Replacement: Annual Financial Report

The Law Debenture Corporation p.l.c.

 

12 March 2025

 

Amendment:

The Annual Financial Report announcement released on 12 March 2025 at 07.00 under RNS No. 2676A has been amended to reflect the dividend yield and share price as at market close on 11 March 2025, stated within the Chairman's Statement. There have been no other changes to the contents of the original announcement. The full amended text is shown below:

 

Another year of capital growth and steadily increasing income

 

The Law Debenture Corporation p.l.c. ("Law Debenture" or the "Company") releases its results for the year ended 31 December 2024.

 

Leading UK Equity income sector performance

 

	1 year %	3 years %	5 years %	10 years %
NAV total return3 (with IPS at fair value and debt at par)	13.2	14.4	43.5	118.7
NAV total return3 (with IPS and debt at fair value)	13.6	24.6	56.0	133.1
FTSE Actuaries All-Share Index Total Return4	9.5	18.5	26.5	81.9
Share price total return4	15.9	25.8	72.4	147.5
Change in Retail Price Index5	3.6	23.0	33.9	51.8
Relative performance (NAV at FV)	4.1	6.1	29.6	51.2
Relative performance (Share Price)	6.4	7.3	46.0	65.6

 

Past performance cannot be relied on as a guide to future performance. The value of investments and any income from them can go down as well as up. Your capital is at risk.

 

2024 Highlights

 

·	Share price total return outperformed the FTSE Actuaries All-Share Index with a total return of 15.9% for 2024, compared with 9.5%.
·	NAV total return with debt and Independent Professional Services ("IPS") business at fair value for FY 2024 of 13.6% (13.2% with debt at par).
·	A solid performance from IPS, with net revenue increasing by 6.2% and valuation up 5.1% to £194.5 million (excluding net assets).
·	Underlying IPS profit before interest and tax up 6.4%. Statutory revenue profit before interest and tax  of £15.0m down by 0.5%, owing to non-recurring costs of £1.0 million.
·	The Company issued 1.4 million new Ordinary Shares at a premium to NAV during 2024, to existing and new investors, with net proceeds of £12.4 million.   Long-term outperformance
·	Consistent share price and NAV (with IPS and debt at fair value) outperformance of the benchmark over one, three, five and ten years.
·	Strong long-term performance record, with share price total return outperforming FTSE Actuaries All-Share by 45.9% over 5 years which compares well with key sector peers.

Dividend Highlights

 

·	Proposed 2024 dividend increase of 4.7% to 33.5 pence per Ordinary Share (2023: 32.0 pence per Ordinary Share) compared to Group revenue return per share of 33.48 pence.
·	Dividend yield of 3.8% (based on our closing share price of 884 pence on 11 March 2025).
·	Over the last 10 years, we have increased the dividend by 113.4% in aggregate (7.9% CAGR), reflecting strong IPS cashflow and good Portfolio performance.
·	We have a strong reserve position, and the Board is confident in achieving  continued growth of dividends over time, building on our record of 46 years of increasing or maintaining dividends to shareholders.

 

Investment Portfolio Highlights

 

·	Net capital gain on investments of £76.3 million (December 2023: £37.4 million).
·	Revenue from the portfolio of £34.7m (December 2023: £33.5 million).
·	Total ongoing charges of 0.51%1 compared to the industry average of 1.05%2.

IPS Highlights

 

·	The Company's wholly-owned provider of professional services is a key differentiator to other investment trusts and offers additional portfolio flexibility.
·	Accounts for c.19% of 2024 NAV but has funded approximately one-third of dividends paid by the Company in the last 10 years.
·	IPS has now delivered seven consecutive years of mid to high single digit underlying growth, with a 5 year underlying PBIT CAGR of 7.3%.
·	2024 valuation of £194.5 million (excluding net assets), up 83.6% since 2019.
·	Non cash goodwill impairment of £17.0 million on the 2021 acquisition of CSS.

 

Awards

 

Winner in the Active-Income category for the third year in a row at the 2024 AJ Bell Investment Awards.

Winner of the Best for Long-Term Income award at the QuotedData awards.

Recognised by the AIC as an "ISA Millionaire" performer

 

Robert Hingley, Chairman, said:

 

"I am pleased with the progress Law Debenture has made in 2024. The share price total return of around 16% was ahead of the benchmark and includes a further increase in our full-year total dividend of 4.7%.

 

With an 113% increase in our dividend over the last ten years and a long-term record of benchmark outperformance, Law Debenture remains well positioned with a clear long-term focus. The Board and our investment managers remain confident in our future prospects, due to the diversified and resilient nature of our Portfolio and the good growth potential for IPS."

 

Denis Jackson, Chief Executive Officer, commented:

 

"2024 has been another creditable year of operational and financial progress for Law Debenture. We are proud to have delivered continued share price outperformance as well as  our 46th year of maintaining or increasing dividends.  We were especially pleased to be recognised by the AIC as an "ISA Millionaire" performer, identifying Law Debenture as one of fifty investment trusts which would have turned a full annual ISA allowance into over £1 million between 1999 and 2024."

 

" Our investment managers have constructed a diversified portfolio of strong, well-managed businesses making Law Debenture resilient by design and capable of delivering attractive capital returns and further increases in dividends. The combination of IPS with the investment portfolio offers additional flexibility in stock picking and is a well-proven and differentiated model. I remain optimistic about the Company's prospects for 2025 and beyond."

 

 

Investment Portfolio

 

Our portfolio of investments is managed by James Henderson and Laura Foll of Janus Henderson Investors.

 

Our objective is to achieve long-term capital growth in real terms and steadily increasing income. The aim is to achieve a higher rate of total return than the FTSE Actuaries All-Share Index Total Return through investing in a diversified portfolio of stocks.

 

Independent Professional Services

 

We are one of the leading providers of independent professional services, built on three  foundations: our Pensions, Corporate Trust and Corporate Services businesses. We operate internationally, with offices in the UK, New York, Ireland, Hong Kong, Delaware and the Channel Islands.

 

Companies, agencies, organisations and individuals throughout the world rely upon Law Debenture to carry out our duties with the independence and professionalism upon which our reputation is built.

 

The Law Debenture Corporation Denis Jackson, Chief Executive Officer Isla Pickering, Chief Financial Officer Trish Houston, Chief Operating Officer	+44 (0)20 7606 5451
Teneo (Financial PR) Jo Blackshaw / Oliver Bell	+44 (0)20 7260 2700  [email protected]

 

¹ Calculated based on data held by Law Debenture for the year ended 31 December 2024.

 

² Source: Association of Investment Companies (AIC) industry average as at 31 December 2024.

 

³ 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 and both total returns account for shareholder returns through dividends.

 

⁴ Source: Refinitiv.

 

⁵ Source: Office for National Statistics.

 

 

 

ANNUAL FINANCIAL REPORT

 

YEAR ENDED 31 DECEMBER 2024 (AUDITED)

 

This is an announcement of the Annual Financial Report of The Law Debenture Corporation p.l.c. as required to be published under DTR 4 of the FCA Listing Rules.

 

The Directors recommend a final dividend of 9.5 pence per share making a total for the year of 33.5 pence per share. Subject to the approval of shareholders, the final dividend will be paid on 16 April 2025 to holders on the register at the record date of 21 March 2025. The Annual Financial Report has been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the UK.

 

The financial information set out in this Annual Financial Report does not constitute the Company's statutory accounts for 2023 or 2024. Statutory accounts for the years ended 31 December 2023 and 31 December 2024 have been reported on by the Independent Auditor. The Independent Auditor's Reports on the Annual Report and Financial Statements for 2023 and 2024 were unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

 

Statutory accounts for the year ended 31 December 2023 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 December 2024 will be delivered to the Registrar in due course.

 

The financial information in this Annual Financial Report has been prepared using the recognition and measurement principles of International Accounting Standards, International Financial Reporting Standards and Interpretations adopted for use in the UK (collectively Adopted IFRSs). The accounting policies adopted in this Annual Financial Report have been consistently applied to all the years presented and are consistent with the policies used in the preparation of the statutory accounts for the year ended 31 December 2024. The principal accounting policies adopted are unchanged from those used in the preparation of the statutory accounts for the year ended 31 December 2023.

 

Financial Summary

 

	31 December 2024 £000	31 December 2023 £000	Change %
Net Asset Value - with debt and IPS at fair value(1)*	1,150,512	1,048,304	9.75
Total Net Assets per the statement of financial position	920,764	854,229	7.79
	Pence	Pence
Net Asset Value ('NAV') per share at fair value(1)*	872.34	802.67	8.68
Group statutory revenue return per share†	33.48	33.43	0.15
Capital return per share	40.51	24.47	65.55
Dividends per share	33.50	32.00	4.69
Share price(4)	893	801	11.49
	%	%
Ongoing charges(3)*	0.51	0.49
Gearing(3)*	11	13
Premium/(discount)* at 31 December	2.37	(0.21)

 

† Underlying Group revenue return was 34.27 pence per share.

 

For reconciliation of NAV at fair value per the above to published year end NAV please refer below.

 

Performance

 

	1 year %	3 years %	5 years %	10 years %
NAV total return(2)* (with IPS at fair value and debt at par)	13.2	14.4	43.5	118.7
NAV total return(2)* (with IPS and debt at fair value)	13.6	24.6	56.0	133.1
FTSE Actuaries All-Share Index Total Return(4)	9.5	18.5	26.5	81.9
Share price total return(4)*	15.9	25.8	72.4	147.5
Change in Retail Price Index(5)	3.6	23.0	33.9	51.8
Relative performance (NAV at FV)	4.1	6.1	29.6	51.2
Relative performance (Share Price)	6.4	7.3	46.0	65.6

 

*Items marked "*" are considered to be alternative performance measures and are described in more detail on page 161 of the full annual report and accounts.

(1) Please refer below for the calculation of net asset value. Please note change in NAV per share in the financial summary does account for the effect of dividends on total return.

(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 and both total returns account for shareholder returns through dividends.

(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 portfolio value. There is no performance related element to the fee. Gearing is described in the Strategic Report below and in our alternative performance measures on page 160 of the full annual report and accounts.

(4) Source: Refinitiv.

(5) Source: Office for National Statistics.

 

EXTRACTS FROM THE STRATEGIC REPORT

 

Chairman's Statement

 

Performance

Law Debenture has again performed creditably in both absolute and relative terms in a year with relatively modest GDP growth and significant political and geopolitical disruption. 2024 saw global interest rates start to decrease from the relatively elevated levels of recent years, but they remain well above those experienced for the majority of the period post the global financial crisis of 2008/09. Equity markets have had to contend with numerous elections as well as the ongoing war in Ukraine and the Israel/Palestine conflict, all of which has resulted in ongoing market volatility. Nonetheless, the combination of our well-diversified Portfolio and another good underlying IPS performance has enabled Law Debenture to continue to deliver on its commitment to produce capital growth over the longer term and steadily increasing dividend income.

 

Law Debenture's long-term record of benchmark outperformance remains strong, with share price outperformance of the FTSE Actuaries All-Share Index over the last five years of c.46%. I am proud that Law Debenture has been a leading performer in the UK Equity Income sector over the long term, which is testament to the hard work of our investment managers and employees.

 

Our benchmark, the FTSE Actuaries All-Share Index, delivered a 9.5% total return in 2024. The Company's share price total return creditably outperformed this with a total return of 15.9% for 2024. The Net Asset Value ('NAV') with debt and the independent professional services ('IPS') business at fair value delivered a return of 13.6%.

 

Our revenue performance was more muted. This significantly reflects the dividend income received from our Investment Portfolio, which was up 4%, from £33.5m in 2023 to £34.7m in 2024. For a number of key investments, our investment managers made a conscious decision to prioritise longer-term capital growth over short-term dividends. During 2024, there were some very strong capital growth performers like Marks & Spencer and Rolls Royce where dividends were very low or even zero. In addition, there was a notable preference from corporates for share buy-backs over special dividends, meaning returns to our shareholders from such companies are reflected in capital growth, rather than income. The net revenue from our IPS business increased 6.2%.

 

Overall, our statutory revenue profit before tax was up 1.7%, and our statutory revenue EPS was up 0.1%, affected by £1.0m of non-recurring costs incurred during the year. Excluding the impact of these, our underlying revenue profit before interest and tax was up 4.9%, and our underlying EPS was up 2.5%.

 

Awards

We were delighted to receive recognition for all the hard work of our great team of people in the shape of two investment awards. At the AJ Bell Investment Awards 2024, Law Debenture was named winner in the Active Income category for the third consecutive year. We were also voted winner of the inaugural QuotedData awards, winning the Best for Long-Term Income award. The continued success in industry-leading awards demonstrates the excellent short and longer-term record of our investment managers, supported by the IPS business.

 

Dividend

We are proud of our record of increasing or maintaining our dividend payments for the 46th year in a row. The consistent and reliable cash flows from our IPS business have helped ensure that we can continue our strong dividend record. Subject to your approval, we propose paying a final dividend of 9.5 pence per ordinary share.

 

The dividend is almost fully covered, but your Board is confident that earnings should continue to increase and is committed to its quarterly dividend policy.

 

The final dividend will be paid on 16 April 2025 to holders on the register on the record date of 21 March 2025. This will provide shareholders with a total dividend of 33.5 pence per share for 2024, an increase of 4.7% compared with 2023. This dividend increase is modestly ahead of CPI and represents a dividend yield of 3.8% based on our closing share price of 884 pence on 11 March 2025. Over the last 10 years, we have increased the dividend by 113.4% in aggregate.

 

Our Portfolio

James Henderson and Laura Foll, our investment managers, continue to invest in a differentiated selection of well-managed and high-quality businesses with competitive advantage and good long-term growth prospects. Dividend income of £34.7m from the Portfolio was slightly higher than in 2023. However, it is pleasing to report a total capital profit for the year of £53.1m, primarily driven by movements in the value of the holdings within the Portfolio.

 

We remain confident that James's and Laura's disciplined approach of buying at attractive entry point valuations will continue to deliver over the longer term for our shareholders. More detailed commentary on the Portfolio's performance with a review from our investment managers can be found below.

 

IPS

Our professional services business has been a key differentiator in driving consistent long-term outperformance compared to other UK income funds and it remains well positioned to continue this, with a strong platform built in recent years from which to grow further. Although accounting for only c.19% of our NAV (with IPS and Debt at Fair Value), the IPS business has funded around a third of our dividends in the last 10 years and has now delivered a compound annual growth in underlying profit before interest and tax of 7.3% over the last five years. Through its strong cashflow and consistent mid-to high single digit growth rates, IPS enables our investment managers to build a more flexible Portfolio that includes both income and growth-focused stocks, rather than having to 'chase yield'.

 

In a year where many businesses faced a challenging trading backdrop, it is encouraging to see IPS continue to show another underlying year of growth. Some of our businesses benefit from a degree of counter-cyclicality, which is in part, why IPS had another year of good underlying profit growth. Corporate Services and Corporate Trust were the strongest performers, achieving net revenue growth of 11% and 12.7%. Pensions had a net revenue decline following an exceptionally high revenue growth rate of over 20% in 2023.

 

The Board is pleased to see continued good employee engagement and satisfaction scores and we remain focused on strengthening our processes and management information systems. With this ongoing investment in talent and technology, the Board is confident IPS has the potential to sustain mid to high single digit growth over the medium term.

 

Capital structure

In 2024, the Group issued 1.4 million new ordinary shares to existing and new investors, with net proceeds of £12.4m to support ongoing investment. Shares were issued at a premium to NAV to be accretive to existing shareholders.

 

Environmental, Social and Governance ('ESG')

Our Executive Leadership team has continued their work to create a working culture that encompasses our four values: Make Change Happen; Better Together; Believe It's Possible and Never Stop Learning.

 

Following our success in 2024, we were ranked again by the FTSE Women Leaders Review in 2025, placing joint second in the Financial Services sector and fifth overall amongst the FTSE 250. This is an achievement that we are extremely proud of. We understand that gender balance needs to be treated as a business issue, not an HR issue or one for a dedicated DE&I team to manage alone.

 

Our IPS business is built upon the provision of independent governance services. A central tenet of this work is our commitment to diversity, and we are delighted that we have established a balanced gender pay gap position and have strong female representation both at Board and senior executive level, with women making up 50% of the Executive Leadership Team.

 

As an organisation, we believe that long-term growth is underpinned by sustainability. This presents opportunities for investment in the IPS business. It has a relatively small carbon-footprint compared to other FTSE 250 groups but, over the years, we have taken steps to further reduce this, most notably with our choice of office space.

 

Further, as part of our commitment to the ESG agenda, Law Debenture has continued to make voluntary disclosures in relation to Task Force on Climate-Related Financial Disclosures ('TCFD'). This can be found on page 55 of the full annual report and accounts.

 

Our investment managers remain committed to investing in businesses that have a sustainable business model and carefully take ESG into consideration when making investment decisions. For more details please see page 53 of the full annual report and accounts.

 

The Board

As reported this time last year, Tim Bond retired from the Board on 28 March 2024 having served nine years. Maarten Slendebroek was appointed to the Board on 11 January 2024. He has extensive experience in financial services, including as CEO of Jupiter Fund Management for five years from 2014 to 2019, having joined the firm as Strategy and Distribution Director in 2012. His key skills and experience include fund management and investment, strategy, corporate finance, ESG matters and distribution to investors. There have not been any further changes in Board composition.

 

Annual General Meeting ('AGM')

The AGM will be held Friday, 11 April 2025 at 11.00am. In order to welcome as many of our shareholders as possible, this year we are holding our AGM at the offices our joint- corporate broker Peel Hunt and not at our own office. Please join us at Peel Hunt, 7th Floor, 100 Liverpool Street, London EC2M 2AT. We will also be livestreaming the event. The Board and the wider Law Debenture team really value the chance to meet with our shareholders and hear your thoughts about the Company so we hope that you are able to join us for the AGM and a light lunch.

 

Looking forward

The end of 2024 brought some optimism from investors that inflation is much more under control and closer to targeted levels. This improved equity market backdrop has to contend with interest rates that still look likely to stay at much higher levels than those experienced for the majority of the period post the global financial crisis of 2008/09.

 

The majority of the Portfolio is invested in UK equities, although many of the earnings are derived from outside the UK. Our investment managers continue to believe that UK market valuations remain low in both absolute and relative terms and offer some attractive longer-term growth opportunities with a lot of bad news already priced in. Many UK companies are leveraging their robust balance sheets and good cash flow to consider share buy-backs. In addition, many overseas corporates and private equity firms continue to see ongoing attractions in UK company valuations. Companies with robust business models and supportive long-term trends are now frequently overlooked by investors who cannot see past a relatively subdued UK economic environment. Law Debenture is well-positioned with a long-term focus on a quality and well diversified portfolio. Many of the companies held in the portfolio are conservatively managed by talented leadership teams, often market leading businesses that trade on relatively modest valuations.

 

The Board and our investment managers therefore remain confident in our future medium-term performance, due to the diversified and resilient nature of our Portfolio and the good growth potential for IPS. Its services are generally well sought after, its brand reputation is good and the market share opportunities remain considerable. During these relatively subdued macroeconomic times, our consistent delivery has only been possible due to the hard work of our investment managers and our skilled workforce. On behalf of the Board, I would like to thank them all, as well as our shareholders, for their continuing support.

 

Robert Hingley

Chair of the Board

11 March 2025

 

Chief Executive Officer's Review

 

Introduction

2024 has been a good year overall for Law Debenture, despite continued macroeconomic uncertainty. Elevated levels of interest rates proved to be challenging for many consumers and businesses alike. That said, Law Debenture's overall performance reflected well on the Group's ability to adapt to a changeable economic climate. We delivered on our two main objectives, producing NAV growth and continuing to increase income for shareholders. Our total share price performance and NAV outperformed the index again (and by a considerable margin in 2024) and we are proud to have had our 46th year of maintaining or increasing dividends.

 

In this context, our investment managers, James Henderson and Laura Foll of Janus Henderson, have continued to perform well. The Group takes great pride in our long-term record over one, three, five and ten years, with consistent outperformance of the benchmark, the FTSE Actuaries All Share Index, and compared to our key sector peers. We see this as continuing validation of our consistent strategy: Law Debenture offers a cost-effective way to access an active and expertly managed portfolio and provides good liquidity to investors given our market capitalisation.

 

Our investment managers have a consistent and proven valuation-driven process which aims to identify market-leading, high-quality companies that are undervalued at the point of purchase. It is a testament to the continued outperformance and the investment team that Law Debenture has won another two prestigious investment trust awards this year - the Active Income category at the AJ Bell Investment Awards for the third consecutive year, and the winner in the Best for Long-Term Income award at the QuotedData awards.

 

Our IPS business has delivered its seventh consecutive year of mid to high single digit revenue and underlying profit growth. IPS business net revenues (gross revenue less direct costs incurred) for 2024 rose by 6.2% to £53.7m (2023: £50.5m).

 

A statutory profit before interest and tax ('PBIT') of £15.0m was reported. Excluding the impact of £1.0m of non-recurring costs, the underlying PBIT of IPS increased 6.4%. Please refer to APM on page 161 of the full annual report and accounts.

 

During 2024, a non-cash £17.0m write-off was recorded within the capital reserves of the Group for the goodwill arising on the acquisition of the company secretarial services business of Konexo, a division of Eversheds Sutherland LLP, in 2021.

 

At the time of this acquisition, we noted that the transaction was not "cost out" but rather "cost in". The business was non-core to the seller and it required material investment in people, training, technology and infrastructure. Successfully addressing these issues is taking longer, and costing more, than we had originally planned. Accordingly, we have taken the prudential step of writing off the goodwill recognised at the time of acquisition. Nonetheless, we continue to invest in the business and remain confident in the longer-term growth and profit opportunities of our Corporate Secretarial Services ('CSS') business and its' contribution to the success of the IPS.

 

As we continue to invest in the IPS business, we are delighted to welcome three new members to the IPS leadership team. Isla Pickering joins us as Chief Financial Officer with a wealth of professional services experience. Spencer Knightsbridge joins us as Chief Technology Officer with a background in driving technology transformation at both the London Metal Exchange and the New York Stock Exchange. Alex Ringer joins as our new Head of Legal, Risk and Compliance.

 

The diversification of our income streams again served us well, with Corporate Services and Corporate Trust being the strongest performers, with Pensions down slightly after exceptional growth of c.21% in 2023. We continue to invest to ensure our IT infrastructure and wider operating model are fit for purpose as we seek to further scale and sustain our medium-term growth ambitions, whilst also working hard to ensure our profit margins are sustainable.

 

For 135 years, we have stuck to our principles of independence, trust and excellence. Our investment for growth over the last seven years has positioned us well for the future. I am encouraged by the new business wins in 2024 and by our strong client relationships, which means that approximately two-thirds of our business is repeated year on year. As we continue to face a relatively uncertain macroeconomic environment in 2025, our aim is that IPS should continue to provide an element of structural growth and counter-cyclical revenue that will support our overall performance. High-quality governance services should remain core to our clients, regardless of the economic cycle.

 

We are proud to have delivered a 113.4% increase in dividends over the last ten years. This record has been supported by the diversified nature and consistently strong performance of IPS, which makes Law Debenture a unique investment trust. The flow of income from IPS has funded approximately 1/3 of dividends over that period. This gives James and Laura the flexibility to invest in a broader and higher-growth portfolio than many sector peers, helping to position the Portfolio for future longer-term growth.

 

We are delighted too, to receive a Top 40 ranking in the recently published FT Top Employers 2025 survey. This is a wide-ranging independent survey that considers a range of factors such as employee satisfaction, workplace culture, employee benefits, and opportunities for career development.

 

DIVISION	Net revenue 2020 £000	Net revenue 2021 £000	Net revenue 2022 £000	Net revenue 2023 £000	Net revenue 2024 £000	Growth 2023/2024 %
Corporate trust	10,789	9,771	10,620	12,473	14,052	12.7%
Pensions	11,479	13,060	14,343	17,396	16,694	(4.0%)
Corporate services	12,226	18,755	20,206	20,640	22,915	11.0%
Total	34,494	41,586	45,169	50,509	53,661	6.2%

 

*Total net revenue is calculated by reducing segment income of £61,659k by cost of sales of £7,998k. Please refer to note 6 in the full annual report and accounts for the IPS segmental analysis.

Corporate services: 2021 includes additional revenue arising from the acquisition of the CSS business from Eversheds Sutherland (International) LLP.

 

Corporate Trust

Law Debenture was incorporated to act as a bond trustee in 1889. The role of a bond trustee is to act as bridge between the issuer of a bond and the individual bondholders. Our responsibilities as bond trustee can vary materially, whether servicing performing or defaulted bond issues.

 

Normal obligations for the bond trustee to support performing issues could include communication to the bond holders of financial or security data, together with the distribution and/or receipt of covenant information. For completion of this work, we are typically paid an annual fee throughout the lifetime of the bond. This fee is inflation linked for the majority of our existing book of business. 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 can materially 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 material incremental work that, given a favourable outcome, can lead to significant additional income for us. That said, defaults often take years to play out and the results are uncertain. Given this long-dated and fluctuating backdrop, our revenues for this work in any specific calendar year can be somewhat lumpy. However, such post-issuance work has strong economic countercyclicality and has produced sound returns for our shareholders over time.

 

Corporate Trust - Market dynamics

New issuance in debt capital markets has always been a driver of revenues. As well as receiving an ongoing (typically inflation-linked) annual fee for our work, we also receive an upfront fee upon appointment to a role. As we noted at the half year, following a couple of tough years and a reduction of capacity in this area by the major global banks, new issuance continued to recover in 2024, with deal volume in Europe up 19% year-on-year (Source: Dealogic). Following a sustained period of monetary tightening, The Bank of England, Federal Reserve and European Central Bank all cut rates during the year. Corporate Bond spreads continued to tighten and finished the year at, or very close, to decade-long lows (Source : ICE Data Indices).

 

Demand for our post issuance work is hard to predict and is often strongly countercyclical. In last year's annual report, we stated that "it would not be a surprise that on balance demand for our post issuance expertise were to increase as we move further through this economic cycle". However, this did not materialize to the extent that we thought. This is, of course, largely good news for our clients as we do not wish them any misfortune. That said, our long history tells us that the winds of change can blow fiercely in economic conditions from time to time and we will be ready to help support our clients when they do.

 

The primary law firm regulator, the Solicitors Regulation Authority ('SRA'), continues to discourage its members from holding client monies. Given our broad and well-established relationships with law firms, this has provided fertile ground for developing our escrow offering in particular over the past few years. An escrow solution allows two parties the ability to transfer an asset, with a trusted independent third party ensuring that certain conditions of the transaction have been met by both sides prior to completion. Our ability to move fast and use our expertise to consider non-standard transactions is well known to an increasingly broad network of referral partners. During the year, we provided escrows to support, for example, Litigation, Trade, Real Estate and Sporting events. In addition, support of Corporate M&A transactions is an area where we continue to make solid progress.

 

Corporate Trust - Highlights

Under the leadership of Eliot Solarz, we are pleased to report net revenue growth of 12.7% in 2024 following a very strong 17.4% growth in 2023.

 

The majority of the capital markets transactions that sit on our books have been built up over many decades, and have contractual inflation-linked fee increases for our services. These fee increases are applied on the transaction anniversary. Consequently, as inflation spiked in 2021/22/23, the associated inflation-linked increases fed through to our book of business. This provided a steady tail wind for revenues during this period. This has now played out, and today's forward-looking inflation consensus appears much more benign.

 

Improving primary market conditions allowed us to complete a number of notable new transactions during the year, including acting as a security agent on a €220 million six-year sustainability-linked junior loan financing to HES International BV.

 

We also saw a good pick up in high yield bond market issuance during the year and have closed High Yield bond transactions with, amongst others, Flos B&B Italia S.p.A., Almaviva S.p.A., TeamSystem S.p.A., Lottomatica S.p.A. and Omni Helicopters International Group.

 

On 1 February 2024, Allwyn took over as operator of the National Lottery. We were appointed as trustee by Allwyn. A new trust structure was created under which we are holding funds for the protection of players of the National Lottery, working closely with both Allwyn and the Gambling Commission.

 

Corporate Trust - Outlook

The strength of our Corporate Trust business lies in its diversified revenue streams, some elements of countercyclicality and, in many cases, a linkage of fee income to inflation. Our reputation for quality of product and ability to move fast is well established.

 

We have invested in additional headcount to join our new business team and have upped our investment in business development activity.

 

On a year-to-year basis, levels of both primary market activity and post issuance work are hard to forecast. M&A volumes were up 29% in Europe in 2024 (Source Dealogic) and the major market participants in this cyclical business have a positive outlook for 2025. If correct, this will provide a rich seam for us to mine with our Escrow offering in the coming year.

 

We are confident that this business will continue to produce solid returns for our shareholders over time.

 

Pensions

We are the longest serving and one of the largest independent providers of pension trusteeship in the UK with over 230 appointments.

Our Pegasus offering of outsourced pensions executive and governance solutions continues to be a leading provider in a competitive market, developing new propositions that further support our clients.

 

Pensions - Market dynamics

For many schemes, 2024 felt a relatively calmer year in markets compared to recent years. With funding levels on average remaining in a strong position, conversations have continued on trustee boards and with corporate sponsors as to the best way forward. Schemes are choosing different long-term paths depending on their individual circumstances, whether running on in the long term, running on strategically for the medium term, or making a more immediate move to insurance. We expect such conversations to continue in 2025.

 

Two new regulatory Codes have been brought into force:

 

·      The long-awaited General Code - this consolidates existing codes and sets out in one place the expectations for UK occupational pension schemes. We believe that strong governance reduces risk and leads to better outcomes. We are working with clients to implement this in a proportionate way and focusing on the value-add components.

·      Defined Benefit Funding Code. This came into force on 12 November 2024 for DB valuations on or after 22 September 2024. We expect this to be an area of focus in 2025 onwards as valuations come into scope.

 

Whilst the Autumn 2024 Budget had fewer pensions-specific items than had been rumoured, there were several consultations to provide input to, including on Inheritance Tax, Defined Contribution schemes and Local Government Pension Schemes. A Pension Schemes Bill is expected in due course.

 

More than 50% of UK occupational pension schemes have an independent trustee. This is a recognition of the value provided by an independent view. The market remains competitive and we are seeing a number of tenders for services, including an increase in interest in a Corporate Sole Trustee ('CST') model, where our team-based approach works well.

 

Pensions - Highlights

Compound revenue growth in our Pensions business since 2017 has been 10.6%. Growth in 2023 was an exceptional 21.3% following on from the fall out of the LDI crisis of late 2022. We emphasised at the AGM in March last year and in our dialogue with investors and analysts throughout the year that 2023 was an outlier in terms of revenue growth and that 2024 was always going to be a difficult year in terms of comparator. Recorded revenues reduced by a modest 4.0% in 2024.

 

Compound growth in revenues over the past two years is 7.9%, which is broadly in line with the seven year revenue growth rate for this business. We remain confident of our ability to growth this business solidly over the business cycle.

 

In our core Pensions business, we were delighted to add incremental appointments, that included Medical Research Council, Tilney Pension Fund, Kellog Brown & Root and Saint-Gobain Ireland.

 

Ireland continued to grow with some strong wins, including the first full-service CST in the Irish market. Our Manchester team has recruited additional colleagues and continue to be a leading presence for trusteeship and governance in the North. Jersey, where we have taken on another chair role, also continues to be a focus.

 

The Pegasus business continues to see demand across a number of different services areas, including support to in-house teams, project management support, data/GMP projects, provider review and selection, General Code support and trustee effectiveness reviews.

 

We added new capabilities to our CST clients, embedding the General Code as standard, and will continue to demonstrate the streamlining CST can bring to the governance for all sizes of scheme.

 

We welcomed seven new members into the team in 2024. In May, our new Managing Director, Sankar Mahalingham, took over, with a new management team including Jane Beverley as Head of Trusteeship and Mark Williamson as Head of Pegasus.

 

In the last twelve months, we have helped deliver over nine material buy-in transactions for our clients, including De Beers, Next, Royal London and Hays.

 

Pensions - Outlook

2025 will be a busy year as the DB Funding Code comes into full implementation for many schemes. It will also be a key time to prepare for upcoming changes in both 2025 and 2026, with connections to the Pensions Dashboard Programme from April 2025 onwards and schemes' first Own Risk Assessments from March 2026.

 

As trustee boards and sponsors continue to look at different long-term options for schemes, we remain well placed to offer both strategic and operational governance support.

 

We are also contributing to the debate surrounding DC consolidation and await further discussion around revisions to the Value for Money framework.

 

This constantly changing financial and regulatory environment continues to drive the increased professionalisation of pension trusteeship and governance. We have an excellent reputation in this market and will continue to invest in our business in order to meet this evolving client need over time.

 

Corporate Services

This is a collection of businesses, with four diversified constituents: Structured Finance Services, our whistleblowing division Safecall, Service of Process and our Corporate Secretarial Services business ('CSS').

 

In aggregate, revenue from these business was up 11.0% in 2024. Safecall, Service of Process ('SOP') grew strongly, while our CSS and Structured Finance revenues were broadly flat year on year.

 

Service of Process ('SoP')

 

SoP - Market dynamics

This is our business with the fewest recurring revenues, with the greatest dependency on global macro-economic factors and deal flow in capital markets. Following a challenging 2023, market conditions in Capital Markets improved throughout 2024 and we participated well in this recovery.

 

SoP - Highlights

Investments in training of our staff and our referral partner networks paid dividends in 2024 against the backdrop of improved market conditions.

 

We have been much more proactive with our business development efforts and these continue to bear fruit. Particularly pleasing was to complete the purchase of Linklaters book of business in December, as Linklaters sought to focus their business activities around their core high value products and services, and so decided to sell their non-core Service of Process business.

 

Service of Process has been a core competency of our firm for many decades and, as law firms evolve their commercial approach, we see an increasing number exploring opportunities to outsource non-core activities wherever they can reasonably do so. We are well placed to take advantage of this.

 

Given the high transaction volumes, we continue to invest in our systems and have much improved data insight.

 

Earnings in SoP will always be volatile, as demonstrated by the last two years. Forward revenue visibility is very limited, but we remain confident that this business will remain a material contributor to our profits over financial market and economic cycles.

 

Corporate Secretarial Services ('CSS')

 

CSS - Market dynamics

Law makers and regulators worldwide continue to raise the bar for Corporate Governance standards and statutory and regulatory obligations continue their relentless rise.

 

We operate in three main areas:

 

Managed Services: Global Entity Management services ('GEMS') provide a single outsourced point of contact to multinational corporations to ensure that their legal entities 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 in 50 countries at its most complex. We are generally paid a fixed annual 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 work. Excellent workflow management and use of technology is critical to compete effectively in this space and we continue to invest heavily here. Our team is based in our Manchester office.

 

Corporate Governance Services: This covers all aspects of Board and Committee support, from full outsourced company secretarial support to attending and minuting meetings. We also provide practical company secretarial support 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 UK operating subsidiaries of top global brands. Our fees may be fixed annual fees for specifically scoped mandates but can also be time- or project-based. Demand here is often for highly 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 in based in London.

 

Interim Resourcing: Here we provide immediate access to qualified governance professionals, whether on-site or remotely, full time or part time, as required by the client. Typically, we are paid on a time-spent basis, but also complete certain work on a fixed fee. This team is based in London.

 

CSS - Highlights

Throughout 2024 we continued to take significant steps to prepare CSS for longer-term growth:

 

·      We have increased our headcount in this business by over 50% since the 2021 acquisition of the Konexo business from Eversheds Sutherlands LLP, the majority of whom have either been partly-qualified or fully-qualified Company Secretaries. In turn, we have established clear KPIs and career progression frameworks for this growing team.

·      We established a new leadership team during the year. Ben Turner leads the overall team and has over 16 years experience in Financial Services building teams and scaling businesses. Jordan Owen leads our CSS team in Manchester and Patrick Davis leads our CSS team in London.

·      We have invested, and continue to invest, in our technology platform and reimagining our operational work flows that will be critical to our long term success.

·      We have invested more in our business development efforts and our new business pipelines continue to improve. During the final third of the year, we visited many of our larger multi-national clients based in the United States. Feedback was warm and opportunities to grow from here are numerous.

 

We remain confident that the significant investments that we have made in new people, skills, technologies and operational workflows will underpin sustainable and controlled growth that is consistent with the other businesses in the IPS portfolio.

 

Structured Finance Services

 

Structured Finance Services - Market dynamics

We operate in three main product areas:

 

Management of Special Purpose Vehicles ('SPVs') and other similar corporate structures: We provide directors, accounting and day-to-day corporate administrative services to entities set up to help financial institutions, including challenger banks and boutique asset managers (Private Equity and Hedge Funds), diversify their funding using securitisation techniques. The SPVs are established to raise funds in the bond / loan markets which are then used to acquire distinct pools of assets (including mortgages, receivables, credit card debt, aircraft, whole businesses etc.) against which the funds are secured. The funding is generally non-recourse, meaning that the funds raised only have recourse to the pool of assets on which they are secured and to no other party.

 

Accounting services: We provide management and statutory accounting services to corporate entities who wish to outsource this area or where they do not have local accounting knowledge. We do not provide audit services to clients.

 

Facility and Paying Agency services: We manage and provide outsourced administration for corporate loans and facilities by acting as a conduit between multiple lenders and a single borrower. Our paying agency services relate primarily to managing payments for law firms involved in M&A transactions. Unlike facility agent work, which provides recurring fees, the paying agent services are one-off transaction fees.

 

We are a small player in the sector, which is dominated by Private Equity-backed competitors with mixed reputations for service delivery. Mark Filer and his team continue to receive consistently good feedback for the quality of our work from our clients.

 

Structured Finance Services - Highlights

Despite European capital markets new issuance levels generally improving in 2024, the securitisation markets remained subdued and new issuance was broadly flat year on year. (Source: AFME) However, we were delighted to receive repeat appointments from a number of leading names operating in the sector including One William Street and Avenue Capital.

 

Our facility and paying agent business also grew during the year. These will be reported as part of the Corporate Trust business line going forward.

 

Private Credit continues to expand as an asset class and presents opportunities for us to provide outsourced solutions to non-bank lenders.

 

We have more to do to raise our profile with a larger number of clients and referral partners in order to achieve our desired level of growth in this substantial market.

 

Whistleblowing: Safecall

 

Safecall - Market dynamics

Since the rapid expansion of the #metoo movement in late 2017, law makers and corporates throughout the developed world have embraced whistleblowing frameworks and looked to establish best practices. Investors too are demanding of robust, independent whistleblowing structures being in place prior to allocating their capital.

 

The largest market remains the US, where our footprint is smallest. Hence we have plenty of scope to increase our market share.

 

All enquiries are dealt with by our highly trained staff that continues to consist largely of former police officers. The quality of the work that we do for our clients receives high praise. To the best of our knowledge, our competitors generally run business models based off low-cost call centres. We have every intention of remaining a premium provider of high-quality products.

 

Safecall - Highlights

Joanna Lewis, who heads the business, has built excellent momentum since joining us three years ago.

 

Revenues were a record, up 25.0% year on year, as were revenues from new clients. Among the 119 new clients we took on in 2024 were Royal Mail, Neom (Gratiya) and Specsavers.

 

We again provided a record number of reports to our clients in 2024 up 11% on 2023. Digital channels (as opposed to voice) continue to account for over 70% of issues raised.

 

Client functionality via our portal improved in 2024 and will do so again in 2025. Client feedback on our upgraded digital offerings is encouraging. Our confidence continues to grow in our ability to effectively compete for larger mandates.

 

We expanded our sales and account management teams during the year and increased investment in our training and investigations offerings. Given our increasing client footprint, we will add further capacity and expertise to the operations team managed by Tim Smith.

 

We are increasingly ambitious in this fast-growing sector.

 

Central Functions

The larger and more consistent the earnings growth within IPS, the more optionality it creates for the managers of the Investment Portfolio to deliver on our objective of long-term capital gains and steadily increasing income. As we have noted in past annual reports, we are making a significant investment in modernising our central support functions to support this growth.

 

We continue to plan for growth of mid to high single digits, and expect this to be largely organic. We remain open to opportunities presented by acquisitions where we believe this could add value to our clients and shareholders.

 

In last year's annual report, we referenced the work done in late 2023 to refresh our IPS strategic plan. In support of those commercial growth plans, we have embarked on an ambitious programme to transform and future-proof our operating model. The investment in our culture and in centralising and modernising our support services signposted here over the last few years has put us in a strong position from which to deliver this operational transformation.

 

In early 2024, we completed the first phase of the transformation programme by implementing our Professional Services Automation ('PSA') platform and aligning all of our businesses around the vision of a single operating model. Over the summer, we restructured the IPS leadership team to support the upcoming transformation. As well as welcoming a new CFO and Head of Legal Risk and Compliance , we expanded our Executive Leadership team ('ELT') to include our new Chief Technology Officer ('CTO') Spencer Knightsbridge, thereby increasing strategic and decision-making capacity. We then expanded the team who directly support and influence the ELT in delivering strategic priorities via a broader senior team and new governance structure centred around expertise, experience and accountability.

 

In this context, we incurred £1.0m in cost of a non-recurring nature which, as referred to above, has affected our statutory accounting profit.

 

Our PSA platform marks a significant change in the way we capture and use data in our IPS businesses. While major system implementations are never easy, colleagues across the business have stepped up to the challenge, embracing new ways of working and demonstrating their commitment to our corporate values of 'make change happen' and 'never stop learning'. We end the year in a substantially stronger operational position than we started it. We have more to do, but the future looks bright as we increasingly turn our attention to analysing and leveraging the data we have collected, to drive better, more informed decision-making.

 

We continue to invest in our technology, people and processes. Making up for under investment, coupled with delivering cultural change takes time. We believe it is worth it and are confident that we are building a business which will serve shareholders well.

 

Information Technology

Our IT strategy continues to be centred around being flexible users of third-party software applications, with a focus on making our businesses easy to find, easy to engage with and easy to use. Under the leadership of our new CTO, Spencer Knightsbridge, who joined in September 2024 reporting to me, we have made significant progress across several key initiatives.

 

The Digital Workplace Programme reached a major milestone with its completion across all our global offices, including New York, Delaware, and Hong Kong. This standardisation means all our offices now operate on the same modern technology platform, significantly reducing operational complexity. The successful relocation of our New York office demonstrated our ability to execute complex technology transitions while maintaining business continuity.

 

Safecall continues to evolve its client portal with new functionality, advancing its strategic development goals, and achieved ISO 27001 accreditation, a significant milestone in our security journey.

 

As noted in our principal risks, the cyber threat landscape is rapidly changing, with attacks growing ever more sophisticated and frequent. Industry data suggests that 'bad actors' are becoming increasingly well-financed and sophisticated in their approach. To maintain our robust security posture and protect our business and clients, we recognise the need for continued investment in our cyber defences.

 

Our operational capabilities have been transformed through the implementation of our Professional Services Automation platform, Kantata, alongside our financial management system, Sage. These platforms have delivered significant operational efficiencies through improved workflow management, enhanced reporting capabilities, and better resource allocation across our business units, supporting our continued growth.

 

Recognising the requirements of the FRC's enhanced UK Corporate Governance Code, we continue to strengthen our IT General Controls framework to ensure we maintain appropriate controls across our technology estate. This work, combined with our broader technology initiatives, continues to enhance our operational effectiveness while maintaining robust control environments.

 

Prospects

Law Debenture is well diversified and resilient by design. The combination of IPS with the Portfolio is a well-proven model and I remain cautiously optimistic about the Group's progress in 2025 and beyond, despite an external environment which is expected to remain uncertain. I am confident that IPS is well positioned for medium-term growth, in line with our mid to high single percentage target. We continue to look for opportunities to grow IPS through organic investment in some of our fastest growing businesses. We continue to invest in operational fitness, talent and technology to ensure we gain market share and maintain longer-term growth.

 

There has not yet been a significant re-rating of the UK market and our Portfolio is on an average historical price earnings ratio of only around 11.2 times. Our hopes that a decisive UK election result would remove uncertainty and benefit the UK stock market have not materialised. However, despite headwinds from the downbeat reaction to the new UK government's first budget, we continue to believe that good, well-managed UK companies should continue to thrive. Therefore there is still significant potential for a meaningful revaluation of the UK market with clear follow-on benefits to our capital growth.

 

On behalf of the Board, I want to thank my colleagues for their admirable dedication to developing Law Debenture's client service. I am also very grateful for the continued support of shareholders.

 

We are cognisant that 2025 will likely present its own set of geopolitical and economic challenges but, given the modest current valuation of the UK equity market, we are optimistic about the investment opportunities we can see. We believe our investment managers have constructed a well-diversified Portfolio of strong and well-managed businesses on relatively low valuation multiples, capable of delivering attractive capital returns, and further increases in dividends, over the medium term.

 

Denis Jackson

Chief Executive Officer

11 March 2025

 

IPS 5 Year Performance at a Glance

 

IPS net revenue and underlying PBIT - 5 year performance

 

Department	2019 £000	2020 £000	2021 £000	2022 £000	2023 £000	2024 £000	5yr Revenue Variance £000	5yr Revenue Variance %
Pensions	10,598	11,479	13,060	14,343	17,396	16,694	6,096	57.5%
Corporate trust	9,024	10,789	9,771	10,620	12,473	14,052	5,028	55.7%
Corporate services	12,167	12,226	18,755(1)	20,206	20,640	22,915	10,748	88.3%
IPS net revenue	31,789	34,494	41,586	45,169	50,509	53,661(2)	21,872	68.8%
% Net Revenue growth	7.5%	8.5%	20.1%	8.6%	11.8%	6.2%
Underlying PBIT(3)	11,256	12,198	13,340	14,359	15,072	16,037	4,781	42.5%
% Underlying PBIT growth	9.9%	8.4%	9.4%	7.6%	5.0%	6.4%

 

(1) Includes revenue from the acquisition of the Company Secretarial Services business from Eversheds Sutherland (International) LLP.

(2) This figure is included in the income statement by subtracting cost of sales of £8.0m from gross revenue of £61.7m.

(3) Assessment of profitability has moved from PBT to PBIT as a better and fairer assessment of performance given interest income can fluctuate with changes in internal allocations of cash within the Group. Refer APMs on page 161 of the full annual report and accounts for reconciliation from statutory profit.

 

IPS Valuation

 

	2019 £000	2020 £000	2021 £000	2022 £000	2023 £000	2024 £000	5yr growth %
Underlying EBITDA(4)	11,515	13,335	15,369	16,588	17,625	18,594	61.5%
Multiple*	9.2	9.4	10.8	10.5	10.5	10.5	13.7%
IPS fair value (excluding surplus net assets)	105,938	125,349	165,985	174,174	185,063	194,505	83.6%
NAV adjustment: total value less net assets already included	91,860	112,407	135,885	148,376	160,836	187,395	104.0%

 

* 2024 is an implied multiple. Refer below for further details on the change in IPS valuation methodology for 2024.

 

(4) Refer to alternative performance measures on page 162 of the full annual report and accounts for reconciliation from statutory EBITDA to underlying EBITDA.

 

Investment Managers' Review

 

Investment Strategy

The investment approach adopted has not changed for many years, but it has hopefully been improved with lessons learnt. There is a relatively long list of stocks which allows for a blend of large, medium and small companies. There are overseas holdings where a similar company cannot be found in the UK market or the overseas company is cheaper. Over 80% of the portfolio is in UK quoted companies at present, as this is where we are finding superior value despite concerns about the UK economy. The belief behind portfolio construction is that genuine diversity in the holdings is how capital is preserved in the long term. We employ different approaches to how we look at potential investments. Around 50% of the portfolio is in FTSE 100 companies. These are we believe sound long term investments and they are often well-known companies that feature in other portfolios with similar objectives. However it is what you do differently to others that makes you perform differently. The structure of a cash generative operating company and an investment portfolio gives the opportunity to have a wider range of investments and still produce an attractive level of earnings. Therefore, unusually for an income growth trust there are investments that do not pay a dividend. Early-stage small companies and operationally challenged large companies feature. The small companies that succeed will give substantial returns, while large companies that have a recovery plan that they implement with determination will in time return to paying dividends at a considerably higher share price. The different strategies employed to look at companies results in real diversification of underlying operating activities. It does mean there are usually around 150 holdings and we do not go over 175. The absolute stock specific risk is relatively low compared to the index and the exposure to smaller companies has contributed, in the long term, to the better performance of your company.

 

Economic and market backdrop

The UK economy is suffering from a lack of productivity growth. The result of this is for the economy to register very little expansion and this in turn means the desire of the electorate for increased government expenditure in the major areas of health, education and defence cannot easily be met. The decline in gilt prices in the final quarter of the year likely reflects the concern over the level of supply that will be forthcoming in future years, rather than any immediate worries over surging inflation. However, the flat lining of the economy masks from top-down observers the reality that there are sound companies in the UK that are growing their profits and generating cash. This, when combined with over half the profits of UK quoted companies coming from overseas activities, means there remain plenty of good investment opportunities for those that pay close attention to companies and valuations, rather than being continually gloomy about the prospects of the UK.

 

Alternative Performance Measures	1 year %	3 years %	5 years %	10 years %
NAV total return (with IPS at fair value and debt at par)(1)	13.2	14.4	43.5	118.7
NAV total return (with debt and IPS at fair value)(1)	13.6	24.6	56.0	133.1
FTSE Actuaries All-Share Index total return(2)	9.5	18.5	26.5	81.9

 

(1) NAV is calculated in accordance with AIC methodology, based on performance data held by Law Debenture including fair value of IPS business. NAV total return with debt at par excludes the fair value of long-term borrowings, whereas NAV total return with debt at fair value includes the fair value adjustment (see page 159 of the full annual report and accounts).

(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.

 

One Year Performance Review and Attribution

2024 was a good year for the Trust, achieving a positive absolute return and outperforming the FTSE All-Share benchmark. We go into the stock specific drivers of performance below, but it is worth noting that three of the five best performers (Rolls-Royce, Flutter and Marks & Spencer) would have been challenging to hold in size in a traditional income-seeking fund. This is because Flutter currently pays no dividend, and while Marks & Spencer and Rolls-Royce have recently returned to paying dividends, they have done so in a relatively modest way, with dividend yields significantly below that of the wider UK equity market. It is therefore the income contribution from the professional services business that have allowed these positions to be held at substantial weightings, demonstrating the advantages of the unusual combined structure of the Trust.

 

The top five contributors to performance during the year (in absolute terms) were:

 

Stock	£ Appreciation	% Appreciation
Rolls-Royce	£24.3m	65.3
Barclays	£13.7m	72.3
Flutter Entertainment	£12.6m	58.3
Natwest	£10.3m	72.5
Marks & Spencer	£7.7m	35.1

 

Source: Law Debenture.

Note: % appreciation figures are share price only, not total return.

 

For the second year in a row, Rolls-Royce and Marks & Spencer were among the top five contributors to performance. In both cases the businesses have long had potential, and under refreshed management teams they are achieving successful turnarounds.

 

In the case of Rolls-Royce, one of the market leaders globally in jet engines, they have been helped by end market tailwinds, specifically a recovery in flying hours following Covid, as well as difficulties in supply chains for new build aircraft, meaning that older planes are tending to be flown for longer. This is of benefit to Rolls-Royce, where the majority of their earnings are generated from flying hours for existing engines, not from supplying new engines. As well as helpful end markets, there has been 'self help' with a renewed cost discipline and commercial focus. Following good performance the position was materially reduced during 2024, as the turnaround story is more widely appreciated and the valuation has moved higher.

 

In the case of Marks & Spencer, the food business had been successful for some time but the clothing business had been a drag, losing market share for a number of years. In recent years this has been changed, with a focus on more competitive pricing as well as a refreshed clothing offering. As a result sales and earnings forecasts have moved higher, as has the valuation on the shares. Therefore for the same reason as Rolls-Royce, the Trust's holding in the company has been reduced.

 

Also among the best contributors to performance during the year were bank holdings Barclays and NatWest (HSBC and Standard Chartered also performed well). In more 'normal' interest rate environments (by which we mean not the near zero interest rate environment that we saw in the decade following the financial crisis), banks can generate good returns on both sides of their balance sheet. In other words they can generate a return from their assets (their lending book such as mortgages, credit cards and commercial loans) as well as their liabilities (deposits from consumers and businesses). This has meant that since interest rates began rising in the period following Covid, bank returns have improved dramatically, resulting in substantial earnings upgrades. Despite higher interest rates, loan losses have (for now) remained subdued. In the period following the financial crisis, banks went through a slow process of repairing their balance sheets and, as a result, were cautious in their lending practises. While this cautiousness was not necessarily positive for the wider economy, it is evident in their low level of bad debts in recent years.

 

Flutter Entertainment, the owner of brands such as Paddy Power and FanDuel, have used their expertise built up in European and other global markets, to become one of the leading operators in the fast growing US gambling market. If they continue to be successful, as the US market matures, the potential earnings opportunity is substantial.

 

The bottom five contributors to performance during the year (in absolute terms) were:

 

Stock	Depreciation	% Depreciation
AFC Energy	(£4.9m)	(57.6)
Rio Tinto	(£4.2m)	(19.2)
Vanquis Banking Group	(£4.2m)	(68.2)
BP	(£4.2m)	(15.7)
Next Fifteen Communications	(£3.2m)	(55.1)

 

Source: Law Debenture.

Note: % depreciation figures are share price only, not total return.

 

In a subdued period for commodity prices, two of the bottom five performers were commodity producers (Rio Tinto and BP). Both are held partly for diversification purposes within the broader portfolio, as elsewhere we hold sizable positions in commodity consumers such as industrial goods manufacturers.

 

The largest individual detractor, AFC Energy, is a designer and manufacturer of hydrogen fuel cells in applications such as construction sites (with the aim being to replace traditional fuel sources such as diesel generators). Commercial roll-out of the technology has been slower than expected, however we continue to see their technology as having a role in the route to net zero.

 

Also among the detractors were consumer lender Vanquis and media agency Next Fifteen Communications. Both had unexpected external factors that materially impacted their earnings and share prices. Vanquis received a high volume of complaints which, although largely not upheld by the financial ombudsman, still carried a substantial cost of dealing with them. Next Fifteen had a large customer contract unexpectedly come to an end. In each case, while clearly disappointing developments, they demonstrate the importance of having a long, diverse list of holdings.

 

Longer term performance review

The understandable tendency in annual reports is to focus on the year that has just passed. However, our time horizon in making investments for this portfolio is considerably longer than a year, so it is sometimes helpful to take a step back and examine longer term performance.

 

On a five year time frame, the Group NAV has grown by 56%, compared to the FTSE All-Share benchmark of 27%. If we look at the stocks that are the largest contributors to this performance (the largest absolute contributors are shown below), the advantages of the combined Trust structure are clear. For example, Ceres Power, Rolls-Royce, Flutter Entertainment and Marks & Spencer are all low or zero dividend yield shares - all would have been challenging to hold in size in a portfolio that was aiming to meet or beat the FTSE All-Share dividend yield. All have delivered substantial capital growth that have allowed us, as positions are reduced, to recycle some of the sales proceeds elsewhere in order to drive future capital and dividend growth for the Trust.

 

The top five absolute contributors over the last five years were:

 

Stock	Contribution to return (%)	Share price total return (%)
Ceres Power	4.3	(34.7)*
Rolls-Royce	3.9	142.5
Flutter Entertainment	2.8	128.4
Marks & Spencer	2.3	78.2
Rio Tinto	2.0	60.5

 

Source: Janus Henderson Investors, Bloomberg as at 31st December 2024.

*Ceres Power had a negative share price over the five year period, but rose sharply during 2020 and we took substantial profits during 2020 and 2021, hence it has been the best overall contributor.

 

Portfolio income

The income from the investment portfolio grew at a modest pace during the year, rising from £33.5m in 2023 to £34.7m this year. Dividend growth for the market as a whole was held back by an increasing tendency among UK companies to undertake share buybacks rather than pay special dividends. The increase in buybacks is, in our view, a reflection of growing frustration among UK Boards at their (perceived) undervaluation relative to peers.

 

The modest level of dividend growth for the portfolio is partially deliberate, in that we are not actively seeking high dividend payers. Some of the best opportunities have been in shares that are not currently paying dividends, but we believe will in future. Examples of this are Rolls Royce and Marks & Spencer. The structure of Law Debenture, with its own stream of cash earnings from the professional services business, allows us to invest at the early stage of the recovery when dividends are not paid, without jeopardising the distribution payments to our shareholders. This means the capital can be more effectively grown and this in turn will lead to long term sustainable dividend growth. It is strong capital growth that is the only way to provide long term substantial dividend growth.

 

Portfolio activity

During the year our purchases and sales for the investment portfolio broadly matched. Combined with the rise in the Trust's net asset value, this meant that gearing fell modestly over the course of the year, ending at 10.9% (compared to 12.7% at the previous year end).

 

The investment approach is to buy and sell slowly. With purchases, we are looking to identify companies that are trading at what we view as an unjustified valuation discount (whether compared to relevant peer companies, or relative to the company's own history). If our investment thesis proves correct and a company moves higher in terms of its valuation, we will then look to slowly reduce the holding. This patient approach means the portfolio has a long list of stocks, because position sizes tend to start small and are then sold in increments. At the year end there were 151 holdings in the portfolio.

 

Turning to specific stocks, the largest five purchases during the year were new holdings in food retailer Sainsbury, fund manager group Schroders, autos component supplier Dowlais, copper producer Freeport-McMoRan and budget hotel operator Whitbread. There is no end market commonality to these companies. What ties the companies together is that all are well managed, with scope to grow earnings over time. In our view the current valuations fail to reflect the long run prospects for the companies.

 

Disciplined selling is a fundamental part of the Trust's investment process, and where valuations and/or earnings forecasts have moved higher as the prospects for a company have become better understood, we will gradually move on and rotate the proceeds elsewhere. This year the positions in Rolls-Royce (sales proceeds of £38m) and Marks and Spencer (sales proceeds of £14m) were reduced for this reason. There were also a number of sales driven not by valuation but by corporate activity, with heightened takeover offers for UK companies. This included the position in DS Smith (which was sold following the agreed takeover by US-listed International Paper), Hipgnosis Songs Fund (which was sold following the agreed takeover by Blackstone) and International Distribution Services (better known as Royal Mail, which was sold following the agreed takeover by private equity).

 

Outlook

Since the period end interest rates in the UK have been cut a further 0.50% to 4.50%. We expect further cuts during the course of the year as inflationary pressures in the labour market ease. Survey data is pointing towards an increase in unemployment which is likely to put downward pressure on wage demands. The fall in the base rate highlights the attractive valuation of UK equities. The underlying yield on the Trust's quoted portfolio of dividend paying equities is likely to be in excess of the interest rate during 2025. The dividends from the underlying holdings are supported by good earnings cover and sound balance sheets, suggesting that predicted dividend growth in the portfolio will prove robust. The confidence we have on the dividend outlook makes us positive about potential capital returns. Therefore we intend to be a net purchaser of equities over coming months, modestly increasing the gearing.

 

Your Company is an investment trust and utilises the strength of the structure by combining the professional services with the conventional share portfolio. The combination of the two parts adds value to both. The Trust also uses the investment trust structure to utilise gearing and the ability to buy less liquid securities where the best value can often be found. These attributes are advantages other investment products often lack.

 

The investment approach will remain the same as in the past. We will reduce holdings in companies that we believe are approaching fair value and invest in companies which we believe will come through with profitable growth which is not currently recognised in the valuation.

 

James Henderson and Laura Foll

Investment managers

11 March 2025

 

Portfolio by Sector and Value

 

Portfolio by sector
2024		2023
Oil and gas	8.8%	Oil and gas	10.3%
Basic materials	5.0%	Basic materials	6.0%
Industrials	23.0%	Industrials	25.6%
Consumer goods	8.4%	Consumer goods	7.8%
Health care	5.7%	Health care	6.0%
Consumer services	13.9%	Consumer services	10.4%
Telecommunications	2.2%	Telecommunications	1.9%
Utilities	3.5%	Utilities	3.1%
Financials	26.7%	Financials	27.4%
Technology	1.8%	Technology	1.5%

 

Geographical distribution of Portfolio by value
2024		2023
United Kingdom	87.6%	United Kingdom	88.2%
North America	5.6%	North America	3.2%
Europe	5.5%	Europe	7.4%
Japan	1.3%	Japan	1.2%