Law Debenture p l c : 2023 Annual Report and Accounts to supersede the previous version

UK Equity Income Sector

Investment Trust of the Year

UK Equity Income Sector

Investment Trust of the Year

Law Debenture named winners of the Investment Company of the Year Awards 2023 - UK Income category, for the third year running.

At the Investment Week 25th Investment Company of the Year Awards, in association with the AIC we were thrilled to, once again win this UK income category. The awards recognise managers in this important part of the market, who have delivered consistently for investors across a variety of sectors."

Denis Jackson, Chief Executive Officer, Law Debenture

The shortlists for the awards were constructed using scores provided by the AIC, using Morningstar data. Investment companies needed a three-year track record to 30 June 2023 to be shortlisted and a market cap of £50m or above.

CEO Denis Jackson pictured collecting the Award at the Investment Week award ceremony.

Law Debenture wins the AJ Bell Investment Awards for the second year running.

Law Debenture has been named winner of the AJ Bell Investment Awards in the Active - Income category. Great recognition for our investment trust and the wider LawDeb."

Trish Houston, COO, Law Debenture

Photographed with the Award, our COO Trish Houston and CEO Denis Jackson.

For more information visit our website: https://www.lawdebenture.com/investment-trust

A T A G L A N C E

We believe Law Debenture has a highly differentiated and unique business model

AT A GLANCE

Portfolio

c.80% of NAV*

including IPS and long-term

borrowings at fair value1

Managed by James Henderson and Laura Foll

of Janus Henderson

Independent Professional

Services (IPS) business

c.20% of NAV*

including IPS and long-term

borrowings at fair value1

OBJECTIVE: LONG-TERM CAPITAL GROWTH IN REAL TERMS AND STEADILY INCREASING INCOME

-  Focused on long-term returns

-  Low ongoing charges ratio at 0.49%2 compared to industry average of 1.20%3

-  Contrarian investment style:

PENSIONS

The longest

established and

one of the largest UK providers of pension trustee services

CORPORATE

TRUST

1. leading independent corporate trustee across international

capital markets

CORPORATE

SERVICES

Range of

outsourced solutions to corporates internationally

•  High quality companies with strong competitive advantage at attractive valuations

•  Out of favour equities standing at valuation discounts to their long-term historical average

-  Selective, bottom-up approach

-  Diversified portfolio by sector (predominant UK weighting)

INTERNATIONAL PRESENCE:

United Kingdom, New York, Ireland, Hong

Kong, Delaware, Cayman Islands and

Channel Islands

We believe that all divisions have potential for further growth in expanding markets.

Our plan to achieve this is by increasing our market share through better leveraging of technology, our strong relationships and our brand

Key statistics

for the year ended 31 December 2023

8.1%*

Share price total return

(2022: 0.4%)

1.2%*

Average premium in share price versus NAV

(with debt and IPS at fair value)

in 2023

0.49%2*

Ongoing charges ratio

• compared to industry average of 1.20% (2022: 1.04%)

(2022: 0.49%)

4.9%

Proposed increase

in 2023 dividend per share

(2022: 5.2%)

AT A GLANCE

9.4%1

Growth in Net Asset Value - including debt

and IPS at fair value total return

(2022: 0.6%)

Total Net Assets per statement of financial position percentage increase of 6.9% (2022: decrease of 9.08%)

10.5%

Growth in IPS profit before tax

(2022: 8.1%)

8.7%

5 year compounding annual growth rate

in IPS profit before tax

101.9%3

Increase in IPS valuation

from 2018 to 2023

135 years of history

Long-term track record

of value creation for shareholders

Strength and

diversity of income

Flexibility and valuation uplift from IPS + consistent portfolio outperformance

Consistent

dividend

growth

45 years of increasing or maintaining dividends to shareholders (113% increase in dividend over the

last ten years)

7.9% CAGR of dividend over the last 10 years

4.9% increase in 2023 DPS

(2022: 5.2%)

c. 39% of total 2023 (2022:

25%) dividend funded by our Independent Professional Services business

IPS enables

greater flexibility in Portfolio holdings

IPS accounts for c.20% of the

2023 NAV but has funded c. 34% of dividends over the last 10 years

Portfolio differentiators:

• 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

Chairman's statement

Performance

Law Debenture has again performed creditably in the face of macroeconomic conditions which continue to be challenging for many consumers and businesses alike. 2023 saw global interest rates continue to rise to levels that are above those experienced for the majority of the period post the global financial crisis of 2008/09. Equity markets have also had to contend with global economic uncertainty, relatively high levels of inflation, combined with the ongoing war in Ukraine and the Israel/Palestine conflict, all of which has resulted in ongoing market volatility. Nonetheless, the combination of our diversified Portfolio and another good 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. 48%. I am proud that Law Debenture has been a leading performer in the UK Equity Income sector over the long term, which reflects well on the hard work of our investment managers and talented employees.

Our benchmark, the FTSE Actuaries All-Share Index, delivered a 7.9% total return in 2023. The Company's share price total return marginally outperformed this with a total return of 8.1% for 2023. The Net Assets Value ('NAV') with debt and the independent professional services ('IPS') business at fair value delivered a return of 9.4%.

We were delighted to receive recognition for all the hard work of our great team of people in the shape of two awards. At the 2023 Investment Company of the Year Awards in November, in association with the AIC, we were named winner in the UK Income category for the third year running and in the Active- Income category for the second year in a row at the September 2023 AJ Bell Investment Awards. The continued success in industry-leading awards demonstrates the excellent short and longer-term track record of our investment managers, supported by the IPS business.

Dividend

We retain a proud record of increasing or maintaining our dividend payments for the 45th year in a row. The current climate has naturally affected yields from our Portfolio, and it is likely that the enduring impact of the past year's difficulties will continue to affect dividend flows. However, the consistent and reliable cash flows from our diversified IPS business have helped ensure that we can continue our strong dividend record. Subject to your approval, we propose paying a final dividend of 9.125 pence per ordinary share. The proposed 2023 dividend is fully covered by retained profits earned this year, with no requirement to call upon reserves.

The dividend will be paid on 11 April 2024 to holders on the register on the record date of 8 March 2024. This will provide shareholders with a total dividend of 32 pence per share for 2023, an increase of 4.9% compared with 2022. This represents a dividend yield of 4.1% based on our closing share price of 778 pence on 23 February 2024. Over the last 10 years, we have increased the dividend by 113% in aggregate which ranks Law Debenture very high versus its key sector peers.

Capital structure

In 2023, the Group issued 3.0 million new ordinary shares at a premium to NAV, to existing and new investors, with net proceeds of £24.2m to support ongoing investment. Shares were issued at a premium to NAV to be accretive to existing shareholders.

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 £33.5m from the Portfolio was slightly lower than in 2022. This was driven by a combination of factors but most influential was a reduction in special dividend income in 2023. However, it is pleasing to report a total capital profit for the year of £31.7m. Of this, £37.4m relates to 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. Pages 17 to 20 offer more detailed commentary on the Portfolio's performance with a review from our investment managers.

IPS

We believe our professional services business has been a crucial differentiator in driving consistent long-term outperformance compared to other UK income funds and, the Board believes, is well positioned to continue this, with a strong platform built in recent years from which to grow further. Although accounting for only c. 20% 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 profit before tax of 8.7% 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 pleasing to see IPS continue to show robust overall growth. Some of our businesses benefit from a degree of counter- cyclicality, which is in part, why IPS had another year of creditable profit growth. This is underpinned by our specialist knowledge and record of providing excellent client service. Pensions recorded the highest revenue growth rate in 2023 but there is good momentum and grounds for optimism in a number of other areas. 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.

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.

In 2023, we were ranked 1st in the Financial Services and 2nd overall amongst the FTSE 250 in the FTSE Women Leaders Review for the second consecutive year - 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.

We were pleased to host an expert panel in December alongside FTSE Women Leaders Review and INSEAD Alumni Balance in Business Initiative. Our panel chair, Avivah Wittenberg-Cox, and speakers, Fiona Cannon, OBE, Sarah Findlater and our CEO, Denis Jackson, shared practical guidance around how they have made change within their organisations, what has worked, and what hasn't.

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 56% of the senior 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 51.

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 49.

The Board

Tim Bond will retire from the Board at the close of the 2024 AGM having served nine years. We thank him for his invaluable contributions over the years and wish him the best for the future. At the same time, we welcome Maarten Slendebroek who has extensive experience in financial services, including as CEO of Jupiter Fund Management for five years from 2014 until 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.

Looking forward

The end of 2023 brought some tentative optimism from investors that inflation and the cost-of-living crisis will be at less elevated levels going forward. This improved equity market backdrop still has, however, to contend with interest rates that look likely to stay at significantly 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. James and Laura 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 gloomy UK economic environment. Law Debenture is well positioned with a long-term focus and a clear emphasis on the value provided by the companies we invest in.

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 significant. During these uncertain macroeconomic times, our consistent delivery has only been possible due to the good 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

26 February 2024

STRATEGIC REPORT

Introduction

2023 has been an encouraging year overall for Law Debenture, despite continued macroeconomic

uncertainty. Elevated levels of inflation and interest rates proved to be challenging for many consumers and businesses alike. Despite this, Law Debenture's overall performance reflected well on the Group's ability to adapt to a changeable economic climate and navigate short- term headwinds. We delivered on our two main objectives, producing NAV growth and continuing to increase income for shareholders. Our total share price performance and NAV modestly outperformed the index again, we are proud to have had our 45th year of maintaining or increasing dividends.

In this context, James Henderson and Laura Foll 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 the size of our market capitalisation.

James and Laura 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 UK Income category at the Investment Company of the Year Awards 2023, for the third year running, and the Active Income category at the AJ Bell Investment Awards.

Our IPS business has delivered its sixth consecutive year of middle to high single digit revenue and profit growth. The economic backdrop over this extended period has been volatile and generally uncertain, which makes IPS's performance all the more noteworthy. The Group takes considerable pride in IPS's strong and consistent record with a five-year CAGR in PBT of c. 8.7%.

IPS business net revenues (gross revenue less direct costs incurred) for 2023 rose by 11.8% to £50.5m (2022: £45.2m) and profit before tax was up 10.5%. The diversification of our income streams again served us well, with Pensions an especially strong performer. 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.

We have placed significant focus on cash and debtor management within our IPS business. The benefit of this

has been magnified as a result of the change in the interest rate environment, meaning that the cash we hold in IPS has generated a good return for our shareholders. Overall, we continue to target mid to high single digit growth in profit going forward.

For 135 years, we have stuck to our principles of independence, trust and excellence. Our investment for growth over the last six years has positioned us well for the future. I am encouraged by the new business wins in 2023 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 2024, 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.