Law Debenture (LSE:LWDB) — Investor Presentation

0:01 Good afternoon, ladies and gentlemen, welcome to the LAW DEBENTURE CORPORATION PLC Investor Presentation.. Situated on the right hand corner of your screen. Please simply type in your questions at any time and press send. The company may not be in a position to answer every question received during today's meeting. However, the company can review all questions submitted today, and we'll publish those responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. I'm now allowed to

0:32 hand over to CEO, Dennis Jackson. Good afternoon. Great. Thank you very much, and thank you all very much for your interest in the company and and us today. I think the first thing that you need to understand... Many of you will, but some of you won't. But to understand about LAWDEBENTURE as an investment trust is that it had... Has two distinct but complementary parts. The first piece on the left hand side in the dark blue is the investment portfolio, which accounts for about 80% of our net asset value, which is co managed by Laura Follin, James Henderson, and Janice Henderson. Laura will speak a little bit later on on the ways that she constructs her her portfolio that has led to the outperformance of the index over time. On the right hand side, and this is the bit that makes LWDBENTURE unique, is the independent professional services business.

1:22 That That accounts for about a fifth of our net asset value, but crucially produces real cash profits that over the course of the last ten years have supported around a third of the dividend we've paid out. These real cash profits, if we can increase those over time, that allows Laura and James increased flexibility in portfolio construction, which we believe and history tells us produces material outperformance versus our benchmark. That's... The other thing to understand is that relationship is too wet. It's not just a case of independent professional services business or IPS proving... Increasing the flexibility for the investment portfolio. That works the other way too. When we're competing for business within the professional services business, we're part of a FTSE two fifty, £1,200,000,000,135 year old company. In the professional services space, and I'll get onto this in a in a few minutes, there are lots of either new companies or relatively poorly capitalized companies. So it's really helpful to us when we're competing for business to be part of this well well capitalized, independently governed company with a long track record.

2:34 So let's just delve into that into a little bit more detail. I'm gonna spend a few minutes now, five to ten minutes, just going through the professional services business before we hand over to Laura. So within the professional services businesses, we break that down into three buckets, our pensions bucket, our corporate trust, and our corporate services. I'm gonna spend a few minutes on this slide. But the thing to know about all of these businesses, all all of of these these businesses are built on independence and trust. All of the businesses have strong repeat revenues, so we think about two thirds of the revenues within these businesses taken as a collective are repeat revenues. And if you... Our results that we announced last Friday morning, we grew that by 8.8% in terms of our revenues in this business, and our profit before tax was up by 9.2% in that same period.

3:24 So I'll just drill into the the results in a bit more detail on the next slide. This is... Now I'm just... This is from an investment trust perspective. So this is talking about both IPS and the share share portfolio and the total return that you get. You can see that over one, three, five, and ten years for the period just ended at the end of June, we produce outperformance versus the benchmark over time. Ongoing charges ratio are very competitive in the sector. That's important for investors when they're looking to invest. You see that we charge 48 basis points versus an industry average about a 121. And the other thing to to bear in mind that our our dividend, which is actually a key part of our investment proposition, that was 32 p in 2023, and that was raised 4.9% over the course of the year.

4:16 So let's drill into the professional services first half. Our pensions business was up 4.2%. And so what what does that business do? So we act as a pension trustee. Many people on the call today either will be active through their pensions or will be saving for their retirement. We act as a pensions governance organization. So pension funds have to be administered in accordance with the scheme or governed in accordance with the scheme rules. And the good news is is the pensions regulator wants to see an increased professionalization of pension trustees. So we sit on the boards of a lot of corporate pension funds, and we make sure that the governance is carried out consistent with those rules. The other thing that we've started to do within that business as well is we've... We have a business that we call Pegasus where we organize those meetings. We take the minutes of those meetings. We do the follow ups and the action items. And if there are beauty parades, for example, for investment investment managers or advisers and so on, we we we provide that administrative support that that that they need. So you might look at that and think 4.2%, that's a little bit disappointing.

5:22 What you need to understand when you look at our pensions business is that grew in the first half last year by 23%. That was an outstanding period for us. Why was it an outstanding period for us? It was an outstanding period for us because in 2022, and particularly, if we remember the autumn of twenty twenty two, we remember the the the LIS Trust government. Interest rates backed up a lot in The UK. Inflation was going up around the world. That led to a repricing of pension assets and liabilities and actually improved the funding positions of many pension schemes in The UK. That was a call to action for them in 2023. If my deficit has reduced substantially, do I lock that in? If I've moved from a deficit to a to a surplus, do I lock that in?

6:10 So there was a big call to action last year and a... And an unusually large growth in that business. So we're delighted, actually delighted, to have grown that business by 4.2% this year because the long term growth rate we think for that business is in the mid to high single digits. So on the back of a 23% year, to have a 4.2% year is actually a really, really strong result. We're very, very pleased about that. And when we look forward in the pension space, obviously, we had a new chancellor speaking for the first time yesterday. New governments, they often look at pensions with the the pension space in The UK, and they see that's a place for them to create room within their fiscal planning. That fiscal planning has to be rolled out across the the pen... The pension scheme of state, and our role is to governance. It it... To roll out the... Whatever the laws of the government of the day. So it's been a great business for us. In the short term, it looks like, but but remember the comparisons. And in the medium and long term, we're we're super excited about the business.

7:12 The corporate trust business is one we've done for a hundred and thirty five years. This is where we act as... In in its simplest term, we act as a bridge between between the issuers of of bonds and the the people that buy the bonds, the lenders. And that business is a a very straightforward business. If if if the company is performing well, we act as a conduit for information between the two.

7:35 If things get stressed, then our job is to... And and some... And the issuer defaults, our job is to act on behalf of the bondholders to to maximize their their recoveries. And that can lead to a material change in our our our revenue profile. And for those that know the company well, if you go back to the global financial crisis, we don't we don't wish ill on any of our customers. But understand in two thousand nine, ten, eleven, there was an awful lot of defaults and restructurings on the back of the global financial crisis that led to a lot of incremental work for us. And in terms of where we appear in the creditor chain, HMRC is number one. The liquidator is number two. LAW DEBENTURE only needs to do work if it's indemnified or secured to its satisfaction. So it's number three in the creditor rankings.

8:20 So great repeat revenues in that business. And while we don't want things to get really nasty in our our economy, if they do, there's a a strong element of counter cyclicality within that business. Our corporate services business is a collection of businesses. I'm gonna... There's four businesses in there. It's our structured finance business, our service process business, our company secretarial business, and our safe call business. I'm gonna highlight just the last two in in the interest of time. Our COSEQ business is one where we we provide global management services. So imagine you're a corporate, like, in America. You have, say, a 150 subsidiaries in 24 countries.

9:05 You come to LAW DEB, and LAW DEB make sure that you're in good standing in all of those countries. We also do a lot of company secretary work in The UK, which includes actually sitting in meetings, minuteing those meetings, and at the higher end, actually providing advice as to governance changes that the board has to adapt and report in order to run its business in compliance with with with UK regulations. And the final piece that we do there is interim resourcing. There's There's a a large large market in compensating company secretarial services for interim resourcing on the back of changes in in in in demand that can be driven by a move to outsourcing certain functions, or it can be maternity leave or long term sick leave, that type of thing. So there's a there's a very good interim resourcing business. So in in... So the company secretarial market, we... In fact, in all of our markets here, we view all of these markets as growing markets.

10:04 Market share is relatively modest in most of them so we can increase our market share in growing markets. The last business I said I would highlight in the company secretarial... In the corporate services, I apologize, sector sector is our SafeCall, our whistleblowing service. So this originally started as a whistleblowing hotline. It's in the name SafeCall. But now 70% of the incoming issues that we get to raise are are are are digital. And what this business does, it provides an independent channel that sits around an organization for people to raise concerns. Again, the good news here is the regulators and lawmakers... And here, it it doesn't doesn't actually matter if it's the red team or the blue team or the green team or the yellow team. They're all looking to introduce whistleblowing laws and whistleblowing standards.

10:55 And there's a there's a a mass adoption phase, if you like, for taking up whistleblowing services that's taking place, not just in the year... UK, but really around the world. On a recent trip to Hong Kong, I was surprised at the the potential demand that there is in in Asia for this service too. So whistleblowing services originally originally just ingesting the the complaint and filing a report around that. But these days, we're able to expand our services into training. And we also... Where we have a particular expertise, we will will do do investigations as well. So just as Laura's gonna talk to a portfolio of stocks that we have, we have a portfolio of businesses here. And what we've been very focused on over the course of the last seven years is growing the capital in these businesses. And if we grow the capital and we think in the long term about the way that we invest every pound of our owners' money, then that gives us optionality around dividends. And if you look at the the the capital growth in this business, gone... That's increased by almost double over the course of the last six six years.

12:00 And most recently, was close to £200,000,000. And we... It's... The the number that's shown there is one eighty five at at the end of 2023, just over 2,000,000 at the half year in 2024. So that's the IPS businesses. And I think with that, our job, as I've discussed, generate real cash profits, grow grow them over time. If we do that, Laura has increased flexibility in portfolio construction. I'll hand over to Laura. Thanks very much, Dennis. I thought before I talk about how the portfolio is positioned, I would just briefly... And Dennis has touched on this already, but just cover again the combination and what that means for you as shareholders or potential shareholders. Because it is a very unusual structure, and the unique combination of the two brings both capital and income benefits. Let me explain what I mean. On the capital side, what having the IPS business in combination with the portfolio means is that me and James, so James who I run who I run the portfolio with, what it means is effectively on day one of any calendar year, we can turn up and know pretty much that we've got about a third of the income for the year in the bag from the IPS business. So the IPS business remember it's only 20% of the NAV, but on average it provides a third of the income for the overall trust.

13:23 So for us as portfolio managers, we're having to work less hard to get the income from the portfolio and that widens the investment universe for us. So whereas for a lot of UK income funds, you will see some quite familiar names in the top 10 or top 20 holdings. You think the likes of the tobacco companies, you the likes of the banks. We can hold those if we think they're good total return opportunities, but we don't have to hold anything. We can hold companies that have no yield at all or a very low dividend yield. And it's often been, if you look at say our five year numbers, it's very often been those lower yielding or indeed zero yielding shares that have been the best performance for this trust over the long term. So we feel we can quite clearly say that having the combined structures of having IPS and the portfolio has been the key driver or one of clearly one of the key drivers of that long term performance that Dennis spoke about. To give you a few stock examples, if you look at, say, our five year number, among the best performers have been the likes of Ceres Power, which is a hydrogen fuel cell company. That would be very difficult to hold in size in a traditional UK income fund structure.

14:33 The likes of Rolls Royce would be very similar. That's still in our top 10. It doesn't pay a dividend yield today. It may well in the next six months, but it will be a low yielding share, and it would have been hard again to hold in size within a traditional UK company structure. The other side of the same coin, if you like, is that we haven't had to hold those underperforming large cap companies. Again, we can if we think they're good total return opportunities, but we don't have to. So something like Unilever has been a big contributor to our relative performance because it's a big index weight that we hold in very small size and actually only very recently in small size, and it's not performed well over the long term. It might be changing now. That's why we brought it back. But over the long term, it hasn't performed well, and that's been of relative help to us.

15:22 So that's the capital side, and that's why the combination has helped on the capital side. On the income side, as I said, it provides about a third of the income. But where the IPS risk... IPS business really came into its own on the income side was during the COVID years when we saw big dividend cuts from The UK market and particularly the smaller mid cap end of The UK market, where dividend cuts were 50% plus. And that was really where where IPS, as as Dennis said, it has a defensiveness to it, has a repeat revenue element to it. That provided over 50% of the income in the worst COVID years. So there has been a benefit from the capital side and also on the income side from that combination. Turning now to to how we're positioned. I'm gonna talk about The UK economy, but let me explain why because there is a difference between UK equities and The UK economy.

16:14 The reason I think it's worth covering The UK economy is that we have been within this portfolio gradually increasing our exposure to domestic UK over a period of many years. What that means in practice is normally buying small and medium sized companies. The small and medium sized companies are on average more domestic for a very common sense reason that companies tend to focus on their domestic market first. So when a company first sets up, it focuses on its home market and then as it becomes the GSK of the world, etcetera, it tends to go overseas. So they start in The UK. The reason we've been buying UK companies as in domestically focused UK companies is we think that the the wider economy in The UK is better than is perceived. If you were to just read, say, Feet or the Times, you would think The UK economy is doing very poorly. Now I'm not gonna sit here and argue that it's growing growing 5%. Clearly, it isn't. But we think it's doing better than it's perceived.

17:12 And the reason for that, one of the reasons for that, is that The UK consumer is in better health than people realize, which is the top chart here. So you can see consumer debt, this is the red line, and consumer savings, the green line, over the period since the financial crisis. And what this chart is telling you is that over the last fifteen years or so, people have been gradually slowly paying down debt, red, and building up savings in green, to the point where they effectively meet each other during the pandemic because the furlough scheme, etcetera, you know, the the recovery schemes during COVID gave people in The UK a savings boost. Now in The US, they took that savings boost and they went out straight away and spent it. But in The UK, people squirreled away, for want of a better word, their savings. The savings ratio picked up a lot. It's actually... Even now, The UK savings ratio is above where it would be on average.

18:07 So people have taken that boost, but they've effectively withdrawn it from the economy. So you could think of the economy as being on a healthier foundation, if you like, when it comes to consumer balance sheets than is widely perceived. All of these numbers are on average. You we've got to say that there will be people in a very difficult position and people in a very affluent position. So this is always an average, it's not any individual person. But this is a healthier position than, say, The States, where the savings ratio in The States is lower than it would normally be. But what has to happen in The UK, you know, for this benefit to be felt, people need the confidence to go out and spend that money, which is the second chart, which is consumer confidence over a reducing period of time. And you can see that consumer confidence has been pretty weak.

18:55 It is now recovering.

18:57 So consumers have the money, but they just need to to have the confidence to go out and spend it. But that's better place to be than consumers with with a lot of debt. They need to go through what The UK consumer has already gone through in terms of that deleveraging. So we've been buying... If you if you, you know, want some stock specifics, we've been buying, like, say, Darnell in The UK, which consumers have been pulling back on things like furniture spending. But Dunelm is a very well managed UK retailer. It specializes in good value, not necessarily cheap, but good value furniture, home furnishings. And that could be a potential beneficiary if consumers did have the confidence again to go out and spend. If I switch to UK equities, this portfolio, so remember this is 80% of the trust NAV, within that portfolio is 90% roughly invested in UK equities.

19:49 That would be a higher percentage weighting in UK equities than it has been for some time. We have sold down, for example, The States, and I can talk about that more if people are interested, to fund UK equities. UK equities are at a historically high valuation discount compared to the rest of the world. That's what this chart is trying to say. So this chart is saying over a long period of time, almost thirty years, where do UK equities trade in a valuation with USP, it's a pretty simple valuation metric versus the rest of the world. And what the chart shows is that UK equities often do trade at a valuation discount of about 15% or so. So you can see it normally trades about naught point eight five of the rest of the world. At the moment,

20:33 it's trading at an almost 40% discount compared to the rest of the world. And and no prizes for working out the point at which the valuation discount emerges. You can see mid twenty sixteen. We all know what happened in mid twenty sixteen. That's when the valuation discount arise, and it has been very persistent ever since. And this is where the valuation opportunity, in our view, arises effectively at the point of Brexit, a higher risk premium, for want of a better word, gets put on UK equities because of an uncertain trading relationship with our largest trading partner and because of a political instability pre... Risk premium, if you like. And the question is whether that's still justified based on company fundamentals and based on economic backdrop. We don't think it is. We think UK equities are a valuation opportunity.

21:25 That's why we've got 90% of this portfolio at the moment invested in The UK.

21:32 And just a word on why valuation matters because I find that what I often see my... Me and my peers talk about valuation and sometimes it's good to remind us of why does valuation matter. This chart on the right hand side is each each dot is a single year going back to the nineteen seventies and it says, okay, if you start, you're starting PE, again, just a simple valuation tool on the x axis and you draw up on the y axis to your real, so adjusted for inflation, return per year ten years later, what you get. And what it's trying to show is that if you start at a low p, low valuation, history suggests, it's not always the case, but history suggests you will make a better real return per year ten years later. So let me give you an example. At the moment, this portfolio is on roughly 10.7 times earnings, forward earnings.

22:26 So if you take the graph and you sort of try and draw up, that would suggest that, you know, the worst year at about that valuation, you've probably made about 4% real return per per annum. But the best year you've made looks like 14% or per year. Remember, this is this isn't cumulative.

22:44 And The UK market isn't isn't too dissimilar to that actually. The UK market's on 11 times. We're on 10.7 times. That would suggest, historically, you'd be happy. You'd probably be happy with 4% real per annum. That... That's not a bad outcome. Now take just an example. Again, this is history. This isn't forward looking, but The US market. I was looking today on my Bloomberg screen. The S and P this morning was on 22 times earnings. If we draw up from 22 times earnings, there's not many data points at this point. That's that's quite high valuations. There's not that much to go off, but 22 times would suggest you're probably somewhere between naught and 2% real social return per annum. Again, this is history. You don't know what's going to happen, but history would suggest valuation does matter. The UK valuation where it is now would suggest that there's some pretty attractive total returns to be made,

23:34 maybe less so for some some differently priced markets. So that's the positioning. Just to sort of summarize that we think The UK economy is performing better. That's why we've we've been moving towards domestic UK, and that's why we're 90% invested in UK equities at the moment. I just wanted to drill down a bit into where specifically we're seeing the opportunities. That's all been quite high level up to this point. We have been buying what we would class as domestic economic recovery for the reasons I spoke about in terms of the wider macro backdrop in The UK. To give you some stocks aside from Dunnell, which I mentioned, the likes of Marshalls, I'll cover in a bit more detail in a sec. That's building materials, paving stones, that kind of thing. Shaftesbury, we've been buying in the property space. That's that's mixed use property in the West End.

24:19 I think Soho, think Carnaby Street. Just over a percent of the portfolio now. ITV is another one, again, roughly a percent of the portfolio. Free to air TV, and what's probably less widely recognized, a big global production business that they call the studio side, that's over half of earnings. We've also been adding to world leaders, not Rolls Royce, we're actually trimming Rolls Royce. I'll cover that in a sec. But the likes of Ceres Power, which is the company I mentioned, which is the top contributor over the last five years. That's hydrogen fuel cells. There are companies in The UK that are world leading in what they're doing. Again, you wouldn't necessarily pick that up from from the press or reading the Feet, But Rolls Royce, you know, we can talk about the valuation of it, but it is undoubtedly one of the world leaders in jet engines, one of the world leaders globally.

25:10 We do have technology companies in The UK, not Microsoft. You have to look a bit harder than that. But that that technology is here. You just have to go after a slightly different type of company. And then just in terms of... You know, I feel we and other UK fund managers are often out there at the moment saying there's a value opportunity here, and we all sound quite similar. But it's not just us that are noticing the value opportunity. The level of takeover activity that we've seen in the first six months of this year, not just in this portfolio, but in the wider UK market as well, is quite extraordinary and is something... Is is at a level that I haven't seen before. So just to give you a few examples from this portfolio. In the first six months of the year, we saw bids for IDS, better known as Royal Mail, GS Smith, which is a packaging company, Hypnosis Songs Fund, which is a music royalties fund, and then we had rejected bids for Anglo American, big mining company, XP Power, which is a small industrial, and Direct Line.

26:14 So we had six bids, three that went through in a six month period. That is extremely unusual. I've never seen that before. And we're seeing the bids in... So we've seen bids in small cap for quite a while, but increasingly, the companies that are being bid for are now household names, like Royal Mail. So we've really seen it move up to market cap scale in the last couple of months. I'm going to focus on two individual stocks to give you a feel for the types of companies that we're going after. Just bear in mind that these these two companies are two of a 150 stock list portfolio. And so what I don't want people to do is go away and think, oh, we've got 10% of the funding in Marshalls or that we're running it in any kind of thematic way because we're not. But hopefully, these two companies give you a flavor for the types of things that we're looking for.

27:03 So Marshalls, paving stones, building materials, you can see a nice example here of of paving stones. It's used for commercial purposes as well as residential. You and I could buy it for our patio, because it's also used on Oxford Street, etcetera. It's it's had a tough time. So we've been buying in... Into it on a tough time for their earnings. House building volumes have been weak. I mentioned consumer confidence earlier. Consumer confidence has had quite a big impact on demand for their products because it's... You know, a new patio is probably something you can defer for a couple of years. If you decide you want to rein back your spending, you might not need a new patio right now, and Marshalls have suffered from that. So they've seen their earnings almost half because of that volume drawdown you can see here on the slide. Your volumes are down about 30% from 2019 levels, and that's that's had a really big impact on their earnings.

27:57 But there's no reason demand for that can't recover. This isn't... I mean, what's quite nice about something like Marshall's is that there's no AI. There's no structural disruption here. We will need paving stones again. Even I can work that out. The people will need patios at Oxford Street. We'll need repaving. That demand will come back. And when it does, Marshall's is one of the market leaders. It's very well managed. It should see that earnings drop through coming. And actually management make it nice and easy for people on our side of the fence because they've gone through a scenario analysis in their investor presentation, in their guidance to the market that says, if volumes come back 20%, so not even going back to 2019 levels, which, by the way, was not a particularly stellar year anyway, the earnings can more than double from the roughly 15 p per share that they're guiding to for this year. So they're talking about earnings possibly going 30 p plus once you get that volume recovery coming back.

28:54 So this is the kind of... We think about what we're looking for within the LWDBENTURE portfolio, the investment side, kind of 80% of the NAV that's on the investment side. We're looking for companies that are market leaders, which... Of which Marshalls is one, that's well managed, we think it's well managed, but that is out of favor for some reason. And you could argue that's the case for most of UK equities, to be honest, at the moment. But for for Marshalls in particular, it has had end market weakness that we think will end up being temporary. But that's why it's out of favor at the moment. It might, by the way, be changing. You know, something like Marshalls has done well in, I mean, you're talking now on a one month period in July under a Labour government, and Dennis mentioned the new government, Labour have been very clear that they want to get building again. They want house building volumes up. So something like Marshalls has done well on a one month basis on that view that house building volumes may well recover in the coming years.

29:52 We turn now to Rolls Royce. Rolls is roughly 3% of the portfolio. It's still one of our biggest holdings, although we have been reducing it quite materially in recent months. Remember, this is the Rolls that produces jet engines, not the Rolls carves. That's a completely separate company. So Rolls makes wide bodied jet engines. It's a razor blade model. If you know what... Not sure what I mean by that, they don't make much money. They don't really make any money when they sell the engine itself. They make the money through spares. And the longer these planes are in the sky and needing more and more work done, the better. So if you saw, for example, Airbus, which is one of the big OEMs, the big manufacturers of planes, had a profit warning recently because they can't get the the bits of the supply chain to get the new planes in the sky.

30:40 The Rolls, you know, they they wouldn't come out and say, but that... That's actually good because all of the planes already in the sky need flying for longer, which means more more work, more spares for rolls and the the engines that are already up in the sky. So they've actually had a bit of a tailwind from that difficulty of getting new planes built. And at the same time, people are are still flying. Post COVID, there's still a bit of a a recovery tap in in travel, and rolls are are taking a lot of cost out. It's something that... It's a company that historically, under a different management team, has disappointed sometimes on the amount of cash that they've managed to generate. Under a new team, they're very focused on cost. They're very focused on pricing. And you're starting to see that come through in the results and in the cash that they're generating.

31:28 To be clear, this is one that we are taking a bit of profit on. The shares have moved a long way, both in terms of valuation, but also expectations in the market for it. So we are moving on because even though it ticks our boxes in terms of being market leading and being well managed, I think it would be hard to say where it is now that it's out of favor because sentiment has moved quite quite a way on it. And it is now much more well loved than when we were initially buying and adding to it.

31:59 If we switch to where we're reducing, it's it's often an area that fund managers talk about less. We like to talk about our sort of shiny new buy buy idea rather than where we're reducing, but disciplined selling is a very important part of the investment process as well as new ideas. And we... You know, James and I are sort of unashamedly valuation driven. And if a company reaches what we think is the right valuation or possibly a valuation that incorporates quite a lot of blue blue sky, then we will happily move on. And we have moved on from the majority of our US holdings. We currently have only about three and a half percent of the fund invested in The US. That's a long way down from where it's been in recent years.

32:45 We sold the likes of Applied Materials, for example, the likes of Caterpillar. We've been moving that money back towards The UK. That's really what's funded that additional, you know, that 90% weighting in The UK has largely come from The States. There have also been some UK companies that we've reduced, likes of BAE Systems. The the defense backdrop is very meaningfully changed. And something like BAE Systems has seen that reflected in its share price. BAE Systems, you know, for a long time was on a high single digit, low double digit earnings multiple. It's now on almost 20 times earning. So we've reduced something like that a long way. We are adding to others in the defence sector. It's not that we're negative on defence. We've been adding to the likes of Babcock, for example, in its place.

33:31 So there disciplined is selling process as well as new ideas that come in. Just to conclude, and then we will happily take some questions. I can see that we've got some already. This structure is very unique, And as portfolio managers, it's really our job to take the most advantage we possibly can of that very unusual structure and invest across the breadth of the market. At the moment, we're seeing most of those opportunities in The UK market, But in future, you know, we can broaden that out. There there are plenty of opportunities, and let's let's go to questions. So my suggestion That's great. I say my suggestion, Laura, would be that I take a couple of questions that are on here that it... There's one on dividends and one on corporate trust. What do you think should... Others, if that makes sense.

34:24 So one one of of the the questions that we've got here is how confident is the board in maintaining or increasing the total dividend in 2024 given the current economic conditions? So so what we've... What we stated and stated in the half year we we... Report we just put out was that the board's current intention to recommend recommend that the total dividend in relation to 2024 maintains or increases the 2023 dividend of $32.32 pence per share. And, obviously, our shareholders will be asked to vote on the final dividend in in in in March or April 2025. The reason why we make up the decision on the final dividend then is because that's the appropriate time. In the time being, what we do is we take the 32 p from last year, divide it by four. So eight p eight p eight p, and then the final. But the question is if... I'm not gonna commit today to anything more than what we've written in the half year, which is it's our intention.

35:18 If 2020 teaches us anything with COVID, we know quite sure what's what's around the corner. But we do have a good reserves position, and we've had a very good first half year. Second question I was gonna address on here is how do you see the demand for the corporate trust services evolving? Well, I think if we look at our traditional business... Now, obviously, I spent some time talking about what... How countercyclical that is. So, again, we don't know if that's gonna happen. We don't expect it to. Economists are not predicting it. But if things got really tough, big sat... Countercyclicality. Away from that, if we look at new issuance in in in the bond market, that's picking up off a very low base. So 2023 was a really bad year for new issuance in in debt capital markets. It was the weakest year since 2014, so the weakest year in the last 10.

36:07 That market has grown a little bit in the first half, so European DCM issuance was up about 16% off a low base. But the exciting thing there, when we look at '25 and '26, sometimes you have to look back in history to look forward. Five years ago, it was 2020, 2021. What happened during COVID is central banks around the world and governments around the world made sure there was a lot of money pumped into capital markets. So there's actually really high levels of debt issuance in twenty twenty twenty and 2021. Varying maturities as always, but the most popular maturity was five year. So there's an awful lot of refinancing of of issuances in 2020 and 2021 that we should see in 2025 and 2026.

36:52 On a look forward basis, we're coming off the back of a couple of weak issue... Weak... Weaker weaker years for new issuance. We expect that to improve. Another thing I've just drawn out is Laura spoke in there about how much m and a she'd seen within our portfolio, and I think she called it highly unusual and sort of record levels. That helps an interesting product that we have. We have an escrow product built around independence and trust like all of our other products in in in our stable. But what happens in an escrow? Most of us are exposed to that when we buy a house. When we buy a house, it used to be certainly that you'd send your money to the lawyer, you'd send your documents to the lawyer, and when both the lawyer was happy that everything was in a good place, they'd complete the transaction. We don't do that for houses, but we might do it very well for a business.

37:40 So in an m and a transaction, we do actually do hold proceeds for very significant m and a transactions. And quite often in an m and a, there'll be a holdback. So a percent... A percentage of the of the of the purchase price will be held back potentially for a period of years subject to certain conditions being satisfied. So that's an example of where we've taken a very old fashioned product. And by raising our profile in in that marketplace, we're able to increase our revenues. We can also do that for litigation. Litigation is a growing market where people have to put pools of money that get distributed over time. They need that independent trusted middleman. That's our role. So the escrow market is is another way that we can grow that business. But the core market built built around bond issuance, off a low base, we're hopeful that when we look at the next few years, we should be in a in a stronger place.

38:31 So perhaps I'll hand over to you, Laura, for some of the other questions. Okay. I'll take some of the questions. We've got one here from from Terence. He says that that the valuation chart that we gave from JPMorgan

38:41 of MSCI World versus UK valuations, is that relevant if you take out the top five US tech stocks, which is a very important answer the question. There is still a valuation discount if you adjust for that. On a sector adjusted basis, there's more like a 20% discount for the... For UK equities relative to the rest of the world. There are a few sectors in The UK where The UK actually trades at a slight premium. So for example, in health care, because Astra is one of us the biggest U... Health care weight, Astra actually trades at a valuation premium to much of the the global health care sector. So there are the odd sector here or there where UK equities actually trade us at at a premium, but it tends to be down to individual stocks like Astra.

39:32 Yes. So even if you strip out the tech stocks, there is still a valuation discount. It's more like 20% rather than the 35, 40% in the chart. So it is still relevant, but it's it's a very good point and right right to call it out. And, you know, US tech stocks are not something that we are invested in and not something that I would have a a super strong valuation if you want, but it's but it's an important question to ask. We've also got another one from Gary that says, given the portfolio's overweight position in small and medium sized companies, how do you assess the associated risk and potential returns? And the answer is really the same way as we would assess large cap companies as well. So let me let me give you a sense of it. So the the spheres that we look at are really valuation, fundamentals, and financials. Again, let me just tell you what I mean. So in terms of valuation, at the point where we're buying these companies, we're often buying or almost always buying where they're at a valuation discount relative to their history and or ideally both relative to their peers.

40:35 We're looking for companies... If you think about fundamentals, we're looking for companies that have more often than not, they will be the market leaders either in The UK or globally. And we have confidence in the management team. And then finally, the financials, things like where are operating margins? Where could they go? Where's the balance sheet? Is it in a good place? So let me just give you one recent example to sort of put it in context. So something like Smith and Nephew, we've recently been adding to. It's a medical device company. It's UK listed. It's a evaluation... It's it's almost the lowest valuation that it's traded on over a very long period of time. It's at a big valuation discount to itself and to its peer groups, so US medical device companies, for example. It's got a new management team, a new CFO, for example, from WPP, who seems to us to have the right focus in terms of generating cash. Historically, they've had a lot of restructuring charges.

41:30 So it fits management. It fits... It's a market leader in what it does in things like wound care, in orthopaedics, but one of the market leaders in orthopaedics. And in terms of financials, it doesn't have balance sheet strategy, etcetera. So these are the types of criteria that we're looking at. Sorry. That's a long answer. There's not any one thing. There's lots of different things that have to line up for something to be considered, and it would be a a similar list of considerations on the small and mid cap and large cap side. I hope I hope that helps and answers the question. There was one more question on dividend reserves. So dividend, that 32 p, amounts approximately £40,000,000, and we've got around about £40,000,000 worth But in order... So about one year's worth.

42:18 But in order for us to do that, we've got to make zero income. And just understand that in the first six months of this year, if you put the portfolio income together with the net income from the professional services business, that was about £24,000,000 for for the first six months of this year. So it'd be very unusual for that number to be zero.

42:38 That's great. Dennis, Laura, thank you very much indeed. You've taken the the questions from investors this afternoon. Afternoon. If any further questions do make themselves present, we'll let you know post today's meeting. Dennis, Laura, I know investor feedback will be particularly important to you both. I'll shortly redirect those on the call to give you their thoughts and expectations. But perhaps before doing so, Dennis, if I may, just come back to you for a couple of closing comments. Yeah. Look. Really appreciate everybody spending the time on the hottest day of the year. Hopefully, you've got somewhere nice and cool that you've been watching this. But, look, we're very excited about our business. It's a unique structure. In terms of the way that we're looking to grow it over over time is we want to grow our business by investing in it and grow our earnings consistently within our professional services business to allow Laura and James that increased flexibility to construct their portfolio, which we believe produces material outperformance versus the benchmark over time. So if you've got other questions you want to engage with us directly, please do. But thank you again for your time and interest today.

43:37 That's great. Dennis, Laura, thank you once again for updating investors. If I could please ask investors not to close the session as we'll now automatically redirect you for the opportunity to provide your feedback in order management can really better understand your views and expectations. This may take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the team from LAW DEBENTURE CORPORATION PLC, we'd like to thank you for attending today's presentation. Good afternoon to you all.