robert is currently the chairman of
Phoenix Spree Deutschland Limited
and of Euroclear UK and International
Limited and chairman of Governors at
North London Collegiate School. He is
also a non-executive director of Marathon
Asset Management and a member of the
Takeover Panel.
Key skills and experience contributed to
the Company include strategy, corporate
fi nance, corporate governance and
mergers and acquisitions.
Denis Jackson
Chief Executive Offi cer
Appointed to the Board on 1 January
2018.
Denis joined Law Debenture in July 2017
as Chief Commercial Offi cer. He was
previously at Capita plc as director of
new business enterprise, having been
a director at Throgmorton UK Limited
(which Capita acquired). Prior to that,
he was regional general manager for
Europe and the United States at Tibra
Trading Europe Limited, a FCA regulated
proprietary trading company, which he
joined from Citigroup (formerly Salomon
Brothers). He spent almost 20 years there
in a variety of roles including in Treasury
(both in New York and London), as head
of the fi nance desk in Hong Kong, head
of fi xed income prime brokerage in New
York and ultimately, head of EMEA prime
brokerage sales.
Key skills and experience contributed to
the Company include strategy, commerce,
corporate fi nance and governance and
operational and transactional leadership
in regional organisations.
Trish Houston
Chief Operating Offi cer
Appointed to the Board on 2 September
2020.
Trish brings almost twenty years of
experience in leadership roles in the
fi nancial services industry. Most recently,
she was a member of the senior
management team at JDX Consulting
Limited, where she had executive
responsibility for HR, IT and facilities and
oversaw the merger of three businesses.
Previously, Trish was a partner at
Ruffer LLP where she held several roles
including global head of HR and global
head of risk. She was also a member
of the investment management team
in the UK, Australia and Switzerland at
PricewaterhouseCoopers LLP.
Key skills and experience contributed to
the Company include operational growth,
risk management, strategy and human
resource management.
Key
R
Remuneration Committee
N
Nomination Committee
A
Audit and Risk Committee Committee Chairman
53
CORPORATE GOVERNANCE
A
R
N
Tim Bond Senior Independent Director
Appointed to the Board on 14April 2015 — Tim is currently a partner at Odey Asset Management LLP
having joined in 2010 as its head of macroeconomic strategy and currently manages Odey’s Odyssey
Fund. Before joining Odey, Tim spent 12 years at Barclays Capital as managing director and head of
global asset allocation. Tim was editor and principal author of Barclays Capital’s Equity Gilt Study and
chief advisor to the bank’s RADAR Fund. Prior to Barclays, Tim worked at Moore Capital and spent 10
years as a strategist and trader for Tokai Bank Europe, a proprietary trading boutique.
Key skills and experience contributed to the Company include fund management and investment,
strategy, corporate finance, ESG matters and distribution to investors.
A
R
N
Mark Bridgeman Independent Non-Executive Director
Appointed to the Board on 15 March 2013 — Mark’s background is in fund management. He spent 19
years with Schroders plc as an analyst and then fund manager, rising to become global head of research.
Previous roles at Schroders included head of Pan European research, head of global sector research and
emerging markets fund manager. He was also a non-executive director at JP Morgan Brazil Investment
Trust plc and Country Land and Business Association Limited until November 2020 and November 2021,
respectively. During his career, he enjoyed successful long-term secondments in Australia and the United
States. Mark is currently a non-executive director of Utilico Emerging Markets Trust plc and is also on the
board of two charities.
Key skills and experience contributed to the Company include fund management and investment,
strategy and corporate finance.
A
R
N
Pars Purewal Independent Non-Executive Director
Appointed to the Board on 16December 2021 — After a career spanning more than thirty-five
years, Pars retired as a senior partner of PriceWaterhouseCoopers (PwC) in June 2019. His experience
included being PwC’s UK Asset Management leader for ten years and finance partner for both asset
and wealth management. He is a Fellow of the ICAEW and also a non-executive director of Brewin
Dolphin Holdings PLC, audit committee chair of Federated Hermes International and board chair of
Beyond Food Foundation.
Key skills and experience contributed to the Company include an in-depth knowledge of the financial
services sector, audit and accounting, fund management, risk management and compliance.
R
A
N
Claire Finn Independent Non-Executive Director
Appointed to the Board on 2September 2019 — Claire’s most recent executive experience was at Blackrock,
where she spent almost 13 years, becoming managing director and head of UK DC, Unit Linked and Platforms,
responsible for strategy, innovation and growth. Previous roles at Blackrock included director/managing
director, head of strategic alliances, director of sales and relationship management and vice president of
product development. She previously held roles in product management at Henderson Global Investors
(2001 – 2005) and relationship management at Bank of Tokyo-Mitsubishi, London (1999 – 2001). Claire is
currently a non-executive director of Artemis Fund Managers Limited, Sparrows Capital Limited, St. Joseph’s
Catholic Primary School, Octopus Apollo VCT and Baillie Gifford Shin Nippon Public Limited Company.
Key skills and experience contributed to the Company include investment management, distribution to
retail and institutional investors, strategic innovation and growth in the UK asset management, pensions
and insurance industries and corporate governance.
A
R
N
Clare Askem Independent Non-Executive Director
Appointed to the Board on 10June 2021 — Clare has extensive background in strategic development
and in-depth experience in business change and digital transformation. She is also a non-executive
director of Portmeirion Group PLC, Studio Retail Group plc and IG Design Group plc. Previously,
Clare was managing director of Habitat at Sainsbury plc and was a director on the Sainsbury’s Argos
operating board. Prior to her role at Habitat, Clare held a number of executive positions at Home Retail
Group plc including director of strategic development, chair of the group’s technology committee
and director on the operating board for Homebase. Prior to these roles Clare also held other executive
positions at Dixons Carphone plc.
Key skills and experience contributed to the Company include strategy, corporate transactions and
digital marketing and distribution.
lawdebenture.com
54
Photo credit: Charlotte Locke
CORPORATE GOVERNANCE
55
CORPORATE GOVERNANCE
The Directors present their Annual Report and the audited financial statements for the year ended 31 December 2021. The Company operates
as an investment trust in accordance with sections 1158-1159 of the Corporation Tax Act 2010 as amended (s1158-1159) and has been approved
as such by HM Revenue & Customs. In the opinion of the Directors, the Company has conducted its affairs so as to enable it to continue to
be an approved investment trust under s1158-1159. The Company, which is not a close company, is registered as an investment company as
defined in section 833 of the Companies Act 2006 and operates as such. The Directors consider that the Group operates as a going concern.
The corporate governance report forms part of the Directors’ report.
Essential contracts
In the view of the Board, the only contract that is essential to the
business of the Group is the investment management agreement
with Janus Henderson, details of which are set out in the Strategic
Report on page 31.
Financial instruments
The Company’s financial instruments, financial risk management
objectives and policies arising from its financial instruments and
its exposure to risk are disclosed in note 20 to the Accounts.
Revenue, dividends and reserves
The Group revenue return attributable to shareholders for the
year ended 31 December 2021 was 28.09p per share. The Directors
recommend a final dividend of 8.375p per share, which, together
with the three interim dividends of 6.875p paid in each of July
and October 2021 and January 2022, will produce a total of 29.0p
per share (2020: 27.5p). The final dividend will be paid on 14 April
2022 to holders on the register on the record date as at 11March
2022. After deduction of the interim and final dividends of £35.7m
(2020: £32.6m), consolidated revenue reserves increased by £4.4m
(2020: decreased by £12.4m).
Directors
The Directors at the date of this report are listed on pages 52 and
53. All Directors held office throughout the year other than Clare
Askem and Pars Purewal, who were appointed on 10 June 2021 and
16 December 2021, respectively. Robert Laing remained a Director
of the Company until his retirement at the end of the 2021 AGM.
All Directors are required to stand for re-election every year (or
election at the next AGM following appointment). The list of
candidates, which the Board supports, is set out in the notice
of AGM. The particular skills and experience that each Director
contributes to the long-term sustainable success of the Company
and the Group may be found on pages 52 and 53. As mentioned
in the Chairman’s statement, after nine years of service, Mark
Bridgeman will be retiring as a Director of the Company at the
upcoming AGM.
Directors’ conflicts of interests
The Directors have a statutory duty to avoid conflicts of interest.
The Board has in place appropriate procedures to deal with
conflicts and potential conflicts, including an annual review,
and can confirm that those procedures are operating effectively.
Whether any new conflicts are to be declared is also considered at
each Board meeting. Each Director has declared all matters that
might give rise to a potential conflict of interest and these have
been considered and, where necessary, approved by the Board.
Regulatory compliance
The Company is subject to continuing obligations applicable to
premium listed companies, overseen by the FCA.
Information required to be disclosed in accordance with Listing
Rule 9.8.4 is included as referenced below:
Rule Detail Where
9.8.4 (1) Interest capitalised Note 5, page 110
9.8.4 (7) Allotment of equity securities Note 18, page 122
9.8.4 (2-6) (8-14) Not applicable N/A
Under the Alternative Investment Fund Managers Directive (AIFMD)
the Company is required to appoint an “Alternative Investment Fund
Manager” (AIFM), which must be appropriately regulated by the
FCA. The Company has elected to be its own AIFM.
The AIFM is required to provide portfolio management, risk
management, administration, accounting and company secretarial
services to the Company. All of these functions, barring portfolio
management which continues to be delegated to Janus Henderson,
are undertaken by the Company. The Company has appointed
NatWest Trustee and Depositary Services Limited, as depositary
under Article 36 of the AIFMD. A fee is payable for this service, being
0.0225% per annum of the calculated monthly NAV. As part of its
duties, the depositary is responsible for custody of the Company’s
portfolio assets, and has appointed HSBC Bank plc (which has been
the Company’s custodian for many years) as sub-custodian.
AIFMs are obliged to publish certain information for investors and
prospective investors and that information may be found either in
this Annual Report or on the Company’s website athttps://www.
lawdebenture.com/investment-trust/shareholder-information/
corporate-governance/the-aifmd.
The AIFMD requires us to report on ‘leverage’. This is slightly
different from gearing (refer to page 134), leverage being any
method of borrowing that increases the Company’s exposure,
including the borrowing of cash and the use of derivatives. It is
expressed as a ratio between the Company’s exposure and its
NAV and must be calculated on a ‘gross’ and a ‘commitment’
method. Under the gross method, exposure represents the sum
Directors’ report
lawdebenture.com
56
CORPORATE GOVERNANCE
Directors’ report continued
of the Company’s positions after the deduction of sterling cash
balances, without taking into account any hedging and netting
arrangements. Under the commitment method, exposure is
calculated without the deduction of sterling cash balances and
after certain hedging and netting positions are offset against each
other. At 31 December 2021, the leverage reported under the gross
method was 0.99, and under the net method was 1.02.
ESG considerations
The Group gives ongoing consideration to ESG factors in both the
management of the investment portfolio and the IPS business. This
is reflected throughout the strategic report on pages 6 to 51.
Repurchase and issue of shares
At the 2021 AGM, the Directors were given power to buy back up
to 17,756,514 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 2022 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 2022
AGM.
The Directors were also given power to allot up to 11,845,573
ordinary shares at the 2021 AGM. From the 2021 AGM to the date
of this report the Company issued a total of 4.5m ordinary shares
under its share issuance programme, launched in February 2021
our SAYE scheme. The authority will expire at the 2022 AGM at
which the Company intends to seek shareholder approval to renew
its powers to issue shares up to 10% of the Company’s share capital
in issue at 24 February 2022.
Donations
The Company made no political or charitable donations during
the year (2020: £nil) to organisations.
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 31December 2021, there were
122,915,835 ordinary shares in issue with 122,915,835 voting rights. Note
18 includes details of share capital changes in the year.
As at 24 February 2022, 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 at pages 30 and 122.
Shareholder relations
The Company encourages communication between management
and shareholders on matters of mutual interest. All shareholders
are sent a copy of the Annual Report and the Company also
provides this service to shareholders in nominee companies where
the nominee has made appropriate arrangements. Following
feedback from some of our individual shareholders, we have
now implemented deemed consent where shareholders will be
deemed to have consented to receive communications from the
Company electronically unless our registrar is otherwise notified
in writing. In addition to periodic regulatory announcements
published via the London Stock Exchange, the Company publishes
a monthly factsheet on its website about the investment portfolio
performance. Other engagement activities undertaken during 2021
may be found on page 46 of the Section 172(1) Statement.
Investment managers – interests held
Laura Foll held 13,650 shares in the Company as at 31 December
2021 (2020: 6,750). James Henderson did not have a beneficial
interest as at 31December 2021 (2020: nil), although persons
connected to him had an interest of 134,000 shares (2020: 134,000
shares). In addition, a charity with which James Henderson has non-
beneficial connections owns 117,000 shares (2020: 117,000 shares).
The Company holds no shares in the Janus Henderson Group
or their products. It has been notified that funds managed by
members of the Janus Henderson Group held 276,612 shares in
the Company as at 31December 2021 (2020: 262,519 shares).
Employee participation/issue of shares
Employees are informed of the financial aspects of the Group’s
performance through periodic management meetings. Mindful
of the Company’s paperless initiative, paper copies of the Annual
Report are only made available to employees on request and are
available on the Company’s website. The Company operates a
SAYE scheme in which all UK full-time employees are eligible to
participate after completing a minimum service requirement.
Options outstanding under the SAYE scheme as at 31 December
2021 were:
Date of grant
Number of
option holders
Shares
under option
Exercise
price
23 August 2016 0 0 495.75p
15 August 2017 10 16,137 594.75p
15 August 2018 16 37,728 606.00p
14 August 2019 13 23,455 592.00p
26 August 2020 19 48,691 539.00p
1 September 2021 35 50,736 778.00p
The 2012 SAYE scheme expires in April 2022. New 2022 SAYE
scheme rules will be put to shareholders for approval, at the
upcoming AGM as detailed in the notice of AGM. The new rules will
be available for inspection at the Company’s registered office until
57
CORPORATE GOVERNANCE
the conclusion of the 2022 AGM and will be available for viewing
on the Financial Conduct Authority’s National Storage Mechanism.
Inspection of the new rules may only take place in accordance with
measures imposed by the UK Government in connection with the
Covid-19 pandemic. The Company has its own procedures in place
to comply with those measures. Accordingly, if you wish to inspect
the new scheme rules, you should email TSU.cosec@lawdeb.com
to arrange an appointment.
Directors’ responsibilities
The Directors are responsible for preparing the Annual Report
and the Financial Statements in accordance with international
accounting standards in conformity with the requirements of the
Companies Act 2006 and other applicable laws and regulations.
Company law requires the Directors to prepare financial statements
for each financial year. Under that law, the Directors are required to
prepare the financial statements in accordance with international
accounting standards in conformity with the requirements of the
Companies Act 2006. Under company law the Directors must not
approve the financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the Group and of
the profit or loss for the Group for that period. The Directors are
also required to prepare financial statements in accordance with
international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as itapplies in the European Union.
In preparing these financial statements, the Directors are
requiredto:
• select suitable accounting policies and then apply them
consistently;
• make judgements and accounting estimates that are
reasonable and prudent;
• state whether they have been prepared in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006, subject to any material
departures disclosed and explained in the financial statements;
• state whether they 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, subject to any material departures disclosed and
explained in the financial statements;
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group will
continue in business; and
• prepare a Directors’ report, a strategic report and Directors’
remuneration report which comply with the requirements of
the Companies Act 2006.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group’s
transactions and disclose with reasonable accuracy at any time, the
financial position of the Group and enable them to ensure that the
financial statements comply with the Companies Act 2006 and, as
regards the financial statements, article 4 of the IASRegulation.
They are also responsible for safeguarding the assets of the Group
and for taking reasonable steps for the prevention and detection
of fraud and other irregularities. The Directors are responsible
for ensuring that the annual report and accounts, taken as a
whole are fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company’s
performance, business model and strategy.
Website publication
The Directors are responsible for ensuring the Annual Report
and the Financial Statements are made available on a website.
Financial statements are published on the Group’s website in
accordance with legislation in the United Kingdom governing
the preparation and dissemination of financial statements, which
may vary from legislation in other jurisdictions. The maintenance
and integrity of the Group’s website is the responsibility of the
Directors. The Directors’ responsibility also extends to the ongoing
integrity of the financial statements contained therein.
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.
Auditors
Following a competitive audit tender process overseen by the
Company’s Audit and Risk Committee, Deloitte LLP were engaged
as the Company’s new external auditor in October 2021. A
resolution recommending their appointment will be proposed at
the upcoming AGM.
In the case of each Director in office at the date the Directors’
report is approved:
• so far as the Director is aware, there is no relevant audit information
of which the Group and Company’s auditors are unaware; and
• they have taken all the steps that they ought to have taken
as a Director in order to make themselves aware of any
relevant audit information and to establish that the Group and
Company’s auditors are aware of that information.
By order of the Board
Law Debenture Corporate Services Limited
Company Secretary
24 February 2022
Directors’ report continued
lawdebenture.com
58
Corporate governance
The Directors are required to report on how the Company has
applied the main and supporting principles in the UK Corporate
Governance Code (the Code), and to confirm that it has complied
with the Code’s provisions or, where this has not been the case,
to provide an explanation. This report relates to the Code as
published in July 2018, a copy of which may be obtained by
visiting www.frc.org.uk. The Financial Reporting Council (FRC) has
recognised that the Board structure of investment companies
such as Law Debenture, might affect the relevance of some of the
provisions of the Code. The Company has therefore considered the
provisions of the Code that are applicable to it as a FTSE 250 listed
investment company. This corporate governance statement forms
part of the Directors’ Report and should be read in conjunction
with the Strategic Report on pages 6 to 51.
The Board has concluded that, as demonstrated by the disclosures
made throughout the Directors’ report, the Company has
complied with all of the requirements applicable to it under
theCode.
The Board – role, modus operandi
and appraisal
The names and biographies of the Directors at the date of this
report are on pages 52 and 53 of the Annual Report. Clare Askem
and Pars Purewal were appointed as Non-Executive Directors on
10 June 2021 and 16 December 2021, respectively.
The Board is responsible for the overall strategy and
management of the Group, setting investment strategy and
ensuring that the Company is operating in compliance with
statutory and legal obligations. There is a formal schedule of
matters specifically reserved for Board decision, published on the
Company’s website (https://www.lawdebenture.com/investment-
trust/shareholder-information/corporate-governance). Matters
connected with strategy and management, structure and
capital, financial reporting and control, the investment trust
portfolio, contracts, stakeholder engagement and shareholder
communication, Board membership and other appointments,
remuneration and corporate governance are reserved for
theBoard.
In discharging its responsibilities, the Board takes account of the
Group’s purpose, value and culture, aiming to promote enhanced
value for shareholders in both capital and income terms. The
Board sets a cultural tone that encourages openness, diversity
and attention to the needs and views of shareholders and those
who transact with us through our IPS business. The Chairman
also ensures that the interests of the Company’s institutional
and retail shareholders are tabled for discussion, to further the
Board’s understanding of their views and to garner responses,
where appropriate.
The Chairman takes personal responsibility for leadership of
the Board and ensures that Directors receive accurate, timely
and clear information. He reviews channels for the provision of
information with the company secretary at least annually.
The Board operates as a collective decision-making forum.
Individual Directors are required to scrutinise reports produced
by the Executive Leadership team and are encouraged to debate
issues in an open and constructive manner. If one or more Directors
cannot support a consensus decision, a vote will be taken and
the views of a dissenting Director recorded in the minutes. Where
appropriate, the Chairman also holds meetings with the Non-
Executive Directors without the Executive Directors present.
Procedures are in place to enable independent professional
advice to be taken by individual Directors at the Company’s
expense. Appropriate insurance cover is in place in respect of legal
action against the Directors.
The Board meets regularly throughout the year. The attendance
records of the Directors (both at meetings of the Board and, where
they are a member, meetings of Board Committees) are set out in
the table below.
Board Remuneration Audit and Risk Nomination
Number of
meetings in
the year
10 6 6 2
Meetings
attended by:
Denis Jackson 10 — — —
Trish Houston 10 — — —
Robert Hingley 10 6 — 2
Tim Bond 10 6 6 2
Mark Bridgeman 10 6 6 2
Pars Purewal 1 1 1 1
Claire Finn 10 6 6 2
Clare Askem 5 1 2 1
Robert Laing 4 4 2 1
Whilst not members of the Board Committees, Denis Jackson and
Trish Houston attend meetings upon invitation. Similarly, Robert
Hingley’s attendance at Audit and Risk Committee meetings is by
invitation only.
Pars Purewal was appointed to the Board and its Committees on
16 December 2021, and was present at all meetings following his
appointment.
Clare Askem was appointed to the Board on 10 June 2021 and to
its Committees on 27 July 2021, and was present at all meetings
following those appointments.
Robert Laing attended all meetings until his retirement from the
Board on 7 April 2021.
CORPORATE GOVERNANCE
Corporate governance report
59
Board evaluation
Progress on recommendations made following the 2020 external Board evaluation:
CORPORATE GOVERNANCE
Corporate governance report continued
Recommendations Actions
Increase investment in Director development Directors are updated on regulatory and governance
developments through the external auditor, company secretary
and other corporate advisors. Additional investment in training will
be considered in 2022.
Succession planning measures to be put in place for Executive
and Non-Executive Directors
On the recommendation of the Nomination Committee, the Board
has approved a Board Tenure and Succession Planning Policy,
which includes oversight of a diverse pipeline into the Board and
the Executive Leadership team.
Enhance Board engagement with investors The Board has had extensive discussions on increasing its
engagement with investors and other stakeholders. Regarding
investors, the Board ensures that shareholders are aware of
its willingness to engage with them. Engagement with other
stakeholders has significantly improved in the past year and will
continue to progress in 2022. For further details please refer to the
Section 172(1) Statement at page 46.
Streamline Board reports and management information to
reflect the nature of the business
Board papers were reviewed earlier in the year with a view to
ensuring they not only provided the right information to the
Board but that they were more focused on the salient points for
discussion. At its Board evaluation discussion in October 2021,
it agreed to further enhancements to its meeting packs and
presentations by guest attendees, which will contribute to the
effectiveness of its discussions and decision-making process.
Embed vision, values, culture and behaviours required to shape
the business as it grows
The Executive rolled out an extensive project to identify, agree and
embed the Company’s vision, core values and culture. This took
place following consultations with staff members at all levels and
included the participation of Board members. The Executive will
continue to embed the agreed core values in 2022 and beyond.
For further details please refer to the Section 172(1) Statement at
page 46.
2021 internal Board evaluation
Under the UK Corporate Governance Code, it is recommended that
companies conduct externally facilitated board and committee
evaluations every three years. The most recent of these was
conducted by the Company in 2020 and therefore an internal
Board evaluation was conducted during the reporting period by
an internal questionnaire and facilitated by a representative of the
company secretary.
The evaluation focused on the Board and its Committees’
composition, knowledge and behaviours, governance processes
and support, work undertaken during 2021 and priorities for 2022.
For the Board, the questionnaire also focused on: investment,
strategic and governance matters, investor and stakeholder
engagement, major decisions taken during the year including
the acquisition of the CSS business from Eversheds Sutherland
(International) LLP and the commencement of the share issuance
programme. The anonymity of responses was guaranteed
throughout the process, to promote candid feedback.
The results were discussed by the Board at its October
2021 meeting during which the Directors, led by the Senior
Independent Director, in the Board Chair’s absence, reviewed the
Board Chair’s performance over the past year. This was followed
by a discussion, led by the Board Chair, among the Non-Executive
Directors, in the absence of the Executive Directors, and finally a
full Board discussion.
Key actions arising from the 2021 internal evaluation were to:
• improve time management of meetings and further
streamline meeting packs
• continue to enhance engagement with investors and other
key stakeholders
• continue to ensure an appropriate balance between
discussions regarding the portfolio and the IPS business
• agree a director training schedule
• reassess the Company’s principal and emerging risks
lawdebenture.com
60
CORPORATE GOVERNANCE
Actions against each of these recommendations is currently
underway. The Board will continue to conduct an externally
facilitated performance evaluation every three years and internal
evaluations in the intervening years.
Based on the outcome of the evaluation and on the basis that
they continued to make valuable contributions and exercise
judgement and express opinions in an independent manner, the
Board on the recommendation of the Nomination Committee has
proposed the re-election and election of Directors, as set out in
the notice of AGM on pages 138 and 139.
All Directors are submitted for annual re-election, subject
to continued satisfactory performance, which is assessed as
previously described. As mentioned in the Chairman’s statement,
Mark Bridgeman will retire at the upcoming AGM, after serving a
full nine years as a NED.
The Board has policies in place on tenure and succession
planning and diversity and inclusion as described in the
Nomination Committee’s report.
The Board – independence
At least half of the Board, excluding the Chairman, must be
independent Non-Executive Directors (NEDs). The Board
can confirm that, as at the date of this report, excluding the
Chairman, five of the seven other Directors are independent
NEDs. In assessing Directors’ independence, the Board takes into
account their tenure on the Board, whether or not a Director is
independent of management and any material business or other
relationship that could affect or interfere with the exercise of
objective judgement by the Director, or his/her ability to act in
the best interests of the Group. The Board is also satisfied that
each Director dedicates sufficient time to Law Debenture, and
that none of the Directors is ‘overboarded’ (having five or more
listed company roles). The contribution made by each Director to
the Company’s and Group’s long-term success, is described on
pages 52 and 53 of the Annual Report.
The Chairman, Robert Hingley, was independent at appointment
and continued to be independent throughout the period, in the
view of the Board, having no current or previous connections with
the Company or any of its subsidiaries.
The Board is satisfied that Robert Hingley’s other commitments
do not interfere with the discharge of his responsibilities to Law
Debenture, and that he dedicates sufficient time to discharge his
duties as Chairman.
Similarly, the Board is satisfied that Mark Bridgeman, Tim Bond,
Claire Finn, Clare Askem and Pars Purewal were independent
at their respective dates of appointment and have remained
independent, having no previous connection with the Company
or any of its subsidiaries.
Denis Jackson and Trish Houston, as Executive Directors, are not
independent.
Mark Bridgeman will remain the Audit and Risk Committee
Chair and designated Non-Executive Director for workforce
engagement until the date of his retirement. Pars Purewal has
been appointed as the Audit and Risk Committee Chair Designate
and Clare Askem will succeed Mark, as the designated Non-
Executive Director for workforce engagement.
Robert Laing retired from his positions as Remuneration
Committee Chair and Senior Independent Director (SID) in April
2021. Tim Bond has since been appointed as SID and is available
to shareholders who have concerns that cannot be addressed
through the Chairman, CEO or COO. Claire Finn was also
appointed as Remuneration Committee Chair.
Directors’ remuneration
Details of the Directors’ remuneration appear in the Annual
Remuneration Report on pages 67 to 82.
Board Committees
The Board has established Nomination, Audit and Risk and
Remuneration Committees, to each of which it has delegated
certain responsibilities. Each Committee has terms of reference,
which are reviewed annually and published on the Company’s
website (www.lawdebenture.com/investment-trust/corporate-
governance). Membership of the Committees is reviewed annually.
Taking account of the position of the Company as an investment
trust, the Board is deliberately kept small and it believes this is
in the best interests of shareholders. The Board remains satisfied
that its composition and size is sufficient to ensure that the
requirements of the business can be met.
The membership of the Board and its Committees are fully
compliant with Code stipulations.
The Board does not operate a management engagement
committee; the duties of such a committee are undertaken
directly by the Board.
A summary of each Committee is set out below.
Nomination Committee
The members of the Committee who served during the year were
Robert Hingley (Chair), Tim Bond, Mark Bridgeman, Pars Purewal,
Claire Finn, Clare Askem and Robert Laing. Details of Committee
meetings and attendance can be found on page 58.
Role
To keep under review the structure, size and composition of the
Board and its Committees, to make recommendations to the
Board about adjustments that are deemed necessary and to
ensure effective succession planning in accordance with legal
and corporate governance requirements.
Corporate governance report continued
61
Key duties
• identification and nomination of suitable candidates to fill
Board vacancies, with particular regard for the need to develop
a diverse pipeline to the Board and Executive Leadership levels;
• succession planning for the Board;
• making recommendations for the election and re-election of
Directors; and
• ensuring that the Board and its Committees are constituted
to comply so far as practicable with the Code.
The Nomination Committee ensures that the Board has in
place arrangements for orderly and transparent appointments
to the Board. It is the Board’s policy that meetings be chaired
by a Director other than the Board Chair, when dealing with
the appointment of his successor. There are job descriptions
in place for NEDs’ roles, and the Board has written terms and
conditions for such appointments, which will be made available
for inspection at the Company’s registered office upon request
to the company secretary, until the conclusion of the 2022 AGM.
Particular care is taken to ensure that NEDs are independent,
have sufficient time to commit to the duties expected of them
and that diversity factors are taken into consideration. No
new NED is appointed without first being interviewed by each
existing NED and comfort is obtained in relation to their other
commitments to ensure they have sufficient time to devote to
therole.
All new Directors undergo an induction process, involving
presentations by the CEO, COO, CFO, General Counsel, each of
the Business Heads and meetings with the investment manager.
The Board engaged the services of Ridgeway Partners, a recruitment
firm specialising in Board appointments and signatory to the
Enhanced Voluntary Code of Conduct for Executive Search Firms.
Ridgeway Partners has no other connection to the Company.
Following a rigorous selection process against an agreed set of
criteria and consideration of Board members’ and candidates’
independence, time commitment, skills, experience, knowledge
and diversity, Clare Askem and Pars Purewal were appointed on
10 June 2021 and 16 December 2021, respectively. As previously
stated, Pars Purewal is expected to succeed Mark Bridgeman as
Audit and Risk Committee Chair, following his retirement at the
end of the 2022 AGM.
The Committee is also responsible for considering the policy
on tenure and succession planning for members and the
Chairman of the Board. Robert Hingley was appointed to the
Board in October 2017 and, in line with the policy and the
recommendations of the Code, he will stand down after nine
years although this period may be extended for a limited time to
facilitate an effective handover.
The Board is committed to achieving and maintaining a diverse
and inclusive membership to ensure optimal decision-making
and assist in the development and execution of strategy,
which promotes Law Debenture’s success for the benefit of
its shareholders as a whole, having regard to the interests of
other stakeholders. At the date of this report, the Company
is compliant with the recommendations under the Davies,
Hampton-Alexander and Parker reviews.
The Committee’s approach to performance evaluation and the
gender balance of those in senior management is set out at
pages 50, and 59 to 60, respectively.
Diversity and inclusion
The Board is committed to the following objectives as set out in its
Diversity and Inclusion Policy (the Policy), against which progress
as stated below, has been made:
CORPORATE GOVERNANCE
Corporate governance report continued
Objectives Progress
To continue to adopt a formal, rigorous and transparent process,
taking into account diversity and inclusion, when considering
the appointment of Directors. The Board is committed to using
search firms that access talent from wide and diverse pools
and whose values and approach in identifying and proposing
suitable candidates, are aligned with the Policy.
During the year the Board put in place a Tenure and Succession
Planning Policy, which codifies its existing procedures around the
appointment of new Directors and succession plans for short-
term absences in line with governance best practice. See above
for the process adopted for the appointments of Clare Askem and
Pars Purewal.
To achieve and maintain, with respect to gender and ethnic
diversity at Board level, the recommendations of the Davies,
Hampton-Alexander and Parker reviews, recognising that
unexpected changes in Board composition may result in
temporary periods when this balance is not achieved.
At 31 December 2021:
• 37% of the Directors on the Board were female and 63%
weremale.
• One Director on the Board was from an ethnically diverse
background.
• 67% of the Executive Leadership team were female and 33%
were male.
lawdebenture.com
62
CORPORATE GOVERNANCE
Audit and Risk and Remuneration
Committees
Following best practice guidelines published by the FRC, the
Audit and Risk and Remuneration Committee reports are
published as separate sections of the Annual Report and can be
found at pages 64 to 66 and 67 to 82, respectively.
Accountability and audit, fair balanced
and understandable reporting and
goingconcern
The statement of Directors’ responsibilities in relation to the
financial statements appears on page 57. The independent
auditors’ report appears on pages 84 to 94. The Directors confirm
that the Group and Company are a going concern as evidenced
by the Financial Statements, which demonstrate a healthy
position, taking into account all known and future anticipated
liabilities, and the Group’s ability to meet those liabilities. The
performance metrics of the Group remain strong. There are no
material uncertainties that call into question the Company’s ability
to continue to be a going concern for at least 12 months from
the date of approval of the financial statements. The Directors
therefore consider it appropriate to adopt a going concern basis in
preparing the financial statements.
The Audit and Risk Committee has concluded, and the Board
concurs, that the financial statements present a fair, balanced
and understandable assessment of the financial position and
prospects of the Company and the Group. The financial statements
are reviewed by the Audit and Risk Committee, approved by the
Board and signed by the Chairman and CEO. In the opinion of
the Board, the Annual Report, taken as a whole is fair, balanced
and understandable and provides the necessary information for
shareholders to assess the Company’s and Group’s position and
performance, business model and strategy.
Internal controls
The framework of internal controls underpins the Company’s
management framework, enabling it to operate within the desired
risk appetite. The following paragraphs provide a description of
the main features of the internal control and risk management
systems in relation to the financial reporting process, which fulfil
the obligations of the FRC Guidance on Risk Management, Internal
Control and Related Financial and Business Reporting and the
FCA’s Disclosure Guidance and Transparency Rules. This section
should be read in conjunction with the strategic report, which
sets out how the Directors manage or mitigate the principal risks
relating to the Group’s businessmodel.
The Board monitors the effectiveness of internal controls on
a continuous basis to ensure that internal control and risk
mitigation is incorporated into the day to day management of the
organisation, both directly through main Board general reviews
and by the more specific work carried out by the Audit and Risk
Committee. The annual internal audit programme and system of
compliance checks have both been developed using a risk-based
methodology and an evaluation of the existing process controls.
Other mechanisms in place to monitor risk include:
• Board review of the Group’s matrix of key risks and controls
managed by the COO, reporting to an Executive Risk Committee;
• an internal audit function, reporting directly to the Audit and
Risk Committee, which involves business departments and
business wide processes (including overseas offices) being
subject to audit on a regular basis;
• testing of the FCA regulated business’ systems and controls;
• testing of the Company’s compliance with its AIFMD obligations;
• review of reports by the depositary and the sub-custodian;
• periodic reports to the Board by the General Counsel about
legal and regulatory changes, and the steps that the Board
must take to comply; and
• review of the reports produced by the external auditors on
their annual audit work.
Corporate governance report continued
Objectives (continued) Progress (continued)
To be kept updated on the Executive Directors’ progress in
ensuring the proportion of direct reporting roles to the Board
and the Executive Leadership team, held by women and persons
from ethnically diverse backgrounds, are compliant with the
Hampton-Alexander and Parker review recommendations.
As is the annual practice, the Executive Leadership team
presented its report setting out its analysis of employee positions
held by women and gender pay gaps across all levels of the Group.
The Executive Leadership team now have the capacity to also
analyse data regarding ethnic diversity and ethnicity pay gaps
within the business and will present these to the Board for the
next annual reporting period.
To continue to facilitate a culture of inclusivity among Board
members and to encourage active contributions from all
Directors, recognising that a clear tone and example must be set
at Board level.
Following the internal Board evaluation conducted earlier in the
year, it was found that the culture and dynamics of the Board,
Directors’ individual performances and discussions at meetings
continued to be effective and were in line with the Company’s
core values, which were rolled out during the year. These and other
related matters will be reviewed on an annual basis.
63
CORPORATE GOVERNANCE
Corporate governance report continued
The Board considers that the above measures constitute the
continuing application of the FRC risk guidance and form an
important management tool in the monitoring and control of the
Group’s operational risks.
An important element of the overall controls remains a continuous
review of the quality and effectiveness of internal financial controls
of the Group. The Board requires that the Group maintains proper
accounting records, so that it can rely on the financial information
it receives to make appropriate business decisions and also that
the Group’s assets are safeguarded. This includes having data that
allows the Board to consider country and currency exposure and
potential impairment of assets (both financial and non-financial).
A review of AML/KYC was undertaken during the year which
included a review of the Sixth Money Laundering Directive. We
appointed a new Group Money Laundering Reporting Officer and
launched a third party supplier management policy to support
due diligence requirements.
Key elements of the systems of internal control continue to be:
• regular qualitative self-assessment of the effectiveness of the
individual controls maintained in the overall internal financial
control framework;
• preparation by management of a comprehensive and detailed
budget, involving annual Board approval and comparison at
Board level of actual results with budgets and forecasts at
everymeeting;
• systematic reporting to the Board of matters relating
to litigation, insurance, pensions, taxation, accounting,
counterparty risk and cash management as well as legal,
compliance and company secretarial issues;
• review of internal audit reports by the Executive Risk Committee
and the Audit and Risk Committee;
• review of the internal controls of those services, such as
investment management, which have been delegated to third
parties. This review was conducted during the initial contractual
negotiations and on a regular basis, including regular
discussions with the senior management and compliance
staff of Janus Henderson, and the performance of an on-site
independent review of operational controls;
• monitoring by the Board of the investment management
process, including the establishment and maintenance of
investment guidelines, receiving a report from the investment
manager on a quarterly basis, the review of all transactions
with the investment manager and regular reconciliations of
the records of the Group with those of the depositary and
sub-custodian; and
• receipt of frequent and detailed reports about the performance
of the IPS business, including the overseas subsidiaries.
The systems of internal financial control are designed to provide
reasonable assurance against material misstatement or loss.
By means of the procedures set out above, the Directors have
established a robust process for identifying, evaluating and
monitoring the effectiveness of the internal control systems for
the period. This process has been in place throughout 2021 and is
reviewed by the Board on a regular basis.
We have a robust whistleblowing procedure which allows people
to raise concerns under the Public Interest Disclosure Act 1998
about possible improprieties in matters of financial reporting or
other matters. Any concerns which are raised will be subject to
proportionate investigation, with appropriate follow up action as
per the policy. There is a clearly defined reporting structure with
colleagues having the option to raise any concerns with their
line manager, the General Counsel and Head of HR or if those
avenues are not appropriate, to the Chairman of the Audit and Risk
Committee, who is the employee representative of theBoard. If
they do not wish to report to any of these persons for any reason,
they may report their concerns using our whistleblowing service
provided by Safecall, which is available 24 hours a day. Reports
using this channel may be made anonymously.
Information about share capital
The information that the Company is required to disclose about its
share capital can be found in the Directors’ report (significant holders)
and AGM notice (total voting rights).
Annual general meeting (AGM)
Details of the 2022 AGM are set out at pages 138 and 139.
The Board recognises the value of the AGM as an opportunity
to communicate with shareholders and encourages their
participation. Separate resolutions are put to the AGM on
each substantially separate issue. The number of votes lodged
for and against each resolution and the number of votes
withheld are published immediately after the AGM to the
London Stock Exchange and on the Company’s website. In
line with governance recommendations, if 20% or more of the
votes cast were against any Board resolution, the Company
would announce what action it intended to take to consult
shareholders’ views and provide a summary of the outcome. The
Board confirms that none of the resolutions put to shareholders
at the AGM in 2021 received votes against, above 20% of the
votes cast. The notice of the AGM and related papers are sent to
shareholders at least 21 clear days before the meeting. Where
requested by nominee holders, annual reports and related
documentation are circulated to beneficial owners and the
Company is happy for beneficial owners to attend the AGM and
(where appropriate arrangements have been made with the
nominee) to vote their shares in person.
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
Company’s AGMs and general meetings, were approved.
Accordingly, this year’s AGM, subject to government guidance,
will be held in a hybrid format to provide shareholders with the
opportunity to participate in a manner that is most comfortable
forthem.
CORPORATE GOVERNANCE
Audit and Risk Committee report
Annual statement by the Chairman
of the Audit and Risk Committee
I am pleased to present the Company’s Audit and Risk Committee
report for the year ending 31 December 2021.
Other than myself as Chair, the Committee was comprised at
the year-end of Tim Bond, Pars Purewal, Claire Finn, Clare Askem
and Robert Laing. Whilst not a member, the Chairman and the
Executive Directors are invited to attend the meetings. Details of
Committee meetings and attendance can be found on page 58.
BDO LLP have been our external auditors for 13 years. Having
previously announced our intention to run a tender to review our
external audit arrangements, during the course of the year, the
Committee undertook a competitive process to appoint new
external auditors. I am delighted to announce that, as a result of
that process, we have appointed Deloitte LLP to act as our external
auditors. Deloitte consistently demonstrated their understanding
of our business and the value-add they will bring to the process.
Having completed a full nine year term, I am sad to announce
that I will be stepping down as member of The Law Debenture
Corporation p.l.c. Board and Chair of the Audit and Risk
Committee at the AGM in April.
Pars Purewal’s election as a director of the Company has been
recommended by the Board for shareholder approval, as set
out in the notice of AGM. If approved, Pars will be appointed as
Audit and Risk Committee Chair following my retirement at the
conclusion of the AGM. Pars brings to the Board the relevant skills,
knowledge and experience, as set out in detail on page 53.
Role and duties
The main function of the Audit and Risk Committee is to assist
the Board in the management of the Company’s fi nancial
reporting structure, internal controls and risk management,
external and internal audit and compliance functions. Our key
duties are asfollows:
Financial reporting
• Monitoring the integrity of the fi nancial statements including
the annual and half-yearly reports, preliminary announcements
and any other formal statements or announcements relating to
the Company’s fi nancial performance.
• Reviewing and reporting to the Board on signifi cant fi nancial
reporting issues (if any) and judgements which those
statements contain.
• Providing review and challenge where necessary over key areas
of judgement, including the assumptions or qualifi cations in
support of the going concern statement and the Company’s
ongoing viability and risks thereto.
Internal controls and risk management
• Reviewing the adequacy and effectiveness of the risk
management and internal controls framework.
• Advising the Board on the Company’s overall risk appetite,
tolerance and strategy, and the principal and emerging risks
the Company is willing to take in order to achieve its long-
term strategy and objectives.
• Reviewing the inherent and emerging risks in the business
and the system of internal controls necessary to monitor
such risks. Where requested by the Board, provide them
with assurance of the robustness of the management of
principalrisks.
• Reviewing regular reports from the General Counsel and
Executive Risk Committee (which is responsible for day-to-day
management of the operational risk within the Group), and
other applicable persons on risk and internal control matters
and the adequacy and effectiveness of the control functions.
External audit
• Making recommendations to the Board on the appointment or
reappointment of the external auditors. This included oversight
of the 2021 re-tender process.
• Monitoring the quality, independence and objectivity of
the external auditors, their performance and agreeing
theirremuneration.
• Developing and implementing policy on the engagement (or
not) of the external auditor for non-audit services.
Internal audit
• Monitoring the effectiveness of the Head of Internal Audit’s
work and overseeing the implementation of any corrective
actions.
lawdebenture.com
64
65
CORPORATE GOVERNANCE
• Approving the internal audit programme in the context of the
Company’s overall risk management system and ensuring it
is aligned to the key risks of the business. The Committee has
agreed a refresh of the risk and internal audit plan for next
year to enhance risk management and internal controls across
theCompany and the Group.
• Ensuring internal audit has sufficient access to perform
its function effectively and in accordance with relevant
standards.
• Reviewing reports from the Head of Internal Audit and
considering any major findings from their work and monitoring
management’s responsiveness to internal audit’s findings
andrecommendations.
Compliance
• Reviewing regular reports on compliance matters and keeping
under review the adequacy and effectiveness of the Company’s
and the wider Group’s compliance reporting andobligations.
• Reviewing regular reports from the Money Laundering
Reporting Officer and the adequacy and effectiveness of the
Company’s and the wider Group’s anti-money laundering
systems and controls.
• Reviewing the Company’s and wider Group’s procedures,
systems and controls for ethical behaviour and the prevention
of fraud, bribery and modern slavery and to receive reports on
non-compliance (if any) and overseeing the implementation of
any corrective actions.
• Reviewing the arrangements in place for Group staff,
contractors and external parties in confidence to raise
concerns about possible improprieties in matters of financial
reporting or other matters insofar as they may affect the
Group (whistleblowing). The Committee ensures that
these arrangements allow proportionate and independent
investigation of such matters and appropriate follow-up action.
As part of my duties as Committee Chairman, I met with the audit
partner of Deloitte and also with the Chief Financial Officer and
General Counsel to discuss matters of significance.
The Committee considers that I have recent and relevant financial
experience due to my extensive experience as a fund manager
and from my executive management experience. Similarly, Tim
Bond satisfies the requirement as an active fund manager and Pars
Purewal, having had an extensive background in audit, accounting
and finance. The Committee as a whole has competence relevant
to the sector in which the Company operates.
Principal activities of the Committee
During the year, the Committee’s business included:
• Consideration of the Annual Report and Financial Statements
and of the half yearly report and statements including
consideration of the final and interim dividends.
• Consideration of the principal risks and controls and
general oversight of the Group’s internal control systems
and procedures including in the context of reports by the
depositary, the Company’s obligations as an AIFM and
the heads of business andfunctions with respect to the
IPSbusiness.
• Review of the depositary’s contract and services.
• Meetings with the external auditor to discuss the 2020
financial statements and, in the fourth quarter, to plan
the 2021 audit. These meetings included discussions on
fees, auditor independence, key risks and developments in
accounting standards.
• Oversight and recommendation to the Board of the
appointment of our new external auditor, Deloitte LLP.
• Review and approval of the internal audit programme.
• Consideration of all internal audit reports.
• Review of reports about reconciliations, procedures in place
to prevent fraud and anti-bribery and corruption and anti-
money laundering.
• Approved the funding option for the Company’s Long-Term
Incentive Plan.
Shortly after the year end, the Committee met with the external
auditors to discuss the 2021 financial statements and the
outcome of that discussion is set out below.
Risk management, internal control
and internal audit
The approach to risk management adopted by the Group is
set out in the Principal Risks and Internal Controls section
on page39. The Board as a whole is responsible for the
effectiveness of internal control mechanisms, but it is informed
by more specific work carried out by the Audit and Risk
Committee, which includes the initiation and oversight of
any investigations that may be necessary to address control
weaknesses or breaches, asidentified.
In particular, the Committee reviews the adequacy and
effectiveness of the Group’s risk management systems and
processes. The General Counsel reports through the Executive
Risk Committee, but, in line with good practice in this area,
the Committee’s terms of reference give her the right to report
directly to me on any specific matter of concern. The General
Counsel also provides quarterly reporting on risk matters to
theCommittee.
The internal auditor, who reports to me as Chairman of the Audit
and Risk Committee, presents her annual audit programme to
the Committee for approval each year and attends Committee
meetings, presenting all of their reports including management’s
actions in response to the findings and recommendations. The
internal auditor has the right, should she wish, to meet separately
Audit and Risk Committee report continued
lawdebenture.com
66
CORPORATE GOVERNANCE
with the Audit and Risk Committee to raise any matters of
concern that may arise, no concerns were raised during the
reporting period.
The Committee is satisfied that the quality, experience and
expertise of the internal auditor is appropriate for the business.
External auditors – assessing effectiveness
One of the most important functions of the Committee is to
monitor the independence and objectivity of the external
auditors, their performance and effectiveness. The Committee
achieves this by an annual formal meeting with the audit partner
to plan that year’s audit. Part of that process requires the auditor
to give the Committee written assessment of how the audit team
identifies and manages the threats to its independence, along
with the description of the safeguards that it has in place to avoid
such threats. This vital part of the audit process also enables
the Committee to examine in detail the scope of the audit,
ensuring that the auditor’s objectives meet the Committee’s own
expectations, along with key audit and accounting matters to be
considered that year.
At the conclusion of each audit, the Committee receives a
presentation from the audit partner on the principal findings.
This provides the opportunity for robust challenge, particularly in
areas where management’s judgement has been required. The
Committee will also give the auditors an opportunity, without the
Executive Leadership team present, to comment on the quality
and standard of the Executive Leadership team’s performance
generally and during the audit. Similarly, the Committee will seek
the views of the Executive Leadership team on the effectiveness
and performance of the audit team. There were no matters of
concern raised during the period under review.
Non-audit services
Non-audit services provided by the auditor are reviewed by the
Committee to ensure that independence is maintained. Non-
audit fees are shown at note 3 to the accounts. The Committee’s
policy is that non-audit work should be limited to those matters
where the external auditor is most appropriately placed to carry
out the work, unless there is a conflict of interest. Consequently,
fees for non-audit services have historically been low and in the
year under review were £29,000 (2020: £14,000). This included an
agreed upon proceeds audit for the issue of the new debentures
and the CASS audit.
Significant financial issues relating
to the 2021 accounts
The Code requires us to describe any significant issues considered
in relation to the financial statements and how those issues
wereaddressed.
The significant issues considered by the Audit and Risk
Committee include the valuation of IPS, the acquisition and
corresponding accounting treatment of CSS, Pension Defined
Benefit Scheme, and a review of the non-application of the IFRS10
Investment Entity Exemption.
No new significant issues arose during the course of the audit.
During the course of the year, the Finance operations of the
business underwent significant modernisation, including
establishing a Shared Service Centre in our Manchester office and
the implementation of a new Finance system.
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.
Mark Bridgeman
Chair, Audit and Risk Committee
24 February 2022
Audit and Risk Committee report continued
67
Annual remuneration report
Dear Shareholder
I am delighted to have been appointed as Chair of the
Remuneration Committee by the Board following a
recommendation by the Nomination Committee. Since my
appointment, I have been active in my engagement with both the
Executive Leadership and the wider Senior Management teams of
Law Debenture. As part of this, I have sought to embed the Group’s
values in the remuneration process, creating an open channel
of communication with the Senior Leadership team to provide
feedback on the Executive Directors and their remuneration. This
is refl ected in the manner in which the Remuneration Policy has
been applied during the course of the year.
On behalf of the Board, I am pleased to present the Annual
Remuneration Report for the year ending 31 December 2021.
Financial and operational highlights
From an economic and operational perspective, 2021 was
another challenging year for both our staff and our clients,
which required the organisation to demonstrate a considerable
degree of fl exibility. The Board recognises that the Executive
Leadership team have continued to work hard on behalf of our
shareholders to not only minimise the ongoing impact of the
Covid-19 pandemic but also deliver a strategy, which supports our
objectives as a business of producing long-term capital growth
and steadily increasingincome.
As refl ected by both our Chairman and our CEO earlier in this
Annual Report, the Group has continued to deliver against our
objective. Under the stewardship of our Executive Leadership team,
we successfully completed the purchase of the company secretarial
services (CSS) business from Eversheds Sutherland (International)
LLP, which has further enhanced the diversifi cation of revenue
produced by the IPS business. As a business, we have also reviewed
our capital structure, taking the opportunity to issues shares at a
premium to Net Asset Value and issuing two new tranches of debt,
lowering our weighted average cost of borrowing from 4.589% to
3.966%. In addition to this, we have had oversight of the excellent
work undertaken by the Executive Leadership team to articulate our
company culture, values and purpose, which has provided greater
unity and staff engagement across the business.
2021 was another year of growth for our IPS business with revenue
growth of 20.6%, an increase in profi t before tax of 9.1% and an
increase in earnings per share of 7.0%. The growth in earnings per
share has been diluted due to the issuance of shares during the
year. This builds on the momentum of last year and is a positive
refl ection of the efforts of all of our staff and the success of our
new Senior Leadership team. Please refer to the Chairman’s
statement on pages 6 and 7 for further overview of the fi nancial
and operational highlights for2021.
Performance outcomes for 2021
Annual bonus outcomes for 2021
As indicated in last year’s report, the maximum annual bonus
opportunity for directors was set at 100% of salary for 2021 and
the performance measures were weighted evenly between
fi nancial targets and non-fi nancial measures aligned to the
strategic priorities of both the IPS business and the Company as a
whole. The fi nancial target was based on the percentage growth
in IPS profi t before tax (PBT) ranging on a straight-line basis
from 4% at threshold (at which 20% bonus is awarded) to 9%
as a stretch target (at which 100% of the fi nancial target bonus
is awarded). Management delivered well against this target
achieving growth in IPS PBT of 9.1%.
The Board has been impressed by the progress made by the
Executive Leadership team in 2021 on the non-fi nancial targets.
Of note are the investment made in our central human resource
function and the improvement to operational effi ciency to
support our growing workforce. We have also received positive
feedback about the work undertaken on culture and values,
which is underpinned by increased levels of staff engagement.
The Board also acknowledges that the ongoing uncertainty
brought about by the pandemic and related measures have
meant that several initiatives, such as fully embedding the
CSS business and the new Shared Service Centre, are part of a
longer-term journey with more work to be done in 2022.
CORPORATE GOVERNANCE
Part 1 Remuneration Committee Chair’s annual statement
lawdebenture.com
68
CORPORATE GOVERNANCE
Annual remuneration report continued
Overall, we are pleased with the progress made in 2021. Together,
the investment manager and Executive Leadership team have
delivered an excellent set of results for our shareholders, which
has generated a share price total return of 19.2% and a growth in
NAV per share at fair value of 18.3% over the same period. In view
of the positive outcome for the IPS business, we have decided
to award a bonus of 85% to the CEO and 85% to the COO. The
Committee determined that the annual bonus outcomes for
2021, based on the application of the performance conditions,
were in line with the overall performance of the business and
therefore have not applied their discretion in assessing the
Executive Directors’ remuneration.
Implementation of the policy in 2022
Salary and benefits
The Committee has reviewed the performance of the Executive
Directors during 2021. The Committee will normally limit
Executive Director salary increases to the level of increase for the
wider workforce. However, during the year, the Remuneration
Committee also conducted a benchmarking exercise of the
Executive Directors’ salaries. As a result of the benchmarking
exercise, the Remuneration Committee took the decision to
award Trish Houston, COO, a pay rise, increasing her salary to
£275,000 effective from 1 September 2021. This change brings
the COO’s salary in line with the market and recognises the
contribution she had made to the Group in her first year in
post. It also reflects her increased role and responsibilities. She
has assumed responsibility for our risk oversight function and
reporting to the Board. In addition, as our employee base and
office footprint have expanded, so too have Trish’s role and
responsibilities. No change was made to the salary of the CEO
during the course of the year. The principles applied in deciding
that an increase was appropriate for Trish Houston are the same
as those that were applied in respect of the wider workforce to
ensure that salaries are aligned with marketrates.
With inflation, measured by CPI, in the UK at 5.1%, pay increases
have been awarded to the majority of the organisation at an
average of 6%. The Committee is proposing not to award a pay
increase for the CEO or the COO. Their salaries will remain at
£325,000 and £275,000 respectively for 2022. The Executive
Directors’ pension contributions will continue to be 12% of salary
or cash equivalent, which is in line with the policy for the wider
workforce and the contributions received by the majority of
the workforce. A further explanation of this can be found in the
section of my letter on ‘Wider workforce considerations and
fairness’.
Bonus and Long-Term Incentive Plan (LTIP)
The maximum bonus opportunity will remain unchanged at 100%
of salary for 2022, with 50% of performance measures based on
IPS financial targets and the remainder based on non-financial
performance measures aligned to the current strategic priorities
of both the IPS business and the Company as a whole. Further
details are provided on page 75 of this report. The specific targets
will be published together with the bonus outcome in the Annual
Remuneration Report for 2022. The deferral requirement for
the Executive Directors is that half of any bonus earned above
£100,000 will be deferred in shares for three years, subject to the
Termination Policy, which can be found on page 80.
The Executive Directors will each receive LTIP awards of 100% of
salary in 2022, which will vest based on 3-year IPS EPS targets
ranging from 4% p.a. growth at threshold (at which 25% of the
award vests) to 10% p.a. at stretch (at which 100% of the award
vests). Given the internal business plan, analyst forecasts, the
historically flat performance of the IPS business, and economic
uncertainty, the Board believes that to sustain the proposed
stretch level of earnings growth for three years would be
exceptional. Any shares vesting must be held for a further two
years. Further details are provided on page 72 of this report.
Wider workforce considerations and fairness
The Committee has carefully considered remuneration
arrangements across the Group. The Committee receives
information on wider workforce remuneration, ensuring they have
a good understanding of the structure and application of the
reward policies throughout the Group.
In 2021, a full review of contracts and benefits was conducted.
As part of this, the wider workforce was engaged to understand
what most mattered to them and, for 2022, we have improved
the suite of benefits we offer to our employees. Going into 2022,
we will now be providing all employees with health insurance and
have implemented an improved maternity leave policy to better
support working mothers.
We also reviewed the pension provision for our people. When
we acquired the CSS business, we had to TUPE staff over to the
Law Debenture Group on their existing contractual terms. The
majority of staff were receiving company pension contributions
of 5%. It has been decided that, effective from 1 January 2022, all
our people will receive a minimum of 9% unmatched pension
contributions. Whilst this has not been retrospectively applied
to our existing staff, this will be reflected in the terms for all new
joiners, including those at the Executive Director level.
As an organisation, we continued to be in the fortunate position
that we did not draw upon any of the Government Support
Schemes, nor have we had to place any of our staff on furlough.
In line with the provisions of the UK Corporate Governance
Code, various methods of communication (including attending
lunches, presentations, email correspondence and availability for
digital meetings) have been utilised by the Board and Executive
Leadership team to raise employee awareness of the role and
engagement with the Board more broadly. During 2021, the
Executive Leadership team implemented a more structured
approach to conducting employee surveys, the results of which
have been shared with the Board.
69
CORPORATE GOVERNANCE
Annual remuneration report continued
Conclusions
I hope that you have found my letter useful and the accompanying
report informative and clear. Shareholders voted to approve the
Remuneration Policy at the AGM in April 2020 and we are not
proposing any additional changes to the Remuneration Policy in
2022. We hope shareholders will be able to give their support to the
resolution approving the Company’s remuneration report at the
AGM in April 2022. I am grateful for the engagement and support
provided by our shareholders and I will be available at the AGM to
answer any questions in relation to this Report.
Claire Finn
Chair, Remuneration Committee
24 February 2022
REMUNERATION COMMITTEE MEMBERSHIP ANDACTIVITIES DURING 2021
Members
The members of the
Committee who served
during the year were:
C. Finn (Chair)
R. Hingley
T. Bond
M. Bridgeman
P. Purewal
C. Askem
R. Laing
Details of Committee meetings and attendance can be
found on page 58.
Key activities
of the Committee
during the year
included:
• Determining 2021 annual bonus outcomes and payments for the Executive Directors and Senior Managers;
• Preparing the 2021 Annual Remuneration Report;
• Determining salary adjustments for the Executive Directors and Senior Managers;
• Setting performance objectives, annual bonus measures and targets for 2022;
• Reviewing the operation of the annual bonus process;
• Benchmarking pay for the Executive Directors and Senior Managers;
• Determining the total executive pay for 2021, including performance conditions for the LTIP awards in 2022;
• Oversight of the workforce engagement outcomes;
• Review of Remuneration Committee Terms of Reference; and
• Reviewing Gender Pay Gap reporting.
Support provided
to the Committee
PricewaterhouseCoopers LLP (PwC) was appointed by the Remuneration Committee on 14 February 2019 as
independent adviser following a formal selection process. PwC is a founding member of the Remuneration
Consultants Group and voluntarily operates under its Code of Conduct in its dealings with the Committee.
PwC’s fees charged for the provision of independent advice to the Committee during the year were £22,600.
Other than in relation to advice on remuneration, PwC provides support to the Company in relation to
valuation of the IPS business and tax advice. The Committee is satisfied that PwC does not have connections
with the Group that may impair their objectivity and independence.
During the year, the Committee also took advice from the CEO, whose attendance at Committee meetings
was by invitation from the Chair, to advise on specific questions raised by the Committee and on matters
relating to the performance and remuneration of the Senior Management team. No Director participated in
discussions that related directly to their ownremuneration.
Key
responsibilities
of the Committee
The Committee’s terms of reference are published on the Company’s website (https://www.lawdebenture.
com/investment-trust/shareholder-information/corporate-governance). The key responsibilities of the
Remuneration Committee are to:
• determine the Remuneration Policy for Executive Directors and Senior Managers (including the company
secretary) in compliance with legal and governance requirements and in the context of pay conditions
across the workforce, engaging with shareholders thereon;
• determine the individual remuneration packages for Executive Directors and Senior Managers;
• approve the remuneration package of the Chairman;
• consider the design of, determine targets for and review outcomes for the annual bonus plan;
• determine the design of, quantum and performance conditions for long-term incentive plans;
• review workforce remuneration and related policies across the Company as a whole;
• review pension arrangements, service contracts and termination payments for Executive Directors; and
• approve the Annual Remuneration Report, ensuring compliance with legal and governance requirements.
CORPORATE GOVERNANCE
Part 2: Annual remuneration report
SALARY AND BENEFITS
Purpose
To provide an appropriate level of salary and competitive benefits package to attract and retain
individuals of the required calibre to successfully deliver the business strategy.
Operation and opportunity
Salary Benefits
Salary levels will relate to:
• the nature of the role;
• individual skills, experience and performance;
• performance of the business and the external
economic conditions;
• appropriate market data; and
• pay and conditions elsewhere in the Company.
There is no maximum salary under the policy.
The Committee will consider salary increases
for the Senior Management team and these
will normally be in line with those of the wider
workforce. Increases may be made above this
level in certain circumstances, including but not
limitedto:
• an increase in scale, scope or responsibility of
the role;
• to ensure salaries remain market competitive;
and
• where individuals have been recruited or
promoted with salaries below the targeted
policy level initially and have become more
established in their role.
Executive Directors are entitled to receive
those benefits available to all Law Debenture
employees generally, such as participation in
all employee share plans, sickness pay, private
medical insurance, life assurance cover, disability
income plan, season ticket and parental leave.
Benefits are not pensionable.
Other benefits may be introduced from time
to time to ensure the benefits package is
competitive and reflects the circumstances of
the individual Director, for example relocation
allowances.
The Remuneration Committee may award non-
pensionable cash payments in lieu of one or more
of these benefits.
Performance framework
None
Outcomes for 2021
Denis Jackson’s annual salary was £325k. He also
opted to participate in the Company’s health
careplan.
Trish Houston was awarded a pay rise from £235k
to £275k in September 2021. The total salary paid
to Trish Houston in respect of 2021 was £245k.
Implementation in 2022
Denis Jackson’s salary and benefits are
unchanged in 2022.
Trish Houston’s salary and benefits are
unchanged in 2022.
PENSION
Purpose
To provide funding for retirement at market competitive levels.
Operation and opportunity
Executive Directors may receive pension contributions to a personal pension scheme and/or cash
allowances in lieu of contributions.
Executive Directors receive a contribution of 12% of salary in line with the contribution for the majority
of the wider workforce.
Performance framework
None
Outcomes for 2021
Denis Jackson received the cash allowance in lieu
of contributions equivalent of 12% of salary.
Trish Houston received the cash allowance in lieu
of contributions equivalent of 12% of salary.
Implementation in 2022
Denis Jackson’s pension contributions are
unchanged in 2022.
Trish Houston’s pension contributions are
unchanged in 2022.
Remuneration Policy table including 2021 outcomes and 2022 implementation*
lawdebenture.com
70
CORPORATE GOVERNANCE
71
ANNUAL BONUS
Purpose
To incentivise and reward the achievement of annual business objectives to enable successful
implementation of the Group strategy, and to align the interests of Executive Directors with
shareholders and support retention.
Operation and opportunity
Performance measures, targets and weightings
are set at the start of the year.
At the end of the year, the Committee determines
the extent to which the targets have been
achieved and the resulting proportion of the
maximum individual opportunity payable to
Executive Directors.
Half of any bonus earned above £100,000 will
be deferred in shares for three years. Dividend
equivalents may accrue on deferred bonus
awards and be paid on those shares which vest.
The Plan contains malus and clawback provisions
(see below for details).
Maximum individual annual bonus opportunity is
100% of base salary.
The total aggregate annual bonus payment
for Executive Directors is capped at 25% of the
general bonus pool for employees.
20% of the maximum will be payable for
threshold performance and 50% of the
maximum will be payable for on-target
performance, with full payment for stretch
Financial and Non-Financial performance.
Payment increases on a straight-line basis
between threshold, target and stretch for the
Financial objectives.
Performance framework
Performance measures, targets and weightings are determined each year to reflect key business
priorities and are measured over a period of one financial year.
A minimum of 50% of the bonus is based on financial measures. The remainder is based on non-
financial measures aligned to the strategic priorities of the business and may also contain individual
performance objectives.
Outcomes for 2021
Denis Jackson is recommended to receive a 85%
bonus. The basis for the award is explained on
page 75.
Trish Houston is recommended to receive a 85%
bonus. The basis for the award is explained on
page 75.
Implementation in 2022
The maximum individual annual bonus
opportunity continues to be 100% of base salary.
The maximum individual annual bonus
opportunity continues to be 100% of base salary.
LTIP
Purpose
To drive sustained long-term performance that supports the creation of shareholder value, and to
encourage and facilitate substantial long-term share ownership.
Operation and opportunity
An award of conditional shares or nil cost-options
may be granted annually.
Awards vest after three years, subject to
performance and continued employment.
Following vesting, an additional two-year holding
period will apply (net of tax), such that shares are
not released until five years from grant.
Award levels and performance conditions are
reviewed in advance of each grant to ensure they
remain appropriate.
Dividend equivalents may accrue on shares held
under the Plan and be paid on those shares
which vest. These will be delivered in shares in
line with the Investment Association Guidelines.
Maximum award of 100% of salary. 25% of the
award will vest for threshold performance, with
full vesting for stretch performance.
Vesting increases on a straightline basis between
threshold and stretch.
Performance framework
At least half of the award will be based on financial measures, normally profit-based measures linked
to the IPS business. The Committee has discretion to adjust the formulaic vesting outcome to reflect
underlying Company performance.
Any adjustments or discretion applied by the Committee will be fully explained in the following year’s
Annual Remuneration Report.
Outcomes for 2021
Denis Jackson was awarded an LTIP of up to 100%,
subject to meeting the performance conditions.
Trish Houston was awarded an LTIP of up to 100%,
subject to meeting the performance conditions.
Implementation in 2022
Denis Jackson will be awarded an LTIP of up
to 100%, subject to meeting the performance
conditions.
Trish Houston will be awarded an LTIP of up
to 100%, subject to meeting the performance
conditions.
Annual remuneration report continued
lawdebenture.com
72
CORPORATE GOVERNANCE
Annual remuneration report continued
Remuneration Policy table including 2021 outcomes and 2022 implementation continued
SHAREHOLDING REQUIREMENTS
Purpose
To provide alignment between the interests of the Executive Directors and our other shareholders.
Operation and opportunity
The Executive Directors are required to build and maintain a minimum shareholding of two times
base salary. Executive Directors are required to retain 50% of the post-tax number of vested shares
from the Company incentive plans until the minimum shareholding requirement is met and
maintained.
On cessation of employment, Executive Directors are required to retain their minimum shareholding
requirement immediately prior to departure for two years. Where their actual shareholding at
departure is below the minimum shareholding requirement, the Executive Directors’ actual
shareholding is required to be retained on the same terms and for the same periods.
In addition, the Company is using an Employee Benefit Trust or nominee accounts to hold shares, to
enable the post cessation requirements to be operated.
Performance framework
None.
Outcomes for 2021
Denis Jackson currently holds 61,767 shares
through his own account, deferred bonus, SAYE
and theSIP.
Trish Houston currently holds 7,676 shares on her
own account, SAYE and the SIP
Implementation in 2022
No changes to the policy. No changes to the policy.
Remuneration principles
In preparation for the review of our Directors’ Remuneration
Policy, the Committee reviewed the reward frameworks for
the wider workforce, alongside our more specific debates on
Executive remuneration. From this, we have drawn a unifying set
of remuneration principles that apply equally to Executives, and to
employees at all levels of our workforce hierarchy.
REMUNERATION PRINCIPLES
Alignment
Our remuneration programmes will align with Law Debenture’s strategic priorities, long-term success
and shareholders’ experience.
Competitiveness
Total remuneration will be competitive but not extravagant for the role taking into account sector,
complexity of responsibility and geography. When setting Executive Leadership pay, we will consider
both external pay relativity and wider workforce remuneration and conditions.
Pay for performance
There should be no reward for failure, but the Executive Directors should be rewarded for the
performance of the IPS business, which is central to Law Debenture’s business model and unique
identity.
Discretion
The Committee has discretion to adjust the formulaic bonus and the LTIP outcomes to reflect
underlying Company performance. Any adjustments or discretion applied by the Committee will be
fully explained in the following year’s Annual Remuneration Report.
Consideration of shareholder views
The Remuneration Committee is committed to shareholder
dialogue and engages with shareholders as appropriate to address
any remuneration issues that arise in relation to the Executive
Directors. Shareholders are given the opportunity to engage with
decisions in relation to Executive Director pay at the AGM. The
Chair of the Remuneration Committee is also open to holding
individual meetings with Shareholders, if requested, as outlined
in our S172 Statement on page 44. Any feedback provided is
taken into account when developing Executive remuneration
arrangements, in addition to guidelines of investor bodies. The
Committee continues to monitor trends and developments in
corporate governance and market practice to ensure the structure
of Executive remuneration remains appropriate and commits to
undertake a shareholder consultation in advance of any material
changes to the Remuneration Policy.
73
CORPORATE GOVERNANCE
Minor amendments
The Committee may make minor amendments to the policy set
out above (for regulatory, exchange control, tax or administrative
purposes or to take account of a change in legislation) without
obtaining shareholder approval for that amendment.
Consideration of employment conditions
In determining the remuneration arrangements for Executive
Directors, the Committee considers pay and conditions of
other employees across the IPS business and aims to ensure a
consistent approach. To facilitate this, the Committee receives
information on wider workforce remuneration, ensuring they
have a good understanding of the structure and application
of the reward policies throughout the Group. Clare Askem
will take become the designated Non-Executive Director with
responsibility for engaging with the workforce. Since making
that appointment, various methods of communication
(including presentations, email correspondence and
availability for meetings) have been utilised to raise employee
awareness of the role and engagement with the Board more
broadly. The Company has introduced a quarterly survey to
assess employee satisfaction.
Differences in remuneration policy
forExecutive Directors compared with
other employees
The Company’s approach to annual salary reviews is consistent
across the Group, with consideration given to the level of
experience, responsibility, individual performance and salary
levels in comparable companies. In terms of variable incentives,
all employees are eligible to participate in an annual bonus
scheme with business area-specific metrics and individual
performance taken into account where appropriate. The
maximum bonus opportunity of 100% of salary is consistent
across all staff.
Senior Managers may be eligible to participate in the LTIP with
annual awards up to 100% of salary. Performance conditions
are consistent for all participants, while award sizes vary by
level. Specific cash incentives are also in place to motivate,
reward and retain staff below Board level. When determining
incentive outcomes, the Remuneration Committee may
take account of the Executive Directors’ contribution to the
investment trust strategy and performance, as well as the
performance of the IPS business. For all other employees,
performance is primarily based on the IPS business. All UK
employees are eligible to participate in the Company’s SAYE
and SIP schemes on the same terms.
Illustration of total remuneration
opportunity
Denis Jackson (CEO)
Fixed Annual Bonus LTIP Share price appreciation
Minimum On-Target Maximum Maximum
with 50%
share price
appreciation
Minimum On-Target Maximum Maximum
with 50%
share price
appreciation
Trish Houston (COO)
100% 53% 36% 29%
23%
32% 26%
23%
32% 26%
19%
£368k
£693k
£1,018k
0
200
400
600
800
1,000
1,200
1,400
£000
100%
53%
36%
29%
24%
32%
26%
24%
32% 26%
19%
£308k
£583k
£858k
£1,064k
0
200
400
600
800
1,000
1,200
£000
£1,261k
ELEMENT ASSUMPTIONS
Total fixed pay Base salary
:
CEO £325,000,
COO £275,000.
Pension:
12% of salary or cash equivalent.
Benefits:
As disclosed in single figure table on
page 77.
Annual bonus
Minimum: No payout.
On-target: 50% of maximum
(50% of salary).
Maximum: 100% of maximum (100% of
salary).
LTIP
Minimum: No vesting.
On-target: 50% of maximum
(50% of salary).
Maximum: 100% of maximum (100% of
salary).
Share price
growth
Calculated based on the impact of 50%
share price appreciation on maximum
remuneration over three years on the
deferred bonus element from the
maximum award remuneration.
Annual remuneration report continued
lawdebenture.com
74
Performance measures selection for the annual bonus
Performance measures used under the annual bonus are selected annually to reflect the Group’s main short and long-term objectives and
reflect both financial and non-financial priorities. For Executive Directors, performance measures in incentives will focus predominantly
on the profitability of the IPS business which is central to Law Debenture’s business model and is the area of the business fully within
management’s control. The performance targets are set to be stretching but achievable, taking into account a range of internal and external
reference points and having regard to the particular strategic priorities and economicenvironment.
By their nature, some objectives require a more subjective assessment than others and this is done by the Committee following the input
from the wider Board and other Board Committees as appropriate.
STRATEGIC OBJECTIVES Description Weighting
IPS financial
performance
The Remuneration Committee reviews a number of key financial metrics when assessing
the Executive Directors’ delivery against financial performance targets. The metric used
for 2021 was PBT. The Executive Directors’ awards are based on the performance against
agreed thresholds, which can be found in the table below.
50%
IPS non-financial
performance
The success of the IPS business is dependent on the effective leadership and
implementation of the right strategy to ensure our people can provide excellent service
to our clients regardless of the external challenges the business may face. This includes
a robust operational infrastructure, a well embedded risk management framework and
high calibre people.
Engagement with investors, potential investors, market analysts, clients and the media
is considered to be beneficial to our shareholders as it raises awareness of the unique
investment proposition which is offered by Law Debenture and supports the future
growth of the IPS business.
The Remuneration Committee believe that the efforts made by the Executive Directors to
further enhance the areas outlined above should be rewarded.
50%
MEASURE
CORPORATE GOVERNANCE
Annual remuneration report continued
For 2021 the maximum bonus opportunity for the Executive Directors was 100% of salary. Performance conditions were based 50% on
financial metrics and 50% on strategic metrics. Details of the specific measures, weightings, targets and outcome achieved are set out below:
Measure Weighting
Threshold
(0% of max.)
Target
(50% of max.)
Maximum
(100% of max.) Actual
IPS financial performance - PBT 50% 4% 5% 9% 9.1%
IPS non-financial performance 50% Further details set out below
Total 100%
Long Term Incentive Plan
In 2021, both the CEO and the COO were granted LTIP awards at the level of 100% of salary. The award will vest after three years based on IPS
EPS performance, and any vested shares (net of tax) will be subject to a further two-year holding period. The performance targets are as follows:
3-year CAGR (p.a.) % vesting IPS EPS 3-year CAGR (p.a.)
Below threshold 0% Less than 4%
Threshold 25% 4%
Stretch 100% 10%
For 2022 it is proposed that, both the Executive Directors will be granted LTIPs at the level of 100% of salary, with the same performance
conditions.
75
2021 PERFORMANCE AND PAY OUTCOMES
Financial performance
The IPS business delivered PBT growth of 9.1%.
Non-financial performance
The Remuneration Committee set a stretching set of non-financial objectives for the Executive Directors in 2021. The Committee
evaluated the performance of the Executive Directors in relation to these targets and concluded that:
Excellent progress was made in:
• Evolving our leadership team and central functions to drive future business growth.
• Defining our company culture and values to unite our IPS businesses and people, creating opportunities for enhanced cross-
selling.
• Building out a robust operational platform for the IPS business including the introduction of new finance and HR systems and
establishing a new shared services centre.
Good progress was made in:
• Integrating the new CSS business and staff into IPS, particularly considering the ongoing challenges presented by Covid-19 and
home-working guidance that was in place for a large part of the year.
• Engaging with investors, potential investors, market analysts, clients and the media.
• Articulating and evolving our approach to ESG for both the investment portfolio and the IPS business.
As a result, the Remuneration Committee concluded that the Executive Directors should be awarded 35% of bonus in relation to
their non-financial objectives.
Total remuneration 2021
Denis Jackson
Chief Executive Officer
Salary and benefits 52%
Retirement benefits 5%
Annual bonus 43%
Performance Shares 0%*
Trish Houston
Chief Operating Officer
Salary and benefits 52%
Retirement benefits 5%
Annual bonus 43%
Performance Shares 0%*
* No long-term incentives or scheme interests vested in 2021 for either the CEO or COO.
Share ownership
Shareholding is a key means by which the interests of Executive Directors are aligned with those of shareholders. As at
31December 2021 neither Director had holdings in Law Debenture, which exceeded our shareholding policy requirement of two
times salary.
1 D. Jackson has 58,401 shares vesting in 1-4 years time subject to a service condition but not a performance condition.
2 Includes shares held on own account.
3 Calculated based on a close price of 799p as at 31 December 2021.
4 T. Houston has 6,112 shares vesting in 4-5 years.
The value of the shareholdings disclosed have been calculated using using the close price as at the 31 December 2021 the time of
acquisition of the shares. For these purposes, shares held in the deferred bonus scheme, the SIP and SAYE as at 31 December 2021
have been included as there are no performance conditions to be met. The LTIP awards have not been factored in.
CORPORATE GOVERNANCE
Annual remuneration report continued
Denis Jackson
Chief Executive Officer
Trish Houston
Chief Operating Officer
Denis Jackson
1
Chief Executive Officer
Current holdings: 61,767 shares
2
Two times salary, 81,352 shares
Total target value
3
of £650,000
Trish Houston
4
Chief Operating Officer
Current holdings: 7,676 shares
Two times salary, 68,836 shares
Total target value
3
of £550,000
Actual
Total Policy Requirement
£494k
£61k
lawdebenture.com
76
How do we safeguard against payments for failure?
SAFEGUARDING REQUIREMENTS
Performance based pay
A significant portion of remuneration varies with performance – where performance targets are not
achieved, lower or no payments will be made under the plans.
Discretion
The Committee will operate all incentive plans
according to the rules and discretions contained
therein to ensure that the implementation of
the Remuneration Policy is fair, both to the
individual Director and to the shareholders. The
discretions cover aspects such as:
• selection of participants;
• timing of grant and vesting of awards;
• size of awards (subject to the Policy limits);
• choice of measures, weightings and targets;
• determining level of payout or vesting based
on an assessment of performance;
• settlement of awards in cash or shares;
• treatment of awards on termination of
employment and change of control;
• adjustment of awards in certain
circumstances, e.g. changes in capital
structure, demerger, special dividend,
distribution or any other corporate event
which may affect the current or future value
of an award;
• adjustment of performance conditions in
exceptional circumstances provided the new
targets are fair and reasonable and neither
materially more or less challenging than the
original targets; and
• application of malus and/or clawback.
Any such use of discretion will be fully disclosed
in the subsequent annual report and may, as
appropriate, be the subject of consultation with
the Company’s shareholders.
Malus and Clawback
Malus is the adjustment of deferred annual
bonus awards or unvested LTIP awards, because
of the occurrence of one or more circumstances.
The adjustment may result in the value being
reduced to nil.
Clawback is the recovery of cash payments
made under the annual bonus, deferred annual
bonus award or vested LTIP awards as a result
of the occurrence of one or more circumstances
listed. Clawback may apply to all or part of a
participant’s payment or award and may be
effected, among other means, by requiring the
transfer of shares, payment of cash or reduction
of awards or bonuses.
The circumstances in which malus and clawback
could apply are as follows:
• gross misconduct;
• misstatement of the financial results;
• error in reporting or calculation;
• serious reputational damage; or
• corporate failure.
Malus applies to deferred annual bonus awards
and unvested LTIP awards up to the date
ofvesting.
Clawback applies to cash annual bonus
payments and vested LTIP awards for up to two
years from payment or vesting.
Annual bonus payments and LTIP awards are
subject to malus and clawback for up to two
years from payment of the bonus or vesting
ofshares.
Payments for loss of office
There were no payments to former Directors for loss of office.
Payments to past Directors
There were no payments to past directors during the year.
CORPORATE GOVERNANCE
Annual remuneration report continued
77
CORPORATE GOVERNANCE
Executive Directors’ shareholdings (audited)
The table below shows the interests of the Executive Directors and connected persons in shares (owned outright or vested) as at
31December 2021. In the period between 31 December 2021 and 24 February 2022, Denis Jackson’s share holding has increased by 451
shares, as a result of dividend reinvestment. There have been no changes to Trish Houston’s holding.
Outstanding scheme interests
Shares owned
outright
Unvested
shares not
subject to
performance
2
Unvested
options
not subject to
performance
3
Unvested
options
subject to
performance
4
Vested but
unexercised
share options
Total scheme
interests
Shareholding
guideline
(% of salary)
Current
shareholding
(% of salary)
5
Guideline
met
Denis Jackson 3,366 49,159 9,242 115,805 — 177,572 200% 152% No
Trish Houston
1
1,564 — 6,112 32,267 — 39,943 200% 22.3% No
1 Trish Houston joined the Board as an Executive Director with effect from 2 September 2020.
2 Includes deferred bonus awards granted under the Deferred Share Plan.
3 Includes options awarded under Save As You Earn Share Save Plan.
4 Includes options awarded under the LTIP.
5 Based on a share price on 31 December 2021 of 799p. Shares owned outright have been included.
Year ended
Salary
£000
Benefits
£000
Bonus
£000
LTIP
£000
Pension
£000
Total
£000
Total
Fixed
£000
Total
Variable
£000
Denis Jackson 2021 325 4 275 — 34 638 363 275
2020 325 4 275 — 39 643 368 275
Trish Houston
1
2021 245 — 208 — 26 479 271 208
2020 77 — 65 — 9 151 86 65
Katie Thorpe
2
2021 — — — — — — — —
2020 180 3 — — 22 205 205 —
1 Trish Houston joined the Board as COO on 2 September 2020.
2 Katie Thorpe resigned from the Board on 11 September 2020 and left the Company in October 2020.
Single total figure of remuneration (audited)
Annual remuneration report continued
Executive Directors’ interests in shares and option plans (audited)
Scheme
Interests
held at
1January
2021
Granted
in the
year
Date of
grant
Market
price at
grant
Vested
in the
year
Lapsed/
forfeited
in the
year
Exercised
in the
year
Exercise
price*
Market
price at
date of
exercise
Interests
held at
31 December
2021
Vesting/
first
exercise
date
Denis Jackson
1
DSP 2018 3,275 33 02.03.18 572 3,308 — — 527 721 — 01.03.21
1
DSP2019 17,682 850 11.03.19 582 — — — 582 n/a 18,532 11.03.22
1
DSP 2020 17,333 833 13.03.23 587.19 — — — 587.19 n/a 18,166 13.03.23
1
DSP 2021 — 12,884 12.03.21 704.66 — — — 704.66 n/a 12,884 12.03.24
2
LTIP 2020 70,210 — 07.04.20 462.9 — — — 462.9 n/a 70210 07.04.23
2
LTIP 2021 — 45,595 01.03.21 712.8 — — — 712.8 n/a 45,595 01.03.24
3
SAYE 2020 5,565 — 26.08.20 539 — — — 539 n/a 5,565 26.08.25
Total 114,065 60,195 170,952
Trish Houston
2
LTIP 2021 — 32,207 01.03.21 712.8 — — — 712.8 n/a 32,207 01.03.24
3
SAYE 2021 — 3,856 01.09.21 778 — — — 778 n/a 3,856 01.09.26
Total 36,063 36,063
1 Deferred Share Plan (share grant price is based on the market close on the date of the grant). Includes dividend reinvestment.
2 Long Term Incentive Plan (price at grant is calculated based on a 5 day average close price up to and including the day before the date of grant). Details of performance conditions and
targets can be found on page 74.
3 Save As You Earn Save Plan (share grant price is based on market close on the date of the grant).
* Exercise price is based on market price at grant..
lawdebenture.com
78
Annual remuneration report continued
CORPORATE GOVERNANCE
Percentage change in Director remuneration
e table below sows te percetage cage i irector reueratio coprisig salar taxable beefits ad aual bous ad
comparable data for the average of all UK employees within the Company.
Salary
2021
axable beefits
2021
Annual bonus
2021
Denis Jackson (CEO) 0% 0% 0%
Trish Houston (COO)
1
17% 0% 0%
Robert Hingley (NED) 0% 0% 0%
Robert Laing (NED)
2
0% 0% 0%
Mark Bridgeman (NED) 0% 0% 0%
Tim Bond (NED) 0% 0% 0%
Claire Finn (NED) 0% 0% 0%
Clare Askem (NED) 0% 0% 0%
Pars Purewal (NED) 0% 0% 0%
All other Employees (excluding directors)
3
2.4% 0% 30%
4
1 Trish Houston joined Law Debenture on 2 September 2020. As such, her salary and bonus were pro-rated in 2020. In September 2021, Trish Houston was awarded a 17% pay rise, as
explained in the Chair’s letter at page 68. The annual bonus awarded as a percentage in 2021 is unchanged from 2020.
2 Robert Laing retired on 7 April 2021.
3 For the purposes of this table, all other employees excluding Directors have been taken to mean employees of LDC Trust Management Limited.
4 Includes employees who joined us as part of the CSS acquisition.
e divided paet structure was caged durig to iclude tree iteri ad oe fial divided to be paid to sareolders as
explained in the Chairman’s statement on pages 6 and 7. The number of employees has increased from 165 in 2020 to 239 in 2021, which has
led to an increase in employee pay expenditure. The increase also includes a discretionary increase in individuals’ remuneration. Distribution
to shareholders has been subject to an increase for the current year as explained in the Chairman’s statement on pages 6 and 7.
Historical remuneration and TSR chart
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Incumbent
C. Banszky C. Banszky C. Banszky C. Banszky
M. Adams
1
T. Fullwood
2
D. Jackson
3
D. Jackson
3
D. Jackson
3
D. Jackson
3
C. Banszky M. Adams
sigle figure of total
remuneration (£000)
636.9 636.9 690.7 677.5
180.5 142.2
611.2 643.4 643.0 643.2
757.8 344.1
Annual bonus and deferred bonus
awarded (against maximum %)
70.0% 72.1% 62.0% 100.0%
65.1% 100.0%
100.0% 90.9% 85.0% 85.0%
0.0% 0.0%
1 C. Banszky stepped down as CEO on 31 August and was succeeded by M. Adams on the same date following his appointment to the Board on 4 August.
ullwood was appoited iteri ief xecutive fficer fro ctober for a fixed ter util retireet at auar
3 D. Jackson was appointed as CEO on 1 January 2018.
Relative importance of spend on pay
The chart below shows the Company’s actual expenditure on shareholder distributions (including dividends and share buybacks) and total
eploee pa expediture for te fiacial ears eded eceber eceber ad eceber
2019
£000
2020
£000
2021
£000 % change
Total employee pay expenditure
1
14,709 16,156 21,417
3
32.6%
Total distributed to shareholders
2
30,778 32,572 35,662 9.5%
otal reueratio icludes bouses eploers ad pesio costs ad is te figure reported at ote of te accouts less reueratio of oxecutive irectors
outs distributed to sareolders are te totals of te fial ad iteri divideds i respect of tat ear ere were o oter distributios
3 Includes salaries and bonuses paid the staff who joined us as part of he acquisition of the Company Secretarial Services business on 1 February 2021.
79
CORPORATE GOVERNANCE
Total Shareholder Return (TSR) chart and historical remuneration
The graph below compares the value of £1,000 invested in Law Debenture’s shares, including reinvested dividends, with the FTSE All-Share
Total Return Index over the last ten years. This index was selected because it is the index adopted as Law Debenture’s benchmark.
Law Debenture share price total return, assuming
the investment of £1,000 on 31 December 2011 and the
reinvestment of all dividends (excluding dealing expenses)
FTSE All-Share Index Total Return assuming notional
investment of £1,000 into the index on 31 December 2011 and
the reinvestment of all income (excluding dealing expenses)
£600
£800
£1,000
£1,200
£1,400
£1,600
£1,800
£2,000
£2,200
£2,400
£2,600
£2,800
£3,000
£3,200
£3,400
£3,600
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Notes
1 The graph shows the total shareholder return of a nominal holding of £1,000 of Law Debenture’s shares measured against the total shareholder return of a nominal holding of £1,000
invested in the FTSE All-Share Index over a 10 year period.
2 Dividends have been reinvested.
3 FTSE All-Share Index is chosen as the comparator in this table because that is the index against which, historically, the Company has reported the performance of the investment
trustportfolio
Annual remuneration report continued
External appointments
It is the Board’s policy to allow the Executive Directors to take up one non-executive position on the board of another company, subject
to the prior approval of the Board. Any fee earned in relation to outside appointments is retained by the Executive Director. During 2021,
there were no external appointments held by the Executive Directors.
Recruitment policy
When determining the remuneration arrangements of a new appointment to the Board, the Committee will seek to apply the following
principles:
• although we operate in a competitive market for talent, we are mindful to pay no more than is necessary to attract and retain high-
quality talent; and
• the Committee will appoint new Executive Directors with a package that is in line with the remuneration policy in place at the time. In
particular, the maximum level of variable remuneration will be in line with the limits set out in the policy table on pages 72 and 73.
Service contracts
Executive Directors’ service contracts may be terminated by not less than six months’ notice given in writing by either party to the contract,
with no contractual provisions for compensation payable on early termination of contract. The Directors are subject to annual re-election
at te xecutive irectors service cotracts are available for ispectio at te opas registered office
lawdebenture.com
80
CORPORATE GOVERNANCE
Annual remuneration report continued
PLAN GOOD LEAVERS
1
ALL OTHER LEAVERS CHANGE OF CONTROL
Annual bonus
• Typically paid at the same time
as continuing employees, to the
extent that the performance
conditions are achieved with
pro-rating for the proportion of
the financial year served, unless
the Committee determines
otherwise.
• Deferred bonus awards will
continue until the normal vesting
date or may vest earlier at the
discretion of the Committee.
• No bonus payable.
• Unvested deferred bonus
awardslapse.
• Normally paid immediately on
the effective date of change
of control, subject to the
achievement of the performance
conditions and pro-rated for
the proportion of the year
served to the date of change of
control, unless the Committee
determines otherwise.
• Deferred bonus awards vest
immediately in full on the
effective date of change of
control.
LTIP
• Unvested LTIP awards will
typically vest on the normal
vesting date, to the extent that
the performance conditions are
achieved with pro-rating for the
proportion of the financial year
served, unless the Committee
determines otherwise.
• Vested awards will remain
subject to any holding period.
• Unvested awards lapse.
• Vested awards will remain
subject to any holding period.
• Unvested LTIP awards will
typically vest immediately in
full on the effective date of
change of control, subject to the
achievement of the performance
conditions and pro-rated for
the proportion of the year
served to the date of change of
control, unless the Committee
determines otherwise.
• The holding period applicable to
any awards will end at the time of
change in control.
• Alternatively, awards may be
exchanged for new equivalent
awards in the acquiring company.
1 The Committee has discretion to determine that an Executive Director is a good leaver. It is the Committee’s intention to only use this discretion in circumstances where there is an appropriate
business case which will be explained in full to shareholders. A good leaver is typically defined as an employee who ceases to hold employment by reason of: death, injury, ill-health or disability;
retirement with the agreement of the Group; redundancy; the participant’s employing Company being transferred to an entity which is not a Group member; transfer of undertaking; or any
other reason at the Committee’s discretion.
Termination Policy
Executive Directors will be entitled to receive salary and benefits during the notice period, which may be paid ‘in lieu’ of all or part of any
period of notice. Payments may be made as either a lump sum or in equal monthly instalments until the end of the notice period at the
discretion of the Company and Executive Directors will be expected to mitigate their loss.
The Committee will seek to ensure that there are no unjustified payments for failure. There are no entitlements to payments of any sort
in the event that for cause an Executive Director’s employment is summarily terminated. In the event that an Executive Director is given
notice of termination of employment within twelve months of any change in control of the Company, he/she will be given not less than
twelve month’s written notice and the same arrangements for receiving salary and benefits during this period will apply as described
above.
The Committee may authorise payments for statutory entitlements in the event of termination, reasonable settlement of potential legal
claims, and payment of reasonable reimbursement of professional fees in connection with such agreements.
81
CORPORATE GOVERNANCE
Policy for Chairman and Non-Executive Directors
The Non-Executive Directors, including the Chairman, do not have service contracts and are appointed for an indefinite term. Non-Executive
Directors will not be entitled to compensation on termination of their directorship, no matter what the reason for termination. The Directors
are subject to annual re-election at the AGM. Non-Executive Directors’ letters of appointment are available to view at the Company’s
registered office.
Non-Executive Directors do not receive benefits from the Company and they are not eligible to join the Company’s pension scheme
or participate in any bonus or share incentive plans. Where specific cash or share arrangements are delivered to the Chairman or Non-
Executive Directors, these will not include share options or any other performance related elements. Any reasonable expenses that they
incur in the furtherance of their duties are reimbursed by the Company (including any tax liability thereon).
Annual remuneration report continued
PURPOSE AND LINK TO STRATEGY OPERATION FEE LEVELS
To attract and retain Non-Executive
Directors of the required calibre by
offering market competitive fees.
The Chairman is paid a single annual all-
inclusive fee for all Board responsibilities.
Non-Executive Directors receive a basic annual
Board fee. Additional fees may be payable
for additional Board responsibilities such as
Chairmanship of a Committee or the role of
Senior Independent Director.
The Chairman’s fee is determined by the
Committee, and fees to Non-Executive Directors
are determined by the Board. Fees are reviewed
periodically, considering time commitment,
scope and responsibilities, and appropriate
market data.
Expenses incurred in the performance of
non-executive duties for the Company may be
reimbursed or paid for directly by the Company,
including any tax due thereon.
Fee increases are typically expected to be
in line with wider employee rises.
In exceptional circumstances (including,
but not limited to, material misalignment
with the market or a change in the
complexity, responsibility or time
commitment required to fulfil the role) the
Board may make appropriate adjustments
to fee levels to ensure they remain market
competitive and fair to the Director.
The maximum annual aggregate fee for
all Non-Executive Directors will be within
the limit set out in the Company’s Articles
ofAssociation.
Non-Executive Directors’ shareholdings (audited)
The table below shows the interests of the Non-Executive Directors and connected persons in shares (owned outright or vested) as at
31December 2021. There have been no changes in Directors’ interests in the period between 31 December 2021 and 24 February 2022.
Shares owned outright
Robert Hingley 4,870
Robert Laing
1
12,300
Mark Bridgeman
2
4,513
Tim Bond —
Claire Finn —
Clare Askem —
Pars Purewal —
1 Robert Laing retired from the Board at the AGM in April 2021.
2 Interests of connected persons in addition to Mark Bridgeman’s beneficial holding – 25,620.
lawdebenture.com
82
CORPORATE GOVERNANCE
Annual remuneration report continued
Non-Executive Directors
Salary/fees
2021
Total
2021
Salary/fees
2020
Total
2020
Robert Hingley £87,550 £87,550 £87,550 £87,550
Robert Laing* £13,727 £13,727 £50,985 £50,985
Mark Bridgeman £56,650 £56,650 £56,650 £56,650
Tim Bond £45,320 £45,320 £45,320 £45,320
Claire Finn £49,547 £49,547 £46,237 £46,237
Clare Askem £25,275 £25,275 — —
Pars Purewal £2,092 £2,092 — —
* Robert Laing retired from the Board at the AGM in April 2021.
Single total figure of remuneration for Non-Executive Directors (audited)
The table below sets out the single figure for the total remuneration received by each Non-Executive Director for the year ended
31December 2021 and the prior period:
Non-Executive Director fees
For 2022, the fees for the Chairman and Non-Executive Directors have been increased in line with inflation:
Fee
Fees effective
1 April 2022
Fees effective
1 January 2021 % change
Chairman fee £92,000 £87,550 5%
Non-Executive Director base fee £47,600 £45,320 5%
Additional fee for Chairman of Audit Committee £5,950 £5,665 5%
Additional fee for Chairman of Remuneration Committee £5,950 £5,665 5%
Additional fee for oversight of workforce engagement £5,950 £5,665 5%
Statement of shareholder voting at the Company’s AGM
The table below sets out the results of the most recent shareholder votes on the Annual Remuneration Report at the AGM on 7 April 2021.
The Remuneration Policy was last approved by shareholders at the Company’s annual general meeting held on 7 April 2020 at the end
of which it received 30,240,887 votes in favour (97.65%), 728,373 votes against (2.35%) and 250,424 votes were withheld. The full policy
is contained in the Company’s annual report and accounts for the year ended 31 December 2019, which may be found at https://www.
lawdebenture.com/investment-trust/shareholder-information/annual-reports-and-half-yearly-reports.
Percentage of votes cast Number of votes cast
For Against For Against Withheld
1
2020 Annual Remuneration Report 97.21 2.79 28,152,740 809,105 284,053
1 A vote withheld is not a vote in law and is not counted in the calculation of the proportion of votes cast for and against a resolution.
By order of the Board
Claire Finn
Chair, Remuneration Committee
24 February 2022
83
FINANCIAL STATEMENTS
Photo credit: Amanda Hartley-Denton
lawdebenture.com
84
FINANCIAL STATEMENTS
Independent auditor’s report
to the Members of The Law Debenture Corporation p.l.c.
Report on the audit of the financial statements
1. Opinion
In our opinion:
• the financial statements of The Law Debenture Corporation p.l.c. (the ‘Company’) and its subsidiaries (the ‘Group’) give a true
and fair view of the state of the Group’s and of the Company’s affairs as at 31 December 2021 and of the Group’s profit for the
year then-ended;
• the Group financial statements have been properly prepared in accordance with United Kingdom adopted international
accounting standards and International Financial Reporting Standards (IFRSs) as issued by the International Accounting
Standards Board (IASB);
• the Company financial statements have been properly prepared in accordance with United Kingdom adopted international
accounting standards and as applied in accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
• the group income statement;
• the group statement of comprehensive income;
• the group and Company statements of financial position;
• the group and Company statements of changes in equity;
• the group statement of cash flows; and
• the related notes 1 to 28.
The financial reporting framework that has been applied in the
preparation of the group financial statements is applicable law,
United Kingdom adopted international accounting standards and
IFRSs as issued by the IASB. The financial reporting framework
that has been applied in the preparation of the parent company
financial statements is applicable law and United Kingdom
adopted international accounting standards and as applied in
accordance with the provisions of the Companies Act 2006.
2. Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report.
We are independent of the Group and the Company in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public interest
entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The non-audit services provided to
the Group and Company for the year are disclosed in note 3 to the financial statements. We confirm that we have not provided any non-
audit services prohibited by the FRC’s Ethical Standard to the Group or the Company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
85
Independent auditor’s report continued
4. Conclusions relating to going concern
In auditing the financial statements, we have concluded that
the directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Our evaluation of the directors’ assessment of the Group’s and
Company’s ability to continue to adopt the going concern basis of
accounting included:
• assessing the Group’s financial position, including the liquidity
and size of its investment portfolio, as well as the size, nature
and terms of its financing facilities;
• assessing the Directors’ considerations regarding whether
they consider it appropriate to adopt the going concern basis
ofaccounting;
• assessing the relevance and reliability of underlying data and
key assumptions, such as cash flows and liquidity assumptions
used in the prepared forecasts;
• evaluating management’s plans for future actions in relation to
their going concern assessment;
• assessing the appropriateness of the going concern disclosures
in the financial statements; and
• reviewing management’s going concern paper for
reasonableness.
Based on the work we have performed, we have not identified
any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Group’s and Company’s ability to continue as a going concern
for a period of at least twelve months from when the financial
statements are authorised for issue.
In relation to the reporting on how the Group has applied the UK
Corporate Governance Code, we have nothing material to add
or draw attention to in relation to the directors’ statement in the
financial statements about whether the directors considered it
appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with
respect to going concern are described in the relevant sections of
this report.
5. Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had
the greatest effect on: the overall audit strategy, the allocation of
resources in the audit; and directing the efforts of the engagement
team.
These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these
matters.
3. Summary of our audit approach
Key audit matters The key audit matters that we identified in the current year were:
• valuation and existence of investments;
• completeness, accuracy and cut-off of independent professional services fees; and
• accounting for the acquisition of Konexo UK’s company secretarial business.
Materiality The materiality that we used for the Group financial statements was £8.49m which was determined on
the basis of 1% of net assets.
Scoping We audited 100% of the Group’s investment portfolio, 74% of the Group’s revenue, 97.2% of the Group’s
profit before tax, 99.3% of the Group’s total assets and 90.4% of the Group’s net assets.
Audit work to respond to the risks of material misstatement identified was performed directly by the
group audit engagement team.
FINANCIAL STATEMENTS
lawdebenture.com
86
FINANCIAL STATEMENTS
Independent auditor’s report continued
5.1. Valuation and existence of investments
Key audit matter description The investments of the Group of £992.5m are key to its performance and account for the majority of
the total assets, 90.8% at 31 December 2021.
Quoted investments are valued at their fair value, which is represented by the market bid price. Please
see the accounting policy in note 1 and note 14.
Investments listed on recognised exchanges are valued at the closing bid price at the year end.
There is a risk that investments within the portfolio may not be actively traded and the prices quoted
may not be reflective of fair value.
Additionally, there is a risk the investment assets recorded may not represent property of the Company.
There is a risk that the investment valuation and investment existence of the Group can be
manipulated by applying an incorrect share price and number of shares owned. This could result in
material misstatement of the net asset value of the Group.
How the scope of our audit
responded to the key audit
matter
We have performed the following procedures to test the valuation and existence of investments at
31December 2021:
• obtained an understanding of the relevant controls over valuation and ownership of quoted
investments;
• agreed 100% of the Company’s investment portfolio at the year-end to confirmations received
directly from the custodian;
• independently agreed 100% of the bid prices of quoted investments on the investment ledger at
year end to closing bid prices published by an independent pricing source;
• assessed the liquidity of a sample of the holdings at year-end by comparing the holding size to the
shares traded after the year end to determine if the valuation is reflective of quoted prices in an
active market;
• made enquiries of the manager and directors regarding their assessment of the portfolio pricing
and liquidity; and
• reviewed the completeness and appropriateness of disclosures in relation to investments.
Key observations Based on the work performed we concluded that the valuation and existence of investments is
appropriate.
87
Independent auditor’s report continued
FINANCIAL STATEMENTS
5.2. Completeness, accuracy, and cut-off of independent professional services fees
Key audit matter description Independent professional services revenue consists of fees receivable from the provision of services
including, but not limited to:
• pension trustee and governance services;
• corporate trustee services;
• corporate services (such as corporate secretarial and accounting);
• service of process; and
• whistleblowing services.
Fees are manually calculated and recorded and are performed differently across the various service
lines within the Group, increasing the risk of misstatement. The accounting policy for revenue
recognition is detailed in Note 1 to the financial statements, whilst further details of revenue earned
from IPS are detailed in Note 6.
Fees of £49.5m were recorded for the year-ended 31 December 2021.
The fees require the accurate implementation of client contracts, as well as appropriate accounting
treatment in line with IFRS 15 ‘Revenue from contracts with customers’.
There is a potential risk of fraud associated with the accuracy of revenue due to this balance’s
importance to stakeholders and link to long-term incentives. Additionally, we note that inaccurate
or incomplete revenue could have a significant impact on the Group’s earnings per share. Given the
highly manual processes involved in accounting for this revenue, we consider it to be a key audit
matter.
How the scope of our audit
responded to the key audit
matter
We have performed the following procedures to test the completeness, accuracy and cut-off of
independent professional services fees for the period:
• obtained an understanding of the relevant controls over revenue earned;
• independently agreed a sample of fees to signed client agreements, sales invoices and bank
receipts. Where amendments were made to client agreements, we evaluated whether these had
been recorded accurately and timely;
• from an independent source, we also assessed whether revenue for a sample of clients was correctly
recorded; and
• reviewed revenue recorded either side of the year-end to assess whether the revenue has
been accounted for in the correct period and assessed for compliance with IFRS 15 for revenue
recognition criteria.
Key observations Based on the work performed, we concluded that the completeness, accuracy, and cut-off of
independent professional service fees is appropriate.
lawdebenture.com
88
FINANCIAL STATEMENTS
Independent auditor’s report continued
5.3. Accounting for the acquisition of Konexo UK’s company secretarial business
Key audit matter description On 29 January 2021, the Group completed an acquisition of the company secretarial business (CSS)
of Konexo UK, a division of Eversheds Sutherland (International) LLP. The total consideration for the
acquisition was £20 million, paid in cash.
Upon acquisition, the Group recognised goodwill of £17.0m and £3.0m of intangible assets.
No impairment expense has been recognised in respect of goodwill in the period.
Accounting for the acquisition requires judgement in correctly determining and subsequently
allocating the purchase price in accordance with IFRS 3 ‘Business Combinations’. On acquisition
management are also required to identify and determine the fair value of intangibles assets acquired
in the business combination. The calculation of the fair value is inherently complex and subject to
estimation and complex judgements. The goodwill arising from the acquisition must also be assessed
for potential impairment at the acquisition date.
The accounting policy for the valuation of goodwill and intangible assets, including management’s
sensitivity analyses, is detailed in note 10 to the financial statements.
How the scope of our audit
responded to the key audit
matter
We performed the following procedures to test the accounting for the acquisition of Konexo UK’s
company secretarial business:
• reviewed the purchase agreement to assess whether all elements of the purchase price have been
accounted for appropriately;
• evaluated the accounting paper prepared by management with respect to the recognition
and measurement of goodwill and intangible assets, with reference to the requirements of the
applicable accounting standards, and assessed whether the approach, rationale and conclusions
reached were reasonable and supportable;
• involved internal valuation specialists in assessing management’s assumptions used to calculate the
valuation of the intangible assets and resultant goodwill at the acquisition date;
• assessed management’s analysis of indicators of impairment of the acquired assets, including the
resulting goodwill balances, assessing whether any impairment was required at the acquisition
date; and
• reviewed all associated disclosures for appropriateness.
Key observations Based on the work performed we concluded that the accounting for the acquisition of Konexo UK’s
company secretarial business is appropriate.
89
FINANCIAL STATEMENTS
Photo credit: Jayne Pocock
Independent auditor’s report continued
6. Our application of materiality
6.1. Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions
of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work
and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements Company financial statements
Materiality £8.49m £7.64m
Basis for determining
materiality
1% of net assets as at the year end. Company materiality equates to 0.84% of
net assets, which is capped at 90% of group
materiality.
Rationale for the benchmark
applied
Net assets has been chosen as a benchmark as
it is considered the most relevant benchmark for
investors and is a key driver of shareholder value.
6.2. Performance materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions
of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work
and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements Company financial statements
Performance materiality 70% of Group materiality 70% of Company materiality
Basis and rationale for
determining performance
materiality
In determining performance materiality, we considered the following factors:
• our understanding of the entity, its environment and the investment company sector;
• the quality of the entity’s internal controls over financial reporting; and
• the low number of corrected and uncorrected misstatements identified in prior periods.
6.3. Error reporting threshold
We agreed with the Audit and Risk Committee that we would report to the Committee all audit differences in excess of £0.42m, as well
as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit and Risk
Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
NAV £878.8m
NAV
Group materiality
Group materiality
£8.5m
Component materiality
range £3.0m to £7.6m
Audit and Risk
Committee reporting
threshold £0.4m
lawdebenture.com
90
FINANCIAL STATEMENTS
Independent auditor’s report continued
7. An overview of the scope of our audit
7.1. Identification and scoping of components
The organisation is headquartered and operates principally out of the UK, but also operates overseas subsidiaries in United Kingdom
Ireland, Hong Kong, Cayman Islands, Channel Islands and the United States.
In determining the scope of work to be performed on specific components of the group, we considered each entity with reference to
both quantitative and qualitative factors. Our quantitative assessment was primarily based on each entity’s profit before tax and revenue,
though we also considered the overall coverage obtained. For qualitative factors, our assessment included current-year events and any
significant risks or management interest, including management’s strategy for the group.
Based on that assessment, we performed a full scope audit on the Company, and specified audit procedures on four of the Company’s
subsidiaries.
All other subsidiaries were subject to analytical review procedures.
These four entities plus the parent represent the principal operating companies and account for 103% of the Group’s net assets, 74% of the
Group’s revenue and 97.2% of the Group’s profit before tax. Our audit work at the four subsidiaries was executed at levels of component
materiality applicable to each individual entity which were lower than Group materiality and ranged from £2.97 million to £4.16 million.
7.2. Our consideration of the control environment
We identified that the following key IT systems were relevant to the audit:
• Sage Intacct, which is the ERP system used across all components of the Group and is used to record underlying transactions within
theGroup;
• BQE Core, which is used for recording key customer data and billing in respect of the IPS business; and
• Investment NAV, an in-house tool which is used in recording the NAV of the investment portfolio.
We involved IT specialists and obtained an understanding of controls related to these IT systems.
Furthermore, as noted by the Audit and Risk Committee on page 66, the Group’s control environment is undergoing a programme
of change and improvement. Therefore, considering the developing nature of the overall control environment, we concluded that a
fully substantive approach was appropriate in all aspects of the audit for the year ended 31 December 2021, with the exception of the
investment income operating cycle, where we placed reliance on controls.
5%
33%
62%
21%
36%
43%
1%
10%
89%
Full audit scope
Specified audit procedures
Review at group level
Full audit scope
Specified audit procedures
Review at group level
Full audit scope
Specified audit procedures
Review at group level
Profit
before tax
Net assetsRevenue
91
Independent auditor’s report continued
7.3. Our consideration of climate-related risks
In planning our audit, we have considered the potential impact of climate change on the Group’s business and its financial statements.
The Group continues to develop its assessment of the potential impacts of environmental, social and governance (“ESG”) related risks,
including climate change, as outlined on page 49.
As a part of our audit, we have obtained management’s climate-related risk assessment and held discussions with the Group ESG
Manager to understand the process of identifying climate-related risks, the determination of mitigating actions and the impact on the
Group’s financial statements.
We performed our own qualitative risk assessment of the potential impact of climate change on the Group’s account balances and classes
of transactions and did not identify any additional risks of material misstatement.
8. Other information
The other information comprises the information included in the annual report, other than the financial statements and our auditor’s
report thereon. The directors are responsible for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our
report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with
the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to
a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a
material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
9. Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary
to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the Company’s ability to continue as
a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.
FINANCIAL STATEMENTS
10. Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditor’s report.
lawdebenture.com
92
FINANCIAL STATEMENTS
11. Extent to which the audit was considered capable of detecting irregularities,
including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud is detailed below.
11.1. Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and
regulations, we considered the following:
• the nature of the industry and sector, control environment and business performance including the design of the Group’s remuneration
policies, key drivers for directors’ remuneration, bonus levels and performance targets;
• results of our enquiries of management, internal audit, and the Audit and Risk Committee about their own identification and
assessment of the risks of irregularities;
• any matters we identified having obtained and reviewed the Group’s documentation of their policies and procedures relating to:
• identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-
compliance;
• detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
• the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations;
• the matters discussed among the audit engagement team and relevant internal specialists, including tax, valuations, pensions and IT
specialists regarding how and where fraud might occur in the financial statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and
identified the greatest potential for fraud in the following areas:
• valuation and existence of investments; and
• completeness, accuracy, and cut-off of independent professional service fees.
In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of management
override.
We also obtained an understanding of the legal and regulatory frameworks that the Group operates in, focusing on provisions of those
laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements. The
key laws and regulations we considered in this context included UK Companies Act, Listing Rules, pensions legislation, tax legislation.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but
compliance with which may be fundamental to the Group’s ability to operate or to avoid a material penalty. These included the Group’s
operating licence and regulatory solvency requirements and matters regulated by the Financial Conduct Authority (the Group’s lead
regulator).
11.2. Audit response to risks identified
As a result of performing the above, we identified (i) valuation and existence of investments and (ii) completeness, accuracy and cut-
off of independent professional services fees as key audit matters related to the potential risk of fraud. The key audit matters section
of our report explains the matters in more detail and also describes the specific procedures we performed in response to those key
auditmatters.
In addition to the above, our procedures to respond to risks identified included the following:
• reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of
relevant laws and regulations described as having a direct effect on the financial statements;
• enquiring of management, the Audit and Risk Committee and in-house legal counsel concerning actual and potential litigation
andclaims;
Independent auditor’s report continued
93
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material
misstatement due to fraud;
• reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence with
HMRC, FCA and other regulators globally; and
• in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including
internal specialists, and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
12. Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the strategic report and the directors’ report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
• the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and the Company and their environment obtained in the course of
the audit, we have not identified any material misstatements in the strategic report or the directors’ report.
13. Corporate Governance Statement
The Listing Rules require us to review the directors’ statement in relation to going concern, longer-term viability and that part of the
Corporate Governance Statement relating to the Group’s compliance with the provisions of the UK Corporate Governance Code specified
for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial statements and our knowledge obtained during the audit:
• the directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any
material uncertainties identified set out on page 57;
• the directors’ explanation as to its assessment of the Group’s prospects, the period this assessment covers and why the period is
appropriate set out on page 55;
• the directors’ statement on fair, balanced and understandable set out on page 62;
• the board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 42;
• the section of the annual report that describes the review of effectiveness of risk management and internal control systems set
out on pages 65 and 66; and
• the section describing the work of the Audit and Risk Committee set out on pages 64 to 66.
Independent auditor’s report continued
FINANCIAL STATEMENTS
lawdebenture.com
94
FINANCIAL STATEMENTS
14. Matters on which we are required to report by exception
14.1. Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from
branches not visited by us; or
• the Company financial statements are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
14.2. Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’ remuneration have not
been made or the part of the directors’ remuneration report to be audited is not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
15. Other matters which we are required to address
15.1. Auditor tenure
We were appointed by the Audit and Risk Committee on 1 October 2021 to audit the financial statements for the year ending 31
December 2021 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and
reappointments of the firm is 1 year, covering the year ending 31 December 2021.
15.2. Consistency of the audit report with the additional report to the Audit and Risk Committee
Our audit opinion is consistent with the additional report to the Audit and Risk Committee we are required to provide in accordance
with ISAs (UK).
16. Use of our report
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our
audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in
an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone
other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
As required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency Rule (DTR) 4.1.14R, these financial
statements form part of the European Single Electronic Format (ESEF) prepared Annual Financial Report filed on the National Storage
Mechanism of the UK FCA in accordance with the ESEF Regulatory Technical Standard ((‘ESEF RTS’). This auditor’s report provides no
assurance over whether the annual financial report has been prepared using the single electronic format specified in the ESEF RTS.
Andrew Partridge (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
Glasgow, United Kingdom
24 February 2022
Independent auditor’s report continued
FINANCIAL STATEMENTS
95
Photo credit: Natalie Winterfrost
lawdebenture.com
96
FINANCIAL STATEMENTS
Group income statement
as at 31 December 2021
2021 2020
Notes
Revenue
£000
Capital
£000
Total
£000
Revenue
£000
Capital
£000
Total
£000
UK dividends 21,426 — 21,426 14,794 — 14,794
UK special dividends 250 — 250 458 — 458
Overseas dividends 4,583 — 4,583 2,685 — 2,685
Overseas special dividends — — — — — —
Total dividend income 26,259 — 26,259 17,937 — 17,937
Interest income 5 — — — 89 — 89
Independent professional services fees 6 49,513 — 49,513 38,898 — 38,898
Other income 551 — 551 219 — 219
Total income 76,323 — 76,323 57,143 — 57,143
Net gain/(loss) on investments held at fair
value through profit or loss 2 — 121,170 121,170 — (16,354 ) (16,354 )
Total income and capital gains/(losses) 76,323 121,170 197,493 57,143 (16,354 ) 40,789
Cost of sales (8,037 ) — (8,037 ) (4,405 ) — (4,405 )
Administrative expenses 3 (31,680 ) (2,456 ) (34,136 ) (24,879 ) (2,216 ) (27,095 )
Provision for onerous contracts — — — 118 — 118
Operating profit/(loss) 36,606 118,714 155,320 27,977 (18,570 ) 9,407
Finance costs
Interest payable 5 (1,319 ) (3,958 ) (5,277 ) (1,320 ) (3,958 ) (5,278 )
Profit/(loss) before taxation 6 35,287 114,756 150,043 26,657 (22,528 ) 4,129
Taxation 7 (1,210 ) — (1,210 ) (1,178 ) — (1,178 )
Profit/(loss) for the year 6 34,077 114,756 148,833 25,479 (22,528 ) 2,951
Return per ordinary share (pence) 28.09 94.60 122.69 21.56 (19.06 ) 2.50
Diluted return per ordinary share (pence) 28.08 94.57 122.66 21.56 (19.06 ) 2.50
Group statement of comprehensive income
as at 31 December 2021
2021 2020
GROUP
Revenue
£000
Capital
£000
Total
£000
Revenue
£000
Capital
£000
Total
£000
Profit/(loss) for the period 34,077 114,756 148,833 25,479 (22,528 ) 2,951
Foreign exchange gain on translation
of foreign operations — 654 654 — 105 105
Pension actuarial gains/(losses) 8,500 — 8,500 (6,500 ) — (6,500 )
Taxation on pension (1,615 ) — (1,615 ) 1,235 — 1,235
Other comprehensive income/(loss) for year 6,885 654 7,539 (5,265 ) 105 (5,160 )
Total comprehensive income/(loss) for the year 40,962 115,410 156,372 20,214 (22,423 ) (2,209 )
97
Statement of financial position
as at 31 December 2021
GROUP COMPANY
Assets
Notes
2021
£000
2020
£000
2021
£000
2020
£000
Non-current assets
Goodwill 11 18,973 1,914 — —
Property, plant and equipment 12 1,974 1,088 — —
Right-of-use assets 23 5,542 5,413 — —
Other intangible assets 13 3,516 619 16 16
Investments held at fair value through profit or loss 14 992,478 812,297 992,378 812,083
Investments in subsidiary undertakings 14 — — 61,283 61,283
Retirement benefit asset 24 6,577 — — —
Deferred tax assets 7 — 771 — —
Total non-current assets 1,029,060 822,102 1,053,677 873,382
Current assets
Trade and other receivables 15 20,466 16,664 57,581 4,185
Contract assets 15 6,611 5,994 583 1,889
Cash and cash equivalents 16 35,880 41,762 25,507 32,098
Total current assets 62,957 64,420 83,671 38,172
Total assets 1,092,017 886,522 1,137,348 911,554
Current liabilities
Amounts owed to subsidiary undertakings — — 87,631 61,698
Trade and other payables 17 29,329 27,405 13,447 13,075
Lease liability 23 287 — — —
Corporation tax payable 925 238 — —
Deferred tax liability 7 1,060 — — —
Other taxation including social security 1,543 860 850 793
Contract liabilities 17 5,620 4,367 34 16
Total current liabilities 38,764 32,870 101,962 75,582
Non-current liabilities
Long-term borrowings 21 164,245 114,201 124,586 74,569
Contract liabilities 17 4,054 4,011 125 125
Lease liability 23 6,117 5,606 — —
Retirement benefit liability — 2,840 — —
Total non-current liabilities 174,416 126,658 124,711 74,694
Total net assets 878,837 726,994 910,675 761,278
Equity
Called up share capital 18 6,145 5,923 6,145 5,923
Share premium 41,865 9,277 41,865 9,277
Own shares 18 (3,215 ) (1,461 ) — —
Capital redemption 8 8 8 8
Translation reserve 2,656 2,002 — —
Capital reserves 19 789,423 674,591 835,293 733,189
Retained earnings 41,955 36,654 27,364 12,881
Total equity 878,837 726,994 910,675 761,278
Total equity pence per share 717.86 615.19
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 £151,510,000 (2020: gain £5,658,000). Approved and authorised for issue by the Board on 24 February 2022 and signed on its
behalf by:
R. Hingley, Chairman | D. Jackson, Chief Executive Officer
The Law Debenture Corporation p.l.c. registered number 00030397.
FINANCIAL STATEMENTS
lawdebenture.com
98
Group statement of changes in equity
as at 31 December 2021
GROUP
Called
up share
capital
£000
Share
premium
£000
Own
shares
£000
Capital
redemption
£000
Translation
reserve
£000
Capital
reserves
£000
Retained
earnings
£000
Total
£000
Balance at 1 January 2021 5,923 9,277 (1,461 ) 8 2,002 674,591 36,654 726,994
Profit/(loss) for the period — — — — — 114,756 34,077 148,833
Foreign exchange — — — — 654 76 (738 ) (8 )
Actuarial gain on pension
scheme (net of tax) — — — — — — 6,885 6,885
Total comprehensive profit
for the period — — — — 654 114,832 40,224 155,710
Issue of shares 222 32,588 — — — — — 32,810
Movement in own shares — — (1,754 ) — — — — (1,754 )
Dividend relating to 2020 — — — — — — (9,614 ) (9,614 )
Dividend relating to 2021 — — — — — — (25,309 ) (25,309 )
Total equity at
31 December 2021 6,145 41,865 (3,215 ) 8 2,656 789,423 41,955 878,837
Capital reserves comprises realised and unrealised gains on investments held at fair value through profit or loss (see note 19).
FINANCIAL STATEMENTS
GROUP
Called
up share
capital
£000
Share
premium
£000
Own
shares
£000
Capital
redemption
£000
Translation
reserve
£000
Capital
reserves
£000
Retained
earnings
£000
Total
£000
Balance at 1 January 2020 5,921 9,147 (1,332 ) 8 1,897 697,119 62,512 775,272
Profit/(loss) 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 )
Total equity at
31 December 2020 5,923 9,277 (1,461 ) 8 2,002 674,591 36,654 726,994
99
FINANCIAL STATEMENTS
Statement of changes in equity
as at 31 December 2021
COMPANY
Share
capital
£000
Share
premium
£000
Own
shares
£000
Capital
redemption
£000
Translation
reserve
£000
Capital
reserves
£000
Retained
earnings
£000
Total
£000
Balance at 1 January 2021
5,923 9,277 — 8 — 733,189 12,881 761,278
Profit/(loss) for the period
— — — — — 114,756 36,754 151,510
Total comprehensive profit
for the period — — — — — 114,756 36,754 151,510
Issue of shares 222 32,588 — — — — — 32,810
Dividend relating to 2020 — — — — — — (9,614) (9,614)
Dividend relating to 2021 — — — — — (12,652) (12,657) (25,309)
Total equity at
31 December 2021 6,145 41,865 — 8 — 835,293 27,364 910,675
Capital reserves comprises realised and unrealised gains on investments held at fair value through profit or loss (see note 19).
COMPANY
Share
capital
£000
Share
premium
£000
Own
shares
£000
Capital
redemption
£000
Translation
reserve
£000
Capital
reserves
£000
Retained
earnings
£000
Total
£000
Balance at 1 January 2020
5,921 9,147 — 8 — 755,717 30,767 801,560
Profit/(loss) for the period
— — — — — (22,528) 28,186 5,658
Total comprehensive profit
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)
Total equity at
31 December 2020 5,923 9,277 — 8 — 733,189 12,881 761,278
lawdebenture.com
100
Statements of cash flows
for the year ended 31 December 2021
GROUP COMPANY
2021
£000
2020
£000
2021
£000
2020
£000
Operating activities
Operating profit before interest payable and taxation 155,320 9,406 157,077 10,843
Losses/(gains) on investments (121,170 ) 18,570 (121,170) 18,570
Non-cash dividends — — (10,000)
Depreciation of property, plant and equipment 220 37 — —
Depreciation of right-of-use assets 858 1,179 — —
Interest on lease liability — 49 — —
Amortisation of intangible assets 490 59 — —
Loss on sale of fixed assets — (15 ) — —
Decrease/(increase) in receivables (4,419 ) (9,007 ) 2,139 (3,377)
(Decrease)/increase in payables 1,920 14,926 2,920 11,922
Transfer from capital reserves — (1,341 ) — (1,341)
Normal pension contributions in excess of cost (940 ) (960 ) — —
Cash generated from operating activities 32,279 32,903 40,966 26,617
Taxation (307 ) (1,103 ) — —
Operating cash flow 31,972 31,800 40,966 26,617
Investing activities
Acquisition of property, plant and equipment (1,075 ) (1,079 ) — —
Expenditure on intangible assets — (574 ) — —
Cash consideration transferred in relation to acquisition (18,214 ) — — —
Purchase of investments (200,096 ) (173,831 ) (200,096) (173,831)
Sale of investments 140,440 166,908 140,327 166,908
Goodwill relating to subsidiary undertakings — 19 — —
Amounts receivable from intercompany — — (55,935) —
Cash flow from investing activities (78,945 ) (8,557 ) (115,704) (6,923)
Financing activities
Intercompany funding — — 25,933 17,708
Interest paid (5,277 ) (5,278 ) (5,567) (5,206)
Dividends paid (34,923 ) (46,071 ) (34,923) (46,071)
Payment of lease liability (371 ) (1,163 ) — —
Proceeds of increase in share capital 32,810 132 32,810 132
Proceeds of issuance of long-term borrowings 50,000 — 50,000 —
Purchase of own shares (1,754 ) (129 ) — —
Net cash flow from financing activities 40,485 (52,509 ) 68,253 (33,437)
Net increase/(decrease) in cash and cash equivalents (6,488 ) (29,266 ) (6,485) (13,743)
Cash and cash equivalents at beginning of period 41,762 71,236 32,098 46,128
Foreign exchange (losses)/gains on cash and cash equivalents 606 (208 ) (106) (287)
Cash and cash equivalents at end of period 35,880 41,762 25,507 32,098
NB: Total cash received in relation to dividend income was:
Group: £27,550k (2020: £18,206k)
Company: £42,500k (2020: £31,915k)
FINANCIAL STATEMENTS
101
FINANCIAL STATEMENTS
Notes to the accounts
for the year end 31 December 2021
1. Summary of significant accounting policies
General information
registered in England and Wales. These financial statements are presented in sterling, which is the currency of the primary economic
environment in which the Group operates and are rounded to the nearest thousand. Foreign operations are included. The address of the
registered office is given on page 136. The Group’s operations and its principal activities are as an investment trust and the provider of
Guarantees issued to subsidiaries
For the year ending 31 December 2021 the following subsidiaries of the Company were entitled to exemption from audit under s479A
of the Companies Act 2006 relating to subsidiary companies. The Company has given a statement of guarantee under s479C of the
Companies Act 2006, whereby the Company guarantees all outstanding liabilities to which the respective subsidiary companies are
subject to as at 31 December 2021:
Country of incorporation Registered number
Law Debenture Corporation (Deutschland) Limited UK 04019781
Law Debenture Governance Services Limited UK 07466833
LDC (NCS) Limited UK 07384180
Law Debenture Intermediary Corporation p.l.c. UK 01525148
Basis of preparation
The financial statements of The Law Debenture Corporation p.l.c. and the Group have been prepared in accordance with International
Accounting Standards (IASs) in conformity with the requirements of the Companies Act 2006 and in accordance with International
Financial Reporting Standards (IFRS) as adopted and endorsed by the UK.
The accounts have been prepared under the historical cost basis of accounting, modified to include the revaluation of investment at fair
value.
Where presentational guidance set out in the Statement of Recommended Practice: Financial Statements of Investment Trust Companies
and Venture Capital Trusts (issued in April 2021) (SORP) is consistent with the requirements of IFRS, the Directors have sought to prepare
the financial statements on a basis compliant with the recommendations of the SORP.
The Directors have considered the guidance of the UK Financial Reporting Council and events relating to the spread of Covid-19 and have
treated this as an in year event with due consideration given in preparing these financial statements.
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 twelve months from the date of approval of the financial statements.
The Directors have also considered the ongoing impact of Covid-19, across the Group, including cash flow forecasting, balance 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. 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 twelve 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.
Adoption of new and revised standards
There have been no new accounting standards implemented by the Group during the year and no revisions to accounting standards have
had a material impact on the Group’s financial statements.
lawdebenture.com
102
Notes to the accounts continued
for the year end 31 December 2021
1. Summary of significant accounting policies continued
Fair value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation
technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability
if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair
value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except
for share-based payment transactions that are within the scope of IFRS 2, leasing transactions that are within the scope of IFRS 16, and
measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS 2 or value in use in IAS 36.
Key sources of estimation uncertainty
The preparation of the financial statements requires the exercise of judgement both in application of accounting policies which are set
out below and in the selection of assumptions used in the calculation of estimates. These estimates and judgements are reviewed on
an ongoing basis and are continually evaluated based on historical experience and other factors. However, actual results may differ from
these estimates. There are no material accounting estimates. The critical judgement in relation to IFRS 10 is described below.
Critical accounting judgements
The consolidated financial statements incorporate the financial statements of The Law Debenture Corporation p.l.c. and entities controlled
by the Company (its subsidiaries and businesses) made up to the end of the financial period. Management has not applied the IFRS 10,
‘Consolidated Financial Statements’ investment entity exemption available and therefore the financial statements of the Law Debenture
Corporation p.l.c. and its subsidiaries continue to be consolidated.
The subsidiaries of the Group comprise the IPS trading companies and the IPS business has historically, and continues to be, managed,
and operated as an integrated business within the Group. In addition to the Investment Trust, The Law Debenture Corporation p.l.c Board
plays an active role in the oversight of the IPS business.
A judgement was therefore made by Management that the Company did not meet the criteria for the investment entity exemption,
on the basis that the IPS business was viewed by management and the Board as a distinct trading group, rather than as a portfolio
investment for the Company.
Basis of consolidation
The company controls an investment if all three of the following elements are present: power over the investee, exposure to variable
returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever
facts and circumstances indicate that there may be a change in any of these elements of control.
The assets, liabilities and contingent liabilities of subsidiaries and businesses are measured at their fair values at the date of acquisition.
Any excess consideration over the fair values of the identifiable net assets acquired is recognised as goodwill.
Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. The financial
statements of subsidiaries are adjusted, where necessary, to ensure the accounting policies used are consistent with those adopted by
theGroup.
Presentation of income statement and statement of comprehensive income
In order to better reflect the activities of an investment trust company and in accordance with the SORP, supplementary information
which analyses the income statement and statement of comprehensive income between items of a revenue and capital nature has been
presented. Additionally, the net revenue is the measure the Directors believe appropriate in assessing the Group’s compliance with certain
requirements set out in Sections 1158-1159 of the Corporation Tax Act 2010.
The allocation of investment trust finance costs and investment management fees between the revenue and the capital columns in the
income statement reflects the expected split of future returns between income and capital. The proportional split is:
• Revenue 25% (2020: 25%)
• Capital 75% (2020: 75%)
103
FINANCIAL STATEMENTS
Notes to the accounts continued
for the year end 31 December 2021
1. Summary of significant accounting policies continued
Segment reporting
Operating segments are components of an entity about which separate financial information is available that is evaluated regularly by
the Directors in deciding how to allocate resources and in assessing performance. The Group comprises two operating segments; the
investment portfolio and independent professional services business. This is consistent with internal reporting.
Foreign currencies
Transactions recorded in foreign currencies are translated into sterling at the exchange rate ruling on the date of the transaction.
Assets and liabilities denominated in foreign currencies at the reporting date are translated into sterling at the exchange rate ruling at that
date. Gains and losses on translation are included in profit or loss for the period, however exchange gains or losses on investments held at
fair value through profit or loss are included as part of their fair value gain or loss.
The assets and liabilities of overseas subsidiaries are translated at exchange rates prevailing on the reporting date. Income and expenses
of overseas subsidiaries are translated at the average exchange rates for the period. Exchange differences arising from the translation
of net investment in foreign subsidiaries are recognised in the statement of comprehensive income and transferred to the Group’s
translationreserve.
Property, plant and equipment and right-of-use assets
All property, plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly
attributable to the acquisition of the item. Depreciation is calculated using the straight-line method to allocate the cost over the assets’
estimated useful lives.
Right-of-use assets are measured at cost less accumulated depreciation. The carrying amount is adjusted for any re-measurement of the
lease liability.
Business combinations
Acquisitions of subsidiaries and businesses are accounted for using the acquisition method as at the acquisition date, which is the date on
which control is transferred to the Group. The consideration transferred in the acquisition is measured at the aggregate of fair values, at the
date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of
the acquiree. Any goodwill that arises is tested annually for impairment (refer to Goodwill section below). Any gain on a bargain purchase
is recognised in profit or loss immediately. Acquisition-related costs are recognised in profit or loss as incurred. Where applicable, any
contingent consideration payable is measured at fair value at the acquisition date. Subsequent changes in fair values are adjusted against
the cost of acquisition where they qualify as measurement period adjustments (which is subject to a maximum of one year). Changes in
the fair value of contingent consideration classified as equity are not recognised.
The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS3 ‘Business
Combinations’ are recognised at their fair value at the acquisition date, except where a different treatment is mandated by another
standard.
Office improvements over the remaining lease period – rental terms are for fixed periods of between 1 to 10 years
Furniture and equipment 3-10 years
Right-of-use assets over the remaining lease period – rental terms are for fixed periods of between 1 to 10 years
lawdebenture.com
104
Intangible assets
Computer software
Computer software is capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are
amortised over their estimated useful lives of between three and five years.
IT project costs
IT project costs have been capitalised that relate to the development of new internal software scheduled to be launched in 2021. It will be
depreciated on the commencement of its use, over the useful economic life of three years.
Goodwill
Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the
identifiable assets and liabilities of subsidiaries and businesses at the date of acquisition. Goodwill is initially recognised as an asset at cost
and is subsequently measured at cost less any accumulated impairment losses. Goodwill which is recognised as an asset is tested annually
for impairment. An impairment loss is recognised if the carrying amount of an asset or cash-generating unit (CGU) exceeds its recoverable
amount. Any impairment would be recognised in profit or loss and is not subsequently reversed.
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination and recognised separately to goodwill are initially recognised at their fair value at
the acquisition date and have finite useful lives. Following initial recognition, intangible assets are measured at cost less accumulated
amortisation and accumulated impairment losses (where applicable). The Group does not have intangible assets with indefinite
usefullives.
Customer relationships can arise on the acquisition of subsidiaries and businesses and represent the incremental value expected to be
gained as a result of the existing contracts transferred as part of the acquired business. These assets are amortised over the length of the
average length of the related contracts.
Amortisation is recognised in the income statement on a straight-line basis over their estimated useful lives. The estimated useful lives for
Customer Relationships is eight years.
For the newly acquired intangibles relating to business combinations, please see note 13.
Impairment of assets
The Group reviews the carrying amounts of its tangible and intangible assets (including goodwill) on a regular basis, and at a minimum at
each reporting date, to assess whether there is any indication of impairment loss, or whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. If any such indication exists, then the asset’s recoverable amount is estimated.
An impairment loss is recognised for the amount by which an asset’s carrying amount exceeds its recoverable amount.
Financial instruments
Investments
Listed and unlisted investments which comprise the investment trust portfolio, have been classified at fair value through profit or loss.
Purchases and sales of listed and unlisted investments are recognised on the date on which the Group commits to purchase or sell the
investment. Investments are initially recognised at fair value and transaction costs are expensed as incurred. Gains and losses arising from
listed and unlisted investments, as assets at fair value through profit or loss, are included in the income statement in the period in which
they arise. The Group has not taken the option to irrevocably designate any equity securities as fair value through other comprehensive
income. Transaction costs are expensed immediately.
The fair value of listed investments is based on quoted market prices at the reporting date. The quoted market price used is the bid
price. The fair value of unlisted investments is determined by the Directors with reference to the International Private Equity and Venture
Capital Valuation (IPEV) guidelines (December 2018).
Gains and losses on investments and direct transaction costs are analysed within the income statement as capital. All other costs of the
investment trust are treated as revenue items.
Notes to the accounts continued
for the year end 31 December 2021
1. Summary of significant accounting policies continued
105
FINANCIAL STATEMENTS
Notes to the accounts continued
for the year end 31 December 2021
Financial instruments continued
Trade receivables
Trade receivables are recognised initially at transaction price and subsequently measured at amortised cost less any provision for
impairment and expected credit losses, to ensure that amounts recognised represent the recoverable amount.
Trade payables
Trade payables are recognised at fair value and subsequently measured at amortised cost.
Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held with banks and other short-term highly liquid investments with original
maturities of three months or less, subject to insignificant changes in fair value.
Borrowings
Borrowings are recognised initially at fair value, which is generally the proceeds net of transaction costs incurred. The difference between
the proceeds net of transaction costs and the redemption value is recognised in the income statement over the term of the borrowings
using the effective interest rate method, so as to generate a constant rate of return on the amount outstanding.
Share capital
Ordinary shares are classified as equity. The ordinary shares of the Company which have been purchased by the Employee Share
Ownership Trust (ESOT) to provide share based payments to employees are valued at cost and deducted from equity.
Taxation
Current tax is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statement because it
excludes items of income or expense which are either never taxable or deductible or are taxable or deductible in other periods. The
Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the year end date.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets
and liabilities and their carrying amounts in the consolidated financial statements.
Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it
is probable that taxable profits will be available against which deductible temporary differences can be utilised.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the
Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the
foreseeable future.
The carrying amount of deferred tax assets is reviewed at each year end date and reduced to the extent that it is no longer probable
that sufficient taxable profits will be available to recover the asset.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is expected to be settled or the
asset is expected to be realised based on tax rates that have been enacted or substantively enacted at the year end date.
Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to do so and presented as a net number on
the face of the balance sheet.
Investment in subsidiaries
Investments in subsidiaries are carried at cost less provision for impairment.
1. Summary of significant accounting policies continued
lawdebenture.com
106
Revenue recognition
The Group recognises revenue from the following major sources.
Revenue is measured based on the consideration to which the Group expects to be entitled in a contract with a customer and excludes
amounts collected on behalf of third parties. The Group recognises revenue when it transfers control of a service to a customer.
Dividend income
Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established.
Stock lending
Stock lending revenue is accounted for on an accruals basis and shown in the revenue return based on amounts to which the Company
is entitled. The fees relating to the third party arranging the transaction are accounted for in Cost of Sales.
Interest income
Interest income is accrued on a time basis using the effective interest rate applicable.
Independent Professional Services fees
The Group has disaggregated the IPS revenue into various categories below which depict the nature, amount, timing, and uncertainty of
revenue and cash flows.
During the course of the year there has been no change to the Group’s application of IFRS 15. We continue to recognise revenue in line
with the discharge of our performance obligations and we apply this consistently across the Group.
Corporate services
Corporate services provide governance services and includes company secretarial services, structured finance, service of process and
Safecall. In service of process, the performance obligation is fulfilled at the point in time we are appointed as process agent for the client,
who is the contract counter party. In CSS, Structured Finance and Safecall the performance obligation is the provision of contracted
services.
The transaction price can include any combination of one-off acceptance fees, regular annual payments, and special fees for extra work.
Transactions are billed as a single payment at point of engagement or as on-going annual fees. Revenue is recognised over the period of
time it is taken to fulfil the contracted performance obligation.
For annual contracts such as the provision of company secretarial work, or a whistleblowing hotline, the substance of these performance
obligations is to “stand ready” to serve the customer and is satisfied over time with revenue recognised straight-line over the time lapsed.
If the contract is an acceptance fee, the revenue is recognised in-month as that is the obligation and performance is at that point in
time. If the contract is for training, revenue is recognised in the month the training took place as the obligation is fulfilled at that training
event.
Corporate trust
Contract terms are dealt with either in trust deeds or appointment letters. Revenue is recognised over the period of service where
amounts which are not recognised in the financial period are deferred. The majority of Group deferred revenue relates to corporate trust
business. Amounts are mostly billed and paid on an annual or quarterly basis. The corporate trust business is not adversely affected by
economic stress factors because in a downturn clients seek to restructure their debt arrangements.
The transaction price can include any combination of one-off acceptance fees, regular annual payments, and special fees for extra work,
and are recognised over the annual term or when the performance obligation is met.
The performance obligations are services provided in the creation of the trust or the structure and the obligations set out in the trust
deed or service agreement over the period for which the trust or structure will be in place.
Pensions
Pension trusts provide professional trustee and governance services to clients, typically on a fixed annual fee basis or a time cost basis.
The transaction price may be determined either by time billed or as an annual fixed fee.
The performance obligation is provision of the time of the pensions professionals and the transfer of the services is at that point of time.
Revenue is recognised in the accounting period in which the time has been recorded with amounts mostly billed and paid on a
quarterly basis. This means that revenue accrued at year end is invoiced in January the following year.
The cashflow associated with pensions are largely unimpacted by economic factors because if a client becomes distressed they still
deliver on their pensions governance requirements. There has been very limited history of bad debt write-off in the pensions business.
Notes to the accounts continued
for the year end 31 December 2021
1. Summary of significant accounting policies continued
107
Notes to the accounts continued
for the year end 31 December 2021
1. Summary of significant accounting policies continued
Employee benefits
Pension costs
The Group operates a defined benefit pension plan, which was closed to future accrual on 31 December 2016. The cost of providing
benefits under the plan is determined using the projected unit credit method, with independent actuarial calculations being
carried out at each year end date. Actuarial gains and losses are recognised in full in the period in which they occur through other
comprehensive income.
The asset recognised in the statement of financial position in respect of the defined benefit plan is the present value of the defined
benefit obligation at the year end date less the fair value of the plan assets.
In addition the Group operates defined contribution plans, where the cost recognised is the contributions paid in respect of the year.
Profit share schemes
The Group recognises provisions in respect of its profit share schemes when contractually obliged or when there is a past practice
that has created a constructive obligation.
Share based plans
The Group issues equity-settled share-based payments to certain employees. whereby the shares are deferred for a three-year
period. Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant
date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s
estimate of shares that will eventually vest and adjusted for the effects of non-market-based vesting conditions.
The Group also awards share options to executives. In 2021 the Group introduced a long-term performance incentive plan (LTIP) to
executives in addition to annual bonus following the completion of a required service period and is dependent on the achievement
of corporate performance and individual targets. Options are normally exercisable between 3 to 5 years from the date of grant for nil
consideration. Full details of this plan can be found in the Directors’ remuneration report.
Reserves
A description of each of the reserves follows:
Share premium
This reserve represents the difference between the issue price of shares and the nominal value of shares at the date of issue,
net of related issue costs.
Capital redemption
This reserve was created on the cancellation and repayment of the Company’s share capital.
Own shares
This represents the cost of shares purchased by the ESOT.
Capital reserves
The following are dealt with through this reserve:
• gains and losses on realisation of investments; and
• changes in fair value investments which are readily convertible to cash.
Retained earnings
Net revenue profits and losses of the Company and its subsidiaries and the fair value costs of share based payments which are revenue
in nature are dealt with in this reserve.
Translation reserve
This reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.
FINANCIAL STATEMENTS
lawdebenture.com
108
Leases
The Group determines at contract inception whether an arrangement contains a lease. Under IFRS 16, a contract is, or contains, a lease if
the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration.
The Group leases various office properties. Rental contracts are typically made for fixed periods of 1 to 10 years and lease terms are
negotiated on an individual basis.
All leases are accounted for by recognising a right-of-use asset and a lease liability except for:
• Leases of low value assets (under £5,000); and
• Leases with a duration of 12 months or less.
Lease liabilities are initially measured at the present value of the lease payments that are not paid at the commencement date, discounted
using the interest rate implicit in the lease. If that rate cannot be readily determined, the Group’s incremental borrowing rate is used.
Generally, the Group uses its incremental borrowing rate as the Group’s borrowing rate which was updated during the year following the
issuance of a further two debentures, lowering the rate to 3.966% (previously 4.589%). Where there has been a lease modification and/or a
new lease arrangement entered into, this rate has been applied.
The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payments made. It is
remeasured when there is a change to future lease payments arising from a change in an index rate, a change in the estimate of the
amount expected to be payable under the residual value guarantee, or as appropriate, changes in the assessment of whether a purchase
or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised.
Right-of-use assets are initially measured at the amount of the lease liability, reduced for any lease incentives received, and increased for:
• Lease payments made at or before commencement of the lease;
• Initial direct costs incurred; and
• The amount of any provision recognised where the Group is contractually required to dismantle, remove or restore the leased asset
(typically leasehold dilapidations).
When the Group revises its estimate of the term of any lease (because, for example, it re-assesses the probability of a lessee extension or
termination option being exercised), it adjusts the carrying amount of the lease liability to reflect the payments to make over the revised
term, which are discounted using a revised discount rate. The carrying value of lease liabilities is similarly revised when the variable
element of future lease payments dependent on a rate or index is revised, except the discount rate remains unchanged. In both cases an
equivalent adjustment is made to the carrying value of the right-of-use asset, with the revised carrying amount being amortised over the
remaining (revised) lease term. If the carrying amount of the right-of-use asset is adjusted to zero, any further reduction is recognised in
profit or loss.
Further detail on leases is provided in note 23 of the accounts.
Dividend distribution
Dividends are recognised when they become legally payable. In the case of interim dividends to equity shareholders, this is when paid. In
the case of final dividends, this is when approved by the shareholders.
Notes to the accounts continued
for the year end 31 December 2021
1. Summary of significant accounting policies continued
2021
£000
2020
£000
Realised gains based on historical cost 55,668 62,233
Amounts recognised as unrealised in previous years (35,638) (51,586)
Realised gains based on carrying value at previous year end date 20,030 10,647
Unrealised (loss)/gain on investments 101,140 (27,001)
Net capital gain/(loss) on investments 121,170 (16,354)
2. Net capital gain/(loss) on investments
109
FINANCIAL STATEMENTS
Notes to the accounts continued
for the year end 31 December 2021
3. Administrative expenses
2021
£000
2020
£000
Administrative expenses include:
Salaries and Directors’ fees 18,369 13,762
Social security costs 2,103 1,622
Other pension costs 1,262 1,093
21,734 16,477
Investment management fee* 569 447
Depreciation – property, plant and equipment 220 37
Depreciation – right-of-use assets 858 1,179
Amortisation – intangible assets 490 59
Interest on lease liability 297 49
Foreign exchange 26 (35)
Auditors’ remuneration 405 289
Other property costs 820 511
IT infrastructure 1,326 791
Business development 207 83
Professional fees 1,663 950
Other expenses 3,065 4,042
Administrative expenses 31,680 24,879
* 25% of the management fee is charged to revenue, and 75% to capital reserves, to better reflect the expected split of future returns between income and capital. Further details are given
in note 1 on page 102.
During the year, the Group employed an average of 222 staff (2020: 152). All staff are engaged in the provision of independent professional
services. The Company has no employees.
Details of the terms of the investment management agreement are provided on page 31 of the strategic report.
Administrative expenses charged to capital are transaction costs and foreign exchange differences on the purchase of investments held at
fair value through profit or loss.
A more detailed analysis of the auditors’ remuneration on a worldwide basis is provided below:
2021
£000
2020
£000
Audit services
– fees payable to the Company’s auditors for the audit of its financial statements* 376 275
– audit related regulatory 29 14
405 289
* Including the Company £60,000 (2020: £48,000).
A description of the work of the Audit and Risk Committee is set out in the Audit and Risk Committee report on pages 64 to 66 and includes
an explanation of how auditor objectivity and independence is safeguarded when non-audit services are provided by theauditors.
2021
£000
2020
£000
Short-term benefits including fees in respect of Directors 1,257 1,286
Deferred share bonus scheme 18 —
1,275 1,286
4. Remuneration of Directors (key management personnel)
The remuneration of the Directors, who are the key management personnel of the Group, comprises the following:
Details for each individual Director are shown in the remuneration report on pages 77 and 82.
lawdebenture.com
110
Notes to the accounts continued
for the year end 31 December 2021
5. Interest
2021
£000
2020
£000
Interest Income
Interest on bank deposits — 1
Returns on money market funds — 88
— 89
Interest Payable
Interest on long-term debt – revenue 1,319 1,320
Interest on long-term debt – capital 3,958 3,958
(5,277) (5,278)
Net interest payable (5,277) (5,189)
6. Segment analysis
Investment portfolio
Independent
professional services Group charges Total
31 December
2021
£000
31 December
2020
£000
31 December
2021
£000
31 December
2020
£000
31 December
2021
£000
31 December
2020
£000
31 December
2021
£000
31 December
2020
£000
Revenue
Dividend income
26,259 17,937 — — — — 26,259 17,937
IPS fees
Corporate trust
— — 13,317 15,069 — — 13,317 15,069
Corporate services
— — 22,981 12,249 — — 22,981 12,249
Pensions
— — 13,215 11,580 — — 13,215 11,580
Segment income
26,259 17,937 49,513 38,898 — — 75,772 56,835
Other income
551 213 — 6 — — 551 219
Cost of sales
(110) — (7,927) (4,405) — — (8,037) (4,405)
Administration costs
(3,434) (2,570) (28,246) (22,301) — (8) (31,680) (24,879)
Release of onerous contracts
— — — — — 118 — 118
23,266 15,580 13,340 12,198 — 110 36,606 27,888
Interest payable (net) (note 5)
(1,319) (1,260) — 29 — — (1,319) (1,231)
Return, including profit on
ordinary activities before taxation
21,947 14,320 13,340 12,227 — 110 35,287 26,657
Taxation
— — (1,210) (1,178) — — (1,210) (1,178)
Return, including profit
attributable to shareholders
21,947 14,320 12,130 11,049 — 110 34,077 25,479
Revenue return per
ordinary share (pence)
18.09 12.12 10.00 9.35 — 0.09 28.09 21.56
Assets
1,020,114 850,255 71,903 36,246 — 21 1,092,017 886,522
Liabilities
(175,418) (146,992) (37,762) (12,536) — — (213,180) (159,528)
Total net assets
844,696 703,263 34,141 23,710 — 21 878,837 726,994
Net revenue is calculated by reducing segment income by cost of sales.
111
FINANCIAL STATEMENTS
Notes to the accounts continued
for the year end 31 December 2021
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 3% 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 (2021 gain of £121,170,000; 2020 loss of £16,354,000), administrative expenses (2021: £2,456,000; 2020: £2,216,000), interest
payable (2021: £3,958,000; 2020: £3,958,000) and a capital dividend payable of £12,652,000 which corresponds to amounts classified as
capital in nature in accordance with the SORP are shown in the capital column of the income statement on page 96.
Details regarding the segments are included on page 1 – Group summary and in note 1 – Segment reporting on page 103.
Investment portfolio Independent professional services Total
31 December
2021
£000
31 December
2020
£000
31 December
2021
£000
31 December
2020
£000
31 December
2021
£000
31 December
2020
£000
Other information
Capital expenditure — — 4,493 1,652 4,493 1,652
Depreciation and amortisation — — 710 96 710 96
Depreciation – right-of-use assets — — 858 1,179 858 1,179
6. Segment analysis continued
7. Taxation
2021
£000
2020
£000
Taxation based on revenue for the year comprises:
UK Corporation tax at 19.0% (2020: 19.0%) 676 404
Foreign tax charge 318 338
Total current tax charge 994 742
Deferred tax charge 216 436
Charge for the year 1,210 1,178
lawdebenture.com
112
Notes to the accounts continued
for the year end 31 December 2021
7. Taxation continued
Taxation
The charge for the year can be reconciled to the profit per the income statement as follows:
2021
£000
2020
£000
Profits before taxation 150,043 4,129
Tax on ordinary activities at standard rate 19.0% (2020: 19.0%) 28,508 785
Effects of:
Permanent tax adjustments (29) (79)
Higher rates of tax on foreign income 118 128
Non-taxable capital (gains)/losses (22,879) 6,405
Tax credit on dividend income (5,032) (5,926)
Limit on Group relief for UK interest expense 308 133
Deferred tax movement 216 —
Prior year under/(over) provision in respect of current tax — (56)
Deferred tax on movement in provision for onerous contracts — (212)
Total 1,210 1,178
The Group expects that a substantial portion of its future income will continue to be in the form of dividend receipts and capital gains and
losses, which constitute non-assessable income. On this basis, the Group tax charge is expected to remain significantly different to the
standard UK rate of 19.0%.
GROUP
Deferred tax assets/(liabilities)
Accelerated tax
depreciation
£000
Retirement
benefit
obligations
£000
Total
£000
At 31 December 2019 430 (513) (83)
(Charge) to income (246) (190) (436)
(Charge)/credit to other comprehensive income — 1,235 1,235
Other 55 — 55
At 31 December 2020 239 532 771
(Charge) to income (44) (172) (216)
(Charge)/credit to other comprehensive income — (1,615) (1,615)
At 31 December 2021 195 (1,255) (1,060)
In accordance with the applicable accounting policy, deferred tax is calculated at the tax rates that are expected to apply to the reversal.
Foreign taxes reflect the current rate, whilst UK taxes are at the enacted rate of 19.0%. A deferred tax asset has not been recognised in
respect of foreign losses of £1,416,157 (2020: £1,281,501) as their usability cannot be predicted with reasonable certainty.
Deferred Tax
The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and
prior reporting period.
113
FINANCIAL STATEMENTS
Notes to the accounts continued
for the year end 31 December 2021
8. Dividends on ordinary shares
2021
£000
2020
£000
Dividends on ordinary shares comprise the following:
2021 Interims
†
20.625p (2020: 19.50p) 25,309 23,096
2020 Final 8.00p (2019: 12.90p) 9,614 22,976
Total for year 34,923 46,072
†
2021 interim dividends were paid in July 2021, October 2021 and January 2022.
Proposed final dividend for the year ended 31 December 2021
The proposed final dividend is subject to approval by shareholders at the annual general meeting and has not been included as a liability
in these financial statements.
Set out below is the total dividend payable in respect of the financial year, which is the basis on which the requirements of Sections 1158-
1159 of the Corporation Tax Act 2010 are considered.
2021
£000
2020
£000
2021 Interims
†
20.625p (2020: 19.50p) 25,309 23,096
2021 Final 8.375p (2020: 8.00p) 10,374 9,476
35,683 32,572
†
2021 interim dividends were paid in July 2021, October 2021 and January 2022.
On this basis, The Law Debenture Corporation p.l.c. satisfies the requirements of Sections 1158-1159 of the Corporation Tax Act 2010, as an
approved investment trust company.
9. Net asset value/return per share
NAV per share is calculated based on 122,424,129 (2020: 118,173,664) shares, being the total number of shares on issue of 122,915,835 (2020:
118,454,562), less 491,706 (2020: 267,752) shares, acquired by the ESOT on the open market. The net asset value of £964,493,000 (2020:
£787,219,000) comprises the NAV per the balance sheet of £878,837,000 (2020: £726,994,000) plus the fair value adjustment for the IPS
business of £135,885,000 (2020: £112,407,000), less the fair value adjustment for the debt of £50,229,000 (2020: £52,204,000).
Revenue return per share is based on profits attributable of £34,077,000 (2020: £25,479,000).
Capital gain per share is based on capital gains for the year of £114,756,000 (2020: losses £22,528,000).
Total return per share is based on net gains for the year of £148,833 (2020: gain £2,951,000).
The calculations of returns per share are based on 121,308,792 (2020: 118,171,875) shares, being the weighted average number of shares
in issue during the year after adjusting for shares owned by the ESOT. In 2021, total revenue and capital diluted returns per share were
calculated using 121,339,880 shares (2020: 118,192,860 shares), being the diluted weighted average number of shares in issue assuming
exercise of options at less than fair value. There were 50,736 (2020: none) antidilutive shares.
10. Acquisition of business
On 29 January 2021, the Group acquired the company secretarial business (“CSS”) of Konexo, a division of Eversheds Sunderland
International LLP group, a global provider of legal services. The business was valued at £20m. The consideration paid was £18.2m, after
netting net liabilities acquired of £1.76m.
The acquisition of CSS was part of the Group’s strategy to become a global leader in company secretarial services, further adding to
its client portfolio and complementing the other services provided by the independent professional services business. Control was
obtained through the assets and liabilities acquired, the transfer of employees and ability to direct the relevant activities of CSS following
acquisition.
From the date of acquisition to 31 December 2021, CSS contribution to the net revenue to the Group’s financial statements was £5,698,000
for the year ending 31 December 2021. If the acquisition had occurred on 1 January 2021, management estimates that consolidated net
revenue and for the period ending 31 December 2021 would have further increased by approximately £518,000.
The accounting policies are aligned with those of the Group where appropriate.
lawdebenture.com
114
Notes to the accounts continued
for the year end 31 December 2021
10. Acquisition of business continued
Identifiable assets acquired and liabilities assumed
The fair value of the assets and liabilities were defined as reflective of their market value. The following table summarises the recognised
amounts of assets acquired and liabilities assumed at the acquisition date and valued on fair value. The amount of gross receivables not
expected to be recovered is immaterial. There are no contingent liabilities recognised in accordance with paragraph 23 of IFRS 3 (revised).
Fair value
determination
approach
1
Fair Value
recognised on
acquisition
£000
Intangible assets Multi-period excess earnings 2,963
Trade receivables
2
Cost 488
Other receivables Cost 1
Assets 3,452
Contract liabilities Cost 1,761
Trade and other payables Cost 32
Other payables Cost 482
Liabilities 2,275
Total identifiable net assets at fair value 1,177
1 The fair valuation method mentioned for each financial position is the most typical for each category applied at the acquisition.
2 Trade receivables at acquisition is based on the contractual amount to be billed reflective of performance obligations delivered.
Goodwill
Goodwill arising from the acquisition has been recognised as follows:
2021
£000
Consideration transferred 18,214
Less: Fair value of identifiable net liabilities (1,177)
Goodwill 17,037
The consideration was transferred in cash.
The excess of the fair value of the consideration paid over the fair value of the assets and liabilities acquired is represented by customer
relationship intangibles of £2,963,000 with residual goodwill of £17,037,000.
Goodwill represents:
(a) the technical expertise of the acquired workforce; and
(b) expansion of the Group’s client base and market share.
The goodwill arising on the acquisition is not expected to be deductible for tax purposes.
The accounting for the acquisition is provisional and is dependent on the finalisation of the initial consideration. This is subject to
agreement of certain contractual adjustments and other provisional balances.
Acquisition related expenses
The Group incurred acquisition-related costs of £456,000 relating to external legal fees and due diligence costs. These costs have been
recognised in other operating expenses in the Group’s consolidated statement of comprehensive income.
Impact on cash flow
2021
£000
Cash consideration transferred (18,214)
Acquisition (18,214)
115
FINANCIAL STATEMENTS
Notes to the accounts continued
for the year end 31 December 2021
11. Goodwill
GROUP
2021
£000
2020
£000
Cost
At 1 January 2,329 2,359
Additions 17,037 —
Foreign exchange 30 (30)
At 31 December 19,396 2,329
Provision for impairment
At 1 January 415 428
Foreign exchange 8 (13)
At 31 December 423 415
Net book value at 31 December 18,973 1,914
Impairment testing for cash-generating units containing goodwill
For the purpose of impairment testing, goodwill is allocated to the Group’s cash-generating units, being its operating business units. That
is not the same as our reportable segments disclosed under note 6, with the identified cash-generating units for goodwill being one level
below that of a reportable operating segment. Cash flows at the business unit level are independent from the other cash flows and this
is the lowest level at which goodwill is monitored by the Board. The aggregate carrying amounts of goodwill allocated to each CGU are
asfollows:
GROUP
Balance at
1January 2021
£000
Business
Combinations
£000
Movements in
exchange rates
£000
Impairment
£000
Balance at
31December
2021
£000
CGU Safecall 1,419 — — — 1,419
CGU Delaware Corporate Services (DCS) 495 — 22 — 517
CGU CSS — 17,037 — — 17,037
Total 1,914 17,037 22 — 18,973
GROUP
Balance at
1January 2020
£000
Business
Combinations
£000
Movements in
exchange rates
£000
Impairment
£000
Balance at
31December
2020
£000
CGU Safecall 1,419 — — — 1,419
CGU Delaware Corporate Services (DCS) 940 — (17) (428) 495
Total 2,359 — (17) (428) 1,914
The addition to goodwill during the year arises on acquisition of the company secretarial services (“CSS”) business. See acquisition note10
on pages 113 to 114.
At 31 December 2021 the goodwill in relation to the cash-generating units (“CGU”) was reviewed and tested for impairment. The review
assessed whether the carrying value of the goodwill exceeded its recoverable amount. The recoverable amount of a CGU is the greater of
its value in use and its fair value less costs to sell. The basis of the recoverable amount used in the impairment tests for the CGU’s is the
value in use. In assessing value in use, the net present value of future cash flows, based on management forecasts for 2022, is compared
to the recoverable amounts. The methodology applied is in line with those tests performed in the prior period.
For each of the CGUs, the recoverable amount valuations indicated sufficient headroom such that a reasonably possible change to key
assumptions is unlikely to result in an impairment of the related goodwill.
lawdebenture.com
116
Notes to the accounts continued
for the year end 31 December 2021
11. Goodwill continued
The key quantifiable assumptions applied in the impairment review are set out below:
GROUP
Discount Rate
2021
%
Discount Rate
2020
%
Short-term
growth rates
2021
%
Short-term
growth rates
2020
%
Terminal
growth rates
2021
%
Terminal
growth rates
2020
%
CGU Safecall 8.0 9.0 5.0 5.0 2.0 1.5
CGU DCS 8.0 9.0 5.0 5.0 2.2 1.5
CGU CSS 8.0 — 5.0 — 2.0 —
Discount rate
The discount rate of 8% applied to projected cash flows is derived from the Group’s pre-tax weighted average cost of capital. These rates
are reviewed annually.
Terminal growth rates
The calculations include a terminal value based on the projections for the fifth year of the forecasted cash flows, with a growth rate
assumption applied which extrapolates the business into perpetuity. The terminal growth rates are based on long-term inflation rates of
the geographic market in which the CGUs predominantly operate.
Short-term growth rates
The annual impairment test is performed immediately prior to the year end, based initially on 2022 detailed forecasts approved by the
Board. Despite strong track record for historical growth rates over the last four years, short-term growth rates have been applied to each
CGU for the purpose of the goodwill impairment testing.
Sensitivity analysis
Sensitivity analysis has been performed for each goodwill asset, applying an increase in the discount rate of between 1.0% and 2.5% and
a reduction in short-term growth rates to 2.0% and 0% since there is a degree of estimation uncertainty in the cash flows associated with
each CGU.
No impairment results from these changes even with the increases in discount rates, which reflect a reduction in short-term growth rates.
117
FINANCIAL STATEMENTS
Notes to the accounts continued
for the year end 31 December 2021
2021 2020
GROUP
Office
improvements
£000
Furniture and
equipment
£000
Total
£000
Office
improvements
£000
Furniture and
equipment
£000
Total
£000
Cost
At 1 January 114 1,334 1,448 913 1,835 2,748
Additions at cost — 1,106 1,106 — 1,079 1,079
Disposals at cost (31) — (31) (796) (1,576) (2,372)
Foreign exchange — — — (3) (4) (7)
At 31 December 83 2,440 2,523 114 1,334 1,448
Accumulated depreciation
At 1 January 102 258 360 900 1,784 2,684
Charge 12 208 220 17 20 37
Disposals at cost (31) — (31) (813) (1,544) (2,357)
Foreign exchange — — — (2) (2) (4)
At 31 December 83 466 549 102 258 360
NET BOOK VALUE
Net book value at 31 December — 1,974 1,974 12 1,076 1,088
The Company holds no property, plant and equipment.
13. Other intangible assets
2021 2020
GROUP
Computer
Software
£000
IT project
Costs
£000
Customer
Relationships
£000
Intangible
Total
£000
Computer
Software
£000
IT project
Costs
£000
Customer
Relationships
£000
Intangible
Total
£000
Cost
At 1 January 1,160 567 — 1,727 1,814 — — 1,814
Additions at cost 23 401 2,963 3,387 6 567 — 573
Disposals at cost — — — — (660) — — (660)
Foreign exchange — — — — — — — —
At 31 December 1,183 968 2,963 5,114 1,160 567 — 1,727
Accumulated depreciation
At 1 January 1,108 — — 1,108 1,710 — — 1,710
Charge 30 121 340 490 59 — — 59
Disposals at cost — — — — (661) — — (661)
Foreign exchange — — — — — — — —
At 31 December 1,138 121 340 1,598 1,108 — — 1,108
NET BOOK VALUE
Net book value at 31 December 45 847 2,623 3,516 52 567 — 619
12. Property, plant and equipment
lawdebenture.com
118
Notes to the accounts continued
for the year end 31 December 2021
14. Investments
Investments held at fair value through profit or loss
2021 2020
GROUP
Listed
£000
Unlisted
£000
Total
£000
Listed
£000
Unlisted
£000
Total
£000
Opening cost at 1 January 698,413 3,547 701,960 629,845 3,547 633,392
Gains at 1 January 109,593 744 110,337 188,402 522 188,924
Opening fair value at 1 January 808,006 4,291 812,297 818,247 4,069 822,316
Purchases at cost 200,096 — 200,096 173,831 — 173,831
Cost of acquisition (645) — (645) (588) — (588)
Sales – proceeds (140,327) (113) (140,440) (166,908) — (166,908)
– realised gains on sales 55,668 — 55,668 62,233 — 62,233
Gains/(losses) in the income statement 64,620 882 65,502 (78,809) 222 (78,587)
Closing fair value at 31 December 987,418 5,060 992,478 808,006 4,291 812,297
Closing cost at 31 December 811,314 3,431 814,745 698,413 3,547 701,960
Gains 176,104 1,629 177,733 109,593 744 110,337
Closing fair value at 31 December 987,418 5,060 992,478 808,006 4,291 812,297
Fair value through profit or loss
2021 2020
COMPANY
Listed
£000
Unlisted
£000
Total
£000
Listed
£000
Unlisted
£000
Total
£000
Opening cost at 1 January 703,511 3,333 706,844 634,943 3,333 638,276
Gains at 1 January 104,495 744 105,239 183,304 522 183,826
Opening fair value at 1 January 808,006 4,077 812,083 818,247 3,855 822,102
Purchases at cost 200,096 — 200,096 173,831 — 173,831
Cost of acquisition (645) — (645) (588) — (588)
Sales – proceeds (140,327) — (140,327) (166,908) — (166,908)
– realised gains on sales 55,668 — 55,668 62,233 — 62,233
Gains/(losses) in the income statement 64,620 883 65,503 (78,809) 222 (78,587)
Closing fair value at 31 December 987,418 4,960 992,378 808,006 4,077 812,083
Closing cost at 31 December 811,314 3,331 814,645 703,511 3,333 706,844
Gains 176,104 1,629 177,733 104,495 744 105,239
Closing fair value at 31 December 987,418 4,960 992,378 808,006 4,077 812,083
Listed investments are all traded on active markets and as defined by IFRS 13 are Level 1 financial instruments. As such they are valued at
unadjusted quoted bid prices. Unlisted investments are Level 3 financial instruments. They are valued by the Directors using unobservable
inputs including the underlying net assets of the investments. There were no transfers in or out of Level 3 during the year.
Investments in subsidiary undertakings – Company
2021
£000
2020
£000
Cost
At 1 January 61,283 61,283
Additions in year — —
At 31 December 61,283 61,283
119
Fair valuation of the IPS
The fair value of the IPS business relates to all of the wholly owned subsidiaries of the Company, with the exception of Law Debenture
Finance p.l.c. The Directors have chosen to provide a fair valuation of the IPS business, which is not included within the financial
statements, to assist the users of the Annual Report. The fair valuation is used in preparing performance data for the Group. The fair value
is determined using unobservable inputs (including the Group’s own data), which represent Level 3 inputs. The Directors’ estimate of fair
value uses the guidelines and methodologies on valuation published by the International Private Equity and Venture Capital Association.
The fair valuation of IPS is based upon the historic earnings before interest, taxation, depreciation and amortisation (EBITDA), an
appropriate multiple and the surplus net assets of the business at their underlying fair value. The multiple applied in valuing IPS is from
comparable companies sourced from market data, with appropriate adjustments to reflect the difference between the comparable
companies and IPS in respect of growth, margin, size and liquidity.
An increase or decrease of 1 in the multiple would give rise to a £21.9m change in the fair valuation of the IPS. The adjustment to NAV to
reflect the IPS fair value is an increase of 111.00p per share (2020: 95.12p).
Subsidiaries and related undertakings
The following is a list of all of the subsidiaries within the Law Debenture Group. Each of them is 100% owned within the Group and has been
consolidated in the Group accounts. Subsidiaries held directly by the Company are in bold. Unless indicated, all subsidiaries are incorporated
and have their registered office in the United Kingdom at 8th Floor, 100 Bishopsgate, London EC2N 4AG. The addresses of overseas registered
companies appear at page 137. All shares issued by Group subsidiaries are ordinary shares. The Company and the Group do not have any
significant holdings in any qualifying undertakings other than the subsidiary undertakings listed below.
Fair valuation of IPS
2021
£000
2020
£000
EBITDA at a multiple of 10.80 (2020: 9.4) 165,985 125,349
Surplus net assets 4,041 10,605
170,026 135,954
L.D. Pension Plan Trustee Limited
L.D.C. Trust Management Limited
Law Debenture Investment Management Limited
Law Debenture (Independent Professional Services) Limited
Beagle Nominees Limited
The Law Debenture Trust Corporation p.l.c.
The Law Debenture Pension Trust Corporation p.l.c.
Pegasus Pensions plc
Law Debenture Corporate Services Limited
Law Debenture Trustees Limited
The Law Debenture Intermediary Corporation p.l.c.
Law Debenture Overseas No. 1 Limited
Law Debenture Finance p.l.c.
Law Debenture Securitisation Services Limited
LDPTC Nominees Limited
Law Debenture Governance Services Limited
Safecall Limited
The Whistleblowing Company Limited
The Sole Trustee plc
The Law Debenture Corporation (Deutschland) Limited
L.D.C. Latvia Limited
Law Debenture Trustee for Charities
Law Debenture (No. 1 Scheme) Trust Corporation
Law Debenture (No. 3 Scheme) Pension Trust Corporation
The Law Debenture (No. 5) Trust Corporation
The Law Debenture (1996) Pension Trust Corporation
Notes to the accounts continued
for the year end 31 December 2021
14. Investments continued
Investments in subsidiaries are measured at cost less impairment. The financial statements consolidate the results and financial position
of the Group, including all subsidiary undertakings, which are listed in this note under section “subsidiaries and related undertakings”.
The cost of subsidiary undertakings includes capital contributions and as a consequence is not comparable to the fair value of the IPS
business.
FINANCIAL STATEMENTS
lawdebenture.com
120
The Law Debenture (BAA) Pension Trust Corporation
The Law Debenture (BIS Management) Pension Trust Corporation
The Law Debenture (BIS Retirement) Pension Trust Corporation
The Law Debenture (Intel Old Plan) Pension Trust Corporation
The Law Debenture (SAPP) Pension Trust Corporation
The Law Debenture (JGRP) Pension Trust Corporation
The Law Debenture (JGSPS) Pension Trust Corporation
The Law Debenture (JIC) Pension Trust Corporation
The Law Debenture (KBPP) Pension Trust Corporation
The Law Debenture (KGPP) Pension Trust Corporation
The Law Debenture (Swiss Re GB) Trust Corporation
Law Debenture (GWR) Pension Trust Corporation
The Law Debenture (JGDBS) Pension Trust Corporation
ICI Pensions Trustee Limited
AstraZeneca Pensions Trustee Limited
ICI Specialty Chemicals Pensions Trustee Limited
RTL Shareholder SVC Limited
Billiton SVC Limited
DLC SVC Limited
LDC (NCS) Limited
Terrier Services Limited
L.D.C. Securitisation Director No. 1 Limited
L.D.C. Securitisation Director No. 2 Limited
L.D.C. Securitisation Director No. 3 Limited
L.D.C. Securitisation Director No. 4 Limited
L.D.C. Corporate Director No. 1 Limited
L.D.C. Corporate Director No. 2 Limited
L.D.C. Corporate Director No. 3 Limited
L.D.C. Corporate Director No. 4 Limited
CD Corporate Director No. 1 Limited
LDC Nominee Secretary Limited
LD (Holdco) Limited
LD (Bidco) Limited
Westminster Aviation Holdings Limited
The Law Debenture Corporation (HK) Limited
(incorporated/registered office in Hong Kong)
Law Debenture Trust (Asia) Limited
(incorporated/registered office in Hong Kong)
Law Debenture China Limited
(incorporated/registered office in Hong Kong)
The Law Debenture Trust Corporation (Channel Islands) Limited
(incorporated/registered office in Jersey)
The Law Debenture Trust Corporation (Cayman) Limited
(incorporated/registered office in the Cayman Islands)
Law Debenture Corporate Services Inc.
(incorporated/registered office in the USA)
Law Debenture Holdings Inc.
(incorporated/registered office in the USA)
Delaware Corporate Services Inc.
(incorporated/registered office in the USA)
Law Debenture (Ireland) Limited
(incorporated/registered office in the Republic of Ireland)
Law Debenture Ireland (Trustees) Limited
(incorporated/registered office in the Republic of Ireland)
Law Debenture Holdings (Ireland) Limited
(incorporated/registered office in the Republic of Ireland)
LDI (OCS) Limited
(incorporated/registered office in the Republic of Ireland)
Registered Shareholder Services No.1 Limited
(incorporated/registered office in the Republic of Ireland)
Registered Shareholder Services No.2 Limited
(incorporated/registered office in the Republic of Ireland)
Registered Shareholder Services No.3 Limited
(incorporated/registered office in the Republic of Ireland)
BHP SVC PTY Limited
(incorporated/registered office in Australia)
14. Investments continued
Notes to the accounts continued
for the year end 31 December 2021
121
FINANCIAL STATEMENTS
14. Investments continued
Unlisted investments
The Group holds unlisted investments.
Investment trust
The majority of the investment portfolio is invested in listed investments. A small minority of investments (approximately 0.5% of the
portfolio) are unlisted comprising a small fund investment and a number of other immaterial unquoted investments.
Quarterly valuations for the small fund investment are received. The Investment Valuation Committee updates the valuation of this
immaterial investment on a six monthly basis. The minutes of the meeting are shared with the auditors on a bi-annual basis.
Other unquoted investment holdings are reviewed on a bi-annual basis to market value and agreed by the Committee members at the
same Investment Valuation Committee meeting.
Independent professional services
As part of the services offered by the Independent Professional Services business, the Group acts as the registered holder of an immaterial
amount of unlisted shares in structured finance companies which are held on trust for discretionary charitable purposes. The Group has
no beneficial interest in those shares or the results of the companies whose shares are held.
The holdings are reviewed on a bi-annual basis at the Investment Valuation Committee meeting but are not revalued as there is no market
rate and the Group has no beneficial or economic interest in those shares.
15. Contract assets, trade and other receivables
The Directors consider that the carrying value approximates to the fair value.
The average credit period on sales of goods is 30 days. No interest is charged on outstanding trade receivables.
The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss provision for
trade receivables. To measure expected credit losses trade receivables are grouped based on similar risk characteristics and ageing.
An expected credit loss (ECL) is recognised against contract assets only when it is considered to be material and there is evidence that the
credit worthiness of a counterparty may render balances irrecoverable. Refer to note 15 for further details on IFRS 9 expected credit losses.
Contract assets arise from the Group’s IPS business which enters into contracts that can take more than one year to complete.
GROUP COMPANY
Contract assets: current
2021
£000
2020
£000
2021
£000
2020
£000
Amounts included in contract assets that were recognised as revenue 6,611 5,994 583 1,889
Trade and other receivables: current
2021
£000
2020
£000
2021
£000
2020
£000
Trade receivables 18,654 16,129 552 4,084
Other receivables 233 318 — —
Prepayments 1,579 217 1,094 100
Amounts receivable from intercompany — — 55,935 —
20,466 16,664 57,581 4,184
Notes to the accounts continued
for the year end 31 December 2021
16. Cash and cash equivalents
These comprise cash held at bank by the Group, short-term bank deposits with an original maturity of three months or less and money
market funds with immediate access. The carrying value of these assets approximates to their fair value.
122
17. Contract liabilities, trade and other payables
GROUP COMPANY
Contract liabilities: Current
2021
£000
2020
£000
2021
£000
2020
£000
Deferred Income 5,620 4,367 34 16
Contract liabilities: Non-current
2021
£000
2020
£000
2021
£000
2020
£000
Deferred Income 4,054 4,011 125 125
Contract liabilities comprise of deferred income, representing fees billed in advance in respect of services under contract.
The allocation of deferred income between current and non current is presented on the basis that the current portion will unwind and
released to revenue within the next twelve months. There were no material items in the current portion of deferred income in 2020 which
did not unwind during the year.
GROUP COMPANY
Trade and other payables: Current
2021
£000
2020
£000
2021
£000
2020
£000
Trade payables 8,527 7,691 202 254
Other payables 20,747 19,670 13,245 12,821
Accruals 55 44 — —
29,329 27,405 13,447 13,075
Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period
taken for trade purchases is 30 days.
The Directors consider that the carrying value of trade and other payables approximates to their fair value, due to their age.
18. Called up share capital
Allotted, issued and fully paid share capital – GROUP AND COMPANY
2021
£000
2020
£000
Value
As at 1 January 5,923 5,921
Issued in year 222 2
As at 31 December 6,145 5,923
Shares
Number Number
As at 1 January 118,454,562 118,429,010
Issued in year 4,461,273 25,552
As at 31 December 122,915,835 118,454,562
During the year to 31 December 2021, 16,068 shares (2020: 25,552 shares) were allotted under the SAYE scheme for a total consideration
of £218,006 (2020: £131,163) which includes a premium of £217,203 (2020: £129,885).
During the year, 53,048 options were granted under the Company’s SAYE scheme. At 31 December 2021, options under the SAYE scheme
exercisable from 2021 to 2026 at prices ranging from 594.75p to 778.00p per share were outstanding in respect of 176,747 ordinary shares
(2020: 160,485 ordinary shares). During 2021, 20,718 options lapsed or were cancelled (2020: 6,300) and 16,068 (2020: 25,552) wereexercised.
Further details of options outstanding are given in the Directors’ report on page 56.
Own shares held – GROUP
2021
£000
2020
£000
Value
Own shares held - cost 3,215 1,461
lawdebenture.com
Notes to the accounts continued
for the year end 31 December 2021
123
FINANCIAL STATEMENTS
Notes to the accounts continued
for the year end 31 December 2021
2021 2020
GROUP
Unrealised
appreciation
£000
Realised
reserves
£000
Total
£000
Unrealised
appreciation
£000
Realised
reserves
£000
Total
£000
At 1 January 101,949 572,642 674,591 181,411 515,708 697,119
Transfer on disposal of investments (35,638) 35,638 — (51,586) 51,586 —
Net gains on investments 101,140 20,030 121,170 (27,001) 10,647 (16,354)
Cost of acquisition (645) — (645) (588) — (588)
Foreign exchange (29) — (29) (287) — (287)
Transfers to revenue — (5,664) (5,664) — (5,299) (5,299)
At 31 December 166,777 622,646 789,423 101,949 572,642 674,591
19. Capital reserves
2021 2020
COMPANY
Unrealised
appreciation
£000
Realised
reserves
£000
Total
£000
Unrealised
appreciation
£000
Realised
reserves
£000
Total
£000
At 1 January 95,230 637,959 733,189 174,692 581,025 755,717
Transfer on disposal of investments (35,638) 35,638 — (51,586) 51,586 —
Net gains on investments 101,140 20,030 121,170 (27,001) 10,647 (16,354)
Cost of acquisition (645) — (645) (588) — (588)
Foreign exchange (29) — (29) (287) — (287)
Transfers to revenue — (5,664) (5,664) — (5,299) (5,299)
Dividends paid from capital — (12,728) (12,728) — — —
At 31 December 160,058 675,235 835,293 95,230 637,959 733,189
20. Financial instruments
The Group’s investment objective is to achieve long-term capital growth through investing in a diverse portfolio of investments. In pursuit
of this objective, the Group has the power to deploy the following financial instruments:
• Quoted equities, unlisted equities and fixed interest securities
• Cash and short-term investments and deposits
• Debentures, term loans and bank overdrafts to allow the Group to raise finance
• Derivative transactions to manage any of the risks arising from the use of the above instruments
• Derivative transactions to hedge the net investment in overseas subsidiaries
It remains the Group’s policy that no trading in derivatives is undertaken. Information in respect of the investment portfolio is included on
pages 18 to 29.
18. Called up share capital continued
The own shares held represent the cost of 491,706 (2020: 267,752) ordinary shares of 5p each in the Company, acquired by the ESOT in
the open market. The shares have been acquired to meet the requirements of the Deferred Share Plan. The voting rights relating to the
shares have been waived while the relevant shares remain in trust, in accordance with the Plan rules. The market value of the shares at
31December 2021 was £3,928,731 (2020: £1,847,489).
124
Capital management
The Company is not allowed to retain more than 15% of its income from shares and securities each year and has a policy to increase
dividends. However revenue profits are calculated after all expenses. Distributions will not be made if they inhibit the investment
strategy. This policy on dividends is expected to continue going forwards. The investment strategy of the Company is disclosed on
page30 and includes a ceiling on effective gearing of 50%, with a typical range of 10% net cash to 20% gearing. At 31 December 2021
gearing was 13% (2020: 9%). Gearing is calculated in line with net gearing guidelines from the AIC.
Capital is represented by the Group’s net assets. The Group and Company held the following categories of financial assets and liabilities at
31 December 2021:
GROUP
2021
£000
2020
£000
Assets
Financial assets held at fair value through profit or loss:
Equity investments 992,478 812,297
Financial assets held at amortised cost
Trade and other receivables 20,466 16,129
Cash and cash equivalents 35,880 41,762
56,346 57,891
Total financial assets 1,048,824 870,188
Liabilities
Financial liabilities measured at amortised cost
Trade and other payables 29,329 27,405
Long-term borrowings 164,245 114,201
Lease liability 6,404 5,606
Total financial liabilities 199,978 147,212
COMPANY
2021
£000
2020
£000
Assets
Financial assets held at fair value through profit or loss:
Equity investments 992,378 812,083
Financial assets held at amortised cost
Trade and other receivables 57,581 4,084
Cash and cash equivalents 25,507 32,098
83,088 36,182
Total financial assets 1,075,466 848,265
Liabilities
Financial liabilities measured at amortised cost
Amounts owed to subsidiary undertakings 87,631 61,698
Trade and other payables 13,447 13,075
Long-term borrowings 124,586 74,569
Total financial liabilities 225,664 149,342
lawdebenture.com
20. Financial instruments continued
Notes to the accounts continued
for the year end 31 December 2021
125
FINANCIAL STATEMENTS
Notes to the accounts continued
for the year end 31 December 2021
20. Financial instruments continued
The principal risks facing the Group in respect of its financial instruments remain unchanged from 2020 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 175. 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
31December 2021 fell or rose by 10%, the impact on the Group’s total profit or loss for the year would have been £99.2m (2020: £81.2m).
Corresponding 10% changes in the valuation of the investment portfolio on the Company’s total profit or loss for the year would have
been £99.2m (2020: £81.2m).
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:
2021 2020
GROUP
Investments
£m
Net monetary
assets
£m
Total currency
exposure
£m
Investments
£m
Net monetary
assets
£m
Total currency
exposure
£m
US Dollar 44.7 3.6 48.3 40.1 11.7 51.8
Canadian Dollar 6.1 — 6.1 5.5 — 5.5
Euro 72.6 1.1 73.7 65.2 0.4 65.6
Danish Krone 2.3 — 2.3 2.3 — 2.3
Swedish Krona 1.2 — 1.2 — — —
Swiss Franc 9.6 — 9.6 9.5 — 9.5
Hong Kong Dollar — 1.0 1.0 — 1.0 1.0
Japanese Yen 11.2 — 11.2 9.3 — 9.3
Total 147.7 5.7 153.4 131.9 13.1 145.0
The Group US dollar net monetary assets is that held by the US operations of £2m (2020: £1.4m) together with £3.6m (2020: £10.3m) held by
non-US operations.
2021 2020
COMPANY
Investments
£m
Net monetary
assets
£m
Total currency
exposure
£m
Investments
£m
Net monetary
(liabilities)
£m
Total currency
exposure
£m
US Dollar
44.7 0.1 44.8 40.1 9.9 50.0
Canadian Dollar
6.1 — 6.1 5.5 — 5.5
Euro
72.6 — 72.6 65.2 — 65.2
Danish Krone
2.3 — 2.3 2.3 — 2.3
Swedish Krona
1.0 — 1.0 — — —
Swiss Franc
9.6 — 9.6 9.5 — 9.5
Japanese Yen
11.2 — 11.2 9.3 — 9.3
Total 147.5 0.1 147.6 131.9 9.9 141.8
126
The holding in Scottish Oriental Smaller Companies Trust is denominated in sterling but has underlying assets in foreign currencies
equivalent to £7.1m (2020: £7.1m. 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 2021 rose or fell by 10% against sterling, the impact on the Group’s total profit or loss for the year would have been £17.3m
and £14.1m respectively (2020: £15.5m and £12.5m). 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:
2021
GROUP COMPANY
Sterling
£m
HK Dollars
£m
US Dollars
£m
Euro
£m
Sterling
£m
US Dollars
£m
Floating rate assets 29.7 1.0 3.6 1.1 25.0 0.1
2020
GROUP COMPANY
Sterling
£m
HK Dollars
£m
US Dollars
£m
Euro
£m
Sterling
£m
US Dollars
£m
Floating rate assets 28.2 1.0 11.7 0.4 22.0 9.9
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
2021
Sterling
£m
2020
Sterling
£m
2021
Sterling
£m
2020
Sterling
£m
Fixed rate liabilities 164.2 114.2 124.2 74.5
Weighted average fixed rate for the year 3.966% 4.589% 3.276% 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 £314,000 credit
(2020: £458,000 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 £40m 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 £233,000 credit (2020: £317,000 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 note 21. The interest on borrowings is paid bi-annually on March and September for the 2045 secured
senior notes, April and October for the 2034 secured bonds and May and November for the 2041 and 2050 senior secured notes.
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 £56.3m (2020: £57.9m). The Company’s
maximum exposure to credit risk arising from financial assets is £83.1m (2020: £36.2m).
lawdebenture.com
20. Financial instruments continued
Notes to the accounts continued
for the year end 31 December 2021
127
FINANCIAL STATEMENTS
Notes to the accounts continued
for the year end 31 December 2021
20. Financial instruments continued
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 note 28. In summary, the Group only transacts with counterparties that it considers to be credit worthy.
Trade and other receivables
The ageing profile of the carrying value of trade receivables past due is as follows:
GROUP COMPANY
2021
£000
2020
£000
2021
£000
2020
£000
Between 31 and 60 days 3,342 2,382 — —
Between 61 and 90 days 2,403 1,108 — —
More than 91 days 10,941 10,614 — —
Total 16,686 14,104 — —
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.
The below table displays the gross carrying amount against the expected credit loss provision and specific provisions. Specific provisions
relate to balances 91+days overdue.
The total specific and credit loss provision at 31 December 2021 is £ 3,314,000 (2020: £3,206,000).
Current
£000
1-30 days
overdue
£000
31-60 days
overdue
£000
61-90 days
overdue
£000
91+ days
overdue
£000
Total
£000
31 December 2021
Expected loss rate
2.98% 2.94% 2.42% 4.45% 4.12% 3.62%
Gross carrying amount
1,343 3,939 3,342 2,403 10,941 21,968
Expected credit loss provision
(40) (116) (81) (107) (451) (795)
Specific provision
— — — — (2,519) (2,519)
Net carrying amount
1,303 3,823 3,261 2,296 7,971 18,654
31 December 2020
Expected loss rate
2.64% 4.07% 4.03% 5.23% 4.35% 4.09%
Gross carrying amount
2,725 2,506 2,382 1,108 10,614 19,335
Expected credit loss provision
(72) (102) (96) (58) (462) (790)
Specific provision
— — — — (2,416) (2,416)
Net carrying amount
2,653 2,404 2,286 1,050 7,736 16,129
128
20. Financial instruments continued
GROUP COMPANY
Trade and other payables
2021
£000
2020
£000
2021
£000
2020
£000
Due in less than one month 27,988 27,139 10,860 13,075
Due in more than one month and less than three months — 266 — —
Total 27,988 27,405 10,860 13,075
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 (see note 21). 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).
Derecognition – financial assets
The Group enters into stock lending transactions whereby it transfers assets recognised on its statement of financial position, but retains
either all or substantially all of the risks and rewards of the transferred assets or a portion of them. In such cases, the transferred assets are
not derecognised.
21. Long-term borrowings
In more than five years
Long-term borrowings are repayable as follows:
GROUP COMPANY
Secured
2021
£000
2020
£000
2021
£000
2020
£000
6.125% guaranteed secured bonds 2034 39,659 39,632 — —
3.77% secured senior notes 2045 74,586 74,569 74,586 74,569
2.54% secured senior notes 2041 20,000 — 20,000 —
2.53% secured senior notes 2050 30,000 — 30,000 —
Total 164,245 114,201 124,586 74,569
The 6.125% bonds were issued by Law Debenture Finance p.l.c. and guaranteed by the Company. The £40m nominal tranche, which
produced proceeds of £39.1m, is constituted by a trust deed dated 12 October 1999 and the Company’s guarantee is secured by a floating
charge on the undertaking and assets of the Company. The bonds are redeemable at nominal amount on 12 October 2034. Interest (see
note 5) is payable semi-annually in equal instalments on 12 April and 12 October in each year.
The 3.77% notes were issued by the Company. The £75m nominal tranche, which produced proceeds of £74.5m, is constituted by a note
purchase agreement and the notes are secured by a floating charge which ranked pari passu with the charge given as part of the 6.125%
bond issue. The notes are redeemable at nominal amount on 25 September 2045. Interest (see note 5) is payable semi-annually in equal
instalments on 25 March and 25 September in each year.
The 2.54% Series A notes were issued by the Company. The £20m nominal tranche, which produced proceeds of £20m, is constituted by
a note purchase agreement dated 2 November 2021 and the notes are secured by a floating charge which ranked pari passu with the
charge given as part of the 6.125% bond issue and with the charge given as part of the 3.77% note issue. The notes are redeemable at
nominal amount on 2November 2041. Interest is payable semi-annually in equal instalments on 2 May and 2 November in each year. The
first interest payment will be made on 2 May 2022.
The 2.53% Series B notes were issued by the Company. The £30m nominal tranche, which produced proceeds of £30m, is constituted by
a note purchase agreement dated 2 November 2021 and the notes are secured by a floating charge which ranked pari passu with the
charge given as part of the 6.125% bond issue and with the charge given as part of the 3.77% note issue. The notes are redeemable at
nominal amount on 2 November 2050. Interest is payable semi-annually in equal instalments on 2 May and 2 November in each year. The
first interest payment will be made on 2 May 2022.
The long-term borrowings are stated in the statement of financial position at book value. Including them at a fair value of £214.4m at
31December 2021 (2020: £166.4m) would have the effect of decreasing the year end NAV by 41.03p (2020: 44.16p). The estimated fair value
is based on the redemption yield of reference gilts plus a margin derived from the spread of A rated UK corporate bond yields over UK gilt
yields (2020: A).
lawdebenture.com
Notes to the accounts continued
for the year end 31 December 2021
129
FINANCIAL STATEMENTS
Notes to the accounts continued
for the year end 31 December 2021
22. Contingent liabilities
The Group is from time to time party to legal proceedings and claims, which arise in the ordinary course of the IPS business. The Directors
do not believe that the outcome of any of these proceedings and claims, either individually or in aggregate, will have a material adverse
effect upon the Group’s financial position.
The Company has provided a guarantee to a subsidiary undertaking in respect of the ongoing liabilities of the Group defined benefit
pension scheme (see note 24). The Company has provided surety for the lease of the Group’s main property which is held by a subsidiary
undertaking. The annual rental is currently £871,000 and its full term ends in 2030.
23. Leases
Management estimate that the fair value of the Group’s lease obligations approximates their carrying amount.
There are no material future cash flows relating to leases in place as at 31 December 2021 that are not reflected in the minimum lease
payments disclosed below and the Group does not have any leases to which it is contracted but which are not yet reflected in the
minimum lease payments.
No lease liability is recognised in respect of leases which have a lease term of less than twelve months in duration at the point of entering
into the lease, or where the purchase price of the underlying right-of-use asset is less than £5,000. Where relevant, the total value of these
is immaterial.
GROUP
Office building leases Total right-of-use assets
Right-of-use assets
Additional information on the right-of-use assets is as follows: 31 December
2021
£000
31 December
2020
£000
31 December
2021
£000
31 December
2020
£000
Opening balance at 1 January 5,413 1,057 5,413 1,057
Leases signed in year 938 5,157 938 5,157
Lease extension 38 388 38 388
Depreciation (858) (1,179) (858) (1,179)
Foreign exchange difference 11 (10) 11 (10)
Closing NBV at 31 December 5,542 5,413 5,542 5,413
Lease liabilities
GROUP
Minimum lease payments
Amounts payable under leases
31 December
2021
£000
31 December
2020
£000
Within one year 439 212
Between one and five years 4,130 2,872
After five years 3,388 4,256
7,957 7,340
Less: future finance charges (1,553) (1,734)
Present value of lease obligations 6,404 5,606
Less: amounts due for settlement within one year (shown within current liabilities) (287) —
Amounts due for settlement after one year (shown within non current liabilities) 6,117 5,606
Leases signed in the year
During the year the Group signed a five year lease for its new office at 2 New Bailey, Manchester to house our company secretarial services
function and our group shared service centre team.
On the lease commencement date the Group recognised a right-of-use asset of £531,226 and leasehold liability of £454,308. The right-of-
use asset is recognised at leasehold liability (£454,308), plus capitalised direct costs (£14,068) plus dilapidation provision estimated costs of
removal and restoring (£62,850).
A new three year lease agreement was entered into for the existing Hong Kong office premises following expiration of the previous contract.
On the lease commencement date the Group recognised a right-of-use asset of £379,061 and leasehold liability of £348,075. The right-of-
use asset is recognised at leasehold liability (£348,075), there were nil direct costs plus dilapidation provision estimated costs of removal
and restoring (£30,986).
130
lawdebenture.com
24. Pension commitments
For some employees, the Group operates a funded pension plan providing benefits for its employees based on final pensionable
emoluments. The assets of the plan are held in a separate trustee administered fund. The Company has appointed an independent
sole trustee to oversee the governance of the fund. The plan closed to future accrual of benefits on 31 December 2016 and benefits now
increase broadly in line with inflation.
Under the defined benefit pension plan, each member’s pension at retirement is related to their pensionable service and final
pensionable emoluments. The weighted average duration of the expected benefit payments from the plan is around 20 years. The defined
benefit scheme is operated from a trust, which has assets which are held separately from the Group and is overseen by an independent
sole trustee who ensures the plan’s rules are strictly followed.
These figures were prepared by an independent qualified actuary in accordance with IAS19 (revised), and are based on membership
data as at 31 December 2021. The funding target is for the plan to hold assets equal in value to the accrued benefits based on projected
pensionable emoluments. If there is a shortfall against this target, then the Group and the trustee will agree deficit contributions to meet
this deficit over a period.
There is a risk to the Group that adverse experience could lead to a requirement for the Group to make additional contributions to reduce
any deficit that arises.
Contributions are set based upon funding valuations carried out every three years; the next valuation in respect of 31December 2021 is
currently underway. The estimated amount of total employer contributions expected to be paid to the plan during 2022 is £1.0m (2021
actual: £1.0m).
Actuarial gains and losses are recognised immediately through other comprehensive income.
The major assumptions in the 31 December 2021 disclosure under IAS19 (revised) are shown below and are applied to membership data
supplied at that date. This shows the net pension assets and liabilities.
2021 2020
Significant actuarial assumptions:
Retail Price Inflation 3.30% 2.80%
Consumer Price Inflation* RPI less 1.0%
p.a. prior to
2030, RPI
less 0.1% p.a.
thereafter
RPI less 1.0%
p.a. prior to
2030, RPI
less 0.1% p.a.
thereafter
CPI single equivalent rate 2.70% 2.20%
Discount rate 2.00% 1.30%
5% limited RPI pension increases in payment n/a n/a
General salary increases n/a n/a
* Relates to dividends unclaimed over 12 years old.
2021
years
2020
years
Life expectancy of male/female aged 65 in 2021 23.3/25.4 23.7/25.5
Life expectancy of male/female aged 65 in 2040 24.9/26.9 25.5/27.0
Weighted average duration 17.9 19.1
2021
£000
2020
£000
The amounts recognised in the income statement are as follows:
Interest expense/(income) 100 —
Total expense/(income) recognised in the income statement 100 —
Notes to the accounts continued
for the year end 31 December 2021
131
FINANCIAL STATEMENTS
Notes to the accounts continued
for the year end 31 December 2021
2021 2020
Allocation % £000 Allocation % £000
The current allocation of plan assets is as follows:
Equities 43 29,500 41 25,800
Corporate bonds 8 5,600 9 5,900
Government bonds — — 24 15,000
LDI 20 13,900 — —
Pensioner annuities 1 700 1 800
Diversified growth funds 13 8,600 13 8,300
Infrastructure 9 6,200 10 6,000
Cash/other 6 3,800 2 1,200
Total 100 68,300 100 63,000
• The Plan holds a number of pensioner annuities which have been valued consistently with the defined benefit obligation using
membership data as at 1 January 2022.
• At the time of writing, the value of the JP Morgan infrastructure fund on 31 December 2021 is unavailable. Therefore, the value of £6.2m
used is at an effective date of 1 October 2021.
• The Plan's non-annuity assets are invested in pooled funds, which are not themselves quoted. However the pooled funds are invested in
assets with prices quoted and traded on public exchanges. The exception to this is the JP Morgan infrastructure fund, where underlying
investments are not quoted.
24. Pension commitments continued
Movement in present value of defined benefit obligation
2021
£000
2020
£000
Opening defined benefit obligation at 1 January 65,800 57,800
Interest on plan assets 900 1,200
Benefits paid (2,600) (1,600)
Actuarial losses/(gains) due to:
Experience on benefit obligations 2,300 (400)
Changes in financial assumptions (3,500) 9,100
Changes in demographic assumptions (1,200) —
Update to 31 December 2021 membership data (gain)/loss — (300)
Closing defined benefit obligation at 31 December 61,700 65,800
Movement in fair value of plan assets
2021
£000
2020
£000
Opening fair value of plan assets at 1 January 63,000 60,500
Interest expense on defined benefit obligation 800 1,200
Contributions by the employer 1,000 1,000
Benefits paid (2,600) (1,600)
Actual returns net of interest 6,100 1,900
Closing fair value of plan assets at 31 December 68,300 63,000
2021
£000
2020
£000
The amounts recognised outside the income statement are as follows:
Remeasurements (8,500) —
(Gain)/loss recognised outside the income statement (8,500) —
132
The pension plan is exposed to investment risk (the movement of the discount rate used against the value of the plans assets), interest rate
risk (decreases/increases in the discount rate which will increase/decrease the defined benefit obligation) and longevity risk (changes in
the estimation of mortality rates of members).
lawdebenture.com
Movement in the net defined benefit liability
2021
£000
2020
£000
Opening net defined benefit liability/(asset) at 1 January 2,800 (2,700)
(Income)/expense charged to profit and loss 100 —
Employer contributions (1,000) (1,000)
Amount recognised outside of profit and loss (8,500) 6,500
Closing net defined benefit (asset)/liability at 31 December (6,600) 2,800
Amounts recognised in statement of financial position
2021
£000
2020
£000
Present value of defined benefit obligation 61,700 65,800
Fair value of plan assets (68,300) (63,000)
(Surplus)/deficit (6,600) 2,800
Effect of asset ceiling — —
Net defined benefit (asset)/liability (6,600) 2,800
Notes to the accounts continued
for the year end 31 December 2021
24. Pension commitments continued
Over the year to 31 December 2021, the balance sheet improved from a deficit of £2.8m to a surplus of £6.6m. The Directors have confirmed
the entitlement to recognise the defined benefit asset with our Actuarial Advisors. This improvement is driven by:
• an significant increase in the discount rate during the year, which decreases the value of the pension obligations;
• changes to the mortality assumptions used to value the liability, which results in a decrease of the value of the pension obligations;
• investment returns on assets being higher than anticipated; and
• deficit reduction contributions paid by the Company of £1.0m during the year.
This was partially offset by:
• actual inflation being higher than that expected at the previous year end;
• an increase in expectations of future inflation, which increases the value of the pension obligations; and
• updated membership data.
Defined benefit scheme
The calculation of the defined benefit scheme assets and obligations is sensitive to the assumptions used.
The sensitivity to changes in assumptions and conditions which are significant to the calculation of the asset have been considered and
the following is an illustration of the potential impact.
25. Related party transactions
GROUP
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation.
Increase/(decrease)
in defined benefit obligations
at 31 December
2021
£ million
at 31 December
2020
£ million
Discount rate +0.1% (1.1) (1.2)
RPI Inflation assumptions +0.1% 0.8 1.0
Life expectancy at 65 +1 year 2.8 2.9
RPI/CPI gap 0.1% increase in wedge between RPI and CPI at all durations (0.3) (0.3)
25. Related party transactions continued
COMPANY
The related party transactions between the Company and its wholly owned subsidiary undertakings are summarised as follows:
2021
£000
2020
£000
Dividends from subsidiaries 14,950 13,709
Interest on intercompany balances charged by subsidiaries 2,559 2,378
Management charges from subsidiaries 700 700
The key management personnel are the Directors of the Company. Details of their compensation are included in note 4 to the accounts
and in Part 2 of the remuneration report on pages 67 to 82. Key management personnel costs inclusive of employers national insurance
are £1,438,456 (2020: £1,352,977).
133
FINANCIAL STATEMENTS
Notes to the accounts continued
for the year end 31 December 2021
26. Movement in borrowings
Under IAS 7, the movement in borrowings in the year are as follows:
GROUP
31 December
2021
£000
Non-cash items
movement
£000
31 December
2020
£000
Non-cash items
movement
£000
31 December
2019
£000
Long-term borrowings
6.125% guaranteed secured bonds 2034 39,659 27 39,632 26 39,606
2.54% secured senior notes 2041 20,000 — — — —
3.77% secured senior notes 2045 74,586 17 74,569 18 74,551
2.53% secured senior notes 2050 30,000 — — — —
164,245 44 114,201 44 114,157
COMPANY
Long-term borrowings
3.77% secured senior notes 2045 74,586 17 74,569 18 74,551
2.54% secured senior notes 2041 20,000 — — — —
2.53% secured senior notes 2050 30,000 — — — —
124,586 17 74,569 18 74,551
The Group had no short-term borrowings in 2021 (2020: nil).
27. Distributable reserves
After paying the final dividend, the Company has retained earnings to pay 0.5 years of dividend payments at the current level. After
paying the final dividend, the Group has retained earnings to pay 0.9 years of dividends at the current level. The Company has realised
capital reserves of £675,235,000 (2020: £637,959,000) which would allow 18.9 (2020: 19.6) years of dividend payments at the current
level. The Group has realised capital reserves of £622,646,000 (2020: £572,642,000) which would allow 17.4 (2020: 17.6) years of dividend
payments at the current level.
28. Stock lending revenue
At 31 December 2021 the total value of securities on loan by the Company for stock lending purposes was £42,858,000 (2020: £19,325,000).
The maximum aggregate value of securities on loan at any one time during the year ended 31 December 2021 was £74,924,000 (2020:
£38,936,000).
Revenue derived from stock lending in 2021 is £551,000 (2020: £219,000).
Alternative performance measures are numerical measures of the Company’s current, historical or future performance, financial position
or cash flows, other than financial measures defined or specified in the financial framework that the Company has chosen to apply
(International Financial Reporting Standards and the AIC SORP). The Directors use these measures as a means of assessing the Company’s
performance. The measures are particularly relevant for investment trusts and are widely used across the investment trust sector.
Net Asset Value per ordinary share
The value of the Company’s assets (i.e. investments (see note 14)) and cash at bank (see Statement of Financial Position) less any liabilities
(i.e. long-term borrowings (see note 21)) for which the Company is responsible, divided by the number of shares in issue (see note 9).
The aggregate NAV is also referred to as total shareholders’ funds in the Statement of Financial Position. In Law Debenture’s case, the
published NAV will include adjustments to reflect the fair value of the IPS business and the Company’s long-term debt. There is a detailed
summary of the NAV, including a description of how it is calculated, on page 36 of the Annual Report. From 1 July 2021, the NAV per
ordinary share is published daily. Prior to that it was published weekly and immediately after each month end.
The change in NAV per share (see total return below) over one, three, five and ten years, as shown at page 2, is calculated by taking total
return over the respective period and dividing by the opening NAV at the start of each period.
Net Asset Value with Debt at Fair Value
The Group’s debt (long-term borrowings, further details can be found in note 21 on page 128) is valued in the Statement of Financial
Position (page 97) at amortised cost, which is materially equivalent to the repayment value of the debt on the assumption that it is held
to maturity. This is often referred to as ‘Debt at Par’. The current fair value of the debt, which assumes it is repaid under current market
conditions, is referred to as ‘Debt at Fair Value’. This fair value is detailed in note 20 on page 128. The difference between the fair and par
values of the debt is subtracted from or added to the Statement of Financial Position to derive the NAV with debt at fair value (see note 9
on page 113). The NAV with debt at fair value at 31 December 2021 was £964,493,000 (787.83 pence per ordinary share) and the NAV with
debt at par was £1,014,722,000 (828.86 pence per ordinary share).
Discount or Premium
The amount by which the market price per share of an investment trust is either higher (premium) or lower (discount) than the NAV per
share, expressed as a percentage of the NAV per ordinary share.
NAV per share
at fair value
pence
NAV per share
at par value
pence
Share price
pence
Premium/
(discount) to
fair value NAV
Premium/
(discount) to
par value NAV
At 31 December 2021 787.83 828.86 799 1.4 (3.6)
At 31 December 2020 666.15 710.31 690 3.6 (2.9)
Gearing/(Net cash)
Net gearing is calculated by dividing total borrowings less cash and cash equivalents by shareholders’ funds, expressed as a percentage.
2021
£000
2020
£000
Borrowings (at PAR) Statement of financial position 164,245 114,201
Cash and cash equivalents Statement of financial position (35,880) (41,762)
Borrowings less cash (a) 128,365 72,439
Net assets per Balance Sheet 878,837 726,994
Fair value uplift for IPS business 135,885 112,407
Debt fair value adjustment (50,229) (52,182)
Shareholders’ funds Page 36 (b) 964,493 787,219
Net gearing (a/b) 13% 9%
CORPORATE INFORMATION
Alternative performance measures
134
lawdebenture.com
135
CORPORATE INFORMATION
We have reviewed our approach to the calculation of gearing. We believe that it is appropriate to show net gearing in relation to
shareholders’ funds as it represents the amount of debt funding on the investment portfolio.
Ongoing charges
The ongoing charge ratio has been calculated in accordance with guidance issued by the AIC. It represents the total investment
management fee and other applicable administrative expenses expressed as a percentage of the average net asset values with debt at fair
value throughout the year.
2021
£000
2020
£000
Management fee revenue expense 569 447
Other attributable administration costs 2,220 2,123
Administration costs 2,789 2,570
Management fee capital expense 1,706 1,341
Ongoing charge 4,495 3,911
Average net assets
1
893,572 717,235
Ongoing charge ratio 0.50% 0.55%
1 Calculated using the average month-end net asset value with debt at fair value.
Revenue Earnings per Share
The revenue earnings per share is the revenue return for the year (see Income Statement) divided by the weighted average number of
ordinary shares in issue during the year (see note 9 on page 113).
NAV Total Return
The total return is the return on the share price or NAV with debt at fair value taking into account both the rise and fall of NAVs/share
prices and dividends paid to shareholders. Any dividends received by a shareholder are assumed to have been reinvested in either
additional shares (for share price total return) or the Company’s assets (for NAV with debt at fair value total return). Dividends paid and
payable are set out in note 8 on page 113.
NAV per share
with debt at
fair value Share price
NAV/Share price per share at 31 December 2020 (pence) 666.15 690
NAV/Share price per share at 31 December 2021 (pence) 787.83 779
Change in the year (%) 18.3% 15.8%
Impact of dividends reinvested (%) 6.8% 3.4%
Total return for the year (%) 25.1% 19.2%
Yield
The yield is the annual dividend expressed as a percentage of the year end share price.
2021
£000
2020
£000
Annual dividend (pence) 29 27.5
Share price
1
(pence) 799 690
Yield (%) 3.6% 3.9%
1 Based on the closing share price as at 31 December.
Alternative performance measures continued
Registered office
T: 020 7606 5451
F: 020 7606 0643
W: www.lawdebenture.com
(Registered in England – No. 30397)
Investment managers
James Henderson and Laura Foll are joint managers. They also manage
Lowland Investment Company plc, Henderson Opportunities Trust plc
and the Henderson UK Equity Income & Growth Fund.
James joined Henderson Global Investors (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 2020.
Alternative Investment Fund Manager
The Law Debenture Corporation p.l.c.
Investment portfolio manager
Janus Henderson Global Investors
201 Bishopsgate, London EC2M 3AE
Auditors
Deloitte LLP, 110 Queen Street, Glasgow, G1 3BX
Depositary
NatWest Trustee and Depositary Services Limited
250 Bishopsgate, London EC2M 4AA
Global custodian
HSBC Bank plc (under delegation by the depositary)
8 Canada Square, London E14 5HQ
Registrar
Computershare Investor Services PLC
The Pavilions, Bridgwater Road, Bristol BS99 6ZZ
T: 0370 707 1129
Company advisers and information
Broker
J.P. Morgan Cazenove Limited
25 Bank Street, London E14 5JP
AIC
A member of the Association of Investment
Companies
Shareholder information
Investment trust status
The Company carries on business as an investment trust company
as defined in Sections 1158-1159 of the Corporation Tax Act 2010.
Company share information
Information about the Company can be found on its website
www.lawdebenture.com. The market price of its ordinary shares is
also published daily in the Financial Times.
Registrars
Our registrars, Computershare Investor Services PLC, operate a
dedicated telephone service for Law Debenture shareholders
– 0370 707 1129. Shareholders can use this number to access
holding balances, dividend payment details, share price data, or
to request that a form be sent to their registered address.
Share dealing
Computershare Investor Services PLC offers shareholders a share
dealing service via the internet or by post.
Internet dealing: The fee for this service will be 1.4% of the value
of each transaction (subject to a minimum of £40).
Website address: www.computershare.com/dealing/uk
Registry Postal Share Dealing Service: The fee for this service will
be 1.4% of the value of each transaction (subject to a minimum of
£40). Forms can be found at: www.computershare.com/dealing/uk
or requested by calling: 0370 703 0084.
The service is available only to those shareholders who hold their
shares on the register (i.e. it is not available to those who hold
their shares via anominee).
Shareholders using the internet service will need their
Shareholder Reference Number (SRN) and post code to complete
their trade. The SRN can be found printed on your proxy card.
CORPORATE INFORMATION
136
lawdebenture.com
137137
CORPORATE INFORMATION
Financial calendar
Dividend and interest payments
Ordinary shares:
Three interim dividends Announced in May, September and December
Paid, July, October and January
Final dividend Announced in February
Paid April
6.125% guaranteed secured notes Paid April and October
3.77% senior secured notes Paid March and September
2.54% series A senior secured notes Paid May and November
2.53% series B senior secured notes Paid May and November
Group results:
Half year results Announced in July
Full year results Announced in February
Report and accounts Published in March
Annual general meeting Held each year in April
Factsheets Published monthly on the Company’s website
Payment methods for dividends
Dividends and interest can be paid to shareholders by means of BACS. Mandate forms for this purpose are available on request from the
Company’s registrars.
Subsidiary company details
Subsidiary companies not incorporated in the United Kingdom, as listed at pages 119 and 120, are registered at the following addresses:
Companies registered in Hong Kong Suite 1301 Ruttonjee House, Ruttonjee Centre,
11 Duddell Street, Central, Hong Kong
Companies registered in the Republic of Ireland 38/39 Fitzwilliam Square, Dublin 2, Ireland
Companies registered in USA 801 2nd Avenue, Suite 403, New York,
other than Delaware Corporate Services NY 10017, USA
Companies registered in USA - 919 N Market St, Suite 725, Wilmington,
Delaware Corporate Services DE 19801, USA
Company registered in Jersey 3rd Floor, Standard Bank House, 47-49 La Motte Street,
St Helier, Jersey JE2 4SZ
Company registered in Cayman Islands Governors Square, Suite 5-204, 23 Lime Tree Bay Avenue, Grand Cayman,
Cayman Islands, KY1-1108
Company registered in Australia Watson Erskine and Co Pty Ltd, Level 4, 55 Clarence Street
Sydney NSW 2000
138
Notice of annual general meeting
NOTICE IS HEREBY GIVEN that the 132nd annual general meeting of the Company will be held in-person at the offices of The
Law Debenture Corporation p.l.c., 8th Floor, 100 Bishopsgate, London, EC2N 4AG and electronically in accordance with the
information provided on page 148 on 7 April 2022 at 11.00am to transact the following business:
Ordinary resolutions
To consider and, if thought fit, to pass the following resolutions which will be proposed as ordinary resolutions:
1. To receive the report of the Directors, the strategic report and the audited accounts and the auditor’s report for the year
ended 31 December 2021.
2. To receive and approve the Directors’ remuneration report for the year ended 31 December 2021.
3. To declare a final dividend of 8.375p per share in respect of the year ended 31 December 2021.
4. To re-elect Denis Jackson as a Director.
5. To re-elect Trish Houston as a Director.
6. To re-elect Robert Hingley as a Director.
7. To re-elect Tim Bond as a Director.
8. To re-elect Claire Finn as a Director.
9. To elect Pars Purewal as a Director.
10. To elect Clare Askem as a Director.
11. To appoint Deloitte LLP as auditors of the Company to hold office until the conclusion of the next general meeting at which
the accounts of the Company are laid.
12. To authorise the Audit and Risk Committee to determine the auditor’s remuneration.
13. To adopt the 2022 Sharesave Option Plan and authorise the Directors of the Company to do all acts and things which they
may consider necessary or expedient to implement and operate the 2022 Sharesave Option Plan.
14. General authority to allot shares.
THAT:
(a) in substitution for all existing authorities (but without prejudice to any allotments made pursuant to the terms of such
authorities), the Directors be generally and unconditionally authorised pursuant to and in accordance with section 551 of
the Companies Act 2006 (the ‘Act’) to exercise for the period ending on the date of the Company’s next annual general
meeting, all the powers of the Company to allot shares in the Company or to grant rights to subscribe for or to convert any
security into shares in the Company up to an aggregate nominal amount (within the meaning of sections 551(3) and (6) of
the Act) of £619,329.15 (representing 12,386,583 ordinary shares) (or, if less, the number representing 10% of the total ordinary
shares in issue (excluding treasury shares) as at the date of passing of this resolution); and
(b) the Company may during such period make offers or agreements which would or might require the making of allotments
of equity securities or relevant securities as the case may be after the expiry of such period.
Special resolutions
To consider and, if thought fit, to pass the following resolutions which will be proposed as special resolutions:
15. Disapplication of statutory pre-emption rights.
THAT if resolution 14 is passed, the Directors be authorised to allot equity securities (as defined in the Act) for cash under the
authority given by that resolution and/or to sell ordinary shares held by the Company as treasury shares for cash as if section 561
of the Act did not apply to any such allotment or sale, such authority to be limited to:
(a) the allotment of equity securities or sale of treasury shares in connection with a rights issue, open offer or other issue or
offer to ordinary shareholders in proportion (as nearly as possible) to their existing holding of shares (but subject to such
exclusions as the Directors may deem necessary or appropriate to deal with fractional entitlements, record dates or legal,
138
CORPORATE INFORMATION
lawdebenture.com
139139
CORPORATE INFORMATION
regulatory or practical problems arising in any overseas territory, the requirements of any regulatory body or stock exchange
or any other matter); and
(b) the allotment of equity securities or sale of treasury shares (otherwise than under paragraph (a) above up to a nominal
amount of £309,664.55 (representing 6,193,291 ordinary shares),
such authority to expire at the next AGM of the Company (or, if earlier, at the close of business on 6 July 2023) but, in each case,
prior to its expiry the Company may make offers, and enter into agreements, which would, or might, require equity securities
to be allotted (and treasury shares to be sold) after the authority expires and the Directors may allot equity securities (and sell
treasury shares) under any such offer or agreement as if the authority had not expired.
16. Additional authority to disapply pre-emption rights for acquisitions or specified capital investment.
THAT, if resolution 14 is passed, the Directors be authorised in addition to any authority granted under resolution 15 to allot
equity securities (as defined in the Act) for cash under the authority given by that resolution and/or to sell ordinary shares
held by the Company as treasury shares for cash as if section 561 of the Act did not apply to any such allotment or sale, such
authority to be:
(a) l imited to the allotment of equity securities or sale of treasury shares up to a nominal amount of £309,664.55 (representing
6,193,291 ordinary shares); and
(b) used only for the purposes of financing (or refinancing, if the authority is to be used within six months of the original
transaction) a transaction which the Directors of the Company determine to be an acquisition or other capital investment
of a kind contemplated by the Statement of Principles on disapplying Pre-Emption Rights most recently published by the
Pre-Emption Group prior to the date of this notice,
such authority to expire at the next AGM of the Company (or, if earlier, at the close of business on 6 July 2023) but, in each case,
prior to its expiry the Company may make offers, and enter into agreements, which would, or might, require equity securities
to be allotted (and treasury shares to be sold) after the authority expires and the Directors may allot equity securities (and sell
treasury shares) under any such offer or agreement as if the authority had not expired.
17. General authority to buy back shares.
THAT the Company be and is generally and unconditionally authorised in accordance with sections 693 and 701 of the Act
to make market purchases (within the meaning of section 693(4) of the Act) of any of its issued ordinary shares of 5p each in
the capital of the Company, in such manner and upon such terms as the Directors of the Company may from time to time
determine, provided always that:
(a) the maximum aggregate number of shares that may be purchased is 18,567,488;
(b) the minimum price which may be paid for a share shall be 5p;
(c) the maximum price which may be paid for a share shall be an amount equal to 105% of the average of the middle
market quotations (as derived from the London Stock Exchange Daily Official List) for the shares for the five business days
immediately preceding the day on which the share is purchased; and
(d) unless previously revoked, renewed or varied, the authority hereby conferred shall expire on the date of the Company’s
next annual general meeting provided that a contract of purchase may be made before such expiry which will or may be
executed wholly or partly thereafter, and a purchase of shares may be made in pursuance of any such contract.
18. Authority to convene a general meeting – notice.
THAT a general meeting of the Company, other than an annual general meeting, may be called on not less than 14 clear days’
notice.
By order of the Board
Law Debenture Corporate Services Limited
Company Secretary | 24 February 2022
Registered No. 30397
Registered office:
8th Floor
100 Bishopsgate
London EC2N 4AG
Notice of annual general meeting continued
140140
lawdebenture.com
The Law Debenture Corporation p.l.c.
2022 Sharesave Option Plan (the “2022 Plan”)
Summary of key terms in the 2022 Plan
FEATURE DESCRIPTION COMMENTS
Duration of the Plan
SAYE options may be granted under the 2022 Plan for a period of 10 years. This is standard practice
and is the same in the
current plan.
Type of award
SAYE options over ordinary shares in The Law Debenture Corporation plc. SAYE awards are in
the form of an option
grant. The SAYE options
must be over shares in
a company that is not
under the control of
another company.
Eligibility and
granting awards
Each time invitations are sent, all eligible Employees must be invited to
participate.
Eligible Employee broadly means an individual who satisfies the following
conditions:
• either is an employee (but not a director) of the group or is an executive
director of a group company who is contracted to work at least 25 hours per
week for the group (exclusive of meal breaks);
• has earnings in respect of their office or employment;
• has been such a director or employee for such period, not exceeding 5 years,
as the Board determines; and
• has not given or been given notice to terminate their employment with the
group.
In addition it means an executive director or employee of a group company
nominated by the Board to be an Eligible Employee.
Maximum savings amount - currently £500.
Required by legislation.
Timing of awards
Options may only be granted to participants during the period of 30 days (or 42
days if applications are scaled down) beginning on the first day by reference to
which the Option Price was calculated.
Required by legislation.
Exercise price
The exercise price will be set by the Board and shall not be less than 80 per cent
of the market value of the underlying shares.
Required by legislation.
Lapsing
An SAYE Option shall lapse on the earliest of:
• before an option has become capable of being exercised, the option holder
giving notice that they intend to stop paying monthly contributions, or being
deemed under the terms of the savings contract to have given such notice
or making an application for the repayment of their aggregate monthly
contributions;
• the date on which a resolution is passed or an order is made by the court for
the compulsory winding-up of the Company;
• the date on which the option holder becomes bankrupt or enters into a
compromise with their creditors generally; and
• any other date set out in the rules.
Standard practice.
Exercise
An SAYE option may not be exercised before the date set by the Board.
An SAYE option may not be exercised more than 6 months after the exercise
date and if not exercised by that date it shall lapse.
Company to decide the
exercise date.
141
CORPORATE INFORMATION
The Law Debenture Corporation p.l.c.
2022 Sharesave Option Plan (the “2022 Plan”) continued
Summary of key terms in the 2022 Plan
FEATURE DESCRIPTION COMMENTS
Corporate Events
in relation to the
Company
Takeover
If there is a change of control of the Company all SAYE options may be exercised,
at any time during the period of 6 months beginning with the time when the
person making the offer has obtained control of the company.
Any unexercised SAYE options will lapse after the 6-month period.
If the Board determines that it is likely that a takeover will occur, the Board may
determine that SAYE options may be exercised within 20 days of the event. If the
takeover does not take place, the exercise is of no effect.
If a takeover occurs, as a result of which the shares no longer meet the
requirements of the SAYE legislation, the SAYE option may be exercised within
20 days of the event.
Compulsory acquisition of shares
If a person becomes entitled or bound to acquire shares in the Company under
the Companies Act, all SAYE options may be exercised.
Any unexercised SAYE options will lapse when the person ceases to be entitled
or bound to acquire shares in the Company.
Scheme of arrangement
If the court sanctions a compromise or arrangement under the Companies Act
where all of the share capital or all of the fully paid ordinary shares are acquired,
all SAYE options may be exercised at any time during the period of 6 months
beginning with the date the court sanctions the compromise or arrangement.
Any unexercised SAYE options will lapse after the 6-month period.
Winding up of the Company
If notice is given of a resolution for the voluntary winding-up of the Company, all
SAYE options may be exercised within 6 months of the passing of the resolution
and if not so exercised shall lapse.
UK tax legislation sets
out a range of corporate
events on which
SAYE options may be
exercised before the
third anniversary of grant
and benefit from tax-
advantaged treatment.
These include a cash
takeover by way of a
general offer.
Note that these rules
provide for lapse of
SAYE options if they are
not exercised within a
specified period of a
corporate event.
Leavers
In general an SAYE option may be exercised only while the option holder is in
employment with the group and if an option holder ceases to be an employee,
any option granted to them shall lapse on cessation.
Death
If an option holder dies before the SAYE options become exercisable, their
personal representatives will be entitled to exercise their SAYE options at any
time during the 12-month period after their death. If not exercised, the SAYE
options shall lapse at the end of the period.
If an option holder dies after the SAYE options have become exercisable, their
personal representatives will be entitled to exercise their SAYE options at any
time during the 12-month period after the time the SAYE options became
exercisable. If not so exercised, the SAYE options shall lapse at the end of
theperiod.
Injury, disability, redundancy, retirement etc.
If an option holder ceases to be an employee by reason of:
• injury or disability; redundancy within the meaning of the Employment
Rights Act 1996;
• retirement;
• a relevant transfer within the meaning of the Transfer of Undertakings
(Protection of Employment) Regulations 2006;
• the company in which they hold office or employment ceases to be an group
company;
they will be entitled to exercise their SAYE options at any time during the period
of 6 months after the date they cease to be an employee.
142142
lawdebenture.com
The Law Debenture Corporation p.l.c.
2022 Sharesave Option Plan (the “2022 Plan”) continued
Summary of key changes
TERM
RULE REFERENCE IN THE 2012
SHARESAVE OPTION PLAN
(THE “2012 PLAN”) COMMENTS
Plan rules are no longer required to include
an age limit whereby an option can be
exercised on reaching a specified age
without retiring.
Definition of Specified Age, 10.1.1 (i),
10.4
The 2012 Plan permits exercise on reaching the
Specified Age which is defined as 65 years. This
provision will not be included in the 2022 Plan
rules however retirement will continue to be
a trigger event that allows exercise within the
period of 6 months following retirement which
remains a good leaver circumstance (Rule 6.2).
The material interest requirement has been
removed. The material interest test was
in relation to option holders who had at
any time within the twelve-month period
before the date of exercise, an interest
in more than 25% of the issued ordinary
share capital of the company (or another
company in the group).
9.2 The new 2022 Plan rules will not include these
provisions as they are no longer relevant.
Removal of the prohibition on certain types
of restrictions on the shares.
Definition of Shares, 1.1 As the Company’s shares are not subject to
restrictions this provision should not have any
practical impact for Law Debenture. However,
the definition of ‘Shares’ includes reference to
the relevant part of the legislation which used to
contain this restriction (paragraph 21 Schedule 3
ITEPA 2003) and therefore this wording will not
be included in the new 2022 Plan rules.
Certain types of cash takeovers now qualify
for the tax favoured treatment to apply on
exercise within 3 years
10.5 The 2012 Plan includes a provision that allows
exercise of the options on a change of control of
the Company as a result of making a general offer
and therefore where this is a cash takeover within
3 years of grant of the options the tax favoured
treatment should apply.
The new 2022 Plan rules will be consistent with
the 2012 Plan.
Amendment permitting exercise after a
cash scheme of arrangement
10.7 The 2012 Plan includes a provision that allows
exercise of the options where the court sanctions
a compromise or arrangement and therefore
where this is a cash arrangement within 3 years of
grant of the options the tax favoured treatment
should apply.
The new 2022 Plan rules will be consistent with
the 2012 Plan.
Rules must include a provision to permit
exercise on a TUPE transfer or when
an employing company ceases to be
an associated company. If an option is
exercised under such circumstances the tax
favoured treatment should still apply.
10.1.1(iii) The 2012 Plan permits exercise as a result of “the
business or part of a business in which he works
being transferred to a company which is neither
an Associated Company nor a company of which
the Company has Control” and therefore the
new 2022 Plan rules will be consistent with the
2012Plan.
References to option certificate removed 6.3 The 2022 Plan does not contain references to an
option certificate to reflect the fact that the plan
is now operated electronically.
143
CORPORATE INFORMATION
Explanatory notes to the notice of annual general meeting
The notice of the Annual General Meeting (the ‘Notice’) to be
held on 7 April 2022 (the ‘Meeting’) is set out on pages 138 and
139. The following notes provide an explanation as to why the
resolutions set out in the notice are being put to shareholders.
Resolution 1
Under the Companies Act 2006 (the ‘Act’), the Directors are
required to present the annual accounts and reports of the
Company to shareholders at a general meeting. These are
contained in the Company’s Annual Report and financial
statements for the year ended 31 December 2021 (the ‘2021
Annual Report’), which was sent to shareholders on 4 March
2022.
Resolution 2
In accordance with the provisions of the Act, the Company’s
Report on Directors’ Remuneration will be put to an annual
shareholder vote by ordinary resolution. This vote is advisory in
nature and is in respect of the overall remuneration package
which is in place for Directors – it is not specific to individual
levels of remuneration nor is the entitlement of a Director to
remuneration conditional on the vote being passed. The report is
set out in full on pages 67 to 82 of the 2021 Annual Report.
Resolution 3
The Board proposes a final dividend of 8.375 pence per share in
respect of the year ended 31 December 2021. If approved, the
recommended final dividend will be paid on 14 April 2022 to
all ordinary shareholders who are on the register of members
on 11March 2022. The shares will be marked ex-dividend on
10March 2022.
Resolutions 4 – 10
Under the Company’s Articles of Association (the ‘Articles’), one
third of the Directors must retire from office by rotation at each
annual general meeting and may offer themselves for re-election
(this does not include Directors appointed to the Board since the
last annual general meeting). The 2018 UK Corporate Governance
Code recommends that all directors of premium listed
companies should be subject to annual re-election, so Denis
Jackson, Trish Houston, Robert Hingley, Tim Bond and Claire
Finn will retire from office and offer themselves for re- election.
Mark Bridgeman will not seek re-election. The UK Corporate
Governance Code and the Articles also require any new Directors
appointed by the Board since the last annual general meeting
to stand for election at the next annual general meeting.
Accordingly, Clare Askem and Pars Purewal, having joined the
Board in June 2021 and December 2021 respectively, also retire
from office and offer themselves for election.
The biographical details for each Director are set out on pages 52
and 53 of the 2021 Annual Report.
In proposing the election/re-election of the Directors, the
Chairman confirms that, following the internal performance
evaluation (described on pages 59 and 60 of the 2021 Annual
Report), each individual continues to make an effective
and valuable contribution to the Board and demonstrates
commitment to their role. Accordingly, the Board recommends
their election or re-election as appropriate.
Resolution 11
The Company’s auditors having been newly appointed by the
Board during 2021 must offer themselves for appointment at the
next annual general meeting and for re-appointment at each
annual general meeting at which accounts are presented going
forwards. Accordingly, the Board, on the recommendation of the
Audit and Risk Committee, recommends the appointment of
Deloitte LLP as the Company’s auditors.
Resolution 12
This resolution, if passed, will authorise the Audit and Risk
Committee to agree the remuneration of Deloitte LLP for their
services as auditors.
Resolution 13
The 2022 Sharesave Option Plan (‘2022 Plan’) will replace the
Company’s existing Sharesave Option Plan (‘Existing Plan’),
which was adopted in 2012 and will expire on 24 April 2022.
The 2022 Plan is a savings-related share option scheme under
which options to acquire ordinary shares in the Company may
be granted to qualifying employees as a tax efficient method of
both incentivising and retaining staff. It is intended to satisfy the
conditions of Schedule 3 to the Income Tax (Earnings & Pensions)
Act 2003 such that options granted pursuant to the 2022 Plan
may benefit from certain tax reliefs on exercise of the options.
The 2022 Plan is similar to the Company’s Existing Plan, but has
been updated to reflect changes in the relevant legislation since
the Existing Plan was adopted. A summary of the key features
of the 2022 Plan is set out in the Appendix to the Notice. The
provisions of the 2022 Plan cannot be altered to the benefit or
the advantage of participants without prior shareholder approval
in a general meeting.
Resolution 14
Under the Act, Directors may not allot shares in the Company
(or grant certain rights over shares) without the authority of
shareholders in a general meeting (other than pursuant to an
employee share scheme). In certain circumstances this could
be unduly restrictive. The Directors’ existing authority to allot
ordinary shares, which was granted at the annual general
meeting of the Company held on 7 April 2021, will expire at the
end of this year’sAGM.
The Investment Association’s Share Capital Management
Guidelines and the Pre-Emption Group Principles permit,
and regard as routine, an authority to allot up to two-thirds
of a company’s existing issued share capital. Subject to the
passing of this resolution, which will be proposed as an ordinary
resolution, the Directors will be authorised, in place of all existing
authorities, to allot shares (pursuant to section 551 of the Act) up
to an aggregate nominal amount of £619,329.15 (representing
12,386,583 ordinary shares), representing approximately ten
per cent of the nominal value of the issued ordinary shares
on 24 February 2022 (being the last practicable date prior to
the publication of this document). As at 24 February 2022, the
Company did not hold any shares in treasury.
The authority conferred will expire (unless previously revoked,
varied or renewed) at the end of the next annual general
meeting. However, the Company may make an offer or
agreement prior to the expiry of this authority which would
or might require shares to be allotted after the expiry of this
authority – in this case, the Directors will be permitted to allot
securities pursuant to such offer or agreement as if this authority
had not expired.
144
lawdebenture.com
Explanatory notes to the notice of annual general meeting
continued
Resolution 15
Unless they are given an appropriate authority by shareholders, if
the Directors wish to allot any shares for cash or grant rights over
shares (other than pursuant to an employee share scheme) they
must first offer them to existing shareholders in proportion to
their existing holdings. These are known as pre-emption rights.
The existing disapplication of these statutory pre-emption rights,
which was granted at the annual general meeting held on 7April
2021, will expire at the end of this year’s annual general meeting.
Resolution 15 seeks approval to disapply the pre-emption rights,
by allowing Directors to allot equity securities (including a sale
of treasury shares) for cash: (i) in connection with rights issues
and other preemptive issues in favour of existing shareholders in
proportion to their existing holdings (subject to certain exclusions);
(ii) by way of an open offer or other issue of securities in favour
of existing shareholders in proportion to their existing holdings
(subject to certain exclusions); and (iii) to persons other than existing
shareholders up to an aggregate nominal amount of £309,664.55
(representing 6,193,291 ordinary shares), being no more than five per
cent of the issued ordinary share capital in issue on the 24February
2022, in each case without the equity securities first being offered to
the existing shareholders in proportion to their existing holdings.
The Directors confirm that in accordance with the Pre-Emption
Group’s Statement of Principles, they do not intend to issue
shares for cash representing more than seven and a half per cent
of the Company’s issued ordinary share capital in any rolling
three-year period other than to existing shareholders, save as
permitted in connection with an acquisition or specified capital
investment as described below, unless shareholders have been
notified and consulted in advance.
Resolution 16
Resolution 16 seeks an additional and separate approval to
disapply pre-emption rights by allowing Directors to allot equity
securities (or sell treasury shares) for cash, of up to a further five
per cent of the total ordinary share capital, representing up to
an aggregate nominal amount of £309,664.55 (representing
6,193,291 ordinary shares), as at 24 February 2022, without such
equity securities first being offered to the existing shareholders
in proportion to their holdings, where the allotment is to
finance an acquisition or capital investment, and/or refinance a
transaction of that nature entered into within six months of the
originaltransaction.
The Directors confirm that they will only allot securities (or sell
treasury shares for cash) pursuant to this authority where that
allotment is in connection with an acquisition or specified capital
investment (as described in the Pre-Emption Group’s Statement
of Principles) which is announced at the same time as the
allotment, or which has taken place in the preceding six-month
period and is disclosed in the announcement of that allotment.
Further, the Directors confirm that they intend to adhere to
the Pre-Emption Group’s Statement of Principles and not to
allot shares for cash on a non-pre-emptive basis in excess
of an amount equal to seven and a half per cent of the total
issued share capital (excluding any treasury shares) within a
rolling three-year period other than in connection with an
acquisition or specified capital investment which is announced
contemporaneously with the allotment or which has taken
place in the preceding six-month period and is disclosed in the
announcement of the allotment.
Resolution 17
Resolution 17 is a special resolution that will grant the Company
authority to make market purchases of up to 18,567,488 shares,
representing 14.99% of the issued ordinary share capital as
at the date of the Notice. Any shares bought back will either
be cancelled or placed into treasury at the determination of
theDirectors.
The maximum price which may be paid for each share must
not be more than 105% of the average of the mid-market values
of the Ordinary Shares for the five business days before the
purchase is made. The minimum price which may be paid for
each ordinary share is 5p.
The Directors are committed to managing the Company’s capital
effectively and do not intend to exercise such authority at present.
Purchases would only be made after considering the effect on
earnings per share and the benefits for shareholders generally.
This authority shall expire at the AGM to be held in 2022 when a
resolution to renew the authority will beproposed.
Resolution 18
The Act requires that all general meetings must be held on at least
21 clear days’ notice. Notwithstanding the notice provisions in the
Articles, a general meeting (other than an annual general meeting)
may be held on at least 14 clear days’ notice where:
• the Company makes an electronic means of voting available
to all shareholders for the meeting. This condition is met by
the Company providing the facility for shareholders to appoint
a proxy via an online shareholder portal operated by our
Registrars; and
• the shareholders pass a special resolution reducing the period
of notice to not less than 14 days either at the immediately
preceding annual general meeting or a general meeting held
since that annual general meeting.
It is not the Company’s intention to use the shorter notice period
as a matter of routine but only when the flexibility is merited by
the business of the meeting and is thought to be in the interests
of shareholders as a whole. If given, this approval will be effective
until the end of the next annual general meeting.
Recommendation
Full details of the above resolutions are contained in the Notice.
The Directors consider that all the resolutions to be proposed
at the Meeting are in the best interests of the Company and its
members as a whole. The Directors unanimously recommend that
shareholders vote in favour of all the resolutions, as they intend to
do in respect of their own beneficial holdings.
If you are in any doubt about the contents of this document, you
should immediately consult your stockbroker, bank manager,
solicitor, accountant or other independent financial adviser
authorised under the Financial Services and Markets Act 2000, or
if outside the United Kingdom, another appropriately authorised
financial adviser, without delay.
If you have sold or otherwise transferred all of your shares in the
Company you should immediately send this document, together
with the accompanying form of proxy, to the stockbroker, bank or
other agent through whom the sale or transfer was effected, for
transmission to the purchaser or transferee.
145145
CORPORATE INFORMATION
Shareholder notes
The following notes explain your general rights as a shareholder
and your right to attend and vote at the Meeting or to appoint
someone else to vote on your behalf.
1. To be entitled to attend and vote at the meeting (and for the
purpose of the determination by the Company of the number
of votes they may cast), shareholders must be registered in
the register of members of the Company at close of business
on Tuesday, 5 April 2022 (or, in the event of any adjournment,
close of business on the date which is 48 hours before the
time of the adjourned meeting). Changes to the register of
members after the relevant deadline shall be disregarded in
determining the rights of any person to attend and vote at the
meeting. In the case of joint holders of a share, the vote of the
senior who tenders a vote, whether in person or by proxy, shall
be accepted to the exclusion of the votes of the other joint
holders and for this purpose seniority is determined by the
order in which the names stand in the register of members in
respect of the share.
2. Shareholders are entitled to appoint a proxy to exercise all or
part of their rights to attend, and to speak and vote on their
behalf at the meeting. A shareholder may appoint more than
one proxy in relation to the meeting provided that each proxy
is appointed to exercise the rights attached to a different
ordinary share or ordinary shares held by that shareholder. A
proxy need not be a shareholder of the Company. A form of
proxy, which accompanies this Notice, may be used to make
such appointment and give proxy instructions. If you do not
have a form of proxy and believe that you should have one, or
if you require additional forms, please contact the Company's
registrar, whose contact details are provided above.
3. Dispatch instructions: To be valid, any form of proxy and
any power of attorney or other authority under which it
is executed (or a duly certified copy of any such power or
authority), must be returned by no later than 11:00 am on
Tuesday, 5 April 2022 through any one of the following
methods:
(a) by post at Computershare Investor Services PLC, The
Pavilions, Bridgwater Road, Bristol, BS99 6ZY, United
Kingdom
(Tel: 0370 707 1129 if dialling from the UK and
+44 370 707 1129 if dialling from abroad); or
(b) by hand or courier (during normal business hours only) to
the Company’s UK registrar at: Computershare Investor
Services PLC, The Pavilions, Bridgwater Road, Bristol, BS13
8AE, United Kingdom
(Tel: 0370 707 1129 if dialling from the UK and
+44 370 707 1129 if dialling from abroad); or
(c) electronically through the website of the Company’s
UK registrar at www.investorcentre.co.uk/eproxy, where
the following details, which can be found on your proxy
card or in an email received from Computershare, will
berequired:
• the meeting control number;
• your shareholder reference number; and
• your unique pin code; or
(d) in the case of shares held through CREST, via the CREST
system (see notes 8-11 on pages 145 and 146).
4. Any person to whom this Notice is sent who is a person
nominated under Section 146 of the Companies Act 2006
(the 'Act') to enjoy information rights (a ‘Nominated Person’)
may, under an agreement between him/her and the
shareholder by whom he/she was nominated, have a right to
be appointed (or to have someone else appointed) as a proxy
for the meeting. If a Nominated Person has no such proxy
appointment right or does not wish to exercise it, he/she may,
under any such agreement, have a right to give instructions to
the shareholder as to the exercise of voting rights.
5. The statement of the rights of shareholders in relation to
the appointment of proxies in notes 2 and 8 do not apply to
Nominated Persons. The rights described in these paragraphs
can only be exercised by shareholders of the Company.
6. A vote withheld is not a vote in law, which means that the vote
will not be counted in the calculation of votes for or against
the resolution. If no voting indication is given, your proxy will
vote or abstain from voting at his/her discretion. Your proxy
will vote (or abstain from voting) as he/she thinks fit in relation
to any other matter which is put before the meeting.
7. If you return more than one proxy appointment (except where
multiple proxies have been appointed), either by paper or
electronic communication, that appointment received last by
the Registrar before the latest time for the receipt of proxies
will take precedence. You are advised to read the terms
and conditions of use carefully. Electronic communication
facilities are open to all shareholders and those who use them
will not be disadvantaged.
8. The return of a completed form of proxy, electronic filing or
any CREST proxy instruction (as described in note 10 below)
will not prevent a shareholder from attending the meeting
and voting in person if he/she wishes to do so.
9. CREST members who wish to appoint a proxy or proxies
through the CREST electronic proxy appointment service may
do so for the meeting (and any adjournment of the meeting)
by using the procedures described in the CREST Manual
(available from https://www.euroclear.com/site/public/
EUI). CREST personal members or other CREST sponsored
members, and those CREST members who have appointed
a service provider/(s), should refer to their CREST sponsor
or voting service provider/(s), who will be able to take the
appropriate action on their behalf.
10. In order for a proxy appointment or instruction made by
means of CREST to be valid, the appropriate CREST message
(a ‘CREST Proxy Instruction’) must be properly authenticated
in accordance with Euroclear UK & International Limited’s
specifications and must contain the information required
for such instructions, as described in the CREST Manual. The
message must be transmitted so as to be received by the
issuer’s agent by 11:00 am on Tuesday, 5 April 2022. For this
purpose, the time of receipt will be taken to mean the time
(as determined by the timestamp applied to the message by
the CREST application host) from which the issuer’s agent
is able to retrieve the message by enquiry to CREST in the
manner prescribed by CREST. After this time, any change of
146146
lawdebenture.com
Shareholder notes continued
instructions to proxies appointed through CREST should be
communicated to the appointee through other means.
11. CREST members and, where applicable, their CREST sponsors,
or voting service providers should note that Euroclear UK
& International Limited does not make available special
procedures in CREST for any particular message. Normal
system timings and limitations will, therefore, apply in relation
to the input of CREST Proxy Instructions. It is the responsibility
of the CREST member concerned to take (or, if the CREST
member is a CREST personal member, or sponsored member,
or has appointed a voting service provider, to procure that his
CREST sponsor or voting service provider takes such action
as shall be necessary to ensure that a message is transmitted
by means of the CREST system by any particular time. In this
connection, CREST members and, where applicable, their
CREST sponsors or voting system providers are referred, in
particular, to those sections of the CREST Manual concerning
practical limitations of the CREST system and timings. The
Company may treat a CREST Proxy Instruction as invalid
in the circumstances set out in Regulation 35(5)(a) of the
Uncertificated Securities Regulations 2001.
12. Any corporation which is a member can appoint one or more
corporate representative(s) who may exercise, on its behalf,
all its powers as a member provided that no more than one
corporate representative exercises powers in relation to the
same shares.
13. As at 24 February 2022 (being the latest practicable business
day prior to the publication of this Notice), the Company
had an issued share capital of 123,865,835 ordinary shares,
carrying one vote each and no restrictions and no special
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. Therefore, the total voting
rights in the Company is 123,865,835.
14. Under Section 527 of the Act, shareholders meeting the
threshold requirements set out in that section have the right
to require the Company to publish, on a website, a statement
setting out any matter relating to:
(i) the audit of the Company’s financial statements (including
the auditor’s report and the conduct of the audit), which
are to be laid before the meeting; or
(ii) any circumstances connected with an auditor of the
Company ceasing to hold office since the previous
meeting at which annual accounts and reports were laid
in accordance with Section 437 of the Act. The Company
may not require the shareholders requesting any such
website publication to pay its expenses in complying with
Sections 527 or 528 of the Act. Where the Company is
required to place a statement on a website under Section
527 of the Act, it must forward the statement to the
Company’s auditor not later than the time when it makes
the statement available on the website. Business which
may be dealt with at the meeting for the relevant financial
year includes any statement that the Company has been
required to publish on a website under Section 527 of
theAct.
15. Any shareholder attending the meeting has the right to ask
questions. The Company must answer any such question
relating to the business being dealt with at the meeting, but
no such answer need be given if: (a) to do so would interfere
unduly with the preparation for the meeting or involve the
disclosure of confidential information; (b) the answer has
already been given on a website in the form of an answer
to a question; or (c) it is undesirable in the interests of the
Company or the good order of the meeting that the question
be answered.
Registered shareholders may submit their questions to the
Directors in advance of the meeting by sending an email to
the Company Secretary at TSU.cosec@lawdeb.com and the
Company will answer these in due course.
16. The following documents are, subject to any security
arrangements or restrictions in place as a result of the
current Covid-19 pandemic, available for inspection from
Monday, 7March 2022 until the conclusion of the AGM at the
Company’s registered office:
(a) copies of the Directors’ letters of appointment and service
contracts;
(b) a copy of the Articles of Association of the Company; and
(c) a copy of the new 2022 Sharesave Option Plan.
Inspection of these documents may only take place in
accordance with measures imposed by the UK Government
in connection with the Covid-19 pandemic. The Company has
its own procedures in place to comply with those measures.
Accordingly, if you wish to inspect any of these documents,
you should email TSU.cosec@lawdeb.com to arrange an
appointment.
A copy of the 2021 Annual Report and accounts (including
the Notice of AGM) and the 2022 Sharesave Option Plan will
be available for viewing at the Financial Conduct Authority’s
National Storage Mechanism, from the mailing date of this
Notice.
17. You may not use any electronic address provided in either this
Notice or any related documents (including the form of proxy)
to communicate with the Company for any purposes other
than those expressly stated.
18. Personal data provided by shareholders at or in relation to the
meeting will be processed in line with the Company’s privacy
policy. Detailed information on how the Company processes
your personal data and what your rights are under applicable
data privacy laws can be accessed on the Company’s website
at https://www.lawdebenture.com/privacy-and-cookie-policy.
A copy of this Notice and other information required by section
311A of the Act, can be found on the Company’s website at
https://www.lawdebenture.com/investment-trust/shareholder-
information/corporate-governance/agm.
147147
CORPORATE INFORMATION
The offi ces of The Law Debenture Corporation p.l.c., 8th Floor, 100 Bishopsgate, London EC2N 4AG.
Annual general meeting venue
RAILWAY UNDERGROUND BUSES PARKING
Main line stations within one
mile include:
• Liverpool Street
• London Bridge
• Farringdon
• Fenchurch Street
• Cannon Street
• Blackfriars
• Holborn Viaduct
Liverpool Street
(Central, Circle, Hammersmith
& City and Metropolitan lines)
Monument
(Circle and District lines)
Bank
(Central, Northern, Waterloo &
City lines and Docklands Light
Railway)
London Bridge
(Northern and Jubilee lines)
You may select the 149, 35,
47 or 388 bus services from
London Bridge or the 26 or 8
bus services from St. Paul’s to
Wormwood Street, which is
directly across from the venue.
You may also take the 205
from Old Street or the 43 or 133
bus services from Moorgate
to Liverpool Street, which is a
5-minute walk from the venue.
There is limited meter parking
in business hours near the
venue. Parking is available at
Broadgate or London Finsbury
Square. There is also multi-
storey parking at Aldersgate
Car Park near London Wall.
Fenchurch
Street
Bank
Tower
Gateway
Aldgate
Aldgate
East
Monument
Tower
Hill
Cannon
Street
Liverpool
Street
Shoreditch
High Street
Moorgate
London
Bridge
London
Bridge
City
Tower
St.
Katharine
Southwark
Cathedral
City Hall
Bank of
England
P
O
U
L
T
R
Y
C
A
N
N
O
N
S
T
C
O
R
N
H
I
L
L
E
K
I
N
G
W
I
L
LI
A
M
S
T
T
H
R
E
A
D
N
E
E
D
L
E
S
T
L
O
N
D
O
N
B
R
I
D
G
E
E
A
S
T
C
H
E
A
P
L
E
A
D
E
N
H
A
L
L
S
T
R
E
E
T
A
L
D
G
A
T
E
F
E
N
C
H
U
R
C
H
S
T
R
E
E
T
T
O
W
E
R
B
R
I
D
G
E
M
I
N
O
R
I
E
S
M
A
N
S
E
L
L
S
T
R
E
E
T
T
O
W
E
R
H
I
L
L
D
U
K
E
’
S
P
L
F
I
NS
B
U
R
Y
S
Q
M
O
O
R
G
A
T
E
C
O
M
M
E
R
C
I
A
L
S
T
R
E
E
T
B
O
T
O
L
P
H
S
T
S
T
.
A
P
P
O
L
D
S
T
M
O
O
R
G
AT
E
P
R
I
NCE
’
S
S
T
R
E
E
T
W
H
I
T
E
C
H
A
P
E
L
H
I
G
H
S
T
L
E
M
A
N
S
T
R
O
Y
A
L
M
I
N
T
S
T
R
E
E
T
P
R
I
M
R
O
S
E
S
T
N
O
R
T
O
N
F
O
L
G
A
T
E
B
E
T
H
N
A
L
G
R
B
R
I
C
K
L
A
N
E
O
S
B
O
R
N
S
T
S
C
L
A
T
E
R
S
T
S
H
O
R
E
D
I
T
C
H
H
I
G
O
L
D
B
R
O
A
D
S
T
W
O
R
S
H
I
P
S
T
S
T
.
K
A
T
H
A
R
I
N
E
’
S
W
A
Y
M
I
D
D
L
E
S
E
X
S
T
R
E
E
T
A
R
T
I
L
L
E
R
Y
L
AN
E
L
O
M
B
A
R
D
S
T
GRACECHURCH
STREET
HOUNDSDITCH
BISHOPSGATE
LIVERPOOL ST
WORMWOOD
LONDON WALL
BISHOPSGATE
Annual general meeting online user guide
Annual general meeting online guide
Meeting ID: 142-959-531
Meeting Access
Shareholders can participate the meeting remotely, via:
https://web.lumiagm.com/142-959-531
This can be accessed online using the latest version of Chrome, Firefox, Edge and
Safari on your PC, laptop, tablet or smartphone. On accessing the meeting platform,
you will be asked to enter your unique SRN and PIN
Access to the Lumi platform will be available an hour prior to the start of the meeting.
Broadcast
Once logged in, and at the commencement of the meeting, you will be able to follow
the proceedings on your device.
Voting
Once the Chair has formally opened voting, the list of resolutions will automatically
appear on your screen. Select the option that corresponds with how you wish to vote.
Once you have selected your vote, the option will change colour and a confirmation
message will appear to indicate your vote has been cast and received, there is no
submit button.
To vote on all resolutions displayed select the “vote all” option at the top of the Screen.
To change your vote, reselect your choice. To cancel your vote, select the “cancel”
button. You will be able to do this at any time whilst the poll remains open and before
the Chair announces its closure.
Q&A
To ask a question select the messaging icon from within the navigation bar and type
your question at the top of the screen. To submit your question, click on the arrow
icon to the right of the text box.
Requirements
An active internet connection is always required in order to allow you to cast your
vote when the poll opens, submit questions and view the Broadcast. It is the user’s
responsibility to ensure you remain connected for the duration of the meeting.
As well as having the latest internet browser installed, users must ensure their device
is up to date with the latest software release.
Duly appointed proxies and corporate representatives
Following receipt of a valid appointment, please contact the Company’s registrar
before 11.00 am on Tuesday, 5 April 2022 on 0370 707 1129 or +44 370 707 1129 if you
are calling from outside the UK for your SRN and PIN.
Lines are open 8:30am to 5:30pm Monday to Friday (excluding public holidays in
England & Wales).
HOW TO JOIN
1
To participate in the
meeting, you will be
required to enter the
unique 9-digit Meeting ID:
142-959-531 .
2
To register as a
shareholder, please enter
your SRN and PIN, which
may be found on your votingform.
3
WELCOME PAGE
Once logged in, you
will see the welcome
page, which displays the meeting
documents (if any) and information
on the meeting. Icons will be
displayed in different areas,
depending on the device you
areusing.
4
VIEW
LIVESTREAM
• Once logged in you will
be able to follow the proceedings
on your device.
• Video and/or slides will
appear after approx. 30 seconds
(depending on the speed of
yourinternet).
5
TO ASK QUESTIONS
• Click on the questions
icon to submit a question.
• Type your question in the
chatbox at the top of thescreen
and click the ‘Send’arrow to
the right.
• A confirmation that your
message has been received will
bedisplayed.
6
TO VOTE
• Once the poll has
been opened, you will
automatically see it on the screen.
• To vote, tap one of the voting
options. Your response will
behighlighted.
• If there is more than one answer
option, press ‘Send’ to cast
yourvote.
• You can change your vote until
the Chairman closes the poll.
Simply select another option or
click ‘Cancel’.
148148
lawdebenture.com
The Law Debenture Corporation p.l.c. 8th Floor, 100 Bishopsgate, London, EC2N 4AG
Tel: 020 7606 5451 | www.lawdebenture.com